Earnings Call Transcript - NVO Q2 2022

Operator, Operator

Good evening. This is the conference operator. Welcome, and thank you for joining the Second Quarter 2022 Novo Nordisk Earnings Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Please follow the operator's instructions.

Lars Fruergaard Joergensen, CEO

Thank you, operator. Welcome to this Novo Nordisk earnings call for the first six months of 2022 and the outlook for the year. This call follows the early announcement and raised guidance published today. Due to Danish securities regulation, we advanced the release that was originally scheduled for tomorrow morning. My name is Lars Fruergaard Joergensen, and I'm the CEO of Novo Nordisk. With me today, I have Executive Vice President and Head of Commercial Strategy and Corporate Affairs, Camilla Sylvest; Executive Vice President and Head of North America Operations, Doug Langa; Executive Vice President and Head of Development, Martin Holst Lange; and finally, Chief Financial Officer, Karsten Munk Knudsen. All of us will be available for the Q&A session. Today's announcement and the slides for this call are available on our website, novonordisk.com. Please note that this call is being webcasted live and a recording will be made available on our website as well. This call is scheduled to last for one hour. Please turn to the next slide. The presentation is structured as outlined on slide two. Please note that all sales and operating profit growth statements will be at constant exchange rates, unless otherwise specified. The Q&A session will begin in about 25 minutes. Please turn to slide three. As always, I need to advise you that this call will contain forward-looking statements. Such are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For further information on the risk factors, please see the company announcement for the first six months of 2022 as well as the slides prepared for this presentation. Please turn to the next slide. In the first six months of 2022, we delivered double-digit sales and operating profit growth, which has enabled us to raise our outlook for the full year. I'd like to start this call by going through the performance highlights across our strategic aspirations before handing over the word to my colleagues. Within progress and sustainability, we continue to make progress across all dimensions. Under our diabetes strategy, we reached even more diabetes patients compared to the same period last year. In line with our aspiration to be a sustainable employer, we expanded the number of women in senior leadership positions to 38% compared to 35% by the end of the second quarter of 2021. Concerning Russia's invasion of Ukraine, our priorities remain to safeguard employees and continue the supply of essential medicines. Novo's medicines are available in more than 90% of Ukraine and we are collaborating with humanitarian organizations to make products available in the remaining areas. Within R&D, we are encouraged by the completion of five of the six phase 3 trials with once-weekly insulin icodec. The ONWARDS trial has shown that icodec has the potential to improve glycemic control with greater convenience and reduced treatment burden for people needing insulin treatment. The full ONWARDS program is an important step in support of our aspiration for further raising the innovation bar for diabetes treatment and our commitment to innovation. Martin will come back to this and our overall R&D milestone zones later in this call. In the first six months of 2022, we delivered double-digit sales growth, reflecting solid commercial execution across geographies and our therapy areas. While both operating units contributed to sales growth, we saw particularly strong sales growth in North America, driven by accelerated demand for our GLP-1 treatments, which has enabled us to increase the outlook for the year. Camilla and Doug will go through the details per therapy area later. Last, Karsten will go through the financial details, but I'm very pleased with the sales growth of 16% and operating profit growth of 14% in the first six months of 2022. With that, I'll give the word to Camilla for an update on commercial execution.

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

Thank you, Lars, and please turn to the next slide. In the first six months of 2022, our total sales increased by 16%. The sales increase was driven by both our units with international operations growing 10% and North America Operations growing by 24%. Our GLP-1 sales increased 45%, driven by North America, growing 41% and international operations growing 53%. Insulin sales decreased by 8%, driven by a 5% decline in international operations and an 18% sales decline in North America operations. The US insulin sales declined by 19%, driven by lower realized prices and a decline in volume. In line with expectations, insulin sales in international operations were impacted by the implementation of volume-based procurement in China as of May 22. Obesity care sales grew 84% overall, in International Operations, Saxenda sales grew 60% and in North America operations, Obesity care sales grew 102%. In the US, Obesity care sales grew 110% driven by Wegovy. Total rare disease sales were flat with a 1% sales increase in international operations, offset by a 1% decline in North America operations. Please turn to slide six. Our 15% sales growth within diabetes care is faster than the overall diabetes market. That means we have improved our market share by 1.5 percentage points to now 31%, and that we continue to be on track to reach one-third of the IP value market by 2025. The increase reflects GLP-1 growth of 45% and market share gains in both operating units. Please turn to the next slide. In international operations, diabetes care sales increased by 10% in the first six months of 2022, driven by GLP-1 sales that grew by 53%. Novo Nordisk remains the market leader in international operations with a GLP-1 value market share of 61.3%. This is driven by share gains across geographies and I'm happy to share that Ozempic has become the TLP1 market leader in international operations with a 39% market share. In Region China, the 83% sales growth of the Tier 1 products was driven by the uptake of Ozempic, following the launch in June 2021 and the inclusion on the national reimbursement list as of January 1, 2022. And with that, I will hand over the word to Doug.

