Novo Nordisk A S (NVO) Q3 2022 earnings call transcript

Thank you, operator. Welcome to this NOVO NORDISK earnings call for the first nine months of 2022 and the outlook for the year. My name is Lars Fruergaard-Jorgensen, and I'm the CEO of NOVO NORDISK. With me today, I have Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest, Executive Vice President and Head of North America Operations, Doug Lange, Executive Vice President and Head of Development, Martin Holtz Lange, And finally, Chief Financial Officer, Karth Nussmog. All of us will be available for the Q&A session.

Today's announcement and the slides for this call are available on our website, noonloys. com. Please note that the call will be webcasted live and a recording will be made on our website as well. The call is scheduled to last for one hour. Please turn to the next slide. The presentation is structured as outlined on slide 2. Please note that all sales and operating statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 25 minutes. Please turn to slide 3.

As always, I need to advise you that this call will contain forward-looking statements. These are subject to risk and uncertainty that could cause actual results to differ materially from expectations.

For further information on the risk factors, please see the company for the first nine months of 2022 and the slides prepared for this presentation. Please turn to the next slide.

In the first nine months of 2022, we delivered double digital sales and operating profit growth, which has enabled us to raise our outlook for the full year. I would like to start this call by going through the performance highlights across our operations before handing over the word to my colleagues. We continue to make progress across all dimensions of purpose and sustainability.

Our carbon emissions decreased by 18% compared to the first nine months of 2019, and we continue to reach even more patients compared to the same period last year. Within our aspiration of being a sustainable employer, we expanded the number of women in senior leadership positions to 38%, compared to 36% by the end of September 2021. Within R&D, we are pleased with the encouraging Phase 2 data with CACS-Sema in Type 2 diabetes, as well as the successful completion of the pivotal Phase 3 program for once-weekly insulin ICODEG. IcoDeck. Both support our aspiration of further raising the innovation bar for diabetes treatments.

Martin will come back to this and our overall R&D milestones later in this call. In the first nine months of 2022, we delivered double-digit sales growth, reflecting solid commercial execution across geographies and our therapy areas. While both operating units contributed to sales growth, we saw particularly strong sales growth in North America, driven by accelerated demand for our G1 treatments.

This has enabled us to increase the outlook for the year. Camille and Doug will go through the details per therapy area later. Lastly, Carson will go through the financial details, but I am very pleased with a sales growth of 16% and operating profit growth of 14% in the first nine months of 2022.

With that, I'll now give the word to Camilla for an update on commercial execution.

Thank you, Lars, and please turn to the next slide. As Lars mentioned, our 16% sales growth in the first nine months of 2022 was driven by both operating units, with North America operations growing by 22% and international operations growing by 11%. Our GLP-1 sales increased 40% by North America, growing 39%, and international operations growing 55%. Insulin sales decreased by 11%, driven by a 7% decline in international operations, and a 20% sales decline in North America operations. The U. S. insulin sales declined by 22%, driven by lower realized prices and a decline in volume.

Insulin sales in international operations were impacted by implementation of volume-based procurement in China from May 22, as well as lower sales in EMEA. Obesity care sales grew 75% overall. In international operations, extended sales grew 73%, and in North America operations, obesity care sales grew 77%. In the U. S. , obesity care sales grew 81%. Where the C sales grew 2%, driven by a 4% sales increase in international operations, offset by a 3% decline in North America operations. Please turn to slide 6. Our 14% sales growth within diabetes care is faster than the whole diabetes market. That means we have improved our market share by 1.7 percentage points to 31.6%. We continue to be on track to reach one-third of the diabetes value market by 2025.

This increase primarily reflects GLP-1 market growth as well as share gains in both operating units. And please turn to the next slide. In international operations, diabetes care sales increased by 9% in the first nine months of 22, driven by GLP-1 sales that grew by 55%. NOVO NORDISK remains the market leader in international operations with a GLP-1 value market share of 2.5% to 6%. This is driven by share gains across geographies. USAMPEC continues to expand its GLP-1 market share leadership in international operations with a 41.3% market share.

