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Novo Nordisk A/S  (NYSE:NVO)
Q1 2019 Earnings Call
May. 03, 2019, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to today's Q1 2019 Novo Nordisk A/S Earnings Conference Call. At this time all participants are in a listen only mode. There will be a presentation, followed by a question and answer session. (Operator Instructions) I must advice you the conference today is being recorded on Friday the 3rd of May 2019.

Without any further delay, I would like to hand the conference over to your first speaker today, Lars Fruergaard Jorgensen. Please go ahead sir.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you very much. Welcome to this Novo Nordisk's conference call regarding our performance in the first three months of 2019 and our outlook for the year. I'm Lars Fruergaard Jorgensen, 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 the Q&A session are Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; and Executive Vice President and Head of International Operations, Mike Doustdar. Present are also our Investor Relations Officers.

Today's earnings release and the slides for this call are available on our website novonordisk.com. The conference call is scheduled to last one hour. As usual, we'll start with the presentation as outlined on Slide 2. The Q&A session will begin in about 25 minutes. Please note that this conference call is being webcasted live and a recording will be made available on Novo Nordisk's 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 uncertainties, 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 Slide 4. In the first 3 months of 2019, sales increased 9% in Danish kroner and increased by 4% at constant exchange rates. International operations sales grew by 13% in both Danish kroner and at constant exchange rates. While North America operations sales increased by 4% in Danish kroner and declined 4% at constant exchange rates. Sales growth was mainly driven by the diabetes and obesity combined sales growth of 10% in Danish kroner and 5% at constant exchange rates. Diabetes and obesity sales grew 4% and 51% respectively at constant exchange rates.

Ozempic sales were more than DKK1.4 billion and it has now been launched in 19 countries. For research and development sale achievements are worth mentioning. In March we filed 3 applications with the FDA. One for oral semaglutide for glycaemic control with the use of the priority review voucher and 2 filings for cardiovascular risk reduction indications for Ozempic and oral semaglutide.

Furthermore in April, we filed oral semaglutide in EU and in Canada. In March a Phase 2 obesity trial was initiated for the compound AM833. Within biopharmaceuticals, Esperoc the longer acting factor VIII used for the treatment of haemophilia A was approved in the USA in February and the European Medicines Agency is committed responsible for the human medicines endorsed Esperoct in April. Furthermore in March, concizumab was granted breakthrough therapy designation in the USA, for people with haemophilia B and inhibitors.

Turning to financials. In the first 3 months of 2019, operating profit increased by 14% in Danish kroner and by 8% at constant exchange rates. Operating profit was positively impacted by a reversal of write downs of oral semaglutide pre-launch inventory. The diluted earnings per share decreased by 1% to DKK4.36. For the 2019 outlook, sales growth is still expected to be 2% to 5% at constant exchange rates, now with an expected positive currency impact of 3 percentage points while operating profit growth is still expected to be 2% to 6% at constant exchange rates now with an expected positive currency impact of 5 percentage points.

Please turn to Slide 5. In the first quarter of 2019, the overall sales growth was 9% in Danish kroner and 4% at constant exchange rates. International operations sales grew 13% in both Danish kroner and at constant exchange rates driven by growth in all 5 regions and positively impacted by timing of shipments primarily in region AAMEO and region Latin America.

In region Europe, sales grew 5% at constant exchange rates driven by diabetes growing 7% from -- driven by diabetes growing 7% from increased GLP-1 and new generation insulin sales as well as Obesity sales growing 74%. Region AAMEO sales grew 29% at constant exchange rates primarily driven by the insulin segment growing 30% and obesity sales growth of 149%.

Region China, sales increased 9% at constant exchange rates driven by insulin sales and GLP-1 sales increasing 9% and 90% respectively. Region Japan and Korea sales growth of 9% at constant exchange rate was primarily driven by obesity sales and Biopharm sales growth of 9%, while diabetes sales were unchanged. Finally region Latin America sales growth of 20% was driven by insulin sales growth of 40% and solid obesity sales growth of 90% partly countered by Biopharm sales declining by 17% reflecting timing of tender shipments.

North America operations sales increased 4% in Danish kroner and declined 4% at constant exchange rates. The sales decline at constant exchange rates was driven by US sales declining by a 5%, negatively impacted by inventory reductions. Adjusted here our US sales were broadly unchanged which reflects increasing GLP-1 and obesity sales partly offset by declining insulin and biopharmaceutical sales.

Please turn to Slide 6. In the first quarter of 2019, the sales growth of 4% at constant exchange rates was driven by a strong growth of the GLP-1 and obesity segments while biopharma sales were stable. Total diabetes sales grew 4% and insulin sales grew 2% both at constant exchange rates. International operations insulin sales grew by 13% and volume market share increased by 0.3 percentage point. Insulin sales in North America operations declined 13% at constant exchange rates impacted by inventory reductions across products as well as a negative impact from changes in the channel and payer mix and lower average realized prices in the U.S. including the change in the coverage gap legislation.

GLP-1 sales grew 11% at constant exchange rates driven by 25% growth in international operations and 7% sales growth in North America operations. Obesity sales grew by 51% driven by international operations growing 146% and North America operations growing 13% impacted by U.S. inventory reductions. The sales growth is driven by a solid volume uptake in both operating units and the continued growth and roll out of Saxenda which is now being launched -- which has now been launched in 41 countries. Biopharmaceutical sales were stable driven by a strong commercial execution across markets and roll out of new products offsetting the NovoSeven sales decline.

