Novo Nordisk 4Q17 – Modest 4% growth for diabetes/obesity in 4Q17, +7% in 2017; Growth drivers include new-generation insulins (50%), Victoza (37%), Saxenda (12%); Semaglutide CVOTs SOUL (type 2) + SELECT (obesity) to begin this year – February 1, 2018

Novo Nordisk announced its 4Q17 and 2017 financial results Thursday morning in a call led by CEO Mr. Lars Jørgensen. There were two major changes on the management side (one on the Board of Directors and one on the executive board), and the call was rife with discussion on major diabetes/obesity products, the diabetes pipeline, and muted financial expectations for 2018 – we cover all of this in-depth below. This full report is expanded from the First Look we published earlier (soon after the call wrapped), with more analysis, a comprehensive pipeline summary table, and illustrative graphs.

Also check out Novo Nordisk’s press release, slide deck, and roadshow presentation. We’re always impressed by the level of detail this company provides in its financial reporting and updates.

Table 1. 2017 Financial Results for Novo Nordisk’s Major Diabetes and Obesity Products    

Table 2. 4Q17 Financial Results for Novo Nordisk’s Major Diabetes and Obesity Products   

Financial Highlights

1. In Muted Quarter, Diabetes/Obesity Portfolio Grows 4% YOY and 4% Sequentially to $3.7 Billion; Full Year D/O Revenue Grows 7% YOY to $13.9 Billion; Unexpected Leadership Changes

Novo Nordisk’s diabetes/obesity portfolio fell 3% YOY as reported (but +4% operationally) and grew 4% sequentially to DKK 23.1 billion ($3.7 billion) in 4Q17. This was from a base of DKK 23.8 billion ($3.9 billion) in 4Q16 and DKK 22.2 billion ($3.5 billion) in 3Q17. Big picture, the fourth quarter and full year were characterized by muted – but still positive – growth. Nonetheless, Novo Nordisk’s diabetes/obesity business boasts multiple bright spots. In 4Q17, the company’s new-generation insulins (Tresiba, Xultophy, Ryzodeg, and Fiasp) posted $380 million, reflecting only 10% of total diabetes/obesity sales but driving a remarkable 38% of portfolio growth. With $1 billion in revenue, GLP-1 agonist Victoza reflected 27% of total sales and drove the lion’s share of growth (53%). With $112 million in revenue, obesity drug Saxenda reflected merely 3% of total sales but drove 9% of growth.

• Looking at 2017 as a whole, the diabetes/obesity portfolio grew 2% YOY as reported (7% operationally) to DKK 90.3 billion (~$13.9 billion). Following 2016 (with $13.2 billion in revenue and 4% YOY reported growth), this was another year of modest, but still positive performance. For the year, new-generation insulins reflected <10% of total portfolio revenue ($1.3 billion) but drove 50% of growth, by our calculations. Victoza sales of $3.6 billion accounted for 26% of revenue and a 37% share of growth. Saxenda sales of $394 million accounted for only 3% of revenue but drove 12% of portfolio growth. In contrast, Novo Nordisk’s modern insulin portfolio fell 7% YOY as reported (-4% operationally) in 2017, with combined Levemir + NovoLog + NovoMix sales of DKK 44.4 billion ($6.8 billion) vs. ~$7 billion in 2016. Levemir experienced the steepest sales decline, down 17% YOY as reported (15% operationally) to DKK 14.1 billion ($2.2 billion) vs. ~$2.5 billion in 2016; though still a meaningful source of revenue, Novo Nordisk management acknowledged that next-gen Tresiba is cannibalizing some Levemir sales and that this will likely continue (this goes without saying in our view, and we suspect Sanofi’s Toujeo is getting some of those sales too).
• 2018 financial guidance: Novo Nordisk announced guidance of 2%-5% sales growth in 2018 (in local currencies). For comparison, 2017 financial guidance was -1%-4% sales growth in local currencies.
• CEO Mr. Lars Jørgensen announced unexpected changes to the executive management team – namely, Mr. Karsten Munk Knudsen will take over for Mr. Jesper Brandgaard as CFO, while Mr. Brandgaard’s role will shift fully to focus on the biopharma business (he took over the biopharma business in 2017 and we had thought at the time that it sounded like a lot!). Additionally, Chairman of the Board Mr. Göran Ando decided not to seek re-election, and the Board has proposed that current member Mr. Helge Lund be elected as Chairman in his place. For the quarter, generic entries for Novo Nordisk’s biopharmaceutical portfolio had the most negative impact on the company’s performance overall. Even still, it’s been a while since the days of double-digit growth across multiple portfolios, including diabetes. It appears that biopharm was the primary driver of reduced sales in 4Q17 and 2017, although management also noted (and table 2 reflects) increasing competition within the diabetes market worldwide, with particularly intense pricing pressure in the US.

Figure 1. Total Diabetes/Obesity Sales (1Q12-4Q17)

2. Victoza Shines at $3.6 Billion in 2017, +16% YOY; Also Hits $1 Billion in Sales for 4Q17 in Record-Setting Quarter

Victoza (liraglutide) sales rose 16% YOY as reported (18% operationally) to DKK 23.2 billion ($3.6 billion) in 2017, from a base of ~$2.9 billion in 2016. Sales were similarly strong in 4Q17, climbing 17% YOY as reported (27% operationally) to DKK 6.3 billion ($1 billion), from a base of ~$774 million in 4Q16. This represents 18% sequential growth from $844 million in 3Q17, following a mildly disappointing 8% sequential drop that quarter. This quarterly revenue easily tops Victoza’s previous all-time high of $887 million in 2Q17, and, while still outpaced in the branded diabetes market by the likes of DPP-4 inhibitor Januvia (at ~$6 billion/year), we’re extremely encouraged by the continued growth of this and other GLP-1 agonists. To this end, we note that the GLP-1 class is on track to hit ~$1.8 billion in 4Q17, though we’ll know for sure after Sanofi reports next Wednesday, February 7. Combined Trulicity (Lilly) + Victoza sales for 4Q17 total ~$1.6 billion, which was the entire size of the market in 2Q17 and 3Q17. Moreover, the GLP-1 market matched the rapid-acting insulin market in 2Q and 3Q. We estimate (conservatively) that the GLP-1 agonist market will hit at least $6 billion in 2017, up from nearly $5 billion in 2016. YTD, pooled sales are up 28% YOY ($4.6 billion in 1Q17 + 2Q17 + 3Q17 vs. $3.6 billion in 1Q16 + 2Q16 + 3Q16). Management pointed to this underlying class growth in explaining Victoza’s successful financial performance. As we learned during Lilly’s earnings call yesterday, the GLP-1 agonist market is holding steady at >20% annual volume growth. Victoza remains the highest-selling product within Novo Nordisk Diabetes/Obesity, capturing 27% of total revenue and driving 53% of growth in 4Q17 (26% of revenue and 37% of growth for 2017). Notably, Victoza holds a 14% market share by value in the combined DPP-4 inhibitor, SGLT-2 inhibitor, and GLP-1 agonist markets.

