Novo Nordisk A S Q4 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to the Q4 2022 Novo Nordisk A/S Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lars Fruergaard Jorgensen, CEO. Please go ahead.

Thank you, operator. Welcome to this Novo's earnings call for the full year of 2022 and the outlook for 2023. My name is Lars Fruergaard Jorgensen, and I'm the CEO of Novo Nordisk. With me today, I have 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 of us will be available for the Q&A session. Today's announcement and the slides for this call are available on our website. Please note that the call is being webcast live, and a recording will be made available on our website as well. This call is scheduled to last one hour. The presentation is structured as outlined on Slide 2. Please note that all sales and operating profit statements will be at constant exchange rates unless otherwise specified. In 2022, we delivered double-digit sales growth and operating profit growth and we continue to make progress on our strategic aspirations. I would like to go through the highlights before handing over the word to my colleagues. We continue to make progress across all dimensions of sustainability. Our carbon emissions decreased by 29% compared to pre-pandemic levels in 2019 and we continue to reach even more patients living with diabetes compared to last year. In line with our aspiration of being a sustainable employer, we expanded the number of women in leadership positions to 39% compared to 36% in 2021. Within R&D, we are pleased that we initiated the first two Phase 1 trials based on the siRNA interference RNA technology platform that we acquired in 2021. Looking back at 2022, we have seen exciting trial readouts across all our therapy areas and in 2023 we look forward to having an equally exciting year. We saw particularly strong sales growth in North America driven by accelerated demand for our GLP-1 treatments for both diabetes and obesity. I am very pleased with the sales growth of 16% and operating profit growth of 15% in 2022. Lastly, I have a brief update on our strategic aspirations. We have achieved the U.S. aspiration of reverting 70% of sales to products launched since 2015, and our sales growth has in the last couple of years surpassed expectations of 6% to 10% growth. Consequently, we have decided to remove these regional expirations going forward and will be focused on delivering solid sales and operating profit growth. With that, I'll give the word to Camilla for an update on execution.

Thank you, Lars. As Lars mentioned, our 16% sales growth for the full-year of 2022 was driven by both operating units with North America operations growing by 21% and international operations growing 13%. The strong sales growth has unfortunately resulted in periodic supply constraints and related drug shortage notifications across several products and geographies. Our GLP-1 sales increased by 42%, driven by North America growing 36% and international operations growing 57%. Insulin sales decreased by 11%, driven by a 7% decline in international operations and a 21% sales decline in North America operations. The U.S. insulin sales declined by 22%. This decline is driven by lower realized prices as well as a decline in volume. Compared to 2021, the U.S. insulin volume market declined by 3%. Furthermore, insulin sales in international operations were impacted by the implementation of volume-based procurement in China, starting in May 2022 and lower sales in EMEA. Obesity care sales grew by 84% overall, and international operations sales grew by 82%, while in North America operations obesity care sales grew by 85%. In the U.S., obesity care sales grew 90%. Rare disease sales grew 1% driven by a 5% sales increase in international operations offset by a 5% decline in North America operations. Our 14% sales growth within diabetes care continues to be higher than the overall diabetes market. That means we have improved our market share by 1.8 percentage points to 31.9%. We continue to be on track to reach one-third of the diabetes value market by 2025. This increase primarily reflects GLP-1 market growth and share gains in both operating units. International operations diabetes care sales increased by 10% in 2022, driven by GLP-1 sales growing by 57%. Novo Nordisk remains the market leader in international operations with a GLP-1 value market share of 64%. Ozempic continues to expand its GLP-1 market share leadership in international operations with around 43% market share. While the GLP-1 class growth is more than 50%, GLP-1 penetration remains low at around 5% of total diabetes groups globally. Rybelsus sales more than doubled compared to 2021, driven by new launches and increasing volumes. The growth was mainly driven by launches in key markets such as Japan, Italy, and Spain. With that, I will hand over the word to Doug.

