諾和諾德 (NVO) 2010 Q2 法說會逐字稿

Good afternoon, everyone.

It's Peter Verdult here from Morgan Stanley.

We have the great pleasure of introducing the management from Novo; Lars, Jesper, Mads and Kare are here to present the first half 2010 results.

So without further delay, I'll hand over to Lars.

Thanks.

Yes, and thank you very much and also a welcome from me.

It's a pleasure as usual to be back in London and, of course, we are particularly pleased with the set of numbers that we released yesterday.

They're good for the first half of 2010, but they also are good in terms of the outlook for the Company.

(Inaudible) I can do this.

So is the presentation that we're going to run through.

No major surprises.

This is also business as usual; forward-looking statements quite hazardous to make; things may turn out quite differently.

Please read and understand the risk factors associated with the afternoon's presentation.

These are the key highlights, which is quite important.

Market developments have continued, the strong development of modern insulins, which is the main drivers of the robust sales growth of 14%.

North American and international operation accounts for more than 80% of the sales growth, and also Victoza has had a significant positive impact on our sales growth; and the Victoza was launched in Japan and we have a very solid launch performance in the United States and the European countries.

We'll come much more back to that in the presentation.

In terms of research and development, patient enrolment has been completed at a record breaking speed, 73 days to recruit 9,000 patients in our Degludec, DegludecPlus program; and that has been very, very important because, obviously, we would like to finalize these studies as quickly as possible.

We have the first phase 3 programs where DegludecPlus has been used in Type 1 diabetics and Mads will highlight the findings here; they are positive.

We've seen clinical proof of concept on our ultra short acting recombinant factor VII analog.

We continue to see an improvement in our manufacturing units, leading to a gross margin improvement.

Operating profit is up 19% reported and 15% in local currencies, so somewhat better than what we had anticipated when we started the year, and hence we have raised the guidance of both sales and operating profit growth.

And with that, I hand it over to Kare.

Thank you, Lars.

And one of the issues that has been hot in press has been the situation in Southern Europe, the financial situation for governments there, and also the healthcare reforms in Europe that has been high in the coverage.

If we look at it then, we have had specific actions in Germany, Spain and Greece, Portugal, Switzerland and for some other countries, minor actions.

And you might estimate that this would have a dramatic impact on our business, but due to the way we are organized in terms of pricing strategies, minimum selling prices, and so on, and our firmness on this, we are expecting a relatively modest effect on sales in 2010, and this is in line with the effects we've actually been seeing in the previous years.

So there's no dramatic change in this.

It's more a question of -- I think it's getting more media attention than before.

So the single digit growth rate we're seeing in Europe right now and we've seen in the last couple of years really includes the effects that you can expect from healthcare reforms in Europe.

Switching to something completely different, Victoza, and here I've just chosen to show you what's happening in the US.

And the first graph, that shows you the GLP-1 segment in percentage of diabetes value market share.

And you can see it's the green line, so it's right now at around 4%.

And the reason why we show this is that for us gaining GLP-1 market leadership as such is not that interesting.

It's of course nice to beat Byetta, and we are pretty confident we will do that in all markets relatively fast, but if we do not grow the total segment, then the total financial outlook for Victoza remains, you would say, limited.

So the key dynamic is really to observe whether the launch of Victoza adds growth to the individual countries GLP-1 market.

And if you look at the US, then you can see that in the half-year since the launch, we have contributed to the growth of the GLP-1 market, growing from above 3%, so 3%/3.5%, so now it's about 4% of the total value of the diabetes market.

The diabetes market in total, we have 23% of that right now, so that gives you an idea about whether -- how much 3% is compared to the 23% we have right now.

Of course, we haven't taken the whole market from Byetta yet, but we see a clear trend, very, very steady, with increasing market share and increasing scripts on a weekly basis.

Where's it coming from?

You see that on the other pie chart here.

It's really coming from where we want it to come from; from OAD treated patients failing on Metformin, failing on SU therapy, combination therapy, adding Victoza to their treatment; and then also some coming from current GLP-1 therapy from Byetta, and some from insulin.

So with that, I think we should move on and hear something about the development pipeline.

Mads?

Thank you, Kare.

I'll also be brief.

Yes, quite a lot has happened in the pipeline over the last quarter.

The two most important sets of data, we believe, are this set here, the first DegludecPlus data from the phase 3 trial, a program called BOOST.

And quite frankly, this isn't Type 1 diabetes where normally you wouldn't use so-called pre-mix products or combination products, because in Type 1 diabetes, normally you need to titrate the individual insulins very, very discretely to ensure that the high risk of hypoglycemia that these patients have doesn't get even higher.

So this is more, you can say, of a regulatory study in the sense that the FDA and other agencies says, you actually have to do also efficacy studies in Type 1 diabetes, even though DegludecPlus is probably primarily a Type 2 diabetes insulin.

That being said, the data that came out of this are highly interesting.

