Novo Nordisk A/S (NVO) Q4 2018 Earnings Report, Transcript and Summary

Thank you, Lars. Please turn to Slide 12. With the completion in November of the two final PIONEER trials, PIONEER 6 and 9, the Phase 3a program for oral semaglutide has now concluded successfully. Across all PIONEER trials, oral semaglutide has demonstrated statistically significant reductions of hemoglobin A1c, ranging from 1% to 1.8% at trial completion for the 14 milligram dose. These glycemic improvements led to between 52% and 80% of all patients achieving the ADA target of an HbA1c below 7%. In terms of body weight, oral semaglutide has demonstrated statistically significant reductions of two to five kilograms at the 14 milligram dose. Consequently, between 25% and 14% patients experienced a weight loss greater than 5%. Throughout the PIONEER trials, oral semaglutide has proven to be statistically significantly better regarding both HbA1c and weight reduction at trial completion when compared to the leading SGLT2 and DPP-4 inhibitors as well as the leading injectable GLP-1 analogues, liraglutide and dulaglutide in the Japanese population. Oral semaglutide has demonstrated a safe and well-tolerated profile consistent with that of the existing GLP-1 analogues in the market. Please turn to Slide 13. PIONEER 6 investigated the cardiovascular safety of oral semaglutide 14 milligrams, compared to placebo, both added to standard of care in a trial that enrolled approximately 3,200 adults with type 2 diabetes at high risk of cardiovascular disease. PIONEER 6 accrued around 140 major adverse cardiovascular events, so-called MACE, within a median treatment period of 16 months. The primary endpoint was MACE defined as the first occurrence of cardiovascular death, non-fatal myocardial infarction or non- fatal stroke. The hazard ratio was 0.79 in favor of oral semaglutide, compared to placebo implying a 21% albeit non-significant reduction in MACE. The 21% reduction in MACE was derived from a statistically significant 51% reduction in cardiovascular death, while non-fatal myocardial infarction and non-fatal stroke did not differ significantly between the groups. In addition, PIONEER 6 showed a statistically significant reduction of 49% in all cause mortality for the oral semaglutide arm. Furthermore, when looking across the two cardiovascular outcome trials performed for semaglutide, the observed MACE reduction of approximately 25% was found to be driven by all three MACE components: Cardiovascular death, myocardial infarction and stroke. The safety and efficacy profile of oral semaglutide in PIONEER 6 was consistent with the profile established in previous PIONEER trials. PIONEER 6 was the last of the 12 Phase 3a PIONEER trials and oral semaglutide is now almost ready for NDA submission. Novo Nordisk has notified the FDA that we will ask for a priority review for oral semaglutide based on the priority review voucher acquired in 2018. The use of the priority review voucher shortens the expected FDA review period to six months. We now expect to file the NDA for oral semaglutide with the FDA by the end of this quarter and in the EU and Japan in the second and third quarters of this year, respectively. Please turn to the next slide. In November, we initiated the Phase 2 program for LAI287, the once-weekly acylated insulin. The first trial is a multinational double-blinded active controlled trial with around 350 insulin naive people with type 2 diabetes. The main objective is to assess the safety and efficacy profile of LAI287 versus once-daily glargine U100. In early January of this year, we initiated a Phase 1 trial for LAIsema, which is the name of the once- weekly fixed ratio combination of LAI287 and semaglutide. The main objective of this product is to investigate the single- dose pharmacokinetics of LAIsema in a fixed ratio compared to LAI287 and