諾和諾德 (NVO) 2017 Q1 法說會逐字稿

Good afternoon, and thank you all for joining us.

My name is Keyur Parekh and I cover Novo for Goldman Sachs.

It's a pleasure to have the management team from Novo here post Q1.

I'm not going to waste a lot of time.

So, Jesper, straight over to you for making opening remarks and then we can go to Q&A from there.

Yes, so basically on the road with our first quarter results, and a good first quarter, probably better than what we anticipated, but partly marked by some one-time effects that makes it look probably slightly better than the underlying trend.

What we are going to go through here is basically highlights and key events -- I'll handle that and I will do a few comments on sales and hand over to Christian, our Head of the Global Marketing, who will review the performance of our brand.

Mads will give an update on R&D and our Head of Corporate Finance, Karsten Munk Knudsen, will cover financials and outlook.

Of course making predictions about the future is inherently difficult, including making predictions about what happens to U.S. healthcare politics, which is changing by the day.

So do read this with some caution to note the difficulty inherent in making predictions about future.

The first 3 months of the year came out quite positively.

Do bear in mind that the first quarter is marked also by significant currency tailwind.

The full year is expected to have modest currency tailwind and the prime part of that currency tailwind we have actually realized in this first quarter, if currencies stay where they are.

So sales realized at 5% growth, 3% local currency and driven by North America, with a 5% growth in Danish kroner, but 2% in local currencies, and a third of growth coming from there.

International operations growing 4% and 2/3s of growth.

On individual regions, key driver Europe for the first time in quite a while, growing 4% Danish kroner, 6% in local currencies, reflecting an impact from the lowering of the British pound with the Brexit.

In terms of key drivers from a product perspective, Tresiba really now being a major component of the growth and also positive in the first quarter.

Now, we're seeing Tresiba in terms of gross margin being a positive contributor to overall gross margin as we have now ramped the volumes up on Tresiba and now constitute 5% of total sales.

In terms of the R&D front, just before we released our quarterly announcement, the EU approval taken for the label update on Tresiba from the SWITCH trial.

We have end of March resubmitted the drug application for Fiasp, fast-acting insulin aspart, and we remain assured that we have cleared the challenges raised in the complete response letter from the FDA, and that hopefully should lead to a 6 month review time and hence approval by the end of third quarter in the U.S.

And then, finally, from the CHMP -- and actually at the same meeting as where the SWITCH trial was discussed at the CHMP level, we got positive opinion from Refixia, our long-acting factor IX for hemophilia B.

Operating profit, clear leverage between the strong growth in the sales compared to expectations and hence a 6% growth on - 3% local currency growth and 10% reported in Danish kroner on operating profit growth.

Also, showing that the cost initiatives that we took in the second half of last year, including dismissal of approximately 1,000 people, is now solidly working.

And if you look on the individual cost items, the major cost items actually gradually or slightly declining measured in local currencies.

Diluted earnings per share increased by 9%.

For the guidance, we basically narrowed the guidance for reported sales growth to basically reflect a higher certainty of where the outcome is going to be given that we only now have 8 months to go compared to 11 months when we gave the guidance back in February.

So now the expectation is 1% to 4% based on a now 1% positive currency impact compared to previously 2%.

As for operating profit, the lower end of the range was taken out, reflecting a high level of other operating income from royalties, but also a slightly favorable situation for our overall cost structure, leaving us with a 4% range for operating profit and a 3% range for sales growth.

We have change in the executive management.

Lars Fruergaard Jorgensen is taking over with effect from 1st of January.

And the executive team is now a full team listed below, constituting of me and Mads, as you could say old-timers.

I'm responsible for Finance, Legal and Investor Relations.

Mads' still running research and development.

Henrik Wulff responsible for Product Supply.

As of 1st of March, our former Head of Market Access in the U.S. has been promoted President of North American Operations.

Doug Langa, replacing Jakob Riis, who left Novo Nordisk 1st of March.

Mike Doustdar is handling International Operations.

So everything that's not North America, under the auspices of Mike Doustdar based in Zurich.

I should mention that Doug is based in North America of course.

And then, finally, Lars Green will join Executive Management 1st of July.

Up until July, he is the Finance Director for our North American Operation as he's been for the last 3 years.

So with this, we have a full management team to oversee the progress of Novo Nordisk.

If we look to the sales growth in the first quarter, really in terms of the distribution, half of our sales is coming from North America.

Region Europe growing solidly, reported 4% and 6% in local currencies.

And as you can see to the right, the growth distribution, the prime part of growth is really coming from Europe, U.S. and Region China.

Comments to the individual markets, as for U.S., U.S. growth has been impacted by some one-offs.

Karsten will allude a bit more to those one-offs.

As for Europe, also approximately 2% one-off element in the Q1 growth.

It's a while ago since we've seen Europe growing 6%.

Region China, 8% growth.

I think it also worthwhile commenting that we are seeing a higher growth level of the insulin market in China.

It's now rebounded to a growth level in volume terms of about 10%.

We're seeing a real positive development in our [O&M] for market shares in China, really coming from a solid penetration of our modern insulins in China.

As for Japan and Korea, 5% growth.

There is also an element of shifting between quarters in Japan and Korea on growth hormone.

If you adjust for that, underlying growth is about 1%.

Region AAMEO and also Region Latin America will normally be growth contributor.

Here, it is timing of tenders for these two markets that are really affecting them.

Otherwise, we would be looking at high-single digit to 10% growth from those two markets.

