諾和諾德 (NVO) 2019 Q4 法說會逐字稿

Hello, and welcome to the Q4 2019 Novo Nordisk A/S Earnings Conference Call.

(Operator Instructions)

Today, I'm pleased to present Lars Fruergaard Jørgensen, CEO.

Please go ahead with your meeting.

Thank you.

Welcome to this Novo Nordisk conference call regarding our performance in 2019 and our financial outlook for 2020.

I'm Lars Fruergaard Jørgensen, the CEO of Novo Nordisk.

With me, I have our Chief Financial Officer, Karsten Knudsen; and our Chief Science Officer, Mads Krogsgaard Thomsen.

Also present and available for Q&A sessions are Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; and Executive Vice President and Head of International Operations, Mike Doustdar; as well as our Investor Relations officers.

Today's earnings release will be -- and the slides for this call will be available on our website, novonordisk.com.

The call is scheduled to last for 1 hour.

The presentation is structured as outlined on Slide 2. Please note, all sales and operating profit growth statements will be at constant exchange rates, unless otherwise specified.

The Q&A session will begin in about 20 minutes.

Please note that this conference call is being webcasted live, and a recording will be made available at Novo Nordisk website.

Please turn to Slide 3. As always, I need to advise you that this call will contain forward-looking statements.

Such forward-looking statements are subject to risk and uncertainty that could cause actual results to differ materially from expectations.

For further information on the risk factors, please see the earnings release and the slides prepared for this presentation.

Please turn to next slide.

At the Capital Markets Day in November 2019, we introduced our strategic aspirations for 2025.

These included 4 dimensions: purpose and sustainability; innovation and therapeutic focus; commercial execution; and financials.

In 2019, we have expanded our patient reach through new product launches and securing access for patients as well as expanding our Access to Insulin Commitment.

We further launched our environmental strategy, Circular for Zero, with the ambition for 0 CO2 emissions from operations and transportation by 2030.

Much is worth mentioning from the past year in regard to regulatory and clinical updates.

And I just want to highlight a couple of key recent events.

In January 2020, the U.S. Food and Drug Administration approved the cardiovascular risk reduction indication for Ozempic and additional cardiovascular safety data was included in the label of Rybelsus.

We furthermore received CHMP endorsement of Rybelsus in the EU.

In addition, we have completed the Phase II trial for insulin icodec, formerly known as LAI287, which Mads later will come back to for key results and next steps.

Turning to commercial execution.

Diabetes sales increased by 4%, driven by a 0.8 percentage point increase in our global diabetes value market leadership and the GLP-1 sales growth of 22%, reflecting the solid Ozempic launch.

Obesity sales increased by 42%, driven by the continued commercial efforts behind Saxenda while biopharm sales increased by 4%, supported by the broad product portfolio.

Total sales increased by 9% in Danish kroner and by 6% at constant exchange rates, supported by International Operations and North America operations growing by 11% and 1%, respectively.

The sales growth is reflected in operating profit which increased by 6% at constant exchange rates and by 9% in Danish kroner, totaling DKK 52.5 billion.

At the general meeting, the Board of Directors will propose a final dividend for 2019 of DKK 5.35 per share in addition to the DKK 3 per share paid as interim dividend in August 2019, totaling an expected dividend for 2019 of DKK 8.35.

Please turn to Slide 5. International operations increased sales by 11%, which was supported by growth across all regions and across all therapies.

International operations have succeeded with a market-fit approach with utilization of the broad portfolio of innovative products and sales were further supported by the underlying demographic trends.

Furthermore, Novo Nordisk did not experience any significant negative impacts on business conditions in 2019 which is an inherent risk especially in International Operations.

North America operations increased by 1%, driven by the GLP-1, obesity care and biopharm segments growing 19%, 28% and 2%, respectively, while insulin sales declined by 16%.

Please turn to Slide 6. When considering the 6% sales growth from a therapy perspective, we see similar trends as seen throughout 2019.

All therapy areas in both operational units contribute to growth except for insulin sales in the U.S. Global insulin sales declined by 3% due to a 17% sales decline in the U.S. The U.S. sales decline is driven by lower realized prices due to higher rebates across the insulin portfolio, the increased coverage gap exposure and inventory reductions in the first quarter of 2019.

The decline was partly offset by a 7% increase in International Operations where all insulin categories, except for human insulin, contributed to growth.

GLP-1 sales increased by 22% driven by 19% sales growth in North America Operations, supported by the strong uptake of Ozempic and 32% sales growth in International Operations.

The growth of the GLP-1 segment as well as Novo Nordisk's increased insulin volume market share are the key drivers of Novo Nordisk expanding its global diabetes value market leadership by 0.8 percentage point to 28.6%.

Obesity care grew by 42%, with both operating units contributing to growth, driven by promotional activities and continued global rollout of Saxenda.

Biopharm sales increased by 4%, driven by 5% and 2% growth in International Operations and North America Operations, respectively.

Please turn to Slide 7. In the U.S., the GLP-1 market continues to grow more than 30% in volume, driven by once-weekly GLP-1 products.

With the uptake of Ozempic and launch of Rybelsus, Novo Nordisk has a neutral brand market leadership of 57% and our GLP-1 market leader is measured on total monthly prescriptions with a 47% market share.

