諾和諾德 (NVO) 2008 Q4 法說會逐字稿

Okay, I think we'll start this afternoon's session.

Thank you very much for joining us today.

We're delighted to have the management team of Novo Nordisk headed by Lars Rebien Sorensen.

I'm going to ask the team to come up to the front desk and the podium to give a short presentation, and I'm sure they'll be happy to open up for Q&A.

So, good to have us, and we look forward to an interesting presentation.

Thank you very much.

Ladies and gentlemen, thank you for coming.

We bring northern weather, as you can see.

So we really appreciate so many turning out after all.

I saw an interesting conversation in the Danish press between a climate fundamentalist and a physicist, where they noted that global temperatures over the last couple of years have actually been declining.

And this was explained away with a lot of details about the El Nino or La Ninea, or whatever.

But the climate fundamentalist agreed that if the temperature is not rising within the next five years then we have an explanation problem.

So maybe it is getting colder, after all, every time we come to London.

We hope that we will be able to cover our investor presentation for the full year results of 2008 rather briskly, not necessarily going into all the details of the slides because you've had opportunities to listen in to our call and this is getting rather old news.

But rather just whiz through it and then get to the Q&A session and, perhaps, are able to answer your questions in some more detail.

And welcome to Jesper Brandgaard as well.

First of all, as a usual caveat, the forward-looking statements that the actual events may differ from our expectations and, as such, we kindly ask you to read the fine print.

In terms of the overall outlook, the presentation, the highlights, strategy, sales update, R&D and financials, the usual, we have given you the numbers.

Strong top line growth, double digit in local currencies, driven by our key franchised Modern Insulins, supported strongly, perhaps a little stronger than anticipated also our sales of NovoSeven, hemophilia drug and, Norditropin, our Human Growth Hormone.

Geographically, it's North America and its International operations or emerging markets that are the lead drivers, whereas, this is trailed by Europe and Japan.

A continued solid improvement in our gross margins derived from manufacturing productivity, operating profit 38% as reported, of course, significantly influenced by the once-off Dako events in 2007 and the Pulmonary closure in 2007 which depressed the 2007 operating numbers but, still, an underlying 25% plus operating profit growth.

We are expecting to increase the dividends with a third, 33%, to DKK6, and we have updated the fourth long-term financial targets.

For 2009 we are expecting growth of the top line of around 10% and we are expecting operating profit growth of around 10% in local currencies.

But because of the tailwind of the currencies, given the current rates, we're looking closer to 20%.

Significant progress in R&D; Mads Krogsgaard will get into this.

Of course, 2008 was the year of Liraglutide.

We hope that 2009 will be the year of Victoza.

That remains to be seen.

But, in addition to this, we have seen very promising data on the next generation of Modern Insulins, a new generation of Insulins which are going to be very important for the Company's long-term growth.

I should add here that if we look -- and I think I mentioned this when I was here last time in half year.

When we look at the 10-year projection for the Company, 80% of the top line growth for the Company is expected to come from our Insulin franchise.

So that excludes Liraglutide or Victoza, just highlighting the importance of the Insulin franchise.

All Pulmonary activities have been stopped and further refinement of our long-term strategy is to focus on Inflammation within the Biopharmaceutical area, where we have also had line extensions of NovoSeven approved and we are initiating Phase II studies of a long-acting Human Growth Hormone as well as new versions of NovoSeven.

The overall strategy of the Company has been refined and focused.

You may say it's Diabetes, it's obesity and pre-Diabetes based on proteins, it's hemophilia and growth disorders, not much activities in HRT.

It's a franchise which is expected to slowly dwindle away.

Not much research activity is ongoing and within the area of Biopharmaceuticals, outside of these, it is Inflammation that we intend to focus on going forward.

Protein Therapy; we have been discussing this with you over the years.

You see here that Diabetes sales growing around cumulative 7% annual growth rate, consisting of 2% for OAD treatment but 12% for protein-based treatment of Diabetes.

So, indeed, we are in the sweet spot of future Diabetes treatment and, as you can see on the chart as well, that Novo Nordisk has a dominating position, with 23% of all Diabetes medication being sold in the world.

Global leadership in all four different regions; total market of 52% of all insulin being sold in the world is Novo Nordisk's Insulin.

With this, Kare, a quick update on the sales.

Thank you, Lars.

I will go straight into it.

Ladies and gentlemen, you can see here that the driver behind the sales growth is very much the Modern Insulins.

They make up 77% of the growth.

And if you look at the total reported sales, then Diabetes Care is also three quarters of that.

In the other products, the partial surprise was that NovoSeven kept growing at a stronger pace than we had anticipated, growing some 14%, and Norditropin also kept growing at double digits, so a good development there.

If we look at it by region, then it's the same pattern as we've seen in the last couple of years.

The biggest contributor to growth of sales is North America, and then emerging markets, or International operations as we call it, coming in as number two.

Very little contribution to growth coming from Japan due to very low dynamics in the marketplace and the fact that we had the mandatory price cuts that you have every second year in Japan last year.

