Novo Nordisk A/S

CSE:NOVO B

Earnings Call Transcript 2018-Q1

[Operator]

Good day and welcome to the Quarter 1 2018 Novo Nordisk A/S Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lars Fruergaard Jorgensen, CEO. Please go ahead, sir.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you very much. Welcome to this Novo Nordisk conference call regarding our performance in the first 3 months of 2018 and our outlook for the year. I'm Lars Fruergaard Jørgensen, the CEO of Novo Nordisk. With me, I have our Chief Financial Officer Karsten Munk Knudsen; and our Chief Science Officer Mads Krogsgaard Thomsen. Also present and available for Q&A session our Executive Vice President and Head of Commercial Strategy and Corporate Affairs Camilla Sylvest; as well as Executive Vice President and Head of Business Services and Compliance Lars Green. Present are also our Investor Relations Officers. Today's earnings release and the slides for this call are available on our website novonordisk.com. This conference call is scheduled to last 1 hour. As usual, we'll start with the presentation as outlined on Slide 2. The Q&A session will begin in about 25 minutes. Please note that this conference call will be webcasted live and a replay will be available on the Novo Nordisk website.Please turn to Slide 3. As always I need to advice you that this call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For further information on the risk factors please see the earnings release and the slides prepared for this presentation.Please turn to Slide 4. Sales in the first 3 months of 2018 were DKK 26.9 billion reflecting a decrease of 5% measured in Danish kroner and an increase of 5% in local currencies compared to the first 3 months of 2017. Sales in International Operations were flat in Danish kroner and increased by 8% in local currencies and accounted for 70% of the total sales growth.Within International Operations Region Latin America grew by 73% Region AAMEO grew by 12% and Region China grew by 6%, all measured in local currencies. Sales in North America Operations decreased by 11% in Danish kroner and grew by 3% in local currencies. On a product level, the sales growth in the first 3 months of 2018 was predominantly driven by Victoza and Tresiba, which grew by 18% and 33% respectively, both in local currencies.In February this year, Ozempic was granted marketing authorization in the European Commission, and in March, Ozempic was approved in Japan. In February, we also announced the results from PIONEER 1 the first Phase IIIa trial for oral semaglutide, the [ chuck ] trial achieved a primary endpoint of showing statistically significant reduction in HbA1c compared to placebo. Mads will really elaborate further on the results later in this conference call. Lastly in March, the FDA approved the updated label for Tresiba in the U.S. to reflect the data from DEVOTE.Turning to financials, operating profit for the first 3 months of 2018 declined by 8% in Danish kroner and increased by 6% in local currencies to DKK 12.4 billion reflecting the significant depreciation of the US dollar versus the Danish kroner.Net profit increased by 6% to DKK 10.8 billion. The diluted earnings per share increased by 8% to DKK 4.40. For 2018 the expectations for the sales growth have been narrowed to 3% to 5% measured in local currencies. The range for operating profit growth has also been narrowed to 2% to 5%. Currencies are now expected to negatively impact sales growth and operating profit growth by 6% and 9%, respectively.Please turn to Slide 5. In the first 3 months of 2018, the sales growth declined by 5% in Danish kroner and increased by 5% in local currencies. North America Operations sales increased by 3% in local currencies, while sales in International Operations increased by 8% in local currencies accounting for 70% of the total sales growth. Sales growth in North America Operations was driven by Victoza which increased by 20%, partly offset by a 7% decline in insulin sales. The decline in insulin sales was mainly driven by a 10% decline in basal insulin reflecting lower realized prices compared to 2017 and rebate adjustments for Tresiba in 2017, partly offset by a solid volume growth.Biopharmaceutical sales in the U.S. declined by 7%, predominantly driven by declining NovoSeven sales followed by the launch of a competitor product in the inhibitor segment. Within International Operations all regions contributed to sales growth in local currencies except from Region Japan and Korea. Region Europe grew by 1% in local currencies driven by a strong Xultophy uptake in France now with a value market share of 17% in the basal insulin segment.Furthermore, Fiasp contributed to the sales growth reflected -- reflecting a solid uptake in a number of European countries, most notably in Germany. Sales in Region AAMEO comprising Africa, Asia, Middle East and Oceania increased by 12% in local currencies driven by NovoRapid, NovoMix and Saxenda.Sales in Region China increased by 6% in local currencies driven by the modern insulin portfolio with NovoMix, NovoRapid and Levemir. Sales of Victoza in local currencies increased by 53% reflecting the inclusion on the national drug reimbursement list end of September 2017. Region Latin America grew by 73% in local currencies predominately driven by the timing of the NovoSeven tender delivery in Brazil.Please turn Slide 6. The sales growth in the first 3 months of 2018 was driven by the diabetes care and obesity franchise, which grew by 6% in local currencies the main driver was the GLP-1 franchise which grew by 19% due to the continued strong Victoza performance.The launch of Ozempic in the U.S. is progressing well and we still expect sales of Ozempic to reach at least DKK 1 billion in 2018. Insulin sales in local currencies were unchanged compared to 2017, this reflects a solid 6% insulin sales growth in local currencies in International Operations which was offset by a 7% decline in insulin sales in the U.S., which I previously alluded to.The obesity franchise increased by 63% and accounted for 23% of the total sales growth in local currencies. Saxenda is now launched in 26 countries. The biopharmaceuticals franchise grew by 1% [indiscernible] by the hemophilia portfolio, which grew by 7% in local currencies mainly due to the timing of a NovoSeven tender in Region Latin America.NovoNine, our new long acting Factor IX product, was launched in the U.S. in February 2018. The biopharmaceuticals franchise was negatively impacted by a declining sales of Vagifem due to the generic competition in the U.S.Please turn to Slide 7. Novo Nordisk currently has a global volume market share of around 30% in the long acting insulin segment. As we believe Novo Nordisk has a competitive portfolio of basal insulin, it is our aspiration to grow our market, global market share, and secure Novo Nordisk's leadership within the long-acting segment. Following the updated label to include DEVOTE data both in the EU and the U.S. we have initiated a global relaunch of Tresiba in more than 30 countries. The purpose of the campaign is to educate and highlight the substantial risk of severe hyperglycemia and how Tresiba can support in reducing the risk of severe hypoglycemia events were 30% -- 40% compared to Insulin glargine U100.Within the fast acting and premix insulin segments, our current global volume market share of around 50% and the commercial focus is to sustain our leadership position.Please turn to Slide 8. In the U.S. basal insulin market Tresiba has now reached a total scrip share of 11.8%, the combined market shares of Levemir and Tresiba has now increased to 35%. The positive development reflects the strong uptake of Tresiba with a volume market share gain of around 2 percentage points in the first 3 months of 2018.The Tresiba market share gains has been accelerated due to a formulary change within the CVS Part D. Tresiba's combined formulary access is now estimated to be around 80% for commercial and Part D reflecting the inclusion of Tresiba on the National United Health Care Part D formulary as of April 2018.Please turn to Slide 9. In the U.S. the GLP-1 franchise increased by 21% in local currencies driven by Victoza. Victoza sales increased by 20% reflecting an underlying market growth of 23% and a continued commercial focus on promoting Victoza that the only GLP-1 with CV protective label.The Ozempic launch is progressing as planned and formulary access is gradually increasing. The majority of our sales districts are now switching promotional activities from Actos to Ozempic, this reflects that we have now obtained formulary access covering more than half of the GLP-1 volume.Before handing over to Mads, I would like to comment on oral semaglutide pricing. I know it's a topic of great interest, but as we get closer to the potential filing and approval we believe it is no longer appropriate to discuss specific pricing strategies.We do anticipate that the following three factors are determinants of our pricing decisions; 1, the innovative -- so the innovation associated with developing the first oral peptide for treatment of diabetes, 2 the efficacy profile has shown in the ongoing Phase III trials and label for the product, and 3 the manufacturing costs for the product. However, we will be refraining from getting into further details from now on.With this, I will turn over to Mads for an update on R&D.

