Pandora lowers full year guidance

The jewelry maker Pandora, which is still without a CEO, sent out a press release on their Q3 results today. Expected revenue growth for 2018 was revised from 4-7% to 2-4%.

Bloomberg: Pandora Plans `Reset’ in Bid to Shore Up Investor Confidence
Reuters: Charm-bracelet maker Pandora warns again on sales
euronews: Jeweller Pandora cuts 2018 sales outlook, reviews long-term profit target
Financial Times: Pandora cuts growth forecast as profits and sales miss in third quarter
Børsen: Derfor vendte Pandora-aktien rundt fra et to-cifret kurshug til et lille fald

Below are 4 slides from the earnings call and and 1 page from the earnings release summarising the key metrics, financial highlights and revised outlook.

Revenue was down YoY by 3% in local currency and all margins were down as well. Operating cash flow was up due to fluctuations in operating working capital.

The ROIC dropped to an all time low of 51.7%.

Revenue from charms was down YoY along with rings and earrings.

The number of stores was up QoQ and YoY, but the strategy of aggressive store expansion might come to an end in 2019, and the focus will be switched to same store sales growth. The diagnosis is ongoing.

Revenue in China was up and held revenue in APAC up, which would otherwise have been down like EMEA and Americas.

Likewise the EBITDA margin was down in all three regions.

Only three of the seven largest markets experienced positive growth in same store sales.

In summary it was a terrible quarter. Is it all bad then? No, online sales are improving, it is the best recognised jewelry brand in the world, they have a loyal customer base and the global jewelry market will not stop growing. But the days of rapid expansion and reliable double digit growth are probably permanently over.

Pandora remains attractively valued in absolute terms and relative to its peers. Their margins are still impressive in comparison with other manufacturers of luxury goods. And their cash flow still supports a generous buyback programme of DKK4b at somewhat depressed prices. But another negative earnings surprise in Q4 could easily send the share price further tumbling. Poor Q4 results in February and the arrival of a new CEO wanting to throw in the kitchen sink might prove to provide the perfect buying opportunity at further depressed price levels.

VF raises dividend and full year outlook, but growth is slowing down

VF released their earnings today and raised outlook for the full year.

Since the previous quarter VF has announced the sale of the Reef® brand to The Rockport Group on October 4th. And on August 13th VF announced the intention to create two independent publicly traded companies; one apparel and footwear and the other jeans and outlet businesses.

The multiples have expanded quite a bit over the past few years and growth is slowing down. Despite raising the full year outlook and Vans® displaying double digit growth across geographic segments the share price took an 11% tumble. The figures below summarises the revenue, profit and margins by each product segment, the expansion of multiples in 2017 and 2018 and the organic growth by product segment, geography, sales channel and by the top 5 brands.

Reuters: Lee, Wrangler owner’s shares fall 9 percent on fading jeans business
Bloomberg: Athleisure Growth Entices VF to Split Off Its Jeans Business
Bloomberg: VF Sheds Its Wrangler Jeans. But for What?

Johnson & Johnson Reports 2018 Third-Quarter Results

J&J released their Q3 results today:
– 2018 Third-Quarter Sales of $20.3 Billion Increased 3.6% versus 2017
– 2018 Third-Quarter EPS was $1.44
– 2018 Adjusted Third-Quarter EPS of $2.05 increased 7.9%*
– Strong Operational Sales and Adjusted EPS Growth*
– Company Increased Sales and EPS Guidance

The Q3 results spawned the following headlines.
Reuters: Johnson & Johnson edges past profit estimates, lifts outlook
CNBC: Johnson & Johnson beats expectations as cancer drugs, new baby care products help boost sales
Bloomberg: J&J’s Growing Pharma Unit Helps Company Overcome Currency Woes
Bloomberg: J&J Tops 3Q Estimates, Boosts Full-Year Profit Guidance

The growth was largely driven by the pharmaceutical segment and in particular oncology drugs (Zytiga®, Imbruvica® and Darzalex®). Other of the drugs driving the growth are Tremfya®, Trinza®, Simponi®, Opsumit® and Uptravi®.

The figures below summarise the Q3 results for each geographic segment, each product segment and for selected pharmaceutical drugs in a historical context.

