諾和諾德 (NVO) 2017 Q2 法說會逐字稿

Okay.

For everyone in the room, go to your seats, please.

We'll get it kicked off.

Why don't you take your seats.

Thank you very much, everybody, for arrival.

My name is Sachin Jain from the Bank of America, pharma team.

It's real pleasure to have the Novo Nordisk management on results roadshow.

We have a good representation of the management (inaudible) Lars, Jesper, Mads, and Mike.

Idea is half an hour of presentation and Q&A.

Okay.

So with that, over to Lars.

Thank you very much.

Thank you very much, Sachin, and thank you to Bank of America Merrill Lynch for hosting us.

Well, I can open up.

We are glad to be here.

We have announced this coming (inaudible).

I have to show the forward-looking statement disclaimer slide here.

So we'll be talking about the future that is inherently involving some risks because management analysis could be different.

Just very briefly on the highlights.

I'm not going to go through this in detail.

We are quite pleased that, we, for the first half, could deliver a sales growth of 3% and operating profit growth of 6% in local currencies, and this has led us to up our guidance for the full year by 0.5 percentage point on sales and 2 percentage points on operating profit and we'll get into much more details around that.

I'll start by giving a highlight on some of the sales data from a product perspective.

Mike will cover some of the geographies and Mads will cover some of the science updates, and Jesper will wrap up with the financials and a conclusion.

If you look at our sales growth in the first half year, we knew the year would be challenging in -- for the biopharm business because of the registration -- patent expiration and also the favorable rebate adjustment we had in 2016.

So if you look at the diabetes and obesity growth of 10% in local currencies, we believe that's a very, very strong performance.

Total diabetes care was up 9%, driven by Victoza growing 18%.

And if you would dive into what was probably the most challenging area for this year, the insulin growth in the U.S., we actually grew our insulin business in value terms by 7% in the U.S. So the ability to grow by 7% in a year where we actually see a challenging price environment, we believe, is a strong testimonial of the power of growing share in a growing market, but also leveraging the product mix that comes from having a broad portfolio.

If we zoom in on the basal segment and a key value driver for, say, the medium short-term Tresiba, we are quite pleased that we continue to grow share.

We ended 2016 with around 5%, we added 3.5% percentage points so far this year and that now had a 8.5 percentage point total scripts share moving towards the target of 10% by end of the year.

So we're pleased with the performance and this obviously lists our overall share in the basal category.

If you look at the GLP-1 segment in the U.S., it's continuing to enjoy a quite positive momentum of growth of 25%.

However, it also grew in this environment, 23%.

So despite that we continue to lose market share to Eli Lilly, we're quite pleased with that we can continue the growth and still have a strong GLP-1 franchise.

And obviously, next year, we hope to be able to also enter the once-weekly segment based on semaglutide having unexpectedly even better clinical profile than the ones that we see in the market today.

Our key topic is, obviously, market access for 2018 from what we know already in terms of disclosed formulary coverage from Express Scripts and CVS, we can, based on that, say that -- and those are the PBMs where we have a preferred position, so it's the 2 most important PBMs for us.

We can see that we have an unchanged access for 2018, and we have communicated that we see declining price points in 2018, but we refrain from giving specific guidance on pricing and we then say that we stick to our long-term financial targets we communicated last year to give a feel for where we see the business, overall, is developing.

We do not think that it's meaningful to talk to price alone.

As you can see, we grow 7% the first half year in the U.S., so the underlying volume, the mix component is quite important to factor in when you have to assess the overall business performance.

With that, I'll hand it over to Mike, talking a bit through the geographies.

Thank you very much.

As you can see, the world -- our world is split into half 53% U.S., 47% International Operations.

Lars alluded to the growth rate in North America, 2%, primarily coming from Victoza and Tresiba, but also volume growth offset by the ever pressure on the basal pricing.

If I then dig into the various different regions of International Operations, I'll start with the largest one, Europe.

The 4% growth in Europe is primarily coming from, I would say, practically most products, be it our next-generation insulins doing quite well; biopharm is also doing well; NovoSeven, NovoEight, well above track.

The headwind is coming from modern insulin, which is being affected by the launches of our next-generation insulin and Victoza.

And Victoza is actually declining in Europe, and we can get back to that.

But that's where Europe is.

Region AAMEO, that's Asia, Africa, Middle East and Oceania.

The 4% growth you see there is on the lower side that we typically expect from this emerging region.

We expect a higher single-digit number and the rationale of that is biopharm.

Actually, when you take a look at the diabetes business.

In AAMEO, it's growing by 10% in the first half, which is a good number.

But we are being offset by NovoSeven in some of one-off shipment timing issues on some of our larger markets, primarily in Saudi Arabia and some growth hormone lacking in Iran.

China is the same story as we have been showing a number of quarters in a row, good growth coming back, aligned with the market growth rate of around 8 percentage that we are right now seeing.

We are losing share in the bottom part of the market in the human insulin segment, but the top end of the market modern insulins is rapidly growing, and we are growing more than the market.

So all of our 3 brands in that segment is doing quite well.

Our share of the growth in China over the last 1.5 year has increased from around 20 percentage points to 50 percentage points now, meaning that from every 10 new patients on the modern products, 5 comes to Novo Nordisk and that, of course, is a good story to tell.

Region Japan and Korea, after a very strong Q1, back to some normality.

The insulin growth for us is actually pretty okay as we're doing well, both with Ryzodeg and Tresiba.

The insulin market is declining.

