Novo Nordisk A/S

CSE:NOVO B

Earnings Call Transcript 2018-Q3

[Operator]

Good day, and welcome to the Q3 2018 Novo Nordisk A/S conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lars Fruergaard Jørgensen, CEO. Please go ahead, sir.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you very much. Welcome to this Novo Nordisk Conference Call regarding our Performance in the First 9 months of 2018 and the Outlook for the Year. 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 International Operations, Mike Doustdar. Present are also our Investor Relations Officers.Today's earnings release and the slides for this call are available on our website, novonordisk.com. The conference call is scheduled to last for 1 hour. As usual, we'll start with the presentation as outlined on Slide 2. The Q&A session will begin in about 25 minutes. Please note that this conference call is being webcast live and the recording will be made available on Novo Nordisk's website.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 uncertainties and could cause actual results to differ materially from expectations. For further information on the risk factors, please see the earnings release and the slides prepared for this presentation. Please turn to Slide 4. Sales growth in the first 9 months of 2018 decreased by 2% measured in Danish kroner and increased by 4% in local currencies. International Operations grew by 8%, and North American operations sales increased by 1%, both in local currencies. Sales growth was mainly driven by the GLP-1 franchise, with Victoza and Ozempic combined growth of 18%, accounting for 84% share of growth in local currencies. Furthermore, Saxenda increased by 53% and accounted for 28% share of growth. Within research and development, some achievements can be highlighted. We have successfully completed additional 3 Phase IIIa trials with oral semaglutide and initiated a Phase I trial with our next-generation oral GLP-1. In addition, we have initiated a select cardiovascular outcome trial with 2.4 milligram subcutaneous semaglutide in people overweight or obesity. Within biopharma, we have successfully completed the first Phase II trial with concizumab.Turning to financials. Operating profit for the first 9 months of 2018 decreased by 6% in Danish kroner and increased by 2% in local currencies. The operating profit growth was negatively impacted by severance cost in the third quarter of 2018, and the adjusted operating profit was 4% in local currencies. The diluted earnings per share increased by 3% to DKK 12.40. The guidance range for sales growth in 2018 is narrowed to 4% to 5% measured in local currencies, and reported sales growth is now expected to be 4 percentage points lower. The guidance range for operating profit growth in 2018 is still 2% to 5% in local currencies and still expected to be 7 percentage point lower in Danish kroner. Based on increased expectations for free cash flow generation in 2018, the Board of Directors has approved the expansion of the 2018 share repurchase program with DKK 1 billion to DKK 15 billion.Please turn to Slide 5. In the first 9 months of 2018, sales decreased by 2% in Danish kroner and increased by 4% in local currencies. The sales growth was mainly driven by an 8% local currency growth in International Operations. Sales in North America Operations increased by 1% in local currencies. The sales development was mainly driven by an 18% increase in GLP-1 sales. GLP-1 sales was driven by a 12% increase in Victoza sales following the expanded CV label and a solid uptake of Ozempic, generating sales of approximately DKK 800 million.Furthermore, Saxenda increased 31%, driven by continued strong uptake. This was partly offset by an 8% decline in instrument sales, driven by a 9% decline in basal insulin, reflecting lower realized prices, partly offset by volume growth of Tresiba and Xultophy. Furthermore, short-acting insulin declined by 9%, predominantly due to phasing of 2017 rebate adjustments and inventory fluctuations across the supply chain. Biopharmaceutical sales in local currencies declined by 8%, driven by declining NovoSeven sales. Within International Operations, the main growth contributors were Region AAMEO, Region Latin America and Region China. In Region AAMEO, comprising Africa, Asia, Middle East and Oceania, sales increased by 14% in local currencies. The growth was driven by a 14% increase in insulin sales, driven by solid growth in all insulin segments. Furthermore, Saxenda continued the solid uptake in the Middle East. In Region Latin America, sales grew by 35% in local currencies. The sales growth was driven by increasing NovoSeven sales, reflecting the tender deliveries in the first quarter of 2018 in Brazil. Furthermore, sales were driven by Tresiba, Saxenda and Victoza uptake across the region. Sales