Novo Nordisk A/S (NVO) Q3 2023 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Q3 2023 Novo Nordisk A/S Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today Daniel Bohsen, Head of Investor Relations. Please go ahead, sir.

Welcome to this Novo Nordisk Earnings Call for the first nine months of 2023. This call follows the early announcement of top line results and the updated outlook for 2023 shared in October. The release was advanced due to Danish securities regulations. My name is Daniel Bohsen and I'm the Head of Investor Relations at Novo Nordisk. With me today I have CEO of Novo Nordisk, Lars Fruergaard Jorgensen; Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; Executive Vice President and Head of North America Operations, Doug Langa; Executive Vice President and Head of Development, Martin Holst Lange; and finally Chief Financial Officer, Karsten Munk Knudsen. All speakers will be available for the Q&A session. Today's announcement and the slides for this call are available on our website, novonordisk.com. Please note that this call is being webcast live and a recording will be made available on our website as well. The call is scheduled for one hour. Please turn to slide. The presentation is structured as outlined on slide two. Please note that all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. Please turn to the next slide. As always we need to advise you that this call will contain forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For further information on the risk factors, please see the company announcement for the first nine months of 2023 and the slides prepared for this presentation. With that, over to you Lars, for an update on our strategic aspirations.

Thank you, Daniel. Next slide please. In the first nine months of 2023, we delivered 33% sales and 37% operating profit growth at constant exchange rates. I'd like to start this call by going through the performance highlights across our strategic aspirations before handing over the word to my colleagues. Within purpose and sustainability, we continue to make progress, our carbon emissions decreased by 28% compared to pre-pandemic levels in 2019 and in line with our aspiration of being a sustainable employer, we continue to expand the number of women in senior leadership positions. This is now 41% compared to 38% last year. In R&D, an important milestone is that we will stop the FLOW kidney outcomes trial early semaglutide demonstrated a benefit in people with Type 2 diabetes and chronic kidney disease. Further within R&D, we have recently agreed to acquire ocedurenone for the treatment of cardiovascular disease. This supports our aspiration of establishing a presence in other serious chronic diseases with a high unmet medical need. Maziar will come back to this and our overall R&D milestones later. The sales growth reflect strong commercial execution with both operating units contributing to a continuous sales growth, driven by increasing demand for our GLP-1 based diabetes and obesity treatments. Camilla and Doug will go through the details in the therapy area later. Within commercial execution, we are pleased to have reached our obesity aspiration of DKK25 billion and our aspiration for diabetes by reaching a global value market share of 1/3. Naturally, the progress is not holding us back and we continue to aim for treating more patients with our innovative treatments. Karsten will go through the financial details, but I'm very pleased with our overall performance for the first nine months of 2023 which has enabled us to raise our outlook for the full year. With that I'll give the word to Camilla for an update on commercial execution.

Thank you, Lars, and please turn to the next slide. In the first nine months of 2023, our total sales increased by 33%. The sales growth was driven by both operating units with North America operations, growing 49% and international operations, growing 17%. Our GLP-1 sales increased 49% driven by North America growing 43%, and international operations growing 60%. Insulin sales decreased by 7% driven by a 1% decline in international operations and a 24% sales decline in North America operations. The sales decrease was driven by a decrease in sales in the US and region China. Obesity care sales grew 174% overall. In International operations, sales grew 52% driven by both Saxenda and Wegovy. In North America operations obesity care sales grew 244%. Total rare disease sales decreased 18%, which was driven by 22% decrease in international operations and by a 13% decrease in North America operations. Please turn to the next slide. With 25% sales growth in our Diabetes Care, we are now growing faster than the total market, improving our global diabetes value market share to 33.3%. The increase reflects market share gains in both North America operations and international operations. In international operations, total diabetes care sales increased by 21% in the first nine months of 2023. This was driven by GLP-1 sales growing 60%, driven by all geographical areas. Novo Nordisk is the market leader in international operator, GLP-1 value market share of 69%. Ozempic continues its GLP-1 market leadership with just shy of 46% market share. Rybelsus has 12% value market share driven by strong uptake across geographies. And with that I will hand over the word to Doug.

Thank you, Camilla. Please turn to the next slide. The GLP-1 class expansion continues in the US in the first nine months of 2023. The US GLP-1 market volume grew around 50% comparing Q3 of 2023 to Q3 of 2022. Measured on total prescriptions, Novo Nordisk continues to be the market leader with 53% market share. Please go to the next slide. Obesity care sales grew by 174% in the first nine months of 2023. This was mainly driven by the US. The global branded anti-obesity market expansion continues with a global volume growth of 94%. In international operations, obesity care sales are driven by strong Saxenda performance and the Wegovy launches in five international operation countries. While eager to launch Wegovy in more IO countries, our focus remains to do this in a sustainable manner, for example by capping volumes. In the US alone sales of Wegovy grew by 467%. Demand for Wegovy continues to exceed supply, and to safeguard continuity of care for patients already on Wegovy, the supply of the lower Wegovy dose strengths in the US has been reduced since May of 2023. Please go to the next slide. Our rare disease sales decreased by 18%. The sales decrease was driven by a 30% decline in North America operations and a 22% sales decline in international operations. Sales of rare blood disorders increased by 2%, driven by the launch products in Haemophilia A and B and partially countered by NovoSeven. Sales of rare endocrine disorder products decreased by 54%, reflecting a temporary reduction in manufacturing output. Now over to you Martin for an update on R&D.

