Novo Nordisk A/S

Thank you very much and welcome to this Nordisk earnings call for the first three months of 2021 and outlook for the year. I'm Lars Rurgard Jorgensen, the CEO of Nordisk. With me I have our Chief Financial Officer, Karsten Munk Knudsen, and Executive Vice President and Head of Development, Martin Holst Lange. Also present and available for Q&A session is Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Silvestre. Today's earnings release and the slides for this call are available on our website nonoise.com. Please note that this call is being webcasted live and a recording will be made available on Nonoise website. The call is scheduled to last one hour. The presentation is structured as outlined on slide two. Please note all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 25 minutes. Please turn to slide 3. As always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risk and uncertainty that could cause actual results to differ materially from expectations. For further information on the risk factors, including the uncertainties related to COVID-19, please see the company announcement for the first three months of 2021 and the slide prepared for this presentation. Please turn to the next slide. In the past three months, Nordisk has progressed on all four dimensions of our strategic aspirations. We want to continue to add value to societies while we are taking steps on prevention and access. We have announced two partnerships where we invest in healthier urban populations as well as support frontline healthcare workers in low- and middle-income countries to improve access to diabetes care. As part of our circular for zero environmental strategy, we are pleased to note that several suppliers have already committed to the zero carbon emission target by 2030 when supplying non-Nordisk, which is expected to eliminate an estimated 15% of non-Nordisk supplier carbon emissions. Martin will come back to key milestones within innovation. But firstly, I want to mention that while we had an initial setback for Osempic 2.0 milligram in the US with the FDA issued refusal to file letter, We are working towards a resubmission in the second quarter. Furthermore, I am happy to share with you that Osempic has been approved for type 2 diabetes treatment and established cardiovascular disease in China. For commercial execution, we have progressed on all three strategic aspirations. Lastly, within financials, despite a tough comparator, which has been partly offset by inventory changes and timing of shipments in the first quarter of 2029, Sales grew by 7%, while operating profit increased by 3%, both measured at constant exchange rates. Please turn to slide 5. The sales increase of 7% was driven by 9% sales growth in international operations and North American operations, growing by 5%. The negative impact for COVID-19-related stocking in the first quarter of 2020 is primarily offset by inventory changes and timing of shipments in this quarter. All therapy areas contributed to growth, with diabetes care sales growing by 9%, driven by VL1 sales growth and unchanged insulin sales. VL1 sales increased by 23%, driven by North America, growing by 19%, and international operations growing by 31%. The unchanged insulin sales were driven by 5% growth in international operations, offset by 10% sales decline in North America. The U.S. Internet sales declined by 10%, driven by declining in volume, rebate enhancement, while partially offset by channel mix. Diabetes care sales grew by 9%, as international operations grew by 18%, and North America operations grew by 2%. Firefarm sales increased by 1%, driven by North America operations. Please turn to slide 6. In line with our In terms of reaching 1 third of the diabetes value market by 2025, we have improved our market share by 0.6 percentage points to 29.3%. The increase reflects GLP-1 market share gains in both operating units. We have increased our insulin volume market share to 47.3%, driven by market share gains in international operations supported by all three areas. Please turn to slide 7. The U.S. GLP-1 volume market growth is around 20% in the first quarter of 2021, driven by once-weekly injectables as well as all GLP-1 products. Nordisk market leadership is now 58%, driven by the uptake of Osempic and supported by Rebelsus. Measured on total scripts, Nordisk is the market leader with more than 50% market share. Please turn to slide 8. In the US, Rebelsus increases its volume market share both in terms of total scripts and new patient starts, despite two lockdowns with no face-to-face interactions between Nordisk and the prescribers. We have secured broad market access for Rebelsus, while the majority of Rebelsus scripts are now reimbursed and more than 80% of new patients are from outside the GLP-1 class. Outside of the US, Rebelsus has now been launched in 14 countries, with one key market being Japan. Two and a half months into the launch, Rebelsys has captured 0.5% of the all anti-diabetes market. The OAD market in Japan constitutes around 80% of the diabetes market. Please go to slide 9. In international operations, diabetes care sales increased by 10% driven by all geographies. The continued rollout of new generation insulins and focus on the GLP-1 product portfolio has resulted in an increased diabetes market share, which is now 23.6%. This is driven by market share gains in both GLP-1 and insulin. The value share of the GLP-1 class of the total diabetes market has increased 1.8 percentage points to 11.2%. Please turn to slide 10. Obesity care sales increased by 9% with 2% growth in North America operations and 18% growth in international operations. Throughout 2020 and into 2021, fewer patients have started treatment with Saxenda due to COVID-19 lockdown and reduced access to health care providers. In the US, we have since the start of the year seen an upward trend in the new patient starts on Saxenda. Indicating early signs of recovery in patient flow. Please turn to slide 11. Biopharma sales grew by 1%, driven by 3% sales growth in North America operations and unchanged sales in international operations. Rare blood disorders grew by 2%, driven by new product launches with Espiroct and Refixia. The 2% or 7 sales decline was more than offset by Haemophilia A products growing by 16% and Haemophilia B sales increasing by 18%. Rare endocrine disorders grew by 2%, driven by new indications and global rollout of next generation device for Nordotropin. Now over to you Martin for an update on R&D.

