By Maggie Fick and Jacob Gronholt-Pedersen
LONDON/COPENHAGEN (Reuters) -Novo Nordisk’s closely-watched Alzehimer’s trials – which failed on Monday to show it can slow the disease’s progression – were always a long-shot, although they had offered the drugmaker a potential win after a year of sliding shares and slowing sales.
Analysts and investors said the data setback was a blow to the embattled Danish drugmaker, but added that a near 10% drop in its share price, which wiped around $20 billion off its market value, was sentiment driven and did not alter the outlook.
Novo had repeatedly cast the Alzheimer’s studies as high-risk, with a senior executive two months ago describing them as a “lottery ticket”, but had also stoked hopes that it could open a vast new market for GLP-1 medicines in a disease with no cure.
“In my book, this changes nothing,” said Copenhagen-based investor Lars Hytting at Novo shareholder ArthaScope.
“It could have been the way out of the quicksand Novo has found itself in. This was the quick, easy way out, but the lottery ticket turned out to be worthless.”
HIGH RISK NATURE OF THE STUDY
Novo said on Monday that two late-stage trials of an older form of semaglutide – already used by millions for diabetes and weight loss – in patients with early-stage Alzheimer’s disease failed to meet their main goal of slowing cognitive decline.
Shares plunged as much as 12% in reaction before trimming losses slightly to trade down 9.2% at 1315 GMT. They hit their lowest level since July 2021, a month after the company launched its GLP-1 medicine Wegovy.
Analysts had largely expected the trials to fail. Morgan Stanley estimated a 75% chance of failure. Barclays and TD Cowen assumed zero sales for Alzheimer’s treatments in their models based on their predictions that the trials would fail.
“The company had always been transparent about the high-risk nature of the Evoke study,” said Erik Berg-Johnsen, portfolio manager at Novo shareholder Storebrand Asset Management.
“We shouldn’t expect to see major revisions in estimates.”
The potential upside, for treatment of a disease affecting more than 55 million people globally, would have been considerable, however, which he said may explain why investors were quick to punish the stock.
SENTIMENT OVER FUNDAMENTALS?
Several analysts said sentiment – not fundamentals – drove the selloff. Rothschild & Co Redburn analyst Simon Baker called the drop a “horribly overdone knee-jerk reaction.”
Others noted a positive result might not have reshaped Novo’s competitive position.
Bellevue Asset Management investor Paul Major said a meaningful benefit from semaglutide in patients who already had early Alzheimer’s would likely have been seen as a positive effect for the entire GLP-1 drug class, where Novo faces steep challenges from Lilly and from cheaper copycat versions.
“The share price drop is exacerbated by the fact that many investors were hesitant to sell or short Novo’s stock before today’s news, given the massive Alzheimer opportunity,” said Markus Manns, portfolio manager at Novo shareholder Union Investment.
“The Alzheimer opportunity was only partly discounted in Novo’s valuation, but the failure is nevertheless disappointing.”
(Reporting by Maggie Fick in London and Jacob Gronholt-Pedersen in Copenhagen; Editing by Louise Heavens)
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