Novo Nordisk Q2 saw approval of Wegovy® and continued growth of Ozempic® sales

Novo Nordisk sales and operating profit grew at 12% and 9%, respectively, at constant exchange rates. The FDA approved the once-weekly injectable anti-obesity drug Wegovy® (semaglutide) on June 4th.

The figures below summarize the global sales for Novo Nordisk by geography, by drug and by drug class. All geographic markets have experienced growth, but Victoza® and Levemir® have curbed growth in the US.

Within the injectable GLP1 class Ozempic® sales continue to grow at the expense of Victoza®. Within the insulin class Tresiba® sales continue to grow at the expense of Levemir®, although it is less pronounced than within the GLP1 class.

Novo Nordisk can attribute the majority of its growth to the GLP1 class.


The global GLP1 market share has increased from 49.1% to 51.5% led by Ozempic® in all markets, whereas the insulin market share has decreased from 44.6% to 43.9%.

Novo Nordisk and Eli Lilly continue to see growth thanks to the GLP1 class (Ozempic® and Trulicity®), whereas sales of Januvia® at Merck and Lantus® at Sanofi is deteriorating.

An old pencil drawing of Don Quixote and Sancho Panza sitting on their horses, by Wilhelm Marstrand.


The FDA approved Wegovy® – once-weekly injectable semaglutide – on June 4th. Wegovy added more than 8,000 prescriptions within the first five weeks; it took Saxenda® (once-daily injectable liraglutide) 4 years to achieve the same. The STEP trials showed semaglutide to be superior to liraglutide in terms of weight loss. Wegovy® might cannibalize Saxenda®. However, 50% of Wegovy® prescriptions (TRx) are new to the anti obesity medication class in the US.

Final Remarks

Novo Nordisk is not cheap at a forward P/E of 30. And the current share price does probably not offer the best entry point, but it’s worth remembering that Novo Nordisk has various moats and advantages. It is protected by high barriers to entry for biosimilars, has a long history of organic growth, has a focused approach with diabetes, obesity and cardiovascular diseases, has low costs and has little debt to name just a few.

Novo Nordisk gains GLP-1 market share within and outside the US despite seeing new GLP-1 prescriptions curbed by COVID-19

Novo Nordisk has gained market share in diabetes (29.2%), GLP-1 (49.9%) and insulin (44.5%).

The gain in market share has happened with a change in market value in the US as a backdrop; i.e. GLP-1 up and insulin down. As a consequence approximately 70% of sales in the US did not exist 5 years ago.

Diabetes and GLP-1

In the US Novo Nordisk GLP1s command a 60.2% NBRx and 49.6% TRx market share, which is driven by Ozempic® (once weekly injected semaglutide) and Rybelsus® (oral semaglutide).

GLP-1 NBRx and TRx market share in the US.

The uptake of Rybelsus® has however been curbed by COVID-19, but market access in the US is now approximately 85%.

In a similar fashion sales of Trulicity® have increased by 9% but it has lost market share as a proportion of both prescriptions and market value.

Eli Lilly Trulicity® sales.

Ozempic® might face competition from Tirzepatide in the future.

Eli Lilly Tirzepatide pipeline (part 1 of 2).
Eli Lilly Tirzepatide pipeline (part 2 of 2).

Diabetes and insulin

As already mentioned insulin is deteriorating rapidly in the US, which is thanks to biosimilars such as Basaglar® and Admelog®.

Insulin icodec phase 3 clinical trial results might be available in the second half of 2021.

The glucose sensitive insulin NN1845 has been added to phase 1.


The uptake of Saxenda® has been put on hold by COVID-19 as demonstrated by the reduction in new prescriptions and sales.

A decision on injected semaglutide for obesity is expected in Q4 or Q1. Getting oral semaglutide approved for obesity would be the next logical step. Eli Lilly is expecting their phase 3 primary endpoint results on Tirzepatide for obesity in June 2022.

Visualization of growth in the COVID-19 impacted quarters

The first and second quarter of 2020 were unusual in many ways. More than a third of S&P500 companies temporarily or permanently withdrew guidance for the full year due to uncertainty surrounding impacts from COVID-19 according to FactSet. This article seeks to visualize the growth in each of the two quarters by sector and industry.

The bubble plot below shows the growth in Q1 on the x-axis and Q2 on the y-axis for selected sectors, industries and companies of the S&P 500 and the Russell 3000. The marker sizes represent market capitalization. The colors represent sectors.

Bubble plot of growth in Q1 and Q2 for the S&P 500.
Bubble plot of growth in Q1 and Q2 for the Russell 3000.

Some companies are outliers and are not displayed in the bubble charts. Instead a time series of their revenue is plotted below. Zillow ($ZG) is one of these outliers. In Q1 revenue increased by 148% due to Zillow Offers growing 499%. Vertex ($VRTX) had Trikafta® approved in October 2019 and it is currently one of the fastest growing drugs. Beyond Meat ($BYND) grew by triple digits in Q1. Beyond Meat ($BYND) grew by triple digits in Q1 and is an outlier.

Time series of revenue at companies with revenue growth falling outside the visible ranges of the bubble plots.

Basic Materials

In Basic Materials the copper miner Freeport McMoran ($FCX) experienced a slump. The copper price has since rebounded by 50% from $2 to $3 per pound.

Basic Materials

Communication Services

Communication Services

COVID-19 did not affect all entertainment companies. The concerts of Live Nation ($LYV), the Grands Prix of Formula One ($FWONA) and the theme parks of Disney ($DIS) were affected, whereas streaming services such as Netflix ($NFLX) and Spotify ($SPOT) and gaming thrived. The real estate service Zillow ($ZG) grew by triple digits in Q1 and is an outlier.

Time series of revenue in the entertainment industry.

Consumer Cyclical

The Consumer Cyclical sector saw some big shifts within and between industries in Q1 and Q2.