semaglutide given separately to people with type 2 diabetes. In November, we announced the research collaboration with Embark Biotech focusing on the discovery of novel treatments for obesity. The aim of the collaboration is to develop novel drug candidates that help people with obesity to lose weight by increasing their energy expenditure. Embark Biotech will receive research support, while Novo Nordisk has an option to license exclusive worldwide rights to develop and commercialize any discovered drug candidates. In December, we announced a collaboration and exclusive option agreement with Staten Biotechnology to develop novel therapeutics for the treatment of cardiovascular disease associated with hypertriglyceridaemia. Novo Nordisk will provide research and development funding and support for Staten to develop its lead asset, STT-5058. Novo Nordisk will, according to the agreement, have the right to acquire Staten Biotechnology at a predefined milestone. In November, we successfully completed the main phase of the Phase 2 trial, EXPLORER 4, with concizumab. The trial evaluated efficacy and safety of the prophylactic administration of subcutaneous concizumab in hemophilia A and B patients, both with inhibitors. In EXPLORER 4, proof-of-concept for concizumab was achieved by showing reduced annual bleeding rate on daily subcutaneous concizumab prophylaxis compared with on-demand NovoSeven treatment. The results from both EXPLORER 4 and 5 also confirm the correlation between increased levels of concizumab, decreased levels of circulating TFPI and increased clotting potential as evidenced by normalization of thrombin generation potential in most of the patients. In both trials, concizumab was safe and well tolerated, and there were no issues with breakthrough bleeds. Based on these Phase 2 results, concizumab is now approaching Phase 3 readiness, and we plan to initiate the Phase 3 program in hemophilia during the second half of 2019, pending further regulatory dialogue. Furthermore, we completed the pediatric Phase 2 extension of the REAL 3 trial with the long-acting growth hormone, somapacitan. The endpoint for the REAL 3 extension was to evaluate the effect of different dose regimens for once-weekly somapacitan after one full year of treatment compared to daily Norditropin. The trial confirmed a dose-dependent increase in growth velocity, and the observed safety profile of somapacitan was similar to that of Norditropin. Novo Nordisk is now preparing for the Phase 3 program in growth hormone-deficient children as well as for a Phase 2 trial in children born small for gestational age. In addition, we’re preparing for a regulatory submission of somapacitan for the adult growth hormone deficiency indication in the second half of this year. Lastly, in November, we discontinued subcutaneous N8-GP due to detection of antidrug antibodies that were considered to be related to the subcutaneous route of administration in this particular trial. Please turn to the next slide. As mentioned earlier, we expect to submit the NDA for oral semaglutide to the FDA around the end of the first quarter and subsequently to receive expected feedback from the agency towards the end of the third quarter with the utilization of a priority review voucher. During Q2 and Q3, respectively, oral semaglutide is furthermore expected to be submitted to the EU and Japanese regulators. And within diabetes, we expect to conclude the Phase 3b head-to-head trial comparing Tresiba to insulin glargine U300, also known as, also known as Toujeo, in the second quarter of this year. Within hemophilia, we expect the FDA and the EU to provide feedback on our N2-GP submission in the first two quarters of this year. Lastly, we expect to initiate the Phase 3 program with concizumab in the second half of 2019. With this, over to Karsten for an update on the financials.

