諾和諾德 (NVO) 2014 Q2 法說會逐字稿

Apart from that, I'd like to welcome you all to the Novo Nordisk half-year conference call and investor meeting here in London.

This year, we bring the strongest team that we have ever been able to bring, with almost the entire management team, as you will see, sitting up there.

But in case there are things we cannot manage, then we have also brought the Chairman of the Company, Goran Ando, who is sitting up in the front, a well-known former executive from a number of different pharmaceutical companies, who are helping us steering in the right direction.

Also, as a change this time, we have tried to innovate the format a little bit.

We don't really know how it's going to go, but we have enquired how you'd like to do this, and we thought that this time we should try something different.

So, basically, what we will be doing is we are giving you a presentation, more or less following what you have in front of you.

Then we will be breaking, and breaking into four groups.

These four groups will be circulating to four different stations, being able to confront management with different perspectives of their interest.

So basically it's the Q&A session split into four smaller groups, and let's see how it works.

The only thing we have to apologize is for those that are listening in on the web, obviously you are going to find it difficult to find the meeting rooms and the conversation in the meeting rooms are not going to be transmitted.

So we apologize for that, but that is another incentive to be here next year, if we continue doing it the same way next year.

But let's move into the presentation.

I'm going to start with some highlights.

Then Kare will give you the presentation on the sales update, Mads Krogsgaard on the R&D.

Jesper will conclude on the financials and the outlook, and then we will move to the Q&A sessions which will take place in the four distributed meeting rooms.

As always, I need to advise you that the statements that we are making are of course to the best of our knowledge and our best assessment at a given point in time.

But things could turn out materially differently, and for acquainting yourselves with the risk factors, please review this slide.

It's on the table, it's included everywhere and you know it, from every year that you've been here.

But I can tell you we'll do our utmost, of course, to predict things as accurately as we possibly can.

These are the statements from the front page of our Company announcement.

I'm not going to go through it verbatim, other than to say that the second quarter was a solid second quarter, after a somewhat disappointing first quarter.

Sales growth of 7% in the first half in local currencies.

But the momentum behind our business, and in particular better comparators in the second half, allows us to retain the guiding that we gave you in connection with the first-quarter announcement, of a growth of the top line between 7% and 10%.

So, from the numbers you can gather that we should see different growth rates in the second half.

The growth is derived from North America, international operations in China, from modern insulins in particular, Levemir, but also growth from Victoza.

And Tresiba, although still at a relatively modest level, are performing extremely well in the markets where it's been launched, and in particular those markets where it has equal reimbursement status as Lantus.

One of the most positive things, I think, beyond the fact that the business is developing nicely, is that we were able to advance the timeline for DEVOTE, which is the outcome study that will allow us to re-file for approval of Tresiba in United States.

I'm sure this will be part of the Q&A.

It has been part of the Q&A all day yesterday and it will be all day today, so I'm not going to go into the details that I'm sure Mads will be very happy to share with you.

Xultophy was approved.

I believe this is a phenomenal product.

You will not see the immediate phenomenal results from Xultophy when we launch this in Europe, because it's a combination of two, at least in European perspective, rather expensive products.

The real financial impact of this you will see only after we've got Tresiba approved in the US, and following from that being able to start the application process for Xultophy in the US, where we believe this product has an enormous potential, as well as Tresiba.

Imminently, we will have an interesting panel, on 9/11, for 3-milligram Liraglutide in obesity.

I'm sure that will be one of the major parts of the Q&A today, so I'm not going to go into it.

On a more pessimistic note, we had to conclude that Anti-IL-20 didn't meet the primary endpoint, and henceforth we will be closing all trials related to this compound and collecting the data, and then based on that make an assessment of our activities going forward later in the year.

Financial results, 12% operating profit growth, diluted earnings per share 9%, and the outlook for the financials is unchanged from first quarter.

This picture, which depicts the way we think about strategy in the Company, is also something we can dive into in detail.

