諾和諾德 (NVO) 2007 Q4 法說會逐字稿

Very pleased to welcome you all here today.

I'm particularly pleased to welcome the management of Novo Nordisk.

You all know Lars Rebien Sorensen and his team.

I'll just throw it straight over to Lars, now.

Yes, thank you very much, ladies and gentlemen, and welcome.

And thanks for taking time out of your schedule and your day to see us.

We're going to go through the presentation in, I hope, rather a quick session so that we get to the Q&A, so we'll skip some of the slides, please.

We can always revert to them should you have any particular interest.

First of all, the usual forward-looking statement just to give me a little bit of absence if things does not turn out the way that I have predicted, highlights, strategy, sales update, R&D, financial and, then Q&A.

Obviously, if we look at the overall performance of the Company, we had strong top line growth, improved margins from operations, tail winds from the taxes.

And then we had a few things which went against us, and a few things which went for us.

We lost about DKK1b in currencies, but made up for that on our hedging contracts.

We monetarized an asset by selling the activities, or our interest, in Dako and we had a once-off expenditure in connection with closing of our pulmonary insulin project.

You see the growth in sales is driven by modern insulins; 35% in local the currencies.

In NovoSeven, relatively strong growth, a little bit stronger than we had anticipated with 10% in local currencies.

And a continued strong growth in our growth hormone franchise with 11% in local currencies.

A strong performance of our R&D organization in 2007; we've had a promising launch starting here in December 2007 in Japan.

And we have completed and reported all the regulatory studies for Liraglutide and are currently working on the filing, which will take place in Q2 in Europe and United States, and in Q3 in Japan.

And we also have worked diligently on replacing power, in terms of being able to replace the modern insulins that we are currently seeing some so nice development on in the next decade, with two new insulin analogues that are in Phase II clinical studies.

And we have a very interesting portfolio of clotting factors which gives us aspirations to expand our presence in the hemophilia area.

Financials, as I mentioned, strong top line growth.

Margin improvement from operations and, of course, the impact from the AERx closure meaning that operation profit was actually minus 2% but, adjusting for that, underlying close to 25%.

I'll just skip this one.

If anybody's interested in the sustainability issues, we can have word afterwards.

So this is the overall strategy.

We have clarified our position in the diabetes area by exiting oral anti-diabetics in the beginning of 2007, entirely focusing on proteins, insulin, GLP-1, with the possibilities for extending GLP-1 into the obesity space and the pre-diabetes space, but also working in research with other proteins for that application.

Hemophilia is currently the largest use of NovoSeven and we have a portfolio of interesting research projects which may expand our business from, currently, only including the inhibitor patients.

We're also continuing to work, even though it's difficult, in the critical bleeding area, growth disorders and chronic dialysis patients.

We have still have the hormone replacement therapy products, the business we're been in for 30 years, and our business is doing quite well.

We had seemed to have been bottoming out and we're now seeing growth coming from our HRC business.

We're launching low-dose estrogen products and we have the world's leading topical product with Vagifem.

And we've made a decision to narrow our focus in the biopharmaceutical area, where we have been looking to expand our business to that of Inflammation and, hence, we have decided that we will stop our future activities in oncology.

The underlying growth case; 5% volume growth, 5% value growth in the insulin spaces on average per year.

Some years we're doing better and that means that we are gaining market share.

The great picture is 250m people with diabetes, 450m people with pre-diabetes.

Of course, unfortunately, a major public health problem, but also a great opportunity for our Company in many years to come.

Just an example, the U.S.

has now estimated that they have 17.5m individuals diagnosed with diabetes and another 6.5m undiagnosed and the total treatment cost in diabetes-related healthcare cost, $174b.

One in five dollars is spent something related to diabetes.

And it's only going to get worse before it gets better, unfortunately.

An interesting opportunity for the Company; the OAD market about a little bit more than $10b with zero growth at the moment, which is one of the reasons why we decided not to pursue the long-standing interest we're had in this area.

Insulin market, also about $10b, but with a nice growth of around 8%.

And GLP-1, a new area for us, with the filing of Liraglutide.

And the seismic proportion of this GLP-1 will be dependant on, of course, how our product is being used by the regulators and the extent to which we can expand its application also in the weight management area, as well as the treatment of pre-diabetes.

Mads Krogsgaard will come back to that in much greater detail.

So with that, Kare Schultz.

Thank you, Lars.

Now, we'll go through the sales situation, the market shares and some of the key development trends.

And if we start with the key focus of the Company, the insulin business, then you can see there that we are actually volumes leaders in all the four regions that we group the world in; North America, Europe, Japan/Oceania and international operations, as we call all the emerging markets.

Can also see that there's a clear up-side potential still in North America.

We have historically come from a very low base in North America, having only 20% market share 10 years ago, and we're growing that as we speak.

And that's also where you can see the long-term up side, whereas, in the other markets we've had a very strong position for many years and we're really having a pretty stable situation in the other three main markets.

Where's the growth coming from?

Well, it's simplistic in a way, because three-quarters of the growth is coming from insulin and all that growth is coming from the modern insulins.

So it's the three brands there, Levemir, NovoMix and NovoRapid, that's carrying the basically three-quarters of growth of our turnover.

And that is also the trend that we expect to see this year.

How's this happening?

Well, it's happening in a marketplace that is quite conservative, in a sense that you have low dynamics but you have very, very high sustainability of the dynamics you see in the marketplace.

That basically means that whenever you launch a product into the insulin market, you will hopefully be able to establish a nice trend where you take share on a consistent basis.

And if you can do that, then you'll often see that your penetration will keep on going for five, 10, 15 years.

It's a long-term game this one.

That's also why you can see products having some plus 20% growth rates even in seven, eight years after launch.

Basically because this is a market where you roughly turnover maybe 6%, 7% of the patients per year and that means that even when you get a capture rate you will not see a one, two, three years and then you've taken your share; it will be a longer game.

That's also what we can see here and, as you all know, we started in all the three segments, the fast-acting, pre-mix and long-acting segment, as number two with the modern insulins and we are fighting our way in there.

We're been fighting longer on the fast acting and we've actually just surpassed our biggest competitor, Humalog, which we're very happy about.

