諾和諾德 (NVO) 2009 Q1 法說會逐字稿

Good day and welcome to the Novo Nordisk Q1 2009 Earnings Conference Call.

For your information today's conference is being recorded.

At this time I would like to turn the call over to your host today, Mr.

Lars Rebien Sorensen, CEO of Novo Nordisk.

Please go ahead, sir.

Thank you very much.

Ladies and gentlemen, welcome to Novo Nordisk conference call regarding our results for the first three months of 2009, which was released earlier today.

I'm Lars Rebien Sorensen, the CEO of Novo Nordisk and with me I have our Chief Financial Officer, Jesper Brandgaard and Mads Krogsgaard Thomsen, our Chief Science Officer is present, and also our Investor Relations Officers.

Today's earnings release is available on our home page, novonordisk.com, along with the slides that we will be using for this conference call.

The conference call is scheduled to last approximately one hour.

As usual we'll start the presentation with an outline on slide number one.

The Q and A session will begin in about 25 minutes.

Turn to slide number two.

As always I need to advice you that this call will contain forward-looking statements.

Such forward-looking statements are subject to risks and uncertainties that could cause the actual results to differ materially from expectations.

For further information on the risk factors, please see the earnings release and the slides prepared for this presentation.

Also as mentioned, note the conference is being webcast live, and a replay will be made available on the Novo Nordisk website after the conference call.

Turn to slide number three.

We are satisfied with the sales performance for the first three months of this year, with a sales growth of 18% reported and 11% in local currencies.

The performance is driven by continuous penetration of our modern insulins in all key markets.

The modern insulins exhibited sales growth of 31% as reported, corresponding to 25% in local currencies, driven by growth in North America, Europe and international operations.

The biopharmaceutical franchise grew solid growth rates of 20% as reported and 13% in local currencies, driven by NovoSeven and Norditropin.

Sales growth for NovoSeven was primarily realized in Europe and international operations and was positively impacted by timing of sales in these regions.

With the significant growth that we continue to see in the US, North America is now the largest sales region for Novo Nordisk.

In the first three months of 2009 sales in North America increased 31% reported and 16% in local currencies.

Within research and development, I'm very pleased to confirm the news from last week, that we have received a positive opinion in Europe from the Committee for Medicinal Products for Human Use, CHMP, for the approval of liraglutide for treatment of type 2 diabetes.

We expect the final marketing authorization from the European Commission in approximately two months, and we look forward to making Victoza the European brand name for liraglutide available to people with type 2 diabetes this summer as the first once daily GLP-1 analogue.

In the United States we continued to work with the FDA as the agency completes its review of liraglutide.

We recently achieved clinical proof of concept for our once-weekly human GLP-1 compound semaglutide, which leaves us confident that this compound can further strengthen our GLP-1 product portfolio in the future.

And finally I'd like to mention that we, as part of our strategy to build a broader product portfolio within hemophilia, now have initiated Phase 3 clinical trials for our recombinant Factor VIII compound.

Turning to financials.

Operating profit grew 35% reported, or 15% adjusted for currency impact and cost related to the closure of the pulmonary diabetes activities.

An important factor in achieving this has been the continued and solid improvement in manufacturing primarily related to the increased efficiency in insulin bulk manufacturing, and insulin filling activities.

For 2009 we now expect a growth in operating profit of at least 10% measured in local currencies, and in reported terms the growth in operating profit is expected to be around 8% higher.

Please turn to slide four, for an update on sales performance.

The first three months in 2009, the Diabetes care segment grew 17% reported and 11% in local currencies.

The portfolio of modern insulins were the main growth drivers accounting for 77% of total sales growth in local currencies.

The development reflects that while we are seeing more pressure on the total insulin market share in some European markets and Japan, our modern insulin market share overall continues to show strong growth.

Biopharmaceuticals grew 20% reported and 13% local currencies.

Sales for NovoSeven increased 25% reported and 18% local currencies, while human growth hormone franchise grew 18% reported and 9% in local currencies.

Turn to the next slide.

On the next three slides we will illustrate the dynamics within the global insulin market, by focusing on three of our key markets, US, Europe and China.

The US insulin market has, during the last five years, been growing at a compound and annual growth rate of 5% in volume and 18% in value.

Recent value growth in the US market has been driven by consistent penetration of modern insulins which now comprises 67% of the insulin market measured in volume, compared to 62% a year earlier.

In the modern insulin market, Novo Nordisk now holds a share of more than 33% measured in volume.

Novo Nordisk has consistently been increasing its market share in all three insulin segments.

In short, I think the premixed segment, NovoLog and NovoLog Mix, are expanding their leadership position.

Furthermore, Novo Nordisk is expanding its market share in the long acting segment, with the continued penetration of Levemir.

The European insulin market is larger than the US market measured by volume.

During the last five years it's been growing at a compounded annual growth rate of around 4% in volume terms and 7% in value.

The higher value growth is also in Europe driven by the conversion to modern insulins which by the end of 2008 reached 59% in terms of volume compared to 53% the year before.

In the modern insulin segment Novo Nordisk remains the market leader with a volume market share above 51%.

