BorgWarner to Acquire Delphi Technologies in All-Stock Transaction to Strengthen Propulsion Systems Leadership

BorgWarner ($BWA) is to acquire Delphi Technologies ($DLPH) to strengthen its propulsion systems leadership.

The all-stock transaction happens at a time, when both companies are trading at low multiples. $DLPH is up ~60%, whereas $BWA is down ~7%.

Below is a summary of the segments of the two S&P500 companies and some of the powertrain manufacturers of the auto parts industry.

Aptiv ($APTV) spun off their Powertrain Systems segment into Delphi Technologies ($DLPH) in 2017. Tenneco ($TEN) acquired Federal-Mogul ($FDML) in 2018.

BWA and DLPH revenue.
Powertrain revenue.
Operating margin.
Quarterly revenue.
Trailing twelve months (TTM) revenue.
Weighted average diluted shares outstanding on an annual basis.
Weighted average diluted shares outstanding on a quarterly basis.
Time series of enterprise value over operating income.
Time series of price-to-sales ratio.

Reuters – BorgWarner to buy Delphi Technologies in $3.3 billion auto parts deal

Bloomberg – BorgWarner to Buy Delphi for $1.5 Billion in Auto-Parts Deal

Bloomberg 2020-01-28 – BorgWarner Is in Talks to Acquire Delphi

$DLPH 8K. $BWA 8K.

Mylan/Viatris and Teva at the 38th Annual J.P. Morgan Healthcare Conference

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.

Viatris Synergy Cost Savings

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.

Teva Restructuring Plan Cost Savings

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.

Enterprise value to EBITDA for Mylan and Teva
Closing price and EBITDA for Mylan
Closing price and EBITDA for Teva

Teva and Upjohn have lost revenue in part because of generic competition to Copaxone® and Lyrica®, respectively.

Gross profit
Teva gross profit
Mylan gross profit

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.

SG&A as a percentage of revenue

The lowered SG&A translates to stabilized operating income.

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

European earnings calendar

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.

