諾和諾德 (NVO) 2012 Q2 法說會逐字稿

Thank you very much, the rest of the team.

It's my pleasure, as I said, to introduce all of you.

Without much further ado, I'm going to hand over the mic straight to Lars Sorensen to make some opening comments on the quarter, and also what's the hope we get over the second half of this year.

Lars, all yours.

Thank you very much, and thanks for the invitation.

We've been kind of dreading coming over here a little bit; not because of the results, but because of the Olympics.

As it turned out, it was very quiet this morning, and almost silence.

So we had prepared ourselves to fight through the City, but that didn't occur.

And the weather's been nice, so thank you very much for that.

I'm just going to say a few words of introduction, and then we will get on with the program.

We will get a little bit more extensive sales update by Kare Schultz, Chief Operating Officer, sitting over there.

Mads Krogsgaard will be giving you an update from R&D.

And Jesper Brandgaard is here, he's just out for the moment.

And then we'll end up with a Q&A, which we'll take seated at the table, and hope that works out.

As usual, things may turn out completely different than what we predict.

Usually not the case, I have to say, at least when we speak about diabetes.

But there are certain uncertainties associated with making predictions, and please study this slide to know what the risk factors are.

This is the highlight, in fact, from the front page of the press release that was sent out.

Due to a very strong second quarter, we managed to come out of the first half with a 12% local currency growth.

And because of the weakening of the eurozone, that is translated into 17% growth in the first half in Danish kroner terms.

The growth drivers are North America and International Operations with 19% and 17%.

In terms of product, it's Victoza and the modern insulins.

They make up for the total growth; the rest is sort of a wash up and down.

In the regulatory field, there's quite a few new things here.

The regulatory process for Tresiba and Ryzodeg is moving along, in all major markets.

We have gotten tentative ad com date, November 8, in the US; and the process in Europe and Japan is moving along quite smoothly, also.

We just announced combination trial results, where we combine a GLP-1 and an insulin.

And, as you could see from the data and from the release, they are actually doing what we had anticipated, plus some; meaning that this may present itself as a very attractive treatment option for a variety of different patient categories.

And I'm sure we will be discussing the positioning and the potential of this type of combination drug during the Q&A.

Then we have one news which is perhaps not so good.

We saw, in the last parts of the trial with vatreptacog alfa new factor VIIa, an analog potentially neutralizing antibody formation in one patient.

And this needs to be studied further.

The way this is being assessed is in-vitro, so we still need to see the efficacy data of whether any truly neutralizing effect clinically has taken place.

We don't believe it has, but it's something need to investigate further.

But clearly not good news.

It just basically shows that when you toil around with biologics, if you go too far, you actually run the risk of eliciting antibody formation, and so this is an example of the associated risk with biopharmaceuticals.

When we look at the financials, a very strong operating profit of 31%, diluted 26%.

And we were able to lift our guidance for the year to 9% to 12% and 15% operating profit growth local currencies.

And with this Kare Schultz.

Thank you, Lars.

I will [come here] to brief comments on the sales.

As Lars already alluded to, if you look at the sales from a geographical point of view then there are two -- actually three key drivers; North America, International Operations, and China.

The background is the same as in previous years, so it's quite different from region to region.

In North America, we have a situation where we have actually a positive pricing environment.

We have a positive market share environment where we are taking market shares steadily in both the GLP-1 segment and in the insulin segment.

In total, that gives us a very healthy growth also compared to what happens to other pharmaceutical companies in North America.

In International Operations, it's a case of demographics.

We have basically something like 6 billion people living in what we call International Operations; all the emerging markets.

There is, as you all know, a strong increase in the occurrence of diabetes, strong urbanization, and that drives a very high level of organic growth in International Operations for all the products; both the high end and the low end.

And in China, we have a relative lower number here than what we've been seeing in the past.

There's been some healthcare reforms on the pricing on human insulin which affected us last year.

And we will be seeing this number actually come up a little, more towards the 15% level, once we get to the end of the year due to the sort of pipeline changes we saw in China.

But, basically, three regions driving growth.

Europe and Japan pretty much, you could say, saturated markets with low economic growth, a lot of pricing pressure, and no real positive dynamics for us there.

If we take a look at the products, then Lars already alluded to that there are two key drivers of roughly equal size; that's Victoza in the GLP-1 segment, and it's our three modern insulins in the basal, pre-mix, and fast-acting segment.

The dynamics are basically unchanged, in the sense that we are taking share very nicely in GLP-1 segment.

And the segment is growing very strongly, and I'll get briefly back to that.

And then in the space of modern insulins, you could say we are back at a normal growth track.

There's been some changes within the last couple of years, and I'll comment a little bit on that.

On the other product areas, we are very happy about the growth of Norditropin.

That's basically the result of our ongoing lifecycle management of a very old product, where we continuously try to make the best formulation; the best device for the injection; the best education material, and so on.

And as a consequence of that, in a flat market we are still taking market share.

On NovoSeven, we basically have a situation where the market is pretty much saturated.

There's not much more patients to be found in the industrialized world, so we have a little bit of growth in some markets but basically a pretty flat situation.

