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Novo Nordisk A/S (NYSE:NVO)
Q3 2019 Earnings Call
Nov 1, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 Novo Nordisk A/S Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today.

I would now like to hand the conference over to your speaker today, Lars Fruergaard Jorgensen. Please go ahead.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you very much. Welcome to this Novo Nordisk conference call regarding our performance in the first nine 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 Q&A session, our Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; and Executive Vice President and Head of International Operations, Mike Doustdar; as well as our Investor Relations officers.

Today's earnings release and the slides for this call are 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 rate, 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 on 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 risks 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 next slide. In the first nine months of 2019, sales increased by 9% in Danish kroner and by 5% at constant exchange rates, driven by international operations sales growing by 11%, partly offset by a 1% sales decline in North America Operations. All therapy areas contributed to growth, with the combined diabetes and obesity sales growing by 6% and biopharma sales increasing by 4%. In the last quarter, we achieved two key milestones: Ozempic reached blockbuster status with DKK6.9 billion in sales just 19 months after launch; and the U.S. FDA approved Rybelsus on 20th of September.

Several other R&D events are worth mentioning. We have reviewed the next-generation oral GLP-1 development portfolio, and based on the encouraging progress for the enhanced oral semaglutide formulation, we have decided to discontinue further development of the oral GLP-1 analogue OG2023. Within biopharma, we have initiated the first Phase 3 trial for Concizumab explorer7 and a parallel trial explorer8 is expected to be initiated in November. Mads will elaborate further on the key R&D milestones later in this conference call.

Turning to financials. Operating profit increased by 11% in Danish kroner and by 5% at constant exchange rates. The diluted earnings per share increased by 2% to DKK12.68. For the 2019 outlook, sales growth is now expected in the range of 5% to 6% at constant exchange rates when [Phonetic] expected three percentage point positive currency impact. Operating profit growth is still expected in the range of 4% to 6% at constant exchange rates with an expected five percentage point positive currency impact.

Please turn to Slide 5. International operations delivered a solid sales performance with 11% sales growth supported by growth across all regions and therapy areas. Adjusting for the positive impact from timing of shipments and tenders, the underlying sales growth is around 10%. [Indecipherable] operations is succeeding with the Market Fit approach based on our broad, innovative product portfolio and a strong commercial execution. Growth is further supported by the underlying demographic development. North America Operations declined by 1%, driven by a 1% sales decline in the U.S. Growth drivers in North America Operations continues to be the GLP-1 and obesity franchises growing 17% and 29%, respectively.

Please turn to Slide 6. When applying therapy split on the 5% sales growth, we see similar trends as seen earlier this year. All therapy areas in both operational units contributed to growth, except for insulin sales in the U.S. Global insulin sales declined by 2% due to a 17% sales decline in the U.S. This development reflects lower realized prices due to higher rebate rates across the portfolio and increased coverage gap exposure as well as inventory reductions in the first quarter of the year. The decline was partly offset by International Operations, insulin sales growing by 8%.

GLP-1 sales increased 20% driven by 17% GLP-1 sales growth in North America Operations supported by the uptake of Ozempic and the 28% GLP-1 sales growth in International Operations driven by promotion activities for Victoza and the launch of Ozempic. Our obesity franchise grew 50% with both operating units contributing to growth, driven by promotion activities and a continued global rollout of Saxenda. Biopharm sales increased by 4%, driven by 6% and 1% growth in International Operations and North America Operations, respectively.

Please turn to Slide 7. In the past 12 months, we have expanded our global diabetes market leadership by 0.8 percentage point to 28.4% driven by a 0.8 percentage point improvement in our insulin volume market share and a continued GLP-1 market growth. Despite continued competitive pressure in the U.S. insulin segment, we have increased our insulin volume market share in both International Operations and North America Operations. We are committed to ensuring patients benefit from our broad innovative product portfolio through strong commercial execution.

Please turn to next slide. In the U.S., Ozempic continues to increase the new-to-brand prescription market share, which has reached 37% and ensured Novo Nordisk combined GLP-1 new-to-brand prescription market share of 54%. Consequently, Novo Nordisk has now regained total volume market leadership with a 47% combined GLP-1 volume market share. In the U.S. GLP-1 market the growth was [Phonetic] around 30% annually. The GLP-1 sales in the U.S. grew 17% in the first nine months, primarily driven by the continued uptake of Ozempic, partly offset by declining Victoza sales. Victoza sales were negatively impacted by changes in payer and channel mix and increased coverage gap exposure impacting average realized prices.

Please turn to Slide 9. The global rollout of Ozempic continues, and it has now been launched in 24 countries. Ozempic has been launched in 20 European countries since August 2018 and is off to a solid start with strong uptake in launch markets. Novo Nordisk share of growth has been increasing since the CV label update for Victoza and is further supported by the launch of Ozempic, leading to a stabilization of the growth -- of the market share around 56% in launch markets.

Please turn to Slide 10. Obesity sales increased 50% in the first nine months of 2019, thereby continuing the solid growth trend seen since the launch of Saxenda. Novo Nordisk maintains market leadership with a global value market share of 54%. We continue to drive change for obesity care and Saxenda has now been launched in 45 countries globally.