Chr. Hansen Holding A/SCHR.CO2020-01-15Specialty Chemicals
Sandvik ABSAND.ST2020-01-21Specialty Industrial Machinery
ASML Holding N.V.ASML.AS2020-01-22Semiconductor
Tryg A/STRYG.CO2020-01-22Insurance—Diversified
KONE OyjKNEBV.HE2020-01-28Specialty Industrial Machinery
LVMHMC.PA2020-01-28Luxury Goods
Koninklijke Philips N.V.PHIA.AS2020-01-28Diagnostics & Research
SAP SESAP.DE2020-01-28Software—Application
Novartis AGNOVN.SW2020-01-29Drug Manufacturers
Banco Santander, S.A.SAN.MC2020-01-29Banks—Diversified
Telia Company AB (publ)TELIA.ST2020-01-29Telecom Services
Diageo plcDGE.L2020-01-30Beverages—Wineries & Distilleries
Orsted A/SORSTED.CO2020-01-30Utilities—Renewable
The Unilever GroupULVR.L2020-01-30Household & Personal Products
The Unilever GroupUNA.AS2020-01-30Household & Personal Products
UPM-Kymmene OyjUPM.HE2020-01-30Paper & Paper Products
BBVA, S.A.BBVA.MC2020-01-31Banks—Diversified
Demant A/SDEMANT.CO2020-02-04Medical Instruments & Supplies
Intesa Sanpaolo S.p.A.ISP.MI2020-02-04Banks—Regional
Pandora A/SPNDORA.CO2020-02-04Luxury Goods
ABB LtdABBN.SW2020-02-05Specialty Industrial Machinery
BNP Paribas SABNP.PA2020-02-05Banks—Regional
Danske Bank A/SDANSKE.CO2020-02-05Banks—Regional
VINCI SADG.PA2020-02-05Engineering & Construction
GN Store Nord A/SGN.CO2020-02-05Medical Devices
GlaxoSmithKline plcGSK.L2020-02-05Drug Manufacturers
Siemens AGSIE.DE2020-02-05Specialty Industrial Machinery
SimCorp A/SSIM.CO2020-02-05Software—Application
Vestas Wind Systems A/SVWS.CO2020-02-05Specialty Industrial Machinery
Vodafone Group PlcVOD.L2020-02-05Telecom Services
Enel SpAENEL.MI2020-02-06Utilities—Diversified
Fortum OyjFORTUM.HE2020-02-06Utilities—Renewable
TOTAL S.A.FP.PA2020-02-06Oil & Gas Integrated
Societe Generale SAGLE.PA2020-02-06Banks—Regional
ING Groep N.V.INGA.AS2020-02-06Banks—Diversified
H. Lundbeck A/SLUN.CO2020-02-06Drug Manufacturers
Nokia CorporationNOKIA.HE2020-02-06Communication Equipment
L'Oreal S.A.OR.PA2020-02-06Household & Personal Products
Sampo OyjSAMPO.HE2020-02-06Insurance—Diversified
SanofiSAN.PA2020-02-06Drug Manufacturers
DSV Panalpina A/SDSV.CO2020-02-07Integrated Freight & Logistics
Neste OyjNESTE.HE2020-02-07Oil & Gas Refining & Marketing
Eni S.p.A.ENI.MI2020-02-10Oil & Gas Integrated
L'Air Liquide S.A.AI.PA2020-02-11Chemicals
Amadeus IT Group, S.A.AMS.MC2020-02-11Information Technology Services
Daimler AGDAI.DE2020-02-11Auto Manufacturers
FLSmidth & Co. A/SFLS.CO2020-02-11Specialty Industrial Machinery
Koninklijke Ahold Delhaize N.V.AD.AS2020-02-12Grocery Stores
Swedish Match AB (publ)SWMA.ST2020-02-12Tobacco
Airbus SEAIR.PA2020-02-13Aerospace & Defense
Boliden AB (publ)BOL.ST2020-02-13Other Industrial Metals & Mining
Nestle S.A.NESN.SW2020-02-13Packaged Foods
Orange S.A.ORA.PA2020-02-13Telecom Services
RELX PLCREL.L2020-02-13Publishing
Vivendi SAVIV.PA2020-02-13Broadcasting
Zurich Insurance Group AGZURN.SW2020-02-13Insurance—Diversified
AstraZeneca PLCAZN.L2020-02-14Drug Manufacturers
HSBC Holdings plcHSBA.L2020-02-17Banks—Diversified
Deutsche Telekom AGDTE.DE2020-02-19Telecom Services
Genmab A/SGMAB.CO2020-02-19Biotechnology
AXA SACS.PA2020-02-20Insurance—Diversified
Fresenius SE & Co. KGaAFRE.DE2020-02-20Medical Care Facilities
Schneider Electric S.E.SU.PA2020-02-20Specialty Industrial Machinery
Telefonica, S.A.TEF.MC2020-02-20Telecom Services
Lloyds Banking Group plcLLOY.L2020-02-20Banks—Regional
Allianz SEALV.DE2020-02-21Insurance—Diversified
Jyske Bank A/SJYSK.CO2020-02-25Banks—Regional
Danone S.A.BN.PA2020-02-26Packaged Foods
ENGIE SAENGI.PA2020-02-26Utilities—Diversified
Iberdrola, S.A.IBE.MC2020-02-26Utilities—Diversified
ISS A/SISS.CO2020-02-26Specialty Business Services
Rio Tinto GroupRIO.L2020-02-26Other Industrial Metals & Mining
Anheuser-Busch InBev SA/NVABI.BR2020-02-27Beverages—Brewers
British American Tobacco p.l.c.BATS.L2020-02-27Tobacco
Bayer AGBAYN.DE2020-02-27Drug Manufacturers
Safran SASAF.PA2020-02-27Aerospace & Defense
Saint-Gobain S.A.SGO.PA2020-02-27Building Products & Equipment
BASF SEBAS.DE2020-02-28Chemicals
Munchener Ruckversicherung AGMUV2.DE2020-02-28Insurance—Reinsurance
EssilorLuxottica SAEL.PA2020-03-06Medical Instruments & Supplies
Deutsche Post AGDPW.DE2020-03-10Integrated Freight & Logistics
Royal Unibrew A/SRBREW.CO2020-03-10Beverages—Brewers
adidas AGADS.DE2020-03-11Footwear & Accessories
Prudential plcPRU.L2020-03-11Insurance—Life
Volkswagen AGVOW3.DE2020-03-17Auto Manufacturers
Inditex, S.A.ITX.MC2020-03-18Apparel Retail
E.ON SEEOAN.DE2020-03-25Utilities—Diversified

Constellation Brands raises forecast and takes further Canopy impairment charges

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 projection to $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.

