Novo Nordisk A/S (NVO) Q4 2019 Results - Earnings Call
Novo Nordisk A/S (NYSE:NVO) Q4 2019 Earnings Conference Call February 5, 2020 7:00 AM ET
Company Participants
Lars Fruergaard Jørgensen - CEO
Mads Krogsgaard Thomsen - Chief Science Officer
Karsten Munk Knudsen - CFO
Camilla Sylvest - EVP and Head, Commercial Strategy and Corporate Affairs
Maziar Doustdar - EVP, Head of International Operations
Conference Call Participants
Richard Vosser - JPMorgan
Peter Verdult - Citi
Wimal Kapadia - Bernstein
Trung Huynh - Credit Suisse
Mark Purcell - Morgan Stanley
Sachin Jain - Bank of America
Seamus Fernandez - Guggenheim Securities
Michael Novod - Nordea Markets
Michael Leuchten - UBS
Carsten Madsen - SEB
Simon Baker - Redburn
Operator
Hello and welcome to the Q4 2019 Novo Nordisk A/S Earnings Conference Call. Throughout the call, all participants will be in listen-only mode, and afterwards there’ll be question-and-answer session.
Today, I’m pleased to present Lars Fruergaard Jørgensen, CEO. Please go ahead with your meeting.
Lars Fruergaard Jørgensen
Thank you. Welcome to today's Novo Nordisk conference call regarding our performance in 2019 and our financial outlook for 2020. I'm Lars Fruergaard Jørgensen, the CEO of Novo Nordisk. With me I have our Chief Financial Officer, Karsten Munk Knudsen; and our Chief Science Officer, Mads Krogsgaard Thomsen. Also present and available for Q&A sessions are Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; and Executive Vice President and Head of International Relations, Mike Doustdar; as well as our Investor Relations officers.
Today's earnings release and the slides for this call will be available on our website novonordisk.com. The call is scheduled to last for one hour. The presentation is structured as outlined on Slide 2. Please note, all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 20 minutes. Please note that this conference call is being webcasted live and a recording will be made available at Novo Nordisk website.
Please turn to Slide 3. As always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risk and uncertainty that could cause actual results to differ materially from expectations. For further information on the risk factors, please see the earnings release and the slides prepared for this presentation.
Please turn to the next slide. At the Capital Markets Day in November 2019, we introduced our strategic aspirations for 2025. These included four dimensions; purpose and sustainability, innovation and therapeutic focus, commercial execution, and financials.
In 2019, we have expanded our patient reach through new product launches and securing access for patients, as well as expanding our access to insulin commitment. We further launched our environmental strategy, Circular for Zero, with the ambition for zero CO2 emissions from operations and transportations by 2030.
Much is worth mentioning from the past year in regard to regulatory and clinical updates and I just want to highlight a couple of key recent events. In January 2020, the U.S. Food and Drug Administration approved the cardiovascular risk reduction indication for Ozempic and additional cardiovascular safety data was included in the label of Rybelsus. We furthermore received CHMP endorsement of Rybelsus in the EU. In addition, we have completed the Phase 2 trial for insulin icodec formerly known as LAI287 which Mads later will come back to for key results and next steps.
Turning to commercial execution. Diabetes sales increased by 4% driven by a 0.8 percentage point increase in our global diabetes value market leadership and the GLP-1 sales growth of 22%, reflecting the solid Ozempic launch. Obesity sales increased by 42% driven by the continued commercial efforts behind Saxenda while Biopharm sales increased by 4% supported by the broad product portfolio.
Total sales increased by 9% in Danish kroner and by 6% at constant exchange rates supported by international operations and North America operations going by 11% and 1% respectively. The sales growth is reflected in operating profit which increased by 6% at constant exchange rates and by 9% in Danish kroner totaling DKK52.5 billion.
At the general meeting, the Board of Directors will propose a final dividend for 2019 of DKK5.35 per share in addition to the DKK3 per share paid as interim dividend in August 2019, totaling an expected dividend for 2019 of DKK8.35.
Please turn to Slide 5. International operations increased sales by 11% which was supported by growth across all regions and across all therapies. International operations have succeeded with the Market Fit approach, with utilization of the broad portfolio of innovative products and sales were further supported by the underlying demographic trends.
Furthermore, Novo Nordisk did not experience any significant negative impacts on business conditions in 2019 which is an inherent risk especially in international operations. North America operations increased by 1% driven by the GLP-1, Obesity Care and Biopharm segments growing 19%, 28% and 2% respectively while insulin sales declined by 16%.
Please turn to Slide 6. When considering the 6% sales growth from a therapy perspective, we see similar trends seen throughout 2019. All therapy areas in both operational units contribute to growth except for insulin sales in the U.S. Global insulin sales declined by 3% due to a 17% sales decline in the U.S.
The U.S. sales decline is driven by lower realized prices due to higher rebate across the insulin portfolio, the increased coverage gap exposure and inventory reductions in the first quarter of 2019.
The decline was partly offset by a 7% increase in international operations where all insulin categories except for human insulin contributed to growth. GLP-1 sales increased by 22% driven by 19% sales growth in North America operations supported by the strong uptake of Ozempic, and 32% sales growth in international operations.
The growth of the GLP-1 segment as well as Novo Nordisk increased instrument volume market share are the key drivers of Novo Nordisk expanding its global diabetes value market leadership by 0.8 percentage point to 28.6%.
