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July 20, 2017 (NVO – NYSE) NovoNordisk A/S $43.55 Note: This report contains substantially new material. Subsequent report will have changes highlighted. Reason for Report: 1Q17 Earnings Update Prev. Ed.: May 1, 2017; 4Q16 and FY16 Earnings Update Brokers’ Recommendations Neutral: 66.67% (2 firms); Negative: 33.33% (1); Positive: 0.00% (0) Prev: 2; 1; 0 Brokers’ Target Price: $38.85 (↔ as the last edition; 2 firms) Brokers’ Avg. Expected Return: -10.7% Portfolio Manager Executive Summary Novo Nordisk, a global healthcare company, is a world leader in the field of diabetes care. The company boasts a broad product portfolio of diabetes products. Novo Nordisk is among the leading players in the fields of hemophilia care, growth hormone therapy and hormone replacement therapy. Of the three firms providing ratings on Novo Nordisk, 66.7% firms (two firms) assigned a neutral rating, 33.3% (one) is negative on the stock. None of the firms were positive. Neutral or equivalent outlook (2/3 firms): The firms expect FY 2017 results to be slightly weaker than consensus expects, primarily due to recent adverse foreign exchange movements. However, they feel that Novo Nordisk is poised to benefit from the growing global prevalence of diabetes & obesity. The firms are also impressed with the comprehensive portfolio and pipeline. But sustained payer pressure to manage diabetes drug costs and the anticipated entrance of insulin biosimilars are likely to intensify pricing/access pressure. Negative or equivalent outlook (1/3 firms): Reports were not available. Positive or equivalent outlook (0/3 firms): Reports were not available. July 20, 2017 Overview Novo Nordisk focuses on discovering, developing, manufacturing and marketing pharmaceutical products. It operates in two segments – Diabetes Care and Biopharmaceuticals. The Diabetes Care segment includes insulins, glucagon-like peptide-1 (GLP-1) molecules, other protein-related offerings and projects such as glucagon and protein-related delivery systems, obesity and oral antidiabetic drugs. The Biopharmaceuticals segment focuses on hemophilia care, growth hormone therapy, hormone replacement therapy and inflammation. The two segments contributed 79.3% and 20.7%, respectively, to 2015 total revenue of DKK107.9 billion. The company, headquartered in Bagsværd, Denmark, markets its offerings in more than 180 countries across the globe. Novo Nordisk is the world leader in diabetes care with a global value market share of 27%. The principal markets include North America, China and Japan in addition to major European nations. Novo Nordisk’s B shares are listed on the stock exchange in Copenhagen (NASDAQ NOVOB). Its American Depository Receipts (ADRs) are listed on the New York Stock Exchange under the symbol ‘NVO’. The company’s website is www.novonordisk.com. © Copyright 2017, Zacks Investment Research. All Rights Reserved The firms identified the following factors for evaluating the investment merits of Novo Nordisk: Key Positive Arguments Victoza is the key growth driver at Novo Nordisk. The drug has performed well since its launch and is expected to keep up its strong performance. Key Negative Arguments Some firms believe that competition for Victoza has intensified following the approval of Bydureon. This has the potential to dampen its sales. Most firms in the Digest group are pleased with the strong sales of insulin analogues such as Levemir. Revenue growth driven by Victoza, Tresiba and modern insulins is expected to be partly offset by intensifying competition for the diabetes and biopharmaceuticals products, increased rebate levels in the U.S. and adverse macroeconomic conditions in international markets. The launches of Xultophy in the EU and Saxenda in the U.S. are encouraging, and should contribute to the top line. Note: Novo Nordisk’s fiscal year references coincide with the calendar year. July 20, 2017 Long-Term Growth Novo Nordisk boasts a strong portfolio of diabetes products. The company’s modern insulins, which include NovoRapid, NovoMix and Levemir, are performing well. The company’s most important drug, Victoza, a once-daily human GLP-1 analogue approved for improving blood sugar (glucose) levels in adult type II diabetes patients, also showed promising revenue potential. Novo Nordisk expects Victoza to continue driving growth. EU approval of Xultophy for the treatment of type II diabetes