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

Ladies and gentlemen, thank you for standing by, and welcome to Wegovy Supply Update. [Operator Instructions] I would now like to hand the conference over to your speaker today, Karsten Knudsen. Please go ahead, sir.

Thank you. Good morning, and welcome to the Novo Nordisk Wegovy Supply Update. My name is Karsten Knudsen, CFO of Novo Nordisk. And with me today, I have Henrik Wulff, EVP of Product Supply. This meeting follows the company announcement we issued Friday afternoon following a meeting with our contract manufacturing organization updating us on the supply consequences of a cGMP issue they have witnessed. According to Danish rules, we must immediately disclose such information to the market if deemed material, which we assessed. And following that, we have been assessing the situation and we will now, over the next 30 minutes, provide a status of the Wegovy supply situation based on our current assessment and host a Q&A where we ask each attendant to do one question per person. This call may contain forward-looking statements, and as you know, forward-looking statements are inherently uncertain, and actual results may differ from what those forward-looking statements indicated. When we look at Wegovy overall, then we know that on a global scale, there are 650 million people with obesity globally. We also know and have demonstrated in our clinical trials that Wegovy yields a weight loss of up to 17% to 18% according to the STEP clinical trials. Hence, there's a significant unmet demand in the market today for antiobesity medications. That we also saw after launching Wegovy in the U.S. marketplace back in June, and we saw total Wegovy scripts surpassing Saxenda scripts just 5 weeks into launch. And looking at scripts today, Wegovy are more or less double of those of Saxenda in terms of measured as total scripts. As a consequence of the overwhelming initial demand, we have been upgrading our capacity. We've been facing capacity constraints. And as of today, we have made significant progress in ramping up supply across all doses and we're expecting to be able to meet demand by early 2022. We have prepared our sales force, and our promotional efforts were ramping up and ready to scale from now and into early 2022. Unfortunately, we got notice from our contract manufacturing organization that they are experiencing a cGMP compliance issues, and as a consequence, they were stopping shipments and manufacturing to Novo Nordisk of Wegovy syringes. Our current assessment of the situation is that we have rebased our plans and we'll come back to it later, but we have now a plan in place how to maximize the deliveries we can during the months to come. We do expect this will have a negative impact on new patient initiations, and our priority and focus is on patients already on treatment today. With our current knowledge, we do expect that the supply situation will stabilize and we will be able to meet demand in the U.S. marketplace in the second half of 2022. With this introduction, I will hand it over to Henrik Wulff to provide an update on the issue we are facing currently.

Good morning. My name is Henrik Wulff, EVP of Manufacturing in Novo Nordisk. Please, next slide. Thank you. So the illustration here on the left-hand side, here you can see our supply chain for Wegovy. We produce our active pharmaceutical ingredients in-house in Novo Nordisk. We have large-scale filling at the mentioned CMO. We do assembly and packaging in-house. It's important to say that the ramp-up was doing fine both at the CMO on the assembly and the packaging when this happened. The capacity expansion plans, they were well on track following the uptake in U.S. Then this global large contract manufacturing received a 483 letter from the U.S. FDA, and the letter addresses cGMP issues at the production site for the Wegovy syringe, the filling glasses. The findings are not related directly to the production of Wegovy, that's important. But the consequence and the wordings of the letter was in a shape where the CMO decided to stop deliveries and manufacturing to the market for the full site. We do not expect, at the moment, the product recall for the market of Wegovy. Next slide. So right now, we are in a daily close collaboration between the mentioned CMO and our company to address all the cGMP issues that they have seen as fast as possible. There's a good collaboration between the parties. We are right now planning to utilize some of our internal Novo Nordisk filling capacity for Wegovy. On the longer run, our strategy remains the same: we will ensure multiple production sites when we build the value chain. And we plan to launch the Wegovy outside U.S. in one of our existing Novo Nordisk platform not dependent on this solution. Next slide.

