Categories
Diabetes Europe Healthcare Pharmaceuticals

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®.

GLP1R

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

Obesity

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

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.

Appendix

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.

Categories
Breweries Europe FMCG

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.

Appendix

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
Categories
Breweries Europe FMCG

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.

References

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

Categories
2019Q4 Consumer Goods

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.

Categories
2019Q4 Diabetes Europe Healthcare Pharmaceuticals

Novo Nordisk poised to fire on all new GLP1 cylinders following the fourth quarter of 2019, but shares fairly valued

  • Anti-diabetic oral GLP1 drug Rybelsus® (semaglutide) received FDA approval on September 20th and 70%-80% of patients are not coming from other injectables.
  • GLP1 drug segment is growing led by the weekly injectable anti-diabetic drug Ozempic® (semaglutide) approved for CV risk reduction in the US.
  • Revenue in US diabetes segment is flat due to declining revenue of the daily injectable GLP1 drug Victoza® (liraglutide) and insulins such as Levemir®.
  • Growth of sales and operating profit expected to be 3-6% and 1-5%, respectively.
  • Shares fairly valued for now.

Diabetes

The revenue from anti-diabetic drugs in the US is flat across companies such as Novo Nordisk, Eli Lilly, Merck and Sanofi despite the growth of Ozempic® due to declining sales of Lantus® (insulin glargine from Sanofi), Victoza® (GLP1 liraglutide from Novo Nordisk), Levemir® (insulin detemir from Novo Nordisk), Januvia® (DPP4 sitagliptin from Merck) and others.

Novo Nordisk still has the leading position in diabetes, but Eli Lilly has gained ground within and outside the US thanks to its GLP1 drug Trulicity®, SGLT2 drug Jardiance® and generic insulin glargine Basaglar®.

GLP-1

The GLP1 class of drugs in particular are showing strong growth within and outside the US.

The GLP1 class of drugs (diabetes and obesity) generate more revenue in the US for Novo Nordisk than insulin.

Novo Nordisk leads the GLP1 class within and outside the US.

The GLP1 leadership position is due to the anti-diabetic drugs Ozempic® (weekly injectable semaglutide) and Rybelsus® (oral semaglutide) as well as anti-obesity drug Saxenda® (liraglutide). Ozempic® is partly cannibalizing Victoza® (daily injectable liraglutide).

Rybelsus® received FDA approval for the treatment of type 2 diabetes in the US and positive EU CHMP opinion. Ozempic® was approved in the US for CV risk reduction.

In January, the U.S. FDA approved an Ozempic label expansion to include its use in reducing the risk of major adverse cardiovascular events so-called MACE including cardiovascular death, nonfatal heart attacks, nonfatal strokes in adults with type 2 diabetes and established cardiovascular disease.

The approval was based on the SUSTAIN 6 cardiovascular outcomes trial in which Ozempic reduced the MACE risk by 26% versus placebo, in both cases as addition to standard of care in people with type 2 diabetes and increased cardiovascular risk.

The FDA also updated the Rybelsus label to include additional information from the PIONEER 6 outcomes trial in which Rybelsus demonstrated CV safety with MACE occurring in 3.8% of people on Rybelsus versus 4.8% on placebo treatment.

Last week, the European regulatory authority, CHMP, issued a positive opinion for Rybelsus the first all oral biological treatment for adults with insufficiently controlled type 2 diabetes. The recommendation is for Rybelsus to be indicated as monotherapy when metformin is considered inappropriate as well as in combination with other type 2 diabetes medications.

CSO Mads Krogsgaard Thomsen on Q4 earnings call

Very interestingly it was revealed that the first few Rybelsus® patients are mostly switching from tablets rather than injectables. This could be an indication, that the oral Rybelsus® will not be cannibalizing the injectable Ozempic® the same way the weekly-injectable Ozempic® has and is cannibalizing the daily-injectable Victoza®.

What we see with Rybelsus® is that the primary number of this are coming from patients that are not previously on injectable medication. So that means to the tune of between 70% and 80% of the patients sourcing a source from either the naive patients, metformin patients, SGLT-2 or DPP-4. So that is a relatively big change compared to what we saw with Ozempic® by the time of launch where was exactly the opposite initially. So that confirms the expected positioning of Rybelsus® in the market so far, but it’s still early days of course.