Thank you Lars. Please turn to slide 12. We continue to progress our late stage pipeline, aiming at initiating phase 3 activities across all of our therapy areas over the next year. In other serious chronic diseases, we in April initiated the phase 3A trial called Essence, evaluating subcutaneous once-weekly semaglutide 2.4 mg for treatment of non-alcoholic stale to hepatitis or NASH. The trial will enroll around 1200 people with NASH in stages two and three of fibrosis. The trial is planned in two parts. Part one will assess the effect of semaglutide 2.4 milligram versus placebo, both on top of standard of care. The primary assessment will be based on liver histology after 72 weeks of treatment. Part two will be an extension of part one, thereby preserving the randomization and assessing the effect of semaglutide 2.4 milligram on liver related clinical outcomes after a total of 240 weeks of treatment. The regulatory submission is expected to be based on part one of the trial, combined with the already completed and reported results from the phase two trial for which we have been granted breakthrough designation by the US FDA back in 2020. Please turn to the next slide. In obesity, our strategic aspiration is to develop a leading portfolio of superior treatment solutions. Consequently, we have decided to complement our injectable therapy portfolio with an oral option. From market research, we know that the majority of people with overweight seeking care with healthcare providers are not referred to an anti-obesity medicines prescriber. Research has shown that a number of patients, as well as their prescribers, have a preference for tablet-based treatment. Consequently, we expect to be able to address a substantial unmet need by developing a broader palette of obesity offerings, as we in April announced our decision to enter into Phase III in obesity with all Tamaglutide 50 mg. This decision follows the completion of the STEP Phase IIIa clinical program for once-weekly subcutaneous semaglutide 2.4 mg, which is currently under regulatory review in the US as well as in the EU. The global 68-week program, also called OASIS, will enroll around 1,000 people with obesity or overweight with at least one weight-related comorbidity in a total of three trials. Usual weight-related comorbidities are defined as hypertension, dyslipidemia, obstructive sleep apnea, and cardiovascular disease. We expect to, in the second half of 2021, to initiate the first of the three trials, which is expected to enroll around 650 trial participants. The objective is to confirm superiority of oral semaglutide 50 mg versus placebo, on weight loss in people with obesity or overweight. Please turn to the next slide. Now turning to the broader R&D high level milestones in 21. As Lars mentioned earlier, we have in U.S. in March received a refusal to file letter for the label expansion for 2.0 milligram of Osempic for the treatment of diabetes. The regulatory file was based on the sustained forwarded trial The U.S. has requested additional information mainly related to additional manufacturing data, and it is our belief that no additional clinical data will be needed for the resubmission. We are currently in a constructive dialogue with the FDA and work to resubmit during the second quarter of 2021. Moving on, also in the first quarter of 2021, we have initiated a Phase III 52-week clinical trial with once-weekly semaglutide 2.4 mg in people with obesity-related heart failure with preserved ejection fraction . In the second quarter, we also expect to initiate the Phase III program for all semaglutide in Alzheimer's disease, and we look forward to receiving the feedback from the US FDA on the application for semaglutide 2.4 mg in obesity. Moving to the second half of 2021, we expect to see Phase 1 results within our insulin innovation, and we also expect to initiate the Phase 3 outcomes trials for ciltivecumab within cardiovascular disease. Towards the turn of the year, we expect a decision from the EU on semaglutide 2.4 mg in obesity, as well as for osempic 2.0 mg within diabetes. And within BioPharm, we expect to have results from the phase 3 program for somatopacitin in children. Lastly, for the ongoing combined phase 1 and 2 trial with MyMate, we expect to see results from the different cohorts during the coming three quarters. With that, over to you, Karsten.