Thank you, Doug. Please turn to the next slide. Serious chronic non-communicable diseases affect millions of people globally and have emerged in recent years as a major public health issue. Given our extensive scientific and clinical knowledge within metabolic diseases, we are well positioned to advance our understanding of semaglutide potential benefits and associated health complications. With the current body of evidence, it is clear that the beneficial effects of semaglutide goes even further than glycemic control and weight loss. Semaglutide has already now demonstrated convincing risk reductions in a number of cardiovascular outcome studies. This includes SUSTAIN 6 and PIONEER 6 in Type 2 diabetes as well as STEP-HFpEF SELECT in obesity. While we await data from the SELECT trial to be presented. We continue to build evidence for the semaglutide molecule in the cardiovascular space. In 2024 we expect several readouts. This includes Type 2 diabetes cardiovascular outcome study, SOUL, with oral semaglutide 14 milligram, and the functional outcomes trial, STRIDE, which focuses on the high-risk population with peripheral vascular disease. As previously discussed, we also investigated the potential therapeutic effects of semaglutide on osteoarthritis and metabolic dysfunction associated to hepatitis, previously known as nonalcoholic steatohepatitis. In addition to this, we recently announced early closure of the FLOW trial due to efficacy. Next slide please. This closure was based on a recommendation from the FLOW independent data monitoring committee following a pre-planned interim analysis. As you know, FLOW is an outcomes trial conducted across 28 countries and more than 400 sites. 3,534 people were enrolled and randomized in a one-to-one ratio to receive either once weekly semaglutide 1.0 milligram or placebo. The eligibility criteria were designed to include patients with Type 2 diabetes and high or very high risk for progression of chronic kidney disease. The primary objective of FLOW is to demonstrate delay in progression of chronic kidney disease and to lower the risk of kidney and cardiovascular mortality through the composite primary endpoint. This is on top of standard of care, including the use of SGLT2s. The trial is powered to detect a 20% risk reduction on the primary endpoint. Key secondary endpoints include annual rate of change in estimated glomerular filtration rate, major adverse cardiovascular events and all-cause death. Today, few treatment options exist for chronic kidney disease in people living with Type 2 diabetes. With a projected global increase in Type 2 diabetes, there is a clear need for additional treatment options to help mitigate the residual risk in people with concomitant chronic kidney disease. The next step for me to close down the trial. [Technical Difficulty] of FLOW, it is expected in the first half of 2024, the presentation of detailed data is expected to take place at a medical conference also during 2024. Next slide please. In line with our strategic aspiration of establishing a presence in other serious chronic diseases, we are pleased to announce the acquisition of ocedurenone for the treatment of cardiovascular disease from KBP Biosciences. There remains a significant need in treatment of hypertension, which is a leading risk factor for cardiovascular events, heart failure, chronic kidney disease, and death. Ocedurenone is a once-daily oral administered small molecule with a long half-life and a high affinity for the mineralocorticoid receptor. Ocedurenone has an attractive efficacy and safety profile and is currently being examined in the Phase III trial, CLARION-CKD, in patients with uncontrolled hypertension and advanced chronic kidney disease. We expect to initiate additional cardiovascular as well as chronic kidney disease outcomes trials during the course of 2024. Next slide please. Turning to other R&D milestones, I would like to highlight some of the other trial readouts and initiations across our therapy areas in 2023 and in the first half of 2024. Within diabetes in the first -- third quarter of 2023, we initiated the first pivotal Phase III trial in the re-imagined program for CagriSema in people with Type 2 diabetes. In the fourth quarter, we have submitted oral semaglutide 25 milligram and 50 milligram in the EU. We are also anticipating the results from the ongoing pivotal Phase III trial for IcoSema COMBINE 3 in the first half of 2024. IcoSema has the potential to be a first-in-class once weekly fixed ratio combination of basal insulin NTL receptor, sorry, GLP1 receptor agonist in Type 2 diabetes in need of intensification Within obesity, we are happy to announce that we in September initiated a 32-week Phase I trial with once weekly subcutaneous Amycretin in people with overweight obesity. While we await SELECT data at the American-- going to be presented at the American Heart Association Congress, we have submitted the trial to the US FDA and the European Medicines Agency. We are pleased that the FDA has granted priority review for the supplemental new drug application. This marks a significant milestone in our ongoing efforts to address unmet needs patients with overweight and obesity and established cardiovascular disease. Finally, we also expect a chronic heart failure trial with preserved ejection fraction in obese patients and diabetes to readout in the last quarter of this year. In rare disease, Nedosiran was approved by the USFDA for treatment of primary hyperoxaluria type One. This marks the first approved siRNA treatment for Novo Nordisk. In other serious chronic diseases, we initiated a Phase 1 trial with our Angiopoietin-like 3 protein inhibitor. This is a monoclonal antibody in development for cardiovascular disease, specifically for lowering of cholesterol and triglycerides. With that, over to you, Karsten.