The insulin market, long term, I think we've said for the last 20 years, at least, there's a 5% volume growth worldwide in the demand for insulin.

And there's typically a 5% value on top of that through upgrading to better insulin therapies worldwide.

So a 10%-plus growth of the insulin market in value totally is what we've been seeing for the past five, 10, 20, 30 years; and it's what we predict for the future.

Then there was a little leap for us, and I'll just show it here.

If you look at the numbers in '11, you can see there Q1/Q2 '11, the actual quarterly growth came down.

That was basically result of some of the effects of the US healthcare reform, which changed dynamics on rebating and pricing on some of the US products; and some of the healthcare reforms in Europe.

And then we had a funny dynamic, which we also commented on about a year ago, where Lilly went in with some very aggressive price bidding on some contracts.

We came back and commented in the marketplace that we didn't really see the point of doing it, but we had to, of course, answer back, being equally aggressive.

We've done that.

It looks like the pricing environment is more stable now, and we have got our volume share back up.

And that's why we can see, on a quarterly basis, the last two quarters we're back to this 10% worldwide growth.

And so a lot of details about the other markets around the world, but the basic picture is we're back to the long-term growth pattern of roughly 10% value growth.

In terms of Victoza, we also had a very steady development.

We had a small blip that, I think, we have commented on.

That was in the fourth quarter.

That was due to rebating also in the US, on healthcare reform in the US.

We didn't know exactly how this doughnut hole rebate in this whole calculation of the new additional rebates in the US would pan out, and it was very hard to get full visibility on it.

So, therefore, when we did the end-year adjustments of rebates in the US, we had to take down the accrued rebates.

That's why you get this blip on the Q4 number.

That's artificial, in a way; it's not volume related.

It's related to adjustments and rebates in the US.

So you can see a steady track there, with roughly DKK200 million being added each quarter to the quarterly sales.

What's nice to see, on the right-hand side, is that we are getting some of the other world markets in here.

It's not just US and Europe, but we've had a launch in China.

It's a very small number still, but if we compare the numbers for the first period in China with other launches in the diabetes space it looks very promising.

And, as you know, in China, you start launching totally unreimbursed, and then after some years you gradually gain reimbursement.

So it's a very good sign that Victoza will also have a great future in China.

The same thing goes for International Operations, where we have also been launching in a long range of countries and where we start to see some meaningful numbers from areas like Latin America, Middle East, and so on.

So very positive on Victoza; and overall, 73% growth in local currencies.

So that's very nice.

If we just take a, and I promised to take, little look at this for the US GLP-1 market then, roughly, in the last two years you can see we have expanded the market from being 4% to being 6% in value of the diabetes market.

So this is, of course, very important because, as we said when we launched Victoza, it's not going to be a success if we take the market share by area and nothing happens to the segment.

Then it's going to be way too small, and it's way too small compared to what the drug deserves, due to superior efficacy on glucose and weight.

So what we see here is what's been happening.

And you can see a steady expansion of the marketplace, and steady expansion of the Victoza market share, and a steady decline of exenatide Byetta share.

I'm sure all of you have been following, as I have very closely, the tracking of Bydureon and how that's been going since launch.

And I think it's fair to say that, overall, it has turned out to be [a wash] for Amylin.

Everything they've gained on Bydureon, they have lost on Byetta.

So a launch where you cannibalize 100% of your gains on your existing product, at least financially, it's not very attractive.

So that's something we're very happy about, the tracking of Victoza, also very short term, up against Bydureon.

If we then take a look at Europe then we had some different situations.

And that's been the case since the very early days of the launch.

And that's linked to the different reimbursement systems and different healthcare systems that we have in Europe.

But, roughly speaking, we can say we have a situation in Germany where we have been expanding the market and we've come to 4%/5%.

But the German healthcare system is relatively restrictive on allowing doctors to prescribe new therapies because they're very stringent on trying to keep down healthcare costs.

UK, we had a slower penetration because you need all the PCTs to go in and approve the drug.

That took some time.

We needed to get NICE recommendation; that took some time.

But you can see how it's been growing very nice and steady, and how we are approaching 10% of value for the GLP-1 segment in the UK.

Very positive.

And then, of course, in France we got the best of both worlds because we negotiated full reimbursement for the product.

And we got the market convinced faster than in the other countries that Victoza was the superior alternative in the GLP-1 segment; superior to Byetta.

So there we both managed to bring down Byetta fast and grow Victoza strongly, up to this 10% level in value.

Now, you have to remember that 10% in value is significantly less in volume.

So it's significantly fewer than 10% of the patients in volume terms that are using Victoza.

What that means is also that it's still unknown for us what the long-term potential is.

We have seen markets where significantly more than 10% of the market in value has been turning over to GLP-1 therapy.

And in the US, for instance, it's only like 1.2% right now of the patients that are on Victoza.

So a good tracking there and a good long-term prospect.

And, with that, I'll turn over to Mads Krogsgaard.

Thank you, Kare.

And from GLP-1, back to insulin for a minute, Lars mentioned a brief status on the new drug applications worldwide for insulin degludec and DegludecPlus, nowadays known as Tresiba and Ryzodeg.

And I think, to put it in one sentence, you can essentially say that the European process has been exactly as we would have expected in terms of timelines, and so on, and so forth.