Out of total sales, Europe is 38% and North America 33%.

With the change in the dollar that has happened over the last quarter, you might expect that the reported numbers for this year will make a reversal here and we will get to a situation where Europe and North America basically constitute the same part of total sales, once we get out of 2009.

With regard to International operations, they have been running at around 20% local currency sales growth for a number of years.

We expect that also going forward.

And, of course, as they get to be a bigger chunk of the total business, now approaching 20%, that contributes more to total growth.

The underlying fundamentals of the Insulin market are unchanged.

We've always said that it's growing 5% in volume and then another 5% in value upgrade of different kinds.

And, here, you see the last five years from 2003 to 2008, 6.6% combined annual growth in volume and, then depending on what currency you take it in, 12% in Danish kroner or euro, or 18% if you do it in US dollars.

In terms of our total share, the way we measure it here, it comes out at 51%.

And you can see the dynamics are reducing a little bit right now.

We see a situation where our market share gains are not as high in volume as they've been before.

But, still, we hold on to a very strong position and we see Lilly keep on losing and Sanofi keep on gaining.

55% of the market is now in Modern Insulin, and this is in volume.

So if you look at in value it's probably closer to 70%/75% of the market that has now converted to Modern Insulins.

We keep on growing our share.

You have to remember that we launched a little late both on the fast-acting, the Premixed, and the long-acting Modern Insulins, but we've been catching up nicely and we're still doing that.

We're at 45% market share right now of Modern Insulin, and, of course, we expect to take that up in the future to the 50% plus that we have out of the total market.

Again, here, Sanofi's has gone flat and Lilly keep losing.

If we just look at a few of the regions then, here, we have a look at the European situation.

In Modern Insulin, here, you could see -- here we have hit the above-50 mark.

We're at 51% now of Modern Insulin in the [US].

Again, the same pattern; Sanofi going flat and Lilly keep on losing.

And you can see the penetration curve, the red curve, that the penetration is now around 60%.

And that is measured in volume and that means that in value, of course, it's slightly higher.

If we look at the US, then it's a little different situation.

Penetration is also high above 60% for Modern Insulin.

Here, you still have the situation that Sanofi has gone flat, we're growing, Lilly is losing.

The problem is that they got a head start here.

They started some years before us in the Basal segment, so we have a longer way on the way to 50%.

So it's a more, you could say, intense fight we have there, and we will keep on fighting until we get to the 50% we think we deserve, but it's going to take somewhat longer.

You can also see here that the dynamics are a little different.

The long-acting segment is bigger in the US, which has given Sanofi Aventis a relative big advantage there.

But, right now, the fast-acting segment is actually the one that's growing the most.

After that comes the long-acting and then the Premix.

In China, it's a different situation.

Here, you remember we showed 6.6% volume compound annual growth rate for the last five years.

This is the same five-year period.

You can see it's 26% in China and, in value, above 30%.

We have a very good and strong position.

We've had that for many years.

We have an interesting competitive situation where we're both competing against Biosimilars.

And Lilly and Sanofi, and all of them, have claimed they want to be leaders.

So we wish them good luck and intend to keep on hanging on to our 60% market share.

What you should also notice is that there's a good penetration starting now to the Modern Insulins.

It has taken a while because the regulatory setup in China and the reimbursement setup in China means that any product is four or five years' delayed compared to the rest of the world.

And that's why we've only started really penetrating with the Modern Insulins in the last couple of years.

We expect the penetration rate per year to be similar to the penetration rates we've seen in other parts of the world.

So, from this 15% level we have now, we expect that to keep on increasing in the coming years.

So that's really what we're doing right now.

Now on to Mads Krogsgaard; what about the future?

Thank you, Kare.

And, with respect to the future, let's take a look at the Diabetes R&D pipeline.

And you can say, from a chronologic perspective, you should expect that the first half of this year is going to be marked by quite a few things, not only Victoza, but to a large extent Victoza.

Before we go to Liraglutide or Victoza, let me say that we are, of course, discussing the Phase III programs that we're going to conduct for the two next- generation insulin analogs, the NN1250 and NN5401, with the regulators in the next couple of months to come.

And we will give you an update on the rather extensive Phase III program that we expect to kick off for these two agents in the second half of this year.

If we then look a bit more into detail with Liraglutide, a lot of things are going on simultaneously in as much as we, on the one hand, have been responding to the Japanese authorities to a number of questions that they had to the regulatory dossier in that country.

And, on the other hand, we are awaiting from the Europeans the next step in the very fixed sequence of events that happens there.

As you recall, there is a clock stop every time we start responding to their questions, and then it starts again as soon as they think of the next steps towards the 2010 situation where we will get the final assessment which we expect to be April/May of this year, followed by a EMEA Commission or European Commission approval 60 days later, leading us to the middle of this year where we hope to have approval.

In the US we are, as we speak, preparing for the Advisory Committee meeting which is taking place on April 2.

We've had very extensive rehearsals.

We are preparing the FDA briefing book which will be put into the public domain a few days in advance of the hearing.