in Region China increased by 8% in local currencies. The sales growth was largely driven by modern insulin and Victoza, partly offset by declining human insulin sales. Please turn to Slide 6. From a product perspective, diabetes care grew by 4%, driven by 18% GLP-1 franchise growth, with Victoza and Ozempic accounting for 84% share of growth. This was driven by solid underlying GLP-1 market growth and the launch of Ozempic in North America. Insulin sales measured in local currencies declined by 1%. This reflects an 8% decline in insulin sales in the U.S., offset by a solid growth of 6% in International Operations. Within obesity, Saxenda sales increased 53%, accounting for 28% of total sales growth. Saxenda has now been launched in 37 countries. Sales of biopharmaceutical products declined by 1% in local currencies. This was mainly driven by declining NovoSeven sales in the U.S., partly offset by the positive contribution from the Brazilian NovoSeven tender in the first quarter of 2018 as well as higher Norditropin sales in the U.S.Please turn to Slide 7. The insulin franchise was down 1%, driven by North America operations. However, International Operations delivered a solid 6% growth of the insulin franchise. Within International Operations, the basal insulin segment increased by 14%, driven by 26% growth of Tresiba, reflecting increased sales in Region Europe and Region Latin America. Furthermore, sales of Xultophy almost doubled compared to the first 9 months of 2017, reflecting a strong uptake in several European markets. GLP-1 sales continues to be a strong growth driver, with 18% increased sales reflecting 18% growth in North American operations, driven by the launch of Victoza with a CV indication and the strong uptake of Ozempic. In International Operations, Victoza sales increased by 15%, mainly due to a continuous strong momentum in Region Europe and 89% growth in Region China following the inclusion on the National Drug Reimbursement List in 2017. Ozempic is now launched in 5 European markets. Saxenda continues to be a solid growth driver, both in North America Operations and in International Operations, driven by strong uptake in region AAMEO, Latin America and Region Europe.Please turn to Slide 8. Ozempic has now been launched in 7 markets: in the U.S. and Canada and in 5 European markets. In the U.S., Novo Nordisk has regained the leadership within the new-to-brand prescriptions following the launch of Ozempic, with a combined market share of 58%. Ozempic has now reached a new-to-brand market share of around 20%. The Ozempic launch is progressing, and unrestricted formulary access is now above 2/3 for commercial and Part D combined. Furthermore, the Ozempic DTC campaign activities highlight the clinical benefit on blood glucose control and reduction of body weight and CV safety. Ozempic was also launched in Canada in February this year, and the new-to-brand prescription share is now around 46%, and the Novo Nordisk combined GLP-1 share is around 80%. The latest total prescription data reveals a total prescription market share approaching 21% for Ozempic in Canada. In Denmark, the first European country to launch Ozempic in mid-August, the volume market share is 15% following only 2.5 month in the market. Please turn to the next slide. In the U.S., GLP-1 sales in the third quarter increased by 27% in local currencies, driven by both Victoza and Ozempic. The market growth is now 28%, and one of the main drivers behind the accelerated GLP-1 market growth has been Ozempic. Novo Nordisk continues to be market share leader with a combined monthly GLP-1 volume market share of around 43% of the total GLP-1 market in the U.S. We're off to a very good start with Ozempic and, thereby, strengthening our leadership position in the expanding GLP-1 market, both in North America as well as in Europe. We now expect total Ozempic sales to be around DKK 1.5 billion in 2018.Please turn to the next slide. Over the past 12 month, Tresiba has gained around 5 percentage point market share in the U.S. and now holds a volume market share of 13.5% in the basal insulin segment. Novo Nordisk combined Levemir, Tresiba and Xultophy market share is now around 36% of the total basal market. The updated U.S. Tresiba label was obtained in March to include a 40% reduction of severe hypoglycemia compared to insulin glargine U100. In addition, we have initiated a DTC campaign in the U.S. for Tresiba. The updated label and DTC campaign are expected to support the positive market share development of Tresiba.Outside of the U.S., Tresiba will be relaunched in Germany in December 2018. We look forward to relaunch Tresiba in Germany and make the basal insulin available that reduces the risk of severe hypoglycemia compared to insulin glargine U100. With this, over to Mads for an update on R&D.

