Novo Nordisk Beats on Victoza Sales
Basel, Switzerland-based Novo Nordisk (NYSE:NVO - News) reported earnings of $1.40 per American Depository Receipt (:ADR), in the third quarter 2011, above the Zacks Consensus Estimate of $1.33. Earnings were also ahead of the prior-year earnings of $1.07 per ADR.
The favorable outcome was driven by strong performance of diabetes drug Victoza and lower-than-expected research and development (R&D) expenses.
On a nine-month basis adjusted earnings were $4.09 per ADR versus $3.15 per ADR in the comparable period last year.
Nine Months Numbers
Total revenues grew 11% (in local currencies) over the prior-year period, as strong sales of modern insulins (up 11%) and Victoza (up 196%) offset weakness in human insulins. Health care reforms in the US, several European markets, China and Turkey pulled down revenues by approximately 2.5 percentage points in the reported quarter.
The Diabetes Care segment recorded a growth of 12% in local currencies as strong Victoza revenue was offset by weakness in human insulins, particularly in Europe and North America. Human insulin sales were negatively impacted by intensified price competition and health care reforms.
Novo Nordisk’s most important drug, Victoza, for the treatment of type II diabetes, did well in both the US and EU, contributing 54% to the overall local currency growth. Victoza was launched in China in the quarter.
The Biopharmaceuticals segment recorded a local currency growth of 7% driven by a 7% growth of the haemophilia drug NovoSeven.
Among the geographic regions strong growth in North America (contributing 59%) and International Operations (contributing 21%) was partially offset by weakness in China which was negatively impacted by Chinese health care reforms.
Pipeline Update
Novo Nordisk filed regulatory applications for its much anticipated pipeline candidates, Degludec and DegludecPlus, with the US Food and Drug Administration (:FDA) as well as the European authorities in September 2011. Degludec and DegludecPlus are next-generation insulin analogues for the treatment of type I and type II diabetes.
Degludec is an ultra long-acting basal insulin while DegludecPlus is a fixed ratio combination of Degludec and NovoRapid. The filings were based on data from the BOOST and BEGIN trials.
Data from the trials, which studied more than 10,000 type I and type II diabetes patients, confirmed the safety, efficacy and convenience of both candidates. Late stage data showed that these insulins led to non-inferiority in control of the rate of glycemia with a reduced risk of hypoglycemia.
In late October 2011, Novo Nordisk’s basal insulin Levemir was approved for use in conjunction with Victoza in Europe for the treatment of type II diabetes.
As regards its biopharmaceuticals pipeline, Novo Nordisk announced discontinuation of N7-GP, its recombinant factor VIIa derivative for prophylactic treatment in haemophilia patients with inhibitors. Data presented earlier from the mid-stage study showed a significant reduction in annualized bleeding rate in all three dosage groups compared to the observation period. However, a clear dose response relationship could not be established and hence the trial was stopped after further analysis.
Guidance
Novo Nordisk updated its outlook for 2011. Novo Nordisk now expects sales growth of 10–11% in local currencies (old guidance: 9–11% in local currencies).
The raised guidance also includes the impact of potential generic competition to NovoNorm/Prandin and estimated headwinds from health care reform in the US and Europe. Health care reforms are expected to hurt revenues by 2–3 percentage points in 2011. Reported sales are estimated to grow at a 7.5%–8.5% clip.
In local currencies, guidance for operating profit growth is now in the range of 17%–19% (old guidance: 15%–19%). Reported operating profit is expected to climb in a band of 12.0%–14.0%. The effective tax rate is pegged around 23%.
Novo Nordisk also provided a preliminary guidance for 2012. In 2012, Novo Nordisk expects to record high single-digit growth for revenue and close to 10% growth in operating profit in local currencies. The operating profit guidance is inclusive of the costs of potential launch of Degludec.
The guidance also accounts for the potential impact from generic competition, health care reforms and increased competitive pressures for both the Diabetes Care as well as the Biopharmaceuticals segments. Reported sales are estimated to be around 0.5 percentage points higher and reported operating profit growth is expected to be around 1.5 percentage points higher than the growth measured in local currencies.
Our Recommendation
We have a Neutral recommendation on Novo Nordisk. The stock carries a Zacks #3 Rank (Hold” rating) in the short term.
So far we are impressed by the performance of Victoza, reputedly the biggest drug for Novo Nordisk. Victoza is doing well both in the US and Europe. Moreover, we believe that the next-generation insulin analogues, Degludec and DegludecPlus, hold significant potential for long-term growth at Novo Nordisk. Though we are encouraged by data from Degludec trials, we prefer to remain on the sidelines until Degludec and DegludecPlus gain approval.
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