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

Please turn to Slide 10. In February this year, we announced the headline results from PIONEER 1, the first Phase IIIa trial with oral semaglutide for the treatment of adults with Type 2 diabetes. The global 26 week trial investigated the efficacy and safety of 3, 7 and 14 milligrams of oral semaglutide compared with placebo in 703 people that were not receiving any baseline anti-diabetic medication. The trial achieved its primary objective, according to the primary statistical principle, by demonstrating statistically significant and superior improvements in hemoglobin A1c for all 3 doses for oral semaglutide compared to placebo. Moreover, the 14 milligram dose of oral semaglutide demonstrated statistically significant and superior weight loss versus placebo.Applying the secondary statistical principle, which is similar to the method traditionally used in most clinical trials including the sustain program, people treated with 3, 7, 14 milligrams oral semaglutide achieved reductions in HbA1c of 0.8%, 1.3% and 1.5%, respectively, compared to reduction of 0.1% in people treated with placebo from a mean baseline of 8.0%.The ADA treatment target of HbA1c below 7% was achieved by 59%, 72% and 80% of people on treatment with 3, 7, and 14 milligrams of oral semaglutide respectively compared to 34% of the people treated with placebo. In addition, from a mean baseline body weight of 88 kilograms and a BMI of 31.8% people treated with 3, 7, and 14 milligrams of oral semaglutide experienced the weight loss of 1.7, 2.5 and 4.1 kilograms, respectively, compared to weight loss of 1.5 kilograms in people treated with placebo.In PIONEER 1 oral semaglutide furthermore showed a safe and well tolerated clinical profile. The most common adverse event for all 3 oral semaglutide doses was mild to moderate nausea, which diminished over time. Between 5% and 16% of people treated with oral semaglutide experienced nausea compared to 6% of people treated with placebo.Premature treatment discontinuation due to adverse events range from 2% to 7% for people treated with oral semaglutide compared to 2% for people treated with placebo. We're very encouraged by the results of the PIONEER 1 trial, which build on and confirm the unprecedented oral efficacy of semaglutide that was reported in the Phase II clinical trial.Please turn to Slide 11. During 2018 we expect to report the results of the entire PIONEER Phase IIIa global clinical development program for oral semaglutide, a program which has enrolled more than 9,000 people with Type 2 diabetes across 10 clinical trials. In all PIONEER trials, except PIONEER 6, 7 and 10 the primary endpoint is reduction in hemoglobin A1c after 26 weeks irrespective of the trial duration using the so-called treatment policy estimate statistical method in accordance with new regulatory requirements.In the second quarter of this year, we expect to announce the results from PIONEER 2, 3, 4 and 7, which investigate oral semaglutide in head-to-head comparisons against the leading SGLT2, DPP-4 and GLP-1 products Jardiance, Januvia and Victoza respectively. We expect to provide an update on new results from the PIONEER program at our investor event at the ADA Conference in Orlando on the 24th June this summer.Please turn to Slide 12, in March 2018 we announced that the FDA had approved a label update for Tresiba to include data from the DEVOTE trial. The data in the label now reflect that treatment with Tresiba resulted in a statistically significant and superior 40% reduction in the event rate of severe hypoglycaemia compared to insulin glargine U100. The Tresiba label also describes the cardiovascular safety, which was robustly confirmed in DEVOTE with a hazard ratio of 0.91. With the inclusion of DEVOTE data in the updated U.S. label, Tresiba has become the first basal with a -- insulin with a label documenting reduced risk of severe hypoglycaemia based on the blinded head-to-head insulin comparative trial. Follow the inclusion of the DEVOTE data in the label for Tresiba the supplemental applications for the SWITCH trials were withdrawn following interactions with the FDA.Please turn to Slide 13. Following the EU approval of Ozempic in February, Novo Nordisk has submitted a variation application to change the device offerings to allow for select pricing strategy also in Europe. We have additionally submitted a variation application to include the SUSTAIN 7 suit priority data versus dulaglutide in the European label.In March, we received the approval of Ozempic in Japan and submitted a new drug application for Ryzodeg to the Chinese FDA. In April, Novo Nordisk submitted a supplemental application for Xultophy to the FDA and further the CHMP issued a positive opinion to update the label related to inclusion of both LEADER and DEVOTE data in the label for Xultophy in Europe.In February, Novo Nordisk successfully completed the Type 2 diabetes multiple dose trial with LAI287, which is a once weekly albumin prospective insulin analog. We expect to initiate Phase II in the second half of this year.Based on Phase I data we've decided to discontinue the development of the mealtime insulin PI406. In April, we completed a Phase I trial with the long acting amylin analog AM833. The Phase I data was encouraging in that up to 7% placebo corrected weight loss was observed after only 8 weeks of treatment, accompanied by a good safety and tolerability profile.We're consequently planning to proceed with Phase II with expected initiation in the first half of next year. In February, we announced that extended half-life in ATP was submitted for regulatory approval in the U.S. and