Once again, it's at, depending on which period you're looking at, anywhere between 0 to minus 1 percentage point.

Where we are getting the most hits between the 2 quarters and then foresee that to go forward for some time is on our GLP-1 segment, of course, with Victoza battling Trulicity.

Latin America, growing quite a healthy 9% or 14% in reported currencies.

Again, a region that is doing quite good with the diabetes front, 12 percentage points growth on the diabetes, but being dragged backed by their biopharm, and specifically speaking, NovoSeven franchise, where we have had some one-off and delayed out shipments in Brazil.

If I put this in the context of market share, then this is a slide we have shown historically to you.

And we like to touch upon the left-hand side of the graph as 2 distinct different categories of countries where we launched Tresiba.

Countries where we have very good access, I would say, full access: Japan now with 41%; or Switzerland, for that matter, Denmark are belonging to those types of categories.

In Japan, actually, we are now the basal market leader with Tresiba there.

Our second category where we have partial access, U.K. is a good example of that, but we have also some of the other markets, you can see that.

Now the trajectory and the curve shifts depending if you have partial access or full access.

And when actually that access changes in the middle of the road, if you can take a look at the black line representing Netherlands or the light blue on Denmark, you could see that we launched the product with basically very little access, and we had a very flat uptake of the market share.

We negotiated better access with those 2 respective governments, and all the sudden you have a hockey-stick type of a graph, which is quite unusual, but it really just demonstrates how access plays a big role in the launch of Tresiba.

We have created this second part of the graph for you because often, some of the graphs are looked upon.

If you take a look at for example, Switzerland, you had seen, on the left-hand side, a very good uptake, but then somewhat plateauing and that could be a bit disappointing.

The graph on the right tries to explain that, internally, the way we manage this, we have come to the acknowledgment that when we launch another degludec family product in a place where we have had, historically, Tresiba then we will take a toll on Tresiba, either by plateauing the graph and/or sometimes even declining.

The way that we measure success is that the totality of the products in the same degludec family, and that could be Ryzodeg, for that matter in some of the market in this graph.

Xultophy has to show us the same type of a growth, maybe even, perhaps a better one.

So you could see that, again, Switzerland without Xultophy is plateauing, but with Xultophy is going up and the same for some of the others.

We also felt it would interesting to show you this the curve on France.

France is a good case because, historically, we had a strategy to go ahead and launch first Tresiba, and then follow that up by either Ryzodeg or Xultophy.

We have moved away from that into a more market-fit strategy where in the case of the France, we clearly got an indication from the government that the performance of or the clinical benefits of the product versus the price we would want is not acceptable to them.

So we did not launch Tresiba.

With Xultophy, that actually happens to be on daily basis and more expensive product, but with a different clinical profile was accepted by them.

We have launched it and you could see that in 10 months, we have received 10 percentage points market share, which I would call a very good launch.

With that, I will pass to Mads.

Thank you, Mike.

So over to R&D.

It has been a busy quarter in R&D terms.

And on the first slide, the most recent results that we have reported a few weeks ago relate to semaglutide, our agent that, as you know, is awaiting approval for type 2 diabetes.

But here, the data relate to the Phase II trial in almost 1,000 people with obesity, but without diabetes i.e.

they could be prediabetic, but not diabetic.

And what we actually saw in a double-blinded manner up against both placebo control, but also exit comparison being Saxenda, was really nice, dose-dependent, very potent and highly efficacious level of body weight lowering to the tune of taking up to 16% at the highest dose.

Body weight, down over 1-year period.

Now when you adjust the way that FDA would do that for those who did not complete by assigning them a placebo level of efficacy i.e.

no efficacy, then that is reduced to 13.8%, but those who completed for a full year, actually had a 16.2% at the highest dose.

Saxenda behaved just like it normally does including in the Phase 3 trials, and that means that we feel we are in a situation where we stand with an agent that as a whole new level of anti-obesity efficacy compared even to our own Saxenda molecule.

This is also the basis for why we are progressing full speed ahead into initiating a major Phase III program, including a hard outcomes-based trial during the first half of next year.

Now other things have happened.

And if we look in the regulatory side, as it relates to Tresiba, we have submitted both an EMA, the DEVOTE data, the robust data both on cardiovascular, but in particular, also on severe hypoglycemia to both major agencies during the second quarter.

In the U.S., the FDA has basically informed us that they will see the SWITCH and the DEVOTE data in the same context, probably driven by the fact DEVOTE is a much bigger burden of evidence in favor of the severe hypoglycemia reduction, and that means that the action date is now expected late Q1 next year.

Now talking about Victoza.

We have very recently gotten a European labor upgrade to include all the wonderful data from the LEADER trial, 22% cardiovascular mortality reduction, 15% oral cause and 13% on the strict MACE endpoint.

And that has actually even translated into the European label for Saxenda, where the primary data from the LEADER trial are also included despite it being a obesity agent.

In the U.S., we have had a, or the FDA has hosted the Advisory Committee pertaining to the LEADER data that ended up with a vote 17 to 2, in favor of us having documented cardiovascular risk reduction in the people with type 2 diabetes and we're eagerly awaiting the regulatory outcome of the discussions on that label upgrade for a new indication in the U.S.

Biopharm-wise, actually things have happened.

We have also had an Advisory Committee for REBINYN, the hemophilia B product, N9-GP as it's called in the U.S. And that led to an approval over the last few months, and the same goes for Europe where the drug is called Refixia, and that means production is now gearing up, such that we can launch this very long-acting N9 product or factor IX product in the realm of hemophilia B.

