諾和諾德 (NVO) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Novo Nordisk investor earnings conference call for the first nine months of 2010.

For your information, today's conference is being recorded.

At this time I'd like to turn the conference over to your host today, Mr.

Lars Rebien Sorensen.

Please go ahead.

Thank you very much and welcome ladies and gentlemen to this, Novo Nordisk's conference call regarding our performance for the first nine months of 2010, the outlook for the year and a preliminary outlook for 2011.

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

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

The conference is scheduled to last approximately one hour.

As usual we'll start with the presentation as outlined on slide number two.

The Q&A will begin in about 25 minutes.

Please turn to slide number three.

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

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

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

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

Please turn to slide number four.

We're very satisfied with the performance for the first nine months of this year.

Sales growth in the first nine months was 17% reported and 12% in local currencies.

The global sales growth is driven by the continued penetration of our modern insulins, NovoRapid, Levemir and NovoMix, and a solid Victoza launch performance.

From a regional perspective the key growth drivers have been North America and International Operations.

With Victoza launched in Europe, North America and Japan we are encouraged by the ongoing expansion of the GLP-1 class.

Within R&D we are happy to announce the results for trials for Degludec and DegludecPlus.

The second of five phase IIIa trials with DegludecPlus, a new ultra-long-acting basal insulin with a bolus component, has now been completed.

This trial confirms that DegludecPlus improves long-term glycemic control and reduces hypoglycemic events in people with Type 2 diabetes when compared to NovoMix 30.

The first of 12 phase III trials for Degludec, a new also long-acting basal insulin, has also been completed.

The trial result shows that Degludec has the potential to offer dosing flexibility without comprising its glycemic control or safety profile.

For Liraglutide, marketed under the brand name Victoza, for Type 2 diabetes an early phase IIIa weight maintenance study showed that people treated with Liraglutide, following an initial run-in period of four to 12 months -- 12 weeks actually, lost an additional 6 kilos compared to the placebo group.

In hemophilia we have completed a phase I study and with an ultra-long-acting recombinant Factor IX derivative that potentially allows for once weekly or less frequent dosing.

In addition we have initiated a phase I study with a long-acting recombinant Factor VIII derivative.

Turning to financials, our gross margin improved by 130 basis points to 80.8% during the first nine months of 2010.

Operating profit grew 24% reported and around 15% in local currencies.

We now expect sales growth in the range of 11% to 12% in local currencies compared to previously 9% to 10%, and operating profit growth in local currencies is now expected to be more than 15% compared to previous guidance of 12% to 15%.

And our preliminary plans for 2011 indicate close to 10% sales growth and a 10% to 15% operating profit growth, both in local currencies.

Turn to slide number five.

Our portfolio of modern insulins continued to show a strong performance overall.

In the first nine months the portfolio of modern insulins were the main growth drivers accounting for more than 60% of total sales growth in local currencies.

Sales performance reflects the steady and durable penetration of our modern insulin in an expanding market.

Victoza sales reached DKK1,366m in the first nine months, representing 27% of the sales growth this year in local currencies.

NovoSeven sales grew 13% reported and 9% in local currencies.

Sales of our growth hormone therapy product, Norditropin, increased 6% in local currencies, with all regions contributing to growth.

Novo Nordisk is the second-largest company in the global growth hormone market with 25% market share measured by volume.

Please turn to the next slide for an update on the regional split.

In the first nine months all regions contributed to growth measured in local currencies.

North America was the main contributor with 60% share of growth measured in local currencies followed by International Operations and Europe.

In local currencies the sales in North America increased 21%.

Sales growth was driven by strong performance of the modern insulins and Victoza.

European sales grew 5% in local currencies driven by continued progress in the portfolio of modern insulins and solid performance of Victoza.

Sales in International Operations increased 15% in local currencies and here the main growth drivers were modern insulins, primarily in China.

Sales growth in Japan continues to be impacted by a change in the underlying insulin market dynamics where growth of basal segment in particular, basal modern insulins, have accelerated at the expense of the premix segment where Novo Nordisk has its strongest position.

Slide number seven.

In the United States Victoza's launch performance continues to be encouraging.

We are now 38 weeks into the launch and Victoza has gained more than 35% of the GLP-1 market measured by total scripts.

Since the launch of Victoza the GLP-1 market has expanded measured both in volume and in value.

In volume the number of weekly prescriptions has grown more than 20%.

In value the GLP-1 market now constitutes more than 4.2% of the overall diabetes market, up from 3.2% immediately prior to the Victoza launch.

Slide number eight.

The Victoza launch in Europe is also solid.

The GLP-1 class continues to increase its share of the diabetes care market and Victoza has gained a significant share of the GLP-1 market.

More recently the product has been launched in Italy.

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

Thank you Lars.

Please turn to slide nine.

I'll start out with DegludecPlus, the fixed-ratio insulin Degludec and aspart combination product that targets several important patient segments, one of them being the premix segment that constitutes 30% of global insulin use.

Within this segment a phase IIIa treat-to-target study with DegludecPlus in people with late-stage Type 2 diabetes has now been completed as part of the BOOST program.

The trial was conducted in three continents and had multiple endpoints with emphasis on efficacy and safety, i.e.

different measures of glycemic control and hypoglycemia.

