BMI View: Novo Nordisk delivered solid H113 results, posting significant growth in revenues and profit. The company also allayed safety concerns of its main blockbuster Victoza and provided a timeline for resubmitting its application for Tresiba to the FDA. The company continues to experience tailwinds from changes in diet and lifestyle in both developed and emerging markets and we expect this to continue in the medium term.
Novo Nordisk reported its H113 results: revenues rose by 11% and profits rose 27% in Danish kroner terms to DKK41.4bn (US$7.43bn) and DKK12.7bn (2.28bn) respectively. These results represented a significant beat over analyst consensus and a boost to the company's image in the eyes of investors, especially when Novo Nordisk management raised their full year guidance for revenues and operating profit.
Summary of Key Results
Sales of Victoza (liraglutide) rose 32% in H113 compared to the same period last year, driven by strong demand globally.
Modern insulin sales rose 15% in local currencies, driven by NovoRapid (insulin aspart) and Levemir (insulin determir).
Emerging Markets Performance
Novo Nordisk is diversified in its geographical revenue streams, but as with most pharmaceutical companies, the US remains the single largest market. Nevertheless, Novo Nordisk showed 12% revenue growth in international operations and 16% in China. A growing preference for western diets, sedentary lifestyles and rising obesity have contributed to increasing demand for Novo Nordisk's product portfolio as obesity rates have continued their meteoric rise. These demographic and lifestyle trends will continue to contribute to earnings growth in the long term for Novo Nordisk, who hold leadership in market share for diabetes care products.
Novo Nordisk's management team have prudently led the company over the last decade from a relatively small pharmaceutical company into an industry leader in diabetes care. At the same time, the company's financial performance has been particularly noteworthy, as its margins have increased year-over-year since 2005. Novo Nordisk's gross margins for Q213 were 83.4%, the highest in the pharmaceutical sector. The gross margins reflect the high sales value of Novo Nordisk's product portfolio and the lean production processes in place.
|Gross Margins Continue To Improve|
|Gross Margins, (%)|
Similarly, operating margins in Q213 were 40%, having risen every second quarter since 2008. While these margins will not remain elevated indefinitely, they do reflect on the competency of Novo Nordisk's management and their ability in rewarding shareholders.
|Cost Cutting And Prudent Management|
|Operating Margin, (%)|
Novo Nordisk stock has had a turbulent 2013 on account of the rejection by the FDA of Tresiba (insulin degludec) in March 2013 and a broad selloff in equities on expectations of QE tapering. The company's shareprice peaked in January, but has since declined, as investor wariness over Novo's sparse pipeline and safety concerns over GLP-1 drugs were raised during the course of H113. Since reporting H113, results, the share price has rallied as concerns over the delayed launch for Tresiba were allayed and GLP-1 safety issues subsided. Novo Nordisk stock has trailed behind its pharmaceutical peers and the S&P 500 Index over the course of the year, as negative sentiment held back non-committed investors. However, with the company raising full year guidance and a deal in place with the FDA to resubmit Tresiba's application, we believe there is further upside potential in 2013 to the stock.
|Lagging Peers, S&P 500 But Upside Potential Remains|
|Normalised Share Price Performance|
Novo Nordisk submitted an MAA to the EMA for the approval of IDegLira, the combination product of Tresiba (insulin degludec), the once daily new-generation basal insulin analogue with an ultra-long duration of action, and Victoza (liraglutide), the once daily human GLP-1 analogue. IDegLira has been developed for the treatment of people with Type II diabetes. Novo Nordisk intends to make IDegLira available in a prefilled delivery device based on the same technology platform as FlexTouch.
A global 26 week trial comparing Tresiba against insulin glargine was launched in China to provide data for regulatory approval from the Chinese Food & Drug Administration (CFDA).
Novo Nordisk received a second complete response letter from the FDA for its recombinant Factor XIII drug.