August 5, 2016 / 6:00 AM / 3 years ago

Novo Nordisk shares fall as cuts forecasts on tough U.S. market

COPENHAGEN (Reuters) - Novo Nordisk (NOVOb.CO) shares fell 8 percent on Friday after the Danish drugmaker cut its forecast for full-year profit growth and said it expected tough competition in the United States to pressure prices next year.

The logo of Danish multinational pharmaceutical company Novo Nordisk is pictured on the facade of a production plant in Chartres, north-central France, April 21, 2016. REUTERS/Guillaume Souvant/Pool/File Photo

The world’s largest insulin maker gets around half its revenue from the United States where there are around 30 million diabetics, but prices have been squeezed by pharmacy benefit managers (PBMs) who administer drug benefits for employers and health plans.

Novo said in its second-quarter report on Friday that it had completed the majority of the contract negotiations with the PBMs for next year and that average drug prices after rebates were expected to be low to mid-single digit percentage lower compared to 2016.

“In the USA, the market environment is becoming increasingly challenging and contract negotiations for 2017 have reflected an intensifying price competition,” chief executive Lars Rebien Sorensen said.

Novo’s outlook and the fact that recently released positive heart risk data on its flagship Victoza drug had not helped it to gain major new contracts was disappointing, said Berenberg analyst Alistair Campbell, who has a ‘hold’ recommendation on Novo.

U.S. rival Eli Lilly (LLY.N) launches a cheaper version of Sanofi’s (SASY.PA) top-selling insulin Lantus in December, which is expected to put pressure on insulin prices across the board, including on Novo’s insulin products Levemir and Tresiba.

“The advent of biosimilars is now having a significant impact in the U.S,” Sorensen told reporters, adding that Novo aimed to compete on quality rather than on price.

Novo is banking on its next-generation insulin Tresiba and an experimental once-weekly diabetes medicine called semaglutide to lift sales, despite pricing pressure on older products. But analysts are concerned the benefits of these newer drugs may not be enough to offset the headwinds, particularly in the all-important U.S. market.

“I believe Novo will be able to get higher prices, but I think it is uncertain if that can compensate for the low to mid-single digit percentage price pressure,” said Sydbank analyst Soren Lontoft Hansen, who has a “buy” rating on the stock.

Novo shares were down 7.8 percent at 0940 GMT (0540 EDT), while the European pharma sector index .SXDP was down 0.9 percent.

Novo Nordisk now expects 2016 growth of 5-8 percent in operating profit in local currencies, down from an earlier forecast of 5-9 percent. Sales are now expected to grow by 5-7 percent, down from an earlier forecast of 5-9 percent.

“The sales miss was relatively broad based but the U.S. modern insulins stood out, showing evidence of tough payer pressure,” analyst Tim Race from Deutsche Bank, who has a ‘hold’ recommendation, said in a note.

Progress in developing an oral version of insulin was a rare bright spot. Novo said it would decide the next step in advancing this experimental product later in 2016.

Second-quarter operating profit was 12.50 billion Danish crowns ($1.87 billion), in line with both the same quarter last year and with analysts’ expectations.

Revenue for the quarter rose 1 percent to 27.49 billion, missing the 28.54 billion seen by analysts.

Novo also said that its board had decided to introduce an interim dividend of 0.20 crowns per share to be paid in August.

($1 = 6.6756 Danish crowns)

Additional reporting by Ole Mikkelsen and Ben Hirschler,; Editing by Jane Merriman and Alexander Smith

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