諾和諾德 (NVO) 2010 Q4 法說會逐字稿

Welcome to Novo Nordisk luncheon presenting our 2010 results.

We're very pleased to be here in this prestigious place.

We hope that you'll enjoy the lunch while we will be doing a bit of the talking.

We intend to go relatively briskly through the presentation, because it is a re-run of the call that we made yesterday, to enable us to get to the Q&A.

We have one hour; we have to be out of here by 1.30, so you know the deadline we have.

Forward-looking statements as usual; study these.

Things may end up different than what we predict.

These are the overall take for the Company, where we saw in 2010 a very strong development of our Diabetes business, reinforcing our leadership position, supported very strongly with the launch of Victoza, leading to a reported growth of 19%.

Very, very important data, I could almost say transformational data, for the future of the insulin business with the Degludec and DegludecPlus trial program completed, and Mads will go into this.

A strong set of numbers where you can see the leverage down through the P&L leading to operating profit increase of 27%, and earnings per share increase of 38%.

And the guidance we set out for 2011 is very similar to the guidance we set out in November last year.

You've got to bear in mind that this is now on a higher platform, as we ended 2010 with higher sales than we had predicted.

And an updated set of long-term financial targets, as Jesper will describe.

Here we see the evolution of prescription drug growth in different segments.

The total prescription drugs, diabetes care prescription drugs, and then the insulin GLP-1 class, is evaluated by EvaluatePharma.

You see one notable thing, that is that the Diabetes segment is growing significantly more than the total prescription drugs sales.

And that, within Diabetes, in the periods here we see that insulin and GLP-1 sales are growing more, and predicted to grow more than the Diabetes Care business.

So we are in the right segment, where the growth is expected for the future.

And, from our perspective, bearing in mind that our fundamental case is 5% plus 5% -- 5% volume and 5% value growth in insulins -- and then, hopefully, certainly some growth from GLP-1 segment, we would estimate these numbers to be conservative when we look at it in the projection from 2010 to 2015.

This is the overall strategy of the Company.

No changes, other than we have included, of course, GLP-1 on the diabetes and we have included a line for obesity where our entry into obesity, hopefully in the future, will be based on the molecule liraglutide.

Now clearly stating also our ambition in the area of hemophilia, and also the fact that we, longer term, hope to be able to build an entry into inflammation based on monoclonal antibody technology.

With that, I think it's Kare.

Thank you, Lars.

And here you see the sales as reported, 19% growth, 13% in local currency.

And you clearly see that the majority of the business, 75%, is in the Diabetes space, and that there was a strong 22% growth of that part of the business.

What is growing there is, as usual, modern insulins, making up some 57% of the growth.

And now Victoza is the new element, adding 32% of the growth.

The human insulins are basically stable.

It's basically emerging markets where we sell the human insulins.

NovoSeven growing nicely with 8%, and modest growth in Norditropin, where we keep our market share, but where we have more and more price competition.

If we look at the split geographically, then it's quite clear that the biggest driver here is North America.

North America where we, despite the healthcare reform, have been growing very strongly, 29% reported.

That's a combination of continued price increases and continued market share gains, compared with a good dynamic in the underlying diabetes market.

You can also see that we now report separately on China.

That goes hand in hand with an organizational change where China, in our internal system, has become an independent region, along with the four other sales regions.

And we're very happy to see here reported growth of 27%.

In China we have a high market share, so this is more the result of the organic growth in the Chinese market, whereas the growth of 29% in North America, as I said before, also has an element of market share gains.

If we look at the total value market for insulin worldwide, then last year, from '09 to '10, we saw a growth of 18%.

That's a little bit above the last five years' compound annual growth rate, which is more around 15%.

But there will always be variations in this, and what we say is, like Lars said in the beginning, that basically you can expect always to see demographic-driven growth of at least 5% on volume, and price mix growth of another at least 5% kicking in, on a yearly basis.

Our total share of the world insulin market in volume is pretty steady, just above 50%.

And we have a continuation of the shift where Lilly is losing out, and where Sanofi has a marginal gain, based on Lantus.

Victoza's off to a very good start; it has outgrown our expectations last year.

And here we just show an example from the US, where you can see that, not only are we taking share from exenatide, but we're also expanding the total market.

And value share, if you want, has gone from around 3.5% of the total diabetes value market of all diabetes therapies in the US, to something like 4.5% right now.

So we're very happy about that.

It's positioned the right way.

The majority of patients come from OAD therapy.

It's getting reasonable traction with managed care; more than 60% of lives are covered without restrictions.

And we see the high dose being the most popular in the US, which basically is priced at a 50% premium to exenatide, because it's the 1.2 milligram that is at par with exenatide, and 1.8 milligram with linear pricing is 50% above.

We also had a nice label update where we can now claim, in our marketing, that we are superior to exenatide on a number of key elements.

So all in all, a very good outlook for Victoza.

Also with a lot of launches in emerging markets coming up this year.

And with that, over to you, Mads.

Thank you, Kare.

And essentially, from one new product in the market to two products that are emerging in the market over the next couple of years, Degludec, at least expectedly by our Company, Degludec and DegludecPlus.

We're very happy to announce the results that we perceive to be strong and in favor of Degludec from the huge BEGIN and BOOST programs; they've been conducted over the last 1.5 years.

And we have very robust findings.