Patients were randomized to treatment with either DegludecPlus or NovoMix 30 twice daily for 26 weeks as add-on to all anti-diabetic therapy.

DegludecPlus effectively improved long-term glycemic control, achieving the primary objective of showing HbA1c non-inferiority with HbA1c decreasing by around 1.5 percentage points to 7.1 in both arms.

Moreover the study yielded a number of significant positive findings.

Thus, in terms of glycemic control the patient's titration targets were achieved faster, and fasting as well as mean tests for glucose levels were lower for the DegludecPlus group compared to the NovoMix 30 group.

Furthermore, the total daily insulin dose at study completion was lower in the DegludecPlus group than in the NovoMix 30 group.

The rate of confirmed hypoglycemia was statistically significantly reduced overall and by more than two-thirds during the night for DegludecPlus compared to NovoMix 30.

Participants treated with DegludecPlus gained on average slightly less weight than those in the comparator group.

DegludecPlus demonstrated a good safety and tolerability profile and there were no apparent differences between the treatment groups with respect to adverse events and standard safety parameters.

Please turn to slide 10.

We've also completed the first phase III Degludec study with focus on flexibility in day-to-day treatment.

Thus, today's basal insulins must be administered at the same time every day, implying that busy people, sporty people, kids, elderly etc., have to adjust their lifestyle to the insulin treatment rather than the other way round, which obviously would be more desirable from a quality-of-life perspective.

Based on this unmet need and piggy-backing on the ultra-long half-life of Degludec, we designed a labeling study seeking to show that Degludec, when given once daily at various dosing intervals, was as safe and efficacious as insulin glargine given at 24 hour intervals according to the label.

The 26-week controlled phase IIIa treat-to-target study in Type 2 diabetes patients randomized the patients to once daily treatment with either Degludec in the evening, Degludec in a regiment with dose intervals between eight and 40 hours, or insulin glargine given with 24 hour intervals according to the label.

For all three treatment groups insulin therapy was added to pre-existing oral anti-diabetic therapy if any.

The primary objective of HbA1c non-inferiority for Degludec in the flexible dosing regiment compared to insulin glargine was confirmed, with HbA1c decreasing by 1.3 percentage points to around 7.2% in both treatment arms.

There was no difference in HbA1c between the two Degludec arms.

In the once-daily flexible-dosing regiment Degludec was statistically superior to insulin glargine in lowering the fasting glucose level.

A trend towards the lower risk of nocturnal hypoglycemia was observed in both groups of participants treated with Degludec compared to participants treated with glargine.

Degludec demonstrated a good safety and tolerability profile and there were no apparent differences between the treatment groups with respect to adverse events and standard safety parameters.

Based on the above results, Degludec's ultra-long action profile has now paved the road for a dosing scheme that is more flexible than for today's basal insulins through allowing daily administration of the insulin when it fits best into the individual's 24-hour lifecycle without compromising on safety or efficacy.

Please turn to slide 11.

Shifting gear to GLP-1 therapies now, Liraglutide is currently, based on the phase III obesity results published last year, in phase III for weight management in obesity.

It is our belief that future pharmaceutical treatment in this field should be seen as adjuvant therapy to behavioral modification that must include dietary and exercise counseling.

To support this belief the first phase III study had a primary endpoint looking at the ability of Liraglutide to maintain a 5% weight loss induced by dieting.

The study was a double-blinded placebo-controlled trial of 56 weeks duration investigating treatment with 3 milligrams Liraglutide daily as an adjunct to dietary counseling in obese people without diabetes who had already lost at least 5% body weight during a four-to-12 week run-in period on a low-calorie diet.

More than three out of four patients achieved a 5% weight loss during run-in and the mean weight loss for the participants in the remaining trial was approximately 6 kilograms during run-in.

The trial then randomized a total of 422 patients with an average bodyweight at randomization of approximately 100 kilograms.

Participants treated for one year with Liraglutide lost approximately 6 kilograms additionally compared to the placebo-treated group who maintained a stable bodyweight during the study period.

During the treatment period beneficial effects were also observed on markers of metabolic and cardiovascular risk.

Liraglutide was generally well tolerated and the 56-week completion rate was 75% and 70% for the Liraglutide and placebo groups respectively.

Withdrawals due to adverse events were below 10% and similar between the two groups.

Consistent with previous Liraglutide trials, the most common adverse events were related to the gastrointestinal system.

Please turn to slide 12.

Moving now to hemophilia, our portfolio is one which has evolved very significantly over the last couple of years to the extent that we now have two phase III, two phase II and two phase I programs ongoing.

Today I will focus on promising recent results from our long-acting Factor IX program.

Using insomatic site-specific glycoPEGylation that provides release of the native coagulation protein Human Factor IX upon activation at the bleeding site, we have now completed a phase I study in hemophilia B.

The phase I study showed the compound was well-tolerated with a very long half-life enabling IV infusion once weekly or less frequently.

Compared to other Factor IX molecules for which human data have been presented or published, the duration of action of the new molecule appears to be longer and we've now conducted an end-of-phase II meeting with the FDA.

Based on this we expect to initiate the phase III hemophilia B program during the first half of 2011.

