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1 | Novo Nordisk Buy www.danskemarketsequities.com
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Equity Research
Investment Research
30 October 2015
Novo Nordisk Buy
(Unchanged)
Next stop: US Tresiba launch
Pharmaceuticals, Denmark
Key data
Price performance
1M 3M 12M 5Y
Source: FactSet
Estimate changes 15E 16E 17E
Source: Danske Bank Markets estimates
* Price as at close on 29 October 2015
† Includes dividends
Volume growth in the insulin market is still 5%+ and we expect Novo to gain
market share through the launch of the Tresiba family. The pricing environment
for insulin is harsh, but we expect Novo to see an ASP increase from improved
mix. Add this to its strong GLP-1 franchise and we still look for 10%+ diabetes
growth for Novo. We reiterate our Buy with a new 12M TP of DKK480.
Impact on the investment case. The Q3 release does not impact our positive
stance on Novo. We continue to believe that the likely launch of five diabetes
products in US over the next four years will lead to higher sales and EBIT growth.
The tough US price environment steals the headlines right now and it is naturally
understandable that Novo acts a bit cautious until it also sees the impact from its
own launches. The most effective way to mitigate price pressure is through
innovation and we believe Novo’s launches will lead to an improved ASP for them.
Estimate changes. Our estimates for 2015 are slightly up due to a better Q3,
lifted 2015 EBIT guidance and a lower tax-rate. Our 2016-17 estimates are cut
due to slightly lower insulin growth as well as the impact from patent expiry on its
HRT product Vagifem. Our estimates suggest a CAGR in EPS of 19.7% from
2015-19E.
Q3 release. Q3 sales were up 20% y/y or 8% in LC. Insulin growth in LC was 6%,
which is much better than competitors. The shining star is still its GLP-1 Victoza,
up 36% y/y or 20% in lc. EBIT was up 40% y/y or 9% underlying growth. This are
strong numbers, in our view, as Novo still depends on its old insulin portfolio. The
US launch of Tresiba in January should accelerate growth, in our view.
Valuation. Our DCF model suggests a 12m value of DKK 482/share. Key financials
Important disclosures and certifications are contained from page 14 of this report.
Post-results note
Price (DKK) * 364
Target price, 12 mth (DKK) † 480
Previous 12M target price (DKK) † 500
Market cap (DKKm) 941,312
Market cap (EURm) 126,179
Reuters NOVOb.CO
Bloomberg NOVOB DC
No. of shares (m) 2,586.0
Net debt (current Y/E) (m) -18,890
Free float 73.5%
Avg. daily vol, 12M (000) 2,956.2
240260280300320340360380400420
Oct 14 Jan 15 Apr 15 Jul 15 Oct 15
NOVOb.CO STOXX 600/Health Care rebased
Absolute 2% -9% 42% 223%
Rel. local market -2% -6% 13% 59%
Rel. EU Sector -4% -5% 19% 52%
Sales 0.2% -1.5% -3.0%
EBITDA 1.2% -1.4% -2.9%
EBIT (adj.) 1.6% -1.5% -3.0%
EPS (adj.) 2.2% -2.5% -1.8%
Next event
CMD 19-Nov
Year-end Dec (DKK) 2013 2014 2015E 2016E 2017E
Revenues (m) 83,572 88,806 107,633 117,771 131,088
Revenues growth 7.1% 6.3% 21.2% 9.4% 11.3%
EBITDA (m) 34,292 37,927 52,248 54,206 61,997
EBIT, adj. (m) 31,493 34,492 46,974 50,970 58,348
EBIT growth 6.9% 9.5% 36.2% 8.5% 14.5%
Pre-tax profit (m) 32,539 34,096 43,752 51,027 58,403
EPS (adj.) 9.38 10.1 12.7 16.0 18.7
DPS 4.50 5.00 6.50 8.00 9.00
Dividend yield 2.3% 1.9% 1.8% 2.2% 2.5%
FCF yield 4.2% 4.0% 3.6% 4.1% 4.7%
EBIT margin (adj.) 37.7% 38.8% 43.6% 43.3% 44.5%
Net debt/EBITDA (x) -0.5 -0.4 -0.4 -0.4 -0.3
ROIC 72.2% 77.2% 106.4% 108.8% 113.3%
EV/sales (x) 6.1 7.4 8.5 7.6 6.6
EV/EBITDA (x) 14.9 17.4 18.2 16.4 14.0
EV/EBIT (adj.) (x) 16.2 19.2 19.4 17.5 14.9
P/E (adj.) (x) 21.2 25.8 28.7 22.8 19.5
P/BV (x) 12.4 16.8 20.8 19.1 17.4
Source: Company data, Danske Bank Markets estimates
Analyst(s)
Martin Parkhøi
+45 45 12 80 46
Thomas Bowers
+45 45 12 80 44
2 | Novo Nordisk Buy www.danskemarketsequities.com
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Investment case
Key conclusions
We remain positive on Novo Nordisk, with a 12M target price of DKK480 per share and
a Buy recommendation. We continue to believe that Novo will return to double-digit
sales growth in local currencies driven by multiple product launches. We expect growth
to be driven by the five potential launches of diabetes drugs in the US over the coming
four years on top of the entrance into obesity through the Saxenda launch earlier this
year. The impact is likely to become particularly strong from 2017, as the Tresiba US
launch will be in the second year and that Xultophy also will be launched. No doubt the
pricing environment for insulin products has become tougher, but we believe the best
way to mitigate this is through innovation.