So things that you'll see over the next couple of slides on one of the studies are clearly, in terms of qualitative findings, the same across the board.

So what I will do is actually share with you on the next slide, and that is actually a one-year trial in insulin initiation, i.e., these were insulin naive patients who had been treated with oral anti-diabetics.

They were randomized in a three to one manner to either once daily Degludec or insulin glargine, also known as Lantus.

And, importantly, the background treatment during the trial was metformin.

And only actually in a few percent of the cases did people also receive a DPP-IV inhibitor.

So for practical purposes this was mostly a metformin plus insulin trial.

And what we saw was 1,030 patients treated over one year with a dropout rate of below 25% in both arms.

If we look on the next slide here, the data are as follows; headline data are what we have released.

We are continuing also analysis of this and other programs, plus a number of [meter] analysis across the trials that have been pre-specified and that we'll get back to later.

But today, it's only the headline data, and essentially we saw, as required by regulators in a treat-to-target regulatory design, that the drugs were equally effective, as they should be in this kind of trial design, in bringing patients to target by a reduction from about a baseline of 8.2% to around 7% A1c.

Importantly, Degludec decreased the fasting glucose statistically significantly more than did Lantus, and we ended up in less than 5 millimoles end of study fasting glucose.

Furthermore, and importantly, the risk of nocturnal hypoglycemia, which, as I hope you are aware, is one of the most feared acute complications of insulin therapy by the patients, was something that was significantly reduced, in favor of Degludec, by more than 35%.

I should highlight here that we've had two exactly similar trial designs done either in Japanese or with a [U200 strong formulation] to reduce the injection volumes, and those numbers of more than 35% reduction were a mirror in those two trials as well.

Overall, we also saw a total hypoglycemia reduction slightly shy of that 20%, which did just not achieves statistical significance.

The safety and tolerability was good, and we did QTc analysis of the patients, both at onset of study and at the termination of the study, only to show that there were no differences and no untoward findings in the form of QTc prolongation or, for that matter, antidrug antibody formation of any kind.

On the next slide, the last one, we can now sum up and say we have here in Degludec an insulin that is flatter, less variable and twice as long in its half life, as compared to insulin glargine and, for that matter, also Levemir.

Efficacy wise, we have shown the desired HbA1c reductions in the regulatory trials, and improved fasting glucose control, because of the extended duration of action.

Safety wise, we have confirmed the Phase 2 observations of the lower rates of nocturnal hypoglycemia and we have also, in the type 2 basal bolus one year study in 1,000 patients, seen a significant reduction in the overall hypoglycemia rate.

Convenience wise, and this is very important for the patient perspective, the dosing flexibility has been shown to be unsurpassed inasmuch as people have been shown to be able to take this product with dosing intervals ranging from 8 hours to 40 hours with no untoward effects neither on safety nor efficacy, hence allowing a label with a much higher flexibility and a less rigid insulin treatment regimen.

Furthermore, the U200 formulation allows us to bring down the dose or the volume of Degludec.

And this is important because, in the trials, between 25% and 30% of the patients needed more than 80 units of insulin.

And neither the Solar Star or any other pen, for that matter, allows doses of higher than 80 units, meaning that, in 25% to 30% of the cases, people would have to inject two times a day with insulin glargine to get the defined dose.

Finally, we are launching a new superior device platform with an auto injector that has already been brought to market with a success in the field of the growth hormone, known as FlexPro.

DegludecPlus has also some strong data.

It is the first basal-prandial fixed combination with no need for re-suspension because it's a liquid ready-to-use solution.

There was good HbA1c control and, indeed, again improved fasting glucose control.

Furthermore, as we also saw trends for in Degludec in many trials, here we saw a clearly fast achievement of the titration target in the studies.

And, moreover, there was a reduction in the daily insulin consumption.

Here we see statistically significant and clinically meaningful reductions, both in overall hypoglycemia, and in the rate of confirmed nocturnal hypoglycemia; again also being delivered in a superior device.

Those are the headline profiles of what makes us extremely excited.

Lars used the word transformational.

I think this is really signifying that we are coming with a new class of further improved insulins that provides the same level of benefit as compared to today's glargines and NovoMixes as they did when they came to market about 10 years ago.

With that, over to you, Jesper.

Thanks.

If I can turn you to slide 15 and the financial results.

Basically, we've seen a 19% growth in sales this year, and that was supported by a 6% positive currency movement, and that was a 1 percentage point higher currency effect than what we predicted when we were back in end of November.

The gross profit came out at 21%.

That was an increase in gross margin of 120 basis points.

Here we had 40 basis point positive currency impact, so there was an 80 basis point improvement measured in local currencies; roughly half of that coming from improved product mix from selling more of the modern insulins and introducing Victoza; both of them being high gross margin products in our portfolio.

And on top of that, we are continuing to improve our production efficiency.

The production efficiency in the final quarter was impacted by the launch of the Danish employee share scheme, which deducted some 20 basis points from the full year expansion in gross margin.

So the local currency improvement was 80 basis points.

In terms of R&D, the 22% growth; very similar growth levels also recorded in local currency, around 20% local currency growth.

And that's primarily coming from the completion of the Degludec and DegludecPlus trials.

But also the initiation of the LEADER trial, the cardiovascular post marketing commitment we have in the area of Victoza.