It's based on an assessment of what is our core capabilities and how we leverage those core capabilities into different therapeutic areas.

The core capabilities evolve around our ability to identify, develop, manufacture and administrate human proteins, most notably of course in the area of diabetes, but also hopefully in the future in obesity, in hemophilia.

It's a well-known old therapeutic area for us.

Growth disorders the same.

And of course we also have attempted to do the same in inflammation, with our investment there.

Nothing changed in that overlook, compared to a year ago.

Now, this is perhaps the most important slide to give you reassurance that there's growth opportunities for Novo Nordisk going forward.

About 400m people with diabetes is estimated at this point in time, 600m in about 20 years' time.

And if we look at the total population of diabetics, of all the ones we estimate that exist, only 6%, that is less than 10%, get a proper outcome of their treatment, if they are diagnosed, treated or have access to healthcare capacity in the first place.

Obviously, as we all know that diabetes has a long-term debilitating effect on individuals that are left untreated or poorly treated, this has enormous individual human consequences, also societal costs, if this situation is left to persist.

So obviously what we are going to do is we are going to try to work on changing the rules of halves, so that more people are becoming diagnosed, that we expand the healthcare capacity, that we educate health authorities -- educate the healthcare capacity to become decent care for people with diabetes.

And that we do more research, because even with today's decent healthcare and the most advanced products, people still get complications, and therefore there's still room for innovation going forward.

Over the last 10 years, this is the performance of the Company in the sales area; 13% top-line growth and operating profit, 19% average operating profit growth.

So how do we get from, say, the 13% to the projection of about 8% in 2014?

Well, it is almost entirely, given a few ups and downs in the other areas, ascribable to the business in United States.

In United States, we've had some once-off effects of running out of Prandin, which is happening this moment, so that the month of August, going forward, Prandin will have been gone.

It was gone last year.

And therefore the comps for our second half will be much easier in the United States with that out of the picture.

It's also due to a loss of a contract with Express Scripts, consolidation in distribution, changes in the insurance schemes, meaning that we have to accept a higher rebate and higher coverage for the donut hole for patients in United States.

So it's almost entirely ascribable to the US.

So how do we get back to growth then, going forward, and why do we believe that we'll be able to grow?

Two important things, the most important one being Tresiba.

That's why the DEVOTE trial is so important.

We believe that there is no cardiovascular risk with Tresiba compared to Lantus.

Of course, we obviously need to convince the Agency and we intend to do that, with that get to the US market, which is the biggest basal market in the world, where we currently only have 24% of that market.

Hence, we should be having an opportunity of expanding our business in the US, following a potential launch in the beginning of 2016 of Tresiba in the US, significantly.

The second thing which is -- and following from that then comes Xultophy.

I already mentioned that.

The second interesting thing is the 9/11 panel on obesity.

This is the active ingredient Liraglutide, which is on the market in the form of Victoza.

A positive opinion on the obesity indication will strongly support the expansion of the GLP-1 market also in diabetes.

And therefore this is an event which is not solely related to obesity, but has implications for our diabetes business as well.

We are of course optimistic and believe that we'll be successful in both these two key parameters, and therefore, when we look at the long-term projection for the Company, we foresee the Company will be coming back to double-digit growth.

Given all the uncertainties and all the moving parts, all the competitive moves that may happen, we've modelled it all and we still believe that we have an opportunity to come back to double-digit growth going forward.

But with that, a few more details from Kare.

Thank you, Lars.

And before I get into some of the details on the quarter, just a few comments to some of the long-term trends in the industry, trends that are important for Novo Nordisk.

You can see from this graph that the diabetes market over the last 10 years has been growing 10% plus in compounded annual growth rate, and you can also see that the injectables have been growing faster than OADs.

This is a basic trend that we expect will continue also going forward.

You can also see, if you look at the Company's position, that the companies with an injectable portfolio, so us, Lilly and Sanofi, they have relatively more steady developments, even though that Lilly has gone down, Sanofi's gone up.

