Goldman Sachs upgrades Novo Nordisk to "Buy"

Analyst John Murphy said Novo Nordisk shares have underperformed its peers by about 10 percent over the past three months, providing an excellent entry opportunity for long-term investors.

He said the market has likely been nervous about potential competitors to Novo Nordisk's GLP-1 class diabetes treatment liraglutide. At the recent American Diabetes Association meeting, Novo Nordisk released data showing once-daily liraglutide sharply reduced blood sugar levels, and also helped with weight loss and reduced the risk of hypoglycemia.

Rival drug Byetta, made by San Diego-based Amylin and Indianapolis-based Eli Lilly, has been a popular treatment option since it hit the market in 2005 and generated 2007 sales of $636 million, but the easier dosing regimen of liraglutide makes it a strong competitor.

However, Amylin, Eli Lilly and Alkermes Inc. are developing a once-weekly version of Byetta, called LAR exenatide, which proved effective in late-stage studies. Wall Street is anxious to see how it will compare against liraglutide, which will likely make it to market first.

Murphy said Novo may have to spend more to successfully differentiate its product in the diabetes market. However, the drugmaker's limited patent concerns and significant exposure to the global diabetes epidemic make it a strong growth opportunity for investors.

In afternoon trading, shares rose $2.17, or 3.4 percent, to $65.45.