Thank you, Martin. Please turn to the next slide. In the first nine months of 2023, our sales grew by 29% in Danish kroner and 33% at constant exchange rates, driven by both our operating units. The gross margin increased to 84.5% compared to 84.3% in 2022. The increase in gross margin reflects a positive product mix driven by increased sales of GLP-1 based treatments. This was partially countered by costs related to ongoing capacity expansions, and negative currency impact, and lower realized prices mainly in the US and Region China. Sales and distribution costs increased by 22% in Danish kroner and by 25% at constant exchange rates. The increase is driven by both operating units. In North America, the cost increase is driven by the relaunch of Wegovy and promotional activities for Ozempic. In international operations, the cost increase is driven by promotion activities for Rybelsus as well as obesity care market development activities, The increase in sales and distribution costs are impacted by adjustments to legal provisions. Research and development costs increased by 38% measured in Danish kroner and 39% at constant exchange rates. The increase reflects increased late stage clinical trial activity and increased early research activities compared to the first nine months of 2022.The acquisition of Forma Therapeutics in 2022 and Inversago Pharma also increased R&D spending. Administration costs increased by 9% measured in Danish kroner and 11% at constant exchange rates. Operating profit increased by 31% measured in Danish kroner and 37% at constant exchange rates reflecting the sales growth. Net financial showed a net gain of DKK1.2 billion, compared to a net loss of DKK5 billion last year. The effective tax rate was 19.9% in the first nine months of '23 compared to 20.5% in the first nine months of 2022. Net profit increased by 47% and diluted earnings per share increased by 49% to DKK13.71. Free cash flow was DKK75.6 billion, compared with DKK62.6 billion in the first nine months of 2022. In line with the strategic aspiration of delivering attractive capital allocation to shareholders. A total of DKK52 billion has been paid back to shareholders through share buybacks and dividends. The cash conversion is positively impacted by timing of payment of rebates in the US. Capital expenditure for property, plant and equipment was DKK16.4 billion, compared to DKK7.2 billion in 2022. This primarily reflects investments in additional capacity for active pharmaceutical ingredient production and fill finish capacity for both current and future injectable and all products. Please go to the next slide. Nine months into 2023, we are continuing our sales growth momentum which has enabled us to raise the outlook for the full year. We now expect the sales growth to be between 32% and 38% at constant exchange rates. The increased sales outlook is primarily reflecting higher full year expectations to Ozempic volumes sold in the US and gross to net adjustments for Ozempic and Wegovy in the US. The guidance reflects expectations for sales growth in both North America operations and international operations. The guidance is mainly driven by volume growth of GLP-1 based treatments for diabetes and obesity care. This is partially countered by declining sales in rare disease due to a temporary reduction in manufacturing output. The guidance reflects the level of volume growth of GLP-1 based treatments. The inherent uncertainty of the pace of Ozempic -- obesity care market expansion following the re-launch of Wegovy in the US and a limited rollout in international operations are also included in the guidance range. Finally, the sales outlook reflects expected continued periodic supply constraints and related drug shortage notifications across a number of products and geographies. Novo Nordisk is investing in internal and external capacity to increase supply both short and long-term. While supply capacity for Wegovy is gradually being expanded, the lower dose strength in the US will remain restricted to safeguard continuity of care. We now expect operating profit grow between 40% and 46% at constant exchange rates. This primarily reflects the sales growth outlook and continued investments in future, and current growth drivers within research, development, and commercial. For 2023, we expect net financial items to amount to a gain of around DKK1.6 billion, mainly reflecting gains associated with foreign exchange hedging contracts. Capital expenditure is still expected to be around DKK25 billion, reflecting the upscaling of the supply chain and the innovation based growth strategy pursued by Novo Nordisk. In the coming years, the capital expenditure to sales ratio is expected to be low double-digits. The free cash flow is now expected to be between DKK65 billion and DKK73 billion, reflecting the sales growth, a favorable impact from rebates in the US, and investments in capital expenditure. The updated cash flow expectation is mainly reflecting increased net profit expectations partially countered by business development activities. That covers the outlook for 2023, now back to you, Lars for final remarks.

