諾和諾德 (NVO) 2010 Q1 法說會逐字稿

Okay.

Let's get started.

Good afternoon, good morning, everyone.

My name is Mark Purcell and welcome to Barclays Capital, which is delighted to host the Novo Nordisk Q1 2010 results presentation.

As I'm sure you're aware, Novo Nordisk is global leader in insulin and reported strong Q1 results yesterday, sales increasing by 11%, operating profit by 15%.

I'm pleased to introduce to you Novo Nordisk's management team today.

We have Jesper Brandgaard, CFO, Mads Krogsgaard Thomsen, CSO, Kare Schultz, COO, so joined by Hans and Kasper I can see over there, from the Investor Relations team.

So, without further ado, let me hand it over to Jesper.

Thanks, Mark, and thanks for coming to this webcast of our roadshow.

We have actually shortened the presentation that we use for this, as we know this forum is pretty familiar with the slides we normally use.

So we've just taken an extract of a few core slides and we'll review them, the three of us, and then we will hopefully have more time for Q&A.

Let's assume that we can use about 40 minutes on Q&A.

The presentation, of course, will involve making forward-looking statements with the uncertainties attached to that.

These are described in detail on this slide, which I ask you to carefully review.

The way we're going to split this up is that I'm going to give an update on the highlights for the first three months of 2010.

Then Kare will cover what is our experiences with the Victoza launch and also give an update in relation to the impact on Novo Nordisk from the US health care reform.

Mads will review how the new generation of insulins are looking to be and also what development program we have for Degludec and DegludecPlus.

And then I'll just round up with a few concluding remarks and I will try to lead the Q&A.

If we look at the first three months of this year, we have seen a very positive market uptake for Victoza, continued in Europe since the introduction mid last year and a very solid launch mid February.

We are seeing, in terms of the modern insulins, that they continue to provide the most significant part of our growth, around 70% of the growth coming from the portfolio of modern insulins.

That enabled us, actually, to report yet again, I think for the 32nd quarter in a row, double-digit local currency sales growth.

You could say there was a bit of help from the initial pipeline filling in the US, which involved DKK250m in product sales of Victoza in the US.

And if you adjust for that, you are just at borderline of double-digit sales growth.

The key driver behind Novo Nordisk's growth is North America and International Operations, which account for more than 80% of the sales growth.

In terms of R&D, I think it's important that we in April have now rolled out a more advanced pen, a disposable pen, FlexPro, for Norditropin.

It has been a key driver behind our franchise that we have had the most advanced delivery devices.

And I think FlexPro is yet another achievement in making it even more simple to administer growth hormone to kids around the world, and that's been launched now in the US.

We have very solid progress on Degludec and DegludecPlus, and that just testifies to the interest there is among diabetologists and endocrinologists in participating in developing even more advanced insulins.

Patient recruitment and trial center recruitment has been fairly easy.

And we only lack now one clinical trial to start in this quarter and then we have the full Degludec program, targeting in total 10,000 patients [undergoing].

We have also, in this quarter, moved one more oral GLP-1 into Phase 1 clinical development.

So this is another sign that Novo Nordisk is utilizing the core protein skills that we have in actually making some of these most important proteins for diabetes treatment, making them orally available.

And we now have both insulins and GLP-1s in Phase 1 clinical development.

In terms of financials, we continued to improve our gross margin in reported terms by 40 basis points, in local currency terms by 100 basis points, and not only being this quarter driven by increased production efficiencies but also seeing a strong contribution from product mix, as we are having a positive contribution mix effect from both the modern insulin and also to some degree from Victoza.

And the branded NovoNorm franchise, which has now been hit by severe competition in Germany, is one of the lowest margin products in our overall portfolio, so there's a positive mix effect from the shift ongoing there.

And then we have upgraded the guidance in connection to this quarter.

Based on the operating profit growth of 15% in the first quarter reported and around 20% local currencies, we have now upgraded the guidance, saying that the sales growth is now expected to be 7% to 10% instead of 6% to 10%.

And that was the uncertainty related to the US health care reform that enabled us to take out the bottom range of the interval, with the slightly later implementation of the US health care reform than originally anticipated.

And secondly, we have also in that calculation been able to upgrade our expectations for operating profit growth, where we've now lifted that to be a guidance of more than 10%, based on that level of sales growth.

If we move on and then just highlight one of the key events that has occurred in the first quarter, it was a new study on the number of people with diabetes in China.

I don't think that any studies on number of people with diabetes in China is really going to change significantly the dynamics we see in the market, but this is just for us a documentation of the significant opportunity that is inherent in the Chinese market.

We've on this slide illustrated what was the number of people estimated with diabetes in China.

As you can see, it has escalated quite significantly every time the diabetes atlas was updated.

And even though it's been updated every time, this New England Journal of Medicine estimate is double, or more than double, than what we've seen in the historic studies.

What we think is more important is that the prevalence is estimated to be around 10% and it's increasing as you move to more urban areas.

But the 8% level among rural residents seems to indicate that there is a very, very high level of untreated diabetes in the rural area of China.

And then, on top of these 90m people with diabetes, almost 150m additional people is found to have pre-diabetes.

And of course, what we are seeing in the Asian race is a higher propensity to get pre-diabetes and diabetes.

