Novo Nordisk 3Q17 – Diabetes/obesity portfolio flat at $3.5 B (+5% YOY in local currencies); Tresiba up 66% YOY, EMA approves hypo benefit on label; Modern insulins fall 10% YOY; Strength in GLP-1; Future growth prospects in Fiasp, semaglutide – November 2, 2017

Novo Nordisk provided its 3Q17 update in a call this morning led by CEO Mr. Lars Jørgensen. Click here for the press release, here for the presentation slides, and here for the supplementary roadshow deck. This full report covers key highlights on the company’s diabetes/obesity business, divided into two sections for (i) financial updates and (ii) pipeline updates. First, a summary table showing sales growth for all of Novo Nordisk’s major diabetes products, plus Saxenda for obesity.

Table 1: 3Q17 Financial Results for Novo Nordisk’s Major Diabetes/Obesity Products

Financial Highlights

1. Novo Nordisk’s diabetes/obesity portfolio was flat YOY as reported at DKK 22.2 billion ($3.5 billion), though portfolio revenue grew 5% YOY in constant currencies from a base of DKK 22.3 billion ($3.3 billion) in 3Q16. This also marks a 4% sequential drop, from DKK 23.1 billion ($3.5 billion) in 2Q17. These financial results are underwhelming for Novo Nordisk, but management emphasized that the company expected reported growth to be lower than growth in local currencies in 2017. The call featured updated 2017 financial guidance of 2%-3% sales growth in local currencies (vs. the 1%-3% expectation outlined in August 2017), and management shared distinct optimism for its new-generation insulins (Tresiba, Xultophy, Ryzodeg, and Fiasp) as well as its GLP-1 agonists (Victoza, Saxenda, and semaglutide upcoming).

2. Sales of GLP-1 agonist Victoza (liraglutide) rose 5% YOY as reported (9% in constant currencies) to DKK 5.3 billion ($844 million), marking slowed but still significant growth. By our calculations, Victoza drove 15% of growth for Novo Nordisk’s overall diabetes/obesity business and accounted for 24% of total portfolio revenue in 3Q17. Management highlighted the FDA and EMA approvals of a new CV indication for Victoza in 3Q17 – these are significant strides forward in diabetes care, and we can’t wait to see how rollout of the label change boosts uptake in future quarters. We continue to believe more focus on Saxenda will help drive sales as well – and that semaglutide could be a major driver depending on launch decisions.

3. Headlining the company’s new-generation insulin portfolio, Tresiba posted DKK 1.8 billion ($278 million), growing 66% YOY as reported and 75% in constant currencies. On the strength of Tresiba, the new-gen insulin portfolio (Tresiba, Xultophy, Ryzodeg, and Fiasp) grew 84% YOY as reported (93% in constant currencies) to DKK 2.1 billion ($332 million), driving 61% of growth for the whole diabetes/obesity business despite capturing just 9% of total portfolio sales. In groundbreaking (!) news from the regulatory front, management announced that the EMA has approved a label update for Tresiba to reflect a hypoglycemia benefit vs. Sanofi’s Lantus based on DEVOTE. Wow – Tresiba is now the first diabetes drug with a hypoglycemia claim of any kind on its label, and an FDA decision for a similar label update is anticipated in 1Q18. We so hope to see the right thing happen here.

4. Novo Nordisk’s modern insulin portfolio, comprised of basal insulin Levemir, prandial insulin NovoLog, and NovoMix, fell 10% YOY as reported (5% in constant currencies) to DKK 10.6 billion ($1.7 billion). This decline was driven primarily by Levemir, which fell 27% YOY as reported (23% in constant currencies) to DKK 3.2 billion ($500 million). Sales of NovoMix fell a more modest 4% YOY as reported (and grew 1% YOY in constant currencies) to DKK 2.4 billion ($384 million), whereas NovoLog revenue rose 3% YOY as reported (9% in constant currencies) to DKK 5.1 billion ($798 million). By our calculations, NovoLog accounted for an 11% share of growth in the company’s overall diabetes/obesity portfolio, and captured 23% of all diabetes/obesity sales.

5. Human insulin sales fell 10% YOY as reported (-6% operationally) to DKK 2.5 billion ($393 million).

6. Xultophy (insulin degludec/liraglutide fixed-ratio injection) posted DKK 177 million ($28 million) in sales, matching its 2Q17 performance of DKK 181 million ($28 million). This is disappointing to see considering the unprecedented glycemic benefits that combination therapies like Xultophy offer, but it reflects Novo Nordisk’s continued decision to prioritize Tresiba and Victoza commercially before heavily promoting their combination. We argue below that it’s time to think about shifting more commercial resources to Xultophy.

7. Saxenda revenue rose 53% YOY as reported (59% in constant currencies) to DKK 640 million ($101 million), but fell 7% sequentially, against 27% sequential growth in 2Q17. Despite making up only 3% of Novo Nordisk’s diabetes/obesity business in 3Q17, Saxenda (liraglutide 3.0 mg) drove 14% of portfolio growth. Management affirmed a strong commitment to and view of Saxenda as a growth driver – both for the obesity market and for Novo Nordisk’s business. We are very happy to see major resources moving this way.

Pipeline Highlights

8. Management expressed an extremely positive outlook for FDA approval of once-weekly GLP-1 agonist semaglutide by year-end. CEO Mr. Lars Jørgensen proclaimed that he fully expects a 2018 launch, and that the company will be “going all-in” when it comes to marketing. As Mr. Jørgensen put it, semaglutide represents “probably the biggest opportunity we’ve ever had in Novo Nordisk.” Management also mentioned that semaglutide will be dispensed in a “more advanced device that is inherently costlier” compared to Victoza, though details were left vague.