in adults and the approval of Saxenda for obesity in the U.S. and the EU are significant boosts to the company’s top line. It is expected to drive revenue growth in the long term. Diabetes candidates Tresiba and Ryzodeg are also important for driving long-term growth at Novo Nordisk. The company decided to acquire two privately held biopharmaceutical companies, Calibrium LLC and MB2 LLC. These acquisitions should help Novo Nordisk expand its portfolio of projects and intellectual property rights within its diabetes and obesity franchise. Novo Nordisk expects sales to grow in the range of 5–9% in 2016. For 2017, Novo Nordisk has completed the majority of its formulary negotiations in the U.S. Average prices are expected to be moderately lower from the 2016 levels, due to a challenging pricing environment, especially in the basal insulin and human growth hormone segments. Novo Nordisk’s key products are anticipated to remain unchanged. Preliminary outlook for 2017 indicates low single-digit growth in sales and flat to low single-digit improvement in operating profit due to challenging market environment in the U.S. July 20, 2017 Target Price/Valuation Rating Distribution Positive Neutral Negative Avg. Target Price High Low No. of Analysts with Target Price/Total Zacks Investment Research Page 2 00.0% 66.67% 33.33% $38.85 $41.00 $37.00 2/3 www.zackspro.com Recent Events Novo Nordisk Beats on Q1 Earnings, Revenues Down Y/Y Novo Nordisk reported 1Q17 earnings of $0.58 per American Depositary Receipt (ADR). Reported earnings surpassed the year ago figure of $0.55. Quarterly revenues were up 1.4% y/y (up 3% in local currency) to $4.07 billion. All growth rates mentioned below are on a year-over-year basis and in local currency. Outlook For 2017, Novo Nordisk expects sales growth (in local currencies) from flat to up 3%. The growth is likely to be driven by robust performance for Victoza and Tresiba as well as a contribution from Saxenda and Xultophy. Operating profit is expected to be in the range of -1% to +3%. This reflects modest outlook on sales growth. It also reflects a modest increase in both sales and distribution costs to support product launches as well as improvement in research and development costs to support Novo Nordisk’s pipeline progress. Revenue Novo Nordisk’s 1Q17 revenues were up 1.4% y/y (up 3% in local currency) to $4.07 billion. In terms of DKK the company’s revenues were up 3% to DKK28.4 billion in 1Q17. The company’s top line was driven by strong sales within diabetes and obesity care with the majority of growth originating from Victoza, Tresiba, NovoRapid and Saxenda, partly offset by declining sales of Levemir. Sales within biopharmaceuticals declined, reflecting lower sales of human growth disorder products, NovoSeven and Other Biopharmaceuticals. Both International Operations and North America Operations contributed to sales growth with 66% and 34%, respectively. Within International Operations, the main growth contributors were Region Europe, Region China and Region Japan & Korea, partly offset by Region AAMEO (Africa, Asia, Middle East and Oceania) and Region Latin America. The Zacks Digest average revenues in 1Q17 were in line with the company’s report. 2017 Outlook: For 2017, Novo Nordisk expects sales growth, in local currencies, to be in the range of -1% to +4%. Continued growth for Victoza and Tresiba as well as higher contribution from Saxenda and Xultophy will be partly offset by an impact from lower realised prices in the U.S., especially in the basal insulin and growth hormone segments, the loss of exclusivity for Vagifem in the U.S. This, in turn, will further intensify competition within diabetes and biopharmaceuticals, especially in the U.S. as well as adverse macroeconomic conditions in several markets in International Operations. Zacks Investment Research Page 3 www.zackspro.com Specific Products Diabetes Care Sales: Diabetes Care products improved 13% y/y to DKK23.8 billion in 1Q17. The segment holds a global value market share of 27%. The Diabetes and Obesity Care segment recorded sales growth of 11% in local currency. Modern Insulins Levemir (insulin detemir [rDNA origin] injection) Indication: Type I and type II diabetes Product Life Cycle Position: Marketed Sales: The company recorded revenues of DKK4,012 million in 1Q17, down 10% y/y in local currency. The Zacks Digest average Levemir revenues in 1Q17 were in line with the company’s