Novo Nordisk A/S

Welcome to this Novo Nordisk earnings call for the full year of 2021 and outlook for 2022. I'm Lars Ruhrgaard Jorgensen, the CEO of Novo Nordisk. With me today I have Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Silvestre. Executive Vice President and Head of Product Supply, Henrik Wolff. Executive Vice President and Head of North America Operations, Doug Lange. Executive Vice President and Head of Development, Martin Holst Lange, and finally, Chief Financial Officer, Carsten Mohn Knudsen. All presenters will be available for the Q&A session. Today's earnings release and the slides for this call are made available on our website, knownnordisk.com. Please note that this call is being webcasted live, and a recording will be made available on Known Nordisk's website. The call is scheduled to last one hour. Please turn to the next slide. Presentation is structured as outlined on slide two. Please note that all sales and operating profitable statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 25 minutes. Please turn to slide three. As always, I need to advise you that this conference call will contain forward-looking statements. Such forward-looking statements are subject to risk and uncertainty that could cause actual results to differ materially from expectations. For further information on the risk factors, please see the company announcement for the full year of 2021 and the slides prepared for this presentation. Please turn to the next slide. In 2021, Illinois delivered double-digit sales growth and progressed on all four dimensions of our strategic aspirations. I would like to highlight a few today. Within purpose and sustainability, we continue to take action on our social responsibility strategy, Defeat Diabetes, with a focus on access and prevention. In 2021, we reached almost 35 million people living with diabetes with our treatments. More than 5 million of these received treatment through our access and affordability programs. From an environmental impact perspective, we have also progressed. In 2021, our CO2 emissions across operations and transportation decreased by 43% compared to 2019. Finally, To underline our commitment to offer an inclusive and diverse working environment, we launched a global gender diversity aspiration. The purpose of this is to achieve a balanced gender representation across all managerial levels by the end of 2025. Martin will come back to the specific key milestones within R&D, but I would like to briefly share my overall perspectives. By the end of 2021, we had ongoing phase three clinical trials within all our therapy areas. 2022 will be an exciting year with multiple interesting readouts from our R&D pipeline. Following a productive partnership since 2019, we acquired Boston-based Dicerna Pharmaceuticals and their innovative RNA interference platform in 2021. Dicerna's RNA interference technology platform is complementary with Nordic existing technology platforms. The acquisition supports our strategy of using a broad range of technology platforms across all our therapy areas. We expect to start clinical development with the first target in 2022. In 2021, we deliver double-digit sales growth, reflecting solid commercial execution across geographies, as well as across diabetes, obesity, and biopharm. Regarding the supply situation for Begovi, Henne will provide an update later. The commercial progress across all therapy areas will be covered by Camilla and Doc. Lastly, leaving financial to Carsten, we are pleased with a sales growth of 14% and operating profit growth of 13% in 2021, both measured at constant exchange rates. With that, I give over the word to the Hiller Fund update on commercial execution.

Thank you, Lars, and please turn to slide 5. In 2021, our total sales increased by 14%. This sales increase was driven by both operating units with international operations growing 14%, and North America operations also growing by 14%. GLP-1 sales increased 32%, driven by North America growing 25%, and international operations growing 52%. Insulin sales increased by 1%, driven by 6% growth in international operations, partially offset by a 9% sales decline in North America operations. The U.S. insulin sales declined by 9%, driven by lower realized prices and a decline in volume. Obesity care sales grew 55% overall. In international operations, Saxenda sales grew 52%, and in North America operations, obesity care sales grew 57%. In the U.S., obesity care sales grew 58%, driven by both Saxenda and Bigobi. Biofarm sales increased by 4%, driven by North America operations, growing 6%, and international operations growing by 3%. Please turn to the slide, please. In line with our strategic aspirations of reaching one-third of the diabetes value market by 2025, our sales growth within diabetes care of 13% is faster than the overall diabetes market. Thereby, we have improved our market share by 0.8 percentage points to now 30.1%. The increase in Flex GLP-1 growth of 32% and market share gains in both operating units. Currently, Ousembic has now been launched in 72 countries and Rebeltus in 29 countries. Please turn to slide 7. In international operations, diabetes care sales increased by 14% for the full year of 2021, driven by all geographies and therapy areas. GLP-1 sales increased by 52% in 2021, and Novenoris remains the market leader in international operations with a GLP-1 market share of 58.9%. reflecting an increase of 5.2 percentage points compared to just one year ago. This is driven by share gains across geographies and overall just one share of growth in international operations of 74%. Please turn to the next slide. Biopharm sales grew by 4% in 2021. This was driven by 6% sales growth in North America operations and 3% sales growth in international operations. Rare blood disorders grew by 9%, driven by uptake of launch products, espirox and bifixia, as well as NOVA7 and NOVA8. Specifically, hemophilia A products grew by 25%, hemophilia B sales by 25%, and NOVA7 by 4%. Rare endocrine disorders sales declined by 2%. The declining sales reflected additional patients increasing by 5%, offset by North America operations decreasing by 12%. And now over to Henrik for an update on the supply situation.