While the GLP-1 class is growing more than 40%, GLP-1 penetration remains low at around 4% of total diabetes groups globally. And with that, I will hand over the word to Doug.

Thank you for that update, Camilla. Please turn to the next slide. The U. S. GLP-1 market volume grew by more than 40%, comparing the third quarter of 2022 to the third quarter of 2021, with once-weekly injectable GLP-1s and Rebelsis as the main drivers. The recent competitor launch in GLP-1 has supported the continued acceleration in market growth from an NBRX perspective, as well as all-time high levels for our portfolio of GLP-1 products during Q3. Measured on total prescriptions, NOVO NORDISK has maintained its market leadership with a 52.4% market share.

Additionally, Ozempic continues to be the market leader with a 38.7% TRX market share. Rebelsis continues to grow and has now been launched in 43 countries. In the first nine months of 2022, it was the second largest contributor to growth in NOVO NORDISK after Ozempic. Please go to the next slide. Obesity care sales increased by 75%, with 77% growth in North American operations and 73% in international operations. Furthermore, the global obesity market expansion continues with a volume growth of the global branded obesity market of more than 60%. We continue to be encouraged by the performance of Saxenda in international operations.

Region EMEA is a key growth driver with 96% growth in the first nine months of 2022. Specifically, the growth continues to be particularly strong in countries that have some level of reimbursement, such as the UK, Norway, and Israel. In the U. S. , obesity care sales grew by 81%, with both WGOVI and Sexenda contributing to growth. Following the previously announced WGOVI supply issues in the U. S. , our focus remains to continue continuity of care to the patients that have already initiated treatment.

In line with expectations, this has negatively impacted WGOVI prescription trends. Positively sex and the prescription trends have accelerated and continue to be at all high levels Regarding WGOVI supply we expect to make all doses of Rogovi available in the U in December We plan to initiate broad commercial activities in the beginning of 2023 Now back over to Camilla for an update on rare disease Thank you, Doug. Next slide, please. Our rare disease sales increased by 2% in the first nine months of 2022. This was driven by a 4% sales growth in international operations, offset by a 3% decline in North America operations. Rare blood disorders grew by 6%, driven by NOVO 7, as well as the launch products, Espiroc and Riffixia.

Specifically, hemophilia A products grew by 6%, hemophilia B sales by 9%, and NOVO 7 by 6%. Rare endocrine disorder sales declined by 6%, the declining sales were driven by international operations decreasing 2%, and by North America operations decreasing by 13%. The sales were negatively impacted by lower realized prices in the U. S. And now over to you, Martin, for an update on R&D.

Thank you, Camilla. Please turn to slide 11. Slide 11. In August, we shared the exciting data from the Phase 2 trial of SemagroTri 2.4 mg and Cagrelitine 2.4 mg. All products were administered once weekly. The trial included 92 people with type 2 diabetes and overweight, and people were equally randomized among the free treatment arms. In the trial, the mean baseline A1C was 8.4%, and the mean baseline body weight was 106 kilograms. After 32 weeks of treatment, people treated with cacosemma achieved a numerically higher A1C reduction of 2.18 percentage points, compared to a reduction of 1.79 percentage points for people treated with semactrilel and 0.93 percentage points for people treated with cacosemma alone. People treated with Cagre-Sema had a numerically higher body weight reduction of 15.6% compared to a reduction of 5.1% for people treated with semagrotide and 8.1% for people treated with cagrinotide alone.

In the trial, caracrycemia appears to have a safe and well-tolerated profile. Overall, these results indicate that caracrycemia reduces blood sugar more than the two motor components alone, and the weight loss seen in the trial confirms the substantial weight-lowering potential of caracrycemia. Based on the results, we plan to initiate a program for people with type 2 diabetes during the course of 2023. Next slide, please. ONWARDS 5 was a 52-week efficacy and safety trial, comparing from once-week insulin icodec to once-daily basal insulin. This was either insulin decodec or insulin glasin. The trial included 1,085 insulin-NACP with type 2 diabetes. The primary objective of the trial was to demonstrate non-inferiority of insulin I-Codec compared to once-daily basal insulin analogs in reducing A1C at 52 weeks.