Maybe on selling and distribution I should also just mention that, of course, the level of costs here are reflecting the global rollout of Victoza and expansion of sales forces in US and China.

On the admin side, a continued reduction in the admin to sales ratio, and some 4% currency impact -- local currency growth, 6% to 7%.

Also a slight impact here on admin costs coming from the employee share scheme.

Operating profit growing 27%, 11% currency impact, so a little bit higher than what we predicted back in November.

16% underlying growth in line with the more than 15% we had anticipated.

Net financial, because of this slightly higher operating impact, a more negative impact on net financials.

Note that 2010 is impacted to the tune of DKK1 billion from the divestment of shares in ZymoGenetics, which we almost completed in October last year.

In terms of the tax rate, the tax rate is also lower by approximately 1.5 percentage point because of the divestment of the shares in ZymoGenetics that are non-taxable, from a Danish tax perspective, where the ownership of the shares were.

Net profit growing 34%; if we back out the non-recurring Zymo element, you have a 24% growth in net profit.

And also note that the continued share repurchase program added approximately 4% to the growth rate for EPS.

Taking you onto the financial guidance, I think these parameters are all well known to you.

A key comment is that in terms of sales growth in local currencies of 8% to 10% is a confirmation of the close to 10% we set in November when we gave the preliminary guidance, and that Lars also alluded to.

This guidance is now given on a basis for 2010 that was slightly higher than what we anticipated in November.

The currency impact, 1.5% negative, expected now growth around 15%, so that's in the higher range of what we anticipated.

Tax rate goes back to 23%, so same level as in 2010 when we adjust for the ZymoGenetics divesture.

The other factor to mention is an expectation of a free cash flow of more than DKK16 billion.

And, if you compare to that 2010's cash flow of DKK17 billion, of course there we have DKK1 billion coming from the Zymo transaction, so a similar level.

Those DKK16 billion, if we can take the next slide Lars, we returned that to our shareholders in term of the dividend of DKK5.7 billion and a DKK10 billion repurchase program, that together adds up to the same DKK16 billion.

Of course, the dividend of DKK10 per share has to be approved at the ATM meeting we're holding late March.

The DKK10 billion share repurchase program has been initiated and is run as Safe Harbor program managed by JPMorgan.

The long-term financial targets on slide 18 are a reflection of us in 2010 reaching the targets for all four key targets.

The operating profit growth -- the 27%, which we show in 2010 is because of currency impact.

But even if we look at the average for the five year period, '06 to '10, we are looking at 19% average.

And we maintain this growth level and, again, this ambition for operating profit growth is hinging on continuing to be able to deliver a double digit growth level in sales, primarily being driven by our Diabetes Care franchise.

And, of course, we are being assured by our ability to maintain this growth level in the outer year of this outlook period by the very promising results we've seen now for Degludec and DegludecPlus.

In terms of operating margin, getting then from a more than 10% growth in sales to a 15% operating profit growth year on year, that will require us on for a gradual expansion of operating margin.

We anticipate that you will see a continuation of our expansion of gross margin; we also see a continuation of gradual improvement in our admin ratio.

I think there opportunities, longer term also, in terms of sales and distribution efficiencies as we reach economies of sales, although that is highly dependent on the competitive environment.

Return on invested capital is reflecting a continuation of the successful organic development strategy that Novo Nordisk have had.

All the products we have in our portfolio have been developed and expensed as research and expense cost, development cost in our P&L.

We have not, to any significant degree, acquired intangible assets and, hence, the invested capital we have, to some degree, reflect the very limited investment level and, hence, intangible asset and, hence, the relative high return levels.

It also continues to be measured, post tax.

We believe that tax should be taken into this equation, and we have an expectation included in these ratios of a tax level which is similar to the tax level expected for 2011.

The cash to earnings ratio of 90% is reflecting the level of cash conversion that we have been able to demonstrate over the last few years.

And a very limited level of fixed asset investment is expected.

The current level of 5% to 6% investment to sale is perceived as being meaningful for this planning period.

So those will be the high level comments.

Then, Lars, closing remarks.

Yes, so basically again back to this 10% plus annual diabetes market growth driven by the demographics of the diabetes epidemic strong position in the marketplace, by far the dominating player.

A strong position in the fastest growing segment of that diabetes market, which is the modern insulins, and also an increasing share there.

And expanding with the Victoza add on, the newest protein treatment for diabetes.

So we feel that we are in a very comfortable position in a very attractive market.

And in terms of the pipeline, as we've already talked about, a very, very promising development with two new insulins reaching submission stage; a GLP-1 pipeline that offers opportunities to expand very effective therapy and much earlier in the progress of Type II diabetes, but also perhaps even having the opportunity of offering treatments for few that are pre-diabetic, severely obese individuals.

And finally, with an expanding late-stage pipeline that are likely, or inspirationally from our side, likely to give us a leadership position in hemophilia within a five year to seven year time perspective.

So those were the comments and we, of course, know that we haven't answered all the questions you may have, so please.

Just two really top down questions; firstly, perspective on the recent Lilly Boehringer announcement.

We've previously discussed the [Pfizer buy position]; you dismissed that, given their CapEx requirements weren't substantial to address the market.

Lilly are clearly a player, how do you assess that risk on a longer term basis?

And then secondly, just a follow-on from your comments on the long-term margin progression, Jesper.