Please turn to Slide 7. In the first 3 months of 2019, diabetes sales increased by 4% at constant exchange rates. The diabetes sales growth was driven by a strengthened global diabetes, value market share increase of 0.6 percentage point to 28.1% supported by an improving insulin volume market share and growth of the GLP-1 segment partly offset by a declining GLP-1 market share.

Insulin sales grew 2% at constant exchange rates by a solid growth in -- by solid global volume uptake supported by the continued penetration of new generation insulin Tresiba, Xultophy and Ryzodeg. Novo Nordisk has expanded its global insulin market leadership position by 0.6% to 46.7% market share. International operations insulin sales increased 13% driven by sales growth in all regions except region Japan and Korea as well as products -- as several products were impacted by the statutory price reductions from 2018. The sales growth in international operations was supported by the continued market leadership expansion where Novo Nordisk increased the volume market share by 0.3 percentage points and now has an interim volume market share of 49.3%.

In North America operations, insulin sales decline 13% driven by US insulin sales declining 14%. Despite the insulin sales decline in North America operations, Novo Nordisk has expanded the insulin market leadership by one percentage point to 40.2% in the last 12 months driven by a solid volume uptake supported by the market penetration of Tresiba and Xultophy.

Please turn to next slide. Ozempic has now been launched in 19 markets, in the U.S. and Canada and in 17 European countries. In the U.S. the combined new-to-brand market share is now more than 50%. Broad formulary coverage has been obtained for Ozempic and 12 months after the launch Ozempic has obtained a neutral brand prescription market share of 30.5%. In Europe, Ozempic is off to a strong start in launched markets and has gained double digit volume market shares in less than 6 month post launch, showing the same trajectory as seen in Canada where Ozempic has a volume market share of 34% just over a year after launch. The rollout of Ozempic will continue in Europe in 2019.

Please turn to next slide. In the U.S. GLP-1 sales increased by 6% at constant exchange rates, driven by a strong uptake of Ozempic, partly offset by declining Victoza sales. The Victoza sales decline reflects a negative impact from inventory reductions, payer and channel mix changes and changed coverage gap legislation, which impacts the realized prices as well as an impact from the competing once-weekly products including Ozempic. Since the launch of Ozempic, in the first quarter of 2018 the annual GLP-1 market growth has accelerated from 23% to the current market growth of just under 30%. We are pleased with the Ozempic launch, which has now achieved a total GLP-1 volume market share of 11.8% in the U.S. Novo Nordisk has thereby stabilized it's GLP-1 volume market share at around 44%.

Please turn to the next slide. In the first quarter of 2019, obesity sales increased by 51% and accounted for 33% share of growth. The solid sales growth was driven by strong volume uptake in both international operations and North America operations. Novo Nordisk is a global value market leader with 65% value market share of the anti-obesity market. In International operations, Saxenda sales more than doubled driven by the continued global rollout, reflecting a solid volume uptake of Saxenda which is now launched in 39 countries outside North America.

Novo Nordisk maintains market leadership with a 38% value market share in international operations. In North America, Saxenda sales increased by 13% driven by a volume market share increase in the U.S. alone of 10 percentage points to 29%, partly countered by inventory reductions. Novo Nordisk is committed to changing obesity and recognize that obesity needs to be addressed from multiple angles with multiple programs. Other than securing commercial execution of Saxenda and progressing our obesity pipeline with the ambition to bring even better and more efficacious product to the market, we are also rolling out patient support programs to increase adherence and stay time of the products to improve outcomes as well as educational programs to increase understanding and acknowledgement of obesity as a disease requiring chronicle medical treatment.

Please turn to Slide 11. In the first 3 month of 2019, biopharmaceutical sales remained stable at constant exchange rates impacted by declining sales in North America operations, region Latin America and region Europe offset by sales growth in region AAMEO, region Japan and Korea and region China. Haemophilia sales declined 3% driven by declining NovoSeven sales in North America operations, and region Europe impacted by the uptake from a competing product as well as the timing of NovoSeven tenders in region Latin America. The NovaSeven sales decline was partly countered by the global rollout of NovoEight, which has now been launched in 46 countries as well as a continued rollout of Refixia in North America and Europe.

Growth hormone deficiency sales increased 1% at constant exchange rates driven by the sales growth in international operations, partly countered by declining sales in North America, impacted by inventory reductions in the U.S. The biopharm business is a key priority to us and we are on track with executing on our biopharm business strategy.

With this over to Mads for an update on R&D.

Mads Krogsgaard Thomsen -- Executive Vice President and Chief Science Officer

Thank you Lars. Please turn to Slide 12. In March an important milestone was reached with the U.S. FDA submission of oral semaglutide for glycaemic control in adults with type 2 diabetes. The use of the priority review voucher shortens the expected review time to 6 months from the date of application, leading to a late third quarter PDUFA action date. Furthermore, an NDA and an sNDA were filed for oral semaglutide and Ozempic respectively for cardiovascular risk reduction indication in people with type 2 diabetes. These two filings each has an expected review time of 10 months, leading to an action date in Q1 of next year.