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

Thank you, Lars. Please turn to Slide 11. Last week, we announced the headline results from PIONEER 8. The 52-week Type 2 diabetes trial investigated the efficacy and safety of 3, 7 and 14 milligrams of oral semaglutide compared with placebo in 731 people with an average disease duration of no less than 15 years and all being treated with insulin at the baseline. When applying the primary statistical approach, the trial achieved its primary endpoint by demonstrating statistically significant and superior reductions in hemoglobin A1c and body weight with all 3 doses of oral semaglutide compared to placebo, both in addition to insulin at week 26. When applying the secondary statistical approach, i.e. investigating the effect on patients adherent to treatment, people treated with 3, 7 and 14 milligrams oral semaglutide from a mean baseline of 8.2% achieved reductions in HbA1c of 0.5%, 0.8% and 1.2% at week 52, respectively, compared to no reduction in people treated with placebo, both in addition to insulin.In addition, from the mean baseline body weight of 86 kilograms, people treated with 3, 7 and 14 milligrams oral semaglutide experienced a weight loss ranging from 1.0 to 4.3 kilograms at week 52, respectively. And with a great gain of 0.6 kilograms in the placebo group, there was a weight difference of around 5 kilos in favor of oral semaglutide at the 14 milligram dose. In summary, PIONEER 8 shows that oral semaglutide brings close to 2/3 of insulin-treated type 2 diabetes patients with long-standing diabetes to the ADA target of HbA1c below 7% with a placebo-corrected weight benefit of around 5 kilo after 1 year's treatment. Such data are unprecedented for an oral agent in this trial population. Additionally, at the end of the trial, the insulin dose was reduced by 7 insulin units per day for people treated with 14 milligrams semaglutide compared to an increase of 10 insulin units per day for people treated with placebo. With an average baseline dose of insulin close to 60 units per day, this corresponds to reduction in insulin dose of more than 25%. Oral semaglutide was well-tolerated and not associated with increased hypoglycemia and exhibited a safety profile consistent with GLP-1-based therapy.Please turn to Slide 12. In September, we announced the headline result from Premier 10. The 57-week trial investigated the safety, tolerability and efficacy of 3, 7 and 14 milligrams oral semaglutide compared with 0.75 milligram, once-a-week subcutaneous dulaglutide, the approved dose in Japan, in 458 Japanese type 2 diabetes patients inadequately treated with oral antidiabetics. The trial achieved its primarily safety endpoint. And furthermore, from a baseline HbA1c of 8.3%, people on treatment for 1 year with 14 milligrams oral semaglutide experienced a statistically significantly greater reduction in HbA1c of 1.8% compared to 1.3% with dulaglutide. Body weight reduction from baseline was also statistically significantly greater with 14 milligrams oral semaglutide at week 52, with a decrease of 1.9 kilogram compared to a weight gain of 1.1 kilogram with dulaglutide, providing a 3-kilogram weight difference between the 2 GLP-1 compounds in the Japanese population with a mean baseline weight of 72 kilos. As mentioned, the trial achieved its protocol-driven primary objective by demonstrating a number of adverse events with oral semaglutide that was comparable to dulaglutide. The most frequently reported events were gastrointestinal, and the proportion of people discontinuing treatment due to adverse events was between 3% and 6% of people treated with oral semaglutide compared to 3% of people treated with dulaglutide.Please turn to the next slide. Since August, we reported results from PIONEER 5, 8 and 10, implying that we have now reported all relevant -- or sorry, all Phase IIIa trials except PIONEER 6 and PIONEER 9. Across the 8 completed PIONEER trials, we've observed a consistently strong lowering of HbA1c for the 14 milligrams dose of oral semaglutide ranging from 1.1% to 1.8% in patients completing the trials. With these HbA1c reductions, all PIONEER trials have shown statistically significant improvements versus comparator therapies, including the leading injectable GLP-1 analogues, liraglutide and dulaglutide. In terms of body weight, oral semaglutide 14 milligrams has demonstrated a consistent reduction ranging from 1.9 kilos to 5 kilograms. For all end-of-trial data sets, the on-treatment results were in each case statistically significantly in favor of oral semaglutide versus the various comparators.The Phase IIIa program was designed to support a start-and-stay treatment strategy for oral semaglutide across the type 2 diabetes lifespan from diagnosis until late-stage insulin dependency. This ambition has been fulfilled by the PIONEER program, as evidenced by the finding that the majority of patients met the glycemic ADA target with a beneficial weight profile across the disease spectrum. Please turn to the next slide. In August 2018, Novo Nordisk acquired to the U.K.-based company, Ziylo. The combination of Ziylo's synthetic glucose-binding molecules and the state-of-the-art insulin design pioneered by Novo Nordisk together seek to make development of the world's first glucose responsive insulin possible. Also, the first clinical trial of the next-generation oral GLP-1, OG2023SC, has been initiated, investigating the safety, tolerability and pharmacokinetics of GLP analogue 2023. This quarter, we've also submitted 3 new drug applications in Japan, Xultophy, Fiasp and N8-GP, respectively. Furthermore, we've initiated SELECT, the large cardiovascular outcomes trial investigating once-weekly semaglutide 2.4 milligrams in nondiabetic, overweight, obese people with established cardiovascular disease. SELECT is expected to enroll 17,500 people and have a duration of around 5 years. In October, we initiated a Phase I trial with long-acting appetite-suppressing PYY analogue, 1875. The trial is designed to investigate the PK/PD, safety and tolerability alone and in combination with semaglutide in obese people. Within our biopharm portfolio, 3 key milestones have been achieved. Firstly, the successful completion of the REAL 1 Phase IIIa extension trial with somapacitan in adults with growth hormone deficiency. Secondly, we've reported the successful completion of the Phase II trial explorer5 investigating the subcutaneously administered cross-segment antibody, concizumab, in people with severe hemophilia A without inhibitors. Thirdly, we announced yesterday the acquisition of the U.S. and Canadian rights to Macrilen, the first and only FDA-approved oral growth hormone secretagogue receptor agonist currently indicated for the diagnosis of adult growth hormone deficiency in the U.S.Please turn to the next slide. So far, 2018 has been a positive and eventful year with an important hypoglycemia label update for Tresiba in the U.S., new product approvals, compelling data for somapacitan in children and adults and above all, successful completion of 8 PIONEER trials. For the remainder of the year, we expect the result from PIONEER 6 and PIONEER 9. Lastly, we expect the data from the second Phase II trial with concizumab in inhibitor patients. With that, over to Karsten for an update on the financials.

[Karsten Munk Knudsen, Executive VP & CFO]