Eli Lilly and phase results 2 on their dual GIP/GLP1 receptor agonist LY3298176

Today Ely Lilly (LLY) announced the positive results on a phase 2 diabetes drug of theirs (LY3298176) via a publication in The Lancet, a presentation at the annual meeting of the European Association for the Study of Diabetes (EASD) and the press release below:
Lilly’s Investigational Dual GIP and GLP-1 Receptor Agonist Shows Significant Reduction in HbA1c and Body Weight in People With Type 2 Diabetes

The press release created a few headlines:
Bloomberg: Diabetes Drug’s Results Push Lilly to Look at Obesity Too
Reuters: Lilly’s diabetes drug data impresses, hurts rival Novo’s shares

The share price of Eli Lilly went up by 4% in an otherwise sour market and that of Danish rival Novo Nordisk (NOVO-B.CO) plummeted some 7-8%. The multiples and market capitalizations of the two companies were sent further in opposite directions.

The market movements were caused by the positive results on the phase 2 drug candidate LY3298176. It is a peptide and an incretin and a dual GIP/GLP1 receptor agonist.

Incretins such as GLP1 receptor agonists work by stimulating insulin and inhibiting glucagon release.

The GLP1 class of antidiabetic drugs is growing at a fast pace (green line in the figure below).

And Lilly and Novo have the vast majority of the market share as evidenced by the Q2 sales figures and Q3 prescription numbers below.

It is never appropriate to compare across studies due to different doses, different study designs, different patient groups and other confounding factors, but in the table and figures below are comparisons of the dual agonist LY3298176, Trulicity® (dulaglutide), Ozempic® (semaglutide) and oral semaglutide.

Today Lilly presented their results from a 26 week trial and showed their phase 2 drug at doses of 5mg and higher to be superior to their own Trulicity® (dulaglutide) at a 1.5mg dose in terms of HbA1c reduction and weight loss.

The SUSTAIN 7 study by Novo showed semaglutide (0.5mg and 1.0mg) to be superior to dulaglutide (0.75mg and 1.5mg) in terms of HbA1c reduction and weight loss after 40 weeks. The figure below is from Pratley2018.

The figure below summarises all of the SUSTAIN studies and it is from Overgaard2018.

The phase 2 obesity trial on semaglutide showed an even greater weight loss than that observed with the new dual agonist from Lilly, but the trial ran for 52 weeks as opposed to the 26 week Lilly trial.

Study/Trial Drug Dosis HbA1c reduction (%) Weight loss (kg)
NCT03131687 Dulaglutide 1.5mg 1.1% 2.7kg
NCT03131687 LY3298176 1mg 0.7% 0.9kg
NCT03131687 LY3298176 5mg 1.6% 4.8kg
NCT03131687 LY3298176 10mg 2.0% 8.7kg
NCT03131687 LY3298176 15mg 2.4% 11.3kg
NCT02648204 (SUSTAIN 7) Dulaglutide 0.75mg 1.1% 2.3kg
NCT02648204 Dulaglutide 1.5mg 1.4% 3.0kg
NCT02648204 Semaglutide 0.5mg 1.5% 4.6kg
NCT02648204 Semaglutide 1.0mg 1.8% 6.5kg
NCT02863419 (PIONEER 4) Oral semaglutide 14mg 1.2% 5.0kg
NCT02863419 Victoza® (liraglutide) injection 1.8mg 0.9% 3.1kg

The dosis is important, since the dual agonist is inferior to dulaglutide at lower doses. As written in the press release “the most commonly reported side effects were gastrointestinal-related, and dose-dependent. These events included nausea, diarrhea and vomiting.” An analyst asked on the Lilly conference call today, whether the higher doses are workable. The answer was that it remains to be seen during phase 3.

Phase 3 will also involve the SURPASS 2 study, which will be a comparison with semaglutide (Ozempic®), and it is expected to finish before 2022.

Eli Lilly conquered some ground today, but neither the battle nor the nearly century old war has been won, and there are interesting drug candidates in both the pipeline of Novo Nordisk and the pipeline of Eli Lilly. Selected drug candidates from each of the two pipelines are mentioned below.

