諾和諾德 (NVO) 2011 Q1 法說會逐字稿

Good afternoon, everyone.

This is the, shall we say, part one of two.

I'm sure we're all going to be meeting each other again on Thursday in Copenhagen.

But I'm pleased to introduce Novo management.

CFO Jesper Brandgaard and the IR Team to discuss the recent Q1 results.

So without further ado I will hand over to Jesper.

Thanks Peter, welcome to London.

We felt that it was still appropriate to come to London, even though we're going to have a Capital Markets Day in Denmark on Thursday.

We had an ambition of coming to London on Friday, but that was kind of prevented by royalty and then we had an ambition of coming on Monday but apparently we weren't working on Monday, so here we are.

It's Tuesday, I think it's something like the 43rd quarter in a row that I'm in London releasing quarterly results.

So I won't let royalty get in my way.

We've released the result on Thursday, as I said, and we've put together a very small road show presentation.

I'm going to do the introduction and the sales update, and then we're going to do a little bit of an experiment, not that Klaus who does (inaudible) he does that pretty well and has done that a few times.

But it's going to be interesting for me to see him do financials and outlook, and then I'll handle the questions and answers at the end, so let's see how he handles that.

Of course we will include a few statements about the future and sales, a bit of uncertainty which I will describe on this slide, which you could carefully study.

Then I will move into the highlights of the first quarter and basically we have seen yet another quarter, I think this is the 36th in a row where we deliver a double-digit growth in local currencies.

This time significantly helped by Victoza and of course, also the portfolio of modern insulins.

We saw sales of DKK1.1b in the first quarter 2011, and Victoza actually being the biggest contributor to growth.

The first quarter in 2011 also marked a significant impact from healthcare reforms, primarily US but also European healthcare reforms, and overall negatively impacting the growth in local currencies by 3 percentage points.

So if we hadn't had any healthcare reforms in 2011, the growth would have been 14%.

So that's quite substantial growth potential for the US.

In terms of research and development, we have now completed the predefined meta-analysis on Degludec and we were able to show that it was associated with statistically significantly fewer hypoglycemia for Degludec compared to insulin glargine both for overall confirmed hypoglycemia and for overall confirmed nocturnal hypoglycemia.

Klaus will get a little bit back and put a few more words on that.

I'm also happy to see that we've got Victoza approved in China in this past quarter, and we have managed to have 12-months data for Victoza and Levemir confirming the benefit of actually combining a GLP-1 and an insulin.

In terms of the financial result, we saw reported operating profit growing 24% and in terms of earnings per share we saw a growth of 26%.

We have maintained in local currency our guidance for 2011, so we can expect the sales growth in the ballpark of 8% to 10% and an operating profit still around 15% in local currencies.

But do bear in mind that we have lowered the expectations in reported terms as we see a more negative currency environment from the second quarter onwards.

If we look at the key products which are driving growth.

As I mentioned in my introduction, Victoza being the biggest contributor with 45% of the overall growth and modern insulins contributing 42%.

A key driver of the overall growth in the franchise is diabetes care, for over 16% and then NovoSeven and Norditropin growing 16% and 17% -- 16% respectively.

Also note that we are seeing a gradual skewing of our portfolio towards the diabetes care side, now 75% of turnover coming from diabetes care.

And in terms of share growth, 84% of the growth is coming from the diabetes care franchise.

On a geographical dimension, North America continues to be ever more important for Novo Nordisk, now constituting 39% of overall sales.

And bear in mind it is only two years ago that Europe was actually bigger than the North America for Novo Nordisk.

So if you look at the portfolio today, you can say we have more than 60% of our franchises from a geographical perspective, which are growing double digit; North America, China and International Operations and also geographies where we do have a continued high level of growth.

Whereas the European, Japan and Korea, the franchise is probably going to be more single digit.

As you can also see from this growth contribution, it's more than 80% of the growth which are contributed by North America, International Operations this time.