Thank you, Camilla. Please turn to the next slide. Following up on the conference call in December 2021, I would like to provide you with an update on the Vigovi supply situation and our latest capacity expectations. I would like to start by recapping the situation. Put simply, Novo Nordisk produces the active pharmaceutical ingredients and does the assembly and packaging in-house for Vigovi, while formulation and filling is for now done by a large contract manufacturing organization. In close collaboration with the CMO, we were on track to ramp up capacity and meet demand for Vigovi in the US. Unfortunately, as you know, the CMO received a 483 letter from the US FDA addressing CGMP issues at the production site for Vigovi searings. Therefore, the CMO had to temporarily stop deliveries and manufacturing to correct the compliance issues. Since December, we have worked hard to optimize our internal capacity. Consequently, we now expect that our internal capacity in the first half of 2022 will be close to the demand of around 20,000 weekly total scripts as seen in the U.S. market in the end of 21. This is an improvement compared to the previous communicated 60 to 90% range. While the CMO has yet to resume production, we see good progress and have a constructive collaboration in place and still expect that we will be able to meet U.S. demand for Vigovi in the second half of 22. Outside of the U.S., we have submitted the already existing PDS290 platform for regulatory review in the European Union and expect a decision in the second half of 22. Working with two platforms will provide additional flexibility for future launches. With that, I would like to hand over to Doug.

Thank you, Henrik, for that update. Please go to the next slide. Globally, obesity care sales increased by 55% with 57 percent growth in North American operations and 52 percent in international operations. The U.S. launch of Volgovy has illustrated the significant unmet need for people with obesity. And as Henrik mentioned, we are doing everything we can to resolve the supply issues as fast as possible. Consequently, sales and marketing activities have been put on hold until there is sufficient supply to ensure patients can escalate through each of the five doses. Since year end, the launch copay cards for Volgovy can no longer be activated. And combined with pause sales and marketing activities, we do expect to have fewer weekly new patient starts compared to the fourth quarter of 2021. Despite the supply challenges, the feedback from patients and prescribers continues to be very encouraging, and we remain confident that the long-term potential of Volgovy is unchanged. Currently, Volgovy has around 22,000 scripts per week And more than 70% of Wolgovy prescriptions are still new to the anti-obesity medication class. Thereby, Wolgovy is expanding the branded anti-obesity market. Market access has progressed since the launch year of last year. And in record time, in less than six months, we have reached Saxenda-like access. Specifically, commercial formulary access for Wolgovy is now more than 70%. and importantly includes all of the major PBMs. Please turn to the next slide. The U.S. GLP-1 volume market growth is around 30 percent, comparing Q4 of 2021 to Q4 of 2020. And this is driven by once-weekly injectable GLP-1s as well as Rebelsys. Novo Nordisk's new-to-brand market share leadership is now 63.9 percent, driven by the continued uptake of Ozempic and Rebelsys. Importantly, Ozempic remains the NBRX market share leader within injectable GOP1s. Measured on total scripts, Novo Nordisk remains the market share leader with more than 50% market share. Please turn to slide 12. The global rollout of Rebelsys is progressing well and has now been launched in 29 countries. In the U.S., Rebelsys' total prescription trajectory continues to steadily increase, currently at above 45,000 prescriptions per week, despite the impact from COVID-19 since launch. In 2021, Rebelsys was the second largest contributor to growth in Novo Nordisk, with its attractive clinical profile and early positioning in the type 2 diabetes treatment cascade. We are encouraged by the weekly increases in breadth and remain confident in the potential of the product. Outside the US, one of the key markets is Japan. Here, Rebelsys has now reached a 2.6% value share in the modern oral anti-diabetic market. In December of 2021, the 14-day prescription limitation was lifted, and we have already seen a jump in performance. Recall that in Q3 of 21, Rebelsys in Japan had reached a 0.9% MOAD value market share. Now over to Martin for an update on R&D.

