Monthly commentary - Mackenzie Ivy Team

Portfolio Manager Monthly Insights

Jason Miller, MBA, CFA
Vice President, Portfolio Manager
Mackenzie Ivy Foreign Equity Fund

Novo Nordisk – Another Darling That Was

The “U” and “T” on our keyboards are worn by relentless typing of uncertainty, tariffs, and Trump. Uncertainty is a term so often mentioned in tandem with stock markets, we question its validity. In many respects, uncertainty is the norm. At Ivy, we try to mitigate this reality by focusing on companies with competitive advantages and reenforcing cultures. We believe that this combination enables resilience in the companies we decide to own on behalf of our clients.  

For most of the last two decades, Novo Nordisk was the exception, it was a sure thing. Novo Nordisk, a previous Ivy holding, is like Eli Lilly one of the world’s leading diabetes and obesity companies. These two companies have dominated the industry for diabetes for close to a century. During the last 20 years, Novo has been a standout with high growth, a stable competitive environment, an excellent corporate culture, clean accounting and a strong balance sheet. The question that always remained was its expensive valuation. In retrospect, we know that valuation concerns were misplaced given the company’s ability to exceed expectations, a hallmark of a “quality” company. Today Novo is the opposite, soaked in uncertainty. While uncertainty can be a source of its own problems, especially when it grows unchecked or is uncompensated, it’s often a source of return.  This led us to reinitiate a position in Novo¹.

A key turning point in the company losing its darling status came when the company’s share price fell more than 20% on a single day in late 2024. This happened following the release of REDEFINE I data on its next generation obesity drug CagriSema. The results showed patients lost less than the targeted 25% of their body weight. Shortly thereafter the company’s main competitor Eli Lilly reported strong data on its oral obesity and diabetes tablet Orforglipron. Through the early parts of 2025, compounding of semaglutide remained in the US market for longer than expected. In keeping with the geopolitical uncertainties under the current US administration, some bearish investors argued that Novo, given its Danish headquarters, could become a bargaining chip in an Art of the Deal-style bid by President Trump to acquire Greenland. A final layer of complexity, specifically with regards to the company’s culture, arose when Novo dismissed its CEO without naming a successor. Novo is not merely soaked in uncertainty; it's drenched. So why own it?

In our view, uncertainty isn’t just a risk, it can also be seen as an entry price for long-term opportunity. And when the noise is loudest, the signal can be clearest. With Novo, we believe its advantages and culture are intact. Conversations with prescribers highlighted that REDEFINE 1 was the single best phase 3 obesity trial completed. Follow up research confirmed that patients were on occasion losing too much weight and often were asking to have their doses reduced. This meant that despite the molecule’s extreme potency, patients in aggregate lost less weight than projected. Following this execution mishap, the company has adjusted its trials for several other molecules, some of which are better publicised than others.

The potential competitive threat from Orforglipron is also not one sided. In the U.S., reimbursement challenges will likely limit its uptake, a point that we expand on below. International markets may be more fertile ground for Orforglipron, but this is where Novo has already established deep distribution channels and brand equity with Ozempic and Wegovy. While Orfoglipron may avoid the logistical complexity and capital intensities associated with injectables, its ability to dominate the market is far from certain.

In the U.S., the market may commoditize much faster than expected supported by recent communications and actions from the incumbents. We believe this could nullify attempts at entry from new players, leaving the market to Novo and Lilly. This is consistent with their century’s old dominance of the insulin market. Novo is well positioned to retain its position given a low-cost manufacturing strategy. Following its Q1 results, Novo was repeatedly questioned: if the market in the US is so large at around 90 mln patients, then why does the market share of compounders at only 1 mln patients matter? The volume captured by these now illegal suppliers is a rounding error. Novo’s answers and actions suggest it believes the US insurers are unlikely to reimburse these drugs beyond extreme cases with significant co-morbidities. The common refrain from the channel is that these drugs will “bankrupt the system”. The only route to widespread adoption in the US is via lower prices. Rather than wait for the pharmacy benefit management (PBM) program to extract rebates, Novo and Lilly are offering low prices directly to consumers. In this context, the low prices narrative suggests Novo’s legacy as a low-cost supplier and long-term focus will be a benefit.

While we admit the situation at Novo is certainly uncertain, we are optimistic.

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1 We held Novo Nordisk in the portfolio in the early 2000’s within the Ivy Foreign Equity fund.

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