Yahoo Finance Novo Nordisk A/S (NYSE:NVO) Q1 2024 Earnings Call Transcript
Novo Nordisk A/S (NYSE:NVO) Q1 2024 Earnings Call Transcript May 2, 2024
Novo Nordisk A/S misses on earnings expectations. Reported EPS is $0.7 EPS, expectations were $0.77. NVO isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day! And thank you for standing by. Welcome to the Q1, 2024 Novo Nordisk A/S Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Bohsen, CVP, Investor Relations. Please go ahead, sir.
Daniel Bohsen : Thank you. Welcome to this Novo Nordisk earnings call for the first three months of 2024. My name is Daniel Muusmann Bohsen and I'm the Head of Investor Relations at Novo Nordisk. With me today I have CEO of Novo Nordisk, Lars Fruergaard Jørgensen; Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; Executive Vice President and Head of North America Operations, Doug Langa; Executive Vice President and Head of Development, Martin Holst Lange; and finally Chief Financial Officer, Karsten Munk Knudsen. All speakers will be available for the Q&A session. Today's announcement and the slides for this call are available on our website, novonordisk.com. Please note that this call is being webcasted live and a recording will be made available on our website as well.
The call is scheduled to last one hour. Please turn to the next slide. The presentation is structured as outlined on slide two. Please note that all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. Please turn to the next slide. We need to advise you that this call will contain forward-looking statements. These are subject to risk and uncertainty that could cause actual results to differ materially from expectations. For further information on the risk factors, please see the company announcement for the first three months of 2024 and the slides prepared for this presentation. With that, over to you Lars for an update on our strategic aspirations.
Lars Fruergaard Jørgensen : Thank you, Daniel. Please turn to the next slide. In the first three months, we have delivered 24% sales growth and 30% operating profit growth. Furthermore, we have raised the outlook for the full year. I would like to start this call by going through the performance highlights across our strategic aspirations before handing over the word to my colleagues. Starting with our focus on purpose and sustainability, we are now serving almost 42 million patients with our diabetes and obesity treatments. Our total carbon emission rose by 32% as compared to the first quarter of 2023. This was primarily driven by our increased investments in capital expenditure to meet the high demand for our products. Compared to the first quarter of 2019, carbon emissions from operations and transportation decreased by 31%.
To uphold our commitment to being a sustainable employer, we expanded the number of women in senior leadership positions to 41%, compared with 39% in the first quarter of 2023. Within R&D, we are pleased with the successful completion of the FLOW Kidney Outcomes Trial and the approval of the Wegovy label expansion in the U.S. based on the Select Cardiovascular Outcomes Trial. Martin will come back to this and our overall R&D milestones later. We also announced the agreement to acquire three fill-finish sites from Novo Holdings in connection with a transaction where Novo Holdings has agreed to acquire Catalent. This is expected to enable us to reach many more people living with serious chronic diseases. The quarterly sales growth reflects solid commercial execution across operating units.
Both operating units contributed to sales growth driven by demand for our GLP-1 treatments for both diabetes and obesity. Camilla and Doug will go through the details per therapy area later. Karsten will go through the financials, but I'm very pleased with the performance so far this year. Now I would like to hand the word over to Camilla who will give us an update on the commercial execution.
Camilla Sylvest : Thank you. Lars. Please turn to the next slide. In the first three months of 2024, our total sales increased by 24%. The sales growth was driven by both operating units with North America operations growing 35% and international operations growing 11%. In the US, sales growth was positively impacted by gross to net sales adjustments related to prior years. Our GLP-1 sales in diabetes increased 32% driven by North America operations growing 37% and international operations growing 22%. Insulin sales increased by 9% driven by North America operations growing 23% and international operations growing 5%. Obesity care sales increased 42% driven by North America operations growing 44% and international operations growing 35%.
In both geographies, growth was driven by Wegovy, partly offset by declining Saxenda sales. Doug will talk more about North America obesity performance, but in IO Wegovy sales exceeded DKK 1 billion in the quarter. We continue to roll out Wegovy in a sustainable manner with volume-capped launches to balance supply and demand. Rare disease sales decreased by 3%, which Doug will also speak more to later. Please turn to the next slide. With 24% sales growth in Diabetes Care, we are growing faster than the total diabetes market. As a result, our global diabetes value market share increased to 34%, which is above our strategic aspiration of reaching one-third of the global diabetes value market in 2025. The increase reflects market share gains in both North America operations and international operations.
