AB InBev ($BUD, $ABI.BR) issued a press release on their Q4 earnings on February 27th.
The company has maintained its dividend while continuing to deleverage.
Accounting for the proceeds expected to be received from the divestment of the Australian operations (while excluding the last 12 months EBITDA from the Australian operations), the net debt to EBITDA ratio would be 4.0x for the 12-month period ending 31 December 2019.
Q4 press release
Since closing the SAB combination the debt has been reduced and maturities extended to eliminate near term refinancing risks.
AB InBev is by far the largest brewery in the world after the merger of Belgian Interbrew and Brazilian AmBev in 2004 and acquisitions of Anheuscher-Busch in 2008 and SABMiller in 2016.
AB InBev continues to have the strongest margin in the industry. EBIT margins are greater than 30%, which is unrivaled in the industry.
Cash flow generation is also better than those of rivals Heineken ($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 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.
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
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.
This was achieved through a combination of increased net income and the reduction of year-end inventory.
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.
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.
Organic revenue growth
“In the fourth quarter, constant-currency organic sales increased slightly, while full-year constant-currency organic sales increased 4%.”
“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.”
“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.”
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.
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.
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.
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®.
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.
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
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.
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.
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.
Mylan presented on Viatris at the 38th Annual J.P. Morgan Healthcare Conference. Below are selected slides from the presentations of Mylan and Teva at the conference and figures comparing the existing business entities prior to the merger with Upjohn.
Teva has closed many manufacturing sites, but still have more than Viatris; ~60 and ~50 respectively.
The cost synergies between Mylan and Upjohn are expected to be approximately $1B, whereas Teva has already realized annual cost savings of $3B as part of their restructuring plan.
Whereas Viatris will be paying a dividend from day one (25% of free cash flow), Teva does not currently pay a dividend. This cash flow is spent almost entirely on reduction of debt.
It is not impossible to imagine an expansion of multiples at Teva and Viatris, if legal headwinds disappear.
Teva and Upjohn have lost revenue in part because of generic competition to Copaxone® and Lyrica®, respectively.
Teva is the only company that have lowered their SG&A significantly as part of their $3B restructuring plan as a response to the falling generic drug prices in the US.
The lowered SG&A translates to stabilized operating income.
Future growth seems like a possibility for both companies.
2019-11-25 Bloomberg – Teva, Drugmakers in Talks With U.S. to End Generics Probes
2019-11-12 Mylan and Pfizer Announce Viatris as the New Company Name in the Planned Mylan-Upjohn Combination
2019-11-07 Bloomberg – Teva Profit Outlook Edges Up With Cost-Cutting Plan on Track
2019-07-29 Mylan and Upjohn, a Division of Pfizer, to Combine, Creating a New Champion for Global Health Uniquely Positioned to Fulfill the World’s Need for Medicine
The earnings season in the US has kicked off with earnings from the banks JP Morgan ($JPM) and Wells Fargo ($WFC). Below are the earnings date for selected European and Nordic publicly listed companies. The companies are mostly constituents of the indices EURO STOXX 50®, STOXX® Europe 50 and OMX Nordic 40.
Constellation Brands issued a press release on its third quarter earnings before the opening bell with the following highlights.
Generates reported basis EPS of $1.85 and comparable basis EPS of $2.14, including Canopy Growth equity losses of $0.25; excluding Canopy Growth equity losses, achieved comparable basis EPS of $2.39
Generates $2.1 billion of operating cash flow and $1.5 billion of free cash flow, an increase of 5% and 14%, respectively
Increases fiscal 2020 reported basis EPS outlook to $0.95 – $1.05; increases comparable basis EPS outlook to $9.45 – $9.55
Increases fiscal 2020 operating cash flow target to approximately $2.3 billion and free cash flow projectionto $1.5 – $1.6 billion
Agrees to revise original Wine & Spirits agreement with Gallo in connection with Federal Trade Commission review; expected to close by the end of fiscal 2020
In a separate, but related, transaction, agrees to divest Nobilo Wine brand to Gallo for $130 million; expected to close in first half fiscal 2021
Signs agreement with Kings & Convicts Brewing to divest the Ballast Point brand and certain related facilities; expected to close by the end of fiscal 2020
Promotes Garth Hankinson to Constellation’s CFO replacing David Klein who will assume the Canopy Growth CEO role
Volume, net sales, operating income and margins for wines and spirits (W&S) was down YoY for the quarter.
