Novo Nordisk A/S (NYSE:NVO) Q3 2023 Earnings Call Transcript November 2, 2023
Novo Nordisk A/S beats earnings expectations. Reported EPS is $5.01, expectations were $0.6.
Operator: Good day and thank you for standing by. Welcome to the Q3 2023 Novo Nordisk A/S Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today Daniel Bohsen, Head of Investor Relations. Please go ahead, sir.
Daniel Bohsen: Welcome to this Novo Nordisk Earnings Call for the first nine months of 2023. This call follows the early announcement of top line results and the updated outlook for 2023 shared in October. The release was advanced due to Danish securities regulations. My name is Daniel Bohsen and I’m the Head of Investor Relations at Novo Nordisk. With me today I have CEO of Novo Nordisk, Lars Fruergaard Jorgensen; Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; Executive Vice President and Head of North America Operations, Doug Langa; Executive Vice President and Head of Development, Martin Holst Lange; and finally Chief Financial Officer, Karsten Munk Knudsen. All speakers will be available for the Q&A session.
Today’s announcement and the slides for this call are available on our website, novonordisk.com. Please note that this call is being webcast live and a recording will be made available on our website as well. The call is scheduled for one hour. Please turn to slide. The presentation is structured as outlined on slide two. Please note that all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. Please turn to the next slide. As always we need to advise you that this call will contain forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For further information on the risk factors, please see the company announcement for the first nine months of 2023 and the slides prepared for this presentation.
With that, over to you Lars, for an update on our strategic aspirations.
Lars Fruergaard Jorgensen: Thank you, Daniel. Next slide please. In the first nine months of 2023, we delivered 33% sales and 37% operating profit growth at constant exchange rates. I’d like to start this call by going through the performance highlights across our strategic aspirations before handing over the word to my colleagues. Within purpose and sustainability, we continue to make progress, our carbon emissions decreased by 28% compared to pre-pandemic levels in 2019 and in line with our aspiration of being a sustainable employer, we continue to expand the number of women in senior leadership positions. This is now 41% compared to 38% last year. In R&D, an important milestone is that we will stop the FLOW kidney outcomes trial early semaglutide demonstrated a benefit in people with Type 2 diabetes and chronic kidney disease.
Further within R&D, we have recently agreed to acquire ocedurenone for the treatment of cardiovascular disease. This supports our aspiration of establishing a presence in other serious chronic diseases with a high unmet medical need. Maziar will come back to this and our overall R&D milestones later. The sales growth reflect strong commercial execution with both operating units contributing to a continuous sales growth, driven by increasing demand for our GLP-1 based diabetes and obesity treatments. Camilla and Doug will go through the details in the therapy area later. Within commercial execution, we are pleased to have reached our obesity aspiration of DKK25 billion and our aspiration for diabetes by reaching a global value market share of 1/3.
Naturally, the progress is not holding us back and we continue to aim for treating more patients with our innovative treatments. Karsten will go through the financial details, but I’m very pleased with our overall performance for the first nine months of 2023 which has enabled us to raise our outlook for the full year. With that I’ll give the word to Camilla for an update on commercial execution.
Camilla Sylvest: Thank you, Lars, and please turn to the next slide. In the first nine months of 2023, our total sales increased by 33%. The sales growth was driven by both operating units with North America operations, growing 49% and international operations, growing 17%. Our GLP-1 sales increased 49% driven by North America growing 43%, and international operations growing 60%. Insulin sales decreased by 7% driven by a 1% decline in international operations and a 24% sales decline in North America operations. The sales decrease was driven by a decrease in sales in the US and region China. Obesity care sales grew 174% overall. In International operations, sales grew 52% driven by both Saxenda and Wegovy. In North America operations obesity care sales grew 244%.
Total rare disease sales decreased 18%, which was driven by 22% decrease in international operations and by a 13% decrease in North America operations. Please turn to the next slide. With 25% sales growth in our Diabetes Care, we are now growing faster than the total market, improving our global diabetes value market share to 33.3%. The increase reflects market share gains in both North America operations and international operations. In international operations, total diabetes care sales increased by 21% in the first nine months of 2023. This was driven by GLP-1 sales growing 60%, driven by all geographical areas. Novo Nordisk is the market leader in international operator, GLP-1 value market share of 69%. Ozempic continues its GLP-1 market leadership with just shy of 46% market share.
Rybelsus has 12% value market share driven by strong uptake across geographies. And with that I will hand over the word to Doug.