in the EU for the treatment of hemophilia A. In April, Novo Nordisk and EpiDestiny announced that Novo Nordisk has obtained a worldwide license to EpiDestiny's sickle cell disease program. We're excited about the collaboration and look forward to continuing the clinical development of the sickle cell disease project.Please turn to the next slide. During the second quarter of 2018 we will receive the results from PIONEER 2, 3, 4 and 7 that as mentioned include head-to-head data against the class leading DPP-4, SGLT2 and GLP-1 agents). Furthermore, we will receive data from the Phase II trial for Somapacitan investigating growth velocity in growth hormone deficient children.In third quarter, we expect to submit Fiasp and Xultophy in Japan and to receive regulatory feedback from the EMA regarding the variation applications for the device Ozempic and inclusion of SUSTAIN 7 data. Additionally, we expect the results from the PIONEER 5 and 10 trials. In Q3, we expect 3 milestones for our biopharma business. First, we expect the regulatory decision in Japan for N9-GP. Second, we expect the results from the hemophilia Phase II trial with concizumab. Finally, we expect extension data from the Phase III trial for Somapacitan within adult growth hormone deficiency.In fourth quarter, we expect the results from PIONEER 6, 8 and 9 and we plan to submit N8-GP for regulatory approval in Japan. Lastly, we expect the data from Phase II with concizumab in inhibitor patients.With that, over to Karsten for an update on the financials.

[Karsten Munk Knudsen, Executive VP & CFO]

Please turn to Slide 15. In the first 3 months of 2018 sales decreased by 5% in Danish kroner and increased by 5% in local currencies. The gross margin decreased by 0.7 percentage point to 84.4%, measured in Danish kroner compared to 85.1% in Q1 of 2017. The gross margin was negatively impacted by currencies especially the depreciation of the U.S. dollar compared to Danish kroner. The underlying gross margin was unchanged reflecting a positive contribution from higher productivity and product mix, offset by lower realized prices in the U.S.Sales and distribution costs decreased by 5% in Danish kroner and increased by 5% in local currencies, reflecting higher promotional investments partially offset by legal provisions in Q1 2017.R&D costs increased by 1% in Danish kroner and 5% in local currencies, reflecting higher costs for both research and development. The increase in research costs was driven by the diabetes care and obesity portfolio, while the increased development cost was predominantly driven by the Phase IIIb SUSTAIN program for Ozempic.Administration costs decreased with 5% in Danish kroner and remained flat in local currencies. Operating profit decreased by 8% in Danish kroner and increased by 6% in local currencies. Net financial items showed a gain of around DKK 1.2 billion compared with a loss of approximately DKK 0.5 billion in Q1 2017.This development reflects gain on foreign exchange hedging, involving especially U.S. dollar versus the Danish kroner. Diluted earnings per share increased to DKK 4.40 corresponding to an increase of 8% compared to Q1 2017.Please turn to Slide 16. In line with our treasury policy, the most significant foreign exchange risks have been hedged, primarily through foreign exchange forward contracts. The first 3 months of 2018 incurred a gain of almost DKK 1.1 billion compared with a loss of DKK 468 million in 2017. This development reflects a gain on foreign exchange hedging involving especially the U.S. dollar and Japanese yen versus the Danish kroner.The hedging gain was partly offset by the impact from non-hedged currencies, most notably the Argentina peso and due to the cost of hedging.Please turn to Slide 17. For 2018, sales growth is now expected to be in the range of 3% to 5% measured in local currencies. This reflects expectations for continued robust performance for Victoza and Tresiba as well as a positive contribution from Saxenda and Xultophy.These sales drivers are expected to be countered by an impact from lower realized prices in the U.S., mainly driven by lower prices in the basal segments. Reported sales growth is now expected to be around 6 percentage point lower than the local currency guidance. Operating profit growth, measured in local currencies, is now expected to be in the range of 2% to 5% growth. The expectation for operating profit growth reflects a modest increase in both sales and distribution costs to support continued launch activities and in R&D cost to support the progress of the pipeline.Reported operating profit growth is now expected to be around 9 percentage points lower than the local currency guidance. We now expect financial items to be a gain of around DKK 1.9 billion. The updated guidance reflects the recent appreciation of the U.S. dollar compared to the Danish kroner. The effective tax rate for 2018 is still expected to be in the range of 20% to 22%. Capital expenditure is still expected to be around DKK 9.5 billion in 2018. This is primarily driven by the construction of the new active pharmaceutical ingredient production facility in Clayton, North Carolina.For 2018, we still expect the free cash flow to be DKK 27 billion to DKK 32 billion. In the U.S.A., the funding of the Medicare Part D coverage gap has been changed based on new legislation with effect from 2019. Under the new structure, pharmaceutical companies are required to cover 70% of the coverage gap compared with the current level of 50%. Novo Nordisk expects group sales in 2019 to be negatively impacted by 1% to 2% as a result of this change.This concludes the financial updates. Now back to you, Lars.