It has been submitted to PMDA in Japan as well.

And finally, but importantly, our once-weekly growth hormone, driven by classic Novo Nordisk cycling technologies, so that we have albumin binding of the growth hormone for a week or more.

That has been tested out now in a pivotal trial in adults with growth hormone deficiency with really good outcomes in documenting the efficacy endpoint superiority versus placebo on the primary endpoint known as [tranylcypromine].

Additionally, we did see increases in muscle mass, mean body mass and we saw no adverse effects neither as it relates to immunogenicity or local tolerability and injection site reactions over and above placebo level.

Now on the last slide here, Basically, the second half of this year will be very, very busy.

On the data side, we're all eagerly awaiting SUSTAIN 7 where we are hoping to document the superiority over and above Trulicity from Eli Lilly or (inaudible), and that will be announced as soon as we have the data.

On the regulatory side, a lot of things, as I mentioned, are happening.

We are awaiting the Victoza cardiovascular indication update in the U.S. later this quarter.

But also later this quarter, the fast-acting insulin aspart known as FIAsp, in the rest of the world in the U.S. is up for a PDUFA action date.

And then importantly, in the fourth quarter, i.e.

in the month of December, we are hoping and expecting the regulatory decision on semaglutide in the U.S. and also an opinion from the CHMP followed by EU commission approval in the first quarter of next year.

So a lot of things are happening

And with that, over to you, Jesper, on the financial.

Thanks, Mads.

The financial results for this half year came out positive.

It also came out positive because we've had currency tailwind in the first half year.

You should enjoy the numbers because they won't last this way.

It will be turning the opposite way, but a 1% positive currency impact, first half.

Similar development in gross profit compared to sales, reflecting a 10% decline in gross margin reported, 40 basis points underlying, and that's really reflecting 3 elements, where I would like to highlight that the negative effect we have from prices, overall, has actually been offset by a positive mix impact from selling more of our higher-value products like Victoza, Tresiba, Saxenda, et cetera.

So what's next?

Actually, you could say, providing the negative development is bringing on new production facilities around the world, and with also the guidance we are giving for the full year of the deterioration in local currency terms of approximately 50 basis points in our gross margin.

In terms of sales and distribution cost.

A very modest development.

You could see a decline of 1% in local currency, all really coming from U.S. having a slightly fewer people in our U.S. sales force and a very prudent cost development in sales.

I would anticipate when we move towards the full year of a sales cost percentage in the 25.5% to 26% reflecting expansion of DCC campaigns in the U.S., hopefully also following a successful label adoption of the LEADER trial for Victoza.

In terms of research and development, a modest cost development, but you're seeing it accelerating from Q1 into Q2, really, also reflecting the effect of completing some of the major trials like DEVOTE, getting ramped up in all of the Parnate trials, supporting the oral semaglutide and having, I think, 9 out of 10 trials fully enrolled now, driving up costs, but also a effect from restructuring, of our research -- or you can say, a new research strategy, and that has closed down some research project.

And we have gradually seeing our research cost base coming up.

Again, expectations for full year of around 13% in R&D out of sales.

Admin costs, we continue to do an improvement in our cost ratio there of 10 to 20 basis points.

And you can also see that there is a positive contribution from the cost-containment measures we implemented in -- from mid-last year and a 2% net drop in admin cost, primarily related to headquarter activities.

Other operating income increasing and the guidance, there, for full year, I'd like to highlight is of an income to the tune of DKK 1 billion as we will benefit from the out licensing of the last of our information assets, C5-aR, and which was sold to Innate Pharma in which we now have a 15% stake.

So operating profit, when we get towards the full year, will be more in line with last year's operating margin.

The financial items will swing significantly around, I'll [virtue that] later, in terms of the tax percent (inaudible) minded last year, we did a major settlement with a Danish tax authority and that's why we had a unusually low tax rate last year, the 21.6% you see there is pretty representative of our expectations for full year, and then, of course, a 2% effect of the repurchase program on growth in EPS, growing 6% at the half year.

If you look to the currency effect illustrated here, and you can really see that effect that the moment between the U.S. dollar and euro has had on other currencies is pretty similar, and it's not only for the hedged currencies, it's pretty similar actually across the board.

In the non-hedged currencies, we also have a very similar development.

So a very adverse currency development over only a 3-months period from last time we gave guidance in connection with Q1 on the 28th of April.

We still hedge the effect on a 6 months horizon, but beyond that, when we get to second half of 2018, of course, Novo Nordisk will be exposed to this level if it's prevails for the longer term.

And let me just cover it on this slide.

We have upgraded our guidance for sales to now be a slightly smaller interval, going from 1% to 3%.

But on the other hand, the currency impact has been taken significantly down to being a positive of 1% to now and a negative of 3%.

For operating profit, again, a significant 2 percentage point increase in the midpoint of the guidance from a midpoint of 1% to now a midpoint of 3%.

And you could say, even though we have improved our guidance on operating profit, on average, by 2 percentage points, we have a negative effect on the currency effect with a negative effect in total of 5%, going from plus 1% to minus 4%.

So even though we have opted operating profit everything else being equal, is being expected to be 3% weaker than it was in April.

This would partly be -- this will be compensated by a better financial line.

As you can see, the financial line has improved by DKK 1.6 billion or equivalent to a little bit more than 3% of operating profit.

So actually, on total, it more or less nets each other out.

I have already commented on tax rate.

Capital expenditure is slightly lower than anticipated in the first half, so we've taken that down by DKK 0.5 billion.