Doug Langa: Thank you, Camilla. Please turn to the next slide. The GLP-1 class expansion continues in the US in the first nine months of 2023. The US GLP-1 market volume grew around 50% comparing Q3 of 2023 to Q3 of 2022. Measured on total prescriptions, Novo Nordisk continues to be the market leader with 53% market share. Please go to the next slide. Obesity care sales grew by 174% in the first nine months of 2023. This was mainly driven by the US. The global branded anti-obesity market expansion continues with a global volume growth of 94%. In international operations, obesity care sales are driven by strong Saxenda performance and the Wegovy launches in five international operation countries. While eager to launch Wegovy in more IO countries, our focus remains to do this in a sustainable manner, for example by capping volumes.
In the US alone sales of Wegovy grew by 467%. Demand for Wegovy continues to exceed supply, and to safeguard continuity of care for patients already on Wegovy, the supply of the lower Wegovy dose strengths in the US has been reduced since May of 2023. Please go to the next slide. Our rare disease sales decreased by 18%. The sales decrease was driven by a 30% decline in North America operations and a 22% sales decline in international operations. Sales of rare blood disorders increased by 2%, driven by the launch products in Haemophilia A and B and partially countered by NovoSeven. Sales of rare endocrine disorder products decreased by 54%, reflecting a temporary reduction in manufacturing output. Now over to you Martin for an update on R&D.
Martin Holst Lange: Thank you, Doug. Please turn to the next slide. Serious chronic non-communicable diseases affect millions of people globally and have emerged in recent years as a major public health issue. Given our extensive scientific and clinical knowledge within metabolic diseases, we are well positioned to advance our understanding of semaglutide potential benefits and associated health complications. With the current body of evidence, it is clear that the beneficial effects of semaglutide goes even further than glycemic control and weight loss. Semaglutide has already now demonstrated convincing risk reductions in a number of cardiovascular outcome studies. This includes SUSTAIN 6 and PIONEER 6 in Type 2 diabetes as well as STEP-HFpEF SELECT in obesity.
While we await data from the SELECT trial to be presented. We continue to build evidence for the semaglutide molecule in the cardiovascular space. In 2024 we expect several readouts. This includes Type 2 diabetes cardiovascular outcome study, SOUL, with oral semaglutide 14 milligram, and the functional outcomes trial, STRIDE, which focuses on the high-risk population with peripheral vascular disease. As previously discussed, we also investigated the potential therapeutic effects of semaglutide on osteoarthritis and metabolic dysfunction associated to hepatitis, previously known as nonalcoholic steatohepatitis. In addition to this, we recently announced early closure of the FLOW trial due to efficacy. Next slide please. This closure was based on a recommendation from the FLOW independent data monitoring committee following a pre-planned interim analysis.
As you know, FLOW is an outcomes trial conducted across 28 countries and more than 400 sites. 3,534 people were enrolled and randomized in a one-to-one ratio to receive either once weekly semaglutide 1.0 milligram or placebo. The eligibility criteria were designed to include patients with Type 2 diabetes and high or very high risk for progression of chronic kidney disease. The primary objective of FLOW is to demonstrate delay in progression of chronic kidney disease and to lower the risk of kidney and cardiovascular mortality through the composite primary endpoint. This is on top of standard of care, including the use of SGLT2s. The trial is powered to detect a 20% risk reduction on the primary endpoint. Key secondary endpoints include annual rate of change in estimated glomerular filtration rate, major adverse cardiovascular events and all-cause death.
Today, few treatment options exist for chronic kidney disease in people living with Type 2 diabetes. With a projected global increase in Type 2 diabetes, there is a clear need for additional treatment options to help mitigate the residual risk in people with concomitant chronic kidney disease. The next step for me to close down the trial. [Technical Difficulty] of FLOW, it is expected in the first half of 2024, the presentation of detailed data is expected to take place at a medical conference also during 2024. Next slide please. In line with our strategic aspiration of establishing a presence in other serious chronic diseases, we are pleased to announce the acquisition of ocedurenone for the treatment of cardiovascular disease from KBP Biosciences.