[Lars Fruergaard Jørgensen, President & CEO]

Please turn to Slide 19. Based on the performance of our key products Victoza, Tresiba, and Saxenda we delivered solid underlying growth in both sales and operating profit for the first 3 months of 2018. We reached important milestones with our once-weekly GLP-1 Ozempic, and we launched in the U.S. and received approvals in both the EU and Japan. Moreover, we're encouraged by the clinical results for oral semaglutide from the PIONEER 1 study.We are now ready for the Q&A. So I kindly ask you -- I ask all participants to restrain themselves to 2 questions. Operator, we are now ready to take the first questions.

[Operator]

[Operator Instruction] We will now take the first question from Michael Leuchten from UBS.

[Michael Leuchten, Co]

2 questions related to sales and distribution please, came in relatively low in Q1. I was wondering if you could talk about phasing a little bit, and related to that, and this is the second question, in Q4, you talked about your GLP-1 marketing strategy phasing through 2018 of Victoza versus Ozempic. You said you're not putting a separate sales force behind Ozempic. Now that you have much improved coverage, how is that changing, and when please?

[Lars Fruergaard Jørgensen, President & CEO]

So Karsten, if you start with the say S&D level over the quarter, then Camilla will address with GLP-1 commercial products used for the U.S.

[Karsten Munk Knudsen, Executive VP & CFO]

When we look at our investments in the first quarter in terms of sales and distribution costs, then actually we do see quite a significant increase spend in Q1 when we look at our commercial regions. So our commercial investments are actually significantly higher than the 5% in the first quarter, which is then balanced by the fact that we had legal provisions in the first quarter of last year. So you can say, we're actually starting off fairly strongly in terms of commercial investments and DTC investments in the U.S. Then when you talk about phasings over the year, then all our guidance is 25% to 26% the S&D ratio to sales. Normally, we do see some back loading of course but I would say, this year, that you should see the phasing as we've been investing in Victoza and the LEADER promotional data and Ozempic launch in Q1. Now we're focusing on DEVOTE investments going into Q2. And then we're rolling more on to Ozempic DTC in late Q2 and into the second half of the year.

[Lars Fruergaard Jørgensen, President & CEO]

And then Camilla, through the tactics between Victoza and Ozempic?

[Camilla Sylvest]

Yes. So as you correctly say, we utilize from the same place for both Victoza and Ozempic, but gradually expect to make a shift towards Ozempic over the year. We've been very focused on obtaining market access in the first months of the year and we are quite happy with the progress on that, which basically means that now the majority of the districts in the U.S. has switched over to a completely focus on Ozempic, which we find, of course, is a very positive. And that means that Ozempic coverage in general is more than half of the combined GLP-1 volume in the U.S. So basically what we can say about it -- comment is that it is in line with our expectations.

[Operator]

We will now take the next question from Tim Race from Deutsche Bank.

[Timothy Michael Race, Research Analyst]

First of all, just a -- perhaps a nebulous one on pricing. Basically, you've come out and chosen to talk about 2019, the impact of Medicare Part D. Does that mean that you don't see any of a big impacts in 2019? I'd be interested to know what you're hearing and what you are expecting from potential presidential announcements under pricing and reform in the coming weeks. Then just another question following up on Ozempic and Victoza. I think the Street has certain forecasts of quite a rapid ramp up of Ozempic over 2018 and '19 and a -- essentially a flattening in terms of -- or flat growth for Victoza over that period. I'd be interested to know now that you've seen the initial ramp, you've seen your contracts coming, how you expect that sort of to change. Do you actually expect Victoza to grow over that period in the U.S.? And then literally just on following on this, so this is to 2.1 in questions. Basically, in terms of your contracts that you're winning, are you actually winning contracts where Victoza is not on formulary and therefore, you actually take gains rather than just kind of [ utilization ]?