• Geographically, sales remain particularly strong in the US, +21% YOY and sequentially in 4Q17 to DKK 4.6 billion ($751 million), also rising 20% on the year to hit DKK 17 billion ($2.6 billion) in 2017. In fact, North American Operations accounted for 90% of Victoza’s 2017 growth. Comparatively, Region Europe climbed only 2% YOY in 2017 to show DKK 3.4 billion ($531 million) in Victoza revenue. International Operations (AAMEO + Latin America) revenue grew 19% YOY to DKK 1.3 billion ($209 million), now solidly the third biggest region for Victoza, while liraglutide sales in Region Pacific (Japan + Korea) fell 47% YOY from 2016 to DKK 590 million ($91 million).
• In addition to underlying GLP-1 class growth, management discussed higher realized price for Victoza (presumably, this means lower rebates proportionally to PBMs/payers). This stands in contrast to high rebating around insulin products, where the revenue recorded by the manufacturer is far lower than list price due to money lost to the middleman. Notably, higher realized price could also reflect more favorable segment mix for Novo Nordisk, with more commercially-insured patients and fewer people on Medicare or Medicaid receiving Victoza. To be sure, access remains a key challenge for GLP-1 agonists; we heard this loud and clear at AADE 2017, when educators expressed frustration that many of their patients can’t afford any GLP-1 product. We’d like to think Novo Nordisk will work to expand Victoza access through payer negotiations and cost-effectiveness data, so that the most vulnerable populations and those at highest complication risk can benefit from the advanced, efficacious therapy (and we think this is probably true!). Especially with the product’s new CV indication, FDA-approved in 3Q17, payers should recognize the potential cost-savings given fewer heart attacks, strokes, hospitalizations, and less CV/all-cause death. The company has an outcomes-based reimbursement contract for Victoza with Prime Therapeutics, and hopefully, a movement toward value-based plans will also contribute positively to GLP-1 access.
• Victoza’s CV indication was not heavily emphasized on the call, but Novo Nordisk is highly-engaged in re-training its sales force and reaching out to consumers via a DTC marketing campaign. While the label update did come as a tailwind for the Victoza business in 4Q17, Mr. Jørgensen has positioned the CV indication rollout as more important for creating a wave of interest in Ozempic than anything else. It’ll be years before the new type 2 diabetes CVOT for semaglutide, SOUL (to initiate mid-2018), reads out (in 2023). In the meantime, we’re interested to see how HCPs view the CV impact of Ozempic in light of Victoza/LEADER and in light of SUSTAIN 6, which showed significant cardioprotection, but the confidence intervals were wide and the trial was smaller/shorter than usual. How will SUSTAIN 6 affect prescribing habits for Ozempic? How will LEADER and Victoza’s label influence prescribing habits for Ozempic?
• Novo Nordisk’s roadshow presentation (slide 10) indicates that, as of November 2017, Victoza held 44% of US GLP-1 market volume and Trulicity held 37% – this is unchanged from the August numbers that Novo Nordisk last gave in its 3Q17 update. Lilly management shared yesterday that Trulicity very recently passed 40% market share (though we’re not sure whether this reflected volume or value). Novo Nordisk stated that Victoza remains the market leader by volume. Above all, we find it far more important that both drugs remain on a solid upward trajectory in US total monthly prescriptions. There’s ample head room for this class, and there are so many more people with diabetes who could benefit from GLP-1 agonist treatment.
• PIONEER 4, the head-to-head trial (n=690) of liraglutide vs. oral semaglutide, will complete in March 2018, and Chief Science Officer Dr. Mads Thomsen indicated that results can be expected at a meeting just before the end of 2Q18 (making us all the more excited for ADA 2018 in Orlando!). In our opinion, this is an especially interesting study within the PIONEER program. Though Victoza will, in all likelihood, have been largely phased out by Ozempic by the time oral semaglutide reaches the market, we’re interested in seeing how their efficacy stacks up. An oral drug with the efficacy of injectable liraglutide would be a major breakthrough for patients and providers alike, also boding extremely well for oral semaglutide’s commercial prospects. There are likely other challenges up ahead for oral semaglutide (which we discuss in our pipeline updates section below), but we mention it here because it highlights Novo Nordisk’s commitment to innovating in GLP-1 and growing this business.
• Management noted the December 2017 completion of a phase 3b trial (n=635) comparing Victoza 0.9 mg to 1.8 mg in Japanese people with type 2 diabetes not meeting goal with Victoza 0.9 mg. Novo Nordisk will submit these data to Japanese regulatory authorities in 2018, aiming for an update to dosage and administration product information; this would allow for the use of Victoza 1.8 mg if targets are not met on the lower dose. Results showed that, after 26 weeks, the higher dose significantly reduced A1c compared to the lower dose. Over 52 weeks, the safety profile of the higher dose was consistent with previous results in Japanese people. We weren’t aware of any dose titration limitations in Japan (in fact, the low-dose available in the US is 1.2 mg liraglutide), but we’re nevertheless glad that more patients may now be able to access the full efficacy of Victoza.

Figure 2. Victoza Sales (1Q12-4Q17)

3. Blockbuster Tresiba Hits $1.1 Billion in 2017 with 81% YOY Growth; FDA Decision on a Hypoglycemia Claim Expected 1Q18; Head-to-Head vs. Toujeo Coming by Year-End

Tresiba (insulin degludec) hit blockbuster status in 2017. Sales of DKK 7.3 billion ($1.1 billion) rose 81% YOY as reported (85% operationally), up from ~$601 million in 2016. Very notably, next-gen insulins reflected <10% of total revenue but drove a whopping 50% of diabetes/obesity portfolio growth in 2017, and the bulk of that came from Tresiba (the “new-gen” category also encompasses Xultophy, Ryzodeg, and Fiasp). In 4Q17, Tresiba revenue of DKK 1.9 billion ($302 million) grew 21% YOY as reported (31% operationally) and 7% sequentially. This was an easy QOQ comparison, as sales fell 20% sequentially to ~$278 million in 3Q17. Tresiba is still relatively early in its launch cycle (Novo Nordisk only started breaking out these sales in 1Q16), and we might have expected higher YOY growth in 4Q17 (from a base of ~$222 million in 4Q16). Throughout 2017, we’ve been somewhat disappointed that Tresiba hasn’t taken off more: Results from SWITCH 1 and 2, as well as DEVOTE, support a significant and clinically-meaningful reduction in hypoglycemia vs. standard-of-care Lantus (e.g. 40% relative risk reduction for severe hypoglycemia in DEVOTE). We wish more patients had access to the flexible dosing and stable PK/PD profile of degludec, which may come with a label update reflecting hypoglycemia benefit (more below). That said, Novo Nordisk is clearly very committed to making Tresiba a commercial success, and we understand that it takes time to build market access and that pricing pressure around insulin has never been tougher. Overall, >$1 billion from an advanced basal insulin therapy is certainly positive. Encouragingly, Tresiba passed Novo Nordisk’s goal of reaching 10% share of total basal insulin prescriptions (TRx) in the US in 2017, clocking in at 10.7%; Sanofi’s Toujeo (insulin glargine U300) entered 2018 with 8% of the basal market by volume. We’ll be back with a pooled analysis of this next-generation basal insulin class after Sanofi reports 4Q17 and 2017 financial results next week, on February 7.