Please turn to Slide 11. The momentum seen through 2019 for our biopharm unit continues with 4% sales growth in the first nine months, driven by sales growth in both International Operations and North America Operations of 6% and 1%, respectively. Despite an increase in competitive environment, hemophilia sales increased 5% supported by the continued rollout of the full hemophilia portfolio with products such as Refixia and Esperoct as well as the solid position of NovoSeven as a hemostatic agent in critical treatment settings.

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. On 20th of September, the U.S. FDA approved Rybelsus, the world's first GLP-1 in a tablet, as an adjunct to diet and exercise, to improve glycemic control in adults with type 2 diabetes. Rybelsus is approved for use in two therapeutic dosages, 7 milligrams and 14 milligrams. The Rybelsus approval was based on the cradle to grave treatment approach enabled by the complementarity of the many trials included in the PIONEER program, including almost 10,000 adults with early mid and late-stage type 2 diabetes.

Rybelsus demonstrated clinically meaningful and statistically significant reduction in HbA1c compared to the leading oral anti-diabetic agents sitagliptin and then empagliflozin. In addition, Rybelsus showed an up to 4.4 kilogram reduction in body weight, more than seen with, for instance, the injectable GLP-1 comparative drug. Furthermore, Rybelsus demonstrated a safe and well-tolerated profile with the most common adverse events being mild-to-moderate nausea, which diminished over time consistent with the results from the injectable GLP-1 receptor agonists. The cardiovascular trial, PIONEER 6 supported a safe cardiovascular profile of Rybelsus with 61 major adverse cardiovascular events compared to 76 in the standard-of-care. In March 2019, a separate NDA for a cardiovascular indication within type 2 diabetes was submitted to the U.S. FDA with a regulatory feedback in the first quarter of next year, expectedly at the same time as for the CV indication for Ozempic.

We're very excited that we can make the first oral GLP-1 receptor agonist available in the United States, and we are now initiating the specialist launch, while the full commercial launch is expected as early as possible in 2020 pending commercial access. Oral semaglutide is currently being reviewed by the European and Japanese agencies with expected feedback in the first half and mid-year of 2020, respectively.

Please turn to Slide 13. In October, we initiated a first Phase 3 trial, explorer7, with a once daily subcutaneous Concizumab as an also inject a [Phonetic] pen-based prophylactic treatment to reduce the number of bleeds in patients with hemophilia A or B with inhibitors toward factor 8 or 9, respectively. The trial objective is to establish the safety and efficacy of Concizumab in this population. Explorer8 is a parallel Phase 3 trial in hemophilia A and B patients without inhibitors and the trial will be initiated this month. The explorer trial is expected to enroll approximately 265 patients from 32 countries, and they will form the basis for regulatory filing for hemophilia treatment across all segments. The full Phase 3 results are expected in the first half of 2021.

Please turn to Slide 14. In addition to the Rybelsus and Concizumab updates, several other clinical and regulatory milestones have been achieved in this quarter. In September, we received two approvals from the PMDA in Japan. Fiasp was approved with no age limitation for people with diabetes requiring insulin therapy. Based on the results from both the pediatric onset 7 trial and the adults basal-bolus onset 8 trial. Fiasp was approved to be administered by subcutaneous injection, continuous pump infusion, and by the intravenous route.

Further Esperoct, the extended half-life N8-GP product, was approved for prophylaxis and on-demand treatment of hemophilia A patients in Japan. The once weekly biodegradable growth hormone compound somapacitan was filed for regulatory approval in the U.S. and the EU for use in the adult growth hormone deficiency indication. The submissions were based on the pivotal Phase 3 REAL 2 safety trial and REAL 1, which enrolled 301 treatment-naive adults with growth hormone deficiency. REAL 1 showed positive outcomes, including the primary endpoint [Indecipherable] after one year and there were no observed safety concerns.

Turning to clinical update and as Lars previously mentioned, we had during the third quarter of this year decided on the development portfolio for the next generation oral GLP-1. Based on progress for the enhanced next-generation oral semaglutide formulation, it has been decided to discontinue further development of the new GLP-1 analogue OG2023. Lastly, in August, a Phase 1 trial with a subcutaneous version of a unique PCSK9 inhibitory peptide was initiated. The trial is a dose escalation trial with the objective of establishing safety, tolerability, and pharmacokinetics of the peptide in healthy volunteers, including one cohort of people with hypercholesterolemia receiving background therapy with a statin. The trial will form the basis for exploring the various product options for this interesting peptide in the broad cardiometabolic space.

In the coming quarter, we expect to file Esperoct for regulatory approval in China, and furthermore provide results from different Phase 1 trials, including LAIsema, the once weekly fixed ratio combination of insulin LAI287 and semaglutide in people with type 2 diabetes. Finally, two obesity projects, the Tri-agonist 1706 and PYY 1562, will report in Q4.

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 where you see the financial results for the first nine months of 2019. As mentioned, sales increased by 9% in Danish kroner and by 5% at constant exchange rates to DKK89.6 billion. Lower realized prices in the U.S. and impairment of intangible assets negatively impact the gross margin, only partly offset by favorable product mix and currencies, resulting in a gross margin of 83.6%.

