Novo Nordisk’s NVO net income during the second quarter of 2015 increased to DKK8.3 billion, up 19.3% from the year-ago period.

Total revenue grew 8% to DKK27.1 billion driven by sales growth in North America (10%) and International Operations (23%). However, sales in China decreased 6% due to a negative impact from timing of shipments to distributors in 2014, declining growth of the diabetes care market and increased competition. The top line was driven by strong sales of Victoza, Norditropin and modern insulin including NovoRapid and Levemir.

All growth rates mentioned below are on a year-over-year and local currency basis.

The Quarter in Detail

Novo Nordisk’s diabetes care segment recorded sales growth of 8%. Modern insulin generated strong revenues (5%) driven by NovoRapid (6%) and Levemir (7%). The company’s key drug, Victoza, witnessed sales growth of 25%.

Sales in the biopharmaceuticals segment increased 10%. Norditropin’s sales were up 21%. Other biopharmaceuticals also witnessed 10% sales growth.

Sales and distribution costs increased 12% mainly due to costs related to the launch of Saxenda in the U.S., sales force investments in selected countries in International Operations and adjustments to legal provisions. Research and development expenses decreased 7% due to the discontinuation of development activities targeting inflammatory disorders in Sep 2014. Administration costs increased 4%.

2015 Revenue Outlook

Novo Nordisk continues to expect sales growth in 2015 to the range of 7%−9%. The company expects strong performance by modern insulin as well as Victoza and Tresiba. New launches like Saxenda, Xultophy and NovoEight are also expected to contribute to the top line.

However, the company expects sales to be hurt by an increase in rebate levels in the U.S. and intensifying competition in the diabetes and biopharmaceuticals markets along with macroeconomic factors in China and a number of markets in International Operations.

Our Take

Performance of Victoza, Norditropin and modern insulins was impressive. We believe that new launches like Saxenda, Xultophy and NovoEight should support top-line growth, going forward. However, rising rebate levels in the U.S., intensifying competition in the diabetes and biopharmaceuticals markets, and macroeconomic issues in international markets are concerning.

Novo Nordisk carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the health care sector are Valeant Pharmaceuticals International, Inc. VRX, Corcept Therapeutics Inc. CVRX and Anacor Pharmaceuticals, Inc. ANAC. While Valeant and Corcept hold a Zacks Rank #1 (Strong Buy), Anacor carries a Zack Rank #2 (Buy).