report. Competitors: Levemir faces competition from Sanofi’s Lantus. NovoRapid Indication: Rapid-acting insulin analogue for diabetes Product Life Cycle Position: Marketed Sales: The company recorded revenues of DKK5,314 million in 1Q17, up 13% y/y in local currency. The Zacks Digest average NovoRapid revenues in 1Q17 were in line with the company’s report. Victoza (liraglutide) Indication: Once-daily human GLP-1 analogue for type II diabetes Product Life Cycle Position: Marketed Safety Issues: The U.S. prescribing information includes boxed warnings for pancreatitis and theoretical risk of c-cell carcinogencity, having observed c-cell carcinomas in two rodent species but not in primates or humans. Sales: The company recorded Victoza revenues of around DKK5,750 million in 1Q17, up 22% in local currency. Sales were mainly driven by North America Operations comprising 92% share of growth. Victoza holds a market share of 56% in the GLP-1 segment. The Zacks Digest average Victoza revenues in 1Q17 were in line with the company’s report. Regulaotry Issues: On Jun 23, 2017, Novo Nordisk announced that the Committee for Medicinal Products for Human Use (CHMP), under the European Medicines Agency (EMA), issued a positive opinion on update of the EU label for Victoza. The update was based on the results from the LEADER trial, which investigated the long-term effects of Victoza (liraglutide up to 1.8 mg) in people with type II diabetes, at high risk of major cardiovascular (CV) events. In fact, the CHMP recommended an update of the indication for Victoza to reflect both glycaemic control and cardiovascular events as integral parts of type 2 diabetes treatment. Zacks Investment Research Page 4 www.zackspro.com On Jun 20, 2017, Novo Nordisk announced that the Endocrinologic and Metabolic Drugs Advisory Committee (EMDAC) of the FDA voted 17-2 in favor of Victoza that the drug provides substantial evidence of cardiovascular risk reduction in patients with type II diabetes. The positive panel recommendation bring Novo Nordisk a step closer to get the cardiovascular indication included on the label of its key top-line driver Victoza. Advisory Committee’s favorable vote was based on data from the LEADER cardiovascular outcomes trial, which involved more than 9,300 people with type II diabetes at high risk of major cardiovascular events. The study evaluated the cardiovascular benefit of Victoza over a period of up to five years. Notably, the study compared the addition of either Victoza or placebo to the standard of care, with the Victoza arm meeting the primary endpoint of non-inferiority. The results also demonstrated superiority of Victoza in a statistically significant reduction of cardiovascular risk. As instances of death due to cardiovascular diseases are significantly higher in adults with diabetes compared with those without diabetes, the addition of positive cardiovascular outcomes on the label of the diabetes drug might give sales a boost. The supplemental new drug application for Victoza to include the cardiovascular indication was submitted to the FDA in Oct 2016, and regulatory feedback in the US is expected in 3Q17. Additional Data: On Jun 13, 2017, Novo Nordisk announced positive results from the post-hoc analysis of the cardiovascular (CV) outcomes study, LEADER on Victoza. Currently, the study is evaluating the longterm effects of Victoza compared to placebo, both in addition to standard of care, in patients with type II diabetes at high risk of major CV events. Notably, the study showed that the treatment with Victoza resulted in similar reductions in the risk of major cardiovascular events in patients with type II diabetes at high CV risk, irrespective of whether they experienced severe hypoglycaemia during the trial. In fact, the people who experienced severe hypoglycaemic episode, had a higher chance of major cardiovascular adverse events, CV-death or non-CV death. The risk of a CV event was much more within 60 days of occurrence of a severe hypoglycaemic episode. However, the patients who received Victoza experienced significantly fewer episodes of severe hypoglycaemia when compared to placebo, both in addition to standard of care. In Oct 2016, Novo Nordisk announced that it has submitted a supplemental New Drug Application (sNDA) in the U.S. and a Type II Variation application in the EU to include data from the LEADER study in the product information of Victoza. The study