First of all, it's [a treat] to target a trial, and it's a standard layout, comparing (inaudible) basal-bolus therapy, meaning that Levemir was given as per the label once or twice daily, and NovoRapid was administered three times daily at each meal; in total four or five daily injections for half a year.

DegludecPlus incorporates, as you know, Degludec; add in a soluble state NovoRapid and NovoLog, implying that by giving this once daily NovoRapid, all in all three injections as compared to four or five injections, we actually achieve the same basal-bolus profile.

The results are the following.

Primary end point A1C, went from, in a very well randomized way, 8.3% A1C in both groups before the study, or at the onset of the study, down to 7.6% in both treatment arms.

Interestingly and importantly, when we defined confirmed hypoglycemia as either a level below 3.1 millimoles of glucose, or patients that called for third party assistance, or both, then essentially, both nocturnal hypoglycemia, all total hypoglycemia, and also severe hypoglycemia were reduced, in the DegludecPlus group, in spite of the fact that they have not individually titrated the components of DegludecPlus.

In the case of nocturnal hypoglycemia, this was statistically significant, and was in excess of a third reduction; and here, you should imagine the rates are high.

These are patients who typically would have more than five hypos nocturnally per patient year.

On average, the DegludecPlus group had a slight weight increase compared to the Levemir group, around 1 kilogram, which I have to say, is not a lot in half a year's time.

It does mean though that Levemir may be unique.

We don't know for sure yet; we have to do 60 more trials.

But Levemir has panned out to be a superior to Lantus in [peach] and other insulins in terms of weight profile, and this may be a unique feature of that particular insulin.

Overall, DegludecPlus was very well tolerated; low propensity for either injection site reactions or antibody formation; actually even lower that the comparator, insulin.

So on this trial, we're very happy.

We've actually improved convenience for the patients by going from four or five daily injections to only three, whilst at the same time actually reducing their risk of hypoglycemia.

That was the only Type 1 Diabetes trial we're doing for DegludecPlus; the rest will be in Type 2 Diabetes.

Now the other slide I have shows the proof of concept study for the analog NN1731, which essentially is an ultra fast-acting version of Factor 7, an analog with only three amino acid changes to it.

Now this was done up against a top comparator, namely NovoSeven, in a dose escalation manner, where up to 20 patients per study arm were administered increasing doses of the analog 1731, and compared up against NovoSeven as per label, i.e., up to three infusions of 90 micrograms per kilogram.

The results are on pharmaco-dynamic basis that we're able to monitor the haemostatic activity in the blood of the patients by sampling frequently for clot activity.

And in this regard, we saw that there was at least 80 microgram dose of NN1731, a four to fivefold increase in the peak clot activity; yet already within the first 60 minutes, clot activity went below that of NovoSeven.

So this is a hit and run mechanism.

It's passed in, it's passed out, which is why we call it ultra fast-acting profile.

NN1731 was effective in stopping joint bleeds, and essentially, when we look at the highest dose, we saw that all the efficacy parameters that we tested for, whether it be pain, swelling, mobility of the joint or limbs, or whether it be cessation of bleed, or propensity to re-bleed, all these efficacy parameters trended favorably for the analog NN1731.

Also, it had a very safe profile.

We didn't see actually any adverse events at all in the highest dose of 1731.

Overall, NovoSeven performed well.

We have confirmed the safety and clean efficacy -- sorry, safety profile and good efficacy of this compound, as we've seen it in previous hemophilia studies.

With that, over to you, Jesper, for the financials.

The financial results for the first half was demonstrating a change compared to what we revealed after Q1, which is now that we have a significant tailwind from currencies.

You can see that the sales growth of 14% is impacted 3% positive, from primarily the development in the US dollar.

If we look at the gross margin, we continue to expand our gross margins.

The gross margin expansion of about 60 basis points is for the first half of this year primarily driven by a positive impact from a mix effect really coming from higher sales of our modern insulins also supported by the continued launch of Victoza, which longer term is also going to be a positive factor contributing to an expansion of Novo Nordisk gross margins.

If we look towards the full year, we believe that we will be able to expand the gross margin up towards 100 basis points in local currency terms, and we believe that expansion when we get to full year will also be supported by continued improvement in production activity.

If we then look at sales and distribution costs at 29% at half-year and only growing 9%, here we're seeing the effect of actually having done the predominant part of all the sales force expansions in 2009, so a limited effect on comparison.

Remember that the expansion we did in the US for sales force in preparation for the Victoza launch was already done, at the turn of 2008 into 2009, and hence no effect on the comparison, and hence selling distribution costs only growing to the tune of 9%.

Research and development costs, on the other hand, is in line with plans; grown significantly, and here particularly reflecting the significant investments we're doing in the 9,000 patients Degludec and DegludecPlus program, as alluded to by Mads.

And we should expect thus for the full year here to trend towards the 16%/16.5%.