Sales and distribution costs increased by 5%, reflecting resource allocation to growth markets in the International Operations, promotional activities for the global GLP-1 and obesity franchises, as well as prelaunch activities for Rybelsus in the U.S. Research and development costs declined by 6%, explained by impairment of intangible assets, offset by reversal of writedowns on prelaunch inventory for oral semaglutide in the first quarter of 2019. The underlying development reflects completion of the PIONEER program for Rybelsus and the head-to-head study between Tresiba and insulin glargine U-300 in 2018 countered by the ongoing obesity clinical programs STEP and SELECT. Administrative costs increased by 3% at constant exchange rates. All in all, the sales growth at constant exchange rates resulted in an operating profit growth of 5%. In reported numbers, operating profit increased by 11% to DKK40.6 billion. The tailwind from currencies on profit is countered by loss of around DKK3.1 billion on net financial items driven by losses on foreign exchange hedges relating primarily to the U.S. dollar. Diluted earnings per share increased by 2% to DKK12.68.

Please turn to Slide 16 for the financial outlook. The solid financial performance in the first nine months has led us to adjust our full-year outlook. For 2019, we now expect sales growth to be between 5% and 6% measured at constant exchange rates. The guidance reflects the expectations for robust performance for the GLP-1 based products within diabetes and obesity, the new generation insulin portfolio, and contribution from the biopharm products Refixia NovoEight.

Also reflected in the guidance is the intensifying competition within diabetes and biopharma, as well as the continued pricing pressure within the diabetes segments, especially in the U.S. The guidance includes the funding of the Medicare Part D coverage gap with an expected negative impact of approximately DKK2 billion. Reported sales growth is still expected to be around 3 percentage points higher at constant exchange rates. Operating profit growth is still expected to be between 4% and 6%, reflecting the sales growth outlook, continued focus on cost control, investment in product launches, and the impairment of intangible assets.

Reported operating profit growth is still expected to be 5 percentage points higher than at constant exchange rates. Following marginally strengthened exchange rates, net financial items is now expected to be a loss of approximately DKK3.9 billion, reflecting losses associated with foreign exchange hedging contracts, primarily related to the U.S. dollar. The effective tax rate is now expected to be between 19% and 21%. Capital expenditure is still expected to be around DKK9 billion, while depreciation, amortization, and impairment losses are now expected to be around DKK5.5 billion, reflecting impairment of intangible assets. Lastly, we now expect the free cash flow to be DKK31 billion to DKK35 billion.

With this over to you, Lars.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Please turn to Slide 17. We are very satisfied with the sales growth for the first nine months of 2019, which was driven by all regions in International Operations and growth across our therapy areas; diabetes, obesity, and biopharmaceutical. During the third quarter of 2019, we have reached two very important milestones, the U.S. FDA approval of Rybelsus; and the blockbuster sales for Ozembic, following a very successful launch in the U.S., two major events that emphasize the strength of our current and future GLP-1 franchise.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] And the first question is coming from the line of Wimal Kapadia from Bernstein. Please go ahead.

Wimal Kapadia -- Sanford C. Bernstein & Company LLC -- Analyst

Thank you very much for taking my questions. Wimal Kapadia from Bernstein. So could you just briefly give us more detail on exactly what was driving the impairment this quarter and how the DKK1 billion is split between R&D and COGS? And then tied to this, if I assume DKK500 million reduction for both, it suggests an underlying R&D margin of 10% and a COGS margin of 15%. Is there any specific reason the spend was lower this quarter, or should we think of these margins as a possibility moving forward, even if only for a few quarters within a given year?

My second question is on Saxenda. Clearly the product is doing very well. Can you just talk a little bit about how long patients are staying on the drug and how this period has evolved since the launch? And then how long do you expect the average stay time on sema to be within obesity? Thank you very much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Wimal. Karsten, firstly on the writedown.

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

Yes. So we have had DKK1 billion in impairment in the third quarter, as you note, Wimal. Impairments in pharma and biotech is not unusual. I think it carries some interest with us because of the way we report our numbers in a transparent way, so we don't have to split between core and non-core earnings. So, again, it's not unusual. We've also had impairments previously. What is slightly unusual in the Novo Nordisk context is that we have more impairments in individual quarter but that is a pure coincidence.

You're perfectly correct in terms of the split between R&D and cost of goods. You can split the DKK1 billion roughly 50:50 between R&D and cost of goods sold. As to the implied margins, then of course, you get to different margins. On our R&D margin, we are still guiding full year for R&D margin of 12%. The reason behind that is that we're basically in a valley between ramp down of trials in '18, primarily the PIONEER program and then ramp up of a number of trials, SOUL, SELECT, FORTE, FLOW, etc. So no changes to the R&D ratio outlook. And the same goes for cost of goods. We are still guiding a reported 1 percentage point reduction in cost of goods our gross margin ratio for the full year.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Camilla, can you elaborate a bit on stay time?

Camilla Sylvest -- Executive Vice President and Head of Commercial Strategy and Corporate Affairs

Yeah. Thank you, Lars. So on Saxenda, our stay time differs a little bit between countries but is generally in the range between four to five months. There are a few countries that are slightly lower than that, but in the U.S., it's around five months. With regards to semaglutide in obesity, I think Mads would just like to give a few words on the update of that.