Doug Langa, Executive Vice President and Head of North America Operations

Thank you for that update, Camilla. Please turn to the next slide. The US GLP-1 market volume grew by more than 35%, comparing Q2 of 2022 to Q2 of 2021, with once-weekly injectable GLP-1s and Rybelsus as the main drivers. From an NBRx perspective, we have seen a step up in volume growth in 2021 that has accelerated further since the beginning of 2022. Measured on total prescriptions, Novo Nordisk has expanded its market leadership to 56.4% market share. In other words, we continue to take share in a fast-growing market. Additionally, we are thrilled that Ozempic has now surpassed dulaglutide, taking the lead in the TRx market with a 40.7% market share. The global rollout of Rybelsus is progressing, having now been launched in 39 countries. It remains one of the key contributors to growth in Novo Nordisk. Please go to the next slide. Obesity care sales increased by 84%, with 102% growth in North America Operations and 60% growth in international operations. Furthermore, the obesity market expansion continues with a volume growth of the global branded obesity market of more than 60%. We are encouraged by the performance of Saxenda in international operations, especially driven by the EMEA region that grew 78% in the first half of 2022. The growth was especially strong in countries that had some level of reimbursement, such as the UK and Norway. In the US alone, Obesity care sales grew 110%. Following the previously announced Wegovy supply issues in the US, our focus remains to ensure continuity of care for the patients that have already initiated treatment. In line with expectations, this has negatively impacted Wegovy prescription trends. Positively, Saxenda trends have picked up and are now at all-time high levels. Regarding Wegovy supply, commercial production at the CMO was reinitiated in the second quarter of 2022, and inventory building is ongoing. We expect to make all doses of Wegovy available in the US towards the end of the year. Now Camilla, back over to you for an update on rare disease.

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

Thank you, Doug. Our rare disease sales were unchanged in the first six months of 2022. This was driven by a 1% sales growth in international operations offset by a 1% decline in North America operations. Rare blood disorders grew by 3%, driven by hemophilia A, which grew by 1%, and hemophilia B, which increased by 6%. Where endocrine disorder sales declined by 5%, the decline in sales was driven by international operations decreasing by 1% and North America operations declining by 14%. The sales decline was negatively impacted by lower realized prices in the US and timing of shipments. Now over to you, Martin, for an update on R&D.