Camilla Sylvest – EVP and Head, Commercial Strategy and Corporate Affairs on the 2019Q4 earnings call

Japan could become the 2nd best market behind the US for Rybelsus®, because of the low penetration of injectables in Japan.

Japan I think is the second largest single-country opportunity for us in Rybelsus® if we can get it right after U.S. It’s predominantly an oral market as you know. Injectables are only I think 14% of the market. So of course, we are very excited about the introduction of Rybelsus® there.

Maziar Doustdar – EVP, Head of International Operations on the 2019Q4 earnings call

Ozempic® was one of the fastest growing drugs in the US and in the world in 2019. Its sales are on pace to exceed those of Victoza® in 2020.

Victoza® biosimilars might put some pricing pressure on Ozempic®, but they will not hit the market until 2023 following the settlement of the US patent litigation case on Victoza® (liraglutide) with Teva in March 2019.

Insulin

Novo Nordisk still has a leadership position in insulin within and outside the US despite declining revenue in the US.

The decline in insulin revenue is led by the once- or twice-daily Levemir® (insulin detemir) in the US, which is facing competition from insulin glargine (Basaglar® from Eli Lilly and Lantus® from Sanofi) and insulin lispro (Admelog® from Sanofi and Humalog® from Eli Lilly). Sales of the once-daily long-lasting insulin Tresiba® (insulin degludec) on the other hand is not deteriorating.

The phase 2 trial of the weekly-injection long acting insulin Icodec (LAI287) was successfully completed. Phase 3 is set to be initiated in the second half of 2020.

How icodec achieves its very smooth profile hinges upon the enhanced albumin binding in the circulation.

CSO Mads Krogsgaard Thomsen on the 2019Q4 earnings call

Obesity

Saxenda® (liraglutide) has developed into a best-selling anti-obesity drug.

Novo Nordisk looks set to dominate the obesity space in the first half of the decade following pipeline abandonment by Sanofi (GLP1R/GIPR/GCGR agonist SAR441255) and Novartis (ACVR2B targeting mAB BYM338/Bimagrumab). Results from the phase 2 trial on the once-weekly amylin analogue AM833 is expected this year. So are results from a GDF15 analog in phase 1. Most importantly semaglutide obesity phase 3 results are due mid-2020. A phase 2 obesity trial has already shown weight loss for semaglutide exceeding that of liraglutide (Saxenda®). The diabetes trials SUSTAIN and PIONEER also showed weight loss for semaglutide.

A phase 2 obesity trial showed weight loss for semaglutide.
SUSTAIN trials showed weight loss for subcutaneous/injected semaglutide.
PIONEER trials showed weight loss for oral semaglutide.

Haemophilia

NovoSeven® is the best selling drug in the biopharma portfolio with annual sales exceeding a billion US dollars.

Revenue from NovoSeven® is not declining despite rejuvenated competition in the space.

On NovoSeven®, years back we guided that we would expect to lose maybe potentially 50% of the business. Consistently, we’ve seen since the launch of Hemlibra® that that erosion is slower than what we had expected.

CEO Lars Fruergaard Joergensen on the 2019Q4 earnings call

Novo Nordisk has two phase 3 trials (NCT04083781 and NCT04082429) on the antibody Concizumab (NN7417) of the tissue factor pathway inhibitor (TFPI).

Another anti-TFPI is Marstacimab (PF-06741086) from Pfizer ($PFE), which has two ongoing trials (NCT03363321 and NCT03938792).

Furthermore bluebird bio in October 2019 entered into a research agreement with Novo Nordisk to develop in vivo genome editing candidates for haemophilia.

Biomarin ($BMRN) is also working on a gene therapy for the treatment of haemophilia (BMN270); e.g. NCT03370913.

Valuation and comparison with peers

Novo Nordisk has better operating margins than its peers due to better gross margins and lower R&D spending.

Time series of operating margins.
Time series of gross margins.
Time series of R&D as a percentage of revenue.
Time series of SG&A as a percentage of revenue.

Novo Nordisk was trading at attractive multiples during the winter 2017/2018 due to uncertainty about future growth rates. Now the stock seems more fairly valued given the expected single digit growth rates going forward.

Time series of price to operating income.
Time series of price to earnings.