• An FDA decision on a hypoglycemia claim (specifics to be determined) for Tresiba is expected in 1Q18. An sDNA based on DEVOTE data was submitted in May 2017, and FDA is evaluating these findings alongside SWITCH 1 and 2 in making its decision (we think this is positive, as the DEVOTE dataset is more robust than SWITCH but also corroborates the same conclusion). This label update is now being rolled out in Europe, as EMA approved the change in 3Q17. Management also announced that DEVOTE data has been submitted to regulatory authorities in Japan. We’re excited about the commercial impact these label updates could have. Time spent in hypo inversely relates to a patient’s quality of life. Fear of hypoglycemia is a significant obstacle to insulin initiation and intensification right now. Data shows that 79% of type 1 patients and 58% of type 2 patients lower their insulin doses following an episode of severe hypoglycemia, and that 72% of PCPs and 79% of diabetes care specialists would treat hyperglycemia more aggressively if fear of hypo wasn’t a factor. Tresiba fills this unmet need according to SWITCH and DEVOTE, but getting this information onto the product label could go a long way in terms of real-world awareness and uptake. We hope the combination of CV safety with hypoglycemia risk reduction will also make Tresiba highly attractive to payers.
• A Novo Nordisk-sponsored phase 3 trial comparing Tresiba head-to-head vs. Sanofi’s next-gen Toujeo (n=1,590) is set to complete in October 2018, with results expected in 4Q18. Study duration is 52 weeks, and the primary endpoint is number of severe or blood glucose-confirmed symptomatic hypoglycemia episodes. Novo Nordisk thus seems most interested in differentiating its product based on hypoglycemia benefit (and, related, time-in-range/beyond-A1c glycemic measures), which makes sense given the promising clinical profile from SWITCH and DEVOTE. The Sanofi-sponsored BRIGHT study also compared these two insulins head-to-head over 24 weeks (n=929). The primary outcome was change in A1c from baseline to week 24, and topline data showed non-inferiority of Toujeo vs. Tresiba. We’re exceptionally curious for full results, expected in 2018, and will look out for hypoglycemia findings (which was a secondary endpoint in BRIGHT). It’s important to note that both of these advanced basals are superior to what came before, in terms of PK/PD profile, safety/tolerability, and A1c effects. We’d very much like to see both succeed on the market (which is entirely possible) and reach many more patients in-need. That said, these head-to-head RCTs will have some influence (at the very least, there will be KOL commentary).
• Favorable positioning on the Medicare Part D formulary in 2018 could boost the Tresiba business, particularly in terms of volume. Tresiba is listed as a tier 2 drug alongside Lilly/BI’s Basaglar (biosimilar insulin glargine), and both are preferred over Sanofi’s Lantus (insulin glargine) and Toujeo (insulin glargine U300). This only went into effect on January 1, and Mr. Jørgensen explained during Q&A that it’s too early to determine the precise impact on insulin degludec volume/sales. We look forward to more color during future Novo Nordisk earnings updates. We imagine this strong Part D status will spur further volume growth for Tresiba; management acknowledged that this may shift segment mix and lead to a lower realized price per prescription for Novo Nordisk. Another investor inquired during Q&A if Basaglar would benefit more than Tresiba, since Lilly/BI’s product is a biosimilar version of the same molecule (insulin glargine) – this could ease the switching process for patients previously taking Lantus. Mr. Jørgensen again declined to speculate since we’re only ~four weeks into 2018 (which we understand), but we’ll be watching these reimbursement dynamics with our eyes peeled.
• Tresiba has performed particularly well in certain countries where strong access has been secured. For example, Tresiba holds 42% of the basal insulin market by value in Japan, as well as 32% in Switzerland, 28% in Denmark, and 32% in Italy. In other geographies, it’s trudging along at 13% (Spain, Brazil) or as low as 7% (UK) market share by value. Switzerland particularly stands out as a success story, where Tresiba + Xultophy hold 59% of the basal insulin market by value. During Novo Nordisk’s recent Capital Markets Day, we learned that uptake has been highly correlated with market access and reimbursement, which is determined on a country-by-country basis in the EU (leading to the variation in market penetration seen there). In regions where Tresiba is well-reimbursed, it matches or outperforms Levemir (insulin detemir) in prescription volume – the key takeaway here is that patients/HCPs do recognize the added value of insulin degludec over its predecessor, but they can’t take or prescribe a drug that’s unaffordable. Tresiba was approved in China in September 2017, and Novo Nordisk plans to launch there without reimbursement – and with limited market access – in 1Q18.

Figure 3. New-Generation Insulin Sales (1Q14-4Q17)

4. Modern Insulins (Levemir, NovoLog, NovoMix) Fall 7% YOY in 4Q17 and 4% YOY in 2017, Continuing Downward Sales Trajectory; Losing New Therapy Starts to More Advanced Products

Continuing a downward trend, Novo Nordisk’s modern insulin portfolio (Levemir, NovoLog, NovoMix) fell 15% YOY as reported (7% operationally) in 4Q17 to DKK 10.3 billion ($1.7 billion) vs. ~$1.8 billion in 4Q16. This was an easy YOY comparison, as sales declined 10% YOY as reported (8% operationally) in 4Q16. Sequentially, modern insulin revenue dropped 3% from DKK 10.6 billion (~$1.7 billion) in 3Q17. Rapid-acting NovoLog and basal insulin Levemir posted particularly sluggish sales, each declining 18% YOY as reported and 11% operationally (to $735 million and $536 million, respectively). NovoMix revenue fell by a smaller YOY margin: -5% as reported (-1% operationally) to $395 million. Reflecting the intense pricing pressure that continues to plague the US insulin market, this trio of drugs experienced 29% YOY sales decline in the US even though combined sales were flat OUS. Mr. Jørgensen was asked to comment on pricing pressure several times during Q&A, and he ultimately shared that he views this as a “permanent change” that isn’t dissipating anytime soon. In 2017, the modern insulin portfolio fell 7% YOY as reported (-4% operationally) to DKK 44.4 billion ($6.8 billion) globally vs. ~$7 billion in 2016. Levemir experienced the steepest sales decline, down 17% YOY as reported (-15% operationally) to DKK 14.1 billion ($2.2 billion) vs. ~$2.5 billion in 2016; though still a meaningful source of revenue, Novo Nordisk management acknowledged that next-gen Tresiba is cannibalizing some Levemir sales and that this will likely continue (this goes without saying in our view, and we suspect Sanofi’s Toujeo is getting some of those sales too). The geographical split for the full year also mirrors US pricing pressure – US modern insulin sales dropped 15% YOY in 2017, while international sales increased 3% YOY.