9. Fiasp will be launched in the US in 4Q17, according to Novo Nordisk management. Following late September FDA-approval, we heard from company reps that US launch was slated for 4Q17 or early 2018 – a swift turnaround, either way, but we’re pleased that the advanced product will become available to patients on the earlier side of that window, especially because it will be priced on par to NovoLog, a very positive decision in our view. We hope to see a similar decision on semaglutide and better pricing for Xultophy – we heard similar characterization about Xultophy but that product is still stuck in virtual nowhere land in terms of the numbers of patients who have access to it (both a problem with HCPs as well as price).

10. Management alluded to Novo Nordisk’s updated R&D strategy announced in 3Q16. The key changes were a “higher innovation threshold” and expansion into diabetes-adjacent indications like obesity and NASH. We wonder what this means for the insulin therapies Novo Nordisk has in phase 1 (a once-weekly basal, a liver-targeted mealtime product) – as CSO Dr. Mads Thomsen explained recently in a WSJ piece, it’s becoming increasingly difficult for a new insulin product to differentiate, leading to a higher bar for advancing into phase 2/3 development. On the other hand, we noticed four phase 1 trial completions in the company’s early-stage obesity pipeline.

Financial Highlights

1. Diabetes/Obesity Portfolio Flat YOY at $3.5 Billion (But Grows 5% in Constant Currencies)

Novo Nordisk’s diabetes/obesity portfolio was flat YOY as reported at DKK 22.2 billion ($3.5 billion), though portfolio revenue grew 5% YOY in constant currencies from a base of DKK 22.3 billion ($3.3 billion) in 3Q16. This also marks a 4% sequential drop, from DKK 23.1 billion ($3.5 billion) in 2Q17. Of note, all individual products experienced sequential sales decline in 3Q17, as you’ll see clearly in table 1 above. These financial results are overall underwhelming for Novo Nordisk, and in the press release, Novo Nordisk focused on the first nine months of 2017 in a majority of presentation materials as opposed to 3Q17 on its own (a common tactic for companies experiencing a relatively weaker quarter – just means it takes longer to do the math). That said, management emphasized that Novo Nordisk expected reported growth to be lower than growth in local currencies in 2017, and expressed distinct optimism for its GLP-1 agonist and new-generation insulin products (we note that many of these continue to lead their class in sales, like Victoza for GLP-1 and Saxenda for obesity). The “new-generation insulins,” including Tresiba (basal insulin degludec), Xultophy (insulin degludec/liraglutide fixed-ratio), Ryzodeg (insulin degludec/insulin aspart), and Fiasp (faster-acting insulin aspart sold ex-US in Europe/Canada, but recently approved in the US and slated for a 4Q17 launch), drove an impressive 61% of portfolio growth in 3Q17, by our calculations, while making up only 9% of total revenue. GLP-1 agonist Victoza accounted for a 15% share of growth and for 24% of total revenue. As Novo Nordisk’s highest-selling diabetes product, Victoza has consistently captured ~25% of whole portfolio sales since mid-2015, but drove less growth in 3Q17 than in recent quarters (e.g. 29% in 2Q17, 35% in 1Q17). Obesity drug Saxenda (high-dose liraglutide) accounted for 14% of portfolio growth, despite comprising only 3% of total sales, and mealtime insulin NovoLog (23% of the portfolio by revenue) rounded things out, driving 11% of growth. As expected, growth was partially offset by declining Levemir sales, and management also underscored how US pricing pressure has led to lower realized prices (particularly for the basal insulin category). In Q&A, management maintained that commenting on pricing in isolation is not meaningful, because sales numbers are some formula of price as well as prescription volume, patient discounts, and segment mix. Looking ahead, Novo Nordisk shared updated financial guidance for 2017, projecting 2%-3% sales growth in local currencies (vs. the 1%-3% expectation outlined in August 2017) and reiterating that reported revenue growth will likely be ~2% lower than that. Full-year guidance for 2018 will be released on February 1, but management offered a teaser: low- to mid-single-digit growth driven by the continued robust performance of Victoza, new-generation insulins, and Saxenda, as well as tailwinds from the expected launch of once-weekly GLP-1 agonist semaglutide.

Figure 1: Total Diabetes/Obesity Sales (1Q12-3Q17)

2. Victoza: Sales Rise 5% YOY to $844 Million; Spotlight on New CV Indication and Management’s Thoughts on a GLP-1 Class Effect

Sales of GLP-1 agonist Victoza (liraglutide) rose 5% YOY as reported (9% in constant currencies) to DKK 5.3 billion ($844 million) in 3Q17, marking slowed but still significant growth. By our calculations, Victoza drove 15% of growth for Novo Nordisk’s overall diabetes/obesity business and accounted for 24% of total portfolio revenue in 3Q17. Worldwide sales were down 8% sequentially, but in our view, this is best characterized as a minor fluctuation from all-time-high revenue in 2Q17 ($887 million). Management attributed this strong financial performance to underlying growth in the GLP-1 agonist class (we’re always happy to hear this, and it was also cited by Lilly management last week as a factor in Trulicity’s sales growth, >doubling YOY in 3Q17 to $528 million). According to Novo Nordisk’s roadshow presentation, GLP-1 market volume continues to grow >10% annually, claiming 11% of the global diabetes market by value and 13% in North America (as of August 2017). At ~350,000 monthly prescriptions in the US, Victoza continues to edge out Trulicity (~300,000 monthly prescriptions in the US), but the gap is closing: As of August, Victoza held 44% US market share by volume vs. Trulicity’s 37%, narrowing from 46% and 34% in May 2017. Novo Nordisk’s presentation also noted that Victoza maintains 50% global market share by value – we’ll return with our pooled class analysis after AZ reports on November 9 (Bydureon and Byetta). Semaglutide could enter this market just as Victoza and Trulicity market shares equalize, and we’re so interested to see how such an impressive GLP-1 agonist might impact these trends and grow the class as a whole. Ultimately, far more patients could benefit from a GLP-1 agonist therapy than are currently taking one, so we see plenty of room for multiple products to be commercially successful.

