Novo Nordisk A/S (NOVOB) Earnings Call Transcript & Summary

Good morning, good afternoon. Welcome to the 39th JPMorgan Healthcare Conference. I'm Richard Vosser, European pharma analyst at JPMorgan. And it gives me great pleasure to welcome Lars Fruergaard Jørgensen, CEO of Novo Nordisk to the conference. In contrast to some other sessions at this conference, I get to quiz Lars about everything to do with Novo in the next 40 minutes. So I'm really looking forward to that, and I hope you are, too. And with that, welcome, Lars, and I'll dive into some Q&A.

Thank you for having me.

Excellent. It's our pleasure. And normally, we'd be sitting opposite to each other in San Francisco. But of course, things are still, as we all know, less than normal. So first place to start, I would think, is how is the business right now? We saw COVID impacts before last year in 2020 with some stocking, wholesaler stocking, patient stocking, some impacts to the business. Just how are we looking with the second wave.

I think, overall, we're doing well. Looking across the pharmaceutical space, we are in chronic care. And as such, the need for our products remains even in a lockdown. So what we saw in the beginning of the year was actually some hoarding of products, both at the patient and the supply chain whereas the supply chain has gotten used to actually a steady flow of products. So we don't see that. We probably still have some patients who have extra inventory. When you compare the first and now you can say the second or third, whatever lockdown, we are in, we see a more normal flow. This time around, I think many of us have gotten used to living in a lockdown and where you initially were scared and even scared about going to see a physician. We see more flow to physicians, which is obviously important when we launch new products. We started out shortly before the pandemic hit us in launching Rybelsus in the U.S., our tablet version of the GLP-1 molecule, semaglutide that went off to a very strong start, then we were impacted by less flow of new scripts. It came back. And we see actually in the second lockdown relative stable flow of new scripts. So we are encouraged by what we see. And of course, nobody knows what happens in the coming weeks and months. But I think we're in a good place in terms of keeping our business running even in a COVID time.

You touched on Rybelsus, and it's clearly an exciting key launch for Novo. Maybe focusing on the U.S. first of all, obviously, somewhat COVID impacted. But how are you seeing acceptance of the product in with physicians? And also you've recently begun a DTC campaign or you did at the back end of last year. So how is that impacting on the market?

We are very encouraged by the launch. Luckily, we got started before the lockdown. So we had the key messaging out with our reps. And we have found ways to do more virtual means of selling. So even now where we have reps out of the field, we can still -- in contact with the physicians. And as you mentioned, DTC comes in. So we actually see that there is a good flow of new scripts. And when you look at those scripts, 80% come from outside GLP-1. So it's really an expansion of the use of GLP-1, which is not a surprise because when you look at the earlier stages of type 2 diabetes, you'll find a lot of patients using tablet-based treatments that are significantly less efficacious than what you get when you're on a GLP-1. So there are many patients there who are not in good control, shying away from going on an injection either a GLP-1 or an insulin. So there's a big pool of patients waiting for more efficacious treatment. And obviously, bringing, say the efficacy of a GLP-1 in the form of a tablet is a very easy sell for the physician in stepping up and intensifying treatment for patients. So we're very pleased with what we see, both in the U.S., but also outside of the U.S., we have seen a good reception. And in the beginning of '21, we will roll out to more countries. And 1 of the big opportunities is Japan coming up, which is, to a large degree, a tablet-based market when it comes to treating type 2 diabetes.

And maybe -- so an acceleration in the U.S., is that how we should think of '21? And maybe thinking about that ex U.S., how has the reception been in Europe and then beyond into Japan? What are the aims for the year?