Consumer Cyclical

Some of the industries most impacted by COVID-19 were Casinos & Resorts – e.g. Las Vegas Sands ($LVS), Wynn Resorts ($WYNN), MGM Resorts ($MGM), Caesars Entertainment ($CZR) – Travel Services – e.g. Booking ($BKNG), Expedia ($EXPE), TripAdvisor ($TRIP) – Cruise Lines – e.g. Royal Caribbean ($RCL), Norwegian Cruise Line ($NCLH), Carnival ($CCL) – Hotels – e.g. Hilton ($HLT), Hyatt ($H), Marriott ($MAR).

Time series of revenue in the hotel industry.
Time series of revenue in the casino industry.

The internet retailer Overstock ($OSTK) experienced triple digit growth in Q2. Amazon ($AMZN) continued its growth trajectory in Q1 and Q2.

Time series of revenue among internet retailers.

The retailer Dick’s Sporting Goods ($DKS) is predominantly brick and mortar, but it saw triple digit online growth in Q2. Other retailers that saw growth in Q2 include Tractor Supply Company ($TSCO) and the home improvement retailers Lowe’s ($LOW) and Home Depot ($HD).

Residential Construction

Residential Construction such as Pulte Homes ($PHM) has done well in the previous two quarters, which is probably attributable to the low interest environment and the low mortgage rates. PennyMac Financial Services ($PFSI) and other mortgage finance companies also experienced growth in Q2.

Time series of revenue in residential construction.

Restaurants not doing deliveries lost revenue. Starbucks ($SBUX) and McDonald’s ($MCD) revenue fell by 38% and 30% respectively in the quarter ended June, whereas Domino’s Pizza ($DPZ) did much better with 16% growth in Q2.

Time series of revenue in the restaurant industry.
Auto and RV manufacturers

The auto manufacturer Tesla ($TSLA) experienced a halted revenue growth in Q2. The US, German and Japanese auto manufacturers such as Ford ($F), GM ($GM), Fiat Chrysler ($FCAU), Toyota ($7203.T), Volkswagen ($VOW.DE), Daimler ($DAI.DE) and BMW ($BMW.DE) have experienced a slump in Q2, which quickly manifested itself in railroad volumes, which are again returning to normal.

Time series of revenue for US and other auto manufacturers.

EV registrations in Europe were up 131% YoY in July, but Tesla unit sales imploded by 76% YoY in Europe in July.

Time series of Tesla automotive revenue per geographic segment.

RV manufacturers such as Winnebago ($WGO) and Thor Industries ($THO) did not see a contraction of revenue like the auto manufacturers.

Time series of revenue for recreational vehicles.

Consumer Defensive

In Consumer Defensive the bleach boom lifted sales at Clorox ($CLX). The companies Chegg and 2U operating in the industry Education & Training Services outpaced all other companies.

Consumer Defensive

Lockdowns of on-site premises have affected the breweries. Despite this the brewer Boston Beer ($SAM) saw its sales increasing in Q2 and not only due to the acquisition of Dogfish Head.

In retail grocery stores such as Kroger ($KR) and discount stores such as Walmart ($WMT) experienced growth in both Q1 and Q2. The discount store Dollar General ($DG) grew the fastest and experienced comparable sales growth of 21.5% in May, 17.9% in June and 17.2% in July.

Time series of revenue for grocery stores and discount stores.


The plunge in oil prices affected Oil & Gas that coincided with the outbreak of COVID-19 and the oil price war between Russia and Saudi Arabia. In Energy most Oil & Gas companies took a severe beating, when oil futures briefly went to single digits in mid April. Q2 revenue at Exxon Mobil and Chevron dropped by more than 50%. Exxon Mobil leaves the Dow Jones Industrial Average at the end of August. Exploration & Production and Refining & Marketing was in general more affected than Midstream and Equipment & Services.


Financial Services

Financial Services was a mixed bag. COVID-19 affected credit card companies such as Visa ($V), Mastercard ($MA) and American Express ($AXP). On the contrary PayPal ($PYPL) continued its growth trajectory. The increased trading had a positive effect on exchanges ($CBOE, $NDAQ, $ICE). Morgan Stanley ($MS) and Goldman Sachs ($GS) both experienced negative growth in Q1 but positive growth in Q2 as did the low cost broker Interactive Brokers ($IBKR) and JP Morgan ($JPM).

Financial Services

Increased commission fees drove the growth at Interactive Brokers.


In Healthcare the companies Moderna ($MRNA), Translate Bio ($TBIO), Novavax ($NVAX) doing COVID-19 vaccine research saw triple- and quadruple-digit growth in Q2 due to government grants and collaborations with big pharma and they have thus been excluded. Due to new collaborative agreements the outliers Assembly Biosciences ($ASMB) and ChemoCentryx ($CCXI) have also been excluded. Qiagen ($QGEN), which nixed their merger agreement with ThermoFisher ($TMO), experienced growth due to COVID-19 testing. No healthcare company experienced as much revenue growth in Q2 as Teladoc Health ($TDOC), which was already growing at a steady rate just like Dexcom ($DXCM) and Tandem Diabetes Care ($TNDM), which both operate in the diabetes field. Other fast growers are Twist Bioscience ($TWST), NovoCure ($NVCR), CareDx ($CDNA) and Veeva Systems ($VEEV).




Lots of industrial companies have been affected by COVID-19, but none as much as the airlines ($LUV, $AAL, $UAL, $DAL, $JBLU, etc.) and the aviation industry; e.g. Boeing ($BA), General Electric ($GE), Spirit AeroSystems ($SPR), etc.

Time series of revenue in the airline industry.

The railroads experienced a steep decline in traffic in Q2, but weekly volumes have recovered significantly since then.

Time series of revenue in the railroad industry.

Railroad revenue shrank due to auto volumes.

Time series of CSX revenue from products and services.

Real Estate

In Real Estate the Hotel & Motel REITs ($APLE, $HST, $RHP, $PK) have seen revenue declines of nearly 100% in Q2. The retail REITs have seen their revenue decline in Q2 due to some tenants being unwilling to pay the rent and others going bankrupt. The merger between the retail REITs Simon Property Group ($SPG) and Taubman Centers ($TCO) was cancelled.

