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Despite a recent rally, Novo Nordisk (NVO), Europe’s second-most valuable firm, has underperformed in recent weeks as markets await the outcome of a patent challenge mounted by Viatris (NASDAQ:VTRS) over the company’s best-selling weight-loss therapy, Wegovy.
The Danish drugmaker’s GLP-1 receptor agonists Wegovy and Ozempic propelled Novo (NVO) to briefly become Europe’s most valuable publicly traded company early this month before luxury retailer LVMH (OTCPK:LVMHF) (OTCPK:LVMUY) reclaimed the top spot.
The drugs, known as semaglutide in generic terms and a key reason for the company’s sky-high market valuation, brought $9.4B in sales for Novo (OTCPK:NONOF) in 2022, up ~88% YoY from the previous year.
However, relative to its large pharma peers, the shares of the Bagsvaerd, Denmark-based company have come under pressure in recent weeks, as seen in this graph.
Barclays attributes the underperformance to a manufacturing overhang and the imminent outcome of a patent battle where generic drugmaker Viatris (VTRS) has challenged the validity of three semaglutide patents in an Inter Partes Review (IPR).
A decision by the U.S. Patent and Trademark Office (USPTO) expected as early as this week could hasten the loss of IP protection for semaglutide, analyst Emily Field argued in a recent research note.
We “believe the concern percolating through the market is more related to the expectation that the decision of whether to institute these proceedings could come in early October (i.e., very soon),” Barclays wrote.
However, the analyst is comfortable with Novo’s (NVO) patent thicket for semaglutide, which extends through 2032, according to Barclays’ base case analysis.
Field is also not worried about the manufacturing issue related to the FDA’s recent findings about a potential bacterial contamination at one of Novo’s (NVO) semaglutide production sites in North Carolina.
“Whilst we think both of these issues are worth monitoring, we see neither as cause for serious concern at this stage,” Barclays wrote with an Overweight rating and a DKK 755 per share target on the stock.
Noting that NVO confirmed its Clayton, NC, site remains in production, Field argues that the company’s remedial measures must have eased the FDA’s worries.
Meanwhile, Jefferies pointed out that if the USPTO institutes the IPR, administrative trial proceedings lasting about 12 months will follow, leading to a period of uncertainty.
According to analyst Akash Tewari, Viatris’ (VTRS) arguments on the patents related to the structure of semaglutide looked “weak.”
Tewari added that an earlier-than-expected LOE for semaglutide can impact Eli Lilly’s (LLY) pricing decisions for its GLP-1, tirzepatide.
The type 2 diabetes therapy is currently under FDA review for a weight loss indication, with a decision expected before the year-end.
However, Jefferies analysts don’t expect NVO and LLY’s newer weight-loss drugs to encounter generic threats within this decade.
The firm has a DKK 425 price target and an Underperform rating on NVO. Viatris (VTRS) and Lilly (LLY) have secured Buy ratings from Jefferies, with their price targets at $15 and $615 per share, respectively.
With the dispute related to the composition of matter patents, several other patents that extend to 2033–2041 can ensure semaglutide’s exclusivity, Jefferies said, projecting a 70% chance that Novo (NVO) will succeed in the IPR case.