Total GLP-1 sales in the U.S. grew by 18% primarily driven by the continued uptake of Ozempic and initial Rybelsus sales reflecting pipeline filling, partly offset by declining Victoza sales.

Victoza sales were negatively impacted by changes in the payer and channel mix and the increased coverage gap exposure impacting average realized prices.

Victoza sales were, in addition, negatively impacted by the growth of the once-weekly GLP-1 product class.

Please turn to Slide 8. The GLP-1 segment's value share of the total diabetes market has now increased to 18% up from 14% 12 months ago.

It is a trend seen in both operational units and Novo Nordisk is a global market leader with a market share of 47.5%.

The global rollout of Ozempic continues, and it has now been launched in 26 countries.

Ozempic has been launched in 22 European countries and is off to a solid start with strong uptake in launch markets.

Novo Nordisk has stabilized its market share around 60%, while our share of growth is steadily increasing and is currently more than 61% in markets where Ozempic has been launched.

GLP-1 sales are growing across all regions, and in International Operations, the GLP-1 share growth is now 35%.

Please turn to Slide 9. Obesity care sales increased by 42%, driven equally by North America Operations and International Operations, reflecting continued uptake in Region AAMEO and Region Lat Am, and supporting the growth trends seen since the launch of Saxenda.

We are committed to driving change in obesity care and have now launched Saxenda in 46 countries globally.

Please turn to Slide 10.

Biopharm sales grew by 4% in 2019, driven by 5% sales growth in International Operations and by 2% sales growth in North America Operations as well as growth across both hemophilia and growth disorders.

The 4% hemophilia sales growth was supported by the continued rollout of the portfolio of innovative products with Refixia and Esperoct as well as stable NovoSeven sales and the solid uptake of NovoEight.

With this, over to Mads for an update on R&D.

Thank you, Lars.

Please turn to Slide 11.

In January, the U.S. FDA approved an Ozempic label expansion to include its use in reducing the risk of major adverse cardiovascular events, so-called MACE, including cardiovascular death, nonfatal heart attacks, nonfatal strokes in adults with type 2 diabetes and established cardiovascular disease.

The approval was based on the SUSTAIN 6 cardiovascular outcomes trial in which Ozempic reduced the MACE risk by 26% versus placebo, in both cases as addition to standard of care in people with type 2 diabetes and increased cardiovascular risk.

The FDA also updated the Rybelsus label to include additional information from the PIONEER 6 outcomes trial in which Rybelsus demonstrated CV safety with MACE occurring in 3.8% of people on Rybelsus versus 4.8% on placebo treatment.

Last week, the European regulatory authority, CHMP, issued a positive opinion for Rybelsus as the first oral biological treatment for adults with insufficiently controlled type 2 diabetes.

The recommendation is for Rybelsus to be indicated as monotherapy when metformin is considered inappropriate as well as in combination with other type 2 diabetes medications.

The approval, to be endorsed by the EU Commissioner within the next couple of months, reflects the significant metabolic improvements observed against all active comparators as well as the detailed cardiovascular outcomes data from the PIONEER 6 study.

The regulatory process leading to the CHMP opinion took only 9 months, the shortest time for a novel antidiabetic agent in EU throughout a decade or more.

Please turn to Slide 12.

In January 2020, we completed the key Phase II trial with insulin icodec, formerly LAI287, the first basal insulin intended for once-weekly treatment.

The 26 weeks trial included around 250 insulin-naive people with type 2 diabetes and investigated the efficacy and safety of once-weekly insulin icodec versus once-daily insulin glargine U100.

The primary end point was HbA1c reduction from baseline to week 26, where reductions of 1.33 and 1.15 percentage points were observed for insulin icodec and insulin glargine U100, respectively.

The HbA1c reduction was numerically 0.2% greater for icodec, but did not achieve statistical significance in this small study.

Observed hypoglycemic events were low in rate and did not differ significantly between the treatment arms.

Finally, insulin icodec appeared to have a safe and well-tolerated profile.

Based on these positive Phase II results that will be presented at a major conference later this year, we expect to initiate the Phase III clinical trial program in the second half of 2020.

The program will be designed and powered to identify both clinical and convenience-related benefits.

In December 2019, we completed the Phase I trial with icosema, formerly known as LAIsema, the once-weekly fixed ratio combination of insulin icodec and semaglutide.

The trial investigated the safety, tolerability and pharmacokinetics of a single dose of icosema compared to a single dose of the mono-components in people with type 2 diabetes.

The next steps for icosema development will be discussed with the regulatory experts in the near future.

Please turn to Slide 13.

In addition to the pipeline updates on Ozempic, Rybelsus and icodec, we've expanded our clinical biopharm pipeline by initiating a Phase I/II trial with Mim8, our next-generation factor VIII mimetic antibody for subcutaneous prophylactic treatment of hemophilia A regardless of inhibitor status.

The trial consists of 2 parts.

The first being a single-dose Phase I, randomized, double-blind, placebo-controlled investigation in healthy people.

The second part is a Phase II dose-range finding multinational investigation in people with hemophilia A. In the coming quarter, we expect to file Ozempic in China and somapacitan in Japan for the adult growth hormone deficiency indication.