Real Estate


In Technology Microsoft ($MSFT) was one of many software companies growing in Q1 and Q2. The semiconductor companies Intel ($INTC), KLA Corp ($KLAC), AMD ($AMD), Teradyne ($TER) all experienced positive revenue growth in Q1 and Q2 despite some of them having murky clouds ahead of them. The ride sharing services Uber ($UBER) and ($LYFT) saw their revenue plummeting in Q1 and Q2. Uber experienced less of a decline due to deliveries with Uber Eats.



In Utilities the water utilities ($AWK, $AWR, $CWT) have been less affected than the gas utilities.



More than 90% of all Russell 3000 companies have now reported a full quarter impacted by COVID-19; whether it’s from March to May – e.g. General Mills ($GIS) and Adobe ($ADBE) – April to June (i.e. most companies) or May to July – e.g. Walmart ($WMT) that reported on August 18th. Broadcom ($AVGO), Campbell Soup ($CPB) and Cooper Companies ($COO) will report for the fiscal quarter ended at the end of July on September 3rd. The figures will be updated accordingly.

The data is obviously backward looking, but data are available on a more current basis (e.g. weekly and monthly) for discount stores (e.g. Costco), railroads (e.g. reports from Association of American Railroads and Surface Transportation Board), auto manufacturers, etc.

Some companies such as industrials might have had large backlogs and will only have their revenue affected in upcoming quarters. It’s more relevant to look at guidance and outlook for the future in these cases.

Acquisitions and divestitures

The displayed growth is the non-organic GAAP growth. Significant acquisitions and divestitures within the past six quarters disqualified companies from inclusion. Some of these are Bristol-Myers ($BMY) acquiring Celgene ($CELG), AbbVie ($ABBV) acquiring Allergan ($AGN), Occidential ($OXY) acquiring Anadarko ($APC), FIS ($FIS) acquiring Worldpay ($WP), Fiserv ($FISV) acquiring First Data ($FDC), Wabtec $(WAB) acquiring GE Transportation, Transdigm ($TDG) acquiring Esterline ($ESL), Walt Disney ($DIS) acquiring 21st Century Fox by Disney, Truist ($TFC) after merger between BB&T ($BBT) and SunTrust Banks ($STI), ViacomCBS ($VIAC) after merger between Viacom and CBS. The gold miner Newmont Mining ($NEM) is excluded, because it acquired the Peñasquito gold mine in Mexico from Goldcorp in April 2009. DowDuPont ($DWDP) spun of Corteva ($CTVA) and DuPont ($DD) in 2019 and was renamed Dow Chemical ($DOW) and neither of these companies are displayed. NortonLifeLock ($NLOK) sold Symantec to Broadcom. VF Corp ($VFC) divested Kantoor Brands ($KTB).

Shareholder dilution

Not all growth creates value and in some cases growth is actually negative when adjusted for shareholder dilution. The table below summarizes the shareholder dilution and revenue growth YoY for Q2.

Dilution (%)Growth (%)
YoY Q2 shareholder dilution and revenue growth.

Best selling and fastest growing drugs in the 2nd quarter of 2020

Best selling drugs

Once more Humira® from AbbVie is the best selling drug of the quarter ($4,837M) despite headwinds in Europe from biosimilars Amgevita®, Amsparity®, Halimatoz®, Hefiya®, Hulio®, Hyrimoz®, Idacio® and Imraldi®. In the US Humira® will in 2023 lose market exclusivity to the biosimilars Amjevita®, Cyltezo®, Hyrimoz®, Hadlima®, Abrilada® and Hulio®. AbbVie upon acquisition of Allergan has become less dependent on the patent expiration of Humira®.

Quarterly sales of Humira® by AbbVie.

Keytruda® from Merck continues to receive FDA approvals and could perhaps be the best selling drug in the world before the end of next year.

Quarterly sales of best selling drugs (USDm).

The best selling antidiabetic and antiviral drug is still the GLP1 receptor agonist Trulicity® (dulaglutide) from Eli Lilly and Biktarvy® from Gilead Sciences, respectively. The combined sales of the GLP1 receptor agonists Ozempic® (once weekly subcutaneous semaglutide) and Victoza® (once daily subcutaneous liraglutide) from Novo Nordisk however exceed that of Trulicity®.

Biktarvy® is currently the best selling oral drug ($1604M). In the future it could perhaps be the antidiabetic drug Rybelsus® (semaglutide) from Novo Nordisk. The antidiabetic drugs Januvia® and Janumet® from Merck reached combined annual peak sales of approximately $6B. The GLP1 receptor agonist semaglutide is a peptide, but it is available as a tablet (Rybelsus®) thanks to advances in oral peptide therapeutics.

Below the best selling drugs are visualized by company and by therapeutic area and vice versa.

Visualization of sales per drug in 2020Q2 grouped and colored by therapeutic area.
Visualization of sales per pharmaceutical company in 2020Q2 grouped and colored by therapeutic area.
Visualization of sales per drug in 2020Q2 grouped and colored by company.
Visualization of sales per therapeutic area in 2020Q2 grouped and colored by company.

Fastest growing drugs

The fastest growing drug value wise is the triple combination drug Trikafta®/Kaftrio® (ivacaftor+tezacaftor+elexacaftor) from Vertex Pharmaceuticals for the treatment of cystic fibrosis, which was approved by the FDA less than a year ago and by the EMA less than three months ago, followed by Keytruda® from Merck, Biktarvy® from Gilead Sciences, Dupixent® from Sanofi and Ozempic® from Novo Nordisk.

Quarterly sales of fastest growing drugs (USDm).

Ozempic® is the fastest growing drug percentage wise (~108%) followed by Venclexta® from AbbVie (~79%) and Dupixent® (~71%).

The details on semaglutide as a subcutaneous (Ozempic®) and oral (Rybelus®) antidiabetic drug and the clinical trials as an antiobesity drug are covered in different blog posts on Novo Nordisk.

Novo Nordisk grows GLP-1 market share in Q2 in the US with Ozempic® and Rybelsus®

Novo Nordisk has reported their 2nd quarter results.


For the 2nd quarter sales were DKKm 30,006 (-0%), gross profit was DKKm 25,234 and operating income was DKKm 13,838 (+3%).