Martin Holst Lange, Executive Vice President and Head of Development

Thank you, Camilla. Please turn to the next slide. For the past month, it has been exciting to share the results from the five trials in the ONWARDS program for once weekly insulin icodec. I would like to summarize the results that we've seen so far. The ONWARDS 1 and 2 stages show that insulin icodec appears to have some of the best insulin data that we've seen, demonstrating superiority on HbA1c control compared to both insulin glargine and insulin degludec, respectively. This was achieved with no significant risk of hypoglycemia and concurrently improved quality of life. We're very excited to see the results from ONWARDS 1 and 2 confirmed in ONWARDS 3. ONWARDS 3 was a double-blind, 26-week trial comparing once weekly insulin icodec and once weekly insulin degludec. The objective of the trial was to assess the efficacy and safety of insulin icodec in 588 insulin-naïve people with type 2 diabetes. The trial achieved its primary endpoint of demonstrating non-inferiority in reducing A1c at week 26 with insulin icodec compared to insulin degludec. From an overall baseline A1c of 8.5 percentage points, once weekly insulin icodec achieved a superior reduction in estimated A1c of 1.57 percentage points compared to 1.36 percentage points for insulin degludec, again demonstrating superiority with an estimated treatment difference of 0.21 percentage points. In this trial, there was no statistically significant difference in rates of severe or clinically significant hyperglycemia. Once weekly insulin icodec appeared to have a safe and well-tolerated profile. With the ONWARDS program being a truly global program, I'm excited that ONWARDS 3 will cater for a potential Chinese approval. As we've already discussed, we met the primary endpoint of demonstrating non-inferiority in reducing A1c with insulin icodec compared to insulin degludec in patients with type 1 diabetes. However, we also acknowledge that managing type 1 diabetes is complex and we still have work to do on the hypoglycemia risk. Finally, as shown at this year's ADA, it's important to note that the risk of hypoglycemia was similar for once weekly insulin icodec and daily insulin glargine in patients with type 2 diabetes, further underscoring the safety profile of insulin icodec. Now let's take a closer look at ONWARDS 4. Next slide, please. ONWARDS 4 was a 26-week efficacy and safety trial comparing once-weekly insulin icodec to once daily insulin glargine, both in combination with insulin aspart. The trial included 582 people with type 2 diabetes on a basal-bolus regimen. The primary objective of the trial was to demonstrate non-inferiority of insulin icodec versus insulin glargine in reducing A1c at week 26. This trial achieved its primary endpoint by demonstrating non-inferiority in reducing A1c at week 26 with insulin icodec as compared to insulin glargine. From an overall baseline A1c of 8.3 percentage points, once weekly insulin icodec achieved a reduction in estimated A1c of 1.16 percentage points compared to 1.18 for insulin glargine, with an overall estimated treatment difference of 0.02. We observed similar rates of severe and clinically significant hypoglycemia in the trial, where once-weekly insulin icodec appeared to have a safe and well-tolerated profile. In conclusion, we remain very excited about the promising profile of once weekly insulin icodec based on the results from the ONWARDS trials that have read out to date. These have underscored the icodec's potential as an ideal data insulin for patients with type 2 diabetes. Further, it is also an attractive option in combination as shown in our waterfall, thus covering the full spectrum of type 2 diabetes. We look forward to sharing the results from the final trial ONWARDS 5 during the second half of 2022. Next slide, please. Now turning to the SELECT trial and the interim analysis. As a reminder, SELECT is a double-blinded, randomized placebo-controlled trial in patients with overweight and obesity and established cardiovascular disease. Previously stated, the independent data monitoring committee would evaluate an interim analysis of the trials during Q3 of this year with the potential for terminating earlier than planned. The interim analysis has now been conducted, and based on that recommendation from the independent data monitoring committee, we have decided to continue with SELECT. It's important to remind you that Novo Nordisk has not seen the data. Additionally, the SELECT trial is designed for 17% cardiovascular reduction. This is due to the trial design and given the cardiovascular benefits observed in PIONEER 6 as well as SUSTAIN 6, both trials in type 2 diabetic populations. We remain confident about semaglutide and its impact on patients with obesity. The SELECT trial is expected to complete in the middle of 2022. Next slide, please. Let's turn to the high-level R&D milestones. We've already touched upon the ONWARDS program and SELECT, so now I would like to highlight some of the other trial leaders and initiations across our therapy areas during 2022. Within diabetes, we expect results from the exploratory Phase II trials for patients with type 2 diabetes during the third quarter of 2022. We also expect to start a Phase 2 trial to explore the potential of higher doses of injectable semaglutide for the treatment of type 2 diabetes. Within obesity, we have initiated a Phase 1 trial with once daily and a combination of insulin and GLP-1 analogs, and we expect to start Phase 3 in the fourth quarter of 2022. Within rare diseases, we've initiated a Phase 2 trial with NDec in adults with Sickle cell disease. We're also excited about the recent US approval of once-weekly Rebiny prophylaxis for people with hemophilia B. Furthermore, results from the primary analysis of NovoSeven with concizumab were just presented at the anti-ICH Congress in London, and we expect to submit concizumab for regulatory approval in the inhibitor segment during Q3 of 2022. Finally, within other serious chronic diseases, we've initiated a Phase 2 trial with the anti-amyloid immunotherapy asset we acquired from Prothena in 2021. This trial includes 99 people with a rare heart disease called cardiomyopathy. With that, over to you, Karsten.