We also surpassed Humalog Mix with our NovoMix and, of course, we're now working very hard to make sure that in the future we will surpass [Pfizer].

What about the total market?

It's converting from human insulin to modern insulin.

Any major news there?

No, it's converting basically around 6% a year, the same dynamics as you can see on market shares.

And right now we have a 52% of the market that's been converted to the modern insulins.

That's in volume, so in value, of course, the number is substantially higher.

And you should expect that this will continue at a steady pace the coming years.

And that means basically in some five years you will have by far the majority of market converted into modern insulins.

This, by the way, is now a world market picture where we include all the retail markets in what we call international operations, in the emerging markets, where IMS is now providing data.

So where this used to be only industrialized markets, we're now trying to give you a picture here of the whole world.

You can also see the market share dynamics.

Obviously, Lilly did a great job of coming first to market with the modern insulins with Humalog and they have done a less impressive job of maintaining that market share.

So they've been declining for a long time.

It is sloping off a little, so they're still declining month on month, but the delta is becoming slightly less.

And in our case we've been growing in the modern insulin space for now many, many years.

But we did start as number two in all the segments so, of course, we're trying to make our way into the market.

And we're still growing nicely, but you can also see the delta per month is coming down a little bit.

We're still fighting to get the share of the modern insulin equal to what we have in the total insulin market, where we right now have 52% of world total insulin volume.

Talk about NovoSeven; not really any major dramatic news here.

NovoSeven grew 10% last year.

You can see it's still very much up and down on a quarter-by-quarter basis, so you should analyze it on a moving annual total, I would recommend when you look at it.

And we're not seeing and dramatic events in terms of new clinical data coming to the market.

We have a stable competitive situation with us having, by far, the majority of the inhibitor patients and then Pfizer having a minor market share.

This year, I'm not expecting any dramatic news either and that means that, as we move along, being the leaders in the hemophilia and inhibitor segment, we do see a slightly less percentage-wise growth rate because we are not saturating on a worldwide basis but in U.S., Europe, Japan, we are pretty close to market saturation.

But then, of course, there's market growth in the emerging markets where the treatment of hemophilia has been upgraded on an ongoing basis.

So expect that NovoSeven will be growing single digit during this year.

Norditropin, interesting case, growth hormone is available from a high number of manufacturers and pharma companies worldwide; somewhere between three and seven, eight manufacturers in the individual markets.

We have, based on our protein know-how and skills, been able to produce what is the most convenient, the nicest, way of getting a growth hormone in the pre-filled Nordiflex.

We have a high price per [additive] and so far it seems to pay off.

We were able to grow the business more than 10% last year.

We also have [the cost of] expectations for this year, despite the very strong competitive situation.

It is really a case of, you could say, in reality about a similar competition because growth hormone is growth hormone; there's no difference between these many suppliers.

But the delivery mechanism that divides the science around it, all those things affect both patients using the product and doctors prescribing it.

And that is the reason for our continued success, despite the strong competitive situation.

If we look at the regions, then it's a very, very diverse picture.

We are, of course, totally globalized, so we basically cover, I think, every market except for maybe North Korea, where we're working on it.

And we have a situation where it's very much the demographics and the dynamics of the economies that also affect the progression of diabetes and, thereby, our business.

So in Japan we have a very mature market, very high price, high margin, good treatment but, of course, stagnating in a way that the market growth is limited.

We have 75% market share and we're hanging nicely onto that.

We have the launch of Levemir in Japan this year which will do very well, I'm sure.

But the total demographics of Japan is so that you will not see really strong growth on a long-term basis, and we didn't see that last year either.

Then we have Europe, which is somewhere in between U.S.

and Japan, and we have relatively low demographic developments in Europe also.

Reasonably good healthcare systems taking care of diabetes but still an upgrade that can be done in the eastern parts of Europe.

Big price pressure from under-funded public healthcare sectors and, therefore, a situation where you're seeing single-digit growth, and that's also what you should expect in the coming years from our side.

We have a stable market share in the (inaudible) on insulin and we have a good penetration of both growth hormone, NovoSeven and so on in Europe.

Then we have the big opportunity for us in the U.S.

and that's, basically, because all our products have been launched from a very low base, so we have a very low market share in growth hormones that's growing nicely.

We had a very low market share in insulin.

That's also growing nicely and still a very strong up side there.

You could say, before, we did, I would call, the fair market share and that the quality of our products makes it reasonable to assume and to go [global].

So the U.S.

very, very strong dynamics there, strong, strong growth last year and also expectations for the year being very positive.

And then we have the emerging markets, or international operations, and here it's really demographics.

Here we have a high market share.

We've had that for a long time and we can see that the demographics there are such that there's -- and I'll get back to some of the details.

There's 5.5b people in this part of the world in our system.

In the industrialized part, there's less than 1b.

So when they buy products from Novo Nordisk in this part of the world, it's equivalent to roughly EUR0.15 per day.

In the industrialized world, a person buys on average 40 times more.

So our sales in the emerging markets is one-fortieth of per capita of what they are in the industrialized part of the world.

And, of course, that means it all links to economic development in this part of the world.

Now, this snapshot is what is really driving the delta.

I said we have stable market shares in Europe, but what is driving it up right now is, of course, the penetration of Levemir into the basal segment.

Lanthus was launched before.

Levemir is a long-acting insulin analogue and we are now fighting back with Levemir and you can see we've come a quarter of the way roughly, around 25% market share.

Now, I don't mean we go to 100% market share but, of course, we are trying to grow about 50, that's our ambition, and you can see we keep on growing it on a steady basis.

But again, it takes time.

You've got to be patient in this business.

You don't go out and launch and then after 12 months you're done.

You have to be committed on the long horizon and that's what we are.

If you look at the U.S., pretty much the same story.

Here, you can see the dynamics since the launch of Levemir.

And of the modern insulin, basal insulin, segment we're now having around 10%.

And a nice and steady progression month over month, and we're very pleased about it.

And, of course, financially it's very attractive because we used to have nearly nothing of that basal segment in the U.S., so it's all gain, basically.

In the emerging markets, I talked before, you can see here we've had basically the same market share, around a little shy of 60% for many years.

And that is really the volume growth that is driving the business.

And that is linked to the fact that we now have market economy, basically, everywhere.