• In its roadshow presentation (slide 30), Novo Nordisk claims continued single-digit volume growth within the basal, rapid-acting, and premixed insulin segments for Levemir, NovoLog, and NovoMix, respectively. Interestingly, from these graphs displayed below, it appears that each product’s total prescription share (TRx) is actually flat – total prescriptions are rising only because of underlying volume growth in the category. This confirms our sense that newer insulins are capturing more new therapy starts. This includes Tresiba and Toujeo in the basal class, and while next-gen mealtime insulins are just now reaching the market, we’ll be curious to see if Fiasp cannibalizes some NovoLog prescriptions/sales going forward. Fiasp is supposed to launch in the US in 1Q18 (following a late 3Q17 FDA approval) –more in our pipeline updates section below.

Figure 4. Levemir Sales (1Q12-4Q17)

Figure 5. NovoLog Sales (1Q12-4Q17)

Figure 6. NovoMix Sales (1Q12-4Q17)

5. Xultophy Chugs Along to $112 Million in Full Year Sales (Still Sluggish); 4Q17 Revenue Rises 51% Sequentially to $43 Million; Potential for LEADER and DEVOTE Data on EU Label

Xultophy posted DKK 729 million ($112 million) in 2017, its first full year of recorded revenue, which we theoretically see as disappointingly low for a new product with such a promising clinical profile. In previous quarters, management has been incredibly clear that it is focusing on growth for its Tresiba and Victoza franchises separately; Novo Nordisk has continually characterized Xultophy’s launch as “supporting” Tresiba’s launch. Sales of Xultophy (insulin degludec/liraglutide fixed-ratio) in 4Q17 did grow 51% sequentially to DKK 268 million ($43 million), rising from $28 million in 3Q17 when revenue was flat sequentially. Even this double-digit sequential increase is underwhelming for a product so early in its launch cycle, and we can’t help but be disappointed that the incredible glucose-lowering efficacy of Xultophy (and fellow fixed-ratio basal insulin/GLP-1 combo Soliqua, from Sanofi) isn’t reaching more patients. We understand that HCPs, especially in the US, aren’t altogether familiar with combination therapy, and that a titratable injectable adds additional complexity. Moreover, we imagine gaining market access for Tresiba only or Victoza only is easier for Novo Nordisk, and that patients as a whole are better covered and reimbursed for these. There have been some success stories, though: Xultophy gained market access in France, but Tresiba did not, and the combo has claimed 14% of the basal insulin market by value there. In Greece, Tresiba hold 23% and Xultophy 20% of the basal insulin market by value. Novo Nordisk maintains a “promising outlook” for this combination, but the timeframe for this is unclear. Will the company prioritize Xultophy in 2018? Within the next two years? Or five? We do wonder what uptake would look like if the company was dedicating more commercial resources to this “wonder drug,” which Dr. John Buse has called “the most effective anti-hyperglycemic agent on the planet.”

• In November 2017, Novo Nordisk submitted an application to the EMA to add LEADER and DEVOTE results to Xultophy’s label, which would reflect both cardioprotection and a hypoglycemia benefit in product information. We’re a little unclear on the status of this application, but it does not appear to have been approved as of yet. This could be a big tailwind for the Xultophy franchise in Europe, piquing interest among both patients and HCPs. While we think it will take a much more concerted effort to overcome clinical inertia and reluctance among patients and providers, not to mention to establish access and reimbursement, this would be a strong start.
• Management also shared that Xultophy will be filed in Japan in 3Q18, and that the combo therapy is now available in 18 countries. The phase 3 DUAL II trial of Xultophy vs. Tresiba (insulin degludec monotherapy) in Japanese patients completed in November 2017. DUAL I comparing Xultophy vs. Tresiba vs. Victoza (liraglutide monotherapy) in Japanese patients, while not listed as completed in presentation slides, is complete as of December 2017 per ClinicalTrials.gov. In DUAL II, Xultophy was associated with superior A1c-lowering compared to Tresiba alone. At 52 weeks, average A1c in the Xultophy group was 6.7%, following a nearly 2% mean drop. We look forward to more detail on both DUAL studies, expected in 1Q18.

6. Saxenda Sales Rise 64% YOY in 2017 to Nearly $400 Million; Despite Small Revenue Share (3%), Product Drives 12% D/O Portfolio Growth; FDA Reviewing Application to Include LEADER Data on Label

Saxenda sales grew 63% YOY as reported (64% operationally) to DKK 2.6 billion ($394 million) in 2017, climbing from ~$233 million in 2016. The obesity product is another bright spot for Novo Nordisk, and it’s becoming ever more important for the portfolio, driving 12% of growth for the year while accounting for only ~3% of total revenue. In 4Q17, Saxenda sales of DKK 697 million ($112 million) accounted for a mere 3% of total revenue but drove 9% of growth. This underscores the company’s strategy of expanding focus to diabetes-adjacent indications; Novo Nordisk has shown clear commitment to obesity as a therapeutic area with Saxenda as well as its pipeline (semaglutide and six early-stage candidates).

• For the fourth quarter, Saxenda revenue rose 29% YOY as reported (38% operationally) to DKK 697 million ($112 million), from a base of ~$77 million. Sales also rose 9% sequentially from ~$101 million, though this was a fairly easy comparison following a 7% sequential drop in 3Q17.
• The bulk of Saxenda sales in 2017 (71%), DKK 1.8 billion ($281 million), came from the US market. Call materials noted that growth was driven by North America and International Operations, as well as Region Europe. Moreover, management remarked that despite broad formulary access, Saxenda generally requires a prior authorization for reimbursement. We’re hopeful that Saxenda and other obesity medications will achieve better coverage as obesity comes to be recognized as a medical disease, as stigma falls, and as pharmacotherapy for weight management gains favor; until then, we’re glad to see Novo Nordisk’s leadership and commitment to the area. Notably, Saxenda claims 37% of the global obesity market by value, but a miniscule TRx share; 82% of anti-obesity prescriptions in the US are generic, claiming only 8% of the market by value. This reminds us once again that Saxenda retains a rather high list price for now.
• Very notably, Novo Nordisk has submitted LEADER data to FDA for inclusion on the Saxenda label. While this inclusion was approved for the European product label, FDA tends to be more conservative than EMA in decisions like this. LEADER only evaluated lower doses of liraglutide (1.2 and 1.8 mg, as Victoza is sold, rather than Saxenda’s 3.0 mg). In our view, this label change would be positive in terms of spreading awareness of liraglutide’s known CV benefit and well as Saxenda’s efficacy on weight loss, but we’ll have to wait-and-see how FDA responds.