Karsten Munk Knudsen, Chief Financial Officer

Thank you, Martin. Please turn to the next slide. In the first six months of 2022, our sales grew by 25% in Danish kroner and 16% at constant exchange rates, driven by both operating units. The gross margin increased to 84.4%, compared to 83% in 2021, driven by a positive product mix due to increased GLP-1 sales, a positive currency impact of 1.4 percentage points, and productivity improvements. These effects are countered by lower realized prices in the US. Sales and distribution costs increased by 29% in Danish kroner and 22% at constant exchange rates. The increase is driven by large activities and promotional spending for Rybelsus and Ozempic, as well as market development activities for obesity. The cost increase also reflects lower activity levels in 2021 due to COVID-19 as well as higher distribution costs. Research and development costs increased by 31% in Danish kroner and 26% at constant exchange rates, driven by higher clinical activity within other serious chronic diseases and GLP-1, as well as the operating costs and amortization related to the acquisition of Dicerna Pharmaceuticals in the fourth quarter of 2021. Administration costs increased by 7% in Danish kroner and 3% at constant exchange rates. Operating profit increased by 26% in Danish kroner and 14% at constant exchange rates. Net financial items for 2022 showed a loss of around DKK 2.8 billion compared to a gain of around DKK 1.1 billion in 2021. This primarily relates to losses following the appreciation of the U.S. dollar, which is also reflected in the favorable currency impact on operating profits. The effective tax rate for the first six months of 2022 was 20.7% compared to 19.8% in 2021. Net profit increased by 11%, and diluted earnings per share increased by 13% to SEK 12.8 Free cash flow was DKK 42.7 billion, compared to DKK 32.7 billion in 2021. Cash conversion in the first half of 2022 was positively impacted by the timing of rebate payments in the U.S., including provisions related to the revised 340B Distribution Policy in the U.S. Income under the 340B program has been partially recognized. Next slide, please. A key priority for Novo Nordisk is to ensure attractive allocation of capital to shareholders. In line with our strategy, we have returned DKK 28 billion to shareholders through dividends and the ongoing DKK 24 billion share buyback program. For 2022, the Board of Directors has decided to pay out an interim dividend of SEK 4.25 per share, which will be paid out in August this year. This is an increase of 21% compared to the 2021 interim dividend. Please turn to the next slide. We continue 2022 with a solid growth momentum and now expect sales growth to be between 12% and 16% at constant exchange rates. This is based on a number of assumptions as described in the company announcement. The raised guidance reflects expectations for sales growth in both, international operations and North America operations, and across therapy areas, but it's mainly driven by Diabetes and Obesity care. The guidance update incorporates an accelerated NBRx volume trend within injectable GLP-1 in the U.S., favorable Obesity market expansion, and the expectation of making all the COVID dose strengths available in the U.S. towards the end of the year. Following a continued higher-than-expected volume growth of GLP-1 based products, including Ozempic, the outlook also reflects expected periodic supply constraints. We now expect that operating profit will grow between 11% and 15% at constant exchange rates. This primarily reflects the sales growth outlook and continued investments in current and future growth drivers. We are also allocating additional resources to both early and late-stage R&D pipeline activities. As mentioned before, our acquisition of Dicerna Pharmaceuticals is negatively impacting operating profit growth by around three percentage points due to higher operating costs and amortization of intangible assets. Given the current exchange rates, notably the strengthening of the US dollar, we now expect a positive currency impact for 2022. Our reported sales are now expected to be nine percentage points higher than at constant exchange rates and operating profit growth is now expected to be 14 percentage points higher than at constant exchange rates. The positive currency impact on operating profit of 14 percentage points is partly offset by a net loss on financial items. For 2022, we now expect that financial items will amount to a net loss of around DKK 5.5 billion, mainly reflecting losses associated with foreign exchange hedging contracts. Capital expenditure is still expected to be around DKK 12 billion in 2022, primarily related to investments in additional API production capacity at existing manufacturing sites. Our free cash flow is now expected to be between DKK 57 million and DKK 62 billion. That covers the updated outlook for 2022. Now, back to you, Lars, for final remarks.