In international operations, please turn to the next slide. In international operations, Diabetes Care sales increased by 12% in the first three months of 2024, which was primarily driven by GLP-1 sales growing 22%. Novo Nordisk is the market leader in international operations with a GLP-1 value market share of around 70%. Ozempic continues its GLP-1 market leadership with 47.2% market share. We are also pleased to see Rybelsus increasing its market share to around 15%, driven by solid uptake across geographies. And with that, I will hand over the word to Doug.
Doug Langa: Thank you, Camilla. Please turn to the next slide. Sales in North America is driven by healthy prescription volume growth of the GLP-1 class of around 15% in the first quarter of 2024, compared to the first quarter of 2023. Novo Nordisk is taking market share, meaning we are growing more than the market, fueled by our strategic GLP-1 brands of Ozempic and Rybelsus. Measured on total prescriptions, Novo Nordisk continues to be the market leader with around 56% market share. Sales growth of Ozempic was negatively impacted by periodic supply constraints in the beginning of the first quarter. Please go to the next slide. To safeguard continuity of care for Wegovy, we reduced the release of lower dose strengths in May of 2023, which continued throughout the remainder of last year.
In the beginning of this year, we gradually started increasing the supply of the lower dose strengths. I am pleased to see that this has been reflected in prescriptions, and we are now seeing more than 27,000 new-to-brand prescriptions and approaching the peak total prescriptions seen last year. Wegovy still has broad market access with more than 50 million covered lives. Importantly, around 10 million vulnerable patients have access to Wegovy via Medicaid in more than 15 states. Following an expanding market access and our focus on reaching more patients, Wegovy net prices declined in the first quarter. While we continue to gradually increase the overall supply throughout the rest of 2024, our primary focus remains on ensuring continuity of care for patients who have already initiated treatment.
Next slide, please. Our rare disease sales decreased by 3%. Sales in international operations declined by 18%. This was partly offset by a 20% sales increase in North America operations, reflecting the launch of Sogroya and positive gross to net adjustments related to prior years in the US. Sales of rare blood disorders decreased by 4%, driven by NovoSeven and haemophilia A products, partly countered by increased haemophilia B sales. Sales of rare endocrine disorder products increased by 1%. We are working on reestablishing full supply of rare endocrine disorder products, following a reduction of manufacturing output in 2022 and 2023. Now with that, over to you Martin, for an update on R&D.
Martin Holst Lange : Thank you, Doug. Please turn to the next slide. In March, we announced that the FDA has approved a label expansion for Wegovy with the indication of reducing risk of major adverse cardiovascular events, abbreviated MACE. MACE includes cardiovascular death, non-fatal heart attack, and non-fatal stroke in adults with either obesity, sorry, overweight or obesity and established cardiovascular disease. The approval is based on the SELECT Cardiovascular Outcomes Trial, which demonstrated for the primary endpoint that Semaglutide 2.4 milligram reduced the risk of MACE by 20% compared to placebo when added to standard of care. In addition to the cardiovascular indication, the label also is updated to include that risk reduction in MACE was achieved regardless of baseline age, sex, race, ethnicity, body mass index, and level of renal function impairment.
Cardiovascular death superiority was not confirmed and thus the testing hierarchy was stopped. However, the label update does include data on the numerical risk reduction in cardiovascular death by 15% and a statistically significant risk reduction of death from any cause by 19%, both compared to placebo. In the clinical pharmacological section, the label now also describes that the exact mechanism of cardiovascular risk reduction has not been established, reflecting that the beneficial CV effects of Semaglutide is not associated with weight loss alone. The approval of the Wegovy label expansion for the indication of reducing MACE in the US is an important milestone for people living with obesity and cardiovascular disease. The select data demonstrates that Semaglutide 2.4 milligram has the potential to prolong lives by addressing some of the leading causes of preventable death by, for example, reducing the risk of cardiovascular events.
