To paraphrase a line from the movie Airplane!, it looks like Novo Nordisk
Revenue climbed 11% for the first quarter to roughly $1.28 billion, as insulin analog revenue grew 67% and NovoSeven sales grew 10%. Despite that top-line growth, higher sales expenses and a steep decline in license income led to operating income growing only 1%, or $266 million, for the quarter.
The good news for the quarter was that Novo Nordisk's core insulin franchise seems to still be quite strong. Insulin analog sales grew 63% over last year's first quarter and nearly 9% from the fourth quarter. Human insulin sales didn't grow nearly as much (up about 5% over last year), but that is a mature market, and the company is clearly more focused on its insulin analog franchise.
Exiting the quarter, Novo Nordisk believes it held more than 35% of the North American insulin market and over 20% of the market for analog insulin. As a reminder, the insulin market is essentially a triopoly, with only Eli Lilly
The biopharmaceutical business was certainly less robust. NovoSeven sales climbed only 7% for the quarter and were down from the fourth quarter. Although management didn't come right out and say this, its commentary on NovoSeven results suggested that it sees the market as essentially fully penetrated now, with incremental growth coming from hemophilia and elective surgery patients.
With that in mind, the company's news on a delayed European approval for NovoSeven is not good news. Based on preliminary information, it seems as though Novo Nordisk will have to conduct an additional confirmatory clinical study before it can get approval in Europe for a blunt trauma indication on NovoSeven. Given that the European approval process is widely seen as easier and less rigorous than that at the Food and Drug Administration, this is not an especially good sign.
Nevertheless, the company has other irons in the fire with respect to clinical development. It has started a phase 2 study of liraglutide (a compound to treat type 2 diabetes) in Japan, and a U.S. phase 3 study should be under way around the end of the year. The company is also working to finalize plans for a NovoSeven trauma study in the U.S. and begin testing in the third quarter. Finally, it continues to evaluate its AERx inhaled insulin device and will decide on further phase 3 studies before year's end.
Admittedly, Novo Nordisk did not produce the sort of results or guidance that investors want to see from a pharmaceutical company. Even if the market were stronger than it is, an outlook for 10% to 15% revenue growth and operating profit growth of 5% probably wouldn't cut it.
Nevertheless, I still believe that Novo Nordisk has a good franchise in an attractive market. The company's insulin business is an underappreciated near-monopoly, and NovoSeven could provide a boost to earnings if or when it's approved in the United States. Although today's report was by no means rousing, the resulting sell-off could present an interesting opportunity over the long haul.
For more on diabetes and those companies working to treat it:
- Is Lilly About to Bloom?
- How Hated Is Pfizer?
- Merck, Bristol-Myers Team Up
- Patience Rewarded at Last