There remains a significant need in treatment of hypertension, which is a leading risk factor for cardiovascular events, heart failure, chronic kidney disease, and death. Ocedurenone is a once-daily oral administered small molecule with a long half-life and a high affinity for the mineralocorticoid receptor. Ocedurenone has an attractive efficacy and safety profile and is currently being examined in the Phase III trial, CLARION-CKD, in patients with uncontrolled hypertension and advanced chronic kidney disease. We expect to initiate additional cardiovascular as well as chronic kidney disease outcomes trials during the course of 2024. Next slide please. Turning to other R&D milestones, I would like to highlight some of the other trial readouts and initiations across our therapy areas in 2023 and in the first half of 2024.
Within diabetes in the first — third quarter of 2023, we initiated the first pivotal Phase III trial in the re-imagined program for CagriSema in people with Type 2 diabetes. In the fourth quarter, we have submitted oral semaglutide 25 milligram and 50 milligram in the EU. We are also anticipating the results from the ongoing pivotal Phase III trial for IcoSema COMBINE 3 in the first half of 2024. IcoSema has the potential to be a first-in-class once weekly fixed ratio combination of basal insulin NTL receptor, sorry, GLP1 receptor agonist in Type 2 diabetes in need of intensification Within obesity, we are happy to announce that we in September initiated a 32-week Phase I trial with once weekly subcutaneous Amycretin in people with overweight obesity.
While we await SELECT data at the American– going to be presented at the American Heart Association Congress, we have submitted the trial to the US FDA and the European Medicines Agency. We are pleased that the FDA has granted priority review for the supplemental new drug application. This marks a significant milestone in our ongoing efforts to address unmet needs patients with overweight and obesity and established cardiovascular disease. Finally, we also expect a chronic heart failure trial with preserved ejection fraction in obese patients and diabetes to readout in the last quarter of this year. In rare disease, Nedosiran was approved by the USFDA for treatment of primary hyperoxaluria type One. This marks the first approved siRNA treatment for Novo Nordisk.
In other serious chronic diseases, we initiated a Phase 1 trial with our Angiopoietin-like 3 protein inhibitor. This is a monoclonal antibody in development for cardiovascular disease, specifically for lowering of cholesterol and triglycerides. With that, over to you, Karsten.
Karsten Munk Knudsen: Thank you, Martin. Please turn to the next slide. In the first nine months of 2023, our sales grew by 29% in Danish kroner and 33% at constant exchange rates, driven by both our operating units. The gross margin increased to 84.5% compared to 84.3% in 2022. The increase in gross margin reflects a positive product mix driven by increased sales of GLP-1 based treatments. This was partially countered by costs related to ongoing capacity expansions, and negative currency impact, and lower realized prices mainly in the US and Region China. Sales and distribution costs increased by 22% in Danish kroner and by 25% at constant exchange rates. The increase is driven by both operating units. In North America, the cost increase is driven by the relaunch of Wegovy and promotional activities for Ozempic.
In international operations, the cost increase is driven by promotion activities for Rybelsus as well as obesity care market development activities, The increase in sales and distribution costs are impacted by adjustments to legal provisions. Research and development costs increased by 38% measured in Danish kroner and 39% at constant exchange rates. The increase reflects increased late stage clinical trial activity and increased early research activities compared to the first nine months of 2022.The acquisition of Forma Therapeutics in 2022 and Inversago Pharma also increased R&D spending. Administration costs increased by 9% measured in Danish kroner and 11% at constant exchange rates. Operating profit increased by 31% measured in Danish kroner and 37% at constant exchange rates reflecting the sales growth.
Net financial showed a net gain of DKK1.2 billion, compared to a net loss of DKK5 billion last year. The effective tax rate was 19.9% in the first nine months of ’23 compared to 20.5% in the first nine months of 2022. Net profit increased by 47% and diluted earnings per share increased by 49% to DKK13.71. Free cash flow was DKK75.6 billion, compared with DKK62.6 billion in the first nine months of 2022. In line with the strategic aspiration of delivering attractive capital allocation to shareholders. A total of DKK52 billion has been paid back to shareholders through share buybacks and dividends. The cash conversion is positively impacted by timing of payment of rebates in the US. Capital expenditure for property, plant and equipment was DKK16.4 billion, compared to DKK7.2 billion in 2022.
This primarily reflects investments in additional capacity for active pharmaceutical ingredient production and fill finish capacity for both current and future injectable and all products. Please go to the next slide. Nine months into 2023, we are continuing our sales growth momentum which has enabled us to raise the outlook for the full year. We now expect the sales growth to be between 32% and 38% at constant exchange rates. The increased sales outlook is primarily reflecting higher full year expectations to Ozempic volumes sold in the US and gross to net adjustments for Ozempic and Wegovy in the US. The guidance reflects expectations for sales growth in both North America operations and international operations. The guidance is mainly driven by volume growth of GLP-1 based treatments for diabetes and obesity care.