The poor performance in terms of EPS was attributable to further impairment losses of $534 million related to Canopy Growth.
Given the headwinds caused by Canopy Growth it might be a while before Constellation Brands once more trades at its all time high of $234.22 from April 2018 despite some of the best operating margins in the industry.
Reuters – Constellation raises profit forecast after beer-driven quarter
Bloomberg – Constellation Brands Jumps After Boosting Profit Forecast
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.
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.
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.
Novo Nordisk and Eli Lilly have both reported their Q3 results. Below are some of the headlines related to their diabetes business.
OG2023SC, an oral GLP-1 analogue, has been discontinued based on encouraging results for an enhanced oral semaglutide formulation.
US FDA decision on cardiovascular indication for Rybelsus® is expected in the first quarter of 2020.
The European Commission approved an expansion of the Trulicity® label to include results from the REWIND cardiovascular outcomes trial
The figures below summarise sales and sales growth by product and geography for Novo Nordisk and Eli Lilly.
The diabetes market as a whole
Despite the headwinds faced by insulins such as Lantus® and DPP4 drugs such as Januvia® the overall sales of antidiabetic drugs is not declining thanks to the superior GLP1 drugs.
If the current growth rates for GLP1 and insulin continues, then GLP1 could overtake insulin in the US at the end of the 2nd quarter of 2020. It depends on the growth of Ozempic® and Rybelsus® and the pace at which Lantus®, Levemir®, Novorapid®, Humalog® and others continue to decline as they are cannibalised by Basaglar® and Admelog®.
The advantage of GLP1 drugs over insulin is that there is no hypoglycaemic risk and an added benefit is weight loss. The table below compares the different types of anti-diabetic drugs and explains the reversed fortunes of insulin and GLP1 receptor agonists.
Novo Nordisk and Eli Lilly have been leading the GLP1 revolution and have been rewarded heavily, whereas the diabetes business of Sanofi has suffered and continues to suffer within and outside the US.
The GLP1 class of drugs have picked up steam in Europe and elsewhere outside the US, but there is still an unmet potential.
The GLP1 drug Victoza® is being cannibalised by Ozempic®, which is experiencing explosive growth of more than 400% in the US and in the world, which possibly makes it the fastest growing drug in the world in the third quarter.
It is the insulin Lantus® being cannibalised by Basaglar®, which is a drag on Sanofi. Tresiba® is the only insulin other than Basaglar® experiencing growth in the US.
Novo Nordisk might be experiencing increased sales for Tresiba® in the US and their insulin drugs in China, but Levemir® and all of their other insulin drugs are decling in the US, which is not offset by the small sales growth of Tresiba® in the US.
Eli Lilly (and their partner Boehringer-Ingelheim) have seen their diabetes sales further strengthened compared to Novo Nordisk by the presence of the SGLT2 drug Jardiance® in their portfolio, which is competing with Farxiga® from AstraZeneca and Invokana® from J&J. Cardiovascular benefits have been shown for Jardiance® in the EMPA-REG OUTCOME clinical trial and the FDA have in June also granted fast track designation for the treatment of chronic heart failure.
DPP4 drugs are declining in the US, whereas they are experiencing growth outside the US.
The DPP4 decline in the US is led by Januvia® and Janumet® from Merck, but these two drugs are actually growing slightly outside the US for the time being.
Ozempic® and Jardiance® and the ICER report
The ICER report have found that oral GLP-1 Semaglutide, at estimated net price, is less cost-effective than SGLT-2 competitor Empaglifozin as add-on therapy for type 2 diabetes. CFO Karsten Munk Knudsen and CSO Mads Krogsgaard Thomsen of Novo Nordisk had the following comments to the ICER report.
So the known legislation related to the donut hole, which we have been public about earlier. The impact is 1% on group sales in 2020. And then, of course, it’s also important to note that this will have an impact in terms of patient affordability, so the American government, they are actually pushing more cost to patients with this change.