So with those comments, I'll hand over to Christian for comments by product.

Excellent.

Thank you, Jesper.

If we look at it in terms of products, what is it that's driving growth is new generation insulin and it's Victoza that's driving growth.

In a total view, then diabetes and obesity care is growing by 11%.

We have our biopharmaceuticals business being down by 25% when we look at it in local currencies.

And if we start with the biopharmaceutical segment, then of course it's because of two elements.

One is the Vagifem generic competition in the U.S., which is impacting our [HFC] sales.

And then it's due to the AMP or 5i ruling, which we had impacting us positively within the growth hormone business in the Q1 '16.

So that's due to a tough comparison and of course due to the impact from generic competition.

Within the diabetes care business, 163% growth in new-generation insulin, and as Jesper said, we are seeing Tresiba adding very meaningful to our growth now.

Modern insulin, still growing, even though we are seeing the conversion from modern insulin to new-generation insulin, growing by 2%.

Victoza, growing a healthy 22% for the first quarter.

And finally, within obesity care, Saxenda growing 110% and having a 34% share of the total growth.

So the strategic product and new-generation insulin, Victoza, driving growth.

If we look at the individual brands, if we start off by looking at Tresiba, now we have launched Tresiba in 56 countries across the world and it is very encouraging to see that we continue to see a solid uptake of Tresiba in the markets where we have access on par with large earnings.

A few examples here are Netherlands and Denmark, where we sometime ago got improved reimbursement and we went from seeing very limited share to now having 20% and 25% of the market.

Japan, one of the earliest launch markets, we are now at 40% of the total basal market.

There's also a number of markets where we are rolling out either Xultophy or Ryzodeg on top of Tresiba.

And what we typically see in those markets is we see share of Tresiba tending to stabilize, but on the other hand, total share of the combined day-to-day portfolio, meaning Tresiba and Xultophy, increasing significantly, here exemplified on the right hand side by Switzerland, Sweden and Greece, where we see a strong increase in total share of the full insulin day-to-day care portfolio.

We have now launched Xultophy in 14 markets.

We are launching in the U.S. in this week.

We have launched Ryzodeg in 10 markets and several more markets will come in this year.

If we then turn to the U.S. market, the basal segment in the U.S. market, then we are seeing a lot of dynamics with formulary changes in the first part of this year.

We had the CVS contracting changed at the start of the year, where we did see a significant increase of share both for Tresiba and for Levemir, which now means that we have 31% of the total basal segment.

Tresiba commands 7% and our NBRx share for Tresiba is around 12%.

So a uptake in Tresiba, in line with our plans, which we still expect a [exit] share for Tresiba at the end of the year of around 10%, as we have guided earlier.

Turning to the GLP-1 market, then we continue to see a solid growth of the GLP-1 market.

We're also seeing that Victoza share is under pressure due to competitive products.

But what is encouraging, if we look at the middle here, is to see a continued and steady increase in the TRx share.

The last data point, that is due to contracting change, but we do see an underlying steady increase in the number of TRxs for Victoza in the U.S. market.

Finally, I would like just to touch upon obesity, which is a very exciting opportunity for Novo Nordisk.

If we look at it, 600 million people globally are obese, less than 2% of them are treated with an anti-obesity medication.

What we have seen with Saxenda, we launched in early '15, in the U.S. April 2015.

We have subsequently launched in 17 more markets and now are in 18 markets in total.

We are seeing a very solid uptake across all of these different markets.

We also have semaglutide in Phase 2 development for obesity, where we expect data from this trial later on this year.

What we are focusing at within obesity, that is building the market for the long-term; thus, by focusing on HCP education, ensuring that HCPs across the world understand what does it mean to treat obesity as a chronic disease.

It's also driving patient engagement via our Patient Assistance Program and then finally ensuring that we work on improving market access to Saxenda across the different parts of the world.

And with that, Mads Krogsgaard.

Thank you, Christian.

What I'll do is just slightly unusually start with the biopharmaceuticals business, talking about Refixia, our recombinant factor IX product for hemophilia B. As you are aware, we have factor VII, factor VIII, factor XIII products in the marketplace, but this is indeed our first entry into the hemophilia B space.

And Jesper already mentioned that the CHMP has issued a positive opinion, for which reason we are waiting EMA approvals or EU Commission approval in the very near future.

Also, we actually were invited for a ASCOM meeting with the Blood Products division in the United States and had a really good discussion surrounding, as usual, the safety aspects -- that's typically what these panels are for in most cases -- surrounding the safety aspects of in particular the PEG part of N9-GP.

And we feel that went well and there were very many positive comments from the hemophilia professors surrounding how they felt this product would add value to their community.

And to that end, you can actually see on this graph here, we've compared from the pre-meeting briefing book curves, showing ALPROLIX at the bottom, IDELVION in the middle and exposure for N9-GP at the top.

And compared to ALPROLIX, you can see that not only do we have a longer half life, we also have a higher recovery upon immediate intravenous infusion giving a significantly greater exposure such that we actually have above the hemophilia levels defined as above 40% of the natural factor IX concentration in the blood almost throughout the dosing interval, which is once a week.

And even compared to IDELVION, which is the red one in between, you can see that albeit the half life is similar, we have a higher recovery upon IV infusion, giving again this nicer exposure throughout the dosing interval.

So we are eagerly looking forward to approval in Europe and hopefully also approval in the United States over the next months to come.

Now, other things have actually happened quite a lot in the first quarter.

