Novo Nordisk A/S

CSE:NOVO B

Earnings Call Transcript 2020-Q2

[Operator]

Hello, and welcome to the Q2 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 performance for the first 6 months of 2020 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 Munk Knudsen; and our Chief Science Officer, Mads Krogsgaard Thomsen. Also present and available for Q&A sessions are Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest, as well as our Investor Relations Officer. Today's earnings release and the slides for this call are 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. The call is scheduled to last for 1 hour. The presentation is structured as outlined on Slide 2. We'll begin with the highlights for the quarter, addressing Novo Nordisk's continued response to the COVID-19 pandemic and then move on to the performance for the first 6 months of 2020. Please note all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 20 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 around COVID-19, please see the company announcement for the first half of 2020 and the slides prepared for this presentation. Now please turn to the next slide. In 2019, Novo Nordisk introduced our strategic expirations for 2025, which consists of 4 components: purpose and sustainability, innovation and therapeutic focus, commercial execution and financials. In the second quarter of 2020, Novo Nordisk has continued our focus on adding value to society with the launch of a new social responsibility strategy called Defeat Diabetes. The strategy introduces new long-term ambitions to accelerate prevention to hold the rise of diabetes, provide access to affordable care for vulnerable patients in every country and to continue the drive of innovation to improve lives. First steps in the strategy are to reduce the ceiling price of human insulin from 3 -- sorry, $4 to $3 per vial in 76 low- and middle-income countries and to expand our aspiration in our Changing Diabetes in Children program to reach 100,000 children by 2030, up from 25,000 children. Furthermore, in July of this year, Novo Nordisk announced our participation in the AMR Action Fund, a $1 billion initiative from more than 20 biopharmaceutical companies to address the need for new antibiotics to combat antimicrobial resistance. We also -- we also saw encouraging progress within our innovation and therapeutic focus aspiration during the quarter. Rybelsus was approved in Japan for the treatment of type 2 diabetes. And as described at our virtual R&D event in June, the STEP 3 program, AM833 monotherapy trial and AM833 plus semaglutide trial, all successfully completed. Further, Novo Nordisk signed an agreement for the acquisition of Corvidia Therapeutics, including the Phase IIb project, ziltivekimab. Moving to commercial execution. Diabetes sales increased by 7% with Novo Nordisk increasing our diabetes value market share leadership by 0.8 percentage point to 29%. Tier 1 sales continued to perform well at 28% growth. Obesity care and biopharm sales increased by 9% and 6%, respectively. Within financials, our total sales increased by 7% with International Operations growing by 12% and North America Operations growing by 1%. Operating profit increased by 8% to DKK 30 billion. As a consequence of the solid underlying performance in the first 6 months of 2020, we are maintaining our sales guidance -- our sales growth guidance of 3% to 6% and raising the floor of our operating profit guidance from 1% to 5% to 2% to 5%. For 2020, the Board of Directors has decided to pay out an interim dividend for 2020 of DKK 3.25, which will be paid out in August this year. Please turn to Slide 5. The past months have been highly unusual given the COVID-19 pandemic. During this time, Novo Nordisk has continuously focused on ensuring that our business is operating safely, that we are able to supply life-saving medicines as well as support societies around the world. Within production, all Novo Nordisk manufacturing sites continued to operate, and products are still distributed and being made available to patients worldwide. Within research and development, we continued to conduct already initiated clinical trials. For ongoing trials, recruitment of new patients is negatively impacted, but gradually improving. It is now possible to initiate new trials in certain countries. The majority of Novo Nordisk medicines are used for treating chronic diseases. However, during the period of social distancing implemented in many markets, we have seen fewer new patients initiating treatment. This is especially impacting launch products and products with relative short-stay time. In the beginning of the pandemic, stocking mainly at the patient level was seen particularly in the U.S. and Europe, but a gradual destocking started in the second quarter. The COVID-19 pandemic evolves differently across geographies, but operations are gradually normalizing in many markets. The majority of sales representatives are now partially back in the field. Again, we take our responsibility to support society seriously. Recently, Novo Nordisk, together with partners, has developed a new coronavirus antibody test, which will be used by Rigshospitalet in Denmark as -- in an observational study to identify the level of transmission of COVID-19 among people in the Danish labor market. Please turn to Slide 6. During The past 6 months, the COVID-19-related lockdowns negatively impacted new patient initiations in the U.S. across all therapy areas we operate in. Indexed against January averages and after initial stocking followed by significant drops in prescription volume, we see