Appendix

Pipeline

References

2020-02-05 Reuters – Novo Nordisk sees slower 2020 growth with U.S. insulin prices pressured

2020-02-05 GlobesNewswire – Novo Nordisk’s operating profit increased by 11% in Danish kroner and by 6% at constant exchange rates (CER) in 2019

2020-01-30 EMA – First oral GLP-1 treatment for type 2 diabetes

2020-01-30 GlobesNewswire – Rybelsus® (oral semaglutide) recommended for approval for the treatment of adults with type 2 diabetes by the European regulatory authorities

2020-01-16 GlobesNewswire – Ozempic® approved in the US for CV risk reduction in people with type 2 diabetes and established CVD

2020-01-16 PR Newswire – FDA approves Ozempic® for cardiovascular risk reduction in adults with type 2 diabetes and known heart disease, updates Rybelsus® label

2019-11-18 Dicerna – Dicerna and Novo Nordisk Enter Agreement to Discover and Develop RNAi Therapies for Liver-Related Cardio-Metabolic Diseases

2019-10-09 bluebird bio – bluebird bio and Novo Nordisk Enter into Research Agreement to Develop in vivo Genome Editing Candidates for Haemophilia and Other Severe Genetic Diseases

2019-10-01 Noom – Novo Nordisk and Noom to partner around digital health solutions to help people with obesity lose weight and keep it off

2019-09-20 FDA – FDA approves first oral GLP-1 treatment for type 2 diabetes

2019-09-20 GlobeNewswire – Rybelsus® (semaglutide tablets), the first GLP-1 in a tablet approved in the US

2019-09-16 Medtronic – Medtronic and Novo Nordisk Enter Agreement to Provide Integrated Digital Solutions for People with Diabetes

Clinical Trials

NCT04083781 – Novo Nordisk – Research Study to Look at How Well the Drug Concizumab Works in Your Body if You Have Haemophilia With Inhibitors (explorer7)

NCT04082429 – Novo Nordisk – Research Study to Look at How Well the Drug Concizumab Works in Your Body if You Have Haemophilia Without Inhibitors (explorer8)

NCT03363321 – Pfizer – PF-06741086 Long-term Treatment in Severe Hemophilia

NCT03938792 – Pfizer – Study of the Efficacy and Safety PF-06741086 in Adult and Teenage Patients With Severe Hemophilia A or B

NCT03987919 – A Study of Tirzepatide (LY3298176) Versus Semaglutide Once Weekly as Add-on Therapy to Metformin in Participants With Type 2 Diabetes (SURPASS-2) – https://clinicaltrials.gov/ct2/show/NCT03987919

NCT04184622 – A Study of Tirzepatide (LY3298176) in Participants With Obesity or Overweight (SURMOUNT-1) – https://clinicaltrials.gov/ct2/show/NCT04184622

NCT04153929 – A Study to Test Whether Different Doses of BI 456906 Are Effective in Treating Adults With Type 2 Diabetes. – https://clinicaltrials.gov/ct2/show/NCT04153929

NCT03591718 – A Study to Test Different Doses of BI 456906 in Patients With Obesity – https://clinicaltrials.gov/ct2/show/NCT03591718

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Categories
2019Q3 Healthcare Pharmaceuticals

Keytruda®, Ozempic® and the other blockbuster drugs of the 3rd quarter of 2019

The pharmaceutical companies AbbVie and Novo Nordisk presented their quarterly results today and concluded the earnings season for the major pharmaceutical companies. There are currently more than 50 blockbuster drugs in the world with annual sales exceeding a billion US dollars. Here the best selling and fastest growing medications of the third quarter of 2019 are compared. Eylea® from Regeneron and Bayer is excluded, because Regeneron reports quarterly earnings quite late, but combined sales are expected to be approximate $3B.

Best selling drugs in the world

The best selling drug in the world still remains Humira® from AbbVie with quarterly sales of $4936M (-3.7% worldwide, +9.6% in the US, -33.5% outside the US).

But Keytruda® from Merck with more than 20 indications is catching up ($3070M, +62.5%) and will most likely surpass Humira® at some point.

The table and figure below summaries the top 10 best selling drugs in the world.