Thank you, Doug. Please turn to slide 13. Our 2021 ended on a high note in the R&D space. Within BioPharm, we reached two exciting milestones during the fourth quarter of the year. The first was the successful completion of the 52-week phase three trial with Sequoia in 200 children suffering from growth hormone deficiency. The trial met the primary endpoint of non-inferiority in high velocity for once-weekly sagroia compared with once-daily nodotropin. The expectation is to submit sagroia for regulatory approval for the treatment of growth hormone deficiency in children during the first half of 2022. The second milestone was the successful completion of the first cohort, the multiple-ascendant dose part from the ongoing Phase 1-2 clinical proof concept trial of MyMate. In the trial, MyMate appeared safe and well-tolerated with pharmacokinetic and pharmacodynamic properties supporting once weekly as well as once monthly dosing. For the pivotal Phase III trial, run-in was initiated in the fourth quarter of 2021, and we expect initiation of active minor treatment in the second half of 2022. We plan to share further details on both the Phase I-II results as well as the Phase III program at an upcoming event. Finally, and in line with our strategic aspiration of further raising the innovation bar for diabetes treatment, we have initiated the first of three trials in the global Phase IIIa combined program for Icosema, a once-weekly combination of semaglutide 1.0 mg and insulin Icodec. The program is expected to enroll 2,650 people in total, all with type 2 diabetes. The first trial to be initiated is combined three, which is a 52-week trial investigating the efficacy and safety of once-weekly icosema versus insulin-basal bolus treatment in approximately 680 people with type 2 diabetes. The entire combined program is expected to complete during 2024. In phase three, it is expected that icosema will show superior efficacy versus monocomponents as well as attractive data on weight and hypoglycemia profiles combined with similar glycemic control. Furthermore, it will offer dramatically improved convenience versus insulin basal bolus treatment in patients with type 2 diabetes. Now please turn to the next slide. Turning to the high-level R&D milestones, 2022 is a year with many exciting trial readouts across our therapy areas. However, before I get to that, I would like to touch upon milestones from the fourth quarter of 2021 that I did not cover. Within diabetes, a simply 2.0 milligram was approved in the EU for the treatment of adults with type 2 diabetes based on results from the SUSTAIN-4 trial. In the trial, people treated with a magnetized 2.0 milligram achieved a statistically significant and superior reduction in A1C at 40 weeks as compared to semaglutide 1.0 mg. A decision in the U.S. is expected during the first half of 2022. In addition, we initiated a 34-week Phase II comparing the effect on glycemic control and body weight of a fixed-dose combination of semaglutide and a once-weekly GIP analog compared to placebo as well as semaglutide 1.0 mg in people with type 2 diabetes. Turning to 2022, we also reached an important obesity milestone with the approval of WEGOI in the EU based on the STEP Phase IIIa clinical trial program, thus addressing the significant unmet need for people with obesity also in the EU. We look forward to making WEGOI available to many people living with obesity in Europe and to prioritize short-term internal production capacity for regoing, the initiation of the Cagri-Semmer phase IIIa program will be postponed to the second half of 2022. I would like to end by highlighting a few additional expected R&D milestones for 2022. Within diabetes, we expect results from the ongoing phase IIIa trials with intralinicodec and phase II trial with Cagri-Semmer in type II diabetes. Within BioPharm, we expect results from the ongoing phase IIIa trial with contisumab in the first half of 22. And finally, we expect to initiate a Phase II trial during the first half of 22 with PRX004 for the treatment of ATTR cardiomyopathy. This was the asset that we acquired from Prothena during 21. With that, over to you.

Thank you, Martin. Please turn to the next slide. In 2021, sales grew by 11% in Danish kroner and by 14% at constant exchange rates. The gross margin declined to 83.2% compared to 83.5% in 2020. The decline reflects a negative currency impact of 0.2 percentage points, lower realized prices in the US, and amortization of intangible assets related to the acquisition of hemisphere technologies in 2020. These are countered by a positive product mix driven by increased GLP-1 sales and productivity improvements in line with the strategic aspiration of driving operational efficiencies. Sales and distribution costs increased by 12% in Danish kroner and 15% at constant exchange rates. The increase is driven by investments in our key strategic priorities, most notably launch activities and promotional spend for Rebelsys and Osempec, as well as market development activities for obesity. This is partially offset by lower promotional spend related to insulin. Research and development costs increased by 15% in Danish kroner and 16% at constant exchange rates. The increase is driven by pipeline expansion and diversification, including progression of the pipeline in cardiovascular disease and NASH. Administration costs increased by 2% in Danish kroner and 4% at constant exchange rates, impacted by a low spend in 2020 due to COVID-19. Operating profits increased by 8% in Danish kroner and 13% at constant exchange rates. Net financials items for 2021 showed a gain of 436 million Danish kroner compared to a loss of around 1 billion in 2020. The gains on hedge currencies primarily relate to the US dollar. The effective tax rate was 19.2% compared with an effective tax rate in 2020 of 20.7%. This mainly reflects a non-recurring impact from acquisitions in 2020 and 2021. Net profit increased by 13% and diluted earnings per share increased by 15% to 20 kroner and 74 euro. Free cash flow was 29.3 billion Danish kroner compared to 28.6 billion Danish kroner in 2020. The increase is driven by higher net profit and higher provision for rebates in the US, partially driven by a change distribution policy for the 340B program. The increase is partially offset by unfavorable impact from changes in working capital. Next slide, please. In 2021, No Noise returned approximately 41 billion Danish kroner in the form of dividends and share-by-banks to shareholders. At the Annual General Meeting on 24 March 2022, the Board of Directors will propose a final dividend of 6 kroner and 90 euro for a total 2021 dividend of 10 kroner and 40 euro, a 14.3% increase from 2020. In addition to the dividends, 20 billion Danish kroner was used for the repurchase of shares. Norris consistently returns its free cash flow to investors through share-by-backs and dividends, with dividends per share increasing for 26 consecutive years. For 2022, the Board of Directors has improved a new share repurchase program of up to 22 billion to be executed during the coming 12 months. The total program may be reduced in size in case of significant business development transactions during 2022. Please go to slide 17. We enter 2022 with a solid growth momentum and expect the sales growth to be between 6% and 10% at constant exchange rates. The guidance reflects expectations for sales growth in both international operations and North America operations and across therapy areas. is mainly driven by diabetes and obesity care. Within obesity care, the guidance reflects an expectation of meeting demand for Vigovi in the U.S. in the second half of 2022. It also reflects intensifying competition within both diabetes care and diaphragm, as well as a negative impact from volume-based procurement of insulin in China. We have previously called out that VBP in China would impact group sales negatively by three percentage points in 2022. Finally, continued pricing pressure within diabetes care, especially in the US, is expected to negatively impact the sales development. Operating profit is expected to grow between 4% and 8%, reflecting the sales growth outlook and continued investments in current and future growth drivers. This includes the continued rollout of SMPIC and Rebelsys, the launch of Vigobi, and associated market development investments. Furthermore, additional resources are being allocated to both early and late-stage R&D pipeline activities. Specifically, the acquisition of Dicerna pharmaceuticals is negatively impacting operating profit growth by around 3 percentage points. Given the current exchange rates, most notably the strengthening of the US dollar, we expect a positive currency impact for 2022. Consequently, our reported sales and operating profit growth is now expected to be 5 and 7 percentage points higher than at constant exchange rates, respectively. The positive currency impact on operating profit is partially offset by a net loss on financial items. For 2022, financial items are expected to be a net loss of around 2.8 billion Danish kroner, mainly reflecting losses associated with foreign exchange hedging contracts. Capital expenditure is now expected to be around 12 billion Danish kroner in 2022. The expected increase mainly relates to investments in additional active pharmaceutical ingredient capacity at existing manufacturing sites, reflecting increasing demand and pipeline progress. Lastly, free cash flow excluding potential major business development activities is expected to be between 50 and 55 billion Danish kroner. The increase compared to 2021 reflects the impact from the acquisition of Dicerna Pharmaceuticals in 2021. That covers the updated outlook for 2022. Now back to you, Lars, for final remarks.