We furthermore expect to initiate a Phase I trial with a once-weekly semaglutide, combined with once-weekly GLP analog seeking to define the optimal [incretin] ratio for further development in a fixed ratio combo product.

In addition, we're looking forward to the expected results from the pivotal Phase III program, STEP, with semaglutide in obesity; Phase II results for the once-weekly amylin analog AM833; as well as the Phase II results for semaglutide in NASH expected during the first half of this year.

With this, over to Karsten for an update on the financial results.

Thank you, Mads.

Please turn to Slide 14, where you will see the financial results for the full year 2019.

Sales increased by 9% in Danish kroner and by 6% at constant exchange rates to DKK 122 billion.

The gross margin for 2019 is around 0.7 percentage point lower than 2018 at 83.5% which is primarily driven by lower realized prices in the U.S.A.

and impairment of intangible assets partly countered by positive product mix and positive currency impact.

Sales and distribution costs increased by 6%, reflecting the continued investment in growth markets in International Operations as well as promotional activities for the global GLP-1 and obesity products with focused efforts on the launch of Rybelsus in the U.S.A.

Research and development costs declined 6%, driven by impairment of intangible assets, offset by the reversal of write-downs on pre-launch inventory for oral semaglutide.

The underlying increase in R&D cost is driven by the many large Phase III trials with the semaglutide molecule in different indications.

Administrative costs increased by 1%.

All in all, the sales growth of 6% at constant exchange rates has resulted in an operating profit growth of 6%.

In reported numbers, operating profit increased by 11% to DKK 52.5 billion.

The positive currency impact on profit is countered by a loss of DKK 3.9 billion on net financial items driven by losses on foreign exchange hedging contracts primarily relating to the U.S. dollar.

Diluted earnings per share increased by 3% to DKK 16.38.

Please turn to Slide 15.

During the coming 12 months, we expect to execute a new share repurchase program for 2020 of up to DKK 17 billion.

The proposed total dividend for 2019 increases 2.5% to DKK 8.35, which includes the interim dividend of DKK 3 paid in August 2019.

In connection with our Capital Markets Day in November 2019, we communicated an expectation of meeting our long-term financial targets by the end of 2019.

With the performance in 2019, we have met our long-term financial targets of average profit growth of 5%, cash to earnings of 85% as a 3-year average and operating profit after tax or net operating assets of 80%.

In their place, we have introduced our new strategic aspirations for 2025, which Lars will get back to a little later.

Please turn to the next slide.

For the 2020 outlook, sales growth is expected to be between 3% and 6% at constant exchange rates with an expected 1 percentage point positive currency impact.

The guidance reflects expectations for robust performance for the GLP-1 based diabetes and obesity care products as well as the positive contributions from the new generation insulin portfolio and key biopharm products.

The guidance also reflects intensified competition within diabetes care and biopharm and continued pricing pressure within diabetes care as well as expansion of affordability initiatives especially in the U.S.

Operating profit growth is expected to be 1% to 5% at constant exchange rates with an expected 1 percentage point positive currency impact.

The guidance primarily reflects the sales growth outlook, continued focus on resource allocation and continued significant investments in the GLP-1 and obesity franchises with the launch of Rybelsus, global promotion and launch of Ozempic and efforts in building the anti-obesity markets.

Financial items is expected to be a loss of around DKK 1.5 billion primarily related to losses associated with foreign exchange hedging contracts mainly related to the U.S. dollar and the Chinese yuan.

We expect the free cash flow between DKK 36 million and DKK 41 billion in 2020.

With this, back to you, Lars, for closing remarks.

Thank you, Karsten.

Please turn to Slide 17.

We are very satisfied with the financial performance in 2019.

The results reflects an accelerated sales growth in International Operations and a strong launch of Ozempic in particular, in the U.S. and Region Europe.

The Rybelsus launch in the U.S. is off to a good start and we are pleased with the CV label indication for Ozempic in the U.S.A.

and the U.S. recommendation to approve Rybelsus, all to the benefit of our patients.

As mentioned, we'll use our strategic aspirations to provide direction for our company's performance as a sustainable business.

Some additional important steps towards achieving our aspirations are outlined on this slide.

Mads covered most of our new innovation priorities for 2020, Karsten presented the financials for 2020.

And earlier, I went through the commercial performance with expansion of our diabetes value market leadership, continued growth in obesity and the resilient biopharm business.

This is all in line with our strategic aspirations.

Worth mentioning are also our efforts within sustainability.

In January 2020, we expanded our affordability offerings in the U.S.A., and we have signed an agreement for solar energy covering all power consumption across the U.S. operations effective as of 2020.

We are now ready for the Q&A.

(Operator Instructions).

Operator, we're now ready to take the first questions.

(Operator Instructions) The first questions we have is from the line of Richard Vosser from JPMorgan.

Richard Vosser at JPMorgan.

So first question, just on 3 products, Tresiba, Xultophy and Victoza.

They all looked like they had some incremental rebates maybe in Q4.

Maybe you can explain the dynamic there and how we should think about those products and rebates price pressure going forward.

And then second, a question on LAI287 icodec.

Just how are you seeing this sort of profile in terms of PK relative to Tresiba and Lantus?

Is it as smooth as Tresiba?

And maybe you could talk about the changes to the routine.