Obesity care grew by 42% with both operating units contributing to growth driven by promotion activities and continued global rollout of Saxenda. Biopharma sales increased by 4 percent driven by 5% and 2% percent growth in international relations and North America operations respectively.
Please turn to Slide 7. In the U.S., the GLP-1 market continues to grow more than 30% in volume driven by once weekly GLP-1 products. With the uptake of Ozempic and launch of Rybelsus, Novo Nordisk has a new-to-brand market leadership of 57% and our GLP-1 market leaders measured on total monthly prescriptions with a 47% market share.
Total GLP-1 sales in the U.S. grew by 18% primarily driven by the continued uptake of Ozempic and initial Rybelsus sales reflecting pipeline filling partly offset by declining Victoza sales. Victoza sales were negatively impacted by changes in the payer and channel mix, and the increased coverage cap exposure impacting average realized prices. Victoza sales were in addition negatively impacted by the growth of the once weekly GLP-1 product class.
Please turn to Slide 8. The GLP-1 segment’s value share of the total diabetes market has now increased to 18% up from 14% 12 months ago. It is a trend seen in both operational units and Novo Nordisk is a global market leader with a market share of 47.5%.
The global rollout of Ozempic continues and it has now been launched in 26 countries. Ozempic has been launched in 22 European countries and is up to a solid start with strong uptick in launched markets.
Novo Nordisk has stabilized its market share around 60% while our share of growth is steadily increasing and is currently more than 61% in markets where Ozempic has been launched. GLP-1 sales are growing across all regions, and in international operations, the GLP-1 share of growth is now 35%.
Please turn to Slide 9. Obesity care sales increased by 42% driven equally by North American operations and international operations, reflecting continued uptake in region AAMEO and region LatAm and supporting the growth trend seen since the launch of Saxenda. We are committed to driving change in Obesity care and have now launched Saxenda in 46 countries globally.
Please turn to Slide 10. Biopharm sales grew by 4% in 2019 driven by 5% sales growth in the international operations and by 2% sales growth in North America operations as well as growth across both hemophilia and growth disorders. The 4% hemophilia sales growth was supported by the continued rollout of the portfolio of innovative products with Refixia and Esperoct, as well as stable NovoSeven sales and the solid uptake of NovoEight.
With this, over to Mads for an update on R&D.
Mads Krogsgaard Thomsen
Thank you, Lars.
Please turn to Slide 11. In January, the U.S. FDA approved an Ozempic label expansion to include its use in reducing the risk of major adverse cardiovascular events so-called MACE including cardiovascular death, nonfatal heart attacks, nonfatal strokes in adults with type 2 diabetes and established cardiovascular disease.
The approval was based on the SUSTAIN 6 cardiovascular outcomes trial in which Ozempic reduced the MACE risk by 26% versus placebo, in both cases as addition to standard of care in people with type 2 diabetes and increased cardiovascular risk.
The FDA also updated the Rybelsus label to include additional information from the PIONEER 6 outcomes trial in which Rybelsus demonstrated CV safety with MACE occurring in 3.8% of people on Rybelsus versus 4.8% on placebo treatment.
Last week, the European regulatory authority, CHMP, issued a positive opinion for Rybelsus the first all oral biological treatment for adults with insufficiently controlled type 2 diabetes. The recommendation is for Rybelsus to be indicated as monotherapy when metformin is considered inappropriate as well as in combination with other type 2 diabetes medications.
The approval to be endorsed by the EU Commission within the next couple of months reflects the significant metabolic improvements observed against all active competitors as well as the detailed cardiovascular outcomes data from the PIONEER 6 study. The regulatory process leading to the CHMP opinion took only nine months, the shortest time for an oral anti-diabetic agent in EU throughout a decade or more.
Please turn to Slide 12. In January 2020, we competed the key Phase 2 trial with insulin icodec formerly LAI287, the first basal insulin intended for once weekly treatment. The 26 weeks trial included around 250 insulin naïve people with type 2 diabetes and investigated the efficacy and safety of once weekly insulin icodec versus once daily insulin glargine U100.
The primary endpoint was HbA1c reduction from baseline to week 26 where reductions are 1.33 and 1.15 percentage points were observed for insulin icodec and insulin glargine U100 respectively. The HbA1c reduction was numerically 0.2% greater for icodec but did not achieve statistical significance in this small study.
Observed hypoglycemic events were low in rate and did not differ significantly between the treatment arms. Finally, insulin icodec appear to have a safe and well tolerated profile. Based on these positive Phase 2 results that will be presented at a major conference later this year, we expect to initiate the Phase 3 clinical trial program in the second half of 2020. The program will be designed and powered to identify both clinical and convenience related benefits.
In December 2019, we completed the phase 1 trial with icosema, formerly known as LAISema, the once weekly fixed ratio combination of insulin icodec and semaglutide. The trial investigated the safety, tolerability and pharmacokinetics of a single dose of icosema compared to a single dose of the mono components in people with type 2 diabetes. The next steps for icosema development will be discussed with the regulatory experts in the near future.
Please turn to Slide 13. In addition to the pipeline updates on Ozempic, Rybelsus and icodec, we’ve expanded our clinical biopharm pipeline by initiating a phase 1/2 trial with Mim8, our next-generation Factor VIII mimetic antibody for subcutaneous prophylactic treatment of hemophilia A regardless of inhibitor status.