[Lars Fruergaard Jørgensen, President & CEO]

So I'll start to talk a bit on the Part D and the presidential impact, and also try to put some words about Ozempic, Victoza, and then maybe, Karsten you can follow a bit each of the contracts in the U.S. So we felt it was prudent to come out and say what is our anticipated impact of the Medicare Part D coverage gap change because I think that's the key change in our environment in the U.S. and we give this guidance of 1% to 2%, we have not get closed the contracts for '19, so we cannot start commenting specifically on pricing but this estimate of 1% to 2% is based on our share of patients in -- being on Medicare Part D and our assessment of how many would be in the donut hole and what the impact is of that. In terms of pricing you can say that -- the pricing dynamics we've seen the basic categories, the function of the increased number of products that's competing for the same patients and that is unchanged going into '19, so we expect a continued pressure on pricing in that segment. In terms of Victoza and Ozempic SWITCH et cetera, what we guide for now is that we expect we can at least sell DKK 1 billion of Ozempic. We're not going to go into specifics around what will happen to the Victoza and Ozempic. We -- it's still early days in terms of the launch and we still believe that the overall GLP-1 business can go double digits so that's what we're seeing and we think that dynamics will continue. And then as we progress and see more specific, we can get into more detailed discussion around that. And then Karsten to a better feel for the overall contracting.

[Karsten Munk Knudsen, Executive VP & CFO]

Yes. So our market access, as Camilla was covering before, is progressing and now we have market access to more than half of the U.S. GLP-1 volume in 2018 for Ozempic and that you should see as an add-on to the formulary position we already have with the Victoza. So this is not at the expense of Victoza.

[Operator]

We will now take the next question from Trung Huynh from Credit Suisse.

[Trung Chuong Huynh, Research Analyst]

And 2 if I can. First is, we saw another strong quarter GLP growth and in the past you've noted much limited pricing pressure for GLPs versus insulins. Now they are about 12% to 15% of the U.S., and ex U.S. markets and they're also getting larger. Can you talk about the pricing dynamics you're seeing here? Do you continue to see very modest pricing pressures? Second question is, earlier this year the ACP in the U.S. recommended more moderate blood sugar control targets for most Type 2 diabetics. Can you give us your thoughts about the potential de-intensification of therapy and will this have any impact to your U.S. sales?

[Lars Fruergaard Jørgensen, President & CEO]

A comment on pricing pressure on GLP-1. So I think GLP-1 is still a market where differentiation among products is what drives prescription. So there's of course pressure from any payer on negotiating contracts but it's not the same nature as we see in the basic categories where products are being put up against each other and excluded. So we see of course, price pressure that's seen in all contracts but it's not to a level where we see a significant changed dynamics compared to what we have faced going into this year. And then Mads on the guidance on glucose control.

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

Yes. I think everybody was surprised to see that this recommendation came out. I have to say that the professional societies whether it's ADA, EHD, IDFO or the likes of it are totally not in agreement with that proposal. Rather you could say we are expecting to see the emergence of new treatment guidelines from societies such as the ADA and EHD potentially this year, which will actually emphasize that if people physically are fit for it, so to speak, then the target is as crisp as it has always been, namely 7%, and then individualized based upon individual [ inter ] illnesses and things that make people more frail as to a bullish or aggressive A1c target. So generally speaking, we see no change in the outlook for the need for glu control, and in fact, you can say that recently came out a huge supplement to diabetes care that was devoted to the cost of diabetes. And one of the main conclusions in that specific one which was a supplement that came out, I think 2 weeks ago, was that actually treatment was too little assertive and too relaxed in many parts of the U.S. and that was the major driver of the enormous societal cost of more than $300 billion annually.

[Operator]

The next question is from Sachin Jain from Bank of America.

[Sachin Jain, Managing Director]

A few questions please. Firstly for Mads post PIONEER 1 just to reframe expectations into the next data set. What are your expectations for superiority in A1c versus Victoza? And then 2 and 3 versus the oral, should we now be thinking about a delta on A1c sort of 0.7, 0.9 range versus, I guess, 0.4 we were thinking previously? Secondly, a broad question on the basal insulin franchise. When do you expect this to return to growth given the ongoing price pressure you've noted into next year and I guess price pressure was greater than expected for the first quarter. Then any comments versus consensus, which has a basal franchise growing at 9% CAGR midterm which to me seems optimistic in the context of minus 3 in the first quarter. And next, a clarification question on your -- on one of your introductory comments, Lars, around oral sema pricing. Understand that one is getting engaged in a quarterly reiteration of GLP-1 like pricing, but the simple question is does that GLP-1 like comment stand? Or is that off the table -- when now -- I've got a blank sheet of paper for pricing here?

[Lars Fruergaard Jørgensen, President & CEO]

Let me start by the last question. So I am not going to confirm that or discard it. So we're not going to talk about pricing because it's not meaningful neither for technical reasons nor as we have not yet seen the full clinical profile and we are also doing certain activities to optimize the cost of goods also. And I think this blank sheet of paper is typically what you expect when companies like to launch new products. It's rare that you have a discussion about pricing when you are in a time we are right now. So I think we are more or less like anyone else there. Then on Mads, on the -- what to expect with the PIONEER data and then Mads -- and then Karsten maybe you can talk a bit to the basal pricing development because I think there are certain -- there are a couple of elements to understand to assess what was actually the price delta this quarter, we have to correct for some changes in '17 et cetera. But first Mads on expectations for PIONEER.