A very rigorous iterated process with these various day 150, 180, day 210 reports, and so on, where you actually have a process of questions and answers ongoing until you have resolved all issues.

And we're at the point where we're about to submit the last input, i.e., responses to the list of outstanding issues.

That will then trigger the final, you can say, route towards an opinion this autumn.

In Japan, things have been moving faster than expected.

And I think that's part of the PMDA wish and desire, to revamp their regulatory process and show that they can be competitive on new innovative medicines and their offering to the Japanese population.

Whereas -- and that means that we are believe we are on track towards a positive action also here in the second half.

In terms of US, things have been slower than we would have hoped for.

As you know, we got, first, the extension of three months on the PDUFA.

And lastly, the notification of an ad com tentatively scheduled for November 8. Obviously, we are preparing ourselves with the utmost vigor for that event on November 8, such that we hopefully are able to get a positive action and launch in the first half of next year.

Other countries outside of China, I would have to say, are also in a good regulatory process towards, hopefully, approval.

China is the odd one out in that we are still negotiating with the FFDA as to when we can start Phase III trials.

The sooner, the better because, obviously, China is a very important strategic market.

Now, moving then back to, you can say, at least in part the GLP-1 segment in that we have, as you know, combined what we believe is the best of two worlds, namely, the best basal insulin, Tresiba, the best GLP-1 analog, Victoza, into one fixed ratio combination product called IDegLira.

And the first and most significant of the two Phase III trials, the one called DUAL I, has now been completed in a very good way; such that the 1,660 patients that were randomized into this trial, who were failing on one or two oral anti-diabetics, BMI around 31, duration of diabetes six to seven years, HbA1c baseline 8.3% across all the groups, were randomized two to one, to one to either IDegLira, Tresiba, or Victoza.

So we were up against ourselves, so to speak.

And, as Lars already alluded to, the data were good.

And just to attach a couple of comments, it is highly unusual that you have an end of trial A1C that's actually below the ADA cutoff for defining of a type 2 diabetes.

So we're very pleased with the data.

But do bear in mind that Tresiba and Victoza took more than half the population to the target with a very benign side effect profile in terms of hypoglycemia, etc.

So strong, strong performance from Tresiba and Victoza, but even stronger performance for the combination of the two products.

Now, why on earth did we get such good data?

And let me make quickly an analogy; I think combining Tresiba and Victoza is like having a hybrid car.

A hybrid car has a combustion engine and an electric motor.

The combustion engine is what you use on a highway so, comparing to Tresiba, when you're running on a highway you would use your combustion engine, and that will actually recharge the batteries, the electric motor.

What is happening here is that Tresiba is actually hammering away, making sure that you're in control at nighttime and between the meals; allowing the electric motor, which is the pancreas, to replenish its insulin granules, its insulin stores.

This allows, just like an electric motor when you use it in the cities, in the hybrid cars, to be charged and ready for use.

The same goes for the pancreas.

Under the cover of Tresiba, you have a replenishment of beta cell granules containing insulin, and here comes liraglutide and releases glucose dependent insulin at the meals; giving a high significant decrease in the postprandial glucose excursions at all meals.

Somewhat surprising, but very powerful, finding that accounts for the statistical significant difference between IDegLira and the two other products.

Weight loss, and a very low confirmed hypoglycemia rate.

As Lars has already said, it's now up to management, also pending the outcome of the DUAL II trial, to be able to actually, with this portfolio of many, many products that are all very new, very good, very patent protected, to find out which ones to use in which segments.

And there are at least three places you can do it for such a [part], and we'll get back to that once we have come closer to completion of the Phase III program.

Semaglutide is our, what we call, best-in-class once-weekly candidate.

It is actually only a minor change from the liraglutide molecule, such that it has been rendered even more DPP-4 stable, and even stronger (inaudible) [bound], such that kidney filtration and enzymatic degradation will not take place.

And that means that rather than an action profile of 30 hours, you get an action profile of 10 days, or so.

Essentially, still used in a prefilled injector, with a very rock solid pharmacokinetic property.

What we are seeing is dose dependency on both weight reduction and, shown here, the primary endpoint A1C reduction, to the extent that we, for the first time, have actually seen numerically higher, you can say, block glucose decreases than actually on 1.8 milligrams liraglutide.

As you know, liraglutide or Victoza will normally be superior towards Byetta, towards Bydureon, and towards Syncria, Albiglutide.

In this case, the higher dose range of semaglutide is actually able to, even numerically, show stronger results.

So we will entertain a huge program, called SUSTAIN.

It will be initiated with two different doses in the first half of next year, the first study being a cardiovascular risk study.

And that will be the supplementary Novo Nordisk offering, we hope, in the once-weekly segment as it, hopefully, comes to a successful conclusion.

On my final slide, other topics within R&D outside of the -- well, within the diabetes space.

We have taken yet another orally stabilized basal insulin analog into Phase I development.

We've had a label upgrade for Levemir.

We've had NovoMet approved in China.

We've had the next generation durable pen, NovoPen 5, with a built in memory function, showing timing and size of the preceding dose, approved for adults in Europe, launched in Denmark.