In particular, Jesper mentioned that the EU Commission has now approved the label update so that all the really good and significant both severe and nocturnal hypoglycemia and overall hypoglycemia data are now mentioned specifically in the European label.

But we also have resubmitted recently the fast-acting aspart into the United States, awaiting a 6 month hopeful approval time.

Very importantly, the last of the trial markets being Japan has now been the subject of an NDA submission for once-weekly semaglutide, where you may recall that in one of the two Japanese trials the end of trial A1c for the first time in the history of diabetes actually went below 6%, ending with a average A1c of 5.96% to be specific.

Now, if we look into obesity, the first tri-agonist molecule -- and by tri-agonist, I mean a molecule that stimulates at the same time three receptors: one being GLP-1; the other being glucagon-enhancing energy expenditure; and the last one being GIP, which is also a incretin hormone and actually acts as a incretin hormone sensitizer one might argue.

So this has entered Phase 1 as a first-in-class agent along the lines that Christian was talking about, building up the obesity portfolio.

Saxenda has gotten a FDA label update, including some nice 3-year data showing that at least half of the patients who are undergoing a full 3-year treatment period with this molecule having achieved the target of greater than 5% weight loss actually are able to maintain that throughout the 3-year study period.

In terms of biopharmaceuticals, we've now also started a Phase 3 program for adults for growth hormone deficiency in Japan.

And basically that is important because we know Japan has always been a very interesting growth hormone market.

The second of our subcutaneous preparations for hemophilia management following Concizumab that is poised to enter Phase 2 trials very soon is actually subcutaneous N8-GP because we have shown in animal studies that this particular version of the factor VIII molecule lends itself well to a high bioavailability upon subcutaneous administration typically given in a pen such as the NovoPen.

Now finally, on this slide you can see that quite a few things have happened throughout the first quarter.

We are awaiting eagerly the submission of the really important DEVOTE data both in U.S. and Europe very, very soon to come.

And I've mentioned that we are awaiting N9-GP action in the territories.

In the second half of this year, it will be very interesting to see on the clinical side two sets of data: one being the head-on comparisons between semaglutide once-weekly and Trulicity once-weekly.

We're exciting to see those results, where we are optimistic on behalf of semaglutide.

And also sema for obesity is in a big Phase 2 proof-of-concept trial with multiple doses exploring the whole dose range in up to 1,000 patients coming in late this summer.

Apart from that, it's going to be governed by a lot of regulatory excitement surrounding the cardiovascular indication and label upgrade for LEADER both in U.S. and Europe.

The U.S. label upgrade for SWITCH, as you are aware today, we have absolutely no hyperglycemia data in the label.

So in particular the FDA label upgrade for hyperglycemia claims or data on SWITCH is very important.

And then last but certainly not least, in December we are hoping to get a on-time approval of semaglutide, our once-weekly GLP-1.

With that, actually over to you, Karsten, for an update on the financial.

Thank you, Mads.

So going through the P&L, as Jesper and Christian covered, then a global sales growth of 5% in reported terms, which corresponds to 3% in local currencies for the first quarter, yielding a gross profit improvement of 5%, covering an improvement of 70 basis points in our gross margin, which is predominantly driven by currencies.

So if you take out currencies from our gross margin improvement, then we have a 10 basis points deterioration.

This covers two offsetting factors, namely that we have a positive contribution from product mix between sales from Victoza, which is one of our highest gross margin products, growing 22% in local currencies in the first quarter, and then as Jesper alluded to, Tresiba now yielding an above-average gross margin and hence contributing positively with the growth in Tresiba sales to the gross margin.

This is being offset by the 5i rebate adjustment we had in the first quarter of last year to the tune of 20 basis points and then the price pressure we're seeing in the U.S. marketplace.

So net-net a underlying 10 basis points deterioration of the gross margin.

S&D cost up 1%, or down 1% in underlying terms, driven by the fact that we launched Tresiba in the U.S. marketplace Q1 of last year and hence had higher spend in that quarter, which we do not have in the first quarter this year.

And then on top of that, we have had our cost management program initiating in the fall of 2016.

And hence we're entering 2017 with a lower number of -- or unchanged number of FTEs and a lower number of FTEs -- unchanged number of FTEs compared to the first quarter of last year.

R&D, flat or down 1% compared to first quarter of last year.

We see our development portfolio progressing, as Mads just covered.

The key cost driver on our development portfolio is our oral semaglutide program with the 10 PIONEER trials we have ongoing there.

This is being offset by our research portfolio, where we closed down a number of projects in the fall of last year.

So net-net down 1% in same currencies.

Then I'll skip admin costs.

Slightly better on other operating income, some slightly higher royalty payments than what we anticipated, yielding an operating profit growth of 10% or 6% in local currencies.

Then tax rate, not too much to mention.

As you know, we are booking our effective tax rate for the quarter towards our anticipation for full year effective tax rate.

So this is in line with the guidance we already set out previously, yielding a net profit improvement of 7%.

And then with the share buyback program, reducing the number of shares by 2%, we have a diluted earnings per share increase of 9%.

Then as I covered before, our cost management program, here you'll see on the right-hand side that in terms of number of FTEs we do have a reduction compared to Q3 of last year of roughly 1,000 employees and hence flat compared to 12 months ago.

So we have tight management of our FTEs.

That doesn't mean that we are not increasing in places where we see a solid return.

So when we look at sales reps, we have seen a reduction in the U.S. in non-profitable channel, but we do have sales force increases in a number of countries in international operations.