I probably should -- for sales and distribution costs, should also mention that there, we expect for the full year, in connection with the continued rollout of Victoza, to be at 29.5% level for costs for the full year 2010.

In terms of admin expenses, we have seen growth of 6%.

There is some currency effect here, so underlying at around 3%.

I think that is pretty indicative of the level of growth in administrative expenses you should predict from the launch going forward, and hence we should be able to have a continued improvement in our operating efficiency also here.

And probably 20 basis points to 30 basis points improvement is realistic for the full year 2010.

Net financials on the other hand of course, also reflect this movement in currencies, and are at a similar level as it was last year; and hence you're seeing profit before income tax and the profit developing 21%.

And then you also see on the EPS level the effect of our continued repurchase of shares, with EPS growing at 25%.

If we look at the guidance for 2010, top line, we have narrowed in the range, and now say that we expect to grow at the high end of the previous range.

Now we are assuming 9% to 10%, and that's reflecting the successful rollout of Victoza, leaving us in the high end of the range, and also that we can see that the impact on patent expiry, on Prandin and NovoNorm in 2012 will be lower than what we anticipated back in April.

On the other hand, we've had a slight negative impact from the development in Europe in terms of reforms, as explained by Kare, and that's also expectations of an impact from this is built into the current guidance for sales growth.

Note also the significant positive currency impact that we are estimating, giving the current rate, as we stipulate on the slide to the right that we are assuming these rates to be prevailing for the remaining part of the year.

And if that's the case, then you'd see a very significant 6% positive currency effect hitting our sales growth, and on operating profit, the currency effect will translate into an 11% positive impact on operating profit.

The local currency growth for operating profit has been up for more than 10% to 12% -- to 15%, partly also reflecting the more positive expectations for sales.

On the other hand, we're seeing a negative development in our net financial expense, which is now estimated at DKK1,750 in expense, and that's partly reflecting the significant high level of losses on hedging contracts, but also to some degree, linked to expected high levels of tax related interest expense in 2010.

We don't believe that that to a large degree will be recurring in subsequent years.

We continue to believe that while the tax rate will be around 23% and unchanged level for capital expenditure, we've raised the guidance for free cash flow to now DKK13 billion, and we have at the same time, increased our guidance for share repurchase program from DKK7.5 billion to DKK8.5 billion.

And thereby, if we add the dividend that we paid in March of DKK4.4 billion, we have returned the same around DKK13 billion that we generate in free cash flow, in 2010 we have returned that to our investors.

With that, it's over to you, Lars, for the Q&A.

Thank you very much.

That leaves us just to sum up the highlights.

We still believe that the case that we have been suggesting for years and years, about a 10% annual diabetes market growth driven by the diabetes prevalence, is valid.

If not, actually it is more pronounced as we speak.

We have 51% insulin market share, and leadership in the high growing emerging markets.

61% of the insulin market is now being converted to modern insulins.

The trend has been very, very solid, in spite of technology evaluations from different technology institutes.

We do not see any trends of reverting to a picture where that trend is broken.

46% market share to Novo Nordisk in this very important segment for the future, and the pipeline offering opportunities for us to expand into early stage Type 2 diabetes with the GLP-1 portfolio, and even perhaps establishing a presence in pre-diabetes by treating severely obese individuals with pre-diabetes.

The only company that has a full portfolio so far of modern insulins and the full -- new generation of insulins under clinical development, and we hope that we can expand our franchise in hemophilia to not only include Factor 7, but also Factor 8, Factor 9 and Factor 13.

So with that, we'd like to open for questions, please.

And wait posing your questions until you get the mic, and please state your name and where you're from so that we can get this recorded.

Hi, it's Peter Verdult here, from Morgan Stanley.

Just one for Jesper.

You usually talk about gross margin and being comfortable guiding us to 50 basis points to 100 basis points expansion per annum.

I think in the press release yesterday you only talked about mix.

Just wanted to know, is there any FX or production efficiency impact in the first half?

And in the absence of FX tailwinds, and given the comments you've made on healthcare reform and the potential for US Prandin to go, I just wanted to know how -- your comfort on that 50 basis point to 100 basis point guidance.

I'll leave it there.

Thanks.

Yes, in terms of gross margin guidance, I think we would actually go to the higher end of that range and say we'll move towards, in local currency terms move towards 100 basis points in impact for the full year.

And if we look at the full year, and with the tailwind we currently have on currencies, I would predict that we would be in the ballpark of 50 basis points in additional impact from the currencies.

So you'd be looking up towards 150 basis points in reported terms compared to the actual reported level of gross margin for 2009.

Thank you, Jesper.

No, no; it's an improvement over 2009 of 150 basis points.

(Inaudible).

Yes?

Hi, there.

It's Stuart Harris at New Street Research; just two quick questions.

When you look at the GRP-1 market, and we're thinking of five years hence, we've seen how it's taken off thus far; we've seen the percentage market share of total volumes it's taken, and we've seen where it's taken share from.

