Novo Nordisk's Profit Soars 23% Y/Y in Q1, 2010 Guidance Upgraded

Danish pharmaceutical company Novo Nordisk has recorded an increase of 9% year-on-year (y/y) in its first-quarter (Q1) net sales to 13.7 billion Danish kroner (US$2.5 billion). Growth was mainly driven by the North American region which contributed a 68% share of growth over the period. On the expenses side, R&D expenditures jumped 22% y/y to 2.1 billion Danish kroner to support the Phase III clinical trials for insulin analogues Degludec and DegludecPlus and the advancement in Phase I trial of a new oral formulation for Type 2 diabetes treatments GLP-1 analogues (NN9924). During the first quarter of 2010, the cost of goods sold rose by 7% y/y to 2.7 billion kroner while marketing and sales costs grew 4% y/y to 4 billion kroner reflecting the costs linked to the marketing launch of Victoza (liraglutide) in Europe and the United States. In parallel, the company's gross margin grew 10% y/y, positively affected by continued productivity improvement and higher selling prices in the United States but affected by a negative currency impact of 0.6 percentage point due to the lower value of the U.S. dollar and the Japanese yen versus the Danish kroner. Meanwhile, the company's operating income, as calculated by IHS Global Insight, grew by 12% y/y to 4.2 billion kroner during the first quarter of 2010.

Novo Nordisk's diabetes business achieved sales of 10.2 billion kroner, up 11% y/y. The company maintained its leading position with 51% of market share in the total insulin market and 45% market share in the modern insulin market in volume. Growth was fuelled by its modern insulin portfolio which jumped 17% y/y in the reported currency to 5.9 billion kroner while sales of its human insulin products fell 8% y/y to 2.8 billion kroner. Meanwhile, sales of oral antidiabetic products NovoNorm/Prandin (repaglinide) decreased by 7% y/y in the reported currency to 645 million Danish kroner, reflecting the impact of generic competition in Europe. Meanwhile, sales of the newly launched Victoza (liraglutide) reached 370 million kroner (US$66.2 million) over the first quarter.

Meanwhile, the company's biopharmaceutical division saw its sales increase by 6% y/y in the reported currency to 3.5 billion kroner. Haemophilia drug NovoSeven (eptacog alpha, activated) generated a 6% y/y increase in sales to 1.9 billion kroner, boosted by a good performance in the United States. Over the same period, sales of growth hormone Norditropin increased by 5% y/y to bring in 1.1 billion kroner, Novo Nordisk holding 25% market share in the global growth hormone market.

Outlook and Implications

Novo Nordisk has upgraded its 2010 financial guidance for the second time this year and now expects sales growth of between 7 and 10% in local currency and around 3 percentage point higher in the reported currency, up from 6-10% in both local and reported currency. The company said the implementation of the healthcare reform in the United States should have a limited impact on its performance in 2010.

The roll-out of its freshly approved diabetes drug Victoza (liraglutide) is likely to help Novo Nordisk capture increased market share in the fast-growing diabetes market. However, the competition promises to be increasingly tight in this market as a growing number of research-based companies count advanced diabetes products, likely to compete with Novo Nordisk's main revenue drivers, in their R&D pipeline. Meanwhile, generics should affect Novo Nordisk's 2010 revenues as its oral antidiabetic product NovoNorm/Prandin is at risk of generic competition in Europe and the United States. The European Commission has already granted marketing approval for two copycat versions of the drug, manufactured respectively by generic producers Teva (Israel) and Krka (Slovenia).

The recent approval and launch of the potential blockbuster drug Victoza (liraglutide) in the much sought-after U.S. market has this year contributed to bring in global sales of 370 million kroner, despite a black-box warning associated with the risk of medullary thyroid cancer in the United States (see Denmark: 26 January 2010: FDA Approves Novo Nordisk's Victoza in Type 2 Diabetes). Victoza's main competitor in the glucagon-like peptide-1 (GLP-1) market is Eli Lilly (U.S.)/Amylin (U.S.)'s twice-daily treatment Byetta (exenatide). Victoza, which is injected once a day, has the potential to capture market share from Byetta and bring in blockbuster sales even though the recent warning box required by the U.S. FDA could make this objective much more difficult to achieve. The fast roll-out of Victoza in the United States, three weeks after its approval, shows Novo Nordisk aims at cementing its presence in North America before the approval of its main rival Eli Lilly's once-weekly Byetta (exenatide), which is facing similar FDA concerns regarding a potential link to thyroid cancer (see United States: 14 April 2010: Lilly's Once-Weekly Byetta May Face Warning amid Concerns over Cancer Risk Link). The potential expansion of concerns to the whole GLP-1 receptor agonist drug segment would put the two rival companies on an equal footing, releasing Novo Nordisk from a significant competitive disadvantage.

Novo Nordisk is, in parallel, banking on two insulin analogue compounds, Degludec and DegludecPlus, which are both in Phase III clinical trials, to maintain its number one position on the global insulin market.