Novo Nordisk A/S

CSE:NOVO B

Earnings Call Transcript 2020-Q1

[Operator]

Hello, and welcome to the Q1 2020 Novo Nordisk A/S Earnings Conference Call. [Operator Instructions] Today, I'm pleased to present Lars Fruergaard Jørgensen. Please go ahead with your meeting.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you. Welcome to this Novo Nordisk conference call regarding our first quarter performance and our financial outlook for 2020. I'm Lars Fruergaard Jørgensen, the CEO of Novo Nordisk. With me I have our Chief Financial Officer, Karsten Knudsen; and our Chief Science Officer, Mads Krogsgaard Thomsen. Also present and available for the Q&A session are Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; and Executive Vice President and Head of Product Supply, Quality and IT, Henrik Wulff; as well as our Investor Relations officers. Today's earnings release and the slides for this call are made available on our website, novonordisk.com. Please note that this conference call is being webcasted live and a recording will be made available on Novo Nordisk's website. This call is scheduled to last for 1 hour. The presentation is structured as outlined on Slide 2. We will begin by addressing Novo Nordisk response to the COVID-19 pandemic before moving into the quarterly performance. Please note all sales and operating profit statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 25 minutes. Please turn to Slide 3. As always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainty that could cause actual results to differ materially from expectations. For further information on the risk factors, including the uncertainties pertaining to COVID-19, please see the earnings release, press release and the slides prepared for this presentation. Please turn to the next slide. The first 3 months of 2020 has been extremely unusual given the COVID-19 pandemic. This crisis is without precedent in our lifetime. And each day, it presents new challenges to governments, health care systems and companies across the globe, as it does to all of us on a personal level. Across our global organization, we are working hard to tackle the new challenges COVID-19 poses. We have prioritized 3 things in particular: ensuring the well-being of our employees; safeguarding the supply of our life-saving medicines to the patients that need them; and doing our part to help society by supporting local authorities with resources and expertise. Across the value chain, the COVID-19 pandemic has had an impact on how we go about our business. Within production, while we have been prepared, given the contingency plans established, colleagues at our global manufacturing sites are finding new ways of working to ensure that our supply of medicines is maintained. As a result, all manufacturing sites continue to operate and medicines are still available to patients worldwide. Within research and development, we continue to conduct all ongoing clinical trials and do not expect significant delays for trials near completion. For trials that are currently recruiting, however, recruitment of new patients has been negatively impacted. Consequently, some trials may be delayed. Further, to help limit the strain on the health care system, no new clinical trials are currently being initiated. The majority of Novo Nordisk medicines are used for treating chronic diseases. However, during the period of social distance implemented in many markets, fewer new patients are temporarily expected to initiate treatment. This especially impacts launch products and products with a short stay time. Again, we also have a responsibility to support society as much as possible. We have set out to do this by, for example, donating free insulin to select humanitarian organizations, increasing affordability options for those in the U.S. who have lost their health insurance, as well as providing emergency relief donations in countries across the world. I sincerely hope that we'll soon gain the upper hand on COVID-19. But in the meantime, I'm proud to be part of an industry that is working around the clock to discover effective treatments and vaccines. Novo Nordisk will continue to support these efforts in any way we can. Please go to Slide 5. In 2019, Novo Nordisk introduced a comprehensive approach describing future growth aspirations of the company under the headline strategic aspirations 2025. The strategic aspirations consist of 4 components: purpose and sustainability; innovation and therapeutic focus; commercial execution; and financials. Beginning with purpose and sustainability. As already mentioned during my introduction, Novo Nordisk has focused on its purpose of being respected for adding value to society. We have engaged in numerous initiatives supporting patients, employees and society during this challenging time. Additionally, in the first quarter, we reached our exploration of sourcing 100% renewable power across all production sites. There are also multiple developments within our innovation and therapeutic focus aspiration. For diabetes, Rybelsus was approved in the European Union and the United Kingdom for the treatment of type 2 diabetes. Also, the Ozempic marketing authorization application was submitted in China. For biopharm, we unfortunately had to pause the development of concizumab as a result of 3 nonfatal thrombotic events during -- occurring in the Phase III program. A potential continuation of the project is currently being evaluated. Within other serious chronic diseases, we have results of the Phase II trial investigating semaglutide in the treatment of NASH. Mads will elaborate on that in a few minutes. Moving to commercial execution and financials. Diabetes sales increased by 13%, with Novo Nordisk seeing its diabetes value market share leadership expand to 28.7%, and GLP-1 sales continued to perform well at 37% sales growth. Biopharm