Thank you, Martin. Please turn to slide 15. In the first three months of 2021, sales were unchanged in Danish kroner and grew by 7% at constant exchange rates. The gross margin declined to 82.8% compared to 84.1% in 2020. The decline reflects negative currency impact and lower realized prices in the US, partly offset by a positive product mix and productivity. Sales and distribution costs increased by 9% in Danish kroner and 16% at constant exchange rates. The increase is driven by launch activities and promotional spend for rebellious and osempic market development investments for obesity as well as sales force expansions in China. Research and development costs increased by 4% in Danish kroner and 7% at constant exchange rates. The cost increase is driven by a higher activity level as we progress the early stage pipeline within other serious chronic diseases as well as the ongoing cardiovascular outcome trials, SOL and SELECT. Administration costs increased by 1% in Danish kroner and 3% at constant exchange rates. Operating profit decreased by 8% in Danish kroner and increased by 3% at constant exchange rates. The negative currency impact on operating profit is partly offset by around 1 billion Danish kroner in hedging gains under net financial items. This compares to a loss of 1.3 billion Danish kroner in 2020. The hedging gains are a consequence of the US dollar trading 9% lower compared to last year. Net profit increased by 6% and diluted earnings per share increased by 8% to 5 kroner and 45 euro. Free cash flow was 9.5 billion Danish kroner compared to 7.7 billion Danish kroner in 2020. The increase reflects the higher net profit and the favorable impact from changes in working capital. In the first quarter of 2021, we have realized a negative currency impact on sales and operating profits. The currency headwinds are driven by most major currencies and emerging market currencies trading at lower levels in 2021 than in 2020. Some of the negative currency impact from major currencies on operating profit is as mentioned partly offset in net financial items as they are hedged. Please turn to the next slide. Based on the strong underlying performance seen in the beginning of 2021, we now expect 2021 sales growth between 6 and 10 percent at constant exchange rates. This guidance reflects continued diabetes care growth mainly driven by Osympic and Rebelsis as well as obesity care growth. Also embedded is intensifying competition both within diabetes care and biopharm and continued pricing pressure mainly within diabetes care in the U.S. Operating profit is now expected to grow between 5 and 9 percent Reflecting the sales growth outlook and continued investments in current growth drivers as well as pipeline assets to secure future growth. As previously mentioned, we expect negative currency impact for the full year. Consequently, reported sales and operating profit growth is now still expected to be 4% and 6% lower than at constant exchange rates respectively. The current COVID-19 pandemic causes uncertainty to the outlook regarding new patient initiations and societal impacts. Financial items is still expected to be a gain of around 0.7 billion Danish kroner. Due to minor timing changes, we now expect capital expenditure to be around 7.5 billion Danish kroner in 2021. Lastly, free cash flow is parallel shifted upwards by 1 billion Danish kroner and now expected to be between 37 and 42 billion Danish kroner. As a consequence, the ongoing share-buy-back program is expanded with 1 billion Danish kroner to 18 billion. Now back to you Lars for final remarks.

Thank you, Karsten. Please turn to slide 18. We are very encouraged with the start of the year. Sales growth was driven by all therapy areas and across geographical areas within international relations as well as North America relations. where growth was accelerated in the US. We were also pleased to announce plans to develop all semaglutide as a convenient and effective treatment option for people with obesity, complementing our injectable obesity medications. The solid financial performance in the first three months of 2021 has enabled us to raise our outlook range for the full year. We are now ready for the Q&A where I kindly ask all participants to limit her or himself to two questions. Operator, we're now ready to take the first questions.

Thank you. If you wish to ask an audio question, please press 01 on your telephone keypad. If you wish to withdraw from your question, please press 02 to cancel. Once again, please press 01 on your telephone keypad if you wish to ask an audio question. Our first question comes from Emmanuel Papadisk from Deutsche Bank. Please go ahead.

Thank you very much Amanda Papadogs from Deutsche Bank. Since I'm early perhaps I'll start with the guidance question. It seems the majority of the Q1 revenue beat was stocking related. Perhaps you could just quantify that and notably raise guidance regardless. So if you could just talk about the confidence in that stocking you saw in Q1 on the revenue side will not reverse through the course of this year and whether there are any other factors driving your increased confidence for the full year outlook or indeed any other swing factors we should be thinking about in terms of the range for this year and then perhaps I'll take a question around the outlook in China what have you assumed if anything at present in your guidance for potential VPP insulin impact it appears possible it still could come within 2021 what are your latest expectations around timing and price impact and what options would be available to you to mitigate that at the

Thank you, Emmanuel. Two questions related to guidance. One linked to the stocking we saw and what more to say about the guidance lift and then outlook for China also linked to guidance and the volume-based pricing. So, Karsten, over to you.

