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Novo Nordisk sees US pricing pressures persisting in 2018 as FY outlook raised


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Novo Nordisk sees US pricing pressures persisting in 2018 as FY outlook raised

Novo Nordisk A/S said pricing pressures in the U.S. insulin market will persist into 2018 as the pharmaceutical company announced strong second-quarter sales and lifted estimates for the full year.

"The competitive environment we are in now is a permanent situation," said President and CEO Lars Fruergaard Jørgensen on a conference call with reporters following the release of second quarter results. "We believe that [it] will continue to have a negative impact on pricing."

The Denmark-based company, which is the world leader in the production of insulin-based products, said results in the first half were boosted by strong obesity and diabetes sales as well as a continued focus on cost control. Pricing pressure in the U.S. market has intensified due to political pressure and increased competition in a country where 29.1 million people are diagnosed with the disease, or 9.1% of the population, according to the Centers for Disease Control and Prevention.

The Danish pharmaceutical group reported second-quarter sales that beat analyst expectations as stronger diabetes sales outweighed lower biopharma sales, as it raised sales expectations to 1% to 3% from previously forecast zero percent to 3% for 2017. U.S. insulin sales grew by 7% in a highly competitive environment, and Tresiba's differentiated profile will help it to fend off further competition over time, Jørgensen said. Victoza had "a strong performance" in the U.S., where it grew by 20%, he added.

Jefferies said the results were strong overall, with a beat in revenues and good cost control helping to raise guidance. The company's comments regarding lower average pricing in 2018 were also as expected, he said. "This general pricing comment appears no worse than expectations," said analyst Jeffrey Holford, who has a "hold" recommendation on the stock.

Jørgensen said that obesity medicine Saxenda is growing strongly in Brazil, which is its second largest market, adding that there is keen interest in its launch in a number of Middle East countries where obesity is also a problem and where there is a higher ability to pay the relative costs.

"Novos's Q2 is [like Q1] another good cost driven beat but also comes with an unexpected guidance raise for FY 2017 EBIT growth," said Barclays analyst Emmanuel Papadakis, who has an "underweight" stance on the company.

Regarding the hemophilia franchise, the CEO said Novo anticipates that there will be a gradual impact on the NovoSeven franchise as Roche Holding AG's ACE910 is rolled out — assuming approval — especially for the inhibitor patient on prophylactic use. "Clearly assuming approval in major geographies, there will be a significant negative effect on our NovoSeven sales from a global roll-out of ACE910," Jørgensen said.

"Although a positive development, the targets are not exactly ambitious and still trail behind long-term growth aspiration," said CFRA analyst J. Chan in a note following the results. "Further, Novo continues to lose market share in the insulin and GLP-1 space," said Chan, who has a "hold" rating on the stock.