In the US GLP1 for diabetes increased by 19%, whereas insulin decreased by 34%.

US sales by drug class.

CEO Lars Fruergaard Jørgensen

“The U.S. sales decline was driven by lower realized prices due to an unfavorable channel mix, rebate enhancements, the launch of additional affordability programs and changes in coverage gap legislation.”

Sales of Ozempic® increased in the US and EMEA, whereas sales of Levemir® and Victoza® decreased in the US.

World sales by drug.

Diabetes – GLP1s – Ozempic® and Victoza®

In the US once-weekly injected GLP-1 Ozempic® grew (93%) at the expense of once-daily Victoza® (-34%). In EMEA sales of Ozempic® increased by more than 200% to DKKm 604. Sales of Ozempic® were registered for the first time in China, where Victoza® currently has more than of 90% of the GLP-1 market share by value.


Insulins – Levemir® and Tresiba®

In the US the insulins Levemir® (-57%) and Tresiba® experienced negative growth of -57% and -37%, respectively. Sales of Levemir® decreased by approximately 20% in EMEA.


Diabetes – GLP1 – Rybelsus®

Rybelsus® (oral semaglutide) was approved for the treatment of adults with type 2 diabetes in the US on September 20th, 2019, in the EU on April 4th, 2020 and in Japan on June 29th, 2020. Sales have not yet exceeded $100M.

Obesity – GLP1 – Saxenda®

Novo Nordisk thanks to Saxenda® has a market share of 60.5% of the global obesity prescription drug market. Saxenda® was impacted by fewer patients initiating treatment due to COVID-19. New guidelines in Canada are the first to recognize obesity as a chronic illness, which if followed by the US and others could grow the market value significantly; a market which Novo Nordisk expects to at least double.

CEO Lars Fruergaard Jørgensen

Sales growth was negatively impacted by fewer patients initiating treatment due to COVID-19. Our strategic aspiration is to move to more than is to more than double sales in obesity by 2025. In support of that, Saxenda has been launched in 48 countries globally, and we continue to invest in market development activities.

Hemophilia – NovoSeven® and NovoEight®

The market share in hemophilia is mostly decreasing due to the growth of Hemlibra® from Roche rather than the decline of NovoSeven® and NovoEight®.

CEO Lars Fruergaard Jørgensen

For hemophilia, the declining sales of 1% were driven by lower NovoSeven sales, partly reflecting reduced elective surgeries and bleedings due to lockdowns, but partly offset by the continued global rollout of the new products, Refixia and Esperoct.


R&D milestones.

Obesity – Semaglutide

In May and June the weight loss results from the previously discussed STEP1, STEP2, STEP3 and STEP4 phase 3 trials on injected semaglutide for obesity were released. Injected semaglutide for obesity could happen in 2021. The SELECT trial (NCT03574597) regarding cardiovascular outcomes is estimated to be completed by 2023.

Weight loss results in STEP trials.

The SUSTAIN FORTE study (NCT03989232) compares the effect of two doses of semaglutide (1.0 mg and 2.0 mg) in people with type 2 diabetes (T2D) and results are expected in Q4.

CSO Mads Krogsgaard Thomsen

So I can say with the confidence that the SUSTAIN FORTE trial, in my mind, will show a very powerful lowering both of glucose and body weight.

Obesity – AM833 and AM833+semaglutide

On June 18th Novo Nordisk reported on the completion of the AM833 phase 2 trial and the AM833+semaglutide phase 1 trial. The weight loss with the peptide AM833 exceeds that of liraglutide. The weight loss with AM833+semaglutide exceeds that of semaglutide alone.

Novo Nordisk has discontinued trials on their co-agonist and tri-agonist.

Novo Nordisk CSO Mads Krogsgaard Thomsen

Regarding some other GLP-1-related clinical obesity projects we’ve been pursuing, namely, the coagonist and tri-agonist projects, we’ve decided to terminate both projects. This decision is based on the strong obesity data obtained for semaglutide and AM833 that, in aggregate, have raised the innovation bar for future Novo Nordisk obesity care and we’ve, therefore, prioritized our resources accordingly to achieve the best possible patient outcomes and product benefit risk profile.

This follows the discontinuation of the oral GLP-1 analogue OG2023SC in 2019Q3 because of better oral formulations of semaglutide. At Eli Lilly the dual GIP/GLP1 agonist Tirzepatide is in phase 3 (diabetes and obesity) and phase 2 (NASH). The phase 3 tirzepatide cardiovascular outcome study SURPASS-CVOT has been initiated.

Tirzepatide was mentioned on both the Novo Nordisk and Eli Lilly earnings calls.

Eli Lilly SVP Michael B. Mason

For tirzepatide, we’re glad to see that you were wowed by our type our Phase II data in for patients living with type two diabetes. I think the best thing really to do is to go back and take a look at the Phase II clinical studies. I mean we saw at the 15-milligram dose up to 2.4% A1c reduction and weight loss up to 12.7% versus placebo in just six months of study. So we’re excited to see how tirzepatide can perform in this patient population and longer studies in Phase III. There’s nothing to tell us that we won’t see exciting data coming out of the Phase III. We don’t have any new information that suggests otherwise. So we are incredibly confident about tirzepatide, not only in type two diabetes, but also we’re excited to see its potential in NASH and obesity. So our enthusiasm remains very, very high.

Novo Nordisk CSO Mads Krogsgaard Thomsen

Obviously, tirzepatide being a GLP-1/GIP agonist will, in my mind, based on data we’ve seen so far, unlike the combination of AM833 and sema, which is an amylin analogue and a GLP-1 analogue, there will probably be additivity of the GI side effect profiles of the GIP and the GLP-1 components. At least this is what we have seen both in a trial we’ve conducted ourselves years back with MAR709, our dual-agonist, but also so far in the trial in Phase II and the escalation trials that our colleagues at Eli Lilly have done. But we will see the data late this year and I guess during the course of next year.