If I understood correctly you were eluded that the bulk of the margin uplift will be coming from gross margin.

I guess that implies substantial increase in absolute sales and distribution spend from here; my impression was that you'd built out the sales force, just some color as to where that additional spend is coming?

Thanks.

Yes, if I should start with giving some top-level comments to the Lilly Boehringer collaboration.

To us it was somewhat surprising and perhaps even perplexing to see that Lilly wanted to share their innovative pipelines in the core area of insulins with Boehringer Ingelheim.

And that gave us the impression that Lilly was perhaps not as convinced that they had a significant proprietor position to harvest there.

And therefore, perhaps, could use this as currency to get access to the oral anti-diabetic compounds, which Boehringer Ingelheim is developing.

So from our business perspective, which is primarily in the protein part of the business, we do not see the (inaudible) basal insulin as a potential and major threat.

Obviously, a generic glargine or biosimilar would be forthcoming from somebody.

Of course, you can say that if it's forthcoming from somebody that has the CapEx and has the global reach, that, in itself, make that risk and that competition somewhat stronger.

But we are anticipating that we will see competitive entries of glargine biosimilar types coming either from India, from China or, in this case, perhaps from Indianapolis.

As far as [OID] is concerned we're not competing with them, but I think, top level, these are latecomers in the classes.

And the SGL2, Mads, I don't know whether you just say a few words about that class, which not on the market yet, but we are not thoroughly impressed with that content.

Is that right?

I think it's a new class agent, it looks as if it will come to the market; it can be combined with other products including, for that matter, insulins.

So we don't see any strong differentiation between them and, overall, the efficacy level and so on, is one in which you can say it doesn't really compete, head on, against compounds such as Victoza and the insulin portfolio.

On the long-term development in the operating margin, I think the key assumption first to state is that we presume that we would at least be at an R&D level of around 16%.

Of course, the actual [flow] of Phase 3 trial can make that very up and down.

We will do the R&D investment necessary to protect our core franchises, and gradually expand our investments in the inflammation area.

The size of the investment in the inflammation area will, to a large degree, on to what degree we are successful with obtaining clinical proof of concept for the current portfolio, which is progressing towards -- and in Phase 2 clinical development.

But ballpark level around 16% R&D.

We certainly believe in an organic growth model growing or investing in R&D and having that as the basis for the overall growth in the portfolio.

On the gross margin side, I think there is rooms and possibility for continued expansion of our gross margin.

That's partly coming from having the value upgrade of our portfolio with the introduction of Victoza, clearly higher priced product in the portfolio, which is helping us.

And, as I said, half of the impact we had on gross margin this year was coming from mix.

I also see Degludec, in the latter part of the period, as being a positive; clearly, from a production point of view, it's going to be more efficient for us to produce Degludec, compared to Levemir.

On other elements of gross margin, we are gradually expanding our production capacity in lower cost labor markets like Brazil.

And you will see the Chinese large facility, probably the largest insulin filling facility in the world, come on stream in Tianjin from 2012 onwards, which is going to be a clear positive in the average cost of filling our cartridges of insulin, so that should be positive on gross margin.

We've given a guidance this year for around a 50 basis point improvement, and I will feel reasonably comfortable by delivering a similar level of improvements in the near-term horizon.

In terms of selling and distribution cost, it's a little bit more tricky element to be very precise on how this is going to develop, because it's, to a large degree tactical, what kind of push is needed in the market to maintain the right share of voice, and that's not solely dependent on our moves, but also the moves of competitors.

I think both Kare and I are adamant that we remain with a very competitive share of voice and we need that, both in the specialist segments, which is particularly important for the insulins, and then broader into the [GP] territory, which we need for the GLP-1.

I think it's comforting that you can see that we've been able to roll out our GLP-1; we chose globally, which reaches broad out in the GP territory whilst maintaining the S&D ratio in the 29% to 30% range.

We've given a guidance this year for a selling and distribution cost in the 29.5% range, and it can swing up and down a percentage point.

But I do know, for the roll out of Degludec, that the Degludec push will be into the endocrinologists and the diabetologists where we, on a global basis, to a very large degree are.

So that's really going to be a shift of the marketing push from one product to another, but not to the same degree require an expansion of the sales force as the GLP-1 does.

Of course, in the launch year I'm sure that Kare will set aside significant resources for a promotional push, but that is mere a launch period focus.

Then finally, the admin side of things, of course we will continue to see benefits coming from administering the business at a lower average cost of sales, over time, as we're gradually taking out 20/30 basis points in improvements year on year, and that should continue.

Those would be the key comments.

Three questions, if I may?

The first one is on Levemir and Degludec.

Do you expect any cannibalization of Levemir sales over the long run?

The second question is on Lixisenatide for which we got results recently showing superiority versus Byetta, what's your view on that, and what's your view regarding the upcoming competition if Lixisenatide reaches the market?

And finally, regarding your acquisition in China, which is very solid, do you already see on the market some pressure coming from Sanofi or not?

Mads, would you care to comment on the first question about how you see Levemir and Degludec position in the future, and your expected acquisition of patients on Degludec, where are they coming from?

Are they going to be switches, or are they going to be new starts?

Then perhaps we can give some comments on Lixisenatide and then, Kare, if you'd care to comment on China.

I think, based on what we know today, there's for sure one aspect of Levemir's benefits that is not shared by any other insulin, and that is the body weight kind of, not benefit, but relative neutrality, compared to all other insulins.