So I would say it's the same type of market we address. It's the same type of patients who are looking for more efficacious treatment. When we have dialogues with the payers, it's also the same type of reception of the product and the pricing we get is it's more about GLP-1 pricing than it's, say, SGLT2 type pricing. So there is, I think, a similar reception of the clinical profile of the product. In Japan, we have now obtained price approval, and we are preparing for launching together with our partner, MSD. Remind that in Novo Nordisk, we have so far only visited the specialists in Japan because the only prescriber of injectable therapy are the specialists in Japan. So we made a partnership with MSD to get reach to their large primary care sales force. And 80% of the value of the Japanese market is in the tablet space. So that's a white space for us. So we see a similar type uptake and reception of the product across the markets we compete in.

Excellent. And the -- at the end of last year, you sort of highlighted the move to start testing higher doses of Rybelsus. I think there's been some discussion -- concern, I suppose, about the manufacturing, which I presume is clearly solved. So maybe we can go there. But also how do you see the long-term potential? Are you aiming to sort of move a tablet form of semaglutide into obesity and other indications. Step up therapy into high doses in [indiscernible] what's the plan?

Yes. So far, the only tangible decision we made is in type 2 diabetes with a higher dose, but it's clear that we see all formulation and all delivery of proteins as a key strategic play for us. We have acquired the technology, the SNAC technology by the acquisition of Emisphere. So we have now full control of that, and we can use that in different ways. So we look at this as a strategic space and look at different opportunities. And you'll hear more as we make the tangible decisions to move forward. But we believe that there is a significant value in being able to bring all versions, and we see that. And when you shy away from moving on to more efficacious treatment because of the injectable administration, not that those who are taking a weekly injection, find that to be a large problem, but it is a significant area and it takes some extra work from the physician or the nurse to get a patient to use it. So it means that you are delaying the high efficacy treatment. So if you can bring an all-in and open that up, that brings real value for the patient and for the health care system. And obviously, you prevent some of the complications that's inherent part of living with diabetes. So there's a lot of value to that. So I'm trying to say that we will look at it as a strategic opportunity, and we look at all options, but we'll communicate as we make these decisions. And so far, it's only in type 2 diabetes.

Very clear. You highlighted Rybelsus coming from sort of the oral space or from not patients naive to GLP-1s essentially. The GLP-1 market has been in really very strong growth mode for at least the last number of years, maybe because of cardiovascular benefits, weekly treatment. So it does look like it's sort of slowing down a little bit now. So broadening out the conversation, how should we think about sort of the GLP-1 market growth? Is COVID affecting things? What are the drivers to get that growth going?

Yes, you're right that we have seen over quite some years that the launch of more efficacious products or, say, labor upgrade with cardiovascular data has fueled the growth. And it's interesting that every time a new more efficacious molecule has been launched, growth went up. And of course, you get to a large pool of patients and large base to grow on. So the actual growth can be the same year-over-year and the relative growth goes a bit down. So when I -- when I look at it, it's still a very small fraction of the patients who are on GLP-1 in the U.S., maybe around 10%, outside of the U.S., significantly less. So I think there's a sustained opportunity for growth. Again, if you look at the patient that comes into the physician's office, not in good control, what to do? How to intensify treatment? Intensifying via the use of GLP-1 is a very attractive intensification compared to going to insulin, which is also highly efficacious and the GLP-1 is superior to any other, say, tablet-based treatment. So it is a very attractive way to treat diabetes. And then you see over time that it's actually been explored that the additional benefits, obviously, 1 that is approved is weight management, but we're also looking into other benefits from NASH, renal disease and potentially even dementia. So as we establish this molecule and hopefully establish also that is beneficial in other disease areas, more and more physicians will actually find attractive to use it. So I think it can keep growing for quite some time. And I note that there's still competition in the space. In a category where you have investments going into innovation either in pharma or different higher concentrations, whatever, different combinations, you will -- as long as you succeed in that innovation game, you will keep growing that. So I'm very optimistic that we can keep growing the GLP-1 class.

