Novo Nordisk A S (NVO) Q1 2021 earnings call transcript

Thank you very much, and welcome to this NOVO NORDISK earnings call for the first three months of 2021 and Outlook for the year. I'm Lars Ruegaard-Jorgensen, the CEO of NOVO NORDISK. With me I have our Chief Financial Officer, Karsten von Knudsen, and Executive Vice President and Head of Development, Martin Holz Lange. Also present and available for Q&A session is Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Silvest. Today's earnings release and the slides for this call are available on our website, noanoise. com. Please note that this call is being webcasted live and the recording will be made available on NOVO NORDISK website. The call is scheduled to last one hour. The presentation is structured as outlined on slide 2.

Please note, all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. The Q&A session will begin in about 25 minutes. Please turn to slide 3. As always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risk and uncertainty that could cause actual results to differ materially from expectations. For further information on the risk factors, including the uncertainties related to COVID-19, Please see the company announcement for the first three months of 2021 and the slide prepared for this presentation. Please turn to the next slide. In the past three months, NOVO NORDISK has progressed on all four dimensions of our strategic aspirations.

We want to continue to add value to societies while we have taken steps on prevention and access. We have announced two partnerships where we invest in healthier urban populations, as well as support frontline healthcare workers in low- and middle-income countries to improve access to diabetes care. As part of our Circular for Zero Environmental strategy, we are pleased to note that several suppliers have already committed to the zero-carbon emission target by 2030 when supplying NOVO NORDISK, which is expected to eliminate an estimated 15% of NOVO NORDISK supplier carbon emissions.

Martin will come back to key milestones within innovation, but firstly I want to mention that while we had an initial setback for OSMPIC 2.0 mg in the US with the FDA-issued refusal to file letter, we are working towards a resubmission in the second quarter.

Furthermore, I am happy to share with you that OSMPIC has been approved for type 2 diabetes treatment and established cardiovascular disease in China. For commercial execution, we have progressed on all three strategic aspirations.

Lastly, within financials, despite a tough comparator, which has been partly offset by inventory changes and timing of shipments in the first quarter of 2020-29, sales grew by 7% while operating profit increased by 3%, both measured at constant exchange rates. Please turn to slide 5. The sales increase of 7% was driven by 9% sales growth in international operations and North America operations, growing by 5%. The negative impact for COVID-19 related stocking in the first quarter of 2020 is primarily offset by inventory changes and timing of shipments in this quarter. All therapy areas contributed to growth with diabetes care sales growing by 9%, driven by GLP-1 sales growth and unchanged insulin sales.

GLP-1 sales increased by 23%, driven by North America, growing by 19%, and international operations growing by 31%. The on-chain insulin sales were driven by 5% growth in international operations, offset by 10% sales decline in North America. The US insulin sales declined by 10%, driven by declining in volume, rebate enhancement, while partially offset by channel mix. Diabetes care sales grew by 9%, as international operations grew by 18%, and North America operations grew by 2%. Firefarm sales increased by 1%, driven by North America operations. Please turn to slide 6.

In line with our suggestions of reaching one-third of the diabetes value market by 2025, we have improved our market share by 0.6 percentage points to 29.3%. The increase reflects GLP-1 market share gains in both operating units. We have increased our insulin volume market share to 47.3%, driven by market share gains in international operations supported by all three areas. Please turn to slide 7.

The US GLP-1 volume market growth is around 20% in the first quarter of 2021, driven by one's weekly injectable as well as all GLP-1 products. NOVO NORDISK market leadership is now 58%, driven by the uptake of OcemPIC and supported by Rebelsos.

Measured on TotalScripps, NOVO NORDISK is a market leader with more than 50% market share. Please turn to slide 8.

In the US, Rebelsos increases its volume market share both in terms of TotalScripps and new patient starts, despite two lockdowns with no face-to-face interactions between NOVO NORDISK and the prescribers. We have secured broad market access for Rebelsos, while the majority of Rebelsos scripts are now reimbursed and more than 80% of new patients are from outside the GL4-1 class.