Valuation
We estimate that over the period 2015-19 Novo will be able to deliver a CAGR in EPS
of 19.7%. This is almost three times more than the average for the pharmaceutical
sector. Novo currently trades at P/E of 22.9x for 2016E and 19.6x for 2017E. This is a
premium versus the global pharmaceutical peer group of c.33% and c.27%. However,
looking at PEG (price earnings to growth) ratios, then Novo actually trades at a
discount of 44% on 2016E. Our DCF model for Novo Nordisk suggests a 12M value of
DKK482 per share, which is the main basis for our 12-month target price of DKK480
per share. Our DCF model uses a WACC 6.05% and risk-free interest rate of 2.0%
Share price catalysts
This year has been a very eventful one for Nordisk. Recent approval of Tresiba in the
US was the most important event. Short-term news includes the capital markets day
on 19 November as well as further phase 3 data on Semaglutide. However, newsflow
in Q1 16 will also be very important. We expect a launch of Tresiba in January and we
expect Novo Nordisk to update its long-term targets in connection with the FY 2015
release. In Q1 16, we also expect headline data from the CV outcome study
(LEADER) on Victoza. We see a chance that this could show superiority versus the
placebo. Furthermore, in Q1 we expect to see data from the two double-blinded
studies, SWITCH 1 (type 1 diabetes) and SWITCH 2 (type 2 diabetes) comparing
Tresiba with Lantus. We expect data from SWITCH 2 to be published first.
Risks to our scenarios
Risks that could impede achievement of our DCF-based 12-month target price include
tougher competition to Victoza than we assume, a poor launch of Tresiba, a setback
to key pipeline products and further worsening of the US pricing environment for
diabetes drugs.
3 | Novo Nordisk Buy www.danskemarketsequities.com
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Next stop: US Tresiba launch
Q3 sales growth was 20% y/y and some 8% in local currencies. This was in line with
our estimate.
EBIT came in some 4% above our estimate and some 3% above company-collected
consensus. EBIT growth was 40% y/y, or some 17% if adjusted for FX. If we
furthermore adjust for DKK600m in one-off costs in Q3 14 (closure of inflammatory
activities), then underlying EBIT growth was 9%.
EPS was 5% above our estimates driven by a much lower tax-rate than we had
expected, while net financial expense was actually much higher than our forecast.
Table 1. Novo Nordisk: Q3 15 deviation of actual from estimated results
DKKm Actual Danske Cons.
Q3 15 Q3 15 Diff % Q3 15 Diff % Q3 14
Sales 26,792 26,988 -1% 27,087 -1% 22,249
EBITDA 12,613 12,234 3% 12,567 0% 9,752
EBIT 11,980 11,488 4% 11,645 3% 8,569
Fin net -1,844 -1,287 43% -1,351 36% -115
PTP 10,136 10,201 -1% 10,294 -2% 8,454
Net profit 8,383 8,068 4% 8,108 3% 6,500
EPS (DKK) 3.27 3.10 5% 3.15 4% 2.48
Sales growth 20% 21% 22% 8%
EBIT growth 40% 34% 36% 7%
EBIT margin 44.7% 42.6% 43.0% 38.5%
EPS growth 32% 25% 27% 4%
Divisional sales breakdown
Modern insulins 12,500 12,701 -2% 12,686 -1% 10,641
- where of NovoRapid/NovoLog 5,119 5,363 -5% 5,320 -4% 4,471
- where of NovoMix 2,716 2,864 -5% 2,778 -2% 2,442
- where of Levemir 4,665 4,474 4% 4,589 2% 3,728
New generation insulins 376 350 7% 446 -16% 175
Human insulin 2,772 2,722 2% 2,696 3% 2,478
Victoza (Liraglutide) 4,680 4,520 4% 4,577 2% 3,441
Other Diabetes care 1,223 1,205 1% 1,176 4% 953
Total Diabetes and Obesity care 21,551 21,498 0% 21,581 0% 17,688
Other sales 1,028 840 22% 936 10% 763
HGH 1,842 2,083 -12% 2,028 -9% 1,686
Haemophilia 2,371 2,757 -14% 2,526 -6% 2,112
Total Biopharmaceuticals 5,241 5,680 -8% 5,503 -5% 4,561
Source: Company data, company-collected consensus, Danske Bank Markets estimates
The 8% underlying sales growth in Q3 was at the mid-point of Novo’s FY guidance of
7-9%.
4 | Novo Nordisk Buy www.danskemarketsequities.com
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Below we show the underlying growth in key products on a global scale and
specifically for North America.
Table 2. Underlying y/y growth for key products - global and North America
Growth in local currencies for key products, Global
Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014
NovoRapid/NovoLog 3% 6% 6% 4% 11% 4% 2%
Levemir 10% 7% 13% 13% 28% 33% 27%
NovoMix 2% 0% 3% 0% 5% 7% 5%
Victoza (Liraglutide) 20% 25% 18% 19% 21% 11% 13%
HGH 0% 21% 9% 10% 20% 7% 4%
Total insulin growth 6% 5% 8% 6% 12% 10% 7%
Growth in local currencies for key products, North America
Q3 2015 Q2 2015 Q1 2015 Q4 2014 Q3 2014 Q2 2014 Q1 2014
NovoRapid/NovoLog 0% 3% 2% 1% 8% 3% -2%
Levemir 14% 9% 21% 18% 42% 54% 41%
NovoMix 0% -5% -13% -13% -8% -3% -8%
Victoza (Liraglutide) 23% 28% 20% 21% 29% 15% 15%
HGH -14% 43% 22% 12% 41% 8% 25%
Source: Company data, Danske Bank Markets
As can be seen from the table above, Victoza continued its strong momentum despite
increased competition from new once-weekly GLP-1s, notably Lilly’s Trulicity. Novo
has lost market share but this has been offset by increased market growth in the GLP-
1 class. Victoza sales were DKK4,680m in Q3, up 36% y/y or 20% in local currencies.