Thank you for that update, Camilla. The U.S. GLP-1 market volume grew by around 50%, comparing the fourth quarter of 2022 to the fourth quarter of 2021. The recent competitor launch in GLP-1 has supported the continued acceleration in market growth, and from an NBRx perspective, we continue to see all-time high levels of new patients starting on our portfolio of GLP-1 products by the end of 2022. Measured on total prescriptions, Novo Nordisk has maintained its market share leadership with a market share of more than 50%. Obesity care sales increased by 84%, with 85% growth in North America operations and 82% in international operations. We are excited that Wegovy has now launched in Denmark and Norway, their first two markets outside of the U.S. We also remain encouraged by the performance of Saxenda in international operations. Region EMEA is the key growth driver with 96% growth in 2022. In the U.S., obesity care sales grew 90% with both Wegovy and Saxenda contributing to growth. All dose strengths of Wegovy were made available in the U.S. again in December of 2022. In only a few weeks, Wegovy prescription trends have accelerated and already reached all-time high levels. The uptake underlines the significant unmet need for patients with obesity. Many patients have been waiting for all doses of Wegovy to be available again, creating a pent-up demand. We are now looking forward to continuing the relaunch of Wegovy. Now back to Camilla for an update on rare disease.

Thank you, Doug. Our rare disease sales increased by 1% in 2022. This was driven by a 5% sales growth in international operations offset by a 5% decline in North America operations where blood disorders grew by 7% driven by NovoSeven as well as the launch products Esperoct and Refixia. Specifically, Haemophilia A products grew by 6%, Haemophilia B sales by 16%, and NovoSeven by 6%. Rare endocrine disorder sales declined by 6%. The declining sales were driven by international operations decreasing by 1% and by North America operations decreasing by 18%. The sales were negatively impacted by lower realized prices in the U.S. and by supply constraints in the fourth quarter of 2022. Now over to you, Martin, for an update on R&D.

Thank you, Camilla. Firstly, I'm very happy to share that we have initiated two Phase 1 trials within NASH. This is particularly exciting because the two assets are both based on the small interfering RNA technology that we acquired as part of the Dicerna acquisition back in 2021. Both trials are 52-week trials targeting LXR and MARC1, respectively. The objective of both Phase 1 trials is to investigate the safety, tolerability, and PK/PD profile of each asset respectively. The initiation of these trials is a testimony to the successful integration and fast progression of the RNA-based research and development at Novo Nordisk. As mentioned at our Capital Markets Day in March of last year, our ambition is to generate an annual average of three first human doses across therapy areas based on the RNA technology over the next 10 years. We are looking forward to a very exciting 2023 with many important Phase 3 trial readouts across our therapy areas. Within Type 2 diabetes, we expect to see results from the Phase 3 trial PIONEER PLUS with once-daily oral semaglutide 25 and 50 milligrams respectively during the first half of 2023. Also in diabetes, we expect to initiate the Phase 3 program with CagriSema in the second half of 2023, following the very exciting Phase 2 results shared last year. Furthermore, we expect to submit insulin icodec for regulatory review in the first half of 2023. Altogether, we're looking forward to a very exciting year with clinical trial initiations and results across all therapy areas. With that, over to you, Karsten.