Thank you Mads. Please turn to Slide 16. In the first 9 months of 2018, sales decreased by 2% in Danish kroner and increased by 4% in local currencies. The gross margin decreased by 0.4 percentage points to 84.2% measured in Danish kroner. Compared to the first 9 months of 2017, the gross margin was negatively impacted by currencies, especially the depreciation of the U.S. dollar compared to Danish kroner and lower realized prices in the U.S. This was offset by higher productivity and positive product mix.Sales and distribution costs increased by 3% in Danish kroner and increased by 9% in local currencies, reflecting a higher level of promotional activities in both North America and International Operations. R&D costs increased by 2% in Danish kroner and increased by 5% in local currencies, reflecting higher cost for both research and developments. Administration costs decreased by 1% in Danish kroner and increased by 3% in local currencies. Operating profit decreased by 6% in Danish kroner and increased by 2% in local currencies. Operating profit was negatively impacted by around DKK 600 million in severance costs. Adjusted operating profit growth was 4% in local currencies. By the end of 2018, we expect the workforce to be reduced by 1,300 employees. The majority of the layoffs have been implemented. Net financials showed a gain of around DKK 0.8 billion compared with a loss of approximately DKK 0.8 billion in the first 9 months of 2017. This development reflects a gain on foreign exchange hedging, mainly due to the depreciation of especially the U.S. dollar versus the Danish kroner. Diluted earnings per share increased to DKK 12.40, corresponding to an increase of 3% compared to the first 9 months of 2017.Please turn to Slide 17. In line with our treasury policy, the most significant foreign exchange risks have been hedged primarily through foreign exchange forward contracts. The first 9 months of 2018 incurred a gain of around DKK 0.8 billion compared with a loss of DKK 0.8 billion in the first 9 months of 2017. This development reflects a gain on foreign exchange hedging involving especially the U.S. dollar versus the Danish kroner. The hedging gain was partly offset by impact from depreciation of nonhedged currencies. Please turn to Slide 18. For 2018, sales growth is now expected to be in the range of 4% to 5%, measured in local currencies. This reflects the expectations for continued robust performance for Victoza and Tresiba as well as a positive contribution from Ozempic, Saxenda and Xultophy. These sales drivers are expected to be countered with by a impact from lower realized prices in the U.S., driven by lower prices in basal segment. Reported sales growth is now expected to be around 4 percentage point lower than local currency guidance. Operating profit growth measured in local currencies is still expected to be in the range of 2% to 5% growth. The outlook reflects a planned increase in S&D costs to support commercialization of Ozempic as well as severance costs. Reported operating profit growth is still expected to be around 7 percentage points lower than the local currency guidance. We now expect financial items to be a gain of around DKK 0.5 billion. The updated guidance reflects the recent depreciation of the U.S. dollar compared to the Danish kroner and continued depreciation of several unhedged currencies. The effective tax rate for 2018 is still expected to be in the range of 19% to 20%. Capital expenditure is still expected to be around DKK 9.5 billion in 2018. For 2018, we now expect the free cash flow to be DKK 29 billion to DKK 33 billion. As a consequence of the increased expectation for cash flow in 2018, the Board of Directors has approved an expansion of the 2018 share repurchase program with DKK 1 billion to DKK 15 billion. This concludes the financial update. Now back to you, Lars.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Karsten. Please turn to Slide 19. We are off to a very good start with Ozempic, thereby strengthening our leadership position in the expanding GLP-1 market. Our other key innovative products, Victoza, Saxenda, Tresiba and Xultophy, continues their solid contribution to sales growth in the first 9 months of 2018. Finally, we have made some important organizational changes aimed at boosting innovation in our R&D organization and redirecting resources in all parts of the organization to further growth drivers. Operator, we're now ready to take the first questions. [Operator Instructions] Thank you.

[Operator]

[Operator Instructions] We will now take our next question from Florent Cespedes of Societe Generale.

[Florent Cespedes, Senior Equity Analyst]

First, on the short-acting insulin market, could we have an update on the dynamic of the market, notably in U.S. and in Europe, as we see some decline? And my second question is on NN9023, the next-generation oral GLP-1. Could you share with us what's your goal? What do expect from this product? And how you will differentiate this drug versus oral sema currently in next-phase development? And if I may, Mads, just a follow-up. Could you tell us where you stand regarding the cardiovascular outcome study discussion with the FDA regarding semaglutide program?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you. I'll start by answering the question, the short-acting, and Mads can go to the oral and CV. So first of all, when you look at our more rapid NovoLog or short-acting franchises, it's actually one of the most stable franchises we have. So the deviations we see in this quarter is linked to the timing of the rebate adjustments we did last year where we had a reduction -- or a correction in the latter part of the year; and then also seasonality in supply chain both in the U.S. and other world. So we do not see any underlying issues in the short-acting category, which is a quite stable market from a market share and competitive dynamics point of view. Mads, on next-gen oral and CV?

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

Yes. So the analogue 2023 is based on the original research on the series of compounds that led to semaglutide, not supposed to exhibit greater efficacy per se than sema because it's not really been possible to identify any GLP-1s that do so. However, it's been optimized for oral exposure. That basically means that you can have a level -- or lower oral dosing level achieve the same degree of exposure upon. Or alternatively, you can go to the same doses with oral sema and achieve a higher degree of exposure and, hence, the higher degree of efficacy. So what analogue 2023 enables is 1 of 2 things: either a higher efficacy, implying that it could be developed for obesity, could be developed for NASH, could be developed for high efficacy in type 2 diabetes. Or you can match oral sema as we know today, and that would lead to a reduction in the cost of goods sold. And all of that we'll know a lot more about next spring when we report the data. But from this trial and from the second-generation oral semaglutide tablet formulation, they're reporting approximately at the same time. Vis-à-vis the FDA and the CV discussions, we are essentially have had very constructive dialogue with the agency, where basically they are confirming that we have promising data with SUSTAIN 6. However, they need some kind of confirmation before we can have a CV indication for Ozempic. And that confirmation can actually come in the form of either a bridging study even with an oral route of administration of semaglutide, such as the so-called oral zone trial. Or in the best of all worlds, if the PIONEER 6 trial, designed only to show safety, were to -- in an upside scenario, provide signs of efficacy, i.e. improved cardiovascular performance, then, of course, that dialogue will be hold with the FDA. So that's where we stand today, planning for oral zone trial, but eagerly awaiting PIONEER 6 data.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mads. Very exciting. Thank you, Florent.

[Operator]

We will now take our next question from Sachin Jain from Bank of America.

[Sachin Jain, Managing Director]

It's Sachin Jain here from Bank of America. Two questions, please. Firstly, just expected you to provide your perspective on the recent Lilly GIP/GLP data. And then any plans you might have to rebut high doses and pit your own triple agonist? Or potentially resurrecting the GIP/GLP that you didn't continue last year? And then secondly, on the numbers. Obviously, a restructuring program has happened. Could you provide any context of what your annualized savings from that would be and in context of a 4% Part D EBIT headwind into next year?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Sachin. Let me start by giving an overall specific perspective on it. And then Mads can go a bit more into our scientific response. So first of all, I think what drives the value of a segment is continued innovation. And we have seen that until now, that for each and every time we have seen a new launch of a efficacious GLP-1 agent, we've seen a larger market growth. We're seeing that now with our launch of Ozempic as well. So looking ahead, I welcome that Lilly also make a bet on innovation. There's still some time to go before they can enter the market. And in that period, we have ample time to establish Ozempic as the new golden standard, and we have opportunity to, hopefully, also launch oral semaglutide. So the overall value of the market will be benefiting from 2 companies competing with similar tactics and, say, the short- to medium-term tactics is still in favor of Novo Nordisk. And then we're quite confident that we can, also in terms of our next-generation products, do something that's competitive vis-à-vis Lilly. So Mads, can you elaborate a bit on that?