Chart 1. Victoza quarterly sales (DKKm)
Source: Company data, Danske Bank Markets
Victoza now accounts for 17.5% of Novo Nordisk’s total sales and is the largest
contributor to Novo Nordisk’s growth. We note that comparison figures for Victoza will
become tougher in Q4 than they were in the first 9m.
Novo’s insulin growth in Q3 was 6% y/y in local currencies. This was affected by the
tougher pricing environment in the US. Underlying insulin growth in the US was also
6%. We also believe that, in Q3 isolated, Novo saw a negative impact from pricing in
the US. In the table on the right we list prescription growth (TRx growth) for Novo’s
three insulin analogues in the US and the growth reported by Novo Nordisk in the US.
These indicate that Novo saw a negative pricing effect for Levemir and NovoLog,
while there was a positive effect for NovoMix.
1,990
2,293
2,503
2,709 2,678
2,877 2,847
3,231
2,9163,059
3,441
4,010 3,957
4,486
4,680
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q1 14 Q1 14 Q4 14 Q1 15 Q2 15 Q3 15
Table 3. Estimated US pricing effect in Q3
15
TRx
growth
Value
growth
Pricing
impact
NovoLog 8.7% 0.0% -8.7%
Levemir 16.0% 14.0% -2.0%
NovoMix -4.9% 0.0% +4.9%
Source: Company data, Symphony Health, Danske
Bank Markets
5 | Novo Nordisk Buy www.danskemarketsequities.com
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The estimated pricing effect for Levemir has also fluctuated somewhat, as we have
tried to illustrate in the chart below. The comparison should become much easier in
Q4 15 as there was already in Q4 14 a negative pricing effect on Levemir.
Chart 2. Difference between reported growth and volume growth in US for
Levemir
Source: Company data, Symphony Health, Danske Bank Markets
Novo repeated in connection with Q3 that across all products the net pricing effect in
2015 will still be flat to slightly positive. In all the discussion on price pressure in the
US, it seems that the market looks a bit passed the fact that pricing remains quite
strong in the GLP-1 segment. Novo was 23% underlying sales growth in US for
Victoza in Q3, which was based on 16% volume growth. That means a 7% positive
impact from pricing. The GLP-1 market has also not been hurt by the same rebate
pressure as in insulin. The risk of this happening is also quite low, as Lilly has the only
product (Trulicity) that has a somewhat competitive clinical profile to Novo’s Victoza
and Lilly appears to have a sensible pricing strategy.
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015
6 | Novo Nordisk Buy www.danskemarketsequities.com
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Q3 performance vs competition
Lilly, Novo and Sanofi have now reported their Q3 numbers, so we now have a good
overview of Novo’s performance versus those of its peers. Below we show the Q3
performance for the three manufacturers of insulin.
Table 4. Real insulin growth Q3 15
Growth
Q3 15 sales Reported In local currencies
Novo Nordisk (DKKm)
Levemir 4,665 25% 9.9%
NovoRapid/NovoLog 5,119 14% 2.6%
Novomix/NovoLog Mix 2,716 11% 1.7%
Tresiba 376 115% n.m.
Human insulin 2,772 12% 2.7%
Total insulin 15,648 18% 6.0%
Sanofi-Aventis (EURm)
Lantus 1,561 -0.4% -10.8%
Toujeo 46 n.m. n.m.
Apidra 88 0.0% -4.5%
Human insulin 36 5.9% 8.8%
Total insulin 1,731 2.5% -7.4%
Eli Lilly (USDm)
HumaLog 705 0% 4%
Human insulin 317 -6% -2%
Total insulin 1,022 -2% -2.1%
Total insulin market Q3 15 Growth
USDm DKKm In USD In DKK In local currencies*
Insulin analogues 4,508 30,255 -6.5% 11.6% -0.4%
Human insulin 770 5,166 -6.3% 11.8% 1.2%
Total insulin market 5,278 35,421 -6.4% 11.6% 0.0%
* A weighted average based on local currency growth reported by the three companies
Source: Company data, Danske Bank Markets
As can be seen from the table above, Novo Nordisk was by far the best performer of
the three large insulin manufacturers in Q3. It saw 6% underlying insulin growth, while
Sanofi saw a fall of 7%. If we combine growth in local currencies for the three
manufacturers, it was actually a round zero in Q3 (+0.1% in Q2). This is a significant
setback versus previous years and driven by the changed pricing environment in the
US. However, this means from a value perspective Novo has gained substantial
market share so far this year as can be seen in the chart below.
7 | Novo Nordisk Buy www.danskemarketsequities.com
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Chart 3. Market share development based on reported insulin sales
Source: Novo Nordisk, Lilly, Sanofi-Aventis, Danske Bank Markets
As can be seen, Sanofi was actually quite close to deriving similar insulin sales to
Novo in Q4 14. However, since then, it has gone downhill for Sanofi due to a
significant negative pricing effect on Lantus in the US.