Regulatory discussions with other agencies are, however, still ongoing.

On another note we likewise conducted end-of-phase II meeting on the ultra-fast-acting Factor VIIa analog, NN1731, and similarly we expect phase III initiation during the first half of next year for NN1731.

Finally, using the glycoPEGylation technology described above, we are developing in phase I a long-acting Factor VIII compound for hemophilia A.

Within growth hormone Novo Nordisk has finalized a single-dose study in children with a long-acting growth-hormone compound intended for once-weekly dosing.

The study showed a good safety and tolerability profile, but a satisfactory once-weekly profile could not be achieved.

Novo Nordisk has thus decided to terminate the project.

Novo Nordisk has initiated finally a phase IIa study with a recombinant fully-human monoclonal antibody to obtain proof of principle in rheumatoid arthritis.

Also we have initiated a phase I study with anti-IL-21, in-licensed last year from ZymoGenetics, a recombinant fully-human monoclonal antibody for the treatment of rheumatoid arthritis.

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

Thank you, Mads.

Please turn to the next slide.

We're satisfied with the financial results for the first nine months of 2010.

The sales growth was 17% as reported and 12% in local currencies.

Growth was realized within both diabetes care and biopharmaceuticals, and the primary growth contribution originated from the modern insulins and Victoza.

The gross margin for the first nine months of 2010 increased to 80.8% compared to 79.5% in the same period of 2009.

This primarily reflects a favorable product mix impact due to increased sales of modern insulins and Victoza, supported by a 40 basis point positive impact from the currency development.

Total non-production-related costs increased by 18% to just over DKK22b.

This development primarily reflects the costs associated with the global launch of Victoza impacting sales and distribution costs and the ongoing phase III programs for the next generation of insulins impacting the R&D costs.

Operating profit for the first nine months of 2010 increased by 24% to DKK14.5b, or by around 15% measured in local currencies, reflecting solid sales growth, the increased gross margin and the higher level of license fees.

Net financials showed a net expense of close to DKK1b in the first nine months of 2010 compared to a net expense of around DKK700m in the same period of 2009.

The number of full-time employees has increased 4%, primarily reflecting the expansions in the markets in International Operations.

Please turn to the next slide for an update on the currency development.

This slide shows the development of the US dollar and the Japanese yen versus the Danish krone.

Further, the expected annual impact on operating profit of a 5% movement in our key invoicing currencies and the current extent of hedging of the same currencies are illustrated.

During 2010 the average exchange rate for the US dollar and the Japanese yen versus the Danish krone have both been above the average levels of 2009.

During the third quarter we have seen the US dollar depreciate significantly against the Danish krone, bringing the current exchange rate down to a level close to the average for 2009.

Notably, though, the current exchange rate for US dollar remains above the level in the fourth quarter of 2009.

Please note that the positive impact of the higher exchange rates during 2010 compared to 2009 on our operating profit to a large degree are countered by a loss on our hedging contracts, which is reflected in our net financials.

For the first nine months of 2010 the foreign exchange result was an expense of DKK800m, primarily caused by losses on foreign exchange hedging of US dollar due to the appreciation versus the Danish krone in 2010 compared to the exchange rate prevailing in 2009.

Please turn to the next slide for the financial outlook for 2010.

Novo Nordisk now expects sales growth in 2010 of 11% to 12% measured in local currencies.

This is based on the expectation of continued market penetration for Novo Nordisk's key strategic products within diabetes care, including the continued global roll-out of Victoza, and biopharmaceuticals as well as the expectations of continued intense competition, generic competition to Novo Nordisk in the EU, and an impact from the implementation of healthcare reforms, primarily in the US and Europe.

Given the current level of exchange rates versus the Danish krone, the reported sales growth is now expected to be around 5 percentage points higher than measured in local currencies.

For 2010 growth in operating profit is now expected to be more than 15% measured in local currencies, primarily driven by increased expectations, growth expectations for sales.

Given the current level of exchange rate versus the Danish krone, the reported operating profit growth is now expected to be 10 percentage points higher than the one measured in local currencies.

For 2010 Novo Nordisk now expects a net financial expense of around DKK300m.

The current expectations reflect expected losses on foreign exchange hedging contracts and a non-recurring income of approximately DKK1.1b related to the divestment of shares in ZymoGenetics.

The income related to the divestment of Novo Nordisk's shareholding in ZymoGenetics is exempt from tax charges under applicable Danish tax laws.

Consequently the effective tax rate for 2010 is now expected to be around 21.5%.

This non-recurrent effect will reduce the effective tax rate in the fourth quarter of 2010.

Capital expenditure is now expected to be more than DKK3b in 2010, primarily related to investments in new insulin formulation and filling plants in China and a new pre-fill filling device capacity in Denmark.

Expectations for depreciation and amortization and impairment losses are now around DKK2.6b whereas free cash flow is now expected to be more than DKK14b.

The increase in the expected cash flow for 2010 is reflected in the announced expansion of the share repurchase program for 2010 with DKK1b to now DKK9.5b.

With regard to the financial outlook for 2011, it is Novo Nordisk's intention to provide detailed guidance on expectations in connection with the full year release of financial results for 2010, which is scheduled for February 2, 2011.

