Novo-Nordisk (NVO)

This has come up about 15% off its lows. There was news today that they are getting involved with stem cell research for Type 1 diabetes. It is still another 5-10 years away, but it caught people’s attention. They are getting hurt on the downside on pricing in the US, because insulin is very expensive. They said in the last quarter that operating margins plus profit growth will be half of what it used to be. However, as people are aging and the number of diabetics for Type 2 is expected to rise by 50% over the next 20 years that is going to give volume growth. They have no debt and have 3 new products coming out, which could be blockbusters. It could also help lead to weight loss for Type 2 diabetics. The only problem this has is that it is a “one trick pony” with insulin. He is still buying more of this.

Has never owned this, because of its valuation. He has never been able to understand how they were able to continuously execute and doesn’t understand why there is so little competition in an insulin.

The share price has come down roughly 45% in the last year, mostly on lack of pricing power in the US. Now that Trump is in power, healthcare stocks have started to turn back to some degree. This company has seen a decline in sales in the US, but they are primarily insulin makers, and have got 51% market share. Where they fall in price, they are going to pick up on volume, because there is still expected to be another 50% increase in type I and type II diabetes over the next 25 years. Because they are no longer the high growth story, the stock has come down and is now trading at a value that is based on 6%-7% revenue growth, which he thinks is fairly valued right now. They have no debt and are going to start to diversify away from the step-by-step insulin, into kidney and liver disease. The dividend has plenty of room to grow.

This has been a tough year for them, and it’s down 39% year to date. Part of the reason is the uncertainty around pricing pressures in the US with drugs. Also, more recently, they slashed their guidance for 2017. He still likes the story. They are a leader in the diabetes space. Their profit margins run around 19%-20%, where their competition is more at 10%-11%. This is important because the fastest growing global area of diabetes is the emerging market countries. This company, because they have a fat profit margin, can step into those markets, cut their prices and still make lots of money.

On valuation, it is really not that exciting. Not cheap nor expensive. The key moving part that creates concern is long-acting insulin pricing in the US. Up until 18-24 months ago, they and Santa Fe (?) were in kind of a cooperative duopoly and inflating prices and did about a 20% gain in one year. The insurers finally had enough, and instead of covering both drugs, they would throw it off to whoever gave the lowest bid. It is not clear where this is going to really end. Until this is decided, there is just no reason to catch a falling knife.

Leader in diabetes in the space. They have fat margins. There is a growth potential in emerging markets where diabetes is growing faster.

(A Top Pick June 7/16. Down 16 point to 3%.) Got hurt recently, because their sales dropped by .05% and analysts are only looking at the short end. The company has 3 potential blockbuster drugs coming out on the diabetes sector, which should give them long-term growth over a ten-year period.

As far as a pharmaceutical company goes, this is pretty expensive, trading at about 24X earnings. Has about a 50% share in the insulin market, and diabetes is a disease that is growing quite rapidly. Thinks they will continue to do well. Has a very low yield of 1.7%. You would want to buy this on a pullback.

They do drugs for human growth hormone and hemophiliac medicine, but insulin is still their big baby. Over the next 20 years, the number of type II diabetes is expected to grow by 50%, mostly in India and China. The company has new drugs coming out which is helping diabetics to lose weight. Have done a joint venture with a company that will allow them to do oral instead of injections. Dividend yield of 1.67%.

They got approval for 3 drugs, all to do with diabetes. The demographics are in their favour. The company has always traded at an expensive multiple. The stock has done exceptionally well. It is the one Pharma name he owns. 35% compound annual rate of return.

(Top Pick Jan 16/15, Up 24.78%) Diabetes is a growing industry. This is the largest and there are economies of scale. He feels it is still in the early stages.

(A Top Pick Jan 16/15. Up 25.44%.) Has the largest market share when it comes to diabetes drugs. Diabetes is a fast-growing illness and it is reported that by 2030 there will be twice the number of people globally that have diabetes. A great way to play emerging markets.

(Top Pick Jan 16/15, Up 29.33%) Great returns. Tough to complain about. The largest market share in the diabetes space. Emerging market countries are contracting diabetes at the highest rate but you can’t sell the drugs at the same price and they can go in and cut their prices. He still likes it long term, but it went up in a flat market.

(A Top Pick Jan 16/15. Up 32%.) This is a name he is still Buying. This has the largest market share in the diabetes drug space. Because they are the largest, there are economies of scale. With economies of scale comes a fatter profit margin. Their profit margin is 20%, compared to their competitors at 11%. The part of the world that is growing most rapidly in terms of new diabetes cases is the emerging markets and Latin America, which can’t afford to pay the same amount for diabetes drugs as we can in North America. This company is able to go in and offer the drugs at a much lower price and really take over the market. Still early days. Dividend yield of 1.25%.

Largest developer/manufacturer of synthetic insulins globally. Has been a great way of participating in the global diabetes pandemic. Has done well this year because there is heightened expectation that the US is going to approve a long lasting insulin Tresaba. If this gets launched in the US, growth could be in the low teens again next year. This is a hold.