Finding high-quality businesses on the ASX at attractive prices is usually challenging.
Just look at REA Group P/E 59, Cochlear P/E 44, and Commonwealth Bank P/E 28. All quality businesses, but will they be good investments over the next 5 years? How much you pay matters - it will directly affect your returns.
This leaves us investors with very few options on the ASX. That's exactly why I've significantly expanded my investment universe over the past few years to include companies outside Australia. (Note: The ASX is about 1.9% of the world’s total listed market cap).
Today, I want to share a Danish company that is also listed in the USA.
While my last few Value3 Insider editions have focused on technology companies, I want to emphasise that Value3's investment universe isn't limited to the tech sector. We evaluate companies based on business quality and competitive advantage (what we call the Value3 powers) and valuation (what I refer to as Prizone). We are looking for investments that can deliver a minimum 20% average compound return over the next 5 years.
One company that I have admired but has been too expensive in the past is Novo Nordisk.
Unlike many of the new-age technology companies I typically like, Novo Nordisk has a long and fascinating history. Back in 1922, researchers Charles Best and Frederick Banting discovered insulin, kickstarting a century of life-changing innovations that have saved millions of lives.
This remarkable journey has propelled Novo Nordisk to become one of Europe's most valuable companies and one of the world's top pharmaceutical firms. In April 2025, its market cap was circa US$210 billion.
This year, after falling 60%, I believe it has become seriously undervalued. Let me explain.
WNovo Nordisk is a global pharmaceutical company focused on diabetes and obesity care. It's the global market leader in all insulin categories, commanding approximately 43% of the total market. It's also leading the charge in GLP-1 weight loss drugs.
Their flagship medications are:
Weight loss drugs exploded in popularity in 2021 as the world emerged from COVID-19 lockdowns. With incredibly promising clinical results and celebrities openly discussing their "Wegovy journeys," these weight loss drugs have become an enduring sensation.
For Novo Nordisk, weight loss drugs went from virtually 0% of revenue before 2020 to a whopping 22% within just 4 years. Even better, demand for their products isn't going anywhere. Diabetes suffers will always need insulin, and let's face it – being slim is unlikely to ever go out of fashion!
Diabetes care
Obesity care
I'm always searching for strong competitive advantages – they're critical to any Value3 investment.
In my approach, I evaluate companies through what I call the Value3 Powers to determine their earnings endurance strength. These powers might relate to Customer Captivity, Proprietary Technology, Economies of Scale, and Disruption. For Novo I think its strongest Power is its IP and Knowhow, this is a patent driven industry. Novo has the patent on semaglutide the active ingredient in Ozempic and Wegovy, valid till 2031.
In pharmaceuticals, brand isn't particularly important, and true uniqueness is rare. And unlike social media networks, there are no network effects at play.
Instead, through its patents, Novo Nordisk has substantial technology and resource access. Their patent on semaglutide in Ozempic and Wegovy allows them to command premium pricing. This competitive advantage falls within what I classify as the Proprietary Technology class in our Value3 Powers Framework.
But here's the thing – patent protection doesn't automatically guarantee a monopoly. While it allows Novo Nordisk to sell products under its registered brand name, it doesn't prevent competitors from developing close variations of the same product and selling it under their own brand. This makes competition inevitable and explains why Eli Lilly successfully launched competing weight loss drugs Mounjaro and Zepbound in 2022 and 2023.
Just last week, Pfizer discontinued the development of their experimental weight-loss pill danuglipron after a trial patient experienced potential drug-induced liver injury (though it resolved after stopping the medication).
With no other formidable competitors in sight, Novo Nordisk and Eli Lilly continue to operate what's essentially a duopoly. This gives them significant pricing power and control over supply. In addition, Novo Nordisk has about $US 2.3 billion in cash, giving them plenty of firepower to protect direct patent infringements.