Outside of the US, Rebelsos has now been launched in 14 countries, with one key market being Japan. Two and a half months into the launch, Rebelsos has captured 0.5% of the all-antidiabetes market. The OAD market in Japan constitutes around 80% of the diabetes market. Please go to slide 9.

In international operations, diabetes care sales increased by 10% driven by all geographies. The continued rollout of new generation insulin and focus on the GP1 product portfolio has resulted in an increased diabetes market share, which is now 23.6%. This is driven by share, market share gains in both GLB1 and insulin. The value share of the GLB1 class of the total diabetes market has increased 1.8 percentage points to 11.2%. Please turn to slide 10.

Obestity care sales increased by 9% with 2% growth in North American operations and 18% growth in international operations. Throughout 2020 and into 2021, fewer patients have started treatment with Texenda due to COVID-19 lockdown and reduced access to healthcare providers. In the U. S. , we have since the start of the year seen an upward trend in the new patient starts on Texenda, indicating early signs of recovery in patient flow.

Please turn to slide 11. Biopharm sales grew by 1%, driven by 3% sales growth in North America operations and unchanged sales in international operations. Rare blood disorders grew by 2%, driven by new product launches with Esporog and Reflexia. The 2% NOVO 7 sales decline was more than offset by hemophilia A products growing by 16%, and hemophilia B sales increasing by 18%. Rare endocrine disorders grew by 2%, driven by new indications, and global rollout of next-generation device for Nordotropin.

Now over to you, Martin, for an update on R&D.

Thank you, Lars. Please turn to slide 12. We continue to progress our late-stage pipeline, aiming at initiating phase-free activities across all of our therapy areas over the next year. In other serious chronic diseases, we in April initiated the Phase 3A trial called ESSENCE, evaluating subcutaneous once-weekly semagrotide 2.4 mg for treatment of non-alcoholic stertohepatitis or NASH. The trial will enroll around 1,200 people with NASH in stages 2 and 3 of fibrosis.

The trial is planned in two parts. Part 1 will assess the effect of semaglutide 2.4 mg versus placebo, both on top of standard of care. The primary assessment will be based on liver histology after 72 weeks of treatment. Part 2 will be an extension of Part 1, thereby preserving the randomization and assessing the effect of semaglutide 2.4 mg on liver-related clinical outcomes after a total of 240 weeks of treatment.

The regulatory submission is expected to be based on part one of the trial, combined with the already completed and reported results from the phase two trial for which we have been granted breakthrough designation by the U. S. FDA back in 2020. Please turn to the next slide.

In obesity, our strategic aspiration is to develop a leading portfolio of superior treatment solutions. Consequently, we've decided to complement our injectable therapy portfolio with an oral option. From market research, we know that the majority of people with overweight seeking care with healthcare providers are not referred to an anti-obesity medicines prescriber. Further, research has shown that a number of patients, as well as their prescribers, have a preference for tablet-based treatment. Consequently, we expect to be able to address a substantial unmet need by developing a broader palette of obesity offerings, as we in April announced our decision to enter into Phase 3 in obesity with all semagrotide 50 mg.

This decision follows the completion of the STEP Phase 3A clinical program for once-weekly subcutaneous semagrotide 2.4 mg, which is currently under regulatory review in the U. S. as well as in the EU. The global 68-weight program, also called OASIS, will enroll around 1,000 people with obesity or overweight with at least one weight-related comorbidity in a total of three trials.

As usual, weight-related comorbidities are defined as hypertension, dyslipidemia, obstructive sleep apnea, and cardiovascular disease. We expect to, in the second half of 2021, to initiate the first of the three trials, which is expected to enroll around 650 trial participants.

The objective is to confirm superiority of oral semaglutide 50 mg versus placebo on weight loss in people with obesity or overweight.