Thank you, Carsten. Let's turn to the final slide. We are very pleased with the double-digit sales growth in 2021. Sales growth was driven by all geographical areas within international operations, as well as North America operations, and by all therapy areas. In particular, sales growth was driven by an accelerated growth of our portfolio of GLP-1 treatments for diabetes and obesity care, and we continue to reach even more patients. Finally, I would like to remind you of the upcoming Capital Markets Day that will be held on March 3rd at our headquarters in Copenhagen. At this full-day event, executive management and other senior executives will be present. The CMD will focus on our growth outlook with and beyond semaglutide, and our 2025 strategic aspirations. We hope to see many of you in person, but as usual, the event will also be webcasted live. With that, we're now ready for the Q&A. I kindly ask all participants to limit her or himself to one or maximum two questions. Operator, we're now ready to take the first set of questions.

Thank you. And the first question comes from the line of Wimel Kapadia from Bernstein.

Please go ahead. Well, great. Thank you very much for taking my questions. So can I first just ask on Mugabe supply, there's clearly been some positive movement for 1H, both from internal capacity and some additional batches released from the CMO. So my question really is on your internal supply capacity, the potential additional CMOs that may be brought on board, and the possible new EU device. Has your views really changed on what that means from a supply perspective, X? the larger Catalan supply, i.e., do you have conviction that you can increase supply in 2H regardless of Catalan, and if so, to what extent are you able to quantify? And just tied to that, any potential for the FlexTouch pen for Wegovy to be filed in the U.S. or used more broadly internationally? And then my second question is just on the supply impact on reimbursement. So you flag Wegovy, you know, now has a similar access to Saxenda, We're curious if these discussions have been impacted by your inability to supply greater volumes. Would coverage have been superior at this point if you had the supply, or are the negotiations and the opt-ins unaffected? Thank you.

Okay, thank you, Vimal. I think you managed to sneak in three questions there, but we'll try to cover it anyhow. So if Henrik first talks a bit through the supply situation, what is it we've done internally, and how are we ramping up, and has that really changed much? And then, Camilla, you can maybe talk a bit to the FlexTouch flexibility we're building. And then, Doug, you can talk to whether there's been any impact on reimbursement because of the events here. But Henrik, first on how we look at ramping up the supply.

Sure. Thank you very much. Thank you for the questions. So first of all, on our internal capacity, we have reshuffled our internal capacity so that we are able to hold the demand out of 21, as I stated, and that is the limitation of that capacity. We will be back following the demand in U.S. in the second half of 22 with the restart in the CMO facility, and then From there on, we will continue building this supply chain so it will be as mature and stable as our other supply chains. So it's basically unchanged plan compared to what we communicated in December.

Good. Thank you. I'm confident there. Camilla, on the FlexTouch optionality we're building.

Yes, so the FlexTouch optionality we're building for international operations is just to make sure that we have increased flexibility on the rollout of VGOVI. And right now, our launch plans are being developed, and we expect to initiate the first launches in the second half of 2022. So, of course, we very much look forward to that part. So I think that's where we are now in international operations.

And I think it was also a question on U.S., so we believe we have the right setup for U.S., and we'll press on with that, and we think we'll have robust supply situation there, so no reason to change course. And then, Doug, on the reimbursement impact, if any.

Yeah, thanks, Manuel. We're certainly dealing with any concerns that a PERI may have, and that has not impacted access. And just to reiterate, we have more than 70% access with all major PBMs, and to put that into context, That was access that was achieved faster in our commercial business than if we compare it to Ozempic or Rebelsys. So we're very pleased with the level of access right now.

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

The next question comes from the line of Michael Lochten from UBS. Please go ahead.