I think you hinted at convenience, but seems like the number of finger sticks that are needed with the product, and obviously, the dose goes down to once a week.

So just the thoughts there, please.

Thank you, Richard.

Karsten, first on Q4 rebating for Tresiba, Xultophy, Victoza.

Yes.

So thank you for that question.

For Tresiba, Xultophy and Victoza, when we look at the in-market volume performance and market share performance, what we're seeing in Q4 is a continuation of the trends we've seen in previous quarters.

So there are no significant changes in trends on the volume side.

Then that also means that anything you see in Q4 is basically a quarterly fluctuation.

And since we have not called out rebate true-ups or adjustments, that means that that's not a big explanatory factor.

So you should see the quarterly performance of Tresiba, Xultophy and Victoza as a continuation of what we've seen in prior quarters.

And then there is a quarterly fluctuation but there's nothing on the underlying, either volume or pricing trends, you should adjust based on Q4.

Thank you, Karsten.

And Mads, on icodec, former LAI?

Yes.

Well, Richard, vis-a-vis how icodec achieves its very smooth profile, it hinges upon the enhanced albumin binding in the circulation.

So it's a circulating depot of the insulin analog that is then balanced up against the affinity towards the insulin receptor.

And that gives us this 1 week half-life and hence, very smooth action.

If you compare the action profile vis-a-vis the distribution over the 24 hours of the day and night cycle, it is more reminiscent of that which we know from insulin degludec than from insulin glargine, which is also why we believe it can have a compelling profile in the Phase III trials that we intend to start in the fourth quarter.

You also hinted at the ease of -- or the burden of treating yourself on a daily basis.

Typically, you do start the morning with a finger prick and a fasting blood glucose measurement to adjust your insulin dose if you're on Tresiba or Lantus, for instance, whereas here, it will only be called for once upon a week rather than 7 times a week, and that also of course, has some health economic consequences on top of the potential clinical differentiation that we will seek to define for this product in Phase III.

Thank you, Mads.

Thank you, Richard.

The next question is from Peter Verdult from Citi.

Pete Verdult, Citi.

Two questions, please, Rybelsus and innovation.

Lars, just the latest on your thoughts regarding the timing of the full launch in the U.S. And if we quickly switch over to Europe, I realize we are awaiting EMA approval, but any early feedback you can give from EU countries regarding Rybelsus reimbursement given the price disparity versus other OADs, that would be helpful.

And then secondly, Mads, just on innovation.

Can you confirm whether you have or have not seen the ELAD data yet?

Or is that in-house?

And then with respect to the PYY analogue that you're moving forward, can you talk a little more, as much as you can, on the clinical profile that you've seen thus far in both monotherapy and combination settings?

So Pete, thank you for those 3 questions.

So you'll probably get a very short answer on one of them.

I'll start out with Rybelsus access.

We have approximately 30% combined access so across commercial and Part D in the U.S. So -- which corresponds to some 75 million patients.

We will -- we have trained our sales force.

And now we are at a time where we can go into strike mode as we built sufficient access per territory.

We'll not give specific guidance, and I trust you understand that, for competitive reasons, that's not really in our favor to do that.

But we feel very comfortable about both building the access in the U.S. and deploying the sales force into strike mode at a time where it gives sense.

And remind that in the meantime, they are all productive on Ozempic.

We have a positive opinion in Europe, which is obviously good for later approval, but we'll not get into specifics about when we'll launch in Europe.

In general, we feel good excitement around the profile of the product, which caters well for the price negotiations, but I think it's too early to be specific on that.

And then Mads, a very short answer on the lab data and then maybe a bit more clarity on PYY?

Yes.

So it is actually Dr. Paul Edison, who -- at the Hammersmith Hospital associated with Imperial College in London, who is, of course, the investigator in this investigator-initiated study.

It is true that it is supported by the U.K. Alzheimer's Society and by Novo Nordisk in terms of making it possible financially and with respect to the medicines.

But we will not have those data in our hands.

And I don't think that the data are available at this point.

It is Dr. Edison who is responsible for the trial, but we hope to get to know some of these data within, let's say, the next couple of months.

That's the best guesstimate I have.

Vis-a-vis the PYY, we have terminated 1 of the compounds for the sheer reason that the half-life did not fully support a once-weekly administration of the product.

Unlike the other one, the one that I call 1875, which is a true once-weekly profile, and that will now be investigated in more extensive studies.

This so far has only, actually for that compound, been on a single-dose basis.

Thank you, Mads.

Thank you, Pete.

The next question we have is from Wimal Kapadia from Bernstein.

Wimal Kapadia from Bernstein.

So back in 2018, early 2018, you commented that Ozempic will achieve sales of at least DKK 1 billion in its first full year.

Are you able to give us any similar thoughts on Rybelsus in its first full year of launch?

Given the size of the copay program is significantly larger; any color would be great.

And then just secondly, on the weekly insulin.

Could you talk a little bit more about which populations you expect to see greatest use?

I ask because if the hypo profile is similar, why wouldn't a product get widespread use?

And then tied to this, could you give us any color on the weight gain versus Lantus?

And does the hypo comparability with Lantus suggest a higher rate than Tresiba?

So thank you, Wimal.

I have to let you down on the guidance for sales on Rybelsus.