The CV filings for Ozempic and oral semaglutide are based on two cardiovascular trials, the SUSTAIN 6 CVOT with around 250 base events and showing a statistically significant 26% CV risk reduction and then the PIONEER 6 CVOT for oral semaglutide showing an non-significant 21% CV risk reduction but with a 51% significant CV mortality reduction, based on around 140 base events. Oral semaglutide for diabetes treatment has subsequently been filed in the EU and Canada.

Please turn to Slide 13. As just mentioned the regulatory submissions for oral semaglutide in the U.S., EU and Japan -- Canada were important milestones for us in the first months of this year. In March 2019, Novo Nordisk also competed a head to head trial comparing the hypoglycemia profile of Tresiba with insulin glargine U300 in more than 1,600 adults with type 2 diabetes. The trial patients were typical insulin using type 2 diabetes patients, ie, 63 years old with 15 years of disease duration and a BMI of around 32.

Insulin was dosed once daily, patients being 50-50 split among morning and evening dosing in both groups. All endpoints related to hypoglycemia of which severe hypoglycemic episodes were event adjudicated were assessed during 36 week maintenance period and a total treatment period of up to 88 weeks.In the maintenance period, both severe nocturnal hypoglycemic risks were significantly reduced following Tresiba treatment and overall confirmed hypoglycemia risk was lower, albeit not statistically significant.

For the entire trial period, overall hypoglycemia risk as well as severe and nocturnal hypoglycemia risks were all statistically significantly lower in the Tresiba arm. All the observed reductions in the risk of hypoglycemic episodes are considered clinically meaningful. In addition to showing a lower risk of hypoglycemia compared to insulin glargine U300, Tresiba also showed a statistically significantly greater reduction in hemoglobin A1c. There is significant A1c difference in favor of Tresiba occurred despite a significantly lower end-of-trial insulin dose for Tresiba compared to glargine U300.

Novo Nordisk plans to present the results at a major medical conference in the second half of 2019. In March, we initiated a Phase 2 obesity trial for the long acting Amylin analogue AM833 intended for chronic obesity management with a once-weekly subcutaneous injection. The primary objective of the trial is to assess the dose dependance of weight loss versus placebo and Saxenda when added to standard of care. AM833 is expected to induce clinical weight loss alone as well as in combination with semaglutide. Within biopharmaceuticals, we received FDA approval of Esperoct in the U.S. in March for the treatment of adults and children with haemophilia using routine prophylaxis to reduce the frequency of bleeding episodes as well as on (Technical Difficulty) treatment, control bleeding episodes and finally perioperative management of bleeding.

In April the European CHMP adopted a positive opinion for the use of Esperoct for the treatment of adults and adolescents with haemophilia both for prophylaxis and on-demand treatment as well as coverage during surgical procedures. In March, concizumab, the anti-TFPI antibody was granted breakthrough therapy designation for prophylaxis treatment in the U.S. for people with haemophilia B and inhibitors. The designation implies that the FDA will work closely with Novo Nordisk to develop concizumab expeditiously for this indication. The initiation of the Phase 3 program for concizumab is expected in the second half.

In February, a Phase 1/2 paediatric trial with Macrilen, the oral growth hormone secretagogue used to diagnose growth hormone deficiency was initiated. The paediatric trial will investigate the safety, tolerability, PK and PD of Macrilen with dose range finding. The product is currently marketed for diagnosis of adult growth hormone deficiency. In April, we announced the intention to initiate a clinical collaboration within non-alcoholic steatohepatitis also known as NASH with Gilead Sciences combining selected compounds from our respective pipelines in one clinical trial. The trial will thus be a proof of concept study combining oral semaglutide and Gilead's non-steroidal FXR agonist cilofexor, and ACC1 inhibitor Firsocostat for the treatment of NASH patients.

Please turn to the next slide. As mentioned earlier, we expect to receive FDA feedback on oral semaglutide for type 2 diabetes toward the end of the third quarter of this year. In the second quarter, we still expect to initiate the Phase 3b cardiovascular outcome trial ZOL (ph) for oral semaglutide.

In the second and third quarter respectively, we also expect to initiate 2 outcome trials for Ozempic. FOCUS a long-term superiority trial to establish effects of once-weekly semaglutide on the development and progression of diabetic retinopathy in adults with type 2 diabetes and FLOW a long-term placebo-controlled trial to investigate the effect of once-weekly semaglutide on the progression of renal impairment in adults with type 2 diabetes and diabetic nephropathy.

Towards the end of the year, we expect to have the final Phase 1 program readout for 2 of our obesity products. The GIP, GLP glucagon Tri-agonist 1706 and the PYY analogue 1562. Within Biopharm, we expect to initiate 2 Phase 3 trials for once-weekly growth hormone analogues, somapacitan, one in children with growth hormone deficiency and one in children born small for gestational age and with insufficient catch-up growth. Furthermore, we expect to submit somapacitan for the adult growth hormone deficiency indication in the U.S., EU and Japan in the second half of 2019.

With this, over to Karsten for an update on the financials.

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Thank you Mads. Please turn to Slide 15. In the first 3 months of 2019 sales increased by 9% in Danish kroner and by 4% at constant exchange rates. The gross margin was 83.8% measured in Danish kroner compared with 84.4% in 2018. The decrease in gross margin reflects a negative impact from growth of lower margin insulin products and lower prices primarily related to the insulin segment in the USA partly countered by improved productivity and a positive currency impact of 0.6 percentage points.