How do you guys see that looking in five years time?

4% value share at the moment; what do you think the volume share could be for the GRP-1 class in five years, and where do you see it coming from?

And I guess the second question, why now to enter the Factor 8 market?

You guys have been in clotting factors for a while.

Why now Factor 8?

In terms of the GRP-1 market, if we look at the trends in some of the markets, and we only showed you the United States here, you can see in the presentations we have the corresponding charts for the UK, for Germany and for France.

We have -- the GRP-1 markets are slightly different from market-to-market, but there's no reason to believe that in a five-year time horizon that the GRP-1 market could not, barring any unforeseen events and side effects and what have you, could approach 10% of the total diabetes value market.

And so it becomes very interesting, of course, if you compare those 10% of the diabetes market to Novo Nordisk currently having 23% of the diabetes market in terms of value.

10% obviously is a nice add-on if we had the whole market.

So the interesting question is, if it develops to that size, what would be the competitive situation?

And right now, as you can see from the pictures, we had no problems out-competing by Byetta, as we know of it in the market place today.

Therefore, it's also been quite noteworthy event when we saw the results for Taspoglutide presented, because in that timeframe, we believe that the Taspoglutide was the main competitor.

That also sent a signal towards how we view Bydureon.

It is just a simple -- similar principle as Byetta.

It's just protracted and it carries with it some, in our view, deficiencies in terms of the injection convenience, the side effect profile, etc., etc., that we stand in a much better situation today to capture the main part of that potential growth in the five year horizon.

The second question being --?

Please remind me.

Factor 8.

Factor 8.

Why now?

Yes, it seems a little bit late, doesn't it?

Well, there's two aspects.

There is an under-treatment of hemophiliacs globally, with the new and recombinant modern clotting factors.

That's one point.

The second point, there is a deficiency in the way that hemophiliacs today are treated.

They are treated with very frequent intravenous injections of prophylactic Factor 8 or Factor 9, and hence if one believes that one has the ability to protract proteins, which we are pretty good at, if we believe that you can manufacture therapeutic proteins, which we also think that we can, if we have global reach, which we also have, we think there is a low cost option for Novo Nordisk to compete in the next generation of modern clotting factors.

So the aim here for us, is to make the backbone Factor 8 as we know of it today, and then try to protract this to becoming a better Factor 8 than the ones currently on the market.

But the fallback position is, obviously, we end up with a biosimilar Factor 8, and then we can probably recover our investment in some of the markets where are operating and, therefore, this is a very low risk enterprise for the Company.

(Inaudible).

Yes, yes.

Next question.

Jacob Thrane from Standard & Poor's.

Perhaps a question for Jesper, just regarding the guided range on the EBIT growth or operating growth.

We spoke a little about the gross margin expansion around 150 basis points, but the range here is 300 basis points.

What do you see as the major sensitivity to either ending up towards the low end of [12] or the higher end of [15]?

If you could shed a little light on that.

Thank you.

I think I can do it fairly easily.

I think in reality, it's more or less exactly straightly linked to the development in the sales range.

So if we're in the lower end of the sales range, you'll be at the 12, and if we're at the higher end it will be very close to the 15.

There can be a little bit mix effect of what products are successful and, of course, the biopharm portfolio having a slightly higher operating margin contribution, so --.

But assuming that it's more or less the same product mix as we have today, with about three quarters coming from the diabetes care franchise and a quarter from biopharm, if the sales composition is similar to that.

Then that would be the factors.

Yes?

Sachin Jain from Merrill Lynch.

Two questions, please.

Firstly, just to pick up on the comments on Bydureon.

I wonder if you could provide your perspective on duration six, which I think is due out second quarter next year.

Amylin are becoming increasingly vocal.

They think they can detect a security claim on 0.2%/0.3% A1C reduction.

I guess I know your views are very clear that there is no difference.

Are you aware of any trial design tilt that they've done in their favor to help them?

And then second on Bydureon, any perspective on the safety aspects in terms of physicians potentially seem to be warming to the safety profile of Bydureon ADA this year.

And then the second question for Jesper just on the financials; you touched on the long term guidance for the first time and the discussion yesterday.

Is the Company also collecting long term consensus for the first time?

Consensus out to 2015 is roughly 10% EPS CAGR.

You're at 15%.

That obviously suggests a very large difference by 2015.

Where are we so wrong?

Mads, would you handle the issues around Victoza and Bydureon?

And then, Jesper, why is the market wrong, or who's wrong?

First of all, obviously, I don't know the details of the [starter] protocol.

I can only see what's on clinical trials [first off], and that is often very generic.

I would say thought that as long as you treat the patients with 1.8 milligrams of Victoza and 2 milligrams of Bydureon, then there should not be any patient bias selection, or whatever; that in principle should not be doable.

And hence we have to look at where do we stand vis-a-vis the data that are in the public.

And the latest data that came out was actually the Duration 4, I think it was called.