So we feel, as I mentioned before, confident in building the access, but we don't want to put ourselves under pressure here.

It's important to land the right level of access.

And in the meantime, we have very strong momentum behind Ozempic.

So building the right access is what determines, say, the medium, longer-term success of the product.

So it's in that -- in that perspective, it's not meaningful to guide for the first year.

Mads, back to weekly insulin.

Yes, so Wimal, it is absolutely correct that if the insulin icodec profile being given with a smooth action profile on a once-weekly basis, that should, on the one hand, basically cater to a population of earlier insulin adopters.

We have today the situation where the need for a once-daily finger pricking and insulin injection and frequent titration changes, does mean that in many, many countries, insulin is not being used in insulin-naive patients until the HbA1c levels are clearly above 8% and in many countries, even above 9% before they adopt insulinization.

So this is an ability to go early into the treatment cascade where people actually should be treated with insulin in type 2 diabetes.

And obviously, if the profile also caters for type 1 diabetes, we know from previous experience with the insulin degludec, which we tried to use 3 times weekly that that -- actually, there is a desire even in type 1 diabetes to have fewer injections.

So the burden and the hassle of the frequent injections is, for sure, there.

Of course, if the hypoglycemia profile that we can define in Phase III ends up to be more Tresiba-like, then it's truly clinically differentiated in terms of hypo risk profile.

If it ends up to be more glargine-like, then the major differentiation is, of course, the burden of the treatment and so on.

But what we know today, we -- and we are continuing to explore throughout the rest of the Phase II is that the profile seems to have a very smooth and a very low variability -- intra-patient variability profile.

So we will actually seek to make the Phase III trials powered in such a way that we are able to define clinical benefits.

Thank you, Mads.

Thank you, Wimal.

The next question we have is from Trung Huynh from Crédit Suisse.

Two, if I may.

First one, for 4Q, we saw a slight step-up in COGS versus the rest of the year.

At the CMD, you noted gross margin would be broadly flat despite the negative Rybelsus impact.

Are you still confident you can keep gross margins broadly flat for 2020?

And then just on NovoSeven, throughout the year, you can see it's a bit lumpy, but the overall trend was flat for the year.

Have you had any thoughts -- have your thoughts changed about the trend for that product?

Thank you, Trung.

Karsten on Q4 COGS.

Yes, so you're right that our cost of goods is up.

It's up some 12% in local currencies.

But when you look at it, then we still have a gross margin of 83.2% in the quarter.

So still an attractive gross margin and not too far away from the -- from our full year gross margin.

And our guidance for 2020 includes a flat gross margin for -- in our guidance.

So in that sense, we are confirming what we've said before.

There's one piece to note around that, is that of course we had impairments in the third quarter of this year, negatively impacting our gross margin in '19.

So that, of course, benefits the base, if you will, for our 2020 guidance, which is impacted by Rybelsus.

But net-net, our gross margin is flat between '19 and '20.

Thank you, Karsten.

On NovoSeven, years back, we guided that we would expect to lose maybe potentially 50% of the business.

Consistently, we have seen since the launch of HEMLIBRA that that erosion is lower than what we had expected.

And potentially also NovoSeven has an important use as rescue treatment.

So we still expand as HEMLIBRA goes into more and more territories, that there'll be an impact.

But it's a slower trend than what we've seen before, and I don't think Q4 has any particular change in that regard.

Thank you, Trung.

The next question is from Mark Purcell from Morgan Stanley.

Firstly, on North America, secondly on Alzheimer's.

In terms of North America, I was hoping you could provide more granularity around your guidance at the Capital Markets Day of flattish or sort of 2% growth for 2020 and 2021, broken down by the headline -- or the headwind component parts.

So clearly, you've given us an idea in terms of the impact from the donut hole, both on a group sales, U.S. sales as well as group EBIT.

But could you help us get a flavor or feel sort of the estimate you feel comes from the insulin affordability initiatives in terms of how much of a drag this has on U.S. growth in 2020 and 2021?

And then how much of a drag you're putting into your planning assumptions when it comes to interchangeable biosimilar insulins launching in 2021.

And then secondly, on Alzheimer's, I mean clearly, patient registry studies and clinical trial metanalyses have supported a procognitive benefit for diabetes drugs in diabetic patients with Alzheimer's disease.

However, as far as I'm aware, Mads, there's no evidence of a procognitive benefit in nondiabetic Alzheimer's patients and the pioglitazone TOMORROW trial failed in this respect, having shown a very strong signal in diabetic patients.

So I'm just wondering if you can help us understand against the positive regulatory backdrop of Alzheimer's clinical trials and similarly, registration, what signal would you have to see on secondary cognitive end points to move semaglutide into an ELAD 2.0 type study?

Just thinking about what the sort of smart risk signal would have to be.

And wouldn't a smarter risk be to run a pivotal trial in patients with impaired glucose tolerance or pre-diabetes, where the use of diabetic agents presumably could reduce cerebral blood glucose-induced inflammation, which could increase the pathogenesis within an Alzheimer's diseased brain.

So any clarity there would be great.

Thank you, Mark, for those elaborate questions.

Karsten, if you start out on the North American guidance for 2020 and potentially high level '21, to the degree we can on the different aspects.

And then Mads can follow up on the Alzheimer's question.

Yes.