Please turn to the next slide. Now turning to the broader R&D high-level milestones in 2021. As Lars mentioned earlier, we have in the U. S. in March received a refusal to file letter for the label expansion for 2.0 mg of OSEMPIC for the treatment of diabetes. The regulatory file was based on the sustained forwarded trial.

The U. S. has requested additional information mainly related to additional manufacturing data, and it is our belief that no additional clinical data will be needed for the resubmission. We are currently in a constructive dialogue with the FDA and work to resubmit during the second quarter of 2021.

Moving on, also in the first quarter of 2021, we have initiated a Phase 3 52-week clinical trial with once-weekly semagrotide 2.4 mg in people with obesity-related heart failure with preserved ejection fraction, also called HEP-PEF. In the second quarter, we also expect to initiate the Phase III program for all semaglutide in Alzheimer's disease, and we look forward to receiving the feedback from the US FDA on the application for semaglutide 2.4 mg in obesity.

Moving to the second half of 2021, we expect to see Phase I results within our insulin innovation, and we also expect to initiate the Phase III outcomes trials for celtevecimab within cardiovascular disease. Towards the turn of the year, we expect a decision from the EU on to magnetotide 2.4 mg in obesity, as well as for SEMPEC 2.0 mg within diabetes. And within BioPharm, we expect to have results from the Phase 3 program for somapacitin and children.

Lastly, for the ongoing combined Phase 1 and 2 trial with MyMate, we expect to see results from the different cohorts during the coming free quarters. With that, over to you, Karsten.

Thank you, Martin. Please turn to slide 15. In the first three months of 2021, sales were unchanged in Danish Krona and grew by 7% at constant exchange rates. The gross margin declined to 82.8% compared to 84.1% in 2020.

The decline reflects negative currency impact and lower realized prices in the US, partly offset by positive product mix and productivity. Thank you. A higher activity level as we progress the early stage pipeline within other serious chronic diseases, as well as the ongoing cardiovascular outcome trials, SOLE and SELECT.

Administration costs increased by 1% in Danish krona and 3% at constant exchange rates. Operating profit decreased by 8% in Danish krona and increased by 3% at constant exchange rates. The negative currency impact on operating profit is partly offset by around 1 billion Danish kroner in hedging gains under net financial items. This compares to a loss of 1.3 billion Danish kroner in 2020.

The hedging gains are a consequence of the US dollar trading 9 lower compared to last year Net profit increased by 6 and diluted earnings per share increased by 8 to 5 kroner and 45 euro Free cash flow was 9.5 billion Danish kroner compared to 7.7 billion Danish kroner in 2020. The increase reflects the higher net profit and the favorable impact from changes in working capital.

Please turn to slide 16. In the first quarter of 2021, we have realized a negative currency impact on sales and operating profits. The currency headwinds are driven by most major currencies and emerging market currencies trading at lower levels in 2021 than in 2020. Some of the negative currency impact from major currencies on operating profit is, as mentioned, partly offset in net financial items as they are hedged. Please turn to the next slide. Based on the strong underlying performance seen in the beginning of 2021, we now expect 2021 sales growth between 6% and 10% at constant exchange rates.

This guidance reflects continued diabetes care growth, mainly driven by Ozympic and Rebelsis, as well as obesity care growth. Also embedded is intensifying competition both within diabetes care and biofarm and continued pricing pressure mainly within diabetes care in the US. Operating profit is now expected to grow between 5% and 9%, reflecting the sales growth outlook and continued investments in current growth drivers as well as pipeline assets to secure future growth. As previously mentioned, we expect negative currency impact for the full year. Consequently, reported sales and operating profit growth is now still expected to be 4% and 6% lower than at constant exchange rates, respectively.

The current COVID-19 pandemic causes uncertainty to the outlook regarding new patient initiations and societal impacts. Financial items is still expected to be a gain of around 0.7 billion Danish kroner. Due to minor timing changes, we now expect capital expenditure to be around 7.5 billion Danish kroner in 2021.

