諾和諾德 (NVO) 2009 Q4 法說會逐字稿

So it's my pleasure to welcome Novo Nordisk to JP Morgan today, and I'll just get out of the way and hand over to Lars straightaway to give the presentation.

Thanks, Lars.

Well, thank you very much.

I've just got to grab this one?

We are very happy to be here.

We almost didn't get here because we ran into a snowstorm last night, so we were on, I think, three different planes.

Two of them didn't leave, and so -- but we managed to get there at midnight, which was great.

We're also pleased that we didn't announce our annual accounts prior to January 25, because it would have been unbearable to come here and have to talk about an annual set of accounts without an approval for Victoza, since that has been a main topic for us in recent months.

We are going to present, the three of us.

We would have liked to have had our Chief Operating Officer, Kare Schultz, that's running our sales organization with us, but we hope that you will appreciate that he chose to go to the financial launch meeting for Victoza in the United States in Las Vegas rather than being here.

We think it was a better investment for our business, so we hope that we'll be able jointly to cover for him by dealing with the sales development.

So let me go through the presentation.

This is the forward-looking statement.

As you all realize, actual events may differ significantly from our predictions, and hence, you should read this.

Traditional setup for our presentation; the key highlights you have probably all noticed.

Strong double digit growth rates for almost all of our businesses, all the main products, driven by some conversion of insulins to modern insulins with 24% growth, geographically spurred by growth in North America and international operations.

We have seen tremendous progress in our research and development portfolio, and we're going to see that accelerate actually also into 2010.

Victoza approved in Europe, US and Japan.

Degludec and DegludecPlus, which are two of the most significant development programs from our portfolio going forward, is advancing in phase 3 clinical recruitment; about 5,000 patients recruited as we speak.

We are aiming at 10,000, so it's a major, major expansion for our Company.

And on the longer term, oral versions of insulins and GLP-1s should be very, very exciting entries into both the insulin treatment area, but also into the treatment of type 2 diabetes with GLP-1s.

On the sustainability front, we have already reached our target that we set for CO2 emissions five years ahead of the time schedule, so the next focus areas for us will be transportation and freight and distribution.

In terms of our programs in the sustainability area, we have pledged to enroll up to 10,000 children in developing countries to ensure that they receive lifesaving insulins, so it's our social investment program in the developing countries.

Financials, 21% operating profit growth, cash flow of DKK12 billion, and the outlook has been narrowed a little bit in terms of the top line growth for 2010 to 6% to 10%, and operating profit growth of around 10%, up from at least 5% in previous guidance that was given in connection with Q3.

The reason for all of this is largely here.

We see the latest [four census] that have been made by the IDF, International Diabetes Federation, estimating the number of people with diabetes in the world, currently estimated at 248 million -- or 280 million.

As you can see on the numbers here, the actual numbers are actually much, much worse than what they're currently predicting for 2030.

If we were to just make a straight line projection, we're talking about an additional 100 million compared to the numbers they're currently projecting in 2030.

Add to that the increasing number of individuals that are at the pre stages of diabetes, we're looking at a community of about 1 billion people that either have diabetes or are in the pre stages of diabetes in 2030.

If we look at prescription sales of drugs in certain periods, we see here that on these dark blue charts, this is the global diabetes sales and these are the global prescription sales in total, that global prescription sales are coming down, but diabetes sales are staying at a much more stable rate, and this is, of course, something which is also influencing our Company as we are the world's leader in diabetes medication.

You can see this on this slide, if I should stand [down] here, I can better see the slide.

Over here, you have the global diabetes market and you see Novo Nordisk represented with 23%, and a growing share of the global diabetes market.

Why is that?

It is because we are involved in the protein delivery of diabetes care growing 14% in insulin, and the recent entry of GLP-1 which has, on average, has been growing 10% per year.

So we are in the fastest growing segment, and this is reflected also in our overall global market share in diabetes.

Why was the approval of Victoza in United States very important?

You can see here 54% of the global diabetes market is in the United States, and when it comes to expectations for the GLP-1 market, we would say that it's probably more like 70% of the global GLP-1 market which we expect to find in the US.

Europe, we have launched the product; approval in Japan, and China has been submitted.

Then switch quickly to the sales update; no major changes from recent quarters.

In fact, no expected changes either going forward.

It's a very stable outlook for the business.

More than 80% of the growth is coming from modern insulins at the expense of human insulins, as you can see here, with diabetes care accounting for 77% of the growth of the Company.

The remaining 23% is covered by NovoSeven, Norditropin and HRT; all growing almost double digits, with the exception of HRT, 73% of our business being diabetes.

If we look long term, that is likely to increase with the launch of Victoza, but also with the strong expectations we have for the modern insulins going forward.

So if we look 10 years out into the future, it's more likely to be 80% accounting for diabetes than what we see right now.

If we look at the geographic distribution, it's the same picture that we have been seeing before; 80% of the growth coming from either North America or international operations.

We have long been involved and exposed in developing diabetes care in the emerging markets.

We have very early entry into Japan.

We have very early entry into China, India, Latin America.

And, therefore, we are seeing significant growth from these regions.

And you can see now that the international operations constitute 90% of our business and grew 17%, North America taking the lead completely now with 21% growth, and 36% of the overall share of sales, whereas Europe is declining in absolute or in relative size for us, but also the growth rate has been quite anemic in the European market.

We hope that, that is going to change a little bit with Victoza, but also with the new modern insulins that we have in late stage clinical trials.

If we look at the insulin market as such, we see here the last five years, if we look at MAT numbers, 7% volume growth.

If we look at that decomposed, then at the moment we see approximately 7% growth of the insulin market in the United States, 4% growth in Europe, 6%/7% growth in Japan, So the current growth rates are somewhat less than what you're seeing here at the average -- five year average.

And also the value terms, you'll remember that we have -- we stated for the long term that we are looking at a growth of the insulin market of about 5% plus 5%; 5% in volume and 5% in value.