And in the biopharm space, we've had the, you can say, unfortunate data on the vatreptacog alfa, as already mentioned by Lars, where we had to say, now we need to see the big picture.

But it's obviously not looking good that you have a potentially neutralizing in-vitro activity in one vatreptacog patient.

Tretten, which is actually the Canadian name for Novo XIII, where the Novo XIII is the A sub-unit version of the component factor, XIII has been approved; first country.

Also, we have initiated a Phase IIb trial, the first of two, for anti-ileukin-20; a full human monoclonal antibody for rheumatoid arthritis.

And finally, a C5A receptor antibody has also entered the clinic.

That was all from R&D, and over to you, Jesper.

Thanks.

In terms of sales and distribution costs, quite a low ratio at the half-year, in historic terms, for Novo Nordisk.

In local currency terms growing around 8%, in respect to the ratio [to be expected] in the second half; especially the effect of the expansion of the US sales force, which are being completed as we speak.

And that will hopefully also be impacted by some additional pre-launch and launch costs in Europe and Japan for Tresiba, of pre-launch costs [for the drug].

In terms of research and development costs, 10% growth reported; 8% in local currency.

Hopefully, that will speed back on to a level between 14% to 15% for full year as we initiate the semaglutide trials, as Mads alluded to.

As we continue with the obesity trial, that then hopefully should make this be (inaudible).

We've had a non-recurring event here in the ballpark of EUR4 million in the non-recurring costs, so it is artificially low.

The admin costs probably will be around [DKK4.5 million] for the full year.

License and other operating income has done pretty well first half year, and it's broadly reflecting recurring incomes in these lines, and expecting something like [DKK650 million] for the full year.

Operating profit, 31%; a 10% impact here.

So, again, (inaudible) currency here against the 10% here.

Note, of course, that we continue to get an effect from the buyback program.

And note this will also be the last buyback program this year from (inaudible).

And we did that actually in April, [where we didn't buy in August] so there's a bit more effect at half year, compared to how it looked historically.

[Full-time employees] growing at 4%, so it will be at 4%/5% for the full year.

In terms of currency tail wind, you can basically see this here.

We have used DKK601 [to buy].

And that's also significantly above the average for last year, so we do expect a tail wind as we move further into the year.

And likewise for the Japanese yen.

Also, do note that we have updated the sensitivity we have on currency, that's updated in this slide, so a slight high, especially US dollar, impact.

We continue to be hedged at around 12 months forward, primarily through straightforwards.

[We guided] was operated 1% on the top line, 3% more currency effect on the top line, so 4% in totality.

And we are now assuming around 15% local currency growth because that is in line with the long-term target we have for operating profit, of being able to [pull it] around 15%.

And that also leads to the deferral of our [particular] launch, Tresiba, in the US, so that those costs will now come more heading into 2013.

And, hence, we hope to deliver the long-term target growth level of 15% in local currency terms in 2012.

The tail wind on currencies, well, of course, also significantly impacted the reported operating profit.

On the other hand, there's a negative impact on the hedging.

So when we look to 2013, the predominant part, what we think as the current [hedge] expected levels for euro/dollar for Novo Nordisk will impact also reported.

Net profit, we only have something like DKK500 million in hedging losses that is carried forward to 2013 at the going rates.

Tax rate is thought to be stable, around 23%.

[Other items are] also stable.

Of the free cash flow, DKK1 billion (sic-see presentation slide "DKK19 billion") reflecting slightly higher [first-time] operating costs [items].

So this is basically it.

We continue to see that we can [devise] at least 10% growth from our diabetes care franchise.

We have a 25% market share and relative expansion.

We have 50% share in the insulin space, and 46% on modern insulin, and two-thirds of the GLP-1 market.

We have two new insulins submitted for approval.

We have a GLP-1 portfolio that can further offer opportunities; not only on type 2, but also in type 1.

In liraglutide, we've also seen illustrated that we would have more than one GLP-1 [effect] in these opportunities.

And then I think the big news in this quarter, the very convincing data we were able to prove on page 3 in terms of [the native] products.

That really demonstrates the ability to do like that (inaudible).

Basically, taking two active molecules of -- add them together, and then offer the convenience of just one injection, instead of two, and getting a very high proportion of patients into the control.

Obesity is still in the making.

It looks positive in the regulatory environment in the US, since we have [oral] release of the two products approved.

And we will also continue to pursue the very challenging end of the obesity market with the severe obese patient, where the alternative could Bariatric surgery.

And then finally, we continue to work with our pipeline within hemophilia and inflammation.

And with those comments, I hand over to Lars, who will take the Q&A just at the table.

Yes, thank you very much [my colleagues], and the presentation is now open for questions.

Let me start.

It's been a phenomenal last decade for Novo Nordisk, but as we look at how the next 10 years, can you give us your thoughts on how do you see the diabetes market developing globally, on one hand; and secondly, Novo Nordisk as a Company starting to see some progress on areas beyond diabetes?

So how do you see Novo in a 10 years' perspective as well?

At least I can give you the perspective that we do every year, in fact.

We do update our 10-year plan and submit that to our Board of Directors, and we've done so again this year.

And I would say the net end result looks remarkably the same from year to year in that the diabetes business is the predominant business of ours.