The trial consists of two parts, the first being a single dose phase 1 randomized, double-blinded, placebo-controlled investigation in healthy people. The second part is a Phase 2 dose range finding multinational investigation in people with hemophilia A. In the coming quarter, we expect to file Ozempic in China and Sompacitan in Japan for the adult growth immune deficiency indication.
We furthermore expect to initiate a Phase 1 trial with once a week in semaglutide, combined with once a week GLP analogue seeking to define the optimal insulin ratio for further development in a fixed ratio combo product. In addition, we're looking forward to the expected results from the pivotal Phase 3 program STEP with semaglutide in obesity. Phase 2 results for the once weekly Amylin analogue AM833, as well as the Phase 2 results for some semaglutide in NASH expected during the first half of this year.
With this, over to Karsten for an update on the financial results.
Karsten Munk Knudsen
Thank you, Mads.
Please turn to Slide 14 where you will see the financial results for the full year 2019. Sales increased by 9% in Danish kroner and by 6% at constant exchange rates DKK222 billion. The gross margin for 2019 is around 0.7 percentage point lower than 2018 at 83.5%, which is primarily driven by lower realized prices in the USA and impairment of intangible assets, partly countered by positive product mix and positive currency impact.
Sales and distribution cost increased by 6%, reflecting the continued investment in growth markets in international operations, as well as promotional activities for the Global GLP-1 and obesity products, with focused efforts on the launch of Rybelsus in the USA. Research and development cost declined 6%, driven by impairment of intangible assets, offset by the reversal of write-downs on prelaunch inventory for oral semaglutide. The underlying increase in R&D cost is driven by the many large Phase 3 trials with the semaglutide molecule in different indications.
Administrative costs increased by 1%. All in all, the sales growth of 6% at constant exchange rates has resulted in an operating profit growth of 6%. In reported numbers, operating profit increased by 11% to DKK52.5 billion.
The cost of currency impact on profit is countered by a loss of DKK3.9 billion on net financial items driven by losses on foreign exchange hedging contracts primarily relating to the U.S. dollar. Diluted earnings per share increased by 3% to DKK16.38.
Please turn to Slide 15. During the coming 12 months, we expect to execute a new share repurchase program for 2020 of up to DKK17 billion. The proposed total dividend for 2019 increases 2.5% to DKK8.35, which includes the interim dividend of DKK3 paid in August 2019.
In connection with our capital markets day in November 2019, we communicated an expectation of meeting our long-term financial targets by the end of 2019. With the performance in 2019, we have met our long-term financial targets of average profit growth of 5%, cash flow earnings of 85% as a three-year average, and operating profit after tax or net operating assets of 80%. In their place, we have introduced our new strategic aspirations for 2025, which Lars will get back to a little later.
Please turn to next slide. For the 2020 outlook, sales growth is expected to be between 3% and 6% at constant exchange rates, with an expected 1 percentage point positive currency impact. The guidance reflects expectations for a robust performance for the Type 1 Diabetes and Obesity care products, as well as the positive contributions from the new generation insulin portfolio and key Biopharm products.
The guidance also reflects intensified competition within Diabetes care and Biopharm and continued pricing pressure within Diabetes care as well as expansion of affordability initiatives especially in the U.S.
Operating profit growth is expected to be 1% to 5% at constant exchange rates with an expected 1 percentage point positive currency impact. The guidance primarily reflects the sales growth outlook, continued focus on resource allocation, and continued significant investments in the GLP-1 and Obesity franchises with the launch of Rybelsus global promotion and launch of Ozempic and efforts in building the anti-obesity markets.
Financial items is expected to be a loss of around DKK1.5 billion, primarily related to losses associated with foreign exchange hedging contracts, mainly related to the U.S. dollar and the Chinese yuan. We expect a free cash flow of between DKK36 billion and DKK41 billion in 2020.
With this, back to you, Lars, for closing remarks.
Lars Fruergaard Jørgensen
Thank you, Karsten.
Please turn to Slide 17. We are very satisfied with the financial performance in 2019. The results reflects an accelerated sales growth in international relations and a strong launch Ozempic in particular in the U.S. and within Europe.
The Rybelsus launch in the U.S. is off to a good start, and we are pleased with the CV label indication for Ozempic in the USA and a U.S. recommendation to approve Rybelsus, all to the benefit of our patients. As mentioned, we'll use our strategic aspiration to provide the direction for our company's performance as a sustainable business. Some additional important steps towards achieving our aspirations are outlined on this slide.
Mads covered most of our new innovation priorities for 2020, Karsten presented the financials for 2020. And earlier I went through the commercial performance with expansion of our diabetes value market leadership, continued growth in obesity and the resilient biopharm business. This is all in line with our strategic aspirations.
Worth mentioning are also our efforts within sustainability. In January 2020, we expanded our affordability offerings in the USA and we have signed an agreement for solar energy coring all power consumption across the U.S. operations effective as of 2020.
We are now ready for the Q&A. We kindly ask you to limit yourself to two questions. Operator, we are now ready to take the first questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first questions we have is from the line of Richard Vosser from JPMorgan. Please go ahead.
Richard Vosser
Richard Vosser of JPMorgan. So first question just on three products: Tresiba, Xultophy and Victoza. They all look like they had some incremental rebates maybe in Q4. Maybe you could explain the dynamic there and how we should think about those products and rebates price pressure going forward? And then second the question on LAI287 icodec?