Sales and distribution costs increased by 8% in Danish kroner and by 3% at constant exchange rates, reflecting resource allocation to growth markets and promotional activities for Victoza and Saxenda as well as launch activities for Ozempic in international operations and promotional activities for Ozempic, Saxenda and Tresiba in the USA.

R&D cost increased by 19% in Danish kroner and by 21% at constant exchange rates. Impacted by the reversal of write downs on clinical pre-launch inventory for oral semaglutide of approximately DKK500 million. Adjusted for this, R&D cost declined by 6% primarily driven by the completion of the PIONEER programme for oral semaglutide in 2018 and the head-to-head started between Tresiba, and insulin glargine U300, partly offset by increasing costs for the 2 semaglutide obesity clinical programs STEP and SELECT.

Administration costs increased by 5% in Danish kroner and by 3% at constant exchange rates reflecting growth in international operations across the regions. Operating profit increased by 14% in Danish kroner and by 8% at constant exchange rates. Adjusting for the positive impact from the reversal of the write down on clinical prelaunch inventory for oral semaglutide, operating profit growth was 4% at constant exchange rate. Net financial items showed a loss of around DKK1 billion compared with a gain of DKK1.2 billion in 2018 primarily driven by a foreign exchange hedging losses mainly due to the US dollar on average having traded higher against Danish kroner in the first quarter of 2019 compared to the first quarter of 2018. Diluted earnings per share decreased by 1% to DKK4.36.

Please turn to Slide 16. For 2019, sales growth is still expected to be in the range of 2% to 5% at constant exchange rates. This guidance reflects expectations for robust performance for the GLP-1 products Victoza and Ozempic and the obesity products, Saxenda as well as the portfolio of new generation insulin. This guidance also reflects intensifying global competition within diabetes and biopharmaceuticals as well as continued pricing pressure especially in the U.S. where the funding of the Medicare Part D coverage gap has an expected impact of approximately DKK2 billion.

Reported sales growth is now expected to be around 3 percentage points higher than at constant exchange rates. Operating profit growth at constant exchange rates is still expected to be in the range of 2% to 6%. The outlook reflects the sales growth outlook and continued focus on cost control as well as a positive cost impact for the priority review voucher which was expensed in the fourth quarter of 2018.

Reported operating profit is now expected to be around 5 percentage points higher than in local currencies. Financial items is now expected to be a loss of approximately DKK3.3 billion reflecting losses associated with the foreign exchange hedging contracts, mainly related to the U.S. dollar and losses on unhedged currencies. The effective tax rate is still expected to be in the range of 20% to 22% and capital expenditure is still expected to be around DKK9 billion. For 2019, we still expect the free cash flow to be around DKK29 billion to DKK34 billion.

With this, back to you, Lars.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you Karsten. Please turn to Slide 18. We delivered very solid performance in international operations driven by sales growth in all regions. Meanwhile sales in the U.S. were negatively impacted by inventory reductions. The global launch of Ozempic is well on track and continues to gain market share. From a regulatory perspective, we achieved important milestones with the filing of oral semaglutide both in the U.S., Canada and EU.

We're now ready for the Q&A. We kindly ask all participants to limit themselves to 2 questions. Operator, we are now ready to take the first question.

Questions and Answers:

Operator

Thank you. (Operator Instructions) And we do have questions coming through. Do you want to take the first question?

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Yes, please.

Operator

The first question comes from the line of Peter Verdult from Citibank. Your line is open, please go ahead.

Peter Verdult -- Citibank -- Analyst

Thank you. Pete Verdult, Citi. 3 questions, Lars, you've been hit by the donut hole discounts widening in 2019, yet when we think through the proposed Part D reforms as they stand for 2020, the implied uplift for Novo is or seems to (inaudible) very significant. Could you talk to how you are thinking about one, Part D reform actually happening in 2020. And 2, a little more about the short and long term implications to Novo's book of business.

And then secondly, Karsten, just a simple question, why do you think we are seeing significant inventory destock in the channels particularly in GLP-1 and could you provide perhaps some quantification of the effects from destocking versus the channel mix changes you alluded to and the widening donut hole discounts. Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

So thank you Pete. The line was a bit broken from time to time. So correct me if I understood you wrongly, but your question was about the proposed rule of passing through a rebate in 2020. Is that correct?

Peter Verdult -- Citibank -- Analyst

Yeah, that's correct. Sorry, sorry, Lars, just the first question was just, do you think Part D reform will happen in 2020. And as far as the -- in terms of the proposals, the implied uplift for Novo is significant. So just how you're thinking about the short and long term implications. And I hope you heard my question correctly, Karsten as well.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Yes. Thank you. I tend to believe that the pass-through of rebate reform will happen, but I also note that it's not a simple thing to change. Obviously would benefit patients and we believe we can compete in a market where there is more transparency and we operate without rebates. But I also -- we should all bear in mind that the rebates that are paid from the highly competitive part of the pharmaceutical market like insulin market where purchasers can extract significant rebate amounts. That is going into fund the healthcare system. So if that is pass through to patients, there would be a lack of funding in other parts of healthcare system which would mean that premiums would have to go up. So it's not a -- it's a complex system and when you start changing parts of it, it can be difficult to fully understand who are winning and who are gaining.