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

Yes. Well, so the data that we know today relate to PIONEER 1, would be placebo corrected A1c decrements at the 3, 7, and 14 milligrams dosage were 0.7%, 1.2%, and 1.4% respectively for semaglutide and how does that fare against the similar estimation for other trials. Well, it is true that DPP 1 it is just typically to add placebo corrected values to the tune of 0.7 and that would leave some room up to the HbA1c production achieved for the high dose of oral semaglutide namely 1.4. So in that particular case you may be in that ballpark if we are on a good day but I would refrain from being -- coming what -- with so optimistic statements because that would mean toppling the A1c decrement compared to a DPP-4 inhibitor in that. If you make a comparison which is more relevant maybe, we did a comparison in Study 1860, 7 years ago where we compared 1.8 milligram Victoza to 100 milligrams of Sitagliptin and there the difference between the 2 was 0.5% and highly statistically significant with a weight benefit of about 2 kilograms in favor of Victoza 1.8. So I think that's more what you should be looking at but I cannot rule out that we see less or that we see more in there but I would expect to see superiority both in hemoglobin A1c and on body weight against both of the oral antidiabetics. That's what -- they are powerful and that's what we hopefully intend to be able to document vis-a-vis PIONEER 4 up against liraglutide 1.8 milligram. It is a trial that is powered to show non inferiority both on hemoglobin A1c and on body weight production and hopefully that is what we'll see.

[Lars Fruergaard Jørgensen, President & CEO]

Karsten?

[Karsten Munk Knudsen, Executive VP & CFO]

Yes. So basal insulin and pricing, which is an interesting topic these days. When we look at the first quarter to start there then the kind of the most abrupt dynamic is in the U.S. marketplace where we see our basal insulin sales up modern and new generation insulin there declined by 10% compared to the first quarter of 2017. The dynamics behind that is that we are actually doing well in terms of market share so we're taking to the tune of 3 percentage point the market share compared to a year earlier. So we have solid volume gains and penetrating the basal segment nicely with Tresiba. Then we have a pricing dynamic that offsets this and takes us to the minus 10% growth. I think it's important that we are clear that as we stated last year we had some one-off impacts in Q4 in terms of rebate adjustments that were catch up that we booked in Q4, but that actually relates to prior quarters including for Tresiba. So if we adjust for that and then another technical adjustment related to a non-contracted Tresiba volume in the first quarter of last year then the decline in the U.S. basal insulin was 6% versus the 10% where we're reporting. So just to understand those dynamics. Then looking ahead towards the medium term, I would say the dynamics are that we have a competitive situation in the basal segment with more competition already in the market and more players potentially entering over the next couple of years. So I would expect that pricing will continue to be negative over the next couple of year. Exactly how much, et cetera is impossible to say at this point in time.

[Sachin Jain, Managing Director]

So just to be clear are we managing our rate of sales decline, or do you think you can grow basal?

[Karsten Munk Knudsen, Executive VP & CFO]

So I think what our approach to the U.S. basal segment currently is that now we have the DEVOTE data that we are out relaunching. So we have a label update and it's very important for us to establish Tresiba as a very strong basal insulin in the marketplace. And so that's our approach now and we have good market access currently and with volume comes also strength in the marketplace for the years to come.

[Lars Fruergaard Jørgensen, President & CEO]

We cannot guarantee volumes or price but you can be -- rest assured that we'll give it our best shot and we have a unique position now as the only basal insulin with [ hypo ] the only insulin at all. So that's a significant opportunity that we will give all the attention we can.

[Operator]

The next question is from Richard Vosser from JPMorgan.

[Richard Vosser, Senior Analyst]

Just one follow up on Ozempic to start with and just the prescription trends in the U.S. Look like they're tracking very much in line with Trulicity and therefore it looks like Ozempic is expanding the market as is Trulicity at the moment. So could you talk about the source of patients where the Ozempic patients are coming from? And whether you think Trulicity like $200 million that they achieved, really achieved in the first year of launch represents a good proxy for you as sales there? Second question, just on the long acting insulin analog that you've moving forward to Phase II, could you talk about some of the profile that you've seen there in terms of maybe some of the PK profile, peak fluctuations et cetera so we can get a flavor for the profile of that product?

[Lars Fruergaard Jørgensen, President & CEO]

So Mads if you start by LAI287 and we'll get back to Ozempic.

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

Yes, well Richard LAI287 is a once weekly insulin analog that has been engineered towards not creating a subcutaneous [indiscernible] because that might fluctuate pretty much in terms of its absorption rate depending on blood perfusion through the subcutaneous and so on. So rather, it is developed for albumin bound protection in the circulation giving it a half-life slightly in excess of 1 week, meaning that in steady state you will have a very smooth profile. The competitor that we have gone up against, the toughest one you can imagine, namely insulin degludec and what we've seen now in 2 consecutive trials in multiple dosing, steady state situations is that the drug achieves a -- within patient day-to-day variability that is somewhat reminiscent of insulin degludec and that would actually mean lower than that of insulin glargine despite the fact that it's given only on a once weekly basis as compared to 7x a week. And if we look at the peak to trough fluctuation that seems to be close to that of insulin degludec and not significantly differently from it. So the peak during the week versus the trough after 1 week differs no more than it does so for the peak and trough respectively of insulin degludec given on a daily basis. And this would give it a lower peak to valley fluctuation than insulin glargine U100. When all of that is said what we have to bear in mind is that such an agent that is staying in the body for a long time so of course our company is dedicated to; A, identify the right strata or segments of the diabetes population that is most amenable to this particular innovative insulin therapy. And at the same time doing all the relevant clinical pharmacology studies to ensure that if hypoglycemia were to occur it would not occur in any different degree of severity or duration as compared with, for instance, insulin degludec. So these things will be ongoing, but I can tell you even though it's early days what we've seen in terms of hypoglycemia again is actually reminiscent of the comparison insulin which was insulin degludec which comes as a positive surprise albeit it's early days.

[Lars Fruergaard Jørgensen, President & CEO]

Talking about early days, Mads it's also early days for launch of Ozempic. Camilla, what can we say about how it's doing?