sales increased by 16%. Total sales increased by 14%, with International Operations growing by 19% and North America Operations growing at 9%. When adjusting for the COVID-19-related stocking effect, sales growth was around 7%. The stocking impact was distributed approximately equally between International Operations and North America Operations. The sales growth is reflected in operating profit, which increased by 12%, totaling DKK 16 billion. Operating profit was positively impacted by productivity improvements within manufacturing and administration. Please turn to Slide 6. Before we discuss sales across the business, you will notice a different reporting structure for the areas in International Operations. As of the 1st of April 2020, the International Operations unit has been reorganized, resulting in the following new way of reporting: EMEA, covering Europe, Middle East and Africa; Region China, covering Mainland China, Hong Kong and Taiwan; as well as rest of world, covering all other countries, except for the 2 within North America Operations. North America Operations was not impacted by the reorganization. It still includes the U.S. and Canada. Again, sales increased by 14%, which was supported by a growth across all areas and across all therapies. When adjusting for the COVID-19-related stocking, the sales growth was 7%. The stocking impacts were seen mainly as a result of increased patient prescription trends and wholesaler inventory levels, particularly in the U.S. and EMEA. Underlying growth was solid, particularly in International Operations, where all areas and all therapies continue -- contribute to the continued growth. North America Operations increased by 9%, positively impacted by the COVID-19-related surge in demand, most driven by stocking at patient level as well as prescription refill policies where adjusted. Sales growth also reflects the continued performance of the GLP-1, obesity care and biopharm segments. Insulin sales declined by 15%. Please turn to Slide 7. In the quarter, sales growth was driven by all therapy areas. The stocking impact came mainly from insulin and GLP-1 and, to a lesser extent, from the biopharm and obesity care franchises. Global insulin sales increased by 2% despite the 16% sales decline in the U.S. The U.S. sales decline was driven by lower realized prices due to the unfavorable channel mix, higher rebates, the launch of affordability -- additional affordability programs and changes in coverage gap legislation. The decline was offset by a 14% increase in International Operations, where all insulin categories contributed to growth. GLP-1 sales increased by 37%, driven by 55% sales growth in International Operations and 30% sales growth in North America Operations. Underlying growth reflects the continued penetration of Ozempic, along with the launch of Rybelsus. Novo Nordisk has expanded both its global insulin volume market leadership as well as its GLP-1 market leadership. This has resulted in the previously mentioned expansion of Novo Nordisk global diabetes market leadership, now at 28.7%. Obesity care sales grew by 30%, with both operating units contributing to growth. Biopharm sales increased by 16%, driven by both Norditropin and hemophilia products. Please turn to Slide 8. In the U.S., the GLP-1 market continues to grow more than 30% in volume, driven by once-weekly GLP-1 products. With the uptake of Ozempic and the launch of Rybelsus, Novo Nordisk has new-to-brand market share leadership of nearly 58% and is the GLP-1 market leader measured on total monthly prescriptions with around 48% market share. The early uptake of Rybelsus in the U.S. was encouraging prior to COVID-19. The weekly new-to-brand prescription market share for Rybelsus is 9% with a total prescription share around 2%. Additionally, market access is progressing now with more than 50% unrestricted access. Ozempic continues to increase its market share in the U.S. In terms of new-to-brand prescriptions, Ozempic is close to 37%. And in terms of total prescriptions, our Ozempic market share is slightly more than 24%. Furthermore, Victoza continues its declining market share for both new-to-brand prescriptions and total prescriptions. Please turn to Slide 9. Novo Nordisk is increasing its diabetes market share in International Operations as indicated by the near 23% share of growth versus a market share of around 22%. Market share increases in International Operations is driven by both insulin and GLP-1. In all reporting areas, both franchises' sales are growing. In International Operations, the diabetes franchise represents nearly 80% share growth with insulin share growth at 44% and GLP-1 share of growth at 35%. Please turn to Slide 10. Obesity sales care increased by 30%, driven by -- driven equally by North America Operations and International Operations, reflecting continued uptake in EMEA and rest of world. We are committed to driving change in obesity care with Saxenda having been launched in 46 countries globally and continuing investments in market development activities. Please turn to Slide 11. Biopharm sales grew by 16% in the first quarter, driven by a 17% sales growth in International Operations and by 14% sales growth in North America Operations. Sales were impacted by COVID-19-related stocking and changes in inventories and timing of shipments. Sales development was driven by growth across both the hemophilia and growth disorder franchises. The 9% hemophilia sales growth was supported by increase in NovoSeven sales as well as the continued rollout of the portfolio of innovative products with Refixia and Esperoct. Norditropin sales increased by 28%, driven by changes in inventory, COVID-19-related stocking as well as an additional demand resulting from changes in the competitive landscape in selected countries. With this, over to Mads for an update on R&D.