Next slide, please. In March of 2024, Novo Nordisk acquired Cardior Pharmaceuticals. The agreement includes Cardior’s lead compound, CDR132L, currently in Phase 2 clinical development for treatment of heart failure. CDR132L is a synthetic antisense oligonucleotide and is a disease modifying therapy designed to halt or partially reverse cellular pathology in the heart by targeting microRNA-132. With its distinct mode of action, CDR132L has the potential to become a first-in-class therapy for long-lasting improvements of heart function. A second Phase 2 trial is planned and will investigate CDR132L in a broader chronic heart failure population with left ventricular hypertrophy. This acquisition is in line with our strategic aspiration of establishing a presence in cardiovascular disease and emerging therapy areas.
Next slide please. As we shift our focus to the upcoming R&D milestones, there are many exciting approvals, trial initiations and trial completions to watch out for. Allow me to go through a few key milestones from the first quarter of 2024 and touch upon a few upcoming highlights later in 2024. Within diabetes, Insulin Icodec under the brand name of Awiqli was recommended for approval for the treatment of diabetes by the European Regulatory Authorities. We anticipate a final decision from the European Commission within a couple of months, making an exciting milestone for the world's first once weekly basal insulin. Of note, an FDA advisory committee meeting for Insulin Icodec has been announced to discuss the new drug application. The meeting will focus on the risk benefit profile of Icodec in the treatment of Type 1 diabetes and is scheduled for May 2024 in due time prior to the action date in July.
Awiqli is currently approved in both Canada and Switzerland. Further, is diabetes combined to a Phase 3 trial for IcoSema was successfully completed. The primary endpoint was met with IcoSema demonstrating superior reduction in A1c compared to once weekly Semaglutide 1.0 mg in people with Type 2 diabetes inadequately controlled on GLP-1 treatment and in need of treatment intensification. From an overall A1c baseline of 8%, once weekly IcoSema achieved an estimated reduction in A1c of 1.35 percentage points compared to 0.9 percentage points for Semaglutide 1.0 mg. IcoSema appeared to have a safe and well tolerated profile and shows the potential to set a new benchmark for once weekly treatment of Type 2 diabetes. We expect results from Combined 1 in the second quarter of 2024.
Also on diabetes, we have successfully completed the FLOW Kidney Outcomes Trial with once weekly injectable Semaglutide 1.0 mg. The trial achieved its primary endpoint by demonstrating a statistically significant and superior reduction in kidney disease progression as well as cardiovascular and kidney death by 24% for people treated with 1.0 mg compared to placebo. In March, the FLOW data was submitted as a label expansion application to the U.S. FDA. Submission to the European regulatory authorities is expected in the second half of 2024. The FLOW results will be shared at the European Renal Association Congress later this month. We have also successfully completed an exploratory Phase 2 trial with higher doses of once weekly subcutaneous Semaglutide.
The trial investigated efficacy and tolerability of 8 mg and 16 mg Semaglutide in people with Type 2 diabetes. In the trial, dose response on weight loss was observed and the higher doses of Semaglutide appeared to have a safe and well tolerated profile in line with previous Semaglutide trials. Semaglutide in higher doses in diabetes are now being evaluated for further clinical development. Moving to obesity care, in the first quarter we have already covered the Wegovy label expansion for approval for cardiovascular risk reduction in the US. In the first quarter, the STEP HFpEF trials were submitted to the U.S. FDA and granted priority review. The FDA also announced that an advisory committee is to be convened in the second half of 2024 to discuss the application.
In rare disease, we are excited about the expected readout of Mim8 Phase 3 in the second quarter of 2024. Mim8 is a novel, next generation, Factor VIIIa Mimetic Bispecific Antibody with potential for improved patient outcomes and reduced patient burden in treatment of people with haemophilia A. Looking ahead to the second half of 2024, there are several events of note within diabetes. This includes the readouts of STRIDE and the SOUL trials, as well as Phase 2 for Monlunabant and the initiation of Phase 2 trials for Amycretin. Within obesity, we look forward to the readout of the first pivotal trial in CagriSema. Lastly, within cardiovascular and emerging therapy areas, we look forward to the readout of the Phase 3 ESSENCE trial within MASH.
With that, over to you, Karsten.