evaluated long-term (3.5–5 years) effects of Victoza (up to 1.8 mg) compared to placebo, both in addition to standard of care, in people with type II diabetes who are at high risk of major cardiovascular events. Data demonstrated that Victoza statistically reduced the risk of cardiovascular death, non-fatal myocardial infarction (heart attack) and non-fatal stroke by 13% in comparison to placebo, when added to standard of care. Competitors: Victoza faces competition from Sanofi’s Lantus and AstraZeneca’s Bydureon among others. Saxenda (liraglutide 3 mg) Indication: Once-daily human GLP-1 analogue approved as an adjunct to a reduced-calorie diet and increased physical activity for chronic weight management. Product Life Cycle Position: Marketed Zacks Investment Research Page 5 www.zackspro.com Sales: The company recorded Saxenda revenues of around DKK539 million in 1Q17, up 110% in local currency. The Zacks Digest average Saxenda revenues in 1Q17 were in line with the company’s report. New Data: On May 17, 2017, the company announced results from a post-hoc analysis of data from the SCALE Maintenance study. In the study, adults who lost at least 5% of their initial weight during a lowcalorie run-in period were randomised to receive Saxenda or placebo. After 16 weeks of treatment with Saxenda, participants who lost an additional 5% or more of their body weight were more likely to maintain weight loss and achieve greater additional weight loss over 56 weeks compared with people losing less than 5% body weight after 16 weeks of Saxenda treatment. Additional Indications: In Jan 2017, the EMA approved an updated product label for Saxenda (liraglutide injection 3 mg), including data showing that treatment with Saxenda resulted in significant and sustained weight loss over three years compared to placebo. In addition, data were included showing that fewer patients on Saxenda compared to placebo developed type II diabetes over three years. In April 2017, Novo Nordisk announced the FDA label update for Saxenda based on data showing that approximately half of patients on Saxenda who lost more than or equal to 5% of their weight after 56 weeks maintained their weight loss for three years. The SCALE Obesity and Pre-diabetes three-year trial investigated the long-term efficacy of Saxenda versus placebo in subjects diagnosed with pre-diabetes, who were overweight or had obesity. Tresiba (insulin degludec) Indication: Insulin analogue for the treatment of type I and type II diabetes Product Life Cycle Position: Marketed Sales: The company recorded Tresiba sales of DKK1,491 million in 1Q17. The product has now been launched in 55 countries. The Zacks Digest average Tresiba revenues in 1Q17 were DKK1,558 million in 1Q17, up 178.4% y/y. Additional Data: In Sep 2016, Novo Nordisk announced that it has submitted a sNDA in the U.S. to include data from the two phase IIIb studies – SWITCH 1 and SWITCH 2 – in Tresiba’s label. On Mar 24, 2017, the company announced that Committee for Medicinal Products for Human Use (CHMP), of the European Commission has granted positive opinion suggesting an update of the label of Tresiba (insulin degludec) to include data from the SWITCH clinical studies. The CHMP recommends the updated label to include results reflecting the significant reductions in hypoglycaemia from both the studies. In the SWITCH 1 study, adults with Type I diabetes and in SWITCH 2 trial adults with Type II diabetes were treated with Tresiba versus insulin glargine U100, both in addition to meal-time insulin. In both the studies, the patients experienced statistically significant reductions in hypoglycaemia when treated with Tresiba compared to insulin glargine. The CHMP positive opinion is now referred for final action to the European Commission, and the company expects to receive the updated marketing authorisation in 2Q17. New Data: On Jun 14, 2017, Novo Nordisk announced the submission of a Type II Variation application to the European Medicines Agency (EMA) for including data in the label for Tresiba (insulin degludec) from the DEVOTE trial. On Jun 10, 2017, findings from a study showed that people with type I diabetes and type II diabetes experienced a significant reduction in HbA1c , six months after switching to Tresiba from another basal Zacks Investment Research Page 6 www.zackspro.com insulin, primarily insulin glargine U100 and insulin detemir, in a real-world setting. These results were