the new-to-brand prescription numbers down around 15% in the U.S., but there are signs of gradual recovery. Patient initiations in International Operations have also been negatively impacted by COVID-19. But as mentioned, despite the differences in how the pandemic evolves across geographies, operations are gradually normalizing. Please turn to Slide 7. For the first half of the year, total sales increased by 7%, which was driven by a solid sales growth of 12% in International Operations. The COVID-19-related stocking in the first quarter was largely offset by destocking and fewer patient initiations in the second quarter. In International Operations, all areas and all therapies continued to contribute to growth. The growth includes COVID-19-related stocking, which was largely offset by fewer patients initiating treatment as well as other timing events. North America Operations increased by 1%, driven by sales growth for GLP-1, obesity and biopharm segments. Sales growth was impacted by the COVID-19-related surge in demand in Q1 2020, fewer patients initiating treatment as well as less use of NovoSeven due to the lockdown. Speaking to second quarter of 2020, sales were unchanged from the second quarter of 2019. Following the stocking seen in March 2020, sales were negatively impacted by COVID-19-related destocking of around DKK 500 million, partly at the wholesale level. Sales were additionally negatively impacted by fewer patients initiating treatment. These effects largely offset the stocking of estimated DKK 2 billion in the first 3 months of 2020. Please turn to Slide 8. In the first 6 months of the year, sales growth was driven by GLP-1, obesity and biopharm partially offset by a decline in insulin sales. Global insulin sales decreased by 3%, driven by a 23% reduction of the -- in the U.S., partially offset by 10% growth in International Operations. The U.S. sales decline was driven by lower realized prices due to an unfavorable channel mix, rebate enhancements, the launch of additional affordability programs and changes in coverage gap legislation. In International Operations, insulin sales growth were driven by all insulin segments. GLP-1 sales increased by 28%, driven by a 37% sales growth in International Operations and 25% sales growth in North America Operations. The sales increase was impacted by COVID-19-related stocking largely offset by fewer patients initiating treatment. Novo Nordisk has expanded both our global insulin volume market leadership as well as our GLP-1 market leadership. This has resulted in the previously mentioned expansion of Novo Nordisk Global diabetes market leadership now at 29%. Obesity care sales grew by 9% with both operating units contributing to growth. Sales growth was impacted by fewer patients initiating treatment due to COVID-19. Biopharm sales increased 6% driven by Norditropin. Please turn to Slide 9. The U.S. GLP-1 market continues to grow around 30% in volume when measured quarter-over-quarter driven by once-weekly GLP-1 products. With the uptake of Ozempic and the launch of Rybelsus, Novo Nordisk has new-to-brand market leadership of around 58% and is the GLP-1 market leader measured on total prescriptions with around 49% market share. Rybelsus market access has progressed well, and we have around 70% unrestricted access across commercial and Medicare plans. The weekly new-to-brand market share has reached 11% and the total Rybelsus prescription share is nearly 3%. Ozempic continues to increase its market share in the U.S. In terms of new-to-brand prescriptions, Ozempic is close to 35% market share. And in terms of total prescriptions, Ozempic market share is slightly more than 26%. Please turn to Slide 10. Novo Nordisk is increasing our diabetes market share in International Operations as indicated by the near 26% share of growth versus a market share of around 22%. This represents a market share increase of 0.4 percentage points versus 2019. The market share increase in International Operations is driven by both insulin and GLP-1. The diabetes franchise represents around 80% share of growth in International Operations with insulin share of growth at 51% and GLP-1 share of growth at 39%. Please turn to Slide 11. Obesity care sales increased by 9%, driven by both North America Operations and International Operations. Sales growth was negatively impacted by fewer patients initiating treatment due to COVID-19. Our strategic aspiration is to move to more than -- is to more than double sales in obesity by 2025. In support of that, Saxenda has been launched in 48 countries globally, and we continue to invest in market development activities. Please turn to Slide 12. Biopharm sales grew by 6% in the first half of 2020, driven by 10% sales growth in International Operations and by 1% sales growth in North America Operations. Sales were positively impacted by timing of shipments, changes in inventory and COVID-19-related stockings. Sales were negatively impacted by lower demand due to COVID-19-related lockdowns. For hemophilia, the declining sales of 1% were driven by lower NovoSeven sales, partly reflecting reduced elective surgeries and bleedings due to lockdowns, but partly offset by the continued global rollout of the new products, Refixia and Esperoct. Norditropin sales increased by 18%, driven by changes in inventory, COVID-19-related stocking as well as additional demand driven by supply challenges for competing products in selected countries. Novo Nordisk remains the leader in the human growth hormone disorder market with a value market share of 34.2%. With this, over to Mads for an update on R&D.

