Novo Nordisk A/S (NVO)
Investor presentation on Victoza® launch and International Operation
April 29, 2010 03:00 pm ET
Jesper Brandgaard - CFO
Jakob Riis - SVP
Jim O'Neill - Head of Global Economic Research, Goldman Sachs
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» Novo Nordisk A/S Investor presentation on Victoza® launch and International Operation Transcript
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So welcome to Zurich and to this investor presentation where we have taken the opportunity of actually conducting a road show here in Zurich and then being able to go upon two critical players in the Novo Nordisk management team. First we have Jakob Riis who is the Senior Vice President and responsible for our global Victoza launch and roll out and could be interesting to hear an update on how he sees the world performance of Victoza. And secondly, we have Jesper Høiland who has been based in Zurich now for what eight years or so? Six years. And being responsible for our international operations with the base here in Zurich.
So that should be the focus of today's presentation. I'll just start with a few slides and of course, I wouldn’t be CFO if I didn't start with this slide. Today, we are going cover over prediction about the future which involve significant uncertainties and of course, you need carefully to read this when the presentation will be made available on our web. And then moving on to what are we going to go through? I'm just going to cover quickly the highlights of the first quarter. I'm just going to review a little bit of how do we see the next generation of insulin developing Degludec and DegludecPlus.
And then Jakob is going to take over. I would, should probably not speak more than approximately 15 to 20 minutes and then I hope we would dedicate approximately 40 minutes to Victoza and approximately 40 minutes to Jesper review of the big countries. And that should leave approximately an hour and 20 minutes and then we have 40 minutes for Q&A after.
And I would suggest to keep a flow in the presentation there. If there are questions, we will differ them to after the presentation unless there's something that just wants to you just clarifying when we're moving along to make it a little bit interactive. That's fine.
So, with that, I'll begin with the first quarter numbers. Basically, we are seeing a very positive first quarter where we have begun the roll out of Victoza in the US Jakob will allude much more to that. We are seeing the modern insulin that continues to drive our sales top line growth, close to 70% of the internal growth coming from our portfolio of modern insulin. We're seeing 11% growth in local currency terms. In the first quarter, we had 2% negative currency impact. This is changing with the currency level we have when we released this. It's even better now with all the challenges that the Greek economy is going through.
So when we get into Q2, you'll begin to see tail wind for Novo Nordisk. So higher reported numbers than the local currency numbers and then we will see a total positive currency momentum for the full year, probably to the tune of 3%.
Key drivers of course, North America and international operations, no changes there so it's critical that we should stay focus on international operations. In terms of the research and development, we have launched now a new exciting pen in the US FlexPro for growth hormone and you would see that it’s a little bit of a prototype for what we're going to launch also in the diabetes care, universe a very advanced pen with a simple to use administration where you basically have auto administration and you have an audible click when the administration is done.
So you can see this as the next generation disposable devices. We have our roll out of the phase 3 programs of Degludec and DegludecPlus, the next generation insulin well underway. We have more than 8,000 out of the 10,000 patients we need in the phase 3 program, recruited and we expect to complete the recruitment in the first half of this year. And then finally, we have moved the new oral GLP-1 interface, one clinical development as further substantiating our ambitions within all administrations uploading.
In terms of financials, we continue to improve our gross margin this quarter showing in local currency terms 100 basis point improvement coming from increased production efficiencies but also because of the mixed effect selling more of our higher priced modern insulin and also having the launch effect from Victoza having approximately a pipeline fill in the US of $250 million.
In terms of operating profit growth, we had 15% reported, 5% negative currency impacts so in local currency terms, approximately 20% growth. We had in the first quarter, I should note, we had $100 million, one time income related to a settlement of intellectual property which helped the performance.
In terms of the guidance for the full year, we have made our guidance for the sales growth a little bit more precise. We're taking out the bottom of the intervals and now we see 7 to 10 because we now have certainty on the impact of the US healthcare reform and we have up also as a consequence to that the guidance for operating profit. Now we are anticipating that we will have more than 10% growth invested in local currencies and for the operating profit, in reported terms, we currently predict we're on 6% higher level for reported than local currency growth.