We are -- with all the uncertainties that we can forecast, healthcare reforms, biosimilar competition, competition from generic players, growth in the economies, or lack thereof, and thereby price pressures, and all the rest of it, we still forecast that our diabetes business should be growing at around 10% per year in the next 10 years.

In our planning, when we forecast, we do not include speculations.

That means we do not include things which have not had proof of concept.

Of course, we do have projects that are earlier than proof of concept stage and they hopefully pan out positively in the 10-year period, but we do not include that.

So I think given the demographics of diabetes, given Novo Nordisk's position, given the importance of insulin, and the increasing importance of the GLP-1 segment, where have dominating positions in both areas, we believe that you will see more of the same from Novo Nordisk for the next 10 years; of course, with all the uncertainties that we cannot predict.

The regulatory environment has become more difficult so we have to anticipate that the regulatory costs are going to go up in terms of assessing new drugs more thoroughly than we have done in the past.

We may also have to add clinical evidence for utility so as to get decent pricing with the payers and the clinical institutes that we typically see in Europe.

But all of that we factor into the picture.

Brian Bourdot, Barclays.

Thank you for coming to London after the Olympics.

I didn't see you in the 100 meters last week, but you've done pretty well in the marathon so far.

I'd like to ask you about two things, please.

The first is, shifting to the hemostasis franchise, I'd like to ask, it doesn't seem to be growing at the moment, no (inaudible), and you described the franchise as being roughly stagnant.

Despite high unmet need, particularly in emerging markets, can I ask you why you're not getting growth from that source, and why that unmet need in those markets is not driving high utilization; whether it's just simply an unaffordable for those markets, please?

And the second thing I'd like to ask you about is oral insulin.

It is technically challenging, you've described this before, but what has given you the confidence now to move this molecule into clinical testing?

And what are you're exploration, I suppose, for what really hope -- what sort of patients needs do you hope for it to address?

Thank you.

Thank you.

I'd like Kare Schultz, Chief Operating Officer, to comment on the hemophilia market, the current growth rate and expectations going forward, and the seeming lack of growth in emerging markets, as it relates to NovoSeven.

And then Mads Krogsgaard will talk a little bit about oral insulin.

With regards to NovoSeven, we have a situation where the market is basically saturated in the industrialized world because, basically, all patients that are in a situation where they need NovoSeven, so they have inhibitors to factor VIII or factor XI, they are getting therapy.

And we have roughly a 70% market share, up against Pfizer.

In emerging markets, you have currently two categories of market share.

You have some markets that are so poor that nobody really gets treated with factor VIII or XI.

That means nobody develops the inhibitors and there is no market.

That is maybe the [LTC] countries; the poorest 50 countries of the world.

Then you have a big middle category of markets where we actually do see increasing demand and where we do see increasing sales.

However, that is this year, for instance, being offset by the fact that NovoSeven has run out of patent in basically all these markets.

And we've seen a generic product, a biosimilar product come up in Russia, without any real good clinical data or anything.

But anyway, it's come.

It's pretty similar to NovoSeven, and it has taken over the Russian market.

So it's that dynamic that results in flat sales.

So we actually do have volume increase in the treatment of people with factor VIIa in emerging markets, but we've been losing in Russia, so that's the balance.

Thank you very much.

Mads Krogsgaard, oral insulin?

Well, Brian, one thing that has been pretty important to us is that once we realized that prandial oral insulin, i.e., a tablet at a meal, is not a way to go because there will inevitably be so much food/drug interaction in the absorption process that it's a no go, we focused decisively and with great enthusiasm on oral basal insulin.

Now, realizing that taking a bioavailability from 0.05%, which it is for insulin if you give it in a standard tablet, all the way up to maybe 100 times higher, you will still have the vast majority of the insulin not ever getting absorb.

And that will create some variability in the day to day absorption, and hence bioavailability.

Now, the way to mitigate against that is to build in a longer, and longer, and longer, and longer half-life in the circulation half-life of the molecule.

So if you can cheat the normal pharmacokinetic clearance mechanisms of the organism such that they don't get rid of the [downed] molecule as soon as it enters the circulation but allows it to circulate for potentially more than 100 hours or so, that will buffer against the day to day variability.

And what you are seeing in these last molecules, the one that has just entered, for instance, is a longer and longer circulation half-life; hopefully, also in humans.

But so far we have been able to do what we call elemetric scaling, but you have to prove it and show that in humans both bioavailabilities can be predicted, which is, for sure, not always the case, but also, and just an importantly, the half-life.

So I think we're making progress, both on the molecule, and to some extent also on the carry systems, and the coding, and so on.

So you'll much more, I guess, next year as some of these trials come to an end.

It is a very, very difficult area, and we've had a [particular] incompatibility between the animal models and the human real testing and so this has made it very difficult for us.

We actually thought that meal-related absorption would be the most readily feasible, but that proved not to be the case and so we had a go the other route.

So thank you very much.

Why do you think the Bydureon has had such a relatively limited impact on your market share?

It seems to have been a reasonably -- a bit of a non-event?

I told you.

(multiple speakers).

Well, we actually [dipped a bit].