The other guidance items remain unchanged.

In closing remarks, I won't go through this slide, you've seen numerous times.

I just think I'd like to comment in terms of the successful rollout of Saxenda.

One of the major launches we have done for Saxenda has been in Brazil, and Brazil has now actually grown to become the second-largest Saxenda market around the world, and that is a sign of Saxenda product actually having a very good traction also outside the initial U.S. core markets.

So a very positive development.

And for the broad pipeline within hemophilia, I'd also like to stress that within biopharm, as Mads alluded to, we now have a clear successor molecule to our human growth hormone, with a once-weekly approach with somapacitan, which I believe we can also develop into further solidify Novo Nordisk's leadership position within the growth hormone disorders.

And with those comments, I'll hand it over to Lars for Q&A.

Thank you very much, Jesper, So we'll now start the Q&A.

If you could kindly state your name and limit yourselves to 2 questions that would be appreciated.

So you have the microphone, Sachin.

Sachin Jain, Bank of America.

Two questions both sort of around the midterm.

One, you've obviously, printed 1H margins of roughly 47%.

Your midterm guidance assumed roughly stable margins of 44%.

So just any color as to how we think about that going forward?

Is there upside now given the time you spent on cost focused on the call yesterday, that's surprising (inaudible)?

And the second, in the last couple of decks, you've clearly highlighted the GLP-1 market, north of 25%.

Again, I think your midterm guidance assumes a GLP-1 market growth rate of greater than 10%.

So, again, any color as to when sema launches next year, do you expect an acceleration in the GLP-1 market from these levels?

And how sustainable is that?

Jesper, would you start with the margin, I'll try to cover the GLP-1.

Yes.

Thanks for mentioning the cost efforts.

I do believe that the cost efforts will enable us to continue to invest in the key growth drivers.

And we basically say reset Nova Nordisk cost base, enabling us to operate at a growth level which are not high single-digit, but more in the -- around mid-single digit levels and still have an attractive development in our cost ratios.

As I alluded to, we do believe in the near-term horizon because of bringing on new production facility and also making a significant investment in preparing for having all Semaglutide that we will be seeing in approximately 50 basis points year-on-year deterioration in the gross margin, and we believe that, that will largely be able to offset by gradual improvement in the selling and distribution ratio and continuing the gradual improvement we've seen historically also in our admin ratio, whereas, the investment level in R&D will remain at the 13% level.

It's not that we are not making significant in-roads and benefits from the cost-containment programs we've implemented.

Also, within R&D, we're just going to recycle whatever savings we make to make additional investments in the R&D area.

We do believe that, it is a sustainable level for us to operate with approximately 13% R&D investment level.

So that will be my high-level comments.

And with regard to the GLP-1 market growth, it's clear that we see significantly better growth than, say, that 10 percentage points.

Worldwide, we're seeing slightly more than 20%, and we believe not with -- in the U.S. GLP-1 is 13% of the total diabetes care market; in the Europe, it's around 10%; and in the rest of the world, it's lower.

When you look at patients here on GLP-1, we are down to, say, in U.S. around 5% of the patients being on GLP-1; 4% from Europe.

So we think that's the sustained significant opportunity for having more patients on GLP-1.

The current growth levels that driven by that we have cleared out the safety concerns with both FDA and EMEA are also saying that the (inaudible) are safe.

And now, the market is driven by, say, 2 innovative products and then the communis benefit from having once-weekly.

When we next year launch -- if everything is on track semaglutide, we would, again, be bringing say next level efficacy and innovation.

So that should sustain growth at a quite healthy level.

I don't think it will keep growing by 25% forever.

Obviously, that would temper somewhat down.

But as you know, reason why the GLP-1 sector should not kind of, say, double in size compared to where we're today, when we get the efficacy levels with (inaudible), when we get the steady benefit from Victoza and also sema.

We expect that, that class keep growing quite significantly, and probably also above the 10%.

Should we pass on the microphone.

Michael?

It's Michael from UBS, Michael Leuchten from UBS.

One question on Tresiba by prescribing group.

If I look at the share amongst endocrinologists versus general practitioners, you seem to be doing significantly better with the endos versus the GP.

To change that, will you need the DEVOTE data on the label, or is there something else you can do to sort of level the performance across the groups?

And a question for Matt, on the sema obesity data?

Can you talk to the sustainability of the weight loss that is quite impressive, the 16% and 14% that you've shown?

Good.

So you're right that with regard to Tresiba, we have stronger performance with the endos.

And if you look at Novo Nordisk, we are a scientific innovation-based company and we have all the years to develop fantastic relationships with the key opinion leaders.

And our commercial approach has historically been very medical focused.

So comprehensive messaging, talking to the mechanisms of the molecules, talking to the science, which has served us well for many years and we should keep having that focus.

But in today's environment, we are working now on sharpening our commercial execution significantly because when you address the GP, the PCP segments, this medical type messaging doesn't fly.

It becomes too comprehensive, it's too lengthy.

So we need to be bolder, sharper in our messaging.

And we're making some significant changes to, say, our commercial culture in how we do that.

And it's bit of a cultural change, but it's also, in my view, that [indiscernible a bit of relief that they can actually go out and be equipped with bolder messaging that resonates much better in the P2P segments compared to our more comprehensive educational approach, which is welcomed by physicians, but honestly they don't have time to listen to it.

So I expect that by sharpening our messaging, we can make a bigger pinch in how our brands are perceived, and that should drive share in the P2P segment even without, say, a DEVOTE claim on labor.