Thank you, Martin. In 2022, our sales grew by 26% in Danish kroner and 16% at constant exchange rates, driven by both operating units. The gross margin increased to 83.9% compared to 83.2% in 2021, driven by a positive product mix due to increased GLP-1 sales, a positive currency impact, and productivity improvements. Lower realized prices, particularly in the U.S. and China, partially offset these effects. Operating profit increased by 28% in Danish kroner and by 15% at constant exchange rates. Net financial items for 2022 showed a loss of around DKK 6 billion compared to a gain of around DKK 0.4 billion in '21. This mainly relates to losses following the appreciation of the U.S. dollar as reflected in the favorable currency impact on operating profits. Free cash flow was DKK 57.4 billion compared to DKK 29.3 billion in '21, supporting the strategic aspiration to deliver attractive capital allocation to shareholders. In 2023, we expect to increase our capital expenditure to around DKK 25 billion. This is a significant step-up compared to 2022 and reflects the innovation-based growth strategy that we're pursuing at Novo Nordisk. The increase in capital expenditure mainly relates to investments in additional capacity for both current and future injectable products across therapy areas. The outlook includes expectations for sales growth in both International Operations and North America operations, mainly driven by GLP-1-based treatments for diabetes and obesity care. The sales growth within diabetes and obesity care is expected to be partially countered by declining sales in rare disease due to supply constraints. We expect that operating profit will grow between 13% and 19% at constant exchange rates. The guidance also reflects inflationary impacts on the cost base. Thank you, Lars, for your final remarks.

Thank you, Karsten. We're very pleased with double-digit sales growth for the full-year of 2022 and that we continue to reach more patients. 2023 is a truly significant year in the history of Novo Nordisk as we celebrate our 100-year anniversary. We look forward to continuing our focus on commercial execution, expanding our pipeline, and investing significantly in the expansion of production capacity for current and future products. With that, we're now ready for the Q&A.

Thank you. We will now take our first question. One moment, please. And it comes from the line of Harry Sephton from Credit Suisse. Please go ahead. Your line is open.

Thank you very much for taking my question. I'll just ask the one on pricing, please. Our latest pricing data suggests that you've only taken a low single-digit price increase in January across your U.S. portfolio, despite the larger headroom for price increases this year with high CPI. Could you look to increase prices a second time later in the year given the headroom for price increases? And then just on your international operations as well. There are a number of drug pricing reforms being proposed across European markets. Do you anticipate these changes could be material near-term headwinds to your growth in international operations? Thank you very much.

Thank you, Harry. So Doug, a perspective on how we look at pricing in the U.S. first.

Yes. Thanks, Harry, for the question. We had a commitment back in 2016 around price, and we've held that commitment. And I don't want to give any forward-looking statements on price moving forward.

Thank you. So on Europe, we don't anticipate any single event to be material. We have seen various countries operating with different reforms sometimes in the form of something that looks more like a tax. So we are accustomed to operating in this environment, and our guidance incorporates what we anticipate in this. Thank you, Harry. So next question, please.

Thank you. We will now take the next question. And it comes from the line of Peter Verdult from Citi. Please go ahead. Your line is open.

Thank you. Pete Verdult from Citi. Two questions for Doug and Camilla. Firstly, just in light of these U.S. GLP-1 trends we're seeing, the intense publicity and media coverage. Can you characterize how, if at all, recent payer discussions are evolving? Are you sensing any efforts to step up and restrict access more aggressively? And can you provide an update on the DKK 30 million commercial opt-in number that you provided at Q3? And then to Lars and Karsten, just if I could try my luck and push you to better understand what is possible and what is not with respect to Wegovy capacities that you have in place for 2023. Thank you.

Thank you, Pete. So Doug, first, on U.S. GLP-1 trends and payer discussions.

Yes. Thanks, Pete, for the question. First thing to recognize is that the volume of prescriptions in the GLP-1 category is still only about 10%. There is a lot of runway there. Secondly, payers do take notice of categories that are growing. This one is certainly growing at double digits, but they also recognize the need for this product. And again, it's only about 10% of the prescription volume.

Thank you, Doug. And Karsten, on Wegovy capacity versus what we see in the market now. I know you're not going to disclose the whole story. What can you say?

Yes. It's a key question that we spend a lot of time on internally to ensure that we do not disappoint our customers when we launch products in different markets. The guidance I just covered indicates that we have built in a significant step-up in Wegovy. As you know, we have one production line in-house. We have one CMO up and running full speed and we have another line on track to be online in the first half of this year. Looking ahead, we have significant production capacity for Wegovy. However, we do not have unlimited capacity, and that is why we have been careful with the first data points because they are impacted by pent-up demand.