Thank you. Karsten. Please turn to the final slide. Today's announcement discloses the full set of quarterly results and our updated outlook for 2023, which was shared earlier in October. Overall, we are very satisfied with the sales growth in the first nine months of 2023. Wegovy is driven by demand for our GLP-1-based future interventions for diabetes and obesity, which is now reaching more people than ever before. The performance in the first nine months of the year has enabled us to raise the outlook for the full year. From an R&D perspective, we have reached a significant milestone with the submission of SELECT and look forward to sharing more data at American Heart Association. In addition, we are excited about the early closure of the FLOW trial and anticipate readout in the first half of 2024. Finally the [indiscernible] Ocedurenone will strengthen full cardiovascular disease and underlines the commitment to establish presence with other serious chronic diseases. With that I'll hand over to -- the final word to Daniel

Thank you, Lars. Next slide please. With that, we are now ready for the Q&A session, where I kindly ask all participants to limit her or himself to one or maximum two questions, including sub questions. Operator, we're now ready to take the first question.

Thank you. [Operator instructions] We will now go to the first question. And your first question comes from the line of Michael Nedelcovych from TD Cowen. Please go ahead.

Thank you for the question. I have one for Martin. Martin, if you'll allow me to set up something of a straw man, here is a potential set of expectations for the Phase 3 SELECT data when we see them at AHA. One, clinically meaningful benefit across each of the individual MACE components and regardless of BMI category. Two, cardiovascular benefit that clearly emerges within one year on Wegovy therapy and does not diminish over time. And three, no noticable imbalance in any very rare adverse events such as suicide or cancer. My question is, would you urge me to modify these expectations in anyway?

Martin, a straw man for you.

So, thank you very much for that question. As you'll probably imagine, I cannot speculate to anything beyond what we've already disclosed. And that is the 20% risk reduction on the primary endpoint for MACE , which is obviously myocardial infarction, stroke, and cardiovascular death. We see attribution from all there, but we do not go into more detail. What I will commit to is obviously that we saw a very clear and positive safety profile from SELECT and no outliers identified.

Thank you, Martin. And thanks, Mike, for the question. Next question please.

Thank you. We will now take the next question. And your next question comes from the line of Richard Parkes from BNP Paribas. Please go ahead.

Thanks very much for taking my questions. I've got a couple. So, firstly when I look at Ozempic and Wegovy US Symphony prescriptions, they're both trending flat to down over the last quarter, I think due to supply constraints, but your guidance suggests an expected acceleration in top line growth in Q4. So I'm just wondering, if you could help me to understand that. I mean are you expecting to see kind of further improved supply into the end of the year would be, I assume, kind of swing factor there. And then the second question is just your slide outlines the potential benefits of semaglutide beyond glycemic control and weight loss and maybe we'll see some insight into that from the SELECT study, but your chart suggests there is potential for patients to benefit from the CV aspects beyond -- that don't have diabetes or obesity. So I'm just wondering how you can capitalize on that, given that your trials currently, I think, just recruiting patients with either obesity and diabetes and comorbidities. Thanks very much.

I'll give the first to you, Karsten, supply going into our guidance.

Yeah. So thank you for that question, Richard. And clearly when we put out guidance, that's because we believe that's the most realistic forecast range that we are putting in, and we don't have too months to, to roll on. So, of course, we see the TRx trends and bake that into our forecast. What I would give of additional flavor on top of that is, of course the growth rate is also a function of ex-factory sales last year and we did see it was a bit having a lower base last year in the fourth quarter than what we would normalize in to this year. And then of course there can be fluctuations in inventory, for instance with wholesalers. And then finally, I'll say this pickup in sales growth in the fourth quarter, this is not to be kind of read into anything, any difference on the supply situation. What we are selling in the fourth quarter has been produced months ago.

Thank you, Karsten. Martin, any comments on the benefits beyond weight loss for SEM?

So, first of all, I think that's exactly right that our starting point is the cardio metabolic space. Starting out with obesity and diabetes, and these are the patients that we investigate. I think it's important to call out that the vast majority of patients suffering from ASCVD from heart failure, from chronic kidney disease, but also metabolic liver disease also have an element of metabolic derangement, and there is a clear association and overlap for both diabetes and obesity. So from our perspective, this actually creates some very nice synergies and certainly not seen as exclusive. But our starting point is patients suffering from diabetes and obesity.

Thank you, Martin. Thank you, Richard, for the questions, and we are ready for the next question.

Thank you. And your next question comes for the line of Seamus Fernandez from Guggenheim Securities. Please go ahead.

Thanks very much for the question. So just very quickly as we think about the SELECT trial results in the wake, not just of the presentation, but the very rapid filing, there had been a lot of questions around this being actually a cardiovascular medication and perhaps gaining access to CMS in that regard. Can you just talk about the prospects of that actually becoming reality? And then the second question is just on the Oral Amycretin and the initiation of the subcutaneous Amycretin. Can you just help us understand is this more of a supply chain related decision, an IRA related decision, or a decision related to some challenges with the oral formulation of Amycretin? Thanks so much.

Thank you, Seamus. Doug, I'll give the first question to you.

Yeah, thanks, Seamus. We do believe that there is an opportunity, a potential opportunity to use the medical exception process through the CV component, but let's wait to see.

Thanks Doug. Martin, any thoughts on Amycretin?