Thank you, Mads. Please turn to slide 16, sales were broadly unchanged in Danish kroner and increased by 5% in local currencies. The gross margin was 84.2%, measured in Danish kroner, which is in line with 2017. The unchanged gross margin reflects a negative currency impact of 0.2 percentage points and lower realized prices in the U.S., offset by improved productivity and a positive contribution from product mix. Sales and distribution costs increased by 4% in Danish kroner and by 7% in local currencies, reflecting higher promotional activities globally for Victoza, Saxenda as well as launch activities for Ozempic. R&D costs increased by 6% in Danish kroner and 8% in local currencies, reflecting higher costs in both research and development. The increased costs are impacted by the expensed priority review voucher for the oral semaglutide filing and severance costs. Administration costs increased by 3% in Danish kroner and 7% in local currencies, impacted by severance costs. Operating profit decreased by 4% in Danish kroner and increased by 3% in local currencies. Operating profit was impacted by severance costs and the expensed priority review voucher. Adjusting for this, operating profit increased by 6% in local currencies. Net financial items showed a gain of around DKK 0.4 billion, compared with a loss of DKK 0.3 billion in 2017, primarily driven by foreign exchange hedging gains, mainly due to the U.S. dollar, on average, having traded lower in 2018 compared to 2017, partly countered by losses from nonhedged currencies. Diluted earnings per share increased by 4% to DKK 15.93. Please turn to Slide 17. For 2019, sales growth is expected to be in the range of 2% to 5%, measured in local currencies. This reflects expectations for continued growth of the GLP-1 segment and rollout of Ozempic as well as global penetration of Saxenda. This guidance also reflects intensifying global competition within diabetes and biopharmaceuticals as well as continued pricing pressure, especially in the U.S. where the funding of the Medicare Part D coverage gap has an expected impact of approximately DKK 2 billion. Reported sales growth is expected to be around 2 percentage points higher than in local currencies. Operating profit growth measured in local currencies is expected to be in the range of 2% to 6%. The outlook reflects the sales growth outlook and the negative impact from the coverage gap in the U.S. as well as a positive impact from the priority review voucher that was expensed in the fourth quarter of 2018. Reported operating profit is expected to be around 4 percentage points higher than in local currencies. Financial items is expected to be a loss of approximately DKK 2.4 billion, reflecting losses associated with foreign exchange hedging contracts, mainly related to the U.S. dollar. The effective tax rate is expected to be in the range of 20% to 22%, and capital expenditure is expected to be around DKK 9 billion in 2019. For 2019, we expect the free cash flow to be around DKK 29 billion to DKK 34 billion. Furthermore, based on the updated accounting principles for leases, IFRS 16; and the expected investment level, the long-term financial target for operating profit after tax to net operating assets has been adjusted from 125% to 80%. The target for cash to earnings has been adjusted from 90% to 85%, reflecting the investment level. The target for operating profit growth remains unchanged. Please turn to the next slide. During the coming 12 months, we will execute a new 12 months share repurchase program for 2019 of up to DKK 15 billion. The proposed total dividend for 2018 increases 4% to DKK 8.15, which includes the interim dividend of DKK 3 paid in August 2018. The total payout ratio of 50.6% is in line with our peer group payout ratio. This concludes the update on financials. Now back to you, Lars. Lars Fruergaard Jørgensen: Thank you, Karsten. Please turn to Slide 19. 2018 was a year of change and significant progress for Novo Nordisk. We delivered on our targets for sales and operating profits and have successfully launched Ozempic, our once-weekly GLP-1 for people with type 2 diabetes, in several countries. The results from the broad PIONEER Phase 3a program for oral semaglutide are very encouraging for people with type 2 diabetes and we’re now prepared for the regulatory submission. Operator, we’re now ready to take the first question.