Lars Fruergaard Joergensen, CEO

Thank you, Karsten. Please turn to the final slide. We are very pleased with the double-digit sales growth in the first half of 2022. In particular, the sales growth was driven by increasing demand for our portfolio of GLP-1 treatments for diabetes and obesity care, and we continue to reach even more patients. While both operating units continue to drive growth, we saw very strong sales growth in North America. The strong financial performance in the first six months of 2022 has enabled us to raise our outlook for the full year. From an R&D perspective, we have now successfully completed five Phase 3 trials with once weekly insulin icodec. I believe the results underline that we are still committed to further raising the innovation bar in diabetes. We look forward to sharing results from the final trials in the ONWARDS program in the second half of 2022. With that, we are now ready for the Q&A, but I kindly ask all participants to limit themselves to one question. Operator, we're now ready to take the first question.

Operator, Operator

This is the conference operator. We will now begin the question-and-answer session. Please follow the operator's instructions. The first question is from Peter Verdult of Citi. Please go ahead.

Peter Verdult, Analyst

Thank you. Peter Verdult, Citi. Two quick questions. Martin, firstly, the market seems to have taken a very binary view that SELECT not being stopped at the interim is a negative. I thought you'd been at pains to point out since the CMD that you had pre-agreed with the independent data monitoring committee that the trial will be allowed to continue even in the event the primary endpoint is met if key secondary endpoints are showing curve separation, but not quite reaching statistical significance. So, I realize you're blinded to the data. My question is, though, what is the working assumption at Novo? Is it that the primary endpoint was not met at the first interim, or are you confident the primary endpoint is met and are you excited that potentially you're also hitting on some of the secondaries? Karsten, second question, much quicker and cleaner. When you look at the litigation section of the report, the appeal of the 340B discount ruling is the only thing you say has potentially been impactful from a financial perspective. Just in terms of being transparent, can you ballpark quantify what the percentage impact would be if you were to lose that appeal and were forced to offer full 340B pharmacy discounts? Thank you.

Lars Fruergaard Joergensen, CEO

Thank you, Pete. First, Martin, on the SELECT interim.

Martin Holst Lange, Executive Vice President and Head of Development

Thanks very much, Pete. I very much agree. We are not disappointed with having to continue the trial because as you also alluded to, we designed the outcome trial to add the finalized date, having a power of showing 17 percentage point difference between semaglutide and placebo on the primary endpoint of MACE. If we were to stop at the interim analysis, 17% would actually be statistically significant at meeting the primary endpoint. But as any sponsor, we want to be very, very certain that stopping at an interim analysis is a very secured step. Therefore, we had agreed with the independent monitoring committee to look at a primary endpoint only if it's substantially above that of 17%. And obviously, that was an upside. Our base has always been to continue the study to the end. It’s also important to point out, if we see a 17% differential between semaglutide and placebo at the end, that would represent a 17% cardiovascular reduction from a clinical and medical perspective, which would also be very attractive commercially.

Lars Fruergaard Joergensen, CEO

Thank you, Martin. Very clear. Karsten, the 340B related litigation potential impact?

Karsten Munk Knudsen, Chief Financial Officer

Yes. So this is kind of a complicated issue. But as you know, we changed our distribution policy under the 340B program beginning in January 2021. Part of that policy change has meant that we are paying less rebates under the 340B program. So we have a positive cash flow impact compared to what we had previously. On the other hand, the benefit we have in our P&L in '21 as well as in '22 is limited. Recall last year, we said that we have a benefit, which is less than 3% of US sales, and that still holds for this year, so a number of scenarios could play out. But I would say, in terms of revenue recognition, as you also described in our company announcement on page 14 on the cash flow, we are recognizing income under the program partially and according to accounting rules, it has to be highly probable. In terms of an adverse ruling, I would expect limited impact on our P&L, whereas there would be a one-off impact in terms of financial resources or cash flow related to the delta between income recognition and cash flow benefits. The exact magnitude, I would not want to go into at this point in time.