Novo Nordisk's increased market share in the modern insulin segment is driven by market share gains for all of our three modern insulins, NovoRapid, NovoMix and Levemir.

However, when looking at our total insulin market share in Europe, it has shown a declining trend in the most recent quarters.

The reason is that we hold a higher market share within human insulins compared to our market share within modern insulins.

As the market converts to modern insulin treatment, our total market share will decline until the time in point where our growing modern insulin market share is the same level as our total insulin market share.

In addition, the premix insulin segment is decreasing in importance in Europe compared to the long acting and the fast acting insulin segments.

Turn to slide number seven for an update on the Chinese market performance.

For the last five years the Chinese insulin market has been growing at a compounded annual growth rate of 24% in volume and 35% in value.

This rapid expansion has been driven by a significant growth in the number of people with diabetes due to lifestyle changes and increasing healthcare coverage of the urban population.

Compared to Europe and the United States, the dominance of the premix segment comprising above 60% of the volume market is worth noticing.

Large premix segments are common to the Asian markets, reflecting different treatment patterns than applied in the United States and most European markets.

The conversion from human insulin into modern insulin is, in China, still at an early stage with modern insulins comprising almost 16% of the market measured in volume and 11% -- compared to 11% the year before.

Novo Nordisk has obtained the leading and fairly stable market share of 62% measured in volume.

Turn to slide number eight for an update on NovoSeven.

NovoSeven sales increased 25% reported and 18% in local currencies in the first three months of 2009.

Sales growth for NovoSeven was primarily realized in Europe and International Operations, and is positively impacted by timing of sales in these regions.

The sales growth for NovoSeven primarily reflected increased sales within the congenital bleeding disorder segment.

Treatment of spontaneous needs for congenital inhibitor patient remains the largest area of use.

Turn to slide number nine, which provides you with an update on our human growth hormone franchise.

Norditropin continued to show a strong growth momentum, sales increased 18% reported and 9% in local currencies.

Norditropin sales growth was primarily realized in North America and Europe, with more than 80% share of growth in 2008.

However, all regions contributed to the growth measured in local currencies.

Novo Nordisk global volume share is now 23% and 20% in the United States.

With this I'd like to hand over to Mads, who will give you an update on the development within our clinical pipeline.

Mads.

Thank you, Lars.

Please turn to slide 10 for an update on the regulatory status for liraglutide.

Let me first give you an update on the process for lira in the major markets.

As mentioned by Lars, the CHMP under the European Medicines Agency EMEA, on April 23 adopted a positive opinion for Victoza for the treatment of type 2 diabetes.

Victoza is the first once-daily human GLP-1 analogue, developed for the treatment of type 2 diabetes.

The positive opinion for Victoza covers combination treatment with metformin or sulfonylurea in patients inadequately controlled with the maximally tolerated monotherapy dose, as well as triple therapy with metformin and sulfonylurea or TCD in patients in inadequate control despite dual therapy.

The European approval does support broad use of Victoza as described for GLP-1 analogues in the most recent type 2 diabetes treatment guidelines from the ADA and the ASD.

Importantly, there will be no European C-cell related restrictions or contraindications.

The agreed post-approval commitments in Europe are as expected and will include the execution of an effective pharmacovigilance system as well as the conduct of a cardiovascular outcome study with a number of safety related secondary endpoints.

The study is expected to include approximately 9,000 patients and will be performed as of next year following final agreement with both EMEA and the FDA on the study protocol.

Novo Nordisk expects to receive the European Marketing Authorization from the European Commission within two months, and will subsequently conduct the first launches during summertime this year.

Importantly, the EU approval will also enable submission, approval and subsequent launch in a number of international markets.

In Japan the regulatory process for liraglutide is progressing according to plans, and approval is expected next year.

Furthermore, recent and successful completion of the 900 patient sized Chinese/Asian Phase 3 program for liraglutide, will enable NDA submission to the SFDA in China, planned to take place shortly after the formal EU Commission approval of Victoza.

With regard to the US filing, and as previously communicated, the Endocrinologic and Metabolic Drug Advisory Committee of the FDA discussed questions related to liraglutide on April 2 in Washington.

The Advisory Committee voted on four questions, of which three were related to approvability of liraglutide.

Regarding the approvability questions, the majority of Advisory Committee members supported that appropriate evidence of cardiovascular safety had been provided to rule out excess cardiovascular risk of liraglutide, relative to comparators.

Related to this, Novo Nordisk has, as also mentioned before, committed to do a large global post-approval cardiovascular outcome study.

On the second approvability question, the Advisory Committee was split as to whether the available data on C-Cells permitted approvability.

Finally, the Advisory Committee unanimously dismissed the risk of papillary thyroid cancer related to liraglutide.

The status now is that Novo Nordisk and the FDA will meet soon to discuss the pre-approval steps needed to resolve the outstanding issues.

In this regard Novo Nordisk will present a strong body of evidence, documenting human C-cell safety including recent analysis of two year calcitonin data from more than 800 patients in the LEAD program, demonstrating identical across group findings as regards both absolute calcitonin levels and calcitonin shift analysis after two years of randomized treatment.

Furthermore, Novo Nordisk will present to the FDA the proposed plan for post-approval risk management of Victoza.