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

Yes, Lars. So first and most obvious thing that's already ongoing is the emergence of a high-dose Ozempic. Of course, driven by STEP 2 and the other relevant clinical data that may be needed for such a dose upgrade vis-à-vis the diabetes label. And that would enable Ozempic to remain unbeaten even in the face of the event of the dual agonist from Eli Lilly, we believe. Then you also mentioned that we multiple dosing clinical trials. Well, the triple agonist that targets the GIP, the glucagon and the GLP-1 receptors simultaneously and also a dual agonist known as 1177. The emergence or the resurgence of the MAR709 compound that came into Phase II when we acquired the Richard DiMarchi company is unlikely because we do not believe that the ratio of agonist on the 2 receptors is ideal for that compound, neither is the duration of action. But you also correctly alluded to the fact that driven by the acquisition of the Calibrium, MB2 company with Richard DiMarchi, we, of course, have access to numerous pharmacological tools ready to go whether they be GIP compounds, dual agonist, triple agonist and whether be for fixed-dose combination or, for that matter, for chimeric or hybrid molecule formation. All of that is, of course, in the pipeline, and these are things that, of course, we analyze for long haul. But for the short term, high-dose Ozempic is, together with good success on the oral sema and the existing Ozempic, a clear way forward for us.

[Lars Fruergaard Jørgensen, President & CEO]

So in summary, we welcome continued competition. It's good for the patients. It's good for the market. And we are confident in both the short-, medium- and long-term competitiveness of Novo Nordisk in this. And Karsten, can you talk a bit to the restructuring?

[Karsten Munk Knudsen, Executive VP & CFO]

Yes. So the restructurings, what we've been now saying is that in terms of layoffs, we're looking at 1,300 employees by end of year, of which the majority has taken place as of now. And the cost included in our third quarter results are DKK 600 million. And the fact that the total cost related to the layoffs contained in our guidance for the full year. In terms of impacts on 2019, let me just remind you that as we've previously announced, the now guidance for 2019, we will issue that 1st of February. So we're not going to provide any more detailed guidance on '19 at this point in time.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Karsten. Thank you, Sachin.

[Operator]

[Operator Instructions] We will take our next question from Peter Verdult from Citi.

[Lars Fruergaard Jørgensen, President & CEO]

Peter, we have a technical challenge there, so maybe we can move on to the next question. Peter can come back later.

[Operator]

Yes. We will take our next question from Trung Huynh from Crédit Suisse.

[Trung Chuong Huynh, Research Analyst]

Just 2 for me, please. Firstly, in the past, you've noted GLP pricing is limited versus the insulins. Now you're through your 2019 contracting. Have you seen any significant change in this dynamic given the GLPs are now becoming a much bigger part of treatment? And then the other on biopharm. Just wondering if you could give a bit more color on why Jesper is stepping aside as the Head of Biopharma. You only moved him into this role at the start of the year. Is there any change in strategy of this division?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you. So on GLP-1 pricing, we see an unchanged competitive situation, so there's not much news there. I thinks it's really important to underline that we see a very strong market growth of some 25%, and we're growing on top of the market. So we remain very confident, optimistic about the future of our GLP-1 business. In terms of Jesper, Jesper's been 20 years of Novo Nordisk and has been a fantastic colleague and contributor to both the team and the company. And I've had a dialogue with Jesper about what he wanted to do. And Jesper has had a wish to find more time in life to pursue other activities. So this is a dialogue and, say, an agreement that we have landed together. So there's nothing in relation to the biopharm strategy or anything linked to this. Jesper's done a fantastic job in establishing a strategy whereby we can accelerate growth, both on getting more out of what we have. So we have organic initiatives and also zooming in on what we believe could be interesting bolt-on acquisition opportunities. And we actually landed a small one yesterday. So highest regards about Jesper's performance. And now we have Ludovic Helfgott coming in, and he has a fantastic pleasure of actually having an updated strategy playing on his desk the first day he arrives so he can hit the ground running. So no change in overall strategy in this regard. So it's business as usual. Thank you very much. We have Peter back on the line.

[Operator]

Yes. We'll now take our next question from Peter Verdult of Citi.

[Peter Verdult, Director]

Awfully sorry. My headset died. Just 2 questions. Just Lars, just for you, good timing. Part D, can I just kind of confirm that it represents about 15% of Novo's group sales? Just want to check in with you on the latest thoughts on potential reform. I mean, would Novo consider launching second brands to deal with a rebate-free world in Medicare so that you don't impact your commercial book of business? And then Mads, could we just go back and pick up on the conversation we had at ESD and follow on from Sashin's question just on the GLP/GIP. Can you comment at all whether you have any GLP/GIPs in research that have the same sort of preferential agonism for GIP with GLP as the Lilly compound has? I'd be interested in your thoughts there and how quickly you might be able to get that into clinic?