Despite whatever political system you see in most of these countries, there is now market economy.

And there's a tendency to have economic growth in basically all parts of the world.

Whether it's Latin America, South East Asia, Indo-China and so on, you see strong economic development and that links into better healthcare, and that links into better sales of insulin.

And the prime example is China.

In China we were lucky, or clever enough to have our industrial colleagues move in in the early '90s with the manufacturing.

We got our own license to have a wholly-owned Novo Nordisk Company selling pharmaceuticals in China very early on.

And you can see here we've had a phenomenal growth path.

Of course, we came from nothing basically, so for many years the absolute number was not so big; 43% annual growth rate but on a very small base.

Of course, it's not that dramatic.

But now we're actually at a situation where China is getting close to 5% of turnover and, of course, if it keeps growing at the rate it's been doing so far, then all of a sudden it starts to be meaningful number that you can also see in our total sales development.

The funny thing about the situation in China, and that is that you often hear, are you not afraid of generic competition in U.S.

and Europe and so on.

And then we say, well, we take it very seriously but we're also very used to it, because we're actually competing with theses companies on a daily basis in both India and China and, so far, we're doing okay.

We have, as you can see here in volumes, 60% of the Chinese insulin market competing against very low-cost local manufacturers.

We have the same situation in India, also having something around 60% there market share.

So we're pretty confident we know how to compete with these people.

And it's also interesting that the Chinese healthcare system and the Chinese Government, they have elected to work with us on fighting the diabetes pandemic in China because they realize how serious it is for them, how many millions of people will have diabetes.

And I think they realize that we have the intellectual capacity to help them with this task, educate tens of thousands of nurses and doctors every year.

And last year we educated more 20,000 nurses and doctors, together with the Chinese authorities, in China on diabetes.

And this the small local manufacturers could never have done.

So, we have a very good relationship with the Chinese authorities and we're very optimistic about the outlook.

You could say, unfortunately, it's on the background of a explosion in terms of how many people have diabetes in China but it is, on the other hand, linked to their fantastic economic growth, so it's not all bad for the population you could say.

But how to treat in future, Mads, let's hear more about that.

Thank you, Kare.

Yes, what I'd like to do is, first, give a few more general statements about the strategy of Novo Nordisk in R&D based on the technologies that we believe we've mastered to a large extent.

First, if you will consider the Company that, for ages and ages, has been life cycle managing a few proteins, including insulin, growth hormone and factor VII.

Soon to come, we hope, also the GLP-1 class of proteins.

I think it's more reason to you that Novo Nordisk is now also entertaining moving into opportunities that can expand the business and this is done by the mixed skill bag of protein science and protein engineering and [absolation] pegulation technologies that we have in the R&D labs.

And when I say so what I mean is, for instance, entertaining or moving into new paradigms, such as prophylactic treatment of hemophilia rather than on-demand treatment, creating value for the customer but, basically, also entering into a new segment for Novo Nordisk, done by long-acting pegulated versions of the factor VII and [thalysofid].

But also moving into new groups of administration using dedicated, or tailored analogues of molecules, such as long-acting GLP-1 and the basal insulin, to allow for inhaled delivery and this kind of approach.

Of course, also using protein science to engineer new classes of drugs and, here, specifically we talk about GLP-1, but there could be others to come.

Lastly, I would also like to mention that old molecules, quote unquote, such as the growth hormones lend themselves well to active exploration moving into new therapeutic areas.

And there Novo Nordisk has for the last 30, 40 years been mostly working in the growth disorder segment, but utilizing the anabolic and anti-catabolic effect of growth hormone.

We're now also seeking to move into a more high-volume area, namely, dialysis patients that are suffering from kidney failure.

I'll last mention the notion that, on the next slide, replacement power is important.

It's particularly important to a Company like ours which really has the ability to lifecycle manage our products.

And if we look at the most important products, such as Levemir, NovoMix and NovoSeven, we are in the fortunate situation that we have these two molecules that we believe, based on Phase I results, offer great promise for being able to supercede the existing compounds.

And likewise, in the slightly earlier stage of development, namely Phase I, we're active with a long-acting growth hormone.

Similarly, in the GLP-1 portfolio where Liraglutide is going to be filed for the approval with the EMEA and FDA in the next quarter we're already in Phase I with a further engineered analogue for once-weekly administration.

So we believe that the rotational power of our Company is stronger than it has been for quite some time.

Now, if we could look more specifically at the diabetes pipeline, I'd just like to highlight the notion that the two analogues mentioned by Lars, NN1250 and NN5401, are respectively rather than discuss whether they're fifth, sixth or seventh-generation compound, I would maybe call them the last-generation injectables within the field.

We believe that they can really make the ultimate within injectable therapies, namely basal insulin in the case of NN1250, and a fixed-dose combination of two analogues in the compound (inaudible) NN5401.

Both of these have very recently entered Phase II trials based on very extensive Phase I investigations in both people with Type 1 and Type 2 diabetes.

Now this molecule up here is Liraglutide.

I do believe that we've shown this beautiful creature several times before.

I'd like to do it again because what we can do now is really highlight the [applicated] data from the LEAD program.

We have in totality now exposed around 6,000 people throughout the last many years of clinical development of Liraglutide; 6,000 people on either Lira or its comparator drugs.

And the totality of those studies have told us that we have in our hands a product ready for submission, based on data where we have HbA1C decrements of up to two percentage points, typically 1.5 when you add it on to other drugs, and a 1.0 if actually replace another drug.

So you both have to overcome the effect of the other drug and that's where we'll benefit with Liraglutide.

We have seen the benefits in the form of weight loss consistently throughout the program, as well as a very low background level of hypoglycemia if we avoid giving Lira together with a [soft nirea] which uncouples the glucose dependency.

And the tolerability profile has been good.

In Japan, we actually finalized somewhat ahead of schedule the two Phase III trials, monotherapy and also and add on to sulfonylurea, which is a kind of standard treatment with anything Japanese individuals.

They were both of half a year's duration and HB1C started out all the way up to close to 9% in the monotherapy and 8.5% in the add on to issue trial.