If we look at the development in the overall market share, you could say it feels like we are running fast and getting nowhere.

If you look at the overall insulin market share, we are still steady at 50%.

In reality it's a reflection of a gradual erosion of the overall share of the total market that's consisting of human insulin, where we have more than 60% of market share, and then gradually being converted to modern insulin, where we were not first with a modern insulin in each of the three segments, but we are the only one with a full portfolio and as a consequence of that, we have gradually been able to expand our market share in modern insulin.

And as a consequence of the growth in that statement, we are then overall stable.

So a lot of dynamics on the line, but a relative stable situation in terms of overall market share for Novo Nordisk.

To focus in on the US market, I think there are a couple of observations that are important to make on this slide number eight.

First, do note that we have now gotten to more than 70% of the US insulin market which has been converted to modern insulin.

And also that the conversion towards devices in the US is continuing in the insulin segment and now approaching around 27% of patients actually using devices for administration of insulin.

Also note that the key part of the US market is long-acting, constituting almost 50% of the market.

Then if you look at the overall market situation you can also see this distribution as Sanofi-Aventis, based on their Lantus franchise, is the one having the highest volume market share for modern insulin, but that Novo Nordisk with the full portfolio of modern insulin is gradually catching up with Sanofi-Aventis have now reached 37% into the modern insulins market share in the US.

If we then focus a little bit more in on the US market and look at how these developments have been in terms of number of scripts over the last year, we are seeing an overall growth of 5%.

It's been pretty stable this 5% growth level over the last two years.

So you can say first, we are not yet seeing a volume impact from the US healthcare reform feeding into the prescription levels in the US.

So still a steady growth level of around 5% and that is occurring through a growth in the 7% to 8% level, both for the basal segment and for the rapid-acting segment and that is happening at the expense of the mixed segment which is slightly declining at minus 4%.

There has also been some debates surrounding the development in Novo Nordisk's franchise in the US at the start of this year as we launched three contracts, due to a heavy rebating from one of our competitors, and you can actually see the result on the development in our total scripts for NovoLog here and we estimate that these three contracts in total constitute approximately 1% of the rapid-acting segment in the US.

AND it was through a conversion of patients from our products to s competitive product that we saw this gradual decline in the first eight weeks of 2011, and ever since March it's basically been transferred to the new provider.

And since then we are continuing to see the steady increase we have seen for our NovoLog franchise in the US.

So that is basically for Novo Nordisk a choice on whether to rebate or whether to maintain a high average pricing level for our modern portfolio of insulins.

You can also see from here that we are seeing a steady increase in our Levemir franchise in the US, shown here a 19% growth on a yearly basis in the prescriptions.

Moving onto, it's now just over a year since we launched Victoza in the US, and as you can see, in the US we have been able to expand the GLP-1 tier of the overall market, like we've also done in Europe, and we've taken it from below 4% to now close to 5% of overall diabetes care value.

And we expect that Victoza will continue to expand the overall GLP-1 share of diabetes care market.

We are seeing that around two-thirds of the patients are coming from oral treatments.

We have still not a perfect reimbursement situation as only around 60% of lives are covered without restriction, and one of the key focus areas for Novo Nordisk is they are trying to remove prior authorization from the managed-care plans in the US to further grow Victoza in the market.

One of the things which has been positive so far has been that it's actually around 60% of the patients which are using the high dose of Victoza, the 1.8 microgram dose, so that's slightly higher than what we anticipated and as a consequence we are seeing a steady value increase for the brand.

Focusing in on the European market, here you can actually also see that the expansion of GLP-1s out of the total diabetes care target in Europe has been created by Victoza and we have seen Germany taking it from 2% towards the 5% mark and a clear market leader with Victoza.

We've now also overtaken Byetta in UK and are now approaching 8% of the diabetes care market for GLP-1s.

And in France, we also are the clear market leader and are there approaching almost 9%.

And as an anecdote, I can mention that in a very tough and competitive market like the Danish market, we have now reached 18% penetration for GLP-1s out of the total diabetes care market.