It is our assessment that the approval delay expected to occur after the Advisory Committee meeting should be measured in months and once we have met with the FDA we will seek to provide further guidance for the US regulatory process towards approval.

Please turn to slide 11.

As mentioned, Novo Nordisk recently received two year results from the LEAD-2 study.

On a background of metformin therapy, 0.6 mg, 1.2 mg or 1.8 mg of liraglutide was compared to glimepiride treatment and placebo in people with type 2 diabetes.

In total 880 people with diabetes completed the initial first six months of the study, and 529 completed two years.

People treated with liraglutide achieve statistically significant reductions in HbA1c compared to placebo of two years.

Furthermore, significantly more people treated with the highest dose of liraglutide were below 7% Hb1c, the American Diabetes Association target for good glycemic control, compared to treatment with glimepiride.

The benefits of liraglutide on body weight, systolic blood pressure and hypoglycemia risk were fully maintained after two years of treatment.

Finally, the favorable benefit to risk profile of liraglutide was confirmed in this study and as mentioned previously, there were no calcitonin differences between the groups.

At the ADA Conference to be held in New Orleans on June 5-9 this year, Novo Nordisk expects to present further detailed results from the global liraglutide clinical development program.

Still within the GLP-1 field, Novo Nordisk very recently finalized the Phase 2 proof of concept study investigating safety and efficacy of five doses of semaglutide, formerly known as NN9535, a once-weekly human GLP-1 analogue, versus placebo and liraglutide add-on therapy in people with type 2 diabetes.

At study start, patients were either treated with metformin or controlled with diet and exercise.

The 12-week multi-center, multinational placebo-controlled double blind, randomized dose-finding trial, which included a little more than 400 patients, demonstrated that clinical efficacy and safety of semaglutide was broadly in line with liraglutide.

Semaglutide was generally well tolerated and was not associated with an increase in injection site reactions, antibody formation, calcitonin levels or pancreatitis.

After more detailed analysis of the dose response findings on efficacy and safety, Novo Nordisk will discuss the future plans for semaglutide development with the regulatory authorities before initiating Phase 3 development.

Finally, Novo Nordisk is preparing initiation of ambitious Phase 3 programs for the new generation of basal and fixed combination insulins, known as NN1250 and NN5401 respectively in the second half of this year.

For both projects good progress has been made with the various regulatory agencies around the world.

The first Phase 3 trials with NN1250 and NN5401 are expected to be initiated in the third and fourth quarters of this year respectively.

Novo Nordisk expects to give a more detailed update on expected timelines and design of the Phase 3 programs in connection with the release of financial results for the first half of 2009 on August 6.

Biopharmaceuticals.

This month Novo Nordisk initiated a Phase 3 trial of a recombinant factor VIII compound in patients with hemophilia A.

The trial is conducted as a multi-center, open-label trial and evaluates the efficacy and safety in both prevention and on-demand treatment of hemophilia A bleeding episodes.

A sub-trial investigates efficacy and safety of the recombinant factor VIII compound in patients undergoing major or minor elective surgery requiring factor VIII replenishment.

Novo Nordisk expects to enroll a total of 140 patients in the Phase 3 program.

As previously communicated, Novo Nordisk initiated a Phase 3 study with recombinant factor 13 in congenital factor 13 deficiency in patients in August 2008.

All 41 patients have now been recruited and entered into the one-year treatment period of this trial which utilizes a once a month factor 13 administration.

Within growth hormone, Novo Nordisk recently received approval from the Japanese Agency, for an expansion on the Norditropin label to include treatment of growth hormone deficiency in adults.

Growth hormone deficiency in adults is an approved indication for Norditropin in both Europe and the US.

With that, over to Jesper for an update on the financials.

Thank you, Mads.

Please turn to slide 13.

We are satisfied with the financial results for the first three months of 2009.

The total sales growth for this period was 18% as reported and 11% in local currencies.

Gross margin improved by 2.6 percentage points in Danish kroner to 79.9% in the first three months of 2009.

The gross margin was positively impacted by around 1 percentage point due to a positive currency development, primarily the higher value of the US dollar and the Japanese yen versus the Danish kroner compared to the first three months of 2008.

Apart from the currency movements the key drivers behind the improvement in gross margin, are still improved production efficiency in both upstream and downstream manufacturing, and higher average selling prices in the US.

One of the key manufacturing improvements is related to bulk manufacturing of Levemir so that we have been able to lower unit costs significantly over the last couple of years, in line with increasing volumes and implementation of efficiency projects.

In the first three months of 2009, total non-production related costs increased by 15% to DKK6.3b compared to the same period last year.

Approximately 8 percentage points, slightly more than half of the increase in non-production related costs, reflects the higher value of key currencies in the first quarter compared to the same quarter last year.

The underlying development in non-production related costs reflects costs related to the expanded sales force in key markets like US, UK, Germany and China, countered by lower research and development costs primarily replacing timing as regards the initiation of Phase 3 clinical trial programs, as well as the non-recurring costs of DKK220m in the first quarter of 2008 related to the discontinuation of pulmonary diabetes projects.

License fee and other operating income was DKK87m in the first three months of this year compared to DKK88m last year.