• In 3Q17, both the EMA and FDA approved a CV indication for Victoza, and Novo Nordisk heavily emphasized that Victoza is the only GLP-1 agonist indicated to reduce risk for CV events (based on LEADER). The impact of this label change is yet to be seen, and we certainly appreciate the time and effort it takes to roll out a new indication like this, especially when diabetes care providers are still accustomed to writing prescriptions for A1c-lowering rather than cardioprotection – this is going to take some time to change. We believe getting the word out to HCPs, and also leveraging this CV indication in payer negotiations to improve access, will both be critical – as it will be to educate patients. For context, revenue from Lilly/BI’s SGLT-2 inhibitor Jardiance (empagliflozin) did not increase as dramatically as we may have hoped immediately following its CV indication in December 2016, but we’re cautiously optimistic that with two companies now promoting awareness of the diabetes/CV disease overlap, both Victoza and Jardiance might benefit.
• During Q&A, CSO Dr. Mads Thomsen shared his opinion on the REWIND trial for Lilly’s Trulicity (expected to complete July 2018), suggesting that it’s less likely to be positive for CV risk reduction vs. placebo. For one, he argued, “we cannot at this point say that cardioprotection is anything close to being a class effect of the GLP-1 agonists.” Novo Nordisk has been highlighting a difference between human GLP-1-based molecules and exendin-4-based molecules to explain the mix of positive and neutral CVOTs for this class. Though dulaglutide (Trulicity) is also in the human GLP-1 category alongside liraglutide and semaglutide, Dr. Thomsen pointed out that the molecule is still very different from both of Novo Nordisk’s molecules. Moreover, he described how REWIND is being conducted in a patient population with shorter mean duration of diabetes (~10 years) and lower average A1c (~7.3%) than either LEADER or SUSTAIN 6. Dr. Thomsen seemed doubtful that this population – with only 31% having existing CV disease at baseline (i.e. a larger primary prevention cohort) – will show CV benefit with Trulicity, since liraglutide and semaglutide have both demonstrated their greatest magnitude of benefit in individuals with a history of CV events. Interestingly, his comments reinforce the notion that trial design can deeply impact results, an idea frequently invoked to explain EXSCEL’s neutral result at EASD, especially because Bydureon (exenatide, an exendin-4-based agent) only narrowly missed the statistical threshold for superiority (HR=0.91, 95% CI: 0.83-1.00, p<0.001 for non-inferiority, p=0.06 for superiority). Our sense is that there’s still a good chance cardioprotection turns out to be a GLP-1 agonist class effect, since many of these CVOTs were designed to meet a safety endpoint rather than an efficacy endpoint. And, because it seems plausible that the anti-atherosclerotic effects of GLP-1 agonist therapies reduce CV risk partly by acting on plaques (among other mechanisms), but that this benefit is amplified for individuals with plaques that are already well-developed (hence the greater magnitude of benefit in a sicker population).

Figure 2: Victoza Sales (1Q12-3Q17)

3. Tresiba: Revenue Grows 66% YOY to $278 Million; EMA Approves Label Update to Reflect Hypo Benefit, with FDA Decision on Label Expected 1Q18

Headlining the company’s new-generation insulin portfolio, Tresiba posted DKK 1.8 billion ($278 million) in 3Q17 revenue, growing 66% YOY as reported and 75% in constant currencies. These gains were largely driven by impressive growth in the US, where Tresiba (basal insulin degludec) sales more than doubled YOY to DKK 1.2 billion ($184 million). Tresiba also experienced solid growth in Europe (up 37% YOY operationally), Region AAMEO (Africa, Asia, Middle East, and Oceania; up 63% YOY operationally), Latin America (up 63% YOY operationally), and Japan and Korea (up 8% YOY operationally). Sequentially, global Tresiba sales fell 20% against the difficult comparison of 47% sequential growth in 2Q17 (although we’d hope for a consistent upward sales trajectory, considering this product is still relatively early in its launch cycle). This represents the second-ever quarter of sequential decline for the next-gen basal insulin, following a modest 4% decrease between 4Q16 and 1Q17. Management mentioned that continued US pricing pressure around diabetes drugs contributed to lower realized prices for Novo Nordisk in 3Q17, and we suspect this was definitely at play for Tresiba. Moreover, management acknowledged that the lion’s share of Tresiba sales to-date have come from commercial channels, with “only modest performance” in the Medicare Part D segment. But there’s an opportunity to turn this around in 2018 – as CEO Mr. Lars Jørgensen explained during Q&A, Sanofi’s Lantus and Toujeo have been excluded from the Medicare Part D formulary (similar to the CVS Health exclusions), while Tresiba will maintain its tier 2 position alongside Lilly/BI’s biosimilar Basaglar. He added that Tresiba hasn’t experienced major attrition to Basaglar since its late 2016 launch in the US, but recognized that Lilly/BI’s product may become a larger competitive threat going forward as it becomes more familiar among patients and HCPs. Tresiba has now launched in 56 countries, with Canada as the most recent addition to this list, and the product is on track to reach Novo Nordisk’s goal of 10% TRx (share of total prescriptions) within the basal insulin market by year-end. Overall, management seemed entirely unfazed by the sequential decrease in Tresiba revenue, and in fact, shared that the next-gen basal will continue to be a main commercial priority in 2018.