It's a relatively more steady development than the companies who come into the market with an OAD product and then have to leave it again very fast, either for safety reasons, such was the case with Avandia, or a combination of patent and safety, such as the case for Actos, or a strong launch such as the case for Merck and their DPP-4 inhibitor.

So, historically, if you go back another 10 years, you will see that the OADs, they come in, peak fast and then they typically leave for either safety or patent expiry reasons, whereas the companies with an injectable portfolio, such as us, have shown more staying power and have been growing their share of the total value on a steady basis.

This of course is an excellent topic also to discuss later today in the breakout sessions.

Another topic which is interesting and which makes our business slightly different from general pharmaceuticals is some of the barriers of entry that are related to biologics, and the fact that we basically have a business that's totally driven by biologics.

I won't get into all the details now, but just say that all pharma companies have patent, that particular product, but we also have a set of other unique value chain characteristics which are part of the barriers of entry within the field that we operate in, and that's something we can discuss later.

Now, returning to the quarter and the half-year result, then as it was said, we grew sales by 7% and 1% reported, due to the currency going against us.

The far majority of the growth was coming from North America, with 61%, and we had the two other strong growth regions, international operations, which is basically Latin America, Africa, Middle East, Southeast Asia, and then from China.

We have a very low growth in Europe and Japan.

It's basically due to both demographics, the financial situation in the market and our position, which basically means that we are looking into, also in the future, modest growth, single digit in Europe and Japan.

But we are very optimistic on the continued demographic drive behind growth in international operations and region China, and also about the dynamics in North America when it comes to upgrading the portfolio and getting continued price increases as we go along.

In China, the underlying growth is not quite as high as reported.

It's slightly less, due to the fact that we had some destocking last year which helps on the comparator.

And in IO underlying, there are also some swings up and down, and probably we are underlying slightly above what we are reporting.

But basically, very strong double-digit growth in those regions.

You can also see that about half of our sales are now coming from North America.

20 years ago, half came from Europe.

And the change towards North America, IO and China is something that we expect will continue in the coming 10 years.

If we look at the products, then it's also the same trend we are seeing as we've seen in the last five years, that the relative share of sales coming from diabetes is increasing.

We are now very close to 80%.

And we have a strong franchise in NovoSeven with hemophilia, and also in Norditropin and growth disorders, but they in a way struggle to keep up with the strong growth that we see in diabetes care.

You can see here that this half year diabetes care, despite the headwind that we had in the US, is still growing more than biopharmaceuticals.

It's not because we don't have a strong position; we have a strong position in the market, based with NovoSeven, have a very strong position in the marketplace with Norditropin.

But it's simply because these segments are more or less saturated in the sort of industrialized type markets, and the growth is coming from international operations, where we see increased use of these products.

In terms of the diabetes portfolio, it's modern insulin and Victoza that drives growth, and what is really nice to see is that what we call new generation insulin, so Tresiba, is starting to add to the growth.

And let me just show you where that is coming from.

In markets where we have launched so far, it's a limited number, but it's performing very well in all the markets where we have market access at par with the current basal insulins, so Levemir and Lantus.

And you can see here how Japan, which was the first market where we launched and we have roughly been 1.5 years on the market, we are north of 20% market share.

And that's a very, very strong launch of any insulin, if you look back in history, and it indicates that Tresiba will clearly become the market leader and the new gold standard within basal insulins.

The same goes for Switzerland and the same goes for countries like Mexico and India.

Here, we had no reimbursement from the public sector, but neither does Levemir and Lantus, so we are competing at an equal footing.

In markets where we do not compete on an equal footing, such as UK and Denmark, where Levemir and Lantus have reimbursement but we have not yet got full reimbursement for Tresiba, it is, as you can see, holding back penetration.

But this also means that we have high hopes for the penetration of Tresiba in the US, once we get there, assuming that we can get similar access for Tresiba as what has been the case for Levemir and for Lantus.