And we expect a lot of focus at the meeting to be, on the one hand, on efficacy and, on the other hand, on the issues of long-term benefit risk relevance, such as cardiovascular outcomes, which kind of commitment to be given to the Company where we are clearly expecting a post-approval commitment to study cardiovascular risk with this agent and we are really also gearing up for discussing that -- what kind of trial, etc.

As we move into -- well, before we move into the second half of this year, I should also just mention that our once-weekly GLP-1 analog, NN9535, expects clinical proof of concept data around the middle of this year.

Now, that then takes us into one data slide here on Victoza, Liraglutide.

It's just the one-year open label extension, i.e., providing us with two-year data from the LEAD 3 mono-therapy study.

The curve on the left is a well-known one; it's from The Lancet.

It's the one-year data.

We have not provided you with two-year data at this point.

They will be announced at major conferences later this year.

But we are happy to say that approximately three quarters of those who entered into the extension study were actually able to complete it.

And that's the good news because these 321 patients showed that we do have sustained improvements, both in terms of glycaemic efficacy compared to Glimepiride, but also in terms of the weight benefit.

So that we end up with an approximate 0.5% and, both clinically and statistically, a distinct benefit of Liraglutide compared to the sulfonylurea, and a weight difference that is close to 4kg in favor of Liraglutide.

And, moreover, the safety profile as we know it today remains the same.

Now, finally, a few words on the Biopharmaceutical pipeline.

As you can see, we're now building a rather healthy and expansive group of coagulation factors where we're really targeting both the inhibitor segment, with 1731, our fast-acting analog, but also moving into prophylactic therapy of hemophilia patients with inhibitors, which is a completely new and untapped market potential for Factor 7 analog therapy.

And, as you can see, we're also now starting to see the first of the new clotting factors.

Factor 13 has entered Phase III development for congenital deficiency.

You should expect later on this year also to see other clotting factors targeting hemophilias A and B emerge as the pipeline progresses.

With that, actually, it's over to you, Jesper, for a brief financial update.

Thanks, Mads.

The financial results, as we released them on Thursday morning, are illustrated on this slide.

As you see, the -- as Lars mentioned, the stable development in sales, 9% growth reported sales for the full year, 3% negative currency impact.

But, do note, that we, in the final quarter of the year, actually had a positive currency impact and that, of course, significantly will continue into this year.

The gross profit, there, we delivered clearly on our promise of expanding the gross margin.

Reported terms we expanded at 120 basis points, and we had some 50 basis point negative currency impact.

So, in local currency terms, it ended up at 170 basis point improvement, really coming from ever-more efficiently producing our portfolio of Diabetes Care products, driving the improvement.

In terms of the other cost structures, sales and distribution costs declining for the selling and distribution, as a reflection of, partly, a fine we got in Brazil in 2007 to the tune of DKK200m.

And we actually won that issue with the Brazilian government and, hence, got the DKK200m back.

So in the sales and distribution line there's a DKK400m swing just for that specific issue between the year which makes quite a significant impact.

In terms of research and development cost, numbers are clearly distorted by the Pulmonary activities.

Do bear in mind that we, in 2007, not only had the DKK1.3b in cost in relation to closing down Pulmonary, but we, on top of that, had costs to the tune of DKK1b in driving forward the Phase III program that ran to 2007.

So if you back out the Pulmonary activities in the numbers, you will be looking at more than 15% growth in our R&D activities outside the Pulmonary area.

And we expect to continue to expand, as Mads was just alluding to, with the significant program that we will now have ongoing with the tune of Modern Insulins starting towards the end of this year and also the Obesity program for Victoza, and whatever Cardiovascular programs that we will have to run following the expected approval in the US of Victoza.

And then, on the admin line, continued steady decline in our admin percentage, now down to 5.8%.

We also believe that it's likely that we will see a continuation of this improvement going into 2009.

And do bear in mind that we actually, in 2008, had an employee share program which have had a cost impact on each of our cost lines, and that had a cost to the tune of DKK170m.

And those costs are not going to be repeated.

So, in 2009, typically, we've gone those employee share programs with a frequence of three to five years in between them.

If you look at operating profit, as Lars alluded to, 38% growth.

We've had a significant decline in our net financials because of the divestment of Dako business activity, a cancer diagnostic firm that happened in 2007.

And if we go down to the pre-tax profit, we have a steady 16% development that better reflects the underlying development in the business.

And then the tax line was, in 2007, impacted, not only by the Dako transaction, but also by a lowering of the Danish corporate tax rate.

If we look at the long-term targets, we've taken this opportunity to update our long-term targets, as you can see from this chart.

Both on the operating profit growth and operating margin we have clearly exceeded the targets we had previously.

We have decided to stick to a 15% target for operating profit growth.

This is clearly the most ambitious of the targets we have in the portfolio.

It's going to be still challenging to reach that 15% growth year on year, and will require for us to deliver double-digit growth in local currency on the top line to deliver this on a sustainable basis.

In terms of operating margin we have lifted the targets now to around 30% and, as you can see from the development in 2008, of course, it has been significantly helped by the development in our gross margin.