• Management announced that the EMA has approved a label update for Tresiba to reflect reduced risk for severe hypoglycemia vs. Lantus based on the DEVOTE trial. This is major and exciting news, groundbreaking on the regulatory front, as Tresiba is now the first diabetes product with a hypoglycemia benefit displayed clearly on its label. In line with DEVOTE data, the EU label now shows a 40% relative risk reduction for severe hypoglycemia (HR=0.60, 95% CI 0.48-0.76, p<0.001) and a 53% relative risk reduction for nocturnal severe hypoglycemia (HR=0.47, 95% CI: 0.31-0.73, p<0.001) vs. Lantus. This revision bolsters the SWITCH results that are already on Tresiba’s European product label (added 1Q17). Novo Nordisk is expecting an FDA decision on a similar label update – hypoglycemia benefit based on both SWITCH and DEVOTE, being evaluated together by the agency – in 1Q18. Marketing this hypoglycemia benefit to patients and providers could substantially galvanize Tresiba sales, considering pervasive fear of hypoglycemia among people with diabetes and the substantial quality of life improvements that come with avoiding hypoglycemia. Given the steep cost of hypoglycemia to the health system (nearly $2 billion in 2009), we imagine a hypoglycemia claim of some kind on Tresiba’s US product label would offer a compelling value proposition to payers, potentially enhancing reimbursement for the next-generation product. Of course, this is all speculation, and we look forward to seeing how these dynamics play out in 2018.
• On the strength of Tresiba, Novo Nordisk’s new-generation insulin portfolio (Tresiba, Xultophy, Ryzodeg, and Fiasp) grew 84% YOY as reported (93% in constant currencies) to DKK 2.1 billion ($332 million), driving 61% of growth for the whole diabetes/obesity business despite capturing <10% of total portfolio sales. Novo Nordisk has yet to break out sales of Fiasp individually, but the product is approved in Europe, Canada, and – as of late September – the US (launch coming in 4Q17). We eagerly await more granular financial data that allows us to track how Fiasp is faring on the market – hopefully, this will come in future quarterly updates once the product is available and selling in the US. Scroll down to our pipeline section for more on Fiasp, and see highlight #6 below for a deeper dive on Xultophy (fixed-ratio combination of insulin degludec/liraglutide).
• According to Novo Nordisk’s presentation slides, Tresiba held 9% of total prescription volume (TRx) for the US basal insulin market as of October 2017 (up from 8% in 2Q17). This bodes well for the drug’s prospects of reaching 10% TRx by end of 2017, if current trends continue. Sanofi’s next-generation counterpart Toujeo (insulin glargine U300) also captured 9% TRx as of October 2017. Lilly’s biosimilar newcomer Basaglar held 4% TRx. Older basal insulins like Sanofi’s Lantus (insulin glargine) and Novo Nordisk’s Levemir (insulin detemir) hold a larger TRx share (49% and 22%, respectively) but this has been on the decline since January 2016, as illustrated in slide 9 of the company’s presentation. Notably, management acknowledged on today’s call that Tresiba is cannibalizing some Levemir sales. Novo Nordisk further shared that Tresiba continues to hold 12% of new-to-brand prescriptions (NBRx) in the US basal insulin market – unchanged from 2Q17. The product has been performing particularly well in Japan, where it holds a 41% share of the basal insulin market by value, and value share is also strong in Switzerland (30%), Italy (30%), Denmark (28%), and Greece (24%). Management noted that the uptick in value share in these markets has occurred against the backdrop of comparable levels of reimbursement for both Tresiba and Lantus, insinuating that – when access/affordability is taken out of the equation – patients and providers are opting more toward Tresiba and its improved, next-generation clinical profile. Markets such as the UK (6%), Brazil (11%), and Spain (12%) have shown slower uptake due to more restricted market access for Tresiba. See slide 8 of the company’s presentation for a full rundown of the drug’s market penetration by geography.

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

4. Modern Insulins: Portfolio Down 10% YOY to $1.7 Billion, Driven by Falling Levemir Sales; Pricing Pressures Underscore the Difficulty of Relying on Insulin as a Profit-Maker

Novo Nordisk’s modern insulin portfolio, comprised of basal insulin Levemir, prandial insulin NovoLog, and NovoMix, fell 10% YOY as reported (5% in constant currencies) to DKK 10.6 billion ($1.7 billion). This decline was driven primarily by Levemir (insulin detemir), which fell 27% YOY as reported (23% in constant currencies) to DKK 3.2 billion ($500 million). Sales of NovoMix fell a more modest 4% YOY as reported (and grew 1% YOY in constant currencies) to DKK 2.4 billion ($384 million), whereas NovoLog revenue rose 3% YOY as reported (9% in constant currencies) to DKK 5.1 billion ($798 million). By our calculations, NovoLog accounted for an 11% share of growth in the company’s overall diabetes/obesity portfolio, and captured 23% of all diabetes/obesity sales. Modern insulins performed better ex-US in 3Q17 compared to the US market, where revenue fell 18% YOY to DKK 5.1 billion ($799 million). In contrast, ex-US sales were flat at DKK 5.6 billion ($883 million). Notably, 3Q17 marks the second-ever quarter (after 2Q17) in which ex-US revenue surpassed US revenue for Novo Nordisk’s modern insulin portfolio, which seems to be facing intense pricing pressure in the US. Management cited this as a reason for lower realized price – that said, TRx share for Levemir has also been on a steady decline since January 2016 (slide 9), though we don’t know what this means for absolute number of Levemir prescriptions (we’d love this information, so we can gauge how much lower reported revenue correlates with fewer patients accessing the therapies they need). Management repeatedly emphasized that Levemir’s downturn is partially reflective of increased Tresiba uptake, rather than loss to basal insulin competitors like Lilly/BI’s biosimilar Basaglar. All this said, Novo Nordisk remains a true giant in the insulin arena, capturing 47% of the total insulin market by volume and 45% of the modern and new-generation insulin market by volume as of August 2017, as shown in the table below.

• This muted showing from Novo Nordisk’s modern insulin portfolio illustrates sentiments from CSO Dr. Mads Thomsen in a recent WSJ article, that diabetes companies can no longer count on rising insulin profits to fuel growth. Pricing pressure, particularly in the US, is a large reason for this, as is the perception that new insulin therapies bring incremental rather than disruptive improvement to the marketplace. We note that this perception does not necessarily reflect reality: Tresiba, with its game-changing hypoglycemia benefit as shown in SWITCH and DEVOTE (and now added to the EU label!), is certainly more than an incremental step above its predecessors. To this end, we were pleased to hear from management that Tresiba will continue as a leading commercial priority in 2018 – this will be especially important given the hypoglycemia label update in the EU. It’s true however, that to Dr. Thomsen’s point, Novo Nordisk has shifted a great deal of energy toward non-insulin diabetes therapies – namely the GLP-1 agonists Victoza (liraglutide) and phase 3 semaglutide – and has shown a growing emphasis on both developing novel products for diabetes-adjacent conditions such as obesity and NASH and securing these indications for its existing diabetes products (see our pipeline highlights for much more on this).