Thanks, Mark, for the question.

So the guidance we put out today for 2020 is fully in line with what we communicated at the Capital Markets Day when we talk to an IO sales growth in the range of 6% to 10% and then a flattish U.S. sales growth for 2021, so 0% to 2%.

So there are no changes to our communication there.

The growth rate in the U.S. and when we look at flat sales growth in 2019 and then moving into 2020, just to give you the key building blocks, then in 2019, we have a negative impact of some DKK 2 billion linked to the donut hole legislation.

Then moving into 2020, then the donut hole legislation has an incremental impact of DKK 1 billion.

But on top of that, we have affordability initiatives that we've been communicating around and have launched here early January.

If you take those 2 combined, then the 2020 impact is similar to the DKK 2 billion impact we had in 2019 on donut hole.

Then on the positive note, then we see a very solid GLP-1 momentum in the U.S. So the market is growing around 30%.

We are taking share and we are at the early stages of Rybelsus' launch.

So that's, of course, positive factors.

Those factors are then being weighed down by a continued insulin pricing pressure, so a continuation of declining average realized prices for our insulins.

And to your question as to interchangeable insulins and impact from that, then our assumption is that given that we are seeing additional launches in the U.S. marketplace, then we will see a continuation of decline in average realized insulin prices both in 2020 but also into 2021.

And then over to the Alzheimer discussion.

A couple of things we should really bear in mind, as you correctly state, it is absolutely the case that most of the registry studies and things you can read in the academic literature are based on use of antidiabetic medications in people with diabetes and cognitive problems and/or dementia.

Of course, we should remind ourselves that the ELAD study is actually not a diabetes-dementia study.

That is a true Alzheimer's study in patients with an MMSE score of above 20, so mild Alzheimer's, early-stage Alzheimer's.

So it will be interesting to follow the readout of that in the next couple of months, I believe.

When it comes to the role of glucose metabolism in the brain and the evolution of Alzheimer's or dementia, it may well be that the glucose metabolic changes, i.e., a decrease in glucose metabolism in the brain with increasing dementia, whether it's causative or it's an EP phenomenon, we do not know for sure.

But it may be independent whether or not you have diabetes.

I'm also aware of the notion that pioglitazone had the positive readout in Phase II.

And as many other Alzheimer's trials failed miserably later on, and that, unfortunately, has been the destiny of basically all Alzheimer's compounds to date.

So it's critically important that we will evaluate all available evidence from academic and other studies, including registry start and whatever data exists, if and when we make a decision to progress.

But then again, the unmet need is of such a magnitude that if there is a role for GLP-1 to play in this serious disease, then, of course, it would be relevant to use the best in GLP-1 analogues available for that problem.

Thank you, Mads, and thank you, Mark, for those questions.

The next question is from Sachin Jain from Bank of America.

Just 2 quick ones, please.

Firstly, on Rybelsus scripts, I know it's early days, but can you give us any flavor of source of those patients, whether it's through existing injectables, orals or just through expansion of the market?

Second question is on NASH.

Heading into the Phase II both mono and combination data, Mads, you've given some benchmarks on obesity of around the 20% weight loss as a bench.

I wonder if you could just frame the upcoming NASH data similarly to what you're looking for as a benchmark to progress on both the MRI end point and then the NASH resolution.

And whether you would take a Phase III decision based on just the mono or you would wait for both the mono and combo data?

Thank you, Sachin.

And Camilla first on Rybelsus' source of business.

Yes.

So what we see with Rybelsus is that the primary number of scripts are coming from patients that are not previously on injectable medication.

So that means to the tune of between 70% and 80% of the patients are sourcing -- are sourced from either naive patients, metformin patients, SGLT-2 [DPP-4].

So that is a relatively big change compared to what we saw with Ozempic by the time of launch, where it was exactly the opposite initially.

So that confirms the expected positioning of Rybelsus in the market so far, but it's still, of course, early days.

Thank you, Camilla.

Mads, on NASH Phase II data and kind of benchmark what to measure against.

Yes.

So of course, we do not have the data at this point in time.

They're coming kind of late Q2-ish.

And what we know from the original study using Victoza, the LEAN study, is that there was an apparent natural solution in a single center study in 39% of patients versus 9% on placebo.

So that was actually a NASH resolution without aggravation of fibrosis in -- with the difference between the groups of 30%.

That would be a very bold target for any product because I think when you have followed all the other late-stage compounds in the NASH pipeline, one typically sees delta values differences to placebo to the tune of 10% or maximum of 20%.

But we do have reason to believe that when you exceed a body weight loss of more than 10%, there are very elegant studies in the literature that show that this is associated both with natural solution in a significant proportion, but also regression of fibrosis.

So it all depends on the degree of weight loss and potential other effects, such as anti-inflammatory, that can be seen.

And we will not give you a target for what will make us go into Phase III.

This is something that management will actually look at in the months that lead up to the evolution of the Phase II data.

That's the standard principle for the way we govern our pipeline.

Thank you, Mads.

Thank you, Sachin.

The next question we have is from Seamus Fernandez from Guggenheim Securities.

So just hoping to get a better understanding of a little of the direction of the insulin market overall.

Can you just help us understand the competitive landscape and how that's evolving overseas versus where pricing and volume is headed in the U.S.?