So we do see that Levemir can maintain a kind of a niche.

But I think the interesting thing is that today, our capture rate in the basal market is typically in the ballpark of 30% or so of new patients with glargine having the lion's share.

So for sure, having a superior product to any insulin on the market will strongly enhance our capture rate in the basal segment, which is today really the world's biggest segment.

When that is said, with the five benefits that I alluded to that Degludec has compared to its competitors, including our own Levemir, you can say, then clearly we will, of course, also seek to ship those patients, for instance, who are taking glargine twice daily, either because it's not long enough or because they need more than 80 units of it on a daily basis, and we will, of course, try to convert them to this better product.

But clearly, the market dynamics have historically been such that it's the new patients on all tablet failures that you're really fighting for.

Lixisenatide, if I can comment?

You can take part of it, and then I'll add.

Yes, okay sorry, because I just want to correct one thing.

It was not shown to be superior, it was non-inferior and they didn't disclose any HbA1C data or any weight loss data.

But do bear in mind that, in Phase 2, they investigated Lixi twice daily and once daily, and the twice daily worked better than the once daily.

This is because Lixisenatide as a half life in humans of between 3.5 hours and 4 hours, really not showing a true once-daily profile.

So Lixisenatide, as a head on standalone comparator or competitor to Victoza, is not something that I can be scared of, and I don't think Kare will be either.

But as you know, they are planning to combine it with insulin glargine in a combination product.

And perhaps I should add a comment here.

Lixisenatide has its origin in Denmark also, by the way, as some of you may know, so we are quite familiar with the concept.

As Mads alluded to, it's more like exenatide than it is comparable to liraglutide.

And then, when commenting on the potential outlook for the Lixisenatide, I'm a little bit in a difficult situation because, on the one hand, the concept of combining Lixisenatide and glargine is a good concept.

We endorse this general concept of combining GLP-1s and insulins.

In fact, we are, right now, planning and starting our Phase 3 clinical studies where we combined the liraglutide molecule with that of Degludec.

So we believe that in that fundamental concept.

We would also like to see Sanofi-Aventis being successful in developing a follow-on compound or concept to glargine, because that would help us immensely in trying to retain a value or upgrade opportunity in the insulin market, going forward.

However, we would like them not to be too successful, and we think that we can be reasonably assured that they won't be, because the two components, as Mads was alluding to, on a one-to-one basis seems to be inferior to the two components that we are using.

Kare, onto China.

Yes, and actually slide 46 in what is on the table, you can see how we are doing in the Chinese insulin market, and also how Sanofi-Aventis is doing.

And over the last 10 years we've basically been outcompeting the biosimilars, reaching 63% volume share of the Chinese market, which is growing very strongly with around 25% volume growth.

The modern insulins, so the insulin analogues, have only been reaching the Chinese market during the last five years, due to the regulatory and pricing delay it always gives with the process you get to go through in China.

And Sanofi have been launching Lantus at a price point similar to the rest of the world, and they've got a modest volume penetration of 4%.

And that goes hand in hand with the fact that the long-acting segment in China, due to the Type 2 diabetes people have in China, the long-acting segment's very limited, and it's the premix segment that dominates.

However, we should acknowledge that they've been successful with this quite high price strategy, and the 4% volume they have is resulting in a significantly higher value share, due to the fact that many of the biosimilars, of course, have a very low price.

Going forward, we see this is a great opportunity, because it's basically showing that the Chinese market is upgrading to modern insulins, the same way as the rest of the world, just starting maybe five/six years later, and they're now having 24% of the market moved on to modern insulins.

And since we have launched Levemir at the same price point, and we also have NovoMix, which is our premixed insulin analog in the marketplace, this is all a very positive development overall for us.

And if you want to add a little bit more color, you can actually take the next slide; that explains a little bit about why we have a fantastic unique situation in China.

We have worked on a quite comprehensive strategy.

And we had an early entry into China, because of the proximity to the Industrial division back in the '90s, where the Industrial division went in and decided to make a major capital investment in China in the beginning of the '90s to produce industrial enzymes.

As part of that entry, we developed a comprehensive business license with the Chinese authorities, allowing a 100% Novo Nordisk owned company to produce also pharmaceuticals.

That led then to a number of initiatives where we started to focus on education.

You can see here physician training; we have so far trained 55,000 Chinese physicians in diabetes.

We have also trained the patient community, as you can see.

We have worked, together with the Government, on public awareness programs on diabetes.

And we have made significant investments, both in direct jobs and related to sales, marketing and clinical work, but also one of the first basic R&D centers that were made by a pharmaceutical company in China, and a significant, as we've already talked to, manufacturing side.

So we have a unique position, and we have a first move advantage.

And I think we stand in a good position to be able to retain that, going forward.

But, of course, we also see that a lot of the foreign companies are coming in, and there has been significant resources; that doesn't worry us terribly though.

Just a very quick question -- two questions.

One is with regards to the pricing pressure on the growth hormone side.

Can you quantify that for us a little bit?

Is it from the brand players?

Is it from the biosimilar players?

Is it due to government tender pressures?

Just to get a little bit of a feel as to where that's coming from, and maybe even quantify the actual level of it, so we can get a view for that.

