On Friday, BMO Capital initiated coverage of Novo Nordisk (NYSE:) with an Outperform rating and a $163 price target. The company's forward-thinking stance is fueled by Novo's promising investigational drugs for obesity and type 2 diabetes (T2D), an expanded manufacturing agreement with Catalent, and a large-scale pipeline that could potentially increase revenue and profits. This is thought to be due to a combination of factors such as secondary outcome data. Opportunities in the Medicare market.
Novo Nordisk is believed to be well-positioned in the growing obesity market, which is expected to exceed $130 billion. Novo, along with Eli Lilly, is considered a key player in what BMO Capital calls the incretin duopoly. With established products such as Wegovy, approved in 2021, and Saxenda, approved in 2014, Novo has a strong foothold in the market. Novo's pipeline is expected to further strengthen with the development of new therapeutics such as CagriSema, GLP-1/GIPR agonists, and INV-2022.
The company has been involved in Novo's studies in obesity and T2D, including the Phase 3 REDEFINE trial of CagriSema in obesity, and the Phase 3 STRIDE and SOUL trials of semaglutide in T2D with peripheral artery disease (PAD) and chronic kidney disease/cardiovascular disease. We anticipate that future trial results regarding the treatment will be published. The company's stock price may rise due to the impact of the disease (CKD/CVD). These trials are expected to not only increase revenue but also provide an alternative to Medicare.
BMO Capital highlights the growing moat around Novo Nordisk due to factors such as manufacturing capabilities, clinical and patient data, diverse pipeline, and market access. The company expects Novo to continue to dominate the capacity-constrained market, which is expected to last until at least 2026. This constraint is seen as beneficial for Novo and Eli Lilly, the only two companies with significant manufacturing capacity, now reinforced by Catalent. .
Even though Novo's stock price has been on the rise recently, and is up 88% since January 1, 2023, BMO Capital still thinks it has upside potential. The company's price target of $163 per share implies a return of 30% from current prices, with further growth possible if incretin production capacity expands more rapidly than expected.