As we look at it, there are different forces you could say, more transparency around pricing and competing on net pricing could lead to some negative impact on overall pricing because there would be a convergence to maybe a lower price point across accounts. On the other hand, we would have lower exposure in the Part D coverage gap and you could also speculate that there would be a higher consumption of certain medicines. So I think that there are pluses and minuses, exactly how it will play out I will not comment on because I think this is a draft proposal and how the whole supply chain will react to it and think about fees et cetera, how that will play out, we do not know yet. But that's kind of my thinking around it. And then Karsten?

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Yeah, so there was a couple of questions in the question. So I'll try and divide it up. In terms of inventory and inventory movements in the U.S., then as we've stated in our announcement, we've seen a sizable move in inventories in the U.S. in the first quarter in the sense that, if we adjust for the inventory movement we are seeing, our U.S. sales being broadly unchanged. The inventory movement in broad terms you can split equally between wholesalers and retailers and retailers being predominantly the pharmacy chains. And bear in mind, we are not controlling their inventory levels, so it's a little bit hard exactly to speculate on the movements in neutral levels. But what we can see is that we have a stable trend on our end market demand and the TRx trends that we're seeing and then we compare that to our expected outflow.

So that's how we quantify it. Sometimes it's linked to shipment schedules in connection with the holidays or the likes or other times it's linked to, I would say, balance sheet optimizations with wholesalers or retailers. So I think we don't -- again we're not controlling that. In terms of where it's impacting on our side then roughly half of the impact is on GLP-1. And the other half is split more or less proportionally between insulin, obesity and growth hormone. So that's the mechanics around the inventory movements. In terms of sizing and sizing vis-a-vis channel mix, I presume you're alluding to the GLP-1 comment we put in. And in broad terms these are the two main explanations. So sizing wise, it's of similar size. The inventory movement on the GLP-1 side versus the channel mix impact in the first quarter.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Good. Thank you, Karsten and thank you Pete. Next question please.

Operator

Our next question comes from the line of Emmanuel Papadakis from Barclays. Your line is open. Please go ahead.

Emmanuel Papadakis -- Barclays Capital -- Analyst

Thank you. I'll try judiciously to couple of questions. Emmanuel Papadakis from Barclays. The coverage gap, I mean, it sounds like you took part of that in Q1, but I think prior communication is related to it stepping up somewhat and being phased more heavily in Q2 and Q3. So perhaps you could just talk about to help us with modelling the phasing pattern of that how it will be booked.

The second one was a question on biopharma, I may take. Novo Nordisk (ph) appears to have stabilized somewhat in recent quarters. The US still has double digit decline in Q1, perhaps you could just talk about moving parts there. And then one of the things that has happened relatively recently is the first readout for positive once-weekly product in the paediatric setting. So your mid-term expectations in terms of how that franchise evolves or it would be reasonable to assume that a competitor may get there before somapacitan in the key paediatric setting. I'd be interested to hear your thoughts on that.

And then if I could squeeze in a sub part. You said the return to growth strategy in biopharma is on track. Does that mean you don't need external BD anymore or is that still implicitly required to return to growth? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Yeah. Thank you, Emmanuel. So Karsten, if you can talk through first the phasing of the coverage gap impact through 2019.

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Yeah. Thanks for the question, Emmanuel. Phasing up of coverage gap is complicated to be very exact about there because it's very much as dimensional between this price movements, other products, our products utilization et cetera. But I'd say, a crude rule of thumb would be that to the tune of 10% of the DKK2 billion additional impact from coverage gap has been included in the first quarter of our numbers. Hence the remaining 90% will be spread for the remainder of the year. In terms of exact quarterly phasing, we don't want to go into too many details due to all the uncertainties. But I'd say the first quarter is the main outlier in terms of size difference.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

And I'll just answer very quickly on biopharma back to growth as we're trying to limit it to two questions. So we're very pleased with what we can actually do in terms of stronger commercial execution with the products we have already and we can see that we can actually mitigate the loss of the sales of NovoSeven. So we can say that, we believe we can get back to growth based on what we have. But we're not necessarily satisfied with that growth level. So we're also looking for what are the external opportunities to accelerate that.

And then Mads on the growth hormone area and the once-weekly.

Mads Krogsgaard Thomsen -- Executive Vice President and Chief Science Officer

Yes, I think just -- first to comment on our own somapacitan, which is essentially a human growth hormone with a fatty acid like side chain. We have now got the Phase 2 growth velocity for full year and we are extremely happy with the dose range finding that we achieved and have selected the exact dose for Phase 3 in agreement with regulators worldwide. So we're entering that almost as we speak. And sooner we'll submit for adult growth hormone deficiency in all trial markets during the course of the second half.

It is true that there is a competitor or one of our peers that has conducted in kids Phase 3 trial. And it's not really up for us to comment on. I do note that they got a nice growth velocity data to the extent that they actually trended higher than the once-daily comparator, which may or may not be the preferred option for regulators who actually have to match the established once-daily dose. But I can't really comment on that. At least it worked quite well and then you have to assess the biodegradability and the fate of the drug in the body and also that is a regulatory interaction between the company and the regulator.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you Mads and Karsten and thank you Emmanuel for that questions -- for those questions. Next questions please.

Operator

The next question comes from the line of Wimal Kapadia from Bernstein. Your line is open. Please go ahead.

