The Investor's Podcast on $NVO (Oct 31, 2026)

So my pick today is one of those companies which two years ago was the most valuable company in Europe. And pretty much everybody owned it. I don't know whether you owned it Stig, but pretty much a lot of people, a lot of ETFs, a lot of funds owned this company.

The analysts really loved it. But today that stock is down 40%. And from its 52- week high and it's trading roughly around 12 times forward earnings and basically everybody's saying parties over here.

The company I'm talking about is Nova Nordisk. Um it's a Danish company. Uh the ticket symbol is NVO. It's the maker of Ozic and VOVI. But the reason I like this pick or I I'm pitching it is it's a company that's 100 plus year old. Great business.

I wouldn't call it as a deep value. I'm I'm pretty sure Toby will disagree that this is a deep value, but it's a good business at a a price that assumes that it's a melting ice cube.

So just for background for those of you who don't know what is Novo as it's known uh has been updetics therapeutics for over 100 years. One of the things to note is this is one of those companies like many of the European companies it's controlled by a foundation. So that makes the dynamics a bit different.

It's almost like say meta where or Google where the founders have the majority of the voting rights here the foundation has. So it gives the staying power it gives the long-term thinking but then also it has the risk that no activists or shareholders can change the direction. So that's the positive and negative.

In the past say from 2021 to 2025 their sales compounded about 19% a year kagger and earnings also about the same rate and their current operating margin or I would say current operating margin has reduced uh it used to be like in the 50s now it has kind of you know reduced to 40%. but is still healthy compared to many other competitors.

And I see it as a company that's mainly focused on obesity and diabetes. They have been making insulin drugs for a very long time. But their obesity drugs are the one that are uh catching a lot of attention in the past few years.

So they were like the leading there were the creators of this category the GLP1 drugs. But why is it cheap now? Mainly because of three reasons.

the second thing is the Medicare negotiated prices are kicking in starting next year. So that might put some margin pressure and the semi glutide patents which are all kind of diabetes and weight loss related drugs they all expired in India, China, Canada, Berezil and other countries.

So you can expect that generics will show up soon. So that's the other margin pressure they might be facing in the near term.

And the third is the the company itself guided down the sales and so it's like down up to 2030. They're working on their pipeline but right now that's the risk that by 2030 if they don't have some of the pipeline that they are hoping will bring them good results they might be in trouble.

So that's what the market is pricing in. So market is pricing that this franchise is gone. They might not be able to come up with something good at this point of time. So what we are paying for is that um a assumption that they'll not be able to innovate and come up with something new and I'll talk more about what that new is and why we should be watching.

So in terms of valuation as I said 12 times forward earnings for comparison Eli Liy is 24 times only Fiser is in their territory around 10 to 12 times P everybody else is priced higher

so my assumption is base case is even in a mediocre scenario if they can't come up with another blockbuster the earnings are in the mid single digits and then we get a dividend of 4.5%.

To weight and the payout ratio is quite healthy. It's 50%.

However, one caveat there is they're working on a new pillbased obesity drug to compete with. This is a wasmpix version of, you know, pill-based. Think of it that way to compete with Eli Lely.

And that is doing well. Actually, it's picking up sales. The latest annualized estimate is that it might become $2 billion in revenue for them.

But the ingredients, it has more ingredients that goes into it and they are different. So they're in the last year they spent quite a bit of their capex on it to build and expand their factory.

So there is a temporary dip in their free cash flow. In fact their free cash flow is less than their net income last year. So even though the payout ratio is 50% it's not completely support.

It's more than 100% of their free cash flow only for last year. So that also scared the investor. So it's a temporary dip.

The CEO also changed. The new CEO joined last year. He is working through some of the restructuring. So those are all some of the negatives again. So but what I get is a mid-s singledigit earnings growth, a low P multiple that cannot hopefully will not compress even further.

Um and 4.5% of dividend 4 and a half% [clears throat] dividend to wait.

The upside however is the oral franchisee the the pill I just talked about is successful. It is showing already success but it's kind of continues to grow. Even if Eli Lilly is number one and no is number two it's a pretty big market if you go to the pill-based um solution for obesity and diabetes. so it can have worldwide adoption so they can still make money out of it.

But on top of that they are working on a next generation pipeline that will compete with Eli Liy and I'll be watching out. It's called as Amirin. It's in phase three trials right now and we'll get to know by 2028 if they launch it.

But I'll be watching out for that because that will change the equation. If it is successful, that upside is not at all baked in.

Right now, what is baked in is they they go from a great company to a mediocre company. They will settle in for number two in obesity and diabetes next to Eli Liy. That's why they're half the PE and they'll stay there.

That to me is like a 8 to 9% over the next 5 years returns max 10% including the dividend but if they do achieve success with the new drugs they have few more but I I'm just highlighting the one that is really important the returns can be in the upwards of 18 to 22%. which I it's very hard to model that so I wouldn't go too much into the number but it'll be significant than what the base case that I'm assuming for.

So um this is not a double in next year kind of a pitch in this market. I'm looking for a bet that is safer that can give me decent returns while also protecting my downside. So that's kind of my my pitch for uh No,

Actually, that's a very good question and that's one of the reason why the stock is down, Toby. Is it a winner take all kind of a business or is it going to be like a duopoly?