Operating profit in the first three months of 2008 increased by 35% to DKK3.8b.

Adjusted for the impact from currencies and non-recurring costs in 2008 related to the discontinuation of the pulmonary delivery projects, underlying operating profits increased by around 15%.

Net financials showed a net expense of DKK305m in 2009, compared to a net income of DKK39m in the same period of 2008.

Included in this financial is the results from associated companies with an expense of DKK35m, primarily related to Novo Nordisk share of losses in ZymoGenetics.

In the same period of 2008, the result from associated companies was an expense of DKK67m.

For the first three months of 2009, the foreign exchange result was an expense of DKK327m, compared to an income of DKK70m in the first three months of 2008.

This development reflects losses on foreign exchange hedging of especially US dollars and Japanese yen due to the significant appreciation of these versus Danish kroner.

Foreign exchange hedging losses of around DKK900m have been deferred for future income recognition later in 2009.

The effective tax rate in the first three months of 2008 -- the effective tax rate in the first three months of 2009 was 23%.

Net profit increased by 24% to DKK2.699b.

Please turn to slide 14 providing an overview of the current currency exposure.

Since the first quarter of 2008, two of Novo Nordisk's key invoicing currencies have appreciated substantially, namely the US dollar and Japanese yen.

While the appreciation of US dollar and Japanese yen has a long term positive impact on Novo Nordisk's financial outlook, it will also result in higher than expected foreign exchange hedging losses in the near term.

Provided the currency exchange rate remains at the same level throughout 2009 it is expected that the significant positive impact on reported operating profit will be offset by a similar significant foreign exchange hedging loss.

The expected annual impact on operating profit of a 5% movement in the key currencies is in line with previous estimates.

With an annual impact of DKK530m of a 5% movement in the US dollar as well as an impact from the Chinese yuan, of which the US dollar is used as proxy of DKK80m, the total annual US dollar sensitivity is estimated to be DKK610m from a 5% movement in the US dollar.

The expected impact of similar changes in other key invoicing currencies is provided on the slide as well.

Currently, Novo Nordisk has hedged future expected cash flows related to the US dollar 15 months ahead, the Japanese yen 14 months ahead, the British pound 13 months ahead and the Canadian dollar just five months ahead.

Please turn to the next slide for the financial guidance for 2009.

Novo Nordisk still expects sales growth in 2009 at the level of 10% measured in local currencies.

This is based on expectations of continued market penetration for Novo Nordisk's key strategic products within diabetes care and biopharmaceuticals, as well as expectations of continued intense competition during 2009.

Given the current level of exchange rates versus Danish kroner, the reported sales growth is now expected to be around 4.5 percentage points higher than the growth rates measured in local currencies.

For 2009, growth in operating profit is now expected to be at least 10% measured in local currencies.

This increase reflects lower expected research and development costs for 2009 due to timing of Phase 3 clinical trial programs.

Furthermore, the outlook is based on assumptions of a continued improvement of gross margin and increased spending for sales and distribution relative to sales due to the increase in Novo Nordisk's global sales force.

Given the current level of exchange rates versus Danish kroner, the reported operating profit growth is now expected to be around 8 percentage points higher than the growth rate measured in local currencies.

Please note that three factors are significantly impacting the quarterly distribution of reported operated profit book in 2009.

Firstly, the appreciation of the US dollar, which is expected to have a substantial impact over the quarters.

In the first quarter of 2009 the average US dollar exchange rate versus kroner was 15% above the average of the first three quarters -- the first three months of 2008.

And the current rate of DKK568 is approximately 19% and 14% above the average for the second and third quarter of 2008 respectively.

However, do note that the current rate is at the same level as in the fourth quarter of 2008.

Secondly, given the timing of major clinical trials in 2009, such as the new generation of insulin trials and the obesity program for liraglutide, research and development costs are expected to be higher in the second half of 2009 compared to the first half.

Finally, the fourth quarter of 2008 was positively impacted by the return of a deposit related to an anti-doping case in Brazil of around DKK200m.

These factors are expected to cause the quarterly operating profit growth for 2009 to be rather uneven with high growth rates in the first half of 2009 than is expected for the second half of 2009.

For 2009, Novo Nordisk now expects a net financial expense of DKK1.5b.

The current expectation reflects significant foreign exchange hedging losses, primarily related to the US dollar and the Japanese yen.

The effective tax rate for 2009 is now expected to be around 23% positively impacted by a higher contribution to the total profit before tax from our biopharmaceutical business.

Capital expenditure is still expected to be around DKK3b in 2009.

Expectations for depreciation, amortization and impairment losses of around DKK2.6b are unchanged, and the free cash flow is now expected to be around DKK10b.

All of the above expectations are based on the assumption that the global economic downturn will not significantly change the business environment for Novo Nordisk during 2009.

In addition, the above expectations are provided that currency exchange rates, especially the US dollar, remain at the current level versus the Danish kroner for the rest of 2009.

This concludes our presentation of the financial results.

Lars Rebien Sorensen will now moderate the Q&A session.

Please note that there will be a maximum limit of two questions per individual with the objective of allowing as many conference participants as possible to have the opportunity to ask questions.

Thank you very much, Jesper and Mads.