This is partially countered by declining sales in rare disease due to a temporary reduction in manufacturing output. The guidance reflects the level of volume growth of GLP-1 based treatments. The inherent uncertainty of the pace of Ozempic — obesity care market expansion following the re-launch of Wegovy in the US and a limited rollout in international operations are also included in the guidance range. Finally, the sales outlook reflects expected continued periodic supply constraints and related drug shortage notifications across a number of products and geographies. Novo Nordisk is investing in internal and external capacity to increase supply both short and long-term. While supply capacity for Wegovy is gradually being expanded, the lower dose strength in the US will remain restricted to safeguard continuity of care.
We now expect operating profit grow between 40% and 46% at constant exchange rates. This primarily reflects the sales growth outlook and continued investments in future, and current growth drivers within research, development, and commercial. For 2023, we expect net financial items to amount to a gain of around DKK1.6 billion, mainly reflecting gains associated with foreign exchange hedging contracts. Capital expenditure is still expected to be around DKK25 billion, reflecting the upscaling of the supply chain and the innovation based growth strategy pursued by Novo Nordisk. In the coming years, the capital expenditure to sales ratio is expected to be low double-digits. The free cash flow is now expected to be between DKK65 billion and DKK73 billion, reflecting the sales growth, a favorable impact from rebates in the US, and investments in capital expenditure.
The updated cash flow expectation is mainly reflecting increased net profit expectations partially countered by business development activities. That covers the outlook for 2023, now back to you, Lars for final remarks.
Lars Fruergaard Jorgensen: Thank you. Karsten. Please turn to the final slide. Today’s announcement discloses the full set of quarterly results and our updated outlook for 2023, which was shared earlier in October. Overall, we are very satisfied with the sales growth in the first nine months of 2023. Wegovy is driven by demand for our GLP-1-based future interventions for diabetes and obesity, which is now reaching more people than ever before. The performance in the first nine months of the year has enabled us to raise the outlook for the full year. From an R&D perspective, we have reached a significant milestone with the submission of SELECT and look forward to sharing more data at American Heart Association. In addition, we are excited about the early closure of the FLOW trial and anticipate readout in the first half of 2024.
Finally the [indiscernible] Ocedurenone will strengthen full cardiovascular disease and underlines the commitment to establish presence with other serious chronic diseases. With that I’ll hand over to — the final word to Daniel
Daniel Bohsen: Thank you, Lars. Next slide please. With that, we are now ready for the Q&A session, where I kindly ask all participants to limit her or himself to one or maximum two questions, including sub questions. Operator, we’re now ready to take the first question.
Operator: Thank you. [Operator instructions] We will now go to the first question. And your first question comes from the line of Michael Nedelcovych from TD Cowen. Please go ahead.
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Q&A Session
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Michael Nedelcovych: Thank you for the question. I have one for Martin. Martin, if you’ll allow me to set up something of a straw man, here is a potential set of expectations for the Phase 3 SELECT data when we see them at AHA. One, clinically meaningful benefit across each of the individual MACE components and regardless of BMI category. Two, cardiovascular benefit that clearly emerges within one year on Wegovy therapy and does not diminish over time. And three, no noticable imbalance in any very rare adverse events such as suicide or cancer. My question is, would you urge me to modify these expectations in anyway?
Daniel Bohsen: Martin, a straw man for you.
Martin Holst Lange: So, thank you very much for that question. As you’ll probably imagine, I cannot speculate to anything beyond what we’ve already disclosed. And that is the 20% risk reduction on the primary endpoint for MACE , which is obviously myocardial infarction, stroke, and cardiovascular death. We see attribution from all there, but we do not go into more detail. What I will commit to is obviously that we saw a very clear and positive safety profile from SELECT and no outliers identified.
Daniel Bohsen: Thank you, Martin. And thanks, Mike, for the question. Next question please.
Operator: Thank you. We will now take the next question. And your next question comes from the line of Richard Parkes from BNP Paribas. Please go ahead.