And then also on Degludec, I'm sure you've been asked this, and discussed this over and over again, but just to help me again one more time.

With regards to the difference between daytime and nocturnal, is it simply to do with, and can you quantify that, the fact that the patient's awake and can actually deal with his or her hypoglycemia that's occurring?

Is that what drives the difference, why you don't see a difference in the day?

Or is there some PK differences in the drug?

Yes, they are excellent questions.

Kare, you must be the right person to talk about growth hormones, because you are at the receiving of the competitive situation in human growth hormone.

Yes.

It's, of course, a diverse picture from market to market.

But if you want to see the overall bigger elements, then you can say that it is not really the biosimilar and generic growth hormones that are taking market share in a big way.

But we have a lot of different growth hormone compounds that have been developed each and every one on their own.

And they are similar without being true generics.

And what has happened in the US market is that the increase in the number of competitors has actually led some of the big leading brands to be more sharp in their retailing and in their price competition, which has also influenced us.

So you could say it is a combination of the many different branded products and some generics in the marketplace that is increasing the price pressure.

We don't see any price pressure, for instance, in Japan.

And there are also a couple of other markets where we do see government tenders, healthcare organizations having tenders in Europe and so on, where there are some price pressures.

So a mixed picture, but basically the result of a lot of different competitors on the same segment.

And then Mads, on to a discussion on what is the difference between daytime and nocturnal, and where does Degludec come into play here?

Yes, well, here we have two different situations, Sam.

When you look at Type 1 diabetes, I think we all recognize that these studies, and also real life settings will imply, that the daytime hypoglycemia is predominantly related to the mealtime insulins, and that was NovoRapid, in each case, in both study arms, in all studies.

And that implies that the daytime hypo rates in those studies will be similar, because it's the same [insulin] that's being given in both groups and, indeed, it was the case.

In the case of Type 2 diabetes, it's a different story.

What happens is that the majority of the Lantus patients, maybe two thirds of them, are actually taking their insulin glargine in the evening.

Now we know from umpteen different [CLAB] and other pharmacokinetic and dynamic studies that have been conducted by us, by others, by academics over the last 10/15 years that insulin glargine, like Levemir but not like Degludec, has a subtle peak around 8 to 10 hours after the injection.

This is documented also in very sensitive insulin CLAB studies, where the insulin in the activity rate, as measured by glucose infusion, is more than double the average [status day] situation.

And this then means that that occurs during the nighttime for insulin glargine in the majority of patients.

And this drives the nocturnal hypo rate higher than for Degludec.

And what we see is typically this, 30% or 30-plus-% difference, depending on which studies we're looking at.

Do bear in mind that there's an immense under-reporting of nocturnal hypoglycemia.

So when you see numbers that seem to be relatively low, it's also because the patients are suffering the brain damage and the risk of their health while they are asleep.

So in many cases, they never reported, and this is a well known fact, to patients at least.

So from a patient perspective, the nocturnal hypoglycemia is really the one they are most fearful of, because getting third party assistance at nighttime, in some cases, is not possible.

In other cases, it's not feasible and typically, you may even run the risk that you never get to ask anyone because you're asleep while your brain is getting the damage.

So it is the pharmacokinetics that govern the difference on nocturnal hypos at nighttime.

And in Type 1 diabetes it's, of course, a factor of day and night being [prandial and basal receptive].

I'm [Christian Davis] from (inaudible) Investment Management.

I have a question on your top line guidance for this year, the 8% to 10%.

I can't really stack the numbers up here, but is Victoza included in those numbers or --?

Because the problem I have is that you really don't have to make any really heroic assumptions to get quite a lot higher growth number.

I think we can help you on that.

Jesper, will you please --?

Of course, what you have to bear in mind is that we will have a significantly larger impact from the US healthcare reform impacting the numbers in 2011 than what we had in 2010.

We're estimating approximately 2 percentage point negative impact on growth from the US healthcare reform.

We're going to have another 0.5% impact on growth from the European healthcare reform, so mandated lower prices that we're seeing across Europe.

We're also seeing a trend, and you saw that during 2010, that we have lower growth coming from our Biopharm franchise, which is also built into the numbers.

And then we're also estimating that there will be generic competition occurring from the Prandin franchise in the US.

And we didn't see that in 2010, although it had been anticipated that this would be the case.

So if you take these, which are one-off patented products or one-off impacts, they amount to 2% to 3%.

So you back that again, then it looks like a more normal year, depending on where we are in the range that we guide.

(Inaudible - microphone inaccessible) very high growth rate in the first half, and it tails off quite sharply in the second half because of the increased (Inaudible - microphone inaccessible).

And then you kindly, last year, gave, if I look through my notes, (Inaudible - microphone inaccessible) sales of just over DKK2 billion.

Would you be kind enough to give us a (multiple speakers)?

Well I think we said on the numbers for Victoza that we think it's highly likely that they'll turn into a blockbuster when we get to 2012.

And when it exactly will reach the blockbuster stage really depends on the growth of the volumes in the US.

You're basically seeing that we're capturing approximately two thirds of the GLP-1 patients in the US.

And there's not big changes occurring in that.

So what really matters is to what degree will the GLP-1 market expands in the US.

And depending on the speed of that, it could be earlier or later that we see the blockbuster stage has been reached.

But no specific guidance have we given for GLP-1.

(Inaudible - microphone inaccessible) by 36% in the quarter last year.

