Strategic trade
Trade view / 29 September 2016 at 9:37 GMT

#SaxoStrats: Novo Nordisk overvalued

Head of Equity Strategy / Saxo Bank

News sentiment keeps on getting worse for Novo Nordisk, the world’s biggest producer of insulin drugs for the treatment of diabetes. Today, the firm announced that it is laying off 1,000 employees to offset sales weakness in North America (53% of revenue). 

Shares are down 0.7% today and 29% percent from their peak.

Novo Nordisk

Create your own charts with SaxoTraderGO click here to learn more

In its public statement the company says that it’s pricing uncertainty into 2018 and that growth will be low over the next two years. Should a company trade at EV/EBITDA 14.1 with low growth over the coming years and increasing competition from generic drugs? Our view is no, and we are selling Novo Nordisk shares today with a stop-loss at 305 and take-profit at 250. 

This trade will likely be short due to the tight stop and take-profit target, which fits with our longer-term view that diabetes drug companies are still a good business. 

But for now we are trading with the flow and news sentiment.
Further downside from valuation?

The growth story in the diabetes segment has been remarkably with the six largest firms in market share terms gaining almost 350% including dividends since early 2003, easily beating global equities. 

While the diabetes market is not going away anytime soon – especially not with the current health trend in China – the premium pricing may be over for now. It seems that Novo Nordisk’s big defense lies in its move to be first with insulin in a pill adding more years of protection through patents.

Novo Nordisk

Novo Nordisk has historically traded at a steep premium to its closest peers (Sanofi, Merck, Eli Lilly, AstraZeneca, and Novartis) but with the latest underperformance the difference has gone to zero. However, given today’s statement about losing market share and pricing weakness we may be entering a new phase where Novo Nordisk is going to trade at par with peers on valuation or even at a small discount.

Novo Nordisk
The chart below shows Novo Nordisk’s premium to large global pharmaceuticals. Again the company’s premium has declined from recent 40% to now only 10%

Novo Nordisk
Even more important for the downside drivers on Novo Nordisk’s share price is the overall valuation level on global pharmaceuticals. With EV/EBITDA slightly below 14, the industry is trading at historically high valuations and with the negative attention on drug prices in the US and Europe the whole industry could come under more pressure, scaring investors.

Novo Nordisk
We are getting closer to the US presidential election on November 8, so the likelihood of the news flow changing for pharmaceuticals is low. 

With the current information and very negative price momentum in Novo Nordisk shares we are selling the shares, but do acknowledge that if the shares go to 250 then the fundamentals will likely begin to take over again.


Entry: sell at market today.

Stop: 305.

Target: 250.

— Edited by Michael McKenna

For more on equities click here.

Non-independent investment research disclaimer applies. Read more
29 September
AlexF AlexF
Hi Peter having the Saxo global stock picker how can you explain that the strategy has top holding Novo if you as head recommend a sell ? Please this is important to get an answer as could determin keeping this saxo select or not
29 September
This is not overvalued, just the result of the negativ attention, which is going on, and on, and on ..... without any new bad news comming from the company, which has only reduced its expection to annual growth from 10% to 7%. it's like the old gramophone record, which runs in the same track continuously.
29 September
Dimitrios Tamvakas Dimitrios Tamvakas
Most big pharmas are on the defensive during the last 5-6 months. Take Gild or BMY , both are 30% down from highs. I assume that there are many long term passive investors taking gains ahead of US elections and the possibility Hillary will win and reshape (?) the industry.
29 September
Hillary has already had a big impact at Novo Nordisk price value, which has been over 400 DKK last year
29 September
Market seems to be very manipulated now,like Bavarian Nordic case last year
29 September
Aleksa06 Aleksa06
Is this in a right way ?
30 September
AlexF AlexF
As said they hold Novo as top position in their global pick and then issue a sell ...I am puzzled. At least they would reduce the position in the portfolio to be consistent.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail