Novo Nordisk (NVO) reported fourth-quarter 2014 earnings of 42 cents per American Depository Receipt (ADR), up 1.7% from the year-ago period. Revenues increased 4.2% year over year to $4.1 billion. 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 11%), international operations (up 20%) and China (10%). Although North America was a major contributor from the geographical perspective, partial loss of reimbursement with a large pharmacy benefit manager in North America and expanded Medicaid and Medicare Part D utilization negatively affected growth.
Novo Nordisk’s diabetes care segment recorded sales growth of 9%. Modern insulin generated strong revenues (up 6%) driven by NovoRapid (up 4%) and Levemir (13%) and NovoMix (flat year-over-year). The company’s key drug, Victoza, witnessed sales growth of 19%.
Sales in the biopharmaceuticals segment increased 12%. Norditropin’s sales were up 10% while NovoSeven’s sales increased 9%. Other products witnessed 31% sales growth.
Research and development expenses increased 6% due to diabetes pipeline development. Sales and distribution costs remained flat year over year while administration costs decreased by 2%.
Full Year Results
In 2014, earnings per share increased 7.8% year over year to $1.79 per share. The company generated revenues of $15.8 billion, up 6.4% from the previous year.
2015 Outlook
Novo Nordisk expects sales growth in 2015 in the range of 6%−9%. The company expects strong performance of modern insulin as well as Victoza and Tresiba. New launches like Saxenda and Xultophy are also expected to contribute to the top line.
However, Novo Nordisk expects sales to be affected by increase in rebate levels in the U.S. and intensifying competition in the diabetes and biopharmaceuticals markets coupled with macroeconomic factors in a number of markets in International Operations.
Novo Nordisk expects operating profit growth around 10% in local currencies.
Pipeline Update
Novo Nordisk is working on strengthening its pipeline. In Dec 2014, Novo Nordisk completed the phase IIIb DUAL V study on its diabetes product, Xultophy. Xultophy was launched in Switzerland in Jan 2015 following its approval in Sep 2014.
Novo Nordisk’s obesity drug, Saxenda, received FDA approval for the treatment of obesity in Dec 2014. The company is preparing for the U.S. launch of the drug in the first half of 2015. Additionally, Novo Nordisk expects to receive marketing authorization for the product from the European Commission in the March-April timeframe. Notably, the European Medicines Agency’s Committee for Medicinal Products for Human Use recommended Saxenda for the treatment of obesity In Jan 2015.
Meanwhile, the company completed patient enrolment in the cardiovascular outcomes study (DEVOTE) on Tresiba and accumulated the required number of major adverse cardiovascular events (MACEs) for conducting a pre-specified interim analysis. The company said that it will decide during the first half of 2015 whether to submit the result of this interim analysis to the FDA or to wait for the completion of the DEVOTE study. The full study is expected to be completed in the second half of 2016.
Additionally, in Dec 2014, Novo Nordisk initiated the sixth and final pivotal study (SUSTAIN 5) in the global phase IIIa program on semaglutide as a treatment for type II diabetes. The study will investigate the efficacy and safety of semaglutide as an add-on to basal insulin compared to placebo.
Our Take
With Victoza, Levemir and Tresiba performing satisfactorily, Novo Nordisk’s 2014 performance was encouraging. However, the company faced a tough time sustaining revenue growth owing to generic competition for its oral anti-diabetic drug, Prandin, and challenging rebate and contract environment in the U.S. In 2015, new launches are expected to support top-line growth.
We expect investor focus to remain on updates on the DEVOTE study.
Novo Nordisk carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the health care sector are Impax Laboratories Inc. (IPXL), AbbVie Inc. (ABBV) and Mallinckrodt plc (MNK). While Impax holds a Zacks Rank #1 (Strong Buy), AbbVie and Mallinckrodt carry a Zacks Rank #2 (Buy).
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