Wimal Kapadia -- Bernstein -- Analyst

Great. Thank you very much for taking my questions. Wimal Kapadia from Bernstein. Just following on from Peter's initial question. It sounds like a rough 10% impact on GLP-1 growth in the quarter from the payer channel mix. I guess my question is, how should we think about this impact in the GLP-1s moving forward as well. It's not a change in the fundamental underlying price declines, it does actually result in a lower price point.

And my second question is around CV and REWIND. Just interested to get any comments you have from any discussions you've had with payers on CV benefit in the GLP-1s. And the question is, how likely is it that physicians would actually consider a broad CV benefit from Trulicity as a class effect. Was trying to get -- really understand what impact REWIND could have from a physician perspective? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you Wimal. First, Karsten on the ongoing effect on GLP-1?

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Yeah. So U.S. GLP-1. So Wimal, thank you for this question. I think doing your math, what you need to take into account vis-a-vis the channel mix and whether it's 10% again, that we have a donut hole impact that I would not count as a channel mix impact, that's also included in the GLP-1 numbers just to be precise. And then also do bear in mind that last year, we had a couple of smaller effects impacting the base for GLP-1 business in the U.S. So we had the Ozempic launch order in Q1 of last year and then we had rebate phasing between Q1 and Q2 last year. That also impacts the base.

So I think you have to include those two in the math you're doing. But the two main drivers again between the in-market TRx growth of 26% and the reported 6% growth in U.S. is inventory and channel payer mix.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Then on the CV, REWIND and impact on contracting et cetera, formularly (inaudible) class effect. No, we have not seen the data from REWIND. So it's a bit hard for us to speculate on what the impact of that will be. I will make a note though that, we see that more and more treatment guidelines are being updated to include the CV benefit. But still seen in say, primary care, it's glucose regulation that's on top of mind for physicians. So it's not -- it is being established as a prescription driver, but it's not yet a significant prescription driver.

And I think that's also what the payers would be impacted by when they have to make choice. But it's hard for us to make much more firm use as we have very limited insight to what the REWIND data informs us about.

Thank you Wimal. And then next question please.

Operator

The next question comes from the line of Trung Huyhn from Credit Suisse. Your line is open. Please go ahead. Thank you.

Trung Huyhn -- Credit Suisse -- Analyst

Hi. Thanks for taking my questions. Two if I may. First one on, NovoSeven, the rate of decline has slowed from about 20% CER at the end of 2018 to only 11% this quarter. Is this a realistic rate for the rest of the year or should we expect a reacceleration of this decline?

Secondly, what you expect to see from volume demand with rebate reform? Do you have a view to as many patients abandoning scripts because of cost and could that go away with lower patient co-pays? Thanks very much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Good. Thank you, Trung. First Karsten on NovoSeven growth.

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Yeah, so we have been looking at NovoSeven for quite a number of years now and one key takeaway when looking at NovoSeven performs is, never ever judge NovoSeven by the quarter. So the nature of NovoSeven prescriptions and NovoSeven usage for instance for emergency bleeds and the various tender orders in international operations mean that one should never be carried away in either positive nor negative in terms of NovoSeven performance.

So what we are seeing is that we are seeing continued erosion due to the launch of Hemlibra. We see that impact continuing in the U.S., we see the impact in Europe as well as in Japan. And so, in that sense, there are no changes to our expectations around the erosion curve for NovoSeven. And then again just worth reiterating that we are satisfied with the fact that we are able to mitigate the negative impact by the launch of our new products.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. And on the speculation around a potential higher volume demand in a world where rebates are passed through and there are less affordability issues for patients. We don't really have an informed view on what that could potentially be. And I note that, actually across the world, there is probably an under-consumption of insulin because it's not the easiest medicine to handle and the concerns about hypo et cetera in general means that, patients are not taking the volume they should.

So as we bring innovation to the market and potentially also bring digital solutions, we believe there can be a volume benefit from that, that insulins become more safe. And how to split that between affordability and more convenient insulins, I think it's difficult to judge at this point of time.

Thank you, Trung, and next question please.

Operator

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

Sachin Jain -- Bank of America Merrill Lynch -- Analyst

Hi, Sachin Jain here from Bank of America. Two questions, firstly just related to some interesting comments this morning. Lars, if you could just update us on your M&A strategy, noted some comments in there on potential gene therapy or genomic collaborations. I wonder you can just provide a little bit of color around that on size and therapy area focus.

And I'm sorry, Karsten, back to the channel mix. Should we expect the impact that you've seen in the first quarter to persist through the quarters in '19 at the similar level of magnitude or is there any specific saving around that. And is this channel mix impact predominately a '19 impact that shouldn't be repeated into '20? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you Sachin. And on M&A strategy, (inaudible) first, that's really unchanged guidance. We're looking at relative smaller size transactions in the low single billion dollar range. When you look at therapy areas and technologies, it's really opportunity based. And I think we have opportunities both in our core area, but of course we have a more stated strategy of supporting growth in the biopharm area based on in-licensing and acquisitions.

And we have a leading position on the stem cell based therapies. We believe that can have a broad therapy area application over time. When we look at other technology areas, I think it's important to look at, if we are to get new technologies in, ideally we should be able to use them broadly also in Novo Nordisk. It's hard to get access to technologies directed just to one therapy area. But we're not going to guide specifically on what technology that we'll be looking at, but we are -- we continue to look at it opportunistically. And as long as we can add value to make sure that our shareholders will sit with a part of the value to be harvested, we are open for considering this, staying disciplined on value.