There where they failed to beat Metformin, but also failed to beat the (inaudible) TCB, which actually performed, I recall, at 0.1% better than Bydureon.

The only TCD study we've done, we beat rosiglitazone by 0.7% in our favor, strongly statistically superior; also clinically.

So if I look at the DPP-4s, that is with (inaudible) Januvia, our last paper shows that 1.5 milligrams versus 0.9 milligrams, their study difference is 0.5 milligrams.

We are 0.6 milligrams.

All the delta values I am seeing are similar, okay?

And you can say, why is that?

Probably because we are activating the GLP-1 receptor all the time.

We know that there will be [closes] at 24/7.

I would suspect by doing Bydureon is active 24/7.

So in all probability our view is that these compounds should come out equally.

Obviously, since they're doing the study, I would also if I were them try to at least communicate it as positively as possible, but they will have to see the data next January, and it will be highly exciting.

When that is said, the safety of Bydureon, I think a little more light was shed this year at the Orlando meeting because we were all there listening and [plan].

Quite clearly, on the antibody side of things, we're not seeing Phylaxis, like for Taspo.

However, what we are seeing is that in the upper quartile of those who have anti-drug antibodies, which is most of the patients actually, we are seeing a decreased glycemic efficacy to the tune of 0.3 percentage points of the A1C reduction being cut out due to the neutralizing antibodies, but more locally speaking, they sum up all the acute injection site reactions to the extent that if you add it up, it's around 20% who actually have injection site reaction, much like they saw in phase 2, but this does not encompass what chronic modules of fibromas could also be occurring, because I don't see them as being reported there.

So I would concur with Lars' view that from a safety and convenience perspective, lack of re-suspension, thin needle versus thick needle, and so on, we're comfortable in taking on Bydureon, we're actually in a way looking forward to being -- having the Company more promoting the good message so that the GLP-1 market may expand.

And then, Jesper, who's right?

Mads is always right.

In terms of long term guidance, I just want to highlight first that -- the first thing I'd like to note is that the service we have provided in trying to collate what is the market expectations and providing that back to the sales side, that was not done in any way to try to anticipate how we should work with our long term guidance.

That was not the purpose.

It was solely to provide the service to the market.

That said, and as commented yesterday in the conference call, it is right if you look at the current performance, the current level for currencies, we are approaching a situation where it's probable that we could reach our long term targets in 2010 if everything else stays the same.

And as I said yesterday, we would then be looking at upping the guidance.

And if we then dig into the individual guidance in terms of operating profit performance and operating profit growth, it's clear that the long term guidance of 15% that we've used now for the last decade is very, very closely linked to what Lars is [spending] there, which is really saying you have to assume that the insulin franchise will continue to grow at double digit rates for that to be sensible.

And then, of course, you also have to believe in that the GLP-1 segment will grow to a larger share of the diabetes care segment.

And through that, it becomes probable that Novo Nordisk can actually deliver a sales growth which is going to be double digit for the near term horizon, and that will be a core element in our expectations for operating profit growth.

The other elements will, of course, then be are we going to see the gross margin developing?

I think the launch of Victoza and the pricing point chosen and the reimbursement obtained for Victoza is a supporting factor, and also we believe that the gradual expansion internationally of our production platform will also be positive.

So I would anticipate that we can still make progress in terms of gross margin, probably not to the level we've done the last three or four years, but I think it's realistic at stable currencies that we can continue to expand our gross margin.

And then on the improvement side of efficiencies, I think it's also likely that we can continue to make improvements in terms of the admin ratio.

We have established a shared service center in Bangalore, and we expect to see a significant element of white collar labor being added out there, instead of adding it in the developed markets, and that should also add some efficiencies; so a continuous positive impact in terms of basis points, 10 basis points/20 basis points or so coming from admin costs here and here.

And then I also believe there is a longer term margin expansion opportunity.

Having a well-established global diabetes care sales force and thinking towards launching DegludecPlus as products to succeed the current insulin products on the market, that's probably not to the same degree going to call for additional sales forces as you were seeing in the GLP-1 franchise; more calling for as we are moving further into the primary care decision sector.

So I think maybe there are also some opportunities on the selling and distribution side, but that's of course to some degree a little bit tactical on what is the response for competitors, etc., so we'll have to see.

And then you also have to bear in mind that on other operating income, because of a number of settlements we have done, we have lifted our recurring level of other operating income more now to a level of DKK450 million to DKK500 million on a yearly basis, and I believe that that's reasonably sustainable, at least if we look out towards 2015.

So that would be some of the factors that could make my predictions not be completely off.

So in short, double digit sales growth, significant operational leverage making it possible that we will be able to continue to live up to our long term aspiration of growing into 15% for the year.

Yes, a question?

Gavin MacGregor from Credit Suisse.

It was actually long term question I was going to ask.

I think Jesper's covered most of it.

I'll try and add a bit of detail.