sustained at 12 months. Rates of overall hypoglycaemia were also significantly lower at six months after switching to Tresiba. In people with type I diabetes, the rate of severe hypoglycaemia was reduced by 85%, and by 92% in people with type II diabetes. Further, a significant reduction in fasting plasma glucose was observed at six months and maintained for 12 months. The total daily insulin dose also decreased significantly in people with type I diabetes and type II diabetes at six months, and remained stable at 12 months. Additional indications: On Jun 12, 2017, Novo Nordisk announced the primary results from DEVOTE - the event-driven trial comparing two basal insulins – Tresiba and insulin glargine U100, in adults with type II diabetes at high risk of cardiovascular (CV) disease. The study showed that Tresiba met primary endpoint of non-inferiority compared with insulin glargine u100 for major adverse CV events. Additionally, the results from secondary endpoints of the study showed significant reduction in rate of severe and nocturnal severe hypoglycaemia with Tresiba versus insulin glargine u100. In fact, Tresiba showed no increased risk of major cardiovascular events and significant reduction in rates of severe hypoglycaemia compared to insulin glargine. On May 27, 2017, Novo Nordisk announced the submission of a supplemental application to the FDA for including data in the label for Tresiba from the DEVOTE study, an event-driven study conducted to confirm the cardiovascular safety of Tresiba compared to insulin glargine U100 when added to standard of care, in people with type II diabetes. The study met its primary endpoint by demonstrating non-inferiority of major adverse cardiovascular events (MACE) with Tresiba compared to insulin glargine U100. In the study, Tresiba showed superiority on the secondary confirmatory endpoint of severe hypoglycaemia: 27% fewer patients in the Tresiba treated group experienced an episode of severe hypoglycaemia, resulting in a 40% overall rate reduction of total episodes of adjudicated severe hypoglycaemia. Furthermore, patients in the Tresiba treated group experienced a 53% relative reduction in the rate of nocturnal severe hypoglycaemia. These differences were all statistically significant. In May 2017, Novo Nordisk received an approval from the EU Commission for an update of the label for Tresiba to include data from the SWITCH 1 and 2 studies. In the studies, Tresiba demonstrated clinically relevant reductions in hypoglycaemia compared with insulin glargine U100 in people with type I and type II diabetes. Ryzodeg (degludecPlus) (fixed ratio combination of Tresiba and NovoRapid) Indication: Insulin analogue for the treatment of type I and type II diabetes Product Life Cycle Position: Marketed Sales: Ryzodeg revenues in 1Q17 were DKK95 million compared with DKK34 million in 1Q16. Currently, it is marketed in 10 countries. In fact, the Zacks Digest average Ryzodeg revenues in 1Q17 were in line with the company’s report. Xultophy (IDegLira) (a combination of Victoza and Tresiba) Indication: Type II diabetes in adults Zacks Investment Research Page 7 www.zackspro.com Product Life Cycle Position: Marketed in the EU and Switzerland: Launched in the U.S. in May 2017 under brand name Xultophy 100/3.6. Regulatory Update: In Dec 2016, Novo Nordisk announced that the FDA has approved Xultophy (100/3.6) as an adjunct to diet and exercise to improve glycemic control in adults with type II diabetes mellitus inadequately controlled on basal insulin (less than 50 units daily) or liraglutide (less than or equal to 1.8 mg daily). Sales: Xultophy revenues in 1Q17 were DKK103 million. The Zacks Digest average Xultophy revenues in 1Q17 were in line with the company’s report Other diabetes and obesity care (oral antidiabetic products, needles and Saxenda) In Dec 2016, Novo Nordisk announced that the FDA has approved Xultophy (100/3.6) as an adjunct to diet and exercise to improve glycemic control in adults with type II diabetes mellitus inadequately controlled on basal insulin (less than 50 units daily) or liraglutide (less than or equal to 1.8 mg daily). Fiasp (Fast -acting insulin aspart, NN1218) Indication: Type I and Type II diabetes in adults Product Life Cycle Position: Launched in Canada, UK and Germany: Phase III completed in 2015. The fast acting insulin aspart will be marketed under the brand name of Fiasp in the EU. Regulatory Update: On Mar 29, 2017, Novo