Company Phase Therapy Name Type
Novo 3 Diabetes Oral semaglutide GLP1 receptor agonist semaglutide
Novo 3 Obesity Semaglutide Obesity GLP1 receptor agonist semaglutide
Novo 1 Obesity AM833 Amylin analogue
Novo 1 Obesity PYY1562 Peptide YY analogue
Novo 1 Obesity GG-co-agonist 1177 Novel GlucagonGLP1 co-agonist
Novo 1 Obesity Tri-agonist 1706 Triple GLP1-GIP-GCG agonist
Lilly 2 Diabetes LY3298176 GIP/GLP-1 Co-agonist Peptide
Lilly 2 Diabetes DACRA-042 Dual Amylin Calcitonin Receptor Agonist
Lilly 1 Diabetes DACRA-089 Dual Amylin Calcitonin Receptor Agonist
Lilly 1 Diabetes “Oxyntomodulin” Oxyntomodulin

It is also worth noting, that Novo Nordisk on August 17th announced the acquisition of Bristol based Ziylo in an effort to develope glucose responsive insulin, which would reduce the risk of patients overdosing with insulin.

In conclusion it is probably much too premature to call it game, set and match. It is however quite certain, that the innovation of drugs and devices will continue and the best days for diabetes patients around the world are still ahead.

Teva and the approval of the migraine drug Ajovy®

Teva announced the FDA approval of their migraine drug Ajovy® (Fremanezumab) – a mAB CGRP inhibitor – in a press release on September 21st.

I felt it would be a good time to revisit Teva and migraine drugs, since a lot of things have happened, since their largest ever acquisition of Actavis Generics from Allergan for $40B – announced in July 2015 and closed in July 2016 – and the arrival of their new CEO (Mr. Kåre Schultz) in November 2017; the day before their Q3 results were presented.

Ajovy® and other migraine drugs

Amgen got a headstart with their migraine drug Aimovig® (Erenumab). An advantage of Aimovig® is that it comes with an auto-injector pen, whereas Ajovy® currently doesn’t. An advantage of Ajovy® is that it only requires a quarterly injection, whereas Aimovig® requires a monthly injection. Both will be priced at a monthly cost of $575. Aimovig® binds to the CGRP receptor itself, whereas Ajovy® binds to the CGRPs, but both seem to significantly reduce the number of migraine days according to a 2018 meta-analysis. Lots of other mAB migraine drugs are in late stage development and some of them are listed below.

Amgen presented a few slides on May 18th regarding the potential of anti migraine drugs and on September 14th they presented prescription numbers.

Here are comments from Teva CEO Kåre Schultz on Ajovy® from the Q2 earnings transcript.

And we think that that’s a fantastic market. The migraine market is very, very promising. We think there’s enormous unmet need. So with a good launch of Ajovy®, their sales will start to accumulate in 2019 and will be meaningful in 2020.

Aimovig® and other migraine drugs were discussed on the Q2 earnings call of Amgen.
Click for excerpts from the Amgen Q2 transcript

  • – Let me give you a few examples of some of the newer medicines that we’re seeing driving our growth. In the second quarter, we launched Aimovig in the U.S., where it is the first and only CGRP inhibitor approved for migraine prevention. Aimovig also marks Amgen’s first entry into a new therapeutic area for us, which is neuroscience. We’ve been very encouraged by the enthusiastic reception for Aimovig from physicians and especially from migraine patients who have waited a long time for a new treatment option like this.
  • – Also, in migraine, we expect the data from our proof-of-concept in dose-finding Phase 2 study of our PAC1 antibody for migraine prevention, AMG 301, to be available by the end of the year and presentation at a medical meeting in 2019. There have been a number of recent developments in Alzheimer’s disease clinical programs in our industry, so I thought it would be useful to highlight our partnership’s ongoing beta secretase inhibitor program and why we have such confidence in our approach.
  • – Now on to Aimovig, the first and only therapy specifically designed to prevent migraine by targeting and blocking the CGRP receptor. Patients and physicians share our excitement for this new therapy. And, as you know, we set up a hub to assist patients to gain early access to the product while we complete negotiations with payers. This program provides a free two-month trial of Aimovig. We have, in fact, received a large bolus of requests from the Headache Centers of Excellence reflecting the pent-up demand for this innovative new therapy. We’re busy working through these requests and expect to see the prescriptions coming through over the coming weeks. Should a patient not be approved by the insurance during this two-month period, we have a bridging program during their negotiations to ensure that patients are not denied drug. Negotiations with payers are progressing well and we have successfully completed contracts to attain coverage for just under 30% of lives already.

