諾和諾德 (NVO) 2011 Q2 法說會逐字稿

Afternoon, everyone; it's Mark Dainty from Citi here.

It's a pleasure, obviously to have the management team of Nova Nordisk here to do a brief presentation; and then we'll go into Q&A afterwards.

So I had over to Lars.

Okay, thank you very much, and thanks for the introduction, and thanks for having us.

We could have picked a better day, I guess; but take it this way, that perhaps this will be a little bit more lively than what is usually going on in the market these days.

So we thought we'd share with you, and give our comments to the presentation; and then, of course, give the opportunity to have a bit of dialog on dealing with your specific questions.

This is the usual traditional agenda that we're going to go through, and forward-looking statements.

I don't need to repeat all this; you all know the hazards we're involved with.

In terms of highlights, quite a nice first half, going through; 11% local currency growth, driven by our GLP-1 product Victoza, and the modern insulins.

And Victoza reached the stage of approximately half a blockbuster in the first half, with strong growth.

Of course, also significant, and we'll touch much more about this, the healthcare reform impact on sales.

Research and Development, a significant number of new clinical trials in the regulatory phases, with a combination of Degludec and liraglutide, with a faster acting factor VII and with a lower-acting factor IX, and three trials -- two more trials in obesity with liraglutide.

So a lot of activities are being initiated at this point in time in our Research Group.

FlexTouch was approved in Europe; it is a new pen device, and we will show you and tell you what we believe are the key competitive advantages of that.

Financials, a strong reported operating profit growth, and it (technical difficult) all the way down to value their earnings per share increase of 23%, quite strong performance.

The outlook has enabled that we could raise the guidance on top line, also raise the guidance on operating profit.

There's no major changes in the composition of our business.

You can see here 75% being diabetes care.

Modern insulins growing 10%, constituting 41% of the growth of our sales.

You see here the very significant impact from human insulins declining 9% and causing a negative impact of 17% on the growth.

Victoza is the main growth driver of 55% of the sales growth.

NovoSeven growing approximately as expected, 5%; Norditropin 4%.

A surprising strong growth of other products; that includes Vagifem, our HRT product.

But largely when we add it all up, a little better performance of Victoza, a little bit more headwind on insulins, but sales in line with our expectations.

When we look at the composition geographically, North America growing 15%, generating half the growth; Europe grew only 3%, generating less than 10% of the growth.

And then the main growth regions being international operations, and China generating close to 40% of the growth, and Japan, Korea similar to Europe, growing 7% constituting 5% of the growth of the Company.

We have, of course, noticed the continued update on number of people with diabetes.

Here we see a recent estimate done in the Lancet.

And every time estimates are being done, the estimates are being upped.

More and more people are expected to develop Diabetes, and if we look at one of the main drivers for this, obesity, we have taken notice of the fact that in the United States one in five children between the age of 2 and 5 are already obese.

And when we look at the risk of developing diabetes if you are obese in relationship to age, if you are obese at that age it's almost 100% certain that you will develop diabetes in your lifetime if you survive to adulthood.

So this is, of course, extraordinarily scary, because this will lead to a growth in the diabetes epidemic in the United States, as an example, but that trend is seen almost everywhere.

In terms of the overall position in diabetes, as you see here over the last 10 years the growth in the diabetes market, the total market growth being 9% constituted by a growth in injectables of 13% to 14% and a growth in orals of only 6%.

And if you look at the chart over on the right-hand side here, it is a chart where we show the competitive landscape in diabetes medication.

And you see the development with Novo Nordisk here growing and now being the clear leader in diabetes medicine.

We see some companies disappearing and other companies coming in.

BMS was in the market with Glucophage, with Metformin, but that went off patent.

They, of course, disappeared almost from the chart.

We see similar trends with GSK, with Avendia's difficulties in the diabetes market.

We're starting to see a decline with Takeda, and we see the fast rise of Merck with Januvia.

But Novo Nordisk is in the lead, and we anticipate to continue being in the lead in this interesting market.

If we look at the insulin market and the growth rates, we've also here looked back over the last 10 years.

And you can see if we start with the high growth rates first, the top one, the red one here being China, you saw for a number of years 25% volume growth per year.

Then you saw a major spike.

And now, of course, as the base is growing bigger and bigger, you see the growth rates are coming down to more humane levels and we are tracking at the moment somewhere between 15% and 20% volume growth year on year in China, which is similar to the growth that we are seeing in other emerging markets.

Initially in the emerging markets we see that the growth has been relatively small.

This is due to lack of provision of healthcare in this part of the world.

But with growing economies in the emerging markets, we are starting to see an ability to fund the healthcare system and, therefore, also a demand for insulin.

