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Novo Nordisk's Diabetes Unit Strong; Generic Pressure Stays

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We issued an updated research report on Novo Nordisk NVO on Mar 9, 2017.

Novo Nordisk’s earnings and sales were below the Zacks Consensus Estimate in the fourth quarter of 2016 (results announced on Feb 2).

Novo Nordisk has a strong presence in the Diabetes care market with a global value market share of 27%. Also, the company has strong presence in the total insulin market, and modern and new-generation insulin market with a global value market share of 46% and 45%, respectively. The company has one of the broadest diabetes portfolios in the industry. Novo Nordisk’s Diabetes and obesity care segment recorded 3.9% growth in 2016. The segment was driven by strong performance of drugs like Victoza, Tresiba, Saxenda and Xultophy among others.

Victoza is a once-daily human GLP-1 analogue approved for adult type II diabetes. It is currently the market leader in the GLP-1 segment with a 58% share.

The company, however, faces generic threat for several of its products as well as patent expiration issues. In 2014, Novo Nordisk faced patent expiry for two products – NovoRapid/NovoLog and NovoLog Mix/NovoMix. The formulation patent on Norditropin will also expire in the U.S., Europe and Japan in 2017. Victoza is slated to lose patent protection in the U.S. and the EU in 2023. Novo Nordisk is also facing a risk from biosimilars in the human growth hormone market. Post NovoSeven’s patent expiry, biosimilar versions were launched in Russia and Iran. Moreover, the diabetes market is already crowded with a number of drugs. Merck & Co., Inc.’s MRK Januvia and Janumet (type II diabetes), Eli Lilly and Company’s LLY Trulicity (type II diabetes), Sanofi’s (SNY - Free Report) Toujeo (type I and II diabetes already approved.

With generic competition looming large over the company, Novo Nordisk’s pipeline needs to deliver. However, the company has had its share of pipeline and regulatory setbacks. The company received a setback with the discontinuation of the development of liraglutide as a joint therapy to insulin in type I diabetes.

We are also concerned about the company’s insulin product prices that are either subsidized or subject to price control.  Softer sales as well as increase in distribution and research and development costs (to support continued launch and pipeline progress) is expected to pressurize profits in 2017.

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