[Mads Krogsgaard Thomsen]

Thank you, Lars. Please turn to Slide 13. In the next couple of slides, I'll discuss recently communicated results from our obesity pipeline, starting with the STEP program. STEP investigated once-weekly subcutaneous semaglutide 2.4 milligrams in the treatment of obesity and showed strong weight loss across the 4 Phase IIIa trials, STEP 1, 2, 3 and 4. The STEP 1, 3 and 4 trials evaluated semaglutide in people with obesity or overweight with comorbidities, while STEP 2 evaluated semaglutide in overweight or obese people with type 2 diabetes. When taken as intended, we saw a weight loss of 17% to 18% in the obesity trials and around 11% weight loss in the diabetes trial. These are compared to a placebo-related weight loss of 2% to 5%. Additionally, cardiovascular risk markers were significantly reduced and health-related quality of life improved significantly after 68 weeks of semaglutide treatment. In all the individual STEP trials, semaglutide 2.4 milligrams, furthermore, appeared to have a safe and well-tolerated profile with the most common adverse events being the transient gastrointestinal events typical of the GLP-1 class. No new and unexpected safety signals emerged in STEP. Following completion of the 4 STEP trials, Novo Nordisk will now prepare to file the regulatory dossier, an NDA submission, which is expected to take place around the turn of the year. Please turn to Slide 14. In June 2020, the Phase II results with a novel once-weekly subcutaneous human amylin analogue, AM833, were announced. The 26-week Phase II monotherapy trial with AM833 investigated the safety, tolerability, efficacy in weight management amongst 706 people with obesity or overweight plus at least 1 weight-related comorbidity. From a baseline body weight of 107.4 kilograms, AM833 demonstrated a substantial weight loss of 10.8% following only 26 weeks of treatment. Also in June 2020, the results from the Phase Ib trial investigating AM833 in combination with semaglutide were announced. This 20 week multiple ascending dose trial investigated the safety tolerability pharmacokinetics and weight loss potential of AM833 administered in combination with semaglutide 2.4 milligrams in 80 people with obesity or overweight. After only 20 weeks of treatment and with only the last 4 weeks at the therapeutic doses of 2.4 milligram semaglutide plus AM833, patients in the trial lost an average of 17.1% body weight from a mean baseline of 95.1 kilograms. 66% of the participants on the highest dose of the combination therapy achieved a weight loss of more than 15% after only 20 weeks. Dual targeting of the GLP-1 and amylin satiety pathways in the brain, henceforth, holds the potential to form a strong future noninvasive treatment alternative to bariatric surgery in patients with high BMI indices. Furthermore, AM833 in combination with semaglutide appeared to be well tolerated with the most common adverse events being transient, mostly mild to moderate, gastrointestinal events, which, despite the increased efficacy of the combination therapy, occurred only at the level similar to semaglutide monotherapy. Following the completion of the Phase II monotherapy trial with AM833 and the combination trial with AM833 and semaglutide, the multi-dose pharmacokinetic study of the combination will be initiated in the second half of this year, and Phase III development is expected to begin next year. Please turn to Slide 15. In the second quarter of 2020, a number of R&D milestones were reached. Milestones that have already been mentioned include the Rybelsus approval in Japan as well as the STEP results in obesity, Phase II results for AM833 monotherapy and the Phase Ib trial results for the combination therapy. Regarding some other GLP-1-related clinical obesity projects we've been pursuing, namely, the coagonist and tri-agonist projects, we've decided to terminate both projects. This decision is based on the strong obesity data obtained for semaglutide and AM833 that, in aggregate, have raised the innovation bar for future Novo Nordisk obesity care and we've, therefore, prioritized our resources accordingly to achieve the best possible patient outcomes and product benefit risk profile. Within the cardiovascular space, the PCSK9 inhibitory peptide successfully completed its first human dose trial in June of this year. The peptide has a long-lasting efficacy, safe and well-tolerated profile. Following completion of the trial, the next steps in clinical development are now being evaluated. Lastly, and also in June, Staten and Novo Nordisk initiated the first human dose trial for their monoclonal so-called sweeping antibody, STT5058, designed to target and eliminate lipoprotein ApoC3 leading to ApoC3 lowering. This, in turn, is expected to significantly lower triglycerides, leading to a potential reduction of cardiovascular events in the hypertriglyceridemic target population. The trial is a single-center, randomized, double-blinded, placebo-controlled trial designed to investigate safety, tolerability, pharmacokinetics and pharmacodynamics. The remainder of the year and into 2021, promises a number of milestones, including results and potential regulatory submission for SUSTAIN FORTE, which is a large trial involving semaglutide dosed at 2.0 milligrams in type 2 diabetes. Additionally, we are planning to initiate the Phase III program for the first-in-class once-weekly insulin icodec before the end of the year. Likewise, we expect regulatory submission in the U.S. for semaglutide 2.4 milligrams in obesity towards year-end. Finally, there will be NASH readouts for semaglutide in combination with the FXR and ACCi compounds from Gilead as well as Phase IIb results related to the anti-interleukin-6 monoclonal antibody, ziltivekimab, in patients with atherosclerotic cardiovascular disease and chronic kidney disease. With that, over to Karsten for an update on the financials.

[Karsten Munk Knudsen]

