- Pharma sectors in both the EU and the US are currently trading at the lowest relative valuations vs. the market.
- Novo Nordisk is trading at 16x P/E, below pre-obesity era levels, despite mid-teens earnings growth estimates.
- Market dominance in the fast-growing obesity drug market more than offsets competitive pressures.
Novo Nordisk shares have seen a 60% drawdown from their mid-2024 peak on the back of a series of disappointing CagriSema trial results, intensifying the competition from Eli Lilly, pricing pressures, US import tariffs, and the abrupt departure of its CEO. Despite the recent rebound, the stock is still trading 50% below its all-time highs and at a PE valuation of 16x, at pre-obesity drug era levels, which we believe does not reflect the fact that the company’s holds a 33% share of the global diabetes market, and 62% of the GLP-1 obesity drug market.
Novo’s flagship products, Ozempic (diabetes) and Wegovy (obesity), accounted for 92% of 2024 revenue and are exposed to one of the fastest growing markets as obesity rates have reached c.15% of adults, more than doubling since 1990, with forecasts the adult obesity rate will reach 55% by 2050e. Analysts expect the total addressable obesity market to quadruple from current levels and approach USD100bn by 2030, and Novo’s market dominance in the growing obesity market would more than offset any potential competitive pressure.
At the latest ADA Diabetes Conference, CagriSema reported a 22.7% body weight reduction in obesity trials, below management’s 25% target, but slightly ahead of Lilly’s Zepbound (22.5%), with some patients achieving a normal BMI < 30 after c.20 weeks. Recent data on Amycretin also demonstrated significant efficacy with weight loss of more than 20% at 36 weeks, suggesting the potential for a weight reduction of 30% over extended periods, positioning Amycretin as a highly competitive candidate in the obesity treatment landscape.
Looking at the broader pharma sector, the valuation of the SXDP vs. STOXX 600 is at its lowest in its historical range both in the EU and the US, as markets expect the Trump administration to push for lower prices, with the sector only being this inexpensive during the GFC and the 2020 COVID crises. Looking within the sector, Novo Nordisk still reports the highest earnings growth amongst EU pharma in the mid-teens (SXDP 10% for 2026 & 2027e).
In terms of volatility, 6M ATM IV is rich at a 2YPc82, swaying our preference to finance upside in the name by selling downside given the depressed valuation. We propose Long Dec25 520 Calls financed by Dec 25 420/400 Put spreads costing 4% of underlying (Spot ref 442.1 Fut. ref.444.4).