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2017 outlook ruins the sentiment

  • 03 Feb 17

Novo Nordisk’s Q4 results were in line with our expectations, but the disappointing guidance for 2017 sent the shares into jeopardy – plunged by more than 7% post the results announcement. NB all sales numbers are in local currencies (LC), unless specified otherwise. Q4 sales barely managed to grow by 3% in LC and 2% in DKK to DKK29.5bn, characterised by increasing competition and pricing pressure in the basal insulin market. Although the new generation insulin – Tresiba, Xultophy and Ryzodeg – grew strongly, generating DKK1.7bn (up 269% vs 203% in Q3) together, the modern insulins – Levemir (-17% vs Q3: -4%, Q2: -1%, Q1: 9%), NovoRapid (-2% vs Q3: -3%, Q2:-3%, Q1: -1%), and NovoMix (-5% vs Q3: -3%, Q2: -1%, Q1: 1%) reflected a grim picture. Victoza sales were up 10% to DKK5.4bn (vs DKK5.1bn in Q3) during the quarter. Total diabetes business grew by 5% (vs Q3: 5%, Q2: 7%, Q1: 7%) to DKK23.8bn, while the Biopharma business declined by 2% (vs Q3: +1%, Q2: 1%, Q1: 15%) to DKK5.7bn. Geographically, the growth was entirely driven by international markets and China, while the US and Europe (accounting for 70% of the group sales) yielded almost nothing. For the full year, the sales growth of 6% (4% in DKK) to DKK111.8bn was in line with management guidance of 5-6%. The operating profit for the quarter grew by 1% in DKK (vs 4% in Q3) to DKK11.2bn, but the margin declined from 38.5% in Q4 15 to 37.9% in this quarter. The full-year operating profit, which declined by 2% in DKK to DKK48.4bn, was helped by lower hedging losses to results in net profit growth of 9% to DKK37.9bn. A dividend of DKK7.6 per share was a notch better than our estimate of DKK7.5. A new share buy-back programme of up to DKK16bn was announced for the year, but with the optionality of being stalled if an acquisition opportunity arises. Weak outlook for 2017 came as a surprise to the market, which was gradually getting used to the already soft preliminary guidance given at the time of the Q3 results. The guidance range has been increased from the standard four percentage points (followed by Novo Nordisk typically) to five. Sales are now guided to fall between a decline of 1% and a growth of 4% in LC (vs low single-digit growth in the preliminary outlook). The operating profit is now estimated to come between -2% and 3% (vs flat-to-low single-digit growth in the preliminary guidance), while the forex tailwind is expected to contribute 2ppt to both the top-line as well as the operating profit. This coupled with higher guidance for tax (21-23%) and capex (DKK10bn, attributable to the construction of an API manufacturing facility in the US) is likely to put further pressure on the cash flows for the year

Another downgrade triggers panic; our first take on the results

  • 28 Oct 16

Novo Nordisk released its Q3 results today with a mixed set of numbers for the quarter but yet another downgrade was the biggest disappointment. It has further revised down its long-term operating profit growth guidance from 10% to 5%, following the first downgrade at the beginning of this year from 15% (set in 1996) to 10%. While the revision from 15% to 10% was a practical acknowledgment of the market’s realities and hence was not perturbing for us, today’s revision is worrying. For 2016 as well, the outlook has been narrowed from 5-7% to 5-6% for sales and from 5-8% to 5-7% for operating profit. NB all sales numbers are in local currencies, unless specified otherwise. The Q3 sales grew by 5% in LC (6% in Q2) and by 3% in DKK to DKK27.5bn, with the main underperformance coming from the mature modern insulins – NovoRapid (-3%), NovoMix (-3%) and Levemir (-4%) – witnessing a combined sales decline of 4%. The new-generation insulin – Tresiba and Ryzodeg – fared well (combined sales of DKK1.1bn), while Victoza grew at a sequentially lower 10% (13% in Q2 and 15% in Q1), primarily due to a 4% decline in Europe (vs 3% growth in Q2). In total, the Diabetes segment grew by 5% (vs 7% growth in Q2 and Q1) to DKK22.3bn. The Biopharma business continued on Q2’s lines with 1% growth (vs 15% in Q1) to DKK5.2bn. Operating profit increased by 5% in LC and by 4% in DKK; the margin improved by 40bp yoy to 45.1% (vs 45.5% in Q2). Net profit grew by 17% in DKK to DKK9.8bn.