Thank you, Henrik. So based on the outlook Henrik just alluded to, we do expect that we'll be able to meet demand in the U.S. marketplace in the second half of 2022. This, of course, assumes successful mitigation of the cGMP issues at our contract manufacturing organization. The key priority, as I said before, is for patients who have already initiated treatment on Wegovy and for them to be able to stay on treatments. Our current assessment of supply capacity in the first half of 2022, is expected to be at around 60% to 90% of the current total script level you see on the graph on the left-hand side, so at least around 20,000 to 25,000 weekly scripts. We remain committed to Wegovy. We are confident in Wegovy and we're committed to patients living with obesity, and that remains unchanged. So that concludes our presentation, and we are now ready to move into Q&A. [Operator Instructions] Operator, back to you.

[Operator Instructions] The first question is from Martin Parkhøi from Danske Bank.

Yes. Martin Parkhøi at Danske Bank, I'll try to do one question. As you said yourself, your U.S. obesity sales force was gathered last week in Las Vegas to -- with the intention to start active marketing. Now they have to go around 6 months again to tell -- probably to tell doctors do not prescribe Wegovy as they have done a lot of the time in the second half '21. Can you retain this sales force? How can you motivate them over the next 6 months?

Thank you, Martin. That is, of course, a key focus of ours to remain ready to ramp our Wegovy sales and promotional efforts as the supply situation eases. And we have good experiences with our Wegovy field force already, so we'll remain committed to the market in educating prescribers on the benefit of the antiobesity treatment. And as you know, we do have Saxenda in the marketplace available for patients and prescribers. So the focus will be on that. And of course, with a keen focus on our side to be committed to the U.S. obesity sales force because we are looking at obesity as a significant opportunity for the company in both the short, medium and long term. So this is something where we'll just have to wait out until supply eases and then it's full speed ahead.

The next question is from Simon Baker from Redburn.

On the CMO, firstly, is the 483 letter public as yet? And related to that, is it practical to think about dual sourcing or are you limited in the options that you have here, and you've simply got to wait until this problem is resolved.

Henrik, will you take that one?

Yes. So we are actually planning with dual sourcing, and we also have dual sourcing right now between a smaller internal capacity and a larger CMO capacity. It is so, in general, when we ramp up new products, full new supply chain in the starting phase, you have normally only one single site and then you expand from there. So we are certainly planning for dual sourcing. We're actually planning for 3 sites for this. So it's highly unfortunate that we are hit by this right now. But the strategy remains the same, dual or more manufacturing sites on all parts of the supply chain going forward. Thanks.

And Simon, on your question on the 483. As you know, 483s are made public, but we will not want to comment on our partner's 483s, whether they're public or not. That will be on their side to decide on.

The next question is from Jo Walton from Credit Suisse.

I hope you can hear me. I wonder if you can clarify what steps are needed and therefore how confident you are in resolving this in the next 6 months? And if I can just also ask if there's any implications ex U.S. Were you looking for -- were you looking to use this solution for any of your ex U.S. sales? Or are they being sourced completely separately or not delayed?

Henrik, will you take those two?

Yes. Thank you. So there's -- just if we keep it overall, there are some physical changes they need to do on site. That should be straightforward. So they need spare parts and then they need to sort of replace some of the equipment, and they need to validate again. And then they have a couple of investigations to do, in general, what we call the quality management systems. So it's classic cGMP manufacturing challenges that they have. It's nothing that a manufacturer of these kind of products have not seen before. So we are quite confident that they know what they do, but they need time for doing it. The solution that we have here is only for the U.S. market. Thank you.

Thank you, Henrik. And just adding 2 comments. So we believe they have a good plan in place at our CMO. But of course, in the current COVID situation, spare parts are not easy to get. So there might be some delays on that. But what we're saying today is based on our current best estimate in terms of the availability of spare parts. And as Henrik says, this CMO with our current plan is more or less only supplying the U.S. market and we're looking at a different platform to supply ex U.S. markets.

Next question from Tarun Soni from Guggenheim.

So my question is in terms of the CMO, I don't know if it's possible if you could disclose the name of the CMO. But if you could provide some color in terms of where the CMO is located or what percentage of Wegovy is flowing through this CMO. So that will be great to know. And do you envision a similar kind of risk arising with your other CMOs or it's just specific to this CMO only.