At present the preliminary plans for 2011 indicate close to 10% sales growth and 10% to 15% growth in operating profit, both measured in local currencies.

The preliminary plans reflect the expectations for continued solid penetration of the portfolio of modern insulins, continued global roll-out of Victoza and progress for key products within biopharmaceuticals.

The preliminary plans also reflect expected generic competition to all anti-diabetic products, further impact from healthcare reforms and continued intense competition within both diabetes care and biopharmaceuticals.

Due to an expected negative currency impact following the recent significant depreciation of Novo Nordisk's main invoicing currencies, the reported sales growth for 2011 is expected to be around 2 percentage points lower than the growth measured in local currencies whereas the reported operating profit growth is expected to be around 4 percentage points lower than the growth measured in local currencies.

The profit-and-loss effect of foreign-exchange hedging contracts deferred for income recognition in 2011 when the hedged operating cash flows will be realized is currently expected to be approximately neutral.

All of the above expectations are based on the assumption that the global economic environment will not significantly change the business conditions for Novo Nordisk during the remaining part of 2010 and in 2011, and that currency exchange rates, especially the US dollar, remain at the current level versus the Danish krone during the remaining part of 2010 and in 2011.

This concludes our presentation of the financial results.

Lars will now moderate the Q&A session.

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

Thank you very much gentlemen.

Now note that this conference is being taped and that a replay will be made available on our website and, operator, (technical difficulty).

(Operator Instructions).

Our first question for today comes from Peter Hugreffe from ABG.

Please go ahead.

Yes, hi.

Peter Hugreffe.

Thank you very much for taking my questions.

Firstly, just a clarification for your 2011 guidance.

If I look into the history then one could say that your preliminary guidance has been at a conservative or you can say a minimum level.

Is that also the deal for your 2011 guidance or is there anything that has changed in that context?

And then secondly, in terms of Degludec, Mads, I believe you previously have stated that most of the studies or at least all the studies were powered for showing lower hypoglycemic events at the range of 25% to 30%.

Is this also the case with this (inaudible) study?

Thank you very much.

First question is on 2011 guidance and then Mads Krogsgaard, if you'd kindly take the Degludec question.

Yes, already being 14 months ahead of the closure of 2011, obviously there are some uncertainties and we would like to be cautious as usual.

The main issues that are impacting our caution is of course the expectation of a continued penetration of our modern insulins and continued successful roll-out of Victoza, of course facing competition so that nothing is given there.

Then we have the headwind that we are saying on healthcare reform, full impact in the United States (technical difficulty) healthcare reform throughout Europe.

(Technical difficulty).

We will see final genericization of Prandin in the United States, we've made certain assumptions (technical difficulty).

A conservative estimate, but if you take out the uncertainties I would say (technical difficulty) it would indicate a guidance for 2011 (technical difficulty).

(Technical difficulty) are indeed powered for hypoglycemia as an endpoint.

This one is an outlier in that regard in as much as this is a highly specific study designed for one single purpose, namely utilizing the long half-life of Degludec to prove the point that you can actually live a more flexible -- or live with a more flexible dosing scheme because of the ability to use the product maybe one day in the morning, one day in the evening, the day after midday, whenever it suits your lifestyle, even if you are forgetful or doing sports or whatever you're doing.

So this particular trial is designed differently and that, among other things, includes the inclusion of the sulfonylureas into the study.

So among the BEGIN and BOOST trials in only two cases have we included sulfonylureas.

And why do we have 15 out of 17 studies without sulfonylureas?

The reason being that when you want to look for hypoglycemia you want to have a level playing field, and a level playing field would mean that you compare one insulin up against the other insulin and then you look for hypoglycemia rates in those two regimens.

What we have here is a big population of which about half are taking sulfonylureas and that also means that the signal-to-noise ratio has been significantly blurred vis-a-vis hypoglycemia.

So if you compare, for instance, to the phase II study where SUs were not an element, we had a hypo rate on Degludec of 0.6 per patient year and 1.1 for glargine per patient year.

In this study it was above 3.

And that really reflects that we have a three to fourfold increase in the risk of hypoglycemia in this study and that it is indeed driven by the sulfonylurea use.

So that we have blurred the signal-to-noise statistically in a way that does make it meaningful to measure hypoglycemia statistics.

Yes, we do see a reduction in nocturnal hypoglycemia, even in the group where the dose was administered Monday, Wednesday, Friday early in the morning and Tuesday, Thursday, Saturday and Sunday late in the evening, i.e.

the patients on some days would have 40 hours between the dosing and on some days only eight hours because they had an overnight sleep.

In spite of that, we actually saw a numeric reduction in nocturnal hypoglycemia.

So the short answer to your question is, Peter, that most of the remaining studies, they are designed for hypoglycemia.

Most importantly the ones that are of one-year duration because that allows us to take the A1c down to seven which is was not quite here.

And also including large number of patients so you can even go for statistical superiority on some of the sub-groups of hypoglycemia, and then inclusion of patients who are not taking sulfonylureas so that you have a level playing field to measure for hyperglycemia from.

Thank you very much, Mads.

We're glad that you didn't give us the long answer.

Next question please.

Our next question comes from Henrik Simonsen from SEB Enskilda.