[Mads Krogsgaard Thomsen]

Thank you, Lars. Please turn to Slide 12. On the next couple of slides, I will discuss our commitment to develop the semaglutide molecule in 2 additional therapy areas, beginning with the Phase II results in NASH and then moving on to the Phase III STEP program for semaglutide in obesity. In April, the Phase IIb trial investigating semaglutide in the treatment of nonalcoholic steatohepatitis, also known as NASH, was completed. This was a 72-week blinded biopsy-based trial comparing the effects of subcutaneous semaglutide administered once daily versus placebo in achieving histologic resolution of NASH stages F1 to F3. The trial enrolled a total of 329 patients that were randomized to either 0.1-, 0.2- or 0.4-milligram doses of semaglutide or to placebo. The primary endpoint was the proportion of patients achieving natural solution without worsening of fibrosis after 72 weeks. At trial completion, there was a statistically significantly higher proportion of patients meeting the primary endpoint for semaglutide with an impressive 59% achieving natural solution at the high dose versus 17% for the placebo arm. There were also a number of secondary endpoints in the trial. And while there was not a statistically significant difference in the proportion of patients achieving histological improvement in liver fibrosis with no worsening of NASH, there were a number of endpoints showing a statistically significant and dose-dependent reduction in the progression of fibrosis as assessed by biopsy histology, biomarker panels as well as elastography using FibroScan imaging. Additionally, marked improvements were seen in liver enzyme levels and the use of metabolic endpoints with type 2 diabetes patients reaching Hba1c of around 6.0%, accompanied also by double-digit percent weight loss. The tolerability and safety profiles were good, with only 2 patients discontinuing to GI side effects at the highest dose. In total, only 4 patients in each of the high dose and placebo arms, respectively, discontinued due to adverse events. The next steps will now be discussed with the regulatory agencies. Please turn to Slide 13. The semaglutide in obesity Phase III STEP program represents an important part of our strategic aspiration to develop a leading portfolio of superior obesity treatment solutions. The obesity program will begin to report results soon, starting with STEP 4. Let me go into a little bit of detail. STEP 4 is a 68-week safety and efficacy trial of semaglutide versus placebo in 900 overweight or obese adults. The trial displays an unusual so-called withdrawal design, implying that after 20-week running period for semaglutide in all patients, they will be randomized or were randomized to either stay on semaglutide or switch to placebo treatment, hence withdrawing active drug therapy. Based on this, the trial seeks to investigate the weight difference between the 1 arm continuing versus the other arm discontinue semaglutide therapy from randomization at week 20 to the end of trial at week 68. This will provide meaningful data on the consequences for a patient to discontinue obesity therapy after 5 months as compared to if she or he continued on obesity therapy for more than a year. STEP 4 will also investigate other endpoints, including weight change after 68 weeks of semaglutide treatment. STEP 4 will be followed by readouts from the classic obesity STEP 1 trial, the diabetes STEP 2 trial and the combined intervention STEP 3 trial in the upcoming months. Overall, the STEP program has enrolled approximately 4,500 adults with either overweight and comorbidities or obesity as defined by BMI above 30. Obesity is a chronic disease that has been shown to require long-term management with both pharmacological and behavioral therapy. It is associated with many serious health consequences, decreased life expectancy and great societal cost. Semaglutide is expected to treat obesity by offering the patient powerful weight loss mediated by well-defined mechanisms in the brain causing decreased appetite and increased feeling of satiety. Please turn to Slide 14. In the first quarter of this year, a number of R&D milestones were reached. As mentioned by Lars, Ozempic was submitted for marketing authorization in China, Rybelsus received approval in EU and the U.K. and Phase II for semaglutide in NASH completed highly successfully. Additionally, the once-weekly combination of semaglutide and a novel GIP analog initiated Phase I. Furthermore, the quarter also brought with it Phase I initiation of a novel insulin hybrid molecule that combines basal insulin action with PCSK9 inhibition. In biopharm, the once-weekly growth hormone somapacitan was submitted for marketing authorization in Japan in adults. The submission was based on data from the pivotal Phase III trial, REAL 1, and supported by data from the local Japanese trial, REAL Japan, which enrolled 60 previously treated patients with growth hormone deficiency. They were adults. We have announced that 2 clinical trials in the concizumab Phase III program have been paused due to the occurrence of nonfatal thrombotic events in 3 patients. A potential reinitiation of the program with modified dosing regimens will now be discussed with the regulatory agencies. The remainder of the year promises a number of important milestones, starting with Rybelsus approval in Japan expectedly this quarter, along with multiple trial readouts and significant product approvals across the portfolio. With that, over to Karsten for an update on the financial results.

[Karsten Munk Knudsen]

Thank you, Mads. Please turn to Slide 15. In the first 3 months of 2020, sales increased by 16% in Danish kroner and by 14% at constant exchange rates. The gross margin was 84.1% compared to 83.8% in the first quarter of 2019. The increase in gross margin reflects a positive product mix, driven by increased GLP-1 sales, productivity improvements in manufacturing and a positive currency impact of 0.2 percentage points. This was partly countered by a negative impact from lower realized prices in the U.S. Sales and distribution costs increased by 9% in Danish kroner and by 7% at constant exchange rates, reflecting increased investments in GLP-1 and obesity, partly countered by lower promotional spend for insulin products in the U.S. The cost increase was driven by global promotional activities for Ozempic, global launch efforts to build and expand the obesity market as well as launch activities for Rybelsus in the U.S. and promotional activities for insulin in places such as China. Research and development costs increased by 41% in Danish kroner and by 40% at constant exchange rates. The cost increase is impacted by the reversal of write-downs of oral semaglutide prelaunch inventory in the first quarter of 2019 and a low level of spending in the first quarter of 2019. The underlying R&D cost increase is driven by a high activity level within other serious chronic diseases, namely for the NASH and cardiovascular disease projects. Administration costs increased by 2% in Danish kroner and by 1% at constant exchange rates, reflecting broadly unchanged spend across administrative areas. Operating profit increased by 14% in Danish kroner and by 12% at constant exchange rates when adjusting for increased sales due to COVID-19-related stocking and the 2019 reversal of oral semaglutide prelaunch inventory, operating profit increased by around 4%. Net financial items showed a loss of around DKK 1.3 billion, which is compared to a loss of around DKK 1 billion in Q1 2019. This development reflects losses on commercial positions, mainly due to declines in emerging market currencies in March 2020. Diluted earnings per share increased by 16% to DKK 5.05. Free cash flow increased by 15% to DKK 7.7 billion. Please turn to Slide 16. For 2020, sales growth is still expected to be between 3% and 6%. The guidance reflects an expectation for a robust performance of the GLP-1-based diabetes care and obesity care products as well as positive contributions from the new-generation insulin portfolio and key biopharm products. The guidance also still reflects intensified competition within diabetes care and biopharm, continued pricing pressure within diabetes care as well as the expansion of affordability initiatives. Given the current exchange rates versus the Danish kroner, growth reported in Danish kroner is expected to be around 1 percentage point higher than at constant exchange rates. The current COVID-19 pandemic causes uncertainty to the outlook regarding patient flow and societal impacts such as the unemployment rate in the U.S., which is impacting health care insurance coverage. The sales expectation is based on a number of assumptions related to the severity and duration of impacts from COVID-19, including a gradual normalization across geographies of the patient flow in the third and fourth quarter of 2020 as well as a gradual reversal during 2020 and 2021 of the increased stock levels experienced in March 2020. Operating profit growth is still expected to be 1% to 5%. The guidance primarily reflects the sales growth outlook, continued focus on efficiency and resource allocation and continued investments in current and future growth drivers across the operating units. Growth reported in Danish kroner is expected to be around 1 percentage point higher than at constant exchange rates. Financial items is now expected to be a loss of around DKK 2.5 billion. The higher loss mainly reflects losses associated with foreign exchange hedging contracts primarily related to the U.S. dollar versus the Danish kroner and losses from nonhedged currencies due to depreciation across most emerging market currencies. We still expect a free cash flow between DKK 36 billion and DKK 41 billion in 2020. And now back to Lars for closing remarks.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Karsten. Please turn to Slide 17. Societies are severely impacted by the COVID-19 outbreak. And during the pandemic, our key priorities are to safeguard our employees, continue the supply of our life-saving medicines and use our expertise, resources and global reach to help societies around the world fighting the pandemic. COVID-19-related stocking at the patient level significantly impacted our results. However, we are satisfied with the underlying commercial performance as well as the progression of our pipeline with the approval of Rybelsus in the EU and the encouraging Phase II data for semaglutide in NASH. Lastly, please take care of yourselves and those around you during these challenging times. Together, we can and will overcome this crisis. Thank you very much. With that, we're now ready for the Q&A. [Operator Instructions] Operator, we're now ready to take the first question.

