Factors to look for in Novo Nordisk’s earnings
Novo Nordisk (NVO) is a leader in the diabetes space with ~78.6% of revenue flowing from the segment. This segment’s growth is very important to the company’s overall health.
Volume as fundamental driver for diabetes drugs
The chart above details the total population suffering from diabetes. The 2035 estimates for the number of people suffering from the disease project growth at a CAGR (compounded annual growth rate) of ~2% for the period from 2014 to 2035. The aging population coupled with a higher incidence of lifestyle diseases will lead to growth in the population that suffers from diabetes. With growing volume, the company might have better prospects for revenue growth. As there is persistent pressure for cost containment, the volume will likely be the main driver for upcoming growth.
The graph above depicts the leadership position of Novo. It holds ~28% of the market share in global diabetic care. The company holds a major position when compared with competitors such as Sanofi (SNY), Merck & Co (MRK), AstraZeneca (AZN), and Eli Lilly (LLY).
Will Novo maintain a leadership position?
Novo Nordisk (NVO) holds an impressive pipeline of diabetes drugs. The R&D portfolio includes Xultophy, whose approval is still pending in the US. With three drugs each in phase two and phase three for diabetes, the company will likely maintain its leadership position in the therapeutic area.
The graph above details the estimated population to be treated by Novo Nordisk. The company plans to treat ~40 million patients with its products by 2020.
With Tresiba’s approval in September 2015, Novo plans to launch the product in the US during the first quarter of 2016. The drug is a novel long-acting basal insulin. Major advantages of the drug include flexibility and improved quality of life. Because the drug stays in the bloodstream for 42 hours, it has the potential to reduce the number of pricks patients have to endure.
To reduce company-specific risk, investors can look for options such as the Vectors Pharmaceutical ETF (PPH). The fund has ~5.0% of its holdings in Novo Nordisk.