Novo Nordisk (NVO) Beats Q2 Earnings and Sales Estimates

Novo Nordisk A/SNVO reported second-quarter 2018 earnings of 68 cents per American Depositary Receipt ("ADR") exceeding the Zacks Consensus Estimate of 64 cents. The reported figure was higher than 59 cents earned in the year-ago period.

Quarterly revenues were up 3.6% year over year (up 2% in local currency) to $4.38 billion. The top line beat the Zacks Consensus Estimate of $4.33 billion.

Year to date, Novo Nordisk's shares have declined 6.4% against the industry 's growth of 3.4%.

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.

Sales in the second quarter of 2018 decreased by 4% in Danish kroner and increased by 2% in local currencies compared with the same period in 2017. The growth was driven by Victoza , Ozempic , Xultophy and Saxenda , partly offset by Levemir and NovoSeven.

The Diabetes and Obesity Care segment sales declined 3% year over year in the quarter but increased 4% in local currency. Sales of insulin decreased remained unchanged in local currency. Sales of long-acting insulin (Tresiba, Xultophy and Levemir) decreased 4% in local currency to DKK 5,357 million.

Sales at the Biopharmaceuticals segment decreased 4% in local currency Hemophilia sales were down 11%.

Research and development (R&D) expenses were down 3% year over year and 1% down in local currency. The decrease in research and development costs reflects the high level of research costs in second quarter of 2017 following impairment of early-stage diabetes and obesity assets. There was an increase in development costs driven by injectable semaglutide in obesity and the preparation for the phase II initiation of once-weekly insulin LAI287, partly offset by lower costs for oral semaglutide due to the finalisation of the PIONEER trials

Also, administrative costs also down 1% from the year-ago quarter but increased 3% in local currency, mainly due to higher spend across regions.

Sales and distribution costs increased by 5% year over year and 12% in local currencies, mainly reflecting higher promotional activities in both International Operations and North America Operations to support Saxenda promotions as well as the launch activities for Ozempic.

Pipeline Update

During the second quarter of 2018, Novo Nordisk announced the phase IIIa results from four of the 10 clinical studies in the PIONEER programme with oral semaglutide, a new once-daily GLP-1 tablet for people with type II diabetes. The trials confirmed statistically significant reductions in both blood glucose levels (HbA1c) and weight for oral semaglutide compared to Lilly's LLY Jardiance (empagliflozin), Merck's MRK Januvia (sitagliptin) and Victoza.

In May 2018, Novo Nordisk received an approval from the European Medicines Agency (EMA) to update the label for Ozempic to reflect the updated device offering in the EU. Following the positive opinion, Ozempicwill be available in three pens; the titration dosage, 0.25 mg and the therapeutic dosages, 0.5 mg and 1 mg, and will be launched in the Ozempic FlexTouch pen, the latest generation of Novo Nordisk prefilled devices.

In August 2018, Novo Nordisk completed the Ellipse trial with Victozain children and adolescents (10-17 years) with type II diabetes. The study successfully met its primary objective of demonstrating superiority of Victoza over placebo in lowering HbA1c after 26 weeks. The company plans to submit the results from the Ellipse trial to the FDA in the United States and in the EU in the fourth quarter of 2018 to seek label expansion and six months patent extension related to the paediatric data in the United States and the EU.

2018 Outlook

Novo Nordisk expects sales growth (in local currencies) to be in the range of 3-5%. This reflects strong performance for the portfolio of new-generation insulin and the GLP-1 portfolio, now comprising both Victoza and Ozempic as well as a solid contribution from Saxenda. However, sales growth is expected to be partly offset by intensifying global competition within diabetes care and biopharmaceuticals, especially within the haemophilia inhibitor segment, as well as continued pricing pressure within diabetes care, especially in the United States. A negative currency impact of 5 percentage points is expected as well.

Operating profit growth is anticipated to be in the range of 2-5% reflecting the outlook for sales growth and an impact from continued focus on cost control. The outlook also reflects a planned increase in sales and distribution costs to support the commercialization efforts for Ozempic. A negative currency impact of 7 percentage points is expected as well.

Capital expenditure is expected to be around DKK 9.5 billion in 2018, primarily related to investments in additional capacity for active pharmaceutical ingredient production within diabetes care and an expansion of the diabetes care filling capacity.

Our Take

Novo Nordisk's second-quarter results beat earnings andrevenue estimates.

Continued growth from Victoza and Tresiba as well as higher contributions from Saxenda and Xultophy are likely to be partly offset by the impact of lower realized prices in the Unites States, loss of exclusivity for products in hormone replacement therapy, intensifying competition within the diabetes and biopharmaceuticals markets, besides macroeconomic conditions in many markets under International Operations. The company remains optimistic about Ozempic and results for oral semaglutide and is looking forward to making the first oral GLP-1 treatment available for people with type II diabetes.

Novo Nordisk A/S Price, Consensus and EPS Surprise

Novo Nordisk A/S Price, Consensus and EPS Surprise | Novo Nordisk A/S Quote

Zacks Rank & Stocks to Consider

Novo Nordisk is a Zacks Rank #3 (Hold) stock.

Another better-ranked stock from the same space worth considering is Gilead Sciences Inc. GILD carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Gilead's earnings per share estimates have increased from $6.12 to $6.57 for 2018 and from $6.36 to $6.48 for 2019 over the past 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters with an average beat of 6.43%. The stock has rallied 9.4% so far this year.

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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 Nasdaq, Inc.

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

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