Hemophilia A – Mim8 and gene editing

Growth hormone deficiency – Somapacitan

Novo Nordisk thanks to Norditropin® remains the leader in the human growth hormone disorder market with a value market share of 34.2%. Somapacitan has entered phase 3 (REAL4 and REAL5 trials).

Diabetes – Insulin Icodec

The phase 3 trial on once-weekly insulin icodec is expected to start before the end of the year. On June 14th Novo Nordisk reported that once-weekly insulin icodec showed comparable efficacy and safety to once-daily insulin glargine U100 in phase 2 trial.


On June 11th Novo Nordisk announced the $2.1B acquisition of Corvidia Therapeutics and their lead candidate ziltivekimab, which is a monocloncal antibody targeting IL-6 and reducing cardiovascular events.

This follows the agreements in Q4 of 2019 with Dicerna to discover and develop RNAi therapies for liver-related cardio-metabolic diseases and with bluebird bio to develop in vivo genome editing candidates for hemophilia and other severe genetic diseases.


Patent expiration dates
Future diabetes growth drivers.
US net sales and rebates.

Sector sizes of the S&P 500 over time

Dot-com bubble

The largest sectors and companies of the S&P 500 by market capitalization have changed over time. Prior to the dot-com bubble bursting in March 2000 the technology sector made up a third of the S&P 500 thanks to companies such as Microsoft, Cisco, Intel, Lucent Technologies, IBM, America Online and Oracle.

2007-2008 financial crisis

Leading up to the 2007-2008 financial crisis the most valuable sector was the financial sector and some of the most valuable companies were ExxonMobil, General Electric, Citigroup and AIG.

The two figures below show the composition of the S&P 500 at the peak of October 9th 2007 and the bottom on March 9th 2009.

Amazon was added to the S&P 500 on November 18th 2005. and Google was added on April 3rd 2006 after going public in August 2004. However, Berkshire Hathaway was not added until 2010 after a split into A and B shares, and Visa and Facebook did not go public until March 2008 and May 2012, respectively.

The Global Industry Classification Standard (GICS) was changed by MSCI and S&P in 2018. The Telecommunication Services sector was renamed to Communication Services and contains the two industry groups Telecommunication Services and Media & Entertainment. Alphabet and Facebook are two companies in this sector.

Peak on October 9th 2007.
Bottom on March 9th 2009.

2020 stock market crash

Approximately 200 net additions have been made to the S&P 500 since the 2007-2008 financial crisis.

Today (July 2020 following the 2020 crash) the top five (Apple, Microsoft, Amazon, Alphabet and Facebook) make up a quarter of the S&P 500, which is almost unprecedented. The technology sector is the largest and the healthcare sector in 2nd (J&J, UnitedHealth, Amgen, etc.) is larger than the financial sector in 3rd (Berkshire Hathaway, Visa, JP Morgan, etc.). The sectors Communication Services (Alphabet, Facebook, Comcast, Disney, Netflix, etc.) and Consumer Cyclical (Amazon, Home Depot, McDonald’s, etc.) are 4th and 5th. The energy sector is only the 10th largest sector following the 2020 oil price war and ExxonMobil is still the most valuable company in the sector.

The three figures below show the sector composition of the S&P 500 at the February 19th peak, the March 23rd bottom and today (July 10th).

Today July 10th.
March 23rd bottom.
February 19th peak.
Time series of the market capitalization of the S&P 500 and the top 5 components.

Companies that disappeared

Some companies that were in the S&P 500 before september 2008 have since disappeared not only from the index but entirely. Some merged, some went bankrupt, some were split up and some went private.

Chesapeake Energy ($CHK) filed for bankruptcy in June 2020. Diamond Offshore Drilling ($DO) filed for bankruptcy in April 2020. Frontier Communications ($FTR) filed for bankruptcy in April 2020. J. C. Penney ($JCP) filed for bankruptcy in May 2020.

Allergan ($AGN) was acquired by AbbVie ($ABBV) in May 2020. AbbVie itself was spun off from Abbott in 2013. United Technologies ($UTX) merged with Raytheon ($RTN) in april 2020 after spinning off Otis ($OTIS) and Carrier ($CARR). Spring Corporation ($S) merged with T-Mobile US ($TMUS) in April 2020.

AK Steel Holding ($AKS) was acquired by Cleveland-Cliffs Inc. ($CLF) in 2020. Altera ($ALTR) was acquired by Intel ($INTC). Fortune Brands was split up in 2011 and Beam ($BEAM) was acquired by Suntory in 2014. Compuware ($CPWR) was acquired by BMC Software in 2020. DELL ($DELL) Dell went public in 1988, private in 2013 and public again in 2018. Dow Chemical ($DOW) merged with DuPont (now $DD) in 2017 and was spun off from DowDuPoint ($DWDP) in 2019. Gannett ($GCI) in 2019 merged with New Media Investment Group, parent of GateHouse Media, which itself went bankrupt in 2013, and continued as Gannett. Ingersoll Rand ($IR) merged with Gardner-Denver in 2020 to form Trane Technologies. Jacobs Engineering Group changed its ticker from $JEC to $J in 2019. Life Technologies ($LIFE) was acquired by Thermo Fisher in 2014. Motorola Mobility ($MMI) was acquired by Google ($GOOG) in 2012. News Corp ($NWSA) spun off 21st Century Fox (FOXA) in 2013. BB&T acquired SunTrust ($STI) to form Truist Financial ($TFC). Sunoco ($SUN) was acquired by Energy Transfer Partners ($ETP) in 2012.

Novo Nordisk mostly unaffected by COVID-19 in Q1

Novo Nordisk is with the exception of the postponement of new clinical trials mostly unaffected by COVID-19. Sales in Q1 were however positively affected by stock piling of insulin. Growth continues to be spearheaded by Ozempic®, whereas Victoza® and Levemir® in the US continue to lead the decline. Rybelsus® revenue totaled DKKb 229 in the US in Q1. Rybelsus® was approved for the treatment of adults with type 2 diabetes in the EU on April 4th.

Novo Nordisk is experiencing positive GLP1R growth in the US due to Ozempic® and despite of Victoza®. Negative growth for insulin is led by Levemir®.


