Novo Nordisk (NVO) reported first-quarter 2014 earnings of 45 cents per American Depository Receipt (ADR), beating the Zacks Consensus Estimate of 44 cents. Earnings also increased 11% from the year-ago period.
Revenues in the reported quarter were up 5.6% year over year to $3.7 billion but missed the Zacks Consensus Estimate of $3.85 billion.
All growth rates mentioned below are on a year-over-year and local currency basis.
Quarterly Highlights
Total revenue grew 7% driven by strong sales in China (18%), International Operations (up 12%), North America (up 7%) and Japan & Korea (up 8%). Strong sales of Victoza, and modern insulins like NovoMix, NovoRapid and Levemir contributed to the impressive performance during the quarter.
Novo Nordisk's Diabetes Care segment recorded sales growth of 6%. Modern insulins generated strong revenues (up 10%) driven by NovoRapid (up 2%), NovoMix (up 5%) and Levemir (27%). Novo Nordisk's key drug, Victoza is a once-daily human glucagon-like peptide 1 (GLP-1) analogue approved for improving blood sugar (glucose) levels in adult type II diabetes patients. The drug witnessed sales growth of 13%, primarily driven by strong growth in North America and Europe. The growth of Victoza was partly offset by the impact of the partial loss of reimbursement with a large pharmacy benefit manager in the U.S. and a lower volume growth in the GLP-1 segment.
Geographically, North America was the largest contributor to total revenue.
Sales in Novo Nordisk's Biopharmaceuticals segment increased 10%. Sales were driven by International Operations and North America. NovoSeven (up 17%), Norditropin (up 4%) and other products (up 7%) contributed to the increase.
Novo Nordisk's research and development (R&D) and administration costs increased 21% and 4%, respectively. R&D expenses shot up due to the progress in the late-stage diabetes pipeline and oral GLP-1 portfolio. Sales and distribution costs dropped 4% due to lower marketing expenses in North America and Europe.
Pipeline Update
DEVOTE – the cardiovascular outcomes study protocol for Tresiba – began in Oct 2013. The recruitment in this study is progressing ahead of plans. The company expects sufficient data to support an interim analysis by mid 2015.
The rollout of Tresiba with an ultra-long duration of action continues to progress well with encouraging performance in many countries
2014 Outlook Downgraded
Novo Nordisk also updated its guidance for 2014 The company now expects sales to grow 7−10% below the earlier outlook of 8-11%. This downgrading of sales growth portrays a more modest growth of the GL-P1 segment, negative impact from changes in stock level of U.S. wholesalers and the loss of reimbursement.
Novo Nordisk maintained its guidance for operating profit growth around 10% in local currencies.
Our Take
It was an unsatisfactory first quarter for Novo Nordisk due to generic competition for Prandin, loss of reimbursement with a large pharmacy benefit manager and unexpected changes in the wholesaler stock level in the U.S. The lower expectations for sales growth in 2014 was also a setback. We expect investor focus to remain on the diabetes care segment of the company.
Novo Nordisk carries a Zacks Rank #4 (Sell). Investors looking for better-ranked stocks may consider companies like Impax Laboratories Inc. (IPXL), Alexion Pharmaceuticals, Inc. (ALXN) and Gilead Sciences Inc. (GILD). All three stocks carry a Zacks Rank #1 (Strong Buy).
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