Thank you. [Operator Instructions]. And your first request is from the line of Peter Verdult from Citi. Please go ahead.

Yes. Good afternoon. Pete Verdult with Citi. Two questions. First, for Mads on the pipeline. Second, for Lars on U.S. pricing and reimbursement. Mads, just on weekly insulin and the LAIsema combo, just how are you thinking in terms of clinical differentiation over the daily preparations? And also, just given the fact that, currently, endos love the data around insulin GLP-2 combos but the broader adoption has been hampered by primary care reluctance to use combination biologics in the treatment of diabetes and the restrictive label. So, I’m just wanting to get your thoughts there. And then for Lars, just given the ongoing HHS efforts to remove the safe harbor provisions around rebates, has the probability of Novo considering second brands in your Part D business increased? Could you also provide maybe a little perspective on the government’s renewed focus on insulin pricing and FDA efforts to accelerate generic insulin. Just interested in your updated thoughts there. Thank you.

Okay. Peter, first of all, a small correction, when it comes to the restricted label having to have failed GLP-1 or insulin therapy. As you know, that is a U.S. thing. We don’t have it in most other territories. And in the countries, including several European countries like France and others, very strong growth is seen for Xultophy in those markets, where we actually decide to have it as one of the preferred products. So we actually do expect quite a lot from Xultophy going forward. And I do think sales doubled this year compared to last year. When that is said, LAIsema is in reality a once-weekly version where you get the best of semaglutide with all the benefits inherited from the Ozempic label hopefully. And then of course, LAI287, which we’ve actually so far compared up against insulin degludec without seeing any direct, you can say, disadvantages in terms of variability and peak-to-trough values and so on. But when that is said, the Phase 2 trials with LAIsema are up against what is today still the most used insulin molecule, named glargine U100. So the purpose of the Phase 2 program for LAIsema is to have a competitive once-weekly convenient offering with a profile benefit-risk wise equal to that at least of insulin glargine U100 and LAIsema is then seen as an intensification product whether patients in the future were to be on oral sema injectable GLP-1 or even, for that matter, injectable insulin. Lars Fruergaard Jørgensen: Thank you, Mads. Yes, Peter. on U.S. pricing, clearly, a lot of moving parts and a lot of political interest. What came out last night in the U.S. in terms of moving away from exempting rebates from the – being allowed as given to the PBMs, we actually applaud the administration for bringing this forward. It’s been discussed for a long period of time. The current system where rebates are not shared with the patients is a challenging environment for us to operate in, and you can see what has happened recently is that political pressure has increased in actually understanding how does the market work. So we welcome this proposal. As you know, we gave last year 68% in rebates, DKK 113 billion is put into the supply chain in terms of rebates. And we think from physician point of view, from a patient point of view, the allocation of those rebates can be done in a better way, providing more value for the patients without being, say, a negative for Novo Nordisk. We have looked at – when you say new brands – or second brands, if you think about launching with industry codes we looked at that. We do not believe it’s the best way forward. So the changed outlook for rebates, I think, is a more viable way to go forward. We are collaborating on the request we have received for more transparency around how we conduct business. How that will play out, it’ll probably take a long time, at least some of the requests are quite comprehensive. When you talk about changes in how rebates are handled in the U.S., it’s not something we see will have an impact on how business is conducted this 2019, maybe not even in 2020, because there are a number of contracts being made between us and our customers and again, from PBMs to insurance companies, et cetera. So it’s a relatively comprehensive set of legal commitments and change flow of money that has to be unwinded. In terms of generic insulin and Scott Gottlieb’s comments, I think as we look at the market now, it’s a market that’s already highly competitive on price. So we actually feel that we’re already operating in an environment where there’s tough price competition so I’m not sure that, that in itself is going to significantly change that outlook. Thank you, Peter

Thank you. Lars Fruergaard Jørgensen: Next question.

Your next question is from the line of Sachin Jain, Bank of America. Please go ahead.

Hi, Sachin Jain, Bank of America. A couple of questions on oral sema, if I may. I wondered if you could comment on oral sema time lines, roughly, where you think you’re fully to the market with promotion. Just remembering back to Ozempic, you were roughly three months, I think, to launch with five to six months before promotion. How should we think about oral sema in comparison to that? And then second question on oral sema pricing. I’m not asking for a price at the moment, I know that’s off the table, but just some variables as you think about it. Consensus seems to gravitate to roughly $10 to $12 per day, based on recent commentary that you would price for quick access. I wonder if you could comment on two variables related to that, a) the time frame you think about when you think about the pricing decision. Historically, you’ve been happy to price and build for the long-term, for example, when you launched Victoza. And then, secondly, the impact to the existing GLP business if you were to price at that level, and any other key variables that you think play into that pricing decision? Thank you. Lars Fruergaard Jørgensen: So Sachin, thank you for that quite detailed question. On all time line, I think what we can say with you is, obviously, that now we’re using the priority voucher we have guided that we expect to submit by the turn of the coming quarter and that we’re looking at a six-month review period; that indicates also when we will be able to have product approval. As you know, when you launch, you have – access is blocked day one, so we need to do contracting with our customers, and that is something that takes time in the U.S. market. We’re not going to guide in terms of when we expect that to be completed or when we expect to be in the market. We think that’s something we would like to keep close to us. In terms of pricing, it’s a bit the same. We have consistently, for the last few quarters, said that we do not want to openly discuss pricing. We think this is information of a competitive nature and is not really serving our investors well to be open on that. And it’s the classical elements we have mentioned before, it’s the clinical differentiation of the product, it’s the competitive situation and the cost of goods sold for that. So those are the elements that we would be factoring in. And we, of course, are forming our own view on that, on what that is. But we would like to keep that close to us for the time being and I hope for your understanding of that. Thank you, Sachin.

Okay. Thank you. Lars Fruergaard Jørgensen: And next question please.

Your next question is from the line of Florent Cespedes of Societe Generale. Please go ahead.