Regardless of that, we were able to bring half of the patients all the way from close to 9 down to 7 or below in the monotherapy study and 70% in the add on to issue study, which from an efficacy point of view really confirms the [rest room] profile that we had in the Phase II trial that we announced last year.

Also in the monotherapy trial, we actually saw a weight reduction of around 2 kilos compared to the issue comparison.

But these Japanese people are not really that obese; they only had an average weight of around 65 kilograms at the onset of the studies and this, of course, has to be taken into account.

Nausea was recorded at single digit level.

If we look at the homeostasis portfolio, the news that we're communicating is, a, that in the trauma study there's a pre-planned interim analysis assessing futility or not of the statistical analysis plan and its assumptions, which is targeted to take place pending patient recruitment around the middle to this year.

Also that we have announced the headline response from the cardiac surgery, basically, showing that we have, biologically speaking, a homeostasis effect measured as reduction in blood loss in the chest of these patients that have been opened undergoing cardio-pulmonary bypass surgery.

And also we should mention that we have now entered a subcutaneous administration, or formulation of factor VII into Phase I, aiming at prophylactic therapy to make a more convenience-driven possibility for the patient.

We mentioned that rather, than focus in a dualistic way on immunotherapy of both cancer and inflammation, we will know focus further down and dedicate more resources to the Inflammation area while closing the oncology area.

We do believe that inflammation and autoimmune diseases, they lend themselves well to the Novo Nordisk approach of the long haul dedicated approach, lifecycle management, chronic disease specialist treatment, injectable therapies, benefits the patients at the [large] level.

On this slide, which is my last, you will see that, here, we have the non-homeostasis related biopharmaceuticals projects.

And the news here is that the Vagifem low dose, Vagifem is doing very well in the U.S.

and in this regard we happy to announce that that we have a low-dose version that has been filed for approval in the U.S.

while still undergoing Phase III development in the European segment.

Also I should mention [Azria], that -- a long-acting once weekly analogue based on pegulation as a site specific in the molecule has entered Phase I.

And the blue projects are the oncology projects which we, together with our partners ZymoGenetics and Elite Pharma down in Marseilles, France, will seek to partner out during the remainder of this year.

And with that, Jesper, it's over to you.

Thanks.

Moving to the financials, I'm not going to go through all the numbers on this slide, just highlighting a few key developments.

Sales growing 8% reported, but a 5% negative currency impact on the top line gives us 11% negative impact on operating profit.

In terms of gross margin, you've seen the significant expansion, 10%, growing ahead of reported sales; a 130 basis point improvement.

That was underlying just over 200 basis point improvement.

I'll just cover that in a short while how that is developing.

Sales and distribution costs dropping below 30%, even though we'd expanded our sales force in the U.S.

with 700 reps.

The R&D costs significantly impacted by the discontinuation of AERx, having a negative impact of more than 3 percentage point of sales on the R&D to sales ratio.

Admin expenses continuing to slightly decline, going now to 6% of sales.

Net financial significantly impacted by the 1.5b divestment of the Dako activities, but also impacted by significant hedging gains to the tune of DKK900m in 2007.

The tax rate are unusual in 2007, both because of the tax exempt basis of the income form Dako, but also an effect from the lowering of the Danish tax rate, taking the corporate tax rate in Denmark from 28% down to 25%.

And that left us with a net profit growing to the tune of 32%.

Let me just commenting on the operating profit growth reported, minus 2%, but a 15% impact from the AERx discontinuation.

And then if you add back the currencies, if you were looking at what would have been if we'd had stable currencies in 2007, you would have been looking at something like a 24% growth in operating profit.

The gross margin reported 130 basis points; 80 basis point negative currency impact, 210 in local currencies.

More than half of that coming from our continued improvement in production efficiency, both from our bulk production primarily of insulins and, secondly, also coming from our filling activities within insulin, basically, more and more efficiently being able to fill our insulins in our six sites around the world.

Note that we don't -- in 2007, did not increased the number of employees within product supply in Novo Nordisk, so our production of roughly 10% higher volume is more or less done on a constant number of employees within our production.

We also have benefited in 2007 from a positive pricing impact, coming to a large degree from the introduction of the Medicare Part D reform in the U.S., but also from positive price increases in the U.S.

market, which more than offset the impact we had of prices in Europe and Japan.

And then, the final element was that we didn't do any significant impairment or obsolescence charges in 2007; we did that in 2006.

And that can probably account for some 50 basis points in the development in gross margin.

In terms of currency development, here, you see the quarterly hedging gains and then also the spot rate of the U.S.

dollar.

And we've also illustrated what the currency sensitivity is for Novo Nordisk in 2008 of a 5% movement in the key currencies.

And we have listed the level of hedging that we had when we went into the year.

We had some 17 months of forward hedging and that has actually enabled us to postpone more than DKK600m in gains which are for income recognition, as we realized the cash flows in, primarily, 2008 and, a small degree, 2009.

In terms of our outlook, we continue to believe that we can deliver more than 10% in local currencies.

Our guidance is slightly above 10% in local currencies.

We'll be facing currently with a 3.5 percentage point negative currency impact, as it looks of January 29.

And you see that rates we've been using for that forecast on this slide.

The operating profit growth is referring to a growth of at least 20%.

And that growth is really -- the logic behind that growth is a wish from us to deliver an underlying growth of at least 15%, and then we have an additional 5% of growth coming from the disappearance of the AERx, and a 1 percentage point lower R&D to sales ratio that we would have had otherwise.

Our guidance currently for the R&D to sales ratio for 2008 is now 17%, whereas, we previously were guiding towards the level of 18% against a saving of around DKK500m.

In reported terms, because of the lack a this significant discontinuation charge, we're expecting reported growth of at least 25% in 2008 over the reported number for 2007.

Effective tax rate is now expected to be approximately 24%, of course, this year not benefiting for significant one offs, on the other hand benefiting from the structural change we have in our overall tax structure with a significant proportion of our biopharmaceutical franchise being taxed from the Swiss base that we have for those activities.

Financial income in 2008 is expected to be about DKK450m, primarily reflecting income from the hedging, as I've referred to before, partly being offset by losses pertaining to our share in ZymoGenetics.

Capital expenditure also in 2008 expected to be at the DKK2.5b level and that will give us an investment to sales ratio of around 6%.