The final comment from my side will be in relation to Victoza in China, where we have now obtained approval and are on track for launching this in the second half 2011.

It's approved with an indication for treatment of adults with Type 2 diabetes, either with Metformin or sulfonylurea.

We will work with the authorities locally on prices and as I said, we expect to launch in the second half.

I think with the approval in China this is actually a sign of a very, very diligent effort of the Novo Nordisk people around the globe in enabling an approval globally in all major markets, now with the Chinese approval with a two-year window from obtaining the first European approval back in late June 2009.

So we are very happy with being able to pursue the full global commercial potential of Victoza by obtaining approval within the three-year window.

And with that comment over to you, Klaus.

So if we do look at slide 13, here we have the high level conclusions from the primary meta-analysis across the trial.

It's comparing insulin Degludec versus insulin glargine based on seven trials, comparable arms.

THE meta-analysis adjusts for a number of factors, both in terms of age, sex, trial, setup, geography, etc.

The high level conclusions are that we do have a statistically significant difference in the hypoglycemia rate in the favor of insulin Degludec, both for overall confirmed hypoglycemia as well as for nocturnal confirmed hypoglycemia.

And as Mads alluded to on the conference call on Thursday as well, another part of the pre-planned meta-analysis is also comparing the three phase 3a trials for basal-only therapy where there is also a statistical significance on both overall and nocturnal hypoglycemia.

And we will obviously share more details around this at the Capital Markets Day on Thursday.

If we take slide 14, there we have the overview of the key developments within the biopharmaceuticals pipeline.

First of all, we have submitted in the US for marketing approval for recombinant factor XIII for congenital factor XIII deficiency which is, as you are probably aware, a fairly rare disease, with most likely less than 1,000 patients worldwide.

We expect to submit for marketing approval in Europe during this quarter.

Then we have the project, the long-acting factor VII, NN7128, where we conducted a phase 2 trial with 24 patients.

And what we did see was after an initial three months observation period, they were dosed at three different levels, so split into three different arms.

In all arms we saw a significant reduction in the bleeding rate on the prophylactic regimen, but there was no clear dose response relationship and i.e.

the product did not meet the pre-established proof of concept.

Then finally on hemophilia, we have NN1810 which is a phase 2 trial for recombinant factor XIII in cardiac surgery where we saw it was safe, but not efficacious and as such will not pursue that further on.

Factor XIII will most likely be looked at in other indications which are pre-clinically currently.

Then within inflammation, we have two projects progressing into phase 2a.

One is anti-IL-20 for rheumatoid arthritis, and the other is anti-NKG2D in Crohn's Disease which is also being successful in rheumatoid arthritis as well.

Then in terms of financials, as Jesper set it nicely up, I will try and get my way through these.

First of all, as alluded to with the healthcare reforms, we do see the impact here.

Obviously primarily for the US implementation of the healthcare reform that was enacted in March 2010, and also in Europe, so in Germany, Spain and Greece and partly also the UK.

We see an impact finally in International Operations, with the pricing reductions that have been implemented in Turkey.

We see in Q1 roughly a 3% reduction, 3 percentage points reduction in sales growth.

We also expect for the full year it's going to be in the range of 2% to 3%.

The reason for it, you can say the impact being a little bit less on a percentage point is simply the fact that most of the reform were implemented during 2010, so we have relatively a higher impact in the first quarter 2011.

If we take the P&L, we obviously see the reported sales growing 15%; 11% in local currencies.

On gross margin we see in local currency terms an improvement of 0.3 basis points, but due to a negative currency impact, it is declined by 0.2 basis points.

In terms of sales and distribution costs and R&D and administration, growing 6 to 7 percentage points, so slightly less than the sales growth.

And on license fees and operating income, we have an impact of a one-time payment in 2010, first quarter.

So it looks as if it's declining, it is due to the onetime payment in the quarter last year.

