* Pfizer deal with Biocon spooks Novo investors
* Increased threat of cheap competition in insulin market
* But hurdles remain, including developing delivery devices
* Shares down around 10 percent in less than two days
By Anna Ringstrom and Ben Hirschler
COPENHAGEN/LONDON, Oct 19 (Reuters) - Fears of cut-price competition in the insulin market sent shares in Novo Nordisk skidding again on Tuesday, lopping some 10 percent off the Danish drugmaker's market value in less than two days.
The threat from so-called biosimilar insulins has been crystallised by Pfizer's agreement to sell versions of insulin developed by India's Biocon.
Piper Jaffray senior analyst Sam Fazeli said the news was a sudden reminder of the likelihood of generic insulin competition in a few years' time and shares in Novo -- the European drug sector's star performer this year -- could drop even more.
"The real risk from generic insulin is far out, but Novo's valuation was so high it was vulnerable," he said.
"They are taking a hit because they are the most expensive pharma company in the world. In order to have that kind of valuation, you need to have a business that is bullet-proof."
Fazeli, who has a neutral stance on Novo's shares with a price target of 495 crowns, added that if Biocon had made a deal with any drugmaker other than the world's biggest "maybe people wouldn't have been so worried".
The Danish drugmaker, the world's biggest supplier of insulin, has been on a roll since mid-2009 on hopes for its new diabetes drug Victoza and confidence in its insulin franchise.
Expanding waistlines globally have fuelled an epidemic of type-2 diabetes that has boosted demand for its products.
PFIZER AMBITIONS
The looming challenge from Pfizer is a blow but arguably no great surprise, given the U.S. company's stated ambitions to become a major player in biopharmaceuticals.
Novo spokesman Mike Rulis said his company expected generic competition after patents for its modern insulins expired.
"Nothing in this has changed the playing field. We believe both our existing products and, not the least, our upcoming new products will remain very competitive," he said.
Biosimilars -- copies of complex biotech drugs that are comparable, though not identical, to the original product -- are also a long-term threat for other companies making biological medicines, like Roche and Amgen.
Sanford Bernstein analyst Jack Scannell said that with biosimilar insulins still at the development stage, their success was not guaranteed -- but he noted that the deal between Pfizer and Biocon was the first of its kind.
"Pfizer said they may be ready for launch in Europe in 2012, and possibly 2015 in the U.S., but Novo sales could be affected in developing markets where Biocon already sells biosimilar drugs in the relatively near term," Scannell said.
"But I do think it will be tough commercially, and a long and hard battle to really take on Novo in its major markets."
Some investors have decided to cash in face of the Pfizer threat. Novo shares shed 4.2 percent to 489.70 crowns at 1445 GMT, after a 5.1 percent tumble on Monday, while the STOXX 600 European healthcare index fell 1 percent.
Novo remains very expensive, trading at around 21 times expected 2010 earnings based on consensus forecasts, or roughly double the European pharmaceuticals sector average.
DELIVERY DEVICE
One key hurdle that any biosimilar manufacturer will have to overcome is making a competitive delivery device. Novo's pen injection systems have proved popular with patients and may be hard to replace.
Deutsche Bank analyst Tim Race said the Pfizer/Biocon deal was unlikely to impact earnings between 2010 and 2014 and the shares should stabilise.
But they may remain weak ahead of an Oct. 22 U.S. regulatory decision on Eli Lilly and Amylin's experimental diabetes drug Bydureon, a rival to Novo's Victoza, he added. (Additional reporting by Shida Chayesteh and Mette Fraende in Copenhagen; Editing by Michael Shields)