In Sanofi’s Q3 announcement yesterday, it also downgraded its expectations for its
diabetes franchise. It now expects to see a 6-7% decline in local currencies in 2015
and 4-8% annual decline in the years 2016 to 2018. Preview guidance (issued a year
ago) was a flat to slight positive development in the years 2015 to 2018. Sanofi
explains half of the change by lower sales of insulin glargine (Lantus, etc.). We
believe there are three reasons for this change: 1) Novo will now launch Tresiba in the
US in early 2016 and one year ago Sanofi probably had hoped the Tresiba launch
would not be before mid-2017. Novo will also launch Xultophy in early 2017; 2)
Biosimilar Lantus has now been launched in numerous markets and will arrive in US
in December 2016; 3) Sanofi achieved a quite weak label for Toujeo, which will impact
the potential for the compound. This has probably also led to a further rebating of
Lantus to “buy” for formulary access for Toujeo.
We believe the best tool for counteracting this negative pricing environment is to
launch new products. Novo is set to replace its entire insulin portfolio in the US over
the next three years.
2015 guidance
Novo made some modest changes to its guidance.
Sales: Novo still guides for sales growth in local currencies of 7-9% but now with a
positive FX effect of 13% (previously 14%). This means reported sales growth is
now guided at 20-23% (previously 21-23%).
EBIT: Novo now guides for growth in local currencies of 20% (previously 19%).
Novo now guides the positive FX effect on EBIT at 22% (previously 23%). This
means reported EBIT growth guidance is unchanged at 42%.
Tax-rate: This is lowered to 20% from 21%.
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Novo Nordisk Lilly Sanofi-Aventis
8 | Novo Nordisk Buy www.danskemarketsequities.com
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Table 5. Development in 2015 guidance
Current expectations Previous expectations Previous expectations Previous expectations Previous expectations
Issued in Q3 15 report Issued in Q2 15 report Issued in Q1 15 report Issued in Q4 14 report Issued in Q3 14 report
Sales growth
- in local currencies 7-9% 7-9% 7-9% 6-9% 'High single-digit'
- as reported Around 13%-points higher Around 14%-points higher Around 16%-points higher Around 12%-points higher Around 3%-points higher
Operating profit growth
- underlying Around 10% Around 10%
Including gain from NNIT etc. 20% 19% 17% n.a. n.a.
- as reported Around 22%-points higher Around 23%-points higher Around 25%-points higher Around 19%-points higher Around 5%-points higher
Net financials Loss of DKK5.6bn Loss of DKK5.7bn Loss of DKK6bn Loss of DKK5bn
Effective tax rate 20% 21% 21% 22%
Capital expenditure DKK5bn DKK5bn DKK5bn DKK5bn
Dep/Amor DKK2.9bn DKK3bn DKK3bn DKK3bn
Free cash flow DKK 33-35m DKK 33-35m DKK 32-34m DKK 29-31m
Source: Company data, Danske Bank Markets
9 | Novo Nordisk Buy www.danskemarketsequities.com
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Preliminary 2016 guidance
As usual, Novo also in connection with its Q3 releases offered preliminary guidance
for next year’s sales and earnings. Novo guides for sales growth in local currencies of
mid to high single-digits. This should be interpreted as 5-9% growth. Novo states that
growth outlook for 2016 looks quite similar to 2015 (7-9%) with a few exceptions. 1)
The weak macroeconomic environment in China and a few other markets is reducing
group growth by 0.5pp, 2) the lost contract with United Health on NovoLog will also
reduce sales growth by 0.5pp, 3) the patent expiry of Vagifem in Q4 16 will also
impact sales growth by 0.5pp, 4) finally the new launches such as Tresiba and
Saxenda are likely to have a net positive impact of 1% (net is after adjusting for the
impact on Levemir). We believe the assumptions for the impact from new product
launches seem very cautious.
When adjusting for extra-ordinary gains in 2015 (NNIT and sale of inflammatory
assets), Novo expects the sales growth in EBIT as in sales. This means no
operational leverage is assumed due to increased costs for R&D and sales &
distribution.,
We believe Novo’s initial guidance is conservative as it always initially has been.
There is also more uncertainty than normal, both on the upside and downside. On the
downside, there is the whole pricing discussion and the macroeconomic environment
and on the upside Novo is probably also conservative when guiding for the impact
from new product launches.
The Q4 15 report on 3 February 2016 will naturally be very interesting, as it will not
only include detailed 2016 guidance, but also new long-term targets.
Upcoming news flow:
Novo will host a CMD on 19 November, which potentially could be the next important
event for the company. Topics at the CMD will be: 1) R&D update, 2) product supply
update, 3) the diabetes market, 4) obesity, 5) the US market.
Ahead of the CMD, we could actually also see further phase 3 data on Semaglutide.
This includes data from Sustain-4 (Semaglutide in comparison with Lantus) and
Sustain-2 (Semaglutide vs Januvia). We expect data from Sustain-4 to be released
first .
After this the news-flow in Q1 16 will be extremely intense and important. We expect
an official launch of Tresiba in January and we expect Novo Nordisk to update its
long-term targets in connection with the FY 15 release (3 Feb). In Q1, we also expect
headline data from the CV outcome study (LEADER) on its once-daily GLP-1,
Victoza. We see a chance that this could show superiority versus the placebo. Then
we also expect CV outcome data from its once-weekly GLP-1, Semaglutide (Sustain-
6). Sustain-6 is less powered than LEADER, which means we do not expect
superiority shown for Semaglutide. Finally, in Q1 we expect to see data from the two
double-blinded studies, SWITCH 1 (type 1 diabetes) and SWITCH 2 (type 2 diabetes)
comparing Tresiba with Lantus. These studies are designed to show a hypo benefit
for Tresiba vs Lantus, which, if positive, could lead to a label update for Tresiba in the
US. We expect data from SWITCH 2 to be published first.