Novo Nordisk and Eli Lilly are both experiencing GLP1R growth in the US thanks to Ozempic® and Trulicity®, whereas Victoza® is declining.


Saxenda® for the treatment of obesity is also growing within and outside the US.

Eli Lilly has the dual GIP/GLP1 receptor agonist Tirzepatide (LY3298176) in phase 3 for diabetes (SURPASS) and obesity (SURMOUNT1 / NCT04184622), but it has gastrointestinal issues such as nausea, diarrhea and vomiting. The cardiovascular risk outcome trial (NCT04255433) is set to start this year.

Novo Nordisk has semaglutide for obesity in phase 3 (STEP). Results are expected in Q2 for STEP1 (NCT03548935), STEP2 (NCT03552757), STEP3 (NCT03611582) and STEP4 (NCT03548987) and later this year for STEP6 (NCT03811574). Results from the cardiovascular outcome trial SELECT (NCT03574597) is not expected until 2024.


Insulin is declining in the US led by Levemir® from Novo and Lantus® from Sanofi. Tresiba® (daily injection) is holding its ground in the US. Novo Nordisk has long acting Insulin Icodec (weekly injection / LAI287) in phase 2. The initiation of phase 3 could be affected by COVID-19.


Bloomberg – Novo Nordisk Joins Other Drugmakers With Gains on Virus Stockpiling

Reuters – Novo Nordisk’s drug sales boosted by virus-related stockpiling

Bloomberg – Novo Nordisk CEO on Earnings, 2020 Outlook, Coronavirus

Early Rybelsus® uptake further supports GLP-1 NBRx and TRx market leadership in the US

Novo Nordisk experiences growth among the GLP1R class of drugs, but this is offset by the decline of insulin in the US.

The diabetes world market as a whole across companies and across drugs is growing outside the US.

Growth of the sale of anti-diabetic drugs is experienced by Eli Lilly within and outside the US and by Novo Nordisk outside the US, whereas Merck, Sanofi and AstraZeneca are all declining in the US.

The GLP1R drug class (e.g. Ozempic® from Novo) is growing in the US, whereas insulin (e.g. Lantus® from Sanofi), DPP4 (e.g. Januvia® from Merck) and SGLT2 (e.g. Invokana® from J&J) are all declining in the US.

Kraft Heinz can pay down its $29B debt and maintain its $2B dividend

  • Organic net sales down 2% due to volume/mix declines in response to higher pricing in the US and to a lesser extent lower pricing in Canada
  • Further impairments of goodwill (453 USDm) and intangible assets (224 USDm)
  • Strategy presentation will be in early May and not in March. No guidance or outlook for 2020 has been presented.
  • Bonds downgraded to junk by S&P and Fitch.
  • Despite headwinds Kraft Heinz can maintain its dividend and still pay down the debt.

Kraft Heinz issued a press release on their Q4 earnings on February 13th. Kraft Heinz pays an annual dividend of approximately $500M and has debt of approximately $29B. Is Kraft Heinz able to maintain the current dividend while paying down the debt? CFO Paulo Basilio had the following comments on the earnings call regarding the dividend.

Finally, earlier today, we, together with our Board of Directors, announced that we are maintaining our current dividend. We believe our cash generation will remain at healthy levels, fully fund our plans and initiatives and allow us to continue meeting all our obligations as we transform the business and return Kraft Heinz to sustainable growth.

For instance, we will meet all of our 2020 debt maturities from cash already on hand. At the same time, we will not sacrifice necessary investments in the business because we are even more confident in our long-term prospects behind our new enterprise strategy, portfolio prioritization and the growth initiatives we will unveil in May. After meeting our obligations and invest in the business, maintaining a strong dividend to shareholders is a priority of the company, especially during this important period of transformation.

Investment-grade status also remains important to us, but we understand that the decline of our leverage may not come as rapidly as desired. We will utilize excess cash generation as well as potential divestiture proceeds to reduce leverage below 4x as soon as practical. And regarding the prospect of divestitures, we will continue to evaluate opportunities that are consistent with our strategy, in no rush and with price discipline as always.

With just over $6 billion in adjusted EBITDA and considering cash interest expense, taxes, patient contributions, working capital and capital expenditures, we generated roughly $2.8 billion of cash in 2019 that was available for dividend and debt reduction. This was closer to $3 billion, excluding tax repaid on divestitures. As a result, and together with divestiture proceeds, we reduced net debt by $3 billion in 2019, closing the year with nearly $2.3 billion of cash on balance sheet. These are critical variables to consider as we think about our ability to meet our commitments as we undertake our turnaround and business transformation, which brings me to our financial outlook.

To begin, I think it’s important to recognize that 2020 will be the first full year of what we expect will be a multiyear turnaround. For our first phase in 2020, specifically, we have set three priorities: one, establish a strong base of sales and earnings; two, rebuild the underlying business momentum; and three, continue to reduce debt, while maintaining our current dividend.

CFO Paulo Basilio on the Q4 earnings call.

Due to asset sales and continued strong cash flow from operations debt has been reduced, but EBITDA is also lower than two years ago, and thus the ratio between the two has remained somewhat constant above 4x.

The bars show the long term debt as a multiple of EBITDA (leftmost y-axis). The lines show the long term debt (grey) and TTM adjusted EBITDA (light blue) in USDm (rightmost y-axis).

The US is by far the biggest and most important geographic segment. Adjusted EBITDA and the adjusted EBITDA margin have stabilized in the US segment.

Adjusted EBITDA (USDm) in each geographic segment.
EBITDA margin in each geographic segment.

Maturity dates on long-term debt have been pushed forward in time. 2 USDb of 3.950% US senior notes are due July 2025 (US50077LAK26). Other than that little refinancing is necessary in the short term.

Aggregate principal maturities of long-term debt.

Kraft Heinz spends a bit more than $300M on interest payments each quarter.

Interest expenses (USDm).