But better than me talk about how we'll do that, I think I'll hand over to Mads, who will comment on that.

Thank you very much, Kare.

First of all, if we take a look at the R&D pipeline as it looks today, I think what is evident is that the Company has over the last many, many decades been very convinced about the need to do two things.

On the one hand, have replacement power, and by that I mean that if you have one generation of insulins, and we all realize there are still unfulfilled medical needs in terms of, for instance, insulin therapy, it's extremely important that products like NovoRapid, Levemir and NovoMix have successes like Tresiba, Ryzodeg and the fast-acting aspart product.

Likewise, it's important to use your protein engineering and design skills in the context of creating whole new innovation, new products, like we see in Victoza.

And once you have a new product class, like the GLP-1, it's critically important to use your portfolio skills to move from just having type-2 diabetes approved to broadening the label into type-1 diabetes, having a whole new product in the realm of obesity, opening up theoretically for a new therapeutic area for the Company, but also do more transformational things like turning injections into orals, such as is the case of the oral Semaglutide you can see being in phase 2.

Likewise, for convenience purposes, we realize that the market is split into two beliefs, the once-daily belief and the once-weekly or even less frequent belief in terms of administration of products, which is why we have what we believe to be a superior once-weekly GLP-1 offering in the term of Semaglutide in phase 3.

Now, if we look specifically at DEVOTE, I think you are all aware that we started in October of last year, and we had a communication related to the duration of the trial that was estimated to be four to five years.

This we can now take down to three to four years.

And moreover and importantly so, due to the very fast recruitment and the higher than expected event rate for major adverse cardiovascular events, which was planned to be in the vicinity of 2% per annum and now turns out to be higher than that, we are happy to announce that the data to support the interim analysis, which we had previously expected to be around the mid of next year available to the Company, will now become available around the turn of this year, i.e.

six months earlier, enabling a filing, a class 2 resubmission, if the data are in favor of this, which we hope so, obviously, to take place in the first half of next year.

And even the termination of the trial, as I mentioned, is now expedited with a year, mostly driven actually by the higher than expected MACE event rate.

Now, what else has happened in diabetes and obesity?

Well, I think you are all aware that the CHMP under EMA, European Medicines Agency in London, has issued a positive opinion for Xultophy, with what I believe is a very strong label text that actually you can argue just supports the characteristics that we have demonstrated for this product in phase 3 development.

Moreover, if we look at Liraglutide 3 milligram, Lars Rebien has already mentioned the notion that we are heading for a September 11 advisory committee meeting in the US.

Do be aware of one other meeting, by the way.

Now we are talking about the number 11, also on August 11, which is actually on Monday.

There is going to be an advisory committee meeting with the US FDA, where essentially the whole discussion about interim analysis of cardiovascular outcome trials, how to redact text, how to, so to speak, sustain the integrity of the trial throughout its residual treatment period, and so on, so forth, which is obviously also of interest to the Company.

Now, the fast-acting aspart has on the one hand created data where we see a faster onset of action and things that we believe bode well for the future.

But we have most recently documented pump compatibility under continuous subcutaneous infusion conditions that are completely compatible with the 1985 Food and Drug Regulation for such pump insulins.

Within Victoza, the ADJUNCT TWO trial, which is Liraglutide being investigated for treatment of type-1 diabetes as an adjunct, hence the name, to insulin therapy.

This is a superiority trial that completes the phase 3 program for getting Victoza hopefully approved with a label for type-1 diabetes.

And finally, Semaglutide has now completed -- or, sorry, initiated -- if only it were completed -- has now initiated the penultimate trial known as SUSTAIN 4, which is a head-on comparison against insulin glargine.

Now, key developments within biopharmaceuticals.

Well, on the one hand, we had new results both for N9-GP and N8-GP, surgery data for N8-GP, pediatric for N9-GP, and also extension data from the pivotal trial.