Figure 7. Saxenda Sales (1Q16-4Q17)

Pipeline Highlights

7. Ozempic Launch Team “All Fired Up; Slow-and-Steady Reimbursement Plan; SUSTAIN 7 Full Results Published; SOUL (Post-Approval Superiority CVOT) Will Begin Mid-Year

Ozempic (once-weekly GLP-1 semaglutide) was a dominant focus during prepared remarks and Q&A, and it was the subject of several exciting announcements. On the diabetes side, full results from SUSTAIN 7, the head-to-head trial vs. Lilly’s Trulicity (dulaglutide), were published online in Lancet Diabetes & Endocrinology right before the call began. Second, Novo Nordisk will initiate the post-market SOUL CVOT in type 2 diabetes (n=~13,000) by mid-year, with results expected in 2023. Management also elaborated on the upcoming phase 3 program for once-weekly semaglutide in obesity, and we include all those details in the highlight immediately below. Novo Nordisk is clearly all-in when it comes to Ozempic: In the company’s 3Q17 update, Mr. Jørgensen referred to the drug as “probably the biggest opportunity we’ve ever had in Novo Nordisk.” The product was FDA-approved in early December 2017, and turnaround for US launch will be very swift (we also think the mid-2018 study start for a post-approval CVOT is pretty quick!). Mr. Jørgensen shared that he met with the US launch team earlier this week in Chicago, and that reps (who are “all fired up”) will hit the ground running on Monday (he added, “you could hardly keep them in the room, because they’re so eager to get into the field”). We can’t wait for this highly-effective therapy to reach patient hands, and the company has certainly been anticipating and preparing for this new product for quite some time. Management recognized that reimbursement could be a challenge in 2018, but outlined a plan to build coverage steadily. As Mr. Jørgensen explained, “it’s important for us to make sure that all payers have a good understanding of the clinical profile – we don’t want to rush access where we jeopardize appreciation of what the product can do.” It’ll be interesting to watch reimbursement dynamics within the GLP-1 class in 2018, and we look forward to an early update during Novo Nordisk’s 1Q18 call (after Ozempic is officially available in US pharmacies). The weekly GLP-1 has also been endorsed by CHMP for EMA approval, and final marketing authorization is expected in 1Q18. A regulatory decision in Japan is also anticipated in 1Q18.

• In SUSTAIN 7 (n=1,201), once-weekly semaglutide was associated with ~0.4% superior A1c-lowering vs. once-weekly dulaglutide (p<0.0001) and with 5-7 lbs more weight loss (p<0.0001) after 40 weeks. These results were reported in a topline release last August, and now we know in even more detail how significant the findings are. Low-dose semaglutide (0.5 mg) achieved a mean A1c reduction of 1.5% from a baseline 8.2%, while low-dose dulaglutide (0.75 mg) achieved a mean A1c reduction of 1.1% from the same baseline, corresponding to a 0.4% estimated treatment difference (95% CI: 0.55%-0.25%, p<0.0001). Mean A1c-lowering with high-dose semaglutide (1.0 mg) was 1.8% vs. 1.4% with high-dose dulaglutide (1.5 mg), again corresponding to a 0.4% estimated treatment difference (95% CI: 0.57%-0.25%, p<0.0001). Mean weight loss was 10 lbs with 0.5 mg semaglutide vs. 5 lbs with 0.75 mg dulaglutide (p<0.0001). This finding also held true for the higher doses of both GLP-1s, as semaglutide achieved 14 lbs weight loss vs. 7 lbs with dulaglutide by end of trial (p<0.0001). There were six fatalities in SUSTAIN 7, which wasn’t mentioned in the topline release: one in each semaglutide group and two in each dulaglutide group. Overall, these findings add to the already-impressive set of clinical data on Ozempic in type 2, but we imagine this demonstrated superiority over Trulicity – a leading weekly GLP-1 agonist – could be especially advantageous for Novo Nordisk in commercializing its new once-weekly GLP-1.
• The SOUL trial is Novo Nordisk’s follow-up to SUSTAIN 6, which showed CV benefit to semaglutide but in a relatively small (n=3,297), relatively short (~two years) study. SOUL will enroll an estimated 13,000 patients with type 2 diabetes and established CV disease or chronic kidney disease (i.e. high CV risk). This is almost 4x the sample size of SUSTAIN 6, and for additional context, the LEADER CVOT for Victoza enrolled 9,340 participants. Follow-up time in SOUL will be 3.5-5 years. Patients will be randomized to 1.0 mg Ozempic or placebo, with a primary outcome of three-point MACE (non-fatal MI, non-fatal stroke, or CV death). Novo Nordisk’s aim with SOUL is to provide more compelling clinical data on semaglutide’s cardioprotective effects in type 2 diabetes, which could support a CV indication for the Ozempic label and for professional treatment guidelines – FDA and guideline committees are unlikely to respond to SUSTAIN 6 results alone, given the small size/short duration. During Q&A, CSO Dr. Mads Thomsen discussed the importance of bringing CV benefit “top of mind” for HCPs prescribing diabetes drugs. He also mentioned a few secondary endpoints of the upcoming trial, including all-cause mortality, new-onset nephropathy, health economic endpoints, and PROs. If SOUL progresses as planned with a mid-2018 start, results are expected in 2023.
  
  • Dr. Thomsen noted that CHMP has recommended SUSTAIN 6 results be included on the European Ozempic label. Data showing significantly fewer CV events in the semaglutide arm of the trial vs. the placebo arm could be compelling to providers who see it (CHMP has recommended the 26% relative risk reduction as well as Kaplan Meier plots), but make no mistake – adding clinical results to a label doesn’t pack nearly the same punch as a new, clearly-stated indication. The FDA-approved US label mentions SUSTAIN 6 in section 14 on clinical studies (this is buried pretty deep in product information), but specifies “no increased risk for MACE” without any allusion to possible cardioprotection. To us, this underscores the need for a larger post-market CVOT, and we’re pleased to see Novo Nordisk follow through on this intention so quickly.
• As part of the conditions for EU approval, Novo Nordisk has agreed to conduct a long-term study of Ozempic evaluating retinopathy outcomes. We imagine this request stems from concerns over a potential retinopathy signal associated with semaglutide, as seen in SUSTAIN 6 (HR=1.76; 95% CI: 1.11-2.78; p=0.02). This was the main topic of discussion during the FDA Advisory Committee meeting on semaglutide prior to US approval, though panelists ultimately agreed that the risk could have been a product of “early worsening phenomenon,” wherein rapid A1c decline leads to a transient increase in moderate retinopathy events. Early worsening of retinopathy has also been seen with new initiation of insulin therapy, and the US label for Ozempic includes warning language very similar to that seen on insulin labels. Moreover, a post-hoc analysis of SUSTAIN 6 presented at ADA 2017 revealed a significant correlation between baseline retinopathy and adverse eye events during the study, which suggests that this risk could be mitigated in the real world with careful patient selection. Indeed, Dr. Thomsen emphasized on the 4Q17 call that tighter A1c control is still optimal for long-term microvascular risk reduction (the landmark DCCT trial also found early worsening of retinopathy with intensive glucose control, but a long-term benefit) – this post-market study could definitively put eye-related safety concerns to bed, and could even show that Ozempic lowers risk for retinopathy over time.

