It looks like large and growing markets with limited competition don't quite guarantee success. A challenging year for Danish pharmaceutical company Novo Nordisk (NYSE:NVO) ended on a down note when the company offered uninspiring fourth-quarter numbers and softer-than-expected guidance.

The company reported that sales in the fourth quarter were up 19%, but the numbers soften up as you continue on down the income statement. Despite higher gross margins, higher selling, general, and administrative expenses and research and development expenses squeezed the operating income growth to just 4%, and net income actually shrunk by 18% relative to last year.

While sales in Novo Nordisk's diabetes care business continue to far exceed those in the biopharmaceuticals business (and grew 18% for the fourth quarter), the biopharmaceuticals business is much more profitable, and operating profits in diabetes actually shrank. All the same, Novo continues to experience strong growth in its insulin analog business (with sales up 67%) and now holds close to 40% of the U.S. insulin market.

As is always the case for stocks, the question isn't so much about "What have you done for me lately?" as it is "What are you going to do for me tomorrow?" In that respect, there are some reasons to be concerned. Novo has likely harvested a lot of the "low-hanging fruit" in the insulin analog business, and I would expect growth to start slowing.

What's more, Novo needs to get moving on the new product front. While the company says it plans to reinitiate phase 3 studies of its inhaled insulin device, I'm not sure that's the best move. The company might be better served by partnering with or buying MannKind (NASDAQ:MNKD) and using its device instead.

Likewise on the diabetes drug front -- the company has its own GLP-1 analog drug candidate, but it's well behind AmylinPharmaceuticals (NASDAQ:AMLN), and other companies like Merck (NYSE:MRK), Novartis (NYSE:NVS), and Bristol-Myers (NYSE:BMY) are developing medications that, if approved, should help postpone Type 2 diabetics' dependence on insulin.

Novo Nordisk has a great fortress in its insulin business, but the barbarians are at the gate and the torches are lit. Success with new drugs and inhaled insulin would go a long way toward securing its franchise, but guidance for 2006 wasn't impressive and there are definite challenges ahead.

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Fool contributor Stephen Simpson owns shares of Amylin Pharmaceuticals, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares).