Novo/Nordisk A/S (NYSENVO; DC NOVOB) is the industry leader in combining drug discovery with technology to create diabetes care products and solutions. Novo also provides treatments for people with haemophilia, growth hormone deficiencies and for women experiencing menopausal symptoms. Novo has nearly 33,000 employees located in 74 different countries and its products are sold in about 180 countries.
Key products include:
- Levemir (a soluble, long-acting modern insulin for daily use for type 2 diabetes).
- NovoRapid (NovoLog in the US) the world’s most widely used rapid-acting insulin for mealtime use).
- NovoMix (70/50/30) (NovoLog Mix 70/30 in the US) a dual-release modern insulin that covers both mealtime and basal requirements).
- FlexPen, the world’s most widely used prefilled insulin pen, available for Levemir, NovoRapid/NovoLog and NovoMix/NovoLog Mix. It eliminates the need to manually load insulin into a delivery device or use a separate vial and syringe.
- NovoDose, the first ever mobile dosing application launched for iPhone and iPad in US
- NovoPen Echo comes in two colors and was designed for children. It features dosing with half-unit increments, suitable for children requiring small insulin doses.
- Victoza (liraglutide) first and only human Glucagon-Like Peptide analogue with 97% similarity to the natural gut hormone. It works by stimulating the beta cells in the pancreas to release insulin only when blood sugar levels are high and was developed for the treatment of Type 2 diabetes.
- NovoSeven-provides effective treatment for rapid control of bleeding episodes and has been a major advancement in the treatment of haemophilia.
- Norditropin-The only liquid growth hormone (therapy) product with a formulation that doesn’t require refrigeration after first use, available in a prefilled, ready-to-use device.
- Vagifem-a Hormone Replacement Therapy for menopausal symptoms.
- Novo also has plans to develop products to treat inflammatory diseases. Novo began phase 2 clinical inflammation trials in people with rheumatoid arthritis.
Management: The current CEO and President, Lars Rebien Sorensen has been President and CEO since 2000 and has been with the company since 1982. He has a strong and diverse level of experience, having worked in NVO’s Enzyme Marketing area as well as several different global locations for NVO. We also like that there is a stable, long-tenured management team and the employees get to choose four of the 11 members of the company’s board (in accordance with Danish law), which helps align the interest of management and stockholders with employees, who are also an important stakeholder group due to the highly specialized nature of NVO’s work. Also, NVOwas ranked as the 25th Best Company to work for by Fortune Magazine in 2010 and 47th Best Company in 2011.
Ownership: Nearly 25% of the outstanding stock is controlled by the Novo-Nordisk Foundation through its sole ownership of Novo A/S, which was established in 1999 to administer its portfolio of securities and minority capital interests and to administer and vote on the A shares and B shares of Novo-Nordisk A/S. Though disappointed in the small shareholding percentage by Company Management and Board Members, the fact that the Novo-Nordisk Foundation owns about $22B worth of stock provides a satisfactory level of alignment between the interests of stockholders, management and other stakeholders, though we’d prefer that its Class A Shares did not have a 10 fold supermajority vote relative to Class B Common Shares and ADRs.
SUMMARY OF OBSERVATIONS
We like the fact that the firm has been able to increase its high gross margins from 78% in 2006 to 82% in YTD 2012 and we feel that the company can maintain or steadily expand its gross margins, due to its mammoth scale and organic growth.
NVOhas increased its revenue from DKK 23.78 Billion in 2001 to DKK 66.35 Billion in 2011 (10.8% CAGR) and its profits from DKK 3.5 Billion to DKK 17.1 Billion (17.2% CAGR) during the same time period. Due to continued strength in its product sales, as well as the weakened Danish Kroner (which is weak due to its peg to the Euro), we are expecting revenue in Kroner to exceed DKK 77.6 Billion Novo achieved this through organic volume growth as well as a shift in the product mix from basic commodity human insulin products to more modern insulin products. Modern Insulin products (insulin analogues) more closely mimic the physiological insulin profile and are therefore associated with an improved balance between glycemic control and tolerability. These products are also associated with a lower risk of hypoglycemia, less weight gain, and greater treatment flexibility than traditional human insulin products. Furthermore, you can time the administration of the modern insulins differently over the course of a day, rather than only taking it close to meal time, as these products have longer lives than traditional human insulin. These benefits, in combination with new insulin delivery devices, such as pens, have greatly improved patients’ treatment satisfaction and medication adherence, leading to improvements in clinical outcome.
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