[Operator]

[Operator Instructions] Our first question is from Emmanuel Papadakis from Barclays.

[Emmanuel Douglas Papadakis, MD & Head of European Pharmaceuticals Research]

Maybe I'll kick off with one on payer mix. We're obviously seeing some significant unemployment figures in the year. Perhaps you could help us think through the lag on timing and magnitude of potential impact in terms of your business in the U.S., in particular, across both insulins and GLP-1, perhaps more importantly, GLP-1 commercial book of business. Any comments you could make, that would be helpful. And then maybe I'll take one on Norditropin. It's obviously a pretty stellar Q1. You've had a couple of good quarters now. Is that part of a more sustainable trend? What kind of impact should we anticipate from a potential competitor launch? Or you seeing this in the second half of the year? Do you think it can remain a growth asset this year and beyond?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

So thank you, Emmanuel. Karsten, actually, I'll give both questions to you, if you can recall that, please. So firstly, the payer mix impact on insulin GLP-1 and then our outlook for Norditropin.

[Karsten Munk Knudsen]

Yes. So Emmanuel, thank you for those questions. One of the consequences of the COVID-19 crisis, as you allude to, impacting the economy across the world and more specifically, in the U.S. where we've seen incremental unemployment increasing by some 30 million people. When modeling unemployment like that, then you have to take into consideration that, first of all, some 30 million, where do they come from? And what does it transition on to, what other forms of health insurance and to what extent do they have dependence also that you have to -- had to account for? And then finally, you have to also include that the American economy is moving faster than you could say, some other economies in terms of people losing on employment. And then when the economy improves, then they rapidly get employed again in some of these employments. So we have included an impact in our guidance. So we believe it's covered in our guidance, the channel mix. And the exact magnitude and modeling, there are too many moving parts and uncertainties to go into specific on that. But needless to say, you can say patients who are previously on commercial insurance and then moving on either as uninsured or moving on to Medicaid insurance will have a negative impact on our business during the latter part of this year and also into the coming years. And hence, a negative channel mix. In terms of growth hormone and the growth we're seeing there, then you can say all the backdrop of the growth hormone market is that we had a rather mature market in terms of low overall global volume market growth and a rather competitive nature of the market with a number of players in the market and hence a relatively low overall value market growth as well. The reason for our sizable sales growth in the first quarter of this year has a couple of components, the one being the destocking we saw in the U.S. last year, so an easier comparator in terms of inventory levels in the first quarter this year when comparing to last year as one factor. And then also, we've seen in some geographies, we've seen impacts from supply challenges from one of our competitors. So those are the main factors. And hence, you should see our Q1 sales growth for Norditropin as an overall outlier and growth coming down in the future quarters.

[Operator]

Our next question is from Daniel Kapadia from Bernstein.

[Wimal Kapadia, Research Analyst]

It's Wimal Kapadia from Bernstein. So if we just start with NASH, clearly, the headlines are very strong. But how does Novo differentiate between obesity and NASH, given most NASH patients are obese? Will the driver of treatment actually be obesity, given there is no need to biopsy the liver? And so what I'm really asking is naturally really just obesity in your mind? And then tied to that, can you provide a little bit of color on the efficacy in patients who lost less weight? Trying to get a bit of understanding of benefit independent of weight loss, if there was any. My second question is just on Saxenda. NBRx is down pretty big, I think, around 40% in the U.S. And given the average stay time is around 4 to 5 months, I'm just curious if you could provide a little bit more color on what you're assuming for the rest of the year from an obesity perspective. And then tied to that, we are entering a recession. How do you think about the obesity potential longer term given it remains quite an out-of-pocket market in OUS?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Wimal. That was at least a couple of questions, I think. So Mads, if you start on NASH. And then, Karsten, you can talk a bit to the guidance on Saxenda.