Just how are you seeing this sort of profile in terms of PK relative to Tresiba and Lantus is it the smoothest as Tresiba and maybe you could talk about the changes to the routine. I think you hinted at convenience but things like the number of finger sticks that are needed with the product and obviously the dose goes down to once a week, so just the thoughts there please? Thanks very much.
Lars Fruergaard Jørgensen
Yes thank you, Richard, Karsten first on our Q4 rebating for Tresiba, Xultophy, Victoza.
Karsten Munk Knudsen
Yes so thank you for that question. For Tresiba, Xultophy and Victoza when we look at the in-market volume performs and market share performance, what we're seeing in Q4 is a continuation of the trends we've seen in previous quarter. So there are no significant changes in trends on the volume side. Then that also means that anything you see in Q4 is basically a quarterly fluctuation and since we have not called out rebate through ups adjustments that means that that's not a big explanatory factor.
So you should see the quarterly performance of Tresiba, Xultophy and Victoza as the continuation of what we've seen in prior quarters and then there is a quarterly fluctuation but there is nothing on the underlying either volume or pricing trends you should adjust based on Q4.
Lars Fruergaard Jørgensen
Thank you, Karsten and Mads on the icodec former LAI.
Mads Krogsgaard Thomsen
Yes, well Richard vis-à-vis how icodec achieves its very smooth profile it hinges upon the enhanced albumin binding in the circulation. So, it's a circulating depot of the insulin analog that is then balanced up against the affinity towards the insulin receptor and that gives this one week half-life and hence very smooth action, if you compare the action profile vis-à-vis the distribution to over the 24 hours of the day and night cycle.
It is more reminiscent of that which we know from insulin degludec than from insulin glargine, which is also why we believe it can have a compelling profile in the Phase 3 trials that we intend to start in the fourth quarter. You also hinted at the ease or the burden of treating yourself on a daily basis. Typically, you do start the morning with a finger prick and a fasting blood glucose measurement to adjust your insulin dose if you're on placebo or Lantus for instance.
Whereas here it would only be called for once upon a week rather than seven times a week and that also of course, has some health economic consequences on top of the potential clinical differentiation that we will seek to define for this product in Phase 3.
Operator
The next question is from Peter Verdult from Citi. Please go ahead.
Peter Verdult
Thank you. Peter Verdult, Citi. Two questions please, Rybelsus and innovation. Lars, just the latest on your thoughts regarding the timing of the full launch in the U.S. and if we quickly switch over to Europe I realize we are awaiting EMR approval. But any early feedback you can give from EU countries regarding Rybelsus reimbursement given the price disparity versus other ads, that would be helpful.
And then secondly, Mads, just on innovation. Can you confirm whether you have or have not seen the [Elan] data yet or do that in-house? And then with respect to the PYY analog that you're moving forward, can you talk a little more as much as you can on the clinical profile that you’re seeing thus far in both monotherapy and combination settings? Thank you.
Lars Fruergaard Jørgensen
So Pete, thank you for those three questions. So, you probably get a very short answer in one of them. I’ll start out with Rybelsus access. So, we have approximately 30% combined access so across commercial and Part D in the U.S. so which corresponds to some 75 million patients. And we will - we have trained our sales force and now, we are at a time where we can go into strike mode as we built sufficient access per territory.
We’ll not give specific guidance, and I trust you understand that folk there’s a reasons, that’s not really in our favor to do that. But we feel very comfortable about both building the access in the U.S. and deploying the sales force into strike mode at a time where it gives sense and remind that in the meantime, they are productive on Ozempic. We have positive opinion in Europe, which is obviously good for later approval.
But we’ll not get into specifics about when we’ll launch in Europe. In general, we feel good excitement around the profile of the product which caters well for the price negotiations, but I think it's too early to be specific on that. And then Mads, a very short answer on the Elan data and then maybe a bit more granularity of PYY.
Mads Krogsgaard Thomsen
Yes so, it is actually Dr. Paul Edison who’s at the Hammersmith Hospital associated with Imperial College in London who is of course, the investigator in this investigator-initiated study. It is true that this is supported by the U.K. Alzheimer's Society and by Novo Nordisk in terms of making it possible financially and with respect to the medicines, but we will not have those data in our hands and I don't think that the data are available at this point.
It is Dr. Edison who is responsible for the trial. But we hope to get to know some of these data within let's say the next couple of months. That's the best guesstimate I have. Vis-à-vis the PYY, we have terminated one of the compounds for the sheer reason that the half life did not fully support a once weekly administration of the product unlike the other one, the one that I call 1875, which is true once weekly profile and that will now be investigated in more extensive studies. This so far has only actually for that compound been on a single-dose basis.
Operator
The next question we have is from Wimal Kapadia from Bernstein. Please go ahead, sir.
Wimal Kapadia
Wimal Kapadia from Bernstein. So, back in 2018 early 2018, you commented that Ozempic would achieve sales of at least DKK1 billion in its first full year. Are you able to give us any similar thoughts of Rybelsus in its first full year of launch given the size of copay program is significantly larger any color would be great. And then, just secondly, on the weekly insulin, could you talk a little bit more about which populations you expect to see greatest use?
I ask because if the hypo profile is similar, why wouldn't a product get widespread use? And then, tied to this, could you give us any color on the weight gain versus Lantus and does the hypo comparability with Lantus suggest a higher rate than placebo? Thank you very much.