10 | Novo Nordisk Buy www.danskemarketsequities.com
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Below we show an event table for Novo Nordisk.
Table 6. Novo Nordisk: event calendar
Event Timing Comments Importance*
Company-specific events
Further Phase 3 data on Semaglutide H2 15 2
Capital markets day 19-Nov-15 2
Data from SWITCH 1 and SWITCH 2 Q1 16 Double-blinded head to head between Tresiba and Lantus. Data on SWITCH
2 is likely to be published first. 3
US launch of Tresiba Q1 16 3
Results from LEADER trial Q1 16 LEADER = CV outcome study on Victoza. 3
Further Phase 3 data on Semaglutide H1 16 Including SUSTAIN 6 = CV outcome study on Semaglutide. 3
Completion of DEVOTE trial Mid-16 DEVOTE = CV outcome study on Tresiba. 3
Novo Nordisk financial report
Q4 15 report 3-Feb-16 Will include updated long-term financial targets. 3
Competitor news
Sanofi CMD 06-Nov-15 2
Top-line phase 3 results for Insulin Lispro Q2 16 Sanofi’s biosimilar version of Lilly’s HumaLog (Insulin Lispro). 1
Lixisenatide launch in US H2 16
US launch of biosimilar Lantus Q4 16 2
LixiLan launch in US Q1 2017 2
Industry events
World Diabetes Congress 30/11-4/12
Source: Company data, Danske Bank Markets
11 | Novo Nordisk Buy www.danskemarketsequities.com
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Company summary
Sales breakdown, geographical areas Sales breakdown, divisions
Company description
Main shareholders
Company information
Management
Net sales and EBITDA margin (DKKm)
EBIT and EBIT margin (DKKm)
P/E - 12 months forward (x)
P/BV - 12 months forward (x)
Source: Company data, FactSet, Danske Bank Markets estimates [all charts and tables]
North America, 49%
Europe, 23%
International Operations,
14%
China, 9%Other, 5%
Diabetes Care, 79%
Biopharmaceuticals, 21%
Novo Nordisk is a world leader in the insulin market (59% of total sales in 2014)
and now also the leader in the GLP-1 market through Victoza (15%). It also holds
strong positions in human growth hormone deficiency treatments (HGH, 7%) and
haematology/NovoSeven (10%). The company claims a 47% global market share
in insulin and 27% of the entire global diabetes market. Novo Nordisk employs
more than 40,000 people worldwide.
Name Votes (%) Capital (%)
Novo A/S 74.5% 26.5%
Institutional and private investors 25.5% 73.5%
Novo Nordisk
Novo Allé, 2880 Bagsværd
Denmark
novonordisk.com
CEO: Lars Rebien Sørensen
CFO: Jesper Brandgaard
IR: Peter Hugreffe
0%
20%
40%
60%
0
50,000
100,000
150,000
10 11 12 13 14 15E 16E 17E
Net sales EBITDA margin
0%
20%
40%
60%
0
20,000
40,000
60,000
80,000
10 11 12 13 14 15E 16E 17E
EBIT EBIT margin
1214161820222426283032
05 06 07 08 09 10 11 12 13 142468
10121416182022
05 06 07 08 09 10 11 12 13 14
12 | Novo Nordisk Buy www.danskemarketsequities.com
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Summary tables
Source: Company data, Danske Bank Markets estimates
INCOME STATEMENT
Year end Dec, DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Net sales 45,553 51,078 60,776 66,346 78,026 83,572 88,806 107,633 117,771 131,088
Cost of sales & operating costs -30,738 -33,594 -39,418 -41,235 -45,859 -49,280 -50,879 -55,385 -63,565 -69,092
EBITDA 14,815 17,484 21,358 25,111 32,167 34,292 37,927 52,248 54,206 61,997
Depreciation -2,442 -2,551 -2,467 -2,737 -2,693 -2,799 -3,435 -2,898 -3,235 -3,649
EBITA 12,373 14,933 18,891 22,374 29,474 31,493 34,492 49,350 50,970 58,348
Amortisation 0 0 0 0 0 0 0 0 0 0
Impairment charges 0 0 0 0 0 0 0 0 0 0
EBIT 12,373 14,933 18,891 22,374 29,474 31,493 34,492 49,350 50,970 58,348
- of which non-recurring items -325 0 0 0 0 0 0 2,376 0 0
EBIT before non-recurring items 12,698 14,933 18,891 22,374 29,474 31,493 34,492 46,974 50,970 58,348
Financial items, net 446 -890 -1,675 -445 -1,663 1,046 -396 -5,598 57 56
Associated companies -124 -55 1,070 -4 0 0 0 0 0 0