Every quarter, every year pretty much you stand up and you say it's going to get more difficult in the US; pricing's going to get more difficult.

We keep seeing 20% diabetes growth, revenue growth each quarter consistently.

Has anything changed now in your view?

Are the risks still there as much?

We've seen in Europe the issues coming forward but not necessarily dented things there, and with Victoza now fully launched, should we be getting more positive on that 20% base?

And then longer term, I think you've previously talked about 80% of your revenue growth coming from insulin.

Is that still where you would see the split going forward given Victoza's now launched?

Thank you.

Kare, why don't you start giving your perspective on the situation in the US, and I'll share with you the overall picture for some of the 10-year perspective.

Yes, in the US, we probably have seen a more dramatic reduction of risk the last 12 months than we normally see, because 12 months ago we did not have the Victoza approval, we did not have the healthcare reform settled, and we did not have a clear picture on how the implementation of that would take place.

That is much more clear now.

We have Victoza approved and launched, on a good track, and we have the healthcare reform basically done, with a few technical details left, and we can see that the -- the total effect of the healthcare reform is probably around 1% this year, 2% next year.

However, that is without taking into account our actions based on what's happening in the healthcare reform.

And so that in the US the rebating is substantial in our business.

We will rebating maybe 30%/40% of sales through all kinds of different rebate structures, and of course, we have a chance to modulate that given what happens in the healthcare reform.

So if you weigh all that in, and if you disregard the last risk, which is whether Prandin will go off patent and get generic competition or not, then we have a better risk profile in the US market looking a couple of years out than we had one year ago.

So in that sense, you're right that we are more optimistic now about the outlook for the US the coming years than we were a year ago.

But there is of course the fact that with the implementation of healthcare reform, coverage has been dealt with, but containing cost in the US healthcare system, I'm not so sure that that issue has been addressed, and so the risk then perhaps in a five-year perspective is that they will have to come back and ask for further concessions, especially from big manufacturers that are selling to the government programs.

If I'm then to address the point on, say, if we take a 10-year outlook for the Company.

What we can see right now, given the current outlook is that diabetes is obviously relatively speaking for our Company becoming more important; generating by far the largest part of the sales growth expected for the next 10 years.

If I were to give a split-down, then I would say we're a little bit more optimistic than we were last year on the outlook for the GLP-1 class, and in particular for Victoza, obviously, given the successful launch and given the fact that some of our competitors have had a little bit of headwind.

So if I should give a rough estimate, I'd say two thirds of the growth going forward will come from the modern insulins, and about 25% of the growth will come from the GLP-1 segment.

And then you'll see human insulin actually declining, and you'll see some modest growth coming from NovoSeven, but the bulk of the growth of the Company will be diabetes; it'll be injectable proteins; it'll be the modern insulins and it'll be GLP-1.

Yes, next question.

Who has the microphone, if any?

Any questions?

Yes, there is one over here.

It's [Satish Natarajah] from Morgan Stanley.

If we look at the GLP-1 insulin combinations, what's -- obviously, Sanofi have got a slight head-start on you guys in terms of their progress.

How do you view A their product versus your offering?

And secondly, how do you see that market progressing?

Is that included within your estimate of the GLP-1 market being 10% in five years out?

No, it's not, and let me just give some overall comments, and then I think we should ask the professor to comment on the details.

And I would just caution, maybe Sanofi does not have a head-start also on this, but that's another matter.

Perhaps Mads will highlight why we believe so.

But I'd just like to say that this is going to in our view also become a very significant drug.

We've just finalized in one of the studies where we have done an add-on study to Victoza treated patients with giving them Levemir [insulin], those that could not control their blood sugar adequately with Victoza and Metformin.

And there, we actually saw very good improvement in the control of these patients that didn't achieve control, with no hypoglycemia.

So ideally speaking, what you can achieve here is when you have a patient and they're very naive, you would start off ideally with Metformin, add on Victoza for a period of time.

When beta cell function declines, you need a boost in terms of insulin efficacy.

You add that to the patient.

You still have the glucose dependent lowering of the blood sugar so you don't increase the risk of having hypoglycemia.

You only add a very small dose of insulin, so you don't get into the situations where you have significant counteraction in terms of weight profile coming from the insulin.

So I believe, and we tend to believe that this could become a relatively large segment, allowing GLP-1s to be used far further in the progression of Type 2 diabetes than just the current relatively naive positioning that we are facing at the moment.

Mads, do you have any further comments to this?

Yes, what you can say is we've communicated that we are starting the phase 3 program on what is essentially an approved Victoza product, and will be a product Degludec that has completed phase 3 in a huge trial setting, as you know 16 or 12 trials actually on that alone, in the first half of next year.

So we know the profiles very well and how do they stack up against Lixisenatide on the one hand and Glargine on the other?

Lixi and Glargine are both acidic proteins with the ph of around 4, which is why you can have them in a mixed acid solution or acidic solution.