Lars Fruergaard Jørgensen
So, thank you, Wimal. I have to let you down on the guidance for sales on Rybelsus. So, we feel as I mentioned before confident in building the access but we don't want to put our self under pressure here. It's important to learn the right level of access. And in the meantime we have very strong momentum behind Ozempic. So, building the right access is what determines say the medium and longer term success of the product. So it’s in that perspective it's not meaningful to guide for the first year Mads, back to weekly insulin.
Mads Krogsgaard Thomsen
Yes so, Wimal, it is absolutely correct that if the insulin icodec profile being given with a smooth action profile on a once weekly basis that should on the one hand basically cater to a population of early insulin adopters. We have today the situation where the need for a once daily finger pricking and insulin injection and frequent titration changes does mean that in many, many countries insulin is not being used in insulin-naïve patients until the HbA1C levels are clearly above 8%
And many countries even about 9% before they adopt insulinization. So, this is the ability to go early into the treatment cascade where people actually should be treated with insulin in type 2 diabetes. And obviously, if the profile also caters for type 1 diabetes, we know from previous experience with the insulin degludec which we tried to use three times weekly that actually - there is a unit type 1 diabetes to a fewer injections.
So the burden and the hassle of the frequent injections is for sure there. Of course, if the hypoglycemia profile that we can define in Phase 3 ends up to be more Tresiba-like, then it's through the clinical differentiated in terms of hypo risk profile. If it ends up to be more glargine-like, then the major differentiation is of course the burden of the treatment and so on.
But what we know today and we are continuing to explore throughout the rest of the Phase 2 is that the profile seems to have a very smooth and a very low variability - intrapatient variability profile. So we will actually see to make the Phase 3 trials power in such a way that we are able to define clinical benefits.
Operator
The next question we have is from Trung Huynh from Credit Suisse. Please go ahead.
Trung Huynh
Two if I may. First one, for 4Q we saw a slight step-up in COGS versus the rest of the year. At the CMD, you noted gross margin would be broadly flat despite the negative Rybelsus impact. Are you still confident you can keep gross margins broadly flat for 2020?
And then just on NovoSeven, throughout the year you can see it’s a bit lumpy, but the overall trend was flat for the year. Have you had any thoughts - have your changed about the trend for that product? Thanks very much.
Lars Fruergaard Jørgensen
Thank you, Trung. Karsten on Q4 COGS.
Karsten Munk Knudsen
Yes. So, you're right that our cost of goods is up some 12% in local currencies. But when you look at it, then we still have a gross margin of 83.2% in the quarter, so still an attractive gross margin and not too far away from our full year gross margin. And our guidance for 2020 includes a flat gross margin in our guidance.
So in that sense, we're confirming what we've said before, there’s one piece to note around, that is, that, of course, we had impairments in the third quarter of this year, negatively impacting our gross margin in 2019. So, that, of course, benefits the base, if you will, for our 2020 guidance, which is impacted by Rybelsus but net-net, our gross margin is flat between 2019 and 2020.
Lars Fruergaard Jørgensen
Thank you, Karsten. And on NovoSeven, years back we guided that we would expect to lose maybe potentially 50% of the business. Consistently, we've seen since the launch of Hemlibra that that erosion is slower than what we had expected. And potentially also, NovoSeven has important use as vascular treatment. So we still expand as Hemlibra goes into more and more territories that there will be an impact, but it's a slower trend than what we've seen before and I don't think Q4 has any particular change in that regard.
Thank you, Trung. Next set of questions, please.
Operator
The next question is from Mark Purcell from Morgan Stanley. Please go ahead, sir.
Mark Purcell
First on North America, secondly on an Alzheimer's. In terms of North America, I was hoping you could provide more granularity around your guidance in the Capital Markets Day of flattish or so, 2% growth for 2020 and 2021, broken down by the headline or the headwind component parts. So clearly, you've given us an idea in terms of the impact from donut hole, both on a group sales, U.S. sales, as well as group EBIT. But could you help us get a flavor or feel for the estimate you feel comes from the incentive for all those initiatives in terms of how much of a drag this has on U.S. growth in 2020 and 2021? And then how much of a drag you're putting into your planning assumptions when it comes to interchangeable biosimilar instance launching in 2021?
And then secondly on Alzheimer's, I mean clearly, patient registry studies and clinical trial met analyses have supported pro-cognitive benefits of diabetes drugs and diabetic patients with Alzheimer's disease. However, there's no evidence of a pro-cognitive benefit in non-diabetic Alzheimer's patients and if [indiscernible] trial failed in this respect, having shown a very strong sickle in diabetic patients.
So, I'm just wondering if you can help us understand against the positive regulatory backdrop of Alzheimer’s clinical trials and seemingly registration. What signal would you have to see on secondary cognitive endpoints to move semaglutide into a 2.0 type study just thinking about what the sort of smart risk signal would have to be, and wouldn’t a smarter risk be to run a pivotal trial in patients with impaired glucose tolerance or pre-diabetes where the use of diabetic agents presumably could reduce through a blood glucose induced inflammation which could increase the pathogenesis within an Alzheimer's disease frame?. So, any clarification there would be great.
Lars Fruergaard Jørgensen
Thank you, Mark, for those elaborate questions. Karsten, if you start out on the North American guidance for 2020 and potentially high level 2021 to the degree we can on the different aspects and then Mads can follow-up on the Alzheimer’s question.