[Mads Krogsgaard Thomsen]

Yes. Absolutely, Lars. And these are good questions. First of all, just for you to understand, Wimal. If we look at the study population here, it's probably pretty symptomatic of what is happening in the real world. We actually had 60% of the patients coming in with diabetes -- type 2 diabetes and varying degrees of overweight and obesity. Some of them are actually not being that obese, but rather just overweight around 20% or so. The remaining 40% of the patients were simply obese patients without pre-existing diabetes. So I think the metabolic derangements associated with obesity and/or type 2 diabetes together cater for what's happening in the liver of people with NASH. And you can say the patients we are treating, many of these were actually pre-patients and these are actually on the verge of progressing to F4, which is liver cirrhosis. And to me, one of the most important hallmarks of a therapy in this field is actually to be able to arrest the progression to irreversibility, i.e., NASH cirrhosis. So I think these are really exciting data. And to me, it's the first time that a metabolic agent actually shows that secondarily to the metabolic improvements, you see reduced hepatocellular death as assessed by the ballooning element of the NASH score, and that is then followed by reduced scarring of the tissue, which is the body's reaction to ballooning in the cells. So I think NASH is to be seen as something that is big -- a part of the bigger cardiometabolic syndrome and not simply just mass obesity, or for that matter, diabetes. Some people call it a lifespan indication that's being discussed, but that's maybe a bit premature to speculate on. I think you should witness a more holistic treatment modality going forward, and semaglutide is probably the kind of hallmark of such therapies that address the different needs that follow with aging. There was also a question on the differentiation between body weight and impact on NASH. The best way I can address that is pricing at the 0.1-milligram dose that corresponds to 0.7 mix of sema per week that corresponds to 1.8-milligram Victoza. So there you see with a modest weight loss of 3 kilos or so that 40% in this trial had natural solution in the LEAN study published by Philip Newsome 5 years ago, it was 39% Victoza. So 39%, 40% that's similar. The drug doses are bioequivalent. So that fits. And then you can add that what we are seeing more at the high dose, the 0.4 milligram, is more potent effects on weight loss, double-digit weight loss also in those with diabetes, plus significant impacts on a variety of biomarkers ranging from apoptosis biomarkers, interleukin-1 receptor antagonist, lipid parameters, et cetera, et cetera, et cetera, all pointing towards an improvement in the natural solution rate as compared to what you achieved with the standard GLP-1 therapy.So weight drives some of it, but anti-inflammatory and other mechanism of action clearly drive other elements of it.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thanks, Mads. Very exciting. Karsten, Saxenda performance in this current environment.

[Karsten Munk Knudsen]

Yes. So Wimal, you're spot on. When we look at COVID-19 impact on Saxenda and if we take the U.S. market as a proxy for that, then NBRx scripts are down to the tune of 40% in April compared to a pre-COVID-19 NBRx script levels. And as you point out then, stay time is we're counting in months for Saxenda. So you should expect Saxenda to be hit more than some of our other products and therapies for the company.That doesn't change the fact that we are still pursuing to double our obesity franchise as we laid out in our strategic aspirations. We believe the patient potential with a sample 650 million people globally in scope for treatment is relevant. With the STEP program reporting out in Q2, we believe that we have a pipeline with sema in obesity and potentially, let's see, also on amylin coming even later. So we believe we have the pipeline for this population. So we still see strategically the obesity business as a growth investment and something that we see doubling over the coming years.And then on a smaller final note then, we actually also did get reimbursement in Switzerland, just as a small example, but we are still continuing to progress on reimbursement in obesity.

[Operator]

And our next question is from Peter Verdult from Citi.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Sorry, Peter, we cannot hear you.

[Operator]

And our next question is from Simon Baker from Redburn.

[Simon P. Baker, Head of Pharmaceutical Research]

Two questions and a very quick request. Firstly, I just wonder if you could update us on the outlook for Ozempic in China, which is starting February. Wonder if you could give us expectations for when you would be looking to launch and how you will launch. I'm assuming this will be different to Victoza cannibalization strategy given the more nascent market over there. So any thoughts there would be useful.And then going back to Wimal's question on obesity. Clearly, there were some challenges now. But flipping it around, we've seen a lot of early evidence that obesity is a negative prognostic factor in COVID-19. Do you see longer term that focusing minds perhaps more on looking at initiating obesity therapies? And the quick request, you very kindly gave us the restated sales numbers for 2019. I wonder if you could also give us the growth rates for those new regions.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Simon. And Mads, while I think it's maybe too early to go into commercialization strategy for Ozempic in China, I think you can talk a bit to the clinical development. And then I think Simon brings up an interesting hypothesis on the link between obesity and COVID-19, maybe talk a bit to that.

[Mads Krogsgaard Thomsen]

Yes. Thank you, Lars, and thank you, Simon. Vis-à-vis Ozempic approved in China with the CFDA, as you recall, historically, there has been very long regulatory time lines. They have committed to change that and seek to get more close to a classic Western Europe, U.S. standards. And in principle, there are 2 routes of approval. One is called the expedited review, where you can expect approximately, give or take, 1 year approval time. And the other is the more standard, where even today you should still expect around 2 years. And we simply do not know at this point. We, of course, hope for fast approval, but we'll keep you posted on that one.And then you have very interesting remark. And albeit this is still extremely speculative, this is a forward-looking disclaiming statement. However, it is so that in today's journal obesity, there was a publication by U.S. and German researchers that people with fat-loaded adipocyte fat cells, they express more ACE2 protein, which just by chance is the receptor for the SARS-CoV-2 virus. And that implies that people who are adipose -- or obese, sorry, they will be inclined to maybe uptake more viral particles that might even serve as a reservoir of the virus infection, giving a more permanent infection in obese individuals, at least we know this from epidemiology. We also know that in certain alveolar cells in the lung compartment, there are cells that also get loaded with fat droplets. And if they also express more ACE2, you have a big situation where the cytokines down in the lungs might pick up. So agents reduce obesity, agents that reduce blood pressure, agents that reduce HbA1c so that the immune system is less impacted by hypoglycemia and so on so forth should all be seen as relevant remedies in the future and the mean term, also to reduce risk of COVID-19 in the susceptible individuals.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Mads. On the request on the comparator data, we'll be happy to provide this.

