NVO - Novo Nordisk

[John Hjorth]

DooDiligence,

 

Somehow I'm a bit surprised that you have listened to the interview of Mr. Brandgaard today. What's your source? Do you understand Danish language? I base my question on an assumption that you are an US investor, ref. your board profile. I have heard the interview today also, but it was in Danish language for me - a very bad habit by Novo Nordisk A/S, by the way.

 

The reason why I'm asking is because I have several times had considerations about how to share such kind of information with fellow board members here.

 

Pardon if this question might seem trivial to you and others, I'm navigating the Novo Nordisk A/S website in Danish language - perhaps I should change that going forward.

[xtreeq]

DooDiligence,

 

Somehow I'm a bit surprised that you have listened to the interview of Mr. Brandgaard today. What's your source?

 

Here you go

http://www.bloomberg.com/news/videos/2016-10-28/novo-nordisk-remains-focused-on-diabetes-care-brandgaard

[John Hjorth]

xtreeq,

 

Thank you for enlightening me in my darkness!

[DooDiligence]

Curses; xtreeq beat me to the punch (that's the same video.)

 

I bought another 1/3 at $35 & pennies (USD) today.

 

If it goes down another $5 I'll buy the rest & it'd be one of the few times I've ever been able to get all I wanted of an issue other than Apple (others have grown into full size positions.)

 

My thesis is simple (more of the world becomes prosperous & starts overeating & then gets on insulin therapy or uses anti obesity meds...)

 

Lilly & Sanofi both do too much that I don't understand & I've always liked companies with focus which are non-acquisitive (organic growth) & have clean balance sheets.

 

The days may be getting shorter John but I'll bet they're beautiful!

[John Hjorth]

DooDiligence,

 

All my orders filled at 09:03:04 AM Friday at 240 under totally wild trade. I stayed away from the keyboard Friday morning by getting out of bed late to avoid last moment actions under control of the reptile brain, so I was at the bathroom when the orders filled. Suddenly I heard a small scream from the kitchen, and I rushed to check what was going on. It appeared the lady of the house was actually checking her mail inbox on her iPad at that moment over her morning coffee when she got hammered by email notifications from about all accounts I manage, not only her own.

 

Novo Nordisk is now trading at around P/E 16. This is historically low within the last about 20 years.

 

- - - o 0 o - - -

 

Sanders Takes Aim at Insulin Makers in Latest Drug Price Attack.

[DooDiligence]

Good Morning John!

 

I hope the emails were nothing to spoil your wifes coffee.

 

It would be easy to blow off other politicians rants as campaign rhetoric but I feel like Sanders is genuine in his sphincter clinching anger (genuine but misdirected IMO.)

 

Health care costs do need to be addressed & I'm surprised Sanders doesn't vent his spleen a bit more at the PBM's (and Bush Jr for medicare part D.)

 

Fact is; none of us know what world governments will do about drug prices but hopefully they'll leave enough profit so as to not discourage innovation (and to allow us horrible capitalists to make a little $ for retirement.)

 

I've owned BBH (large cap biotech ETF) & XBI (small to med cap biotech ETF) since Mrs. Clinton made that Tweet last year that brought the sector down & after a lot of reading, I chose NVO to try & gain a point or two on my long term biotech bet (I like the focus & the sector & the balace sheet.)

 

I've got 1/3 of what I want & if NVO goes down another $5 USD I'll round out my position!

 

How is the political climate towards healthcare & drug cost in Denmark?

[John Hjorth]

DooDiligence,

 

Thank you for your post above. I'm in no way sure how to respond to your post, after thinking carefully about it - for some time.

 

Your post has brought to my attention, that I suffer from a certain kind of "home bias" [normally, home bias means that that you have a tendency to invest in, i.e. US stocks, if you are an US investor, but for me it's about I'm making investment decisions based on my own local conditions].

 

This summer I have spent many hours studying Mr. Kaleb's books, especially "The Black Swan" and "Antifragile". Those books brought to my attention, that what I so far had considered headwinds in my own life was basically just - about - the consequenses of my own mistakes made earlier in my life.

 

So I'm a damn lucky Danish guy at 58, whith whom "bad luck" had not catched up yet, if I think about it carefully. And eventually when "bad luck" cathes up with me, - generally - I'm covered to a certain - material - extent, - by what I have already paid - and will be paying, going forward - in taxes - diabetes or whatever - to put it simply - very simply.

