Novo Nordisk (NVO) Misses Q4 Earnings Estimates, Sales Beat

Novo Nordisk A/S NVO reported fourth-quarter 2017 earnings of 53 cents per American Depositary Receipt (“ADR”) missing the Zacks Consensus Estimate of 57 cents. However, the reported figure was ahead of 50 cents earned a year ago.

Quarterly revenues were up 3% year over year (up 1% in local currency) to $4.42 billion. The top line also beat the Zacks Consensus Estimate of $4.27 billion.

So far this year, Novo Nordisk’s share price has increased 51.3% compared with the industry’s gain of 21%.

 

 

Notably, all growth rates mentioned below are on a year-over-year basis and in local currency.

Quarter in Detail

Novo Nordisk operates through two segments: Diabetes and obesity care, and Biopharmaceuticals.

In the quarter, the company’s top line improved on the back of growth in new-generation insulin, Victoza, Saxenda, and  haemophilia products, partly offset by Vagifem, modern insulin, human growth disorders and human insulin. Sales growth in local currencies was driven by 4% growth in International Operations, partly offset by 1% sales decline in North America Operations. This downturn in North America Operations was due tolower modern insulin and growth disorder sales andlower Vagifem sales following the launch of a generic version. Operations were negatively impacted due to rebate adjustments related to prior quarters in 2017 in the modern insulin segment.

The Diabetes and Obesity Care segment recorded sales growth of 4% in local currency in the quarter. While, sales of modern insulin, Levemir and decreased a respective 9%, 11% and 11%, the same of NovoMix increased 1%. Meanwhile, the company’s key drug, Victoza, witnessed sales growth of 25%.

Nevertheless, sales at the Biopharmaceuticals segment declined 10%. Hemophilia sales were up 3%.

Research and development (R&D) expenses were down  11%, due to lower research costs following the updated R&D strategy announced in October 2016 that led to the discontinuation of a number of research projects. However, development costs declined due to the finalization of a number of phase IIIb projects for Xultophy and Fiasp as well as the completion of the cardiovascular outcomes trial DEVOTE during 2017, partly offset by costs related to the PIONEER development program for oral semaglutide and other diabetes care development programs.                                                              

Administrative costs also declined by 1%, mainly due to general cost-control initiatives.

Sales and distribution costs increased by 11%, mainly reflecting high promotion costs in preparation of the launch of Ozempic and increased direct-to-consumer activities, both in the United Staes, as well as increased sales and distribution costs in International Operations across all regions, partly offset by reduced manning and broad cost control initiatives.

2017 Results

Sales in 2017 increased 2% in local currencies.  Earnings per ADR in 2017 was $2.34.

Pipeline Update

In December 2017, FDA approved semaglutide injection as an adjunct to diet and exercise to improve glycaemic control in adults with type II diabetes. Ozempic is the approved brand name for once-weekly semaglutide in the United States. The approval of Ozempic was based on the results from the SUSTAIN study and followed a positive recommendation from the FDA Advisory Committee meeting in October 2017.

In December 2017, the Committee for Medicinal Products for Human Use (“CHMP”) under the European Medicines Agency (“EMA”) had adopted a positive opinion, recommending marketing authorisation for Ozempic.

Following the FDA approval of Ozempic in the United States and the recommendation of the CHMP in the European Union, Novo Nordisk plans to initiate a large global cardiovascular outcomes trial by mid 2018. The trial is designed to show a significant reduction in the number of major adverse cardiovascular events in people treated with Ozempic compared with placebo, both in addition to standard of care.

In October 2017, Novo Nordisk submitted a supplemental application to the Japanese Ministry of Health, Labour and Welfare for including data in the label for Tresiba from the DEVOTE trial.

2018 Outlook

Novo Nordisk provided guidance for 2018. The company expects expects sales growth (in local currencies) to be in the range of 2-5% which reflects strong performance for the portfolio of new-generation insulin and the GLP-1 portfolio, now comprising both Victoza  and Ozempic as well as a solid contribution from Saxenda. A negative currency impact of 7 percentage points is also expected.

Operating profit growth is anticipated to be in the range of 1-5% reflectimg the outlook for sales growth and an impact from continued focus on cost control. The outlook also reflects a planned increase in the sales and distribution costs to support the commercialization efforts for the launch of Ozempic. A negative currency impact of 10 percentage points is expected as well.

Our Take

Novo Nordisk’s fourth-quarter results missed earnings, but beat on revenue estimates.

Continued growth from Victoza and Tresiba as well as higher contributions from Saxenda and Xultophy are likely to be partly offset by the impact of lower realized prices in the Unites States, loss of exclusivity for products in hormone replacement therapy, intensifying competition within the diabetes and biopharmaceuticals markets, besides macroeconomic conditions in many markets under International Operations.

 

Novo Nordisk A/S Price, Consensus and EPS Surprise

 

Novo Nordisk A/S Price, Consensus and EPS Surprise | Novo Nordisk A/S Quote

 

Zacks Rank & Stocks to Consider

Novo Nordisk carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the health care space are XOMA Corporation XOMA, Exelixis EXEL and Sucampo Pharmaceuticals SCMP. While XOMA sports a Zacks Rank #1 (Strong Buy), Exelixis and Sucampo carry a Zacks Rank #2 (Buy), each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Exelixis’ earnings per share estimates have moved up from 72 cents to 77 cents for 2018 in the last 60 days. The company delivered positive earnings surprise in the last four quarters, with an average beat of 572.92%. Share price of the company surged 61% over a year.

XOMA’s loss per share estimates have narrowed from 99 cents to 42 cents for 2018 in the last 60 days. The company pulled off a positive earnings surprise in one of the last four quarters, with an average beat of 47.92%. Share price of the company skyrocketed 600% over a year.

Sucampo’s delivered a positive earnings surprise in three of the last four quarters, with an average beat of 15.63%. Share price of the company surged 63.2% over a year.

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