And gross margin and admin cost continues to be drivers of this improvement, whereas, you will see some fluctuations in selling and distribution costs and our R&D costs.

In terms of the two other targets, return on invested capital, here, we have also made a significant lift in our target level for the ROIC.

And, remember, we measure this post tax.

The expectation here is linked to the expectation of an increased level of profitability, and also linked to that a lower tied up level of capital, both in terms of fixed assets because of the better production economy and because of the higher yield that we get from our facilities, but also the inherent lower costs attached to our inventory values as a reflection of the lower cost per produced unit.

In terms of tax there is only a limited -- there's not any significant impact built into our expectations.

Cash to earnings; this is kind of the household item of the four long-term targets.

There, we have lifted the bar to 80%.

We came out this year, 2008, with actually 114% for the year in itself, and now 98% on three-year average.

We have had historic very low investment levels in 2007/2008, and we expect there to pick up the investment level in 2009 as we expand our Insulin production facilities in China.

If we look at currency volatility, it is an extremely volatile environment to make predictions in.

Here, we've tried to illustrate for the five main currency exposures that Novo Nordisk have, what is the sensitivity and what is the duration of our hedging.

And, as you can see from these hedging periods, we are hedged for the full year 2009, so all the positive impact we get on the operating profit from these currencies will, unfortunately, be offset by a similar hedging loss on the financial line.

And then we will, hopefully, have a positive impact when we get into 2010.

We've also taken this opportunity to increase our payout ratio.

The very solid cash generations that we illustrated just before on the cash to earnings ratio have given us the opportunity lift our payout ratio to now 38%.

And that is moving us closer to the peer group, which we now see operating at around a payout ratio of 40% compared to, previously, 35%.

So DKK6 in dividend per share in 2009, paid out for 2008.

And then we've got the repurchase program with a DKK1b, as illustrated on this slide, also due to the very positive cash generation.

So, the outlook; I'm not going to reiterate all the elements listed here.

I think the key issue to note on this slide is that, here, we have stated the current rates that we used for this prediction.

I think these were the average rates for the Danish National Bank on Tuesday, January 27.

And, as you can see from these rates, the current rates are significantly higher today.

In reality, I think when I drove here we had a dollar rate of DKK585.

So, of course, the currency impact that we will have at the current rates will be even higher than what we have indicated here but, of course, will be met by similar losses on hedging.

So that was what we wanted to go through with you.

We hope we have illustrated that we have a very solid leadership position in the growing Insulin market.

We have, in Victoza, a very promising GLP-1 compound that will go through a challenging regulatory process the next six months and, hopefully, will lead to approval in both Europe and US.

We have leadership aspiration for our portfolio hemophilia products, and we also believe that we can continue to expand our leadership position in the emerging markets.

This is certainly where there is the biggest growth opportunities for a company with a world-leading portfolio of Diabetes Care products.

And we also believe that our exposure to patent expiration is quite low due to the protein focus.

And if we look at what has happened within the Human Growth Hormone area, I think the impact on Biosimilar competition in the Human Growth Hormone area shows a little bit of what's happening.

It's not so much that new players will come in and take significant share.

It's more that the endogenous player may be a little bit more price-sensitive.

But we will have to see how it will play out longer term in the Diabetes Care arena where, of course, ability to produce products efficiently will be a major factor.

It's a challenging environment, both in terms of innovation -- Mads has alluded to that in terms of the approval process for Victoza.

In terms of competition, we see an ever-intensifying competition within Diabetes Care, and I think our investors should anticipate that going forward, including potential competition from Biosimilar products, as just alluded to by me.

In terms of economy and the general economic downturn, and also risk of healthcare reforms, of course, Novo Nordisk won't be immune to that.

So far, we have seen limited impact.

I'd say the first impact we are beginning to see will come from some emerging market economies and where we are seeing the days of pay -- the days of sales outstanding is slightly increasing, but it's so far been a very, very limited impact on Novo Nordisk.

And we are monitoring that very carefully.

And then we'll have to expect that there will be healthcare reforms in a number of markets.

So, with those comments, Lars, it's then over to you.

Thank you very much, Jesper.

I'd like to invite my colleagues up here so that we can try to address your questions.

And if you would walk around with the mic so that we can get your wonderful voice recorded.

Over there, yes.

Hi, it's Andy Kocen at Redburn Partners.

Just a question on the SG&A in 2009.

I think you talked about 31% sales ratio -- selling ratio in 2009.

That implies probably 30% growth on 2008, which is a year where you already had some pre-launch expenses for the Liraglutide and sales people taken on.

So I was just wondering, obviously, currency is going to impact the reported number, but quite why 30% up is appropriate.

I would like the explanation for that.

Thanks.

Thank you very much.

Jesper, will you give the first comment?

And then, perhaps, Kare can say a few words about the practical arrangements and what is included in our guidance in terms of launch costs for the Victoza launch.

Of course, the expansion we're going to have in our SG&A is coming from all the launch activities we undertake.

It's going to be the prime focus on US, UK and Germany.