Table 2: Novo Nordisk Insulin Market Share

5. Human Insulin: Challenging Quarter with 10% YOY Revenue Decline

Human insulin sales fell 10% YOY as reported (-6% operationally) to DKK 2.5 billion ($393 million). Sequentially, sales fell 1% from $387 million in 2Q17. This performance was driven by steep YOY revenue declines in nearly all geographic regions. Operationally, sales in Japan and Korea dropped 18% YOY, while sales fell 11% YOY in the US, Europe, and Region AAMEO (Africa, Asia, Middle East, and Oceania). Revenue decline was more modest in China (down 2% YOY in constant currencies), and Latin America was the exception with sales growing 16% YOY in constant currencies. Notably, this marks the third consecutive quarter of YOY decline for Novo Nordisk’s global human insulin sales (down 5% YOY in 1Q17, down 6% YOY in 2Q17), and quarterly revenue has been fluctuating since 2013.

6. Xultophy: Sales (Disappointingly) Flat at $28 Million in Third Quarter of Reported Revenue

Xultophy posted DKK 177 million ($28 million) in sales, matching its 2Q17 performance of DKK 181 million ($28 million). While sales for Xultophy (insulin degludec/liraglutide fixed-ratio combination) have only been broken out since 1Q17 – launch in US pharmacies took place in May 2017 – we’re disappointed with this 2% sequential decline following muted but encouraging 76% growth in 2Q17. Management framed Xultophy as supporting Tresiba’s basal insulin market penetration – in Switzerland, for example, the two together have claimed 58% of the basal insulin market by value. Overall, management was explicitly optimistic about Xultophy’s potential, but the company’s approach to this product so far has been to de-prioritize it relative to its individual components (Tresiba and Victoza), which is extremely unfortunate from our view given the propensity of combo therapy to help patients. At Diabetes UK 2017, Novo Nordisk reps outlined a stepwise commercial strategy, wherein the company needs to first cultivate familiarity among real-world HCPs with the component monotherapies before promoting their combination, and they underscored that insulin degludec is relatively new-to-market itself. We aren’t sure why combo therapy couldn’t be introduced first. During Q&A on today’s call, management outlined that Tresiba remains its priority going into 2018 - we’d hope that it’s time to think about shifting more commercial resources to Xultophy. Based on clinical data (the DUAL program), this is a highly-effective therapy for glucose-lowering and weight loss, and it comes with a milder side-effect profile overall (not to mention lower injection burden). We’ve heard thought leaders galore espouse the benefits of basal insulin/GLP-1 agonist combinations – Dr. John Buse has suggested that Xultophy might be “the most effective anti-hyperglycemic agent on the planet.” We’d love to see the number of patients on both Xultophy and Sanofi’s Soliqua (insulin glargine/lixisenatide) multiply in coming quarters. Xultophy has now launched in 16 countries, +1 from 2Q17. As Sanofi has put all of its GLP-1 agonist eggs in the Soliqua basket, we’ll be paying particular attention to its performance during Sanofi’s 3Q17 earnings call today, when we’ll be back with a pooled analysis of the basal insulin/GLP-1 agonist fixed-ratio combination market. We hope more thinking is also going into Xultophy access.  

7. Saxenda: Sales Rise 53% YOY but Fall 7% Sequentially to $101 Million; Four-Pronged Initiative to Spur Greater Uptake of Obesity Pharmacotherapy

Saxenda revenue rose 53% YOY as reported (59% in constant currencies) to DKK 640 million ($101 million), but fell 7% sequentially, against 27% sequential growth in 2Q17. Despite making up only 3% of Novo Nordisk’s diabetes/obesity business in 3Q17, Saxenda (liraglutide 3.0 mg) drove 14% of portfolio growth. As usual, the bulk of Saxenda sales came from the US market, but the gap between US and ex-US sales narrowed in 3Q17: US revenue fell 14% sequentially to $73 million, while ex-US revenue increased 19% to $28 million. In closing remarks, management highlighted that Saxenda is now launched in 23 countries, up from 19 in 2Q17, and also commented that it holds “potential within obesity,” indicating a vision for much greater uptake and an expanded obesity market in the US. Management still considers Saxenda a key growth driver alongside Tresiba and Victoza, all the more impressive considering the underutilization nearly ubiquitous among branded weight loss drugs. Supplementary slides (slides 82-84) point to significant investment in the therapy by Novo Nordisk, as well as in semaglutide for obesity. In particular, initiatives are focused on (i) educating HCPs on obesity management, (ii) promoting patient engagement with Saxenda, (iii) promoting recognition of obesity as a chronic disease, and (iv) improving market access to obesity care. No further specifics were given, but we imagine these initiatives are part of the dedicated education budget that Novo Nordisk houses within obesity R&D (a pickup from the Diabetes UK exhibit hall last year). We also learned in a conversation with brand new EVP Ms. Camilla Sylvest last week that Novo Nordisk designed the SaxendaCare program to support patients in comprehensive obesity management, since pharmacotherapy treatment is rarely sufficient without lifestyle modification, social encouragement, etc. We’d love to know how many people on Saxenda are also enrolled in SaxendaCare (and we hope it is a high number!). We applaud the work Novo Nordisk is doing to target major barriers to the use of obesity pharmacotherapy, and we also appreciate the company’s investment in this historically less-than-fertile area. On reimbursement, we know that only two out of every five of the roughly 95 million adults with obesity have insurance covering obesity medication – and this doesn’t even speak to the quality of the coverage – so we’d love more color on the company’s efforts to improve access/affordability. We’ll be back later this month with a pooled analysis of major obesity medications. In the meantime, see our 2Q17 pooled analysis (Saxenda was the main driver of 60% YOY growth).

