Is Novo Nordisk Worth Buying?

Novo Nordisk has been criticized recently due to possible overvaluation and immense competition in the diabetes market. However, I think that the company is better positioned than many people recognize. Although slightly pricey at 23 times earnings, the stock has many factors backing its valuation. Novo Nordisk still maintains a dominant and growing share of the diabetes market, has excellent management, and is growing very quickly in emerging markets.

Diabetes
First and foremost, Novo Nordisk maintains a dominant market share in the diabetes care. This will be an immense driver of growth due to the unfortunately rapid growth of diabetes within the United States and abroad. Currently, 32 million people in the US alone have diabetes, and that number is expected to increase to 53 million by 2025. There are two primary treatments for diabetes: modern insulin therapy and GLP-1 therapy. According to the company's Q1 2014 financial report, Novo Nordisk currently maintains a 46% share in the total insulin market. It generates the majority of its sales from its GLP-1 therapy for type-2 diabetes, Victoza, which increased sales by 9% to $530 million, as well as a new-generation insulin, Levemir, whose sales increased 21% to $570 million. Victoza maintains an astounding 71% market share in GLP-1, which controls 7% of the total diabetes market. Additionally, the company recently filed three new diabetes drugs for registration. One of them, Tresiba, is a form of basal insulin that lasts up to 42 hours. It already occupies between 10% and 17% of the basal insulin market, although sales remain quite small. Novo's dominant position in the diabetes care indicates sustainability and growth potential, and I think that may help the stock keep delivering.

Financials
I like the management's moves as well. The company has an 80% gross profit margin and 30% net margin. The fact that the company has minimal debt and over $5 billion dollars in cash displays good financial discipline. The surplus of assets will provide a cushion if something unexpected occurs.

Additionally, management is taking great steps to give back to shareholders through buybacks and dividends. Despite the stock's mediocre 1.9% dividend yield, someone who owned the stock five years ago would be quite delighted, as the annual dividend has increased by an average of 22%. Also, the corporation constantly buys back shares. They recently implemented a new share repurchase program where they are buying $3 billion.  from February 1st 2014 until January 31st 2015.

Emerging markets
Emerging markets make up a huge part of Novo Nordisk's business, comprising 22% of their sales, or $3 billion. This will increase drastically, as diabetes is growing extremely rapidly in developing countries. Additionally, a high percentage of diabetics in low income countries are unaware of their condition, and even fewer of them have access to proper treatment. Novo Nordisk is taking multiple initiatives to help control the global diabetes pandemic. The company is setting up multiple programs in collaboration with governments around the world to educate and train doctors to treat diabetes. In 2012, they trained 2,000 health care professionals and set up 70 clinics in the world's nine poorest countries. 

One excellent example is Novo Nordisk's activity in China, where diabetes is one of the fastest growing epidemics in the world, primarily due to a rise in obesity because of lack of exercise and unhealthy diets. Novo Nordisk has operated in China since 1994 and is now operating in 31 provinces and employing 3,400 workers. Their sales have more than doubled since 2008 to $1.13 billion, and the company now occupies 60% of the insulin market, positioning itself to take advantage when the Chinese diabetes market grows even more. Management has taken an innovative tactical approach in the region, similar what they undertook in other emerging markets. Between 2006 and 2010, the company has trained 55,000 doctors, helping raise awareness and provide health care to underprivileged Chinese diabetics. It also strengthens Novo's relationships in the Chinese market, which I think will help boost sales.

Conclusion
Frankly, with the stock trading at 20 times forward earnings, I don't think now is the best time to buy Novo Nordisk. However, due to the points I made in this article, the stock is well positioned for long term gains, and I'd suggest investors get it on their watchlist. Throughout Novo Nordisk's history, management has consistently capitalized on opportunities, stimulating growth and rewarding shareholders. Due to its initiatives in building a presence in emerging markets growing its share of the diabetes care segment, I think the company is well positioned in the coming years.