[Camilla Sylvest]

Yes, so with regards to whether we are expanding the market it looks like the market keeps expanding basically on the total number of scrips. So there is a good momentum in the GLP-1 market as we discussed previously and it looks like that is definitely continuing. So that's good. And when it comes to whether Lilly is a good proxy what we can say is that, of course, at the time when Trulicity was launched the market was a lot smaller. However, our ambition is, still as we have communicated before, to at least have a turnover of Ozempic of at least DKK 1 billion this year. So we stick with that. In terms of source of patient, it's still very early days and we cannot give any accurate estimates of that at this point in time. But hopefully, not so long from now.

[Operator]

We will now take a question from Keyur Parekh from Goldman Sachs.

[Keyur Parekh, Equity Analyst]

My first question is, given the 5% local currency growth that you have just done, and given the added benefit you will have from further market share of for both Tresiba as well or for the access both for Tresiba and for Ozempic, what would it take for you to get to the bottom end of your 3% to 5% range? Is there incremental stuff that we are not potentially seeing today as we go through the rest of the year? And the second question is for Mads, as we look at the result for PIONEER 2, 3 and 4 what beyond kind of the obvious HbA1c weight loss, what is it that you think will determine the clinical profile of the product from a commercial perspective? What else should we be looking for?

[Lars Fruergaard Jørgensen, President & CEO]

So if we start with costs and based on the current performance continued nicely again what will it take to hit the floor of the range?

[Karsten Munk Knudsen, Executive VP & CFO]

So thank you for that question Keyur. So as you say then we delivered 5% sales growth in the first quarter in local currencies as we've also been out saying 1 out of the 5% is related to the NovoSeven tender shipment in Brazil. So you could say in real terms we should only count a quarter of that in the first quarter. So that would take our -- you can say base sales growth down to the 4 percentage point mark in the first quarter. And as we've been out stating then our guidance is between 3% and 5%. So we are actually tracking very nicely within our guidance range, our guidance range is built based on our expectations towards penetration of Tresiba and Ozempic off take. So that is building already, what will happen for the remainder of the year then to get to 3%. Then you could say the main uncertainties at this point in time, which are lower than at the full year and that's also why we raised the floor of our guidance because uncertainty has come down compared to full year. The key uncertainties we're looking at this point is the impact from HEMLIBRA it's early days, but NovoSeven in itself is super hard to forecast. And then with the competitive launch then the slope of the erosion curve is hard to predict. So could that happen faster than what we have in our internal forecast? Yes, it could. Ozempic uptake it, when you put a new plant in then it's hard to gaze around source of business and uptake curve, so there could be an uncertainty at that point. And then the inherent risk in terms of pricing and rebating in the U.S. and the big numbers we have there as we saw on the fourth quarter of last year. Knock on wood, we will not have a similar surprise this year, but with -- there's just a certain level of uncertainty around channel mix that we only see with a 3 to 6 month lag effect. So those would be the main uncertainties beyond kind of big political macro items that of course would also add into it.

[Lars Fruergaard Jørgensen, President & CEO]

And Mads, on clinical profile.

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

Yes well, so to your -- it's -- that's a generic statement that oral semaglutide will be differentiated basically by virtue of its efficacy in terms of hemoglobin A1c and body weight lowering versus the other classes support anti-diabetic agents, that's a very generic statement that you also alluded to, which we hope to show as the primary and the first secondary endpoints in PIONEER 2 and 3 versus those 2 classes, respectively. Then against the DPP-4 class we hope as an endgame to be able to also profile oral sema as being the cardio-protective analog as opposed to DPP-4 inhibitors which are cardio neutral, but not protective and then up against Victoza, we are actually not going up against Victoza, we are rather shifting into the oral space, where today Novo Nordisk is not present, but if I were to highlight 1 publication, it's the 2004 paper on the validation of the treatment satisfaction questionnaire for medication study, the TSQM tool, where actually on a visual analog scale people will typically only score on [ Jakeson ] 60 on a scale to 100, whereas once daily tablets score way higher than both inhalers and all kinds of other [ thera ] insulins by reaching 90 on that scale. So the convinced benefit of going from a once daily injection to a once daily tablet is perceived by the patients to be rather tremendous, which is why we believe that we can give access to many more patients once we have all semaglutide patients that will shy away from the needle and take a tablet and get on to the best therapy early on. And against the SGLT2 inhibitors that we have to say it's only an efficacy gain because they are cardio-protective, but we have to bear in mind what they do is reduce heart failure, what we impact is [indiscernible] and they will go wonderfully hand in hand together, preferably ours before theirs, but if not so then the other way around, there will be a need for both.

[Operator]

The next question is from Michael Novod from Nordea.

[Michael Novod]

One question first to NovoSeven and how do you see the quarterly erosion going forward? I guess, there has been some inventory reduction as well in the U.S. this quarter, so how do you see this going forward based on the uptake of HEMLIBRA? And then secondly to China and Victoza, we see a small increase in sales quarter-over-quarter from around DDK 97 million to DKK 110 million, when do you start to see the more pronounced effect of better reimbursement for Victoza in China?

[Lars Fruergaard Jørgensen, President & CEO]

Karsten, quarterly erosion on NovoSeven.

