A Dominating Danish Drugmaker

With health demographics in its favor, and multiple drugs designed to treat these unfortunately worsening trends, Novo Nordisk (NYSE: NVO) is set for years of financial growth ... if continued macroeconomic issues don't trip it up.

If the dollar weren't such a wimpy currency at present, the Q1 results Novo Nordisk released this morning would have included double-digit sales growth year over year. The dollar's weakness against the Danish krone trimmed Novo's sales growth by seven percentage points this quarter, to only 8%. Operating income still gained a healthy 22%, though, and operating cash flow rose a similarly strong 20%.

The company lowered its financial guidance for 2008 because of "adverse currency" developments, a trend I warned would plague many of the non-British European drugmakers. Reported operating income is now expected to rise "slightly more than 20%," compared to Novo's previous guidance of "at least 25%."

It's usually best to judge a drugmaker's performance by its actual financial numbers, rather than the artificially fixed currency rates many companies tend to employ for year-over-year comparisons. That said, I'm not faulting Novo for foreign exchange movements largely beyond its control. There's also a bright side to the weakening dollar for Novo: From its perspective, dollar-priced assets and acquisitions become cheaper.

I've liked Novo Nordisk's prospects for a long time. The company's diabetes insulin treatments have fueled much of its success; they're its fastest-growing products and its largest source of sales. Aging baby boomers and other demographic trends will significantly increase demand in the coming years for Novo Nordisk's insulin and other diabetes products, not to mention offerings from competitors like Sanofi-Aventis (NYSE: SNY), Merck (NYSE: MRK), and Eli Lilly (NYSE: LLY).