Novo Nordisk A/S Slogs Through the Year
Novo Nordisk (NYSE: NVO) continues to slog through the year, dealing with losing exclusivity on hormone-replacement therapy Vagifem and pricing pressure. The year-over-year comparison for Vagifem will go away, but expect continued pricing pressure next year. Fortunately Novo Nordisk has an opportunity to launch semaglutide; that will likely end up being its top-selling drug, and should make up for the lower prices.
Novo Nordisk results: The raw numbers
| Metric |
First 9 Months 2017 |
First 9 Months 2016 |
Year-Over-Year Change |
|---|---|---|---|
| Revenue |
83.7 million DKK |
83.2 million DKK |
2% |
| Income from operations |
38.9 million DKK |
37.2 million DKK |
5% |
| Earnings per share |
12.03 DKK |
11.50 DKK |
5% |
What happened with Novo Nordisk so far this year?
- Top-selling Victoza continues to grow, with sales up 15% year over year during the first nine months of the year. The drug is losing market share to Eli Lilly's (NYSE: LLY) Trulicity in the U.S., but the overall market for GLP-1 agonists like these two drugs continues to grow, pushing sales of Victoza higher.
- On the regulatory front, the Food and Drug Administration's advisory committee voted 16-0 to support the approval of semaglutide, which beat Eli Lilly's Trulicity in a head-to-head trial and should help the company regain market share.
- The obesity version of Victoza -- Saxenda -- increased sales by 77%, although it's working off a relatively small base.
- Sales of the company's new-generation insulin, Tresiba, more than doubled and are finally making a meaningful contribution to revenue, with sales of 5.4 billion DKK.
- Overall, diabetes and obesity drugs increased 7%; only the drop in sales of Vagifem, which now has generic competition, dragged sales growth down to a minuscule 2%.
- In September, Novo Nordisk got FDA approval for Fiasp, a fast-acting mealtime insulin, which will add incremental sales.
What management had to say
In addition to Tresiba, Novo Nordisk has another new-generation insulin called Xultophy, but president and CEO Lars Fruergaard Jorgensen said the two aren't cannibalizing each other: "In countries where Tresiba and subsequently Xultophy have been launched, Xultophy has continued to contribute market-share gains in the basal insulin segment. As an example, Tresiba has obtained a market share of 30% in Switzerland, and when combining Tresiba and Xultophy, the total value market share is 58% in the basal insulin segment."
Novo Nordisk has indicated that it plans to make an acquisition or licensing deal to boost growth, but Jorgensen asked investors to give the company a little leeway to find the best deal: "And that's why you have to be a bit patient in landing a potential deal, because we are not going out and doing desperate transactions where it will not be attractive for shareholders -- also in terms of growth going forward. So we're working on it, but this is something that takes time, and we stay disciplined in what we do."
Looking forward
Without a doubt, the most important near-term events for Novo Nordisk are the approval of semaglutide in the U.S. and EU -- which should happen before the end of the year -- and subsequent launch. Jorgensen called semaglutide the "biggest opportunity" the company has ever had.
Nevertheless, management gave a rather muted preliminary outlook for 2018, with sales and operating profits expected to grow in the low to mid-single-digits in local currencies. In Danish kroner, which it reports in, sales are expected to be three percentage points lower than in local currencies, with reported operating profit growth expected to be four percentage points lower. Management thinks competition with other drugs for diabetes and hemophilia, as well as pricing pressure for diabetes drugs, especially in the U.S., will drag down the benefits it'll get from the semaglutide launch and continued growth of its new-generation insulins.
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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.