Okay. Henrik, please cover those two. Henrik, are you muted? Okay. It seems like Henrik has dropped off the line. So let me answer on his behalf, so we can move forward. So first of all, the location of the CMO, as Henrik said, this is a globally recognized CMO we're working with and the specific site in question is one of their European sites. And in terms of our share with the CMO, as the CMO is a large international CMO, Wegovy is a smaller share of their total book of business, but they have assured us that Wegovy is top priority during this process. And as to spillover versus other CMOs, we do not see why that should be the case. As Henrik covered, this is a classic cGMP issue at a specific site that needs to be mitigated.

Next question from Simon Mather from BNP Paribas.

So just to clarify, I think the question on the previous one was what proportion of Wegovy is made using -- is still using the CMO rather that's the question I'd like answering. And can you just also clarify maybe was this the issue that caused the initial supply constraint, i.e., had this CMO had a number of 483 observations from the FDA and they tried to resolve the problem while still manufacturing or filling products and it's come to the situation where they can't resolve it without complete closure?

Yes. So while Henrik is calling up, then in terms of share of Wegovy supplies, then this CMO, and again, we're talking about filling of Wegovy's syringes, the CMO in question was planned initially to take the bulk of the syringe filling. We do have an internal line approved and able to fill some dosages of Wegovy syringes, but not the full demand. So clearly, the CMO is a key part of the Wegovy supply chain. And Henrik, are you on to answer on other 483s? Okay. So as Henrik is coming online, then this is a CMO that we've been working with for multiple years preparing for launch and ramp-up of Wegovy and this is the first 483 that we've been notified around in recent years.

Okay. Sorry, Karsten, am I still on? I just wanted to clarify, if I am, if this was the same issue that caused the initial supply constraint before, i.e., they had the problem. Sorry.

No. So sorry, just to repeat our comment on the initial supply constraints. So the initial supply constraint was purely around scaling of the initial capacity and had nothing to do with the current cGMP issue. So the issue that we're facing now is new. It's based on a recently issued 483. And based on their dialogue with the FDA, they have now decided to close down production and stop shipping and they notified us about that on Friday.

I'm back again.

Thanks, Henrik.

The next question from Richard Vosser from JPMorgan.

One quick question. Given the nature of the issues with the 483, do you think you'll need -- or CMO will need an inspection from the FDA? And then one quick question on, clearly, this shortens the gap to tirzepatide coming to market. So just your thoughts on the impact of the supply constraints on the long-term potential.

Henrik, will you take the FDA reinspection question?

Yes. It's stated in the response from FDA to the site that FDA will follow up on the optimization on the next routine inspection.

Thanks, Henrik. Sorry, Richard?

Sorry. No, I was just going to say do we know when that is? Apologies, obvious question.

That we don't know, sorry.

Okay. Sorry, Karsten.

Yes. Thanks, Henrik. And in terms of the tirzepatide gap, I'd say the starting point for us looking at it in a strategic context, we believe that the market potential overall and the unmet patient need with the 650 million people with obesity I alluded to from the beginning, we do believe that the overall market potential is substantial. And we remain committed and very confident in the full potential of Wegovy and with a very long runway and significant potential. So with the potential competitor coming to the market, there should be sufficient space for both agents in the market.

Next question is from Peter Verdult from Citi.

Pete Verdult, Citi. Henrik or Karsten, could you just characterize current internal fill finish capabilities and how that might develop over the next 12 months? And just so everyone on the call probably understands this, I think we -- the message before Friday was that you were looking to resolve supply issues by early 2022. Was that based on building out internal capabilities? Was that based on getting new contract manufacturers onboard? Or were you solely reliant on this CMO that's now got a 483 letter for them to ramp up their capacity? I just want to understand what your plan was to resolve the supply constraints initially.

Henrik?

Yes. So what we will do here is that we have a smaller internal capacity, and we will prioritize this 100% for Wegovy. So that is what we do in the meantime while the CMO is ramping up again. In '22, this was the large -- by far, the largest volume that we are supplying with. So we expect them to come up again and deliver. And they were also ramping up.

Thank you, Henrik.