So net-net in terms of our commercial presence and sales reps, it's broadly unchanged compared to last year.

Looking at the cost lines, I think I covered most in my prior comments, so I'll skip that on the left-hand side, just saying that in terms of cost management in the first quarter, then net-net across the different cost lines, our costs are flat compared to first quarter of last year.

Then currencies and the tailwind we've been getting in the first quarter of this year, you will see from this slide on our main currencies, then the U.S. dollar is the main driver behind the positive currency contribution on our results.

So the U.S. dollar in the first quarter of this year against the Danish kroner is up roughly 3% compared to the first quarter of last year, being the main positive contributor.

Then on international operations, then historically we've seen some challenges on some currencies, the Venezuelan bolivar or by the Argentinean peso.

We don't see that in the first quarter of this year.

So net-net in international operations, we have a 0 currency impact on our results for the first quarter.

That brings us to our financial outlook for the year.

Sales growth, we have narrowed the range to 0% to 3%.

But it's important to note that the midpoint remains unchanged.

So we are still executing against the plans that we set out in connection with the full year and we're basically confirming that we're executing according to those.

With time progressing, as Jesper alluded to, then uncertainty has been going down and that has enabled us to narrow our guidance range.

Currency impact, slightly less favorable compared to full year, so now we are looking at a 1 percentage point improvement from currencies for the full year.

Operating profit, there in connection with the slightly improved royalty payments we've seen in other operating income and our cost management, we have been able to eliminate the lower part of our guidance range, so now the range is from minus 1% to plus 3%.

Same comment applies in terms of currency impact.

And then you see the reduced positive currency impact we get on our above the line numbers.

We get a lower hedging loss on our financial net items from DKK 2.4 billion to now DKK 1.8 billion.

So net-net that is balancing the lower impact on our operating profit numbers in reported terms.

And then, finally, we're confirming effective tax rate, our CapEx program, depreciations and free cash flow.

So no changes there compared to what you saw in connection with the full year.

With that, I will hand over to Jesper for concluding remarks.

Thanks, Karsten.

And just a short remark here, just reminding you that Novo Nordisk is the leader in diabetes care with 27% global market share based on a solid growth of insulin, 4% global volume growth, 46% volume market share, more than 20% growth in the GLP-1 segment and the 58% volume market share within GLP-1s.

But also -- and I think maybe not an item that gets too much attention in the market, a gradual rollout of Saxenda, leaving us with a significant value opportunity.

And I think quite positively that the Saxenda product is proving to have opportunities outside the North American market.

And we remain very confident about our obesity franchise and it's an area you will see us continuously invest in, in expanding the market, the understanding of the drivers of the opportunities, but also investing in our clinical and research pipeline in terms of obesity.

And with that, we will move on to Q&A.

And, Keyur, you'll kick off.

We'll need a microphone.

You probably need to state your name.

Keyur Parekh, Goldman Sachs.

And I'll let Peter ask his customary access question for 2018, but I'll focus on the two separate issues.

One, Jesper, you guys sound a lot more confident about the obesity opportunities than you historically have.

Is that reading too much into it?

Can you just talk about how you see that market developing?

And then secondly on China and Victoza kind of on the cusp of potentially being on the reimbursement list, just help us think about that opportunity.

And then, Mads, from your perspective what's going to be the big highlight at ADA?

What do you think we will learn new?

What will change our perceptions from ADA?

Thanks, Keyur.

First, on obesity, I think it's apparent to us in our annual strategy update that we will present to our board of directors here in June that you will see us place a significant more emphasis on the opportunity within obesity.

And it's really coming from realizing steady growth in the markets we go into and we are realizing steady growth both in markets where we have reimbursement and in markets where it's privately paid.

We're also seeing that patients are staying on products in a reasonable period, so it's not very volatile sales, it's relatively stable.

I think some of the flexibility we have achieved in our cost structure by the cost initiatives we've taken over the last 9 months, we would utilize that in investing in building understanding of the opportunities for medical treatment of obesity.

And I think [Kasper] can -- no, sorry, Christian can probably comment a little bit on that.

And then, Christian, if you also want to comment on the opportunity of getting reimbursement in China.

You were our former President of China and expert there.

I mean, if we look at first of all the opportunity we have at hand in China now, is -- I mean, a number of drugs have been selected for a negotiation list and we have two products.

We have Victoza and NovoSeven on that.

And that offers a lot of opportunities.

Of course nothing is certain, this is China.

I spent a number of years there and I know that even though you are on a list, then it's not to say where you are negotiating and it's not the same as an outcome.

But it's a huge opportunity for us in terms of GLP-1, but also for our hemophilia business if we get a extended reimbursement for NovoSeven.

We have so far a reimbursement in one province in China.

And, Christian, a comment on obesity awareness and investments in the last 8 months of the year.

Yes.

I think to build a little bit upon what Jesper is saying, also our confidence - I mean, 2 years ago I think everybody was seeing this as a U.S. opportunity.

Now it's clear to us that this is a global opportunity.

The feedback we have from the market where we have launched also outside U.S. is very good.

And we should remember that the unmet needs is not only in the U.S., but it's across the world.

There are several countries with significantly higher prevalence of obesity than in the U.S.

But of course it's also clear that there is no existing market today for pharmacological treatment of obesity, so this is a long-term investment.

This is about educating the physicians about how do you actually treat obesity, how do you even initiate the dialogue with the patients around obesity.

And here we have a number of programs in place, both for engaging with the physician, but also for engaging with the patients.