[Lars Fruergaard Jørgensen, President & CEO]

So thank you, Peter. So in terms of -- if I heard you right, Medicare Part B. I don't know where you get the 15% from. We have hardly any exposure in Medicare Part B so...

[Peter Verdult, Director]

Part D, D for Donald, D for Donald Trump.

[Lars Fruergaard Jørgensen, President & CEO]

Okay. All right. So I think we spoke about that after Q1, where we saw the change in coverage gap funding for '19. And that's -- there's nothing new to that. That's unchanged compared to what we said, 1% to 2% impact on the top line. In regards to operating in a world without rebates or potentially launching products at a lower price without rebate, it's something we have looked into and we can handle it. It's, unfortunately, not as simple as just launching another product because it introduces some complexities, both in the supply chain and also in the physician's office, having to prescribe another product. So it's a change we can pursue, but we do not believe that it's solving the problem right now because it will create other issues. So it's not something we are pursuing actively as we speak. Mads, on the ESD discussion?

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

Yes. So Peter, there are 2 ways you can achieve the desired ratios of agonism and versus different receptors, whether it's 2 or 3 receptors. One is by creating dual- or triple-agonistic molecules. That is like what we have in the multiple dosing with the triple agonist that's a single molecule. The other option is, of course, to take a ideal GLP-1 molecule, like semaglutide, an ideal GIP molecule with a similar half-life as semaglutide that are compatible with each other, and then explore which ratio is the ideal in an FDC, a fixed-dose combo, so to speak. So those are clear options. When that is set, our belief is that Ozempic, given at a high dose to people with diabetes of 2.4 milligrams, that is currently ongoing already in the STEP 2 trial, is something that will basically, in principle, years ahead of the Eli Lilly launch, still make Ozempic unbeaten from a efficacy perspective. But the other options are fixed-dose combinations and hybrid molecules with a defined ratios. And of course, they do exist, as you can imagine, in the DiMarchi labs.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mads. Thank you, Peter.

[Operator]

We'll now take our next question from Michael Novod of Nordea.

[Michael Novod]

It's Michael from Nordea. Two questions. One to Lars around comments you made in Danish media that you do see competition on the insulin side perhaps not increasing that much and potentially also that we should revise perhaps or both manage expectations around where pricing is. Maybe you could elaborate a bit more on that also after we saw Merck, Samsung not go for the basal insulin generic. And then secondly, on obesity. You do have very strong traction in obesity. I've asked this before, but do you have any considerations around starting more active promotion, DTC campaigning, et cetera? Or do you still see that insurance coverage is too low in the U.S., for example?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Michael. I will start by pricing question, then Camilla can give some perspectives on our ambitions in trying to expand the obesity market. So I think it's important to operate with different scenarios for how the future pricing environment can move forward and then look at what are the triggers for these scenarios to come into play. And if you look at the downside scenario, that's one where one or more additional biosimilars come to market and then kind of reopen further contracts and you get another tough rebating round. With Merck, Samsung pulling out, I do not obviously know their calculation. But I would imagine that that's based on a commercial assessment that right now, there's a situation where we are at a rebating level and a contracting composition across the players that makes it difficult to come in and succeed commercially in that area. Which obviously means that I think that scenario becomes less likely and a scenario where you say that, okay, we have reached rebate levels that are low. And if you have to unlock some of these contracts and move patients across, there is a risk associated with that. Because if you don't manage the volumes, the financials does not add up. So I'd just say that since our last discussion a quarter ago, there's been that one change that I think the likelihood of the low-end scenario has become less likely as one of the contenders, and that scenario has pulled out. So -- but I'm not giving any guarantees. I'm just trying to say that it's important to operate with different scenarios and then look at what is the relative likelihood across those scenarios. So in my account, this is -- I'm more optimistic about the pricing environment going forward in the U.S. obesity category. Camilla, on obesity and some of the tactics we could deploy to grow that category.

[Camilla Sylvest]

Yes. So today, we have 650 million people suffering from obesity. And as you know, only 2% of those are being treated. With the pipeline that we have in obesity, and it is clear that it's going to be one of our 4 focus areas for the future, and we have just recently looked at what are some of the barriers to obesity treatment. A big part of that has to do with recognizing this as a disease, so that's clearly something that we will be working on going forward. Second driver is the number of physicians that are actually able to treat this disease, which is initiatives we have also taken to support on in a number of countries. And then finally, we also noticed that because obesity is not recognized as a chronic disease, we do see that the patients will off treatment relatively early after having initiated the treatment simply because they see a weight loss. So we are looking at how we can work with patient support programs that will support the patients who see a continuous weight loss respecting that this a chronic disease. So those are some of the elements we are working on. And you will see us do more investments in this area but hopefully also more returns.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Camilla. Thank you, Michael.

[Operator]

We will take our next question from Richard Vosser from JPMorgan.

[Richard Vosser, Senior Analyst]

Just going back to the high-dose Ozempic. When looking at the Phase II data with high doses in diabetic patients, can you give us your perspective on whether you will see higher HbA1c reductions? I think we obviously can think that the weight will be substantially higher when you increase Ozempic doses to higher levels. But there seem to be some plateauing of the HbA1c drops in the Phase II data. So what does your modeling to tell you about that going forward? And then secondly, just thinking about the formulary changes that we've seen in 2019. We've seen some losses of some of your competitors in the Medicare area in terms of their coverage on lives. Yours is, I think, broadly the same. So what sort of volume share gains do you think you can get a hold of in 2019? We've obviously seen some good volume in 2018 that you've been able to capture?

[Lars Fruergaard Jørgensen, President & CEO]

To you Mads, on high-dose Ozempic.

