Novo Nordisk (NVO) Beats On Q1 Earnings, Revenues Down Y/Y

Novo Nordisk (CO:NOVOb) A/S (NYSE:NVO) reported first-quarter 2017 earnings of 58 cents per American Depositary Receipt (ADR) beating the Zacks Consensus Estimate of 53 cents by 9.4%. Reported earnings also surpassed the year ago figure of 55 cents.

Quarterly revenues were up 1.4% year over year (up 3% in local currency) to $4.07 billion. However, reported revenue figure came below the Zacks Consensus Estimate of $4.11 billion.

Novo Nordisk’s share price has increased 14.6% year to date, while the Zacks classified Large Cap Pharmaceuticals industry gained 7.4%.

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 reported quarter, the company’s top line was driven by strong sales within diabetes and obesity care with the main growth coming from Victoza, Tresiba, NovoRapid and Saxenda, partly offset by declining sales of Levemir. However, sales within biopharmaceuticals declined, reflecting lower sales of human growth disorder products like NovoSeven and Other Biopharmaceuticals.

The Diabetes and Obesity Care segment recorded sales growth of 11%. The upside was driven by both North America Operations and International Operations. Moreover, sales of insulin increased by 8% in local currencies. The company’s key drug, Victoza, also recorded sales growth of 22%.

Nonetheless, sales at the Biopharmaceuticals segment declined 25%. The decline was due to North America Operations and International Operations. In addition, sales of haemophilia products decreased by 11%.

Research and development (R&D) expenses were down 1% due to lower research costs related to updated R&D strategy announced in Oct 2016, thereby leading to the discontinuation of a number of research projects. Administrative costs also declined by 1% mainly due to cost control initiatives and lower legal costs.

Sales and distribution costs decreased by 1% mainly due to lower promotional activities in the U.S. following the Tresiba launch in 2016 and broad cost control initiatives. Additionally, the costs were partly offset by higher costs for legal cases and for sales force expansion in Region AAMEO (Africa, Asia, Middle East and Oceania) and Region Japan & Korea.

Pipeline Update

Aspart will be marketed under the brand name of Fiasp in the EU. In the first quarter of 2017, Fiasp, received marketing authorization from the European Commission as well as approvals in Norway, Iceland and Canada. Novo Nordisk resubmitted the new drug application for fast-acting insulin, aspart, as a class II resubmission to the FDA in Mar 2017.

Again, in Mar 2017, the company received a positive opinion from the European authorities on the use of Refixia, the brand name for N9-GP in Europe, recommending marketing authorization for the treatment of adolescents and adults with hemophilia B.

Outlook

For 2017, Novo Nordisk expects sales growth (in local currencies) to flat to up 3%. The growth is likely to be driven by robust performance for Victoza and Tresiba as well as a contribution from Saxenda and Xultophy.

Operating profit is expected to be in the range of -1% to +3%. This reflects modest outlook for sales growth. It also reflects a modest increase in both sales and distribution costs to support product launches as well as improvement in research and development costs to support Novo Nordisk’s pipeline progress.

Our Take

Novo Nordisk’s first-quarter results topped earnings, but missed revenue estimates. We believe continued growth from Victoza and Tresiba as well as higher contributions from Saxenda and Xultophy will be partly offset by the impact of lower realized prices in the U.S., loss of exclusivity for products in hormone replacement therapy, intensifying competition within the diabetes and biopharmaceuticals markets and macroeconomic conditions in many markets under International Operations.

Novo Nordisk A/S Price, Consensus and EPS Surprise

Zacks Rank & Stocks to Consider

Novo Nordisk currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the health care sector include Aeglea BioTherapeutics (NASDAQ:AGLE) , Galena Biopharma, Inc. (NASDAQ:GALE) and Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aeglea BioTherapeutics’ loss per share estimates narrowed from $3.64 to $2.48 for 2017 over the last 60 days. Its share price has increased 52.8% year to date.

Galena’s loss per share estimates narrowed from $2.03 to 58 cents for 2017 over the last 60 days. The company posted positive earnings surprises in two of the four trailing quarters, with an average beat of 53.83%.

Infinity Pharma’s loss per share estimates narrowed from $1.43 to $1.03 for 2017 and from $1.75 to $1.52 over the last 60 days. The company posted positive earnings surprises in three of the four trailing quarters, with an average beat of 36.64%.

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