And then of course we need to work with policy makers across the world in having obesity recognized as a chronic disease.

And there we are seeing a number of markets where there is a growing understanding of this being a chronic disease where we need to treat it like that.

So it's something which is going to take a long time.

It is something which is going to require a lot of investments in market development.

Yet on the other hand, we are well positioned in Saxenda today.

We have semaglutide coming with Phase 2 data later on this year.

And then Mads has been building an exciting early-stage portfolio of obesity compounds.

So there's a lot of commitment and excitement around this, but it is going to be a long-term investment.

And, Mads, highlights at ADA?

Yes.

Well, of course we'll have to see at the ADA, but the things that you can see from the preliminary program that has been announced is that on the clinical side there are at least two major trials reporting.

One of them being the second SGLT2 inhibitor trial to report cardiovascular outcome data, of course that's always interesting.

But to me, I have to say that coming from where I do, but also in reality I believe the highlight will actually be the world's first ever blinded outcome study in the (inaudible), namely DEVOTE.

And why do I mention that, because isn't it just insulin?

No, it's not.

What you're going to see at the DEVOTE symposium is over and above just insulin.

It is starting to understand this whole conundrum that the interplay between insulin fluctuations, glucose variability, cardiovascular outcomes, all these maladies that somehow have been speculated upon for decades and decades among clinical investigators is now starting to be understood with the aid of this mega trial.

So I would strongly advocate that those of you who are in the San Diego area of the world show up on Monday afternoon.

At least I'll be there on the first row.

I think it will be an exciting ADA.

I think we've had years and years of disappointment, years where all the trials either did nothing good or only did bad.

Now we are into an era where the treatment paradigm within diabetes as such is being redefined by products such as semaglutide, such as liraglutide in particular dosing and so on.

But I think it's really exciting to attend the conferences nowadays.

That's as far as I'll go.

That was not the biggest surprise to me.

Next question, Michael?

It's Michael Leuchten from UBS.

Two questions please.

One, there was quite a bit of discussion yesterday on the Tresiba prescription trends in the U.S. after the UnitedHealth exclusion that's kicked in.

You've mentioned your NBRx share in your opening remark.

Could you talk about the changes you see in NBRx versus TRx weeklies and what that may mean?

You've obviously stated your confidence in the 10% market share.

And then the second question on R&D.

Could you talk a little bit about how you've gone about pruning the early part of the portfolio towards the latter end of -- or towards the end of last year?

How those decisions were taken and why?

If I first comment on the Tresiba and then, Christian, if you want to add, you're welcome.

And then, Mads, you will talk about the pruning of the research portfolio.

In terms of the trends for Tresiba, of course it is pretty difficult to read anything conclusive out of NBRx trends whenever you have changes in formulary as these kind of tend to overstate the movements.

However, what we can see when we approach the CVS conversion is that we are back at the level of capturing 12% to 13% of new patients.

We are not largely impacted on Tresiba from the UnitedHealthcare conversion as that is mainly a conversion between Lantus and Basaglar with a slight spillover to Levemir.

What we're seeing now is a trend that make us confident in our ability to reach the 10% which we set out as our objective as the ending market share for the year, but it's not an NBRx level that enables an acceleration of that level.

And that's not fully satisfying for Novo Nordisk.

So we're continuing to work hard on that, including slight changes to the focus of the sales force remuneration, et cetera.

And that's what we're implementing as we speak.

I don't know, Christian, if you want to add to that or --.

I can just say -- I mean, of course I understand when you -- if you look at the NBRx trend, which seems to be coming down, then that gives rise to a little bit of concern.

But we need to remember that it was heavily impacted by the CVS conversion in the first quarter.

And if you look at the total amount of NBRx's, then it is at a significantly higher level than normal.

Typically, you will see NBRx's coming up in January when you have the formulary changes, but it has remained high and now is of course distorted by UnitedHealth as well, which is not going to impact Tresiba.

But I mean we are out there now with SWITCH and we are hoping to -- or we are expecting to get of course the formal SWITCH label update later on this year.

And you can say, for the rest of this year, this is going to be about execution in field and fighting for the scripts.

And we have -- as Jesper said, we have the right IT structure in place now.

And we have shifted slightly the promotional focus from U200 to U100 and are seeing an increasing share of U100 along the scripts.

So I mean we're confident about the 10%, but also a lot of dynamics going on in the market with all the formulary changes, which makes it difficult to look at, for instance, what is the impact of the SWITCH data that we are talking about now.

We can see that 2/3s of all physicians, they recall the SWITCH data and we get a lot of positive feedback.

But does that translate into NBRx's?

That we need to see when things settle down somewhat.

Mads?

Yes, so what we did last year was a real exercise of looking into the various elements of managing and balancing and pruning an R&D portfolio.

So to give you just a few examples.

If you look at diabetes, we looked at efficacy of either new mechanisms or follow-on generations to existing mechanisms, we looked at convenience and we put it all into the context of cost.

So if we look at something like GLP-1, with a realization that the SUSTAIN program has proven what it has and that the PIONEER program is poised, I do believe to do the same in the oral space.

We, for instance, did not find it relevant to continue a once-monthly program.

We simply don't see a market for once-monthly GLP-1 when we have once-daily tablets and one-weekly injections.

That's one example.

Another -- and the same example can be used for growth hormones, where we had a once-monthly, we don't see the true unmet need for it to be quite honest.