Lars Fruergaard Joergensen, CEO

Thank you, Karsten, and thank you, Pete.

Operator, Operator

The next question is from Wimal Kapadia of Bernstein. Please go ahead.

Wimal Kapadia, Analyst

Great. Thank you for taking my question. So can I just touch on your comment, Martin, just now? What is your view on the perception or extent of the MACE benefit with payers and physicians? So what I'm really asking is, does it actually matter if the MACE benefit is 17% or 20% or 25%, and is it really key that the trial succeeds with respect to reimbursement and uptake? Any feedback you could share would be much appreciated. And then my second question is just on the Phase 3 CagriSema obesity start. I appreciate you mentioned the 4Q start, but will the Wegovy supply timeline change actually have any impact on that Phase 2 study? And what is your confidence in starting that study on time? Maybe I'm asking because, thinking about the timeline, Wegovy relaunches are potentially only coming a few months ahead of semaglutide obesity. So the CagriSema summer timelines are becoming increasingly important. Thank you.

Lars Fruergaard Joergensen, CEO

Thank you, Wimal. So Martin, first, on the level of MACE benefits and maybe also talk to the many other benefits of these treatments.

Martin Holst Lange, Executive Vice President and Head of Development

So absolutely. From a clinical and medical perspective, any reduction in MACE, myocardial infarction, stroke, and cardiovascular death is viewed positively. A 10% reduction has previously been shown to be adequate. 12%, 15% are also positive endpoints. Anything beyond that is seen as favorable from a clinical perspective. I think also Camilla and Doug should speak to that. But given the launch of Wegovy, we see a very positive reception even without the cardiovascular data, which will only improve with the cardiovascular data. Beyond cardiovascular, we also consider other co-morbidities of obesity. We evaluate quality of life and the risk of developing conditions such as dementia and Osteoarthritis. We have a dementia score in the specific trial as well. Overall, we monitor co-morbidities in this area. On the CagriSema, as mentioned in the first quarter of this year, we took a slight delay to initiate CagriSema because we prioritized US supply for Wegovy. That has already improved, and we remain confident that we will initiate CagriSema in Q4 this year.

Lars Fruergaard Joergensen, CEO

To summarize, we see strong demand for NCD medicines. The market is opening up at a time where there's no cardiovascular data, which makes us confident about the market itself. Additionally, we feel optimistic about the prospects of the SELECT trial. We've been clear that even in a case where we must continue the trial, it's still a favorable outcome for us. Thank you, Wimal. The next question, please.

Operator, Operator

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

Matthew Weston, Analyst

Thank you very much. Two questions, please. First, Martin, can I just ask for clarification in your answer to Pete's question? Because Pete's question implied that you knew that you had hit the primary endpoint and that you are waiting for secondary endpoints that were close. I want to clarify; do you have any data? I realize that’s a possible reason for continuing if the primary endpoint didn't reach the interim stopping criteria. So, can you clarify what you know and what you don't, while we all acknowledge that there is still a positive reason for SELECT to continue? Secondly, regarding the guidance, you keep caveating guidance with the risk of supply shortages for GLP-1. I'd be very interested to understand what progress you've made because clearly, we can see the prescription data and hear about the GLP-1 sales growth without any handicap. So, can you tell us if you've managed to improve yield, and whether you anticipate supply shortages to impact growth in the second half of the year, or whether you've worked hard to mitigate that? Thank you.

Lars Fruergaard Joergensen, CEO

Thank you, Matthew. First, on what we know; it’s quite easy to answer.

Karsten Munk Knudsen, Chief Financial Officer

That's the easiest question. But it's also an important one because, as we stated in the presentation, we really know nothing about the data. I received a phone call saying that the independent committee recommended that we continue the trial, and that's basically all the interaction and data that I've received. In response to Pete's question, we wanted to clarify that based on why we designed a study to look for a 17% differential. It’s very positive to continue because if we had stopped for the interim, the data on the primary endpoint should have been substantially above 17%. Again, this is hypothetical because we haven't seen the data.