Lastly, free cash flow is parallel shifted upwards by 1 billion Danish kroner and now expected to be between 37 and 42 billion Danish kroner. As a consequence, the ongoing share buyback program is expanded with 1 billion Danish kroner to 18 billion. Now back to you, Lars, for final remarks.

Thank you, Karsten. Please turn to slide 18. We are very encouraged with the start of the year. Sales growth was driven by all therapy areas and across geographical areas within international relations as well as North America relations, Where growth was accelerated in the US. We were also pleased to announce plans to develop all semaglutide as a convenient and effective treatment option for people with obesity, complementing our injectable obesity medications.

The solid financial performance in the first three months of 2021 has enabled us to raise our outlook range for the full year. We are now ready for the Q&A, where I kindly ask all participants to limit her or himself to two questions. Operator, we are now ready to take the first questions.

Thank you, Emmanuel. Two questions related to guidance. One linked to the stock we saw and what more to say about the guidance lift, and then outlook for China also linked to guidance and the volume-based pricing. So, Kars, no to you.

Thank you for those questions, Emmanuel. And clearly some movements on Q1 results that's important to take into account when providing full year guidance. So just to reiterate, our 7% sales growth in the first quarter should be considered in the light of the 2 billion DTK stocking we saw in the first quarter last year. So adjusting for that would take us to 40% sales growth. And then what we saw in the first quarter of this year between wholesaler stocking in the U. S. , partly related to the launch of OSEMPIC with the 3ML cartridges as one piece, And then timing of shipments in IOs and tenders as well would basically adjust the Fortune sales growth down to 9%.

So in adjusted terms, our Q1 underlying sales growth is 9%. And that's basically in the high end of the guidance range we issued back in February, where we said from 5 to 9, and being in the high end was one of the key indicators for us to increase our full-year guidance. On top of that, linking to your China impact to guidance question, then of course when assessing the proper guidance for the remainder of the full year, of course that also takes into account the risk picture we're looking into. And what we see in China specifically is that we do see an impact from volume-based purchasing on NOVO norm, so the so-called VBP4, where we'll see an impact on NOVO norm starting from May and onwards.

So that's fully included into our guidance. In terms of pursuing VBPs in China, we do not expect insulin to be included in VBP 5, which is happening now with effect from sometime in Q3. And hence, any potential impact from insulin on volume-based pricing in China would be later in the year.

So truly quantifying that is hard because we don't know the exact structure and timing. But that's also why we're working with guidance ranges. So it can be bigger or smaller, but we do expect a negative impact in the time to come from insulin in China.

Thank you, Carsten.

Thank you, Emmanuel. Next set of questions, please. Our next question comes from Peter Verduk from Citi. Please go ahead.

And what we saw when the Trump administration reduced rates some years back was that on the U. S. corporate income tax rate, a reduction or a movement of 10 percentage points on that moves our global group effective tax rate by 1 percentage point. So taking the U. S. rate from 21 to 28, that would move our group rate by some 50 basis points or something like that.

There are a number of other potential elements in the rulemaking process, and I'm sure you read about global minimum taxes and so on. At this point, it's simply too early to assess whether it has an impact or not. But the simple sensitivity is around 0.5% from the U. S. corporate income tax.

Thank you, Karsten. And then Camilla, what can you share in terms of tactics for the obesity commercial efforts in the U. S.?

Yeah, so in terms of tactics for the obesity in the U. S. , we are, of course, focused on driving the expansion in the commercial segment. But we, of course, are also working longer term to get into the Medicare segment. This, of course, is not – there is no sort of an immediate timeline to that. But what we can say about the access in the commercial segment is that there is – we are working on making sure that there is opt-in to the gross coverage, meaning that we can improve also on our net coverage. And of course, we also expect that over time when we launch our next product, the Simaclity 2.4 subject to approval, that that will also, of course, be effectful in terms of getting coverage.

So coverage continues to be important. And in terms of sales reps, we are complementing our efforts from sales reps with omnichannel approaches. And of course, also working to see if we can expand what we call the direct care approach, which means that since there are very few physicians that are prescribing obesity products at this point, it might be easier to enable that with an omnichannel approach, meaning online diagnosis potentially over time and online scripts. So that's something that we are working on, but it's not in full force at this point in time.

