Investeringskommentar, Karen Andersen, Analyst, 3/2/2016
We're maintaining our fair value estimate for Novo Nordisk following full-year 2015 results, as the firm's performance and guidance matched our expectations. While shares have reacted negatively to the lower long-term guidance, the new targets are closer to our own projections. Despite the tougher pricing environment in the United States and continued headwinds in China, we think Novo's diabetes franchise remains innovative and dominant, and the firm's wide moat looks stable.
In October, Novo gave 2016 guidance for mid- to high-single-digit growth in 2016 (top-line and adjusted operating profit growth), and the detailed guidance released with 2015 results (5%-9% top-line and operating income growth) remains in line with the 7% growth forecast we have built into our model. As we discussed in a previous note, we had expected the firm to lower its long-term targets (last released in 2013) in conjunction with earnings. Novo met its previous targets of 15% operating profit growth and 40% operating margin over the 2012-15 period, and exceeded growth when adjusted for currency. The new lower long-term guidance (10% operating profit growth and flat 44% operating margin) remains slightly above our expectations. While we expect flat operating margins, we model mid to high-single-digit growth, given emerging pressures on the hemophilia franchise (Roche could launch ACE910 in 2017) and the more difficult pricing environment in the U.S. (more aggressive negotiations at launch and limited ability to pass through diabetes price increases on older products, owing to discounts that are already quite steep). We also think the new guidance reflects the additional development costs associated with differentiating products at launch (such as the new Xultophy phase 3b study comparing the product with Lantus) and continued headwinds in China, which look to be in place through at least 2017.
Bulls Say
- The increased prevalence of obesity and patient conversion to pricier modern insulin offerings should expand the insulin market by more than 6% annually over the next five years, based largely on volume.
- With a promising pipeline full of nextgeneration insulins, Novo is well positioned to defend its formidable diabetes market share in the long run.
- Novo's prowess developing therapeutic proteins has led to the creation of a highly
profitable line of biopharmaceutical products for hemophilia and other disorders, helping to diversify its top line and further boost margins.
Bears Say
- Tresiba, Ryzodeg, and Xultophy won't reach the lucrative U.S. market until at least 2016, allowing Sanofi to continue to dominate with Lantus and introduce new insulin offering Toujeo in the interim.
- Novo and its insulin market peers have enjoyed tremendous U.S. pricing power in recent years, but the passing of the patent cliff and increased consolidation of PBMs could limit this power in the future.
- Novo's Victoza has been a strong growth driver, but exclusion from the Express Scripts formulary in 2014 and the introduction of other potent GLP-1 analogs could weigh on growth.