Lars Fruergaard Joergensen, CEO

Thank you, Matthew. On supply of GLP-1, I will begin by stating that if you look at our GLP-1 business today, Ozempic is the best-selling diabetes medicine in the world. In the first six months of 2022, it grew by 73%. We all understand we are not achieving price increases; we're experiencing modest price decreases. So the volume growth is higher. I believe this speaks volumes since we are also significantly ramping manufacturing capabilities. We have plans that are currently on track to further expand volumes produced in our facilities. Major new facilities are coming online. We are witnessing exceedingly strong demand for our products. We did guide after Q1 that we’d see periodic supply shortages here and there. We raised our guidance yet again while also increasing capacity. Thus, we are facing an enhanced reality of strong volume growth and demand. There may be issues in specific markets from time to time, but we have products consistently coming in, and we endeavor to manage this as best we can. We have capacity expansions underway and will eventually reach a point where we feel we have excess capacity. It's a dynamic but positive situation.

Operator, Operator

The next question is from Sachin Jain of Bank of America. Please go ahead.

Sachin Jain, Analyst

Thanks for taking my questions. Martin, apologies if I'm trying to circle back on SELECT. Is there a scenario where the primary endpoint was substantially above 17%, say at 2022-2023 at the interim, and the study still didn’t stop due to whatever discussions you've had prior to the date with the independent data monitoring board on secondary? The reason investors are asking this is to gauge the probability of SELECT hitting final analysis; if you’re in the 17% to 22% range now at interim, people would feel differently than if you're well above 20% and the study is only not stopped due to secondary. So I apologize for being repetitive, but I’m just seeking clarification on the secondary. The second question is on Wegovy supply; can you provide color behind this change from a couple of months of perceived delay? Is it utilization at plants or is it inventory levels you decided to build? I want to confirm there are no regulatory issues in the background. Thank you.

Karsten Munk Knudsen, Chief Financial Officer

Thank you, Sachin. There are many interpretations of what Pete indicated, and we should clarify with Peter. I know we’ve gone through this a limited number of times.

Martin Holst Lange, Executive Vice President and Head of Development

Again, first of all, I'm not privy to the independent data monitoring committee’s deliberations. We have a monitoring charter, and in it, we specifically stated that to stop for the interim analysis, we needed to safeguard ourselves. Therefore, specifically on the primary endpoint, we needed to be significantly beyond 17%. Based on the fact that we've been recommended to continue the trial, I cannot speculate what the D&M has seen or what kind of data they have observed. This means we are as confident as we’ve ever been in terms of reaching the primary endpoint and fulfilling the purpose of the SELECT trial, as our assumptions still hold true, and our base case has always been to continue the trial until the end. Conducting an interim analysis could potentially yield an upside, but I prefer not to speculate on data that I don't have access to.

Karsten Munk Knudsen, Chief Financial Officer

Let me try to address Wegovy supply. As you recall, during our Q1 release, we communicated our expectation of making all dose strengths available in the US during the second half of the year. As Doug mentioned, manufacturing at the CMO resumed recently. We stopped supplying the two lower initial doses due to very high demand, which was difficult to manage, ensuring that patients commencing treatment will not be disappointed. What is new now is that we experienced a slower ramp-up than expected, hence lower volumes coming from the CMO. Thus, we now expect all dose strengths to be available towards the end of the year. This slight delay is mainly to ensure we have sufficient inventory levels to avoid disappointing patients and physicians. In parallel, we are tracking well on establishing the second and third manufacturing cycles for Wegovy, which will significantly enhance supply availability in 2023. We remain fully confident in the potential recovery of Wegovy as it opens up a significant obesity market. We are focused on the US, but the IO data indicates strong interest in obesity as well.

Lars Fruergaard Joergensen, CEO

Yes. Thank you, Michael. Our investments in API capacity will kick in short-term and medium-term, and even among our current API capacity, we have extra cell capacity set for next year. Therefore, we believe we can begin rolling out Wegovy in international operations starting significantly next year. We’re already active in France and plan launches later this year. In 2023, we will see broader launches for Wegovy across various regions. With the dynamics we have for Saxenda, we know there are significant volumes. Carefully, we have built flexibility in device platforms providing us options to manage those fluctuations. The greater dynamic we see now inspires us moving forward as our growth is significant. Our teams are working very hard and doing outstanding jobs.