Free cash flow expected in the ball park of DKK7.5b.

And that significant cash generation ability enables us to transfer significant amounts to our shareholders.

We've set the payout ratio at around 35%, transferring DKK4.5 per share, or approximately 2.8b for 2007 back following the AGM in March.

And then on top of that, we anticipate that we will transfer some DKK4.2b in share repurchases, transferring the last DKK200m of the Dako transaction in the repurchase program and DKK4b returns from our ongoing operations.

And then, we've actually extended the program to 2009, adding another DKK4.5b, which are going to be transferred back to our shareholders through the repurchase program.

And through that you'll basically have a gradual increase in the level of recurred earnings, which are transferred back through a repurchase program going from DKK3b in recurring earnings in 2006, DKK3.5b in '07, DKK4b in '08 and DKK4.5b in 2009.

And then just rounding off, this was a short presentation of Novo Nordisk.

We've covered our leadership position in the key markets we have.

The only one where we are not yet number one is the global growth hormone market, where we hold the number two position.

The drivers are, of course, our modern insulins within diabetes care, the ever-promising GLP-1 compound.

We believe our growth hormone product will also take us towards a more prominent position in that market.

And then we're expanding the presence, not only in North America, but also in international operations, where Kare alluded to the significant potential that China holds for us.

So with those comments, Lars, over to you.

Thank you very much to my colleagues.

And whilst we had hoped that we had answered all your questions by the presentation, I'm sure that's not the case.

So we would make ourselves available for some questions.

Yes?

Mads, if I could start with a question for you, please?

If you fast forward five to seven years, how would you like to see Liraglutide being used?

What I'm trying to understand is how you fit together the thought process about the way the product's used today, potential for use in pre-diabetes, the weight loss.

What label should we be thinking about?

How should we really think about the concept for this product?

Right.

Well, first of all, even though we are seeking a label that will take us all the way from diet failure patients who are targeting their first therapy, all the way down through secondary failure into patients who normally would have been entering insulin therapy, it's beyond doubt that the primary positioning of Liraglutide, and the way that we are comfortable that people will really like using this product, is probably not as a front-line therapy in most cases, because Metformin is a darn good and cheap offering, but -- from there on and onwards.

Now, you can then say, obviously, we are targeting here the obesity program that will be kicked off late this year a whole new segment, which is attacking it from the other side, namely, from the pre-disease side, or pre-diabetic state in terms of medical obesity, BMI above 30.

And here, rather than fall in to the trap that others have done who went before us, of really witnessing not the correct usage of their obesity therapy, we will see not only a weight management, but risk reduction in the approach to weight management.

And coming from the diabetes care side of things, the most obvious for us is, of course, to look into the co-morbidity, which is pre-diabetes and diabetes.

So really trying to, first, household approval based on one-year data, but seek to get data after a three-year study period in those people who already have progressed to pre-diabetes to show that we can reduce the fraction of those who go on to diabetes.

So, that means that if you go seven -- five to seven years from now, which I think your question was, then in principle if things work out the way we hope they will and which we can approve until we have the data, you can say we are attacking both from the declining side of the slope and from the pre-diabetic state.

And this we'll do as of next year, whereas, the other part will be contingent upon the Phase III study program in obesity.

But just to be clear on weight loss, would you look for a label specifying weight loss period, or would it have to be linked to other things?

Yes.

Here, of course, after one year of data you should not be so optimistic as to think that you will get a lot of statements about pre-diabetes and so on.

But I have to remind ourselves that in the 20-week study we've done already, we did de facto see that, among those close to 30% of the population that already had pre-diabetes, we saw an 80% to 90% of those returning back to normality within 20 weeks.

So, yes, we will seek an obesity label after a one-year study.

This is as per FDA guidance.

But we will do so, hopefully, under the realm of very good data that already after one year will put things into the package insert and talk about in this population that was also seeing fewer pre-diabetics, fewer overt diabetics.

But the label that could state that more rigorously will probably be contingent upon the full three-year study.

Thank you.

A question over there?

(Inaudible) with Natixis.

Thank you for taking my questions.

The first one is a non-scientist question to Mads.

I read somewhere that, in fact, GLP-1 seems to have the ability of restoring beta cell function.

And if this is proven, to which extent do you think that it could affect the global diabetes market dynamics, so to speak, the interaction between insulin and the GLP-1?

Do you see the GLP-1 as the next insulin, for example?

And second point, much more industrial, looking at CapEx where are we at the moment for the impact in terms of product incapability?

Thank you.

Mads first.

Okay, well, first of all, all the studies, all the discussions about really either creating new beta cells, or inhibiting the Apoptosis, or program cell depth of the existing ones have all been based on animal studies.

That being said, we're using old clinical studies both [home] analysis and also measuring the stress level of the beta cell by entering pro-insulin to insulin ratio.

And in each and every case the beta cells do become less stressed, the ones that already exist in these human beings.

So I have no doubt that the data that were in the LEAD III study we followed the requisite for a full year and saw that HB1C was taken down and kept down in contrast to Glimepiride, which tended to peak its effect after three to six months, where after, the effect waned because of the wearing out of the beta cells.

There's no doubt that the GLP-1 class of drugs, such as Liraglutide, at least mitigates this wearing out of the beta cell.

Whether we actually have a situation where we modify the long-term disease outcome remains to be seen, but these are things that will be in the works and we can study them more closely the more longer-term studies we do.

You typically need three to five-year studies in many patients to address whether you are breaking the curve -- the declining beta cell slope curve.

That being said, if that were to take place you could argue that GLP-1, such as Lira should, of course, then be the preferred primary offering, because basically you should intervene at a point where you still have many beta cells to save, quote on quote.

Thank you very much, Mads.

Kare, do you -- would you like to shed some light on our capabilities for launching Liraglutide and implications for CapEx when this product will be globally rolled out?

Yes.

Liraglutide is basically manufactured in the same kind of production system as insulin.

It's the same yeast fermentation we call [weight] purification, filling and so on.

The devices will be of a similar nature as the insulin devices.

So it basically means that in terms of CapEx we have already undertaken, or had to be undertaken to be ready for the Liraglutide launch.

And we have already manufactured substantial amounts of bulk substance for Liraglutide.