If we look at the already developed market, we see here that North America, it's depicted here, had a period over the last years of relatively strong growth, almost 10%, now down to around 6% and the global market is on an average around 6%.

Long term, our case for insulin going forward, you will recall we've always said 5% plus 5%; 5% volume growth and 5% value growth, the value growth short to medium term is challenging, because of healthcare reform, also because of price competition.

It is our estimation that in the short term the insulin market will be growing somewhere between 8% and 10%; 6% coming from volume and only 3% to 5% coming from value, if you exclude significant once-off healthcare reforms.

A little longer term, with the introduction of Degludec there will be yet another opportunity for value creation by converting the future modern insulin market to the latest generation of modern insulin, and Novo Nordisk will be the one responsible for driving that value upgrade.

There is also still a value of great opportunity by continuing introduction of devices, in particular in the US market.

How big that value component will be will be determined on our pricing, payers' willingness to pay for Degludec, and the competitive situation at that point in time.

This is clearly going to be very difficult to forecast, but what we are saying is that Novo Nordisk growth in the medium term is likely to be slightly better on the volume side than what we have previously said.

So we probably say if the market is growing 6% in volume we should be, because of the competitiveness of Degludec, turning the competitiveness in basal insulins in our favor, we should be growing more than the market, but the pricing is probably going to be somewhat more challenging.

So still a case for us, about 7% volume growth, and perhaps 3% value growth would again bring us back to the 10% growth rate in the insulin franchise, and that is what we are trying to communicate to the market.

So a slightly different competition, but still a very, very good outlook.

Here we see the quarterly MAT numbers of growth and we observe, of course, the decline; we've been at run rates here of 12%/11% and then dropping down primarily as a result of healthcare reforms, competitive pressures, [Reed], Eli Lilly in Europe, Eli Lilly in the United States, Sanofi-Aventis in Japan.

And then the loss of some specific contracts, and we note here one in particular which is Walmart, because Walmart constitutes a significant share of the US business.

And Novo Nordisk has, for a number of years and quarters, been pursuing a strategy of value creation not cash flow.

And this has right now been a strategy that is receiving a little bit of opposition from Eli Lilly that, seemingly, has a different strategy.

I'm sure we'll come back to discuss what that might be.

But, certainly, we are feeling competitive pressure and price pressure from, in particular, Eli Lilly.

You do also note that the composition of the market, when we look at the value, is 80% of the market are modern insulins and only 20% is human insulin.

And, therefore, aggressive bidding and pricing in human insulin is a temporary short term measure; it is not where the growth will be generated in the future.

I'm on slide number 11, where we depict the US insulin market, and we have two parts on the side here; one showing Novo Nordisk human insulin volume market share divided into basal, fast-acting and premixes; and the classes part of the total market.

And we see here that in the United States the human insulin market is down to 25%, approximately.

Whereas the modern insulins are up to around 70%/75%.

You see here the decline in the fast-acting human insulin segment; this is a result of the aggressive contracting, whereas we are holding our own on premix, but the segment premix is declining.

And we are reasonably holding our own in the basal human segment, which is the NPH.

But, more importantly, when you look at the future of products, the modern insulins, is Novo Nordisk is still continuing to hold the position, and to grow its share.

Victoza is doing extremely well.

We are on slide number 12 here.

We start with the US market.

The model that we are trying to create is the model that illustrates that it should be possible for the GLP-1 segment to account for 10% of the overall diabetes market.

And we'll go through a few of the different markets to demonstrate where we are right now.

So first of all, the United States, we see that the GLP-1 market is 5% of the total diabetes market in the US.

We can see that we have cannibalized some of the Byetta business, but also expanded the market.

65% of the patients are exactly those type of patients where we positioned the product, either naive or coming from OAD treatment.

60% of lives are covered without restrictions, and 60% of the patients are prescribed the high dose.

So we got the message across, we get adoption, and we are building the business and the franchise as you see here.

Next slide will show you the same type of charts for Germany, UK, and France.

A little bit of different market performance; if we take Germany first, Germany's quick off-take from the beginning, cannibalizing the Byetta business, but also expanding the GLP-1 segment.

UK, a little bit slower start, not cannibalizing the Byetta business, but largely expanding the market.

If we take France, a very significant cannibalization of the Byetta business, very significant growth, so our French affiliate has done the best.

We can't show you the Danish performance of Victoza, but Victoza is today 20% of the overall diabetes medication market in Denmark, so it outperforms all other markets.

It is no wonder that Bydureon is being launched in the UK, because here we have the best hold on the marketplace in terms of Byetta patients, which should be the best position for Lilly and Amylin to convert patients from Byetta to Bydureon.

So, this brings Mads to the floor, with this wonderful new pen, called the FlexTouch.

Yes, thank you, Lars.

We are now on slide 14.