Thanks so much. Two questions, please. I think both for Karsten. The width of the guidance, you've left it a little bit wider again this time around than you would have done in the past. I'm guessing the biggest dial is just Regobi timing. I'm just wondering if there's something else that would have driven the width wider than maybe in the past. And then second question about longer-term margin trajectory. Looking at your guidance for 2022, it looks like you're pointing towards a high single-digit billion Danish increase in OPEX, excluding cost of sales. Given it's a year where Vigovi comes in the second half, can you help us understand how that fits with your longer-term margin aspirations of a flattish trajectory? I would have thought sort of high single-digit billion OPEX increments Vigovi could really make up for quite easily once it gets going. So does that still hold the flattish margin trajectory and sort of what are the components that will keep it flattish? Thank you.

Thank you, Michael. So can I ask two questions on the width of guidance range and perspectives on margins linked to OBEX?

Yeah, thank you, Michael, for that set of questions. So first on guidance, you would say our guidance range is not unusual compared to what you've seen from Novo Nordisk in previous years, if you go back in time. And yes, of course, Vigovi, there's still some uncertainty, but as you can hear on Henrik, we're confident in our plans, but of course we need to leave some flexibility in our guidance range, should it not pan out exactly as it's planned for. So apart from that, I would say it's business as usual, but of course we also learned from 2021 that that there is more volatility in the demand outlook we're facing. We were upgrading three times last year, and I think we want to be more accurate. But it also reflects that volatility is higher than it was in the old days. As to your question on OPEX and margins, then the short answer is yes, we stick to our broadly unchanged operating margin that I launched at the Capital Markets Day in late 19. And the way you should reconcile our 22 numbers is basically that, first of all, that we are continuing to invest in driving top line. We've shown, I hope you agree, we've shown in 21 that our aggressive top line investments have paid off with the results we're delivering. And then we're building future growth platforms in R&D, so really expanding and diversifying our R&D pipeline. So the dip in 2022 is related to Dicerna. And as we were saying, 3% negative impact on OP from Dicerna. And as you can see in our guidance, actually we've already mitigated 1% of the three in our guidance. So that's something that we're working diligently on.

Thank you, Carsten. Thank you, Michael. Next set of questions, please.

The next question comes from the line of Sachin Jain from Bank of America. Please go ahead.

Hi there, Sachin Jain. Thanks for taking my questions. Two, please. First, just a follow-up for Carsten on guidance, and then secondly for Henrik on the 483. Just to clarify the commentary on the guidance, Carsten, what GLP-1 growth scenarios are included in the guide? do you still expect a normalization of that growth rate, which is not necessarily visible as yet? And I just wanted to clarify your commentary on Wigovi supply. So just to be clear, does the bottom end of guide include a scenario where there's no supply resumption, or is that not a scenario? I just want to be clear as to what's included in the bottom end of guide on Wigovi 2H. And then for Henrik, does the 2H supply to meet demand timeline, the way you word it, allow for timelines for assembly, packing freight, and then whatever assumptions you've got on the demand curve with production expected to resume before 2H. I'm just trying to get a sense of how close you are to production resuming and what visibility you have on that to be as confident as you are stating today. Thank you.

Thank you, Sachin. Karsten, first on the guidance and the GP1 growth scenarios. I don't know how much clarity you can bring on that.

Yeah, absolutely. So forecasting market growth is more an art than a science, I'd say, looking at market growth data historically. But as you can see in the data available externally also, the GLP-1 market growth on a global scale is to the tune of 30%, and we're taking market share, so really, really rapid growth of our GLP-1 franchise. And of course, we expect very attractive GF1 market growth to continue into 2022. My normalization comment six months ago was more related to the step-up we saw in Q2 in the US, where there was, I would say, a more kind of non-recurring step-up in TRX over a few months. But I would say since early Q3, we've seen a more stable pattern in total scripts. So that was basically the normalization I've been talking to. And then guidance versus Vigubi. The guidance is built on Vigubi relaunching in the U.S. in the second half of 2022. Good.

Thank you, Carsten. And then Henrik on, let's say, restart of manufacturing and when we expect products to be in the market and link to that.

Yeah, so back to my slide presented, it's clear that we, of course, want a certain level of operational stock. And we also need time to assembly and pack the devices in our internal capacities. And as we are planning to follow the demand in the US in the second half of 22, then it would be quite logical that we need output from the CMO in second quarter of this year.

Good. Thank you, Henrik. Thank you, Sachin. Next set of questions, please.

The next question comes from the line of Richard Bosser from J.P. Morgan. Please go ahead.

Hi. Thanks for taking my questions. So on VBP in China, it looks like from your numbers there was maybe some destocking in insulin, in Levomir, Novamix, and Novalog in the fourth quarter. Can you talk to whether there was any inventory movements ahead of VBP, whether we should anticipate those in Q1 and how we should think about the shape of implementation of VBP throughout this year. And then the second question, just on the Cagri-Sema delays, obviously prioritising manufacturing is important for the commercial launch, but could you talk about, I think there were some issues with the, with the PEN, with Cagri-Semmer, have those been solved so that as soon as you have manufacturing, we can think about those trials ramping up? And should we now think about a launch of Cagri-Semmer maybe in 25? So just some thoughts on Cagri-Semmer. Thanks very much.