Karsten Munk Knudsen
Yes. Thanks, Mark, for the question. So, the guidance we put out today for 2020 is fully in line with what we communicated at the Capital Markets Day when we talk to an IO sales growth in the range of 6% to 10% and then a flattish U.S. sales growth for 2021, so 0% to 2%.So, there are no changes to our current communication there.
The growth rate in the U.S. and when we look at flat sales growth in 2019 and then moving in 2020, just to give you the key building blocks, then in 2019 we have a negative impact of some DKK2 billion linked to the donut hole legislation.
Then moving into 2020, the donut hole legislation has an incremental impact of DKK1 billion but on top of that, we have affordability initiatives that we've been communicating around and have launched here early January. If you take those two combined, then the 2020 impact is similar to the DKK2 billion impact we had in 2019 on donut hole.
Then, on the positive note, then we see very solid GLP-1 momentum in the U.S., so the market is growing around 30%. We are taking share, and we are at the early stages of Rybelsus launch. So, that's, of course, positive factors. Those factors are then being weighed down by a continued insulin pricing pressure. So, a continuation of declining average realized prices for insulin.
And to your question as to interchangeable influence and impact from that, then our substances that are given that we are seeing additional loses in the U.S. marketplace, then we would see a continuation of a decline in average realized insulin prices both in 2020 but also into 2021.
Lars Fruergaard Jørgensen
And then over to the Alzheimer discussion, a couple of things we should really bear in mind. As you correctly state, it is absolutely the case that most of the registered studies and things you can read in the academic literature are based on use of anti-diabetic medications in people with diabetes and cognitive problems and/or dementia.
Of course, we should remind ourselves that the LEAD study is actually not a diabetes dementia study, that is a true Alzheimer's study in patients with an MMSE score of above 20, so mild Alzheimer's, early stage Alzheimer's. So, it will be interesting to follow the readout of that in the next couple of months I believe.
When it comes to the role of glucose metabolism in the brain and the evolution of Alzheimer's or dementia it may well be that the glucose metabolic molecules, i.e., a decrease in glucose metabolism in the brain with increasing dementia whether it's causative or is an epiphenomenon, we do not know for sure but it may be independent of whether or not you have diabetes.
And also aware the notion that [indiscernible] had a positive read out in Phase 2 and as many other Alzheimer's trials, failed miserably later on. And that unfortunately has been the destiny of basically all Alzheimer compounds to-date.
So, it's critically important that we evaluate all available evidence from academic and other studies including registry start and whatever data exists if and when we make a decision to progress. But then again, the unmet need is of such a magnitude that if there is a role for GLP-1 to play in this serious disease, then of course, it would be relevant to use the best in GLP-1 analogs available for that problem.
Operator
The next question is from Sachin Jain from Bank of America. Please go ahead, sir.
Sachin Jain
Just two quick ones please. Firstly, on Rybelsus scripts, I know it’s early days, but can you give us any flavor of source of those patients where it’s existing injectables, orals, or just through expansion in the market.
Second question is on NASH heading into a Phase 2, both mono and combination data. Mads, you've given some benchmarks on obesity of around the 20% weight loss as a bench. I wondered if you could just frame the upcoming NASH data similarly as to what you're looking for as a benchmark to progress on both the MRI endpoint and then the NASH resolution, and whether you would take a Phase 3 decision based on just the mono or you would wait for both mono and combo data? Thank you.
Lars Fruergaard Jørgensen
Thank you, Sachin. And Camilla first on the Rybelsus source of business. Camilla first on Rybelsus sort of business.
Camilla Sylvest
Yes. So what we see with Rybelsus is that the primary number of this are coming from patients that are not previously on injectable medication. So that means to the tune of between 70% and 80% of the patients sourcing a source from either the naive patients, metformin patients, SGLT-2, so DPP-4.
So that is a relatively big change compared to what we saw with Ozempic by the time of launch where was exactly the opposite initially. So that confirms the expected positioning of Rybelsus in the market so far, but it's still of course early days.
Lars Fruergaard Jørgensen
Thank you, Camilla. Mads on NASH Phase 2 data and kind of benchmark what to measure against.
Camilla Sylvest
Yes. So of course, we do not have the data at this point in time they're coming kind of late Q2-ish. And what we know from the original study using Victoza the lean study is that there was an apparent NASH resolution in a single center study in 39% of patients versus 9% on placebos. That was actually a NASH resolution without aggravation of fibrosis in with a difference between the groups of 30%.
That would be a very bold target for any product because I think when you have followed all the other late-stage compounds in the NASH pipeline, one typically sees delta values differences to placebo to the tune of 10% or maximum 20%.
But we do have reason to believe that when you exceed a body weight loss of more than 10%, there are very eloquent studies in the literature that show that this is associated both with the NASH resolution in a significant portion but also regression of fibrosis.
So it all depends on the degree of weight loss and potential other factors such as anti-inflammatory that can be seen. And we will not give you a target for what will make us going to Phase 3. This is something that management will actually look at in the months that leads up to the evolution of the Phase 2 data. That's the standard principle for the way we govern our pipeline.
Operator
The next question we have is Seamus Fernandez from Guggenheim Securities. Please go ahead, sir.