Thank you, Mads. Please turn to Slide 16. In the first 6 months of 2020, sales increased by 8% in Danish kroner and by 7% at constant exchange rates. The gross margin was 84.1% compared with 83.9% in the first 6 months of 2019. The increase in gross margin reflects productivity improvements, mainly within insulin and GLP-1; a positive product mix, driven by increased GLP-1 sales; 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 decreased by 3% in Danish kroner and by 3% at constant exchange rates. The increase in costs was driven by North America Operations, reflecting launch activities for Rybelsus and continued promotional activities for Ozempic. This is partly offset by lower promotional spend within insulin. In International Operations, promotional activities are focusing on the continued rollout of Saxenda and launch activities for Ozempic and Rybelsus. The spend was impacted by COVID-19, resulting in a lower activity level and delays in promotional activities. Research and development costs increased by 13% in Danish kroner and by 13% at constant exchange rates. The cost increase is impacted by the reversal of write-downs of prelaunch inventory in the first quarter of 2019 following the filing of oral semaglutide with the U.S. FDA. The cost increase is driven by increased activities within other serious chronic diseases due to progression of the early pipeline within NASH and cardiovascular disease as well as increased spend within insulin and biopharm. This is partly offset by lower spend within obesity care, driven by finalization of the semaglutide obesity Phase III program. Administration costs decreased by 1% in Danish kroner and was unchanged at constant exchange rates, reflecting broadly unchanged spend across administrative areas. Operating profit increased by 9% in Danish kroner and by 8% at constant exchange rates. Net financial items showed a loss of around DKK 1.7 billion compared to a loss of around DKK 2.3 billion in 2019. Diluted earnings per share increased by 14% to DKK 9.58. Free cash flow increased by 62% to DKK 30.3 billion. The increase was driven by timing of rebate payments in the U.S., the increase in net profit as well as lower capital expenditure. Additionally, the Board of Directors has decided to pay out an interim dividend for 2020 of DKK 3.25, for each Novo Nordisk A and B share of DKK 0.20, which will be paid out in August 2020. Please turn to Slide 17. The foreign exchange rates have moved significantly since our Q1 2020 financial release in May with especially the U.S. dollar depreciating against the Danish kroner, followed by many emerging market currencies. This development impacts our full year outlook where we now expect currency headwinds on sales growth and operating profit growth of minus 2% and minus 3%, respectively, relative to growth rates at constant exchange rates. Furthermore, in May 2020, we expected net financial items for the full year to be a loss of DKK 2.5 billion, but with the latest currency movements, the expected loss has been reduced to DKK 1.2 billion, reflecting gains associated with foreign exchange hedging contracts, partly offset by nonhedged currencies. Despite the expected negative impact from COVID-19 in 2020, sales growth is still expected to be between 3% and 6%. The guidance reflects an expectation for continued robust sales performance of the GLP-1-based diabetes care products, Ozempic, Victoza and Rybelsus, the portfolio of new generation insulin and the 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. As discussed in the previous slide, given the current exchange rates versus Danish kroner, growth reported in Danish kroner is now expected to be around 2 percentage points lower than at constant exchange rates. The current COVID-19 pandemic causes uncertainty to the outlook regarding new patient initiations and societal impacts such as the unemployment rate in the U.S., which is impacting health insurance coverage. The estimated annualized impact hereof is around 3% on U.S. sales. The outlook is based on a number of assumptions related to severity and duration of impacts from COVID-19, including a gradual normalization across geographies of new patient initiations in third and fourth quarter as well as the continued gradual destocking during 2020 and 2021 of the increased stock levels realized in the first quarter. Consequently, volatility in quarterly sales should be expected. Operating profit growth is now expected to be 2% to 5%. The updated outlook reflects savings due to COVID-19. The expectations for operating profit growth primarily reflects the sales growth outlook and continued investments in current and future growth drivers across the operating units. Again, given the current exchange rates versus the Danish kroner, growth reported in Danish kroner is now expected to be around 3 percentage points lower than at CER. Consequently, we are on track to deliver our 2020 financial guidance set before the COVID-19 pandemic. Financial items is now expected to be a loss of around DKK 1.2 billion, reflecting the lower losses associated with foreign exchange hedging contracts. Lastly, we now expect free cash flow to be between DKK 33 million and DKK 38 billion, reflecting the acquisition of Corvidia Therapeutics, Inc.And now over to Lars for his final remarks.

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

Thank you, Karsten. Please turn to Slide 19. Despite COVID-19, we are satisfied by the performance in the first half of 2020 and by the progress made on our strategic aspirations. We saw a strong uptake in our GLP-1 portfolio, and we continued to increase our diabetes value market share. Within R&D, our obesity clinical trials results are very encouraging. As COVID-19 continues to severely impact societies around the world, our priorities continue to be to safeguard our employees, continue supply of our lifesaving medicines and to help societies around the world to fight the pandemic. With that, I would like to thank for your support, and we're now ready for the Q&A [Operator Instructions] Operator, we're now ready to take the first set of questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Peter Verdult of Citigroup.

[Peter Verdult, Managing Director]

It's Peter Verdult from Citi. Two questions. Lars, can you characterize how the obesity data generated in Q2 for sema, AM833 and the combination played versus internal expectations. One could argue that the profile emerging versus an existing obesity franchise that was approaching DKK 1 billion pre-COVID makes your sort of DKK 2 billion-plus obesity aspiration look rather conservative. I realize Q2 is not the forum by which you change strategic objectives, but I would like to hear your thoughts about confidence of reaching or far exceeding that target. And then, secondly, and a little bit more near-term for Mads. Can you just remind us how you think about the magnitude of threat, if any, to semaglutide from upcoming to tirzepatide Phase III data, the profile you are expecting and a quick reminder as to when in Q4 we should expect the SUSTAIN FORTE data?

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

Thank you, Pete. So it's clear that we are very encouraged by the clinical profile we have seen not only for semaglutide in obesity, but clearly also AM833 alone and in combination with semaglutide. We, at our Capital Markets Day, said that we expected to at least double the obesity franchise. And it's clear that, that statement was said with confidence that we would also get strong clinical data. But in no way have we seen any weakness in that position. So if anything, it has certainly strengthened our confidence in achieving that. But as you say, I'm not going today to put out a new strategic aspiration for obesity. But we are very pleased with the data and we're very confident that we can make this into a very sizable business for Novo Nordisk. And then, Mads, on the clinical profile and the potential threat of competing product. Obviously, there are limits to what we can say about competitor products, but some comments?