You pointed to investments and/or innovation from yourselves, but also others. And 1 of the other areas as being discussed is that innovation from others around Eli Lilly's product tirzepatide. So we've seen Novo in the recent history last year, maybe 18 months, gaining market share from Rybelsus and Ozempic or Rybelsus and Ozempic gaining market share from Lilly. How do you see your position with the market and the environment evolving with tirzepatide on the horizon?

So I think the best scenario for both contenders is that there are 2 companies that succeed. And we have seen that over the last generations of innovations from both companies that we actually thrive by having true contenders growing the market and then you compete on clinical profile. And the day one falls short of innovation and efficacy, I think the market will be less attractive. So I welcome competition and I feel that we have a couple of very good shots on staying competitive in that space. But I also hope that Lilly will be competitive and do well. I don't see any of us completely wiping the market in terms of having a product that's just massively differentiated. I think for some time, I think, we'll be the only 1 with an old product so competing in the early category. But I think we will be successful together with Lilly in the injectable space as far as I can say. Obviously, I don't know that that they send a trial as well as I know my own. But from what I can tell, it looks like there'll be 2 players with efficacious products. And that's a known market structure, and I feel comfortable about that.

Excellent. And one of the other things, I think, that may be on investors' minds in this space is pricing. We've seen pricing for the insulin market, which will come to in the past. And I think that and some people's said, it makes them a little nervous. So how should we think about the payer considerations around the development of the GLP-1 market? It feels almost like diabetes, whilst important, is slipping down the list of supercritical areas to manage from the U.S. but...

So if you start with the U.S., and I think it's important also to mention in international operations because there, we still see a very, very favorable insulin dynamics with both launch of our latest generation products and underlying growth because of demographics. But you're, of course, right that in the U.S., we have been through some years with very tough pricing conditions. And we have seen massive price decline to a degree where it's also important to mention that now our U.S. insulin business is down to, I think, around 13% of total sales. So of course, that drag of business becomes smaller just because it's a smaller business. It's still an attractive business in terms of the margins because it's not a promotion play anymore. It's more of a contracting play. And with the gross to net model in the U.S. I think, to some degree, those contracts have some inertia built in because you lock up some of the contracts, and it's actually the amount of rebate being paid that becomes a sticky point. Back to your point about, should we worry about that in GLP-1. I think when you compare the two, it's interesting to see how market shares are shifting when new efficacious products are launched, insulin market shares are like this year-over-year, whereas GLP-1s are like this. So just looking at that, that tells you how different the degree of differentiation is in those categories. And when you're on an insulin, you typically stay on it for life. When you're on GLP-1, you stay for some years, and there is a flow of patients. And as brands become older and less differentiated, fewer and fewer people are initiated on it. Meaning that there is a massive change to differentiated products in insulin. If you're comfortable prescribing a certain basal insulin, as long as it's on formulary, you keep prescribing that so the dynamics are quite different. And those we do business with they are in the business of making attractive formularies that they can sell to their customers. And if there is an attractive product that's taking share, you need to have that product because that's part of the business you sell, whereas in insulin space, physicians have gotten used to switching patients between insulins. And you kind of treat to target, so you -- even if an insulin has a slightly different efficacy, you adjust the dose and you get some of the similar features. Of course, I would claim that some of them, we have a product which has a claim of a lower risk of a hypo, and that's very meaningful for some. So a lot of patients prefer that. But it's a benefit that can be hard to single out in a highly competitive pricing dynamics. So as long as there's innovation and differentiation, the U.S. market is wide open for innovation. And it's a market where you can launch products the first and with the steepest uptake because there is a say, private market structure around that, you can do DTC, and you can really establish brands and create preference for differentiated products.

And how should we think about the GLP-1 class? You touched on the launch of Rybelsus in Japan, but more widely, the class in international operations, you've got different stages of the launches of the different GLP-1s in different areas. But how should we think about the growth potential there?