8. Semaglutide CVOT in Obesity Named SELECT; Will Begin Sometime in 2018; Phase 3 STEP Trials On Track for Mid-2018 Launch/2020 Readouts

Novo Nordisk is also targeting an obesity indication for once-weekly injectable semaglutide, and management announced that the SELECT trial will begin this year to investigate CV outcomes in ~17,500 people (!) with obesity. Talk about a major investment in next-gen obesity therapy … This CVOT was first-announced during Novo Nordisk’s Capital Markets Day in November 2017, when Dr. Thomsen positioned it as a potential landmark study on par with DCCT or UKPDS. Indeed, no trial to-date has “proven” that obesity and its complications are responsive to pharmacotherapy – SELECT could be that trial. Results could emphasize that obesity is a serious medical condition, and could point to superior outcomes (not just weight loss) with semaglutide treatment. Dr. Thomsen also spoke to the health economic angle: A medicine that reduces the frequency and intensity of CV events, or that prevents hospitalizations, could yield substantial cost-savings. Positive SELECT data could be leveraged not only to improve reimbursement for semaglutide, but for the entire obesity drug class (also including Novo Nordisk’s Saxenda), where payer coverage is pretty poor right now. Moreover, this CVOT could highlight that semaglutide’s mechanism of cardioprotection is entirely independent from its glycemic effects. This is likely true across all positive diabetes CVOTs because these studies are designed with glycemic equipoise in mind (i.e. participants in both arms, active agent and placebo, are treated to target A1c), but demonstrating CV benefit in a non-diabetes population would be most compelling for HCPs (including cardiologists), payers, regulators, etc. SGLT-2 inhibitors are also now being evaluated in people with chronic heart failure, with or without diabetes.

• SELECT is part of the phase 3 program for semaglutide in obesity, and Novo Nordisk confirmed that four phase 3a STEP studies will also launch in 2018. An estimated 4,500 people with obesity will be recruited for all four trials. STEP 1 (n=1,950) will investigate weight loss in patients with obesity, STEP 2 (n=1,200) aims to show efficacy in patients with type 2 diabetes not taking insulin, STEP 3 (n=600) combines semaglutide with intensive lifestyle modification to maximize weight loss, and STEP 4 (n=900) will investigate semaglutide for weight loss maintenance. Each will be 68 weeks, with expected completion dates in 2020, and each will use a once-weekly 2.4 mg dose of the active agent.

9. Company Targeting 2019 for Oral Semaglutide NDA; Phase 3 PIONEER Program to Report Throughout 2018; Questions Remain on Pricing Strategy, Real-World Adherence

Management confirmed that the entire phase 3 PIONEER program for oral semaglutide (10 trials in all, including a CVOT) will report data in 2018. Provided results are positive, Novo Nordisk will submit an NDA in 2019. The first results from PIONEER 1 (oral semaglutide vs. placebo) are expected in 1Q18. PIONEER 2 (vs. Lilly/BI’s SGLT-2 inhibitor Jardiance) and PIONEER 7 (investigating flexible dose escalation) are expected to read out in 2Q18. We’re particularly eager to see PIONEER 2 results since Novo Nordisk plans to position oral semaglutide earlier in the course of diabetes progression, to compete with other oral agents rather than injectable GLP-1s (to this end, we also look forward to PIONEER 3 vs. Merck’s DPP-4 sitagliptin, expected to report in late 2Q18/early 3Q18). Interestingly, on Lilly’s 4Q17 call yesterday, Head of Diabetes and SVP Mr. Enrique Conterno suggested that oral semaglutide will have difficulty matching the value proposition of Jardiance (among other SGLT-2s and DPP-4s). At Capital Markets Day, Novo Nordisk implied that oral semaglutide could be priced at parity to existing injectable GLP-1 agonists, but management walked this back a bit during the 4Q17 earnings update (“we need to see the clinical data first” and “we’re taking a long-term view”). We definitely appreciate the need to analyze phase 3 findings before speculating on price – so much lies in these 10 upcoming readouts, and this very robust program will lead to more clarity on oral semaglutide’s niche within diabetes care. On the other hand, the fact that so many investors inquired about oral semaglutide on both calls (Lilly and Novo Nordisk) implies an expectation that oral GLP-1 will disrupt the diabetes market meaningfully, and we tend to agree. GLP-1 agonists are among the most advanced options for diabetes management today, offering profound glucose-lowering, weight loss, low hypoglycemia risk, and possible CV/renal protection. Injectable administration deters some patients, and an oral formulation could be revolutionary for people with diabetes.

• There are some concerns circulating that the fasting requirements of oral semaglutide could drive down adherence in the real world. This came up during Q&A with both Novo Nordisk and Lilly. In the phase 2 trial of oral semaglutide, participants were instructed to take a tablet in the morning after ~six hours of fasting and to refrain from eating or drinking for ~30 minutes thereafter. Lilly management emphasized how this imposes extra burden on patients: Said Mr. Conterno during Q&A, “as a frame, anything that introduces complexity into the lives of people with diabetes is going to have a number of headwinds. We develop products that can be adhered to simply, that offer a number of benefits.” Mr. Conterno makes a valid point, in that advanced diabetes therapy should seek to alleviate the daily demand of chronic disease, but there’s also a significant chance that oral GLP-1 is much easier to adhere to than injectable GLP-1. Dr. Thomsen emphasized that adherence rates are generally higher for oral vs. injectable therapy (across any drug class, or any disease area). He highlighted the strong adherence to oral semaglutide in phase 2 (n=632), pointing to superimposable curves for expected dosing vs. exposure. Moreover, he clarified that the protocol for fasting in phase 3 PIONEER studies is simpler, though we’re not sure of the exact instructions. We’re inclined to think that with some troubleshooting around fasting/adherence, Novo Nordisk will make oral semaglutide into a patient-friendly product for the market, but we’ll look closely at adherence data from phase 3.

Table 3. PIONEER Phase 3 Program for Oral Semaglutide

• Both injectable and oral semaglutide are key pieces of Novo Nordisk’s long-term business plan. These products could boost the company’s GLP-1 business, especially with Victoza’s patent expiry coming in 2022 or 2023. We’ve seen the slide below a couple times by now, during Capital Markets Day when management emphasized investment in GLP-1 innovation, and in the company’s roadshow presentation for the 4Q17 and year-end financial update.

10. No Updates on Fiasp’s US Launch, but Apparently On Track for 1Q18

No additional details were shared around Fiasp’s US launch, following FDA approval at the end of 3Q17, but this is slated for 1Q18 at parity pricing to NovoLog. We’ll be interested to see how the company prioritizes next-gen Fiasp (faster-acting insulin aspart) vs. NovoLog (insulin aspart) post-launch, and to follow how reimbursement shakes out for the more advanced product, especially since pricing pressure is known to be particularly intense around rapid-acting insulin. It would be nice to see Fiasp sales broken out from the rest of “new-generation insulins,” as the company now does for Tresiba and Xultophy – hopefully, this will start for the next-gen mealtime insulin after US launch. Novo Nordisk’s presentation (slide 15) notes that Japan submission is planned for 3Q18, in which case a regulatory decision would be expected between 2Q19-3Q19. We’ll be excited to see Fiasp made available in another major diabetes market.