Migraine drugs and other pain relief drugs were also discussed on the Q2 earnings call of Eli Lilly.
Click for excerpts from the Lilly Q2 transcript

  • Q: And then my second question, just on galcanezumab. The feedback from the Amgen launch in the CGRP space seems to be pretty favorable. I’d just be curious to get your evolving thoughts on, do you think payers are going to cover multiple CGRP agents on par or parity or do you think that they will opt for exclusive contracts out of the gate?
  • A: As it relates to the assets in the migraine category, you know it is pretty early days here. I understand mostly payers haven’t listed the new therapy. We’re of course for the guidance in FDA and early conversations with payers about our data and seeking that kind of feedback from them, I could tell you what our strategy is, which is reading broad access to these medications as appropriate and particularly given the population. So, these are mostly commercially insured, working women who are having anywhere between 4 and 20 headaches a month that is our study population, which causes absenteeism, debilitation, lack of ability to predict and schedule and plan, not to mention just the human suffering cost. So, we think employers will be very interested in covering this class. We need to get that message through. It could be a great category for some value and outcomes-based pricing approaches, and we’re optimistic long term that the class will have good coverage.
  • Q: Second question just has to do with the emerging pain, franchise, just to your optimism over that franchise, especially galcanezumab, which seem to have hit some pretty decent data in cluster headache, which is an area where nothing seems to have worked in that area, so just your thoughts on that and lasmiditan, the timing profiling of lasmiditan here in the back half?
  • A: Finally, on pain, you know we’re excited about the pain portfolio, you’re seeing data emerge now from tanezumab, we have the data as you mentioned on galcanezumab’s of all the Phase 3 in-house. And lasmiditan, we do plan to submit before the end of the year as well. Clearly pain is a huge unmet need in this country. I think you’re seeing good interest in the first CGRP antibody launch that we expect that to continue migraines in enormous problem in this country and there are many chronic and episodic sufferers there that we hope to reach with CGRP antibodies, as well as products like lasmiditan, which can relieve acute suffering. So, we’re bullish on that category.

Copaxone® and Teva going forward

Teva announced Q2 earnings on August 18th. Revenue is still declining due to Copaxone® competition from Mylan and Momenta and due to price pressure on generic drugs in the US.

The Teva CEO during the Q2 earnings call commented that the revenue will probably start growing in 2019.
Click for comments from the Teva CEO

  • – That’s what I tried to explain, that I think that we are probably hitting the bottom of the valley, or the trough, whatever you want to call it, in 2019. And then based on the dynamics that Copaxone® is not dropping so much anymore because a big chunk of it is gone by then, and that Ajovy® is picking up, Austedo® is picking up, then I expect us to see positive momentum on sales from 2020.
  • – So if we think about the margin overall and what can be done, you could say longer term after 2019, then first of all, we have to realize that in 2019 there’s continued pressure on the margin from the fact that Copaxone® is reducing in sales and the fact that we don’t really see meaningful big sales of Ajovy® yet coming in and compensating for that. Of course, longer term there’s a better gross margin on Ajovy® and on Austedo® than there is in on the bulk of our business. So longer term that will affect the margin in a positive way.

Revenue from Copaxone® (Glatiramer acetate) in the US is still declining, but the prescription volume seems stable at 85%. Mylan decided in Q3 to cut the price of their generic version by 60% and their CEO commented on the move during their Q2 earnings call on August 8th.
Click for comments from the Mylan CEO

Market uptake of our Glatiramer Acetate Injection is a prime example of supply chain tactics capping generic utilization at 15% when two substitutable products have been available for nearly a year. Last year we launched our Glatiramer Acetate with a traditional approach. And for nearly nine months we worked within the system to increase access to no avail.

More recently, we’ve taken unconventional steps to increase access. If these steps do not prevail, we will make further moves to do our part where we can to reinstate the necessary balance between innovation and access, as this balance has historically been the one aspect of the pharmaceutical industry to simultaneously drive trillions in savings while ensuring patient access to medicine.