 

I really need to think about this in relation to being invested in NVO, and I will get back to you in this topic.

[DooDiligence]

I look forward to reading your thoughts (I'm already an owner & am not looking for confirmation that I did the right thing so let any & all negative ideas fly.)

 

My own paradigm on this is strong & may have blinded me to reality.

 

1) A more prosperous world overeats & gets fat = increasing diabetes

2) Novo continues to offer effective insulin therapies

3) Novo gains traction in anti obesity market (magic bullets for lazy people)

4) Hemo & HGH continue plodding along

5) Novo buys promising molecules which present owners are unable to capitalize on

6) Politicos rant & rave and the people get fatter & fatter

 

I aknowledge that most of the above is long on faith & short on facts (the big hunch...)

 

Sanofi & Lilly do way too many things for me to understand besides diabetes so I choose NVO.

 

Please feel free to poke facts into the holes!

 

And enjoy another beautiful Danish morning!!!

[John Hjorth]

Thanks, DooDiligence!,

 

First off all, this is just about the worst communication & marketing nightmare of any company: Being dragged in to and specifically mentioned by name as a villain in a political topic related to the US Presidential Election.

 

The company itself can ride this out in the short term because of the strong balance sheet with practically no debt and a very strong cash flow, and at the same time the patients beeing held as hostages in the situation, because they need their drugs.

 

I agree with your bullets in your last post.

 

There are so many dimensions and shades in what's going on with these pharma companies involved in diabetes right now. Particulary related to Novo Nordisk A/S, I think this The Telegraph Monday Interview with Lars Rebien Sørensen from about 3½ years ago just about nails it - to the bone, if one reads it very carefully, and one try to do an effort of actually getting an understanding of all the shades and dimensions of the pricing topic.

 

So far, I can't see the end of the runway for this company. Please note my "So far, ..." here.

 

This "we are in the business to put our selves out of business" talk scares the crap out of me. I remember the first time I heard Lars Rebien Sørensen in a video clip on www.boersen.dk - I have tried to find it for several weeks now, but unfortunately without luck - I don't recall the time frame , but I suppose it must have been about the time of the above mentioned The Telegraph interview, however I'm not sure about it, I really got a shock - my blood pressure went to about zero - tunnel vision and everything - and after getting a firm grip at the table to avoid falling of the chair, I was thinking: "What did this guy get for breakfast this morning?".

 

To me it seems familiar with  Mr. Howard Buffett saying "We are in the business of putting ourselves out of business within the next 20 years." about running one of the Buffett Foundations.

 

To understand this investment one has to look at it in broader context, taking in to consideration the holding company Novo A/S and the ultimate and controlling shareholder - a Danish foundation:

 

1. effectively controlling about 75 percent of the votes in Novo Nordisk A/S. Novo Nordisk A/S can't be taken over by anyone - no matter how thick wallets, because the foundation have income streams from other companies than Novo Nordisk A/S,

2. the foundation actually spending funds seeding the way for Novo Nordisk A/S by giving away funds to seed new markets by giving away Novo Nordisk drugs for free or at a materially reduced price and to build delivery infrastructure in non developed markets. [Talk to me about having the privilege of having a curling parent - no competitor has this].

3. the foundation at the same time making donations to ground/basic research to put it's own sub-sub out of business.

 

Furthermore, to understand this investment, one has to understand, that:

 

4. so far, what the pharma companies involved in diabetes have delivered, and is delivering to patients, is not a cure, but drugs to reduce the side effects of the deseace [organ damages, blindness etc.]

5. as an antiperspective of what i.e. GILD is delivering to it's patients: A cure. It is about distinguishing "Health Care" from "Health Cure".

 

The commercial perspective per patient going forward is totally different depending of do you deliver an actual cure, or do you just deliver care for derived symptoms/damages of a certain - so far - non-curable - desease.

 

To me, it's about having some basic understanding of the desease, and the development stage of a potential cure. [i.e. NVO vs. GILD].

[John Hjorth]

Sorry for double posting here.

 

Link to Novo A/S website: Here.

Link to Novo Nordisk Foundation website: Here.

 

Financial statements 2015 for both Novo A/S and Novo Nordisk Foundation are attached to this post.