Karsten Munk Knudsen : Thank you, Martin. Please turn to the next slide. In Q1 2024, our sales grew by 22% in Danish kroner and 24% at constant exchange rates, driven by both operating units. In the US, sales growth was positively impacted by gross-to-net sales adjustments related to prior year. The gross margin increased to 84.8% compared to 84.7% in Q1 2023, reflecting a positive price impact due to gross-to-net sales adjustments in the US, a positive product mix due to increased sales of GLP-1 based products. This is partially countered by costs related to ongoing capacity expansions and a negative currency impact. Sales and distribution costs increased by 7% in Danish kroner and by 8% at constant exchange rates, around 20% as percentage of sales.
In North America, operations costs are driven by promotional activities related to Wegovy, and in international operations, the increase is related to promotional activities for Rybelsus, as well as obesity care market development activities. Research and development costs increased by 28% measured both in Danish kroner and at constant exchange rates, amounting to around 13% of sales. Cost increases reflect late-stage clinical trial activity and increased early research activities compared to Q1 2023. Administration costs increased by 8% measured in Danish kroner and by 9% at constant exchange rates. Operating profit increased by 27% measured in Danish kroner and by 30% at constant exchange rates, reflecting the sales growth. Net financial items showed a net gain of DKK 72 million compared to a net loss of DKK 270 million last year.
The effective tax rate was 20.4% in the first three months of 2024 compared to 19.9% in the first three months of 2023. Net profit increased by 28% and diluted earnings per share increased by 29% to DKK 5.68. Free cash flow realized in the first quarter of 2024 was DKK 5 billion compared with DKK 24.8 billion in the first three months of 2023. The lower free cash flow reflects phasing of rebates related to lower US growth sales in the first quarter of 2024 compared to the fourth quarter of 2023. This is combined with reduced insulin list prices, higher taxes paid and increasing capital expenditure towards additional manufacturing capacity. This is partially countered by increased net profit. Capital expenditure for property, plant and equipment was DKK 8.5 billion compared with DKK 4.7 billion in 2023, primarily reflecting investments in additional capacity for API production and fill-finish capacity for both current and future injectable and oral products.
In February 2024, we announced an agreement to acquire three fill-finish sites from Novo Holdings in connection with a transaction where Novo Holdings has agreed to acquire Catalent a Global Contract Development and Manufacturing Organization. The fulfillment of various customary closing conditions is progressing and Novo Nordisk still expects that the acquisition will be completed towards the end of 2024. Please go to the next slide. We continued the growth momentum in 2024 and has increased our sales growth to between 19% and 27% at constant exchange rates. This is based on several assumptions as described in the company announcements. Of note, the updated sales outlook at constant exchange rates reflect gross to net sales adjustment related to prior years in the US in the first quarter.
The guidance reflects expectations for sales growth in both North American operations and international operations, mainly driven by volume growth of GLP-1 based treatments for obesity and Diabetes Care. With the expectation of continued volume growth and capacity limitations, the outlook also reflects expected continued periodic supply constraints and related drug shortage notifications across a number of products and geographies. Novo Nordisk is investing in internal and external capacity to increase supply for both short and long term. Operating profit growth is now expected to be between 22% and 30% at constant exchange rates. The increased expectation for operating profit growth is reflecting the increased sales outlook, partially countered by an expected loss on other operating income and expenses.
Capital expenditure is still expected to be around DKK 45 billion in 2024, reflecting the expansion of the supply chain, including the previously communicated expansions of manufacturing facilities in Denmark and France. The free cash flow is now expected to be between DKK 57 billion and DKK 67 billion. The updated cash flow expectation reflects changes to gross to net sales estimates and related cash flow impacts, as well as business development activities, including the planned acquisition of Cardior. That covers the outlook for 2024. Now back to you Lars.
Lars Fruergaard Jørgensen : Thank you, Karsten. Please turn to the final slide. We are pleased with the sales growth in the first three months of 2024, driven by increased demand for our GLP-1 based diabetes and obesity treatments. More patients benefit from our innovative treatments and the agreement to acquire the three Catalent manufacturing sites will enable us to serve significantly more people living with diabetes and obesity in the future. Within R&D we are pleased with the positive results from the Kidney Outcomes Trial with SELECT and the label expansion for cardiovascular disease risk reduction for Wegovy in the US. With that, back to Daniel.
Daniel Bohsen: Thank you Lars. Next slide please. With that, we are now ready for the Q&A session. I kindly ask all participants to limit her or himself to one or maximum two questions, including any sub-questions. Operator, we are now ready to take the first question.
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