Please go ahead.

Hello, your line is now open, please go ahead.

Sorry, Henrik Simonsen, Enskilda.

Sorry.

Two questions, Lars.

We had two major events impacting on your business, short and long-term, last week, and also on the share price quite significantly.

I was wondering if you could add a little bit of comment to the Pfizer-Biocon biosimilar agreement last Monday.

What is the most important, significant negative you would see come out of that if that were to come in to the market some time later?

Secondly, I was noting in your slide pack this morning you had like 12% of patients on Victoza US coming from Byetta.

Now that Bydureon is pushed further out, I would assume that some of the patients on Byetta have been kept on Byetta in anticipation of getting on to Bydureon.

Should we expect a pick up in patients diverting from Byetta on to Victoza, or could you comment of little bit on that, how you see that panning out in the US?

Yes, certainly.

Let me start by reflecting a little bit on the announcement from Pfizer and Biocon.

This, in a way, is nothing new to most of us on this call in the sense that there's always been an issue that in a certain point in time there would be patent run out on the modern insulins.

Patents have run out on human insulins and we have been competing for years with the Biocon Group in India and in other overseas markets in a number of years.

And they have been, if I should be diplomatic, modestly successful in competing with us.

They have a market share in India, which is less than 10% based on their current capabilities.

Now, having said that, obviously by partnering up with the world's biggest pharmaceutical company, what they do get is they get market reach, they get market understanding in the key developed markets.

But as we understand the current collaboration agreement, it is upon [Biogen] to do the clinical development and the regulatory approvals of eventual new modern insulin bio similars in the developed markets.

And that of course is still somewhat of a deficiency in the sense that they've not been so successful in doing so historically.

There are issues also when we reflect on this of scope.

Biocon as I mentioned has a relatively modest market share and modest capacity to be a real substantial player in big markets like you have in United States.

We need to see a significant expansion of their capacity.

This is going to pose some execution risks in terms of expanding manufacturing and doing it in a way which is quality-wise and compliance-wise acceptable to European and to American authorities.

So I've got a name on the competitors, one of the competitors, but we have always anticipated that there will be competitors.

We've always anticipated that, for instance, Sanofi-Aventis is going to defend their Lantus franchise so they probably will be selling a genericised version of Lantus as well.

So there's nothing really new in it for us.

It only highlights the importance of the next generation of modern insulins that we have been working so hard on.

And that's why it was, of course, gratifying that we were able to, at the same release as this took place, to give the first data on these two compounds.

And adding to that, that we are also working on a fast-acting version of the rapid-acting segment, which is currently served by NovoRapid.

We are clinically working on an even faster formulation, which may actually offer a unique product when and if our patents, which includes formulation patents, for NovoRapid expires in 2017.

So that was the comment on the Pfizer agreement.

With regards to uptake of Victoza as a result of the Bydureon postponement, one can, of course, speculate whether or not that's going to have an impact.

We have internally adjusted our internal targets, which has been included in the guidance that we have given you, to reflect the fact that we are not seeing competition from Bydureon.

However, we are not anticipating a larger shift rate than what you're currently, somewhere in the range of 10% to 15%.

We're hoping to expand the market and that's what we're working on.

Obviously, by not having the full force of Lilly and Amylin out that there, that is going to be a more difficult task.

So not major changes in terms of pick up and conversions from Byetta.

Thank you very much Henrik, next question please.

Our next question for today comes from Mick Readey from Goldman Sachs.

Please go ahead.

Hi, Good afternoon.

It's actually Keyur Parekh from Goldman Sachs and thanks for taking my question.

I have two if I may.

First just following up on the previous question of the Pfizer-Biocon deal, you've obviously spoken about the lack of existing -- excess manufacturing capacity at Biocon.

But Biocon obviously has spoken about them using the cash that they receive from Pfizer of about $200m to $300m to set up a new manufacturing capacity.

On your estimates, can you provide your perspective how much of the world global insulin demand could a CapEx spend of that amount provide?

And secondly on the study for the Liraglutide in obesity, you suggested that the primary endpoint was maintenance of the weight loss.

Can you help up understand about the 6 kilo weight loss on Liraglutide versus placebo because [that was] largely flat.

Is that statistically non-inferior?

Is that statistically significant?

How should we think about that?

Thank you.

Thank you very much.

Mads, you will prepare for the question on obesity.

I just make a brief comment, as much as I can, on how Biocon anticipate to use the cash inflow they've got from the Pfizer deal.

I would rather say that if you want specific answers on how that will enable them to service the global markets, you should, of course, ask them.

But I would say, though, that we have previously when we have been talking in more generic terms about the barriers to entry into the insulin business, we've spoken about the very high capital cost of getting into the business.

Exemplifying that by saying that in our estimations if you want to have a sizeable operation you need to invest somewhere between $300m and $500m in upstream manufacturing of active ingredients.

You need to have an investment of approximately the same size in downstream formulation and filling.

And then finally either you make devices yourself or you have to partner and pay for the development of specific devices for your needs.

And then after that comes, of course, the clinical and regulatory approval of the product, and launch.

So, as you can appreciate, even though $200m to $300m is a lot of money, it is a far cry from enabling Biocon to become a global player in one go.