Ladies and gentlemen, please note that this conference will be taped and the replay is made available on our home page after this conference.

Operator, we are now ready to take the first question, please.

Thank you.

Our first question comes from Sachin Jain from Merrill Lynch.

Please go ahead, sir.

Hi, thanks for taking my questions.

Just two please.

Firstly on your cost outlook, I think your SG&A guidance is unchanged.

I'm just wondering what you're still budgeting for US launch costs of liraglutide and what flex you have on your previous 31% of sales target should there be no US launch this year.

And then secondly, just wondering if you could share the pre-clinical data on the weekly GLP-1 analogue.

Have you seen the same issues as you've seen with the liraglutide, i.e.

cancers in two species?

Thanks.

Thank you very much.

Jesper, in terms of US the flexibility incurred due to the expected postponement of launch in the US and Mads the Semaglutide toxicology results.

Sachin, as you can see from the first quarter the actual spending in terms of selling and distribution, it's not SG&A we separate the admin out, but the S&D cost is actually at 30.8%, very close to the 31%.

And if you do it in local currency the first quarter is around 30%, so we are not that far away from the spending level that we were anticipating.

What you should assume now is that we do probably, everything else being equal, spend slightly more on an expedited rollout in the European countries with the focus on the northern European hemisphere.

We first started out focusing on UK and Germany and you should also now anticipate that we would try to speed up the launch in Scandinavian markets, like Holland, etc., to pursue opportunities there.

And hence the overall impact on the S&D costs for Novo Nordisk in 2009 is not going to be significant and the guidance remains in local currency terms at the ballpark of 31%.

Thank you, Jesper.

And Mads, on semaglutide.

Okay.

Well, Sachin, first of all, all existing GLP-1 antagonists, including semaglutide, cause identical c-cells findings in mice when exposed at similar levels.

What is important to mention here is, of course, that we find that there's absolutely no evidence that this occurs in other species and that goes for monkeys, it goes for humans and other non-rodent species.

So for me it's more a question I think of probably the FDA already at now at this point concluding that we're speaking about a GLP-1 class effect that will prevail for compounds that have sufficiently long duration of action.

The important thing to notice is that there is no evidence of non-rodent findings whether we speak high species such as monkeys or for that matter humans.

And these are essentially the findings that we will share with the Agency at our meeting, namely two year data on calcitonin and [the lisophate].

And remind that there's no findings of C-cell stimulations in monkeys and in humans.

In monkeys there's neither a finding of C-cell stimulation or proliferation or tumor formation.

And in humans essentially what you can measure is calcitonin because we cannot do of could histology on the human thyroid.

But essentially that is absolutely true.

Thank you very much.

Next question, please.

Our next question comes from Henrik Simonsen from SEB.

Please go ahead.

Yes, so Henrik Simonsen from SEB Enskilda.

Also a question on semaglutide.

Mads, I think over the last few years you've been very convincing trying to tell us that long acting GLP-1 products should work better than shorter acting, say Byetta and liraglutide.

So I'm little bit puzzled why you see the same glucose control with semaglutide as liraglutide.

And secondly, I was wondering if you could shed any light to the discussions leading up to the approval on Victoza.

Compare and contrast that with the discussion we had in the US.

Specifically on the issue about human thyroid cancer risk.

Thank you very much, Henrik.

Mads, your comment on the glucose lowering effect of long acting GLP-1s compared to the more shorter acting ones like exenatide and liraglutide.

Yes, well, Henrik, exactly the point is that my claim has been all the way along and it still stands firm that if you look at the glucose response curve in terms of beta cell effects of GLP-1 it is essentially a question of exposure.

So that liraglutide provides full exposure on the GLP-1 receptor in the beta cell whereas exenatide does not.

However once you have 24-hour exposure on the beta cell receptor for GLP-1 you will have that whether you give it once daily as liraglutide or once a week such as semaglutide.

However what can, of course, happen is that if you dose at very high levels you may see body weight effects that are corresponding to the more let's say obesity like levels of the liraglutide that we have explored in Phase 2 and there you can start seeing secondary effects on glucose.

But that is kind of not relevant for the direct discussion of hemoglobin A1C.

There liraglutide is fully covering the 24 hour cycle.

Regards the situation of Europe versus US and Victoza and human thyroid finding.

The short version is that the Europeans are essentially saying that they see this as a phenomenon related to GLP-1 receptor occupancy in rodents, and rodents are sensitive to that whereas humans are not.

And that they consider it highly unlikely hence that there will be any long-term human thyroid findings.

And this is probably why we essentially have any commitments to do post approval, either restriction, contraindications or specific activities.

In the US you can say we are still not as far down that line of discussion as we've been with the Europeans for the last year.

And we look extremely much forward to showing the Agency the two year calcitonin data from the LEAD program among other things.

Thank you, Mads.

Next question, please.

Our next question comes from Michael Novod from Handelsbanken.

Please go ahead.

Yes, hello.

It's Michael Novod from Handelsbanken.

Two rather simple questions.

First, how long does -- is the duration of the Chinese review as soon as you have filed with the authorities?

And then secondly, which IO markets are also opened up say based on a European approval from the EU Commission of Victoza?