Thanks, Karsten. To summarize, we have a significant addressable market and capacity coming in, so we can pursue that opportunity. Very encouraging indeed. Thank you, Pete. Next question, please.

Thank you.

Thank you. We will now take the next question. It comes from the line of Michael Nedelcovych from Cowen. Please go ahead. Your line is open.

Thank you for the questions. I have two. The first is on the SELECT trial. When taking interim looks at SELECT, does Novo consider whether a futility analysis has been prespecified and presumably passed to be material information to be shared with the market? That's the first question. And then the second question is on the oral semaglutide readout. Some of our consultants are expecting meaningfully diminished weight loss relative to injectables. If that ends up being the case, what percent weight loss would still support commercial success? Thank you.

Thank you, Michael. I think Martin those questions towards you.

Yes, absolutely. With regards to SELECT, we are not perfect to the data. The DMC is looking at the totality of the data, and there was a pre-specification for when they could recommend to stop use if there was a convincing superiority for semaglutide. They recommended us to continue the trial, which leads us to believe that we are probably still in the realm of 17% that we have sample sized for. In terms of oral semaglutide, both in diabetes and obesity, we expect to achieve exposure similar to that of subcutaneous semaglutide, both Ozempic 2.0 mg and Wegovy 2.4 mg, and therefore aim to have full efficacy and full safety profiles comparable to those two formulations.

Various active product profiles from what we can tell from a commercial opportunity perspective. Thank you, Martin, and thank you, Michael. Next question, please.

Thank you. We will now take the next question. It comes from the line of Sachin Jain from Bank of America. Please go ahead. Your line is open.

Hi, it is Sachin Jain, Bank of America. Just two very simple questions. Firstly, on obesity, you've noted inherent uncertainty. I think there's been commentary on pent-up demand and cash flow with the first data points. So I'm trying to get a sense of how much of a bolus you think this will go over the first couple of weeks and best expectations for a run rate once that bolus comes off? And then secondly, I know Karsten we've discussed this a lot before, but GLP-1 growth rate is the biggest delta to guide. Just from your perspective, are you expecting a trend shift through full-year '23 from the existing 40% to 50% growth? Thank you.

Thank you, Sachin. If I try to address the first question on Wegovy pent-up demand, and then Karsten, you can address the GLP-1 growth rates.

When we look at the market growth, I can start with the U.S. MAT-wise for the latest data points. We are around 40%, and that would be the same ex-U.S. also. If we take shorter data points in the U.S., we're closer to the 50% mark. In terms of what that implies going forward, it's a function of our activities and competitor activities as well as supply capacity for the players in the markets. We have built our guidance based on continued strong market growth.

When you have a category with efficacious products competing, it leads to market growth more than share gain. Thank you, Karsten, and thank you, Sachin. Next question, please.

Thank you. We will now take the next question. It comes from the line of Richard Parkes from BNP Paribas. Please go ahead. Your line is open.

Hi, thanks very much for taking my questions. Firstly, on CapEx expansion plans. And just on whether you can give us any indication of what that increased capacity could allow you to meet in terms of market expansion by the end of the decade, maybe some ballpark range for GLP-1 market expansion. And then secondly, on the ONWARDS 1 and 2 trials of insulin icodec. I mean, playing devil's advocate looks incrementally worse than previously. I think with the HbA1c advantage no longer significant or significantly worse in both trials showing a worse hyperglycemia profile. So I'm just wondering how this impacts your expectations for that product over both approvability and commercial potential? Thanks very much.

Thank you, Richard. Let me try to give a perspective on CapEx. The ability to supply in a market that we believe will have very attractive growth creates strategic flexibility. Building capacity to serve the markets can create a competitive advantage. It is indicative of confidence in the existing business and pipeline. Martin, could you address the ONWARDS results?

