Mads Øvlisen - Novo Nordisk Strategy
Good morning Ladies and Gentlemen.
My presentation will emphasize Novo Nordisk's overall goals and strategies.
Slide 3 - Novo Nordisk Vision 21
On this slide you see Novo Nordisk's mission. Two of the most important challenges are to remain an independent growth company and to deliver a competitive financial performance.
As Kurt Anker just showed you, we have - comparing ourselves to industry peers - set stretching financial targets. 1998 was yet another year where we either met or made considerable progress towards these targets. These targets we maintain going forward, with the exception of year 2000 as explained on earlier occasions.
Slide 4 - Our business strategy
Through a focused business strategy, continued performance improvements helped by the introduction of stock options for high level management, and employee shares in 1998, we will continue to push our company towards even higher levels of performance. This is the most viable route to improved financial performance - which again is the precondition for Novo Nordisk to remain an independent player in the industry.
Slide 5 - A clear business focus - strategy unchanged
We do have a focused business strategy in Novo Nordisk. Since announce-ment of our current strategy in December 1994, we have divested several businesses in order to focus on the areas where we hold a strong position with strong prospects. Most recently, ie in the second quarter of 1998, we sold the Seroxat®/Paxil® business in the Nordic countries to SmithKline Beecham as part of our striving to focus our business. We have now focused the business on four areas: Diabetes Care, 55% of our sales in 1998. Women's Health Care, Growth Disorders and finally, Industrial Enzymes, 24% of our sales in 1998.
Enzymes continue to be an important business for Novo Nordisk and we believe that our ability to extract value from this business justifies our continued ownership. There is a number of good reasons for this. Firstly, the Enzyme Business generates a substantial part of the income for Novo Nordisk as the operating profit margin is in line with Health Care, when adjusting for Seroxat® licensing income. Enzyme Business has even managed to increase the operating margin over the last years, also in 1998. Secondly, we are seeing Enzyme Business increase its cash flow as most capacity expansions for production purposes have been made and hence, the investment level will be significantly lower going forward than in the last three-four years. Further, an important reason for keeping Enzyme Business within Novo Nordisk is that one of our core competencies is fermentation and recovery technology. This is an area where synergies are harvested by Enzyme Business and Health Care.
The last focus area we call "breakthrough drugs". Our main effort is on pharmaceutical proteins, building on our tradition in the field and adding the new skills of the emerging, enabling technologies. This strategy contains an element of opportunism as researchers are bound to make discoveries outside Novo Nordisk's established business areas. When this happens, we thoroughly evaluate how to best make value of the invention or idea. Often this means out-licensing of the product candidates, as in earlier years this was the case with PDGF. However, in our portfolio is an example of a small jewel which we chose to retain, ie NovoSeven® for patients with bleeding disorders. This is a very attractive product, the performance of which has been extremely good over the past three years and currently, we are working to expand sales/business through new indications.
Slide 6 - The rationale of alliances
We choose to make alliances in areas required to maximise the value of our products, projects and assets. This is true in both ends of our value chain, in R&D and in Sales and Marketing. The underlying driver in R&D is to leverage the capabilities in some of the large numbers of biotech companies around the world with our knowledge of diseases within our business areas. In 1998, almost 25% of our discovery spendings within Health Care was used outside Novo Nordisk.
In Sales and Marketing we have entered into alliances to ensure better coverage in the market place for our products. In Health Care we entered into such an alliance in 1998 with Schering-Plough covering Prandin™ and our insulin products and pen devices in the US. In the Enzyme Business we made an alliance with Roche to market our feed enzymes in 1996.
Now where will the growth come from going forward ?
Slide 7 - How to reach 15% operating profit growth following year 2000
More than 50% of Novo Nordisk's revenues come from diabetes care. In 1998, insulin made up approximately 90% of this. We estimate that the insulin market will increase 9-11% pa over the next five years. This is based on more patients being diagnosed with diabetes and newer and higher priced products being marketed, including patients switching from traditional vials to pen systems. The prospects of inhaled insulin is not in this estimate.
In order to illustrate the sustained growth in the insulin market, the following slide should be observed.