[Mads Krogsgaard Thomsen]

Yes. There are indeed, Lars, and -- so I will refrain from being very specific on the tirzepatide molecule. Time will show the data, but I can make some generic comments. One is that we are now understanding very much the profile of semaglutide at higher doses. Do bear in mind, Pete, that we have actually conducted semaglutide in NASH where a significant portion of the patients had diabetes, and that was at a dose of up to more than 2 milligrams where we saw very substantial weight loss and very significant A1C lowering. We've done the same also in -- as an element in the STEP program. So I can say with the confidence that the SUSTAIN FORTE trial, in my mind, will show a very powerful lowering both of glucose and body weight. And I do expect to see a benign adverse event profile in line with what we've seen both in the NASH trial and also in the STEP program where the higher doses were deployed. Obviously, tirzepatide being a GLP-1/GIP agonist will, in my mind, based on data we've seen so far, unlike the combination of AM833 and sema, which is an amylin analogue and a GLP-1 analogue, there will probably be additivity of the GI side effect profiles of the GIP and the GLP-1 components. At least this is what we have seen both in a trial we've conducted ourselves years back with MAR709, our dual-agonist, but also so far in the trial in Phase II and the escalation trials that our colleagues at Eli Lilly have done. But we will see the data late this year and I guess during the course of next year.

[Peter Verdult, Managing Director]

Just quickly on FORTE, the timing -- for the Q4 time line. Is that -- are we talking variable for the year for FORTE or...

[Mads Krogsgaard Thomsen]

Yes. We are just talking Q4, Pete, Q4.

[Operator]

Our next question comes from the line of Wimal Kapadia of Bernstein.

[Wimal Kapadia, Research Analyst]

Wimal Kapadia from Bernstein. So firstly, can I just ask a little bit about Ozempic pricing? If I look on my math, it's down around 21% per milligram in the first half of 2020 versus full year '19 and that follows a 17% decline in '19 versus '18. So you described the impacts across unfavorable channel mix, rebate enhancements and changes in coverage gap legislation. So could you just help us better understand the contribution from each of these 3 factors and the pricing dynamics? And then tied to that, should we assume similar trends moving forward? And then my second question is just on Saxenda. Clearly, a tough 2Q as expected. So could you just talk a little bit about what you've seen in the last month or so, particularly within the OUS out-of-pocket market, should we expect continued weakness to a similar extent for the remainder of the year? Or should we actually see a return to growth OUS?

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

Thank you, Wimal. So Karsten first on Ozempic pricing and then Camilla can comment on Saxenda for Q2.

[Karsten Munk Knudsen]

Yes. So Wimal, I cannot recognize the percentages you're alluding to from your analysis. So we're looking at different data points, first of all. So what we're looking at in terms of Ozempic pricing in the second quarter is exactly in line with what we saw in the first quarter. So there are no structural changes here in the second quarter compared to first quarter. As to our pricing in GLP-1 all and -- but also in -- with Ozempic specifically, then you're right, there is a gap between the volume growth and the realized net sales growth. Again, the main building blocks remain. First of all, we have a coverage gap impact in the U.S. this year. Of course, we don't have that impact next year. Then we have the channel mix and the payer mix impacting. And then, finally, the rebate enhancements to secure that we continue to have around 90% unrestricted access. So we're actually rather encouraged by the performance overall by Ozempic and we believe that performance is strong and continues to be strong.

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

Thank you, Karsten. And Camilla, on Saxenda performance in Q2 and what to expect?

[Camilla Sylvest]

Yes. So Saxenda performance have been significantly impacted by COVID-19, as you saw, especially because products with a very short stay time like Saxenda, 4 to 5 months, is impacted by the fact that the NBRx scripts are going -- have been reduced, especially in the second quarter. We saw the lowest point around April and now we are seeing that we are partly getting closer to a recovery of that. We are still not back to where we were before COVID-19, but we are approximately at index 85 of -- before COVID-19. So we have seen some signs of recovery, but not completely there. And of course, in the coming quarters, we will see how that develops in the U.S., but also in the rest of the world.

[Operator]

Our next question comes from the line of Trung Huynh of Crédit Suisse.

[Trung Chuong Huynh, Research Analyst]

I have 2, if I can. First one, just on the broader politics given the political crosshairs for diabetes. So I'm just wondering if you could just tell us your thoughts on what you think might happen with regard to potential U.S. health care reform and with a particular reference to international reference price? And then perhaps some comments on the European pricing outlook given that we're probably going to enter a period of austerity? And then my second question is just on the initial price of Rybelsus in the EU and how have your pricing discussions gone here? And are you getting much price acceptance on what you want?