And we speak a lot about new insulins, new GLP-1s, and so on, and not quite so often about new devices.

However, I think it is apparent that with the advent of the FlexTouch, which is now approved in Europe, for a couple of the modern insulins, we are now taking subcutaneous, protein-based drug delivery to the next level.

FlexTouch is having a small spring inside it, allowing for auto-injection of your, in this case, insulin.

And it has proven itself both in randomized crossover clinical trials to enhance patient treatment satisfaction and feeling of being in control, and a number of other parameters using different assessment systems.

And moreover, we've done numerous market research surveys, showing that this is really the preferred disposable pen choice.

So we're very happy to be able to introduce this, first of all, with a couple of the modern insulins in selected European markets.

But obviously, as you must imagine, this will also go hand in hand with a superior molecule offering in the form of Degludec and DegludecPlus, as these compounds come to market.

Obviously, it says it can dose up to 80 units.

Those 80 units, of course, become 160 units in the event that you elect to put a U200 Degludec formulation in there, which will be a benefit for the one-third of Americans who need to inject Lantus or Levemir twice daily, because of high dosage today.

Now, moving to the ADA, where many of us were present in San Diego in June, a lot of things happened regarding a presentation of Degludec.

On the clinical pharmacology side, I think we have now shown for the first time very robust pharmacokinetic data, where you actually look at half-life estimations, in diabetes patients, for insulin glargine and Degludec.

And there's an exact doubling in the half-life of this molecule that exhibits no peak at all in steady state.

And together, this with, on slide 15 here, the assessment of how variable the action is from day to day in the same patient at different points in time of the day, where we show a two to sevenfold decrease in variability for Degludec versus glargine.

These parameters have actually given us confidence that we could do clinical trials that even tested Degludec to the extreme by dosing with alternating 8 and 40 hour dosing regimens, and compared that to glargine, which was given with the exact 24 hour treatment or interval periods as prescribed in the label.

And in spite of this radical dosing scheme that is intended to prove that you can even miss a dose or take a dose later in the day with Degludec, we intend to, and have shown, that we have the same degree of control and safety with this regimen as compared to a standard glargine regimen, hopefully, enabling us to get a label enabling fully flexible dosing.

Now, in terms of how Degludec has actually been administered across the trial programs, there has apparently been some very clear misunderstandings in parts of the pharmaceutical world, and I'd like to just set the record straight on some of these aspects.

Because it is, indeed, so that in each and every study, where insulin glargine was administered to patients, in the begin and boost trial programs, it could be administered at any point in the day, as long as it was administered at the same time on every day, because this is what the label states.

So, essentially, the local labels, they were prevailing, and that means any time of day at the same time every day.

Now, essentially, this gives glargine a very strong baseline, because we have a situation where anywhere from 40% to 70% of the insulin-using patients that entered the trials were already on glargine and, henceforth, they could potentially have been taking this molecule for up to 10 years, or maybe just two years.

Anyhow, the physician and the patient would have optimized, safety and efficacy-wise, the therapeutic regimen for that person in question prior to initiating the trial.

Whereas with Degludec, here we have an experimental medicine, where you first have to be acquainted with how even to use and titrate the product.

So if there is any bias in these trials, it is, unfortunately, against Degludec.

But we have at least behaved according to all ethical rules and labels for the product in the marketplace known as insulin glargine.

So I thought that was an interesting little update, just to make sure that we all agree about how the trials were conducted.

I would also like to emphasize the notion that we saw the consistent improvement in hypo rate and in particular in nocturnal hypo rate, regardless of how Degludec was dosed.

We had trials where Degludec was deliberately dosed late in the evening, trials where it was dosed in the morning, trials where it was dosed at suppertime, and even trials where there was this alternating dosing regimen.

And in each and every case we saw the same, consistent, I would say, 35% reduction over the period of nocturnal hypos that turned into a 50% or 49% reduction when we looked at the steady-state period after the initial titration.

So very robust data that, as you know, we are quite happy about.

Now a couple of updates on other trials.

IDegLira is our fixed-ratio combination product between liraglutide and Degludec, which is a first-in-class combo between GLP-1 and basal insulin.

We have initiated the first of the trials, known as 201, and this is on slide 17.

And what it does is a classical comparison of the fixed-ratio combination product up against the individual constituents.

It's a large trial providing safety exposure data for the regulatory label and package insert.

And obviously we can submit based on only 26 weeks data, but will actually also do an extension to provide even further safety exposure.

There will be a dual 2 trial that is also about to be initiated in the next weeks or months to come.

Those two together will form the pivotal trial program for IDegLira.

Then, we have reinitiated liraglutide 3 milligrams obesity, the so-called scale program in more than 5,000 patients all over the world.