Mads, again the Chinese approval process and what are actually dependent on the European approval in term of IO markets for launch.

Yes, well, those are very pertinent questions indeed.

And you can say the trial we have just completed is an example of three countries where you on the one hand need local exposure.

And on the other, at least a couple of the markets, and these were China, India and South Korea, there were elements of this very large Phase 3 trial.

In the case of, for instance, India and South Korea the tendency is that once you have done the patient exposure that we've done in this trial, and combine with that with a European approval, then you will de facto get approval in that particular market.

However, as regards China they have built an FDA-like institution called the SFDA where they reserve the right to do their own assessment of the products independently of other approvals.

However the European approval is gating for your being allowed to submit your NDA to the SFDA.

This is why we can submit it once we have a home country launch, which is i.e.

Denmark this summer.

Then the timeline is such that I would expect we can launch before the end of next year but it will be towards the end of that period because they do typically take a least a year for their review process.

As regards other markets there are great many in Latin America and other places where either you need a home turf -- a home territory approval such as EMEA or, if you are a US based company, FDA approval.

And they are typically gating both for your being allowed to submit and gain approval for that product in a relatively brief review process.

However, it's faster in countries such as Brazil and Argentina than it would be in certain other countries such as some of those but not in Asia.

Thank you.

Thanks you very much Mads.

Next question please.

Our next question comes from Paul Major from Redburn.

Please go ahead sir.

Mr.

Major, your line is now open to ask you question, please go ahead.

We will then move to our next question from Peter Hugreffe from ABG.

Please go ahead.

Yes, hi, this is Peter Hugreffe.

First of all, I would like to just understand what's going to happen with the post-marketing study in Europe if FDA for instance asks for additional data before approving Victoza?

And then secondly, in terms of your increasing free cash flow with DKK1b.

Is it still your policy to return cash to shareholders in terms of buyback or is that still suspended with the financial crisis.

Could you comment on that, please?

Thank you very much.

Mads, the post-marketing study in Europe, how will that be linked to the process if there are any discussions with the Agency in the United States which are prolonged.

And maybe perhaps you could shed some light on what your timing expectation are in the US, I think that may have the audience interest, giving some kind of estimate at least of what you currently see as the US process is moving forward.

And then Jesper, than on the cash flow on the repurchase.

Yes, well, first of all there are five classical scenarios in the US.

Either you get outright approval or outright rejection, or you get a class 1, a class 2 resubmission, or you get to do pre-approval studies prior to resubmitting a full dossier.

So those are the five scenarios.

And in the first three of them, which are in particular the ability to resubmit safety data and update on calcitonin and risk management planning and what we proposed to do post -- or expect to do post-approval to ensure safety of Victoza and monitor safety.

These are the scenarios that we consider the likely ones and the ones that will be a matter of months and not years before we can have an approval.

However, the one you're suggesting, Peter, is the one where we are actually asked to a pre-approval study before we can get approval.

Not a CV study but some kind of safety study I guess you're hinting at.

And in that scenario what we will do is still a global CV risk study, a global CV outcome study.

We will still negotiate that with the FDA so that at least their committee on cardiovascular studies agrees to the design so that the EMEA, I guess around year-end at the latest will feel that this is the right study to do, and the FDA has also been heard in that respect.

We see this as important because it's so big, it's so long, it's so important that it is indeed a kind of harmonious study which has been agreed between us and the two major agencies, the FDA and EMEA.

Thank you very much, Mads, for that elaborate answer.

And then, Jesper, in terms of cash flow and liquidity, what are you current position on that vis-a-vis the financial crisis.

Well, first of all, do note that the cash flow in the first quarter of this year is extraordinarily strong.

And that's actually partly a result of the financial crisis as the Danish government has actually extended credits on withholding taxes and VAT for Danish companies.

And that actually had the effect that we had an additional credit of up to DKK1b in the first quarter.

The most significant part of that was related to the withholding tax that we do for the dividends that we paid out late in March.

And that tax this year only had to be paid in April instead of March last year.

So there is an unusual high cash flow earnings ratio in the first quarter of this year but that is bound to even out over the year.

When we talk about the share repurchase program, as you are aware we have a share repurchase program ongoing from 2006 to 2009 of DKK18.5b, of which DKK6b will be repurchased this year.

So I think it's unjustified to say that our share repurchase program is suspended.

I find it rather active.

The repurchase program is conducted under a safe harbor setup and that currently it will end in connection with the second quarter.

And then we will reassess the situation in the market and evaluate whether there is a need for further expansion of the program.

But it's certain that we would like to operate with rather high liquidity reserves given the constraints that the financial markets have in general at the current point in time.

But it's also clear, and this is Lars Rebien here, that our policy is not to accumulate liquidity on the balance sheet.

So therefore should we come into a situation where things are normalizing in terms of the financial sector, and we're not making major acquisitions and the continued positive development of our business, you should expect us return to shareholders any excess liquidity like we've done historically.

Thank you.

Next question please.

Our next question comes from Jo Walton from Credit Suisse.

Please go ahead.

Hello, mine's just a general question.

Looking at the diabetes market you've characterized it in the past as being split between volume growth, mix shift and ability to raise prices.