Operator, Operator

The next question is from Richard Vosser of JPMorgan. Please go ahead.

Richard Vosser, Analyst

Hi. Thanks for taking my questions. First question, can you hear me?

Lars Fruergaard Joergensen, CEO

Yes. Yes. Go ahead.

Richard Vosser, Analyst

Excellent. Awesome. Brilliant. So when I look at other obesity trials, one of the challenges, apart from keeping patients on them, has been maintaining weight loss over such a long duration. Based on what you can gauge, how well have you maintained weight loss in SELECT? Regarding diabetes prevention, this was discussed at ADA. With the SELECT timelines pushed out, when do you anticipate you can use it for a diabetes prevention claim for Wegovy? Thanks so much.

Lars Fruergaard Joergensen, CEO

Thank you, Richard. I think those questions are for you, Martin.

Martin Holst Lange, Executive Vice President and Head of Development

Yes. Regarding the interim analysis on SELECT, I cannot speculate on whether we reached the primary endpoint or how that affects weight loss maintenance over time. However, I can share that we conducted a two-year trial where we observed sustained weight loss over that period with outcomes comparable to previous data. Based on what we know so far, semaglutide may be effective in maintaining the weight loss achieved during treatment.

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

Regarding diabetes prevention, it doesn't delay anything since regulatory requirements dictate how long patients should be treated before they effectively show a differentiating factor versus comparison treatments in diabetes risk assessment. Based on findings thus far, semaglutide has shown potential in this regard. Our intention is to continue monitoring patients both during and after SELECT. As soon as we have results, we will engage with regulators and payers to discuss potential submissions for diabetes prevention claims.

Lars Fruergaard Joergensen, CEO

Thank you, Martin. Thank you, Richard. Next question, please.

Operator, Operator

The next question is from Kerry Holford of Berenberg. Please go ahead.

Kerry Holford, Analyst

And just a quick check on SELECT, are there any further interim analyses planned?

Lars Fruergaard Joergensen, CEO

Thank you, Kerry. Martin, that’s for you.

Martin Holst Lange, Executive Vice President and Head of Development

The answer is straightforward. We now look towards the planned finalization of the trial, and no more interim analyses will be conducted.

Lars Fruergaard Joergensen, CEO

Thank you, Martin. And thank you, Kerry. We have time for the last question, please.

Operator, Operator

The last question is from Mark Purcell of Morgan Stanley. Please go ahead.

Mark Purcell, Analyst

Yes. Thank you for taking my questions. First question, regarding Wegovy resupply. Should we view this as a resupply loss or more of a re-launch in the latter part of this year? I’m curious if there will be DTC promotion. Should we expect this to kick in? Will it be a hockey stick pattern, or more gradual? So is it a relaunch or just a resupply? Secondly, I found the Phase II trial of the higher dose of injectable semaglutide intriguing. I would expect you to go into Phase III directly. What necessitated this proof-of-concept study instead of moving straight to Phase III? What does this mean for competition impact? Will you utilize the higher doses along with additional treatments including GIP, thereby expanding your therapeutic window?

Lars Fruergaard Joergensen, CEO

Thank you, Mark. On resupply, you can rest assured that we are eagerly awaiting reintroducing Wegovy once we can release all doses. I would like to refrain from detailing specific tactics given our competitive space, but I assure you we are confident in the product's efficacy for physicians and patients and are optimistic about the strong comeback when we have the products available.

Martin Holst Lange, Executive Vice President and Head of Development

Regarding the higher-dose semaglutide, the primary aim within diabetes is to demonstrate a differential on glycemic control and subsequently weight loss. Increasing doses of semaglutide can reveal new facets, as data indicates we may not have reached the maximum efficacy in glycemic control or weight loss yet. Other data supports the potential for achieving more with increased dosage. Conducting a Phase II trial is a prudent approach to showcase both safety and effectiveness against varying doses, potentially streamlining our efforts.

Lars Fruergaard Joergensen, CEO

Thank you, Martin, and thank you, Mark. This concludes our earnings call. Thank you for participating, and please feel free to reach out to our Investor Relations colleagues regarding any follow-up questions you may have. Thank you, and have a great day.

Operator, Operator

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.