Good afternoon, gentlemen. Florent Cespedes from Societe Generale. Three quick questions. First, financial-related questions. Could you share with us the level of non-recurring costs, the absolute numbers which impacted Q4 and the full year? And the follow-up question on this one is how do you see the operating profit margin for this year? Because as you start from a lower base, is it fair to assume a margin expansion for 2019? Or with the earlier launch of oral sema, is it fair to assume higher launch costs? Second question, a quick one regarding Ozempic cardiovascular safety discussions you have with the FDA. When should we have the final decision from the FDA regarding the labeling of Ozempic with this, what is the update the cardiovascular safety trial? And last but not least, regarding growth hormone. The Q4 was quite dynamic. So could you share with us how do you see the trend going forward? Is there a new environment? Is there any reasons to believe that we should see a little bit strong growth going forward for this franchise? Thank you. Lars Fruergaard Jørgensen: Thank you, Florent. I think that ended up to maybe three or four questions, so we’ll try to answer them a bit consolidated and quite fast. So Karsten, first on non-recurring costs for full year and margin and then Mads on Ozempic CV.

Yes. So, non-recurring in terms of restructuring costs, then for the full year 2018, cost was around DKK 900 million. And for the fourth quarter then, since we communicated, DKK 600 million at the third quarter, then you would deduct roughly DKK 300 million in the third – in the fourth quarter, sorry. The priority review voucher is around DKK 800 million, of course, hitting the fourth quarter. As to margin in 2019, when you look at our guidance range, then the top line two to five and the operating profit, two to six, both in local currencies, not necessarily a huge margin play there. And do remember that given the operating margin and where we are, then it is not part of our strategy to use margin leverage to drive profitability. We have a top line focus to drive profitability. And then perhaps a final note on 2019 margins is that the coverage gap impact in the U.S. of DKK 2 billion is of course, a hit that goes all the way straight through the P&L when you do your modeling. Lars Fruergaard Jørgensen: Thank you, Karsten. And Mads, Ozempic CV

Yes. As you can recall from the investor event we held at the ADA meeting last June, we did talk to Lars had with the agency that cardiovascular outcome trials that could be needed to support the SUSTAIN 6 program were fully worthy of FDA consideration assuming that they were on the same molecule, of course, regardless of route of administration. And it is on this premise that we believe that the PIONEER 6 really strengthens the case for semaglutide cardioprotective properties, such that we would seek to get a cardiovascular [Technical Difficulty] NDAs that have a 10-month regulatory process. Lars Fruergaard Jørgensen: Thank you, Mads and thank you, Florent for those questions. We’d take next question.

Thank you. And next question is from the line of Martin Parkhoi of Danske Bank. Please go ahead.

Yes. Martin Parkhoi, Danske Bank. First, the question, which I think is related to Karsten. At your Capital Markets Day in 2017, you gave some indicative levels for the CapEx for 2019/2020, where you said that should be at the level of 2016. And now you guided EUR 2 billion higher for 2019. Is that an extra advent in 2019 or will we also see such a level in 2020? And is this related to the Clayton facility running above budget or what relates to this changed CapEx that will compare to just less than 1.5 years ago? And then, secondly, to Mads. Mads, if you look at the time line, you still expect to start the – initiate the SOUL in, as I recall, in Q2 and you have the decision by FDA on oral sema in Q3, why do you not wait – start the SOUL program until you know, have more clarity on the potential of getting a CV label on Ozempic and maybe even on oral sema? Lars Fruergaard Jørgensen: Thank you, Martin. And Karsten first on CapEx.

Yes. So in 2018, we spent DKK 9.5 billion on CapEx which was part of our guidance, and our guidance for 2019 is DKK 9 billion. It is correct that you state that if you go back and directionally compare it with the CMD slides, then it’s at a higher level. But things are changing all time and we are spending more on CapEx in 2019 than what we anticipated. The main driver is, of course, our API investment in North Carolina that is our biggest CapEx project these days, where we are roughly 50% done. But apart from that, we have a number of upgrade and capacity expansion projects in manufacturing, for instance, in device assembly, so you should see this as a phasing off of investments and you should expect our level of CapEx to go down after 2019, so 2020 and onwards. Lars Fruergaard Jørgensen: Thank you, Karsten. Mads, on the timing?