In the current environment can you share with us what your thoughts are about the ability to raise price in the US.

And also, as you move more towards emerging markets, can you tell us what proportion of your sales in emerging markets are effectively funded by the patient versus covered by some form of insurer?

And just a final question on inventories, just checking, I didn't see anything here.

Was there any inventory stocking or destocking that impacted your results?

Thank you very much, Jo.

This is Lars Rebien here.

In terms of -- it's correct that we have in the past been decomposing our diabetes business into volume, mix and price development.

And just to take the US situation, the US situation and the US market has been the only market where we have had historically been able to pull through some price adjustments and this has happened in the first quarter of 2009 as well.

Relatively similar to what we have seen historically, meaning anywhere from a couple of percentage points to high single digit percentage points depending on competitive situation and the individual product line that we're talking about.

It is our forecast of longer term that that will become more difficult in the United States.

When we're talking about the European situation prices are largely impacted by the switches from human insulins to modern insulins where there is a certain price premium although modest with switching to modern insulins and devices in Europe.

With regard to emerging markets, emerging markets are largely split into private markets where we're talking about largely uninsured individuals, which are being basically paying for the medicines by themselves.

And then last thing programs where, for instance, in Brazil where the government is procuring very relatively low cost products for the population.

And I cannot give you a very good breakdown on the distribution between the two.

Obviously the pricing is different in the private segment as compared to the low end of the segment.

So the actual volume in the low end of the segment, the state program, is significantly larger than that in the private sector.

We are represented in both segments and it's our strategy to be represented in both segments of emerging market.

It's our plan to offer a human insulins lower end, low price to state sectors whereas the main part of the growth going forward in terms of value is likely to come from the private sector.

So if you want to have a rough breakdown it's probably more like three-quarters coming from the private and then a quarter coming from the public sectors of very low cost, high volume, undifferentiated competitive pressure pricing.

Jesper, there was another question for you.

On stocking.

There's no significant stocking effect in the first quarter of this year.

There is a little bit of stocking forth and back with NovoSeven but it more or less washes out.

We noted that in the full year accounts that the final quarter of 2008 had a positive stocking of around DKK50m in the US.

That's been washed out in Q1.

We have on the other hand had some large single country deliveries on NovoSeven in a European market and in an IO market of the same magnitude.

So I'd say for the overall growth of the company no significant movements.

For the judgment of NovoSeven, there has been some minor movements.

Thank you, Jesper.

Next question please.

our next question comes from Carsten Madsen from Carnegie.

Please go ahead.

Thank you very much for taking my question.

Just one simple question actually.

If we take look at the underlying growth rates per quarter we can see that more or less all your segments are dropping in growth rates, which of course probably also is what you're expecting in the high level of penetration you have in many of your segments.

But if we take a look at modern insulins growth in Q1 is down to 25% year on year versus 28% from Q4.

Is there any increased competition pressure, or is it pricing pressure or something else, that causes this rather large drop in growth rates, underlying growth rates?

Thank you.

Thank you very much.

It is a relatively accurate observation.

What is happening and we alluded to it in the text and in the presentation that I gave is that when we look at the three main regions, looking aside from the IO region, we have strong performance of our business in United States.

We have strong volume expansion of the diabetes market in the US.

We're doing fine in the US.

We see volume growth of the market in Europe being relatively modest in the first quarter when we compare to first quarter of 2008.

We don't really have a good explanation and you've got to be cautious about looking at only one quarter.

And in Europe when we see the conversion from human insulin to modern insulins we are having a disproportionate low part, low share of the basal segment.

And the basal segment in Europe is expanding at the expense of the premix segment.

And where we, on the other hand, have a very high market share.

So that drives overall put pressure on our growth and put pressure on our market share.

Then when we look at Japan, another significant and similar actually similar development.

Japan is traditionally a premix market but in Japan we see pretty successful introduction of Lantus and SoloSTAR.

And that means that we get less of the patients that are switching also because we have already historically had a very, very market share on the basal which has been sold in Japan.

So these are some of the contributing factors.

So, yes, there is increasing competitive pressure.

We're seeing it notably in Europe and in Japan.

You don't see it that much in the numbers overall because we're doing very well in the fastest growing regions of the world, which is United States and the International Operations.

Just another comment there and that's also why when we talk about flexibility or not flexibility of having expanded our sales force in Europe, the launch of liraglutide, we can see that we can utilize our sales force because the fight in the diabetes space the cost of business is going up with the additional players coming into the market.

So we'll be using those additional resources to support our insulin franchise until such times as we are able to launch [franchise] in United States.

Thank you.

Next question please.

Our next question comes from Sebastien Berthon from Exane.

Please go ahead.

Yes, hello, gentlemen.

Just a quick question on the recombinant factor 8 product that is just entering Phase 3.

Could you update us on your timeline when you could be able to file this product?

And also an update on your differentiation strategy against existing factor 8 products on the market.

Thanks.

Thank you very much.

Mads Krogsgaard.

Well, Sebastien, first of all, we have come to learn the hard way that doing hemophilia clinical trials is a very lengthy process.