Yeah. On Amycretin, our decision to go also into subcutaneous is actually caused by another of the above of the three reasons that you mentioned. It's actually driven by the fact that we are learning that optionality is important for patients and prescribing physicians in both diabetes and obesity. And we've seen a clear potential for Amycretin to become both an oral, but certainly also a subcutaneous offering, and therefore in Phase I it is prudent for us to investigate both.

Thanks, Martin, and thanks, Seamus. We are ready for the next question.

Thank you. I will now take the next question.And your next question comes from the line of Peter Verdult from Citigroup. Please go ahead.

Yes, thank you. Pete Verdult, Citi. Two questions. Karsten, your favourite topics supply and pricing. Just on supply, if we take the sort of run rate for GLP-1 volumes your franchise in the US and just extrapolate into '24, if nothing changes, I mean there's going to be a big disconnect in terms of people's expectations for growth next year and I think will be effectively flat. Now, I know it's going to improve next year, but can I just push you on when we might see the handbrake being released? I mean -- logical thinking might be that at the time of the Mounjaro launch you'll be want to be in a less capacity constrained position. So I know you can't go into too much detail but just some incremental color on when we might see the handbrake being removed would be helpful. And then on pricing, if we do our value per script calculation, there was a huge jump from Q2 to Q3 and that you've called out gross to net adjustments, we know that commercial mix has improved, but just making sure, is this a sort of high watermark, a one-off in terms of value prescription, how should-- in terms of base lining and thinking going forward, can we use the value per script in Q3 as a baseline or is it artificially high? Thank you.

Thanks Pete. Karsten, supply going into '24 and the value per script.

Yes. Pete. Thank you. Thank you for those -- my favorite subjects. So I would say, first of all with the guidance for the full year, this year that has a midpoint of 35% sales growth at constant change rates, at least in the Novo setting it feels like we have released the handbrake and moving at very high pace in terms of growth rates, at least it's the highest in the history of the company. But that said and extrapolations into '24, I would say first of all, we clearly prudent growth strategy based on innovation, we have shown that we have the innovation platforms, especially in Ozempic and Wegovy, which would drive growth this year and clearly also next year. So -- so not teaching you how to extrapolate. But if you extrapolate our implied Q4 sales growth based on our guidance then you actually get to a sales growth number next year in the double-digits, which is actually not that far away from where consensus is currently. So I do believe that we're scaling very fast. And then specifically on Wegovy and any handbreaks there, then what I would say as to 2024 is that in 2024 we will be delivering significant step up in volumes to the US market, compared to 2023, as we did from '22 to '23. And then to your pricing questions, as we've said on numerous occasions, the appropriate way of looking at net realized pricing in the US is to look at the year-to-date numbers. So most contracts are contracted on an annual basis and the tricky part is a lag effect between when a script is written and then we received the repay claims from the payers. And there's just a lag effect of several months and that's why in reality Q3 is the first point, where we see how the channel payer tool is falling out for 2023. So I wouldn't use Q3 in isolation for anything forecasting wise, I would recommend you to use year-to-date Q3 as a starting point. Thank you.

Very clear, thank you.

Thank you, Karsten. Thanks, Pete. We are ready for the next question.

Thank you. Your next question comes from the line of Mark Purcell from Morgan Stanley. Please go ahead.

Yes, thanks very much for taking my questions. The first one on GLP-1 and higher doses, clearly starting higher doses trials for semaglutide, you have 8 miligram and 16 milligrams coming through by the end of this year. Can you help me understand your expectations there and the importance of increasing your dose where the pivotal trial at 7.2 milligram will read out late next year? And then secondly in terms of the pen platform leverage, we estimate that about $100 million GLP-1 pen units going to be sold by Novo in 2023 for GLP-1 that is, the majority is the FlexTouch platform with a 3-ml platform, so will you use those two platforms to launch, Wegovy in US? And if not, why not.

Martin, the first question for you, GLP-1 higher-dose considerations.

Yeah, absolutely. Thank you for that question. So you're absolutely right. We are investigating 8 milligram and 16 milligram in diabetes. But we're also investigating 7.2 milligram in obesity. The purpose is obviously to assess whether we, we can achieve even higher efficacy without compromising on safety. Our model suggest, in particular in the obesity space that a higher dose could potentially be associated with an even greater weight loss without having to compromise on safety and being diligent we want to assess this.

Thank you, Martin. And if I understood your question correct, Mark, then the question was whether we will leverage our FlexTouch platform also to launch Wegovy in the US in the FlexTouch device, but last maybe to you any strategic considerations on our device platforms?

Yeah, Mark, thanks for the question. I just say that we have a situation today where we have a number of device platforms -- the company won using outside vendor and technology. So that gives us flexibility and it's actually part of fuelling the growth today that we can flex this. So I'll not go into specifics speculation about what we use of device per market, but we see that it's a strength that we can flex between different presentations and we see today that is really the figures of the molecule that drives that, so that gives quite some flexibility in how we go to market country by country and strategic flexibility on our side. Thank you.