11. Early-Stage Pipeline Updates: Glucagon Analog and Amylin Analog for Obesity to Report Phase 1 Results in 1H18; Once-Weekly Basal Insulin Completes Phase 1 Study

Novo Nordisk’s slides mentioned two upcoming readouts on phase 1 obesity candidates: (i) Results on glucagon analog NN9030 are expected in 1Q18, while (ii) results on amylin analog NN9838 are expected in 2Q18. Two phase 1 studies of the glucagon analog wrapped up in 3Q17, according to ClinicalTrials.gov – one investigated the agent as monotherapy and another evaluated co-administration with GLP-1 liraglutide (Victoza). A phase 1 trial for the long-acting amylin analog completed more recently, in January 2018. Although these therapies are a long way from the market, we’re watching Novo Nordisk’s early-stage obesity pipeline closely, for clues as to which therapeutic targets seem the most promising from a scientific perspective, and for insights into the future of obesity treatment. With extensive experience in drug development and an overt commitment to obesity R&D, Novo Nordisk is certainly showing leadership in this area (though other diabetes companies are also doubling down on their obesity investments – e.g. Sanofi will initiate phase 3 obesity studies for its GLP-1/glucagon dual agonist in 2018). Notably, Novo Nordisk has six phase 1 candidates in its obesity pipeline, and the glucagon and amylin analogs may advance first into phase 2. This is speculation since a readout doesn’t necessarily imply the next step in clinical development – that said, we noticed that phase 1 studies have also completed for the GLP-1/glucagon/GIP tri-agonist, for the FGF21 analog, and for the PYY analog, and yet the company hasn’t mentioned upcoming milestones for these obesity agents. Whatever Novo Nordisk does choose to move on within its early-stage obesity pipeline will be supremely interesting, and could suggest the next emerging class of obesity pharmacotherapy. Right now, GLP-1 is hot on the horizon, with Saxenda (liraglutide 3.0 mg) leading the class in sales, semaglutide entering phase 3 this year toward an obesity indication, and Lilly possibly developing high-dose dulaglutide for obesity down the line. See our obesity drug competitive landscape for more on this area of unmet need, and see our Novo Nordisk pipeline summary table below for additional detail on each of the candidates mentioned here (and others!).

• A phase 1 study of once-weekly basal insulin candidate NN1436 for type 1 and type 2 diabetes also wrapped in December 2017, and results are anticipated in 1Q18. The trial (n=50) compared NN1436 vs. Tresiba (insulin degludec) vs. placebo, with a primary endpoint of treatment-emergent adverse events. Novo Nordisk set a high innovation threshold for new insulin candidates in its revised R&D strategy beginning in 3Q16 (this higher bar applies across the board, but especially for insulin given intense and unrelenting pricing pressure), so we’ll be very curious to see whether this once-weekly basal makes the cut. To be sure, a basal insulin with much lower injection burden could bring new value to patients, but we’ll hold our enthusiasm for now, given how early-stage this is. The company previously promised phase 1 data on its liver-preferential mealtime insulin candidate by 4Q17, which we have yet to see. We’re not reading too much into the delay at this point (after all, Novo Nordisk has a robust pipeline across diabetes and obesity), but we would love to know the status of this program. Liver-preferential insulin can be more physiologic in its action, which could improve patient experience and outcomes. Again, this is too early-stage to know with any degree of certainty how promising it may be.

Table 4: Novo Nordisk Diabetes/Obesity Pipeline Summary

The table below reflects the latest updates, as far as we are aware, on Novo Nordisk’s diabetes/obesity pipeline products. Items highlighted in yellow indicate notable changes to the pipeline in 4Q17.

Select Questions and Answers

On Ozempic and Victoza

Q: Can you comment on access plans and launch plans for Ozempic? How and when do you plan to use SUSTAIN 7 in launch, given that access may be limited in 2017?

Mr. Lars Jørgensen (CEO, Novo Nordisk): I was in Chicago earlier this week with the US launch team, and I can tell you that they are all fired up. You could hardly keep them in the room, because they’re so eager to get into the field. They will be out on Monday pushing the brand in the US. You’re right about access. We can’t expect the same uptake that we expected when we first launched Victoza, or even when Trulicity came to market. We’ve already accepted our first contracts, and reps will drive sales in the US market. They’ll all be busy because they can either promote Victoza or Ozempic, so from a productivity point of view, they can all go out and win and be successful. And I think that’s a significant morale boost in that part of the company. We’ll be gradually switching some of the emphasis for certain reps as we gain access for Ozempic throughout the year. This will maintain momentum behind GLP-1. We believe we can achieve DKK 1 billion or more in terms of driving Ozempic in 2018.

Dr. Mads Thomsen (CSO, Novo Nordisk): The good news is that SUSTAIN 7 came out in the Lancet online this morning (or last night, really). With all the great data that you’ve heard before on efficacy, safety, and tolerability – now you can see that in great detail. That’s truly good news. And according to freedom of speech and so on, actually in the US, our medical liaisons are now able to use these reprints in a good way. I think this together with the SUSTAIN 1-6 program is a very important dataset for physicians for future administration and selection of GLP-1 products.

Q: Regarding the large CVOT on Ozempic, I’m wondering if you could provide more color on your strategic thinking there. Is this because you’re worried that upcoming dulaglutide data will be more compelling than what you have?

Dr. Thomsen: There are two. The SOUL trial is a superiority trial in people with diabetes and established CV disease or CKD, to once and for all get superiority on MACE events with semaglutide. That’s also what we’ve seen for liraglutide and SGLT-2s. That’s something that should enter into all treatment guidelines to be top of mind for physicians. We’re including a number of endpoints: all-cause mortality, nephropathy, health economic endpoints, patient-reported outcomes, things that create value for patients. The other trial is even bigger, but keep in mind that the cost is dispensed over many years, and we use our own clinical trialists which are ~half price compared to external hires. This will be a landmark study proving that obesity is a serious medical condition, where we can, with a pharmacotherapy, offer better outcomes. Then, we can health economically justify to improve reimbursement status for this devastating disease. In many parts of the world, this is still considered a lifestyle disease. And, we could show that semaglutide’s mechanisms that are cardioprotective work without regard to the glycemic nature of the patient.

Q: Can you give us a sense of current covered lives for Ozempic?

Mr. Jørgensen: It’s important for us to make sure that all payers have a good understanding of the clinical profile. We don’t want to rush access where we jeopardize appreciation of what the product can do, so we’ll be patient in making sure the profile is getting out there. We’ll be giving you data on where we are throughout the year. We have secured our first contracts, and reps in a number of states will be able to go out and promote Ozempic. That depends on payers having a strong understanding of clinical profile and having preference for Ozempic.