 

PS: If any fellow board member want a copy of the financial statements for whatever Danish private [not listed] company, please feel free to get in contact with me. In most cases, I have access to it [meaning: In certain cases, based on local/national regulations, I haven't].

offentliggorelse_Novo_AS_2015.pdf

offentliggorelse_Novo_Nordisk_Foundation_2015.pdf

[John Hjorth]

Down, down, down - she goes - day by day - almost without exemptions - day by day.

 

Non-Danish investors still offloading the stock, but not as massively as earlier, just after 2016Q3 reporting.

 

Biggest buyer of the stock at NasdaqOMX [CPH] every day is Nordea Bank Denmark - the bank running the share buyback programme for NVO under the EU safe harbor rules on behalf of the company, and every day the company is shovelling in millions of DKK in cash flow.

 

I'm still waiting... - to buy at lower prices.

[DooDiligence]

Management has been & seems to still be very generous with FCF.

 

Your earlier post as to the difference between maintenance & cure makes great sense.

 

What are the chances of a cure for diabetes?

 

Islet cell & pancreas transplants sound great but patients still have to continue lifelong maintenance therapies to avoid transplant rejection.

 

The most logical cure is lifestyle & diet.

 

I'm buying the final third of my position if NVO touches $30 USD...

[rb]

Down, down, down - she goes - day by day - almost without exemptions - day by day.

 

Non-Danish investors still offloading the stock, but not as massively as earlier, just after 2016Q3 reporting.

 

Biggest buyer of the stock at NasdaqOMX [CPH] every day is Nordea Bank Denmark - the bank running the share buyback programme for NVO under the EU safe harbor rules on behalf of the company, and every day the company is shovelling in millions of DKK in cash flow.

 

I'm still waiting... - to buy at lower prices.

In your opinion is there a reasonable chance that Novo earnings could meaningfully decline from current levels?

[DooDiligence]

It's been 2 years since ESRX removed Victoza from its formulary in favor of Eli Lilly's offerings & CVS still stands by Novo instead of Lilly.

 

Novo is still generating huge FCF & fat gross margins coupled with a clean sheet which leaves plenty of room for error IMO.

 

I would think that if exclusion from formularies were going to have a major effect, it would have done so by now (or is there a 2 or more year lag time in results?)

 

John - Your thoughts will undoubtedly be more reliable than mine...

[DooDiligence]

2017 exclusions to CVS & ESRX formularies...

2017_CVS_Health_Standard_Formulary_Drug_Removal_List.pdf

Express_Scripts_Preferred_Drug_List_Exclusions2017.pdf

[John Hjorth]

Down, down, down - she goes - day by day - almost without exemptions - day by day.

 

Non-Danish investors still offloading the stock, but not as massively as earlier, just after 2016Q3 reporting.

 

Biggest buyer of the stock at NasdaqOMX [CPH] every day is Nordea Bank Denmark - the bank running the share buyback programme for NVO under the EU safe harbor rules on behalf of the company, and every day the company is shovelling in millions of DKK in cash flow.

 

I'm still waiting... - to buy at lower prices.

In your opinion is there a reasonable chance that Novo earnings could meaningfully decline from current levels?

 

rb,

 

Thanks, but please do not consider me any kind of "expert" on NVO - because I'm not, compared to many talking heads on this company.

 

That does not change the fact, that your question certainly qualify for an answer in the short run, if the person asking is a potential buyer of the company.

 

The new CEO taking over operational responsibily will take office at 1st January 2017. So far, we know that about 1K employees have been made redundant. We have no - at least I have - no information about the operational plan going forward for NVO after 31st December 2016. At least to me, Lars Fruergaard Jørgensen has been  - just about - totally silent recently since just afterwards  he was appointed.

 

There is a lot a leeway for the new CEO Lars Fruergaard for providing at year end 2016 for contracts already operational, however contracts that will be terminated. Let's just say that I'm as exactly in the dark as you are with redard to this.

 

I do not like this, and I'm far from amused, to be forced to think about things like this, with regard to this investment in the short run. But it only matters in relation to eventually buying more.

 

- - - o 0 o - - -

 

The communication side of things going on right now is still - at least to me -  a disaster.

 

Let me just mention here CFO Jesper Brandgaard giving interview about the company explanation of the adjusted growth expectations to reporters in connection to 2016Q3 reporting, and at the same time not making sure the script of the interview getting available for every investor. It's simply a holy sin with regard to communication, and Mr. Brandgaard did not even get laid at that situation [as far as I know].

[John Hjorth]

Here  is the link to the article about the statements from Jesper Brandgaard about NVO's assesments about the price pressure historically in the short run, and going forward.

