It's been a strong quarter for biopharma stocks, and Novo Nordisk (NYSE: NVO ) didn't buck that trend with its first-half earnings figures yesterday.
Novo Nordisk focuses primarily on treating type 1 and type 2 diabetes. With rates of the disorders skyrocketing, its insulin treatments are selling well. In the first half of 2008, sales of its diabetes-care drugs and supplies rose 7% versus last year. Overall revenue at Novo Nordisk was also up 7%, and operating income gained 11% in the first half of the year.
However, Novo Nordisk's performance is better than those numbers appear. Unlike Pfizer (NYSE: PFE ) or Merck (NYSE: MRK ) , which report in U.S. dollars, Novo Nordisk reports its financial numbers in Danish kroner, and the kroner has been very strong against the dollar over the past year. Novo's 21% sales growth in North America, for instance, shrank to just 7% when converted back into kroner. Worldwide, in local currencies, Novo's revenue has risen 13% so far this year, with operating income up an even stronger 25%.
Currency effects will always have an important influence on drugmakers' earnings, but progress in their pipelines ultimately determines their true performance. Novo Nordisk had success on this front as well, releasing phase 3 study results showing that its more conveniently dosed diabetes treatment, liraglutide, may have outperformed the very successful Byetta, from Eli Lilly (NYSE: LLY ) and Amylin Pharmaceuticals (Nasdaq: AMLN )
Novo Nordisk has also filed a New Drug Application seeking FDA marketing approval for liraglutide, accompanying similar filings in Europe and Japan. Assuming a standard 10-month review time at the FDA, and accounting for the agency's recent sluggishness in reviewing drug applications, Novo Nordisk should get a response from the agency sometime in the second quarter next year.
Barring the initiation of a hedging program, changes in relative currency valuations are beyond Novo's control. Thankfully, the company appears to have performed well in the areas that it can control thus far this year, and investors can look forward to dramatically changing prospects for Novo's financials if the dollar strengthens versus the kroner in the next year.