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Novo Nordisk Beats on Earnings, Lags Sales

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Novo Nordisk (NVO - Free Report) reported third quarter 2013 earnings of $2.12 per American Depository Receipt (ADR) well above the Zacks Consensus Estimate of $2.06. Earnings increased 22.4% from the year-ago period. Revenues in the third quarter of 2013 were up 9.3% year over year to $3.6 billion but missed the Zacks Consensus Estimate of $4 billion.

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

Quarterly Highlights

Total revenue grew 10% driven by strong sales in North America (up 15%), Europe (up 6%) and International Operations (up 12%). Stong sales of Victoza and modern insulins like NovoMix, NovoRapid and Levemir contributed to the impressive performance during the quarter.

Novo Nordisk’s Diabetes Care segment recorded growth of 10%. Modern insulins generated strong revenues (up 13%) driven by NovoRapid (up 8%) and Levemir (27%). Novo Nordisk's key drug, Victoza is a once-daily human glucagon-like peptide 1 (GLP-1) analogue approved for improving blood sugar (glucose) levels in adult type II diabetes patients. The drug witnessed sales growth of 20%. Victoza witnessed growth in the U.S. and Europe.

Geographically, North America was the largest contributor to total revenue.

Sales in Novo Nordisk’s Biopharmaceuticals segment increased 13%. Strong sales of NovoSeven (up 20%), Norditropin (up 9%), and other products (up 2%) contributed to the increase.

Novo Nordisk’s research and development (R&D) costs, administration costs and sales and distribution costs increased 9%, 13% and 10%, respectively. Novo Nordisk's efforts to develop its pipeline within the diabetes and biopharmaceuticals segments and global expansion of research activities increased R&D expenses. Sales and distribution cost increased due to the expansion of the U.S. sales force as well as marketing investments in China and a few countries in International Operations. Administration costs increased due to back office infrastructure costs.

Pipeline Update

Novo Nordisk received feedback from the U.S. Food and Drug Administration (FDA) regarding the cardiovascular outcomes study protocol for Tresiba and started the DEVOTE trial in Oct 2013. The study will take 4-6 years to complete.

Novo Nordisk also commenced a phase IV trial on Victoza comparing it with lixisenatide in Oct 2013. This 26 week study will evaluate the efficacy and safety of Victoza versus lixisenatide treatment as an add-on to metformin in type II diabetes patients. 

A phase III program, Onset (consisting of four trials), on faster-acting insulin aspart (NN1218) was started in Aug 2013. Three of four trials were started in this quarter. Two trials will evaluate the efficacy and safety of NN1218 compared to insulin aspart in combination with basal insulin. In the third trial, faster-acting insulin aspart will be used as part of a basal-bolus regimen and will be compared with basal insulin treatment for type II diabetes. The fourth trial, to start later this year, will evaluate compatibility of the new drug formulation with the insulin pump while performing continuous subcutaneous infusion with NN1218.

NovoEight received U.S. approval in Oct 2013 for treating adults and children with hemophilia A for control and prevention of bleeding, perioperative management and routine prophylaxis to prevent or reduce the frequency of bleeding episodes. The European approval of NovoEight in the hemophilia A indication is on track with the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) rendering a favorable opinion on the issue. Novo Nordisk is likely to launch NovoEight in the U.S. in the first half of 2015 and in Europe in early 2014.

Novo Nordisk resubmitted NovoThirteen in the U.S. in Oct 2013, following the receipt of a complete response letter in Aug 2013.

2013 Guidance Maintained

Novo Nordisk maintained its guidance for operating profit growth in the range of 12–15% in local currencies. The company also maintained its guidance for sales growth in the range of 11–13% in local currencies. The company expects Victoza and modern insulins to continue performing well thereby driving growth at Novo Nordisk.

Novo Nordisk carries a Zacks Rank #2 (Buy). Currently, companies like AMAG Pharmaceuticals Inc. (AMAG - Free Report) ,  Questcor Pharmaceuticals Inc. and Actelion Ltd. look well-positioned with a Zacks Rank #1 (Strong Buy).

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