And our assessment was, in a way, the way it's panned out, that it's not going to fail, that the molecule itself works, but the administration is probably so onerous that it's been difficult to attract new customers.

And, therefore, in our assessment, it is probably primarily doctors that have prescribed the Byetta, that is upgrading Byetta patients to Bydureon.

This is pure speculation only; I can't really say that that's a fact.

But what we can see when we look at the new-to-brands scripts, they're sort of split 60/40, which is also something that we predicted, if we had to say something prior to launch.

And so that's where it's coming out.

So they're not expanding their share; they're helping us expand the market, which is good for everybody.

And have you seen any changes in discount that you're offering on Victoza post-launch?

Kare, discounts?

Yes, when we launched Victoza, we only launched with a very, very low standard discount.

And then, not related to Bydureon, I would say a year after launch we started negotiations with the Medicare Part D plans , and in connection with that you give slightly higher discounts.

So, in that connection, that process with the [normal managed] care, we did increase the discounts to Medicare Part D.

But we're not, in general, change our discounting policy on Victoza, and certainly not in connection with the launch of Bydureon.

And I think that the fortunes that we have had here in Europe for Bydureon has been much more modest, and probably related to their margin set up with the -- with Lilly, who has a [term in it], duration to it.

So that's very modest; only seen a little bit of impact in Germany.

Just following up on that, Bristol and Astra are obviously coming in behind Bydureon, do you see any change to the competitive nature from that?

Or do you think that they will need the pre-filled pen to [change] that in a couple of year's time?

Would you increase your sales force, I suppose, is --?

First, about the product, we believe that this is going to take some change to the product in the formulation, or device, or something else, to have a different penetration rate than what we see currently.

So I think -- no matter who was put on it, wouldn't be able to change the trajection at this point in time.

But as we understand it, they are working on different device and a different formulation, so that could change things around.

It's going to be some time into the future.

Our own situation in terms of marketing, with the deferral of the launch in the US of Tresiba, obviously, we have a good sales force that we put even more pressure on Victoza, as it is right now, so that's playing in our favor.

So we think we are ready also for Astra and BMS.

But they are, of course, formidable players in the GP territory.

And BMS has a history in diabetes some years ago with Glucophage, so they're to be reckoned with.

And they're apparently making a strategic intent to go into the diabetes area, so we should look forward to meet them.

Mads, do you have any additional --?

Only I think one issue.

Specialists, they can handle complicated devices.

They can also handle if there are some, not health-disturbing, but still frustrating skin nodules, and so on, and so forth.

It's distinctly more difficult for a GP who only sees the patients for a very few minutes both to educate on the device, and also tell the story about what could you expect to see with this product.

So it's not necessarily so that even the biggest GP sales force will radically change the picture; the product lends itself better to the specialists.

That's also, of course, why the GPP-4 inhibitors have been so successful.

Just keeping to Victoza, could you maybe just remind us, if IDegLira is [potentially] commercialized, what will that do IP-wise in terms of [getting] expansion on patents?

And on Victoza [and CV], maybe, Mads, just your thoughts post- (inaudible) in terms of your confidence of provability of Victoza, seeing how that's played out with FDA?

And then specifically on Victoza and obesity, (inaudible) you file, how much data, and how many patients, and how much duration of use will you have of that (inaudible)?

Mads, it's you.

Patent-wise, obviously, it's the first time that it's been possible to incorporate an insulin analog, or any insulin, into a GLP-1 preparation.

And the way that we've been able to get degludec and liraglutide and the excipients and constituents of that formulation that has enabled it to take place has been patented, I think robustly, up until the end of the next decade.

Not this one, but the next.

So, yes, it is of course -- this is not why we're doing it, but it is also a nice way to extend of course the effective patent life of lira.

Obesity, well, first of all, I think the two [alls] that have come through the FDA process, it must be good news for patients, good news for society, because there hasn't, for much more than a decade, been any agent in there; actually agents being pulled out of there.

And there is a desperate need for medications, as the US political system knows, and that has probably also helped a little bit give some tailwind to those two products.

We like them being out there because, as Jesper I think mentioned in his statement, we foresee that liraglutide pre-mix is actually more for those who are really seriously obese, i.e., above 35 BMI, and with, in particular, a pre-diabetic co-mobility, such that liraglutide can do something that the others can't.

Point one.

And point two, something that is of societal value in health economic terms.

And it is, to postpone or avoid a pre-diabetic going to diabetes, as opposed to normal glycemia, clearly valuable to society.

So our positioning as such will not be right on top of the other guys; meaning that there's -- and look at hypertension, the lipid market, when you have a big market there's really umpteen opportunities to position individual products.

And we'll, of course, do that in a way that's meaningful.

In terms of CV data, well, it is true that most of the data we have on CV obviously are at 1.8 milligrams, and this is also things we've been discussing now for two times with the agency.

Obviously, the exposure different per kilogram body weight is not like 60% to 1.8; it is rather like in the 30 range, because these are BMIs of late 30s, as opposed to BMI around 30.

And, of course, we'll have in-market data from all the i3 Aperio and GeneX database systems that we are following according to the PMR we have with the FDA.

We will potentially even have interim data from the [leader], albeit at 1.8 milligrams.