The risk of getting diabetes increases by a factor four in Chinese subjects when they move from a BMI of 23 to 25, whereas the same development happens for Caucasians when you move from 25 to 27.

So, a significant earlier risk of getting diabetes in China will hopefully provide well for the long-term opportunities for Novo Nordisk in China.

If we then look at the overall global market for diabetes care treatment, we are now at the point where injectible treatments for diabetes is overtaking, in terms of market value, the market for orals.

And with the launch of Victoza and subsequent other GLP-1s, I'm convinced that, when we look forward, proteins will be the most substantial part of diabetes care treatment, going forward.

And it's the dedication Novo Nordisk have to protein treatment of diabetes that has led us to the market leader position in the global diabetes care market and also the complexity of the proteins and the injection principles behind that actually also leaves us with a much more stable development in market share, compared to the somewhat volatile market share development you see for some of the oral tablet manufacturers like, for example, GlaxoSmithKline and Merck.

Then, Kare, over to you.

(Technical difficulty) just to tell you a little bit about what we know so far on Victoza.

These are the numbers from the US and they are NRx and TRx numbers.

And you're probably familiar with the fact that you can measure TRx, where you take all prescriptions that are written at all in a week, or used in a week, in a pharmacy.

You can take the NRx, which is the new prescriptions.

And you can also take the neutral brand, the NBRx, which is people that are new to that therapy altogether.

And the way it typically hangs together is there's a time lag between your NBRx tendency moving into your -- NRx tendency moving into a TRx.

And the time lag from NRx to TRx is roughly three to six months, what you see.

And right now, we have a situation where we have a bit more than 10% on an NRx basis and the TRx basis is a bit more than double that.

And if we look into the NBRx, that is even, of course, then higher than that.

So, altogether we are very happy about the penetration speed, the number of new scrips we accumulate every month.

We think, as we've said all along, this will be a classical launch, just like any other injectible diabetes therapy, where you accumulate patients over a long period so you get a growth period of many years.

Just like we still see NovoRapid and NovoLog growing in the US marketplace, we expect to have a long and steady growth pattern for Victoza.

Formula-wise, it's working out well.

The key issue here is to get out of this prior authorization that you need in the very early phase and then get straight forward onto tier 3, which is what we have seen happening in many cases.

So we're very happy about that.

In Europe, it also continues positively.

This is measured in a bit different way.

So this is sales value, so value market share out of the diabetes market.

So this is comparable to what Jesper showed, where you see we have 23% of worldwide value.

And yet, you can compare that to here.

In Germany, we now have 2.1% of the German total value, and here in the UK we have 1.2%.

And the most important thing is that in both cases we are seeing a steady positive trend and we're seeing the total GLP-1 segment expanding.

Because it's not really very interesting for us if we can take the whole current GLP-1 segment from Byetta; that's not going to make a success out of Victoza.

We need to get the growth back into the GLP-1 segment the way it was initially, when Byetta was launched.

Another element where we have become more clear on what's going to happen during the last three months since the full year announcement is the US health care reform.

You are probably all familiar with it.

Basically, what happens this year is that some of the Medicaid rebating gets changed, in the sense that some of the rebates go up a little bit, some of the inclusion criteria will include more and bigger patient segments, and that will -- there will be a cost there in terms of rebates.

And then, next year, two other elements kick in.

The Manufacturers Fee kick in from January 1 next year and then what is called the donut hole, which is the part where Medicare part D patients no longer get coverage.

Until they get coverage again, industry will have to pay part of that.

So, rough terms, around 1% of total sales in increased rebating cost this year, increasing to around 2% of total sales next year.

But this is, as Jesper also alluded to, less than we had initially foreseen because the actual legislation that came through had some timing elements where some of the elements that were first suggested for this year, they got postponed into next year.

So, a slightly better outlook than what we were anticipating when the year started.

And with that, I think I'll move on to you, Mads.

And I only have a couple of slides on the Degludec situation.

Before dwelling on those, however, I'd like just to mention, to follow up on Kare's Victoza discussion, that for the ADA there will be 21 accepted presentations for Victoza, two of them being oral.

A similar number for Degludec or corresponding number is five Degludec accepted presentations, of which three are going to be oral.

Now, a few words on Degludec.

I guess you -- many of you will recall that Degludec is the result of what we call third-generation [insulation] technology, i.e.

we've taken the fatty acid (inaudible) technology to the next level.

And this means that we've been able to put into an insulin molecule a completely new way of prolongation, or protraction, i.e.

the molecules self-associating solution, hexamer by hexamer, in a long kind of chain, followed by a zero order release of the hexamers that once they are then dissolved into monomers will actually bind to albumen, providing a second layer of buffering and protraction, giving an extreme degree of predictability and low glucose variability.

What you see here is a recent study that is not at the ADA.

It's going to be presented at EASD this autumn.

It's very recent.

What it shows is a simulation in 1,000 patients on Lantus or Degludec.

And essentially, what you see is the insulin action profile that is expected in a steady state situation for a 24-hour cycle.

You can see that, based on clamp studies, where the same individuals that form the basis for these simulations have been clamped on several occasions to see the meaningful intra-patient variability, i.e.

which glucose do you wake up with on a Monday, on a Tuesday, on a Wednesday, on a Thursday, on a Friday, etc.

Is it indeed the same very morning, meaning that you won't get hypo or hyperglycemic?