Karsten, back to the popular question.

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Yeah. So channel mix has some focus today. So just coming back to the channels in the U.S. market, then the main channels are basically, how are people insured in the U.S. and -- meaning what insurance schemes are they covered under. And here we're talking about commercial insurance through employers, Medicare Part D for the elderly Medicaid VA duty (ph) and the like, so these are the channels where we're talking about and movements between channels happen gradually over time. So this could for instance be an example of baby boomers driving growth in Part D as an example.

And with this, I'm saying that, that you should not expect dramatic shifts between quarters in terms of channel mix. This is whether it's a fast or slow moving train, but it's something that happens gradually over time. So the answer is no, you should not expect any significant changes in terms of channel mix. Of course donut hole, as I alluded to before, there we'll see a step up compared to what we saw here in the first quarter.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten, thank you Sachin. Next question please.

Operator

The next question comes from the line of Michael Novod from Nordea Markets. Your line is open, please go ahead.

Michael Novod -- Nordea Markets -- Analyst

Thank you very much. Two questions. One to concizumab and the breakthrough designation in haemophilia B, how fast you actually think that you can complete this program and could there be any rollover effects also in the haem A indication? Just to get a feeling of whether it has own implications for the haemophilia B, also whether the entire program can benefit from this? And then secondly to the IO performance where I can see that underlying you grow around 8%, 9%, that's been the trend the last, I don't know, 4, 5 quarters or so. Are you willing to commit to that, this is an ongoing trend going forward in the 8%, 9% growth or 7% to 9% growth compared to historically where it's been around 5% to 6%?

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Michael and thank you also for bringing in international operations. We're very, very proud of our performance in international operations. So I think we should hand that over to Mike Doustdar and comment on whether this 8% to 9% is the new norm.

Maziar Mike Doustdar -- Executive Vice President and Head of International Operations

So I think it was you, Michael last quarter or perhaps one of your peers that was asking about why IO's fourth quarter was at 4%? Last year, actually we grew 7% throughout the Q1 to Q3 and then 4% on Q4 ending under 7% growth. Historically it's been 5% to 6%, you're correct. I do think that a lot of the growth that you have seen is coming through new launches and obesity specific, which international operations did not have just so many quarters ago when we were dealing with 5% to 6% growth.

So I cannot not of course speculate on the exact percentage of growth as we go forward, but I could probably commit to some percentages above historical growth rate in IO. There are some timing for this specific quarter. But you should probably expect more out of IO as 95% of the global volumes are in IO and we have the aim with all our products to reach to many people as possible.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Yeah, thank you Michael. And then -- sorry, Mike. We will thank Michael later. So next on, concizumab and breakthrough designation, what can we get out of that?

Mads Krogsgaard Thomsen -- Executive Vice President and Chief Science Officer

Yes. Well, there are clear benefits to it. And as I indicated, this affects the indication, the narrow indication called haemophilia B with inhibitors. But there a list of things that are relevant to that narrow indication, but that will also aid and guide us throughout the pan-segment development of concizumab. You are aware that you get all features of the fast-track designation process, you also get intensified guidance on how to efficiently conduct your development program from now on right until you are up there with the patients in the market and you get a FDA organizational commitment also from the senior managers in the agency to be committed to expeditiously handle any and every issue that might appear during the development phase. So we are extremely happy with it. We believe it will actually help trial (ph) concizumab program and we are already utilizing it as we speak.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Mads. And thank you, Michael. Next question please.

Operator

The next question comes from the line of Richard Vosser from J.P. Morgan. Your line is open.

Richard Vosser -- J.P. Morgan -- Analyst

Hi, thanks for taking my questions. First question on the R&D rebate or restatement in the quarter. So given the production of oral sem has clearly been going on for some time through the course of the last year. Could you perhaps talk about your ability to supply the markets and how we should think about your ability to supply a ramp similar to Ozempic in the U.S. through the coming year.

And then second question, on the amylin analogue. Do you think the combination of amylin analogue and Ozempic high dose could be a significant treatment for NASH as well as obesity and when could we see data here. Thanks very much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Okay, Mads, first on amylin and application in NASH.

Mads Krogsgaard Thomsen -- Executive Vice President and Chief Science Officer

Yes, well the answer -- short answer is absolutely yes, Richard. We have done both mechanistic studies looking at the site of action in the brain and they are highly complementary. One is primarily brain stem related, that's the amylin side of action and the one is primarily hypothalamic, that's semaglutide. We've also corroborated that enrolling (ph) studies, where we actually find that there's an activity in the weight loss. So it could mean whatever is -- are we speaking 15% for sema, are we speaking 10% to 15% for amylin. In principle, we could be approaching bariatric surgery standard of weight loss. But that remains to be a forward looking statements. And of course we're studying multiple dosing already between the two agents to find the optimal ratio in human terms. Yes, it could be used for obesity, it could be used for NASH where it would defatten the liver and maybe also have certain anti-inflammatory properties primarily mediated by the GLP-1 component. And it could also be used as an anti-diabetic agent in particular in people with higher degrees of obesity.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

And -- thank you Mads. And Richard on the oral sema supply. I just want to start by saying that, it's not a restatement that we move, say, what was produced before submission of the registration file. Now on say, inventory to be sold later on, that's what we normally do and I think also the industry does when you actually have visibility that you're actually going through to sell a product that has been in R&D.