Figure 4: Saxenda Sales (1Q16-3Q17)

Pipeline Highlights

8. CEO Lars Jørgensen on Semaglutide: “Probably Biggest Opportunity We’ve Ever Had in Novo Nordisk”

Management expressed tremendous enthusiasm for the clinical profile of once-weekly semaglutide, and shared a positive outlook for FDA approval by year-end. CSO Dr. Mads Thomsen reviewed the positive 16-0 Advisory Committee vote (with one member abstaining), emphasizing how panelists were pleased overall with the efficacy demonstrated by semaglutide in its pivotal program. He discussed topline results from SUSTAIN 7, which were released in August: This head-to-head study found that both doses of semaglutide (0.5 mg and 1.0 mg) achieved superior A1c reductions vs. two doses of Lilly’s Trulicity (dulaglutide), at 0.75 mg and 1.5 mg. Weight loss was also superior with semaglutide vs. dulaglutide. These superiority findings on both A1c and body weight were statistically significant in favor of semaglutide, but no p-values have yet been reported, and we eagerly await the full SUSTAIN 7 results for these and other details. Dr. Thomsen highlighted that semaglutide has now shown superiority over two existing once-weekly GLP-1 agonists – Lilly’s Trulicity in this recent trial, and AZ’s Bydureon (exenatide) in SUSTAIN 3. Indeed, this theme emerged at last month’s Advisory Committee meeting as well, that semaglutide has best-in-class potential within the highly-efficacious GLP-1 agonist market, and that it should be made available to patients as a more potent therapy. Management was fairly quiet on the SUSTAIN 6 retinopathy signal (HR=1.76, 95% CI: 1.11-2.78), the only comment coming from Dr. Thomsen when he mentioned balanced eye-related adverse events between semaglutide and dulaglutide arms of SUSTAIN 7. We suspect Novo Nordisk is feeling confident that this potential microvascular risk won’t stand in the way of semaglutide’s approval, but rather, will be included in some form on the product label – this is what Advisory Committee members recommended unanimously. CEO Mr. Lars Jørgensen proclaimed that the company fully expects a 2018 launch, which implies regulatory approval by the end of 2017. He shared that Novo Nordisk will be “going all-in” when it comes to marketing around semaglutide (we hope this includes some patient/provider education around proper monitoring of the eyes), because, in his words, this once-weekly GLP-1 agonist represents “probably the biggest opportunity we’ve ever had.” That’s enthusiasm if we’ve ever heard it, and we can’t wait for this product – with its convenient once-weekly dosing, lower injection burden, and profound glycemic/weight loss efficacy – to be in patient hands.

• During Q&A, management remarked that semaglutide will be dispensed in a “more advanced device that is inherently costlier.” We’re extremely curious to see how the semaglutide injection pen will differ from the Victoza pen – no specifics were shared on today’s call. Moreover, a “costlier” device doesn’t necessarily mean that semaglutide will be priced higher than Victoza. Once again, management declined to share specific details, but suggested that this could extend the time it takes for semaglutide to reach the profit margin levels of Victoza (at least three years). We’re keeping our fingers crossed for responsible pricing that maximizes patient access to the new therapy, though payer reimbursement will of course be a major determining factor in how many prescriptions are written. To that end, management reiterated that semaglutide should be a very attractive proposition due to its strong efficacy profile and its demonstrated superiority over other once-weekly GLP-1 options. In other words, Novo Nordisk seems prepared to negotiate with payers – we can only hope that payers recognize the advanced offerings of this potent medicine.
• Novo Nordisk is also investigating once-weekly injectable semaglutide in obesity, with phase 3 trials scheduled to begin in 1H18. This was a major focus during the company’s 2Q17 update, when phase 2 data (using a once-daily formulation) had just been released, showing “a new level of efficacy” for semaglutide in weight loss that surpassed even Saxenda. Semaglutide produced ~16% weight loss (average drop of 39 lbs from a baseline 244 lbs) among phase 2 study participants who completed one full year of treatment vs. ~8% weight loss for patients randomized to Saxenda and only 2% weight loss for patients on placebo (all treatment was adjunct to diet/exercise). The weight effects of semaglutide are incredibly exciting, in our view – we know from dQ&A survey data that weight loss is the no. 1 priority for people with type 2 diabetes when considering which therapy to use, we know that weight loss can meaningfully improve a patient’s quality of life (whereas weight gain can cause deteriorated quality of life), and we know that obesity itself is a vastly under-treated disease. As Novo Nordisk continues to shine as a leader in obesity pharmacotherapy, we believe this company is well-equipped to carry forward semaglutide as an obesity drug as well.
• Management confirmed that the phase 3 program for oral semaglutide in type 2 diabetes is proceeding on schedule. According to ClinicalTrials.gov, PIONEER 1 (oral semaglutide vs. placebo) is expected to complete in December 2017, and according to Novo Nordisk’s roadshow presentation (slide 78), data will read out in 1Q18. Management also highlighted positive phase 2 results recently published in JAMA. The table below summarizes all 10 trials ongoing as part of the PIONEER program, including a CVOT (PIONEER 6) expected to complete in October 2018.