All of these support the notion that these long-acting compounds are safe and efficacious in the treatment of hemophilia A and B, respectively.

Now, interestingly, management was able to, for the first time in decades, make the decision to progress a completely novel molecule for the management of growth hormone disorders, such as adult growth hormone deficiency, which is the first indication, to be followed up by growth hormone deficiency in children, as well as a small for gestational age at a later point.

Now, finally, I'd like to wrap up with -- at least on this slide, with what Lars alluded to, the disappointing data on Anti-IL-20.

I think Lars has already mentioned it.

We did miss the primary endpoint and the secondary endpoint.

This essentially means that there will be a winding down of the Anti-IL-20 activities, including the clinical data from the remaining trial that will be terminated in its in-life phase, as we speak.

But the data from the trial that have emerged will be analyzed and communicated early next year.

Finally, on this slide, this is just a milestone slide where you can actually see that an awful lot of things are happening, not only this year, where we are launching Ryzodeg, we have Xultophy approval in Europe and Liraglutide is heading for the outcome on September 11, but more so next year, which will be close to being an all-time high for Novo Nordisk in terms of the amount of data.

Henceforth, we are actually having data coming out from phase 3 pivotal trials both in the fast-acting aspart on the LATIN type-1 program, and on Semaglutide.

And maybe even more importantly, or as important if not more, is the interim results and the resubmission, hopefully, of the NDA for Tresiba and Ryzodeg in the United States.

Finally, I think the oral GLP-1 Semaglutide is reading out both in terms of its clinical safety and efficacy phase 2 program in the first half, as is the carcinogenicity and other pre-clinical data for the carrier system known as SNAC.

And ultimately, I'd like to mention that LAI287, our once-weekly insulin therapy, has just started a multiple-dose study, and will head on from there, hopefully, based on data next year.

With that, over to you, Jesper, for the financials.

Thanks, Mads.

Here you have a slide with all the numbers for the first six months.

A few key comments from me.

Sales growth was significantly impacted by currencies.

Sales was growing 1.5% reported and around 7% in local currency, so about 5.5% negative currency impact.

Our gross margin expanded by 40 basis points, had 40 basis point negative currency impact.

So in local currency we saw approximately 80 basis points improvement in our gross margin, primarily driven by higher prices in the US and an improved product mix, where Novo Nordisk was selling more, as Kare was alluding to, of our modern insulins and Victoza.

For the full year, I would anticipate that our gross margin would expand in local currency in the vicinity of 50 basis points.

Looking at sales and distribution costs, this has been a key driver of our operating performance in the first half.

There has been a very cautious spend linked to the very cautious development to start of sales in the US, and also in Europe, but also reflecting some adjustments to legal provisions.

I would anticipate, as we move into the second half, that we will see a speed up of our promotional activities, especially in the US.

We have at the mid-June launched FlexTouch, our new device with Levemir, in the US.

And you should anticipate that there will be direct-to-consumer marketing for that product as we move along, and consequently the sales and distribution costs will probably move towards the 27% mark, which additionally have a higher S&D spend in the second half of the year compared to first half.

Research and development, Mads was just alluding to the quite impressive pipeline we have.

That has a cost consequence to it.

It's certainly a higher proportion of the overall R&D cost that this year is related to late-stage development activities.

As a consequence, you see the 16% growth the first half year, and I would anticipate we would be between 15% to 16% of sales in R&D costs when we look at the full year 2014.

Admin cost continues to gradually improve and continue.

I'd also expect for 2014 to see a 20 basis point or so improvement to the level of around 4 or just below 4 percentage point of sales.

License income and other operating income will be about double that, so about DKK800m for the full year.

We have divested one asset to a French biotech company, and that's the key driver behind the growth in the first half of this year.

Net financials is reflecting the challenging currency situation.

I'll get back to that in the next slide.

I should mention on the tax rate that we are seeing a slight decline in our tax rate, down to 22.2%.