And as to the sema obesity data.

Thanks, Lars.

Excellent question, Michael, because this study lasted a year.

And very often, you see that anti-obesity medicines, depending on which ones they are, of course, tend to level off in terms of further weight loss after anywhere from 24 to 40 weeks.

And in this Saxenda base, pretty much as you would expect from the SCALE Obesity Program in Phase III in that it also leveled off around week 40 in terms of creating a stable weight loss that was not further enhanced thereafter.

At the higher doses of this dose range of semaglutide, we actually saw a continuous weight loss, so that when you plot weight loss -- speed of weight loss per month, of course, it comes down, but there is an ongoing weight loss even at week 52.

So whether we can repeat that time in Phase III, time will show but, of course, it will also be good news for the propensity of patients to stay on the drug for extended periods if that permits.

Two questions on Victoza, please.

The time line for generic Victoza, could you give us some indication of that?

And I guess, secondly, what kind of pricing action you took in the first half, and what the prospects are for H2 in that regard?

Yes.

thank you.

So we have patent protection for Victoza until 2022, '23, so we would not expect generic entry before that.

We believe we have a strong patent protection for Victoza.

And even though those patents will be challenged, we have the view that we can uphold our patent protection.

With regards to pricing, we have, in the first half, taken a price -- in June, taken a price increase of 7.9%.

This price, some of that is then given away in rebates.

And we have no current plans of taking price increases in the second half.

So there's still pricing power in the GLP-1 segments.

Looking ahead, you should expect that we would be focusing more on, say, the volume gain when we launched semaglutide.

We do not expect a basal-type competitive environment until we have a biosimilar competitor coming in.

But we do not, on the other hand, believe that we can sustain taking, at least, price increases like we've done this year.

Pete Verdult, Citi.

Two questions, just one on sema because I think you began to talk about on the pricing side and secondly, on the U.S. sales force.

Lars, you've also talked to these venues and events about delivering differentiated products, getting a premium for that differentiation.

But, obviously, in the last 12 months, access is clearly key and king.

So when you put that all together, you've got a strong data package for sema.

But is the right way of thinking about it that you're not seeking a premium, you're more worried about getting access, getting adoption right?

Is that the right way of thinking about it assuming that sema gets approved end of the year?

And then secondly, maybe for Jesper on the sales force.

Could you remind us just the sort of magnitude in absolute numbers or ballpark the percentage reduction in the U.S. sales force you've kind of taken in the last year?

The reason for the question is just it doesn't seem like you need to increase it to launch sema.

Is that right?

And should we only think that if oral sema arrives end of the decade, that's when you'd have to start putting more muscle on the ground?

So with regards to pricing for sema, we're not going to disclose with certainty what we're going to do because that's a function of the label, et cetera.

But I would just mention that, today, Victoza actually has a premium pricing over Trulicity in the market.

And we, as you hint to and probably also what we've communicated previously, we are not looking to go for a significant premium on sema.

But exactly where we go, we will like to keep that flexibility until later in the year when we see the approval and what the label looks like.

And in terms of the sales force in totality, some 300, 400 persons taken out gradually of our U.S. sales force.

We think we have the appropriate size of our sales force in terms of share voice currently to enable us to market injectable semaglutide.

Where the market is going to be and how the access situation, availability of physicians for calls, et cetera when get to 2020, I think it's my experience that it's only moving in one direction, and I would probably question a little bit, Peter, whether in reality will be meaningful in 2020-ish to expand the size of sales force.

I think we believe that our current size of sales force is sustainable as it looks now.

But we're not going to make that call until we get 3 years down the road and see the profile of our product in Phase III.

Jo Walton from Crédit Suisse.

You started to address this in -- with Peter's question, but I'm going to come back to the level of differentiation on price that you can get.

I was quite surprised to see that INVOKANA, a drug that makes your legs fall off, becomes a preferred drug having been excluded on a formulary for next year.

So here is a payer apparently putting what most of us would perceive would be an inferior product on as a preferred product in a formulary.

So against that background, I was wondering whether we should assume possibly even a price discount for a newer, better product not even looking for price premium at all because access is so important.

And I was wondering if you could address some of the other levers that you might have to drive volume.

So is there any -- are there any legs with value-based contracting?

Is there anything that you feel might move to you being able to have an exclusive being the GLP-1 of choice, so you get all of that extra volume and you actually knock out Trulicity, perhaps, in a couple of years' time on one of the plans?

So at the moment, it looks like it's pretty much even access, but that's what I'd like you to address, please.

I guess, you're not the only surprised about the decision for the SGLT2 category.

Time will show how well it works because I would think that if you buy insurance and you have a good insurance plan, you would expect to have access to the best products.

And looking at the market dynamics in the U.S., it looks like INVOKANA is losing share, and prescriptions are going down.

So it will be interesting to see how it plays out because if you look at our experience with exclusions in, say, the non-insulin segment, we had Victoza excluded with Express Scripts.

We actually kept a significant amount of patients on Victoza despite that there is no rebate paid.

And I don't think -- I think [Kivemza] are testing out different tactics but is not giving that everything works.

I strongly believe that a product like semaglutide will have a significantly differentiated position.

So there will be status -- a preference for that, and I don't believe it's necessary for us to go out and kind of do bunch of deals kind of swiping the GLP-1 class.

And I don't think it's a healthy tactic to get into -- in a class where value is protected today.

When you then talk to value-based contracts, the GLP-1 space is actually the space where we have the best evidence of this working.