[Operator]

And our next question is from Peter Sehested from Handelsbanken.

[Peter Sehested, Research Analyst]

Peter Sehested from Handelsbanken. I have two. One for Mads, one for Karsten. Mads, on the SELECT...

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

We cannot hear. Could you speak up, please?

[Peter Sehested, Research Analyst]

So for Mads, on SELECT, the study population here appears not that good described in the literature. Could you give us some update on what we should expect in terms of background CV risk?And also, this study, which sort of has some kind of secondary prevention characteristics, similar studies with the PCSK9 inhibitors have aimed at a 15% benefit relative to placebo. Is that what we should look for here as well? And otherwise, any sort of flavor on the design of the study would be appreciated. And for Karsten, in terms of what you're seeing in terms of trends in the U.S. with respect to the drop or change in patients -- new patients coming into the clinic, how much that is dropped? And also, in terms of the refill rates, could you give us some data on those 2 parameters and also some sort of sense for how we should expect this for the duration of these 2 impacts on prescription behavior?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Peter. So Mads, firstly on the study population in the SELECT.

[Mads Krogsgaard Thomsen]

Yes. So very briefly, these are patients who are obese and at high risk of cardiovascular disease, typically because of a prior event. They are quite prevalent for better or worse. There are millions and millions of those, and we have included not people with diabetes because we want to show that semaglutide has cardioprotective properties in a nondiabetic environment. However, there will be people with dysglycemia, i.e., prediabetic conditions included. And you're absolutely correct. One element in looking into secondary endpoints is the progression towards type 2 diabetes, pretty much as we did in the SCALE prediabetes and obesity trial, as you recall, where there was a 80% reduction in the onset of type 2 diabetes when people were treated with Saxenda. So that is an element.The major element, of course, is the major adverse cardiovascular event occurrence. And the event rate, I cannot tell you exactly what it will be, but it's not going to be 12% as it is in a classic LEAD, SUSTAIN-6 kind of setting because these are not people with diabetes. It's more likely to be around half of that. And since you have 17,000 patients, you should imagine 300 to 400 major events per year when the trial is fully enrolled. And then you could do your own maths on the timing of the trial.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Mads. And Karsten, on trend in patient flow.

[Karsten Munk Knudsen]

Yes. So on patient flows, Peter, then kind of -- if we take the simple data points where we look at as a proxy for patient flows what percent to new-to-brand scripts or NBRx pre-COVID, they are now in April, then in rough terms, what we've seen is that insulin NBRx is down 20%, and GLP-1 NBRx are down 30%. And as we discussed before, Saxenda NBRx are down 40%.Then as to your question on stay time, we do not have detailed data on that, but one could speculate that in the current situation and focus on health that adherence to therapy would be going up. So people would be less likely to be skipping doses in an environment like this. But we do not have data supporting that at this point in time.In terms of the duration for the impact on patient flows, what we put into our announcement is that we expect the patient flows to normalize during the third and fourth quarter. But of course, all of that hinges on society opening back up, and it would take kind of a global tour on that logic. Then we see China gradually opening up with the reps out visiting doctors, to some extent now with hospitals opening up for patients. So we see China and some Asian countries opening up. And we see some gradual signs in other geographies as well in terms of opening up.And in the U.S., also, there's not one size fits all, but there are different approaches in the different states in the U.S. But I think more and more, the dialogue is around how and when to open up and less about closing down and containing. So we believe that it is likely that patient flow should normalize during the second half of this year.

[Operator]

And our next question is from Peter Verdult from Citi.

[Peter Verdult, Managing Director]

Yes. Sorry about earlier. It's Peter Verdult here from Citi. Two questions, please, on the pipeline. Mads, just on the go-forward strategy on NASH, could you just clarify that you would happily take the 0.4 mg dose forward into Phase III? Given the profile that you've seen in the data, should you decide to do that?And in terms of the gating factors around that Phase III go/no-go decision, will you be waiting for the combo data with the Gilead assets later this year and data in the F4 patients that I think is coming end of next year before making that Phase III go-no-go decision. So question #1 on NASH.And then secondly, just switching gears to GLP GIP. The data we've seen in the commentary from you, the commentary from KOLs, there's a growing belief that high-dose sema can be competitive with tirzepatide on A1c and probably superior weight. And there's an ongoing debate in the community about what GIP actually brings to the table. So with that sort of in mind, I'm interested to hear the reasoning why Novo's starting the sema GIP Phase I or reentering the sort of GLP GIP arena. Can you just describe what -- can you make that decision?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Peter, for -- I counted three questions. And the first one on NASH approach, noting that it's still early days. We're considering how to go by that. And then the second one, why pursue combinations when you have high-dose sema, so Mads, what can you tell on that?