And this essentially means that the pivotal element, which is this big guy here with the 3,600 subjects, either with a BMI above 27 and co-morbidities, or BMI above 30, are entering into a one-year treatment period.

And for those, maybe one-third of them who have pre-diabetes at the baseline, they will actually be continued for a total of three years, such that we are able to investigate the potential of liraglutide to either postpone or actually completely stop the progression from pre-diabetes into overt type two diabetes.

However, the data will be submitted to the agencies for weight management based on the one-year data after which we prolong the extension in pre-diabetes.

The other study is essentially just a bridging study, where we have people who are obese and have type two diabetes.

And we are comparing up against the placebo or standard of care both the 1.8 milligram and 3.0 milligram doses, to create the bridging data between the two.

Then, up here, we have actually two other Phase 3 activities.

In total, we have four Phase 3 activities that have initiated in the last quarter; IDegLire and the obesity program for liraglutide, as well as these two up here, which is the NovoSeven successor; vatreptacog alfa, that has initiated a pivotal Phase 3 trial, which essentially is a block randomized, crossover trial, comparing NovoSeven on demand, in home treatment, against vatreptacog alfa.

Primary end point, this bleeding efficacy, and there are also secondary end points related to safety and efficacy.

Then we have the very long acting Factor 9 derivative, with a half-life of close to 100 hours, known as N9-GP.

This is the molecule that releases endogenous native Factor 9a upon a bleeding episode.

This we are comparing both on-demand, and in two doses of prophylaxis for one year's treatment.

So all-in-all, on this slide, to sum up, we are on track for submitting Degludec and DegludecPlus, in the next very few months to come.

We have initiated Phase 3 for a number of other programs.

And finally, Anti-NKG2a is the latest guy on the block, in auto-immune disease management.

It's the fifth antibody to enter the clinical trials, targeting a very specific receptor, in this case, for rheumatoid arthritis.

With that, over to you, Jesper.

Thanks Mads.

I'd like to, just before I go into the details of the financial numbers, I'd just like to highlight the significant impact on healthcare reforms we've had in 2011, and we also guided you on -- at the first quarter, on this, and that's basically holding true.

So we've had, in the first half, approximately 3% negative impact on global sales, from healthcare reforms.

And to these healthcare reforms, you should actually a cost, to the tune of 0.5 percentage of sales, that will be charged to our selling and distribution costs, which is the manufacturers' fee in the US, which is not impacting sales, not impacting the sales and distribution line.

But approximately 0.5% of sales for that.

In terms of the split, in the first half, between the various healthcare reforms, you could say approximately 2% is US healthcare reform, and close to 1% is Europe and the remaining part is Turkey.

And then, when we look at the full year, we're anticipating about 2.5% impact.

The 2% we've had in the first half, for US, will continue into the second half.

Whereas the impact in Europe will go down as a significant part of the European impact is coming from the healthcare measures that were taken in Germany, and Spain and Greece.

And those were already felt in the second half of last year, 2010, so approximately 2.5% impact, for the full year of 2011.

In terms of the results, I think the key numbers here to just review from my side, following up on Lars.

As we said, reported 11% -- sorry, local currency 11% growth, 9% reported for sales.

Gross profit, a very slight decline, and that was actually after having approximately 40 basis point negative currency impact.

So in local currency terms, we had 30% -- a 30 basis point positive impact on gross margin.

And that's really coming from a mix impact, whereas price impact because of the US healthcare reform, was negative, and matching with approximately 50 basis point matching, in rough terms, the positive production economy improvement we had in the first half.

Sales and distribution costs, 28.1%, really reflecting increased investments in the US, following the expansion of our US sales force, towards the end of 2010.

Research and development cost, at 14.6%, is reflecting the conclusion of the Degludec and DegludecPlus trials, towards the -- at the turn of 2010 into 2011.

And not really seeing a significant impact yet on the multiple Phase 3, that Mads reviewed, and also the initiation of the two additional trials in the obesity program, with Liraglutide.

Admin costs going steady, below 5% of sales.

In license fees and other operating income, we had just over DKK100 million last year, in a one-time, non-recurring income from a patent settlement in the area of hemophilia, and that's why we have the decline.

Apart from that, license fees are broadly in line with last year.

Net financials are reflecting a hedging gain, whereas we last year, were seeing hedging losses.

And the hedging gains are closely resembling the negative we have had on operating profit, from currencies.

Tax rate, unchanged from last year's 23%, and that's the same guidance we're giving for the full year.

And net profit then growing 19%, and with the share repurchase program, we have done, over the last year, we are seeing a 23% growth, in our earnings per share.

The US dollar is currently below the 2010 average, and you can also see that we will still, in Q3, be facing some adverse impact from currencies, and then it will be more modest from there on.