A lot of women in there for whom 1.8 milligrams actually corresponds to premix for a big meal obese person, and so on.

So we have a hierarchy of suggestions that we will follow with the agency until we fulfill their need.

Hopefully, not ending up with a pre-approval CB trial.

That's a theoretical outcome, but that's basically by no means where we are coming from, and I hope also not the agency.

Thank you.

Next question.

Please state your name and affiliation for those that are listening in on the call.

Sorry, I should have remembered that.

[Ben] (inaudible), (inaudible).

Just with the upcoming FDA meeting, are you aware of their questions, or the kind of questions that the FDA want the committee to answer?

And how comfortable are you that you have all the bases covered in terms of being able to answer those questions?

Then secondly, just in terms of the neutralizing antibody, do you think it's specific just to your molecule?

I know it's only been a one-patient so you've probably got a few more.

Or do you think it's maybe a question of the fact that molecule itself is not about a whole version, but I think a (inaudible).

Mads, I think both the questions relate to you.

But to be very clear, no, we don't know the questions that we have to answer, so that's very clear.

So I can't really speculate because whether they can come up with questions that we can't answer.

We tend to think that the drug is provable.

We've analyzed it from A to Z, back and forth, in all different ways and directions, and we believe the drug is very efficacious, has a very good profile, and a benign side effect profile.

But maybe you can add color to that as well.

Well, actually, not so much, Lars, I think you said it.

And we'll have to wait until the [briefing book] comes out from the agency.

Obviously, we will seek a close dialog so that we -- the sooner we can learn more, the better.

But the lines of attack, so to speak, or discussion, so to speak, that we are envisioning could happen at the at com are all being pursued by our folks, such that we, together with external experts, are looking into each and every avenue of the benefit side and the risk side to profile in an honest but also proactive manner, as positively as possible, this wonderful molecule.

So I think we are preparing ourselves in the right way.

And we hope to get back to you around Q3, which is close to the at com, of course, with some more flavor as to the topics.

One small correction; vatreptacog, the B-domain truncated, that's the turoctocog, but they're all cogs somehow.

That's the factor VIII.

This one is essentially a 99% homologous molecule.

It's only got three [immunerized] substitutions around the catalytic cleft, which is not even on the surface of the molecule but inside the molecule.

So it's slightly surprising, to put it mildly, that you actually have [immunology] going on here.

I think, and that's my personal view, that the clotting factors are so big and have so complex primary, secondary, tertiary, and sometimes even quaternary structures, that they seem to be a little bit prone to triggering the immune system.

We have to be aware of that; all of us are developing these molecules.

When that is said, N8-GP and N9-GP turoctocog, they have no amino acid substitutions and [pigulation] as a [protraction moiety] is not known to be immunogenic.

So I think there's no -- if you're worried about spillovers into our own portfolio, there should basically not be any based on this; other than the notion that the immune system doesn't always like coagulation factors.

Patrick Hargreaves, AKO Capital.

Could you just talk about what's causing your market share loss in Europe, please, in insulin.

Kare?

Yes.

The market share loss --

It's your fault (laughter).

Is directly linked to the perception in the marketplace of Lantus versus Levemir.

So it goes back all the way to the clinical development of Levemir, where we had to adjust the strength of the product because we basically didn't get the dose right in the first go.

And that created a wrongful perception in the marketplace that was used by our competition that Levemir was not a true [one stage], which it clearly is.

And the reason why we still see good growth on Levemir is actually that, of course, we then followed up with a lot of clinical data, and we keep pushing the message, and that's why Levemir grew 22% last quarter.

So -- but the real reason is that in the basal segment we are still losing share in Europe, and in Japan.

And then we had last year this discontinuation here in the UK, where we pulled out generic human insulin product in the anticipation that we would capture a significant portion of the new patients on our modern insulins.

But Lilly lowered the price on their human generic and captured the market, instead of us.

So that was a bit of a mess up on our own part.

Lars, a follow up.

You've been on record in the past saying that you expect to get [80%] share of new prescriptions if degludec comes through as expected; wondering whether you feel that you (inaudible) -- that's different to the feedback we've got from our [work].

I was wondering about how confident you are on that target.

And secondly, you're probably not going to answer it, but if degludec doesn't come to the market with the [hypo data], as you hope, and the [basic capabilities], what kind of --?

Well, I think I've been on the record for stating that I think we'd get 7 out of 10 patients, so that would be 70%.

I still believe that to be the case and the possibility for us going forward.

I'd hate to think about hypothetical scenarios.

Our current dialog seems to indicate that it is possible for us to get the regulatory authorities to understand the significance of the hypo reduction.

It is possible for us to communicate the long profile, and it is possible for us to communicate the flexible dosing, so I'd hate to speculate on a plan B until we have to.

We'll do that in the meantime, but privately.

Looks more like it's going to be a slightly later launch than what we hoped for, than it's not going to come.

If we look out four/five years, you're going to have what is essentially a two-player market in basal insulin today, end up being a three/four player market, with some [southern priced smaller] competition.

Can you give us your perspective on how do you see market share evolving, [monopoloy in US, and kind of industrialization as well], so in the rest of the world, how that equation might get skewed?