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

Thank you very much. I will try to give some overall comments on the health care system, U.S., Europe and then Camilla can touch on Rybelsus pricing in Europe. So many attempts have been made to try to reform the U.S. health care system. And most have turned into some challenging prospects of actually getting implemented. And it's important to bear in mind that the U.S. health care system is largely a private market locked up in contracts between different partners. And there is a gross and net play here where, in aggregate, I think, in 2019, $175 billion were paid in rebates that helped fund the health care system. So any change in that market structure will have to accommodate how those profit pools are structured and allocated today and that's a significant challenge. The recent executive orders, 2 of them deal will increased pass-through rebates to patients. We welcome any initiatives that would help patients at the point-of-sale and actually lowering their out-of-pocket costs. But it's also clear that, that would then mean that some rebates that's today have been used to lower premiums and fund other expensive medicines would have to be -- that money will have to be found somewhere else. So I think something has to range, obviously, for the benefit of the patients, but it's not easy to do. In terms of reference pricing, again, rather complex, what price are you going to reference and gross, net. Many products are launched first in the U.S. So again, rather complex. So I don't expect a lot to change short term. Regarding U.S. price -- sorry, European pricing, the pricing structure in Europe is such that you negotiate your price with authorities. So there's a health technology assessment where you assess the value of a product up against the price you pay for it. And I think that is a rational way of going and that will most likely continue. Having said that, of course, society is spending or government is spending a lot of money on getting economies back to growth. Somehow that will have to be recouped in a way. So that's one trend that could potentially make health care spending harder. On the other side, I think it's also clear that a healthy population is important in a COVID-19 perspective, not least the diseases we treat where there's evidence that having diabetes or being overweight is additional risk factors to getting COVID-19. So I think there's probably an incentive to treat the patients we treat even more intensively going forward than what we've seen in the past. So that was a long answer to really say that I don't believe there will be a major change short term. Camilla, on Rybelsus pricing in Europe?

[Camilla Sylvest]

Yes. On Rybelsus in Europe, we have initiated the pricing and reimbursement discussions in a number of countries, and we are well on track for the first launches now in quarter 3, this quarter. So you will see that coming up very soon. The reimbursement negotiations are generally going very well, and we are achieving also reimbursement at price levels in the GLP-1 ballpark, so around the same level as you see for Ozempic and other GLP-1s in Europe. So all in all, all of that is progressing very well.

[Operator]

Our next question comes from the line of Simon Baker of Redburn.

[Simon P. Baker, Head of Pharmaceutical Research]

Just continuing on your last comment, Lars, about more intensive treatment of patients in light of COVID. We've already seen in the U.K. a big recent initiative on obesity, which is tied in with COVID, although it was in part preexisting. So I just wondered if you've seen any tangible evidence from governments yet that, in light of COVID, there may be more accepting view on therapeutic options for treating obesity? And then, secondly, on costs, you said that the operating profit guidance has been raised in part due to COVID-related savings. Firstly, I wonder if you could give us an idea how much of those COVID savings have fallen through to the guidance and how much have been reinvested? And also, how sticky are those savings? Do you expect there to be a long-term benefit from simply doing business a more efficient way that will have a positive effect in '21 and beyond?

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

Thank you, Simon. So on obesity, yes, I do see a growing acknowledgment of the importance of dealing with obesity. I had the pleasure of meeting and discussing this with health ministers around the world. Obviously, there's not a lot recently. But as one travels and you have these engagements, it is clear that it's recognized that obesity is a significant challenge. I think many are struggling with how much is then medical intervention and how much is lifestyle and how do you deal with both. So we -- as part of our obesity strategy, is to really drive that agenda, understand -- make people understand that it's a disease, it takes medical intervention for many; educate physicians, but also make people living with obesity to understand that it makes sense to seek treatment. So that's part of our strategy. And then, obviously, as we now come with a significantly stronger efficacy, we believe that is the, let's say, breakthrough in innovation that's going to make this accelerate this development. And I think it will come hand-in-hand with a growing acknowledgment supported by COVID-19 that obesity is something that health systems need to deal with. Karsten, on the COVID-19 savings?

[Karsten Munk Knudsen]

Yes. On savings, then if you look at our spend in the second quarter, where we have our spend going down by the tune of 3% and then compare that to how would it have looked had we not had the COVID-19 pandemic, then that spread is to the tune of DKK 1 billion. And that DKK 1 billion, you can say, part of that is phasing and part is savings. So the phasing could, for instance, be commercial launch activities that are deferred from first half into second half and the markets are opening up or clinical trial activities where patients are recruited slightly later or trials initiated slightly later. So that would be the phasing part. And the saving part would more directly be linked to, for instance, on travel where, for instance, our airline flights in the second quarter was down 90% compared to the second quarter the year before. And those savings, of course, we are allocating our resources in an optimal way, also investing some of them in increased distribution costs and in digital initiatives. So on the hard math for this year's guidance, you can say DKK 1 billion in savings. And since we raised the floor in our guidance, then mathematically, the midpoint would go up by DKK 0.25 billion, so 25% of the DKK 1 billion being delivered to shareholders and the rest being phasing and the reallocations. And then as a final note, do bear in mind that we are operating already at a very high level in terms of our operating margin first half at 47%. So we believe that we generate more value for our shareholders by whatever resources we can free up from our business that we invest in future growth, whether it's commercially or in future pipeline -- activities and pipeline assets. So that's our strategic approach to resource allocation.

[Operator]

Our next question comes from the line of Mark Purcell of Morgan Stanley.