There's very limited expansion of our sales force included in the numbers for 2008 and, hence, if we -- as we have expanded our sales force in the US, that will only really hit our numbers when we get into 2009.

Those will really be the key drivers.

But, of course, one of the factors, and it's uncertain, is the exact timing of launch and that can have an impact on the ratio.

Now, in the 31% which we are guiding, we are expecting a relative smooth approval process, both in Europe and US.

If there is a delay, of course, this would reduce the selling and distribution costs ratio and, as most of you are aware, in reality the profitability from product launch as big scale will probably drag out some two years.

So in 2009/2010 it's not going to be positive, but we believe it's a sound investment to do for the future.

Maybe, Kare, a bit more on the tactics involved.

Yes, the tactics are basically to do what you would call a benchmark blockbuster launch in US and Europe this year.

And that means that we have done all the preparation.

We have got the sales force basically recruited now and we are tactically not going to comment on exactly how many that is because we think it's better to leave that unknown until we actually hit the market.

It's also clear that it's a huge discretionary investment also in promotion and detailing and it's, of course, linked to the ambition that we will be able to grow the GLP-1 market over and above what's been happening right now.

Thank you very much.

John Reeve, S&P Equity Research.

A question to follow on from the earlier one.

If you look Q4 sequentially on Q3, I think your selling expenses increased by DKK400m.

If you write back, or you adjust for the written-back provision, you actually had a DKK600m increase Q4 on Q3.

Clearly, currency plays some part in that, but I wonder if you could just elaborate on where that increase is coming?

Are we, for instance, looking at a substantial sales force increase in that Q4 number in the US?

Thank you.

The prime driver is really promotional activities in the market and hiring costs for an expansion of the sales force in both US, Europe, and the two key European markets is Germany and UK.

So those would be the prime parameters.

I don't know whether you want to want to elaborate on that, Kare.

No.

The only other thing is, of course, that we keep on pushing in the emerging markets, such as China, so we also have some limited expansion of the cost base in China.

Thanks, it's Andrew Fellows of MainFirst.

Could you just provide a bit of color on the gross margin on a constant currency basis, perhaps giving some indication of impact of pricing, productivity improvements and also the mix, and things like production yields, how much that's contributing to the margin uptick?

Yes.

If we break down this 170 basis points I mentioned, you can ascribe the prime part, close to 150 basis points, to productivity improvements.

And those productivity improvements have, in 2008, been roughly equally divided between the bulk manufacturing of our Diabetes Care products and the more efficient filling of the product into cartridges and our pens.

There's very limited impact from the Biopharm area.

So it's all ascribed to better and more efficient production, roughly equally divided between more efficient production of the Modern Insulins, and then efficiency coming from the filling lines.

As we look towards next year, we continue to expect that we can make improvements there.

And those -- that will be the key driver of the 400 basis point improvement that we have promised for 2009.

If we look to the effect from prices, there is a positive impact from higher prices in the US, partly being offset by lower prices in Japan.

Net, that would be probably around 30 basis points in improvement in 2008.

And then there is a mix effect which is actually just a little bit negative.

And the issue we have is that the cost of producing one unit of Levemir, which is the fastest growing product, is actually significantly higher.

I've alluded to that a few times before here in London, as we need four times as many insulin crystals to have an effective unit of Levemir.

And, hence, there is actually slightly counter-intuitive.

We have a slight drag from mix.

And then you have the rough 50 basis point negative on currency.

And then, hopefully, you should end up at around the 170.

Andrew Baum from Morgan Stanley.

Perhaps questions for Mads on understanding -- well, actually for more than just Mads -- but understanding the dynamics that have impacted Byetta in terms of slowing adoption, just thinking about the kind of ramp up you're expecting for Lira should it get approved during the course of 2009.

And you've obviously got a number of issues in that sphere of adoption of new therapies, marketing spend.

It's a multi-factoral thing, but for you to highlight what are the key issues that held back market penetration.

And what have you actually done so far to try and resolve those, particularly I'm interested in your discussion with payers and positions of Pulmonary.

Right.

Yes, Mads, go ahead.

Okay.

So, Andrew, a number of factors have come into play.

Everybody knows about pancreatitis but that's only, I think, a minor part of the story about why Byetta as a compound, so far, has not really been that successful.

If you dig a little deeper you'll realize that simple things, such as how long do patients stay on a drug, they of course provide input to the equation of what is the influx and efflux of patients going in and out of a given product segment and, hence forth, how is market growth for that product class.

And the average stay time for Byetta of the patients has so far, to our understanding, been actually less than two years.

You can then also say what is the real uptake of Byetta?

Well, it's so that because you have a very inflexible dosing regime, i.e., twice daily and coupled with a meal, otherwise you get into dire straits in terms of your stomach feelings and so on, this has meant that Exenatide has essentially been prescribed mostly as a third line agent at the point in time where you normally would initiate interim therapy, because Metformin failure patients do not accept complex twice-daily injection regimes as their second line therapy.

And here we think we have a very different situation with a flexible, once-daily dosing with Liraglutide.

