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Despite a recent rally, Novo Nordisk (NVO), Europe’s second most valuable company, has underperformed in recent weeks as markets await the outcome of a patent challenge organized by Viatris (NASDAQ:VTRS) about the company’s best-selling weight loss therapy, Wegovy.
The GLP-1 from the Danish manufacturer receptor agonists Wegovy and Ozempic boosted Novo (NGO) to briefly become Europe’s most valuable listed company earlier this month, ahead of luxury retailer LVMH (OTCPK:LVMHF) (OTCPK:LVVERY) regained first place.
The drugs, known generically as semaglutide and a key reason for the company’s sky-high market valuation, generated $9.4 billion in sales for Novo (OTCPK:NONOF) in 2022, up about 88% year over year from the previous year. .
However, compared to its big pharma peers, shares of the Bagsvaerd, Denmark-based company have come under pressure in recent weeks, as seen in this chart.
Barclays attributes the poor performance to over-manufacturing and the impending outcome of a patent battle in which generic drug maker Viatris (VTRS) challenged the validity of three semaglutide patents in an Inter Partes Review (IPR).
A decision by the United States Patent and Trademark Office (USPTO) expected this week could accelerate the loss of intellectual property protection for semaglutide, analyst Emily Field argued in a recent research note.
“We believe the concern seeping into the market is more related to the expectation that a decision to initiate these proceedings could come as early as early October (i.e. very soon),” Barclays wrote.
However, the analyst is comfortable with Novo’s (NVO) patent thicket for semaglutide, which extends to 2032, according to Barclays’ base case analysis.
Field is also not concerned about the manufacturing issue related to recent FDA findings of possible bacterial contamination at one of Novo’s (NVO) semaglutide production sites in North Carolina.
“While we believe both issues are worth monitoring, we do not see either as cause for serious concern at this time,” Barclays wrote with an overweight rating and a target of 755 Danish crowns per share for the stock.
Noting that NVO confirmed that its Clayton, North Carolina, site remains in production, Field maintains that the company’s corrective actions should have alleviated the FDA’s concerns.
Meanwhile, Jefferies noted that if the USPTO institutes IPR, there will be administrative proceedings lasting about 12 months, creating a period of uncertainty.
According to analyst Akash Tewari, Viatris’ (VTRS) arguments on patents related to semaglutide’s structure appeared “weak.”
Tewari added that an earlier-than-expected LOE for semaglutide may impact Eli Lilly’s (LLY) pricing decisions for its GLP-1, tirzepatide.
The type 2 diabetes therapy is currently under review by the FDA for its weight loss indication, with a decision expected before the end of the year.
However, Jefferies analysts don’t expect NVO and LLY’s new weight-loss drugs to face generic threats this decade.
The company has a price target of DKK 425 and an underperform rating on NVO. Viatris (VTRS) and Lilly (LLY) have earned Buy ratings from Jefferies, with their price targets at $15 and $615 per share, respectively.
Since the dispute is related to the composition of subject matter patents, several other patents that extend to 2033-2041 may guarantee exclusivity for semaglutide, Jefferies said, projecting a 70% chance that Novo (NVO) will have success in the case of intellectual property rights.