And it might not be that high this year, but --

No, it was an easy pace.

(Inaudible - microphone inaccessible) very conservative last year.

I think 2012 blockbuster stage is that's a safe call.

Whether it's then going to be -- it depends on whether you look at it for the full year, or whether you look at it on a [month-end] total, but it will probably occur during 2012.

And Kare, if you want to add more?

We would prefer to surprise you on the positive than on the negative.

We have tried the negative, that's 10 years ago.

We don't want to repeat that.

I don't have any further comments other than we have to, of course, in our guidance include the potential patent expiries.

And we have a legal situation on Prandin in the US.

And we cannot really communicate the best case there.

We've got to communicate a conservative case there, of course.

Just a couple of questions please.

Mads, you mentioned again today that you've done a QT impact on the 3579 trial.

I think some people are suggesting, following Bydureon's issues, that you may need to do a specific trial.

I wondered if you could give us your perspective on that, looking at, I suppose, supra doses of Degludec.

And then secondly, just where do you think the overall reduction, which seems to be around 20% in terms of hypos for Degludec, places you in your discussions with doctors and payers, given Lantus had about a 30% improvement compared to NPH.

Thanks very much.

Okay, should I kick off?

Yes, Mads.

Okay, so on the QTc, you can either TQT, which is a so-called thorough QT analysis, or you can do a QTc analysis, just add study start and either the baseline and after one year in all these very many patients.

And quite frankly, we've discussed this very extensively with the regulatory bodies.

And the view was that, if we could take a study with 1,000 patients, some of whom are getting doses above 100 insulin units per day actually, surprisingly, but that's how it is, then we'll be in a very strong position.

I can you tell you, Richard, with all the discussion in the world about QTc, I have looked at every single millisecond change indeed, and there is none.

So don't worry about that one.

And also the FDA has a view that insulin is different, because they've known it from 90 years.

So the FDA's focus on insulin, and cardiovascular as such, seems to be of a different order of magnitude than for all other molecules including, of course, GLP-1.

And, Mads, if you'd care to comment also on the hypo reduction rate, as estimated by Richard, on Lantus, and how you compare that to Degludec?

And what your situation would be in terms of healthy economic arguments, going forward?

I think, Richard, what you're stating is not really reflecting the totality of the data that is available.

Because I requested the total analysis of all conducted studies ever performed since glargine was called HOE901 of the duration of above three months.

And I can tell you that, in terms of total hypoglycemia versus once or twice daily NPH across the board, there is somewhere between zero and 10% difference from glargine to once or twice daily NPH.

In terms of nocturnal hypoglycemia, then in the first studies there was no difference.

In some of the last studies, there's more than 30% difference, and sometimes more than 40%.

When we've done an analysis across the board, 25% to 30% risk reduction versus once or twice daily NPH insulin is what is the [grad] average for nocturnal hypoglycemia.

And when I do the same analysis for Degludec versus glargine, I come to a number around 30%.

So I will argue that we are proving exactly the same degree of benefit versus glargine as glargine did versus NPH.

But from a health technology perspective, it's a lot of things, Richard.

It's not only nocturnal hypos, it's also a number of elements about how many blood glucose strips do you need if you have a simpler titration [outflow] than the other guys, if you achieve your target faster, and so on and so forth.

Simplicity of treatment; lack of rigidity of regimen; quality of life perceptions; there are many things that you lump together in your health technology assessment, as you will recall from Victoza also.

Just one question.

You talked about the ramp of Victoza in the US.

Could you talk a little bit about managed care coverage?

How are the negotiations progressing?

What proportion of managed care organizations deal with Victoza?

And also how do they place it on [formulism], what kind of restrictions they put in your way?

We have launched Victoza without really going out and offering major discounts to managed care, because we feel so confident about the profile that we thought it could probably carry itself without major concessions on managed care rebates.

And that has also been the case.

So the situation right now is that we have the majority of the market without any prior (inaudible) being needed, and the biggest portion being on tier 3, some being on tier 2.

And we have, of course, used a tactic where we offer a rebate card to the patients that end up being on tier 3 so that they don't have a disadvantage of having to make the higher [co-pay].

We have now started to negotiate, based on the strength of the product, with managed care, with the aim of having a quite moderate rebating to them.

But, of course, either obtain tier 2 status, or have the prior (inaudible) removed.

So basically we are happy about this, and we are going for a high value strategy, which is different to what we actually did when we launched Levemir, where we pushed into managed care quite fast by a much more aggressive rebating strategy.

Just a few quick ones.

Kare, this question was answered yesterday, but I'd like to better understand.

Given what you saw losing the United Health contract, given the reference pricing for basals in Germany, why we haven't seen more of an impact in 2011?

Jesper on Prandin, my understanding was that [Carousel] were still nowhere near getting approval from the FDA to manufacture Prandin.

So you could equally see a probability that Prandin stays generic-free this year in the US.

Also forgive me, I know you get asked this question every year regarding working capital at Novo and the scope for improvement there.

But we did see an improvement in inventory this year, quite significant.

There's obviously a huge scope for improved cash generation, going forward.

Is it a sign of things to come?

Or is the more just other one-off issues?

And then Mads, I just wanted -- your comments yesterday about Victoza/Degludec combination, the feedback we're getting from the docs is that they're very excited about it.