The same actually goes for the staying power of Liraglutide in each individual patient.

Because, as you can see from the one-year extension data, we are actually able really to keep around 60% below the ADA target of 7% even after two years, which is a sizeable amount of the patient population.

So if you add to that that Byetta has also experienced the problem that some physicians have consistently heard about nausea, also after half year and one year and 18 months in an individual patient, this is not good news.

And, here, we know that Liraglutide, after already three months, returns more or less to baseline levels of nausea reporting.

And essentially you can say that a patient accepts, during a run-in period, certain side effects.

But you don't accept them if they kind of become lifelong.

So we agree that Liraglutide should by no means repeat what has happened with Byetta, but rather really expand the market into what we discern should be a much more sizeable market.

In the front, yes.

Thank you.

It's Alex Evans at Deutsche Bank.

I was wondering, Mads, if you could just summarize the recent guidelines that were issued on the development of Diabetes drugs, just very briefly, if that's possible.

And also whether that's going to have any impact in your development of all Diabetes drugs in the future.

Yes.

Well, certainly, they will.

But first, what do they say, the guidelines?

They essentially say that, from a very brutal perspective, if your point estimate, after you've combined your Phase II and Phase III data for new anti-diabetic agent, is above 1.5 in relative risk compared to comparative therapies, you can drop dead and forget anything about continuing further with your application.

If you're not above 1.5 in your relative risk, then you should essentially look into, well, what then are the bounds, the lower and upper bounds of your 95% confidence interval.

And in the event that they are below 1.3 in the aggregated MACE analysis, and MACE stands for major adverse cardiovascular event outcomes, if you're below 1.3 in your relative risk you can be happy.

And you will not even need to do a post-approval trial commitment for assessing cardiovascular risk.

And if you're above 1.8, you're also in the unfortunate situation that you can forget everything about continuing your drug at all.

So if you're somewhere in between, which is going to go -- be the case for the vast majority of Type 2 Diabetes drugs, you will be asked to do this post-approval commitment where you have to end up showing that, once you've done the cardiovascular risk study, your point estimate has now been reduced so much that the upper 95% confidence limit is below 1.3.

So those were a lot of numbers, but they're very important to remember because you're either going to be in our out of business based upon where your number is.

Then, with regard to whether it affects Novo Nordisk or not, of course it does.

It means, for instance, that our once-weekly human analog, NN9535, is essentially going to make sure that its Phase III pivotal program lives up to this guidance criteria in terms of also in reaching the population.

That's also another element in the guidance that you need to bring on board some higher risk patients so that you simply get more cardiovascular events to measure up against.

And you need to also introduce an adjudication committee of blinded experts that looked into each and every case [CRF] and narrative of patients who have experienced CV events.

And they will then, in a completely unbiased and blinded manner, get adjudicated to the WHO classification of the disease criteria.

So, yes, it will impact us.

We will be, over the next 18 months, between doubling and tripling the amount of patients that are in Novo Nordisk Diabetes trials.

We see it as a good thing for the patients because it really shows that you have upped the bar in terms of patient safety.

But, from a patient recruitment perspective, it means that established players like Novo Nordisk should be, I think, in safe harbor because we know where to get which patients.

But for non-established players it's going to be a little bit tough, because you really will need to know the investigators, the sites and the patient characteristics when you do these huge outcome studies.

And, Mads, just perhaps a clarification, whether this does apply for Insulins as well.

Yes.

Well, it doesn't say specifically in the guidelines.

Insulins are not mentioned with a single word.

Now the Novo Nordisk interpretation is that, with the 85 years of experience that we do have with Insulin and the safety on the heart of Insulin, both in Type 1 Diabetes and Type 2 Diabetes, we think that the elements, such as the adjudication committee and so on, they are relevant also for Insulin, whereas, the absolute CV guidance in terms of outcome trials etc., may be less so because Insulin is Insulin is Insulin.

Now, we are not going to be arrogant and say we know for sure this is how it is.

Rather, we're going to have a very scientifically-based debate with the agency over the next month or two about this very issue so that we make sure that the Phase III trials for NN1250 and NN5401 are done in exactly the right way.

Thank you.

Hi.

Thanks for taking my question.

Richard Vosser from JP Morgan.

Just on Liraglutide obesity trials, wondering when the next trials are due to start.

And if you could explain how the current started trial that you mentioned in your press release fits into your regulatory strategy for the US and European.

I would have thought, basically, you would be looking at the absolute weight loss rather than the maintenance.

So some color on that would be great.

Thank you.

Thank you.

Mads again?

Yes, well -- okay, so the latter one first.

This is a prevention of weight regain trial.

And what that means is that you're essentially using a hypo-caloric diet for a maximum period of 12 weeks pre-study.

You induce a weight loss of minimum 5%.

And if and when patients achieve that weight loss, they then become randomized in a double-blinded fashion to Liraglutide, or not Liraglutide, where the primary endpoint is to really show that it can prevent, using this adjunct to the hypo-caloric diet, the regain of weight that is so devastating in many patients trying to lose weight.