These last five years, it has been slightly more, both on the volume and on the value side.

Novo Nordisk are holding a very stable market share, as you can see here, and notably, we see Lilly continue to decline, and Sanofi-Aventis and Lilly are neck-to-neck.

If we look at the modern insulins which are the insulins of the future, [better] therapy proprietary products, better margins for the industrial players, continued conversion now 60%, with the highest penetration in the United States, then followed by Europe and then Japan.

And in this segment, where we have to admit that we were latecomers, Lilly entered with short-acting analog Humalog first.

Then came Sanofi-Aventis with the first long-acting analog with Lantus.

But by and large, after having launched all our products, we can see here that we have gained a dominating market share, and we are still growing in this segment, which is, of course, critically important for the future.

And lastly, on the sales update; very topically, interesting issue of the rollout of Victoza.

We have decided not to disclose the specific sales numbers on Victoza, at least for the next quarters, until we have more substantial sales than we've gotten out of the launch phase so that we can analyze more stable sales numbers.

Here you see the data from the German market, where in just four months, we have overtaken Byetta in the German market, and interestingly enough, you see that it's almost added to our business, so we have expanded the GLP-1 market in Germany.

The launches are currently taking place in all the countries mentioned, and continued rollout will take place in 2010 as we get reimbursement approval in the European markets.

The launch in the United States is happening as we speak.

Products are already on the way to the US in the distribution system, so we will be out there retailing within weeks, if not within days in the US market.

Japan, a very scheduled process of getting reimbursement in Japan, so we expect to launch mid-year in Japan.

And, as I mentioned, we filed for approval in China in August and, therefore, we should be expecting to be able to launch beginning of '11, all other things being equal in China.

With that, I'd like to introduce Mads and the R&D pipeline.

Thank you very much.

It's a true pleasure to be here, in particular, as Lars has alluded to, because of the notion that we now have today triad market approval for Victoza.

Now before I dwell on details about the labels the repercussions and how it's looking, just a little highlight showing that we have looked at the last 30 plus compounds that have received all triad market approvals, i.e., typically with Japan coming in as the last market.

All of those we have benchmarked up against over the last three years, and what you can see is that the median for fast track drugs is 54 months, and for standard [review] drugs it's 60 months of triad market approval time.

And for Novo Nordisk, that has also typically been the case.

So we're actually rather happy that Victoza made it in there 20 months from the first submission to the last approval in the [mid-year] markets.

Now also Lars alluded to the fact that, once we have the approval in the US, it's nice to get on to the market, and I think you are aware that we've already within a matter of 72 hours from approval been able to send the first shipments to the US, which I think is also a relatively speedy process on our behalf.

Now what then does it look like?

What are the label characteristics across the triad markets?

First, I'll give you, when it comes to the indication and the contraindications, a few personal observations so that you fully understand the situation, which is very, very important.

Obviously, we have now, I believe, good indication in terms of both having monotherapy and combination therapy in US, Japan, whereas in Europe, typically you only get combination therapy.

In terms of contraindications, the things that we could have worried about would be, would people with pre-existing thyroid disease would be excluded, or would we have to monitor calcitonin in the patients before they were put onto the product?

Or would there be some other kind of, you can say, value destroying elements?

And the fact of the matter is that in Europe, we only have allergy towards the active substance, which is very rare, this contraindication.

In the US, we actually only have people with a personal family history of medullary thyroid carcinoma.

Now those of you who went through the details will know that this occurs in only 0.2 per 100,000 patient years; i.e., one out of 0.5 million is the incidence rate in the US.

So this is a very narrow contraindication.

Now about the c-cell story; there's been a little bit of misunderstanding that I'd just like to correct, because the fact is that, as is also the case for Byetta, we have indeed a medication guide and communication plan as part of the REMS, as does exenatide.

The interesting thing is that that medication guide is in the package or in the carton with the device, and the physician communication plan is at the [doctor letter], and they simply describe the potential risk of c-cell findings and the risk, as they described it, of acute pancreatitis as a rare event.

However, there's nothing to do about any cancer registry or monitoring of patients as regards anything to do with the REMS.

What it is is that the NAACCR, which is the North American Association of the Central Cancer Registries, is simply a huge US based database, where you can plug in and pull out data on cases of, for instance, medullary thyroid carcinoma.

And that is the agreement we've had with the Agency.

It has nothing to do with the patients we're treating or with the physicians that are treating the patients.

It's an administrative exercise where Novo Nordisk, in agreement with the FFDA over the next 15 years, will pull out those data from the NAACCR database, and actually look for GLP-1 agonists.

Not only Victoza; we've been asked to look for GLP-1 agonists, whether they are over-represented in terms of their occurrence of c-cell [medullary thyroid carcinoma] and tumors.

So that is the situation on that one.

We then move into the clinical data.

Well, basically, I think we don't need to dwell on it.

We know that we have good claims in terms of glucose control, because the LEAD program actually ended up giving us very strong efficacy data up against [TCD], sulfonylureas, basal insulin, and even the phase 3b program, up against Byetta and Januvia.

We have then extended some of those studies, and today we stand with data for three years on the LEAD 3, where we still have, I would say, strong sustainability and superiority up against [SU], and for one year up against Sitagliptin in the extension study that was just completed a few weeks ago.

Dosing is highly flexible.

So in contrast to other products on the market where you have tying up to the mealtime, etc., this can be dosed any time of day, except in Japan, where the patients have to choose whether it's morning or evening.

And storage is very nice.

Once you have taken the first injection, you can keep it at room temperature for one month.

So we're very happy with this triad market situation.

It gives us a very strong position to gain the market leadership that we will now build and sustain over the next many years to come in the GLP-1 space.

Now this is about the pipeline within diabetes.

And, as Lars alluded to, there is actually a lot going on.

Where everybody has focused on Victoza and Degludec and DegludecPlus, this is still a key focus of our Company.

