Sanofi, Novo Nordisk Fortunes Diverge Amid Insulin Price Slump

Sanofi SA and Novo Nordisk A/S, two of Europe's health-care companies most exposed to the falling prices for insulin products in the all-important U.S. market, gave dramatically diverging outlooks in the third quarter, sending their stock prices in opposite directions.

The French pharmaceutical giant raised its full-year profit guidance and announced a share buyback while its Danish rival lowered expectations even though both reported lower insulin sales in the U.S.

Sanofi's shares surged nearly 7% whereas shares in Novo Nordisk were down 14% in morning trading.

After years of rising prices for insulin, drugmakers are being forced to cut or flatten their prices by powerful middlemen that buy drugs on behalf of insurers and employers. Sanofi and Novo Nordisk, the number one and two insulin makers in the U.S., are at the sharp end of this trend.

One difference between the two companies is different expectations of their insulin businesses. Sanofi last year acknowledged that revenue from its insulin franchise would dwindle. By contrast, Novo Nordisk hoped its new insulin, dubbed Tresiba, would drive strong growth because the treatment carries less risk of causing low blood sugar.

But Novo Nordisk said Friday that a "significantly more challenging" market in the U.S. would lead to it lowering prices in the future.

Sanofi's brighter outlook also stems from the French drugmaker's long-drawn-out efforts to cut costs and the benefit of diversity: Its rare-disease drugs are driving revenue growth while its portfolio includes treatments for cancer and cardiovascular ailments, vaccines and over-the-counter drugs.

Novo Nordisk, unusual among pharmaceutical companies for its narrow focus, is much more heavily dependent on diabetes, but now plans to broaden its portfolio. It said Friday that it would extend its research and development efforts to include diseases such as fatty liver disease, known as NASH, a form of non-alcoholic fatty liver disease, diabetic kidney disease and cardiovascular disease.

That broadening intensifies existing efforts to undertake riskier research in insulin, though the company said its higher threshold for innovation meant it would shelve efforts to develop an oral insulin. Such a product would have been more convenient for diabetes patients by reducing reliance on needles, but wouldn't have brought added medical benefits compared with injected insulins.

Friday, Novo Nordisk slashed its long-term annual profit-growth target from 10% to 5%, and narrowed its full-year outlook to the lower end of previous guidance.

Management now expects growth this year, measured in local currencies, of 5% to 6% for sales, trimmed from earlier guidance of 5% to 7%, and of 5% to 7% for operating profit, less optimistic than the previous range of 5% to 8%.

In the third quarter, Novo Nordisk's operating profit rose 4% to 12.4 billion Danish kroner ($1.82 billion), while revenue climbed 3% to 27.5 billion kroner.

The preliminary outlook for 2017 indicates low single-digit growth in sales and flat to low single-digit growth in operating profit, in local currencies, it said.

Sanofi is relatively bullish about its prospects and it plans to complete a €3.5 billion ($3.82 billion) share buyback by the end of 2017.

Earnings a share—excluding the impact of acquisitions and divestments—are expected to grow between 3% and 5% in 2016 at constant exchange rates, Sanofi said.

The French company previously said earnings a share would remain "broadly stable" this year. In the third quarter, earnings a share increased 12% at local currencies on a 3% rise in revenue to €9.03 billion.

--Noemie Bisserbe in Paris and Dominic Chopping in Stockholm contributed to this article

Write to Denise Roland at [e-mail]

(END) Dow Jones Newswires

October 28, 2016 08:25 ET (12:25 GMT)

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