Good. Thank you, Richard. Carsten first on VPP China. Any stocking?

So on... On the China numbers that I'm sure you allude to with the 5% growth in the quarter, when you look at the Chinese numbers, you should be used to having some volatility on a quarterly basis. There are a number of confounding factors between different products, be that import licenses, whatever shipments to distributors and so on. So there's no de-stocking to wholesalers, and we continue to supply wholesalers with our instant products as we've done all along.

Thank you, Carsten. And on CAC Resema and your comment about a small delay in initiation of that to prioritize supply, we are really, really pleased with our portfolio of both products and pipeline in obesity, and think there's a tremendous opportunity. So we don't really regard this delay as something that's significant. But Martin, can you talk a bit to the device, and while I don't think we guide on when we launch products, a bit of perspective on the clinical trial program?

Absolutely. I mean, just reflecting what Lars said, we obviously still see Calcosema as a very important product in our pipeline with great potential. Specifically on the device, obviously it's a new device, but we are ready with that device and it will be supplied for the clinical trials. And the current wait until the second half of 22 is basically prioritizing we go with production. That being said, obviously we and my team are now tasked with securing that we will still look towards no overall delay And therefore, we maintain that our overall timelines will sort of be kept.

Thank you, Martin. Thank you, Richard. Next set of questions, please.

The next question comes from the line of Simon Baker from Redburn. Please go ahead.

Thank you for taking my questions. Two, if I may. Firstly, on the Wegovy contract manufacturer issue, I'm not sure the question's cropped up before about any potential compensation that you have either received so far or are potentially entitled to, should there be any further delay. So I wonder if you could just give us some color on the situation there. And then secondly, on sales and distribution costs in the fourth quarter, I assume that there was some offset from delayed launch activity related to Wigo V, and yet the sales and distribution costs were somewhat higher than we were expecting. So, I think you should just give us a little bit of color on if there was an offset there, and what that means for levels of sales and distribution in 2022. Thanks so much.

Good. Thank you, Simon. So, on the Wegoi CMO issue, we have a good collaboration with the CMO. We think they are very confident and competent in what they do, despite the unfortunate situation, and we are not making a bet on any, say, significant compensation or the like. So we have a good strategic partnership that we are investing in also for the long term. Carsten, on S&D in Q4, linked to the delay.

Yeah, so... So it was really bad timing with the delay because we had just been training our reps and then being ready to roll. So in reality we spent what we planned to spend in Q4. We didn't really have any offsets vis-à-vis the Vigovi launch since it was a lot of launch preparations we were spending. So I say that the Q4 spending was not in any significant form impacted by the global supply situation, which we also learned about very, very late in December. So our Q4 spending is just a continuation of investing in a diabetes GLP-1 and an obesity franchise on a global scale to drive growth.

Thank you, Karsten. Thanks so much. Thank you. Next question, please.

The next question comes from the line of Peter Virgil from Citi. Please go ahead.

Thank you, Peter from Citi. Two questions for Martin on R&D. Just on the HPV, Alpha-1, and alcohol use disorder by Cerner programs, how should we think about these fitting into your R&D portfolio and strategy going forward? And then secondly, We're hearing from our KOL checks that Sol and Flow could actually read out at the very end of this year or early next. Just wanted to sort of check with you on that because that surprised us to the upside. And then just perhaps on Select, can you remind us when you expect to see an interim readout this year based on the event rates you're seeing in that trial? Thank you.

Thank you, Pete. Two exciting questions, Martin. Two very interesting questions. Thanks a lot, Pete. On the alcohol abuse and specifically on the Dicerna pipeline, it's obviously early days. And what you'll see is that we are still looking at the individual assets and evaluating how to progress them. Specifically, we know that we are going to progress the DOS rent towards a regulatory submission later this year. But beyond that, it's probably too early to go into details. With regard to our free outcomes trials, we are obviously monitoring the situation. We all hope for an upside of early readouts. I have to disappoint you and to to the extent that as per plan, sole and flow will not read out this year. We have not seen neither a higher nor a lower event rate than what we anticipated, and that basically means that we have to run the course of the studies. And on select, we are still monitoring the situation, and we will inform you, of course, if and when an interim will take place.

Thank you, Martin. Thank you, Steve. Next set of questions, please.

Next question comes from the line of Simon Maither from BNP Paribas. Please go ahead.

Thank you for taking my question. The first one is just a clarification, actually, on Richard's question, Carsten. Can you maybe comment with respect to BBP? Has it kicked off yet? And if not, when should we expect that to kick off? And is that one of the, obviously, the driving factors between the wide range of the guidance? If it's much, much later in the year, therefore, you're more likely to hit the top end of the guide. And then secondly, probably one for Martin, just on your SEMA GIP Phase 2 trial, Can you maybe just discuss a bit more of that with respect to the doses that you're exploring? Is it just a one-mig SEMA changing the dose of the Git component? Just thinking clearly if Kaggle SEMA have a few little bit of delays and the importance of this product to fend off tisepatide arguably increases in importance. Thank you.

Thank you, Simon. First question on timing of EPP.