Thank you. Thank you, Camilla.

Thank you, Pete. Next set of questions, please. Our next question comes from Romo Kapadia from Bernstein. Please go ahead.

Thank you, Wimal. So first, Carsten, on GLP-1 pricing.

Yeah, so on Rebelsis and GF1 pricing, it's always dangerous to do this value prescript on a quarterly basis, but I would say in trying to make it as simple as possible, then when you compare Ozympic and Rebelsis, then there's a delta of 11% on a list price per day, simply due to the price. Due to the size of the script between weekly and daily treatments. So that's one delta.

Then furthermore, we do see continued use of affordability programs for rebutters. So there's both a bigger co-pay buy-down compared to that of OSMPIC, since we're competing in the oral segment down to $10. And then we still see a tale of some of the affordability programs from 2020, where you have some runway before that ends. And then, of course, there's the usual channel mix dynamics, where you start out in the higher margin channels, and then over time, products are available in more channels, also in lower margin channels. So I would say in short, the affordability piece with the tail going out on some of the launch programs, that should be beneficial.

But the channel mix, as we've seen it with other products, should be negative going forward on an ARP per script basis. But on a net value, it will be positive.

Thank you Carsten And on China we cannot really go in and speculate about what will happen in the future I just say that I believe it slightly more complicated to handle biological medicines for physicians and patients if you go into these type of tender situations compared to small molecules But it not really possible for us to speculate on how this will play out in the future Thank you, Vimal.

Thank you, Yannick. I'll pass on both questions to Camilla.

Thank you, Yannick. Yes, correct that we are quite optimistic around when we get back into the field, we see that the NBRX curves of Rebelsos comes back to similar slopes of the curve, so to say. Of course, we are not fully, as you say, back in the field yet, so there is still some room, but we are, of course, constantly increasing our presence in the field also. So, and in 2020, we also got quite some experience on how to supplement our infield presence with other types of multi-channel engagement parameters. So, that's the way that we try to do this, but over time, this constantly should increase also with the U. S. opening up. And then on Japan and Rebelso's rollout, we are quite satisfied with the uptake so far, especially when we look at also our share of voice where we, together with Merck, have the highest share of voice in the OAD segment in Japan at this point in time.

So despite the sort of special conditions in Japan with the two-week prescription rules, then we feel that on a comparative note, we are tracking quite well in Japan following the very recent launch of Rebelsos.

Thank you, Camilla, and thank you, Yannick. So as you can hear, we are very confident and very pleased with how Rebelsos is performing both in the U. S. and Japan, and we are very optimistic about the future for Rebelsos. So next set of questions, please. Next question comes from Simon Baker from Redburn. Please go ahead.

Thank you, Simon. First, Carsten, on phasing, both on cost and stocking.

Yeah, thank you, Simon, for that set of questions. So on phasing, I would say the key aspect to be looking out for in terms of comparables versus last year is in Q2, where we saw quite significant de-stocking last year, taking our Q2 sales growth last year down to basically zero. So, of course, that will impact the comparator as we saw impacting the comparator in the first quarter of this year, the other way around.

So, that will be the main on sales growth. I think on the other partial destocking between Q3 and Q4 last year, I think it will be on the decimal. So, I wouldn't be hunching that vis-a-vis other impacts on top line. In terms of our spending, I would say you should not expect any significant changes to our spending pattern this year. So the way it happens, I would say if I take R&D first, then we're basically facing our spending vis-a-vis the trial execution. So there's a startup cost and a close-down cost, and the remainder of the spending on trials are basically spread over the lifetime of the trial, and hence it's being faced rather gradually.