Novo Nordisk CFO Karsten Munk Knudsen on the ICER report during the Q3 earnings call.
First of all, Jo, let’s just remind each other of the differences between a classic health economic outcome research analysis taking into account all the big landmark trial data that have emerged over time that typically predict what the societal cost of the burden of diabetic-linked complications will be over decades, 2 decades, 3 decades and so on. And those analysis are the ones that we have done with the impact — metabolic impact of Rybelsus showing that over decades, this is clearly cost effective for society to use the product.
This element is not really integrated in the ICER research, which just looks at the mere data as they are and the metabolic outcomes here and now. But as I understand the report, having not had really time to study it today, it is still the perception that I have that when it comes to sitagliptin and liraglutide, there seems to be cost effectiveness of Rybelsus®. And then it’s only when you look at the empagliflozin that they claim that not to be the case. But all that is said then, by the way, the discussions that our American team have ongoing with the PBMs, they’re ongoing, and we’ll keep you updated as they come to conclusion over time.
Novo Nordisk CSO Mads Krogsgaard Thomsen on the ICER report during the Q3 earnings call.
Pipeline and R&D updates
In addition to the discontinuation by Novo Nordisk of the GLP1 candidate OG2023SC due to improved formulation of oral semaglutide there were other updates to the pipelines.
Novo Nordisk CSO, Mads Krogsgaard Thomsen, had the following comments on the discontinuation of OG2023SC, semaglutide and other injectable incretins.
2023, that relates to the fact that we have seen really nice data. You do recall, Peter, that we had 2 ongoing trials in parallel. One was the enhanced formulations of oral semaglutide, that is completed; and the other one was the new analog 2023. And with the benefits that we’ve seen vis-à-vis the formulation’s impact on bioavailability, we see no need to further develop 2023. So we actually view this as a sign of success of the strong collaboration between the R&D colleagues and the product supply colleagues who are able to constantly upgrade, you can say, the performance of oral semaglutide.
So on the injectable portfolio of incretin-like projects, if we start with the most advanced first, that is obviously the combination between semaglutide and the amylin 833 compound. And those data out, as you correctly state, in the first half of next year. And based on what I know from preclinical experiments and the monotherapy over 7 weeks with amylin compound, they should be hopefully showing really good weight loss data since this is in obese people is taking place. So we’ll get back to that next year. Then we have two agonists, a triple and a dual agonist ongoing in multiple dosing in Phase Ib, and that is, of course, the GIP/GLP-1/glucagon triple agonist and it’s the GIP/GLP co-agonist. And those data are actually available later this year. And then finally, we’re gearing up for using sema, which we perceive to be both the anchor drug in several diseases but also the anchor drug partner in new to-be combination products. And therefore, we are also combining that expectedly with the once-weekly human GIP to optimize the ratio between these 2 incretins in the event that GIP actually turns out to play a role in human biology. That’s still a bit uncertain at this point.
Novo Nordisk CSO, Mads Krogsgaard Thomsen, on the Novo Nordisk Q3 earnings call.
Eli Lilly president of Lilly Research Laboratories, Dan Skovronsky, had the following comments on their injectable tri-agonist and oral incretins.
Finally, I’d like to highlight two exciting diabetes programs. With our next generation injectable incretin GIP, GLP, glucagon, tri-agonist or GGG we’re testing the hypothesis that adding glucagon to GIP/GLP will have more metabolic activity and stimulate additional weight loss.
The initial Phase 1 study, to study the safety of a single injection in healthy participants and we’re now studying multiple doses including dose titration. We expect this program to enter Phase II by late 2020 or early 2021; just like the hurdle for tirzepatide to enter Phase III was a meaningful improvement over Trulicity, the bar here will be a step change over tirzepatide itself.
Additionally, our commitment to oral incretins has continued to increase as we advanced programs through development we seek to improve upon administration or efficacy. Our first oral incretin program which we licensed from Chugai last year is a small molecule non-peptide agonist of GLP-1 that entered Phase 1 earlier this year.