Kraft Heinz will be paying an overall interest rate on its long-term debt of approximately 4.7% in 2020, which is more than both European peers (Danone 2.4%, Unilever 2.5%, Nestlé 3.3%) and US peers (Campbell’s 4.2%, Conagra 3.7%, General Mills 3.6%, PepsiCo 3.5%, Kellogg’s 3.2%, Mondelez 2.6%). Interest payments are expected to make up approximately 5.4% of revenue in 2020 (Unilever 1.2%), which is a lot compared to the fact that operating margins are approximately 20%.

Despite the debt maturing in 2025 carrying lower interest rates, the interest expenses are likely to remain constant due to the continued deleveraging.

US dollar notes. Maturity date on the x-axis. Coupon rate on the y-axis. The bubble sizes represent debt size.

Can the share price fall further? Absolutely, but the multiples are approaching record lows for the industry, and Kraft Heinz is a better company than many of its peers in terms of multiple metrics. Kraft Heinz has better margins in terms of operating income and operating costs.

Operating margin (%).
SG&A as a percentage of revenue (%).

EBITDA adjusted for impairment losses was 6,064 USDm in 2019 (7,024 in 2018). Depreciation and amortization was 994 USDm. Net property, plant and equipment was 7,055 USDm at year-end. Thus pre-tax income on non-cash net tangible assets was 72%. This compares favorably to other US food companies ($GIS 67%, $CPB 52%, $K 42%).

If EBIT is 5 USDb going forward and the effective tax rate is 21%, then net income after payment of interest and taxes is approximately 3 USDb. Taking into consideration capital expenditures and depreciation and amortization there should still be more than 500 USDm available each year for deleveraging after payment of the dividend of 2 USDb. Without divestments the deleveraging to 2x EBITDA will not happen within the next five years. That is anything but the end of the world though.

At current multiples that are at historic lows in absolute terms and relative to its peers Kraft Heinz offers a good investment despite the currently meager growth prospects. COVID19 and the delay of the strategy plan from March to May offers a small perfect storm and a buying opportunity.

Enterprise value to operating income.


2020-02-24 CNBC – Warren Buffett: ‘Kraft Heinz should pay down its debt’

“I think Kraft Heinz should pay down its debt. Under present circumstances, it appears that it can pay the dividend and pay down debt at a reasonable rate,” Buffett said. “And it has too much debt, but it doesn’t have debt it can’t pay down. The debt holders are going to get the interest and the debt should come down by year-end. I think it will, and I think it can with the present dividend.”

Operating income has declined by $1B in the span of two years due to negative top line growth (US and elsewhere) and divestments (Canada).

Net sales (USDm) in each geographic segment.
Net sales and gross profit declines are levelling off.

Cheese and dairy is a low margin business facing fierce generic competition. Hence it makes sense to divest parts of this product segment.

Organic growth was -2.7% in the US for the quarter, which was attributable to volume/mix (-5.8%) rather than price (+3.1%).

Kraft Heinz earns 5 USDb on net tangible assets of approximately 7 USDb, which is superior in the industry.

There were further impairments in the 4th quarter of goodwill (453 USDm) and intangible assets (224 USDm), but of a much smaller magnitude than a year ago.

Goodwill (USDm).
Intangible assets (USDm).

The long-term debt has been reduced to $28B.

Long term debt (USDm).

Current dividend payments amount to nearly $2B each year.

2020-02-25 Bloomberg – Kraft Heinz, Macy’s, Renault Add to Fallen Angel Fear

2020-02-14 Reuters – Kraft Heinz’s credit rating cut to ‘junk’ by Fitch

2020-02-14 Bloomberg – Kraft Heinz’s Junk Downgrade Rekindles Bond Market Jitters

2020-02-13 Reuters – Kraft Heinz takes $666 million charge, misses sales expectations

2020-02-13 Bloomberg Opinion – Kraft Heinz’s Misery Isn’t Over Yet

2020-02-13 CNBC – Kraft Heinz delays the announcement of long-term turnaround plan, shares tumble

2020-02-13 Bloomberg – Kraft Heinz Shares Sink After Sales Miss Again

2020-02-12 Bloomberg – Kraft Heinz CEO Vows to Simplify Business Ahead of Earnings

2020-01-08 Reuters – Kraft Heinz names Campbell executive to head U.S. business

2019-05-06 CNBC – Warren Buffett on Kraft Heinz restating earnings
2019-02-15 CNBC – Warren Buffett on what he plans to do with his Kraft Heinz shares and 3G Capital
2018-05-07 CNBC – Warren Buffett: Changing Consumer Habits Hit Coke And Kraft Heinz

AB InBev continues to deleverage and offers value

AB InBev ($BUD, $ABI.BR) issued a press release on their Q4 earnings on February 27th.

AB InBev 2019Q4 presentation.
AB InBev 2019Q4 presentation.

The company has maintained its dividend while continuing to deleverage.

Accounting for the proceeds expected to be received from the divestment of the Australian operations (while excluding the last 12 months EBITDA from the Australian operations), the net debt to EBITDA ratio would be 4.0x for the 12-month period ending 31 December 2019.

Q4 press release
Debt relative to EBITDA will decrease to 4.0x upon divestiture of Carlton & United Breweries to Asahi.

Since closing the SAB combination the debt has been reduced and maturities extended to eliminate near term refinancing risks.

AB InBev 2019Q4 presentation.

AB InBev is by far the largest brewery in the world after the merger of Belgian Interbrew and Brazilian AmBev in 2004 and acquisitions of Anheuscher-Busch in 2008 and SABMiller in 2016.

AB InBev continues to have the strongest margin in the industry. EBIT margins are greater than 30%, which is unrivaled in the industry.

Cash flow generation is also better than those of rivals Heineken ($HEIA.AS) and Carlsberg ($CARL-B.CO).

Likewise the return on capital and net tangible assets is unparalleled within the brewing industry.

The best-in-class margins and cash flow generation and return on assets is due their strong brands and their economies of scale.

Interbrands released their report on the 100 top ranked brands in the world on the 17th of October. AB InBev is featured on the list with two of their brands; Budweiser (#32) and the rapidly growing Corona (#79).

The AB InBev brands command a higher price per hectolitre than those of its competitors; Heineken and Carlsberg.

In terms of economies of scale, cost synergies of USD3.2B have been realized three years after the acquisition of SABMiller.

