Novo Nordisk 1Q

Novo's 1Q Results and Recent Tresiba Filing Put It on Track to Meet Our Expectations 

Karen Andersen, CFA 08/05/2015

Novo Nordisk reported underlying growth in the first quarter that was in line with our expectations, and although we expect to make slight adjustments to our $49 per ADR/DKK 352 per share fair value estimate based on currency fluctuations, we continue to think that shares look fairly valued at recent prices. Despite competing biosimilar and branded launches in the long-acting insulin space, we believe Novo's cost advantages in insulin production and intangible assets tied to diabetes innovation warrant a wide moat. 

Novo's decision to resubmit its application to the FDA for Tresiba based on interim data from the DEVOTE cardiovascular outcomes study was the biggest recent news for Novo, and the FDA's acceptance of the filing should mean approval in October 2015. Novo is ready to launch in early 2016, and while the market is getting more competitive--Sanofi recently launched next-generation long-acting insulin Toujeo in the U.S. at price parity to its blockbuster Lantus--we think Tresiba has a good chance at gaining differentiation, which will be critical to pricing power as Lilly's biosimilar Lantus launch approaches in late 2016. Tresiba could be the first insulin with a hypoglycemia benefit on the label, but this will require additional data from switch studies that should be available in early 2016.

Novo's top line grew 9% in local currencies and 24% as reported, with diluted EPS up 24%, after removing one-time gains from the divestment of the firm's IT business (NNIT). Levemir gained three share points in the past year versus Lantus in the U.S. market, and Victoza growth remains strong despite the launch of two competing GLP-1 therapies, in part due to overall strength in demand for GLP-1 therapies. We expect data from the outcomes study for Victoza in early 2016, which could further encourage uptake of these products over oral DPP4 drugs. 

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Karen Andersen, CFA  Karen Andersen, CFA, is a senior stock analyst with Morningstar.

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