 

As you can see the article is sheilded based on subscription rights. Thats not the right way to inform investors about the assesments made by the company, especially when it is evident, that non-DK investors are still offloading the stock.

 

The company does not get any golden palms based on this line of communication. An extract of what was said by Mr. Brandgaard should be available at the NVO website - for all investors.

 

[You can read the fragments of the whole article using the translation tool in Chrome].

[John Hjorth]

Link to an article extract, the original and full article based on an interview with Mr. Lars Rebien Sørensen covering Mr. Sørensens comments on the US pricing issues .

[DooDiligence]

Link to an article extract, the original and full article based on an interview with Mr. Lars Rebien Sørensen covering Mr. Sørensens comments on the US pricing issues .

 

I believe Mr. Sorensens comments are on point!

 

They are facing populist rhetoric while carrying on negotiations with wholesalers, PBM's & other payers/procurement organizations.

 

See below post from the ESRX thread (there are much more informative posts by other users which describe the mechanics of the pharma procurement system...)

 

I just read recently that Lilly has partnered with

 

https://www.blinkhealth.com

 

to offer high deductible patients a 40% discount for prepaying their insulin.

 

I haven't done much more than glance at this (anyone else know how prevalent these programs are for other meds?)

 

My employer is a self insured multi billion dollar organization which uses Express Scripts.

 

Rationally; I realize that they need to try & recapture some of their spend through rebates.

 

High deductible patients (my employer keeps me from being one) are being assisted by programs described above (are they effective? dunno...)

 

I like that Sorensen touched on R & D as he undoubtedly remembers supplanting Lilly in this market years ago & now they're coming back (whether through pricing or efficacy I believe Novo will do fine competing on both fronts...)

 

I've got 2/3 of what I want to own & wish Sanders or Trump would get on the soapbox & talk biotech down a bit more so I could add the final 1/3 & maybe even go long some LEAP calls (I wish that there were expirations out to Jan 2019)

 

I also want to add either or both ESRX and/or CVS as corrolaries (nobody has ever commented on whether I'm thinking straight about the whole corrolary thing...)

[John Hjorth]

Pharma distribution in America ... of moving parts [tweet by fellow board member PlanMaestro].

[John Hjorth]

New NVO CEO Lars Fruergaard Jørgensen on LinkedIn : My first day as CEO .

[John Hjorth]

Novo Nordisk A/S Company Announcement containing full year 2016 financial report is out today.

 

- - - o 0 o - - -

 

Børsen.dk: Lack of results make Novo Nordisk board cut management bonus. [unfortunately, subscription protected - please see the comment in the announcement about it].

 

Yes, tell me about it.

 

To the best of my recollection, this net profit after tax of Novo Nordisk A/S for 2016 of DKK 37.9 B is the largest for any Danish operational company, ever since Dannebrog [the name of the Danish flag] - according to the legend - fell from the sky on 12th June 1219 in Tallinn, Estonia. Again, - to the best of my recollection only surpassed in any year by - guess what - The Novo Nordisk Foundation one or two years back, generating a profit of about DKK 50 B, based on price movements of shares in Novo Nordisk A/S, among other things. Way down the ladder the number two is Danske Bank A/S, running at a clip now of about DKK 20 B.

 

Invested in the future in 2016 for the benefit of the patients and the company, and thereby for the benefit of the shareholders: [for me difined as the sum of : R&D according to P&L, intangible additions according CF and net CAPEX according to CF] : DKK 22.8 B [2015: DKK 20.0 B].

 

Capital hosed back to shareholders in 2016: DKK 38.9 B. [2015: DKK 30.1 B].

 

I still get mental associations to XOM in the hay-days of oil while looking at the financials of this company.

 

The company announcement on overall basis flagged that the company considers it possible - and realistic - to basically keep up 2016 cadence in 2017 going forward in the short term. 2015 was considered a monster year based on currency backwinds on the bicycle path.

 

Sure, there are challenges, hurdles and headwinds short term going forward - all fellow board members on here know that, there is no need to elaborate on that here.

 

- - - o 0 o - - -

 

P/E around 15 at closing at Nasdaq OMX CPH today.

 

Down a lot under heavy trade today - foreign investors selling out again-again-again, customers at Danske Bank, Nordea and my broker picking up shares.

