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What happened

Shares of Novo Nordisk A/S (NVO -0.49%), a leading diabetes care drugmaker, fell 10.2% in September, according to data from S&P Global Market Intelligence. Increased pressure in the U.S. to control prescription-drug price inflation reignited fear of shrinking profits ahead.

NVO Chart

NVO data by YCharts.

So what 

In August, Novo Nordisk shares sank after management reduced its full-year sales outlook a notch and said it expects average prices after rebates to decline in the vital U.S. market due to increasing competitive pressure. Executive-level changes and a significant staff reduction announced in September made the situation seem much worse. To begin the month, the company announced that CEO Lars Rebien Sorensen would step down at the end of the year, to be replaced by Lars Fruergaard Jorgensen.

While the CEO change is concerning, the immediate dismissal of Novo's head of North American operations, along with a 1,000-employee reduction from a staff of about 42,300 is downright troubling.

It's unclear whether the staff cut and executive-level changes were signs that the company is looking ahead or an indication that management's previous comments didn't fully convey the extent of future pricing-power concerns. Given that drug pricing is a hot-button issue going into this year's election, the market appears to assume the latter.

Now what

Two of Novo Nordisk's biggest growth-drivers are facing some tough competition in the U.S. from Eli Lilly. In the first half of the year Novo Nordisk reported 161% growth for its once-daily insulin injection Tresiba and 13% growth of its once-daily GLP-1 agonist, Victoza, over the previous-year period. In local currencies, the pair were responsible for the majority of the company's total sales growth of 7% in the first half over the same period last year, which makes any threat to their continued trajectory particularly disturbing.

Tresiba's big jump was largely due to the fact that it launched in the U.S. late last year despite having earned approval in the EU years earlier. Novo's new-generation insulin is intended to compete with Sanofi's popular Lantus (another once-daily insulin injection), but Eli Lilly's biosimilar version of the French drugmaker's biggest product, called Basaglar, is expected to hit U.S. pharmacy shelves this December. Already available outside the U.S. under the brand name Abasaglar, it's typically priced 15% to 20% lower than Lantus, which casts doubt over Tresiba's ability to continue its rapid growth.

Novo's other big growth-driver, Victoza, is a once-daily injection going up against Lilly's once-weekly drug of the same class, Trulicity. Second-quarter sales of longer-lasting Trulicity surged 40.2% over the previous quarter to $201 million. Victoza's exclusion from major pharmacy benefit manager formularies, with Trulicity as a preferred alternative, are reasons to doubt it can continue its double-digit sales growth.

NVO EPS Diluted (TTM) Chart

NVO EPS Diluted (TTM) data by YCharts.

Despite troubles in the U.S., it's important not to lose sight of the growing global diabetes epidemic. According to the World Health Organization, the number of people with the disease soared from 108 million in 1980 to 422 million in 2014, and many are still untreated. Novo Nordisk caught the wave early, and claims a 46% share of the global insulin market.

The company's earnings per share and dividends paid have increased more than fivefold over the past decade, but the stock's recent price of around 19.3 times trailing earnings is lower than it's been in years. If the market has overreacted to near-term threats, and Novo continues growing anywhere near the pace of the past decade, the stock could provide market-thumping returns over the long run.