I think, at current rates, we're probably facing something like a 5% negative impact, in the third quarter of this year.

Whereas we had a 7% negative impact in Q2.

The Japanese yen is, on the other hand, slightly positive, and remains positive, despite the intervention from the Japanese Government, that didn't seem to have much of impact.

The hedging levels, you can see there.

And you should also note that we've actually updated the sensitivity on the various currencies, and reflecting a higher net cash inflow in US dollar.

So bear that in mind when you update your models.

The outlook, I think the key changes, 1% up in the mid point of the sales growth guidance, really reflecting that we are not anticipating that there will be generic competition to Prandin, in the US, because of a key trial now being taken at the Supreme Court in the US.

And that ruling is expected to take place in the first half of '12.

And because of that we don't believe it's likely that there will generic competition to Prandin, in 2011.

And the second element of our upgrade is the very steady performance we see on Victoza, and also that we have been able to maintain patients on product, for Victoza and, hence, a very gradual build up of the Victoza turnover, in all of the major markets.

Currencies, slightly more positive than in April, and that you can see both for sales and operating profit.

In terms of the increase in operating profit growth, that's basically a reflection of the increased guidance.

For sales growth there is a clear correlation between 1 percentage increase in the sales, and the 2% increase in operating profit.

All of the remaining guidance are broadly the same.

Of course, net financials are offset, because of hedging.

The positive impact we had in guidance on operating profit reported, that's matched by a slight decline in the hedging income.

All other guidance being unchanged.

So to round off, Novo Nordisk is still having a very attractive position in the part of the diabetes market, which has historically shown a compounded annual growth rate, the injectable part of the market, of around 14%.

And of course, that continues to be driven, as Lars illustrated, by the recent Lancet studies, the prevalence of diabetes.

In terms of market share, we have a significant and market leading, 24% share of the diabetes care market, and the growth of the GLP-1 segment, I expect to be able to continue to see that market share increase.

We have a 51% volume share, in insulin, and 63% of the insulin market now converted to modern insulin, and also a growing market share there, with 46%.

We have, with Degludec and DegludecPlus, as the only Company now, completed two Phase 3a development programs, for both the long acting segment and the mixed segment.

And we have, with the portfolio of GLP-1 products, also the opportunity of moving into different areas of treatment.

And of course, also, with IDegLira, the combination product, the opportunity of taking patients gradually, from GLP-1 treatment onto an insulin intensification pathway, and then onto insulin.

We also have, with Liraglutide, a very challenging, but still significant monetary opportunity, with obesity, if we're able to prove and get -- to prove and have the proof, within the area of obesity.

And then finally, I think this quarter really marks a significant step in the progress from Novo Nordisk of being a one product player in the area of hemophilia, to be a broad therapy area player, having opportunities with both hemophilia A, hemophilia B and hemophilia for patients with inhibitors.

So with those comments, Lars will lead the Q&A.

Yes.

Thank you very much, Jesper.

I think we need mics around if people want to ask questions, so yes, will you -- we need an awakened young man, and able and capable of moving mics around.

[That's] good, Jannick.

I'll do my very best.

We didn't have that, but we had Jannick instead; yes?

Lars, in terms of the 17% decline you are seeing in the human insulin segment year-to-date, can you split that between volume and price?

And how does that trend across the different regions?

Thank you.

Well, that is quite difficult to do.

I would say that the pricing has been impacted in approximately 25% lowering of the price.

The rest is volume and the predominant part of losses that we have suffered is in Europe, in the UK and in United States.

And also, in Japan also and the value loss in the three mass markets are in the ballpark of 15% to 20% for Europe, Japan and North America.

Yes?

Can I take three questions please?

Firstly, on the Lilly situation.

Can you just comment whether the volume gains that they've seen have been greater than the price cuts that you believe they've taken?

And in that context, at the first quarter call, you talked about managing your contracts from a profitability perspective.

Has that view changed at all given that you're now engaging in some price competition on some contracts?

That's the first question.

The second question, you provide some data for China on slide 42 of our pack, or I guess slide 43 of your pack, now that you've provided a slide for Sanofi, in terms of volume, price and share.

Given the base effect, the pricing cuts we've seen overnight in the last couple of days and the new entrant, I wonder if you could just provide your perspective on those three components for China 12 months forward from here.

And then the last question was just on Degludec expectations.

On the call yesterday, Lars, I think you mentioned wanting to take seven out of 10 patients.

Historically, you've talked about 50%.

Is that a surreptitious upgrade to your expectations?

Thanks.

In regards to the current commercial situation, vis-a-vis Eli Lilly, obviously I'm a little bit in a tough situation of not wanting to discuss our pricing strategy on the microphone.