Yeah, thank you for those questions, Emmanuel, and clearly some movements on Q1 results that's important to take into account when providing full year guidance. So just to reiterate, our 7% sales growth in the first quarter should be considered in the light of the 2 billion DKK stocking we saw in the first quarter last year, so if adjusting for that would Thank you very much. So in adjusted terms our Q1 underlying sales growth is 9% and that's basically in the high end of the guidance range we issued back in February where we said from 5 to 9 and being in the high end was one of the key indicators for us to increase our full year guidance. On top of that, linking to your China impact to guidance question, Then, of course, when assessing the proper guidance for the remainder or for the full year, of course, that also takes into account the risk picture we're looking into. And what we see in China specifically is that we do see an impact from volume-based purchasing on NovoNorm, so the so-called VPP4, where we'll see an impact on NovoNorm starting from In terms of pursuing VBPs in China, we do not expect insulin to be included in VBP5, which is happening now with effects from some time in Q3. And hence, any potential impact from insulin on volume-based pricing in China would be later in the year. So, truly quantifying that is hard, because we don't know the exact structure and timing, but that's also why we're working with guidance ranges, so it can be bigger or smaller, but we do expect a negative impact in the time to come from insulin in China.

Thank you, Karsten. Thank you, Emanuel. Next set of questions, please.

Our next question comes from Peter Verdu from Citi. Please go ahead.

Yeah, thanks. People in Old City, two questions. Mads, sorry, Karsten, simple one, just tax what the implications would be if U.S. goes to 28%, realize it won't have an impact for 21%, but just going forward, any sort of sensitivities there would be helpful. And then assuming Camilla is on the line, could you just remind us how big the current U.S. extender sales force is? and your current approach to the launch. Should we be thinking sort of omni-channel approach, or are you particularly focusing on either widening the prescriber base, getting patients to seek treatment initially, or to improve the reimbursement access? Or are you trying to do all things at the same time? So anything you're willing to share at this juncture would be appreciated. Thank you.

Thank you, Pete. So first, Karsten. Impact from potential change in tax structure in the U.S.? And then later on, Camilla.

Yeah, thanks, Pete. That's clearly something we're looking at. And as you know, it has not been concluded in Congress at this point. But I'd say the simple sensitivity measure on tax impact is that A, and what we saw when the Trump administration reduced rates Some years back was that on the US corporate income tax rate if a reduction or a movement of 10 percentage point on that moves our global group effective tax rate by 1 percentage point. So taking the US rate from 21 to 28 that would move our group rate by some 50 basis points or something like that. There are a number of other potential elements in the rulemaking process, and I'm sure you read about global minimum taxes and so on. At this point, it's simply too early to assess whether it has an impact or not. But the simple sensitivity is around half a percentage point from the U.S. corporate income tax.

Thank you, Karsten. And then Camilla, what can you share in terms of tactics for the obesity commercial efforts in the U.S.?

Yeah, so in terms of tactics for the obesity in the U.S., we are of course focused on driving the expansion in the commercial segment, but we are of course also working longer term to get into the Medicare segment. This of course is not, there is no sort of an immediate timeline to that, but what we can say about the access in the commercial segment is that We are working on making sure that there is opt-in to the gross coverage, meaning that we can improve also on our net coverage. And of course, we also expect that over time when we launch our next product, the semaglutide 2.4 subject to approval, that that will also of course be effective in terms of getting coverage. Coverage continues to be important and in terms of sales reps we are complementing our efforts from sales reps with omnichannel approaches and of course also working to see if we can expand what we call the direct care approach which means that since there are very few physicians that are prescribing obesity products at this point it might be easier to enable that with an omnichannel approach meaning online diagnosis potentially over time and online scripts So that's something that we are working on, but it's not in full force at this point in time.

Thank you. Thank you, Camille. Thank you, Pete. Next set of questions, please.

Our next question comes from Wermal Kapadia from Bernstein. Please go ahead.

Oh, great. Thank you very much for taking my questions. Wermal Kapadia from Bernstein. Can I just first ask on GLP-1 pricing, please? It seems that the net price of ribalsis in the U.S. in 1Q is around $13.5 per day. You know, that compares to closer to 20 percent, $20 per day for Ozempic. So just curious if we now believe this is like the steady state from which future declines will appear, or is there still some co-pay impact in Rybalsys which will mean that the net price could be slightly higher for the rest of 2021? And then my second question is just following up on China and VBP again. I just wanted to get a sense of what is your current base assumption When we eventually do see a VBP, how will it be implemented? Would it be the more traditional approach, like the typical Wave 5 and 6 in the future, or could it be a Wuhan-style VBP, which was clearly very different? And then just tied to that, any thoughts on the potential GLP-1 VBP at some point in the future? Would the Chinese government actually consider all GLP-1s in the same class like they did with the different incident classes? Thank you.

Thank you, thank you, so first Karsten, on GLP-1 pricing.