Based on these multiple clamp studies in the same individuals with diabetes, we've created this 1,000 patient simulation.

And as you see, Degludec will in such a population, all other things being equal, operate in a range where we are in the near normal glycemic area of glucose control, unlike Glargine that, in particular at some times of the day, will trend towards giving a risk of hypoglycemia.

Now, what this means in a real life setting is of course that, as soon as a patient experiences one or more hypos, he or she gets worried about dialing up the dose and tends to shy away from treating his or her diabetes more assertively and actually goes back towards a higher degree of conservatism.

So, we believe that this, i.e.

assertive titration with Degludec, without the distinct classic insulin risk of hypoglycemia, combined with the notion that we have from the ACCORD study and others, that it is actually glucose variability that is causing the excess mortality in some of these outcome studies, may well be mitigated through the use of insulin Degludec.

Here we have simply the DegludecPlus.

Again, this is based on clamp studies, showing that the dark green profile that you can have down here is, in a steady state situation, how Degludec behaves.

Essentially, you can see a 24-hour more or less square wave, like insulin, which is what we've all been hunting down for the last many decades.

But due to the chemistry of the molecule, it's actually possible to have it in a ready-to-use liquid solution, neutral and painless, together with NovoRapid or insulin aspart.

So that, for the first time, you actually have a, you can say, fixed ratio combination product that actually allows more than 24-hour basal coverage in the presence of coverage of the main meal, typically accounting for 40% of the prandial glucose excursion during a 24-hour cycle, all in one compound.

For comparison, you have Lansis, which is the black curve, and NovoMix 30 or biphasic insulin aspart being the blue curve, where quite clearly there is some (technical difficulty) excess sugar, compared to what the body needs.

On the other hand, you can also see that Lansis has, between its peak and its 24-hour value, a several factor difference in the plasma concentration.

In many patients, nil or naught levels of Lansis will be present after 24 hours.

So, in total, these two compounds are being investigated in 16 Phase 3A trials, of which most of them are known as the BEGIN program, namely the Degludec trials, and the remainder are in the BOOST trials, namely the DegludecPlus.

Now, we're investigating four paradigms.

We're investigating once-daily Degludec, mostly up against once-daily Lansis.

But we are also investigating three times weekly, Monday, Wednesday, Friday regime for Degludec, up against once-daily Lansis.

And at the same time, obviously you can see in the upper left quadrant that to provide health, economic and other good arguments why Degludec should be used early on in the treatment cascade in a cost-effective way, of course we are also comparing against the compounds such as sitagliptin.

Now, intensification is a must.

We know that the NovoRapid sales that Kare alluded to, or may have alluded to, is going so well, 10 years after launch is because mostly people who are on basal insulin with type 2 diabetes, they fail within a matter of about three years and they will need a stepwise intensification by use of prangial insulin.

And this can either be done by intensifying to DegludecPlus, which offers that possibility, or going directly to basal bolus therapy by adding three prangial shots.

And this, we need to study all of it in the program.

We need to be able to prove that you can switch from a premix to DegludecPlus, that you can shift from a Lansis to a Degludec, that you can go from a Degludec to a DegludecPlus.

And when you take all these combinations and permutations all together, it means that in order to create a crisp label with strong claims and a broad use indication area, we need actually to do 10,000 patients, of which we have today enrolled more than 8,000.

So, with that, I think I will actually hand over to you, Jesper, for wrapping up.

Thanks, Mads.

So, in the closing remarks, I think we have with this quarter yet again demonstrated that Novo Nordisk is in a very attractive part of the pharmaceutical industry, the diabetes care market, where we are witnessing a continued steady 10% value growth in the market, driven of course by increased prevalence of diabetes providing the underlying at least 5% volume growth in our insulin franchise and on top of that providing more advanced proteins for treatment of diabetes, providing a value upgrade opportunity, also providing an additional 5%, year on year.

So, total, the business case for Novo Nordisk of providing a 10% growth from our diabetes care franchise, we believe that that is intact.

In terms of the market share and market position for Novo Nordisk, we are maintaining our 51% market share with a leadership position in some of the fast-growing emerging markets around the world, whereof of course China stands out as a very unique opportunity.

If you look at the more advanced markets, we have more than 60% of the world market now converted to modern insulin, but in a market like China we have only gotten to approaching 25% of the market converting to the modern insulin.

So still a great opportunity in that part of the world.

And in terms of our market share on the modern insulins, we are gradually improving our market position there.

Currently have 46% market share as the world leader.

And we are the only manufacturer with a full portfolio of modern insulin, both in basal and rapid action and mixed insulins.

If we look at the pipeline and the products just launched, Kare revealed the performance for the key markets in US and Europe.

And as you can see, that provides significant opportunities for expanding the part of diabetes care that is actually being treated with proteins.

We are certain that GLP-1s will over time become a much more significant part of the overall value in diabetes care.

We are the only company who in Phase 3 have two new concept insulins, with Degludec and DegludecPlus, with the opportunity that inherently will entail for Novo Nordisk.

And then, finally, and we haven't touched much on that today, we have a opportunity of expanding our current niche indication -- or niche franchise within hemophilia, with NovoSeven for inhibitors.

We are hopeful of expanding that into traditional hemophilia treatment for type A and type B hemophilia, with our approaches to blood clotting factor VII, IX.

And with those comments, we'll hand over to questions.