Right now, we're looking at a growth potential that's a higher growth rate than what we see in the U.S. So [indiscernible] you can say, to some degree, is a few years behind the U.S. in terms of launch. We are first now establishing GLP-1s in China. That's a significant opportunity. So the U.S. is our biggest GLP-1 market with quite attractive growth. We've seen growth around of the market of around 30% in the mid to high 20s in terms of growth in value. IO, we've actually seen higher level growth in certain markets than that. So I think there is a sustained growth opportunity also in international operations. And even with Rybelsus, which is a relative expensive old product compared to some of the other less efficacious products. Payers are willing to pay for that. So I'm optimistic, not only on the insulin performance in international operations but also GLP-1 performance.

And you mentioned weight management as an extra sort of area for GLP-1s. You've started with Saxenda to establish weight management as an option and a class. We're just in front of the launch of sema 2.4 milligrams. We'll get a name, I'm sure, not here. But what are the learnings that you've had from trying to establish obesity as a proper class? It's been a difficult area to establish.

Yes, there's a lot of, you can say, bad experience from prior products in obesity. So it's a market that has not been, I think, well recognized and maybe liked. There are some physicians who think obesity -- medical intervention in obesity is dangerous. With the GLP-1, it's a safe intervention. And that has meant that Saxenda, the liraglutide-based obesity medicine has become the best in the category, but still, it's a very, very small category. And it's linked to the efficacy of it. It's a best weight-lowering agent, but still it's not delivering to the full extent of what patients expect. And the consistency of the weight loss is not of a nature where it's what physicians expect. When we look at our next-generation sema 2.4-based -- and I agree, it will be interesting to see the brand name, I'm also trying to get it. There we see a consistent weight loss above 10%, which is typically what patients, physicians, payers look for. We're actually -- we're in the neighborhood of 16%, 17%. And you see that most patients get to that. So for the first time, we actually have a product that meet the expectations of those who make the decision to prescribe it in a consistent manner. You go from a product where you lose weight for maybe 4 to 5 months to even through our Phase III program, weight loss continued throughout the trial. So I think it's -- for me, it's a game changer. It's the first time we have a real solution to a significant problem. Then the challenge will be for us to open it up as a market. We have 650 million people living with obesity. So it's about making them see that now there is an opportunity to get an efficacious product. It's about making sure that physicians understand that the products of the past you can forget now, there's a different category. For the first time, there is actually a product that gets most of your patients to what you expect. It's about getting health care systems to acknowledge the value of treating obesity. And then also looking at how can we let patients pay out-of-pocket because there are a lot of patients who today pay a lot of money in different attempts to lose weight, which is not that different from what medical intervention from sema 2.4 would cost. So while health care systems acknowledge that obesity is actually a disease is something we should pay for. We believe we can develop also an out-of-pocket market. So you can find many examples of different product categories where maybe the first generation product was not the 1 that opened the market. But when you get with something that really meet the expectations of physicians or patients or consumers, whatever, then you will actually see the inflection point, and that's our aspiration. That's our task to go out and make sure that, that happens. We have seen with Saxenda that we can actually make a deal in the U.K. with a nice -- despite the profile, that's not the best for Saxenda, based on acknowledgment that there is actually for the high BMI patients with comorbidities, there is actually a very, very attractive case in making sure that they get the treatment. So when I meet health ministers, health care systems around the world, they all have obesity high on the agenda but are struggling how to deal with it. And my view is that a lot can be prevented. But for many, it's too late to work on prevention, then it's medical intervention that's needed and that we have to go out and establish.

Maybe a slightly dangerous question. But thinking about the uptake. I mean, you highlighted there that the efficacy is in a different ballpark to Saxenda. And stay times on Saxenda are relatively short. So how should we think about that when we're thinking about the launch of sema? This is a fourth term question, but you know...