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

Yes. Our understanding from the research and the investigations we do with the specialists in the area and our investigators and so on that for semaglutide there are these three factors that will contribute to a longer stay time. And the first and quite clear one is the greater efficacy. So when you have greater efficacy, [Indecipherable] compared to Saxenda is what we expect in the STEP program. This lessens the propensity of the individual patient to shy away or discontinue the product. The other one is, of course, the convenience element that this is given once weekly instead of once daily, so it's less of a hassle in the patient's life. And the third one is that the trials are ongoing for 68 weeks. That includes a titration phase followed by 52 weeks of steady state phase. And since we're in Phase 2, so there was a constant and ongoing active weight loss even into the last week of the trial. That should also mean that the patient experienced benefits for at least the first year or so of therapy. But it remains to be seen how long the stay time will be, but it will be longer than for Saxenda.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Camilla and Mads. And thank you, Wimal. Next question please.

Wimal Kapadia -- Sanford C. Bernstein & Company LLC -- Analyst

Thanks you very much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you.

Operator

The next question is coming from the line of Peter Verdult from Citi. Please go ahead.

Peter Verdult -- Citigroup Global Markets Ltd. -- Analyst

Thank you. Peter Verdult of Citi. Two questions, pipeline in China. Mads, firstly on PCSK9. Can you talk a little more about your plans there? One expects you to be developing a stand-alone injectable PCSK9 given the market dynamics, but is this about co-developing with GLP-1 in terms in oral format or using new technologies like [Indecipherable], so any light you're willing to shed there would be appreciated.

And then secondly, just you've talked about why you've terminated 2023, but could you just give us a little bit more detail on the progress you've made on next-generation oral sema in terms of bioavailability, anything we can get our teeth into will be helpful there.

And then Mike, on China, a hot topic in light of some companies making hay and others getting smacked by volume-based procurement. Can you just remind us how you assess the risks from VBP to your current 15% growth rate in China, and remind us the timeline you're working through to getting products like Tresiba, Ozempic, and Rybelsus approved and reimbursed on the NDRL? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Peter, for those creative three questions. First, Mads, on pipeline.

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

Yeah, I'll take the two half questions. The one on the PCSK9 peptide, Peter, it's been designed in such a way that it is very potent, meaning that it can in principle go into formulation with any [Phonetic] product in the pipeline since also it has a neutral pH value. And you don't need to fear overdosing it because all it can do is soak up the circulating PCSK9. And as we know from the genetic experiments of nature and mankind, that is not associated with any risks.

So, in principle, the product options are [Indecipherable], as the Romans would have said, i.e., offering the opportunity to reduce LDL significantly in patients, whether it's with diabetes, NASH [Phonetic], obesity, cardiovascular, and so on. It basically just offers the added benefit of cutting the LDL cholesterol in half, and we'll investigate those options and talk more to them once we have the data from these studies as soon as possible.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

And the 2023, so yeah.

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

2023, that relates to the fact that we have seen really nice data. You do recall, Peter, that we had two ongoing trials in parallel: one was the enhanced formulations of oral semaglutide that is completed; and the other one was the new analogue 2023. And with the benefits that we've seen vis-a-vis the formulations impact on bioavailability, we see no need to further develop 2023. So we actually view this as a sign of success of the strong collaboration between the R&D colleagues and the product supply colleagues who are able to constantly upgrade, you can say, the performance of oral semaglutide.

Peter Verdult -- Citigroup Global Markets Ltd. -- Analyst

Mads, can I push on what sort of the degree ...

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Mads, and ...

Peter Verdult -- Citigroup Global Markets Ltd. -- Analyst

Sorry, sorry, last. Can I just push you on the degree of improved bioavailability you're seeing?

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

Yes, you can do so, but you won't get much of an answer, sorry, Peter. We could get to that at a later stage.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

So, Mike, on procurement practices in the China.

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

Yeah. So the so-called 4 plus 7 public procurement, it has had a very large impact I think on some of our peers, but I would say, based on the current scope of the program, there will be limited impact on us as insulin is out of the scope, at least for the time being. So we have to wait and see what happens with that. We could eventually at one point of time in the near future get impacted on our NovoNorm sales there, but that, of course, is a smaller part of our business there.

On your second part of the question, Peter, with regards to bringing new products in, we are hard at work. We have, as you know, already registered Tresiba and got it into the National Drug List effective 1st January, 2020. Right now we are in recruitment of additional sales force, getting ready for that launch and expansion of Tresiba. We will be launching -- we have a registration for Ryzodeg, and we'll be launching that product also hopefully before the end of the year. It's anyone's guess when the list opens up again, and we will be able to bring Ryzodeg into the National Drug List. But when it does, then hopefully we're ready with that and Ozempic will follow that also in some years to come. But right now, we're doing quite well with Victoza.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Mike. Thank you, Peter. Next set of questions please.

Operator

The next question is coming from the line of Seamus Fernadez from Guggenheim. Please go ahead.

Seamus Fernadez -- Guggenheim Securities LLC -- Analyst

Thanks very much for the question. So just a couple here. So for Mads. Mads, can you just give us a general sense of when and what we're likely to see from your novel [Indecipherable] portfolio as well as kind of the combinations? My sense is that we're anticipating second half of 2020 to see data from your long-acting Amylin. So just was hoping to get an update there as well as kind of what you're hoping to see in those trials to advance them into Phase 3.

