It could be déjà vu all over again at Novo Nordisk. The diabetes drug giant plans to lay off 3,000 employees and cut its long-term financial outlook, following a similar move in 2016, Danish newspaper Borsen reported. But one analyst said media reports “misrepresent” what’s really going on.
Citing several unnamed sources with knowledge of the process, Borsen reported that management is mulling over the exact layoff size, and where and how to cut off, as it looks to save costs in the face of pricing pressure in the U.S. It said Novo will also ditch the long-term financial targets due to “uncertain and unpredictable” market environment.
Management will present the savings plan to the board later in June and the final decision will be made public with the firm’s second-quarter announcement in August, Borsen reported. However, Bernstein analyst Wimal Kapadia said media reports “misrepresent the situation.”
“On the cost-cuts, this is not very different to what was said at 1Q18 results,” said Kapadia. He pointed out that because Novo, like the rest of pharma, will be responsible for offering bigger discounts to fill the Medicare Part D “donut hole” in 2019, it “will be looking at ways to offset the negative impact using their cost infrastructure.”
Early this year, pharmas fought hard but failed against the U.S. government’s policy that increases their financial responsibility in filling the Part D prescription drug coverage gap to 70% from 50%. In its first-quarter report, Novo predicted the extra 20% burden would cost 1% to 2% of its groups sales in 2019.
In a statement, Novo’s spokeswoman Katrine Sperling told FiercePharma “[i]t’s premature to discuss what these [cost-cutting] plans may look like,” and that “we continually assess and adjust plans as needed.”
As for the financial guidance, Kapadia told FiercePharma that Novo had confirmed to him that they’re not looking to change the long-term target at all.
“There have been no major changes in the business in the past few months that requires a change in LT targets and so that is not the plan,” said Kapadia.
Though it hasn’t laid out a detailed plan, CEO Lars Fruergaard Jørgensen has previously mentioned intention to save costs to compensate for the Part D loss, so the layoff “should not come as a surprise to anyone watching the stock closely,” said Kapadia. Novo, which employs over 42,000 people, has been maintaining long-term operating profit growth target at 5% since late 2016, and in May increased the lower end of its 2018 guidance, and now expects this year’s growth in the range of 2% to 5% in local currencies.
Analysts have been putting Novo’s U.S. business on check for some time now, as payers’ demand for lower insulin prices have made the market more challenging.
Because of that pressure, Novo previously went through a layoff round in 2016 when 1,000 people were let go. It dialed down its long-term guidance twice that year, from 15% in operating profit growth to 10% and then to 5%.
During the company’s 2017 fourth-quarter call, CEO Lars Fruergaard Jørgensen said he expects the pricing pressure on insulin will continue in the U.S., and has already included the impact in its long-term financial guidance.
In comparison, GLP-1s represent a brighter spot and potential growth driver for the Danish company. For the first quarter, Victoza sales grew 18% to almost $1 billion, and maintained its lead spot in the class. Ozempic also recently won 2018 formulary coverage from Express Scripts, and its oral version also bested Eli Lilly and Boehringer Ingelheim’s Jardiance in a recent phase 3.
By Angus Liu
Source: Fierce Pharma
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