But I think that you would see in -- on Saxenda, we have a big turn of patients. And I think we spoke about, I think we'll see a very fast decline in that, and those patients will go on sema 2.4. And I would expect that as long as you keep losing weight, you have an incentive to stay on treatment. So I think the experience of being on that more efficacious product that you keep losing weight will also mean that the stay time will be longer, the feedback to the physicians that, okay, this works better, I stay on treatment, will reinforce the physicians wish to prescribe. So I think there are many synergistic factors kicking in here that will help establish that brand. So a lot of switching and then the more positive experience will mean that the stay time is longer. And of course, you don't need to spend a long time on the math on that to imagine that, that's a good business.

And you touched on reimbursement with NICE or getting through that rather tough hurdle. Sema is more efficacious, but then we haven't touched on it yet, but you have the amylin analogue as well. So how do you bring -- I mean the amylin analogue is in a different ballpark again in combination to Sema. So how does this all fit together?

So I think it's -- when you look at it, we have spent, I think, more than 20 years in doing research and development in obesity. So it's a long-term journey for us. And we start out by Saxenda. Now we move to sema 2.4 and this is dealing with reducing energy intake. But there are also ways to burn more energy. So when you move with different mechanisms that have different ways to reduce weight and you combine them, you can get to significant weight loss profiles. So for us, it's a long-term strategy in lifting the innovation height of what we do, building the market and I think you will see us having a number of attempts to do that. And we can do it because we -- our entry is a known molecule. I think there will be a few companies who can say, okay, let's spend 20 years in building a market. And if you do the accumulated investment in this, we have not yet had a return, but we're about to break even on that and have a quite attractive business. And when you can enter it in a way where you look at it as an adjacency, and you use your existing molecule in a new area, it becomes a quite attractive model to build here, say, a leg in itself for Novo to stand on. And if we focus on obesity and really succeed in treating obesity, obviously, we're also preventing a lot of diabetes. And it's better to deal with the cause of diabetes with -- being obesity for many and also obesity being cause of other diseases, cancers, cardiovascular disease, knee issues, et cetera. There is a very attractive case also for the health care systems around the world in actually dealing with this issue which is becoming a larger and larger issue in most countries around the world.

Very clear. One of the other areas you sort of touched on was dementia. And the move there, and I suppose most people think about under the Alzheimer's banner rather than. But it surprised some, I think, the foray from Novo into Alzheimer's. Maybe if you could just give us the rationale here. And maybe the most important question, should I be taking it with my cornflakes?

Not yet. But it is fascinating to look at this molecule, semaglutide, which kind of keeps giving. But I also have to say that in the terms of Alzheimer's disease, that's probably the most -- it is the most risk indication we're going after. And everybody knows how difficult it has been in the past to develop products in this space. But we feel we need to test it out because we see signals in say, the payer databases in some of our preclinical models. And there's also some investigator-sponsored exploration of GLP-1. So we think there's enough hypothesis and enough signal that GLP-1 could play an important role here. And then we feel that we owe all of us potentially to explore, could semaglutide also work? But it is a higher risk program than what we normally do. And when we look at the size of the investment, we think it's a relatively small investment in the coming years. And obviously, we can calculate that even with the low risk of success in a success scenario, the return will be significant. So we think it's worthwhile doing it. And again, it's a molecule. We know it's a safe molecule. So it's derisked from the classical development and safety issues. So it's all about can we establish efficacy in this disease area. So I don't think it's -- it doesn't come more, say, it's hard to have a higher opportunity in a space than this, but it is, of course, a very, very high-risk disease area. So I don't want people to get too excited about it.

Very clear. We've touched on insulin a little bit, and it's still to some maybe a forgotten business in the Novo portfolio. And there have been lots of headwinds, higher rebates, affordability measures, competition, et cetera. But do you see a point where these pressures? And maybe that's a U.S. phenomenon. But do you see a point where these pressures in the U.S. business level off?