Now with Victoza on the market, we will dig deeply and broadly into the portfolio opportunities that pose themselves to us as regards GLP-1 phase therapies.

Henceforth, we are working on not only Victoza, potentially expanding the label pending discussions with the FFDA of going also into clinical obesity management, but also looking into possibilities for combination products, such as the one shown here on page one, where we can get the best out of the two worlds, the GLP-1 world and the insulin world, either less hypo and less weight gain compared to an insulin therapy alone, or even more efficacy if you are considering GLP-1 an efficacy-driven treatment, then by spicing it up with the best of the future generation insulins, you'll, of course, have something that will work even in patients who no longer have an (inaudible) [mask] to cope with just a GLP-1 standalone treatment.

And likewise, in the oral space, you can see down here that we have managed to design stabilized analog with long action profiles for delivery via the oral administration group.

So truly the oral protein expertise center that has been built in headquarters is one that will now devote itself to a greater portfolio of different analog and different formulation technologies to make sure that we can one day hopefully find the holy grail of diabetes treatment, namely tablets with the natural hormones, or analogs of the natural hormones insulin and GLP-1.

So Degludec, Lars has alluded to.

I think it's very exciting.

We'll release data at the ADA in late June this year from phase 2 which will describe how these products hold the promise of being both long-acting, more predictable, and hence give less hypoglycemia and less hyperglycemic excursions than today's golden standards.

Finally -- well, almost finally, on hemostasis and hemophilia, I think we have a very exciting situation.

We will, towards the turn of this year, actually submit the first in a series of NDAs around the [combination factor] portfolio, namely that for Factor XIII, which completes the in-life phase of the pivotal trial this April, to be submitted around the turn of the year.

Other than that, we have phase 1, phase 2 and phase 3 programs ongoing, including something that we find exciting, namely the potential for modified versions of Factor XII, such as the long-acting version shown down here, to be administered via the subcutaneous route, potentially taking also hemophilia therapy to the next level of convenience.

Now finally, this slide really just shows that we now have approval for Vagifem Low Dose.

This is a small but important product, and we've now taken it to the very low dosing machine; 10 micrograms, as compared to the previous product of 25 micrograms; really ensuring that women can reap the benefits of HRT therapy without having the downside risks of the rare occurrences of [CV] and malignancy events that have been associated with HRT products.

With that actually, Jesper, it's over to you.

Thanks, Mads.

Going into the financials and outlook; as Lars alluded to, we've reported 12% growth in our top line, 1% positive currency impact; so growing in local currency terms 11%.

And then, only growing cost of goods sold with around 3% gives a very positive development in the gross margin.

I'll just revert to that in the next slide.

Let me just share a few comments on the other cost elements going into operating profit.

Sales and distribution going up with 2 percentage points this year, and a 20% growth level.

This is, of course, a reflection of the significant expansion of our sales forces we have done, both in US; in Europe, key markets like UK and Germany; expanding our sales force in Japan in preparation for both the rollout of the high mixes and also Victoza in Japan; and then also an expansion of our sales force in China.

That is the key driver behind this.

If we look at research and developments costs, flat year-on-year.

That is, of course, a disappointment for Novo Nordisk.

And it's not our long term ambition to be 15.5% in terms of investment in R&D, but it's more a reflection of the standstill we've had with liraglutide, and the not being able to move the obesity trials for the last phase 3 trials with obesity into phase 3 clinical development, and hence, our R&D ratio at the end of the year turned out to be lower than what we anticipated.

Also the cardiovascular trials for Victoza will only be started in 2010.

I think longer term, our vision is clearly to move our research and development costs towards the 17%/18% level.

So when you look at our performance on operating margin and our long term targets of taking the operating margin towards the 30% level, one should bear in mind that we also have an ambition at the same time to have a significant investment level in terms of R&D.

Admin expenses; we continue to deliver a quite positive development in this ratio.

And the growth we see, local currency terms, a growth of around 4%, is really coming from supporting the expanded sales force we have in markets around the countries around the world.

If we look at the growth decomposed, you'd be looking at something like 8% growth.

At an affiliate level in admin costs and at corporate level, only a 2% growth in our admin expenses.

And one should anticipate that we can continue to make this cost line grow at a significant lower growth level than our top line, and hence a continued improvement, although significantly less than what we do on the gross margin.

Net financials is, of course, reflecting the opposite of the positive impact we have on the top line from currencies around DKK750 million negative impact, and also, a negative impact from share of losses in our associated companies.

The tax rate was down by 1 percentage point to 23%, and that's also the level we predict going forward, and hence, a 12% growth in our net profit.

And if we look at it at an earnings per share level, the repurchase program that we have conducted added another 3% to the EPS growth, so we got to 15% growth there.

If we look at the gross margin, we had given the expansion of 180 basis points in 2009 over 2008.

40 basis points of that was coming from the currency impact, so the remaining 140 basis points is primarily coming from an improved production economy.

The biggest part of that, more than two thirds, are coming from more efficient bulk production of the modern insulins, and the last third is coming from more efficient filling of the insulins in our filling facilities around the world.

And I would hope over time that we would see a higher proportion of the efficiency improvement coming from the filling facilities, as we have a higher proportion of our overall production coming from low cost countries, especially having currently one of the largest insulin filling facilities located in Brazil.

The last bit of the improvement in our gross margin was significantly coming from higher prices in the US, adding some 40 basis points to 50 basis points to the overall gross margin improvement.

Prices in the Rest of the World, broadly speaking, did not significantly impact the gross margin.

If we look at what are we doing with the cash that we generated last year, cash generation of around DKK12.3 billion, as alluded to by Lars, and if we look at what we're planning to do with the cash generation that we have in Novo Nordisk, the proposal for the annual general meeting would be a DKK7.5 per share dividend payout.

That is equivalent to DKK4.4 billion, or a payout ratio of around 41%.

And by lifting our payout ratio to 41%, we're bringing us closer to the level of the peer group, which we for pharma companies generally see in the 40% to 45% range.