Yeah, so timing of VBP, we've been informed that we should expect an implementation from May and so that's our working assumption and I wouldn't say it impacts guidance substantially if it's plus minus a month or so, but of course the guidance is impacted of that We don't know the exact implementation of VBP in terms of how volumes are allocated and how the different hospitals will use some of their free volumes in the marketplace between manufacturers. So that, of course, entails some uncertainty in terms of the specific impact from VBP.

Thank you, Carsten. And Martin, on Semagib trial design doses,

Yeah, maybe taking a step back because I don't necessarily see Semagip as a response to Cepetide. We have Semaglutide 1 mg, we have Semaglutide 2 mg, and looking at the totality of efficacy and safety, I think in and of itself Semaglutide is a very attractive offering, bringing more than 80% to target in a safe and tolerable way. That being said, obviously we want to explore Semagip but in the sense of being a superior offering with the superior GLP-1 component, but also the superior GIP component. We are exploring different doses and different strength combinations in our phase two trial, and too early to go into detail.

Thank you, Martin. We clearly believe we have a strong position there. Thank you, Simon. Next set of questions, please.

The next question comes from the line of Michael Noble from Nordea. Please go ahead.

Yeah, thanks a lot. Two questions. So, first of all, maybe you can talk a bit about the obesity dynamics for the quarter because, of course, we don't have the split up between the Gobi and Saxenda. We're just trying to understand. Obviously, you had strong growth, but it was still below sort of what the street had expected. So, understanding the impacts on Saxenda, potential volatility also in international operations. And then, secondly, regarding the launch of or the continued low in China and also listing on the NRDL. So maybe you could give a bit more color on your sort of strategy in China and when you expect sort of a true lift-off for SEMPIC in China.

Thank you, Michael. Clearly a strong obesity performance in 2021, and I don't think one should get hung up in quarterly deviations. We're really pleased with what we see in international operations. that we can grow above 50% based on Saxenda. And, of course, in the U.S., we had a very exciting launch of Wegovi, and here that opens people's minds up for what is the potential of Wegovi. And, you know, although we'll be prioritizing Saxenda, you know, everybody's waiting for Wegovi. So I don't think we can say much more about four points there. And then, Camilla, on launch of Osimpic in China.

Yeah, launch of Xempic in China, very exciting. We now are on the NDRL, and that basically means that the very, so to say, under-exploited GLP-1 market now also has Xempic there to drive further growth. And there is, of course, a big opportunity to have more patients with type 2 diabetes exposed to a one-week GLP-1. So for us, that's very exciting and a big focus of ours.

Thank you, Camilla. All markets have been really embracing Ozympec so far, so we have high expectations for China like any other markets. Thank you, Michael. Next set of questions, please.

Next question comes from the line of Kerry Holford from Berenberg. Please go ahead.

Thank you. Two questions, please. Firstly, on the generic challenges you mentioned today in your press release for Ozympec. So you highlight four companies. We understand, however, that there are seven in total for the FDA. I wonder if you can comment on that. And also, what the next steps are for you here. And given those filings, some of the drug substance patents, how concerned would you be about the potential read-across to and with COVID patent estates? And secondly, a question, Carson, for you on M&A. You mentioned this in the context of shared buyback. program flexibility. Is it fair to conclude, therefore, you do have appetite for more here post-Dicerna? What do you focus on next? More platform, technology, or more products? Acquisitions that are on your radar, please. Thank you.

Thank you, Kerry. And if I start out on the challenge of OSIMPIC, this is basically exactly after textbook. There's a certain window after launch where you can attack patents, and there is a defined route for doing that. So we were kind of waiting to see who would be the first. So we have been notified of the ones mentioned in the annual report. I don't think we have visibility on the remaining up to the number of seven, which I understand FDA has disclosed. So this is a standard process and we are very confident in our patents on semaglutide and that goes for all the use of that molecule across indications. Carsten, on M&A appetite?

Yeah, so I would say we have always an appetite for attractive acids into our R&D pipeline, whether it's internal or whether it's from external sources. So that's, of course, the premise, assuming it fits our strategy and our focus. We have the capacity, you can see our balance sheet, so we have a leverage rate of zero if you take a net debt to EBITDA. So we have plenty of capacity to pursue the assets that would be out there. And vis-a-vis our commentary on the potential of scaling back our share buyback program, What you have seen over the last couple of years has been given the attractive level of cost of financing that we are outfunding in the market more so than rolling down our share buyback program. So that's our capital allocation approach to continue to provide attractive capital allocation to our shareholders. As to the targets we're looking at, I'd say we continue to, of course, look for relevant technology platforms in the very early space that could supplement the disease areas in which we compete. And then we're looking at early and mid-state assets across the therapeutic categories where we compete again. And, of course, the assets will have to fit a set of criteria, whether it's It would say commercial attractiveness, innovation height, safety parameters, financial attractiveness, et cetera. So we have the classic business development funnel and a lot of targets we're looking at all along. And then from time to time, we succeed and get some assets in the door, which we like.

Thank you, Carsten. Thank you, Kerry. Next set of questions, please.

The next question comes from the line of Mark Purcell from Morgan Stanley. Please go ahead.