And then the second question is on just the prospects for Rybelsus and timing of launches in international markets. The U.S. makes a lot of sense for Rybelsus, but pricing dynamics are quite different in international markets. Just hoping that you could give us a better sense of how you think about the opportunity for Rybelsus in areas like Japan, Europe, and I know that there was some discussion of China there as well. So just wanted to get a better understanding of the U.S. versus international opportunity for Rybelsus. Thanks so much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Seamus. Mads, first.

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

Yeah, so on the injectable portfolio of incretin-like projects, if we start with the most advanced first, that is obviously the combination between semaglutide and the Amylin 833 compound. And those data are out, as you correctly state, in the first half of next year. And based on what I know from preclinical experiments and the monotherapy over seven weeks with the Amylin compound, they should be hopefully showing really good weight loss data since this is in obese people is taking place. So, we'll get back to that next year.

Then we have two agonists, triple and a dual agonist, ongoing in multiple dosing in Phase 1b, and that is, of course, the GIP/GLP-1 glucagon triple agonist, and it's the GIP/GLP co-agonist. Those data are actually available later this year and then finally we are gearing up for using sema, which we perceive to be both the anchor drug in several diseases but also be anchor drug partner in new-to-be combination products. And therefore, we're also combining that expectedly with a once-weekly human GIP to optimize the ratio between these two incretins in the event that GIP actually turns out to play a role in human biology. That's still a bit uncertain at this point.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Mads. And Mike?

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

Yeah. I can get the Rybelsus question. So we are waiting regulatory approvals both in Europe and Japan and hoping to get that done by next year. And there is no secret that we're also preparing ourselves for launches in both of these geographies, first and foremost, and I do hope that we will get number of countries in Europe as well as Japan, hopefully within the next 12 to 18 months done.

There is a huge potential for us, regardless of which geography you look at, as we are moving into an area we have not been competing before and the whole GP segment for us is going to be extremely keen to capture. So we are very excited about that. On the question on the pricing, I will not give you any answer today as we are too far away, and of course, we have to wait and see post approvals how each country negotiations will go. So more to that later on.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you very much. Next two questions please.

Operator

The next question is coming from the line of Matthew Weston from Credit Suisse. Please go ahead.

Jo Walton -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Hello. It's Jo Walton from Credit Suisse. Two questions please. Firstly, we know that the 2019 changes in the donut hole were around DKK2 billion impact. Could you help us on what the impact will be for the known legislative changes for 2020? Presumably, it will be slightly less, but still incrementally negative. And secondly, I wonder if you could comment on the ICER statement that came out today where they said that -- they somewhat changed their tune having previously said that oral sema would be cost effective, they now say that based on the list price and presumably their view, I don't know how educated that might be, of discounts that it was no longer cost effective relative to the SGLT2s or not as cost effective as the SGLT2s. Many thanks.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Jo. So first, Karsten, on the 2020 impact on the known [Phonetic] legislation.

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

Yes. So the known [Phonetic] legislation related to the donut hole, which we have been public about earlier. The impact is 1% on group sales in 2020. And then, of course, it's also important to note that this will have an impact in terms of patient affordability. So the American government are actually pushing more cost to patients with this change.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Mads, on the ICER.

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

Yes. First of all, Jo, let's just remind each other of the differences between a classic health economic outcome research analysis taking into account all the big landmark trial data that have emerged over time that would typically predict what the societal cost of the burden of diabetic related complications will be over decades, two decades, three decades, and so on. And those analyses are the ones that we have done with the impact -- metabolic impact of Rybelsus showing that over decades this is clearly cost effective for society to use the product.

This element is not really integrated in the ICER research which just looks at the mere data as they are and the metabolic outcomes here and now. But as I understand the report, having not had really time to study today, it is still the perception that I have that when it comes to sitagliptin and liraglutide, there seems to be cost effectiveness of Rybelsus, and that is only when you look at the empagliflozin that they claim that not to be the case. When all of that is said then, by the way, the discussions that our American team have ongoing with the PBMs, they are ongoing and we'll keep you updated as they come to conclusion over time.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Mads. Thank you, Karsten, Thank you, Jo. Next set of questions please.

Operator

The next question is coming from the line [Indecipherable] from Bank of America. Please go ahead.

Sachin Jain -- Merrill Lynch International (United Kingdom) -- Analyst

Hi. Thanks very much. Just two questions. Firstly, on U.S. GLP-1, the 15% delta between roughly what scripts are doing and your sales growth of 35 to 20. How do we think about that delta into next year? And then secondly, just to pick up on Mads's last comment on Rybelsus payer access, just [Indecipherable] could set expectations with CMD in a couple of weeks as to what level of granularity you think you'll be able to give us on Rybelsus payer access progression? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Sachin. Karsten first on U.S. GLP-1 pricing.

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

Yeah, so on U.S. GLP-1 pricing and the spread between the volume you see in the market data reporting and our reported net sales, it's important to note the starting point that we have a category or segment -- GLP-1 segment where we are growing 20% and a sizable segment with the leading product portfolio. So that's, of course, attractive. The dynamics in 2019 between the volume and net are unchanged compared to what we were reporting in prior quarters. The only slight delta is explained by timing of list price increases between the years. So that's the dynamics. As to specific 2020 guidance, we'll provide that come February.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. And in terms of giving update on Rybelsus access, bear in mind that it's -- we're just one month-plus into discussing this with payers. So we're not going to be very elaborate on that on our Capital Markets Day. This is something that takes a bit of time to finalize, but we're having good discussions. But you shouldn't have expectations about something that's very granular when we come to the Capital Markets Day.