 

Personally, I feel, that I get better over time to sit on the back of this stinking furious rodeo bull bucking. Flexibility in back and hips is back [,despite it's all going on in my head].

 

I right now expect to pick up more, if the panic continues and it goes down in the range of 210 - 220.

 

- - - o 0 o - - -

 

When thinking about this company I constantly ask my self the questions:

 

What will this company be doing 10 - 20 years from now? My answer: Basically the same thing, unless it before that time has broken the genetic code of Diabetes, and thereby has morphed into a GILD-like company [health care vs. health cure, "The Novo Nordisk Paradox": "We are in business to put our selves out of business"]. That would not be good from an investment perspective, but certainly be good for mankind.

 

What will the financials of Novo Nordisk A/S look like 10 - 20 years from now? The net turnover will have grown a lot, the gross margin will be lower, gross profit I expect still to be up - a lot. Balance sheet basically the same, but with more tangible assets and a higher BV, and no debt. Cash flow statements  basically larger in figures, but with the same structure, thereby a lot of capital send back to shareholders year by year [Optionality  about what to do with that going forward].

 

This company will adapt, adopt and improve going forward - hell bent on execution. It's in its DNA.

 

- - - o 0 o - - -

 

Børsen.dk: Lars Fruergaard: We need to direct the attention of Mr. Trump to our investment program [meaning: US investment program]. [Again, unfortunately subscription protected - but the headline says it all].

 

To me, that's the brilliant way to approach Mr. Trump and his administration - in stead of beeing confrontational. Not said anywhere, but there will be deaths among patients, if this mess does not end in some kind of soft landing.

 

- A few years back, a greek public servant considered to do his own, personal positive contribution to his countrys miserable finances by just not paying to Novo Nordisk A/S already agreed prices on drugs. [it's the greek way of solving problems - everybody else is to blaime for all our sufferings - It's different from the Italian way, which is "we are all good - we have no problems - at all!"].[Please take no offense here, gio, if you read this]. There was a public  havoc among desperate patients in need of their drugs, the invoices got paid, and Novo Nordisk A/S took up delivery again.

 

The article also elaborates, that Mr. Fruergaard talks about the US market for diabetes drugs is actually subject to competition etc.

[DooDiligence]

I think that the recent class action suit plus regulatory rumblings are bound to scare people out of this & other pharma & biotechs.

 

http://www.businessinsider.com/sanofi-novo-nordisk-lilly-named-in-class-action-insulin-lawsuit-2017-1

 

The complaint mentions PBM's but doesn't name any as defendants (personally I think they expect to garner evidence from Novo, Sanofi & Lilly towards the primary targets PBM's & figured they'd get more cooperation here than if they deposed the PBM's themselves.)

 

Read the Baird analysis on the CVS thread.

 

I believe Novo & others will probably experience lower margins but there's already a lot of room to give in this regard.

 

It's unknown whether legislators & regulators (and courts) will overreach but I'm in hopes that they will allow manufacturers to continue to operate with profit motives instead of stifling innovation and punishing a bunch of us dirty capitalists/investors.

 

I believe the PBM's & the entire distribution industry with their opaque pricing/DRI/rebates schemes will be made more transparent by regulation & the pharma's will post significantly lower WAC's with less of a hit on margins than distributors.

 

Novo has never been acquisitive (that may change...)

 

Novo still has a great business (as long as people prosper & get fat, that shouldn't change...)

 

If anyone can cure diabetes, Novo has the expertise (how can that be bad for business?)

 

If it goes to $30 I'm buying more & if it goes to $25 after that, I'm buying more (the stink will settle eventually...)

[John Hjorth]

Thanks for link to the CVS topic, DooDiligence, I will read it up.

 

About Novo Nordisk aquisitions:

 

Quite late today, I found this article on Jyllandsposten Finans: Novo-top opening for major acquisitions in historic announcement.

 

I'm surprised, to say the least.

 

Novozymes A/S was spun off in 2000, and NNIT A/S was spun off in 2015 for the very reason of capital allocation - good businesses, but generating a drag on ROIC on the core of Novo Nordisk A/S. Now it seems that aquisitions are under consideration - in non-core activities. Which?

 

I don't get this. It's all on page 1 in the Catecism for capitalists. Why even consider this, if you see growth in the core business long term, that core business running at an extremely high, or at least still very good ROIC? -Price in the aqusition matters, naturally.

[eclecticvalue]

Is there another product Novo is working on that could be a blockbuster drug?