And that means that even though I state that only need 140 patients that will either be targeting prophylactics or on demand treatment, including actually a sub-study investigating minor and major elective surgeries, it is a lengthy process.

So you have to imagine that this is a trial that will take at least two year to have full enrollment and instigation of treatment.

What has happened is that essentially our first generation compound here is one where the differentiation will predominately be kind of based on the patient convenience, as we can do it using our medical device technology rather than a compound differentiation the way we ideally would like to see it.

So you have to imagine, Sebastien, that we are -- while we are speaking of course -- seeking to innovate truly value adding compounds such as long acting factor 8, because these patients today have to infuse themselves intravenously typically three times a week in a prophylactic mode chronically.

And that is not good for the patient, at least not convenient and nice.

So we are, of course, seeing this as our first shot on the hemophilia A goal and to be followed by more.

Yes, this is precondition to making a prolonged factor 8 that you have a clinically sound molecule to develop further.

So thank you very much, Mads.

Next question please.

Our next question comes from Peter Verdult from Citi.

Please go ahead.

Good afternoon, it's Peter Verdult here from Citi.

Just a point of clarification, apologies if this question has been asked, I was late onto the call.

But in terms of the proposed cardiovascular study in the US, the 9,000 patient study, can I just clarify, will only commit to that if and when you receive approval in the US?

And if so could you give us some sort of ballpark quantification as to the total cost of that study or what you envisage that study will cost as well if there's a lengthy delay, the potential implications there will be on your current R&D guidance for 2009 and 10?

Secondly on the tax rate, on the new tax rate of 23%.

Given your current projections of growth outside the US in biopharma, how sustainable is that or how should we be thinking about that longer term?

And then just a quick on cash flow, your free cash flow guidance has been raised.

I just want to know in terms, I mean CapEx is low at the moment, but in terms of working capital efficiencies where do you think you are in terms of score card there?

How much more room is there to drive better efficiencies from your working capital?

Thanks.

Thank you.

First of all, yes, indeed we have discussed a little bit the sequence of the cardiovascular studies as it relates to both the European and the US situation.

But Mads, why don't you just reiterate what our current thinking is on that.

Yes, I'll do so, Lars.

And when it comes to, first of all, this is study we're going to do.

It's a study we ideally want to do as global effort.

I.e.

we will seek to have both the European Agency, which we have in dialogue right now in that regard, to liaise with us and also with the FDA, so that we are having parallel discussion with the American Agency and European Agency in order to come to common ground on the global study.

I don't think it's going to be that difficult because everybody has the same target of living up to the guidelines of ruling out an excess risk of a factor of 1.3 as an over 95% confidence interval in a large study.

So since this is a time to event analysis if the study has to run to the very end we are talking around 2016 before it will be absolutely concluded and reported.

And that means that the cost of such a study, which is typically between DKK1b and DKK2b, has to be split between over a six to seven year period.

So, on a year-to-year basis this is something that is in the planning, in the budget and not really making a major impact on the R&D budgets.

So thank you, Mads, and then some model question, financial model questions, for you, Jesper.

The evolution of the R&D percentage, tax rate as an evolution of the different development in our segments, Biopharma versus diabetes.

And then cash flow and implications on working capital.

Yes, first on the R&D ratio.

I think we're guiding this year to an R&D ratio in the ballpark of 15.5% to 16% and that's slightly lower than what we said at full year when we said around 16%.

And that's really reflecting also the slightly later initiation of the cardiovascular study that Mads just alluded to.

And also a deferral of some of the later start Phase 3 studies in the obesity lira studies.

In terms of the R&D ratio in '10, it is premature for us to give guidance on that at present, but rest assured that it's going to be higher than the rate you see us currently guiding for 2009.

In terms of tax rate, we've lowered the tax rate by 1 percentage point.

We remain confident that a high proportion of our profits will be derived from our Biopharmaceutical franchise.

And you can also see in our accounts that we have a positive development in the operating profit coming from this segment.

And we remain confident with the current business trend that that proportion of profit will also be obtainable for the subsequent years.

And hence I think it's fair to assume that our tax rate will be in the 23% ballpark for 2010 and 11.

As for working capital development, I think there are two factors playing in one is the development in our accounts receivable and there we have two factors going in opposite directions.

Where we are growing significantly is, of course, is and will be International Operations, that's where we by far have the highest number of days of sales outstanding.

And on the other hand we also have a solid growth scenario in the US with a lower than average days of sales outstanding.

On balance I think working capital requirements in terms of accounts receivable will be steady.

Where you will continue to see an improvement in our performance, and part of the drivers behind the improvement in ROIC we will anticipate that we will make over the coming years, will be a continued lowering of our inventory relative to sales.

Basically being a consequence of the continued more efficient production of our bulk insulins.

And later being supported by more efficient production and a labor, lower labor element of production costs from the filling lines of the facility we have up and running in Brazil and later as and when we bring the Chinese filling facility on stream.

Thank you very much, Jesper.

Ladies and gentlemen, this brings us to the conclusion of the first quarter results release and investor conference.

Please contract our investor relations officers if you have any additional question that you'd like to have answered.

And we'll be looking forward to wishing everybody a great summer and we will be reverting in August with our first half release.

Thank you very much.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen, you may now disconnect.