Thank you, Sachin.

Sachin Jain -- Merrill Lynch International (United Kingdom) -- Analyst

Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Next set of questions, please.

Operator

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

Michael Novod -- Nordea Bank Abp -- Analyst

Thank you very much. It's Michael from Nordea. One question to hemophilia and just a bit more cleat elaboration on NovoSeven and also how you see it going forward, because your original guidance taking into account Hemlibra was sort of the minus 50% over time, and now it seems to be stabilizing. So maybe if you could just give a bit more flavor to how we could envision this development over the next couple of years.

And then secondly, are you able now to start being more active on sort of direct marketing on Saxenda in obesity? I'm not thinking about national TV commercials but more in terms of say select media, etc. where you go out and push more for this. Are you still waiting to get your product on the market with better figures [Phonetic] to really kick-start this?

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Michael. On hemophilia, we are pleased with the development of our hemophilia franchise. We see that NovoSeven is slightly more resilient vis-a-vis Hemlibra than we probably had modeled. Part of that is that the inroads probably takes a bit longer for Hemlibra but we also see that there are still breakthrough bleeds that take rescue [Phonetic] treatment and there's contraindication for fiber [Phonetic]. So there NovoSeven is a choice. So NovoSeven holds up better, but we still believe that over time there will be an erosion potentially slightly lower than what we initially forecasted, but it's coming slower than expected.

But I think it's important to note that our portfolio of hemophilia products is doing really well. So Refixia being launched with nice uptake, we still do well with NovoEight. We come from, say, a low base -- no base, so to say. So it's additive to our business. And when you look at biopharm [Indecipherable] has also done well in 2019. So we're quite encouraged with our ability to keep driving growth organically in hemophilia. Then Camilla, on Saxenda and ability to market that.

Camilla Sylvest -- Executive Vice President and Head of Commercial Strategy and Corporate Affairs

Yeah. And I think the question also went to whether we would do a DTC. Right now with obesity, in general, and with Saxenda in the U.S., we are focused on a number of opportunities but also barriers. So one of those -- the first ones is, of course, that patients are actually seeking care. So as you will notice, we have initiated a number of opportunities to collaborate with the companies that do behavioral modification. That also should inform patients about how they can, of course, seek care for obesity like Saxenda, but also how they can improve their well-being in general. So combining these two things has shown us in pilot studies that in 4,000 patients that they are good results to achieve, and we will share some of these results also at our Capital Markets Day.

And that also means that the market is yet not mature enough for us to do direct to consumer marketing because of the barriers that we still see in the system. So we are focused also rather than that to make sure that we can inform the healthcare professionals about obesity as a chronic disease. And when we have gotten more mature in both of these areas, so patients seeking care and providers being able to provide the care, then the market will be more mature for DTC activities, but not at this point.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

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

Operator

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

Michael Leuchten -- UBS AG -- Analyst

Thank you. It's Michael Leuchten from UBS. So two questions. One, just going back to the impairment charge, please. If I look at the trend line of R&D, I don't really see R&D in Q3 break out to the tune of roughly 50% of the impairment charge. So just trying to understand if DKK500 million or so are booked in that line, why we didn't see more of a step-up in the quarter?

And then the second question for Mike. I think IO has outperformed expectations or the market expectations for quite a few quarters. It was driven partly by shipment and phasing in Q1 and Q2. Can we look at Q3, the 9% growth, as an underlying growth number? If they were shipments early in the year, what does it mean for Q4? And is Q3 then a good proxy for how we should think about 2020 onwards and then plus obviously Rybelsus launch on top of that? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Michael. I think, Karsten, you had a quite elaborate answer on the impairment, but there was this underlying question on R&D spend. What can you --?

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

Yeah. So I think it's always -- it's really good to go into the quarterly trending on the cost lines because there are so many factors going into it between trial initiation and trial close down and patient recruitment. So I would say compared to Q3 '18, and I'm sure you've got that, but do note that we had some DKK300 million in Q3 '18 in the comparator as the main outlier. I think just when you look at the first couple of quarters in '19, you see big volatility between Q1 spending and Q2 spending. So I wouldn't focus too much on Q3 versus Q2, but that's a quarterly fluctuation, and then we're into trial ramp-up come Q4.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Mike, growth potentially in IO.

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

Yes. So, Michael, I think, firstly, it's not doing justice to say timing is the reason why IO is doing well. I think we have said that timing has been part of the reason for the underlying growth. I think when you try to see how IO and why IO is growing, then there is the good underlying demographics which we always have had and continue to have strong demographic growth and volume growth in IO.

We have had improved commercial execution, which I have spoken to a number of times, where we simply are doing better closing the calls and commercially improving on every single geography. And then that has come at a very good time where we're launching new products. So we have been blessed by getting really good products and then doing well with them in various different markets in different ways.