Leading to an operating profit growth reported of 24% in local terms roughly 20%.

And earnings per share is growing about 26%, so a little bit of improvement there due to the ongoing share buyback program.

If we then take currencies, as you noticed in Q1, we have a little bit of tailwind but that then seems to reverse, certainly with the current rates.

So we do expect that to reverse for the remaining part of the year, you will see that in the guidance as well.

In Q1 we had slightly higher average rates compared to Q1 2010.

If we take the guidance for 2011, overall it's maintained in local currency rates we have on sales growth instead of 1%, 1.5 percentage point lower, in local terms we now guide roughly 4 percentage points lower.

And in terms of the operating profit growth, we now see roughly a 7.5 percentage point impact from the lower currency rates.

That is somewhat offset by net financials where we would then experience gains on our hedging.

The remaining parts are maintained in terms of guidance.

So the tax rate remains at 23%, capital expenditure DKK3.5b, depreciation DKK2.7b and free cash flow at more than DKK16b.

So with that, I will hand it back to you, Jesper.

Thanks, Klaus.

You need to have a little bit more enthusiasm when you present numbers, but apart from that you did well.

Rounding off a solid market performance also in this quarter, 10% diabetes care market growth is predicted by basically the continued spread of diabetes around the world and basically seeing a volume growth in the ballpark of 7% on a global basis in insulin.

We have a 51% market share with leadership positions across all regions.

62% of the market has now been converted to modern insulin and we are seeing a gradually slower conversion towards the modern insulin as we are reaching higher levels of penetration.

We've got a 46% market share in modern insulin and gradually increasing, and then on top of that we have Victoza as a way to further expand our franchise and drive the GLP-1 market.

We are the only company with a completed phase 3a compound or 3a program for two next generation insulins.

The GLP-1 pipeline offers further opportunities within early stages of type 2 diabetes, and it also allows us, with the Liraglutide the opportunity to establish a presence within obesity for Novo Nordisk where we intend to start phase 3 clinical trials within obesity, mid this year.

And then finally, we are trying to expand our NovoSeven phase trials into becoming a general hemophilia franchise with a number of late-stage projects.

And with that we will move over to questions and answers.

We will have, as this is being webcast live, we will have to ask you to wait for a mic, and then when you have a question please state your name and company.

Then we will deal with the question.

So we have a question here.

Thanks.

Luisa Hector from Credit Suisse.

I wonder if we can just drill down again on the US growth.

So in the quarter, your overall US growth was I think, about 14%, which clearly is still very good, but your lowest since, I think Q4 '08.

So to just understand whether this is maybe a new level that we're at, and in particular to go into the US insulin growth, you've talked about the increased rebates from Lilly.

Yes.

You also mentioned on the call the tiering, by having two options of insulin on the tiering with insurers and how that's going to be changing.

Is that something you also see with Levemir or was this particularly connected to Lilly's rebating strategy?

Let's start from the top and look at the growth in the US.

The key factor impacting our growth in the first quarter of this year and will be affected us also in the coming quarters, was the implementation of the US healthcare reform.

As Klaus alluded to, it's approximately 2% of global sales that was taken out, but if we zoom in on the US, it was approximately 6% and that's also applicable to the insulin franchise.

So whereas you look at a local currency growth in the ballpark of 8% from the insulin franchise, that is as you rightly allude to, clearly lower than what we have seen on an historic trend.

If you add back that 6% impact from the healthcare reform, then you are at a more steady state 14%.

Of course the next three quarters of 2011 will mark the same implementation of the healthcare reform and it is our expectation that the most significant part of the US healthcare reform will be recorded in 2011 and there might be a slight impact in '12 but I think that the brunt of the burden will be felt in 2011.

As for the pricing strategy in the US, of course, you'd have to direct specific pricing questions to Eli Lilly.

But the only thing we can say is that it seems to be a more aggressive pricing environment and where it has been in a few healthcare plans it has been that the choice of one of our competitors to basically move with the lower pricing level than we would be willing to sell to.