Seamus Fernandez
So, just hoping to get a better understanding of a little of the direction of the insulin market overall. Can you just help us understand the competitive landscape and how that's evolving overseas versus where pricing and volume is headed in the U.S.? We're seeing some interesting dynamics particularly also in the Medicaid portion of the market. So, I'm just hoping you guys could give us a little bit of an update there directionally going forward and what the pushes and pulls are for the guidance in 2020.
And then separately for Mads, I fully understand the need to continue to pursue the Alzheimer's possibility but I think we'd all appreciate understanding a little bit better what the threshold would be to move forward into clinical studies on the basis of this very small study. I think we’ve seen with aducanumab a threshold so far that is a differential of about 0.4 and on the CDR sum of boxes. Just trying to get a better understanding of what it is that would drive Novo Nordisk to move forward pursuing this very speculative GLP-1 thesis. Thanks so much for the questions.
Lars Fruergaard Jørgensen
So, thank you. First on insulin, it will be a relative generic question. If you look at the insulin growth of the market, that has come down somewhat because we see the GLP-1s growing by 30%. So, there isn't one modification alternative to insulin. So the growth of the market has come down.
And then in the U.S., you have a situation where there's a number of products competing against each other. So for 2020, we see an overall unchanged competitive situation where there's an opportunity for buyers to play out the companies against each other and that leads to a continued erosion of value of the market.
Then, you have some coming in trying to capture the Medicaid market, and we see there's a play in price there. It doesn't change from a financial point of view a whole lot because that's a segment that is close to 100% rebated.
So it's - if anything is actually increasing average pricing that you are not active that so, that's not a big concern in terms of losing volume in that. So, we lose actually share in that category while we gain volume with our innovative product Tresiba.
Mads, back to Alzheimer’s.
Mads Krogsgaard Thomsen
Yes. So, first of all, we will look at the totality of evidence together with the experts in the field, and by totality of evidence I mean that [indiscernible] per se, to the best of my knowledge and insight, you can rely mostly on the primary endpoint which is the FTT PET scan measuring glucose metabolism evolution over one year treatment with either placebo or Victoza. And that is the major readout for that because I think the cognitive measures in the amount of patients and the duration of treatment might be too subtle to expect too much there.
But there, we will have to rely on other big you can say patient numbers, such as the ones that you can pick up by cross-coupling various personal registries, disease registries of Alzheimer's and so on, and looking at what happens in people who are treated in a propensity score or match cohort set up against each other and look at the onset of diagnosis of dementia.
Similarly looking into insurance claims databases, for instance in the U.S., and see what can come out of that. And if the totality of evidence in agreement with regulators is in favor of going towards Phase 3 trial activities, that could then either be looking into mild cognitive impairment and following the functional outcomes of these patients over time, a year or two years maybe, or it could be looking into mild dementia, i.e., pure play Alzheimer's.
But even that decision would change upon some of the analysis that we will hopefully be doing over the months to come. But I have to repeat that we do not know the ELAT data and of course, they are not the single determining factor but they do play a role in making up their minds on potential further progress.
Lars Fruergaard Jørgensen
Thank you, Mads. Thank you, Seamus. And just to remind you that we have also Mike Doustdar, here the very successful leader of our international operations, growing 11%, so there might be some questions to him. Next question, please.
Operator
The next question is from Michael Novod from Nordea Markets. Please go ahead.
Michael Novod
It’s Michael from Nordea and good morning. Two questions probably also one for Mike. So on Japan, maybe you could share some of the details of the MSD agreement and the dynamics you expect from Rybelsus in Japan in second half of 2020 and basically going into 2021? And then secondly on Rybelsus access in the U.S., it looks like that it's actually on par or beating the trend for access for Ozempic. So, should we expect this to be sort of, say, reflective of also the coming six to nine months in terms of tracking Ozempic access in the U.S. with regards to Rybelsus? Thanks a lot.
Lars Fruergaard Jørgensen
Thank you, Michael. Mike, on Japan and our partnership.
Maziar Doustdar
Yes. So Japan I think is the second largest single-country opportunity for us in Rybelsus if we can get it right after U.S. It's predominantly an oral market as you know. Injectables are only I think 14% of the market. So of course, we are very excited about the introduction of Rybelsus there.
In order to do a good job with that molecule, we need to of course have a very good coverage of general practitioners, which we do not have in Japan. And that has led us to trying and finding the best partner that actually has such a good coverage and MSD, Merck was chosen after a thorough process as they've done phenomenally well with the JANUVIA franchise in that market.
I cannot get into of course the details of the contract, but what we will be doing is we're working already jointly to bringing the product into the market post-registration, and then cold marketing it, while they will predominantly focus on coverage in the PCP and the GP areas. We will continue with what we know best covering the end dose and continue with that partnership.
Karsten Munk Knudsen
Thank you, Mike. And on Rybelsus access in the U.S. we are encouraged both by the level of access we have been able to sign contracts on, but also on the script uptakes. But I think it’s going too far to interpretate between Ozempic and Rybelsus whether the access we have at given point of time is a proxy for a different level of access because it comes a bit in clumps of volumes. So, I think that's - I wouldn't comment on that, but we are encouraged by what we see and the interest in the product.
Operator
The next question we have is from Michael Leuchten from UBS. Please go ahead, sir.
