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Novo Nordisk Beats on Q4 Earnings

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Novo Nordisk (NVO - Free Report) reported fourth-quarter 2013 earnings of 41 cents per American Depository Receipt (ADR) well above the Zacks Consensus Estimate of 26 cents. Earnings also increased 8% from the year-ago period. Fourth quarter revenues of $4.0 billion beat the Zacks Consensus Estimate of $3.2 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 12%), China (15%) and International Operations (up 22%). Strong sales of Victoza, other diabetes care products and modern insulins like NovoMix, NovoRapid and Levemir contributed to the impressive performance during the quarter.

Novo Nordisk’s Diabetes Care segment recorded sales growth of 10%. Modern insulins generated strong revenues (up 14%) driven by NovoRapid (up 10%), NovoMix (up 9%) and Levemir (24%). 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 25%, primarily driven by strong growth in North America, China and International Operations.

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

Sales in Novo Nordisk’s Biopharmaceuticals segment increased 11%. Strong sales of Norditropin (up 26%) and other products (up 23%) contributed to the increase.

Novo Nordisk’s research and development (R&D) costs, administration costs and sales and distribution costs increased 14%, 10% and 11%, respectively. Novo Nordisk's efforts to develop its pipeline within the Diabetes Care and Biopharmaceuticals segments increased R&D expenses during the reported quarter. Sales and distribution costs increased primarily due to the expansion of the U.S. and Chinese sales forces. Sales and distribution costs were also driven by sales and marketing investments in the U.S., China and a few countries under International Operations. Administration costs increased on higher back office infrastructure costs.

2013 Results

Novo Nordisk reported full year 2013 earnings of $1.67 per ADR, missing the Zacks Consensus Estimate of $1.73. Earnings were however well above the year-ago figure of $1.33.

Full year revenues increased 12% to $14.9 billion. Revenues were however below the Zacks Consensus Estimate of $15.4 billion.

Other Updates

Last month, the company’s congenital FXIII deficiency treatment, Tretten, was approved in the U.S. The news came as a huge relief for Novo Nordisk as the U.S. authority had issued a complete response letter in Aug 2013 for the same. Novo Nordisk resubmitted its application in Oct 2013. The product is expected to be launched in the U.S. soon.

In Oct 2013, NovoEight received U.S. approval 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 drug was also approved in the EU and Japan.

Moreover, Novo Nordisk filed regulatory applications for liraglutide in both the U.S. and EU in Dec 2013. The company is looking to get liraglutide approved for chronic weight management in adults suffering from obesity or those overweight with comorbidities.

2014 Outlook

Novo Nordisk also provided its guidance for 2014. The company expects sales to grow 8−11% in local currencies. Operating profit growth is expected to be around 10% in local currencies. The company expects Victoza to continue performing well thereby driving growth. A modest sales contribution from Tresiba (type II diabetes) is also expected. The product is now launched in 8 countries and is expected to be launched in 20 other countries this year.

Our Take

We are encouraged by Novo Nordisk’s fourth quarter results. Novo Nordisk’s shares gained over 2.8% following the earnings release. The company’s Diabetes Care business played a major role in boosting the company’s bottom line. Novo Nordisk holds a strong position in the diabetes market. We note that several big pharma companies like Eli Lilly and Company (LLY - Free Report) also have a presence in the diabetes market. We are however encouraged by the recent product approvals at Novo Nordisk.

Novo Nordisk carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Actelion Ltd. and Allergan Inc. (AGN - Free Report) . While Actelion carries a Zacks Rank #1 (Strong Buy), Allergan holds a Zacks Rank #2 (Buy).

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