When we look at things like oral, you can say oral insulin based on the basal pricing evolution in the U.S. and the success of oral GLP-1, oral semaglutide, we did not see a commercially viable place for insulin.

It's going to be presented at ADA as one of the hot topics and elected by the president and whatnot.

So it's good, good signs, but it's not commercially deemed viable by management in general and our R&D management in particular.

If we then look at other oral things like oral GLP-1, well, we actually do let some projects survive if they lent hope to the fact that we can dose up and get, for instance, obesity products available through the oral book.

So those kinds of things clearly should survive.

If we then move into, for instance, co-agonists, like we have tri-agonists, we have two co-agonists and we have fixed ratio formulation.

So when we have so many approaches to stimulating both the GLP-1 receptor and, let's say, the glucagon receptor, we simply have to prune and say: "We don't need three different co-agonists plus seven different fixed formulation ratios plus a triple-agonist." So we let some of them go, put them on the shelf and are ready to resurrect them if there might be a need one day because the ratio was wrong in the one we elected, for instance.

If you look at hemophilia, we were impacted by the notion that ACE910 is setting a new standard.

So we basically believe that all the intravenous projects were put on the shelf -- and we have quite a few of those.

So that's why what you are seeing right now, we're developing is consistent with the pan-hemophilia agent for subcutaneous administration.

It's subcutaneous N8-GP.

And only the ones that are in the regulatory process or about to be submitted, such as the N9-GP and N8-GP, are allowed to survive as intravenous because we do believe the world's going to move toward bypassing agents in particular and subcutaneous ones specifically.

So those were examples.

So I probably have to ask the questioners to give us a little bit less open-ended question because it tends to be rather long answers.

Sachin, you're next.

I'm Sachin Jain, Bank of America.

Mads, you touched on SUSTAIN 7. I'm wondering if you can just give us a talk about in a little bit more detail what delta is needed for superiority, for Sema versus Trulicity, and just the commercial importance.

If that study is a must-have study or is it a nice to have given the timing versus the approval at the end of the year?

And then probably -- yes, we talked about the Xultophy sort of re-launch or launch in the second quarter.

Could you just talk a little bit more about commercial positioning?

I think we've all been at ADAs and the physician feedback on this asset has been very strong.

Some of that isn't reflected in the label and you're at a very different price point to SOLIQUA.

Maybe just touch on how you plan to position versus your existing portfolio and more importantly versus the competitors?

Okay, first, Mads, on SUSTAIN 7 trial and the positioning of that trial.

Well, SUSTAIN 7 is a relatively big trial.

In many ways you could say it's just another Phase 3b trial.

That being said, we expect to have in the packet insert ND SmPC.

Very strong data up against Bydureon, Lantus, Januvia and so on.

But we all have to admit that Trulicity is the first very, very competitive once-weekly GLP-1 agonist.

So almost by inference, this is a very important trial.

And the way it's done is in a way -- two trials in one trial, because we are going head to head 1 mg versus 1.5.

We're going head to head 0.5 mg versus 0.75 sema versus dula.

That means that the statistical independence between those analysis and the statistical hierarchy is made in such a way where we start of course by showing we're noninferior, that we always do, and then we move on to document superiority first on weight and then on hemoglobin A1c.

And when I do my own little mental analysis of the AWARD program conducted by our friends at Eli Lilly and the SUSTAIN program conducted by our own friends back in Denmark, I would expect that we are able to show what may be all the way up to doubling in the weight loss clearly statistically powerful (inaudible) significant.

In terms of hemoglobin A1c, everything remains less certain.

As those of you that are old-timers will recall DURATION-6 compared in the Eli Lilly context Bydureon up against Victoza and was powerful superiority.

And there was superiority, but it was the wrong way around.

It was actually Victoza that ended up being 0.22% superior to Bydureon and that was statistically significant.

That was a bigger trial with only two dose arms.

Here it's a trial of the same size, actually bigger, but there are four dose arms.

So you will probably be in the vicinity of 0.3% hemoglobin A1c difference to see the powering for a significance.

That's both clinically relevant, and based on what I see from meta-analysis of the AWARD and the SUSTAIN programs, should also be achievable.

But that's a statistical forward-looking statement.

So let's let the summer time come and we will keep you informed.

I actually said 0.3%.

But you know, Sachin, it's different from regulator to regulator what they consider.

What I said was in the DURATION-6 study, the difference between Bydureon and Victoza was 0.22%.

Yet the perception in the market has been that Victoza is superior.

And of course it is, albeit the number is 0.2%.

All right.

And then in terms of Xultophy, first on U.S., just launched here early May, priced at a 20% discount to the sum of the parts.

And also noting that SOLIQUA, which you also referred to, is priced at approximately 30% discount to our Xultophy price.

If you look to the price you pay per percentage point of HbA1c reduction, the cost in the U.S. at list price is about $18 per percentage point of HbA1c reduction for SOLIQUA.

Whereas, the drop for Xultophy -- or the price for Xultophy is $15 daily per HbA1c drop.

So there is I think a competitive pricing for Xultophy and discount offered compared to sum of the parts.

In terms of Europe, launched in more than 10 countries, very solid results.

If we look to where we are getting patients from on Xultophy, it is approximately 2/3s actually coming from an insulin background.

So it is intensification of insulin-treated patients.

Still it provides a value opportunity for Novo Nordisk for the intensification.

With that, we'll take the next question.

Vincent in the back.

Vincent Meunier from Morgan Stanley.

So the first one is a follow-up question on semaglutide and the 0.3%.