Michael Leuchten
Michael Leuchten from UBS. One question for Mike. Obviously, China may or may not see a level of disruption given the coronavirus. Just in your mind, sort of what is the risk to your infrastructure, your ability to perform business there if any? And then a question for Karsten. When I look at your guidance range at the top line and the EBIT, so there are two ways to interpret that. One way would be to say there’s going to be margin pressure regardless or there’s a way to look at it and say no, there is actually a scenario where the margin could go up. So, the intent of your guidance range on the EBIT, does it mean it's pure and simple in investment here and we should not expect a potential margin uplift even if it's small?
Karsten Munk Knudsen
Thank you, Michael. First, on coronavirus in China and how that could impact our infrastructure.
Maziar Doustdar
Yes. So, Michael, as you have heard from Lars, the 2020 guidance does not include any significant financial impact from the coronavirus. I think it is premature to conclude that our financial number right now given that both timing of it's still early and the uncertainty around the situation. Right now, the main priority is to protect the health of our employees and the public. We have agreed to extend the vacation period post-Chinese New Year by an additional week. So, until next Monday actually we are working from home and not visiting the physicians under the hospitals.
The situation on the ground is a little bit different than usual. Hospitals are geared on trying to solve the coronavirus and chronic disease treatment has become priority number two right now. We have to see how long this situation continues before we can put some impact on it.
In terms of manufacturing and supply chain, we right now feel comfortable that we can continue doing that again as soon as this extra week of vacation is over. So for the time being, it's business as usual but we're watching it very carefully as it can change quite a bit.
Michael Leuchten
Thank you, Mike and Karsten, on guidance looking at in term - and EBIT and the spread there?
Karsten Munk Knudsen
Yes. So, Michael, it is - as you said it's pure and simple an investment year. The opportunity we have with launching Rybelsus in the U.S. and then launching Ozempic in international markets makes this a critical year to get these two products successfully off the ground in terms of commercial execution. So, we take the investment to do so. So, yes, an investment year.
Operator
The next question is from Carsten Lønborg Madsen from SEB. Please go ahead.
Carsten Madsen
Yes. Thanks a lot. Question for Mads to start off with here. Mads, just in the - just looking at the future of the GLP-1 market and trying to rank the products that will be in the market maybe say 2025 or something like that. I'm asking for us [indiscernible]. They are making a larger CVOT trial up against the Trulicity, a pretty strong drug to compare themselves against. What do you expect and what will be your defense in this? I know you're talking about high-dose Ozempic, but exactly what are the time lines for the high-dose trial with Ozempic? And also when it comes to the summertime Phase 3 obesity data, is there anything we learn from that in terms of high doses of Ozempic and type 2 diabetes?
Lars Fruergaard Jørgensen
Thank you, Carsten. Straight question for you, Mads, in terms of the landscape in GLP-1 over a couple of years perspective.
Mads Krogsgaard Thomsen
Yes. So well Carsten. First of all, it is true that the Sema FORTE trial or SUSTAIN FORTE as we call it that will read out during the second half towards the later part of this year, that is a full blown 2 milligram dose of semaglutide that are modulator based on existing data from our own obesity/diabetes trials and those of our peer group will match the best that will become available out there in the years to come in terms of other products.
But I do bear in mind that we are also progressing I hope the semaglutide, Amylin AM833 combination product that even though we talked to this as predominantly an obesity drug, there are reasons to believe that Amylin plays a role [indiscernible] today is actually a multiple times daily injection for diabetes in type 1 diabetes. So, this is a very powerful drug that in the combination might find use in principle not only in obesity, but also in type 2 diabetes and even in fatty liver disease, NASH.
And the last one we are betting on as I mentioned today is a combination of semaglutide in the optimal ratio with the once weekly human GLP-1 analog that is starting clinical trials in the quarter to come. So, I think we have a plenty of drugs to retain the leadership position vis-à-vis strong efficacy in this field also towards the middle of this decade.
Operator
Your final question is from Simon Baker from Redburn. Please go ahead sir.
Simon Baker
Thank you for taking my two questions. Firstly on Ozempic, I wondered if you could give us an update on plans for bringing in a next generation device there was always a concern that the existing device put you at a disadvantage to Trulicity but that doesn't seem to have been borne out by the performance of the drugs, so maybe just give us an update there?
And then secondly on insulin icodec, the clinical product looks extremely impressive, but given the challenges from a commercial and an economic point of view within the insulin market, I wonder if you could give us your thoughts on the potential reimbursement challenges and adoption challenges that you face in that space despite the clear differentiation that the product appears to have? Thank you.
Lars Fruergaard Jørgensen
Thank you, Simon. So on Ozempic device looking at the current performance of Ozempic I think we have concluded that we have a very, very strong device supporting the drug. So we are not investing in changing that. So we are comfortable that we can keep driving Ozempic based on what we have. In terms of the insulin icodec and reimbursement, I think it's premature to speculate around that.
We will at a conference this year share more about the data. We are encouraged by what we see, but obviously it's a readout in a large scale Phase 3 program that will determine the clinical benefits and also tease out the health economic benefit in using certain product profile, but obviously had we not believed it would be a very attractive product, we wouldn't be investing in it so we feel comfortable of that.
With that, I'd like to thank you all for you for your time today. We appreciate your interest and your questions and the discussions, and we look forward to see you around throughout the year. Thanks very much and have a good day. Bye-bye.
Operator
Thank you. Ladies and gentlemen, that concludes Q4 2019 Novo Nordisk A/S earnings conference call. Thank you all for joining. You may now disconnect your lines. Have a great morning or afternoon ahead.