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

Well, Richard, yes, if you are referring to the only full data set that we have across the dose-response relationship for semaglutide in the injectable version, that is indeed the Lancet paper that came out a few months ago and kind of compiles all the data that we have from Phase II. Now do bear in mind that, that was an obesity trial in close to 1,000 patients treated for about a year, and they were either totally nondiabetic or only dysglycemic, i.e. having a prediabetes defined by the hemoglobin A1c level being below 5.7 and 6.4. This also means that it's very difficult to make any guesstimations on the A1c effects of semaglutide in a nondiabetic population. But what I can tell you is that we have explored using HOMA-B for beta cell function and HOMA-IR for insulin resistance assessment. And what it tells us is that inasmuch as you tend to -- now it gets a bit nerdy, inasmuch as you hit the 90-plus percent efficacy level on the dose-response curve for beta-cell activation, probably at levels around the 1 milligram semaglutide dose, you are in a different situation when it comes to body weight, where you have not even leveled out at 2.4 milligrams because of the excellent penetration of sema into the brain. That also means that the HOMA-IR, the insulin resistance measures, they improve with the higher doses of semaglutide. And with improved insulin sensitivity, there's a secondary effect on the beta cell in that each insulin molecule works better, and you get a secondary effect on hemoglobin A1c. This, you cannot see in a prediabetic population. There, you have to go into an overtly type 2 diabetic population, and that's what we are doing now. And I would actually expect to see a rather significant secondary effect on A1c despite the dose-response curve being almost saturated for the beta cell. It's secondary to the improved insulin sensitivity that is relatively unique to semaglutide. We did not see it for lira, and I've not seen it for dula.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mads. In terms of formulary changes, next year, we see overall an unchanged access environment. So our focus is on winning market shares with Tresiba and Xultophy and, obviously, Ozempic. So we don't see a significant, say, shift in volume coming from contracting. But we are quite confident that we can continue our strong commercial execution based on these key products. Thank you, Richard.

[Operator]

We'll now take our next question from Michael Leuchten from UBS.

[Michael Leuchten, Co]

Two questions, please. One on International Operations. If I look at the insulin franchise in Q3, the growth was a little bit slower than expected, and it seems to be soft across a number of products. Just wondered if there's any explanation. Or was it just normal sensitivity in the quarter? And then, so Mads, just going back to the GIP/GLP data. Lilly's very aggressively communicating that they think they can show data taking the discontinuations down well into the single digits. Given what you know about the PK/PD of GIP/GLP and what the dual agonism does in the pancreas, how likely of a scenario do you think is it that somebody can get discontinuations into a range that is below what we've seen with GLP-1s across the board so far?

[Lars Fruergaard Jørgensen, President & CEO]

Sure. We'll start with Mads, since we're down this alley just a minute ago.

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

Yes, well, to be honest, Michael, very difficult for me to speculate on. I would say though that there is the notion that if GLP-1 do each in their own right have the ability to promote some degree of nausea by mechanisms that seem to be not totally overlapping, i.e., 1 plus 1 might equal 2, at least that's what we've seen. We also saw that in the MAR709 trial. So in order to go to a low single-digit discontinuation rate with such a high degree of efficacy, you'd have to have a very, very subtle escalation, dose escalation over many, many months, I would suggest. But I don't really have any comments. There, you should trust the Lilly colleagues in their predictions, I guess.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mads. And Mike, can you shed a bit of light on insulin performance in Q3?

[Maziar Mike Doustdar, Executive VP & Head of International Operations]

Yes. I think the quick answer is that we see, across the board, no major change at all. In International Operation, a good part of the insulin is still composed of human insulin. And tendering versus last year, tendering versus quarter-to-quarter, of course, creates the fluctuations you see in Q3. But if you take a look at some of our key brand, Tresiba, Xultophy, Fiasp, Ryzodeg, they're all doing fantastically well also in Q3. So no issues whatsoever.

[Lars Fruergaard Jørgensen, President & CEO]

Good. Thank you. That's encouraging. Thank you, Michael.

[Operator]

We will now take our next question from Kaoru Parekh from Goldman Sachs.

[Keyur Parekh, Equity Analyst]

Two, please. The first one is, can you just shed your thoughts on how the recent guideline changes from both the ADA and the EASD kind of shape your outlook for the GLP-1 business, especially as it relates to the non-U.S. markets? And then secondly, one for Camilla. Camilla, as you think about kind of the strategic positioning for oral semaglutide, can you help us think about how the Lilly data changes where you think oral semaglutide might play longer term?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Keyur. Mads, first on the guidelines.

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

Yes. I think, Keyur, that now with the adoption of the final guidelines, we're actually seeing 2 very prominent drug classes right up there in the pole position after metformin, of course. And that is obviously the GLP-1 agonist and it's also the SGLT-2 inhibitors. In terms of atherosclerosis and CVD in general, they single out GLP-1 and SGLT-2, with an emphasis on GLP-1 for atherosclerotic cardiovascular disease. And there, the rank order is actually Victoza above Ozempic above BYDUREON and no others mentioned. And that's just based on the burden of evidence and how robust the data. That's good news for both of our GLP-1 agonists. And as you know, ex U.S., we already have all the wonderful SUSTAIN 6 data in the label before Ozempic. So that can be adopted by the colleagues in business area right away. On the downside, there was a downgrade on the renal indication where, I guess, because of credence and other excellent kidney data coming out of the SGLT-2 class, now there is kind of a favoring of SGLT-2 in renally impaired patients and then followed by GLP-1. But in patients that actually have inadequate renal function, I guess below 45 or so, then they actually have GLP-1 in the pole position. And that would again be the novel compounds because they're the ones that have data. And finally, I think for weight concerns, they explicitly mentioned again GLP-1 and alternatively SGLT-2. And there, they actually rank order Ozempic above Victoza above Trulicity. So I think, overall, this is really good news for patients, and it's also really good news for the Novo Nordisk GLP-1 portfolio.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mads. Camilla, does the latest data from Lilly have any impact on how you see oral sema?