Right now no is positioning itself as the cost effective alternative with slightly lower efficacy. So there might be some segments that will pay up for teset assuming any other innovation is not coming from do they were the segments created.

It's almost like it was their game to lose and they lost it because there was an approach as you just mentioned that Eli took that Novo ignored.

My suspicion is No, if I look at them historically, they're really good at insulin and obesity and diabetics. That's has been their kind of narrow expertise. They have never been able to do anything outside but in this they're really good at churning out product portfolio one after the other

and my suspicion is Noah will catch up in some aspects in terms of efficacy to the point where it might be still slightly less effective than teset for example but it might compete on cost

but you're right I think that is the risk the bet here is the market is big enough and One of the other things that they mention is the body type in the sense everybody reacts to medicine differently unlike say in iPhone and Android it's like a just by the product here it's the product and the body type and the component the body type so there might be a subset of or category of patients who might react better to say no drug compared to theatite but it all depends

but from what I have seen So far it's not a winner take all. Eli has definitely an edge over them and they have 60% market share today. Noah is close second but the risk is there might be other competitors too but I think these two are the major players but yes that's a risk we should factor in.

You know it's interesting uh that you mentioned that a few years ago it seemed like everyone owned Novo. For me, being born and raised here in Denmark, I feel like for the past 40 years, everyone has always owned it and always wanted to talk about it.

And um I don't know. I I I'm always a bit torn about no, right? And you know, Novo at its peak, it used to be worth more than all the companies in in C25, which is sort of like the Danish equivalent to the S&P 500.

And you're like, so what is that? Like diabetes and obesity, you know, it it doesn't it doesn't ring as well as as your MS. What can I say? But it is the stock that everyone owns here and everyone wants to talk about it.

Now, so everyone here wants to talk about Novo and of course no one reads up on it. Like the way that I and I probably come across as a smok for saying this, but no one who owns Novo here in Denmark would ever read their annual report.

That is not the stock analysis of most people. They were like there's a lot of obese people buy Novo and my parents own Novo and I'm going to own Novo and everyone else.

And so it is it's it's a tricky to me at least. It's a it's a very tricky stock. you pitched Merc some time ago and you know what I'm very interested in whenever it comes to to big pharma is very much um like what are the systems because you always have it's easy to look at the IP and when does that you know expire and then that's a cliff and that's the issue but so I'm very much looking at the system so if you can paint some color around that hard like why is the Nova system better or perhaps it's not but perhaps it's already priced in so I'm kind of curious to hear you how you think about that

Yeah, actually that is one of the things I was looking into when I was looking at this talk as okay it is cheap but why there is a reason and is it a value trap that was my concern because as you said stick they're pretty much always concentrated between diabetes and obesity that has been their case they have not been very good at acquiring into new areas in terms of expanding their TAM [clears throat] if you However, I think there's no shortage of folks in these two segments because if you see many countries in fact like India is going through a diabetes pandemic of sorts where the diabetics even there is like childhood diabetes and all that stuff that is on an increasing trend for various reasons.

So they have enough market for this. It's sad to say that but yeah that's a reality

but I think the key here is can they innovate and the cliff is what you brought up is the most important thing 2030 2032 is when the cliffs are coming and by then some of the um drugs in the pipeline that they have and the amritin is one of the four in the forefront and that's the one that is also which is quite substantial for them.

Are they able to successfully navigate that and regain the efficacy leadership?

So it's basically as Toby was also pointing out it's like a arms race that's going on. It's almost like open air and anthropic in the AI world. So these two guys are fighting for who has the most effective drug for obesity right now because that's where the big money

the rest I think rest of the stuff like insulin diabetes it's a settled market they have their leadership they have pipeline there it's not going to change move the needle that much but here it's like who has the efficacy because this is where the customers or the patients are also So very keen on efficacy

and these two are like the models from anthropic and open AI basically they are going neck to neck sometimes one goes slower the other one catches up that's what is happening now with amicrretin is like their next version to compete with despatide which is the market leader today in terms of efficacy

I don't remember off the top of my head what's the efficacy and what's the delta But it's enough for many people like just Toby was giving that example to say hey des tapetide works better for me and it's also like how ozumpic if you remember a while back ompic was all the rage it was becoming like a verb for obesity fight but they lost now it's desipatite but I think if amritin is something that can take for that's what I'll be watching.

Actually, the key here is I'm expecting really good returns if they're able to be successful with amicritin and that's the risk here. Else you have to be satisfied with a mediocre return of 8 to 9%.

Which I'm hoping might be better than S&P considering the current market valuation and where we are.

I think S&P correct me if I'm wrong PE ratio is in the mid20s or higher like you know something like that. So and they are trading half of where SNP is trading.

So my my thesis here is most of the bad news is baked in. There is also a leadership change that is baked in into the stock already. So the way market is treating is that it is going to be a mediocre company going forward which will basically fight on having cheaper drugs but not the innovation leader. That's the valuation it is getting right now.

And if nothing happens, it will stay there for a while. But if they're able to get out with some good drugs including amritin and others that they have by 28, 29, 30, then the valuation will also change accordingly.

It's not a Novo Nord disk.