Pre-tax profit 12,695 13,988 18,286 21,925 27,811 32,539 34,096 43,752 51,027 58,403
Taxes -3,050 -3,220 -3,883 -4,828 -6,379 -7,355 -7,615 -8,750 -10,716 -12,265
Minorities 0 0 0 0 0 0 0 0 0 0
Discontinued operations 0 0 0 0 0 0 0 0 0 0
Net profit 9,645 10,768 14,403 17,097 21,432 25,184 26,481 35,002 40,312 46,139
Net profit (adj.) 9,892 10,768 13,303 17,097 21,432 25,184 26,481 32,626 40,312 46,139
CASH FLOW
DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
EBITDA 14,815 17,484 21,358 25,111 32,167 34,292 37,927 52,248 54,206 61,997
Change in working capital -562 -279 297 434 274 -265 -2,148 706 380 500
Net interest paid 446 -890 -1,675 -445 -1,663 1,046 -396 -5,598 57 56
Taxes paid -3,172 -1,998 -3,436 -5,391 -10,891 -9,807 -7,907 -8,750 -10,716 -12,265
Other operating cash items 1,336 1,061 3,135 1,665 2,327 676 4,216 0 0 0
Cash flow from operations 12,863 15,378 19,679 21,374 22,214 25,942 31,692 38,606 43,927 50,287
Capex -1,400 -3,047 -3,889 -3,332 -3,622 -3,644 -4,335 -5,000 -6,477 -8,521
Disposals/(acquisitions) 18 1 68 70 53 60 39 0 0 0
Free cash flow 11,463 12,331 15,790 18,042 18,592 22,298 27,357 33,606 37,450 41,766
Incr./(decr.) in equity -4,717 -6,512 -9,498 -10,595 -11,896 -13,924 -14,667 -17,500 -20,500 -22,500
Incr./(decr.) in debt 19 -10 -466 -2 -502 0 0 0 0 0
Dividend paid -2,795 -3,650 -4,400 -5,700 -7,742 -9,715 -11,866 -13,151 -16,800 -20,273
Minorities and other financing CF -1,208 508 1,731 -316 981 235 -918 0 0 0
Cash flow from financing -8,701 -9,664 -12,633 -16,613 -19,159 -23,404 -27,451 -30,651 -37,300 -42,773
Disc. ops and other 0 0 0 0 0 0 0 0 0 0
Incr./(decr.) in cash 2,780 2,668 3,225 1,499 -514 -1,046 -55 2,955 150 -1,007
BALANCE SHEET
DKKm 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Cash and cash equivalents 10,158 12,826 16,051 17,550 17,036 15,990 15,935 18,890 19,040 18,033
Other current assets 18,906 19,840 21,242 22,041 23,127 26,068 30,358 36,794 40,260 44,812
Fixed tangible assets 18,639 19,226 20,507 20,931 21,539 21,882 23,136 25,238 28,480 33,352
Intangible assets (incl. goodwill) 788 1,037 1,458 1,489 1,495 1,615 1,378 1,378 1,378 1,378
Other non-current assets 2,112 1,813 2,144 2,687 2,472 4,782 6,255 6,255 6,255 6,255
Total assets 50,603 54,742 61,402 64,698 65,669 70,337 77,062 88,555 95,412 103,830
Trade payables 2,281 2,242 2,906 3,291 3,859 4,092 4,950 5,999 6,564 7,307
Short-term debt 0 0 0 0 0 0 0 0 0 0
Other current liabilities 10,677 11,173 15,570 17,488 17,779 20,133 28,739 34,832 38,112 42,422
Long-term debt 980 970 504 502 0 0 0 0 0 0
Other long-term liabilities 3,686 4,623 5,457 5,969 3,399 3,543 3,079 3,079 3,079 3,079
Total liabilities 17,624 19,008 24,437 27,250 25,037 27,768 36,768 43,910 47,756 52,808
Shareholders' equity (incl. min.) 32,979 35,734 36,965 37,448 40,632 42,569 40,294 44,645 47,656 51,022
Total liabilities and equity 50,603 54,742 61,402 64,698 65,669 70,337 77,062 88,555 95,412 103,830
Net debt -9,178 -11,856 -15,547 -17,048 -17,036 -15,990 -15,935 -18,890 -19,040 -18,033
Working capital 5,948 6,425 2,766 1,262 1,489 1,843 -3,331 -4,037 -4,417 -4,917
13 | Novo Nordisk Buy www.danskemarketsequities.com
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Summary tables
Source: Company data, Danske Bank Markets estimates
PER SHARE DATA 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
No. of shares, fully diluted (y.e.) (m) 3,046.5 2,949.5 2,863.5 2,788.0 2,714.5 2,653.4 2,599.7 2,552.1 2,498.6 2,442.2
No. of shares, fully diluted (avg.) (m) 3,076.0 2,998.0 2,906.5 2,825.8 2,751.3 2,684.0 2,626.6 2,575.9 2,525.4 2,470.4
EPS (reported) (DKK) 3.14 3.59 4.96 6.05 7.79 9.38 10.1 13.6 16.0 18.7
EPS (adj.) (DKK) 3.22 3.59 4.58 6.05 7.79 9.38 10.1 12.7 16.0 18.7
DPS (DKK) 1.20 1.50 2.00 2.80 3.60 4.50 5.00 6.50 8.00 9.00
CFFO/share (DKK) 4.3 5.1 6.8 7.6 8.1 9.7 12.1 14.1 17.4 20.4