So you will not see any significant effect the coming years on CapEx from this.

And this is also why the guidance we're out with is saying that this year we expect around 6% of sales for CapEx.

And we are saying for the next three years that it will be around the 7% level.

So, you have seen a significant decline on the CapEx over the years and, particularly, also the closure of the pulmonary insulin projects that take future CapEx expenditures out of our program.

So -- and that has some bearing on liquidity generation, etc.

So, I hope that answers the question.

In the middle?

Thank you.

I have a question for -- a Liraglutide question and one on R&D clarity.

Coming back to the weight loss, just asking a simple timeline question, because I understand you want to first show the data to the opinion leaders and get their input.

Is this a program which can still kick off this year, the Phase III program, or is that something which comes much later?

And also, on -- and you comment in the Phase II data you have seen the proportion of people who are pre-diabetes being reduced.

Did you just look at A1C level, because then the question will be isn't that to be expected, given that you lower A1C with your compound?

And would that be sustainable after a washout effect?

The second question is, I think in some point you spoke about Byetta head-to-head study.

Can I -- is there any guidance when that is going to kick off and roughly how that's going to look like?

Is that also going to be all comers, since similar like the Byetta versus -- the IR versus the LAR?

And is that also going to be open label?

And then in terms of the -- you made a comment on the market potential of the Liraglutide.

You said the seismic proportion depends on the regulators.

Is there any reason to assume that the regulators won't give you a broad label in the [forming] failures, and then particularly at Europe where obviously it may have some cost issues potentially here?

And the question on R&D strategy is I --

Should we try those?

Start with the -- because Mads will hold a lecture of 45 minutes to cover just that and then we can come back to the R&D question perhaps in 15 to 20 minutes, Mads, so?

No, we will seek a label including a diet label; it's not only [misformity].

Monotherapy, an add on to single OADs, add on to dual OADs all the way down to, let's say, the ultimate failure patient.

So, support label we are going for based on the LEAD program.

In terms of the Byetta study, that already has completed recruitment.

We recruited the head-on comparison in 500 plus patients where Lira, given once daily, is targeting superiority over Byetta, given twice daily.

So that will, of course, be reported and ready for announcement at major conferences at the point of launch.

And in terms of the obesity there is -- sorry?

All comers -- everybody, like not -- most of the big patient population in that study?

These are tied, or monotherapy figures, as I recall, but that I can check.

We're doing many, many things in the Lira segment.

So, I'll just check.

In terms of the question about obesity, it is quite true that you have two effects of Lira on obesity.

One is, of course, the weight loss, which was up to seven kilos in the highest group.

And you have to add the beta cell effect, and they are difficult to disassociate out from each other.

But that means, of course, that in Phase II study once you terminate the study, you terminate the study and you don't follow the patients thereafter, because they are un-blinded and leave the study.

But when you do your long-haul study, the pivotal program, there will be elements of follow up as per protocol after termination of Lira treatment to see is there a rebound of diabetes.

But that's not done in a Phase II study.

It's something you typically will do in a pivotal program.

So you follow it, both during treatment, and follow up after treatment, as per protocol.

Were there -- no, I think that was it.

The three-year study you were broadly referring to which will get through that then would include a washout?

Absolutely, I think that's something the regulators will ask for.

Europe, the broad label in Europe 50ml (inaudible)?

Europe and U.S., it will be the same.

We are targeting a broad label all over the world; Japan, Europe and U.S.

Japan is mostly, I have to say, for monotherapy and add on to [issue] these in the two studies.

But, of course, we'll try to broaden it out.

Okay.

And the question on R&D strategy, I understood, and correct me if I'm wrong, your exit of oncology not so much of -- it wasn't a question of lack of compound, or lack of knowledge, or technology.

It was more a question of investment, because it's a crowded field and you're a relative latecomer.

How do you make sure that you're not going to have to make the same decision in Inflammation, because this is also going to be an increasingly crowded field?

And, yes, you have technology and knowledge, but how do you make the years up [late] here?

Short version, I think last year when I communicated from the beginning that cancer was so different from diabetes that for us to be successful we have to find an M&A partner, a partner who could acquire simply.

This --we investigated more than 200 companies, didn't find one that we wanted and that wanted us.

In the case of Inflammation, we think that we have much [physical] base in the business model to take care of that by organic growth and in-licensing of discreet projects, so it's a slightly different situation.

But it's likely to be difficult also.

John?

Well, following on to the last comment, I'm just intrigued about what criterial hurdles you applied to your presence in Inflammation to set a continued presence there?

What do you have to do in development to keep you investing in Inflammation as opposed to following a path you've finally taken in oncology?

Well, I'm not sure that I exactly know the answer to your question.

Would you -- could you --?

Clearly, you've been operating, doing R&D in Inflammation and oncology, for several years and you've been talking on --

Well, three-ish.

Three or four years, maybe?

Three of four years, yes.

And I'm just thinking in terms of continued presence here, and you've clearly gone down the route of considering M&A and ruling it out, perhaps in oncology, for availability or price.

And I'm just wondering is Inflammation really that much easier for you to make inroads in looking forward in terms of presence there?

And in terms of judgment day for you in that business, do you have certain hurdles that you look at in terms of deciding whether you continue to invest money in Inflammation?

Or is that something we can forget about for another three years?

Well, we intend to invest in Inflammation for the long haul.

There's no question this will be an investment period of, perhaps, even more than 10 years before you start to see any significant impact -- positive significant impact on our P&L.

I agree with you; acquisition in the Inflammation is going to prove to be as equally difficult as in the oncology.

And that's why Mads said that he believes, and we believe, that the Inflammation area is an area which lends it more to an organic growth for a Company like Novo Nordisk, whereas, we had already pre-defined that in the oncology area we would need to make a significant investment in skills and in pipeline and market presence to be able to compete in that area, and that we were not able to accomplish.

Mads, do you have any?

Only just to add that most inflammatory diseases are of an auto-immune origin.

That means basically that, by definition, the therapy has to be a dampening down of the immune system, just like you ideally would want to do in Type I diabetes.

In cancer it still somewhat speculative to what extent you can actually boost the immune system to eradicate tumors.