Nordisk announced that the company has resubmitted the new drug application (NDA) for fast-acting insulin aspart as a class II re-submission to the FDA. In October 2016, Novo Nordisk announced that it had received a Complete Response Letter from the FDA regarding the NDA for aspart. Novo Nordisk has now evaluated the content of the Complete Response Letter and completed the End-of-Review meeting with FDA; based on this, Novo Nordisk has resubmitted the fastacting insulin aspart NDA as a class II re-submission. The company expects to receive feedback from the FDA in the last quarter of 2017. On Mar 27, 2017, Fiasp, was launched in Canada, following the marketing authorisation received from Health Canada in January. The launch of Fiasp in Canada represents first new mealtime insulin in 10 years. On Jan 9, 2017, Fiasp received marketing authorisation from the European Commission, covering all 28 European Union member states; approval was also obtained in Norway and Iceland. It is currently under regulatory review in Australia, Switzerland, Brazil, South Africa, Argentina and Israel. Biopharma Business The company’s Biopharmaceuticals segment comprises hemophilia, growth hormone therapy and hormone replacement therapy. On Sep 2, 2014, Novo Nordisk announced that it will discontinue its development efforts targeting inflammatory disorders. The company’s decision was based on a review of its strategic position in this field. Sales: Sales of Biopharmaceutical products fell 25% y/y in local currency to DKK4,691 million in 1Q17. The Zacks Digest average Biopharma revenues in 1Q17 were in line with the company’s report. Zacks Investment Research Page 8 www.zackspro.com Hemophilia (Includes NovoSeven, NovoEight and NovoThirteen) Sales: In 1Q17, Hemophilia revenues were DKK2,576 million, down 11% y/y in local currency. The Zacks Digest average Hemophilia revenues in 1Q17 were in line with company’s report. The sales decline was primarily driven by lower NovoSeven sales in AAMEO and Latin America as well as North America Operations, partly offset by a positive contribution from NovoSeven sales and the roll - out of NovoEight in Europe. NovoSeven (bleeding disorders therapy) Indication: Congenital hemophilia, acquired hemophilia, Factor VII deficiency, and Glanzmann’s thromabasthenia, hemophilia A or B with inhibitors Product Life Cycle Position: Marketed NovoSeven has a volatile market and is affected by budgetary controls, inhibitor patients participating in studies and transfer of patients to an alternative treatment of immune tolerance therapy. Sales: NovoSeven sales came in at DKK 2,311 million in 1Q17, down 13% in local currency. The Zacks Digest average NovoSeven revenues in 1Q17 were in line with the company’s report. NovoThirteen Indication: Congenital FXIII A-subunit deficiency Product Life Cycle Position: Marketed (marketed in the U.S.: Tretten) Rebinyn (Refixia, nonacog beta pegol, N9-GP) Indication: For on-demand treatment and control of bleeding episodes, and the perioperative management of bleeding around the time of surgery in adults and children with haemophilia B. Stage of Development: Completed Phase III, In May 2017, the FDA has approved the Biologics License Application for Rebinyn for the treatment of adults and children with haemophilia. Rebinyn is the brand name for nonacog beta pegol; N9-GP. Regulatory Update: The efficacy and safety evaluation of Rebinyn was based on 115 patients across the four paradigm clinical trials, and the approval follows the Blood Products Advisory Committee meeting held Apr 4, 2017. Novo Nordisk expects to launch Rebinyn in the US in 1H18. On Jun 6, 2017, Novo Nordisk announced that the European Commission has granted marketing authorisation for Refixia for the treatment of adolescents and adults with haemophilia B. The authorisation covers all 28 European Union member states. Refixia is the brand name for nonacog beta pegol; N9-GP in the EU. The efficacy and safety evaluation was based on 115 patients across the five paradigm clinical trials, and the marketing authorisation follows the positive opinion from the Committee for Medicinal Products for Human Use (CHMP), under the European Medicines Agency (EMA), provided on Mar 24, 2017. Novo Nordisk expects to launch Refixia in the first European countries in the 4Q17. Zacks Investment Research Page 9 www.zackspro.com On Mar 24, 2017, CHMP granted positive opinion to nonacog beta