Yeah, so on Rebelsys and GLP-1 pricing, so it's always dangerous to do this value prescript on a quarterly basis, but I would say in trying to make it as simple as possible, then when you compare Osympic and Rebelsys, Then there's a delta of 11% on a list price per day, simply due to the size of the script between the weekly and the daily treatments. So that's one delta. Then furthermore, we do see continued use of affordability programs for rebuttals, so there's both a bigger Co-pay buy-down compared to that of OSIMPEC since we're competing in the oral segment down to $10. And then we still see a tail of some of the affordability programs from 2020 where you have some runway before that ends. And then, of course, there's the usual channel mix dynamics where you start out in the high margin channels and then over time products are available In short, the affordability piece with the tail going out on some of the launch programs, that should be beneficial. But the channel mix, as we've seen it with other products, should be negative going forward on an ARP per channel. Thank you, Karsten.

And on China, volume-based pricing, we cannot really go in and speculate about what will happen in the future. I'll just say that I believe it's slightly more complicated to handle biological medicines for physicians and patients if you go into these type of tender situations compared to small molecules. But it's not really possible for us to speculate on how this will play out in the future. Thank you, Vimal. Next set of questions, please.

Thank you. Our next question comes from Yannick Hendegrod from AVG. Please go ahead.

Hi, thanks for taking my question. This is Yannick Denholm from AVG. Can I ask a little about your maneuver room right now in the US in terms of getting right Belsus on the road? Essentially now this is the third time you're trying to launch it with the field force coming So can you talk a little more about your field force interaction? So I understand that you are approaching some 85% or so of the call interactions with ACPs are face-to-face. How does that translate into productivity, i.e. in terms of usual number of calls that you make? And then secondly, also on Rybels' rollout, then in Japan, obviously there's this 14-day limitation for the first year. on prescriptions. So how should we think about the uptake in Japan this year because obviously longer term this is a huge opportunity. Thanks.

Thank you. Janik, I'll pass on both questions to Camilla.

Thank you, Janik. Yes, correct that we are quite optimistic around when we get back into the field we see that the NBRX curves of Rebelsus comes back to similar slopes of the curve so to say. of course we are not fully as you say back in the field yet so there's still some room but we are of course constantly increasing our presence in the field also so and in 2020 we also got quite some experience on how to supplement our in-field presence with other types of multi-channel engagement parameters so that's the way that we try to do this but over time this constantly should increase also with the U.S. opening up Then on Japan and Rebels' rollout, we are quite satisfied with the uptake so far, especially when we look at also our share of voice where we, together with Merck, have the highest share of voice in the OAD segment in Japan at this point in time. So despite the sort of special conditions in Japan with the two-week prescription rules, then we feel that on a comparative note, We are tracking quite well in Japan following the very recent launch of Rebelsys.

Thank you Camilla and thank you Yannick. So as you can hear we are very confident and very pleased with how Rebelsys is performing both in the US and Japan and we are very optimistic about the future for Rebelsys. So next set of questions please.

Next question comes from Simon Baker from Redburn. Please go ahead.

Thanks for taking my questions. Two please. Firstly, on phasing, I wonder if you could give us any pointers as to the phasing of R&D and SG&A costs across the remaining three quarters, if there are any things we should Thank you very much. As you're moving into supplement injectable with oral, if you could give us any thoughts on the potential payer and reimbursement challenges of oral versus injectable. There's long been a suggestion in some courses that payers are probably more susceptible to an injectable because it's seen as a quote unquote more serious medical intervention than a pill. Is that your belief and are there any things we should be thinking about in the future? Thanks so much.

Thank you Simon. First, Karsten, on phasing both on cost and stocking.

Yeah, thank you Simon for that set of questions. So on phasing I would say the key aspect to be looking out for in terms of comparables versus last year is in Q2 where we saw quite significant destocking last year taking our Q2 sales growth last year down to basically zero. So of course that will impact the comparator as we saw impacting the comparator in the first quarter this year the other way around. So that will be the main on sales growth. I think on the other partial destocking between Q3 and Q4 last year I think it will be on the decimals so I wouldn't be houncing that In terms of our spending, I would say you should not expect any significant changes to our spending pattern this year. So the way it happens, I would say if I take R&D first, Then we're basically facing our spending vis-à-vis the trial execution, so there's a start-up cost and a close-down cost, and the remainder of the spending on trials are basically spread over the lifetime of the trial, and hence it's being faced rather gradually. Then there would only be significant bumps in case of, you could say, any impairments to intangible assets, and as you know we don't have A lot of acquired assets in Nordisk. So don't expect significant bumps in terms of R&D spending. S&D, what you saw here in the first quarter with S&D being up 16%, that was an artifact of us both pushing Rebelsys and Osempic, especially in the US market from the beginning. So we're basically running parallel DTC campaigns behind the brands. So we front-loaded the spending, but more granularity in terms of the phasing I would not want to give at this point in time because that also indicates some of our commercial tactics vis-à-vis, for instance, DTC programs in the U.S.