And when we ask for questions, you need to wait for the microphone as it's being webcast live.

And we may actually also have questions coming in via the phone and we will have them on the speaker, so everybody can hear them and then we'll take them.

So, if I can have the first question, please.

We have one here.

Hi.

Gavin Macgregor from Credit Suisse.

Three questions, if I may.

First, the study looking at Victoza in combination with Levemir, just a timeline for when we might get a headline result from that, how quickly you can get that added to the label and what your feelings on the impact, both on Victoza and Levemir sales, might be?

And then, for the US diabetes franchise, the revenue, if you could give us some sort of sense of a split between the components of volume, price and trade up mix.

And then, thirdly, NovoSeven and US health care reform, one of the points coming out of it was the removal of the annual and lifetime caps.

Do you see any impact on what that provides as a market opportunity for NovoSeven?

I suppose what I'm getting at is are there many patients who are near to that cap taking NovoSeven that gives them a greater opportunity?

Thanks.

Thanks.

Mads, if you deal with the combination study and the implications for our business, combination study for Victoza and Levemir.

Kare, if you can give some comments on the US diabetes market, in terms of where the growth's coming from, and then maybe also comment on the opportunities provided by the removal of the annual lifetime cap for NovoSeven.

Yes.

Well, Gavin, first of all, there are two reasons why this study is important.

One is the labeling considerations getting GLP-1 combination therapy onto Levemir's label.

As part of that, we also want the basal insulin combination gotten onto the Victoza label, because it is a combination we were lacking in the LEAD program.

The other reason is, of course, because it gives us good value in a loose combination of Victoza and the basal insulin that will support the regulatory filing for the fixed ratio combination product of Degludec and Victoza.

Now, the study is a big one.

It's 1,000 patients, give or take.

It's a randomized control trial of six months' duration, with a six-month extension period.

And this means that the study, as such, is coming to an end in the beginning of the second half of this year, the first phase.

However, the extension part is also important as it is going to provide the regulators with the safety update that they will be needing as they make their final verdict on including the combination indication in both of the labels.

In terms of the US diabetes market and revenue development in the last period, it is a combination of both a strong volume growth, so the volume growth in the insulin market is quite strong, at the level of around 7%.

And that also goes for scrip volume, of course.

And then that combined with a strong value component, which in our case is a combination of upgrade to devices and upgrade from human insulin to modern insulins.

So, roughly, you can say that the underlying growth, half is coming from value, half is coming from volume, in broad terms.

And then, of course, specifically in the first quarter we had the pipeline filler Victoza, but this was setting that aside.

So -- and that is then -- if we look forward, we still see most likely a steady 5% plus volume development and we also see a value development that will, under the current health care reform, also most likely continue.

In terms of the lifetime caps and NovoSeven, it's really too early to say.

We know that a few patients have hit the cap and there might be an effect on orthopedic surgery and so on.

But in general, most of the patients in the US with hemophilia are already being treated, so there will probably be a marginal positive effect.

Then maybe just -- we didn't -- we weren't very specific on the effect of the combo study on the value growth of the two franchises.

And I think the way you should look at this combination is really to document that it would be safe to use the two products in combination and thereby actually leading the patients from a Novo Nordisk based GLP-1 therapy into a combination, ensuring that that will then be using our safe long-acting basal insulin.

The key factor here is what is the duration of treatment on GLP-1, to really make that assessment.

And I think the short reply there is that we don't really know how long the duration will be, on average, for the GLP-1 patients.

What we have seen -- maybe, Mads, a comment from you.

But what we have seen in the longer-term extensions of Victoza is that it seems like we're able to maintain people in good -- within guideline control, over an extended period up until -- was it three years, currently, Mads?

Up until now, it's three years.

It's running for a total of five.

Should say that the way that -- how on earth do you get a Victoza failure patient, so to speak, in the timeframe of a randomized controlled trial of only six months?

So what we've done, actually, to have a situation where those minority, I should say, of the total patient population who do not get below seven, it's in all our studies, basically, less than 50% who do not get to below seven, but we've actually had a run-in period.

And then it is among those patients who were run in and who did not achieve, at the first measurement, the target of going below seven, who were randomized to either continue on Victoza or the combination of Levemir and Victoza.

So we think we've done a smart study design.

I should say there are some caveats about these extension studies, the three-year lead extension.

And that is that as patients drop out, which they do, because now it's an open label extension and they know which kind of product they are getting.

So, for instance, who would want to continue on a sulfonamide urea for five years?

Not many.

And that obviously means that the numbers are getting very small, so it is with a caveat and so on.

I think a fair statement at this point is that compared to a DPP-4 inhibitor or Byetta, where the stay time is of a somewhat limited nature, maybe a couple of years, we do expect a longer stay time.

But we don't have any scientific proof to say whether it's four or five years, or whatever time will show it to be.

So we didn't provide some very specific guidance, but now it was at least more elaborate.

Next question, please.

Peter.

Thanks.

It's Peter Verdult here, from Morgan Stanley.

Just four questions, two quick ones and two a bit broader.

Jesper, on Victoza, could you just split out what the non-US sales were in Q1?

Also for you, Jesper, working capital, we mention it every time.

We know the situation with receivables, given the current economic climate, but -- and the inventory with respect to Victoza.