pegol, N9-GP, recommending marketing authorisation for the treatment of adolescents and adults with haemophilia B. The candidate will be marketed by the trade name of Refixia. The CHMP recommended Refixiato be indicated for prophylaxis and ondemand treatment of bleeding as well as for surgical procedures in adolescent (>12 years of age) and adult patients with haemophilia B (congenital factor IX deficiency). The recommendation was based on the results from the paradigm clinical trial program where 115 previously treated children and adults with haemophilia B were treated with Refixia. Growth Hormone Therapy Human growth hormone (HGH) is a biosynthetic hormone replacement therapy. It is identical to the natural growth hormone produced by the body and must be injected in order to work properly. Norditropin (somatropin [rDNA origin] injection) Indication: Used to treat a wide range of indications in both children and adults. Product Life Cycle Position: Marketed Sales: The Zacks Digest average Norditropin revenues in 1Q17 were DKK1,646 million. Other Products In the Biopharmaceutical segment, Other Products primarily consist of hormone replacement therapy (HRT)related products. HRT is a system of medical treatment for women to prevent discomfort and health problems resulting from the declining circulation of hormones. Sales: In 1Q17, Other Products’ revenues were DKK469 million, down 51% in local currency. The Zacks Digest average was in line with the company’s report. Pipeline Diabetes Pipeline Semaglutide (NN9535) Indication: Type II diabetes Stage of Development: Phase III Regulatory Update: On Feb 28, 2017, Novo Nordisk submitted a New Drug Application (NDA) to the Japanese Ministry of Health, Labour and Welfare for semaglutide (once-weekly), for the treatment of adults with Type II diabetes. The submission was based on results from the SUSTAIN trial. The participants were treated with once-weekly semaglutide as monotherapy, or with oral-antidiabetic (OAD) agents or in combination with OADs and basal insulin. Across the SUSTAIN programme, once-weekly semaglutide demonstrated statistically significant reductions in HbA1c as well as statistically significant reductions in mean body weight compared to sitagliptin, exenatide extended -release, once -daily insulin glargine U100 and placebo. The most common adverse event was nausea. On Dec 5, 2016, Novo Nordisk submitted a regulatory application both in the U.S. and the EU for semaglutide for the treatment of adults with type II diabetes. Zacks Investment Research Page 10 www.zackspro.com Ongoing Studies: Novo Nordisk is evaluating semaglutide (oral) in a phase IIIa study (PIONEER 3) using the Emisphere Eligen SNAC enhancer technology. The randomised, double-blinded, double-dummy study will evaluate the safety and efficacy of daily administration of oral semaglutide compared to Januvia (sitagliptin) after 18 months of treatment in patients with Type II diabetes. The study is expected to be complete in 2018. Novo Nordisk plans to initiate additional phase IIIa PIONEER studies shortly. New Data: On Jun 23, 2017, Novo Nordisk announced the headline results from a 52-week double-blind phase II study with once-daily subcutaneous semaglutide investigating safety and potential for inducing and maintaining weight loss in people with obesity. In the study, 957 people with obesity were randomised to treatment with doses of semaglutide between 0.05 to 0.4 mg/day or placebo. In fact, Liraglutide 3.0 mg/day was included for comparison. About 100 people were included in each active treatment arm in combination with diet and exercise. From a mean baseline weight of around 111 kg and a body mass index of approximately 39 kg/m2, a weight loss up to 17.8 kg was observed after 52 weeks of treatment with semaglutide. This corresponded to an estimated 13.8% weight loss compared to the weight loss of 2.3% achieved by diet, exercise and placebo alone, with all treatment arms adjusted for people discontinuing treatment in the study. The results from the liraglutide 3.0 mg treatment arm were broadly in line with previously reported data. On Apr 3, 2017, data from a phase IIIa SUSTAIN 2–4 trials demonstrated greater mean reductions in HbA 1c and body weight with once-weekly semaglutide treatment compared to sitagliptin, exenatide extended release (ER) and insulin glargine U100 in adults with Type II diabetes, across multiple background oral antidiabetic (OAD) treatment