Difficult US prompts another guidance downgrade, this time for 2016

  • 07 Aug 16

Novo Nordisk released disappointing numbers for its Q2. Sales of DKK27.5bn were behind our as well as the consensus estimates. They represented a LC growth of 6% (vs 9% in Q1 16), with currency headwinds shaving off 5% points (vs 1% negative impact in Q1 15) from this. NB All sales growth numbers are in LC, unless specified otherwise. The underperformance came from a contract loss for Novolog in the US, lower price increases compared to historical years, wholesaler inventory management and lower NovoSeven sales due to competition. The diabetes and obesity care business grew by 7% (at par with 7% in Q1 16), but granular assessment shows that the lower growth in the US (+5% vs 9% in Q1), and International markets (+8% vs 14% in Q1) was balanced surprisingly by 20% growth (vs 3% in Q1) in China. Although the new-generation insulin (+205%; Tresiba, Ryzodeg and Xultophy) came up along the expected lines, modern insulins (-2% vs +3% in Q1 16) came as a negative surprise to us. All the three modern insulins – NovoRapid, NovoMix and Levemir – were worst hit in the US with a combined decline of 8% (vs 1% growth in Q1), mitigated to some extent by impressive growth in China (+26%). Victoza’s strong, though sequentially softer, growth (Q2 16:+13%, Q1:+15%) drove the 5% growth of the total diabetes business in the US. The Biopharma business aggravated the pain at a mere 1% growth (vs +15% in Q1) with underperformance again coming primarily from the US (-3% vs +21% in Q1) as the competition intensifies. The operating profit increased by 5% in LC (flat in DKK), with the margin declining by 60bp due to the lower sales of high-margin NovoSeven, increased spending on the ramp-up of capacity and marketing spend on Saxenda, NovoEight and Tresiba. The hedging gain of DKK105m (vs loss of DKK1.9bn in Q2 15), however, provided fillip to net profit (+19% in DKK), which came in at ~DKK10bn. Outlook in LC has been clipped, due to the competition in both the US diabetes market as well as the biopharmaceutical business. The top-line growth range of 5-9% for 2016 has been revised down to 5-7%, while the range of operating profit has been narrowed from 5-9% to 5-8%. The financial loss associated with forex hedging contracts has been increased from DKK200m to DKK600m. Capex requirement remains high due to the expansion of the manufacturing capacity for biopharma products, for API production, an expansion of the diabetes care filling capacity and construction of new research facilities.

Excellent pipeline support as fx tailwind dissipates

  • 16 May 16

Novo Nordisk’s Q1 16 sales were up by 9% in LC (+8% in DKK) to DKK27.2bn, with the highest contribution coming from Victoza (+15%, 16% in DKK), followed by Tresiba (+117%, +113% in DKK) and Levemir (+9%, 8% in DKK). Overall, the Diabetes and Obesity franchise was up 7% (+6% in DKK) and the Biopharma business grew by 9% (+8% in DKK). The forex tailwind that the company enjoyed last year was absent this time, leading to the 9% LC sales growth translating into 8% DKK-reported growth. 64% of the growth came from the US (+12%), primarily driven by Victoza, Levemir and Tresiba, and also by a net positive impact of a one-off adjustment to rebates in the Medicaid patient segment, but offset to some extent by the declines in NovoRapid (-7%), NovoMix (-8%), Human Insulin and Novolog. International geographies (+15%; 3% in DKK) were driven by all three modern insulins (+16%), Victoza (+29%) and Tresiba (+142%), while Europe and China remained unimpressive at 1% and 3% growth, respectively. Adjusted operating profit, excluding the income from the partial divestment of NNIT last year, was up by 7% (in DKK; below the 2016-20 growth target of 10%) to DKK11.5bn, reflecting a 40bp dip in the margin to 45.2%. Outlook for 2016 in LC has been maintained but fx is likely to have a bigger headwind than anticipated earlier. DKK sales growth guidance has been lowered to 2-6% (from 4-8% earlier), while the operating profit growth guidance has been revised down to 1-5% (from 4-8% earlier). At the net profit level, however, we expect the hedging gains (mainly related to the $/DKK) to cover up for the fx losses.

Results strong but market perturbed by lower guidance

  • 09 Feb 16

Novo Nordisk’s Q4 performance was in line with our expectations, although downward revision of long-term growth expectation and waning forex benefit weighed on the stock. The share price plunged 7% on 3 February when the results were announced and, aggravated by sector volatility, has lost another 10% since then (as of 8 February). Sales for the quarter grew by 8% in LC and 17% in DKK to DKK29.9bn, led by Victoza (+10% in LC and 22% in DKK), Levemir (+22% in LC and 34% in DKK) and healthy forex benefits. EBIT grew by 21% to DKK11.1bn (although the margin has been sliding sequentially – 46% in Q2, 45% in Q3 and 38.5% in Q4). For the year, sales growth of 8% in LC (+22% reported) was in line with management guidance of 7–9%. Adjusted operating profit was up by 14% in LC (36% in DKK) to DKK47bn. However, hedging losses worth DKK5bn from forward contracts pared some forex benefits from the net profit which ended 32% higher to DKK34.9bn (including DKK2.4bn gain on partial divestment of NNIT). The dvidend was increased by 28% to DKK6.4, representing a payout of 47%, pretty much in line with our expectation. Introduction of a bi-annual dividend has been proposed, along with the new share buy-back plan worth DKK14bn for 2016. The outlook for 2016 is disappointing at 5-9% LC growth for both revenue and operating profit. A strengthening DKK will remove the forex windfall that it enjoyed in 2015; consequently, the growth in DKK is now guided to be a percentage point lower than the LC growth (unlike the 22% sales growth in DKK vis-a-vis 8% LC growth in 2015). Capex guidance of DKK7bn, representing the investments going towards expanding manufacturing capacity, is higher than our expectation. A bigger disappointment for the market, however, was the pruning down of long-term operating profit growth guidance of 15% to 10%.