[Mads Krogsgaard Thomsen]

I think, Peter, when I see data coming out from this Phase IIb trial, they are very compelling indeed and actually point towards a disease mechanism, which has the potential to arrest the progression of the disease, including the fibrosis. Obviously, the way that a Phase III trial will have to be conducted according to the past guidance from the Food and Drug Administration is that you can get your drug approval based on showing natural solution without worsening fibrosis. And then you need to continue the trial after you have launched the product until you have some hard outcomes. And based on what we have seen today, there is good reason to believe that achievement of improvement in hard outcomes over time should be doable. However, as to which dose our company management would decide to take into Phase III, I will not speculate on that, but it's quite clear to me that on numerous biomarkers, including also some hardcore ones, there is a clear dose-response relationship implying there are pharmacomathematical moleculars suggest us to go towards higher, but still very safe doses of this agent. But we'll get back to you. I don't unfortunately decide all these things alone. It's the whole executive management and the Board of Directors who end up concluding on this. But we are not having to await the Gilead readouts by any means and measures. Because with the data we have today, semaglutide looks to be able to become also a stand-alone entity and maybe anchor drug in the field of NASH. So we're not dependent on other readouts. We can make decisions based on this readout in the future.There was a question about -- oh, yes, I tried to avoid the deep question. So yes, the SUSTAIN FORTE trial will hopefully show what you said, Peter. So fingers crossed for fourth quarter and the readout for SUSTAIN FORTE. There is even within Novo Nordisk big discussions about the role, if any, of GIP in adding further bang for the buck to GLP-1 receptor agonism. That remains uncertain, and I have to admit that.Personally, I may be a stronger believer in the additivity between GLP-1 receptor agonism and amylin receptor agonism in both weight and potentially other indication areas because some of the preclinical data are more supported, but there we have to provide clinical data. And hopefully, we can come with those to you later on in the season. So this is kind of out of the state of the cautionary principle that we've decided to take a once-weekly human GIP and put together with sema and see whether that will actually see is there a benefit.

[Operator]

Our next question is from Jo Walton from Crédit Suisse.

[Jo Walton, Managing Director]

Jo Walton from Crédit Suisse. A question surrounding Rybelsus and a question on the P&L. So starting with Rybelsus. I wonder if you could tell us a little bit about the sources of the new patients that you are getting. Are you seeing them coming from other GLPs? Are you seeing them trading up from other orals? And if you could also help us with a typical level of co-pay? Is it more expensive for a patient to move to your oral from other oral? So a little bit of background, given that we've had a quarter now of strong growth for Rybelsus.My second question would be on the face of the P&L. You had 7% extra sales from COVID. Now I would imagine that they came through with a very high contribution margin. And therefore, I was quite surprised that the profitability of firm wasn't more impacted than it appeared to be, where I appreciate that there was the onetime R&D aspect, but I think we've all adjusted for that, the write-back of the oral sema. So if you could just tell us a little bit if there were -- it was anything else in terms of, I don't know, extra costs or patient assistance that kept the profitability down when the sales were up so strongly?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Jo. And Camilla first on Rybelsus, what we see so far, although it's early days.

[Camilla Sylvest]

Yes. So on Rybelsus, what we see on results of businesses that more than 70% comes from outside the GLP-1 class and here primarily for -- from the oral segment, it is still early days. And what we also cannot see is what patients would have started on an injectable GLP-1, but these are, of course, things that we'll be able to see in more detail in the future.With regards to co-pay, we have a very competitive solution, meaning that the co-pay for Rybelsus is reduced to $10, and that is the same as for other orals. So all in all, we are very happy with the uptake of results before COVID-19, and we see that very encouraging. We also now, as Lars mentioned earlier, have a combined formulary access of more than 50%. And we also expect that this will gradually increase over the year. So that's the status on Rybelsus for now.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Camilla. And then, Karsten, on P&L and flow-through from top line to bottom line.

[Karsten Munk Knudsen]

Yes. So on P&L, so the cost of goods associated with this additional stocking is 15%, so actually slightly less than our group gross margin. So apart from that, nothing really special on the gross margin and contribution margin. No additional cost on selling and distribution or further down the P&L, only the roughly 15% cost of goods on the DKK 2 billion extra sales.

[Operator]

Our next question is from Richard Vosser from JPMorgan.

[Richard Vosser, Senior Analyst]

Just going back to NASH. I wondered if you could give us some more detail on the side effects. Was there a dose-dependent high level of nausea? And do you think you would have to titrate the product more slowly in the future to resolve that? And also aligned to that, I know Peter asked on the dosing, but why wouldn't you move to a weekly injection from a daily injection given your previous modeling around obesity and you went that way?Second question, just on NASH as well. Just thinking about the fibrosis level, could you just confirm? You said no statistical improvement in fibrosis. Does the highest dose get quite a nice numerical trend on fibrosis? Or could you clarify on that?And maybe if I sneak one more, just on Rybelsus, just whether you've seen any improvement in the willingness to prescribe and take up the product from doctors as the U.S. starts to open up in the last sort of week or so over the last bit.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Richard. And Mads, if we bundle that into one long question, side effects, weekly injection versus daily and what we saw in terms of fibrosis?

[Mads Krogsgaard Thomsen]

Yes. Well, first of all, let me clarify one thing, Richard, it's -- in the old days that we had this idea about once-daily semaglutide, it has not borne out to have any merits. So by definition, Phase III will be conducted with the application of once-weekly semaglutide at whatever reasonable dose. And in terms of dose selection, I would just repeat what I said that the fact that you can have 80 patients in the high-dose arm and 80 patients in placebo. And in both arms, there are only 4 patients, i.e., 5% will discontinue due to adverse events and only 2 of these 4 related to GI side effects and all 4 of the placebo related to non-GI side effect. That tells you a story of a benign safety and tolerability profile that will not be prohibitive for any kind of dose selection. The titration regimen that we have deployed in the STEP program, let me just remind most of you who have forgotten it, it's 0.25 to 0.5 to 1 to 1.7 and to 2.4. And that's the kind of dosing-titration regimen that you should foresee also in a NASH setting, depending on the final dose, of course.In terms of fibrosis, well, actually, when we look at fibrosis using elastography according to Hyperscan imaging, the ELF test combining the TIMP, hyaluronic acid with PIIINP biomarkers, we actually see improvements in fibrosis as we also do in the biopsies in terms of showing a dose-dependent decrease in the progression of fibrosis. But it is true that in the categorization of people who improved one step in fibrosis, that was only trending, but the trends are positive. And when I look at the overall elasticity of the liver, the ELF biomarker, TIMP, et cetera, it's a very compelling story of a secondary effect on fibrosis that is beneficial but driven by the metabolic and information-related improvements.