Richard Parkes: Thanks very much for taking my questions. I’ve got a couple. So, firstly when I look at Ozempic and Wegovy US Symphony prescriptions, they’re both trending flat to down over the last quarter, I think due to supply constraints, but your guidance suggests an expected acceleration in top line growth in Q4. So I’m just wondering, if you could help me to understand that. I mean are you expecting to see kind of further improved supply into the end of the year would be, I assume, kind of swing factor there. And then the second question is just your slide outlines the potential benefits of semaglutide beyond glycemic control and weight loss and maybe we’ll see some insight into that from the SELECT study, but your chart suggests there is potential for patients to benefit from the CV aspects beyond — that don’t have diabetes or obesity.
So I’m just wondering how you can capitalize on that, given that your trials currently, I think, just recruiting patients with either obesity and diabetes and comorbidities. Thanks very much.
Daniel Bohsen: I’ll give the first to you, Karsten, supply going into our guidance.
Karsten Munk Knudsen: Yeah. So thank you for that question, Richard. And clearly when we put out guidance, that’s because we believe that’s the most realistic forecast range that we are putting in, and we don’t have too months to, to roll on. So, of course, we see the TRx trends and bake that into our forecast. What I would give of additional flavor on top of that is, of course the growth rate is also a function of ex-factory sales last year and we did see it was a bit having a lower base last year in the fourth quarter than what we would normalize in to this year. And then of course there can be fluctuations in inventory, for instance with wholesalers. And then finally, I’ll say this pickup in sales growth in the fourth quarter, this is not to be kind of read into anything, any difference on the supply situation. What we are selling in the fourth quarter has been produced months ago.
Daniel Bohsen: Thank you, Karsten. Martin, any comments on the benefits beyond weight loss for SEM?
Martin Holst Lange: So, first of all, I think that’s exactly right that our starting point is the cardio metabolic space. Starting out with obesity and diabetes, and these are the patients that we investigate. I think it’s important to call out that the vast majority of patients suffering from ASCVD from heart failure, from chronic kidney disease, but also metabolic liver disease also have an element of metabolic derangement, and there is a clear association and overlap for both diabetes and obesity. So from our perspective, this actually creates some very nice synergies and certainly not seen as exclusive. But our starting point is patients suffering from diabetes and obesity.
Daniel Bohsen: Thank you, Martin. Thank you, Richard, for the questions, and we are ready for the next question.
Operator: Thank you. And your next question comes for the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.
Seamus Fernandez: Thanks very much for the question. So just very quickly as we think about the SELECT trial results in the wake, not just of the presentation, but the very rapid filing, there had been a lot of questions around this being actually a cardiovascular medication and perhaps gaining access to CMS in that regard. Can you just talk about the prospects of that actually becoming reality? And then the second question is just on the Oral Amycretin and the initiation of the subcutaneous Amycretin. Can you just help us understand is this more of a supply chain related decision, an IRA related decision, or a decision related to some challenges with the oral formulation of Amycretin? Thanks so much.
Daniel Bohsen: Thank you, Seamus. Doug, I’ll give the first question to you.
Doug Langa: Yeah, thanks, Seamus. We do believe that there is an opportunity, a potential opportunity to use the medical exception process through the CV component, but let’s wait to see.
Daniel Bohsen: Thanks Doug. Martin, any thoughts on Amycretin?
Martin Holst Lange: Yeah. On Amycretin, our decision to go also into subcutaneous is actually caused by another of the above of the three reasons that you mentioned. It’s actually driven by the fact that we are learning that optionality is important for patients and prescribing physicians in both diabetes and obesity. And we’ve seen a clear potential for Amycretin to become both an oral, but certainly also a subcutaneous offering, and therefore in Phase I it is prudent for us to investigate both.
Daniel Bohsen: Thanks, Martin, and thanks, Seamus. We are ready for the next question.
Operator: Thank you. I will now take the next question.And your next question comes from the line of Peter Verdult from Citigroup. Please go ahead.
Peter Verdult: Yes, thank you. Pete Verdult, Citi. Two questions. Karsten, your favourite topics supply and pricing. Just on supply, if we take the sort of run rate for GLP-1 volumes your franchise in the US and just extrapolate into ’24, if nothing changes, I mean there’s going to be a big disconnect in terms of people’s expectations for growth next year and I think will be effectively flat. Now, I know it’s going to improve next year, but can I just push you on when we might see the handbrake being released? I mean — logical thinking might be that at the time of the Mounjaro launch you’ll be want to be in a less capacity constrained position. So I know you can’t go into too much detail but just some incremental color on when we might see the handbrake being removed would be helpful.