 Vol (%)Sales (%)Income (%)
Figures for the trailing twelve months (TTM) for shipment volume, net sales, operating income and operating margin.

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.

Time series of enterprise value relative to EBITDA for selected breweries.
Operating margin time series for selected breweries.
Revenue time series for selected breweries.

Reuters – Constellation raises profit forecast after beer-driven quarter

Bloomberg – Constellation Brands Jumps After Boosting Profit Forecast

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
MerckKeytruda®mABPembrolizumabL01XC18Antineoplastic agent
BMS + PfizerEliquis®SMDApixabanB01AF02Antithrombotic agent
BMSOpdivo®mABNivolumabL01XC17Antineoplastic agent
RocheAvastin®mABBevacizumabL01XC07Antineoplastic agent
Amgen + PfizerEnbrel®Fusion proteinEtanerceptL04AB01Immunosuppresant
Bayer + J&JXarelto®SMDRivaroxabanB01AF01Antithrombotic agent
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.

Diabetes and the third quarter of 2019

Novo Nordisk and Eli Lilly have both reported their Q3 results. Below are some of the headlines related to their diabetes business.

  • Novo Nordisk
    • 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.
  • Eli Lilly
    • 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.

Sales of anti-diabetic and anti-obesity drugs within and outside the US.

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®.

Sales of anti-diabetic and anti-obesity drugs by drug class.

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.

Sales of anti-diabetic and anti-obesity drugs by company.

The GLP1 class of drugs have picked up steam in Europe and elsewhere outside the US, but there is still an unmet potential.

GLP1 sales by company.

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.

GLP1 sales by drug.

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.

Insulin sales by drug.

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.

Insulin sales by company.

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.

SGLT2 sales by company.
SGLT2 sales by drug.

DPP4 drugs are declining in the US, whereas they are experiencing growth outside the US.

DPP4 sales by company.

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.

DPP4 sales by drug.

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.
Eli Lilly pipeline.

Press releases

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

Eli Lilly – Lilly Reports Strong Third-Quarter 2019 Financial Results, Raises 2019 EPS Guidance

Media coverage

Nightly Business Report – October 23, 2019
Eli Lilly CEO on 3Q Results, Drug-Pricing Reforms

ReutersNovo Nordisk nudges up 2019 sales outlook as new drugs excel

BloombergNovo CEO Jorgensen on Biopharma, Insulin Prices, Innovation

Reuters – Sales of Eli Lilly diabetes drug Trulicity fall short, shares drop

Kraft Heinz increases prices but experiences negative organic growth of -1.1%

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.

Press release from July 2nd announcing closing of the sale.

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.

S&P press release from August

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.

Media coverage

Reuters – Kraft Heinz investors cheer profit beat, plans to boost marketing

Bloomberg – Kraft Heinz Shares Rise as Delayed Comeback Materializes at Last

CNBC – Kraft Heinz stock jumps on earnings beat

Financial Times – Kraft Heinz still struggling with changing consumer tastes as sales dip

Previous media coverage

2019-10-23 Reuters – Kraft Heinz sees potential in baby food, will keep Plasmon

2019-09-17 CNBC – 3G Capital sells over 25 million shares of Kraft Heinz

2019-09-12 Reuters – Where’s the fake beef? Not at Kraft Heinz, investors worry

2019-08-26 Reuters – Kraft Heinz brings back former CFO after accounting missteps

2019-08-23 Bloomberg – Kraft Heinz Would Be Third-Largest Junk Issuer If Ratings Cut
2019-08-08 CNBC – Nightly Business Report
2019-06-25 CNBC – Warren Buffett denies tension with Kraft Heinz partner
2019-05-06 CNBC – Warren Buffett on Kraft Heinz restating earnings
2019-04-22 CNBC – Kraft Heinz names Miguel Patricio as new CEO
2019-02-25 CNBC – Warren Buffett on what he plans to do with his Kraft Heinz shares and 3G Capital
2019-02-22 CNBC – Morningstar’s Erin Lash dissects Kraft Heinz’s earnings miss
2019-02-22 CNBC – What went wrong with Kraft Heinz?
2018-05-07 CNBC – Warren Buffett: Changing Consumer Habits Hit Coke And Kraft Heinz

AB InBev increases prices in South Korea and Brazil and sees volume decline

AB InBev issued a press release on their quarterly results before the market opened.