[Richard Vosser, Senior Analyst]

So more time will be needed to show that?

[Mads Krogsgaard Thomsen]

Yes. And that's why you would have to see it as a part of the extension trial in a Phase III situation, where you get the approval according to FDA based on showing natural solution improvements, but then it is through that to continue the trial. Absolutely, Lars.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Mads. And Camilla again on Rybelsus and willingness to prescribe.

[Camilla Sylvest]

Yes. So as we just talked about, we expect the results to pick up again when the patient dynamics is less impacted by COVID-19. And it's too early since reps are not in the field yet to conclude on whether -- to what extent that's already the case.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Yes. We saw a very strong performance of the product before COVID-19, and we have no reason to believe that, that will not pick up as soon as we are in the field again.

[Operator]

Our next question is from Mark Purcell from Morgan Stanley.

[Mark Douglas Purcell, Equity Analyst]

It's Mark Purcell from Morgan Stanley. Two questions. Firstly, on Rybelsus U.S. dynamics, we've been following the dynamics here. Endocrinologists, the [ NWH ] share, was 19% in December and fell to 7% in March, whereas PCPs was 14% in March. So do you have any further thoughts in terms of whether endos just simply prefer Ozempic over Rybelsus or whether there's any other reasons why you saw a reduced use of Rybelsus by endocrinologists ahead of the COVID impact in March, whether that be treating a bolus of patients who were on injectable GLP-1 but were struggling or anything else in terms of clinical experience?And then secondly, doubling down on NASH. Mads, could you give us your thoughts on diagnostics, both the internal and external efforts? And whether you're waiting for any new developments on the diagnostic side to incorporate them into Phase III trials. So we'll get data on the Genentech asset this year. Obviously, Roche have got a number of efforts ongoing in a diagnostics panel to try and look at diagnosing the various key aspects of NASH. And whether you could look to double down on your pipeline as well beyond just tapping the FGF21 product in Phase II in NASH?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Mark. And starting with Camilla, split on endos and primary care.

[Camilla Sylvest]

Yes. So yet again, it's still early days, but what we do see is that as-expected results as compared to Ozempic at the time of launch of Rybelsus is, to a much lesser extent, driven by primary care. And that is, of course, to be expected that this is an oral compound and easy to initiate. And that's why you see a different distribution in terms of who is driving the majority of the scripts.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you. And Mads, on diagnosis for NASH.

[Mads Krogsgaard Thomsen]

Yes. So it's a really good point, Mark. And Novo Nordisk, just for information is member of the Liver Forum, the LITMUS and NIMBLE consortia, which are U.S. and European-based consortia all seeking to define noninvasive diagnostic tools for the diagnosis and follow-up on NASH. And the FDA, EMA and other agencies are also present in some of those consortia. So we are working closely with them, and it is important for us, based on these data, to move forward. I would say that with what we know today, the productivity for a given person in terms of absolute signs of combining elastography imaging together with, for instance, the ELF biomarker panel, is fully on par with the biopsy histopath diagnosis and categorization of the fibrosis stage. But the regulators at this point do not find that these biomarkers have been fully validated yet. So a part of the process is to ensure full validation. But I can tell you, we have probably around 40-or-so biomarkers that we didn't have time to go into -- in this trial. And some of them are highly predictive of different elements. For instance, CK18 apoptosis biomarker is highly predictive of the [indiscernible] and cell death. And we saw a very strong and nice dose-dependent effect on an unmet market. So we're learning as we're going along, and we will share this with the regulators and find a path forward towards validation of some of these noninvasive tools. We see it as a pretty competitive effort. We want to work with anyone, including Roche, who has an interest in the field.

[Operator]

And our next question is from Steve Scala from Cowen.

[Stephen Michael Scala, MD & Senior Research Analyst]

How would you characterize the expected unwinding of stock in 2020? Is the bulk of the unwinding expected to occur in the second quarter? And did you already start to see that during the month of April?And then on semaglutide in NASH, what were the rates of fibrosis improvement in the semaglutide group and the placebo group?

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Okay. Thank you, Pete. So Karsten, quickly on stocking unwinding in...

[Karsten Munk Knudsen]

Yes. So the DKK 2 billion in stocking, as we say, we expect the inventories to reverse during 2020 and 2021. And the reason for that statement is that the majority of the stocking we're seeing is at patient level. So you would expect a quick destocking if it's mainly wholesalers, but that's not the case. So that's why it's hard to predict accurately, but we expect it to take some time before it reverses.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

And over to you, Mads.

[Mads Krogsgaard Thomsen]

Yes. We don't disclose specific data on all endpoints, but the numeric difference in favor of semaglutide was to the tune of 10% more patients experiencing fibrosis improvement, i.e., going down in gradations. But we released the full data set at conferences that hopefully will be up and running one way or the other in the months or quarters to come.

[Lars Fruergaard Jørgensen, President, CEO & Member of Management Board]

Thank you, Mads. Thank You, Pete. So this rounds off our conference call today. Bear in mind that we would have to conduct our road show virtually this quarter. We hope to be back on the road soon. There is another conference call virtually tomorrow, so there's another chance for you to dial in and ask questions to us. So thank you for the interest in Novo Nordisk, and have a great day. Thank you. Bye-bye.