Similar rate is expected for the full year.

The tax rate for Novo Nordisk is impacted by a gradual lowering of the Danish statutory corporate tax rate, down to the level of actually 22%, from 2016 and onwards.

Net profit growing to the tune of 6%, and because of the repurchase of shares, you are seeing our diluted earnings per share actually growing by 9%.

In terms of currencies, we've had a very challenging first half.

I mentioned the 5.5% negative impact on currency.

You can also see from the charts here that the challenge has been bigger in the first half than we anticipate it will be in the second half.

And as we are guiding to a sales impact of 3% negative for the full year and as we have had 5.5% in the first half, it will only be a modest negative impact.

You can also see that from the non-hedged currencies, which have been challenging for Novo Nordisk, that the main part of the drop actually occurred in the third quarter of last year.

And hence the comparators on currencies are also getting gradually easier for Novo Nordisk as we move along.

I note these currencies, the ruble, Indonesian -- Indian rupee and so on, they are basically all having a 5% movement, will give us an approximately DKK15m to DKK30m negative impact on operating profit.

The financial outlook for the year is being illustrated here; no significant changes compared to last time.

You could say the only really substantial change is the lowering of the currency impact on sales and operating profit, but a similar negative, then, movement to the hedging income as a consequence of the improved outlook for especially US dollar and Japanese yen.

Apart from that, the main financial outlook parameters are unchanged compared to the outlook we gave in May.

We also thought we would use this opportunity to just remind you about the long-term financial targets.

I won't go a lot into them, but I think we have good opportunities in the breakout session to dig into them.

Just noting that on operating profit growth, of course Novo Nordisk is significantly impacted by currencies, and the ambition level is in reality reflecting what the underlying growth is.

And as you can see, last year we managed to deliver, in underlying terms, about 15% growth.

This year, so far, the ambition level is to deliver around 10%, and of course we are highly reliant on successful being able to launch Tresiba in the US to really reignite growth in Novo Nordisk.

Operating margin of 40%, that's approximately where we are operating now.

The return target we have for operating profit after tax to net operating assets are making gradual progress towards the 125% target.

And the cash conversion ratio is pretty much in line with the operating level of -- the target of 90% is pretty much in line with the operating level we have now.

In terms of closing remarks, just noting that we are in a very attractive market segment of the pharmaceutical industry that is growing more than 10% per year.

We have a solid leadership position with a 28% market share, as Kare illustrated.

It's based on our position within insulin, having 47% volume share of the overall insulin market and a 46% share in modern and new generation insulin.

And actually, do note on this slide that we are beginning to combine the modern and new generation insulin, as that is where we are getting the value from.

And the conversion to the new generation insulin will happen in different stages, depending on the approval situation for especially Tresiba around the world.

And then finally, we have a very significant market position within GLP-1, and hope to be able to continue to expand that leadership position also with the exciting AdCom upcoming, as Mads alluded to, for Liraglutide 3 milligram.

In terms of the pipeline, I think we've covered that and you've had plenty of time to deal with that.

So let me just end by giving you some practical details.

The group sessions will start in approximately seven minutes, 12.45.

You should -- each of you should have received a little card, where it's stated what group you are in.

It's also stated who the investor relation contact person from Novo Nordisk should be, who should be of service to you and help you throughout this very challenging logistic exercise we are going to undertake for the next three hours or so.

And the group -- where the groups are going to start is stated here, and I'll show something to increase the confusion then.

No, I won't, because that's not here.

But basically the investor relation individuals will hopefully help you, and we look forward to have a lot of dialogue with you out in the rooms.

I should also mention that you have -- with the slide deck on your table, you also have an evaluation sheet.

And as investor relations like to get a lot of creative suggestions from you that they can subsequently harass management with, I would kindly ask you to fill out these evaluation forms and provide good suggestions to us to further improve.

Thank you very much, and look forward to see you in the group rooms.