We supplement that by a repurchase program.

We completed our DKK19 billion repurchase program at the end of the last year, and we are now launching a new DKK7.5 billion repurchase program, which will be conducted in a safe harbor program, actually on a quarterly basis so we have increased flexibility in terms of adjusting the repurchase program.

And if you add the dividend of DKK4.4 billion and the DKK7.5 billion repurchase program, you get very close to the predicted free cash flow of DKK12 billion that we are predicting for 2010.

In terms of currency development, we are very sensitive to US dollar.

We have a quite unusual situation in connection with this release, as the prediction for the average rate overall for Novo Nordisk are similar to the rates we had in 2009.

And hence, at present, the growth level in local currencies in reported terms should be roughly similar, but do bear in mind that the reported growth in the first half of the year will be relative lower and relative higher in the second half because of the development of especially the US dollar, which you can see depicted on this slide.

Also, bear in mind the sensitivity that we have, especially to the US dollar, and CNY, and if we regard them as being linked, then an DKK680 million, effect of a 5% movement in the US dollar/krone rate.

We've hedged that for 17 months ahead, and the rest of the hedges you can see on this slide.

The guidance we are giving for this year; we have added a bit of precision to the guidance for sales growth, now saying 6% to 10%.

In that assumption, we are assuming that a US healthcare reform will be launched, and we're assuming that it will have an impact to the tune of 1.5 percentage points on our top line but, of course, the range indicates that there are uncertainties related to this.

We are also assuming that there will be generic competition on NovoNorm.

In Europe, we are already seeing that in Germany, and we're also assuming that there could potentially be some impact on our Prandin sales in the US.

Prandin is selling approximately DKK1 billion per year in the US alone, and NovoNorm also close to DKK1 billion in European sales.

Operating profit around 10% in local currencies, and that is reflecting the operating performance we will have at approximately the mid level of our sales guidance.

Of course, if an event like the US healthcare reform doesn't come through, it is likely that our operating profit growth expectations would be increased but, as I said, they have been included in the guidance we provide here.

We assume that there will be a negative expense on net financials around DKK100 million, primarily related to our share of losses in associated companies.

Tax rate stable and capital expenditure at DKK3.5 billion broadly in line with the 6% investment to sales ratio that we give also longer term for our fixed asset investment.

And free cash flow, as I already alluded to, DKK12 billion.

You have the rates as we used them for our predictions.

Current rates are slightly better than what you see in current rates here as of January 27.

Closing off, just looking at the competitive situation for Nova Nordisk; first, to your left, you see the performance in the insulin franchise.

We have a significant position in the insulin market and in the diabetes market.

You're seeing overall diabetes care growing by 10%, and now we're not only a player within insulin, but also with the triad market approval of GLP-1 for Victoza.

We have an opportunity to participate even further upscale in the type 2 market.

We have a 51% market share within insulin and, more importantly, we have a leadership position in the key emerging markets, where it is -- we're seeing the higher growth levels compared to the more modest growth level we are seeing in markets like Europe and Japan.

We have 59% of the market now converted to the modern insulin, but note, a market like China just have exceeded 20% conversion to modern insulin, so there's still significant parts of the developing markets which needs to be converted to more advanced and better for patients modern insulin.

And then finally, our share in the modern insulin segment is at 45%, and gradually increasing is providing some opportunity for us in further expanding and value upgrading our portfolio.

In terms of the pipeline, we've talked a lot about Victoza the last two days, and I'm sure that the questions will focus on that.

It is an opportunity for Novo Nordisk to expand into early stage type 2 treatments.

We're the only company with an advanced new generation of insulins, both a combination insulin and an even longer-acting basal insulin in phase 3 development, and we also have a broad portfolio of products within the area of hemophilia, which plays extremely well to the chronic care skills a company like Novo Nordisk has.

And with those remarks, I will hand over to Lars, who will then deal with the Q&A.

Yes.

Thank you very much, Jesper.

So the floor is open.

Do we have a microphone here?

Hi, thanks very much; two quick questions.

Just wondering at what point the gross margin improvement in terms of production and production filling efficiencies become more difficult.

Are we thinking three years, five years?

Can we see a gross margin towards the mid [80%s] in that sort of timeframe?

And the second question, I think you mentioned yesterday on -- that Turkey drove significant growth in the modern insulin franchise.

I think there's a healthcare reform in Turkey which is looking at about 30% price cut.

I'm wondering specifically on that what the effect on Novo is in terms of your 2010 guidance, and also more generally outside of the US in terms of healthcare reform, what's based into the guidance range in terms of the top line from other reforms round the world?

Thanks very much.

Yes, will you talk about gross margin first?

And I'll talk a little bit about the emerging markets and how we see healthcare reforms in these markets.

Yes.

We continue to see opportunities in expanding the gross margin coming both from the continued expansion of the modern insulin, and more efficient bulk production.

We see Degludec also has parts which can be produced in our existing facilities; maybe some slight expansions, but not something that will alter our investment to sales guidance, and hence, I think there will be opportunities even with the newer insulins.

GLP-1 is produced in a very similar fashion to the insulins, and hence, it's not really driving a change in our operating cost in producing the bulk products.

The filling area, I think it's the area where I would expect us to do more improvement over the next three to five years.

When we have guided the next two years in saying that we can deliver a 50 basis points to 100 basis points, we have been a little bit shy of going even further, and not because we don't have confidence in our ability to improve, but more that the product mix for us is a little bit uncertain when we get to '12 and beyond how will the mix be between a GLP-1 and the insulins and the general biopharm franchise.

And also the biopharm franchise is a very high growth margin element of our business, and I think they will struggle, as Lars also alluded to, noting that we will get to probably around 80% of our sales coming from diabetes, and hence, when the highest gross margin element of your business is going slower, there is some mix effect that we have to have a better grip on before we make more precise predictions on the development in the gross margins, and also where is GLP-1 going to go.