So the market for immuno-therapies in cancer is minute, whereas, the market immuno-therapies in Inflammation is huge and the unmet need out there is still rather big.

A very quick follow up, if I may.

Your commitment to HRT, is that 100%, or is that still under slight review?

No, our commitment has been unfailing.

We have communicated to you several times that we don't believe that we will be in HRT in 10 or 15 years from now.

However, we are generating significant financial returns in this area and in the past three to five-year period of time when there has been difficulties in the HRT business, it has not been the right time to divest this business.

In the meantime, we have managed to file for approval of a lower doses version of our historically quite successful product.

So, we will retain the HRT business for the next five years.

I can't guarantee that that we'll be in HRT 10 years from now.

No.

Maybe, John, on the workgroup pre-condition, do we need to basically continually invest in the Inflammation?

Clearly, we have to be able to demonstrate that we can build up a clinical pipeline of products within the Inflammation area, and we haven't.

We anticipate that we'll bring the first couple of compounds in and we should build a broad base within Inflammation within the next two or three years in order for us to have a reasonable chance of bringing in products from [others].

So, that's more specific.

Yes.

Thank you, a couple of questions.

Firstly, could you, Jesper, or -- not sure [I recall] one of you, referred to the pricing environment for insulin, both in U.S.

and Europe.

Which one disturbs you the most?

And second, thinking about the timing of introduction of biosimilars for insulin, could you give us an update of where you are as that relates to the pricing?

And then the last question is on Lanthus and the litigation you have with Sanofi over the pens.

Could you just give us an update on where I'm standing on that?

Kare, would you comment on the pricing environment in Europe and in United States, and how you see that?

Then we'll come back to the other questions.

Yes.

The pricing environment in Europe and United States is radically different.

The pricing environment in Europe is characterized by healthcare systems that are publicly funded in general, meaning that prices are set by authorities in negotiation with the pharmaceutical manufacturers.

We have a situation now where the old products are very diverse pricing for reasons of currency exchange rates back 10 to 20 years ago.

The new products have a quite uniform pricing.

The [linear] operation has a very unique pricing label all over Europe.

There has been a big battle going on with the introduction of modern insulins where we, market by market, have had to convince the Southern European governments that they would have to double the price they pay for insulin, because they had very low prices historically for human insulin.

This has all worked out and we now have a reasonably stable situation.

There is a very high level of pressure nearly every year from every government just trying to say why don't we just get it 5% cheaper, 10% cheaper, 2% cheaper, or whatever crazy reason they can dream up?

And that's, you could say, a tactical negotiation game in market by market.

We think we have it reasonably under control.

But, of course, it's a negative environment in the sense that we don't take price increases on the individual products.

You have to get your better price through your mix.

So our way of getting better prices is by moving patients from human insulins onto modern insulins and that way we get the price effect.

The U.S.

is completely different.

In the U.S.

you have a very high list price and you can increase that within reason on an ongoing basis.

We do that.

But then you have a contracting [men's] care part of the market where you negotiate contracts with big customers and you have maybe more than a thousand contracts on an ongoing basis also with the government.

And these contracts can have some very heavy discounts.

Human insulin, for instance, typically carries 40% to 60% discount in the marketplace.

And that relates a little bit to the opportunities to biosimilars also.

Because if you are biosimilar and you look at the list price of human insulin in the U.S.

you think this is going to be fantastic, I'll come in and discount by 50% and take the market.

But if you went there and started negotiating they would say, well, what are you talking about?

You have an inferior product and we get 55% discount from Novo Nordisk already, so forget about it.

So, it is -- it's a complicated story once you get into the details but, in general, a more positive pricing environment in the United States.

And you're -- just a quick follow up.

The stability of that, you're more -- you're concerned about that Europe is more stable than the U.S.

or the vice versa?

I think the European situation now is getting more stable.

It's been very tough for the last five years, but it's stabilizing, but not in a nice way where it's stable.

It's stabilizing because there is now a balance of power between supply and demand, which keeps the prices in check.

In the U.S.

you could say it's more a situation where there is a political risk.

If the Democrats come into total control, including presidency, and if they try to pursue a broad-based healthcare reform, then you could see a downside on the actual pricing.

But on the other hand, you might see an upside on volumes if you get more general healthcare coverage, so that you have a bigger part of the population being covered.

So, there it's a -- it's probably a marginal downside on price.

But then again, if it's a very uniform healthcare system they want to build, then you'll have an upside on coverage and volume.

Mads, would you just give some comments on biosimilar regulation and where we see that right now and then Jesper, on the legal case with Sanofi-Aventis.

Yes.

Very briefly, in Europe the regulation is already in place and we saw recently from EMEA that they are setting high standards with [Marble] and their collaborator withdrew their full linage of approvals or applications.

That was based on, I guess, lack of the quality requirement procurement that EMEA decide.

The FDA are still finalizing.

Some people thought that with a [new produced pack] there would be pricing in the guidelines.

There were not, but they are coming in independently and we'll have to watch.

But for every year that goes, you can say [call] is upgrading our patients' basic wish for modern insulins.

And even if not, we still have the device benefit.

So, we don't see the guidelines from them as being that critical for what we're doing.

And on Solostar, we believe that the Solostar device from Sanofi-Aventis is infringing our patent portfolio on devices.

We have current court hearings in both the U.S.

and Germany.

There's no ruling or decisions yet from any of these cases.

I believe there will be more clarity on a three to six months' horizon, both Germany and U.S.

in that respect.

Thank you.

The next question is over here.

Two questions please, firstly, on that biosimilars in Europe.

What's your expectations when the NovoLog and NovoRapid patent expires in Europe?

Would you expect the EMEA guidelines, which now only cover the human risk insulin be updated to cover short-acting insulin analogues as well?

And then secondly, on the Liraglutide weight loss, could you -- now when you have five to seven Phase III studies on Liraglutide behind you, could give us your general feeling of the time profile of the weight loss versus placebo of Liraglutide?

Thanks.

Thank you.

Mads, this is you.

Yes.

On the biosimilars we have a whole set of different guidelines, some from the easy to copy [votings], such as human insulin, interferon and growth mode, and a complete lack of guidelines on the very complex proteins, such as gluconic factors where you basically have to redo an entire pre-clinical and clinical program of, let's say, your own choice, so to speak.