[Karsten Munk Knudsen, Executive VP & CFO]

So as I said before, forecasting NovoSeven is -- given how the product is used, has been hard and something we've been practicing for years without necessarily totally nailing it. So then forecasting it on a quarterly basis with -- compared to the launching doesn't make life easier now. And I think what we should consider when we look at our first quarter results and you see U.S. NovoSeven sales being down by 17% in the first quarter and the impacts there we see in 3 buckets and so we see 1 piece being continued recruitment into clinical trials, then another piece is related to HEMLIBRA and commercial patients moving from NovoSeven to HEMLIBRA, and then the third and final piece is related to the supply chain and the stocking movements, where the specialty distributors where they're adjusting their inventories in anticipation of HEMLIBRA launch. So it is highly uncertain to gauge anything from quarterly data at this point. So the product is launched in the U.S. and we do see commercial patients switching. We also see HEMLIBRA having been launched in a couple of European countries. So there will be a gradual rollout, but exactly the speed of erosion remains to be seen.

[Lars Fruergaard Jørgensen, President & CEO]

We are happy to have a specialist from China here among us, so Camilla [indiscernible].

[Camilla Sylvest]

Yes, so in China we got the national reimbursement at the end of June last year and July and then following that of course as you know we worked on the formulary access in the provinces and that has now been established in all provinces and that means that basically Victoza is growing very rapidly in volume, of course, at the point of time and we have got reimbursement, we also reduced the price to some extent, but we are able to much more than compensate for that now. So you will see that Victoza now is a big part of the growth in China and we have, of course, expectations that it will stay like that. As you know, the TLP1 market in China is a very, very small part of the total diabetes market, so to -- of around 1%, so to get that to just to European levels of 10% to 12%, there is still that significant potential for Victoza in China.

[Operator]

We will now take the last question from Peter Verdult from Citi.

[Peter Verdult, Director]

Just a question for Lars on U.S. and Mads on the early stage pipeline. [indiscernible] a clarity on the donut hole implications. The 1% to 2% sales impact implies a fall through to EBIT of say 2% to 5%, I just want to make sure I understand, should we assume Novo intends to absorb this through cost efficiencies or are you accepting or willing to accept a lower level of profitability from the U.S. market. And then Mads, good to see the Amylin analog in basal moving Phase II and obviously a shame that [indiscernible] didn't make it. But just pulling off from Richard's question, on this weekly basal, thinking about the oral basal insulin paradigm, which you had to start because just arguing for convenience and helpful enough, how will a weekly basal -- how are you looking to differentiate this and what proposition do you want to go the payers when you think about potentially moving to Phase III? And if I could slip in one more, be on -- get on the last question. It would seem Sanofi's glucagon failed on GI tox, can you just remind me the next timelines for news on your GLP1 glucagon and glucagon GIP programs?

[Lars Fruergaard Jørgensen, President & CEO]

So on Part D impact, we have put kind of a frame on what the top line impact is, we have not guided what the P&L impact is because we are still doing contracts for '19, we are still making outline for '19. So we are looking to -- for different options for how we can mitigate this. So you should expect that we will do some efforts to mitigate through the P&L expense. But it's too early for us to give a specific guidance on this as of now. And then Mads 2 questions here on the end on -- on Amylin and Sanofi.

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

Yes, well if you go on [indiscernible] --

[Lars Fruergaard Jørgensen, President & CEO]

Sorry --

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

But Amylin is also --

[Lars Fruergaard Jørgensen, President & CEO]

Contracts are renewed --

[Mads Krogsgaard Thomsen, Executive VP & Chief Science Officer]

No -- so you may think about this in many ways Peter, we are doing that together with our global panels of experts as we speak and without giving away too much because it's work in progress and management has to agree with all of this, of course. You have to think of several things here, one is that it's also a combination partner for semaglutide, so one idea is to have a one shot a week keeps the doctor away kind of approach where you actually combine in a fixed ratio sema and LAI287 and give 1 injection per week and that should last for maybe quite a few years, that's 1 approach. The other 1 is the mono therapy with LAI287 and that could go into a speculative, albeit interesting segment namely that of early stage insulin supplementation in Type 2 diabetes. It is well known that insulin -- sorry, beta cells contain actually insulin receptors that make the beta cells respond to their own secretion of insulin and if that goes down, the health of the beta cell decays. So one line of thinking that actually came from China originally is that the health of the beta cell will be better if you early can supplement with a little bit of insulin and that could actually be done with a squirt of weekly 287 at a point where people are not really ready to adopt a treat-to-target regimen with daily injections. Just thinking at this point, elderly people who need third-party assistance for using their insulin is a logical one because this is more likely people preparation, needle phobias, combinations with agents that do not facilitate hyperglycemia occurrence such as GLP-1s are also obvious segments. But I think we'll get back to that at a later point once we are more specific, Peter. The glucagon co-agonist once daily compound GLP-1 glucagon co-agonist from Sanofi, you probably should ask them about mostly yourself, I guess, but my feeling is that one always has to tailor very, very closely not in rats or mice or dogs or pigs, but in humans what exactly is the real ratio you want to go for and that's why we have actually adopted both the approach, of reach a [ demark ] so to speak, the triple agonist approach where we've tried to make what we think is a right blend of our triple agonist that has completed the first Phase I and is now entering the second Phase I study, but also an approach of having like fixed ratios where we can make mini-ratios of a glucagon analog together with semaglutide and then find the one that combines with greater efficacy than sema with the same or similar tolerability as the sema molecule. And data on these projects we'll be reading out, I will say, in the next 12 months. We also have a co-agonist called 1177 that is completing Phase I, so you will actually have an array of data from the ongoing clinical trials in the next 12 months. And then we will have to pick and choose because of course we won't develop all these projects.

[Lars Fruergaard Jørgensen, President & CEO]

Please turn to next slide. Thank you. Thank you, Peter. This concludes our conference call. Thank you for participating and feel free to reach out to our investor relations officers with any follow up question you might have. Thank you very much and have a great day.

[Operator]

This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.