(Bloomberg) — Novo Nordisk A/S shares fell on Wednesday in the first trading session following a split aimed at increasing the liquidity of the Danish drugmaker’s soaring stock.
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A broader risk-off mood weighed on sentiment after the two-for-one split, which the maker of weight-loss drugs Ozempic and Wegovy has said will bring price levels for its Copenhagen-listed shares and American Depositary Receipts “in line with market practice.”
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Novo was down 2.3% at 665.9 Danish kroner as of 11:10 a.m. CET, trimming some of the gains which saw Novo top luxury giant LVMH as Europe’s most valuable firm last month.
The shares have risen almost sevenfold since the company last split its stock in January 2014, driven by the company’s leadership in the global market for obesity drugs, which JPMorgan Chase & Co. analyst Richard Vosser projects to be worth $71 billion within a decade. And the majority of analysts see the strength continuing.
“This is a once in a generation type of story in that this is not just a big market, but these drugs are something that have the potential to change society in meaningful ways,” said Emily Field, an analyst at Barclays Plc with an overweight rating on the stock.
Investors are optimistic too. “They are on an absolutely huge market which is growing more than twice as fast as the industry,” said Nicolas Domont, a fund manager at Optigestion who recently added to his stake. There’s “only a few things in Europe that are appealing and among them is Novo Nordisk.”
According to Domont, the stock is “expensive but not excessive,” trading at about 35 times forward earnings.
While that multiple is nearly double that of the Stoxx 600 Health Care subindex, it’s less than that of Novo’s main obesity-drug rival Eli Lilly & Co. Lilly shares trade at about 50 times forward earnings, boosted not only by its potential in weight-loss drugs but also a successful final-stage trial of its experimental treatment for Alzheimer’s disease, another hot area of the pharmaceuticals sector.
Not everyone is positive on the outlook. According to UBS Group AG analyst Michael Leuchten, the obesity revenue opportunity won’t be as big as Novo’s current valuation implies.
“It’s a race-to-arms and can you jump to the conclusion that Novo can win? I don’t think so,” Leuchten said.
Thomas Brenier, head of equity management and research at Lazard Freres Gestions said that in terms of valuation, “it is actually starting to be very, very tense.”
“It seems that we could be at a moment which is a little excessive,” he said.
(Updates with today’s share decline from first paragraph)
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