Worldwide quarterly sales of top 10 best selling drugs (USDm)
Company/iesDrugMoleculeGenericATC codeTherapeutic group
AbbVieHumira®mABAdalimumabL04AB04Immunosuppresant
MerckKeytruda®mABPembrolizumabL01XC18Antineoplastic agent
BMS + PfizerEliquis®SMDApixabanB01AF02Antithrombotic agent
CelgeneRevlimid®SMDLenalidomideL04AX04Immunosuppresant
BMSOpdivo®mABNivolumabL01XC17Antineoplastic agent
RocheAvastin®mABBevacizumabL01XC07Antineoplastic agent
Amgen + PfizerEnbrel®Fusion proteinEtanerceptL04AB01Immunosuppresant
Bayer + J&JXarelto®SMDRivaroxabanB01AF01Antithrombotic agent
J&JStelara®mABUstekinumabL04AC05Immunosuppresant
RocheMabThera® + Rituxan®mABRituximabL01XC02Antineoplastic agent

Fastest growing in terms of value

Keytruda® is also the fastest growing drug in the world in terms of value. It forms a top 10 along with the anti-HIV combination drug Biktarvy® from Gilead, the anti-coagulent Eliquis® from partners Bristol-Myers Squibb and Pfizer, the drug Dupixent® from Sanofi approved for severe asthma in May, chronic rhinosinutis with nasal polyposis in June, atopic dermatitis in August and severe chronic rhinosinusitis in October, Stelara® from Janssen approved for psoriatic arthritis in 2013, Chron’s disease in 2016, psoriasis in 2017, ulcerative colitis in October, Tagrisso® approved for 1st-line treatment of EGFR-mutated non-small cell lung cancer in the US and Europe in 2018 and China in September, the anti-diabetic Ozempic® (semaglutide) from Novo Nordisk, Revlimid® from Celgene with additional approvals in May for lymphoma and multiple myeloma, Tecentriq® from Roche approved for triple-negative breast cancer in March and August, small cell lung cancer in March and September and the MS drug Ocrevus® from Roche.


Worldwide quarterly sales of top 10 fastest growing drugs by value (USDm)

Fastest growing in terms of percentage

The fastest growing blockbuster drugs in terms of percentage is the anti-diabetic drug Ozempic® from Novo Nordisk. Other drugs in the top 10 are Tremfya® from Janssen for the treatment of plaque psoriasis, Entresto® from Novartis for the treatment of heart failure and Darzalex® from Janssen in collaboration with European biotech company Genmab approved for multiple myeloma.


Worldwide quarterly sales of top 10 fastest growing drugs by percentage (USDm)

Large percentage of total revenue

It is interesting to note that some drugs make up large fractions of the total revenue. For example small molecule drug (SMD) Revlimid® makes up 61.3% (2,770 USDm) of the total revenue at Celgene, mAB drug Humira® 58.2% (4,936 USDm) at AbbVie, mAB drug Opdivo® 32.1% (1,817 USDm) at Bristol-Myers Squibb and SMD Tecfidera® 31.2% (1,112 USDm) at Biogen.

The patents on Revlimid® expire in 2027 in the US and 2024 in Europe. Celgene is to be acquired by Bristol Myers-Squibb.

The European patent on Humira® expired in 2018, and the AbbVie drug is already facing competition from the biosimilars Hadlima (Samsung Bioepsis; Samsung and Biogen joint venture), Hyrimoz (Sandoz of Novartis), Cyltezo (Boehringer-Ingelheim) and Amjevita (Amgen). The US patent expires in 2023.

The patent on Opdivo®, which has more than 10 indications, expires in 2026.

There is currently a legal dispute between Biogen and generic manufacturer Mylan, whether Tecfidera® is protected from generic competition until 2020 or 2028.

In July 2018 Mylan Pharmaceuticals Inc. filed a petition with the U.S. Patent Trial and Appeal Board (PTAB) seeking inter partes review of our U.S. Patent No. 8,399,514 (the ‘514 Patent). The ‘514 Patent includes claims covering the treatment of MS with 480 mg of dimethyl fumarate per day as provided for in our TECFIDERA label. On February 6, 2019, the PTAB instituted inter partes review of the ‘514 Patent (the “Mylan IPR”). Thereafter, the PTAB granted the petition of Sawai USA, Inc. and Sawai Pharmaceutical Co. Ltd. and joined them as petitioners in the Mylan IPR. A hearing has been scheduled for November 2019.

Biogen 10Q.