But I got the impression that you were almost saying that it can be positioned to help patients transfer from GLP-1 to insulin.

Is that the right way of thinking about?

Or is the utility of Degludec/Victoza more broad?

Okay, that was a lot of questions.

We have to apologize that we have the question for Kare once again, but it was a little fast and (multiple speakers).

Yes, just quickly; United you lost the contract, Germany's gone to reference pricing, why has that not had a bigger impact in terms of your guidance than you might imagine?

That seems quite significant then.

Okay, it's two different situations, and let me just explain the first one.

The first one is about the fact that, in the US, there are maybe 2,000 managed care organizations.

And with each of those you negotiate rebates.

And then, depending on what kind of concessions you give, you get either tier 1 status, tier 2 status, tier 3 status.

And that is a tactical rebating gain, value/volume share gain.

And some of the managed care plans are good at switching patients over to the company where they have the best status; some are not as good.

And it's never 100%.

So what we've been working on, very diligently in the last couple of years, is to improve our tactical rebating in the US, basically optimizing, you could say, the volume/value mix of the contracts we have in managed care.

When you do that, there's some you walk away from, and there's some you gain.

And overall, I would say, I'm very happy about our total results for the last two to three years.

And I believe that we're driving up our value share in the US marketplace as a consequence of this.

And that is why you don't see a single loss having a major impact, neither on our performance, nor on the outlook.

If you then go to Germany, then in Germany we have a peculiar situation.

And the peculiarity is that German prices are very high, reimbursed list prices are very high.

So we start out with human insulin prices that are at the level of analog insulin prices in the rest of Europe.

So you say, why don't the Germans just take the prices down?

I don't know.

Instead of just taking them down, they have made these convoluted efforts of referencing and rebates and God knows what, which has resulted in they have got the analogue prices down to their human list prices.

Their human list prices are pretty similar, if you take the average, through the average analogue prices in Europe.

So in reality, it doesn't have a huge financial impact on us, but it creates a lot of noise in the marketplace, because it's the perception that now they're down to human prices, which they are from a German list price point of view.

But since the German list prices are often 20%, 30% higher than the average European price, it's not really a big financial issue for us.

Yes, Prandin and NovoNorm, and then working capital, and then Mads, very quickly, on your positioning of Victoza combo with Degludec, or [Envira] combo with Degludec.

You're right Peter, on Prandin US, even though we've lost in first instance, our combination patent on Prandin with Metformin, we have not yet any clarity on when we will see generic competition.

And that probably has to do with the regulatory status for the [end holder, Korako].

So I think that situation is still unclear, and part of the spend that we have in our guidance for sales, reflects that uncertainty.

I was probably not precise in my answer before, on the sensitivity on sales, because we now also have to bear in mind that the European impact on NovoNorm going generic, which is much more certain, having a significant impact in 2011.

There we only saw a limited impact from Germany, which is a rather small market, to the tune of DKK100 million in sales, out of the DKK1 billion in sales in 2010.

But we are now seeing there competitors in the major markets, which is France, Spain and Italy, and that will have a full year effect, going into 2011.

So I think there will be significant impact, probably more, as it looks currently, more going to be a significant impact in Europe than it will be in the US.

But high degree of uncertainty.

Working capital; it's right to assume that we can continue to make gradual improvement that's linked to the average cost per produced unit, which is going down.

There are some factors, in terms of inventories, which will have some impact, assuming that we will build up inventories for the launch of Degludec globally.

Presuming that we will also launch a new range of devices, or new disposable device, may have some impact, near term, on inventories.

Longer term, I see a positive development in invested capital.

One of the things which has an impact on our overall investment is the credit terms we actually get in the US, on paying the rebates, both to managed care organizations, and also to the [part paid procurers], in terms of medicated [systems] etc., where the data only fell through the wholesaler and pharmacy system, to us, with a three/six month delay.

And hence, it actually provides -- the rebates we set aside provides some benefits on invested capital, that makes, with the growth in our US business, the growth in invested capital significantly lower than the growth in the top line.

Which is not that intuitive, but it really has to do with that.

Then you have the mix in our portfolio, to what degree is it going to be the emerging market that grows faster than the overall.

Because clearly, where you have the long days of sales outstanding, that is clearly, in international operations, typically around 90 to 100 days, and also China being in the high end.

So mix between the various regions can have a significant impact.

So those would be the comments.

Mads, will you comment?

Absolutely, Peter, I would not be happy if I conveyed the opinion that we are not excited about this fixed ratio combo product; essentially we are.

And the aggressive timelines that we have set for recruitment in the two trials that are starting mid year, essentially are aggressive, and they to be met by the staff worldwide.

So we want to be first to market with a superior product, that's for sure.

There is a lot of good to be said for a combo; there's also a lot of good to be said for loose combination treatment.

And one of the feedbacks we are getting from Victoza, in many markets, is that people actually, at least some people, like the ability to titrate back and forth, also the Victoza dose, depending on if they do get a little bit of [tension] nausea, and intercurrent disease, and so on.

So I think we can have a coexistence of two great brands, Victoza and Degludec, together with a joint brand, the Victoza-Degludec brand, in the combo.

Exactly how that's going to pan out, in terms of who uses what, remains to be seen, but clearly there's strong arguments in favor of both.

And that, ladies and gentlemen, concludes our Q&A and our presentation.