But that said, I think I don't see anything that is not making us continue to make progress on the gross margin also beyond '11, the next couple of years.

We look forward to bring the large new filling facility in Tianjin on stream, probably around '12-ish and kicking in P&L wise really in '13.

So I think we're doing a number of things that should point positive also beyond '11.

I think guidance, you will have to have a little bit more clarity, especially on GLP-1.

Lars.

Yes, and in terms of healthcare reform, and one can -- there's not necessarily a need to limit that to emerging markets.

We are seeing constant healthcare reforms throughout the world.

We've guided on healthcare potential and healthcare reform in the United States and Europe, seeing healthcare reforms in several countries and, as you mention, Turkey is one where the announcements are quite severe price impact for pharmaceuticals.

You should realize that some of these public statements are oratorical setting up of the negotiation stage.

They are not usually implemented as they have been publicized, and so, basically, we find ourselves in positions around the world where we can elect to participate in certain markets or not, and we are holding a very, very important key to chronic disease, and we have from time to time been in situations, I won't disclose markets, where we have said to the authorities that if you implement these changes, we will withdraw our registration of certain of the high priced products that we have, because we cannot run the risk of having parallel trade and a uniform pricing level being eroded by unilateral price decreases.

So in our overall guidance on price development, all of these are taken into consideration.

When you look at the price level, obviously, in Japan, prices on products that are on the market are declining each other year, and that is well understood.

Innovation is rewarded and, therefore, it is the mix that will determine what the average take home price level is in Japan.

In the European markets, we have had reasonable stable prices.

It is likely that some of these financial pressures that certain European countries are under could lead to some softening of the European pricing level; however, not dramatically for Novo Nordisk.

I think they may hit other product categories more than us.

In the United States we have, as part of the general trend in the pharmaceutical industry, enjoyed the reasonable opportunities to raise prices.

I think that has come to an end.

I think that we will see a much more soft pricing environment in the United States, and Novo Nordisk, of course, acting in this environment try to position ourselves such that the average take home prices in the channels that we are participating in are optimal for the long term future of our business.

So, yes, we are feeling the pressure, but it's always taken into consideration when we give the short term guidance.

Yes?

Hi, thanks for taking my question.

Two things; on your cardiovascular five-year study, however long, do you have an interim analysis?

And also, have you been asked to do any preclinical studies with regards to mechanistic understanding of the potential impact of Victoza on pancreatitis, such as mortality studies that they've asked Byetta to do?

Have you been asked to do any of that at all during the next few months?

Mads?

Yes.

Well, so on the LEAD trial, where we have both a European Medicines Agency and am FDA commitment as part of our pharmacovigilance system to conduct this 9,000 patient five-year study with cardiovascular outcomes being primary, but the secondary endpoints then also including, of course, biomarkers of c-cells and pancreatitis and whatnot, there of course, that's the Data Monitoring Committee that follows these events in a way that is blinded to the rest of the Company, and essentially, we have not preplanned an interim analysis to go out and tell the world this is fantastic and so on, because that inherently is not a thing the agencies really like.

They prefer to see the full study factor at the end.

But, of course, the DMC is overseeing the study that is expected to be kicked off in the first quarter of this year.

As regards the mechanistic studies, well, we have a -- there are two areas where we have a milder label, so to speak, than Byetta.

One is pancreatitis, where for us it says use with caution for patients that have had pancreatitis previously.

That's a -- more harshly phrased for Byetta.

The other one is about kidney failure, we have no impact on kidney disease.

We've got some indications of kidney failure.

We have no pharmacokinetic changes in people who have been affected by this, and so on.

But when it comes to pancreatitis specifically, what we have been asked to do is essentially, indeed, you can say a semi-mechanistic study.

So we are actually doing an animal study, a 13-week pancreatitis and model as part of the post marketing requirements; it will be very exciting.

It's one that has been created in Toronto in the labs of [Dan Drugge], and seems to be one of the more convincing pancreatitis models that we prefer to subscribe to.

When it comes to the human system, well, we have also committed to do a healthcare claims database analysis using the Ingenics database with the tool detection system known as i3 Aperioo, through which you do a propensity score matched case cohort study when you essentially put each Victoza patient that is enrolled into the i3 Aperioo, or not involved, but which is picked up by the database, you can actually match that propensity score-wise for age, gender, smoking habits, diabetes duration, CBD, pancreatitis [history], and so on, with one to five other patients who are on other products, and then you can monitor this on a yearly basis, which we intend to do for the next few years according to [media team].

Thank you very much.

The next question, could I kindly ask you to state your name and where you're coming from so that we have --?

It's Brian Bourdot from Barclays Capital based here in London.

Thanks very much for your presentation.

It's interesting to hear that your Victoza launch meeting is in Las Vegas.

I was just wondering if -- whether I could ask you to gamble on a couple of forward-looking statements in that regard.

The first question relates to the Victoza launch.

I was just wondering whether you feel -- how confident you feel that your benefits over the currently marketed GLP-1 in terms of frequency of administration efficacy will mean that you will not need to compete on price, and that you expect to obtain a similar reimbursement position?

I think Byetta has about 85% Tier 2 coverage.

And the second question relates to a study that Amylin has initiated, a duration 6 I think it is, between liraglutide and once-weekly exenatide.

And I was wondering, given your understanding of those molecules, whether you would expect that study would show any differences between the two drugs other than frequency of administration.

Thank you.

Thank you, and let me just try to respond a little bit on the Las Vegas meeting, and then perhaps give my view on the current drugs in the GLP-1 area, and my perception of the future of long-acting.

And then, Mads will then comment.

We have a slight difference of opinion up here in the scientists are very excited about longer-acting compounds.

I'm less so, but that you would expect.

Las Vegas, it's the sales force meeting where we have gathered all our 2,000 sales reps from throughout the US, and they, of course, are quite excited about the opportunity of launching Victoza.