And that's also that -- always a tricky overall call, what is the right pricing level?

I think the only sustainable long-term solution for us to defend our franchise will be to basically come with innovative new products and then pursue hopefully a premium for that; and that is what we're trying with the Degludec, DegludecPlus.

We believe the current products do deserve a premium over the human insulin, but I also note that the premium that they are obtaining in the US is significantly higher than the premium they are obtaining in a European setting.

Yes?

Peter, just behind you.

Thanks.

It's Pete Verdult here from Morgan Stanley.

Two questions.

Just a first one, just on R&D, you're spending close to DKK2b a year; there's some big projects have already -- have just finished and you are starting some big projects, but if you're going to be posting sales growth 10% to 15%, is there really scope or need for that R&D budget to grow at 10% to 15%?

I just wanted to get a sense as to where R&D in absolute terms is going to go, rather than talking about ratios.

And then, secondly, in some of your growth markets like Asia-Pac - there is debate out there but let's, for argument's sake, admit that there's a shift from premix to basal.

When Novo turns up with Degludec and DegludecPlus, do you market yourselves as saying that Degludec -- do you stay --- does the status quo remain where you'll be pushing hard on DegludecPlus or do you shift gears and follow the market trend and go with the basal?

And if that's the case how do you manage that risk of it changing 20 years of message to docs and pushing Degludec over the mix?

First on the R&D, I think it's correct that we have just completed very significant trials, phase 3a for Degludec and DegludecPlus.

It's also true that we will be starting a program of phase 3b trials also with the opportunity of longer-term expanding the label for these products.

We will be starting, we chose Liraglutide into an obesity setting; we will have a product like the combination product with Victoza and Degludec starting also in phase 3 this year; we have our portfolio of haemophilia products.

So I can meaningfully see what the -- what we're going to spend our R&D resources on in terms of the guidance we've given is ballpark 15% this year.

I think the guidance we generally give is that we hope that our franchise will grow in the ballpark of 10%.

I think it -- 15% slipped into your mouth, it wasn't coming from me.

Of course, growing investment in R&D 10% plus to maintain the 15%, we do believe that that's realistic.

We will continue to pursue developing a full franchise of products within haemophilia.

And we will basically gradually hopefully progress with the pipeline within inflammation, and ideally also having compounds moving into a phase 3 in a couple of years time.

And then within diabetes you will see investments into various proteins within diabetes care; combinations of those proteins.

Novo Nordisk also trying to make all versions available of the most attractive proteins, and then even looking into a cure for diabetes, etc.

So I do believe that we can find avenues to spend it, but it is correct that the current growth level probably will leave us not growing the R&D ratio much above 16%, 17% of sales; and that's still going to be, as you allude to, a very substantial expansion of our absolute spend in R&D.

That was the first part of the question.

The second element, Peter, just remind me.

There was?

The market shift.

Yes, the mix.

Sorry, that was the -- referring to the shift of the market segments in Asia where there are different historical patents out there, but in some of the major markets like India and China the most predominantly prescribed version of insulin is the mix insulin.

I think we, with Degludec class, is going to have a very good upgrade opportunity for offering even more convenient mix insulin available in that market.

And I don't think that it's highly likely that we will try to alter multiple years of tradition in the market in near term with Degludec; but if we have two good options I think we can be competitive in the basal segment with Degludec.

And then for the type II [initiation] with an easy-to-use mix insulin, I think that's highly likely that we'll pursue that in markets like China and India.

But it's, of course it will depend on the regulatory approval process, actual label, etc.

but I think initial thoughts would be in that direction.

Yes.

(technical difficult), [from Bloomberg.] Just on the subject of healthcare reform, you've clearly delineated between the impact of healthcare reforms and this situation was in managed care context.

(Technical difficulty).

That's correct.

That's correct.

And having looked through the history of (technical difficulty) it's not often that you make that (technical difficulty).