[Mark Douglas Purcell, Equity Analyst]

The first one is on your medium-term guidance, given that it was given pre-COVID and so just to sort of check on that. You talked about North American growth, obviously, being sort of flattish over 2020 and 2021 for some of the reasons you gave and then it recovered to mid-single digits. And then IO growth being at the upper end of the range of 6% to 10%. So I wonder if you could help us understand where you are relative to that medium-term guidance given that COVID was not a discussion point when you gave the guidance back in November. I think in terms of North America, if you make the adjustments for stocking and then the new patient starts, you seem to be on track in that 0% to 2% growth guidance range. I guess, it would be useful to understand where you are in terms of the DKK 1 billion of patient affordability initiatives so far in the first half and also impact in the first half of the coverage gap. And whether, clearly, the increase in unemployment could increase the patient affordability initiatives you thought were going to be roughly DKK 1 billion. And then turning to IO. Again, making the adjustments, it looks like you're actually at the top, if not even slightly above, your 6% to 10% sales growth range if you adjust for new patient starts as well as taking out the stocking. And so again, sort of more looking forward, given that we now have COVID to contend with, do you anticipate more slowing down of GDP growth impacting your business or potential for governments rebuilding balance sheets and they're facing debt mountain to have to reduce prices potentially a little bit more than you'd expected back then? And then the second one is a quick one, it's housekeeping. Of the DKK 2 billion of stocking, of which DKK 1.5 billion remain, could you help us understand broadly how this is bit by geography and also by product to help us with our modeling for the remaining quarters of the year?

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

Thank you, Mark. There was a number of questions and data points. So Karsten, if you try to talk a bit to the medium-term guidance, and I can try to address some of the longer-term perspectives?

[Karsten Munk Knudsen]

Yes. So in terms of medium-term guidance that -- and you alluded to our Capital Markets Day in the fourth quarter of last year, then you're absolutely correct. When we look at International Operations, we are very encouraged about the growth and the overall performance, both how we closed out last year and the performance this year. So the 12% growth, we're looking at is above the 6% to 10% we talked about. The COVID is largely neutral and then we have some timing effects. So you could say we're in the top end of that range and very encouraged about the performance and all the launches that are taking place there. In terms of the U.S., as you recall then, our strategic aspiration talks to the transformation of our U.S. business and that we have to transform 70% of our business to products launched after 2015. And that is basically what we see between the insulin business and the GLP-1 business. So in North America, we're growing 1% in first half of this year. And 1% should be seen in the light of the coverage gap you talked to, which has an impact to the tune of 2 percentage point on growth as well as affordability initiatives. Then, as I said before, then, of course, U.S. employment will have a negative impact on our channel mix because some people will move from the employer-sponsored health plans. Our estimate at this point is that it will have an annualized impact of 3% on U.S. sales if we stay around current unemployment levels in the U.S. So I think looking at the U.S. into next year, then first half year performance is a good starting point and donut hole and affordability is perhaps not the same level when we look into next year while unemployment then pulls you other way. And then, of course, we have the performance of our GLP-1 business and the role out and launch of Rybelsus helping us continue to drive growth. In terms of stocking, taking that before going to GDP growth, then the DKK 2 billion stocking where now had -- saw a DKK 0.5 billion reversal in the second quarter, so DKK 1.5 billion remaining is broadly equally split between North America and IO. And I would say, in relative terms, you should split it relative to size on products. Yes, I think that's the best way to do it. Lars, on GDP growth?

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

Yes. So I think everybody is struggling to estimate what the world will look like post COVID-19. I would just say, like I mentioned before, I think there are different forces here. One is obviously that government is spending a lot of money on fueling economic growth, and i.e., that creates a larger challenge in funding health care. Having said that, as I mentioned before, the disease areas we are exposed for are chronic diseases, and to some degree, risk factors in relation to COVID-19. So I think it also creates an underlying bigger acknowledgment of the importance of treating diabetes and dealing with obesity. So I think that can create, let's say, a volume opportunity going forward. And you also see right now that we are actually executing in a way where we take market share. So I think also have opportunity of actually mitigating any, say, potential price pressure by volume upside. So overall for, say, the foreseeable time horizon, we feel quite confident in our ability to manage and drive growth within the frame we have outlined.

[Operator]

Our next question comes from the line of Richard Vosser of JPMorgan.

[Richard Vosser, Senior Analyst]

Perhaps you could give us an idea of the breakdown in Victoza, Levemir and Tresiba in the second quarter, seemed to be a lot lower. Just wondering whether some of the unemployment changes, whether you've changed the rebate structure in those to anticipate going forward? If you could give us some details there, that would be great. And then, secondly, around next steps for the PCSK9, what can we expect? Can we expect a combination with semaglutide in a Phase II trial and monotherapy? Could you give us some idea on timing and your thoughts there?

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

Thank you, Richard. So Karsten, first on breakdown rebate levels for all brands?

[Karsten Munk Knudsen]

Yes. So Richard, clearly, when you look at the quarterly reported sales, then there are some fluctuations on these brands, as you allude to. By far, the key explanation on these 3 brands is the COVID movements between Q1 and Q2. So you should not look too detailed at the Q2 numbers, but rather look at the first half year numbers. There are no significant changes on pricing on the products. Perhaps on one of the products there's a slight tweak on channel mix, but no major U.S. unemployment included in Q2 numbers and no major changes to estimates and rebates in the quarter either.

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

Thank you, Karsten. Mads, what to expect with the readout from PCSK9?

[Mads Krogsgaard Thomsen]

Yes. Well, Richard, first of all, we saw the hoped-for very long and nice half-life, the high potency and also the strong after single dose pronounced and prolonged lowering of LDL cholesterol and lipid improvements. So it fully lived up to what we were hoping for. And that then begs the question, is this a combination partner in a cardio drug in combo with semaglutide, FGF21, as you know, which we also have in the pipeline, ziltivekimab and so on. And these analyses are ongoing, but it is a nice small neat peptide that due to its potency and small size and low viscosity actually can be combined with basically anything and everything and it has a neutral pH value. So it's a nice partner for anything and we're investigating that right now.