Book value/share (DKK) 10.8 12.1 12.9 13.4 15.0 16.0 15.5 17.5 19.1 20.9
MARGINS AND GROWTH 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
EBITDA margin 32.5% 34.2% 35.1% 37.8% 41.2% 41.0% 42.7% 48.5% 46.0% 47.3%
EBITA margin 27.2% 29.2% 31.1% 33.7% 37.8% 37.7% 38.8% 45.9% 43.3% 44.5%
EBIT margin 27.2% 29.2% 31.1% 33.7% 37.8% 37.7% 38.8% 45.9% 43.3% 44.5%
EBIT margin (adj) 27.9% 29.2% 31.1% 33.7% 37.8% 37.7% 38.8% 43.6% 43.3% 44.5%
Sales growth 8.9% 12.1% 19.0% 9.2% 17.6% 7.1% 6.3% 21.2% 9.4% 11.3%
EBITDA growth 24.0% 18.0% 22.2% 17.6% 28.1% 6.6% 10.6% 37.8% 3.7% 14.4%
EBITA growth 38.4% 20.7% 26.5% 18.4% 31.7% 6.9% 9.5% 43.1% 3.3% 14.5%
EPS (adj.) growth 24.9% 11.7% 27.4% 32.2% 28.7% 20.5% 7.4% 25.6% 26.0% 17.0%
PROFITABILITY 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
ROIC (after tax, incl. GW, adj.) 32.6% 37.5% 51.1% 56.6% 72.5% 72.2% 77.2% 106.4% 108.8% 113.3%
ROIC (after tax, excl. GW, adj.) 32.6% 37.5% 51.1% 56.6% 72.5% 72.2% 77.2% 106.4% 108.8% 113.3%
ROE (adj.) 30.4% 31.3% 36.6% 46.0% 54.9% 60.5% 63.9% 76.8% 87.3% 93.5%
ROIC (adj.) - WACC 26.6% 31.5% 45.1% 50.5% 66.4% 66.2% 71.1% 100.4% 102.7% 107.2%
MARKET VALUE 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Share price (DKK) 54.2 66.4 126 132 183 199 260 364 364 364
Outstanding number of shares (m) 3,046.5 2,949.5 2,863.5 2,788.0 2,714.5 2,653.4 2,599.7 2,552.1 2,498.6 2,442.2
Market capitalisation (m) 165,120 195,847 360,228 368,016 497,568 527,496 676,702 928,965 909,502 888,955
Net debt, year-end (m) -9,178 -11,856 -15,547 -17,048 -17,036 -15,990 -15,935 -18,890 -19,040 -18,033
MV of min. and ass. comp. (m) 0 0 0 0 0 0 0 0 0 0
Enterprise value (m) 155,942 183,991 344,681 350,968 480,532 511,506 660,767 910,075 890,463 870,923
VALUATION 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
EV/sales (x) 3.4 3.6 5.7 5.3 6.2 6.1 7.4 8.5 7.6 6.6
EV/EBITDA (x) 10.3 10.5 16.1 14.0 14.9 14.9 17.4 18.2 16.4 14.0
EV/EBITA (x) 12.3 12.3 18.2 15.7 16.3 16.2 19.2 19.4 17.5 14.9
EV/EBIT (x) 12.3 12.3 18.2 15.7 16.3 16.2 19.2 19.4 17.5 14.9
P/E (reported) (x) 17.3 18.5 25.4 21.8 23.5 21.2 25.8 26.8 22.8 19.5
P/E (adj.) (x) 16.9 18.5 27.5 21.8 23.5 21.2 25.8 28.7 22.8 19.5
P/BV (x) 5.01 5.48 9.75 9.83 12.2 12.4 16.8 20.8 19.1 17.4
EV/invested capital (x) 5.2 5.8 11.4 11.2 15.0 14.2 19.6 25.9 23.4 20.6
Dividend yield 2.21% 2.26% 1.59% 2.12% 1.96% 2.26% 1.92% 1.79% 2.20% 2.47%
Total yield (incl. buybacks) 5.04% 5.53% 4.19% 4.96% 4.32% 4.87% 4.07% 3.65% 4.43% 4.97%
Free cash flow yield 6.94% 6.30% 4.38% 4.90% 3.74% 4.23% 4.04% 3.62% 4.12% 4.70%
FINANCIAL RATIOS 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E
Net debt/EBITDA (x) -0.6 -0.7 -0.7 -0.7 -0.5 -0.5 -0.4 -0.4 -0.4 -0.3
Net debt/equity (x), year-end -0.3 -0.3 -0.4 -0.5 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4
Dividend payout ratio 38.3% 41.8% 40.4% 46.3% 46.2% 48.0% 49.6% 47.8% 50.1% 48.2%
Interest coverage (x) 52.9 39.7 38.3 35.9 114.3 48.9 190.4 n.m. n.m. n.m.
Cash conversion (FCF/net profit) 118.8% 114.5% 109.6% 105.5% 86.7% 88.5% 103.3% 96.0% 92.9% 90.5%
Capex/sales 3.1% 6.0% 6.4% 5.0% 4.6% 4.4% 4.9% 4.6% 5.5% 6.5%
NWC/sales 13.1% 12.6% 4.6% 1.9% 1.9% 2.2% -3.8% -3.8% -3.8% -3.8%
QUARTERLY P&L Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15E
Sales (m) 20,343 21,629 22,249 24,585 25,200 27,059 26,792 28,582
EBITDA (m) 8,690 9,400 9,752 10,085 14,520 13,130 12,613 11,985
EBIT before non-recurring items (m) 8,033 8,733 8,569 9,157 11,481 12,482 11,980 11,031
Net profit (adj.) (m) 6,458 6,994 6,500 6,529 7,892 8,212 8,252 8,269
EPS (adj.) (DKK) 2.44 2.65 2.48 2.50 3.04 3.16 3.17 3.21
EBITDA margin 42.7% 43.5% 43.8% 41.0% 57.6% 48.5% 47.1% 41.9%
EBIT margin (adj.) 39.5% 40.4% 38.5% 37.2% 45.6% 46.1% 44.7% 38.6%
14 | Novo Nordisk Buy www.danskemarketsequities.com
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The author of the research report is Martin Parkhøi.