However, in the two pharmacokinetic papers that I've been able to dig up on Lixisenatide, the half-life is between three and four hours.

We know that Victoza takes 12 hours to peak, where after the [terminal] half-life is a further 12 hours, giving us about a, effective at least 30-hour action profile.

So Victoza is a true long-acting GLP-1 somewhat unlike Lixisenatide, which is somewhat intermediate between Byetta and a real once daily.

Glargine we know wanes off on average after 22 hours, 20 hours/22 hours/24 hours; differs from day-to-day and from patient-to-patient.

We have done (inaudible) studies way beyond 24 hours with, I have to say ethic committee approval and so on, but people have been clamped for up to 36 or more hours on Degludec, and it's still there.

So Degludec is longer and smoother acting, and we will prove this also at the FDA meeting where we have the presentation on this exact topic.

Then Glargine and likewise Liraglutide is a longer-acting GLP-1 analog than is Lixisenatide which is an exenatide analog.

So we think that when we come to approval, it will be on the basis of an approved Victoza where Lixisenatide, if they want to go out to market in 2013, which I think has been the communication, we will have to see whether it's approved, whether they've done the cardiovascular studies, etc., that are needed for approval.

It seems like a very, you can say, best case scenario, this communication, so I think as Lars is hinting at, the jury's pretty much out who comes first.

But even if we were to come second, we're comfortable with the profile of our [exploration] companies.

(Inaudible question - microphone inaccessible).

In my mind, it's too early to say.

We need to know a bit more.

Yes, there was a question here.

Yes, I'll take some more questions if I could.

Just the only -- back to Jesper and my earlier question, Lars, when you didn't comment on the R&D spend.

Do you still expect to move towards 18% over time?

If you could just give us a feel of what large trials are coming to replace the Degludec studies as they come off next year.

And then a quick question then to the market growth.

You've talked about 10% for a very long time; very broadly 5% price [reduction and] volume.

Existing growth rates I guess are in the 13%/14% range.

Just is there upside flex to that 10% over time, or have you accounted for biosimilar?

Just if you go through the detail, a bit more detail on volume price mix as you see it from here.

Thanks.

Jesper.

In terms of the R&D ratio, we are still anticipating that we will gradually expand towards the 18%.

In fact, and as you've seen, it very much depends on the specific regulatory environment, but in terms of objective, I'd say, yes, that is our objective.

But just to give you a feel for the trial, people tend to think that it's over and done with once they can take the (inaudible) completed.

We have right until 2016 to do this huge leader trial, the cardiovascular outcomes.

We are actually moving into phase 3 for products such as Victoza or Liraglutide for obesity next year, restarting the whole program with the two big trials.

We are hopefully having ultra fast acting insulin, as we've communicated, moving from in principle relatively fast into later stage trials.

Likewise for the fixed ratio combo between GLP-1 and Victoza and Degludec.

We have a hemophilia portfolio.

We have some all stuff going on which is still phase 1, but if it were to be successful, this would be demanding cardiovascular outcome studies during phase 3, etc.

So I hope we're able to fill the pipeline and justify what Jesper's saying, but there can be blips, there can be years because phase 3 are so costly, if there are fewer of them in any given year, of course, that will impact the R&D too.

And in terms of the well known five plus five scenario, it's a long term growth driver, of which five comes from extended volume and five comes from the value upgrade and price moving from more genericised versions of therapy to more modern patent protected versions of therapy.

I think that actually is quite appropriate.

It is going to get a little bit difficult and complex when we get out to have to weigh risks of the future healthcare reforms up against also potential patent run-off and biosimilar competition from rapid-acting insulins that are going off patent, and then followed by Lantus going off patent, which obviously depending on the competition situation, depending on the extent to which there will be biosimilar competition and what differentiation we have with the Degludec in such a scenario and what kind of pricing we can go out with for Degludec.

So I think it gets very complex, but I could not exclude that there is an upside potential to that five plus five, but then it will have to require that there's no healthcare reform.

It would have to require there's limited biosimilar competition in the shorter-acting insulin analog segment, and that our competitors are still working on innovation-based approach to new longer acting insulin analogs, etc., etc.

So all the things will have to be in our favor, so to speak.

They have been recently, I admit that, but that's not usually the case over long periods of time, so I think it's still appropriate.

And the flipside of that case, what's the worst case of all of those events going against you?

We of course are trying to hedge ourselves against the worse case.

It is, of course, clear that a large product like Lantus going off patent could expose a large and valuable segment to biosimilar competition and price pressures.

Our anticipation is that we would be able to show clinical superiority, and with that, an ability to retain the value level of that segment with Degludec, but that of course is also why we are stressing so much the importance of the clinical program for Degludec.

So that would, in my view, be the biggest single medium term threat that we'd be facing.

Yes?

Yes, it's Stuart Harris again.

Mads, you seem pretty relaxed on the 1 kilo weight gain with DegludecPlus, and talking to clinicians, we're certainly not picking up anything, there isn't anything sinister.