In addition to that, we have a [serious] training program where we have 800 physicians from throughout the United States that we're going to train, and they're going to be speaking on behalf of the Company.

I'm not going to go into any wagers on the outcome of that meeting.

As you could see in some of the wires, I've put my job on the line in relationship to the fact that I believe that we will have blockbuster sales of Victoza.

I think I made the comment in connection with a five-year projection that we'll sell $1 billion worth of Victoza, otherwise I will have to resign.

I'd just like to note in parenthesis, I would have to resign anyway because my contract expires, but I didn't mention that at the meeting.

So this has been picked up as being quite bullish.

With regard to the current competition in the GLP-1 segment, we're quite convinced that Victoza, as it stands, is competitive towards the Byetta as it's on the market right now.

We have seen that clearly demonstrated by the launch of the product in Europe.

It has a superior efficacy on block glucose lowering; it has a superior side effect profile; it has a superior convenience profile with once-daily flexible dosing.

It is hands down better than Byetta which is on the market at the moment.

Now then, with regards to LAR, that is, of course, a different matter.

Historically speaking, protracted release formulations have not been extraordinarily successful, especially in the protein area.

We still recall some of us the much expected and feared introduction of Genentech's once-weekly human growth hormone, which ended up not really living up to the promises because it came with -- the first phenomenon came with a significant injection volume.

It came with high -- large gauge needles to be injected.

And these are some of the drawbacks of some of the longer-acting formulations of GLP-1, in particular, LAR.

So I think my take on this is we're expecting to see block glucose lowering effect which is similar to that of Victoza with LAR.

We are expecting to see a different profile in relationship to antibodies in relationship to nausea; perhaps the same effect on the weight; a little bit more uncertain as to what kind of cohort we'll eventually end up seeing.

So I'm personally not so certain that -- the only main benefit is that one could anticipate, the convenience benefit of once-weekly versus once-daily, it's such a major benefit that it can warn any potential risks of side effects, or -- and if, as we were talking about pancreatitis, I would, at least certainly personally, if I was taking a drug where there were some concerns of (inaudible) and other things associated with pancreatitis, I would prefer to have the once-daily formulation as opposed to something which lasts for significantly longer.

With that wonderful introduction, Mads, will you talk about our once-weekly program?

Yes.

And, Lars, I think you said it most as regards the comparison with a long-acting, once-daily, was the, say, ultra long-acting ones, weekly preparation.

I just give a few details also as regards the new duration superiority study.

If we look at the LEAD program values that we have achieved in our superiority studies up against TCDs, where we saw 0.7 difference between us and the TCD comparator, this is actually a bigger difference than LAR has found in their duration study.

In the case of our comparison up against Byetta in the Lancet paper, the difference is similar to that which Byetta LAR has achieved when you take into account that the base line levels of A1C and the absolute increments differed between those two studies.

The same goes for issues where we over one, two and three years maintain at least an open 6% superior A1C reduction compared to sulfonylurea.

That is also comparable to what is seen for LAR, and for DPP-4, as we are also at least a one half or more percentage point improved compared to Januvia, which is also reminiscent of what is seen for LAR.

So you get what you want when you stimulate the GLP-1 receptor for 24 hours a day, seven days a week, namely full [bank for the buck], and that goes for both products.

What we see, as Lars alluded to, as the superior elements of Victoza compared to LAR is that we are using an ultra fine needle; no thick needle, no needle clogging, no injection type reactions, no immunoneutralizing antibodies that among the quota that has most of these is really actually mitigating the anti-hypoglycemic action of the LAR preparation.

And also, no fidgeting with a complicated device, because this is a pre-filled pen where you simply click your dose, five seconds, and it's done, once a day; flexible dosing, any time of day.

And so when it compares up against Byetta, as you talked about the pricing, vis-a-vis could we justify the same price or more, I think it is a fact, as Lars said, we beat them on everything, from nausea you can see resistance, to minor hypoglycemia, to efficacy, to quality of life, and so on and so forth.

So we're comfortable.

We do think there's a role for once-weekly products, but I agree with Lars, it's not going to be the holy grail of GLP-1 therapy for a number of reasons, including also safety and flexibility.

So I think that's as far as we can see it at this point.

Thank you, Mads.

Yes?

Over here.

Frazer Hall from Berenberg.

Just a couple of questions; just first of all following on from that, just in terms of your planning, we've got a PDUFA date for exenatide once-weekly in early March.

With regard to your launch plans for Victoza, do you assume a timely approval for Exenatide once-weekly, and do you assume a similar label, particularly in terms of safety?

And secondly, the launch of Onglyza has been rather disappointing.

Do you think that has any relevance to expectations for the GLP-1 class, or specifically for drugs within the class?

And then just separately, a question on Degludec.

Maybe, Mads, could you just talk a little bit about your hopes or expectations for the profile of Degludec, and in particular how you think it will be possible to differentiate an ultra long-acting basal from existing competition?

Thanks.

Thank you.

Mads, I guess most of those were actually something that I think you should discuss.

Of course, expectations about an approval of LAR based on the PDUFA date, we cannot speculate on.

Our own experience is that we [park] the PDUFA date with almost a year.

So if that goes for others as well, then of course, that will be a little bit longer in coming than perhaps most would anticipate.

But in regards to safety, and I guess what you are alluding to is to what extent are we expecting to see similar black box warnings on their LAR labeling, as we have seen with Victoza.

I'd like to defer that discussion to Mads, because we have some interesting articles being published as we speak.

So, Mads, would you talk through that, and then perhaps some of the other questions then as well?

Yes, I'll do that, Lars.

It is true that we are in a major US-based journal, publishing a very large paper, and this really summarizes many, many years of work within the field of c-cell biology.

And it ranges from the in vitro receptor systems all the way through to long term human studies.

And essentially, the take-home message is that if you inject, for instance, Byetta once a day, we've done that, we showed the pharmacokinetics, you typically only see calcitonin released for a few hours every day.