But I just wanted to know what the current thoughts are for Novo, in terms of the way you manage inventory and driving down those inventory days.

Thirdly, just on FlexPro, how should we be thinking about this, in terms of rolling out the device across the franchise?

Is this purely just a growth hormone?

Are you going to use this for the new insulin combos, or is this just going to get rolled out across the insulin portfolio?

And then, lastly, for Mads.

Just on BOOST and BEGIN, you've got 10,000 patients.

How many of those -- how much head-to-head data are we actually going to get between Degludec and Lantus, and of what duration?

Okay.

Thanks, Peter.

If I start with the Victoza sales, the pipeline fill was approximately DKK250m, so it's around DKK100m which are non-US related for the Q1.

In terms of the working capital element and the development in our inventories, I see it as a very steady progress we are making in this area and really linked to the continued lowering of our production costs, especially for producing bulk insulins.

So it would be my anticipation that we can, through production efficiency, lower the value of the inventories and then hopefully also through more efficient throughput time reduce the cycle time for the individual products where we historically had some quite extensive inventory times.

It has been a major effort for Novo Nordisk over the last seven, eight years to build up safety inventories of our key proteins.

We are now, over the last two years, in a situation where we could say we are absolutely convinced that we have ample supplies of all our core proteins.

And hence, now we go into a mode where we will more focus on what are the needed safety levels in terms of inventories, especially for the diabetes care franchise.

So I would anticipate that you will see a gradual improvement over time for the core products.

And one of the elements there will, of course, over time also be to bring our Chinese filling facility on-stream and you'll see that go live around '12.

And that is probably the biggest filling facility in the world that will come on-stream there, just slightly larger than the one we have in Brazil.

And there is actually a significant labor cost advantage for the operators in China and Brazil over above either ones we have in Europe and in US.

So I think that will provide opportunities.

But being more specific than that I think would be hard.

But assuming something like low single-digit growth in our inventories, I think that is realistic in the next three years.

Then, Kare, on FlexPro, how are we going to use that?

Yes.

The FlexPro system is developed so that it can be used for our liquid growth hormone, which has just happened in the form of the approval in the US where the product has been launched.

And the same system will also be used for, in the future, insulins.

So the plan is for Degludec and DegludecPlus to use the same device platform.

And for those of you who haven't seen it, the beauty of it is it's a pre-filled device, but when you dial up the dose there's no movement of the push button.

And then, when you push the push button, there's an internal mechanism that makes the pen also inject.

So the whole feeling of it is very slick and nice and takes less effort than the classical pre-filled device.

Mads, on BEGIN and BOOST?

Yes.

Well, I mentioned, of course, the main reasons for why we have done so many trials and used so many patients is to get a broad label with all the -- both, you can say, combinations and the paradigms we're investigating.

Another reason is, of course, to get a lot of head-on comparative data against Lantus.

So aside of a single Januvia comparison and two NovoMix 30 comparisons, which is for DegludecPlus, and two Levemir comparisons, which are in type one diabetes, then the vast majority of the trials are actually up against Lantus head on.

So some of them, to power them very strong for showing a 30% plus risk reduction in hypoglycemia, they are to the tune of 1,000 patients treated for one year per study.

So basically, we're submitting, you can say, Degludec on the basis of programs that have a total duration of up to one year, but then the safety database will be extended by, of course, extension trials that will be submitted also to the agencies.

And then, for DegludecPlus, it can piggyback on the safety database from Degludec such that the trials are only of six months' duration, but with extension.

Okay.

Next question, please.

Richard.

Hi.

Thanks.

Richard Vosser from JP Morgan.

A few questions, firstly on the capital expenditure.

Just how can we think of this regarding the Degludec production?

Are we -- do we think we will switch -- do you think you will switch production away from your modern insulins to make room, or do we need further CapEx to build capacity out?

And where are your capacities now relative to -- now we've got Victoza on the market as well?

Second question on China.

How do you see the competitive profile in China?

I think we've seen Bayer already licensing in, I think, a human growth -- a human insulin.

How do you see the profile in the future?

Do you think you'll see further big pharma players from -- coming into the market to compete?

Thanks very much.

Okay.

Thanks, Richard.

If I deal with the capital expenditure first in relation to Degludec and then, Kare, if you could give some comments on the competitive profile in China.

The expansion of our production capacity for Degludec will be relative simple.

We will be using production processes which are largely similar to the production process we have for the current insulin, so it's a yeast-based fermentation with recovery and purification.

We would need dedicated facilities for the purification steps for Degludec, so we will have some investments, but they -- we don't expect them to be very significant.

So it's not something that will alter our long-term guidance in terms of investments to sales, where we believe we'll be able to operate with 6% of sales as a broad guidance, and you basically know that the last couple of years that we've been slightly below that level.

We assume that Degludec will require us to continue to expand our filling capacity and device capacity around the world.

And as Kare just alluded to, one of the expansions that we'll have to undertake in the coming years will be for a new portfolio of disposable devices.

We see an increasing part of the insulin are being delivered in disposable devices.

And of course, we would want to come to the market with Degludec in a very competitive device, so expect us also to have that, those investments, inside the suggested frame.

So we believe that we'll be able to roll out Degludec globally without making any changes to the long-term guidance in terms of investments.

Then China, Kare.

Yes.

The competitive situation in China is very competitive.