At the same time, as a secondary endpoint we're, of course, looking at can we gain even further weight loss than over and above what has been seen, and we hope to do so.

You can say it's an interesting thing from a patient perspective.

But the regulators are a little bit wary about whether this is a grantable label or not.

So it's something that is important from a patient and physician perspective, and something that is important from Novo Nordisk wanting to do things that are good for patients long term in the way we position the product.

But, you're right.

It's not the primary endpoint of the pivotal trial per se, because that has to be one-year weight loss and how many achieve the 5% or more.

And that study has not yet been initiated.

But that is going to be initiated later this year.

And it's going to be a trial with much more than 3,000 patients.

And, to add to that, we're also doing a trial in obese individuals who suffer from Type 2 Diabetes to look at co-morbidities etc.

So the total trial scope is around 5,000 patients.

And they will, all trials, be initiated, recruitment-wise, within the realm of this year.

In the back.

Thanks.

[Pete Burnell] here from Citi.

I just want to come back to a question earlier on.

I know you said you've highlighted that in terms of growth going forward you expect 80% to come from the analogs.

But just looking at the forecasts for Liraglutide out there it looks pretty punchy, some as high as 5b, which doesn't seem to reflect the current dynamics of the market, the fact that there's about eight other GLP-1 analogs in late stage development, nor the continuing success of the DPP-4 inhibitor class.

So I just wanted to get your comfort level of solid markets and the ramp rates.

And also how -- just get more information from you as to how you're going to try and penetrate Victoza in earlier line therapy.

Thanks.

Well, with regards to Victoza's potential position, we believe it will be the leading entry into the GLP-1 market.

But you are, of course, absolutely correct that it is rather uncertain as to how big that market is going to be.

We feel that the current size of the market that Byetta has achieved is unsatisfactory.

And we will certainly try to position, as Mads was talking about, Victoza as a drug which is a drug which is more broadly used for Type 2 patients.

It is the most powerful medication to treat Type 2 Diabetes before Insulin.

And we have demonstrated in all our clinical studies it to be superior to SUTCDs.

We're in the process of comparing it to Januvia.

We have even compared it to certain Insulins and found it to be more efficacious and more safe to be used.

So we're going to try to position it globally for Type 2 Diabetes in addition to Metformin.

The size of the market, it's uncertain at this point in time.

We are believing that we have a potential of a blockbuster drug in the Diabetes space in its own right.

Some of the estimates that are out there are including obesity as an indication.

We are not currently including obesity in our own estimates.

Kare, do you have any comments as to how you would expand the market for Victoza?

Yes.

I think you have to think about this as different from an OAD launch.

You would not expect a Januvia-like penetration curve in a successful scenario.

What we expect is a penetration which is more like successful Insulin launches and then a high level of compliance, a high level of satisfaction which, then, this being a chronic market, leads to a very strong and sustainable build up of the total market size.

So we believe we will see one of these long penetration curves, as we've seen with all our Insulins, where you don't get peak sales in five years, but you get peak sales maybe 10, 12, 15 years.

So that's our expectation.

And that takes a convincing story.

And it also takes a good level of compliance and convenience for the patient and good outcome.

And we hope we can provide all that to the marketplace and, thereby, build a strong franchise in GLP-1.

And, linked to that, probably a significantly higher proportion of the patients staying on the drug beyond one year.

Because that's, as I see it, one of the key challenges, that the average use on the product has to be well beyond one year.

And that, as Mads alluded to in the just two-year extension we just showed, seem to be that we're able to demonstrate a good and healthy development in HbA1c, even over a two-year period.

But maybe, Mads, we can ask you to comment on the competitive pipeline in the GLP-1 space and how you see that, both in terms of timelines and also in terms of quality of competition?

Yes.

Well, I think everybody can agree, now that we have done the LEAD 6 up against Byetta, that Victoza should be a better compound.

So if we look more downstreams, the long-acting version of Byetta, I think, in my mind, compared to the convenience of the G 32 needle and the disposable pen associated with Victoza, is going to suffer from some convenience related setbacks even though the absolute dosing frequency, of course, is less than Victoza.

You can then say thereafter follows [test for glutide] from Roche which can come in a pre-filled pen with a somewhat smaller needle, G 29.

It's still not extremely small, but fully acceptable.

And I think, even though they're coming like two, three years like after [Liraglutide], that is, of course, a compound to be very much aware of.

That being said, our own compound, NN9535, if you want a once weekly, and that's a debate in its own right from a safety perspective, both with the nausea vomiting and pancreatitis, you can always discuss what is best; the once daily or once weekly.

But if you want a once weekly, I should just highlight that we are the only compound with NN9535 that is a truly long-acting circulation with no burst release at injection because it is simply circulating in the blood circulation, the systemic circulation, with a very, very long [half] life, with no peak effect until three, four days after injection.

So from that perspective we will be well poised, also in the once-weekly segment, if and when we get good Phase II data this year.