categories. Obesity Pipeline Tri-agonist 1706 (NN9423): In Mar 2017, Novo Nordisk initiated a phase I study in obesity with tri-agonist 1706, a triple full agonist of the native human glucagon-like peptide 1 (GLP-1), gastric inhibitory peptide (GIP) and glucagon receptors (GCG). The trial will investigate safety, tolerability and pharmacokinetics of the product in approximately 50 adults Biopharmaceuticals Pipeline Somapacitan (NN8640): In Mar 2017, Novo Nordisk initiated a multi-dose phase IIIa trial with somapacitan, a long-acting recombinant growth hormone derivative, in previously treated Japanese people with adult growth hormone deficiency (AGHD). In the REAL JP trial, about 60 people with AGHD will be randomised in an open-label, active-controlled study to compare the safety of somapacitan and Norditropin in 52 weeks. Subcutaneous N8-GP (NN7170): In Feb 2017, Novo Nordisk initiated a phase I study with a subcutaneous formulation of N8-GP, a glycopegylated version of FVIII (turoctocog alfa pegol), for treatment of haemophilia A. The study will investigate safety, tolerability and pharmacokinetics of single and multiple subcutaneous doses of N8-GP in haemophilia A patients. Margins Gross margin was 84.3% in local currency in 1Q17 compared with 84.4% in 1Q16. The decline was due to lower prices following the non-recurring Medicaid rebate adjustments in 2016 and the lower basal insulin prices, both in the USA, as well as ramp-up costs for new manufacturing capacity. The gross margin was Zacks Investment Research Page 11 www.zackspro.com impacted by positive contribution from product mix due to higher Tresiba and Victoza sales, partly countered by lower sales of Vagifem following the launch of a generic version in the USA and lower overall sales of NovoSeven. In 1Q17, Research and development (R&D) expenses were DKK3,289 million, down 1% y/y due to lower research costs related to updated R&D strategy announced in Oct 2016, thereby leading to the discontinuation of a number of research projects. Administrative costs also declined by 1% mainly due to cost control initiatives and lower legal costs. Sales and distribution costs decreased by 1% in 1Q17 mainly due to lower promotional activities in the U.S. following the Tresiba launch in 2016 and broad cost control initiatives. Additionally, the costs were partly offset by higher costs for legal cases and for sales force expansion in Region AAMEO (Africa, Asia, Middle East and Oceania) and Region Japan & Korea. Administrative costs were DKK913 million, down 1% y/y. 2017 Outlook: For 2017, operating profit is expected to be in the range of -1% to +3%. This reflects modest outlook for sales growth. It also reflects a modest increase in both sales and distribution costs to support product launches as well as improvement in research and development costs to support Novo Nordisk’s pipeline progress. Earnings per ADR Novo Nordisk reported 1Q17 earnings of $0.58 per American Depositary Receipt (ADR). Reported earnings surpassed the year ago figure of $0.55. As per the Zacks Digest report, earnings in 1Q17 were $0.56, up 5.3% y/y. Collaborations On Jan 30, 2017, Novo Nordisk and University of Oxford announced a landmark research collaboration for the treatment of type II diabetes. The partnership will enable scientists from Novo Nordisk and University of Oxford to work together towards bringing innovative approaches for treating type II diabetes. Also, Novo Nordisk will invest in a new research centre on the premises of the University of Oxford. Novo Nordisk is expected to make an investment of around 1 billion DKK over a period of 10 years and employ around 100 Novo Nordisk researchers, based in an Oxford University research centre. Additionally, the company will focus on innovation within early stage research that has potential to substantially impact future treatment of type II diabetes and its complications. Novo Nordisk’s expertise in the area of diabetes coupled with the expertise of leading scientists from the University of Oxford will lead to innovative therapies and a new generation of treatments to treat people suffering from type II diabetes. Zacks Investment Research Page 12 www.zackspro.com Research Analyst Previous Update Copy Editor Content Editor Lead Analyst QCA Reason for Update Zacks Investment Research Madhu Goyal Madhu Goyal Annesha Bhattacherjee Ekta Bagri Ekta Bagri Kinjel Shah 1Q17 Earnings Update Page 13 www.zackspro.com