Slide 8 - Historic sales growth in Novo Nordisk's insulin business
This is a graph of the insulin sales growth realised since the company was founded in 1923. The compounded annual growth rate since 1923 is close to 13% pa. A quite unique life cycle compared to most other pharmaceutical products. There are only a few process related patents covering insulin - consequently, Novo Nordisk is not exposed to patent expirations in any significant way. With new generations of insulin coming out, most notably, insulin analogues and new administration forms, combined with the growth in Type 2 diabetes, these growth rates are expected to continue in the years to come.
Slide 9 - How to reach 15% operating profit growth following year 2000
We have a number of new products for which we will see substantial sales growth over the next years. Most notable is NovoNorm®/Prandin™. The hopefully, imminent approval of NovoSeven® in the US will be another significant source of growth to both top and, in particular, bottom line. Further, we have launched Activelle™ in Europe, and hope soon to get approval for our liquid formulation of growth hormone, Norditropin® Simplexx™.
Through further productivity increases within the organisation, we should be able to sustain or even improve our margins when adjusting for the Seroxat® licence income.
Also we will receive new licensing income from some of the products out-licensed during the last years. Further, we also expect to see some income from Gabitril®, our anti-epileptic drug out-licensed to Sanofi and Abbott, and later on the out-license of our HRT products in the US.
This slide illustrates the main challenges for Novo Nordisk in 1999 and going forward.
We must continue to grow our sales.
We must ensure to find the in-road to the US market, the largest single market in the world, with Novo Nordisk currently holding around 20% of the insulin market share. The copromotion agreement in 1998 with Schering-Plough is an important element of this strategy. We must be successful in the US and increase penetration of our pen devices for insulin administration. The pen penetration at the 2% level is one of the lowest in the world and this defies all logic. We have to unlock this potential.
We have to make a success of NovoNorm®/Prandin™. We have come off to a slower than earlier expected start in the US, but we still believe in the product and are following up very anxiously for the results from the launches in Europe, where we have a much stronger market position compared to the US. Feed-back from the market, so far, is encouraging.
We need to maximise the value of our Women's Health Care franchise after termination of the levormeloxifene project. The launch of Activelle™ in Europe and the expected forthcoming HRT out-license in the US is an important step in this process.
We will continue very closely to monitor the sales and operating profit growth of our Enzyme Business. The key driver for this business is volume growth driven by new applications. Further, we are looking for a continued improvement in productivity.
A substantial decrease in licence income from Seroxat®/Paxil® will be seen as from year 2000. We will do whatever is possible, without jeopardizing our long-term goals, to close the gap in year 2000; however, as indicated in our recent full year results announcement we expect, however, that the operating profit growth in year 2000 will fall considerably short of the targeted annual growth of at least 15%. The newly announced productivity and cost savings programme in Health Care, aiming at saving DKK 300 million in year 2000, is such an initiative to increase the prospect of fulfilling the financial objectives.
Slide 11 - Creating a new legal structure for Novo Nordisk
In order to increase transparency and operational flexibility of the current businesses, Novo Nordisk will structure Health Care, Enzyme Business and ZymoGenetics as separate legal entities - a time-consuming project which we expect to be completed with effect from 1 January 2001.
The purpose is to maximise the full potential of the separate businesses now and in the future. The separation will further make it possible to seek listing of the individual companies.
The new legal structure will also make closer collaborations, including the creation of joint ventures, with other relevant companies easier to implement.
It has also been decided to publish segmented financial reporting for Health Care and Enzyme Business as from 1999.
This concludes my presentation of Novo Nordisk's strategy. Let me sum up by saying that our mission is to be the best in our businesses and a challenging place to work. We depend upon our ability to introduce new value-adding products in all markets. For us to continue to be successful, we need to be able to continue to make it attractive for very talented people to work at Novo Nordisk. The players want to be part of the best team, consequently, Novo Nordisk's results must be competitive across the border with those of a much larger company. We have chosen to compete in our areas of expertise. And we believe that our focused business strategies are working well for us - we see our results improve, we see performance-orientation spreading throughout the organization and we have a determination to continue to be successful. Hopefully, the presentations you will hear today will convince you of the realism of our ambitions.
Thank you for your attention - and now back to Kurt Anker.
