Novo Nordisk just made a $530 million move on Moderna’s turf. Here’s what it means for both stocks

On September 16 Novo Nordisk (NGO 0.04%) and Korro Bio (KRRO -1.45%) have announced that they will begin a new multi-hundred million dollar drug development collaboration in an area that most would assume is Modernhis (MRNA -2.96%) the territory of origin. It’s natural for investors to wonder if the competitive landscape in biopharma might have changed much.

And it might — but probably not in the way some expect. Let’s examine the rationale behind this new team and clarify how it affects other players in the industry.

This new collaboration is a competitive piece

Novo Nordisk’s deal with Korro is worth a total of $530 million in research and development (R&D) funding, milestone payments, royalties and upfront payments. This makes the deal a substantial but fairly common one for the big pharma business and a huge (potentially) once-in-a-lifetime catch for the small biotech.

Although the details of the intent of the collaboration are not disclosed, the two companies will work on the development of cardiometabolic therapies. If Novo Nordisk deems Korro’s candidates to be worthwhile, it will have the exclusive right to license them or take over the clinical part of the development process as well as commercialization.

Korro Bio specializes in RNA editing. Specifically, its platform enables the editing of messenger RNA (mRNA) before it is translated into proteins by cellular machinery. You can think of his approach as making corrections to copies of subtly defective manufacturing instructions (mRNAs) even before they are handed off to the various factories for manufacturing. Then, with the newly corrected instructions, the factories create proteins that work properly instead of those that cause disease.

Given Novo Nordisk’s similar laser focus on developing new therapies to treat type 2 diabetes and obesity, such as its blockbuster drugs Ozempic and Wegovy, the likely intent of this deal is to seed its pipeline with opportunities to makes even stronger interventions within the same target. markets. But Korro’s programs aren’t yet close to clinical-stage testing, and there isn’t a strong proof-of-concept for its approach.

Still, it’s a big green flag for the biotech stock that a hungry behemoth like Novo Nordisk is willing to make such a substantial financial commitment to see what it can do. Similarly, it’s a plus that big pharma’s thirst for new candidates to treat cardiometabolic disease is expanding into modalities like genetic medicine, which until now were outside its wheelhouse. But there’s no guarantee of success here, nor is Novo Nordisk yet to gain anything tangible from its commitment to Korro.

So it’s a bit premature to take this latest development as a distinct reason to buy Novo Nordisk stock.

There are plenty of other reasons to buy it, of course. Over the past three years, normalized trailing 12-month (TTM) diluted earnings per share (EPS) rose 81% to $2.91. Additionally, Wall Street analysts, on average, expect EPS of $5.17 two fiscal years from now, so I think the fast pace of growth will continue.

Should Moderna Investors Sweat?

Now, back to the issue that some of Moderna’s investors may think is plaguing its stock.

Korro’s focus on mRNA means that it works with exactly the same type of RNA that Moderna focuses on. However, there isn’t really an opportunity for a head-to-head competition here, nor is there much chance of Novo Nordisk and Korro engaging in the very areas that Moderna might be interested in.

While Moderna is adept at performing various mRNA-related gene editing techniques, it is not currently developing any programs for therapeutic (and repeatedly) edit copies of a patient’s mRNA to produce specific proteins.

To continue the manufacturing instructions metaphor, Moderna’s infectious disease vaccines are simply copies of the instructions to make proteins that the patient’s body may not have had before. There is no proofreading of any copy; the intention is not to prevent the circulation of incorrect instructions that cause disease when implemented at scale, but rather to manufacture things for which there were no previous instructions.

So while mRNA is definitely Modern’s home turf, Korro Bio doesn’t threaten it in any way by claiming a different subset of the same domain. In other words, Moderna is not in danger, so I wouldn’t sell its stock above that.