Then there would only be significant bumps in case of, you could say, any impairments to intangible assets. And as you know, we don't have a lot of acquired assets in NOVO. So don't expect significant bumps in terms of R&D spending. S&D, what you saw here in the first quarter with S&D being up 16%, that was an artifact of us both pushing Rebelsis and OSEMPIC, especially in the U. S. market from the beginning. So we're basically running parallel DTC campaigns behind the brands. So we front-loaded the spending, but more granularity in terms of the phasing, I would not want to give at this point in time, because that also indicates some of our commercial tactics vis-a-vis, for instance, DTC programs in the U. S. Thank you, Karsten.

And on payer reception of all SEMA in obesity, we're starting the trial now, so maybe it's a bit early to start talking about market access, but I would just make the comment that we see that for Rebelsos, which is an all-version of SEMA, we see pricing similar to what we see on OSEMPIC. So I think this is all about efficacy. And bear in mind that the obesity market is a market to be opened up, and I think there is plenty of opportunity to segment that market, and I'm sure that there's a very large segment who would prefer an all treatment. So for us, that's a significant opportunity.

Thank you, Simon. Next set of questions, please. Our next question comes from Chong Yong from Credit Suisse. Please go ahead.

So thank you, Chong-Yung. So first, Carsten, on the 50-mig gross margin impact.

Yeah, thank you for pointing to that trial trunk because that's actually one of my favorite trials these days because actually what you're looking at is a phase 3 asset that only takes 1,000 patients in the clinical trials to get to a regulatory decision. So our cost to get to market is, in the first place, relatively manageable compared to most other Phase 3 programs.

Then, in terms of commercialization, you know all about the volume of opportunity and obesity and the attractiveness of having an asset with an efficacy in the magnitude of what we see with the SIMA 2.4, And up to 18% weight loss, as we saw in the STEP program. And of course, before entertaining such a trial, then we do a lot of financial modeling, including cost of goods and manufacturing.

And I would say with the scaling we're doing in our manufacturing setup and the process improvement we're entertaining in manufacturing, First of all, we do see improvements in our cost of goods, as we've also been discussing with the Rebelsis early on. Furthermore, what we're also doing is that we're looking at the formulation of the tablets in the 50 milligram version, thereby also looking at certain opportunities in terms of improving our gross margin profile for the product. So all in all, we expect to see an attractive product also on a gross margin level if and when we get to market.

Thank you, Karsten. And Martin, a combined answer to make it sound like one answer to a second question on SemaHeftPeth and MyMate?

That's going to be a tall order combining obesity and hemophilia, but I'm going to give it a try. On HF-PEF, we see obviously a great number of patients suffering from heart failure, and there's no treatment specifically for HF-PEF out there. These patients have a severe impact on their everyday life, on their function, on their quality of life, and obviously on their outcomes. And we have indications that semagrotide may be an impactful treatment in this space, specifically because 80% of people with HF suffer from obesity. And we have clear indications that weight loss will improve the outlook, the quality of life, and the activity of daily living with these patients. So we see this as an opportunity to serve some patients with currently no treatment and a potential for a label expansion of the obesity label for semacrotide.

Moving firstly then to the mind-made question, we will see a readout from different cohorts throughout the next three quarters. We will combine our assessment of those readouts and report on the efficacy and safety of MyMate later this year, as based on this data.

Thank you, Martin. So really no change to MyMate compared to previous quarter's comments. Thank you, Chong-Yong. Next set of questions, please.

Thank you, Sachin Jane. While we do not kind of guide on launch trajectory, et cetera, for products or comment on consensus estimates, Camilla, what can we say on this?

Yeah, so what we are trying to do in many countries, but also of course in the U. S. , is to build the market, as you rightly said, and with the launch of Simaclutide 2.4 with a much higher efficacy, we know from our early discussions with payers in general that a weight loss in the magnitude of what we are seeing with 2.4 is of course of high relevance. So it will feed into our attempts to build the market in terms of making sure that more patients seek treatment for obesity care because obesity has such a big influence on the healthcare system and the cost. So, of course, with higher efficacy, we are more likely to see a strong uptake of 2.4, but that is, of course, early days to say, but we are basing this just on efficacy.