AB InBev 2019Q3 presentation.

AB InBev has a large presence in the Asian markets, which experienced negative organic volume growth in Q3 (-6.5%) and Q4 (-5.2%). The business in Asia is seeing a further decline due COVID19.

2019-10-06 CNBC – Budweiser wants to take on China, the world’s largest beer market where local brews rule

In the light of the temporary decline in on-premise channels it is interesting to not that the DTC business is now a billion dollar business growing by double digits.

AB InBev has better margins and cash flow generation than those of its competitors and it is deleveraging. Yet it trades at low multiples in absolute and historical terms and has reached the lows of December 2018. AB InBev is too good an investment to pass at current prices.


2020-02-27 Reuters – AB InBev sees 10% hit to first-quarter profit from coronavirus

2020-02-27 Bloomberg – AB InBev Cuts CEO Bonus as Brewer Sees Worst Quarter in a Decade

2020-02-06 Bloomberg Opinion – Beer Drinkers Want More Than a Typical Lager These Days

2019-10-25 Bloomberg Opinion – The King of Beers Is in a Bind

2019-10-25 Midgard Finance – AB InBev increases prices in South Korea and Brazil and sees volume decline

2019-10-06 CNBC – Budweiser wants to take on China, the world’s largest beer market where local brews rule

Hanesbrands debt reduced from 3.3 to 2.9 times EBITDA and share repurchase of $200M planned in early 2020, but shares remain undervalued

  • Record net cash from operations of $803 million for full year. Guidance for 2020 is $700-800M.
  • Expectation of $200 million in share repurchases early in 2020.
  • Debt repayments greater than $600 million in 2019 and year-end inventory 7% lower.
  • Net debt reduced from 3.3 to 2.9 times adjusted EBITDA.
  • Shares seems undervalued given low multiples, share buyback, organic growth and debt reduction.

Hanesbrands issued a press release on their 4th quarter 2019 financial results on February 7th. The quarter was summarized by the CEO as follows:

“HanesBrands delivered a solid fourth quarter right in line with our guidance and concluded a very successful year with record operating cash flow, significantly reduced debt, continued organic revenue growth, and strong underlying business fundamentals.”

The quarter and the year is briefly visually summarized below before turning to the investment thesis.

Record operating cash flow

Hanesbrands achieved a record operating cash flow in 2019 of $803M.

Record net cash from operations of $803 million for full year and $559 million in 4Q.

This was achieved through a combination of increased net income and the reduction of year-end inventory.

Time series of net income (USDm).

Significantly reduced debt

Hanesbrands used their annual record operating cash flow of $803M to reduce their debt by $609M to $3394M; from 3.3 to 2.9 times EBITDA. The figures and tables below summarise their debt reduction.

Time series of long term debt (USDm). Long term debt was 4009 and 3394 USDm at the beginning and end of the year, respectively.
Debt (USDt) at the end of 2019 and 2018 as per the 2019 10-K.
Debt (USDt) at the end of 2018 and 2017 as per the 2018 10-K.

The development over time of the individual loans and credit facilities are visualized below.

The quarterly interest expenses have dropped to $40M in large part as a consequence of the debt repayments and to some extent also lower interest rates.

Quarterly interest expenses (USDm).

Organic revenue growth

“In the fourth quarter, constant-currency organic sales increased slightly, while full-year constant-currency organic sales increased 4%.”

Revenue (USDm).

“Consumer-directed sales, defined as all sales to consumers online or through brand stores, continue to increase and account for a larger portion of total sales. Consumer-directed sales in constant currency increased 17% in the fourth quarter and 16% for the full year. Consumer-directed sales in constant currency represented 30% of total sales in the quarter and 25% for the full year.”

DTC sales grew 15.4% YoY ($69 from $447 to $516 millions), whereas third party brick and mortar sales dropped 6.5% YoY ($86 from $1320 to $1234 millions).

“Global Champion sales, excluding C9 Champion in the U.S. mass channel, totaled $1.9 billion in constant currency in 2019, an increase of 40% over last year as a result of expanded product offerings and increased distribution. With balanced growth in the fourth quarter, Champion sales increased 22% both domestically and internationally.”

“Total International constant currency organic sales increased 10% in the fourth quarter and 12% for 2019. In the quarter, sales increased in all International regions, including the Americas, Asia, Australia and Europe.”

Time series of segmental revenue (USDm).

Gross profit margins have improved over the years and operating expenses have been kept somewhat in check.

This has led to an improvement in operating income and operating margins, which is led by the international segment.

Share repurchase plan

Buying back shares worth $200M would equate to between 10.3 and 15.5 million shares, if $HBI continues to trade in the 52-week range between 12.90 and 19.38. That equates to 2.8-4.2% of the 367.3 million outstanding shares. Management is authorized to buy back as many as 40 million shares.

The dividend is $0.15 per share, which equates to approximately $200M per year. However for 2020 net cash from operations is expected to be in the range of $700 million to $800 million. The company can continue to spend $200M on dividends, buy back shares worth $200M and reduce debt (European Revolving Loan Facility, Term Loan A, Term Loan B) by $300-400M. The share repurchase plan is consistent with previous communication.

Further evidence that management considers the share price to be undervalued is their insider buying at a share price below $15.

Valuation and conclusions

C9 Activewear was discontinued at Target after 15 years in favor of their own brand All in Motion, but Hanesbrands are already in final discussions with a new partner and will provide more specifics in the coming months. There is less dependence on Target and Walmart in 2019, which account for 11% and 14% of total sales, respectively. Those numbers were higher in 2017 at 13% and 18%, respectively. Furthermore online sales are more heavily branded than brick & mortar sales; and the latter is outpaced by the former.

Time series of percentage of revenue from Target and Walmart (%).
Online sales are more heavily branded than brick & mortar sales and current sales are more branded than in the past.

Hanesbrands is trading at multiples not seen since 2012/2013. The company is attractively valued given the stable operating margins, the very decent return on capital, the low multiples, the share buyback, the organic growth and the debt reduction to the desired range of 2-3x EBITDA.