So we have, today, value-based contracts where our rebate level is a function of patient retention on the drug, on Victoza.

And that's important for the payer, for the PBM because they are also rewarded on their ability to retain patients on medication because if they do not deliver that, the one buying insurance is not getting the patient outcomes they want.

And we've actually been able, in just this year, to evaluate one of these contracts with one of the biggest PBMs where they came back to us and said thank you, thank you, thank you.

We actually managed to stick to the highest retention we had aspired for and which meant that Novo Nordisk ended up paying the lowest of the rebate choices in this scheme.

So the payer actually ended up paying, say, the highest price in that scheme, but it worked for them because they could deliver the value in terms of outcome for the patient.

So value-based contracts is something that's evolving.

It works quite well in the GLP-1 space, and we also expect that with semaglutide we will look at how can we launch that product and how can we price it in a way where it's not just a price discussion.

It's actually about what is the value we bring to the payer in form of the value in terms of outcomes brought to patients.

So we are -- we're building models [that's] to do that.

But I also say value-based contract is something that's -- it's a bit of a buzzword, and it takes time to take up.

And year by year, we increase the sophistication of it because, obviously, we need to understand what is impact on us and the payer needs to understand what is the impact on them.

And as we learn, we'll make it more and more sophisticated.

So I think value-based contracts plays a big role in GLP-1.

I don't expect kind of dramatic bundling, taking over the scene because I think it's -- it will be perceived as aggressive, and I don't necessarily think it'll work for both parties longer term.

Wimal Kapadia, Bernstein.

Just a quick one.

You mentioned the Express Scripts and Victoza.

I was a little bit surprised actually to see you guys hadn't come back on plan.

In your discussions with them, did you reference the CV and how did they view the clinical profile?

Did they need to see it on the label before you come out for a second discussion?

Just get some thoughts around that.

And then the second question is on Xultophy.

Just a initial feedback and where exactly are your existing patients coming from in the U.S.?

Is it patients who are on basal insulin today before they move to basal bolus?

Or is it patients who are currently on GLP-1s?

And then in terms of your payer discussions for 2018 contracting for Xultophy, can you talk a little bit about restrictions you potentially have in place?

So are we thinking more along the lines of PA and steps edits to use the drug?

Or is it slightly more freedom there?

Do you want to talk to...

Yes.

If I talk to Victoza and ESI, as you know, we're not on formula and hasn't been for a while with Express Scripts.

We have a number of patients who have been obtaining prior authorization to still obtain the drug under an ESI scheme.

The requirement, it's been an ongoing discussion between Express Scripts and Novo Nordisk as well.

We could get on formulary.

The rebate requirement desired from them is not meaningful from our perspective.

We will have, of course, have -- we'll stay with [nations closest] with other PBMs, and I think what they're demanding doesn't make sense for us.

So we'll stay with the current formula.

So it's not a big surprise, but it's an ongoing and an evolving discussion with ESI.

Xultophy?

And on Xultophy, it's still early days in the U.S. We launched in the first half here.

And we see -- as both patients coming from failure on basal and failure on GLP-1 that's allowed onto Xultophy, we still have too few scripts to really say there's a clear trend.

With regards to access, we see good access but it's not to the magnitude of what we see for, say, the basal insulins or Victoza.

So we -- still relative modest access we have, but it's enough for us to go out and make sure that physicians gain experience with Xultophy being a combination product.

It's not, in our view, the first choice for a physician.

That will be a basal insulin or GLP-1.

So we'll gradually expand that as the preference, and expanding on the profile of Xultophy takes up.

So that's what I can say right now.

[Mark Ruji] from Pip Jay.

Couple of questions if I can.

Referencing the call yesterday.

You talked about R&D spend going into 2018 would be partially dependent on sema and the cardiovascular outcome trial.

Could you talk to the return on investment that you see on cardiovascular outcome trials in the light of EMPA-REG and whether or not you actually get a preferential position and whether you can make a return, whether it's worth doing?

As a kind of part B to that question, would you expect to do one for B molecule?

Or would you have to do one for sema weekly and then follow up with an oral cardiovascular outcome later on?

And then on the clinical trial that Mads referenced on the sema in obesity with the daily treatments at a higher dose showing no retinopathy.

Can you talk to the rationale and what confidence that gives you into a weekly treatment of diabetics that do have heightened HbA1c rather than normal?

So if I start on the cardiovascular outcome trials and the return on investment, you say it's a requirement to demonstrate cardiovascular safety when you do diabetes trials.

So you have to do it and then you can, of course, make a choice whether you do a pre-approval smaller trial or you do a post-approval large-scale trial.

We actually believe that the opportunity to go out and start this cardiovascular safety and protection is a significant selling opportunity for Novo Nordisk.

So moving diabetes treatment behind classical HbA1c treatment but actually expanding it into taking care of the leading cause of death for people with diabetes, that's not -- no, diabetes itself, it's a cardiovascular disease.

So we -- if we can kind of reset how diabetes is treated by having products like the GLP-1s that are cardioprotective and also potentially, if we can establish that by reducing hypos, we actually also reduce one of the leading causes of the cardiovascular issues.

I think we can redefine how we treat the diabetes and as such is worthwhile the investment.

But of course, you're right.

It's a significant upfront investment to conduct these thousands of patient trials, but we believe that we have such great assets in liraglutide and semaglutide that it's worthwhile.

Mads, to the clinical trial?

Yes.

