Novo Nordisk Trims Outlook on Increased U.S. Political Risks

  • Environment is ‘increasingly volatile,’ new CEO says
  • Stock drops the most since October, last time outlook changed

Novo Nordisk A/S, the world’s biggest maker of diabetes medicines, grew less confident about its outlook since late last year because of political risks in the U.S.

The Danish drugmaker pared its sales forecast for 2017, widened the range of its operating profit estimate and warned prices for insulin are likely to keep falling in the U.S. as it reported lower-than-expected earnings on Thursday. It’s the third time in six months Novo has altered estimates, and the stock had its worst drop since Oct. 28, when the outlook was last cut.

Lars Fruergaard Jorgensen

Source: Novo Nordisk A/S

Lars Fruergaard Jorgensen, the company’s new chief executive officer, takes over at a rocky juncture. Insurers and payers are demanding lower prices from drugmakers in the U.S., Novo’s largest market, and President Donald Trump has said the industry is “getting away with murder” and suggested he might want to regulate costs. In that environment, it was prudent to broaden the guidance, Jorgensen said.

“We are looking at a 2017 plan that is still intact, but we operate in an environment that is increasingly volatile,” he said on a conference call.

Revenue may drop 1 percent or grow as much as 4 percent in local currencies, the Bagsvaerd, Denmark-based company said in a statement. Novo also widened the range for its forecast of this year’s operating profit, saying it may be between a 2 percent decline and a 3 percent increase. In October, it said it expected flat to low single-digit percentage growth in operating profit and low single-digit growth in sales.

New Outlook

Adding to the threats facing Novo, Teva Pharmaceutical Industries Ltd. said Thursday that it filed with the U.S. Food and Drug Administration seeking approval to market a generic version of the Danish company’s blockbuster Victoza. Novo said that sales of Victoza, part of a class of drugs that stimulate the pancreas to produce more insulin, increased to about 20 billion kroner ($2.9 billion) last year.

Novo’s stock fell as much as 7.8 percent in Copenhagen to 230 kroner, the biggest decline since Oct. 28, when the company pared its long-term profit growth estimate to 5 percent from the 10 percent projected earlier last year. The stock traded at 231.20 kroner at 2:50 p.m. local time.

Novo expects lower prices in the U.S., especially in the basal insulin and growth hormone areas, and intensifying competition in the diabetes and bio-pharmaceutical sectors, it said today. Net income last year rose to 37.9 billion kroner from 34.9 billion kroner a year earlier. Earnings per share were 14.96 kroner, less than the 15.08 kroner analysts surveyed by Bloomberg had estimated. Sales rose 4 percent to 111.8 billion kroner.

Jorgensen, who grew up on a family farm in Denmark and joined Novo in 1991 as an economist, replaced its retiring leader Lars Rebien Sorensen at the start of the year.

With drug companies under fire over high prices, Novo in December pledged to limit any potential list-price growth in the future to no more than single-digit percentages annually and to seek partnerships aimed at reducing the burden of out-of-pocket costs on patients.

Obesity Opportunity

Jorgensen said he expects pressure on prices to persist. But the company expects to be able to make additional health claims for Victoza and the insulin Tresiba that may widen their use and revive sales in coming years, he said.

“We expect there will be a continued erosion in pricing,” he said. “That’s what we have baked in our global financial guidance. It’s a permanent competitive situation. We are focusing on making the benefits of our products known.”

Novo has traditionally focused on diabetes and hemophilia and ignored any calls to expand beyond those areas. Jorgensen suggested that hasn’t changed, though he sees strong growth potential in medicines for obesity, which often develops alongside the most common form of diabetes. 

The company is open to buying assets to complement its hemophilia business and sees opportunities in the bio-pharmaceutical sector, Jorgensen said in an interview with Bloomberg Television. Any acquisitions would likely be “low-single-digit billion-dollar” deals, Jorgensen said later by phone.

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