On supply, we are fully in control of that. We have very competent colleagues in our product supply unit. We will produce the launch, supply out of Denmark, API out of Kalundborg and (inaudible) and I think some of you had an opportunity to see that facility at our last Capital Market's Day. And then we have larger scale API kicking in when our U.S. facility is up running. So we are fully ready to supply the launch and the ramp up of that.

Thank you Mads, Thank you Richard. I think we have time for two more questions.

Operator

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

Michael Leuchten -- UBS -- Analyst

Thank you. It's Michael Leuchten from UBS. One question about your range of guidance on the top line please, your lower end of the guidance of 2% given that you've done 4% in the fourth -- first quarter with pushes and pulls sort of netting out, leave that low end of the range. So sticking out is not entirely feasible at least in my interpretation. So just wondering, what you take into consideration as the negative factors for the rest of the year outside the already discussed donut hole, that would be helpful.

And then secondly, question for Mads. The FOCUS and FLOW trials when we look at the end points, is the strategy here to play a little bit more defense against the SGLT-2 inhibitors where outcome trials of the same will go running or am I interpreting that wrongly? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

So Karsten, on our top line guidance.

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Yeah. So Michael when we do -- so as you say, then we've confirmed our top line guidance in constant exchange rates between 2% and 5%, the first quarter we had 4% and with the two more or less offsetting factors. So inventory reduction in the U.S. and which is negative and positive phasing in IO. So we have a good start for the year and then as we discussed before, then we have still 90% of our DKK2 billion donut hole impact ahead of us. So that's what we are planning for the full year.

In terms of getting to the 2%, of course, we put a range on also to handle uncertainties, which can go in both directions. So in the bottom end of the range, historically, some of the main moving parts have been, if the rebate claims have come out differently than what we accrued, that has quarter adjustments. Then we have tender uncertainties always in international operations, then we saw in the first quarter inventory movements in our big markets. And then finally, one of the reasons why we see very strong results in IO in the first quarter is also that, all regions and pretty much most countries, they are performing well.

And you never know, but there is a risk of some political uncertainty or some geopolitical items that could have an impact in some way in international operations, which we're knocking on wood, would not happen. But that's what's included in the guidance range.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you Karsten, then Mads, let's round off with some comments -- comment on the FLOW trial.

Mads Krogsgaard Thomsen -- Executive Vice President and Chief Science Officer

Yeah, so FLOW and FOCUS are actually not defensive maneuvers, but rather in my view, extremely proactive ones, one of them started as a defensive maneuver where the European Medicines Agency asked us to do a post approval safety study to actually secure the early worsening phenomenon was indeed the responsible action behind the transient retinopathy worsening that we've seen in few patients in one of the trials. And that we've turned into a superiority trial because alongside are external experts and ophthalmologists, it's our deep belief that it is the early worsening phenomenon and as we have seen (inaudible) are the outcome studies that is followed by a period of progressive improvement in eyesight or reduction in eyesight, deterioration as compared to standard of care.

So it's actually a superiority trial to prove that Ozempic might be the first compound to actually long-term protect the eyes against loss of vision. We use a more than 3-step progression in the ETDRS scale, which is the internationally accepted measurement of accelerated visual loss. In the FLOW trial, it is unfortunate that we unlike a couple of our SGLT-2 peers have not done a chronic kidney disease trial, because it is my belief that the 36% improvement in either onset of kidney nephropathy or worsening of kidney nephropathy is a true phenomenon. It was actually also observed in the (inaudible) trial, where it was 22% or so.

So I do believe that by measuring a composite primary endpoint, where we look at greater than 50% reduction in eGFR, onset of a persistent eGFR below 50% ie, going into end-stage renal failure and initiation of either hemodialysis or renal transplantation plus supplemented with renal death or CV death that composite endpoint should take us to where we want to be namely high up in the treatment hierarchy in terms of nephrologist and people treating people with nephropathy. So with that, we would have labels that range from glycemic regulation to weight regulation via ultimately NASH management, cardiovascular management and maybe also renal management and maybe a little bit of upside on the eyes.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you Mads. Thank you Karsten and thank you Michael for that last question. This concludes our conference call. Thank you all for participating. And of course, feel free to reach out to our Investor Relations Offices to ask any follow up question you might have. Thank you and have a fantastic day.

Operator

Ladies gentlemen, that does conclude the conference for today. Thank you for participating, you may now disconnect.

Duration: 62 minutes

Call participants:

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Mads Krogsgaard Thomsen -- Executive Vice President and Chief Science Officer

Karsten Munk Knudsen -- Executive Vice President and Chief Financial Officer

Peter Verdult -- Citibank -- Analyst

Emmanuel Papadakis -- Barclays Capital -- Analyst

Wimal Kapadia -- Bernstein -- Analyst

Trung Huyhn -- Credit Suisse -- Analyst

Sachin Jain -- Bank of America Merrill Lynch -- Analyst

Michael Novod -- Nordea Markets -- Analyst

Maziar Mike Doustdar -- Executive Vice President and Head of International Operations

Richard Vosser -- J.P. Morgan -- Analyst

Michael Leuchten -- UBS -- Analyst

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