And as a result of that, of course, we have had good results. I have spoken to two other elements: A, a bit of a quarter-by-quarter timing issues that we have, a little bit of that; and then also no disruptions and no major disasters that has not happened to us and so on and so forth. So that is little bit the reason for the growth having gone above historical numbers. If you take a look at the quarterly growth, then you also see that we start a little bit the year strong and then as quarters go past, then we have lower number growth rates per quarter and you see that also in this quarter.

But I would say that I do feel comfortable with a few percentage points, so around 9.5%, 10% growth, underlying growth for the full year, this year, and as the rest of my colleagues don't speak to 2020, I cannot also speak to 2020. But it's going to be a pretty good year and then we'll see what happens next.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Mike. And thank you, Michael, for the questions. Next set of questions please.

Operator

The next question is coming from the line of Richard Vosser from J.P. Morgan. Please go ahead.

Richard Vosser -- JPMorgan Securities Plc -- Analyst

Hi, thanks for taking my questions. Two, please. Firstly, on the U.S. insulin market, basal and short-acting. Perhaps you could highlight how you're seeing the formulary access for next year and how we should think about the pricing environment, whether it's similar to 2019 for 2020?

And then secondly, just going back to the Tresiba opportunity in China. Perhaps you could give us some framing of that opportunity over the next couple of years relative to the sort of declines you're seeing in the U.S. market for basal insulin. Thanks very much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Richard. So for the U.S. insulin market, we expect roughly same access for Novo Nordisk going into 2020 as we have for this year. We'll not, at this point of time, comment about pricing. That will be part of our full year release and our guidance for 2020. But it's clear, you can see that we have price pressure this year. When you add up all the three manufacturers, you see that the value of the insulin market declined double digit. So we have price pressure. We've had that for some years, and that will also be the case for next year. And then, Mike, on [Indecipherable]?

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

Yeah. So the basal opportunity in China, I think if you take a look, we have had most of our growth historically in China due to insulin and primarily, of course, the premixed insulin, NovoMix, and before that Mixtard are two of the leading products in China and we've done really, really well. What I think most people don't realize is that China has a very large basal market. So according to IQVIA, the Chinese insulin market is around DKK14 billion. The basal market is DKK5 billion, what at least IQVIA covers, and you can perhaps double that to get to the real numbers.

Within the premix segment, which is only DKK4 billion, we have 77% market share. So we are really in a defensive mode trying to make sure that we can defend that and hoping then, of course, we get Ryzodeg eventually into the market and keep the defense on that high market share. Within the larger DKK5 billion market, then we only have 15% market share. And it's no secret that with now having Tresiba into the market with good access, we see a very large opportunity for us to capture market share in that large segment. So I'm very hopeful with the basal market share, and that's why we're also expanding our sales force in that front.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

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

Operator

The next question is coming from the line of Charles Pitman from Redburn. Please go ahead.

Charles Pitman -- Redburn (Europe) Ltd. -- Analyst

Thank you for taking my questions. It's Charles Pitman from Redburn. I have two please. On Saxenda, how should we think about the sustainability level of strong underlying growth for the rest of FY '19 and going forward into 2020? And then secondly, what are your capital allocation priorities post the completion of your $15 billion share repurchase program? Are you thinking about initiating small buybacks, M&A, dividends, or product launch, or just supporting your product launches? Thank you very much.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you. Charles. Camilla, on Saxenda overall on growth.

Camilla Sylvest -- Executive Vice President and Head of Commercial Strategy and Corporate Affairs

Yeah. Overall, on Saxenda growth, we still see a continued strong growth both in the U.S. but also outside the U.S. As you know, we are not guiding for next year at this point in time, but we do see also in the U.S. that the general market, of course, is not developing as positively as our Saxenda, and that means that we keep taking share, of course, with Saxenda. But our focus also remains to build the market and grow the market.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you. Capital allocation, Karsten.

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

Yeah. On capital allocation, then we're returning the free cash flow we generate this year, more or less, 1-to-1 to our shareholders between dividends to the tune of DKK19 billion and share buyback of DKK15 billion, so DKK34 billion in total. We have traditionally updated or renewed our share buyback approach in connection with our full-year results, and I'll also cover our capital allocation approach at our Capital Markets Day. So rest assured that we will be very focused on returning free cash flow to investors. Should we or when we will have M&A [Indecipherable] activities, then given our balance sheet, we do have the option to use our balance sheet to do some leverage and continue to be a strong cash returning company.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Thank you, Charles. Next set of question please.

Operator

The next question is coming from the line of Jordan McConnell from Deutsche Bank. Please go ahead.

Jordan McConnell -- Deutsche Bank AG -- Analyst

Hi, thanks for taking my questions. This is Jordan McConnell from Deutsche Bank. So just the first question, just going back to GLP-1 franchise pricing in the U.S. I'm wondering if you can just talk about your ability to take future list prices increases here just given the current political environment. And then secondly, I was wondering if you could just talk about your sort of investment priorities in the fourth quarter just given some of the base effects in the prior year and also your guidance for the full year. Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Jordan. So on GLP-1 price and ability to take a price increase, I do not really want to comment on that. The ability in the industry in general to take price increase is lower in this environment where there's lot of focus on pricing. But I think it differs largely, of course, the type of products, therapy areas, and what exposure that is. So I can unfortunately not be more explicit on that. And then the second question was on -- was that for you, Karsten?