Mads, Lira and obesity.

Yes.

It's important to notice that this study is not a classical regulatory obesity study in that what we've done here is actually had a run-in period, as you -- as I mentioned, in which people over max 12 weeks on a hypocaloric should lose at least 5% body weight.

More than 75% did so and they were then eligible for randomization up to 56 weeks of treatment with either placebo in a blinded manner or Liraglutide.

And essentially 6 kilograms of weight was lost pre randomization, that is from 106 kilos to 100 kilos, and a further 6 kilograms were lost during the Lira treatment down to about 94 kilos.

So, in total, people went 12 kilograms down in a time-span of about a year and quarter.

Now, in terms of the weight loss for the Liraglutide compared to a placebo, it was indeed highly statistically significant.

And the amount who achieved a 5% weight loss, on top of the run-in period weight loss was more than twofold that of the placebo group.

And the odds ratio for actually meeting a 5% baseline body weight loss was about 4 in favor of Lira.

So there were actually three composite primary endpoints.

There was the body-weight maintenance, there was the change from baseline and there was the proportion who lost at least 5%.

And in each case the P value in favor of superiority had several noughts in front of it before there was another digit.

Thank you very much, Mads.

Next question, please.

Our next question for today comes from Richard Vosser from JP Morgan.

Please go ahead.

Hi.

Richard Vosser from JP Morgan.

Thanks for taking my questions.

Firstly going back to Victoza and the impact of the delay to Bydureon, just wondering what, if you can give us the details of what you think the full 2010 your Victoza sales would be.

I think previously you've spoken about $200m.

And then I think I've seen comments that you think you can reach blockbuster status by 2012.

I think previously that was around about 2015.

So if you could give us an idea of new or updated long-term expectations for Victoza that would be great.

And probably the second question also on Victoza, I was just wondering if you cold help us with a split in terms of the US and rest-of-world split yet with Victoza.

The launches obviously in Europe look as through they're going pretty well so I'm wondering if you could give us some help there.

Thanks very much.

Yes, thank you very much.

Jesper, why don't you kick off the estimates for this year, and perhaps reiterate your comment and predictions on when we believe that Victoza will become a blockbuster and then we will revert to sort of broad numbers on split between Europe and US.

Yes, thank you.

The delay in the approval of Bydureon, of course, gave us clarity in making predictions on the sales volumes of Victoza, of course, for 2010, where we would be DKK700m in sales in the third quarter.

And no significant pipeline-filling involved in that number, have a clear indication of a sale for 2010 which is going to be slightly above DKK2b.

And also having clarity on the US market providing more than half of the value of overall Victoza sales, we now feel comfortable in saying that Victoza will develop into a blockbuster product by 2012.

Giving predictions beyond the development of Victoza over and beyond 2012 will have to wait how the competitive situation is going to look in the years beyond 2012.

But the blockbuster status by 2012 seems to a safe indication now.

So thank you, Jesper, you actually answered both questions in one because you indicated that about two thirds of the sales is in the US and approximately a third in US.

So well done, two in one.

Next question, please.

Our next question for today comes from Eric Le Berrigaud from Raymond James.

Please go ahead.

Yes, good afternoon.

Two questions please.

First, could you give us some regulatory and development update on the hemostasis portfolio?

And mostly for the Factor XIII, when could we see some data and when do you expect the filing for this one?

And also on the Factor VIII, on data, whether we can see or read something in the course of next year?

And the second question, do you already commit yourself to a new share buyback program for 2011 and would it be fair to assume a similar amount to the one seen in 2010?

Thank you very much.

Mads, the hemostasis pipeline, Factor XIII and Factor VIII filing and data and what are the next, the milestones that you are foreseeing, and then Jesper on the share buyback expectations for next year.

Yes.

As regard the pre-BLA, i.e.

biologics license application, as we call it, with the [CEPA] that we have for Factor XIII, this is moving towards the later phases of preparation, i.e.

doing all the process validation and the things that you need to have in good order before you submit.

So it is still our anticipation to submit in the first half of next year the Factor XIII (inaudible) for congenital deficiency.

As you are aware we will also during the first half of next have proof-of-concept data for cardiac surgery for the same molecule.

NOVA 8 is still recruiting and it's too early to give a precise indication of when the submission will be.

But I can inform you that we are targeting submission of the fast-acting Factor VII analogue, NN1731.

That is destined to start phase III also during the first half of next year in advance of any potential entrant, at least outside of Russia, in regards to biosimilars Factor VII or Factor VII analogues.

And, Mads, any date on when we'll see data on Factor XIII to give the profile of the drug, and Factor VIII if any?

Yes, the Factor XIII data will be announced at a hemostasis conference over the next 12 months.

We think it's very prudent that the data, which are very strong even though they compare to historic controls, that they come out well in advance of the launch so that the physicians know exactly what they have managed.

And Factor VIII much further out.

Yes.

Jesper, the share buyback expectations going forward?

Yes, we've continued a policy of returning whatever excess cash we are generating to our shareholders over and beyond the just over 40% in payout ratio that we return in terms of dividends.

We have returned that in the form of share repurchase program.

As you have seen us when we get a non-recurring cash flow like the ZymoGenetics cash flow, then we also return that in the form of a share-repurchase program.