Our experience with Copaxone is representative of the perverse incentives embedded in the current system. Even after substantially lowering the price of our product, the supply chain chooses a higher priced alternative. This provides evidence that the business of healthcare feeds on higher prices, frequently putting system interest ahead of patients.

Rest assured, we will continue to be vocal about measures to improve the current environment.

The price pressure on generic drugs in the US is still ongoing and margins are still somewhat anaemic, but 1) Teva as measured by a P/S multiple is not overpriced historically and relative to its peers, 2) annual cost savings of no less than $3B will have been achieved by the end of 2019 and 3) Teva has economies of scale to achieve the best margins in the industry.

How big is the money laundering bank Danske Bank?

The largest financial scandal ever has arrived at the shores of Denmark. It involves money laundering at the Estonian branch of Danske Bank; the largest bank in Denmark. The story was first brought to daylight by Danish newspaper Berlingske in collaboration with journalists from the Russian newspaper Novaya Gazeta in March 2017:
Laundered billions poured through Danish banks

Recently it has received widespread media attention, as the reported numbers have grown to a somewhat astronomical size. Wednesday Danske Bank announced the conclusion of their investigation in a press release. The CEO (Thomas Borgen) also announced he would be stepping down voluntarily. Here a few of the recent articles regarding the case from the WSJ and others:

Sep20 WSJ: Denmark Reopens Investigation into Russia-Linked Money Laundering Case

Sep19 Reuters: Danske Bank CEO quits over $234 billion money laundering scandal

Sep19 Guardian: Danske Bank chief resigns over €200bn money-laundering scandal

Sep19 NYT: Danske Bank Says Billions May Have Been Laundered at Single Branch

Sep19 CNBC: Danske Bank CEO quits in a $234 billion money laundering scandal

Sep14 WSJ: U.S. Probes Danske Bank Over Russian Money Laundering Allegations

The Danish and Estonian Financial Services Authorities released a joint statement in May and the former has commented on the case and commented on the investigation by Danske Bank.

I thought it would be beneficial to myself and others to get a grasp of just how big Danske Bank is, so I created 1) a figure showing the size of Danske Bank compared to other Danish banks in terms of assets, 2) a chart showing the revenue over time of Danish banks, 3) a table showing the size of Danske Bank and other international money center banks relative to GDP and 4) a histogram showing Danske Bank contributing approximately DKK3b of DKK60b in corporate tax revenue in 2016. I think it’s fair to say that the conclusion is that Danske Bank is BIG relative to its peers and the Danish GDP.

Country Name Assets (USDm) Assets / GDP (%)
JPMorgan 2,533,600 13%
Bank of America 2,281,234 12%
Wells Fargo 1,951,757 10%
Citigroup 1,842,465 10%
Danske Bank 559,167 172%
Svenska Handelsbanken 315,505 59%
Skandinaviska Enskilda Banken 291,858 54%
Swedbank 252,296 47%

Generals Mills 2019Q1

General Mills reported earnings today (press release). US yogurt sales are down once again (by 2.8%), but the loss of market share to Chobani and the negative growth seems to be slowing down (-22% the previous year and -15% the year before that) . Margins are down (gross 32.8% from 36.5% and operating 14.7% from 16.7%), whereas operating expenses do not seem to have spiralled out of control yet (SG&A $743M up 9.4% from $679M, which is only slightly outpacing the revenue growth of 8.6%). Here links to the press release, 8K, 10Q, webcast and transcript.

CNBC: General Mills drops the most since March after reporting falling demand, lower margins
– Cheerios cereal maker General Mills missed analysts’ estimates for quarterly sales.
– Results were hit by lower demand for its snacks and yogurts in the U.S.
– General Mills, like its rivals, is battling rising freight costs as railroads and truck fleets hike rates, as well as higher input costs.

Bloomberg: General Mills Dives Most in Six Months as Revenue Falls Short
– Cheerios, Yoplait maker reiterates tepid full-year forecast
– CEO Harmening defended price paid for Blue Buffalo pet food

Reuters: General Mills shares tumble as first-qtr sales, margins disappoint

CNBC NBR: Sales growth dissapoints at General Mills

Below figures with regards to revenue, expenses, profits, margins and YoY growth rates for the entire business and for each of the segments. Further below comparison of margins and multiples on an annual and quarterly basis with other packaged food companies.