Thank you, Karsten. And on payer reception of all semi-in-obesity We're starting the trial now, so maybe it's a bit early to start talking about market access, but I would just make the comment that we see that for Rebelsus, which is an oral version of Semmer, we see pricing similar to what we see on Osempic. So I think this is all about efficacy. And bear in mind that The obesity market is a market to be opened up and I think there is plenty of opportunity to segment that market and I'm sure that there's a very large segment who would prefer an all treatment. So for us that's a significant opportunity. Thank you Simon. Next set of questions please.

Our next question comes from Chung Young from Credit Suisse. Please go ahead.

Hi guys, it's Cheung Hyung from Credit Suisse. Three questions, if I can. First one, oral SEMA and obesity. The 50 mg dose that you're going for is 25 times more than the injectable SEMA dose for obesity. So I know you're working on improvements in yield, but how should we think about the gross margin impact of this in the short term, but also the long term? Secondly, you initiated the study of SEMA in obesity with HEF-PEF. So perhaps can you discuss some of the rationale for starting this study? Maybe the commercial opportunity you have there. Is there any opportunity to move beyond the obesity and diabetes patients? And then finally, just on MIM-8, the phase 1-2 results now are listed as 2q to 2h. Just seeing if that's somewhat a slight delay there, or are we expecting multiple data sets throughout this year? Thanks very much.

So thank you, Chung-Jung. So first, Karsten, on the 50 MIG gross margin impact.

Yeah. Thank you for pointing to that trial trunk, because that's actually one of my favorite trials these days, because actually what you're looking at is a Phase III asset that Thank you very much. In the magnitude of what we see with the SIMR 2.4 and up to 18% weight loss as we saw in the STEP program. And of course before entertaining such a trial then we do a lot of financial modeling including cost of goods and manufacturing. And I would say with the scaling we're doing in our manufacturing setup and and the process improvement we are entertaining in manufacturing first of all. We do see improvements in our cost of goods as we've also been discussing with the Rebelses early on. Furthermore, what we're also doing is that we're looking at the formulation of the tablets in the 50 milligram version. Thereby also looking at certain opportunities in terms of improving our gross margin profile for the product. So all in all, we expect to see an attractive product also on a gross margin level if and when we get to market.

Thank you, Karsten. And Martin, a combined answer to make it sound like one answer to the second question on Sema Hef and MyMate.

That's going to be a tall order combining obesity and hemophilia, but I'm going to give it a try. On HEF-PEF, we see obviously a great number of patients suffering from heart failure and there's no treatment specifically for HEF-PEF out there. These patients have a severe impact on their everyday life, on their function, on their quality of life and obviously on their outcomes. and we have indications that semaglutide may be an impactful treatment in this space specifically because 80% of people will have to suffer from obesity and we have clear indications that weight loss will improve the outlook, the quality of life and the activity of daily living with these patients. So we see this as an opportunity to serve some patients with currently no treatment and a potential for label expansion of the obesity label for semaglutide. Moving fastly then to the MyMate question, we will see a readout from different cohorts throughout the next three quarters. We will combine our assessment of those readouts and report on the efficacy and safety of MyMate later this year as based on this data.

Thank you, Martin. So really no change to my mate compared to previous quarters comments. Thank you, Chongyang. Next set of questions, please.

Our next question comes from Satin Jane from Bank of America. Please go ahead.

Hi there. Thanks for taking my questions. I've got a two-parter on obesity, if I may. I understand your mid-term excitement building the market, but I wonder if you could indulge me and just give some color on Launch Expectations. I'm going to frame the question versus consensus. Consensus has Sema launching 50% faster than the original Saxenda launch, layering on top of Saxenda flat. So the two perspectives on the speed of Sema launch versus prior Saxenda, what factors should we be thinking about as we think about this launch versus prior in terms of pricing, pay familiarity, where education is? and then the second is how to think about the two products in combination. What short-term dynamics should we be thinking of in terms of potential semi-cannibalization of Saxenda patients? I understand your stay time dynamic debate, but I expect that takes time to manifest in terms of patient build. Thank you.

Thank you, Sachin Jain. While we do not kind of guide on launch trajectory, et cetera, for products or comment on consensus estimates, Camilla, what can we say on this?