Yes. Well, first of all, of course, we’ve taken a deep look at the SOUL trial based on all the existing evidence also from the PIONEER 6, and that means in term of the powering of the study, the need for the amount of patient and hence also the cost of the study, that of course has been the subject of discussion based on the reassuring data from PIONEER 6. That’s one thing. Another thing I’d like to mention is that it is a study we’ve planned and it’s also a study that supports our ambition to have a renal label update with technical claims for, first, Ozempic and then later on, oral semaglutide in that the agency has accepted that we also bridge primary endpoints from, for instance, the FLOW study, which is the diabetic nephropathy study that we are contemplating on doing with Ozempic and bridge that over to confirmatory secondary endpoints that were to be included in the SOUL trial for the oral semaglutide, such that we can crisscross from oral sema to Ozempic when it comes to CV data and we can crisscross back again from Ozempic into oral when it comes to renal data. That’s the thinking behind some of these conclusions. Lars Fruergaard Jørgensen: Thank you, Mads.

But just remind me, Mads – can I just follow up, Mads, just remind me, when you expect to file oral sema late this quarter, will you file for a CV indication actually or CV label based on PIONEER 6 and maybe with support from SUSTAIN 6?

It is our intention to leverage the very strong and robust data that together emerged from the combination of SUSTAIN 6 and PIONEER 6 in the best of all ways; and that, in principle, goes for both products, Ozempic and oral.

Thank you. Lars Fruergaard Jørgensen: Thank you, Mads. Thank you, Martin. Next question, please.

Your next question is from the line of Kerry Holford of BNP Paribas. Please go ahead.

Kerry Holford from Exane. A couple of questions for me please. Firstly, on gross to net, you talked about that increasing again this year in the U.S. I wonder if you can just talk a little bit more about the key drivers of that in regards to insulin. Is that the key driver still, or are we seeing more of that increase now impacting GLP-1? And I wonder if you could compare the position of each of those franchises from that perspective. And then, secondly, with regard to restructuring, can we assume that program is now complete as of the end of 2018? Any further actions or charges likely to come through this year, essentially, I guess the question is, are you now comfortable with your cost base in the current environment? Lars Fruergaard Jørgensen: Yes. So Karsten, will you comment a bit on that?

Yes, yes. So first of all, as you see in our annual report, which we published on our website this morning, then the U.S. rebate percentage is going up from 64% to 68% between 2017 and 2018. The main drivers in that respect is the level of rebating and. As we’ve been commenting on before, it’s basically in the basal insulin space, where we’ve been paying higher rebates to remain on formularies. So that’s the main driver in terms of the gross to net. We don’t have anything new to add on the competitive situation in any of the segments. We have very solid formulary coverage for our products going into 2019. And now for Ozempic, we are around 80% unrestricted access in the U.S. market. So we feel confident on that. As for restructuring costs, we took the DKK 900 million in charges in 2018 and we have not anything in our guidance for 2019. But of course, we are reallocating our resources and our cost base on an ongoing manner, but we do not foresee any major restructuring charges in 2019. Lars Fruergaard Jørgensen: Thank you, Karsten. Thank you, Kerry. Next question, please.

Your next question is from the line of Michael Novod of Nordea Markets. Please go ahead.

Yes, it’s Michael from Nordea. Two questions. One, to obesity, which continues to surprise on the upside. We also see that there is some sort of, say, reacceleration in – further acceleration in the U.S. maybe you could talk about some of the key drivers behind this and also perhaps put it into context what you expect in terms of, say, better access, better uptake with sema, where we’re going to see the Phase 3 data, I don’t know, 12, 15 months from now? And then, secondly, to the launch cost for oral sema. I know that you won’t comment on the exact timing in the market. Just want to get some clarity around how your thinking is about cost levels for the launch, if that is fully incorporated into the guidance at the current time for 2019? Thanks. Lars Fruergaard Jørgensen: Thank you, Michael. And, Camilla, some comments on obesity?