I just want to understand what was the (technical difficulty)?

And then going beyond that, how do you make this work, (technical difficulty).

What percentage of managed care that you do in [the -- a performance conversion as a rule, for example?

Just want to get a little bit of color on how this is played out (technical difficulty).

I think the background for us disclosing this was I think actually responding to the increasing number of investors, especially on sales side, who are closely monitoring the weekly prescription data from IMS.

And it was apparent from the weekly prescription data that the capture rate of new-to-brand for Novo Nordisk in the rapid-acting segment was changing significantly in the first week of January and February.

And to make sure that there was a uniform understanding of how these changes in market share capture rate for -- of prescriptions in the US market should be perceived, we felt that it was appropriate to illustrate it as it was a limited number of the patients that was shifted through a much more attractive formulary status for the competitive brand compared to our brand; and we felt that it was appropriate to make sure that people understood that this was a thing that had occurred over a six-to-eight-week period, and things have stabilized after that.

It was approximately 1%, as I mentioned, of the patients in the fast-acting segment, and that impacted, hence the long-term implications were limited from these three healthcare plans.

To what degree that then reflects that you would see a more aggressive behavior in the US market, it would be hard for me to make clear predictions on.

I, we haven't seen any specific contracts being negotiated with the same effect subsequently.

I think there was a coincidence where three plans changed at the exact same point in time and therefore the effect was probably more profound.

That said, I think this is a reflection of a competitive market and I think this market will continue to be competitive.

And later, with the introduction of the biosimilar insulins, I think it would be likely that it will be even more competitive.

And I think the only response a company like Novo Nordisk can bring forward is to basically continue to invest in more advanced products offering better treatment; that's the only way to have a sustainable premium.

I think I just see this as a way we'll work in competitive market, will react.

And that's about the comments I think will answer that one.

Sachin.

Hi, it's Sachin Jain from Merrill Lynch.

Just more managed care questions.

Prior authorization for Victoza at 60%, what steps (multiple speakers --?

No.

No, no, no.

Sorry, reverse of that.

40, 40% now.

What steps changed that other than price negotiations?

I'm just trying to get a better feel of what negotiations you're having that remove those restrictions.

And then a related question, do you have an early feel at this stage, given you have the data in-house now, about how managed care are thinking about the positioning of Degludec versus (technical difficulty) insulin?

Thanks.

First on prior authorization for Victoza, I think the initial thoughts from Novo Nordisk was that as we saw a gradual uptake of Victoza and getting a solid penetration in the market it would be easier for us to negotiate our way of required prior authorization.

And we're also seeing that happening in the US, but it's probably happening more slowly than one could ideally wish for; and I think it is partly a barrier to more aggressive uptake rate in terms of capture of new scripts per week where we are currently seeing a run rate in the ballpark of 300 to 400 scripts per week.

And I think it's going to be a long and tedious and steady battle of course involving rebate on specific products, but also looking at what is the overall commercial situation for the full portfolio of products?

And then hopefully ending up landing solutions which are attractive for the healthcare plan and for Novo Nordisk overall; and then gradually bringing it down to significantly lower levels for prior authorization.

And I think we're seeing the Byetta product from Eli Lilly, seeing below 10% in requiring prior authorization, so there's still a way to go for us.

In terms of where is the managed care plans on Degludec and DegludecPlus, I don't they're anywhere.

Just a quick follow-on to the whole Victoza insulin, new insulin, is anything that changes your thought process on the price per volume trade that you're engaging in which is premium price; and I guess a willingness to accept slightly lower volumes; is there any dynamic in the market that changes that?

I'm not sure what you're getting at precisely.

Well, so for example the three contracts you've lost you've taken a conscious decision to not engage in price and given away volume.

It sounds like you're potentially doing something similar on a longer-term basis with Victoza; you could get lower rebate to get more volume nearer term.

Is anything in trajectory via the markets that would change your thought process in that regard to (multiple speakers)?

No.

No current trends that are making us change that.