So, where NovoRapid fall into that?

Yes, we have to work under the assumption that there will be parts of the guidelines that allow for insulin [Asbach] to be [generalized], so to speak.

So, we'll have to continue to work on the alternative delivery on even better devices and so on to keep growth in net franchise, because this is the only of the analogue of the modern insulins where we don't have at this point a Phase II in place for a superseding molecule.

And then the other question was about Lira?

(Inaudible) a profile on the --

Yes, in the study where this is most easy to follow, because the signal is the strongest, namely the obesity trial, where we have compared against these placebo and [Zenecal], there we see a linear relationship between time and weight loss.

So that's what we've seen for half a year.

When, and if, there comes a plateau, I think this is something that we'll simply have to study over longer periods of time.

To specify that, that you mean continuing increase in the weight loss versus placebo, not versus base line?

Yes.

Okay, thanks.

And one more question over there.

I'm sorry to have you run around here, but it gives her exercise.

You know the risk.

I had a question about Liraglutide and whether you have plans to initiate studies in patients who are on insulin.

I understand there's been some more observational studies that have shown that insulin dosing can actually come down, as a mainly short-acting insulin, and whether you're planning to look into that?

Thank you.

Mads?

The answer's yes.

All right, we'll take one more question.

That was quick.

One question in the front and then we'll break for a little cup of coffee and we'll be around to have additional questions if there are some.

Thank you.

I'm just looking at your key growth drivers and international markets in China, and your market share growth in China's very, very impressive, but how big, value-wise, is China right now?

It's 5% of sales.

5% of sales.

And to what degree do you -- would you see a potential threat of maybe local producers?

You've got such a big market share that maybe local producers might actually come and try to take their market share.

We had a picture here which actually showed you the answer to that question.

It's only to today.

I'm thinking forward, actually, maybe over the next five years.

Well, careful -- there we go.

Here you have the local manufacturers.

All the local manufacturers are losing market share.

The only ones that are gaining is us, Eli Lilly and then, hardly noticeable, Sanofi-Aventis on this chart.

Okay.

Can I ask that in a slightly different way then?

To what degree do you talk to the Chinese Government?

And to what degree do you get any sense that Chinese Government would be keener for local producers to do better?

Kare, do you have a comment?

Yes, I think I even tried to comment on it.

We have a very positive working relationship with the Chinese health authorities and the Chinese Government.

And we see that they are going for creating a system based on innovation and based on know-how.

And I don't think they are seeing that coming from their local manufacturers.

They are being very tough on their own pharmaceutical industry right now, because they -- the way I interpret it is that they want the top companies to win.

And they don't really see a big future for the companies who cannot drive innovation.

And those competitors we have in China are mainly characterized by not being really being very strong on innovation.

And the only one you're really seeing making progress are the Chinese, [Zhong Huadong Dow] is actually making a copy of a Lanthus, which is sold in the market.

That's why you're seeing that product.

It was actually approved prior to Lanthus coming on to market.

So, that's a little bit unusual situation in China.

So the activities are significant in relationship to the growing Chinese market.

It's also significant for us in terms of overseas market, because it limits the size of the Chinese manufacturers to a level which we believe we can manage and it dampens their competitive pressures elsewhere in the world.

And, of course, specifically it goes hand in hand with us investing in research and development.

We have a research and development center in China and clinical trials and manufacturing and so on.

And so, if we were not bringing know-how and investing in China, then I'm not sure whether the authorities would be as positive as they are.

Okay.

One more question and then that will be the final, final, so, Henrik?

I thought I'd ask you a question, because you haven't answered too many questions.

So, I have my colleagues here working hard.

This is more a question about, what shall I say, the overall NPV of your business.

If you go back one year you were having at that time all ex.

diabetic drugs.

You were having cancer drugs and even an inhale-able insulin product.

What is the -- what has changed in your assessment of the overall NPV of the Company since you lost, say, three assets.

Something must have moved in the budget direction just for them to be positive.

Has that the obesity -- pre-diabetes [neoglucine]?

And what's changed in the positive direction for that NPV to be --

I think definitely it's Lira and definitely, in our own view, perhaps now the NPV seen from externally, the second generation modern insulins.

Let me just back up maybe three to four years.

When we started looking at diversification into oncology and biopharm, at that point in time when we looked at our businesses we could see that in 10 years time we would be exposed to patent exploration.

Our long-term projections seemed to indicate a growth rate which was stagnating towards the end of the 10 year period, because of patent exploration.

We -- at that time, we did not have the visibility we have today on Liraglutide.

We did not have the visibility that we could reinvent parts of the insulin market.

We did not have the knowledge and indications that we could, perhaps, reinvent the NovoSeven franchise or even, indeed, expand that into the whole hemophilia area.

We did not have a long-acting human growth hormone in clinical trial.

So, what has changed?

So, we thought we should have a broad-based exploratory look at diversifying our portfolio so as we had a chance, in a 10-year perspective to build another business.

Today the situation is quite, quite different.

With our insulin franchise, which accounts for the majority of the growth at the moment, there are replacement power with the two analogues that are in Phase II clinical study.

With Liraglutide there's an expansion opportunity to compete directly with OADs.

That's, perhaps, and this is not known fully yet, a diversification opportunity into weight management and pre-diabetes, which are areas that we believe that we know something about.

With regards to the hemophilia area, as I mentioned, we have identified analogues of NovoSeven that either work faster, or stronger, or can be administered subcutaneously, and that opens up a significant perspective for us, expanding the current application of NovoSeven even within the hemophilia area.

And in addition to that, we are undertaking research in the area of other clotting factors as well.

Add to that the possibility of rejuvenating our growth hormone franchise, I would say that the pressure for us, from a growth perspective long term, to diversify our business has diminished and that is why we have said let's not go broad-based into oncology and Inflammation.

Let's pick the one that we believe is the one that is most suitable for us, invest R&D-wise probably 10% of our resources into Inflammation, leaving significant funds aside for investing in these key franchises where we do believe that we have a better chance of success longer term.

We can, perhaps, talk about that in the coffee break.

Ladies and gentlemen, thank you very much for your attention.

We will be around for another 15 minutes, I think, or so, should you have any additional questions.