[Camilla Sylvest]

Yes. So oral semaglutide, it has the potential to be positioned as the best OAD in the market. And we have read out 8 of the 10 PIONEER trials now that have shown very consistent data. So we need to remember that 55% of patients in the diabetes market are treated by tablets. And this is, of course, also a potential for oral semaglutide to move into this particular space. So whereas just around 6% are treated on injectable GLP-1. So there is a big potential for oral sema outside the injectable space as well.

[Lars Fruergaard Jørgensen, President & CEO]

Good. Thank you, Camilla. Thank you, Keyer.

[Operator]

We will now take our next question from Wimal Kapadia from Bernstein.

[Wimal Kapadia, Research Analyst]

Wimal Kapadia from Bernstein. I just had a question on obesity. So I guess, Mads, what did you see in the original PYY product that gave you confidence in moving another into the clinic? So any color there will be helpful. And then when will we see more data from the early-stage pipeline, so in particular, the amylin analogue, the tri-agonist and even the dual GLP-1, glucagon agonist. And then my second question is just tied to an earlier comment around innovation in the GLP-1 market and expansion. The class today has about close to 5% of the volumes in the U.S. I guess, I'm just curious to see, does Novo see a limit to the penetration of the class longer term?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you. Mads, on obesity.

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

Yes. So on PYY, there's this interesting notion that as a stand-alone therapy, unlike amylin, amylin 833 has shown weight reductions up to 1% per week for a total of 7 weeks, meaning 7% weight loss in 7 weeks in human beings, which is relatively amazing. But if you look at PYY, this is not the case. PYY seems to be a little bit like GIP does in the context of type 2 diabetes where GIP only works in the presence of GLP-1. Pretty much the same may well be the case for PYY in the case of weight loss, that the mechanism of action probably at the level of the arcuate nucleus between PYY and GLP-1. And that's why we need to optimize the PYY for penetration into the hypothalamus, and then there is a good chance of really exciting weight-loss profiles in humans, at least if they are to behave as the ones we tested. In terms of when we get data from the early portfolio, this is the last meeting we're having this year because we're in Q3. So I guess, my answer would be next year.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mads. And in terms of how far the GLP-1 class can make it, it's not something we have, say, a set view on. What is clear, when you look at the profile of the GLP-1s, what they do to patients, that it is a very attractive treatment to be on. We see strong growth currently. So for the short term, we believe this dynamics will continue. But we'll not give you an answer for how big it will eventually be. Time will tell. With that, we have time for one last question. Thank you, Wimal.

[Operator]

We will now take our next question from Carsten Madsen from SEB.

[Carsten Lønborg Madsen, Research Analyst]

This is Carsten Madsen, SEB. Two questions. First of all, regarding the doughnut hole funding gap. On the Celgene's recent conference call, they also asked about this, and they kind of left an impression that there's still something to be worked out here, basically saying that this is something that could change as we end the year before final legislation is actually passed. I was just wondering whether you have also sensed a change since Q2 comes on the doughnut hole funding gap and whether you think it's set in stone what should happen in '19 or not. And then final, final question, Victoza in Q3 in China, you delivered 190% local currency growth. How much of this is sort of changes in the channel? And how much is underlying demand for Victoza?

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Carsten. You're right, that the way the whole increase funding of the coverage gap came in kind of overnight, hitting in a big national appeal, came as a surprise. So a lot of strong effort is being done in the U.S. to reverse it partly. I know -- and of course, the industry is participating in these discussions, and a lot of good thoughts are going into it. I think it's -- in today's environment, I think it's quite challenging to roll back something that has already been implemented on the account of supporting the drug industry. And if you were to do it, you would need to have -- need to find the money somewhere else and probably from other -- another pharmaceutical category or your -- and I just think it's -- I think it's low likelihood that we'll see this being reversed. It doesn't mean that we're giving up and we should keep pushing forward. Because I think the way it was implemented overnight and the specific impact I think is probably not the right way to manage cost. And the patients are not benefiting from this, and I think that was your aim. So think of better ways to lower drug costs for Americans than what was put in place here. But I'm not overly optimistic that this will be reversed. Mike, on Q3, Victoza in China?

[Maziar Mike Doustdar, Executive VP & Head of International Operations]

Yes. So we are very happy with the Chinese Victoza performance throughout the year. You should probably not get too hooked on the quarterly numbers again so much. If you take a look at the first 9 months, the growth has been 89% and spot on to our own projections and expectations. And that's what you should basically accept. I think the opportunity is high. You should note that the GLP-1 market in China is relatively small compared to the rest of the world. So we have a lot of opportunity, and we have -- we organized ourselves and made some large investments also in terms of sales force, so we do have high expectations. And so far, the first 9 months has lived up to that.

[Lars Fruergaard Jørgensen, President & CEO]

Thank you, Mike. Thank you, Carsten. This concludes our conference call. Thank you for participating and feel free to contact our Investor Relations Officers to ask any follow-up questions you might have. Thank you, and have a good day.

[Operator]

This concludes today's call. You may now disconnect.