I think we have become more active in managing overall value in the US, and that's also following from actually having a broader portfolio of products to actually do the negotiation, including a [COP-1] with the managed care organization.

So no current trends.

And I think frankly to be more elaborate on the Degludec side of things, I think it's too early days to have discussions with managed care plans.

I think the first discussion will open up with the regulators as we file in the second half, and then we'll have to take it from there.

But it's clear that it's an integrated part of what we have done with Degludec and the costs have been very elaborate in pharmacoeconomic studies and I think Mads will elaborate a little bit more that when we get to the Capital Markets Day in Denmark, Thursday.

So I'll ask you to be patient on it until then.

He is much better at representing them than I will be.

Yes.

(technical difficulty).

Hi.

It's Keyur Parekh from Goldman Sachs, and I've got three questions.

First, as you think about Degludec longer term can you tell us where you think the source of the business is going to be?

Is it for patients who are currently on Lantus, or do you see it as primarily a business that culls from new patients?

Secondly, you spoke about the share that you've lost being about 1% of the overall modern insulin market.

That was not correct.

What I referred to was it was 1% of the patients in the rapid-acting modern insulin market.

What proportion of your current business was that?

Sorry?

What proportion of your current business is that?

And lastly, given that the dynamics for different geographies are changing, any plans for you to give us product-wise details on a geographic status?

Sorry, on geographic (multiple speakers)

Revenue basis, or revenue by geography.

So what proportion of your China sales comes from modern insulin, what does this, what does that?

Yes.

Can you -- any plans to give us that on a quarterly basis?

Let's take the last question first.

No, I think we give disclosure by products and we give disclosure by therapies, and we don't have any current plans of changing that.

In terms of the prescription, in the US insurance and the patient that was impacted by this change, as I said it was approximately 1% of the prescription base for modern insulins; and it's about 0.6% of the prescription based on the mix insulin.

And then if we say that it's about 70% of the market which are modern insulin, then I think you would get to that it's about 0.25% of overall volume that is being impacted by this so then that a very substantial part of the US market, almost 50%, is basal insulin.

So that would be a rough calculation of the magnitude of the impact.

And then your final question was?

Degludec source of business, whether it comes from Lantus (multiple speakers).

Yes, whether it's going to come from Lantus.

I think looking at the markets, historically the biggest source has been patients new to brand and then patients failing on existing therapies.

And I think that's going to be the most significant source is going to be patients failing on oral treatment, or patients failing on GLP-1s or maybe patients coming from a combination treatment of GLP-1 and insulin longer term I think that's an opportunity.

The specific targeting for Degludec longer term, I think we will expand a little bit on that on the Capital Markets Day.

But of course it will largely depend on what is the specific label, and I think the tactics involved there will depend on the negotiation with the regulatory authorities; and I think we would await being more specific until we know what label we have to compete with.

I think that's going to be crucial for our decision.

Thank you.

Jesper, thanks very much for your presentation.

A couple of questions on China.

Brian, you just need to state your name.

Yes, sorry I forgot the rules.

It's Brian Bourdot from Barclays Capital.

You've mentioned that you've received approval for Victoza in China and you're planning to launch the product in the second half.

Could you talk about the reimbursement process please and when you expect that it will be reimbursed on government programs?

Secondly, could you remind us if all of your diabetes care products are now reimbursed on government programs?

I think Levemir is; I just want to check if the others are as well.

And could you also talk about the pricing relatives that you have for your newer products in China -- obviously not Victoza because you haven't launched that yet -- but your modern insulins compared with say US prices or Europe prices please?

Okay.

Maybe I need a little bit of help on some of the pricing specifics from Klaus, and he will help me on that.

I think, broadly speaking, noting that if you look at the Chinese market, GLP-1s have not really taken off yet in the Chinese market.

Our competitor, Byetta, has been on the market for a while but have chosen a very high pricing level, and that has limited the uptake in the market; and it seems challenging to get reimbursement at the pricing level that they have chosen.

