Novo Nordisk and Sanofi best positioned in diabetes market, says Morningstar

10 December 2013

Demographics favor the continued strong growth in the diabetes care market, and independent investment research firm Morningstar analysts also expect diagnosis and treatment rates to climb, particularly in emerging markets, where access to care is improving.

Morningstar recently published the December 2013 issue of its Healthcare Observer, focusing on the global diabetes market and companies that are best positioned for growth. Key highlights of the research report include:

Morningstar forecasts the branded portion of the diabetes care market to grow from $33 billion in 2013 to $58 billion in 2018, representing a 12% average annual growth rate. This includes 17% growth in the $11 billion oral and GLP-1 market, as well as 9 percent growth in the $21 billion insulin market.
Morningstar finds that Denmark’s Novo Nordisk (NOV: N) and France’s Sanofi (Euronext: SAN) are best positioned, and is more bullish on the companies’ innovative long-acting insulin products. Meanwhile, both Sanofi and USA-based Eli Lilly (NYSE: LLY) are also poised to benefit from demographic trends.
Morningstar thinks high barriers to biosimilar competition, high unmet patient need, and strong pipeline productivity will support sustainable competitive advantages for firms in the diabetes market. While the tremendous US pricing power of 2013 will probably abate, Morningstar thinks that novel products will allow continued US pricing power and stable average prices internationally.
Novo Nordisk trades at a 20% discount to Morningstar’s new fair value estimate of $222 per ADR (American Depositary Receipt), with insulin volume growth supporting Novo's long-term growth.

Sanofi’s Lantus (insulin glargine) should continue to dominate the long-acting insulin market, which accounts for almost half of global insulin sales.
Lilly benefits from a full spectrum of diabetes treatments. Morningstar increased its fair value estimate for Lilly to $55 per share from $52.

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