I mean, you say 0.3% potentially clinically meaningful or meaningful for regulatory.

What about formulary?

Because we know that for the insulin segment we had two new-generation insulins beating the old one.

But when we take a look at the ramp-up, we know that for both products it's not great.

So it might be the same for semaglutide.

Maybe the PBMs will not really agree with the fact that 0.3% is enough.

And what is your view on the potential impact from the biosimilar of Humalog on your franchise?

And also a more broader question regarding the ongoing negotiations with PBMs this summer.

I know it's very early, I know it's probably too early, but would you expect the CVS and the UnitedHealth moves to have an impact for you this year?

And also the fact that you don't have yet semaglutide, so for the GLP-1 part of the negotiations, do you think that it will have an impact as well?

All right.

I think I will ask Mads to comment further on the impact from the CMS trail on formulary status, if you have any comments on that.

And then, Christian, if you want to comment on Humalog competition potentially from generic version from Sanofi.

And then I'll try to comment on the ongoing negotiations to the degree I can say anything meaningful.

I actually think it's probably better that Christian comments on the formulary thing.

I have just one generic statement.

I do believe that when you talk to these folks, also the medical people in these managed care organizations, what you look at is all the things that are accepted and respected by them as meaningful endpoints that have some cost utility and they actually do include things such as A1c.

You can always discuss what amount of A1c improvement is meaningful and it's all a balance between the price you demand, as Jesper alluded to, to what is the cost of lowering 1% A1c for this product versus the other and so on.

So I think of course the stronger the delta we have, the better it will look.

But I think maybe, Christian, you could add some flavor.

No, I think the short answer is that we do see a 0.3% delta on A1c as being meaningful from a payer point of view.

I think making the comparison to the basal insulin space where you're not selling in on A1c, but on [hypo], which is slightly more complicated from a communication and also negotiation point of view, I think it's difficult to compare that.

So 0.3%, we do see that as meaningful.

And then in terms of the impact of biosimilar Humalog, what's going to be the impact.

I mean, first of all, we need to see when biosimilar Humalog is going to make it to the market.

There seems to be a little bit uncertainty as to whether it has been submitted or not.

So let us see that.

And then I think it's clear that the competitive dynamics in the bolus segment is some years ahead of what it has been in the basal segment in the sense that there has been a fight for formulary access with the much more exclusive accounts.

So I do think it's going to be much more challenging to enter into the bolus segment from a biosimilar point of view as enter into a segment where you have more open accounts.

But I agree, we need to see when they are going to make it to the market.

And then on the negotiations, I think I'll just reiterate the facts.

And the first fact in relation to the contract negotiation in the U.S. for 2018 season is that in terms of the basal insulin, the Part D segment was not included, Basalgar was not taken into consideration for the negotiation for Part D that's being included for contract season 2018.

And that will have an implication on prices in that part of the market.

And it is a substantial part of patients being above 65 and eligible for Medicare Part D.

Second point, which I think is a key expectation on our side, we would expect that the formularies -- national formularies for the commercialize lives for both CVS and for ESI would be publicized early August, and that would then lead us to comment upon overall status when we get to early August.

And I think it's 9th of August that we have our release of financial results and then at that point in time we certainly would comment.

As for comment, you should both expect us for our major brands to comment on what is the expected overall pricing impact and then also if there is significant changes for the individual products in terms of access, because that's of course also an element in those negotiations.

And as for semaglutide, I'm sure you will appreciate that the PBMs and the healthcare organization will tend to take that view that as the product is not approved, it is not part of ongoing negotiations.

And as it was filed on the 6th of December, the likelihood of the product being approved and available for market and being a significant part of contract negotiation is highly unlikely.

If you take a prudent cost perspective into account from the payers, that I think is the reality.

So we will launch as a new product with the opportunities that has in a number of plans for Tier 3 status of (inaudible), but don't expect it in any significant proportion to be integrated into formularies.

That's probably not realistic.

Peter, would you have the next one?

Just two follow-ups, one for Jasper, one for Mads.

Just on Xultophy, when you speak to (inaudible), they lament the fact that the label does not allow use in OAD failures and that's where the best data is.

So could you just walk us through or remind us why the FDA decided that they weren't going to give you a broader label and whether Nova will be willing to do any more in terms of further clinical development to get that down the line or whether you would fix that at [PBM], dismissing, "Well, why pay for two drugs to get 80% to go when I just pay for one to get 60%"?

And then, Jasper, when you talk about that 2% to 3% global price pressure that you baked into your forecast, I mean it would be unfair to ask you at this stage, but does that accommodate Sanofi being extremely aggressive and trying to fight back in this round of contracting?

Because there's a belief in the market that you might be quite conservative or people believe you will be overly conservative on your price expectations?

I realize it's early, but I'm trying to kick the tires there.

All right, Mads, if you start on Xultophy, then I'll try to once again giving comments on ongoing negotiations with the inherent limitation that that entails.

So, Peter, already when we were in European discussions with Xultophy, some of the European member states had the opinion that to start on two different biological entities at the point in time where you are still injection naive was to be considered an overkill because you still had some opportunities either in the oral space or single agent use such as the GLP-1.

So personally, I was not taken by surprise by the FDA in this regard.

And to be a little bit honest about it from a company perspective, the data we have -- even though I agree that the DUAL I study is a beautiful one, I would still tell you that the data we have for semaglutide in the OAD space are taking 70%, all the way up to 80% of the patients with one single molecule given in one single weekly shot [total].