But just for the record, as you mention it, is there any potential hypothesis as to what's going on?

And I guess the reason I say that is because, yes, it may be it is just Levemir, but I say it because if you've got a drug that's got such a good hypoglycemia benefit, typically, you would expect less weight gain, that the two tend to go hand in hand.

So is it anything -- are you concerned at all, or is it genuinely you guys just think it's Levemir has got a good weight benefit and that's it?

I would say on that one, Stuart, I'm not concerned at all.

In phase 2 trials, there was the same story, neutral or slight weight gain.

I think it's more an issue of Levemir having this unique effect which essentially you can say has never been seen before; [very interesting]; even in animal models, we can differentiate it from Glargine for instance, and I think it has to do with the hydrophobicity, i.e., the fat-loving nature of the Levemir new molecule and its ability to penetrate bio membranes and to be restrictive in its action into the compartment such as the liver as compared to the periphery.

So it's a long story, but short version is I'm not worried at all.

What the regulators and what the doctors typically will pay for here is very high treatment success rates, reductions in hypoglycemia, convenience benefits such as ultra long-action, maybe even fewer injections, and so on and so on.

Okay.

And then for the last question, unfortunately.

Thanks very much.

It's Brian Bourdot from Barclays Capital.

A couple of questions; firstly, on reimbursement; and secondly, just on the first phase 3data that you've announced for DegludecPlus.

Firstly, on reimbursement, specifically with regard to Victoza, could you talk about the state of reimbursement in the US and other markets where Victoza's approved, and whether there have been any recent changes or trends?

And secondly, with regard to the data for DegludecPlus, you mentioned reductions in nocturnal hypoglycemia overall and severe hypoglycemia.

Would you be able to tell us whether all of those were statistically significant, and where you were planning to present those data should we assume ADA next year?

Thank you.

Thank you very much.

Kare, would you handle the reimbursement situation for Victoza, and Mads, DegludecPlus, hypo specific significant question mark.

Yes.

On Victoza reimbursement, I'll just cover it for the key markets, so US first.

US, we have a very consistent pricing policy.

We have gone out without giving any additional rebates to managed care, basically trying to push the demand so that we would be in a better negotiation position with managed care once we're at the start of doing that.

That means that we have a high degree of access already, but at Tier 3, the majority of it.

But the way it's overcome that has been to introduce co-pay cards so that the patient actually gets the additional co-pay between Tier 2 and Tier 3 paid by us, and that is allowed and legal in the US to do it that way.

We are now opening up the first negotiations to move the product into Tier 2, but it will be very modest.

Rebates will be given, and they will probably be matching all this, our net cost of this co-pay program we are running right now.

So a very stable reimbursement situation right now in the US for Victoza.

In Europe, you could say in UK, we had the initial [classical challenge] of all the PCT approvals, and so on, but with the NICE recommendation, we think that it's pushed aside.

Not that it's completely open, but it's a good situation.

And in Germany, we also have a good reimbursement situation.

There's been some small rumors about trying to limit the volume growth, but nothing which has been really dramatic yet.

In France, we just got the approval and it's moving ahead very, very nicely.

In Italy, we just actually also just got the price approved.

And you should be aware that we have a very consistent pricing policy in Europe, operating with a minimum price level that we go by, and basically no launches below that level, simply to safeguard ourselves against price referencing, [health] trade and all those issues in Europe.

In Japan, we have just started the full-blown launch a couple of days ago, and there the pricing is in between the European price and the US price.

So I would say, overall, we are very encouraged about the reimbursement situation, and also about the fact that we have linear pricing between the [1.2] and the [1.8].

So thank you very much for -- thanks for joining us this afternoon.

Should I just respond to the DegludecPlus?

Yes, of course.

Sorry.

I thought it was another meeting we were at.

Okay, so what happens is that about 250 man years of exposure is the total in this trial, because 500 patients die every year.

But since this is Type I diabetes, the numbers become large because they get so frequent hypoglycemia.

And quite frankly, when you look through, scroll through the tables, we have reductions all the way along, and there are some where I can say it's much more a third, maybe two thirds reduction if it's like severe nocturnal hypos.

But I would not like to stress that because the numbers are rather low, and I don't think it's meaningful to be too bullish on that.

What I will say though that the numbers on severe -- sorry, on nocturnal confirmed hypos, they are of the magnitude of more than five episodes per patient year.

That means you really have something to measure on, and there we are above a third in reduction and essentially of statistical significance.

That being said, this occurs in a scenario where every other time, people try to take a pre-mix, i.e., where you can't titrate the individual components, and compared to (inaudible) of those, you always see more hypos, simply because of lack of the titratability.

So we're pretty happy with the results.

So with that, we can conclude the meeting.

Thank you very much for your attendance, and we look forward to coming back and presenting our three quarter result, and eventually the full year results in January.

Thank you.