We will have to look at what pricing level we will be pursuing there, and then from there follows negotiations with local authorities.

And as I would assume that GLP-1s will be pursued at a premium to the modern insulins in China it will be a while before widespread reimbursement will be available.

I would presume and hint from that I'm also saying that I think the uptake we will see from Victoza in China in 2011 and in 2012 is probably going to be modest.

So I more see Victoza as a longer-term growth opportunity for us in China from '13 onwards.

So I would expect rather limited uptake.

In terms of the pricing level, Klaus?

Yes, I think the pricing level generally that you see in China compares for the insulins to European pricing level, so it's more aligned with that than to the US price.

Okay.

Can we take one final question?

Yes, that one behind here.

Hi.

Gbola.

Is it working?

Gbola Amusa, UBS.

With so much of your Victoza growth coming from oral anti-diabetic failures, do you see any risk that SGLT-2 inhibitors could affect the dynamics for growth if they are approved?

I know that is a big if.

That's the first question, then I have a follow-up.

I think it's -- that provides another alternative.

Oral treatment, I don't historically really see ourselves competing very much with first-line oral treatment, and it's typically after patients are failing to getting good control on oral treatment whether they would be willing and able to afford multiple oral therapy both consisting of Metformin, the SGLT-2 treatment and maybe DPP-4s in one go; or whether the cost of that would be prohibitive I don't know.

I think it's highly likely that we'll still see a high proportion of patients who are failing on two types of oral treatment, so Metformin plus one of the newer treatments, I think it's highly likely that they will move onto our treatment.

I think it is, remains quite attractive for patients to get a single injection per day, good, very high blood sugar effect, typically around 1.5 percentage point HbA1c level; and I see that blood sugar regulation effect being significantly higher than most of the newer type II tablets.

And then of course on top of that also have the weight regulation, which, I think is typically desirable for the type II patient.

So, overall, it will be a competitive landscape, it will be crowded for share of voice in that sense.

So I think in terms of getting access to the decisions it's going to be -- continue to be challenging.

I think the offering we have is still going to be very attractive, but I think you'll have to see patients failing on one or two tablets before they move on.

And that's been broadly the case also so far.

Sure.

And then in the latest expert thinking on the potential for the class that's very [influenced], does it still feel like a relatively low risk?

Sorry (multiple speakers) I didn't understand.

Yes.

SGLT-2 inhibitors have shown some data with showing the ability to spare insulin use for patients already on therapy.

Does that still seem like a low risk characteristic of that class?

Klaus, have you got a comment to that?

I haven't heard Mads comment on that specifically.

No, I don't think we have seen much in the --- I think my understanding is that if the patient is insulin-dependent it's rare that they add a new (inaudible), but I think it's a dynamic we'll have to see how that plays out there hopefully.

Thank you.

Okay.

Do you have a final question?

Yes, we'll take a final question here.

It's Frazer Hall from Berenberg.

Just a question on NovoSeven is that could you just give us an estimate for currently what sort of proportion of NovoSeven revenues are generated from off-label use?

Has that really changed at all in the recent past?

Have you seen any change in trends there at all between on- and off-label use?

Thanks.

Thanks, Frazer.

No -- good question -- there's no change to our knowledge of the pattern off-label or investigational use of NovoSeven.

I should note that the prime proportion of investigational use of NovoSeven, to our knowledge, has taken place at hospitals.

So, of course, if you do an analysis of where NovoSeven is used at hospitals then you will get a higher proportion of the hospital use of NovoSeven which is for investigational use.

That said, the prime part of NovoSeven is used by haemophilia patient with inhibitor for home care use; and that's why the overall percentage we would estimate --- we don't have a certain statistic --- but we would estimate is to be in the 10% to 15% range, as it has been historically.

And we are not aware of any significant changes in that pattern.

Okay, thank you very much for coming.

And I hope to see a lot of you in Copenhagen on Thursday.

Thank you.