The two most important headlines of the quarter were probably the listing of Budweiser APAC on the HKEx and implementation of price increases in South Korea and Brazil that drove volume declines.

Quarterly (YoY) organic volume growth (%).
CNBC Television – 30sep2019 – Budweiser APAC CEO speaks about the promise of the Asia market

Whereas revenue and revenue per hectolitre were up, volume was down and EBITDA margins contracted.

TTM revenue per segment
TTM volume per segment
TTM revenue per hectolitre

The proceeds from the listing of Budweiser APAC was used to reduce debt and AB InBev is on track to reduce the debt to 4 times normalized EBITDA before the end of the year; one year earlier than the prior guidance. Deleveraging to approximately 2 times EBITDA still remains the commitment.

Comparison of breweries

AB InBev continues to have the strongest operating margins in the industry because of their strong brands and their economies of scale. For example cost synergies of USD3.2B have been realised three years after the acquisition of SABMiller.

Interbrands 2019 report

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).

Media coverage

Reuters – AB InBev loses $13 billion in value as beer drinking slows in Brazil and South Korea

Bloomberg – Beer Giant AB InBev Loses $20 Billion in Market Value

CNN – Budweiser brewer hit by slumping sales in China

Financial Times – AB InBev scales back annual profit target after quarterly miss 

Bloomberg – The King of Beers Is in a Bind

WSJ – Budweiser Brewer Issues Profit Warning, Sending Shares Sharply Lower

2019-10-24 Bloomberg – Budweiser APAC Posts Sharp Profit Drop

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

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

Amazon operating income drops and AWS margins contract

Amazon issued a press release on their third quarter results after the market closed.

Revenue increased by 24% to $70B, but operating income was down and margins for AWS and North America contracted.

In terms of cloud Microsoft Azure grew 59% YoY in the previous quarter. Microsoft is definitely catching up, and there might be a kink in the armour of Amazon.

Revenue from cloud (USDm)

Media coverage

Reuters – Amazon’s gloomy holiday forecast misses estimates, shares fall 7%

Bloomberg – Amazon’s One Sure Thing Starts to Look Shaky

Forbes – Why Amazon’s Costly One-Day Shipping Bet May Pay Big Dividends

New York Times – Amazon’s Profit Falls Sharply as Company Buys Growth

CNBC – Amazon clobbered after a miss on the bottom line and soft guidance

CNBC – Amazon’s cloud business reports 35% growth in the third quarter, trailing estimates

14Oct Morningstar – How Do You Value Amazon Heading Into 2020?

Chr. Hansen and Novozymes both tumble

The two Danish enzyme manufacturers Chr. Hansen and Novozymes both saw their share price tumble following third quarter earnings. Chr. Hansen released earnings on October 10th and Novozymes released earnings on October 23nd. This followed the October 9th profit warning from Novozymes. Chr. Hansen, which traded and continues to trade at higher multiples, fell from DKK 579.20 to 525.80 (-9.2%) on October 10th, whereas Novozymes didn’t budge. The figures below compare the expansion and contraction of multiples and operating margins of the two companies.

Chr. Hansen is still richly valued and might present itself as a short candidate. AQR Capital Management is one company with a short position in Chr. Hansen. Neither company seems attractively priced at current levels. Both companies suffer in similar segments and both are experiencing declining growth rates.



Chr. Hansen

Chr. Hansen

Media coverage

Oct10 Reuters – Shares in Denmark’s Chr. Hansen slump on lower sales outlook, weak demand

Oct23 JP Finans – Novozymes fastholder forventningerne til året efter nedjustering

Oct23 Børsen – Novozymes i stort kurshop: “Ansættelse af ny topchef er meget meget tæt på”

Oct15 Reuters – Novozymes’ CEO to step down as company looks to rejuvenate sales

Oct10 Bloomberg – `Credibility Problem’ at Novozymes Has CEO Explaining Next Steps