So I actually think from our perspective with the data we are going to announce as an oral presentation at the ADA in San Diego this June, the DUAL VII data, where we compare 28 weekly injections and 28 blood glucose measurements up against seven injections and seven BGMs with Xultophy that you basically get the same control, you get vastly superior, 90% reduction in hypoglycemia and a weight benefit of more than 3.5 kilograms in favor of the convenient Xultophy regimen.

So I would actually argue it plays to our favor to actually have Xultophy as the convenience offering for intensification of basal (inaudible) phase or for that matter GLP-1 phase.

And then use first injectable semaglutide and Victoza and maybe later on the oral version in the OAD space.

That means that we covered the entirety of this spectrum with this superior offering.

And the question about the negotiation and Sanofi behavior, you asked whether it may be unfair.

I think these contract negotiations certainly isn't triggered anyway.

So I think the comment that I would make is probably a more generic one of saying, the comment we made on the expected negative pricing impact on our business in 2018, '19, of 2% to 3% on a global basis with a higher proportion of that assigned to U.S. and a lower proportion to rest of world, that was provided in late October in connection with the update of the long-term financial target and it was our way of trying to make it more apparent that there would be an additional pricing pressure arising also for 2018 and 2019.

I don't think it's meaningful for us to change that estimate at this point in time, although that we've said that there will be a pricing impact and of course it will vary by market and where U.S. will be a core one -- a core market.

I think the interesting element in this pricing discussion, which we may have, say, penalized ourselves a little bit too much is that we tend to communicate the impact on prices from the actual pricing impact per product.

And when we have a product like Tresiba that gradually is being rolled out and gradually penetrates into Part D, with Part D actually having lower prices, it will lower the average realized price of Tresiba without really having a explicit additional account assigned to that, but it will lower the average price taken.

And that was an element in the approximately 5% pricing impact that we've estimated for 2017.

And I think it is quite reassuring for me to see when you look at the first quarter results that there is an element of -- or a significant offsetting element in the mix component of our overall sales that of course compensate as a higher proportion of sales, is derived from a margin driver like Victoza, but also Saxenda, we just talked about before, and also clearly Tresiba in the longer-term horizon.

Xultophy also clearly adding to that, but small numbers still.

So I think that's the best estimate we've given.

I think we've given a relative clear communication that we will have a challenging pricing environment in the U.S. for the next couple of years.

I think that's the best communication we can give to market.

And I'd like to retain the opportunity of commenting on that when we get to Q2.

Let's get the final question.

Richard, you are in for that one.

Richard Vosser, JP Morgan.

Just two follow-ups.

Just on the Xultophy extra clinical development.

You've started a Tresiba versus Toujeo study.

There is an obvious potential of doing Xultophy versus SOLIQUA.

So just a thought there.

Clearly, your -- I think your comments were prioritizing semaglutide anyway, but just a thought whether you would do that trial.

Then, secondly, just whether this guidance this year leaves any remainder of -- for this year's guidance, whether there's any U.S. pricing reform from Trump in there?

I think not, but if there isn't, should we just be thinking about rolling that as a pressure into 2018?

Okay, I think I'll deal with the guidance question first and then I'll give Mads the head-to-head on Xultophy after.

In terms of the guidance, we have not anticipated in the narrowing of our range in terms of both sales and operating profit that there will be any significant impact this year.

It didn't look likely to us that the U.S. regulatory process would be completed with an impact on 2017 when we had the discussion with our board of directors on Wednesday.

But I must admit that it seems to be a changing environment every day, so it is hard to make a prediction on.

But no significant impact.

And I think we would have to make explicit: once you had a legislation through, then actually accounting for the specific items and it would be highly speculative to be there.

It may come up for voting in the Congress today, but my understanding is that the Senate is looking differently at it and let's see how it plays out.

Mads, on Xultophy, should we do a head-to-head?

Yes.

So first comment you also mentioned the Toujeo versus Tresiba.

In that regard, we were eagerly awaiting the Profil Institute in Germany that did this head-to-head study in a clamp setting between Toujeo, glargine U300 and Tresiba.

And what we saw was as expected, namely that we had not only a higher potency, there was only 70% potency of Toujeo versus degludec.

But more importantly, there was much greater variability, as we also had expected, but now we could confirm it.

And that basically made it for us a very easy call to do a big safety and efficacy study, where we will push the point that hyperglycemia reductions are going to happen also in favor of Tresiba versus Toujeo.

And do bear in mind that Toujeo in some countries in the world is actually doing quite well, so I think that's a very meaningful study to do in a huge number of patients.

And that's ongoing, as you know, and correctly spotted, Richard.

As regards SOLIQUA versus Xultophy, of course this is something that is still being discussed and prioritized in management.

But do bear in mind that most physicians are aware that we've already done a head-to-head of Victoza versus Lixi and shown that there's a full 0.5 percentage point A1c different in favor of Victoza.

And we've also done things such as DEVOTE and SWITCH and numerous studies of Tresiba up against insulin glargine U100.

So I think the perception is going be that in particular after this summer that Tresiba is simply the better one, as is Victoza.

So whether one wants to do and invest the money in a comparison against SOLIQUA remains to be seen.

Thanks, Mads.

This ends our first quarter presentation.

Do feel free if you have additional questions to contact.

Our Investor Relation Officers' phone numbers are listed here.

And we look forward to be back on the 9th of August.

And judging from the questions today, some of you may turn up at that point in time.

Thank you very much for your attention.