And since the carcinogenicity studies that [followed] were used for Byetta were actually done with a once-daily administration to the animal, you wouldn't expect to see adenocarcinomas, and you didn't.

So you can say the preclinical work that has been done for twice-daily human Byetta is not of relevance to the evaluation of the LAR Byetta product because of the vast differences both in the profiles and in the needs of the preclinical studies.

In terms of the work we've done, we've then expanded that to see, well, what if we match with the LAR Byetta profile by infusion of exenatide and compare that on a metabolically bio-equivalent level with liraglutide, we see exactly the same time [cause] action profile of the initial c-cell stimulation, calcitonin followed by hypoplasia to a super-[imposable] extent for a long-acting GLP-1, exemplified by exenatide.

And in fact it is interesting to note that in this paper, it will become evident that the least potent calcitonin and c-cell stimulating agent is actually liraglutide, which is above an animal range where the others, whether they are [taspo] exenatide] or [lix] exenatide, are all subnanomolar in their EC50 values.

So I think from a scientific basis, this is a GLP-1 class effect of the long-acting agent; something that is of no relevance to monkeys and humans to the best of our knowledge today, and that's, I think, the only conclusion.

: And Mads, on the DPP-4 launches, any comment on how you see the DPP-4 market compared to the GLP-1 market?

I think the DPP-4 market is a very big market, driven by Merck and Sitagliptin.

The issue for saxagliptin Onglyza, without commenting specifically on the profile, is that there's no real, you can say, benefit quite frankly between -- or saxagliptin or (inaudible) Sitagliptin, apart from the [common relators].

So I think you can't really use that comparison.

Then there was one on Degludec.

Well, quite frankly, there are two things that are important in insulin treatment.

One is having a very long [half life; i.e., that you have a constant exposure in the body with very minor excursions.

And the other one is that the very ability with which this occurs is as close to zero as possible.

And on both these parameters, i.e., having essentially a square [wave] insulin which just works and works and works well into the next injection one day later, or maybe two days later, it's essentially something that we've shown in phase 2 is the case, and also in sophisticated scientific studies, and we are now setting out in, you can say, almost monumentally sized pivotal programs to prove those points that we have seen in phase 2.

And they will be announced at the ADA late June, a number of phase 2 data tests.

Thank you, Mads.

There's a question in the back here.

Jo?

Jo Walton from Credit Suisse; three areas, please.

I wonder if you could look forward for a couple of years when the GLPs are well established.

How will you expect the guidelines to include them?

I'm particularly interested as to whether they will in their prescribing take growth away from the injectable insulins.

In the worst case scenario where that were to happen and your GLP were, for whatever reason, not to be the favored one, then you'd be a loser.

And I'm just trying to get a sense of where you think those GLP scrips hopefully for your product will come.

The second area is to look even further out than Degludec.

You're beginning to talk about oral deliveries.

I've been doing this job for 25 years, and oral proteins have been doing the rounds, and Novo has in the past been very reluctant to endorse them as a viable approach.

As analysts, what sort of probabilities do you think we should put on that coming in the next five or 10 years to the market?

And a final one on your blood products franchise.

You're now in factor -- you're now in phase 3 with your Factor VIII.

What sort of timeframe, and what is going to be your unique selling point?

Are you going to be like Onglyza coming late to the market here?

As well-established players, what are you going to do that's going to be different to get a meaningful return on your investment?

Thank you very much.

That is going to take us about half an hour to respond to all of that, but we will try.

We'll give it a shot.

First of all, the GLP launch and guidelines, and how that is likely to impact the other proteins that are being used to treat diabetes.

Well, as you can gather from the positioning that we take with Victoza, we are going up against primarily other medications for type 2 diabetes, being [the] orals.

But we also acknowledge the potential for concomitant administration of the insulin and GLP-1s.

We intend to try to get an indication expansion of Victoza with insulin, but also we are intending, as we have already discussed, to have a co-formulated product between Degludec and Victoza.

So that's, of course, out of the notion that we anticipate that after initial initiations with Metformin, other type 2 medications could be exchanged in lieu of Victoza.

The Victoza treatment could then be extended for a long period of time.

When blood sugar starts to fail, insulin can be added, but maybe we will see the continuation of news of the GLP-1s as weight lowering, and other beneficial effects.

So you get a product combined that has a more safe lowering of blood sugar by a lower amount of insulin combined with GLP-1, and the positive effects from the GLP-1 on the weight, on the blood pressure, and potentially other things.

Then, of course, you rightly say it could have implications for the growth of the insulin market, and we have seen in the past -- we recall in the '90s when the TCPs were introduced, that there was a couple of years where the growth of the insulin market stagnated for some quarters until those particular products had found their relevant niche.

And then we saw the overall demographics then flush through, and we saw the start the growth of the insulin volume again.

We've seen that recently in Europe.

We believe it's been attributable to the slowing down of the growth rate of the insulin market in Europe in recent quarters for DPP-4 inhibitors, and we now see that stabilizing and we would be predicting that that would grow again; of course, short of any impact from Victoza on the initiation of therapy with insulin.

In terms of oral insulin, you have been following us for a very, very long time, and we would, up until three years ago, have told you that it was impossible, the reason being that all the studies that we have seen and that we've been able to comment on have been based on human insulin.

Now some of our researchers have then tried to study the insulin molecule and how it's been broken down in hypochloric environments, or similar environments to that of our intestine, and found out that you could stabilize the molecules by making analogs that were more likely to survive in the environment where they're supposed to survive if we take them orally.

And so that's one important component, increasing the likelihood that the insulin would be absorbed.

Second is that still we anticipate to have very low bioavailability and that we need to produce an extraordinarily large amount of insulin.

So they have to be expressed as very large amounts for it to be financially viable.

That we have also passed, that hurdle.

The third hurdle is we need to get them down where they're supposed to act as well preserved as possible.

That is the formulation component that needs to be added.