Yes, I do. And you can say, short term, the competitive dynamics is not much different. And it's a competitive dynamic that squeezed price. But obviously, there comes a point where existing players will reconsider whether you want to bid on contracts because the incremental loss in accepting contract on certain terms, doesn't really match the extra volume you get for it. So there comes a time where competitive intensity will go lower. And thereby price pressure become smaller. But I think short term, there will still be price pressure. So the real, say, step change is, of course, innovation, like we just spoke about in the GLP-1 space. And I think for years, we have been engaged in making insulins slightly shorter acting, slightly longer-acting and teasing out additional benefits, which turned out to be difficult. Because you ended up having somewhat of a commodity nature. So my ask for the research organization has been a step change in innovation height. And they were a bit frustrated in the beginning where we simply closed insulin projects because if you are the world's leading diabetes care company, having spent close to 100 years on developing better insulins and then you close a number of projects, that's a bit frustrating. But that tells people that we need to increase the innovation height and accept more risk and it has taken us a couple of years to get to where we are now where we are going into the final stages of Phase III testing of a once-weekly insulin. And if you look at time and range, it really matters the time we have and range. And from a convenience point of view, the reduced number of glucose measurements is also meaningful. So I think that's a very interesting concept. We're also going into Phase I with glucose-sensitive insulin. And if you think about it, insulin is the real way to reduce glucose level but it's probably the most difficult medicine to use because of its risk profile. So if you can make an insulin that kicks in when glucose level goes up, and as you bring it down, it switches off again. That would be an amazing product. It will be a really safe insulin. So I believe we can redefine, again how insulins are used where the prior -- years back, the invention was about getting as close to what the body could do itself. But now I think we're about to step up and bring innovation to the market of a completely different league. And I think that can redefine how market shares are deployed between competitors. And I think it can also potentially lead to price protection or potentially even at different price point. So you should never rule out innovation and even in an old category like insulin. And we come up -- this year is a 100-year of discovery of insulin. So I think it's really nice thing for us to go in and really bring a step-change innovation on that account.

It seems from the discussion we've had, there's a lot going on in the next 5, 10 years around GLP-1s, around insulins. But if we take a step beyond that, how are you thinking beyond that? There are some programs. We haven't touched on, adjacencies, but big picture strategy, what -- where do you go?

So the strategic lens we have is actually a very square lens in the sense that we are very conscious of how we built a broader technology platform for Novo Nordisk to stand on. We have a leading position in working with protein peptides. We can now make them orally available. We are looking at expanding technologies. We have, so far, very successful collaboration with Dicerna, getting access to their interference technology, and we have invested more than 20 years in stem cell-based therapy. We are planning on soon to start clinical testing in that space. We have a gene-editing collaboration with bluebird bio. So on a number of aspects, we try to build technology platforms where we have an opportunity to be among the best in the industry, sometimes in a collaboration. But still, when you combine it with leading biology understanding in diabetes and adjacent areas in biopharm, hemophilia and adjacent rare blood diseases, also some rare endocrine diseases. I think we can make a relative focus strategic grid of leading biology understanding with some leading technology understanding, and we can combine that in broader ways than we've done ever. So I see a phase where we are in many ways, doubling down on insulin GLP-1, which creates many options. But in addition to that, build a broader growth platform. Some of it comes in the form of acquisitions. We acquired ziltivekimab from -- in this Corvidia acquisition, which looks to be a potential, both best-in-class and first-in-class in cardiovascular disease with people with chronic kidney disease. So that's 1 example of us knowing as based from a biology point of view, and then going in and selectively acquiring an asset that is then leveraging our capabilities when it comes to running large-scale cardiovascular outcome trials that we know to do better than most. So we can leverage our capabilities to expect more value than most could do. So a strong core and then building some adjacency options around it. And I feel quite comfortable that we over the coming 5 to 10 years can build a number of additional assets that can fuel growth, say, 10-plus years from now.

Well, I could keep asking questions all day, but unfortunately, we've reached the top of the 40 minutes. So I'd like to say thank you very much to Lars for a great time today.

Thank you.

And I hope everyone else has a great conference. Thanks.

Thank you, Richard.