We're seeing some interesting dynamics, particularly also in the Medicaid portion of the market.

So just hoping you guys could give us a little bit of an update there directionally going forward and what the pushes and pulls are for the guidance in 2020.

And then separately, for Mads, I fully understand the need to continue to pursue the Alzheimer's possibility, but I think we'd all appreciate understanding a little bit better what the threshold would be to move forward into clinical studies on the basis of this very small study.

I think we've seen with aducanumab a threshold so far that is a differential of about 0.4.

And on the CDR sum of boxes, just trying to get a better understanding of what it is that would drive Novo Nordisk to move forward pursuing this very speculative GLP-1 thesis.

First, on insulin, it'll be a relative generic question.

If you look at the insulin growth of the market, that has come down somewhat because we see the GLP-1s growing by 30%.

So there isn't a more and more efficacious alternative to insulin.

So the growth of the market has come down.

And then in the U.S., you have a situation where there's a number of products competing against each other.

So for 2020, we see an overall unchanged competitive situation where there is an opportunity for buyers to play out the companies against each other.

And that leads to a continued erosion of value of the market.

Then you have some coming in trying to capture the Medicaid market, and we see that there's a play on price there.

It doesn't change from a financial point of view a whole lot because that's a segment that is close to 100% rebated.

So it's -- if anything, it's actually increasing average pricing that you're not active in that.

So that's not a big concern in terms of losing volume in that.

So we lose, actually, share in that category while we gain volume with our innovative product, Tresiba.

Mads, back to Alzheimer's.

Yes.

So first of all, we will look at the totality of evidence together with the experts in the field.

And by totality of evidence, I mean that the ELAD study per se, to the best of my knowledge and insight, you can rely mostly on the primary end point, which is the FDG-PET scan measuring glucose metabolism evolution over 1 year treatment with either placebo or Victoza.

And that is the major readout for that because I think the cognitive measures in the amount of patients and the duration of treatment might be too subtle to expect too much there.

But there, we will have to rely on other big -- you can see patient numbers such as the ones that you can pick up by cross-coupling various personal registries, disease registries of Alzheimer's and so on and looking at what happens in people who are treated in a propensity score-matched cohort set up against each other and look at the onset of diagnosis of dementia, similarly, looking into insurance claims databases, for instance, in the U.S. and see what can come out of that.

And if the totality of evidence in agreement with regulators is in favor of going towards, for instance, Phase III trial activities, that could then either be looking into mild cognitive impairment and following the functional outcomes of these patients over time, a year or 2 years maybe, or it could be looking into mild dementia, i.e., pure-play Alzheimer's.

But even that decision would hinge upon some of the analysis that we will hopefully be doing over the months to come, but I have to repeat that we do not know the ELAD data.

And of course, they are not the single determining factor, but they do play a role in making up their minds on potential further progress.

Thank you, Mads.

Thank you, Seamus.

And I'd just remind you that we have also Mike Doustdar here, the very successful leader of our International Operations, growing 11%.

So there might be some questions to him.

The next question is from Michael Novod from Nordea Markets.

It's Michael from Nordea in Copenhagen.

Two questions, probably also one for Mike.

So on Japan, maybe you could share some of the details of the MST agreement and the dynamics you expect from Rybelsus in Japan in second half of 2020 and especially going into 2021.

And then secondly, on Rybelsus access in the U.S., it looks like that it's actually on par or beating the trend for access for Ozempic.

So should we expect this to be sort of, say, reflective of also the coming 6 to 9 months in terms of tracking Ozempic access in the U.S. with regards to Rybelsus?

Thank you, Michael.

Mike, on Japan and our partnership.

Yes.

So Japan, I think, is the second largest single country opportunity for us in Rybelsus, if you can get it right, after U.S. It's predominantly an oral market.

As you know, injectables are only, I think, 14% of the market.

So of course, we're very excited about the introduction of Rybelsus there.

In order to do a good job with that molecule, we need to, of course, have a very good coverage of general practitioners, which we do not have in Japan.

And that has led us to trying and find the best partner that actually has such good coverage, and MSD, Merck was chosen after a thorough process, as they've done phenomenally well with the Januvia franchise in that market.

I cannot get into, of course, the details of the contract, but what we will be doing is we're working already jointly to bringing the product into the market post registration and then co-marketing it, while they will predominantly focus on coverage in the PCP and the GP areas.

We will continue with what we know best, covering the endos and continue with that partnership.

Thank you, Mike.

And on Rybelsus access in the U.S., we are encouraged both by the level of access we have been able to sign contracts on, but also on the script uptakes.

But I think it's going too far to interpretate between Ozempic and Rybelsus, whether the access we have at a given point of time is a proxy for a different level of access and uptake because it comes a bit in clumps of volumes.

So I think that's -- I wouldn't comment on that, but we're encouraged by what we see and the interest in the product.

Thank you, Michael.

The next question we have is from Michael Leuchten from UBS.

Michael Leuchten from UBS.

One question for Mike.

Obviously, China may or may not see a level of disruption given the coronavirus.

Just in your mind, sort of what's the risk to your infrastructure, your ability to perform business there, if any?

And then a question for Karsten.

When I look at your guidance range on the top line and the EBIT, there are sort of 2 ways to interpret that.