But it is correct; I just repeat, that it is correct, that we have been trying to manage our business for value during the recent quarters, meaning that we have elected not to bid aggressively for certain contracts and that, we believe, has been the right strategy.

We built that strategy around the notion that we believe it is appropriate that markets like United States, Europe and Japan are financing research.

That enabling these products, the new products to be made available initially in the developed markets, but then following on from that, later as they go off patent, in emerging markets, creating an innovation cycle.

But that does require, that we move the patients to upgraded protected products, such as the modern insulins in the future, products like Degludec, and so that's the strategy that we have been pursuing.

We will adjust our strategy based on the day-to-day observation of Lilly's activities in this area.

There is, of course, a point where we say that we also want to ensure that we have patients on our products.

We also want to be present in the local markets.

And so it will probably be noticeable that we will be taking such actions.

And we indicated that the news scrip capture rates are seeming to indicate that we are not continuing the decline in these market segments.

Is that the [ending] or is your perception that Lilly's volume gained greater [finance] pressure (inaudible)?

Yes.

Then with regards to China, will you comment on that, Jesper?

Yes.

The pricing impact, and we haven't yet had the chance to study in detail the ruling that was out, but we have been anticipating that this ruling would come and would impact our human insulin franchise and also our NovoNorm franchise in China.

And we were anticipating approximately a 10% impact on pricing, but whereas an element of that pricing had already been given in rebate to some of the provinces.

So I would anticipate that the real impact to us will only be approximately half.

But we'd like to have a chance to study it a bit more and get some feedback from the Chinese organization.

So I'd expect us to discuss that in more detail in connection with Q3.

But, I think, for now if you make that assumption, I think you reasonably have an indication of impact.

In terms of value split for the Chinese business, the human insulin business and NovoNorm would then be around 60%/65% of our business in China.

The franchise we have in China is predominately diabetes care; very little biopharm business so far in Mainland China and that's 95% of the business in region China.

And then with regards to Degludec capture rates in the future, what we take notice of is the situation is such today that -- and we have to remember here that we also have price parity between Levemir and Lantus, is that when 10 patients walk into the office, seven of them walk out of the door with a scrip for Lantus.

Given our evaluation of the competitiveness of Degludec, just as a simple assumption, we say that should be reversed in the future.

It's not going to happen from one day to the other.

It takes time to introduce such a product and get it accepted by the payers also globally to arrive at such a capture rate, but that is the ambition level.

But perhaps it's going to take five to 10 years to reach that ambition level, so it's going to be a gradual --

One can, of course, also speculate that there will be potentially some switching opportunities.

Traditionally, we'd normally see with introductions, new insulins that we compete for new patients.

There were switching going on when Lantus was introduced, because Lantus was a significant advance compared to human insulin NPH.

We believe that Degludec is an equal improvement over Lantus as Lantus was over human NPH.

The same reduction levels of hypoglycemia, add to that, as Mads was talking about, the very flexibility dosing regimen which should bode for a significantly better compliance, a new device, superior device, etc., etc.

So that's our ambition level.

It's going to take some time, but I'm quite convinced that we'll be able to do that.

Do you have any comments, Mads, on this?

Yes, I can just agree with my boss, but also to say that --

That's a good idea (laughter).

No, but there are three classical situations that physicians will encounter.

One is that a patient phones them frequently, this is not all patients.

But some patients phone them frequently complaining about hyperglycemia, either while driving their taxi or nocturnally or whatever it may be.

There is an obvious switching situation or possibility.

The other one is those who are non-compliant, where the physician actually spots the notion that the patient is not adhering to medication.

Part of that we know from the [gap] survey we've just done in the US; it's basically related to lifestyle and lack of concordance between the patient's lifestyle and his treatment paradigm.

That, of course, will be rendered a lot easier with Degludec.

Because it's forgiving, you can even get back from office or from school and take your shot in the afternoon, which you cannot do for Lantus.

Third one is that about one out of three US citizens are actually having to take Lantus or Levemir twice daily, because they actually exceed 80 units per day.

And here, it would be obvious to go from two shots to go one.

So this is not the primary marketing strategy which is capturing new patients who are insulin nave.

But it is obviously three classic situations where Degludec has favorable benefits.

Yes.

Over there?

Just some general thoughts please; could you tell us the extent to which you believe the insulin industry is still a price setting industry, as despite health care economic arguments and despite fairly limited competition, we've still observed negative pricing impacts from things like increased competition from Lilly and government [payers] seem to have had their way on price cuts?

So could you please tell us the extent to which you think this is still a price setting industry?

Thank you.

I think what our observation would be at the moment, given the current economic situation in almost all countries in the world, the difficulty of coping with increasing healthcare burden is leading to a situation where payers have gotten more power than they usually have.