[Operator]

Our next questions come from the line of Martin Parkhøi of Danske Bank.

[Martin Parkhøi, Senior Equity Analyst]

Yes. Martin Parkhøi, Danske Bank. Firstly, a question for Mads. Just on the portfolio decision in obesity where you have terminated these Phase I programs. The question is actually what now then? What will be the new bar? Will it be more making a supreme device for the combo -- combo of amylin and semaglutide? Is it a convenience because, I guess, it appears that in your quote that you have reached the gap of closing the gap to -- or you reached the target of closing the gap to bariatric surgery. So what will be the target for a next generation of obesity drug, if we can talk about that already now? And then just on semaglutide filing, which you expect to, in obesity, at the turn of the year. Do you believe at this point in time that FDA has the capacity to handle regulatory process in 6 months if you decide to use the voucher? And then, secondly, if you decide to use the voucher, then you have to alert FDA, I think it's 3 months prior, which means that you need to make a write-down of the value of the voucher this year. Is that something that you can absorb in the current guidance for your EBIT growth?

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

So Mads first on the heavy situation, what's next in obesity because you've already delivered so much efficacy. So what can we do better?

[Mads Krogsgaard Thomsen]

Yes. And indeed, Martin, that is an excellent point, and it's something that my R&D team and myself have been looking quite a bit into lately following the AM833 and semaglutide data. There are things that beg themselves, such as looking into increasing in a safe way whole body energy expenditure. You are aware that, in the old days, we are working with companies on brown fat and the likes of it, unfortunately, without success. But we might revisit some parts. We have done that already in some research projects within the field of safe increased energy expense. We're also looking into the Holy Grail of identifying the homeostatic set point. We all live in a world where we have a genetic band, which we can operate in body mass index-wise, and this is driven by what we call a homeostatic setpoint, probably in the hypothalamus. We are investigating whether we can identify that and tweak it to actually get it to a lower level like changing the thermostat on your radiator, old-fashioned radiators in the old days. We can also look into all and more convenient delivery of various moieties and different combinations thereof. So there are a lot of things to do, Martin, but you have a good point, and that's why actually the coagonist and triple-agonist, they did not live up to the target product profiles of the future because they have been increased in terms of efficacy and actually also improved in terms of what we want to see in terms of safety.

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

And Martin, on your other question in terms of FDA capacity and tactics around potential accelerated review, et cetera, the FDA is designed to be able to handle these. So we can only assume that they have the capacity. We have not made any decisions on whether to pursue that or not. So we're refraining from commenting more on that, including what is capacity in our guidance, et cetera. So very optimistic, Mads, on obesity, so that's great. So with that, thank you, Martin.

[Operator]

Our last question comes from the line of Sachin Jain of Bank of America Merrill Lynch.

[Sachin Jain, Managing Director]

Sachin Jain here. Thank you for fitting me in. A couple of questions. Just to clarify the payer mix commentary, 3% annualized cost. Can you just clarify how much of that has been seen in 1H and what is implied for 2H and is 3% a fair estimate into '21, just clarify that. Second question is on the Rybelsus access, which is now at 70%. I think a similar level of access drove a fairly material inflection in Ozempic as back in the day. So should we expect something similar for Rybelsus now that you have this access? And then just one clarification on an earlier question, U.S. growth for next year. Karsten, you listed a number of puts and takes for U.S. growth versus the 0% to 2%. Could I just clarify that 0% to 2% still stands?

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

Thank you, Sachin. First, Karsten, on payer mix, first half, second half and the comment on impact from unemployment?

[Karsten Munk Knudsen]

Yes. So thanks, Sachin. So to clarify, the unemployment impact in the U.S. that I mentioned is, on 3%, is an annualized impact. So the impact in terms of specific phasing is, of course, super speculative because it's, I'd say, it's, of course, an estimate standing on many, many variables in the first place. As I said before, nothing material included in 1H this year. We expect to see part of -- partly an impact in the second half of this year and then you will see a full impact in 2021. So that's on the 3%. And again, this assumes unemployment levels around the current level of this 11% we see now in the U.S.

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

Thank you, Karsten. And then to -- on Rybelsus, we are very pleased with the 70% combined access we have, which means that all of our territories are now in strike mode. And we have basically all our reps back in the field in the U.S. They are not having, say, the full face-to-face contact they had exactly before. We are around 80% and some of that is by virtual means. But we're now in full swing on Rybelsus, and we are quite optimistic about what that should lead to in terms of uptake. With that, we'll close our call here. Or Karsten, do you want to comment on the U.S. growth?

[Karsten Munk Knudsen]

Yes. Sorry, Lars. So Sachin, on U.S. growth, again, the commentary at CMD was given in the light of transformation of our portfolio. I think now it's better to instead of standing on something, which is more or less 10 months old than using kind of the current forms of our U.S. business or North America where we're at 1% given the put and takes we have. So I think we're encouraged. And you could say there are puts and takes compared to where we are. And then we are focusing a lot on our GLP-1 business and driving Rybelsus out in the market in the coming quarters.

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

Thank you all for listening in and sorry for running a bit over time. We'll close our investor call now, and wish you all that you stay safe in these difficult times. Thank you all for your attention.

[Operator]

This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.