Thank you, Lars. Next question please.

Thank you. Your next question comes from the line of Emily Field from Barclays. Please go ahead.

Hi. Thanks for taking my question. I'll ask two. One just on the STEP 9 osteoarthritis study, I believe that this is not large enough to be added to the Wegovy label. So if this were to be a positive study, what would be your next steps plans? And then just on anti-obesity medications and muscle loss, we've seen competitors more explicitly make efforts in R&D for compounds that could preserves lean mass over fat mass and overall weight loss. I was wondering if you could just give an update on where you stand on that within your R&D portfolio? Thank you.

Thank you, Emily. Martin, two for you.

So specifically on the osteoarthritis trial, you are right, it's not the biggest trial. I think it's too early to speculate whether that will have an impact on the label. It's very, very clear that for us it's also guiding for future clinical activity and specifically maybe for Cagrisema Amycretin or our GLP-1/GIP combinations. So it has actually two potential both to serve for information specifically for Wegovy, but also to guide us for future activities.

And the second one, Martin, obesity and research and development focus on muscle loss.

Yeah. I think this is a relevant point. It's also a focus of ours. With current treatments, specifically Wegovy and Saxenda we actually see a reasonable preservation of lean body mass given the broader weight loss. But it has to be a focus area, and you will probably see also in our pipeline. Without going into details maybe even quite to assets that could lead to a preservation of lean mass.

Thank you, Martin. Thank you, Emily. We are ready for the next question.

Thank you. Your 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 China. Growth looks pretty good over there, but I just wondering if you could give us an update on the impact of reduced access to Chinese hospitals on how that is affecting things, if indeed at all. And then secondly on semaglutide, there was an interesting journal pre-print on Monday looking at its use in alcohol use disorder, which look very impressive. Be interesting to get your thoughts on the potential of that indication in your opinion. Thanks so much.

Thank you, Simon. So, Camilla, the first one to you. Do we see reduced access to Chinese hospitals?

So, in general, we are working across the country and we also have access to two hospitals. In general, what we do see in China is an effect of the VPP of course, that's what you mean the insulin sales result, and that is also when you look at an overall IO business point of view that is what is actually dragging down the overall IO insulin growth, but in China Ozempic is going really well. We have a great momentum of Ozempic that we've had since the launch, and since the inclusion on the reimbursement list and that can drive growth in China.

No major issues with access. Martin, The second question.

Yes, thank you very much for the question. We've also seen these observational studies and been intrigued by the fact that GLP-1 may have a place in also treating alcohol abuse. That was actually live within the mode of action of GLP-1. From our perspective and also considering the timing, the combination of two mode of action that could potentially also help here, namely GLP-1 and Amylin. So specifically, from our perspective, sorry CagriSema is probably the more attractive and efficacious approach. So if you see us going into that space that would be with CagriSema and not with Semaglutide alone.

Thank you, Martin.

Thanks so much.

We're ready for the next question.

Thank you. Your next question comes from the line of Naresh Chouhan from Intron Health. Please go ahead.

Hi there. Thanks for taking my questions. First one, on Wegovy US market access. We are hearing that a growing number of employers are having to opt out having already opted in because the demand's been too high. Can you just help us to get a sense of how big or small an issue this is? And obviously next year that's probably potentially like to increase when supply resumes and demand increases. And secondly on supply, if I look back at when you seemed to relatively comfortable with the demand, we were at about 30,000 new PET starts a week in the US. Would that be -- is that a fair starting point for kind of the ability to supply and growth from there going into 2024? Thank you.

Thank you Naresh. So Doug, any updates on the US market access for Wegovy.

Yes, thanks, Naresh. Overall, we're very pleased with the broad market access that we have for Wegovy. Most major PBMs and health plans are covering it that derives around 50 million people with obesity now been covered. And importantly, we're seeing about 80% of the patients that are paying less than $25 for Wegovy. Now to your question, specifically around employers. We do see some opt-outs, but we are seeing overall more opt-ins, than opt-out. So directionally we're heading in the right direction. And our focus, what could be continuing on securing employer coverage as well as stronger access for AOMs overall.

Thank you, Doug. Karsten, any additional comments on the supply going into next year?

So I think the way to look at the suppliers is a starting point of currently around 100,000 TRx per week, according to IQVIA and then we have the five different dose strengths and of course the metric is to get that split right into the link into manufacturing and then we scale from there. And as we've said in prior quarters then this is something we do dynamically. So don't look for a hockey stick, it's a gradual process where, of course, we will be starting at the lower doses and then increasing them as we move forward. There are different data sources in terms of new starts. So I'm not really sure what your data source is, but I think my data point is lower than yours in terms of number of new starts per week.

Thank you, Karsten. Thank you, Naresh. And we are ready for the next question please.

Thank you. Your next question comes from the line of Florent Cespedes from Societe Generale. Please go ahead.