And so that means that even on healthcare products, we will be seeing economic arguments being used for the choice of medication.

And that means that even products like insulins, which are relatively affordable, on a day-to-day treatment cost basis, still because of the massive problem and the scale of the problem, it's becoming a financial burden to most societies.

There will be incentives or there will be policies to ensure that the most economic and rational use of insulins is being made.

That's why we are getting pushed back from some of the technology assessment institutes.

Often, we think on a less than scientific basis arguing for equality between, for instance, human insulin and modern insulins.

At the end of the day, it's about human health.

And at the end of the day, the patients will want to have the best possible therapy.

And I do not foresee that we will see situations that we will have people moving back from modern insulins to human insulins.

This, I think, simply would cause too much patient pressure against the medical profession and the health authorities if that were to be adopted as policies.

And so I could well foresee that in the future, there will be additional financing coming into the healthcare systems by virtue of co-pays, partial reimbursement, class reimbursement, which will allow the individual patient to upgrade their therapy as they wish and as they can afford it.

And so I think it will simply postpone and prolong the introduction of these new products.

But at the end of the day, the new products are going to be introduced.

But, yes, we are seeing price sensitivity more so than we have in the past.

So two questions, following on the same theme really.

Could you -- do you have the split of new patients, insulin naive patients, starting on modern insulin?

What the percentage split is between ones trading up from human insulin and ones completely new?

And so as we see the price gap widening, if the pressure's coming in in the human insulin, is there a real risk that you're going to see that trade up really dry up, especially given the general economic circumstances?

And then second question, can I just clarify that you are definitely not seeing any pressure, from a volume perspective, from Humalog on NovoLog in the US?

I think that's what you're saying.

I think that's what the charts are all showing.

I've just seen some data elsewhere that suggests otherwise.

I just want to clarify that.

Yes, the last one, yes, we can confirm, you can seen the chart; that we are holding our position on our NovoRapid, NovoLog product in the US.

Mads, do you have an estimation of what we believe is the neutral therapy and upgrade, so to speak, trade offs from human to modern insulin?

You can, of course, say for the last periods have been in a relatively steady state with no product launches.

So it will always be from year to year, depending on whether there's something new that you can actually switch to.

But the latest data I've seen, have, in a situation where there are no new insulins, been around 70% on new patients and the remaining 30% are switching between brands.

But that can change and become more switching if there's suddenly something new.

And it can, of course, be less in a steady-state scenario.

But we don't have strong data on this, because IMS just reports on scrips and not whether they are switching or not.

So it's not rock solid data.

If I just go back to the previous question, I turn your attention to the slide number 44 in the pack.

Here you see an illustration of the topic that we were discussing, where you have the TRxs and the new two brand scrips by month for NovoLog and the NovoLog mix.

And you can see there is hardly any impact on or overall market share; maybe a slight negative impact if you look to the left part of the chart.

But on the new brand, you see that we have a resumption and a pick up, suggesting that less impact going forward.

And if you look at the mix segment, you see that we are actually already surpassing the trough and at a much higher level now in terms of new scrips to the mix.

So that should confirm the observation I made before.

And this is the monthly data that we have here and the weekly data that we have had since that is also supporting that development.

So we don't see any changes to the US situation.

But again here coming in and discussing this, we're getting very close to discussing what pricing policies we're making, so we should be a little cautious here.

We cannot be completely transparent on this.

A couple of questions.

Can we go back to China?

I know you asked this yesterday on the call, but with the overnight pricing, just a clarification from Jesper.

This 2.5% or 2% to 3% of healthcare impact for the year, am I assuming that guidance and that quoted number doesn't include the impact from China, or does it?

So that's number one.

And number two is you've been growing that business 20% to 40% for the last four or five quarters.

It went down to 6% in Q2.

Your volume's around 18%, but should we now see a significant step down in revenue growth in China?

Or can you just walk us through why you're so confident it's going to pick up going forward?

And then two quick ones; just on this Walmart contract, when's the next time you can compete for that?

Is it this year or is it a two or three year contract?

And then lastly, on the devices, Jesper, I realize there's a big volume differential with FlexPen and FlexTouch, because it's only just launched.

But can you give us some sort of sense about the cost per year differential.

And whether with the mix, with the pricing of the new device, you're still comfortable giving your historic guidance of 50 bps to 100 bps of margin expansion per year?

Okay, Jesper, you're on; the healthcare reform impact did not include China.

No, well, it included our assumption of what would come and, as I said, we haven't looked at the details.

But I gave you some kind of impact of around, a ballpark level assessment of the impact, and that impact has been occurring from September.

And we have seen some cautious buying behavior in July; and I would also anticipate that goes on into August.

So the wholesalers weren't buying until these rebates were being implemented.

So there's been speculation about that.