Table 3: PIONEER Phase 3 Program for Oral Semaglutide

9. Fiasp to Launch in US Pharmacies by End of Year

Fiasp will be launched in the US in 4Q17, according to Novo Nordisk management. The next-gen mealtime insulin (faster-acting insulin aspart) was finally FDA-approved in late September, a highly-anticipated regulatory decision as the agency issued a Complete Response Letter (CRL) for Fiasp the first time it was submitted. Previously, we heard from company reps that US launch was slated for 4Q17 or early 2018 – a swift turnaround, either way, but we’re pleased that the advanced product will become available to patients on the earlier side of that window. Fiasp boasts an improved PK/PD profile compared to other rapid-acting insulins on the market. As management explained during prepared remarks, the agent’s faster onset/faster offset affords people more flexibility on when to dose the insulin relative to consuming a meal, and it results in better postprandial glucose curves. We see greater mealtime flexibility as an enormous advantage for patient quality of life. This could be accompanied by less fear of hypoglycemia in the real world, because of the rapid on, rapid off effect. Following its cost strategy in the UK and Canada, Novo Nordisk will parity price Fiasp to NovoLog in the US, which we imagine could be a substantial win for patient access. Now we wait to see what happens in negotiations with payers/PBMs… We’d also love for the company to break out Fiasp sales in a future quarterly update (beginning in 2Q17, the next-gen prandial product was wrapped into the “new-generation insulin portfolio” for financial reporting), and we expect US launch could be great reason to do so!

10. Allusions to New R&D Strategy Beginning to Manifest (Higher Innovation Threshold & Diabetes-Adjacent Indications)

Several times throughout the call, management alluded to Novo Nordisk’s updated R&D strategy announced in 3Q16. The key changes were a “higher innovation threshold” and expansion into diabetes-adjacent indications like obesity and NASH. Dr. Thomsen elaborated on these R&D shifts in a recent interview with the Wall Street Journal, explaining that as it becomes increasingly difficult for a new insulin product to differentiate itself (i.e. people see “incremental” rather than truly disruptive improvement), the company is allocating more resources to non-insulin diabetes therapies and to other (but still related) disease areas. To this end, we noticed that a phase 1 trial for once-weekly basal insulin candidate NN1436 is still recruiting per ClinicalTrials.gov, even though it’s expected to complete in December 2017. This doesn’t necessarily mean the study is behind schedule, nor does it say anything explicit about Novo Nordisk’s investment in the early-stage insulin, but we do wonder if NN1436 will have to meet an exceptionally high bar with safety/efficacy data to be advanced further in clinical development. For context, the company discontinued its phase 2 oral insulin in 3Q16 because of a higher-than-usual bar, not because of any one safety concern or a lack of overall efficacy. As for the liver-targeted mealtime insulin in phase 1, Dr. Thomsen told the WSJ that this insulin molecule does have greater potential because of its unique mechanism of action, one that hasn’t been explored by too many other companies (more physiologic, since >50% of endogenous insulin is typically cleared by the liver). Diasome is investigating a liver-targeted formulation of insulin lispro (Lilly’s Humalog) in phase 2, though Lilly discontinued its internally-developed liver-targeted insulin lispro in December 2015 due to liver toxicity and other safety concerns. A phase 1 study of Novo Nordisk’s candidate (NN1406) was completed in July, and data is expected in 4Q17.

• We noticed a few trial completions in the company’s early-stage obesity pipeline. A phase 1 study of FGF21 analog NN9499 was completed in October 2017, and another phase 1 trial of a GLP-1/GIP/glucagon triple agonist (NN9423) was completed in August. Two phase 1 studies of glucagon analog NN9030 were also completed in 3Q17 (standalone agent, co-administration with liraglutide), in July and September, respectively. On the other hand, a phase 1 investigation of NN9277, a GLP-1/glucagon dual agonist, is still ongoing despite an expected completion date of October 2017 listed on ClinicalTrials.gov. In general, we’re very excited about Novo Nordisk’s growing commitment to obesity – a diabetes-adjacent indication – and we’re glad to see that this extends beyond Saxenda and later-stage semaglutide to its early-stage candidates as well. There was no mention of these obesity therapies on today’s call, but we hope to soon hear more about the phase 1 data and the prospects for phase 2. As Dr. Thomsen described in the recent WSJ article, obesity is really an untapped area for drug development because the condition is so vastly under-treated. Thus, from a business angle, this emphasis on obesity could have substantial payoff (the emphasis includes the pipeline as well as a specific budget dedicated to real-world education and promotion of obesity as a biological, treatable disease). Moreover, it’s crucial for patients and for public health that experienced drug developers like Novo Nordisk bring new, safe, and effective products to market for chronic weight management and obesity care. In the WSJ piece, Dr. Thomsen also mentioned NASH as an under-treated, diabetes-adjacent indication of interest to Novo Nordisk, but there was minimal discussion of NASH on the 3Q17 call.

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 3Q17.

Select Questions and Answers

Q: Can you comment on your 2018 pricing assumptions for the GLP-1 agonist segment and the diabetes segment overall?

Mr. Lars Fruergaard Jørgensen (CEO, Novo Nordisk): We are not in a position to comment specifically on price development. Since our assumptions involve a combination of price, volume, and segment mix, we do not think that it is meaningful to comment on one of the elements in isolation. Although we do see a continued erosion of pricing in the basal category.

Mr. Jesper Brandgaard (CFO, Novo Nordisk): The detailed cost guidance will come in February. Based on the overall assumptions, with a similar level of growth in sales and operating profit, the operating margin will be unchanged. We are likely to see a slight negative development in our gross profit and gross margin similar to the approximately 50 basis points guidance that we've given for 2017. We are expecting a substantially higher investment level in selling and distribution costs in the final quarter of the year, which is built into our guidance for 2017.

Q: What is driving the increased decline in Levemir sales in 3Q17 particularly in the US and Europe? How much is this driven by price, competition, and growth of Tresiba?

A: The Levemir developments between 2Q17 and 3Q17 this year were linked to an adjustment of a rebate in 2Q16 and adjustment of the rebate in the opposite direction in 3Q16. Therefore, growth compared to last year appears to be very weak. Levemir is gradually being cannibalized primarily due to competition from Tresiba. There are relatively few places in the US where there has been an adverse reimbursement reaction to Levemir; reimbursement is broadly unchanged. Compared to last year, there is a substantial negative rebating effect in the reported sales that reflects the efforts of Novo Nordisk to keep Levemir reimbursed in 2017.