We have, you could say, both the two classical competitors, Sanofi-Aventis and Eli Lilly, both stating for years now that they would like to be the leaders in diabetes and insulin in China, because it's such a big opportunity.

But we also have, for many, many years, local generic manufacturers that are manufacturing, actually, both human insulin and some of the insulin analogs already today.

So we know -- we think we know this competitive environment quite well.

We've been competing in it for more than 10 years.

We still hold a 62% steady market share in China.

We don't see any short-term reasons why this should dramatically change.

So if further competitors would like to enter this scene, I would say -- I would wish them good luck, but they're really getting into a very, very tough situation where there's little room for anybody to really carve out a big niche, because the whole marketplace is already quite well covered.

The reason why we are then keeping such a high market share, of course we can't say exactly, but the most likely is that we have had a first mover advantage 10 years ago.

And then we've been able to keep it up by constantly expanding our reach in terms of healthcare professionals and constantly providing the highest quality products for the market at reasonable prices.

Great.

Thanks.

And specifically on Bayer and Bioton, it's true that they have acquired that business in China, but quite frankly that is in the low-end segment, human insulin in not the most sophisticated devices, so I think they would fall in the category almost of some of the local producers.

And note that today you have approximately 80% pen penetration in the Chinese market overall and our pen penetration is around 90%, so devices is crucial for being competitive in the Chinese market.

Okay.

Next question, please.

Frazer Hall from Berenberg.

Just a couple of questions.

Just one follow-up on China, for Kare.

Could you just talk a little bit about how pricing in China compares with the rest of the world and what the trend in pricing within that market has been over the recent couple of years or so?

And secondly, a question for Mads.

Mads, you've talked a lot about profiling Degludec in terms of lower risk of hypoglycemia versus insulin glargine.

But would you expect any difference in terms of weight loss impact, for instance?

There's some evidence to show that Levemir actually has a slightly better profile in terms of weight loss versus Lantus, so what expectation do you have in the context of Degludec?

Thanks.

Thanks.

Kare, pricing?

Yes, pricing of insulin in China.

Basically, pricing of insulin in China is very similar to the European pricing.

Of course, the European pricing is more diverse when it comes to human insulin than when it comes to insulin analogs, due to the history in currency moves in Europe over the last 10 years.

But on average, I would say that the Chinese human insulin prices, they compare to sort of the lower end of the European price scale and the Chinese modern insulin, so analog insulin, prices, they compare to the European level.

If you look at list prices in the US, they are significantly higher, but then the rebating is so much more in the US, so the net (inaudible) prices in the US are also in the same broad band as the European and Chinese prices.

And when it comes to Degludec, well, there are three things you look at in terms of side effect risks with insulins.

It's hypoglycemia, which we always talk about.

It's the risk of cell growth proliferation, potential IGF-1 binding and all that stuff, which [Roche] has been investigating for the last 18 years.

And then, of course, it's weight gain.

And in the first case we've discussed, I think, extensively, and you'll see the data at ADA from Phase 2.

In terms of proliferation, IGF-1 binding and so on, we have a more favorable profile than human insulin itself and hence it should not be an issue.

In terms of weight, it's difficult to say from a Phase 2 program like the one we've done.

The time is probably simply too short.

Either we can be lucky, because it is a fact that in 13 out of 13 RCTs that have been done in Phase 3 and 3b for Levemir, it always panned out in favor of Levemir against both Lantus and against human insulin.

So we can get lucky that it has to do with the oscillation, the fact that you have the fatty acid on, but we can also run the risk that it is like Lantus, i.e.

a mild weight increase.

And if that were to be an issue for patients, we simply don't have those data.

And of course, it's nice to know that we also have a combination product of Degludec together with Victoza, where if anything you can hope for a slight weight loss or, as a bare minimum, at least weight neutrality.

But let's get back to you as we run Phase 3.

Okay?

Yes, Mark.

Thanks very much.

Mark Purcell from Barclays Capital.

The first question on sales reps.

I just wondered, given you've pulled a lot of the rep promotion off insulins and put it onto Victoza, how the situation's panning out in Europe, whether you intend to put more reps back onto insulins and expand your sales force.

I guess it's too early to ask the same question in the US.

And then, second question, I guess on cost benefit analysis, how management and US and European regulators and governments are thinking about it.

If we were to look at analogs versus human insulin, is there any risk that governments outside Germany are going to start to look at the situation in much the same way?

And when you look at the type two diabetics for Degludec, where you're trying to show a HbA1c below seven, no hypos, the no hypo component is a lot more difficult to hit, how you're thinking about the powering of those trials.

What do you really need to show to improve the situation with the type twos?

And in terms of Victoza, I guess same question, really.

$8 to $9 a day, I guess, in the States versus $5 to $6 for insulin analogs with your blood glucose monitoring.

How widely do you think GLP-1s can actually be used?

Do you think you're stuck at the early stage, obese type two end of the spectrum?

Do you think insulin can drag GLP-1s further forward?

I guess we're all looking at the GLP-1 market and wondering how quickly and over what period it's going to expand, if you could address that too, please.

Okay.

That's three for you, Kare, and then one for Mads in terms of what we need to show on the Degludec programs.

But Kare, if you start on the sales reps in Europe, where they are going to be focused.

The way we play it is that we expanded the sales force in the relevant markets prior to the Victoza launches, so we did that both in Europe, in US and actually also we have done it in Japan.