Q: Getting back to the impact of rebate adjustments throughout the year – you’ve had better mix for Victoza than insulin, so should we think of that as commercial, higher-price patients vs. Medicaid patients? As you restart growth on Victoza, should we expect the channel to go the other way?

Mr. Jesper Brandgaard (EVP of Biopharm & Legal Affairs, Novo Nordisk): I think that the full year numbers for 2017 are a fair reflection of the channel mix that we’ve had and the average price that we’ve obtained for Victoza. However, I do note that as we gradually expand Victoza, the mix is of course gradually getting into lower priced channels. If we compare 2017 vs. 2017, it is a slightly lower realized price for Victoza. A gradual continuation – although not significant movement – should be expected for 2018.

Q: You’re going to conduct a big outcomes trial with Ozempic, you have the PIONEER program ongoing. You have the rollout of Ozempic and DTC advertising for the year. Can you perhaps talk about your views on the development of the gross margin, SG&A, and R&D going forward?

Mr. Brandgaard: It’s a correct observation that when we guide the sales with 2%-5% growth in local currencies, and the operating profit is growing 1%-5%, there is not a lot of expansion of the operating margin. But that’s completely in line with what we also said when we updated our long-term financial targets. In terms of the specific guidance for 2018, I think it would be appropriate to ask Karsten, as you will be holding him accountable to those guidance points throughout 2018. So, over to you, Karsten.

Mr. Karsten Munk Knudsen (SVP of Corporate Finance, Novo Nordisk): Thank you, Jesper. As you said, it’s correct that there’s not a lot of margin expansion built into our 2018 financial guidance. In reality, when you look at it, then the midpoint for our operating profit growth in local currencies is slightly lower than our sales growth in local currencies. So, there is a slight margin erosion built into our targets. That margin erosion will come primarily from two sources. One is linked to the launch of Ozempic in the US, so we’re putting significant resources behind succeeding with our launch of Ozempic. That’s one. And then the other piece is when you look at other operating income, we had a non-recurring income in the third quarter related to a licensing deal with Innate Pharma in 3Q17, which will not take place in 2018. So those are the two main factors driving down margin slightly in local currencies in 2018.

On Oral Semaglutide

Q: I realize that discussing price points for oral semaglutide is a little premature, but there’s an important debate happening in the field around this. Can you clarify your thoughts, assuming PIONEER delivers the clinical profile you expect?

Mr. Jørgensen: I do understand the interest in discussing this, but as you said yourself, we need to see the clinical data first. From a competitive point of view, it’s not in our interest to be very specific on what price point we’re going with. We’re taking a long-term view. We are trying to optimize the formulations. At Capital Markets Day, we said we’d match current GLP-1 pricing, but that’s all we can say for now.

Q: On oral semaglutide, there’s been lots of discussion around food. What do you think about adherence to the product? From literature, it seems like adherence is lower than injectables – is that correct? How will that compete with adherence to existing orals?

Dr. Thomsen: There are two situations to consider: clinical trial and real-world. We know from the phase 2 trial that 500+ patients showed no signs of non-adherence. You could superimpose the curves for expected dosing and exposure. The guidance we’re giving in phase 3 is even simpler, so I don’t expect to see any adherence problems in these studies. In the real-world setting, adherence to injection-based therapy tends to go down because people find excuses why they don’t need to inject. This isn’t the case when you get to once-daily tablets. People take those more regularly and on an ongoing basis. So, I’d expect real-world adherence will be even better than injectables, based on everything I know.

On Tresiba and the Insulin Market

Q: Looking at Tresiba in Medicare Part D, are you starting to see the benefits coming from the exclusion of Sanofi’s Lantus and Toujeo? From the CVS story, it seems like Basaglar is gaining more traction from that than you guys?

Mr. Jørgensen: It’s too early for us to be specific on Part D. But it looks promising. Obviously, the dynamics will be a bit different depending on whether you’re converting to a similar molecule (biosimilar) or to a brand new product. We believe that we will have a fair share of this, but it’s too early to be very specific on how much we’re fetching.

Q: On Tresiba, it seems like Part D contracts might take mix the other way in 2018. Can you comment on that?

Mr. Brandgaard: You’re right that a gradual higher proportion of the Tresiba volume will go through Medicare Part D, and as a consequence of that, we’ll see a gradual erosion of the average prices realized. I think that is completely customary in terms of the gradual penetration of a product into the market, and we’re quite satisfied with the Part D coverage that we have for Tresiba.

Q: How many biosimilars do you foresee in insulin, both basal and rapid-acting?

Mr. Jørgensen: We don’t really comment on competitors, but there are already enough products to play out into competitive dynamics. Payers have choice, and that leads to price competition. I’m not convinced that additional biosimilars, on top of what we have now, will change price competition significantly.

Q: Insulin price continues to be under pressure, and it’s now chronic. Do you think that’s coming to an end? If it’s irreversible, would you consider a bigger restructuring of your US insulin unit?

Mr. Jørgensen: There will be continued pricing pressure, and that’s baked into our guidance. It’s too early to speculate whether there’s an end to it. In the fast-acting category, we’ve seen that rebates bottom out after a certain point in time, but I think the basal dynamics are slightly different. [Editor’s note: As we understand it, rapid-acting insulins are apparently seen as interchangeable by payers, while there’s more appreciation of differentiation between basal insulins, at least right now.] Bear in mind that we see favorable price effects in the GLP-1 space, meaning we have a higher realized price and less pricing pressure right now, so there’s some evening out on this dimension. As for insulin, we see this as a permanent change that will lead to continued price pressure.

Q: If you look at insulin prescriptions, it looks like growth is slowing in the US. You’ve previously said insulin volume could grow 3%-4%. Is that something you still believe?

Mr. Jørgensen: With insulin market dynamics and growth, that is something that’s impacted by launches, new products, etc. But we still believe market growth in the neighborhood of 3%-4% is reasonable for the US. We can’t be much more specific than that.

On Executive Structure

Q: On the change in CFO role, obviously we’re very sad to see Jesper go, and we fully appreciate that Karsten is a safe pair of hands to take over. But in terms of timing, why is now a good time to make this change?

Mr. Jørgensen: We should all bear in mind that since May of last year, Jesper has been CFO and has also been setting strategy for the biopharm area. We have a clear objective to return biopharm to growth, and there are a number of projects there. Jesper has been a very strong leader and has been focused on developing talent in his own area. And, we have a very capable successor. We thought Jesper could add even more value by focusing on the biopharm business, and Karsten is a good leader for our finance organization going forward. I see this as a continuation of how we manage our finances. I acknowledge that Jesper has been very disciplined, and we’re glad Jesper’s still on the team. We feel confident about finance under Karsten.

-- by Ann Carracher, Payal Marathe, and Kelly Close