Yeah, so what we are trying to do in many countries but also, of course, in the U.S. is to build the market, as you rightly said, and with the launch of Simaglutide 2.4, With a much higher efficacy, we know from our early discussions with payers in general that a weight loss in the magnitude of what we are seeing with 2.4 is of course of high relevance. So it will feed into our attempts to build the market in terms of making sure that more patients seek treatment for obesity care because obesity has such a big influence on the healthcare system and the cost. So, of course, with higher efficacy, we are more likely to see a strong uptake of 2.4, but that is, of course, early days to say. But we are basing this just on efficacy. But we are also launching into a market that is more mature than what it was when we launched Saxenda. So, in the meantime, of course, we have built the awareness around obesity. We are working to have it recognized as a disease. In many countries around the world we have launched new websites, Truth About Weight, for patients where they can learn about obesity and also Rethink Obesity for physicians where they can also obtain more information about obesity in general. So a bigger sort of base to build on for a more effective product. So that's basically the difference in the situation compared to Saxenda where we started very much from scratch. In terms of cannibalization, it's difficult for us to comment on and we cannot give the details on that. But of course, we are launching a product that has more than twice the efficacy into the market.

Thank you, Camilla. So it's of course still early days. But looking at the reports that come out from the medical community, observing the early I think this is a significant different trajectory than what we have seen in the past. And I think in my view this is the first time there's a real solution to managing obesity with medical intervention. So I think it's really, really exciting. Thank you, Sachin. Next set of questions, please.

Our next question comes from Michael Nugget from Nordea. Please go ahead.

Yes, thanks a lot. It's Michael from Nordea.

Two questions also.

Maybe you could elaborate a bit on the sales differences between Q4 and Q1 in terms of rebalances in the US, which of course looks quite dramatic. I know you have been talking to the general volatility between quarters, but this looks very dramatic, so it would be great to get an update on that in more detail. And then secondly, on the 2.0 mg refuse to file letter from the FDA in diabetes and what kind of feedback you're getting on the 2.4 mg SEMA obesity file and also whether we should see a potential risk on any type of read across between the two on the manufacturing side.

Good. Thank you, Michael. First, Karsten, on Rebels for Sales Q4 last year versus Q1 this year.

Absolutely, and I recognize that it looks odd that actually Rebels for Sales being a launch product is lower in Q1 this year compared to Q4 last year. I would say There are a couple of technicalities that explains basically all of it and then I think we should talk to the online kind of dynamics of the products which are 100% intact. So on the technicalities, so let me just start out by two pieces. First of all, looking at quarterly sales on a launch product is always super dangerous and we've seen that again and again for different dynamics. The two key dynamics you should take into account here is, first of all, there's a so-called ex-factory ratio, so basically the ratio between what we sell to wholesalers and scripts being written to patients. And there's quite some volatility on launch products in that ratio, since we are building a pipeline in the supply chain when you're launching a product. The second piece to take into account is and many more. To our GFP1 business and I would say for Rebelsys, it's in isolation, we didn't call it out on the brand, it's less than 100 million in the fourth quarter, but of course for a launch brand with somewhat limited sales, then of course it's a bigger piece. So, X factory ratio and changes to rebates and estimates in the fourth quarter, adjusting for that 20% volume increase from the fourth quarter to the first quarter. but Camilla, on the underlying fundamentals on Rebelsus?

Yeah, on the underlying fundamentals we track on a number of parameters to understand of course our uptake and launch with Rebelsus and all of that is in line with our ambition so it means that the breadth, that means the number of prescribers is continuing to progressing well and we also see that awareness and preference is improving Over time, especially on the preference to prescribe Rebeltus, that has increased significantly and looks very strong also compared to other branded OEDs in the market. So what we are working on right now is to increase our awareness of the brand and that comes with us and reps coming back into the market and as we continue the launch projectory. So we are quite confident with that path. We also continue to see that the source of business and the positioning is working out so that the sourcing is 80% outside the GLP-1 class as we have talked to before also. So it means that we continue to be very confident in Rebelsus and the commercial strategy. But of course we also see that it's a very promotion sensitive launch product and we have, and as we talked to before, whenever we have reintroduced the product We see that we get back on a very, very strong trajectory. We continue to support Rebelsus of course also with DTC and of course also with reps more and more in the field as we just talked about before.

Thank you, Karsten and Camilla. Strong confidence from our side in the launch trajectory for Rebelsus. And with that, over to Martin on Read across from the refusal to file a letter from the FDA to 2.4 milligram.

Yeah, thank you very much. So broadly speaking, I don't think I will speculate on an ongoing regulatory review, but maybe just say that the FDA has accepted the submission of the 2.4 milligram. It's under review, and we currently have no indications of that file being impacted by the refusal to file on the SMPIC 2.0 milligram.