Good afternoon. Thank you very much for taking my questions. Two, please. First one on Wegovy in Europe. Have you started to talk to the payers in Europe as you have already submitted the data to the European authorities and do you believe that you will need to show statistically significant benefit on the cardiovascular best will be presented at AHA next week? And my second question is on Ozempic following the FLOW results. How would you position the product on this population as we already have products available to treat these patients, notably the SGLT2. And it seems that in the trial 15% of the patients are under SGLT2 treatments. So some color on this one would be helpful. Thank you.

Thank you, Florent. Camilla, maybe, the first one for you in terms of Wegovy outside the US.

Yes. So in terms of, I believe, the question was whether we need statistical significance. I would just say now we await the presentation at the conference. But in general, there is a great interest in Wegovy and of course also the benefits in SELECT. So we will get back to that. But we have -- we do see authorities interested in bringing up the discussion again with us already at this point for reimbursement of Wegovy. And just a reminder, we have reimbursement of Saxenda already in a close to 15 countries around the world and of course here we are talking a step up in treatment.

Thank you, Camilla. Martin any medical perspectives on FLOW and the population that we potentially could treat.

Yeah, absolutely maybe just also calling out on SELECT, the study was designed to have the power specifically for the primary endpoint. So assuming statistical significant for the secondary endpoints is to be seen as an upside and not as something to be expected. I just want to call that out, but obviously please tune in on what we can present on November 11th in Philadelphia. Specifically on FLOW, I think there's a tremendous unmet need in the diabetes space. It's also very, very clear that not all patients today who suffer from diabetes and chronic kidney disease are on an SGLT2 and on GLP-1 and therefore to have data to suggest that we can actually decrease and again we haven't seen the data, but we can potentially decrease, the kidney disease deterioration by a substantial number on top of standard of care, including SGLT2 is really, really attractive offering and it will allow more patients in need to get on GLP-1.

Thank you, Martin. Thanks for the question. And we are ready for the next question.

Thank you. We will now take the next question. And the question comes from the line of Richard Vosser from JPMorgan. Please go ahead.

Hi. Thanks for taking my question. Question on the European rollout of Wegovy first. Obviously we know in Denmark, in May, there was a substantial demand for Wegovy in about 1% of the population. So I was wondering how that has developed since then, both in terms of volume and how you're seeing patients staying on the drug, through Denmark, given it's an out-of-pocket market. And then the second question is on your KP Bioscience product. Just wondering how that differentiates from other MR antagonist, particularly KERENDIA from Bayer, but there are also others in development from AstraZeneca et cetera. Just your thoughts on how this is different. Thanks very much.

Thank you, Richard. Camilla, the first one to you, Wegovy rollout in Denmark and the impact.

Yeah, so in Denmark we see, a continued interest in Wegovy and Wegovy continues to perform very well, and it is more than 1% of the population at this point in time. In terms of how many states on the product, we also have, it's too early to give you exact date and numbers, but we do have, I could say anecdotal evidence that there is a high number, a very, very high number of the people that stay on the product from the beginning of the year when the product was launched.

Thank you, Camilla. Martin, reflections on ocedurenone.

Yes, absolutely. So what we've seen with ocedurenone is a molecule with a very high affinity for the receptor and also a very high half-life. That actually means that we expect to see differentiation not only on efficacy, but it also appears to have a potential upside on the safety side specifically on hyperkalemia. So we do expect to see a differentiated drug in this space.

Thank you, Martin. Thank you, Camilla. Thanks, Richard for the question. We are ready for the next.

Thank you. Your next question comes from the line of Peter Welford from Jefferies. Please go ahead.

Hi. I hope you can hear me. I've got two questions. Firstly, if I could come back on the gross margin. I appreciate the commentary year-to-date, but in the third quarter it seem to trend down quite a bit, which I guess it's somewhat unusual given the quite significant improvements we saw in the gross to nets in your most profitable market for both Wegovy and Ozempic. So can you just talk a little bit about in the third quarter, what the incremental costs or whether perhaps any write-downs or swing of inventory or something that could potentially depress the gross margin in what would normally be a more profitable quarter? And then secondly just coming back to the comment that was made on stay time, thinking about it a different way, which is in the past you cited for Saxenda that around 25% or more of patients are on the drug for at least a year and most of those are treated by obesity experts. I appreciate it's still early for Wegovy to necessarily give comments on the US for stay time, but can you sort of talk about whether you're seeing different trends than those of Saxenda both in terms of the obesity experts versus those on and also the number of patient perhaps who are reaching a year at this point. Thank you.

Thank you, Peter. So first of all to Karsten on the gross margin and then later talk on what we see on stay time in the US for Wegovy.