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

That's for me. That was on implied Q4 for the remainder of this year. And if we take on sales, then our year-to-date sales growth is around 5.5% and our guidance for the full year is between 5% and 6%, so that's very much spot on. In terms of operating profit growth and items in the comparator base, then do recall that in Q4 last year, we expensed a priority review voucher that we used for Rybelsus and then we had some severance costs. So in round numbers, we had roughly DKK1 billion in non-recurring cost in Q4 last year. So that is, of course, an easier comparator on that front.

This year, going into Q4, there are some main components where we're consciously continuing to invest in our business. So first of all, we talked about Ozempic. So still investing significantly in rolling out Ozempic and penetrating the markets that we're in. Apart from that, then I also talked about our R&D spend and the ramp-up of trials before. So R&D cost will be ramping up, which is also implied in hitting a 12% R&D ratio for the full year. Then Mike talked about Tresiba reimbursement come January in China. So we have hired 400 reps in China. And then the last big item in Q4 this year is, I'd say, a sizable investment going into launching Rybelsus in the U.S.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. Thank you, Jordan. I think we have time for a few more questions. Next set of questions please.

Operator

Next question is coming from the line of Peter Welford from Jefferies. Please go ahead.

Peter Welford -- Jefferies LLC -- Analyst

Hi, thanks for taking my questions. Firstly, just on the CV, I guess PDUFA date is coming up in January. I wonder if you can confirm that there is no notice from FDA of an AdComm, or perhaps you've notification that there will definitely not be an AdComm for either oral or injectable sema.

And then just on the financials, just curious, a point of clarity again on the impairment, just whether or not the DKK500 million that has been booked roughly in the COGS line, I wonder what that related to given you say these are all related to R&D projects. I guess I'd be curious if you can give us some greater insight into the asset that was impaired there.

And just on the tax rate, does that now reflect the benefit from the Canton Zurich change? Or is this change in tax rate for the outlook for the full year reflective of another factor you've yet to reflect the Zurich change? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Okay. Thank you, Peter, for those three questions. I think, Mads, firstly, on CV.

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

Yes. So the two supplemental NDAs for Rybelsus and Ozempic cardiovascular indication in type 2 diabetes, the review of those are ongoing in parallel. We have had no notification that there will be an AdComm. But on the other hand, that does not mean to say that I can confirm that there will be never be one. In principle, it is the prerogative of the agency to call one if need be, but I see no signs to suggest that that is going to happen at this point in time.

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

Yes. And then on the latter two questions on COGS impairment. Yes, we're talking about IP on commercial assets. So that would otherwise have been expensed as a royalty in cost of goods over the patent life of the assets. We're not going into any specifics around what assets, but it is assets that would otherwise be expensed as royalty over the patent term. As to the tax rate, then you're correct. The reduction in tax rate in the third quarter relates to the implementation or the adoption of the Swiss tax reform that was adopted in Canton Zurich in the third quarter.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

Thank you, Karsten. So last question please.

Operator

The last question is coming from the line of Naresh Chouhan from Intron Health. Please go ahead.

Naresh Chouhan -- Intron Health Advisors -- Analyst

Hi, there. Thanks for taking my questions. This is from Naresh Chouhan from Intron Health. Two questions, both on Rybelsus please. Our research suggests that Rybelsus' commercial access is around 40% already and seems to be ahead of where Ozempic was. And around half of that don't require prior authorization or step edits. Could you confirm that that's kind of where we are and whether or not that's ahead of your expectations? And then secondly, now you started negotiations on Rybelsus. Is there any risk that you see with respect to step edits that require using an SGLT-2 before patients being given access to Rybelsus? Thank you.

Lars Fruergaard Jorgensen -- President and Chief Executive Officer

So thank you for those questions, Naresh. We cannot comment on level of access now and also whether there'll be step edits. Clearly that's not our objective. We are still early in the progress -- process of negotiating this access. So I cannot comment on either the number you indicate nor to the degree the payers request step edits. It's not something we want to pursue. So unfortunately, not a very detailed answer there.

So with that, we will close our Q&A session. Thank you very much for the interest in Novo Nordisk. We look forward to hopefully see many of you at the Capital Markets Day. And if you have any questions before then, please feel free to reach out to our Investor Relations officers. Thank you and have a good day.

Operator

[Operator Closing Remarks]

Duration: 59 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

Camilla Sylvest -- Executive Vice President and Head of Commercial Strategy and Corporate Affairs

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

Wimal Kapadia -- Sanford C. Bernstein & Company LLC -- Analyst

Peter Verdult -- Citigroup Global Markets Ltd. -- Analyst

Seamus Fernadez -- Guggenheim Securities LLC -- Analyst

Jo Walton -- Credit Suisse Securities (Europe) Ltd. -- Analyst

Sachin Jain -- Merrill Lynch International (United Kingdom) -- Analyst

Michael Novod -- Nordea Bank Abp -- Analyst

Michael Leuchten -- UBS AG -- Analyst

Richard Vosser -- JPMorgan Securities Plc -- Analyst

Charles Pitman -- Redburn (Europe) Ltd. -- Analyst

Jordan McConnell -- Deutsche Bank AG -- Analyst

Peter Welford -- Jefferies LLC -- Analyst

Naresh Chouhan -- Intron Health Advisors -- Analyst

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