But we are also launching into a market that is more mature than what it was when we launched Saxenda. So in the meantime, of course, we have built the awareness around obesity. We are working to have it recognized as a disease. In many countries around the world we have launched new websites Truth About Weight for patients where they can learn about obesity and also Rethink Obesity for physicians where they can also obtain more information about obesity in general So a bigger sort of base to build on for a more effective product So that's basically the difference in the situation compared to Sex Center where we started very much from scratch.

In terms of cannibalization, it's difficult for us to comment on and we cannot give details on that. But of course, we are launching a product that has more than twice the efficacy into the market.

Thank you, Camilla. So it's, of course, still early days. But looking at the reports that come out from the medical community, observing, say, the early payer dialogue, I think this is a significant different trajectory than what we have seen in the past. And I think, in my view, this is the first time there's a real solution to managing obesity with medical intervention.

So I think it's really, really exciting. Thank you, Sajin. Next set of questions, please. Our next question comes from Michael Nogut from Nordea. Please go ahead.

Thank you, Michael. First, Karsten, on Rebels for Sales Q4 last year versus Q1 this year.

Absolutely, and I recognize that it looks odd that actually Rebels for Sales being a launch product is lower in Q1 this year compared to Q4 last year. And I would say there are a couple of technicalities that explain basically all of it, and then I think we should talk to the online kind of dynamics of the products, which are 100% intact.

So on the technicalities, so let me just start out by two pieces. First of all, looking at quarterly sales on a launch product is always super dangerous, and we've seen that again and again for different dynamics. The two key dynamics you should take into account here is, first of all, there's a so-called X-Factory ratio, so basically the ratio between what we sell to wholesalers and scripts being written to patients.

And there's quite some volatility on launch products in that ratio, since we are building a pipeline in the supply chain when you're launching a product. So basically, product going into rural pharmacies and distribution centers across the nation. So we saw that in the fourth quarter of last year that there's quite a high X-factory ratio, where we see a more normal X-factory ratio in the first quarter of this year. So that would be kind of a natural launch supply chain volatility. And then the second piece to take into account is on adjustments to rebates, as we've also seen on launch products. So being a launch product, you don't know exactly how much is being utilized through cash programs and co-pay and different insurances.

And there, of course, with the lag we have, there will be some adjustments over time. And that was what we talked to in Q4, that we had a favorable impact to our GLP-1 business. And I would say for Rebelsis, it's in isolation. We didn't call it out on the brand. It's less than $100 million in the fourth quarter. But of course, for a launch brand with somewhat limited sales, then of course it's a bigger piece. So, expected ratio and changes to rebates and estimates in the fourth quarter, adjusting for that, 20% volume increase from the fourth quarter to the first quarter.

But, Camilla, on the underlying fundamentals on Rebelsus? Yeah, on the underlying fundamentals, we track on a number of parameters to understand, of course, our uptake and launch with Belsus, and all of that is in line with our ambition. So it means that the breadth, that means the number of prescribers is continuing to progressing well, and we also see that awareness and preference is improving over time, Now, especially on the preference to prescribe Rebelsos, that has increased significantly and looks very strong also compared to other branded OEDs in the market. So what we are working on right now is to increase our awareness of the brand, and that comes with us and reps coming back into the market, and as we continue the launch trajectory.

So we are quite confident with that part. We also continue to see that the source of business and the positioning is working out so that the sourcing is 80% outside the GLP-1 class, as we have talked to before also. So it means that we continue to be very confident in Rebels and the commercial strategy. But, of course, we also see that it's a very promotion-sensitive launch product, and we have, as we talked to before, whenever we have reintroduced the product, we see that we get back on a very, very strong trajectory.

We continue to support Rebels, of course, also with DTC, and, of course, also with reps more and more in the field, as we just talked about before.

Thank you, Karsten and Camilla. Strong confidence from our side in the launch trajectory for Rebelsos. And with that, over to Martin on Rita Cross from the refusal to file a letter from the FDA to 2.4 milligram.

