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Novo Nordisk (NVO) Beats on Q1 Earnings, Retains Outlook

Novo Nordisk A/S NVO reported first-quarter 2016 earnings of 55 cents per American Depository Receipt (ADR), surpassing the Zacks Consensus Estimate of 53 cents and the year-ago figure of 45 cents.

Quarterly revenues increased 5.5% year over year to $4 billion but were slightly short of the Zacks Consensus Estimate of $4.1 billion. The top line was driven by strong sales in the U.S. and international operations. Sales growth was realized in both diabetes care and biopharmaceuticals, with the major contribution coming from Victoza and Norditropin.

All growth rates mentioned below are on a year-over-year and in local currency.
 
Quarter in Detail
 
Total sales in the reported quarter climbed 9% driven by sales growth in North America (12%) and International Operations (15%).
 
The diabetes and obesity care segment recorded sales growth of 7%. Modern insulin grew 3% driven by NovoRapid (1%), NovoMix (1%) and Levemir (9%). The company’s key drug, Victoza, witnessed sales growth of 15%. Sales of Tresiba surged 117% in the reported quarter.
 
Sales in the biopharmaceuticals segment soared 15%. Norditropin sales surged 32%, while hemophilia sales were up 4%.
 
Sales and distribution costs climbed 11% mainly due to costs related to the launch of Tresiba, the continued rollout of Saxenda and NovoEight, and consumer advertising.

Research and development expenses increased 2% driven by higher research costs related to diabetes and obesity projects. Administration costs increased 9%.

Pipeline Update

In the reported quarter, the company announced encouraging results from phase IIIa studies (SUSTAIN 6 and SUSTAIN 5) on semaglutide. The company expects to file regulatory application for semaglutide in both the U.S. and the EU in the fourth quarter of 2016. Meanwhile, the company’s Xultophy, the once-daily single-injection combination of Tresiba and Victoza, is currently under review in the U.S. An FDA Advisory Committee meeting is scheduled on May 24 to discuss the New Drug Application.
 
2016 Outlook
 
Novo Nordisk has reiterated its guidance for 2016. The company expects 2016 sales to grow 5–9%, reflecting its expectations of a continually strong performance of modern insulins, Tresiba and Victoza, as well as contributions from Saxenda and Xultophy. However, this will be partly offset by the impact of a contract loss in the U.S., healthcare reforms, loss of exclusivity for products in hormone replacement therapy, intensifying competition within diabetes and biopharmaceuticals, and macroeconomic conditions in many markets of International Operations as well as China.
 
Novo Nordisk carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector include Aegerion Pharmaceuticals, Inc. AEGR, ANI Pharmaceuticals, Inc. ANIP and Gilead Sciences Inc. GILD, each sporting a Zacks Rank #1 (Strong Buy).

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