Yes. So generally, we are tracking in line with the expectations. On obesity, we’re of course growing sales significantly. We also now close to 50% value market share on a global level. On a volume market share level, we are still in the range of 4% to 5%. So it means there’s still significantly untapped potential. And we are continuing our efforts in terms of supporting the market in terms of education of obesity as a disease and also in terms of our activities to try to ensure reimbursement in different countries for obesity, and that is a process that will take time. But we are continuing along this road, and that’s basically the things that are going to drive this. So we do see, in International Operations this year, we should expect a number of new launches that can continue some of these growth rates and we also see generally across-the-board global level a good growth rate. When it comes to the actual market growth, this is still not very strong and actually has been going down slightly recently. But that doesn’t go for Novo Nordisk. So we keep gaining share and we are very confident about the growth in this area. Lars Fruergaard Jørgensen: Thank you, Camilla. And comments from Mads?

Yes. You also mentioned semaglutide, Michael, and I think the three drivers of sema that will help Camilla and the team create stronger penetration and a more – a larger market that deserves to be there is – the durability of drug treatment, as you know, they keep on losing weight, the semaglutide patients; also in diabetes throughout a full year. And it’s also the magnitude of the weight loss that helps and then, finally, if you actually improve patient outcomes; and that’s why we are doing the select study. So all the things Camilla’s team are doing – is doing now is also paving the road for something that is hopefully going to be the future anchor drug in obesity. Lars Fruergaard Jørgensen: Thank you, Camilla and Mads. And on launch cost, Michael, I think if you look at the past few years here, we have been in constant prelaunch launch mode across the world. So we cannot – it’s not really meaningful to go in and talk on cost on a specific launch. So – but we do expect to have an S&D ratio in the vicinity of 25% to 26% in 2019. So that’s what we can guide on that for now. Thank you, Michael. And next question, please.

Next question is from the line of Richard Vosser of JPMorgan. Please go ahead.

Hi, thanks for taking my question. A couple of product ones. Just looking at Tresiba in the fourth quarter in the U.S., it looked as though there may be some destocking or maybe some rebates in there. Just could you talk about the trends you’re seeing in Tresiba in the U.S.? Second question, just Victoza China, obviously, on the NDRL, very strong growth in Q3, less growth in Q4, just how should we think about the future picture for Victoza in China and the U.S.? And then just one final – a couple of questions around oral sema, just thinking about the access that you’ve got so far on Ozempic, you mentioned 80% access. And I think when you first launched, you had 50% access. Is this – are these the sort of levels of access that you are looking to achieve for oral semaglutide and then linked – sort of linked to that, just that you mentioned on the Clayton facility that you’re 50% through the spend. I presume you’re starting up the facility production soon-ish, though. But – so sort of when would you start – look to start that up and when would we see an impact from incremental depreciation from the start-up? Thanks very much. Lars Fruergaard Jørgensen: Okay. There was quite a number of questions, Richard, so we’ll try to keep track of this. So on Tresiba no particular fluctuation there. When you look at it, quite constant uptake overall. And as I mentioned, 15% market share growth over the past three years, 5% a year. So we actually see that as being quite stable from a U.S. point of view. Mike, any comments from you on Victoza in China?

No, I can say that Victoza China was – it almost doubled and it fared against our own expectation. From quarter-to-quarter, you will see these deviations sometimes. And it has to do with the listing of the hospitals and the speed of those compared to what the plan is. But I’m happy to say that now, we have full coverage actually with the reimbursement in China after the National Drug List took place at the beginning of the year. Then we have gone to various different regions and the hospitals, and we have the coverage that we had anticipated. So I don’t foresee Q4 to be any indications of what happens later on. Lars Fruergaard Jørgensen: And on – very shortly on Ozempic, it’s right, we are at 80%. That’s actually a relatively high access rate compared to our product report. So we’re not necessarily looking at going to that on oral sema to be successful. And very quickly, on the Clayton facility, it is – we are ramping up construction, then comes the validation and qualification of it, which takes quite some time. So we’ll be proactively, we’ll be phasing in the factory from 2020 and in the coming, say, period there. So thank you, Richard. Let me remind to all of you stick to two questions going forward. Next question, please.

Your next question is from the line of Michael Leuchten from UBS. Please go ahead.