ONWATS 5 included a dose guide app, as well as real-world evidence such as substantial trial visits compared to the other ONWATS trials. Altogether, we believe that this design will help you to understand and dialogue of how insulin Icodec can make a difference for patients in an actual clinical practice setting. This trial was a treat-to-target trial, and it achieved its primary endpoint by demonstrating non-inferiority in reducing hemoglobin A1C at week 52 with insulin Icodec, From an overall baseline A1C of 8.9%, once weekly insulin ICODEX achieved a superior reduction in estimated A1C of 1.68% compared to 1.31% for once daily insulin analogs. The estimated treatment difference of 0.38% exposure. In addition, we are observing a rate of severe and clinically significant hypoglycemia.

In the trial, one week insulin IcoDec appeared to have a safe and well-tolerated profile. In conclusion, we are very pleased to share the positive results from the ONWATS 5 trial. These results confirm the data that we have seen in the previously reported ONWATS program. The results highlight that insulin icodec has the potential to be an ideal starter insulin for people with type 2 diabetes, as well as a very attractive option in combination with mealtime insulin as shown in ONWATS 4, Thus covering the full spectrum of type 2 diabetes. We expect to be filing for regulatory approval of once-weekly insulinicodactics in the US, in the EU, and in China during the first half of 2023.

Please turn to the next slide. In September, we completed the 24-week main part of the Phase 3 trial with concilisumab called Explor8 in people with hemophilia A or hemophilia B without inhibitors. The trial met its primary endpoint, confirming superiority of concisumab prophylaxis treatment compared to NO-prophylaxis treatment in reducing the annual bleed rate in both Haemophilia A and Haemophilia B patients without inhibitors. The secondary confirmatory endpoint of demonstrating noninferiority of concisumab prophylaxis as compared to previous prophylaxis factor treatment in reducing VAPR was not met. In the trial, contizumab appeared to have a safe and well-tolerated profile, with no thromboembolic events reported after the treatment restart following the treatment pause. Based on the results of Xloraid, we are assessing further development activities and timing of regulatory submissions in people without inhibitors.

Now, staying within rare disease, I am very excited to share that treatment has been initiated in the first MiMate Phase 3A trial in Hemophilia A. This is called Frontier 2. Based on the results we saw in Phase 1 and 2, we have very high expectations for the trial and the difference that MiMate can make for patients with Hemophilia A in managing their disease. Furthermore, we have submitted NEDOSURAN for regulatory approval in the US for the treatment of primary hyperoxaluria. NEDOSURAN was part of the DICERNA pharmaceuticals requisition we made back in 2021. Within other serious chronic diseases, we have completed a 12-week Phase II trial with oral PCSK9 in 267 people with ASCVD or risk of ASCVD.

The trial may emerge by demonstrating superiority versus placebo in lowering low-density lipoprotein and cholesterol, and appear to have a safe and well-tolerated profile. However, due to commercial and portfolio considerations, the development of oral PTSD-9 will be terminated.

Now, let's turn to the other high-level RNG milestones that I did not cover in the previous slide. Within diabetes, we have initiated a phase 1 trial with a once-weekly oral somatic type, as well as a phase 2 trial with higher doses of OFCEMPIC in the third quarter of this year. The latter is a 49-week trial investigating the efficacy and tolerability of 8 and 16 mg of OFCEMPIC respectively The trial is expected to enroll around 240 people with type 2 diabetes Further in the first half of 2023 we expect results from the currently ongoing phase 3 trial with all somagnotides 25 and 15 mg respectively Finally, with NOBESI-2, we are very excited to have initiated the first free A trial called Redefine 1 for Cagro7.