So that we have sort of done by now.

And then, the way we play it is roughly that, for the first three to six months after the launch, all the diabetes reps go 100% on Victoza.

In reality, what happens in the sales force is, of course, the doctor might have a question about insulin or something and the doctor will still ask that question, because it's the same sales rep.

And it could also be the sales rep goes slightly off line and drops a sample or something on insulin if there is an issue there.

But basically, we give the incentive program 100% weight on Victoza.

And then, after that initial period, we gradually blend in insulin again, depending on how the exact situation is in the marketplace and depending on what activity level we see from Lilly and Sanofi.

So that's the rough way of doing that.

And then, maybe, any comment on sales force size in US?

Yes.

In terms of the US sales force, there we have -- based on the current modeling, we've got the sales force we need, but we will readdress that probably later this year, just to see whether we see any upside in making a change.

But most likely, unless competition makes a major move, you will not see a major change.

But it really also has to do with how we see the prescription developing on Victoza, how broad we have to go out into the GP territory, so that could be one of the caveats that we have to look at.

Kare, then, on cost benefit and shifting back from modern insulins towards human, will the German price model be applied other places in Europe?

How do you see that?

No, I think that's very, very unlikely.

The German case is very peculiar.

It would take a while to explain all the details but just to give you a few highlights, Germany has historically had the highest prices in Europe.

For some reason, they were in the process of bringing them down some years ago and then they reversed the whole thing, brought the prices back up and made this quality institute that should assess all products.

This is a very cumbersome intellectual process which causes a lot of politics and discussions.

So today, the Germans are paying roughly 155,000 per mega-unit of insulin -- human insulin.

And that corresponds to a human insulin price in the rest of Europe with an average of maybe between 80,000 and 130,000, 140,000, so maybe on average around 110,000.

So the Germans are paying way too much, you could say, for their human insulin.

On the other hand, they got this idea that the modern insulin, long-acting analogs, they're not worth the price.

However, those are priced in Germany at exactly the same level as the rest of Europe.

So there, it's not really very likely that we can give a major discount on that.

So there's got to be some price modeling for this all to work out in Germany, but I don't think it will spread because the other countries don't have the same issues because they've actually, most of them, over the last 10 years, gone to a much more reference-based pricing system, which has given them a more fair pricing situation.

So I think it's fair to say that the German situation right now is very convoluted and complicated and hard to understand, even for the German healthcare professionals and (inaudible).

And there are more than 200 (inaudible) in Germany, which adds further to the complexity.

So a very complex system.

And last time, what happened was actually that the situation about fast-acting analogs was resolved and the penetration is continuing at the normal level in Germany.

And I believe that through negotiations I can also imagine that this long-acting insulin analog issue will also be solved.

And one element here is also that, in terms of the major European markets, Germany is the one who has the lowest conversion to the modern insulin, so it would be much more cumbersome to implement in any of the other more advanced, where you typically see conversion rates to modern insulin above 70.

Then, Kare, maybe just finishing off on the questions for you, the use of GLP-1, how widely can you see the GLP-1 be used in the type two universe compared to what we see today?

Yes, this is a very good question and of course it's a key question for us.

What percentage of patients will end up using GLP-1s?

And first, you have to think about the difference between the value numbers we normally talk about and the volume numbers, patient volume numbers.

And of course, if you hear that in the US there's a 4% value market share of GLP-1s, for instance, then underlying in patients it's only maybe a tenth of that which is the actual patient number.

So that's a vast number of type two patients to actually capture market from when you launch a new therapy for type two diabetes.

So that is really a key issue to understand, that we're talking very, very low percentages of total patient base currently for GLP-1s.

The way I think about it is that I don't see why GLP-1 therapy for early type two diabetes, long, long term, could not be as successful as insulin therapy for type two diabetes.

And you cannot compare to the value share for diabetes in terms of insulin, because that includes type one, of course.

So when you make that analysis, you have to factor that in.

But it's basically to say that the potential is very large, but I think also it will take a long time to reach that potential, because diabetes chronic therapy, in terms of injectibles, is a very conservative market where you build your position over many years, both in terms of market share, but also market penetration.

So my hope is that we will see a very long and steady expansion of the GLP-1 market over the next 10 years and also I hope, of course, for a strong market share for the total.

And Mads, any additional comments for use of GLP-1s before you touch on the -- what we need to show with Degludec to get it approved and reimbursed?

No, I fully concur with what Kare's saying.

I'd just raise the caution that everybody's talking, including ourselves, at least years back, about the disease modifying potential, so that you could consider that if everybody went on Victoza on the day of diagnosis they'd never get more sick and the declining beta cell performance year over year, the 4% loss year over year, functionally speaking, would go away.

I have to say I don't think we are there, based on what we know in humans, but it does seem as if you can at least postpone and kind of maybe even avoid some of the OADs that we feel are not necessarily that value-adding in terms of weight gain, hypoglycemia and so on.

Otherwise, I agree fully.

Talking about hypoglycemia, on Degludec, when you design a program like BEGIN and BOOST, you both look at it health economically, i.e.

what would the health technology assessors put value on, and that's what I think where you were getting, Mark.

I should say, to that end, obviously, you categorize your hypos into major, minor, nocturnal, etc., etc., and you even have to define whether it's according to the ADA context of 3.9 mmol/L, whether it's the European context of 3.1, whether it's the Novo Nordisk definition, etc.