Thank you very much. Two questions, please. One for Mike and one for Karsten, I think. So on the International Operations in the fourth quarter, it looks like we had quite a few sort of distortions in terms of timings of shipments. And it seems a little bit more pronounced than maybe we’ve seen in the past. Just wondering if there’s any sort of trend to this, like we all see that in Q4? And if that’s the case, are we going to see all that coming back in Q1 or is that a more sort of balanced in 2019? Any color would be helpful. And then a question on the gross margin. If we sort of adjust for rebate adjustments in 2018, pricing pressure you mentioned the gross to net in the insulin space. Your gross margin did phenomenally well obviously particularly on mix. But is there anything else that made 2018 a year that made the gross margin particularly strong that wouldn’t repeat as we look into 2019 and maybe 2020. Or is the mix effect likely going to be strong going forward? Lars Fruergaard Jørgensen: Thank you, Michael. Mike, first, on Q4 timing, anything there to mention?

Yes, so all the timing that has been announced has been actually in the emerging markets in AAMEO and LatAm, which it is quite usual actually to have a timings of the shipments. Primarily actually has been a few countries, just a handful of countries, in AAMEO. Interesting enough, I think if you take a look at the Q4 results of the other regions, so the more regular regions, Europe and China, Japan, they all did better in Q4 than the previous years in terms of growth rates. So that should give you a good indication that we don’t foresee a major full year effect of that as we go forward. Lars Fruergaard Jørgensen: Thank you, Mike. And Karsten, for the gross margin, anything special about 2018?

So I would say what was special for 2018 was that in manufacturing, we really hit it on all cylinders. And that’s not something that we can plan with – for every year. It’s like winning on all cylinders in International Operations, that’s – it happens in few years, but most often, you win some, you lose some. And so I think overall, manufacturing had a fantastic year in 2018. I think I’m more balanced at this point in terms of our productivity gains in terms of 2019. Still, favorable productivity and some positive mix from the GLP-1 franchise. Do bear in mind, again, that the doughnut hole impact hits straight through, so of course, a negative impact on that accounts. And then come 2020 and onwards, and we’re not guiding on that specifically, but albeit from a low base but oral sema initially will be at a lower gross margin, which is naturally in the ramp-up phase of a product. Lars Fruergaard Jørgensen: Thank you, Karsten and thank you, Michael. So we have time to have one last question.

And your final question is from the line of Carsten Madsen of SEB. Please go ahead.

Thank you very much. Carsten from SEB. So then I will follow up on Karsten’s last comment here on the gross margin for oral sema because I can see on ClinicalTrials.gov that the new trial with lower doses has been completed. Essentially, it seems like that trial would have the potential for you to cut your COGS for oral sema into half with the new formulation. I was wondering if you could share some details on what was the outcome of the trial and what would be your next step? Thank you. Lars Fruergaard Jørgensen: That actually sounded like a question to Mr. Krogsgaard to me. So Mads, any comments?

Yes, and I always at least pretend as if I know some details about R&D. But on this particular case, I’ll disappoint you because unfortunately, the trial has completed the in-light phase. But as I think you are aware, Carsten, after the in light phase, even for small trials, there is a bit of work to be done before you actually can lock the database, do the analysis and so on. So this is something that we, for sure, at the Q1 roadshow will be able to update you on the two different kinds of clinical activities that are ongoing in the oral GLP-1 space in Phase 1.

Could you maybe then just – do you expect this trial to be the final trial for a new formulation? And what is the regulatory strategy going forward? Is this something you can quickly update and get into the market if it’s a successful trial?

Okay. So Carsten, it all depends. But if you have a known ingredient, such as semaglutide in this next formulation and what you’ve done is change the composition and/or the way you create the tepid, then as long as you can match the clinical profile with your new tepid in a way that is bioequivalent to that of the existing generation of product, i.e. the one we’re going to launch as soon as possible, then you can, in principle, do one confirmatory trial where you, after a period of, for instance, six months show that it is indeed clinically equivalent and as safe as the existing generation of product. And that will then be clearly at a reduced cost of goods sold. So – but let’s talk more about it when we have some data. Lars Fruergaard Jørgensen: Thank you, Mads, and thank you, Carsten. This concludes our conference call. Thank you all for participating, and we look forward to meeting many of you over the coming days. In the meantime, if you have any questions, please reach out to our Investor Relations officers. Thank you very much. Have a good day.

That concludes the presentation. Thank you for participating. You may disconnect.