Our initial focus will be on pharmacokinetics with the expectation that it should be meaningfully better than a peptide as well as the pharmacodynamic response, which we should see even in Phase 1, this molecule could enter Phase 2 in early 2021; in addition to this approach, we’re also pursuing dual GIP and GLP-1 receptor agonist peptides for oral delivery. These programs, which are designed to give tirzepatide like efficacy with a once-a-day oral peptide administration are also progressing preclinically and should enter Phase 1 next year. We look forward to tracking the progress of these assets over the coming years and we’ll share additional pipeline updates on our next earnings call.
President of Lilly Research Laboratories, Dan Skovronsky, on the Eli Lilly Q3 earnings call.
Novo Nordisk – Novo Nordisk’s operating profit increased by 11% in Danish kroner and by 5% at constant exchange rates (CER) in the first nine months of 2019
Kraft Heinz issued a press release on its third quarter results before the market opened. Organic growth was -1.6% in the US and -1.1% for the whole business.
Revenue and income by geographic and product segment
Revenue growth was impacted negatively by negative organic growth, currency headwinds and divestitures.
The natural cheese business being sold contributed approximately $560 million CAD (approximately $427 million USD at current FX rates) to Kraft Heinz’s net sales in 2017.
Press release from November 2018 announcing sale of Canadian natural cheese business to Parmalat.
The Kraft Heinz Company announced today the closing of the previously announced sale of its Canadian natural cheese business to Parmalat for a purchase price of $1.62 billion CAD (approximately $1.24 billion USD at current FX rates). The agreement includes Cracker Barrel, P’tit Québec, and aMOOza! brands in the Canadian market.
Gross margins and operating margins reached lows of 32.0% and 19.5% respectively, whereas SG&A excluding impairment losses was down from $803M to $762M.
The US experienced negative organic growth of -1.6% despite price growth of 1.5% and revenue in the US for the quarter was $4,361M.
EBITDA was down in all geographic segments, but EBITDA and EBITDA margins seem to have stabilised. Except in the Rest of the World segment, where increasing supply chain costs are causing damage to the EBITDA margin.
The product segment condiments and sauces as well as infant and nutrition both saw some of the biggest declines in the quarter.
CEO Miguel Patricio had the following comment regarding the segments.
While overall performance is improving, our numbers are still negative versus the prior year, and our performance remains uneven across categories and across geographies. This includes ongoing share and distribution losses within our natural cheese, cold cuts and coffee business in the United States, lower-than-anticipated promotional lifts in Canada, ongoing infant nutrition declines in both EMEA and China as well as increasing supply chain costs in our Rest of the World segment.
Kraft Heinz CEO Miguel Patricio on the 2019 third quarter earnings call.
Organic growth was -1.1% and -1.6% in the US despite growth in price of 1.5% in the US.
Debt and interest expenses
S&P in August affirmed the credit rating but revised the outlook from stable to negative. This followed the downgrade in June. S&P commented on adjusted leverage.
The negative outlook reflects the potential for a downgrade to speculative grade by mid-2021 if we believe Kraft Heinz cannot reduce adjusted leverage to below 4x. This could result if operating performance weakens further and we come to believe the strategic plan to be announced by the new CEO in early 2020 will be unsuccessful, including a failure to stabilize and reverse EBITDA declines, or an inability or unwillingness to reduce or eliminate the dividend or conduct meaningful deleveraging asset sales.
The adjusted leverage is still above 4x, but there are small signs of improvement following the deleveraging asset sale of the Canadian natural cheese business for approximately USD1.24B.
Interest expenses were up, which further stresses the need to deleverage.
Impairment charges and the balance sheet
Unlike the previous three quarters and the disastrous fourth quarter of 2018 there were no significant impairment charges and long term debt was reduced to $28,112M following the deleveraging asset sale in Canada.
Why is the share price up in the pre-market?
That the share price is up in the pre-market is probably a combination of valuation, the return of the CFO, the absence of impairment charges. Especially the valuation was attractive following the share price collapse.
And despite all of the bad news that landed in February it still remains a fact, that Kraft Heinz has some of the lowest costs and best margins in the industry.
And unlike the share price neither the sales nor the operating income have imploded. The business is intact despite the headwinds and the mountain of debt.