Redefine 1 is a 68-week trial comparing the efficacy and safety of once-weekly cagrysema with semagrotide 2.4 mg, cagrilatide 2.4 mg, and placebo. The trial is expected to enroll approximately 3,400 people with obesity or overweight and comorbidities, and is the first pivotal trial in the Redefine program. Further, during the first half of 2023, we expect results from the Phase 3A trial with all somatocytes 50 mg, as well as the Phase 1-2 trial results from the ongoing trial with PYY. Altogether, we are looking very much forward to an exciting period with clinical trial initiations, as well as results across our therapy areas.

With that, over to you, Karsten.

Thank you, Martin. Please turn to the next slide. In the first nine months of 2022, our sales grew by 26% in Danish Krona and 16% at constant exchange rates, driven by both our operating units. The gross margin increased to 84.3% to 83.0% in 2021, driven by a positive product mix due to increased GLP-1 sales, a positive currency impact of 0.9 percentage points, These effects are countered by lower realized prices in the US and China. Sales and distribution costs increased by 28% in Danish krona and 19% at constant exchange rates. The increase is driven by launch activities and promotional spend for robustness and OSMPIC, as well as market development activities for obesity. The cost increase is reflecting low activity levels in 2021 due to COVID-19 as well as higher distribution costs.

Research and development costs increased by 31% in Danish corona and 26% at constant exchange rates. The increase is driven by higher clinical activity levels within other serious chronic diseases and GF1, As well as the operating costs and amortizations related to the acquisition of Dicerna Pharmaceuticals in the fourth quarter of 2021.

Administration costs increased by 9% in Danish krona and 5% at constant exchange rates. Operating profit increased by 28% in Danish krona and by 14% at constant exchange rates. Net financial items for 2022 showed a loss of around 5 billion krona compared to a gain of around 1 billion in 2021. This mainly relates to losses following the appreciation of the US dollar as reflected in the favorable currency impact in operating profits. The effective tax rate for the first 9 months of 2022 was 20.5% compared to 19.8% in 2021. Net profit increased by 14% and diluted earnings per share increased by 15% to 18 krona and 42 krona. Free cash flow was 62.5 billion Danish krona compared to 52.3 billion Danish krona in 2021.

The cash conversion in the first nine months of 2022 is positively impacted by timing of rebate payments in the US, The RACE guidance reflects expectations for sales growth in both industries and companies. International operations and North America operations and across therapy areas, but mainly driven by diabetes and obesity care. The updated guidance is based on the expectation that all the Gobi dose drinks are available in the U. S. towards the end of the year.

The outlook reflects that we expect continued periodic supply constraints and related drug shortage notifications. This is driven by higher than expected volume growth for GLQ-1 based products such as Sysenpig and temporary capacity limitations at some manufacturing sites. We are gradually increasing our supply capacity and expect this to be sufficient to support a potential continuation of the current sales growth trajectory. We now expect that operating profit will grow between 13 and 16 percent at constant exchange rates. This primarily reflects the sales growth outlook and continued investments in current and future growth drivers. We are also allocating additional resources to both early and late-stage R&D pipeline activities. As mentioned before, our acquisition of Dicerna Pharmaceuticals is negatively impacting operating profit growth by around 2 percent points.

Due to higher operating costs and amortization of interchangeable assets. Given the current exchange rates, most notably the strengthening of the US dollar, we expect a positive currency impact for 2022. Our reported sales are now expected to be 10% of this point higher than at CER, and operating profit growth is now expected to be 15% of this point higher than at CER. The positive currency impact on operating profit of 15 percentage points is partly offset by a net loss on financial items.

For 2022, we now expect that financial items will amount to a net loss of around 6.6 billion Danish kroner, mainly reflecting losses associated with foreign exchange hedging contracts. Capital expenditure is still expected to be around 12 billion Danish kroner, which mainly relates to investments in additional API production capacity at existing manufacturing sites.

Our free cash flow is now expected to be between 54 and 59 billion Danish kroner, reflecting the acquisition of former therapeutics, the acquisition closed in the fourth quarter of 2022. That covers the updated outlook for 2022. Now back to you, Lars, for final remarks.