So for 2011, although we haven't yet had the discussion with our Board on the exact amounts etc., I think it's safe to assume that we will continue with a payout ratio in terms of dividend which is aligned to where we see the general pharma industry, at the level of 40% plus in pay out ratio.

And then we will continue to combine that with an annual share-repurchase program and the exact amount of that would be aligned with our expectation for cash flow, free cash flow generated in 2011.

And we will announce that on February 2.

Super, thank you.

Next question please.

Our next question for today comes from Martin Parkhoi from Danske Bank.

Please go ahead.

I also have two questions.

First, with respect to gross margin.

Now Victoza's apparently developing much better than you previously expected and also the price in US has been quite handsome to you, what kind of impact we are actually expect from the gross margin for 2010 to 2012 just for Victoza alone, everything else being equal?

And then secondly, now we have seen, of course, a setback with the [Tazbo] and delay of Bydureon, and even you have failed with a long-acting growth hormone, has that put any thoughts into your mind with the once-weekly Victoza and Semaglutide?

Thank you very much, Martin.

Jesper, gross margin predictions of what impact Victoza's going to yield given the pricing situation and given the handsome launch, and how that is impacting our margin picture right now.

And then, Mads, any thoughts on long-acting versions of proteins.

Yes.

Martin,as you are aware, we have given quite clear guidance in terms of how our gross margin will develop this year.

And I think the guidance we're giving of an underlying improvement in the ballpark of 100 basis points is still one that you can safely trust for 2010.

We're guiding to the level of 50 to 100 basis points in effect for 2011 and we still think that is the relevant one.

We certainly have a more positive impact from higher mix impact from a higher share of Victoza sales.

On the other hand, as Lars alluded to in his review, the impact from US healthcare reform is also slightly bigger than what we previously anticipated.

And then making statements about 2012 is getting tricky in terms of impact on gross margins as a number of factors are influencing that.

But saying currencies are the same and assuming no significant additional impact from healthcare reforms, I think it would be safe to say, when we look at 2012, that we will have high probability of being able to continue to expand our gross margin in the ballpark of 50 to 100 basis points also in '12, everything else being equal.

But it is a lot of equals that have to stay the way they are and life is probably not going to be that good, but that's the best answer I can give you.

Thank you very much, Jesper.

And then, Mads, your thoughts on long-acting proteins as opposed to very efficient daily administration.

Yes, Martin, excellent question.

Now, you mentioned three.

You mentioned [Tazbo], Bydureon and our own long-acting growth hormone.

They are actually three very different cases so you cannot generalize here.

Terms of [Tazbo], this was actually a protein with a built-in, or actually two built-in unnatural amino acids put into a sustained-release formulation that stayed under the skin for more than one week.

Together that created a hypersensitivity problem and also some GI side effects.

So that's a specific [Tazbo] thing.

Then with Bydureon it was, to my knowledge, two other factors that came into play in the complete response data.

One was some clinical safety concerns, i.e.

the QTc testing demand from the FDA.

And the other one was CMC concern, i.e.

that they had down the duration-one study with a pilot-scale formulation and not a commercial-scale formulation.

So those are Bydureon-specific issues.

And if you look at our long-acting growth hormone preparation, it was a PEGylated version, but what actually happened here is that in the kids where we've just finished the study, we were simply not able at the clinically relevant doses to document, as we had previously by the way done in adults, that we actually had indeed week-long elevations of the biomarker IGF-1.

Henceforth we didn't meet the target-product profile so that failed for third reason.

So, Martin, in all honesty, you cannot generalize as to once-weekly [destinies].

But I would concur with my boss, Lars, that when you have a once-daily product such as Victoza that doesn't rely on sustained-release technologies and doesn't include unnatural amino acids, you're at least having a pretty safe bet.

Thank you very much, Mads, I really appreciated that.

And next question.

Our next question for today comes from Carsten Madsen from Carnegie Bank.

Please go ahead.

Thank you very much.

This is Carsten from Carnegie.

Just a couple of questions here.

If you look at the underlying market growth in the US diabetes market, and that is excluding Victoza, it seems that growth is slowing at bit down.

Could you give us a couple of comments on that and how you plan to attack this?

Secondly, if we look at the Victoza, now the patients are coming from, 20% of patients are coming from insulin the way you measure it today.

Given the strong launch and these rather significant numbers we probably reach in 2011, what do you think the impact will be on your insulin analogue and human insulin franchise from the strong Victoza launch?

Thanks.

Thank you very much.

I prefer, Mads, if you would comment on the insulin switches first.

And then we're going to revert with our comments to the US growth perspective in diabetes exclusive of the GLP-1 segment.

Mads, insulin switches is a complicated matter and a somewhat hazardous enterprise.

I think it's very important to notice here that the reason why people add GLP-1 therapy to insulin is not to discontinue insulin therapy.

Rather, what they do is they lower the insulin consumption somewhat, i.e.

equivalent to the GLP-1, that is then substituting for that insulin.

And the benefits gained being less hypoglycemia and less weight gain, plus maybe certain other benefits.

So what we're seeing is not a switching but (inaudible) that fact that people have an insulin-sparing effect of adding the GLP-1.

