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Strong 2012 Results at Novo Nordisk

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Novo Nordisk (NVO - Free Report) reported fourth quarter 2012 earnings of $1.83 per American Depository Receipt (ADR), up 21.2% from the year-ago period. Earnings were boosted by strong revenues in the reported quarter. Revenues in the fourth quarter of 2012, increased 16% on a reported basis and 12% in local currency year over year.

For full year 2012, Novo Nordisk's earnings were $6.71 per ADR, up 19.6%. Revenues for the year 2012 were $13.48 billion (up 18% on a reported basis and 12% in local currency year over year). Revenues were below the Zacks Consensus Estimate of $13.78 billion.

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

2012 Highlights

In 2012, total revenues grew 12% driven by strong sales in North America (up 19%), International Operations (up 16%) and China (up 16%). Sales in Europe grew 2%. Key sales drivers were Modern Insulins and Victoza.

Geographically, North America was the largest contributor (66% share of growth) to total revenues followed by International Operations (20%) and China (11%). Healthcare reforms and pricing pressure in Europe, the US, China and other international markets negatively impacted revenues by 1.5%.

The Diabetes Care segment recorded growth of 15%. Modern Insulins generated strong revenues (up 15%) driven by NovoRapid (up 16%) and Levemir (21%). 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 50% in 2012. Victoza witnessed growth across all regions. Protein-related product sales were up 3%. Oral antidiabetic product sales and human insulins sales were flat year over year.

Sales in the Biopharmaceuticals segment increased 2%. Strong sales of Norditropin (up 8%) and NovoSeven (up 2%) contributed to the increase, though partially offset by other product sales (down 6%).

Modern Insulins contributed 55% to total sales growth whereas Victoza contributed 39%.

Research and development (R&D) costs and sales and distribution costs increased 11% and 8%, respectively. Novo Nordisk's efforts to develop its pipeline, primarily liraglutide and IDegLira, drove R&D expenses in 2012. Increase in sales and distribution cost was primarily driven by the expansion of the US sales force and costs for the global launch of Tresiba. Tresiba and Ryzodeg gained EU approval earlier this year.

2013 Guidance

In local currencies, guidance for operating profit growth is expected to be around 10%, mainly due to significant costs related to the expected global launch of Tresiba, the expanded US sales force as well as sales and marketing investments in China.

In local currencies, sales growth is expected to be in the range of 8–11%. This guidance is mainly driven by robust penetration of modern insulins, steady Victoza growth and sales contribution from Tresiba. These positives are expected to be partly offset by the challenging pricing environment in major markets, generic competition for oral anti-diabetic products, intensifying competition within diabetes care as well as biopharmaceuticals. We note that Victoza is facing new competition in the market.

Net profit is expected to grow in double digits.

The stock carries a Zacks Rank #2 (Buy). Other large-cap pharma companies like Eli Lilly and Company (LLY - Free Report) , Bayer (BAYRY - Free Report) and Sanofi (SNY - Free Report) are also Zacks Rank #2 stocks.


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