Yeah, thank you very much. So broadly speaking, I don't think I will speculate on an ongoing regulatory review, but maybe just say that the FDA has accepted the submission of the 2.4 milligram. It's under review, and we currently have no indications of that file being impacted by the refusal to file on the USMPEG 2.0 milligram. Good. Thank you. Thanks.

Thank you, Michael. Next set of questions, please. Next question comes from Michael Leuchten from UBS. Please go ahead.

Thank you, Michael. Two questions to you, Carson, on price mix effect on insulin and also looking a bit into the future.

And then, again, on taxes in the U. S. combined with manufacturing footprint in the U. S. Yeah, thank you for those questions, Michael. So first of all, on insulin and insulin dynamics, you see our North American business being down 10% in the first quarter on insulin, which is a function of both lower volumes, its enhanced rebates, and then an offset from positive channel mix. So what you should expect going forward is that, of course, there will be competition in the market for volumes with potentially more biosimilars entering into the market. So that will intensify, but of course, we'll be defending our leading position in the market in terms of market share. With competition comes also pressure on rebating and pricing, so the dynamic around pricing and rebating, we do expect to continue for those reasons.

And as to channel mix, the positive factor on channel mix is mainly related to 340B, where we basically stopped our shipments with the full year. We stopped our shipments to contract pharmacies, which enables us to avoid double dipping of rebates and hence a better channel mix impact on our insulin sales. That is, of course, only something one can do one time. I would have to say that on 340B, while comfortable in terms of what we included in the first quarter, of course, there's still some uncertainty vis-à-vis legal cases and legislative impacts around future rulemaking on a prospective basis. Then to your question on taxes and manufacturing offsets, then I would say the starting point when we look at our manufacturing footprint is that we look at supply chain backup and redundancies and closeness to markets.

So, of course, we take taxes into account, but tax is not a prime criteria for when we decide where to put our manufacturing footprints. So, what we're looking at now is that we're just in our final stages of finalizing documentation on our U. S. API expansion project, So, project running according to plan. So, now we're moving into a ramp-up phase, and the CAPEX ramp-up we've been signaling with now 7.5 billion CAPEX spent this year is mainly driven by expansions in Denmark. So, I would say no implications for our CAPEX manufacturing strategy from the changes in U. S. tax legislation.

Thank you, Karsten. And then we have time for our last set of questions, please. Thank you, Michael, also.

Thank you, Kirsten. All to you, Martin.

Yeah, it's a super relevant question, and the regulatory guidance basically stipulates that you have to win on two counts. You have to show improvement in stheto-hepatitis, and you have to show improvement in fibrosis. Just to clarify, of course, being a phase 2 trial, this trial was not powered to look at fibrosis. However, numerically, we did see an improvement in fibrosis as well as the sort of stopping in worsening of fibrosis. If we see the same numerical change in the phase 3 trial, we will actually be in a place where we are not only clinically relevant, but also statistically significant and thereby living up to the regulatory guidance. So what we need is for our phase 3 trial to confirm what we saw in phase 2.

Yeah, so that's well spotted, Karsten. And I think what we disclosed upon acquiring Emisphere was that we do expect a negative impact here in the first year of less than 1% of OP, simply due to the delta between the royalty payments under the previous contract and then the amortization profile having acquired the company. So if you take that 1% or less than 1%, then that corresponds to less than 50 bips on the margin. So the main driver is in reality amortization related to hemisphere. You can look in the cash flow statement on the step-up in depreciations and amortizations also just to get a feel for it, but that's the main driver. The other effects remain the same.

We continue to drive productivity. We continue to get the product mix gain from GF1, and we continue to see some negative impact from prices in the U. S. Okay, good.

Thank you, Karsten, and thank you, Karsten. With that, we thank you for the attention today at our conference call, and if you have more questions, feel free to contact our investor relations officers. And with that, we wish you a good day. Thank you. Bye-bye.