A Stock to Sweeten Your Year

Diabetes is one of the major health issues plaguing the United States, with the CDC reporting that over 34 million people are suffering from this disease – and 20% of them are not even aware of their condition.

More alarmingly, there are at least 88 million individuals that are already in the prediabetic stage.

Since the number of people with diabetes has multiplied in the past 20 years, it presents a massive market for a lot of biotechnology and healthcare companies.

In 2019, the diabetes treatment and drug sector in the US alone recorded a landmark valuation of more than $15 billion and the CDC expects this number to reach $16 billion by 2025.

That’s why it comes as no surprise that more and more companies are attempting to corner the diabetes market.

Since it was founded back in 1876, Eli Lilly (LLY) has been known as the king of the diabetes industry.

However, one competitor has been aggressively working to dethrone Eli Lilly: Novo Nordisk (NVO).

In 2019, NVO’s share in the global diabetes market reached an impressive 29%.

Now, the company aims to boost its share to reach more than 33% by 2025.

Looking at its track record, NVO’s goal of becoming one of the most dominant forces in the diabetes sector is very close to reality.

The company recorded consecutive revenue and net income increases for the past three years.

According to its second quarter report for 2020, NVO reported $4.8 million in revenue. Meanwhile, its net income reached $1.7 billion, representing an 11% boost compared to its performance in the same period last year.

NVO has also seen a promising growth from its newly launched Type 2 diabetes treatments, Ozempic and Rybelsus.

Ozempic alone has been phenomenal, with the drug already reporting $1.1 billion in sales for the first half of 2020 in the US.

This shows off an impressive 156% increase from its record during the same period in 2019 – and the drug has yet to reach its peak.

To put things in perspective, Ozempic recorded $1.7 billion in annual sales last year, a substantial jump from the $264 million it earned when it was launched in 2018.

Rybelsus is another drug expected to take in huge numbers for NVO. The drug has already brought in $64.5 million in revenue in the first six months since its launch in the fourth quarter of 2019.

While all these sound promising, NVO actually has another trick up its sleeve.

The company is planning to sustain its growth by catering to large and well-defined but underserved sectors.

Interestingly, this is similar to the strategy used by Merck (MRK) and Pfizer (PFE) from 1982 to 2000.

At the time, the two healthcare titans decided to cater to the then under-penetrated market of cardiovascular disease.

Initially, the goal was to provide treatments that can abate the risk factors of a heart disease called atherosclerosis. Merck and Pfizer isolated two issues they wanted to address: hypertension and high cholesterol.

Apart from eventually creating drugs specializing in these health issues, Pfizer went on to discover that an ingredient of its products has the sought-after side effect of letting men feel “young” and active once again.

Thus, the best selling Viagra was born.

From the way NVO has been handling its pipeline candidates, a similar result might be well on its way.

For instance, its moneymaker Ozempic is now considered a promising candidate for another underserved market: the progressive liver disease NASH.

Other than that, NVO is also working on listing obesity as a chronic disease. That way, insurers will be required to cover treatment for the condition.

To date, there are 650 million people categorized as obese and only 2% of them are seeking treatment.

Once again, Ozempic will be a stepping stone in this plan.

NVO has been testing the drug’s efficacy on diminishing the patient’s appetite, calling the experimental Ozempic application AM833.

This can gradually transform into a solid revenue source as there are roughly 460 million people suffering from diabetes worldwide, and only 6% of them are in control of their condition.

Basically, NVO is aiming to prevent complications derived from obesity and diabetes.

With such a distinct approach to the growing opportunities, NVO is undoubtedly on its way to building a mega-franchise.

Despite the COVID-19 pandemic wreaking havoc across the globe, NVO is one of the handful of companies with rising earnings expectations this year.

From the previous guidance of $2.72 earnings per share, the company increased it to $2.86 for the rest of the year. Even its 2021 forecast climbed from $3.05 EPS to $3.14.

Overall, this company offers a solid and sustainable revenue stream along with a promising pipeline of candidates with the potential to become mega-blockbusters well beyond the diabetes sector.