Diabetes is a major problem around the world, and it's only getting worse. It would stand to reason, then, that Danish pharmaceutical company Novo Nordisk (NYSE:NVO) should benefit from increasing demand for insulin and an ongoing conversion to analog insulin usage. But none of that is exactly a secret, so it doesn't automatically follow that the stock is a great buy.
Third-quarter results were quite solid, though. Revenue rose 19% (as measured in the company's native currency) while operating profits grew 32% and earnings per share increased 48%. Top-line growth was well-balanced, with diabetes care sales and biopharmaceutical sales both up 19%.
In the diabetes business, the company continues to see strong demand for its insulin analog products; sales were up about 54%. This business isn't just benefiting from continued patient migration toward analog insulin (and share gains within the analog market); it's also becoming more profitable, as witnessed by the over 400-basis-point improvement in this business's operating margins.
Unlike earlier in the year, NovoSeven sales looked pretty strong this quarter, climbing 22% in local currency. While the approved indications for use of NovoSeven are somewhat limited, the company has gotten permission to include U.S. patients in a global study of the use of NovoSeven in trauma. Given that the biopharmaceutical business (including NovoSeven and growth hormones) is so profitable, with an operating margin of nearly 46%, it's fair to say that expanding the labeling and usage of NovoSeven is very much worth the company's time.
While diabetes is a growing epidemic, it doesn't automatically stand to reason that overall insulin sales will continue to grow by low-to-mid-teens percentages. A host of new drugs are nearing approval, some of which are expressly designed to delay the need to start insulin therapy and/or reduce the necessary amount of insulin. What's more, companies like Motley Fool Inside Value pick Pfizer (NYSE:PFE) and Eli Lilly (NYSE:LLY) are spearheading efforts toward inhaled insulin, and Novo has yet to officially decide whether to continue developing its own candidate (the AERx).
I'm not really worried about these new drugs harming insulin demand at Novo Nordisk. The market is very large and growing, and even the best new drugs won't help everybody. Assuming that Novo can balance out its growth with more contributions from biopharmaceuticals, the company should continue generating good returns.
For more on the diabetes market:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
