All amounts are expressed in US dollars, and are converted from Danish Krone to US dollars at the rate of 1 krone =$.185 US

Shares outstanding (fully diluted) 320.1 million

Current assets – total liabilities (as of June 30^th, 2007):  $1479.7 million.

Current Enterprise Value:  $34.33 billion.

Estimated EBITDA 2007:  $2.6 billion.

Estimated 2008 EV:  $32.5 billion.

Estimated 2008 EBITDA:  $2.9 billion

Estimated 2009 EV:  $30 billion.

Estimated 2009 EBITDA:  $3.3 billion.

Novo Nordisk is the world's leading pharmaceutical company specializing in diabetes care.

NVO sells and produces a wide range of insulin and diabetes products and pharmaceuticals.  Total market share on a global basis continues to grow.

Novo is also an important producer of hemophilia, growth hormone and hormone replacement therapy drugs.

NVO has a blockbuster drug in the wings.

Liraglutide is an insulin product now in late stage phase 3 testing.  The drug triggers the release of insulin and reduces appetite.

There is a growing view that Liraglutide is statistically superior to insulin glutide (glargine), both in terms of blood glucose control and weight loss.  The ability to control weight seems so pronounced, that Liraglutide is presently undergoing phase 2 trials as a weight loss drug.

Approval of Liraglutide for diabetes management should produce incremental revenues of $1 billion + in short order.  FDA clearance for use of Liraglutide as a weight management drug could propel sales 2-3X above this forecast.

Perhaps (at least partially) in anticipation of a potential FDA approval for Liraglutide within the next 12 months, NVO has elected to increase the number of US sales reps by 600 persons, or 46%.  

http://www.marketwatch.com/news/story/novo-nordisk-jumps-postive-data/story.aspx?guid=%7B0B6702F4-4335-41F4-91DC-ACB28DEA26F5%7D

I am pleased to report that Wall Street virtually ignores NVO in terms of research.

Yahoo indicates that just 3 US brokerage firms cover NVO, up from 2 a few months ago. 

By way of comparison, SGP, a firm with only a slightly larger market cap, has 17 firms providing coverage. TEVA, a firm with a much smaller market cap, has a following of 23 analysts.  LLY, a firm with a market cap about 65% larger than NVO, has a 19 analysts who provide coverage.

Some of Wall Street's indifference may be linked to an INTEGRATED investment banking model employed at most major investment firms.

Wall Street has a marked preference towards providing coverage on US listed firms which can be "cross-sold" a variety of investment banking services.   This includes M&A services, debt management services and/or equity undertakings.   On occasion, major brokerage firms extend the courtesy of providing research on stocks that don't fit their revenue model, but which are included in major North American indexes.

Novo Nordisk meets none of those criteria.  While the firm has a $35 billion + market cap, most securities firms simply aren't interested in a a debt free European company, not present in a North American index, which buys back stock using cash flow...rather than make acquisitions.  When one combines the terms "European" & "debt free" with "non-acquisitive", it is almost assured that top drawer US research will be difficult to come by.    

The "politics" of Wall Street may also explain why US coverage on NOVO is limited. 

Novo Nordisk is the number #1 competitor for several US pharmaceutical firms considered to be core investment banking clients for leading brokerage firms.  Public, positive coverage of NVO would be disruptive for these companies, in a myriad of ways. 

The investment banking relationships that US firms have with NVO's large pharma competitors are strong.  Conflicts of interest are inevitable.  Even should brokerage analysts privately find NVO to be of their liking, it becomes difficult for them to produce a report, rating this company above peers.   Glowing appraisals of Novo Nordisk vs important US clients could damage these longstanding business relationships, and would be "career killers" for analysts. 

Consequently, in the various peer comparisons put forth,  I believe that Novo's current and future prospects are generally talked "down" whereas US firms are generally talked "up".

All this understatement makes Novo Nordisk an inexpensive blue chip.

Wall Street's own constraints, with respect to their research departments, are immaterial to this blog.  Therefore, I can attest that NVO represents one of the cheapest "large"  NYSE listed pharmaceutical companies in the world, with the absolute lowest profile on Wall Street.   

The ADR's will split 2 for 1 later this year.

This may improve liquidity somewhat, and potentially lead to a wider investment following. 

I consider Novo Nordisk to be THE core holding among large cap pharmaceutical companies.

Most "large cap" US pharmaceutical firms carry healthy financial leverage.  This leverage largely accounts for the reason that US firms sport a lower p/e ratio than NVO.  Some have substantial  debts buried in the form of research partnerships, which are held "off" the balance sheet.  Several of the important US drug companies have unquantified potential for liabilities, due to pending litigation.  Legal costs eat up valuable cash flow, even when unfounded.  I try to avoid "ligitation heavy" stocks.

In contrast, Novo Nordisk sells for a considerable discount to the average large cap pharmaceutical firm on an EV/EBITDA basis.  The company throws off a prodigious amount of cash and is litigation light.  The balance sheet is flawless and the earnings quality is very high.

EBITDA margins exceeded 31.5% in the second quarter of 2007. Management notes that margins are likely to remain stable/improve for the balance of the year.

Diabetes appears to be the fastest growing medical condition in the world today and  represents an industry that I wish to participate in. 

If approved for diabetes care, Liraglutide has the potential to quickly increase NVO's annual revenues by at least 15%, and annual EBITDA by 23-25%.  This would be over and above my forecast.  I won't even hazard a guess as to how revenues might ramp up, if the drug is ALSO cleared for weight loss.

NVO will be included in the blog model portfolio at the current price.

Novo presently sells for 13X my 2007 year end estimated EV/EBITDA.  I want to own a rapidly growing stock in a rapidly growing industry, and have no hesitation to pay up for quality.  Thankfully, due to Wall Street's lack of coverage, I get to own (what I consider to be) the best stock in its industry...for the lowest EV/EBITDA in its class.

The stock will be weighted equally to all other holdings in the account.  In addition, I am purchasing shares personally at the current market price.

A link to the current NVO earnings report may be found here

http://www.novonordisk.com/include/asp/exe_news_attachment.pdf?sAttachmentGUID=a625c390-c5a3-480f-8a0d-01216ec8f9ff