Yeah, Peter, well spotted gross margin in Q3. And just a word of caution to begin with looking at gross margins at a quarterly basis. It's always tricky due to fluctuations over the year, but if I'm to comment specifically on the quarter then, at constant exchange rates, the gross margin is flat compared to last year. So the decline compared to last year is FX driven. And then you can say, why is it not increasing compared to last year given the gross to net adjustment and the product mix and thereby two pieces to it. First of all, remember the starting point. Our gross margin is already high at 84% or so. And then secondly, what is different compared to prior years is that the amount of CapEx we are running these days and just from an accounting policy standard point of view we are realizing more costs related to our capital expenditure projects into the P&L, so it doesn't all go to the balance sheet. Some of it also hits the P&L and that is basically what is offsetting the benefit from product mix.

Thank you, Karsten. And over to you, Doug, any insights on stay time on Wegovy in the US so far?

Yeah, Peter. Thank you. Because generally you're right, we expect to be able to say more about stay time in 2024. Obviously it's been difficult given the few time periods with unrestricted supply, but what I can say is based on early data from multiple sources persistency on Wegovy it looks better than Saxenda with fewer patients dropping off in the first 12 months. But we'll have more to say in 2024.

Thank you, Doug. Thank you, Peter. And we are ready for the next question

Thank you. Your next question comes from the line of Mattias Haggblom from Handelsbanken. Please go ahead.

Thank you so much. R&D question. In this scenario that both high-dose sum up 7.2 milligram as well as CagriSema works in Phase III. Can you help me think about the regulatory pathway for a fixed dose combination with CagriSema isn't the high-dose sum up, and whether that would require a new Phase III or if a small pitching study would be enough? Thanks so much.

Thank you, Mattias. Martin.

Yeah, absolutely. Thank you for that question, Mattias. That would most likely require a reasonably, I think, we can bridge some safety data, but we will still have to establish both safety and efficacy. So we actually see that as a potential opportunity, but we see that as a lifecycle management activities.

Thank you, Martin. And we have time for two more set of questions. So we are ready for the next one.

Thank you. The next question comes from the line of Emmanuel Papadakis from DB. Please go ahead.

Thanks for taking the question. Hopefully you can hear me, okay. Maybe a follow on for Karsten on supply. Karsten, you said you're going to quote-unquote significantly increase supply in '24 versus '23 as you did in '23 versus '22. Eyeballing data, it looks like it was approximately a five-fold increase '23 over '22. So you're telling us you're going to have another five-fold increase in 2024? And if not, could you help us with the approximate quantum. And then a follow-on also on FLOW, Martin you were helpful enough on SELECT to give us an indication that the contribution of components have been approximately equal well balanced in SELECT, is that also the case at FLOW, or how should we think about the contribution of the composite endpoint components? And what should we expect in terms of labelling? Thank you.

Thank you, Emmanuel. First, Karsten, any additional supply.

Yeah, and thanks for triangulating that way around Emmanuel. I'd love to give you further flavor. But, as you know, we are guiding for next year, our full year results late January. So that's why we will be doing our financial guidance for '24 and giving too much granularity into scaling of [indiscernible] gets too close to guiding for next year. So I'm sorry but I'll have to provide that at a later point in time.

Thank you, Karsten. Martin, can you share more from FLOW?

And I think it's a great question and maybe just want to clarify, I don't think we've seen equal contribution from the three components, we just say that they all contributed. And obviously, again, we have to wait November 11 until we see the full dataset, specifically for FLOW I would really love to be able to answer you, but due to the nature of an interim analysis, we have not seen the data, so for better or worse. I know absolutely no more than you do at this point, so I can't speculate.

Thank you, Martin. Thank you, Emmanuel. Then we'll take the last set of questions.

Thank you. Your last question for today comes from the line of Michael Novod from Nordea. Please go ahead.

Thank you very much. Just on the cost side, can you please go through some of the dynamics here in Q4, in order to sort of make the cost go up, as I see it, it needs to go out an extreme pace for Q4? Are any specific investment that you are able to take earlier or anything like that, price going into 2024 just to make understand your EBIT guidance?

That's over to you, Karsten.

Yeah. Michael, thanks for that question when I look at our total operating cost growth in the fourth quarter then it's actually not markedly different compared to year-to-date. So what you should be expecting is there is a continued what are called high level of growth in R&D expenditure around the 40% mark and some 20% plus on S&D expenditure and the competitive gross margin also in the fourth quarter. So, in resi, no big swings in the fourth quarter at constant exchange rates.

Thank you. Karsten. Thanks for the question, Michael. And this concludes the Q&A session. Thank you for participating and please feel free to contact Investor Relations in case you have any follow-up questions. Before we close the call, I would like to hand over to you, Lars, for any final remarks.

Yeah. Thank you, Daniel. I would like to thank you all for participating today. I hope it's clear from our comments that we are very pleased with the strong momentum we have in our business also underlined with the raised guidance for 2023, and many questions on the coming years, not least the coming year, but we are really focused on fostering innovation based growth strategy and I feel confident in our ability to scale supply to support that. We're really excited about FLOW, underlining the attractiveness of semaglutide and we are equally excited that we soon can disclose what SELECT has to show at the upcoming conference at AHA in a matter of a few days. So thank you all. We appreciate your time today. And with that, we'll close the call. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.