And then, perhaps, we should, with a little bit longer shot, say that we are, as far as we know, the only Company that's also working on an oral version of GLP-1 which, obviously, if you are competing in the Type 2 space, would be the ideal extension of our franchise, both for Diabetes treatment but also, certainly, for pre-Diabetes.

Next question, please, if there are any?

Yes, over here again.

Thanks.

It's just a question on Biosimilars.

You mentioned the Growth Hormone market, which is not necessarily analogous to what might happen in future.

It's an area where you've got multiple competitors but no substitutable generics.

So just some comments from you on what you expect post 2014, when I think the NovoLog patent expires in the US.

There is a route for a bioidentical to market through the ANDA route.

What do you expect to happen from then?

It is correct.

Actually, a comment on Human Growth Hormone.

It has surprised us how long and how stable a price situation we have seen on Human Growth Hormone.

And we have actually, in fact, used the Human Growth Hormone case as an example for how to model the longevity of the protein business.

When we look at the different elements of the Insulin business, it is correct, when we think about Biosimilar competition we're not thinking of Human Insulins.

We're thinking about Biosimilar competition on the Modern Insulins, of which you mentioned the short-acting Insulin, where there's going to be Biosimilar competition beginning of the next decade and with our own compound in 2014.

And, so far, it is correct that we have no marketable new product for the rapid-acting Insulin segment so far.

Our approach is one of the short term to market new and improved devices as a way of improving convenience.

A little bit longer term the objective is to identify other Insulin analogs that may be even faster than the ones that we know today, or that may be tissue-specific.

But it's going to be a challenge for us to get those finalized in the timeframe that we're talking about.

So, depending on the competitive situation, there may be some price pressures in the short-acting Insulin segment.

Whereas the two other segments, the Premixed and the Basal segment, we're having new innovation as we have indicated in this presentation, there are finalized Phase II clinical studies.

Mads, do you want to add some comment to this, or was that about it?

I think that is about it, Lars.

But one should not oversee the notion that in the fast-acting segment, which is the one that is at risk, so to speak, these are three times daily injections.

And if you clearly have device superiority and innovate in that space, you will have a rather high degree, we believe, of patient loyalty towards your products.

But, otherwise, absolutely it is the situation.

Whereas we are, based on Phase II in the two other segments, for NN1250 and NN5401, we remain pretty convinced that we will be able to provide patient benefits one more round.

And that will take us until the second half of the 2020s patent-wise.

And there is, of course -- if you contemplate being a Biosimilar manufacturer, there is, of course, also the risk that you will be investing into a market where we will come up with an oral Insulin.

And so you have to factor that into your investment before you make it.

Yes.

It's [Satish Nataraja] from Morgan Stanley.

I have two questions, please.

Firstly, with Victoza, just to be clear, have you actually had concrete discussions with the FDA since the new guidelines were issued?

And does that give you confidence for the approval, or will the first formal discussions actually be the panel on April 2?

And the second question is, in the past you've talked about the third leg of growth.

Now, given the current economic clime, I know you've increased your buybacks for next year obviously.

Do you see any more opportunities out there?

If so, can you give us any more color, please?

And also maybe an idea of the kind of firepower you have on offer as well.

Thank you.

Mads, the conversation with the agency and Victoza approval?

Yes.

We have also -- since the CV guidance document was issued, as you know, we've also received a letter regarding NN9535 and which requirements we should fulfill prior to seeking approval.

We have not received such for Liraglutide.

On the other hand, we have discussed with them.

And it is our clear interpretation from the discussion that the discussion about what to do CV-wise is going to be a major topic at the April 2 panel meeting.

In terms of number of chairs and legs that we have on the chairs, I would rather like to see it the following way, that we have one which is the Insulins, and that is a long-lasting one.

Then we are opening one called GLP-1.

We may even have a potential entry into Obesity based on proteins.

So that's another potential diversification, if you want, or expansion of our franchise.

Then we have a Growth Hormone leg.

We have a Hematology leg where we have an ambition to expand from servicing a tenth of the market to also compete in the other 90%.

And then, over and beyond that, outside of that, we are focusing on Inflammation.

And the key strategic focus for us at the moment is to build this organically with some strong resource commitments, expanding our own efforts significantly over the years to come, perhaps with acquisitions of certain assets, individual projects.

We would not exclude smaller biotech company acquisitions, but it's going to be small scale.

What has happened in the last five years is that the outlook for the Company has changed.

Five years ago we had no visibility of Victoza.

We had no visibility of being able to generate the next generation of Modern Insulins.

We had no visibility of a successor to NovoSeven and the ability to expand into, potentially, other clotting factors.

And so we were more contemplating a diversification strategy five years ago.

Given the way the situation looks right now, with the strong growth perspective we have in Diabetes, with the progress in our pipeline, we're certainly not going to confuse ourselves by making a major play into diversification, in spite of the fact that things may be cheap or may be advantageous at this moment.

With that, I think we're going to bring this webcast to a close.

I'd like to thank Lars Rebein and the rest of the group for their time.

I'm sure they'll be around for the next couple of minutes to take any additional questions from the floor.

Certainly we will.

Thank you very much.

Thank you very much.

Thank you.