Novo Nordisk's Earnings Rise in Q3, 2014 Outlook Narrowed
Novo Nordisk’s (NVO) shares fell 2.2% although the company reported third-quarter 2014 earnings of 44 cents per American Depository Receipt (:ADR), higher than the year-ago earnings of 42 cents. The lowering of the annual guidance disappointed investors leading to a fall in share prices. In the reported quarter, revenues increased 8.7% to $4 billion year over year. The top-line was mainly driven by strong sales of Victoza and modern insulin including Levemir.
All growth rates mentioned below are on a year-over-year and local currency basis.
The Quarter in Detail
Total revenue grew 10% in local currency driven by sales growth in North America (up 15%), international operations (up 16%) and China (8%).
Novo Nordisk's diabetes care segment recorded sales growth of 12%. Modern insulin generated strong revenues (up 15%) driven by NovoRapid (up 11%), NovoMix (up 5%) and Levemir (28%). Novo Nordisk's key drug, Victoza, witnessed sales growth of 21%, primarily due to higher demand in North America.
Sales in the biopharmaceuticals segment increased 2%. Norditropin’s sales were up 20%, partially offset by a 14% decline in NovoSeven’s sales. Other products witnessed 24% sales growth.
Research and development (R&D) expenses increased 32% due to diabetes pipeline development. Administration costs were up 10% due to increased back-office infrastructure costs. Sales and distribution costs increased 8% year over year.
Pipeline Update
Novo Nordisk is working on strengthening its pipeline. In Sep 2014, Xultophy received marketing authorization for the treatment of type II diabetes mellitus in the Europe.
Currently, the company is enrolling patients in the cardiovascular outcomes study (:DEVOTE) on Tresiba. Data supporting a pre-specified interim analysis of the study is expected in early 2015. Based on interim data, the company will decide whether to submit the result of this interim analysis to the FDA or to wait for the completion of the study. The study should be completed by 2016–2017 timeframe.
Additionally, Novo Nordisk is conducting a 30-week long, open-label, phase IIIa study to evaluate the efficacy and safety of monotherapy with once-weekly semaglutide in comparison with once-daily sitagliptin for the treatment of type II diabetes in Japanese patients.
Meanwhile, Saxenda (liraglutide 3 mg) received a favorable (14-1) vote and is under FDA review for chronic weight management. A response from the FDA is expected shortly.
2014 Revenue Outlook Narrowed
Novo Nordisk has narrowed its 2014 revenue outlook and now expects sales growth in the range of 7%−9% (previously expected in the range of 7%−10%). This revision reflects expectations towards lower NovoSeven sales and a lower market growth in China. However, the company continues to expect strong performance from Victoza, modern insulin with modest sales of Tresiba, which will be partly offset by generic competition for Prandin in the U.S., increased competition for diabetes and biopharmaceuticals products in international operations and adverse effects of rebate and contracts in the U.S.
Novo Nordisk maintained its guidance for operating profit growth around 10% in local currencies.
Our Take
Although Victoza and Levemir performed satisfactorily, the company faced a tough time sustaining revenue growth owing to generic competition for Prandin and challenging rebate and contract environment in the U.S. The narrowing of annual guidance due to lower market growth rate in China was disappointing. We expect investor focus to remain on updates on Saxenda.
Novo Nordisk carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are AbbVie Inc. (ABBV), Allergan Inc. (AGN) and Gilead Sciences Inc. (GILD). All these stocks carry a Zacks Rank #2 (Buy).
Read the Full Research Report on AGN
Read the Full Research Report on GILD
Read the Full Research Report on NVO
Read the Full Research Report on ABBV
Zacks Investment Research