If you look at the overall market for diabetes care, this is looking at the global market, how does it look to last 10 years? We've seen an overall growth in the ballpark of 10% but witnessing a higher growth for the core area where Novo Nordisk have been active in the insulin franchise seeing a compounded annual growth rate of 13% and we always say if you go back all the way to the foundation of Novo industry back in 1925, you can also calculate at 13% compounded annual growth rate on our insulin franchise from the 1925 up until today.
Also importantly you can begin to see that GLP-1 are emerging as a significant element of the overall treatments and it's today so that the protein based treatment of diabetes care is the same size as all of the tablets small molecule top which you have down here, and it's a our prediction that the protein base segment in the next couple of years will out grow here the small molecule segment.
It's a dedication to the protein segment that has made Novo Nordisk a stable, long-term leader in diabetes care, and also a leader which has much less fluctuation in our market share compared to what you see the all players having seen significant variations from work for GlaxoSmithKline et cetera. There is much more stability in being a provider of protein to this industry.
We look at the US healthcare reform now implemented and having a significant effect on our top line, and on our operating profit. We have here given the impact 1% in of total sales in 2010, 2% in 2011. The reason why we give it percent of total sales even though it's only applicable to government sales, in the US is to make our investors aware what implication it has on the overall growth sales produce order for Novo Nordisk. If we zoom in and say how big is the impact on the government sales in the US as a rule of thumb you can say the US is a third of all sales, and the government sales in the US is a third of the US sales, so to factor this 1% of the global sales is equivalent to almost 10% rebate on the government sales in US in 2010, and an additional 10% of extra rebates, taking the rebates to almost 20% on government sales when we casually based on 2011 effect of the healthcare reform.
The key effect are the three in 2010 listed here and out of these three effects the moving, we managed to mitigate pricing to and mitigate pricing is the most significant impact covering around three quarters of the overall impact. In 2011 you will both have the cover of the total hold it will only be implemented from 2011 onwards because of the system has to be established to calculate how the pharmaceuticals spending is for the individual patient, and then how the pharmaceutical companies should split their share of the whole where the patient historically had to own pay between around US $3000 up to $6000.
That will be established from 1st of January and then the second thing is the annual manufacturers fee which is basically calculating what are the cost indication of all the other parameters, and what is that then lacking to make it up to the long-term commitment of the pharma industry of providing in total US $80 billion in funding for implementation of the US healthcare reform over a 10 year period, and that will be the most significant part, the excise fee or the annual manufacturers fee is going to be the most substantial part of the extra cost effect. We are going to have in 2011.
That's on the cost side, significant and measured in percentage of government sales in the US On the positive side, I just highlight two things, one is that we have 32 million people now being under decent healthcare cover in the US and this would typically be the lower income end of the US population where the prevalence of diabetes will be quite significant.
So longer term getting these patients to the physician having them diagnosed for diabetes prevalence, and longer term initiating treatment, we believe that will be very positive longer term for Novo Nordisk, and also we like that the cap for insurance plans have been eliminated and that can in certain instances be challenging for patients with homophobia and with inhibitors and hopefully that would enable more orthopedic surgeries et cetera for the Novo serving community. So that is in short the impact of the US Healthcare reform on Novo Nordisk in India and longer term.
Then rounding off, I just like to highlight the two new insulins we have in phase 3 clinical development. We believe we have a fantastic opportunity with the two insulins. The two insulins is Degludec, our new long acting insulin and combing that with NovoRapid, you get the product. DegludecPlus, a soluble combination insulin that also enables simple treatment. If we take the basal insulin first, Degludec, the significant advantage is the lower variation you have of the insulin effect when you inject it. But Degludec is based on our phase 1 clinical trials, where we were able to show significantly less variation. And if you have low variation on a basal insulin, you will be able to titrate the patient down into guideline control in the absence of hyperglycemia which is the major concern.
So when you will be looking at the phase 3 data from the Degludec portfolio from mid or in the second half of 2010 onwards, you should look very much not solely on how is the blood sugar regulation, what percentage of patient gets down below the guideline control of seven because you can always use an insulin to getting good control. What you need to do is you need to keep the patients in good control in the absence of hyperglycemia, and the high predictability of the Degludec effect is what we believe would enable us to show that we have created a highly predictable basal insulin with Degludec.