Q: Could you elaborate on the recent Part D changes for Tresiba in the US since you mentioned some volume opportunities? In Europe, how will you leverage the Tresiba label update?

Mr. Jørgensen: You’re right that with CVS and in the Medicare Part D segment, there’s been a change for Sanofi, in the sense that Lantus and Toujeo are excluded. We keep our tier 2 position together now with Basaglar. So, this is an opportunity similar to what we saw in the beginning of the year. Obviously, the dynamics are slightly different – Basaglar is a better-known product by now. On the other hand, we are out talking about the hypo benefit of Tresiba, which creates maybe a preference for Tresiba. There are some counterstrategies Sanofi can apply, too, but this will all unfold in the coming months. With regard to Region Europe, we’re going to go out and push the hypoglycemia benefit. This is something we’re going to prioritize in all markets because it’s really a meaningful differentiation for patients that you can reduce the risk of hypo by 40% and the risk of a nocturnal hypo by more than 50%. This is what physicians and patients worry the most about when you start treating diabetes with insulin. So, we are bringing that benefit now to patients in all countries where we have Tresiba approved.

Q: Are there any gross margin differentials to consider with regard to efficiency in parity pricing between semaglutide and Victoza?

A: Using the general pricing points of the GLP-1 agonist class, it will be a while before we will attain the level of gross margin for semaglutide that we have achieved for Victoza, which is above our average. We are launching semaglutide in a more advanced device that is inherently more costly. It would take at least three years to get it toward the margin levels implied for Victoza, but we are comfortable with this. It's still going to be at GLP-1 agonist price level, and we believe that the inherent clinical benefit of the product merits attractive pricing.

Q: Do you think that it is a realistic scenario that Novo Nordisk will end up being the only company with a GLP-1 agonist that demonstrates a CV benefit?

Dr. Mads Krogsgaard Thomsen (CSO, Novo Nordisk): Lixisenatide showed superimposable data compared to a placebo. And then you have exenatide that has been tested in two versions, the ITCA 650 osmotic pump device in the FREEDOM trial and also the once-weekly extended-release version in EXSCEL. Therefore, so far for GLP-1 agonists, nothing has certain CV benefits besides liraglutide and semaglutide. Dulaglutide is also on the market with the REWIND trial expected soon. It is important to bear in mind that dulaglutide is a very different molecular species from the isolated Novo Nordisk molecule, but it's also used by a whole different population. These people have had diabetes for about 10 years, have a low A1c of about 7.3% which is more than a percentage point lower than the Novo Nordisk LEADER and SUSTAIN 6 trials. Most importantly only 31% of the REWIND population has existing cardiovascular disease at baseline. We know, for our compounds at least, that those individuals with established cardiovascular disease actually were the population where we saw the strongest benefit for CV protection. If dulaglutide does not show a significant benefit come the next few years, then you are right, it will be liraglutide and semaglutide as the only ones in GLP-1 agonist arena. We cannot at this point say by any means that CV protection is anything close to being a class effect of GLP-1 agonists.

Q: I completely understand your commentary – it's a very different patient population. But if the REWIND study is positive, what would be the commercial impact given that REWIND frames a much broader population than the higher-risk patient population in LEADER?

Dr. Thomsen: Typically, the unfolding treatment guidelines tend to characterize people as either having high risk of CV disease (people with type 2 diabetes and several risk factors) or already having established CV disease with a prior event. We have to see how regulators and how treatment guideline providers handle data from those specific studies. I can mostly comment on semaglutide, where SUSTAIN 6 is in essence only the beginning of a long adventure into both new therapy areas but also potentially more outcomes trials.
Q: What are your expectations for Sanofi potentially launching a biosimilar Humalog for next year? Is this factored into your guidance?

Mr.  Jørgensen: When we provide guidance, we include the upside and downside scenario, so yes this possibility is factored in. It will be interesting to see the contracting dynamics, because they are quite different typically in the fast-acting category vs. others – there’s the highest rebate given and also the highest degree of exclusive contracts.

Q: Can you discuss your sales and marketing priorities for next year in the US? Presumably you'll start off with semaglutide, but should we expect a full rollout for Xultophy and Fiasp early on as well?

Mr.  Jørgensen:  Our sales and marketing approach for 2018 will be centered around the largest growth drivers and then launching semaglutide. Semaglutide is the biggest opportunity we've ever had in Novo Nordisk. We have invested a lot in the clinical program and have a very strong efficacy profile, so we will be going all-in on semaglutide when we have an opportunity. We'll keep focusing on Tresiba, which we believe has significant potential in the US. Saxenda is also contributing nicely. We will also be launching Fiasp, but again we have to think about the contracting dynamics in the fast-acting category.

Q: Can you speak more to the potential volume benefit for Tresiba in 2018 on the Medicare Part D basal insulin formulary?

Mr.  Jørgensen: There is approximately 10% segment share that's in play here. There's an opportunity here to grow our share of the market and overall grow our sales based on it. But it's also well-known that the price point is lower in Part D.

Q: You’ve talked about gradual access for semaglutide. Any color on why access should take time given the very compelling profile of the product?

Mr.  Jørgensen: For the following year in the commercial space, access will only be gradual during 2018. There are a number of plans where semaglutide would get initial access as a new product and we will of course pursue those opportunities. We have a couple of PBMs where it will be feasible for direct renegotiation. I can't say anything more specific than this, but our tactics will also be very linked to the quality of the clinical label that we get. We feel that it will be a good investment of our shareholders' money to establish a strong position for semaglutide in the mindset of both the endocrinologist and the general practitioner about the significant clinical benefits. When we get to the second half of 2018, a direct-to-consumer campaign for semaglutide could be called for, but that will, of course, be tactical.

-- by Ann Carracher, Abigail Dove, Payal Marathe, Benjamin Ose, and Kelly Close