Novo Nordisk buys UK biotech startup for $800M, fueling blockbuster hopes for “smart” insulin. This Danish behemoth is a smart Buy.

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The News:

Novo Nordisk A/S (Bagsvaerd) has acquired UK start-up Ziylo Ltd. (Bristol) in a deal worth up to $800 million in a bid to develop the world’s first “smart” insulin, capable of varying its effectiveness depending on how much glucose is present in a patient’s bloodstream.

The Danish pharma bought Ziylo to access its synthetic glucose binding molecule technology, designed by professor Anthony Davis at the University of Bristol. These stable, synthetic molecules are highly selective to glucose in complex environments such as blood, says Pharmaphorum.

The idea behind glucose responsive insulin is to create a therapy that modulates its potency, concentration, or dose relative to a patient’s dynamic glucose concentration. This would help eliminate the risk of hypoglycemia, the main danger associated with insulin therapy and one of the main barriers for achieving optimal glucose control.

Novo hopes that combining Ziylo’s technology with state-of-the-art insulin would create the world’s first glucose responsive insulin, transforming treatment of diabetes. It acquired all shares in Ziylo for an upfront payment and earn-outs with contingent milestone payments. Total payments under the agreement could exceed $800 million upon the achievement of certain development, regulatory and sales milestonesset by Novo Nordisk.

Before closing the deal, research activities were spun out of Ziylo to a new company, Carbometrics. Carbometrics has entered into a research collaboration with Novo Nordisk to assist with ongoing optimization of glucose binding molecules for use in glucose responsive insulin. Carbometrics also has licensed rights to develop non-therapeutic applications of glucose binding molecules, with a focus on developing continuous glucose monitoring applications.

Marcus Schindler, senior vice president of global drug discovery at Novo Nordisk, said:

“We believe the glucose binding molecules discovered by the Ziylo team together with Novo Nordisk’s world-class insulin capabilities have the potential to lead to the development of glucose responsive insulins which we hope can remove the risk of hypoglycemia and ensure optimal glucose control for people with diabetes.”

Steve’s Take:

Did you know that Novo Nordisk is the world’s eighth-largest independent biotech company by market cap ($112B)? Did you also know that Novo’s history started when its founder, August Krogh, received the Nobel Prize in Medicine in 1920? I didn’t.

I’ll start my take by saying, flat out, that this is a very smart move by the Danish big-pharma. Already a colossus in the diabetes space, Novo will use the technology to develop so-called “smart” insulin treatments for diabetics–designed to be taken once a day–that are only active when a patient’s blood sugar levels are too high or too low, LaBiotech reports.

Steve's Take: @NovoNordisk's acquistion of #Ziylo is a very smart move by the #Danish #pharmaceutical Click To Tweet

Smart insulin could lead to safer diabetes treatments by reducing the risk of low blood sugar or “hypos,” one of the main side effects of insulin therapy. Like conventional insulin, the technology is designed to keep high blood sugar–the hallmark symptom of diabetics–in check. But unlike normal insulin, it is designed to “switch off” when blood glucose gets too low or switch on when it gets too high.

While companies have been trying to develop smart insulin for several years, it hasn’t been a simple undertaking. For example, in 2010, US startup SmartCells was bought by Merck & Co. (Kenilworth NJ) for $500 million to bring its smart insulin drug candidate into clinical testing. Merck entered the drug candidate into a Phase 1 trial, but was unable to demonstrate its efficacy and as a result terminated its development.

With the disease being the seventh leading cause of death in the world, there are more than 500 million people living with diabetes worldwide–and the numbers are rising, says Gemma Milne for Forbes.

“Novo Nordisk is the ideal company to maximize the potential of the Ziylo glucose binding molecules in glucose-responsive insulins and diabetes applications, and it brings hope of a truly groundbreaking treatment to diabetes patients,” said Harry Destecroix, PhD, CEO and cofounder of Ziylo. “Novo Nordisk is the leader in the diabetes field, with deep clinical development and regulatory expertise and an established commercial infrastructure to deliver important new therapies to patients.”

Worth repeating is that before the acquisition, parts of the research activities in Ziylo were spun up into a new company, Carbometrics, which has entered into a research collaboration with Novo Nordisk. Carbometrics has licensed rights for all non-therapeutic uses of glucose binding molecules, so will be focusing on applications in diagnostics and glucose monitoring. The move means that this platform technology, with the potential to have many uses beyond smart insulin, can continue to develop alongside the pharmaceutical company’s efforts.

Ziylo was cofounded and set up by 31-year-old Harry Destecroix while finishing his doctorate in Davis’s lab. After struggling to find suitable lab space for the growth of the company, Destecroix cofounded Unit DX–now a thriving science incubator in the center of Bristol. Carbometrics will stay on site at Unit DX in Bristol, and as the anchor tenant in the space, will act as validation for the model of encouraging more university tech transfer outside the university campus in a collaborative business environment.

(I’ll keep my eyes on Carbometrics for you. There’s real investment promise there down the road, in my opinion.)

With Unit DX now home to over 25 science and engineering companies–with a focus on bio-design and quantum technologies–Bristol might soon be home to even more high-value deals in the deep tech space.

Bottom Line:

It could take 10 years before the new “smart” insulin treatment comes to market, with the $800-million deal staged based on the potential success of the treatment, says MarketScreener.com. That’s quite a long time in the eyes of hungry and impatient investors, if they’re right.

But let’s look at some numbers, shall we?

Novo Nordisk shares closed Wednesday, September 5, 2018 at 307.875 DKK in Copenhagen and $48.05 in New York, off about 2% for the week.

Among the 28 financial analysts who follow the company, the mean consensus rating is Outperform.

The average 12-month target price is 326.0 DKK.

The spread to the average target is 5.8%

However, the spread to the highest target of 450.0 DKK is 46.1%

The spread to the lowest target of 200.0 DKK is -36%

As I said, investors tend to be highly impatient. Stocks move up and down throughout each day, week and year. Over the long run, the stocks of healthy and growing companies should increase in value, making shareholders wealthier. But even great companies’ stocks have languished for months or even years–and terrific investments can also fall in value for a while.

Will this buy of “smart” insulin developer Ziylo pay off for Novo in a week, or a month? That’s far too short a time horizon to expect to hit the jackpot.

Fortunes have been made by investing in great companies and then hanging onto the shares for many years. Just ask Warren Buffet. If you don’t have the confidence to remain invested in individual healthcare companies, for example, consider Blackrock’s sector funds, which have performed admirably the past 10 years or plowing your retirement money into a low-fee broad-market index fund, such as one that tracks the S&P 500.

Novo Nordisk’s ADRs were recently trading around $48. Yes, it’s facing pricing pressures for its diabetes drugs with chief competitors including J&J, Pfizer, Roche Holding, Novartis and Merck & Co. But it now has the inside track on a potential blockbuster treatment for a mammoth patient population.

In my opinion, Novo is a Buy.

Novo Nordisk’s B shares are listed on Nasdaq Copenhagen under the symbol “NOVO-B.” Its American Depositary Receipts (ADR) are listed on the New York Stock Exchange under the symbol “NVO.” The exchange rate as of Sept. 5, 2018 is 1.00 US Dollar = 6.50 Danish kroner (DKK).

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