Novo Nordisk (NVO) Tops Q3 Earnings, Revenues Up Y/Y

Novo Nordisk (CO:NOVOb) A/S (NYSE:NVO) reported third-quarter 2016 earnings of 58 cents per American Depository Receipt (ADR), above the Zacks Consensus Estimate of 56 cents and up from the year-ago figure of 49 cents.

Quarterly revenues were also up 3.4% year over year to $4.1 billion. Reported revenues were, however, below the Zacks Consensus Estimate of $4.2 billion.

All growth rates mentioned below are on a year-over-year and in local currency.

Quarter in Detail

In the reported quarter, the company’s top line was driven by strong sales of Victoza, Tresiba, Saxenda and Norditropin. Sales were partly offset by the performance of modern insulin and NovoSeven. Total sales in the reported quarter improved 5% on the back of growth in International Operations (17%), North America (2%) and China (11%).

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

The Diabetes and Obesity Care segment recorded sales growth of 3%. Modern insulin dropped 6% due to lower sales of NovoRapid (3%), NovoMix (3%) and Levemir (4%). Meanwhile, the company’s key drug, Victoza, recorded sales growth of 10%.

Sales at the Biopharmaceuticals segment inched up 1%. Norditropin sales grew 10%, while hemophilia sales were down 3%.

Sales and distribution costs decreased 1%.

Research and development expenses were up 5% due to higher research costs related to diabetes and obesity projects. Administration costs increased 7% mainly due to higher employee-related costs in international operations, as well as costs related to a planned reduction in the workflow.

Pipeline Update

In the reported quarter, the FDA extended the regulatory review period of IDegLira by three months. IDegLira is a once-daily, single injection, fixed combination of Tresiba and Victoza being developed for the treatment of adults with type II diabetes.

Outlook

Novo Nordisk has revised its guidance for 2016. The company now expects 2016 sales to grow 5–6%, compared to the previous guidance of 5–7%. The company anticipates continually strong performance of modern insulins, Tresiba and Victoza, as well as higher contributions from Saxenda and Xultophy. However, this will be partly offset by the impact of a contract loss in the U.S. for NovoLog and NovoLog Mix 70/30, 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.

Adjusted operating profit is now expected to be 5–7% (previous guidance: 5–7%). This reflects growth in sales and distribution costs to support continued launch activities as well as an increase in research and development costs to support the company’s pipeline progress, in addition to severance costs associated with the layoffs.

NOVO-NORDISK AS Price and EPS Surprise

NOVO-NORDISK AS Price and EPS Surprise | NOVO-NORDISK AS Quote

Our Take

Novo Nordisk delivered mixed third-quarter results, wherein its earnings beat expectations but revenues were lower than expected. Strong performance of Victoza, Tresiba, Saxenda and Norditropin should continue contributing significantly to the company’s top line.

However, patent expiration issues faced by several products at the company’s portfolio are a matter of concern.

Zacks Rank & Key Picks

Novo Nordisk currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the healthcare sector include Infinity Pharmaceuticals, Inc. (NASDAQ:INFI) , BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) and Exelixis, Inc. (NASDAQ:EXEL) . Both Infinity and BioMarin sport a Zacks Rank #1 (Strong Buy), while Exelixis carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Infinity’s loss estimates narrowed from $3.84 to $3.79 for 2016 but remained unchanged for 2017 over the last 60 days. The company has posted a positive surprise in all of the four trailing quarters with an average beat of 67.62%.

BioMarin’s loss estimates narrowed from 28 cents to 25 cents for 2016 and from $1.16 to $1.11 for 2017 over the last 60 days.

Exelixis’ loss estimates narrowed from 71 cents to 61 cents for 2016 and from 16 cents to earnings of 2 cents for 2017 over the last 60 days. The company has posted a positive surprise twice in the four trailing quarters with an average beat of 9.1%.

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