AMLN Amylin Pharmaceuticals, Inc. (MM)

Basel, Switzerland based Novo Nordisk (NVO) reported earnings of $1.36 per American Depository Receipt (ADR), in the second quarter 2011, up 10 cents over the prior-year earnings of $1.26 per ADR. The annualized rise in earnings was driven by higher revenues. Earnings were however 7 cents below the Zacks Consensus Estimate of $1.43.

On a half yearly basis adjusted earnings were $2.69 per ADR, up 29% from $2.08 per ADR in the comparable period last year.

First Half Numbers

Total revenues grew 11% (in local currencies) over the prior-year quarter, driven by strong sales of modern insulins (up 10%) and Victoza (up 263%). However, health care reforms in the US, Europe and Turkey pulled down revenues by approximately 3 percentage points in the reported quarter.

All geographic regions witnessed growth in the quarter with North America contributing 51%, international operations clocking 22% and China adding 14% to the local currency growth.

Both the Diabetes Care and Biopharmaceuticals segments did well in the quarter recording growth of 12% and 7%, respectively.

Novo Nordisk’s most important drug, Victoza, for the treatment of type II diabetes, did well in both the US and EU, contributing 55% to the overall local currency growth.

Pipeline Update

In July 2011, Novo Nordisk’s new prefilled insulin pen-FlexTouch received approval for use with NovoRapid and Levemir in the European Union.

In June Novo Nordisk presented data from two extension studies of Victoza at the American Diabetes Association (ADA). The first study showed that patients who were given Victoza (once daily) in combination with metformin experienced better blood sugar control and weight loss versus other commonly used diabetes drugs like Merck’s (MRK) Januvia or Amylin Pharmaceuticals (AMLN)/Eli Lilly's (LLY) Byetta.

Novo Nordisk also presented data from another late stage trial which investigated the effect of adding Levemir to the existing treatment regimen of Victoza plus metformin. The trial showed that the Levemir supplement group experienced improvement in glycemic control, weight loss and lower rate of hypoglycemia compared to the group receiving only metformin and Victoza.

When given Victoza alone more than 60% of patients achieved the ADA target for blood sugar control. Moreover the addition of Levemir helped more patients achieve the ADA target (80% of patients) without the increases in hypoglycemia and body weight.

Novo Nordisk is conducting a late stage program (SCALE) of Vidaza in obese subjects. The program, which will enroll around 4,400 patients, involves three separate studies.

The first study, already being conducted, investigates the ability of Victoza to support patients in maintaining weight loss achieved by a low calorie diet.  The second is a trial in obese patients with a BMI (Body Mass Index) above 30 or BMI 27 or 28 with increased risk of co-morbidity. 

The third is a trial in obese diabetics with the primary endpoint being weight and the secondary endpoint being HbA1c. The second and third trials were initiated in June 2011.

In May 2011, Novo Nordisk initiated the first of the two late stage programs with IDegLira, a fixed ratio combination of its most advanced pipeline candidate Degludec and Victoza.

In July 2011, Novo Nordisk initiated a late stage trial for the fast-acting rFVIIa analogue, vatreptacog alfa, investigating the efficacy and safety of home-treatment of acute bleeding episodes for vatreptacog alfa in patients with congenital haemophilia with inhibitors.

2011 Guidance

Novo Nordisk updated its outlook for 2011. Novo Nordisk now expects sales growth of 9–11% in local currencies (old guidance: 8–10% in local currencies). The raised guidance also includes the impact of potential generic competition to NovoNorm/Prandin and estimated headwinds from health care reform in the US and Europe.

Health care reforms are expected to hurt revenues by 2–3 percentage points in 2011. Reported sales are estimated to grow at a 6%–8% clip.

In local currencies, guidance for operating profit growth is now in the range of 15%-19% (old guidance: around 15%). Reported operating profit is expected to climb in a band of 9.5%-13.5%. The effective tax rate is pegged around 23%.

Our Recommendation

We currently have a Neutral recommendation on Novo Nordisk. The stock carries a #4 Rank (short-term Sell recommendation). We are impressed by Novo Nordisk’s biggest drug Victoza’s performance thus far. Victoza is doing well both in the US and Europe.

Moreover, we believe that the next-generation insulin analogues, Degludec and DegludecPlus, also hold key significance for long-term growth at Novo Nordisk. Though we are encouraged by data from Degludec trials, we prefer to remain on the sidelines until we get more visibility on the approvability of Degludec and DegludecPlus.

 
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