Novo Nordisk Posts Solid 4Q - Analyst Blog

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Novo Nordisk ( NVO ) reported earnings of $1.51 per American Depository Receipt (ADR), in the fourth quarter 2011, much above the Zacks Consensus Estimate of $1.24. Earnings were also ahead of the prior-year earnings of $1.35 per ADR. The earnings outperformance was driven by robust top-line growth in the quarter.

Total revenues were up 12% (in local currencies) over the prior-year period in the fourth quarter. The top-line growth was driven primarily by strong performance of diabetes drug Victoza, modern insulins and haemophilia drug NovoSeven.

In the full year 2011 adjusted earnings were $5.61 per ADR versus $4.39 per ADR in the comparable period last year.

Full Year Numbers

Total revenue grew 11% (in local currencies) over the prior-year period, as strong sales of modern insulins (up 11%) and Victoza (up 166%) offset weakness in human insulins. Health care reforms in the US, several European markets, China and Turkey pulled down revenues by approximately 2.0 percentage points in the reported quarter.

The Diabetes Care segment recorded a growth of 13% in local currencies as strong revenue from modern insulins was partly offset by weakness in human insulins, particularly in Europe, US and Japan. Novo Nordisk's most important drug, Victoza, for the treatment of type II diabetes did well worldwide in 2011. Victoza has had a significant head start contributing 55% to the overall local currency growth. We note that Victoza will face intense competition once Amylin Pharmaceuticals, Inc ./ Alkermes plc 's ( AMLN / ALKS ) Bydureon hits the US market. The drug received US approval last month.

The Biopharmaceuticals segment recorded a local currency growth of 8% driven by a 7% jump in NovoSeven sales.

Pipeline Update

The US Food & Drug Administration (FDA) is expected to deliver its decision on approvability of Novo Nordisk's much anticipated pipeline candidates, Degludec and DegludecPlus, on July 29, 2012. Degludec and DegludecPlus are next-generation insulin analogues for the treatment of type I and type II diabetes. Degludec is an ultra long-acting basal insulin while DegludecPlus is a fixed ratio combination of Degludec and NovoRapid. The candidates are also under review in the European Union ( EU ), Switzerland and Canada. Novo Nordisk has also filed Degludec in Japan.

As regards its biopharmaceuticals pipeline, Novo Nordisk received a complete response letter ( CRL ) from the FDA for its recombinant factor XIII (rFXIII) for need of additional data. The candidate has been studied for the treatment of congenital FXIII deficiency.

2012 Guidance

Novo Nordisk increased its sales growth guidance for 2012 to 7%-11% in local currencies, up from the preliminary guidance of high single-digit growth. The guidance includes the impact of potential generic competition to NovoNorm/Prandin and estimated headwinds from health care reform in the US and Europe. Reported sales are estimated to grow in the range of 11%-15%.

In local currencies, guidance for operating profit growth is expected to be around 10% (prior guidance: close to 10%). Reported operating profit growth is estimated to be roughly 17%. The operating profit guidance includes the potential costs for the launch of Degludec and DegludecPlus. The effective tax rate is pegged in the range of 22%-23%.

Our Recommendation

We have a Neutral recommendation on Novo Nordisk. The stock carries a Zacks #3 Rank ("Hold" rating) in the short term.

So far we are impressed by the performance of Victoza which is doing well both in the US and Europe. Moreover, we believe that the next-generation insulin analogues, Degludec and DegludecPlus, hold significant potential for long-term growth at Novo Nordisk. Though we are encouraged by data from the Degludec trials, we prefer to remain on the sidelines until Degludec and DegludecPlus gain approval.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ALKS , AMLN , CRL , EU , NVO

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