Shares of Novo Nordisk A/S (NYSE:NVO) are trying to recover from a recent sell-off that occurred after the FDA rejected its new drug Tresiba — citing lack of a pre-approval cardiovascular outcomes study. Tresiba is an insulin analog, which is injected subcutaneously three-times a week to help control the blood sugar level of those with diabetes. Shares plummeted almost 15% on this disappointing news. But the real question now is if this setback has changed the long-term potential of Novo Nordisk or are the shares still a buy?
This rejection does prove that how serious the FDA has become in recent years when it comes to the safety and risk-benefit analysis of potential new diabetes drugs. I’ve noticed several recent moves by the FDA that second my opinion — from Amylin Pharmaceuticals LLC (NASDAQ:AMLN)‘s Bydureon to Bristol Myers Squibb Co. (NYSE:BMY) / AstraZeneca plc (ADR) (NYSE:AZN)‘s SGLT-2 inhibitor Dapagliflozin. The FDA twice declined to approve Bydureon in 2010, with its most serious concern being that the drug might contribute to heart rhythm abnormalities. Similarly, in 2011 the FDA decided not to approve the novel diabetes drug Dapagliflozin until drug-makers Bristol-Myers Squibb and AstraZeneca supply more data on the drug’s benefits and risks.
Though Tresiba proved its efficacy, Novo Nordisk was unable to convince the FDA about the safety of the drug. Despite the fact that both Europe and Japan have approved Tresiba, the FDA has now asked for a new study as a prerequisite for the approval. Moreover, Novo got a warning letter from the FDA, citing other facility issues as well. Novo’s management now faces a dilemma, as they aren’t sure what the next step should be. The major issue is with the design of the study and if that may or may not be completely acceptable to the FDA. Another issue is the length of the trial, as it might take years before the definite results of the study could be known.
I believe, this setback gives Novo’s direct competitor Sanofi SA (ADR) (NYSE:SNY), a major advantage. Sanofi has Lantus, which is a long-acting insulin that is taken once a day for diabetes treatment. Sanofi is also working on a new follow-on to Lantus, which is expected to launch in 2015. Moreover, concerns about what will happen with Tresiba in Europe and Japan remain.
Nevertheless, the setback for Tresiba is hardly a disaster as Novo has a strong future pipeline and its fundamentals remain strong. I believe, this setback will have a very little effect on the Novo Nordisk’s future earnings as it still has the Insulin detemir, a long-acting human insulin analogue for maintaining the basal level of insulin, which the company markets under the trade name Levemir.