And in that regard, maybe just to add to what Lars is saying, you get the cardiovascular benefit if you have drugs like semaglutide and liraglutide, but you also get a lot of other things.

Do bear in mind that LEADER was, from a U.S. perspective, a cardiovascular outcome trial to document safety post approval.

Whereas in the European context, it was the large safety trial, in general terms, looking into pancreatitis and all kinds of things that basically came out very favorably and have actually helped alleviate some of the fears of certain investigators historically surrounding the GLP-1 class.

When you look specifically into cardiovascular outcome trials in, for instance, obesity, the reason why, as I mentioned, we will be doing such a trial is simply that those who have done historically had failed miserably.

We all remember how sibutramine and others have actually come out on the wrong side of unity, i.e.

15% enhanced the risk of cardiovascular death, which is not the way you want to go with an obese agent.

We have reason to believe that the opposite will prevail for semaglutide, and we do believe that the community deserves such a study that, once and for all, documents that when you have maybe 7, 8 years reduced life expectancy, if you have a BMI above 35, a lot of that relates to the cardiovascular condition that we can do something about the -- in such a landmark study.

It will not be ready for launch, but it will be kicked off immediately as part of the Phase III April plan and will enable a data upgrade as soon as possible after the initial launch.

When it comes to the eye dilemma or situation, the reason why I elected to mention that in the obesity thing is those of you who have medical doctors will remember the old Koch's postulate from the German physician in the 1800s that when you're investigating whether something mediates or not a certain condition, you have to document whether it's present in the condition, whether it can mimic the condition and whether antagonism of that particular mediator will ameliorate that condition.

So as it pertains to this one as a mediator -- semaglutide, as a mediator of any eye problems, we, I think, have shown both statistically that it is mediated by the abrupt glucose drop in a so-called mediator analysis, where we have linked high baseline A1c and rapid glucose drop to something that you should avoid if you want to avoid this.

And that can either be done in terms of reducing preexisting insulin therapy like you do anyhow when you switch from one insulin to another by 20% or so or by being less aggressive in your treatment with semaglutide in the initial phase in such particular patients.

But the point I really want to make is that we are using doses up to, let's say, 3x the diabetes dose almost in the obesity trial.

And if you have a pure play pharmacologic effect on the receptor and by the way, that do not exist GLP-1 receptors in that part of the eye, so that's also an interesting finding.

But if there were, you would have expected maybe to see something when you go into, what I would call, almost suprapharmacological doses.

So that's the reason why we decided to mention.

Let me remind you that we have Mike Doustdar basically running the world outside of North America.

Yes, so you can also ask him questions.

I'm enjoying this.

Keyur Parekh from Goldman.

Two kind of broad questions please.

One last, just a clarification.

You said you expect the GLP-1 market to potentially double in size from where it is today, I assuming that does not include oral semaglutide.

It just is [variable] injectable formulations.

If that is indeed the case, then would you expect Novo's GLP-1 revenue to more than double given you would assume that you take market share with semaglutide rather than continue losing market share?

So is that a fair assumption?

Or am I missing something there?

Secondly, as it relates to 2018, from a commercial perspective both kind of U.S. and ex U.S., can you just help us think about your preferences between semaglutide versus Xultophy?

You've had Xultophy on the market for a few months.

It seems to be tracking below what Zuellig was doing?

So at what point of time do you kind of decide to invest behind Xultophy?

Or do you think semaglutide in the longer term is far more important to focus on in 2018?

So in terms of the GLP-1 growth, yes, my comment was, based on the injectable category as we know today, so when you have a category that's growing more than 20% right now and that dynamic has been going on for some time, I think it's reasonable that it could double.

And with no noise presence in that category, we should also be able to double, so yes.

The oral sema I see as a tablet, and it's a tablet -- a tablet will -- with the potential efficacy of Victoza.

And that'll be a significant play in the tablet-based category.

Obviously, there's something about price to consider because it's more expensive to manufacture.

But this is a kind of white space for us.

So I think there's a quite interesting options for us to go in the early treatment cascade.

And on Xultophy, commercial, was that for you, Mike?

I think it was related to U.S., right, the question.

Okay, so why don't you comment outside U.S.?

Yes.

I think, I see it as very 2 different categories of products, especially when it's come to ex U.S. Xultophy, for us, is a basal insulin, which primarily ex U.S. is being promoted to endocrinologists often and semaglutide is the next-generation GLP-1 Victoza which is much more broader for initiation, typically actually at the GP level.

So I see them quite separately in ex U.S.

Would say the same for the U.S. Next question?

Yes.

Simon Baker from Exane.

Two quick ones.

Firstly, I'd be keen to get your updated thoughts on expectation of change within the structure of the U.S. market, whether it's political or changing and evolving role of PBMs in that market.

And do you see the chance of political changes as somewhat diminished now?

Or are you still expecting that something's going to happen in the next few years?

And then moving back to sema.

I'd be interested to get your thoughts on the relative pros and cons in the obesity setting of oral versus subcutaneous and which one you think is the right way to go given the patient preference for one and the likely payer preference for the other.

I'll give it a shot on the U.S. markets part, and Mads can talk to obesity.

And any of my colleagues can chip in on the U.S. [part] if somebody has a good view.

I think we have to realize that the design of the U.S. health care system is one of, say, a private liberal market combined with regulatory requirements to enter the market and operate in the market.

That has some disadvantages because it's actually -- you can it's a bit potentially challenging combination to mix free market and then regulation.

And I think that has led through a complexity in the structure and a market mechanism and some participants that added up together is not really delivering to society what society expects of all of us.