First, both ONWARDS 1 and ONWARDS 6 were originally 52 and 26-week studies. During the 52-week period of ONWARDS 1, we showed a superior A1C reduction with a good hypoglycemia profile. Over the additional 26 weeks, we maintained glycemic control over time, and while we lost statistical significance, we confirmed the efficacy profile. The risk of severe hypoglycemia with insulin icodec in ONWARDS 1 was almost ten times lower than with insulin degludec, confirming its safety.

Based on the totality of the data, we are very confident in the efficacy and safety profile of once-weekly icodec and its potential to become the standard of care for people with Type 2 diabetes. We remain confident in both the U.S. and international rollout of icodec as it represents a significant segment.

Thank you, Camilla. Thank you, Richard. Next question, please.

Thank you. We will now take the next question. It comes from the line of Richard Vosser from JPMorgan. Please go ahead. Your line is open.

Hi, thanks for taking my questions. First question, just thinking on Ozempic trends and how you see those going forward. I think Q3, you were saying 40% of patients were naive to diabetes treatment of the new patients going on Ozempic. How are you seeing the Wegovy relaunch impact that? Do you see Ozempic slowing down significantly because of Wegovy? And then the second question. Just going back to the reimbursement and payers. If patients reach normal BMI or lose significant amounts of weight, do payers then say, well, that's brilliant, you're back to normal and to come off the drug? How are they treating that in your reimbursement discussions? Thanks very much.

We see a continued increase in Ozempic. We are back to TRx and NBRx leadership. The uplift in Wegovy trends in the U.S. primarily comes from patients new to GLP-1 treatment. We expect both classes to coexist and continue increasing as we see unexploited potential for GLP-1 treatment.

I think it's important to note that we are pleased with our level of access today. Payers recognize this as a serious chronic disease and understand the need for long-term treatment.

Thank you, Camilla. Thank you, Doug. Thank you, Richard. Next question, please.

Thank you. We will now take the next question. It comes from the line of Michael Leuchten from UBS. Please go ahead. Your line is open.

Thank you. Two questions, please. One, if I look at the value of the volume for Ozempic and Rybelsus in the U.S., there seem to be some trend changes in Q4. Is that a fair reflection of the competitive rebating environment? Or should we not overinterpret those trends for 2023? And then a question for Martin. SELECT isn't really something you talk about actively anymore. Is that because in your mind, the relevance has taken a step back? Thank you.

The changes in Q4 are not a reflection of underlying trends relative to '22. The competitive environment could create some noise with changes in inventory levels. The dynamics remain robust into 2023.

We are still excited about SELECT. The lack of results to share warrant a cautious approach. We are looking forward to the data coming out around mid-2023.

Thank you, Michael. Next question, please.

Thank you. We will now take the last question. It comes from the line of Keyur Parekh from Goldman Sachs. Please go ahead. Your line is open.

Two separate lines of questioning, please. The first one on CapEx. As the 2022 Capital Markets Day, your slides implied CapEx for 2025 to be between DKK 10 billion and DKK 15 billion. What you're guiding to today implies CapEx close to DKK 25 billion to DKK 30 billion in 2025. Just wondering if you can give us a sense of how much of that doubling of CapEx is attributable to your perception of higher demand for existing products versus ensuring supply for non-diabetes, non-obesity products in the pipeline. And then separately, coming back to icodec. Camilla, would love your thoughts on how you think ONWARDS 1 and 2 extension data changes, if at all, the commercial positioning for this molecule. Thank you.

The step-up in CapEx is driven by a stronger volume uptick than our initial modeling. It impacts both API and fill/finish scaling, and there are significant investments in our pipeline products. Some cannot be specifically separated due to the integrated nature of our operations.

We remain confident in once-weekly icodec and its potential to become the standard of care for Type 2 diabetes. We believe the product has strong commercial potential in the U.S. and internationally.

Thank you, Camilla. Thank you, Keyur. That concludes our earnings call today.

Thank you for participating. You may all disconnect.