Thank you, Karsten. Please turn to the final slide. We are very pleased with the double-digit sales growth in the first nine months of 2022 and that we continue to reach even more patients. The strong financial performance in the first nine months of 2022 has enabled us to raise our outlook for the full year. From an R&D perspective, we have now successfully completed the full ONWARDS program with once-weekly Insulin ICODEK, the full results underlying our commitment to further raising the innovation bar in diabetes.

We look forward to submitting Insulin ICODEK for regulatory approval in the first half of 2023. In addition, we are excited about initiating the Phase 3 program for CAC-GISM in obesity. This could further strengthen our portfolio of superior obesity products.

With that, we are now ready for the Q&A, where I kindly ask all participants to limit her or himself to one or maximum two questions. Operator, we are now ready for the first question.

Thank you, Rimal. First, Marcin, on the exciting prospects of all week this summer. Yes, absolutely. So you're exactly right. We're very excited about this. This is an offering that is, as you rightly point out, it's based on our SNAC technology. It's a little more than a reformulation, but we do expect it to allow for a full offering of once-weekly dosing. Our intent is that this should be available potentially in both diabetes and obesity, and with an efficacy and safety profile similar to that of injectables. So I think I heard you mention GI tolerability. This should be on par with what we've already seen in our subcutaneous sematocyte profiles.

Yeah.

Thank you, Marcin. An exciting opportunity underlying our all capabilities.

And then, Karsten, we added some caveats on potential growth and link to supplies for next year. So can you put some comments on that? Yeah, so as we put into our company announcement, then we're stating that as we gradually are expanding our supply capacity, then we expect to have enough capacity to support a potential continuation of the current sales growth trajectory. So this is nothing on Osymphek in isolation, but this is a macro statement for NOVO NORDISK, all sales growth and supply capacity.

Thank you, Carlton, and thank you, Vimal. Next question, please.

Thank you for those questions. So on OSMPIC, you shouldn't expect that's kind of a one-off event that triggers a step change. So it's a gradual expansion of capacity. And I'll not go in and comment on our ability to supply against consensus. We'll give our guidance for 23 at the full year.

And then, Doug, on U. S. health care reform and Medicaid changes coming up, I guess we cannot be really detailed on what our plans are, but what can you share?

Yes, I think the question specifically was on the AMPCAP repeal going into 2024, and certainly we're working on the potential of mitigating actions, but I wouldn't want to get into the specifics.

Yeah.

Thank you.

So, I'll start with a bit of perspective on use of all ingredients, and then maybe, Doug, you can talk a bit to what we expect when we come back to the U. S. and launch, and perhaps what it takes to get an obesity product reimbursed in the public account. And so you mentioned that there's use of other incretants now that we go with is short on supply. I would actually say that the majority of uptake is on our own sex center. We have seen sex center doing really, really well, step change in uptake, as we unfortunately had to slow down the launch curve.

So that really proves that the obesity market is opening up. So before that, Vigobi really created the excitement about what weight loss potential is possible. We saw a much lower uptake of Sextenda. So we are pleased with what we see, and we believe that we can both, in markets where we don't have Vigobi, we can sustain the growth with Sextenda. And then obviously as we get Vigobi back towards the end of this year in the U. S. and gradually start launching outside the U. S. , we expect to see a very nice uptake on that.

But, Doug, what should people look for in terms of uptake of Vigobi when we come back, and what's a broader reimbursement?

Yeah, thank you. I think what's important to note is there remains a significant unmet medical need with obesity, and that was evidenced when we launched WGOVI in 2021. I think what we can expect is a strong and stable growth, and our focus is on building a long-term sustainable business. Maybe as a reference, we could take a look at the Q1 of 2022 this year, where it was assumed that few of the NBRXs were using a bridge or a copay program. So again, when you look at that quarter, we're looking at roughly 6,000 MBRX and 25,000 TRX. But I think it's important a long-term sustainable business is what we're looking for.

Good. Thank you, Dar.