So all these three components we have looked at, and that has led us to believe that it is perhaps doable, which is why we are endorsing cautiously the concept that it might be possible to deliver insulin through the oral route.

But there are still many hurdles to overcome, and we just started the studies.

And in reality, if you really want to have a good entry in the oral field, we should have a basal oral insulin.

And so you not only need to preserve the absorbability of the insulin molecules, but you also need to have an extended circulation of that molecule for it to be competitive against the startup treatment with basal insulin.

So there's lots of challenges, and that's why I think if we should say something about probabilities, well, that's 10% of that --?

I think on a pre-molecule basis, that could well be the case, and that's actually also why, for us, if this is at all possible for any company, failure's not an option for Novo Nordisk, it's a must-win kind of battle.

And now we have, based on what Lars -- actually, you could really be aspiring to become [CFO], because you basically said it all, but I guess you have another job.

And I think, Lars, it is worthwhile saying that we need to do the portfolio approach, okay?

So each one probably has this high risk of failure for a number of reasons.

That's why we need to play around with different analogs, [rationally] designed for the purposes Lars mentioned, and different formulation technologies, so adopting a portfolio approach, and that's, at this point, led us to have around 150 scientists working only on oral protein delivery within diabetes.

And then to the last question, this is of course correct that we are in the phase 3 clinical studies with Factor VIII.

It is not necessarily, because we have an ambition to launch a biosimilar Factor VIII.

The idea is to develop a Factor VIII which we can get recognized as being Factor VIII, and then try to work on that molecule to create a long-acting Factor VIII.

Currently, the patients have to use several intravenous injections per week to get a proper protection against [these].

Because they're intravenous, this is quite an ordeal.

We are not talking here about subcutaneous injections either once a day or once a week, we're talking about intravenous injections.

So this will be a tremendous advantage for the patient if they could reduce the number of injections in this regard.

Of course, the fallback position for us is that we get a decent Factor VIII.

and then we can recover some of our development expenses by launching a Factor VIII into the hemophilia market.

But the objective is to develop a long-acting Factor VIII.

The same thing goes for Factor IX, where we have a program that would aim at entering into the long-acting Factor IX segment.

And finally, I think Mads alluded to it when he talked about the portfolio, that we're also looking at the potential of using Factor VII for general hemophilia treatment, but that's a little bit more of a long shot that we will be coming back talking about at a later point in time.

Lars, maybe one additional comment.

The reason why we've succeeded into putting into phase 2 a long-acting Factor VII, and putting into phase 1 a once-weekly Factor IX molecule is that it's easier to make inherently long-acting versions of these glycosylated proteins because we know the [clots] mechanism.

It's taken us longer for Factor VIII.

Bayer has just [failed] their (inaudible) preparation, so nobody is well advanced into clinical trials for the long-acting Factor VIII, but I think we have very good ideas and molecules that are coming along.

It's just going to be later than the long-acting Factor IX and Factor VII, but based on the protein backbone of the one that is today in phase 2.

Thank you.

And let's have the last question, please, and then we need to move on; if there are any additional questions.

Yes, let's have in the middle here.

Thank you for taking my question.

I'm Jacob Thrane, with Standard & Poor's.

Just a quick question on R&D cost margin for next year.

I can appreciate you want a little slack in it, but what -- are we looking at taking it towards the top end of the range?

What events would drive it up there, and what will keep it more in the bottom range?

And the second question is perhaps a little more on liraglutide on obesity; looking at obesity products mostly like walking in R&D graveyard.

So I'm just wondering if you could put a little color to how you want to go about the obesity indication.

Is it a broad indication or really severe high BMI patients you're looking at?

Specially also looking at a subcutaneous route that will perhaps afflict patients with a stigma of disease rather than the so-called [old-faithfuls]; [is it] looking at a (inaudible) administration route.

So could you perhaps put a little color to your strategy and your thoughts in that area?

Thank you very much.

Jesper, will you comment on the evolution of the R&D investment for 2010?

And then, Mads, if you talk about obesity and the graveyards and the pharmaceutical industry.

I think the prime factors that will swing the R&D ratio up into the high end of the range would be early initiation of some of the trials and the faster execution of the Degludec portfolio.

We have the CV compliance trial we have to do on Victoza, and then there is the obesity trials where we are now going into discussion with the FDA on the initiation of large scale obesity trials with liraglutide.

And how that plays out and when the trials are initiated will probably depend on where we're going to be in that range.

Yes, and on the obesity thing, well, that is indeed a graveyard of products so far, and you have to bear a couple of things in mind.

One is that the FDA (technical difficulty) [agencies] has what they call a safety-first approach to whatever they do.

That means that when you do your benefit/risk calculation, the benefits have to outweigh the risks, and when you're obese and don't have diabetes, including all the co-morbidities and, let's say, complications of the small and big vessels, of course the risks that are acceptable will be lower, because the benefits are also perceived to be lower.

This actually means that in the discussions we're going to have with the agency, that has to be weighed up against each other, and the fact of the matter is that even though we'd love to do a study only of morbidly obese, or people with a lot of co-morbidities, you actually have to adhere to the guidelines.

It may say BMI 27 or above if you have co-morbidities, and 30 or above if you don't, or if you're just a general obese person.

So it's not easy.

You can, in the marketing game, play out.

You can, of course, target your product really for seriously ill patients, and that is definitely what we would do.

But I have to say it's important for us to say that we need to adhere to the guidelines, and above all, have the discussions with the agency, and that's something we are contemplating on having sooner rather than later.

On the subcutaneous issue, that's not really an issue.

The recruitment that we've had, both in phase 2 and in the one phase 3 study, has been as if they were falling over each other to get into the trials.

The adherence with the therapy also in the two-year extension study, is such that I didn't believe it myself almost.

So sub-cut once a day is not an issue if you have a product that works.

Thank you very much, Mads, and thank you, ladies and gentlemen.

We need to close the session here.

I would like to thank JP Morgan for having us to this launch, and thank you for listening in.