Analyst certification
Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal
view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research
analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report.
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Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other
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extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request.
The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities
Dealers Association.
Conflicts of interest
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality research based on research objectivity and independence. These
procedures are documented in of Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair
the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised
independently from and do not report to other business areas within Danske Bank.
Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other
remuneration linked to specific corporate finance or debt capital transactions.
Danske Bank, its affiliates, subsidiaries and staff may perform services for or solicit business from Novo Nordisk and may hold long or short positions in, or otherwise be interested in,
the financial instruments mentioned in this research report. The Equity and Corporate Bonds analysts of Danske Bank and undertakings with which the Equity and Corporate Bonds
analysts have close links are, however, not permitted to invest in financial instruments that are covered by the relevant Equity or Corporate Bonds analyst or the research sector to
which the analyst is linked.
Danske Bank, its affiliates and subsidiaries are engaged in commercial banking, securities underwriting, dealing, trading, brokerage, investment management, investment banking,
custody and other financial services activities, may be a lender to Novo Nordisk and have whatever rights as are available to a creditor under applicable law and the applicable loan
and credit agreements. At any time, Danske Bank, its affiliates and subsidiaries may have credit or other information regarding Novo Nordisk that is not available to or may not be used
by the personnel responsible for the preparation of this report, which might affect the analysis and opinions expressed in this research report.
Danske Bank is a market maker and may hold positions in the financial instruments mentioned in this research report.
As an investment bank, Danske Bank, its affiliates and subsidiaries provide a variety of financial services, including investment banking services. It is possible that Danske Bank and/or
its affiliates and/or its subsidiaries might seek to become engaged to provide such services to Novo Nordisk in the next three months.
Danske Bank has made no agreement with Novo Nordisk to write this research report. No parts of this research report have been disclosed to Novo Nordisk. No recommendations or
opinions have been disclosed to Novo Nordisk and no amendments have accordingly been made to the same before dissemination of the research report.
Financial models and/or methodology used in this research report
Recommendations and opinions in this research report are formed on the basis of a combination of discounted cash flow analysis, industry knowledge, peer group analysis and
company-specific and market technical elements (events affecting both the financial and operational profile of the company). Forecasting of company sales and earnings is based on
segmented bottom-up models using subjective views of relevant future market developments. In addition, the expected macroeconomic environment is taken into account. The
output is aggregated into models for group profit and loss, balance sheets and cash flow estimates – all taking into account the recent development in historical research reports.
Risk warning
Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text.
Expected updates
We expect to update this research product on a regular basis (at least twice per year).
See the front page of this research report for the date of first publication.
Recommendation structure
The Danske Bank Markets recommendation system is absolute. It means that each stock is rated on the basis of a total return, measured by the upside potential (including dividends
and capital reimbursement) over a 12-month time horizon.
The Danske Bank Markets spectrum of recommendations (or ratings) for each stock comprises three categories: Buy, Hold, Sell ( in short B, H, S). In specific cases and for a limited
period of time, analysts may have to rate stocks as Rating Suspended (RS) or Not Rated (NR), as explained below.
Meaning of each rating or recommendation:
• Buy: we expect the stock to generate a total return of more than 10% over the next 12 months.
• Hold: we expect the stock to generate a total return of 0% to 10% over the next 12 months.
• Sell: we expect the stock to generate a total return below 0% over the next 12 months.
• Rating Suspended: the rating is suspended due to a capital operation (e.g. takeover bid, share issue) where the issuer or a related party of the issuer is or could be involved or to a
change of analyst covering the stock.
• Not Rated: Danske Bank Markets produces investment research on Danske Bank but does not have an investment recommendation to buy, hold or sell or any target price on the
stock.
15 | Novo Nordisk Buy www.danskemarketsequities.com
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As at 30 October 2015, Danske Bank Markets had investment recommendations on 255
securities. The distribution of recommendations is represented in the Securities ratings
breakdown diagram below.
The proportion of issuers corresponding to each of the recommendation categories
above to which Danske Bank provided investment banking services in the past
12 months is shown below.
General disclaimer This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for informational purposes only. It does not constitute or form part of, and
shall under no circumstances be considered as, an offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments mentioned
herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other interests with respect to any such financial instruments) (‘Relevant
Financial Instruments’).
The research report has been prepared independently and solely on the basis of publicly available information that Danske Bank considers to be reliable. While reasonable care has
been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and subsidiaries
accept no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this research report.
The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect their judgement as of the date hereof. These opinions are
subject to change and Danske Bank does not undertake to notify any recipient of this research report of any such change nor of any other changes related to the information provided
in this research report.
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defined in SEC Rule 15a-6. Danske Markets Inc. accepts responsibility for this research report in connection with distribution in the United States so lely to ‘U.S. institutional investors’.
Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of research analysts. In addition, the research analysts of Danske
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Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument may do so only by contacting Danske Markets Inc. directly and
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Buy56%
Hold33%
Sell11%
Rating Investment banking relationships
Buy 66%
Hold 30%
Sell 2%
Changes to recommendation in the past 12 months:
Date Old rec. New rec.