Due to the sheer size of the market, there's plenty of room for both companies to succeed. According to the World Health Organization, worldwide obesity among adults has doubled since 1990 and quadrupled among adults and adolescents. Today, 1 out of 8 people globally suffers from obesity. That puts the company's total addressable market at more than 1 billion customers! This number is likely to increase, with the diabetes care market growing 8% annually, resulting in abundant growth opportunities.
| Drug | Stage | Competitive Position |
|---|---|---|
| Cagrisema | Phase III | Zepbound rival |
| Oral Semaglutide | Phase III | Orforglipron rival |
While patents provide an advantage, a pharmaceutical company's strongest competitive edge lies in its pipeline. With an average of 13 years from drug discovery to market, patents give drug companies breathing room – but this alone is not enough.
Additionally, the larger the market, the more likely competitors will try to enter it. With such a massive addressable market, it's no surprise that rivals are trying to break into the weight loss drug business.
The patent on semaglutide is set to expire in 2031 in the USA and 2032 in Europe. This makes it crucial for Novo Nordisk to develop new drugs to maintain current revenue and profit levels. Once semaglutide can be used in generic medications, revenue from Ozempic and Wegovy will drop considerably.
This means Novo Nordisk's competitive advantage is only sustainable if they can develop new patented products. To achieve this, they spend more than 10% of revenue on R&D annually. Novo Nordisk’s Scale Economies give the company the headroom and firepower to strengthen their Proprietary Technologies Powers in the face of increased competition.
Currently, Novo has four important drugs in the pipeline:
The current negative sentiment around Novo Nordisk is largely due to the perception that they've fallen behind Eli Lilly in bringing their weight-loss pipeline to market.
However, my medical advisor believes Novo Nordisk has the best pipeline for diabetes and weight loss drugs. For example, while Cagrisema didn't quite live up to the sky-high expectations set for it, it's still outperforming Eli Lilly's Zepbound. Meanwhile, their Oral Amycretin, which led to an impressive 13% weight loss reduction in just 13 weeks, currently has no peer in Eli Lilly's pipeline.
Often the best investment opportunities are when 'the market' gets it wrong and sells down a quality company. This is one of those occasions - Novo Nordisk’s EPS growth hasn't dropped, and it is supply constrained selling every dose it can manufacture.
P/E: 15
5-Yr EPS Growth: 26%
P/E: 54
5-Yr EPS Growth: 17%
While Novo Nordisk has always been a high-quality business, its valuation had become stretched, but that’s all changed now, its current P/E is just 15 and an its average EPS growth for the last 5 years is 26% p.a. Which is outstanding!
By comparison, Eli Lilly (LLY) P/E is currently 54 with a 5-year average EPS growth rate of 17% p.a.
After falling substantially, I believe the market is significantly underappreciating Novo Nordisk's current business and pipeline. Trading at just 13 times forward earnings, I find Novo Nordisk to be compelling value and have - this week - taken a position.
Prizone is our valuation measure, being a percentage, that incorporates both the buy value and the sell value in the one single metric. Prizone, being dependant on the minimum rate of return we require, enables us to rank stocks from the most to the lease attractive.
Price is what you pay and value is what you get. A negative Prizone percentage indicates a BUY, with the current price being that percentage below the buy value. A positive Prizone between 0% and 100% indicates a HOLD, with the current price being that percentage between the buy and sell values. A Prizone over 100% indicates a SELL, with the excess percentage above 100% being the overvaluation.
Our analysis of Novo Nordisk is in $US.
In v3-Val, to add a margin of safety (MOS) below, we have reduced the average EPS growth from 26.4% p.a. to 18.4% p.a. for the next 5 years. Put in a low terminal PE of 15.6 and we get a 21.6% Total Shareholder Return (TSR) per year.
The Prizone now is minus 7%, indicating a BUY. This means that the current price of $61.30 is 7% below our buy valuation of $65.63.
If you are interested in learning more about Novo Nordisk, I recommend the brilliant Acquired Podcast (https://www.acquired.fm/episodes/novo-nordisk-ozempic.)
CSL Ltd (ASX: CSL) is in a similar industry to Novo Nordisk and makes an interesting comparison. Our current valuation of CSL is shown below. It is an entirely different growth, risk and return story.
Here our minimum rate of return required has been reduced from 20% p.a. to 10% p.a., reflecting our assessment of overall risk. Under our assumptions, the current return is 7.5% p.a. and the Prizone is 21%, indicating a HOLD.
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Disclosure: This is general advice only. Past performance ≠ future results. Consult a financial advisor.