One way would be to say there's going to be margin pressure regardless or as a way to look at it and say, no, there is actually a scenario where the margin could go up.

So the intent of your guidance range on the EBIT, does it mean it's pure and simple an investment year, and we should not expect a potential margin uplift, even if it's small?

Thank you, Michael.

First, on coronavirus in China and how that could impact our infrastructure?

Yes.

So Michael, as you have heard from Lars, the 2020 guidance does not include any significant financial impact from the coronavirus.

I think it is premature to conclude the financial number right now, given that both timing of it, it's still early and the uncertainty around the situation.

Right now, the main priority is to protect the health of our employees and the public.

We have agreed to extend the vacation period post Chinese New Year's, by an additional week.

So until next Monday, actually, we are working from home and not visiting the physicians and the hospitals.

The situation on the ground is a little bit different than usual.

Hospitals are geared on trying to solve the coronavirus and chronic disease treatment has become priority #2 right now.

We have to see how long this situation continues before we can put some impact on it.

In terms of manufacturing and supply chain, we right now feel comfortable that we can continue doing that again as soon as this extra week of vacation is over.

So for the time being, it's business as usual, but we're watching it very carefully as it can change quite a bit.

Thank you, Mike.

And Karsten, on guidance, looking at and tap into EBIT and the spread there.

Yes.

Yes, so Michael, it is, as you said, it's pure and simple an investment year.

The opportunity we have with the launching Rybelsus in the U.S. and then launching Ozempic in international markets makes this a critical year to get these 2 products successfully off the ground in terms of commercial execution.

So we take the investment to do so.

So yes, an investment year.

Thank you, Karsten and thank you, Michael.

The next question is from Carsten Lønborg Madsen from SEB.

A question for Mads, to start out with here.

Mads, just in looking at the future of the GLP-1 market and trying to rank the products that will be in the market, maybe in, say, 2025 or something like that, I'm asking because, of course, Lilly, they are pushing forward with tirzepatide.

They are making a larger CVOT trial up against Trulicity, a pretty strong drug to compare themselves against.

What do you expect?

And what will be your defense in this?

I know you're talking about high-dose Ozempic, but exactly what are the time lines for the high-dose trial with Ozempic?

And also when it comes to the summertime Phase III obesity data.

Is there anything we'll learn from that in terms of high-doses of Ozempic and type 2 diabetes?

Thank you, Carsten.

Straight question for you, Mads, in terms of the landscape in GLP-1 over a couple of years' perspective.

Yes.

So well, Carsten, first of all, it is true that the Sema FORTE trial or SUSTAIN 4, as we call it, that will read out during the second half towards the later part of this year.

That is a full-blown 2-milligram dose of semaglutide that are modelers based on existing data from our own obesity/diabetes trials and those of our peer group.

We'll match the best that will become available out there in the years to come in terms of other products.

But do bear in mind that we are also progressing -- I hope the semaglutide, amylin 833 combination product that even though we talk to this as predominantly an obesity drug, there are reasons to believe that amylin plays a role.

Pramlintide today is actually a multiple times daily injection for diabetes -- in Type 1 diabetes.

So this is a very powerful drug that in the combination might find use, in principle, not only obesity but also in Type 2 diabetes and even in fatty liver disease NASH.

And the last one we are bidding on, as I mentioned today, is the combination of semaglutide in the optimal ratio with the once-weekly human GIP analog that is starting clinical trials in the quarter to come.

So I think we have plenty of bits to retain the leadership position vis-a-vis strong efficacy in this field also towards the middle of this decade.

Thank you, Mads.

Thank you, Carsten.

We have time for one final set of questions, please.

Your final question is from Simon Baker from Redburn.

Firstly, on Ozempic.

I wonder if you could give us an update on plans for bringing in a next-generation device.

There was always a concern that the existing device put you at a disadvantage to Trulicity, but that doesn't seem to have been borne out by the performance of the drug.

So maybe if you could just give us an update there.

And then secondly, on insulin icodec, the clinical profile looks extremely impressive.

But given the challenges from a commercial and an economic point of view within the insulin market, I wonder if you could give us your thoughts on the potential reimbursement challenges and adoption challenges that you face in that space despite the clear differentiation that the product appears to have.

Thank you, Simon.

So on Ozempic device, looking at the current performance of Ozempic, I think we have concluded that we have a very, very strong device supporting the drug.

So we are not investing in changing that.

So we're comfortable that we can keep driving Ozempic based on what we have.

In terms of insulin icodec and reimbursement, I think it's premature to speculate around that.

We will, at a conference this year, share more about the data.

We are encouraged by what we see.

But obviously, it's a readout in a large-scale Phase III program that will determine the clinical benefits and also tease out the health economic benefit in using such a product profile.

But obviously, had we not believed it would be a very attractive product, we wouldn't be investing in it.

So we feel comfortable of that.

With that, I would like to thank you all for your time today.

We appreciate your interest and your questions and the discussions.

And we look forward to see you around throughout the year.

Thank you very much, and have a good day.

Bye-bye.

Thank you.

Ladies and gentlemen, that concludes the Q4 2019 Novo Nordisk A/S Earnings Conference Call.

Thank you all for joining.

You may now disconnect your lines.

Have a great morning or afternoon ahead.