Good. Thank you. Thanks. Thank you, Michael. Next set of questions, please.

Next question comes from Michael Leuchten from UBS. Please go ahead.

Thanks so much Michael Leuchten from UBS. Just two quick ones please. In terms of the price mix effect on the insulin side, there seems to be quite a few things going on in the US at the moment with patient access coming out, 340Bs playing a part. As we think about this beyond 2021, would you be able to give a bit of a feel for what the underlying conventional price mix effect is and what is sort of 2021 specific? And then the second question, just going back to the tax question, it doesn't look like there will be any manufacturing offsets in terms of tax rebates in the US. Does that have any relevance in terms of how you think about Thank you Michael.

Two questions to you Karsten on price mix effect on insulin and also looking a bit into the future and then again on taxes in the U.S. combined with manufacturing footprint in the U.S. Yeah, thank you for those questions Michael.

So first of all All on insulin and insulin dynamics, you see our North American business being down 10% in the first quarter on insulin, which is a function of both lower volumes, it's enhanced rebates and then an offset from positive channel mix. So what you should expect going forward is that of course there will be competition in the market for volumes. With competition comes also pressure on rebating and pricing, so the dynamic around pricing and rebating, we do expect to continue for those reasons. And as to ChannelMix, the positive factor on ChannelMix is mainly related to 340B, where basically we stopped our shipments with the full year. We stopped our shipments to contract pharmacies, which enables us to avoid the double dipping of rebates and hence a better ChannelMix impact on our influence sales. That is, of course, only something one can do one time. I would have to say that on 340B, while comfortable in terms of what we included in the first quarter, of course there's still some uncertainty vis-à-vis legal cases and legislative impacts around future rulemaking on a prospective basis. Then to a question on taxes and manufacturing offsets. I would say the starting point when we look at our manufacturing footprint is that we look at the supply chain backup and redundancies and closeness to markets. So of course we take taxes into account but tax is not a prime criteria for when we decide where to put our manufacturing footprints. So what we're looking at now is that we're just in our final stages of finalizing documentation on our U.S. API expansion project, so project running according to plan. So now we're moving into a ramp-up phase, and the CapEx ramp-up we've been signaling with now 7.5 billion CapEx spent this year is mainly driven by expansions in Denmark. I would say no implications for our CAPEX manufacturing strategy from the changes in U.S. tax legislation.

Thank you, Karsten. And then we have time for a last set of questions, please. Thank you, Michael, also. Thank you.

Our next question comes from Karsten Madsen from SEB. Please go ahead.

Yeah, thank you very much. Maybe I'll actually only take one question here for Martin. It's in relation to the NASH phase 3 trial with the SEMA. You mentioned that there are two binary histology endpoints. What does this actually mean? In phase 2 you showed the resolution of NASH but with no worsening of fibrosis. Do you now also need to show an improvement in fibrosis and not only no worsening of fibrosis?

Thank you, Karsten. Over to you, Martin.

Yeah, it's a super relevant question and the regulatory guidance basically stipulates that you have to win on two counts. You have to show improvement in steatohepatitis and you have to show improvement in fibrosis. Just to clarify, of course, being a phase two trial, this trial was not powered to look at fibrosis. However, numerically we did see an improvement in fibrosis as well as the sort of stopping in worsening of fibrosis. If we see the same numerical change in the phase three trial, we will actually be in a place where we are not only clinically relevant but also statistically significant and thereby living up to the regulatory guidance. So what we need is for our Phase 3 trial to confirm what we saw in Phase 2.

Okay. Thank you.

Thank you, Karsten.

Okay.

Okay. The second question.

Yeah, I had a quick second question. That was just for the other, Karsten. In terms of the gross market development, 80 bps of the 130 bps lower gross market in this quarter versus last year's FX, How is the remaining 50 pips divided between amortizations and price pressure, or price mix you can say?

Yeah, so that's well spotted, Karsten, and I think what we disclosed upon acquiring Hemisphere was that we do expect a negative impact here in the first year of less than 1% of OP simply due to the delta between the royalty payments under the previous contract and then the amortization profile having acquired the company. So if you take that 1% or less than 1% Then that corresponds to less than 50 bps on the margin. So the main driver is in reality amortizations related to hemisphere. You can look in the cash flow statement on the step up in depreciations and amortizations also just to get a feel for it. But that's the main driver. The other effects remain the same. We continue to drive productivity. We continue to get the product mix gain from GIF-1. and we continue to see some negative impact from prices in the US.

Thank you Karsten and thank you Karsten. With that we thank you for the attention today at our conference call and if you have more questions feel free to contact our investor relations officers and with that we wish you a good day. Thank you, bye bye.