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Novo Nordisk (NVO) Q1 Earnings and Revenues Miss Estimates

Zacks Equity Research

Novo Nordisk A/S NVO reported first-quarter 2019 earnings of 58 cents per American Depositary Receipt (ADR), missing both the Zacks Consensus Estimate of 62 cents and the year-ago figure of 59 cents.

Although quarterly revenues were up 8.6% year over year [up 4% at constant exchange rate (CER)] to $3.92 billion, the top line lagged the Zacks Consensus Estimate of $4.35 billion.

In the past year, Novo Nordisk’s shares have increased 6.1%, outperforming the industry’s flat growth.

All growth rates mentioned below are on a year-over-year basis.

Quarter in Detail

Novo Nordisk operates through two segments: Diabetes and Obesity care plus Biopharmaceuticals.

The Diabetes and Obesity Care segment sales increased 8% in Danish kroner and 4% at CER. Sales of insulin rose 5%, measured in Danish kroner to DKK 15,393 million, and 2% at CER. Sales of long-acting insulin (Tresiba, Xultophy and Levemir) improved 8% in Danish Kroner to DKK 5,244 million.

Sales at the Biopharmaceuticals segment inched up 3%, measured in Danish kroner, and have been unchanged at CER to DKK 4,473 million. Hemophilia sales were nudged up 1% in Danish kroner and dipped 3% at CER.

Research and development (R&D) expenses were down 19% in Danish kroner and 21% at CER, reflecting reversal of write-downs on clinical prelaunch inventory of approximately DKK 500 million following the filing of oral semaglutide to the FDA.

Also, administrative costs climbed 5% in Danish kroner and 3% at CER, mainly due to higher expenditure across regions in International Operations.   

Sales and distribution costs ascended 8% in Danish kroner and 3% at CER owing to resource allocation to the growth markets and promotional activities for Victoza  and Saxenda as well as launch activities for Ozempic.

Other Updates

In February 2019, Novo Nordisk announced the FDA’s approval of its biologics license application (BLA) for Esperoct to treat adults and children with haemophilia A. Esperoct is the brand name for turoctocog alfa pegol, N8-GP. In the United Sttaes, Esperoct is indicated for use in adults and minors with haemophilia A, using routine prophylaxis to reduce frequent bleeding episodes as well as on-demand treatment for controlling bleeding episodes and the perioperative management of bleeding.

Later this March, concizumab was granted a Breakthrough Therapy Designation (BTD) for prophylaxis to prevent or lower the frequency of bleeding episodes in people with haemophilia B and inhibitors by the FDA.

2019 Outlook

Novo Nordisk expects 2-5% sales growth (in local currencies). This reflects a strong performance for the portfolio of new-generation insulin and the GLP-1 pipeline, now comprising both Victoza and Ozempic as well as a solid contribution from Saxenda and the suite of new-generation insulin. However, this sales rise is expected to be partly offset by an intensifying global competition within Diabetes Care and Biopharmaceuticals, especially in the haemophilia inhibitor segment.

Persistent pricing pressure within Diabetes Care, especially in the United States, might also  negatively impact the sales drive. A positive currency impact of 3 percentage points is expected as well.

Operating profit growth is anticipated to be 2-6%, reflecting the outlook for sales growth and an impact from the firm focus on cost control. Growth reported in Danish kroner is estimated to be around 5 percentage points, higher than the tally in local currencies.

Our Take

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 and a stiff rivalry within the diabetes and biopharmaceuticals markets besides macroeconomic conditions in many markets under International Operations. The company is optimistic about Ozempic and results for oral semaglutide. It is looking forward to making the first oral GLP-1 treatment available for people with type II diabetes.

In April 2019, Gilead Sciences, Inc. GILD and Novo Nordisk announced that the companies intend to collaborate on a clinical trial combining compounds from their respective pipelines in nonalcoholic steatohepatitis (NASH). This intended clinical trial will be a proof-of-concept study combining Novo Nordisk's semaglutide and Gilead's cilofexor (FXR agonist) and firsocostat (ACC inhibitor) for the treatment of patients with NASH.


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 has a Zacks Rank #3 (Hold).

Some better-ranked stocks from the same space are Eli Lilly and Co. (LLY) and AbbVie Inc. (ABBV), both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  (Strong Buy) stocks here.

Lilly’s LLY earnings per share estimates have increased from $5.60 to $5.66 for 2019 and from $6.42 to $6.59 for 2020 in the past 90 days. The company delivered a positive surprise in three of the trailing four quarters, the average being 3.63%.

AbbVie’s ABBV earnings per share estimates have increased from $8.68 to $8.81 for 2019 and from $9.26 to $9.36 for 2020 over the past 60 days. The company came up with a positive surprise in three of the trailing four quarters, the average being 2.58%.

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