The next question from Michael Novod from Nordea.

Yes. Just maybe trying to sort of understand the ranges that you gave in terms of first half supply, 60% to 90% of the current TRx level. What is sort of the driving force behind 60%? And what is the driving force behind 90% just to get a feeling of that?

Thank you for that question, Michael. And just to give you a sense for it, of course, we've been looking at our inventories, which have not yet been fully manufactured, say, assembled and packed, first of all. And then we're looking at our internal manufacturing capabilities. And then we're looking at the timing for our CMO to get online. And based on those mathematics and lead times in manufacturing, we have basically calculated, compared to current demand, what's realistic in terms of supplying the market. And as you can gather, there are several moving pieces in this equation currently. So I think I wouldn't go down to overspeculate in terms of the ranges. The important point is that we will be supply constrained compared to the current in-market demand and hence the 90%. However, you should also note that our early experience program, the so-called bridge program will be starting to taper off as we get into 2022 and new activations will not be possible after the 1st of January. So there will also be an impact on total TRx and new starts from the bridge program is tapering off and as another factor. So I think the key point is that we're looking at this range and hence, around 3/4 of current demand as a supply capacity in the first half of next year.

Next is from Keyur Parekh from Goldman Sachs.

Have 2, please, if I may. Karsten, this is obviously fairly disappointing for a lot of us and I'm sure this is disappointing for Novo. Just wondering if, I mean, you guys have spent a lot of money on CapEx over the last kind of 3 to 4 years preparing for this launch. You outlined plans earlier last week there's been an incremental DKK 17 billion. So just keen on your thoughts on if you take a step back, kind of what might you have done differently? And what might you do differently going forward to award this scenario? That's one. And then separately for Henrik. Henrik, you laid down a list of steps that the CMO needs to do to be able to get back into cGMP. Just wondering what your confidence levels are around that 6-month time line that you are providing. And what is plan B at this point if the 6 months suddenly becomes 12 months or 18 months because of no fault of yours because the CMO is not up to scratch.

Great. Thank you, Keyur, that question. In terms of -- if I take -- start out with the first question and then hand over to you, Henrik. In terms of what to do differently, clearly, moving into a new therapeutic category in sales, a lot of learning. We had a lot of learning already since the launch of Saxenda in '15. But clearly, we were overwhelmed by the strong demand for Wegovy at launch. And in hindsight, of course, it's very painful not to be able to supply to that level of demand. So as a Monday-morning quarterback, then, of course, I would have loved that we have created a supply chain with more flexibility from the get-go, recognizing the volatility and uncertainty in initial demand given the clinical profile of the product. So I think that would be the key point from my side. And Henrik, over to you.

Yes. Thank you very much for this nice question. So yes, I can only confirm what Karsten is saying is that normally we do not plan to have backlogs when we launch a product. So of course, we were caught by surprise by the really high uptake on this product. So that would have been stronger if we have known. So on the question what they need to do at the site, I have full visibility into the issues that they have. And I think it's realistic what they are telling us, what their plans are and what they want to do. So I'm quite confident that they will be up running again according to the plans that they have made now even though they are rough. And then you can say on the longer run, then there are more CMOs and more sites in this supply chain. So our foundation is much stronger moving forward. So it's -- 2022 was the increased ramp-up year due to the high demand and then we would have been in -- we will be in a much better place in '23 with more manufacturing sites on. So '22 is still a easy year. We will rely on that they get up running again, but there's more manufacturing sites coming in according to our plans.

Thank you, Henrik. This covers the last question. I would like to thank you for listening in to this Wegovy Supply Update. As you can hear, we have a plan forward on the supply issues, the cGMP issues at our CMO that we just faced. And we remain committed to delivering Wegovy patients on a global scale, and we're very confident in the significant future potential for the brand in many years to come. We look forward to seeing you in connection with the full year results on the 2nd of February, where we'll be providing the next update on this issue and providing outlook for 2022. And we also do hope to see you at our Capital Markets Day on March 3, 2022. Also then, I would like to wish you all a happy and peaceful holiday season. Thank you.

That concludes the conference for today. Thank you for participating. You may all disconnect.