And a ballpark number has been included in our guidance, but with some uncertainty.

It was, as you said, only announced now.

As for the Walmart contract, it's my understanding it's a multiple year contract.

So I would not anticipate that that would be up for negotiation in '11 and '12.

But, of course, I don't have insight into this specific contract that Lilly have made with Walmart.

But we used to have the contract.

So, it is typically so that you have to -- it's a multi-year contract, but you still get to qualify every year.

So if you don't mess it up, you can have it for a number of years, which is pre-stipulated, but it's being evaluated every year.

And Lars, do you have a comment on the contracting situation in the -- because you probably need to clarify how that is being done and maybe you could add a few comments.

The managed care part of the US operation consists basically, of 300 or 400 individual contracts.

So with managed care organization they each covers part of the market.

And those 300/400 contracts come up for renewal every year/every other year, depending on how long term they are.

So you can say all the time, there will be renewals of contracts covering small portions of the total market.

So from that perspective, you can say that there is all the time, the opportunity, to renew contracts and refine your tactical pricing in the US managed care part of the business.

And then for just following on from the China volume growth, we have seen historically the volume growth in the China being now in the last period, around the 20% mark.

I would expect it to gradually go down in percentage points, but not in absolute volume growth year by year.

This is really also capacity driven.

So a slight decline in the volume, but certainly volume growth in the 15% to 20% range for the next one to two years would be our anticipation.

And the FlexPen, Jesper, the cost and the more complexity of that device that can implement or influence product activity gains going forward, and to what extent it's going to influence the margin, I guess that's the question.

And the guidance we're giving for this year is a 50 basis point guidance and I think that is still highly likely, although with the current rates it will be offset by a currency impact.

Looking to 2012, we still believe 50 to 100 basis point is realistic.

There will be a negative impact from introducing this more advanced device.

But I wouldn't like to be more specific about it now, because we haven't completely revealed how we're going to roll out this device in to the insulin segment.

It's currently, as you're aware, introduced in the human growth hormone segment.

That doesn't really impact the margin a lot.

I think, as Mads alluded to, the key for PDS290, the FlexTouch pen, is really to be launched Degludec.

And that's where we're going to have the big volumes.

So for all practical purposes, we're talking about '13.

And then we get into speculation about what's the pricing going to be on Degludec.

I'm pretty confident that the overall financials of Degludec will be quite attractive, although the introduction, the [N13], will always have small volumes and higher production costs.

But long-term revenues from that, I think, in gross margin is going to be just fine.

Yes, thank you.

Next question please.

Just a quick question on the hemophilia pipeline.

We had half-life data, I think, from the long acting Factor IX a couple of weeks back.

And I think you mentioned yesterday that you'd done some initial studies on the long acting Factor VIII.

So I was just wondering if you could give us any more detail on that, on the half-life perhaps, if you have that.

And how you're thinking, initially, that might compare with the biogen products, basically.

Thank you; Mads that's one for you.

Yes, at long last somebody asked about hemophilia.

I was waiting for it.

No, I think just a quick molecular difference between Factors 8 and 9, so that you understand a little bit also some of the differences I'm going to mention to you right now, Mark.

One is that Factor 9 is a simple molecule that is cleared by a simple mechanism, a special receptor in the liver clears the old molecules out of the body.

And that means that by attaching this PEG, this GlycoPEG to a carbohydrate moiety on the [actuation] peptide of the molecule, it means that it will circulate like GlycoPEG and will -- [GlycoPEG-related] version, and will actually not really cleared from the circulation, giving an extremely long half-life of close to 100 hours.

Then if there is a bleeding then [actuation] peptide is split off and it's actually the Factor 9a that endogenous [maybe] Factor 9a that's the active pharmacological principle.

But as long as you have no bleeding, it's going to circulate for ages.

So that's the good news.

It's a simple clearance mechanism.

Factor 8 is different.

Here you have four to five different routes of eliminating Factor 8 from the body.

And that makes it very difficult for my protein engineers to actually cheat all off them in the same go.

So we do have to admit that the data that we've seen for the N8 GP, as opposed to the N9 GP, have suggested twice the half-life in animal studies, such as the hemophilia dogs at Chapel Hill in North Carolina, which everybody uses.

Whilst in humans, the difference seems slightly less pronounced.

So from all practical purposes, if I were you, I would simulate that our N8 GP and biogenetics Factor 8 are similar in humans.

Whereas as N9 GP is about twice the half-life of FC protein for Factor 9.

So thank you very much.

Ladies and gentlemen, we'd like to conclude here.

We have a few of our colleagues who need to go and present somewhere else.

But the rest of us will stay around for another 15/20 minutes.

So should there be some individual questions you'd like to pose, there should be a possibility of doing that.

Thank you very much.