Yeah, thank you very much. Two questions. First on this flattish operating margins out to 2025. Is that conditional, going back to a couple of earlier questions, on BD adding R&D platforms to the existing group? And in context with your peer group where R&D spend is in the high teens, low 20s, how high should we expect R&D spend as a percentage of sales to go? And then the second question on Cagri-Sema, one of your competitors in December talked about how the signals around sort of calcitonin activation, anti-drug, antibodies, injection site reactions, and things like that. So when should we see more with respect to those safety aspects? When should we get the 40-week data, for example? And should we assume that you're now more positive on Sema-GIP as opposed to Cagri-Sema? Thank you.

Thank you, Mark. First, Karsten, on operating profit margin and BD impact and what to expect about R&D ratio.

Yeah. So thanks for that set of questions, Mark. Yes, our commentary stands broadly unchanged operating margin since our last capital markets day towards 2025. Of course, can we end up in a situation where where there's a specific BD opportunity that has a more sizeable impact on our margins, then we'll deal with that at that point in time. It's impossible to cater for every possible scenario into the future. And should such an opportunity come up, we would not be stopped by kind of a one-off type of margin impact if the opportunity is the right one. But for now, clearly we stick to our broadly unchanged operating margin. As to R&D ratio, you should expect that to increase over time. You already see a decent increase in 2021. You'll see even further increase come 2022 and the Dicerna impact. But I think more importantly than looking at the margin, then you should look at how much we're actually able to increase our investments into R&D both the development side and on the research side, given the fact that our top line is growing at the pace it is. So kind of the main funding mechanism to our R&D organization and expanding and diversifying our pipeline currently is in reality top line growth.

Thank you, Carsten. A powerful model. Martin, on Calcrisema, clearly we are moving ahead from a position of strength, and we have two assets. It's not a defensive play, but what can you say about it?

So on Calcrisema, I think it's fair to state that we are very, very confident on Calcrisema, including on the safety of Calcrisema. I'll remind you that we have two clinical trials to base on that, one being in monotherapy, 26 weeks of exposure in doses exceeding those we intend to take into phase three. And second, in combination with semaglutide, 20 weeks also in doses exceeding those we intend to take into phase three. In both trials, in monotherapy, in combination therapy, A33 or our amylin analog proved to be very safe in that exposure timeframe, which is, again, up to 26 weeks. And when we combined, they did look at a safety profile that was similar to that of semaglutide in monotherapy. So from our perspective, what we've seen so far is a safety profile that is very, very robust. And as you've all obviously seen before, also an efficacy profile that is more than robust. It's super competitive. And therefore, our confidence in the catechism of molecule is very, very high.

Good to hear, Martin, very encouraging. Thank you, and thank you, Mark, for the questions. And we have time for a final set of questions.

The final question comes from the line of Martin Parkway from Danske Bank. Please go ahead.

Absolutely excellent. Martin Parkway, Danske Bank. A couple of questions, and I think I will point them all towards Doc and North America. First of all, Doc, when I look back at the Capital Markets Day in 2019-2013, One thing that stands as a highlight for me was the quite muted outlook for North America and a willingness to guide towards 2025 on U.S. while you did that on international relations. Now the muted outlook was not really panning out with 14% this year. What are you actually seeing for the outlook for North America for the next couple of years? And in that context, maybe you can maybe also address what kind of dynamics you think we will see in the U.S. G1 market after the launch of Tsepetai. We have always seen that a new launch will push the market upwards, but we are at a very high rate already and from a much larger base. So will this be much more about market share than a further market expansion? I'll keep it to that. Okay. Thanks.

Thank you. Thank you, Martin. Doug, perspectives on growth in the U.S. while we don't guide on the future per market, but clearly a step up in growth compared to what we perhaps looked at in 19?

Yeah, Martin, and I don't want to disappoint you again, but we're not going to guide on U.S. then or today, but I would say this. I mean, we talked about the transformation of the U.S. business back at Capital Markets Day, and we talked about our ability to transform business from what was some legacy products to and reinvest into what we were considering novel products or newer products from 2015 on. And the aim or ambition was to transform 70% of the business. And we're at about 60%, and our goal was to do that by 22, and we're very encouraged to believe that we can hit that goal by the end of this year. What you'll see in the short term is continued growth around semaglutide, which will come in the form of both obesity and diabetes. We feel very good about how we're progressing with our MBRX, our ability to take share. There is consistent volume growth across the portfolio. And again, we're very pleased with how things are progressing there. And we expect them to continue this year. As far as tricepotide, like we mentioned back at Capital Markets in 2019, when products are getting introduced into this space, which still is roughly 10% of prescriptions, maybe 30% of the value, there's still plenty of room for patients to get on GLP-1. So we do believe that the introduction of additional product can bring further expansion of the category. It'll be a competitive product, and I'm sure they'll bring competitive marketing muscle, but we believe we have great momentum with Ozempic, the potential of further products being offered, and we also have a portfolio approach. So we feel pretty good about where we are.

Good. Thank you, Doug. Clearly, Ozempic is a molecule you can go to, and it delivers for all, so it will not be the easiest product to compete against. Thank you, Martin. And with this, we'll close our earnings call today. We look forward to meet you again sometime in the future. Have a great day. Thank you.