That's a challenge because if we are all together not meeting the expectations of society, something will happen.

Then what this something is -- then it becomes a bit challenging because when you look at the political system, it's clear that both sides of the political system in the U.S., they want to do some changes.

But it's really difficult to do in this environment where you both have -- it's a free market, and Americans are not very receptive to federal regulation of health care.

And if you want to get to something that's more transparent, more effective, you need to regulate it somehow.

In my view, it's probably most likely that regulation will come in some of the areas where we see the biggest pain points.

And one of them is patients who fall between the cracks, patients who have high deductible plans ending up paying list price.

That's a clearly unsustainable thing.

We sell our products.

We give a rebate.

We book the net price, and then we are facing a situation where patients end up paying a list price because they are an unequal one in a weak negotiation position.

And somewhere on the way, the rebate disappeared in the progress of others.

That is unsustainable.

And I think that could be an area where there would be some regulation to stop that.

We have tried to show our commitment by putting in plans where we, together with PBMs, create the opportunity of buying no noise insulin, human insulin for $25 a vial.

So any American can walk into any pharmacy and get high-quality no noise insulin and pay $1 a day for getting treated.

So being a patient-focused company, making a decent business in the commercial sector is really important for us to also be there for those who are less fortunate.

So anybody can walk into a pharmacy, get that.

You can go into Walmart and also get no noise insulin and treat yourself for $1 a day.

So that's a direct-to-patient business model.

It could be interesting to expand that going forward.

And I think there will be -- and probably potentially an increasing amount of Americans who are out of insurance.

So the more we can do, say, direct-to-patient business, I think the better we are also in the respect of society, which, ultimately, is important for an industry to keep it status quo.

So we're doing our part, but unfortunately, I don't see a lot of consensus and moving.

So short term, this is not going to impact our business, but longer term, there could be an impact.

As a reflection of federal level not succeeding and regulating it, we see more and more activities at state level where states drive regulation that will force us to be much more transparent.

And that in itself, I think, will also regulate behavior and lead to something that's a better setup ultimately that we need to display or disclose what we pay in rebates.

The PBMs would have to disclose what they make on what they do.

I think that's a positive.

We have nothing to hide.

We already report in our annual report what is our gross, net.

So we can live with more transparency.

I sincerely believe transparency is good.

We're an innovative company.

We drive value for the patients, and we make -- I think we make a good earning on that, so we have nothing to hide.

That was a long story.

It could be even longer.

Mads, on oral or subcutaneous?

Yes, yes.

So we've done quite a lot across numerous continents, 5 continents.

We've done quite a bit of analysis among the obese community, and I can give you the crux of the matter at the end.

But first, there are people with obesity for whom being taken seriously and being considered as a person that needs a treatment, the injection is not that much of an issue because they actually feel that now and being taken seriously by society and by my physician.

Then, there are also, as we know from the diabetes space, many, many people with a great hesitation towards actually injecting because people just don't like injecting, even though it doesn't hurt that much, if at all.

Now then we've done a more quantitative analysis and actually look that what is it that will make a patient go from a tablet like oral GLP-1 to be willing to actually go onto an injection.

On a scale, how much weight difference do you actually have to be willing to inject?

And the interesting answer is the 6 pounds.

So it's actually funny that if we compromise and make an oral GLP-1 obesity treatment, which may -- we may well do 1 day, probably not oral semaglutide because, there, the dose we saw in Phase II would have to go up to 40 mg, 50 mg or so and that might, from a COGS perspective, not be the ideal situation, whereas we have other analogues moving down the research pipeline that might be doing the job at a much lower dose.

But that's for another day.

Now this thing basically means that people, they will not compromise.

I mean, efficacy is king among anti-obesity medicines.

So people will not compromise unless it's only a few pounds by going from injectable to oral.

So do we have to get it right with the right molecule at the right dose.

(inaudible) we have time for one last question.

It's [Nara Sherhan] from [Knee Street].

Question on Tresiba.

So obviously, you had couple of very strong quarters and you showed some interesting charts on improved market access across multiple different regions.

Are there any other sizable regions where, in the next 6, 12 months, you see access improving materially where we should expect similar kind of improvements in sales?

So Mike, that was a question for you.

So we have launched Tresiba in more than 50 countries and across the world.

As you saw from my graph, not in all places do we have equal access.

Majority of markets outside of Europe, Tresiba is right now out of pocket.

And of course, in all of those places, we are negotiating, wherever possible, to see if we can get small access and the same way as I believe we manage our insulin analogues portfolio where you come in and you ask for a limited access, let's say, for children.

And when that proves to be beneficial, then you expand the access from there.

So that is going on in a number of multiple countries.

Meanwhile, we are in the registration process of Tresiba in China, and I'm happy also to announce that, that process is going faster than we had originally anticipated and foresee a possible regulatory approval before end year.

If that happens, then, of course, we'll be launching Tresiba into China, which is not there right now.

And although we will not be on the federal reimbursement list, we will be able to do what we have been able to do with, let's say, Victoza over the last number of years up till now, showing the Chinese patients this next generation of insulin.

So all in all, it's a moving wheel, and we continue to penetrate.

It's doing well in most places where we launch.

There are very few places where Tresiba does not do well.

Thank you, Mike, and thank you all of you for the interest in Novo Nordisk.

We appreciate a lot your time, and thank you again to Sachin and Bank of America Merrill Lynch.

We'll be back after our Q3 results and look forward to that.

Thank you.

Thank you.