And if you consider the sheer volumes of patients that today are on insulin therapy, and the fact that they are not switched but rather have an insulin-sparing effect, this is a rather minute thing we're talking about.

Thank you very much, Mads, for that clarification.

And then as regards to the US growth in the insulin market, so excluding Victoza, our numbers indicate that it's relatively stable and it's relatively high.

It's around 6.5% to 7% throughout.

And we're talking here MAT numbers throughout the last 12 months.

So there's no changes as far as we can see it.

Okay.

Thanks, next question please.

Our next question for today comes from Mark Dainty from Citi.

Please go ahead.

Thank you.

Just two questions.

Firstly on Victoza, what is the percentage of prescriptions that comes from primary-care physicians or general practitioners and do you have any plans to try and increase that?

And then secondly on the withdrawal of human insulin from the market in the UK, could you just give us an update on how that's going, what volume you may have lost to competitors and what the initial feedback is from governments and regulators?

Yes.

Thank you very much.

The first question deals with how much is the script data coming from PCPs and from endos in the United States.

It's about two thirds that are coming from the PCPs and one third which is coming from the endo.

It is obviously from our launch plans that we are starting with the endos and we are in the position right now where we are working with managed-care organizations to have a similar tier as Byetta, meaning that the products are not necessary have to have prior authorization.

That is a question of rebate and negotiations of pricing with managed care in the US.

When we launched the product we did not offer any rebate.

We are now negotiating with managed care to change our pricing status with these organizations and that should benefit prescribing from the PCPs going forward as the PCPs are largely attached to these major managed-care organizations.

And the second question was the withdrawal of human insulin in the UK.

Obviously withdrawal of products in the insulin market is always met with apprehension on the part of the patients, as patients, and this also shows how conservative the insulin market is, are very unlikely to change.

And, therefore, when we do withdrawals we usually try to announce this in very long-time perspectives.

We try to deal with the authorities to make the withdrawal in a safe fashion.

We deal with patient associations and then we get the withdrawal done with as little impact as possible.

We have not seen any noticeable loss of our market share in the UK as a result of this, but there has been some PR pushback if you say so.

But this is to be anticipated.

Human insulins are available in the UK market from other vendors and what we do have to do is then we have to refer to patients that are insisting on staying on human insulins that they can procure other variants of insulin as opposed to the Nova Nordisk products.

That's the sad reality if people want to stay on products when we withdraw, but no major impact.

Thank you.

Next question please.

Our next question for today comes from Jacob Thrane from Standard & Poor's.

Please go ahead.

Thank you, gentlemen, for taking my questions.

Just a question on the R&D expenditure.

It seems like looking at the cost margin level is going a little down.

I'm just wondering if the amount level, like the [2302] you just reported for this quarter, is this the level we're going to expect going forward or are you still looking to fall -- to a, I believe Jesper mentioned at the Q1 presentation here in London it was around 16% cost margin, even a little higher.

That's my first question.

And just on the weight loss that's been seen with Liraglutide, I'm just wondering the approximately 6 kilograms referred to as the weight loss is a little blurred, I think.

What is the -- can you shed a little light on what the confidence intervals are around these 6 kilograms, because I assume that's against the approximately 100 kilogram average we saw before they started, that brings it above the 5%, the magic border in this area.

If you could help me with that.

Thank you.

Thank you very much.

With regard to the first question with regard to the R&D expenses, I'd better give this question to Jesper because otherwise Mads Krogsgaard will tell you that the expenses are going up significantly because he really wishes that they would do that.

So to get an unbiased, qualified answer you should probably get Jesper Brandgaard on that one, and then Mads can come back on the weight loss.

Yes, Jesper.

It is correct when you look at the quarter alone we are only reaching in reported numbers the level of around 15% and that's of course below the 16% that we were hoping for.

We have been impacted by having a high proportion of our overall R&D cost located in Danish krone.

And the ramp up of the Lira trial is happening in the third quarter and of course going into full-phase trial as we get into the fourth quarter.

So you should anticipate that our overall ratio will increase as we get to full year.

But the currency impact is bringing it a little bit down.

In the third quarter alone we had a positive 80-basis-point impact on the ratio solely coming from currencies.

Okay.

Thank you, Jesper, and then, Mads, weight loss.

Yes.

Indeed, interesting question.

If you look at the dissection out between the weight loss curve from Lira treatment compared to the blinded placebo treatment, you see already that after two weeks the standard errors of the means are by no means overlapping and neither are the standard deviations.

So the dissection out happens already within the first fortnight after the onset of therapy and increases up to and including the first half-year, whereafter we have more or less parallelism between the two lines, suggesting that the difference between the curves is maintained over time.

Not surprisingly, upon cessation of therapy after 56 weeks, we of course do see some weight increase as expected again.

So ladies and gentlemen, unfortunately the hour has passed 2 o'clock in Denmark and our investor team has to go for an investor presentation in Copenhagen.

So we apologise; we have to close this exciting meeting.

We thank you for listening in and we are looking forward to come back to you next year on the February 2 with the full-year results and with the guidance for 2011.

Thank you.

Ladies and gentlemen, that will conclude today's conference call.

Thank you for your participation.

You may now disconnect.