So all of that maths we've done extensively and also powered for showing what we want to see, i.e.

very often we don't use the statistical power of typically 80%.

We go way beyond 90% in terms of how we design our studies.

I should add that hypoglycemia is an important driver of health economics, but it's not the only one.

Today, we're using the core model down in Switzerland, which is an established model of diabetes health economics, which is mostly validated by the more than 80 publications that have come out of the UKPDS, but also with the (technical difficulty) studies in there.

Now, that is being upgraded with the latest outcomes from UKPDS, including the cardiovascular.

So there's no doubt that with a truly efficacy driven product, then, if you say that the treatment success rate is defined as both the powerful glucose lowering, i.e.

below 7, and the absence of hypoglycemia, we've come to realize also for Victoza that that math also works nicely when you're discussing with the potential payers.

So I think, pending the data, we will be getting it right, but it is for sure that you don't get your price just on convenience.

HTAs do not give you a lot of value attachment just to convenience.

That being said, we're also striving, both with the device, with the dosing flexibility, with the dosing frequency and so on, to be able to provide superior convenience, but we need hardcore data on hypos, on weight, on in particular glycemic outcomes, because HbA1c, as you know, is validated as a surrogate for micro vascular outcomes and also to some extent macro vascular.

Okay.

Do we have a final question or maybe we have a question over the phone?

There's one question here, sorry.

(Technical difficulty).

One of the pressures in Japan, or the reason that you've been struggling there, is because the move from human insulin has been more to do with the basals rather than the mixed products, where Sanofi-Aventis has a better position.

In the other markets, I'm thinking China, etc., what's the trend there in terms of that move to the analogs?

Might we see a similar sort of pressure or are we seeing a greater move towards the mixed products where you are better positioned versus peers?

And then, NovoSeven, the heat stable formulation, just trying to understand what percentage of patients has actually a real benefit in what percentage of patients are self-administration versus any sort of healthcare setting?

Thanks.

Okay.

Analog -- China, Kare, you can certainly comment on that, Mads, the detail.

In reality, China -- because your question goes on whether we'll see the same trend we saw in Japan for China.

And then, Mads, if you can deal with the treatment of NovoSeven patients using in hospital or home treatment.

Yes.

It's correct in Japan what we've seen is that Lantus was launched several years ago and then they ran into problems because they actually had three consecutive devices that were put on hold by the authorities due to safety problems.

So they were banned from promoting Lantus for quite a long period.

And then, only recently, about a year and a half ago, they launched the SoloSTAR product, which is basically very, very close to the FlexPen.

And with that, they have been successfully penetrating the basal segment in Japan and taking some market share from us, because we had a very high market share, above 70 in the basal segment, and there we've been losing out.

It has also changed the dynamics, so that the growth of the premixed segment in Japan has gone down and the growth of the basal segment in Japan has gone up.

And this has also been created by us launching Levemir at the same time as the launch of -- relaunch of Lantus or the launch of Lantus SoloSTAR.

In terms of what's happening in China, we're not seeing that development in the same way in China.

The premixed segment in China is by far the biggest segment and is still growing strongly.

You could say we have not seen full reimbursement in those systems in China of Levemir and Lantus yet, so it could still change, but there's nothing really indicating that we will see the same kind of dramatic shift there as we've seen in other parts of the world.

There is also the issue, of course, that we have created a lot of clinical data through the IMPROVE program which has shown that, in Chinese, there is a distinct benefit from premixed insulins twice daily which is bigger than in other ethnic groups.

So altogether, we are pretty confident that we can hold the fort against basal analogs in China.

Of course, we are launching our Levemir, and the way we do that is we're doing it very targeted against the institutions, typically in the big cities where Lantus has been launched.

Okay.

Mads?

Maybe I can just add to that.

When we discussed with the [POLs] in China, including the leadership of the Chinese Diabetes Association, about the future of DegludecPlus, they are so really obsessed by prandial glucose excursions in China, as Kare alluded to vis-a-vis NovoMix, that they kind of warily accept that we can use DegludecPlus on a once-daily basis initially in Chinese.

Because they feel that the basal profile is extremely long, they're actually willing to accept that you refrain from having two meals coverage at the onset.

But they eagerly say that but if you don't get adequate control, then immediately you have to go to two injections.

So I think the window of opportunity for Sanofi is very small here, because we're coming up with something in the -- not the premixed segment, but targeting those patients who prefer also to have a prandial contribution over the next few years with a superior product.

In terms of NovoSeven, RT or room temperature stable, obviously this is the benefit for home use, i.e.

suddenly you have a portable solution where kids -- the boys take it to school, to work, to whatever.

And in absolute numbers terms, by far the majority of patients who are treated with NovoSeven are actually home treatment, and there it is highly advantageous.

Obviously, if you go to an orthopedic surgery, you have major reconstructive surgery of the knee or the hip, it doesn't make any difference at all which product you use.

And those surgical episodes per episode cost a lot, lot more, so to speak, than classic bleeding in a muscle or so.

That being said, I would still estimate that clearly the bulk of use today of NovoSeven is in a home setting for kids with hemophilia and grown-ups.

Okay.

Any questions over the phone?

No?

So that's it.

Thank you very much.

Thanks for coming.