Yes, I think there's going to be three players.

There's going to be the current players.

Lilly is out of basal insulins now.

They are coming back in with a biosimilar, Lantus, and some innovative play as well, which is a little bit further out.

So I think it's going to be the three players that we know of.

And we are planning on coming to market with innovation, and with innovation you can still capture the dominating market share.

So it is our anticipation that we should grow our share in the basal segment gradually over time with the introduction of Tresiba.

We should be able to hang on to, and perhaps even further expand, our mixed share.

We have a very high share in the mixed market.

The mixed segment is declining, though, because of the increased tendency to start on basals.

With regards to the short-acting, short-acting segments are the segment which is first going to approach patent exploration, human also, (inaudible), and so we are hoping there that we will be able to come up with some innovation before '17, when our formulating patents are running out.

So I hope that we'll be in a situation where we can stop the decline in the markets where we have been declining.

Japan is a question.

Europe is a question mark.

How far we can take the market share is a little bit uncertain; it's three dimensional, [share] obviously, as we don't know the true competitive situation.

But it seems like it's going to be the same three innovative players.

And we don't believe there's going to be any of the smaller biosimilar players that are going to have any importance in the industrialized world.

Kare, I don't know whether you want to --

Yes, just a more comment on the biosimilar situation.

You have to remember that we have human insulin, which is total off-patent everywhere, where we have top biosimilar competition.

And this has not led to any significant increase in the market share of the biosimilars, or the generics.

And insulin is not really a product that lends itself very positively to biosimilar or generic competition, for a long list of reasons I won't repeat now, but that we'd be talking about --

And I think seen from our perspective, having a generic [new] insulin is good because we would like to be able to offer this to societies where cost is very, very important.

We hope that we're not getting to that situation in Europe, where cost is so important that we have to go back to old-fashioned product.

But I mean -- so we can offer this to the big profit markets in the emerging countries.

And we'll, at the same time, in the same markets have the modern insulin range in the product market, and then people will be trading off if they go along, and if they become affluent enough to be able to do that.

And so it plays out well for us.

And if you are looking at it from a competitive perspective then of course it also has the effect that none of the biosimilar manufacturers, generic manufacturers becomes big because we completely dominate the market.

What do you think somebody like Merck or somebody like Astra, BMS, [do in a 10-year frame]?

Because they have half their product portfolio of diabetes, they obviously want to get [broader] at some point of time, how do they solve (inaudible)?

I don't know.

In relationship to insulins, I think it's going to be very difficult.

They can try other avenues.

They are obviously trying avenues with DPP-4 inhibitors, SDLT2s, and with [adurials] in the case of BMS and Astra.

We happen to think they're not going to be very successful, but obviously we're biased.

In terms of insulins, whether that's Merck, or whether it's Pfizer, or whoever it is, there's nobody that can compete with us in generic insulins.

You can see that every year when the auction is on for the Brazilian tender.

Who can sit around the table longest?

That'll give you a good benchmark for where the competition is.

[BI] certainly couldn't sit around for very long.

No.

One or two questions more, just so that you're prepared.

Brian Bourdot, Barclays.

Can I ask you a follow-on question to that?

How important do you think it is to offer as broad a range of solutions in diabetes care as possible?

Clearly, one of your major competitors, Lilly, has taken a different approach doing a deal with Boehringer to bring some orals in as well.

You've focused on proteins.

Are you of the view that focusing on proteins is going to give you the best return on capital and you don't necessarily need to be there in the modern proteins space as well?

That's clear to us.

We have been in the non-protein business for quite a number of years, together with Boehringer-Ingelheim, in fact.

Prandin, or repaglinide, was co-developed by our two companies, and marketed as such.

But what we have realized is, number one, it's very difficult with synthetic chemistry to come up with new medication for type 2 diabetes without it being toxic.

Number two it's very difficult to differentiate.

So you will end up having eight DPP-4 inhibitors that are slightly different, doing about the same thing on an HbA1c but have a different toxicity profile.

And then it becomes a mass marketing game of who can convince most doctors which product is the best.

In proteins, it's a different thing.

So that's why we made the decision, when we had our own headwind in insulin sensitizers, back when we had collaboration with Dr. [Ellis], to say we get out of small molecules.

We are only in proteins; that's what we understand that best.

And as it has turned out, protein therapy for diabetes is expanding with the GLP-1 segment, and with the understanding that insulins are safe.

There was a cloud hanging over insulin some years ago about cardiovascular issues associated with insulins.

This has now been demonstrated that that's not the case.

And it's been increasingly understood in the medical community that you should treat diabetes as early and as aggressively as possible.

And that lends itself to the downstream active ingredients that we are selling; namely, the GLP-1s and the insulins.

So, no, we're not going to be in small molecules.

Small molecules is for the big boys with the big sales forces and the big margin budgets.

But we would like to be in orals, as long as there's some GLP-1 or insulin in there.

As long as there's proteins in them.

Given the trajectory and level that you're seeing in the more developed markets, like France and the UK, is 10% now too conservative an estimate for what GLP-1s can take as an overall share of the market?

I think it was a pretty good bet when we started, without having any indication of where we could take it.

But we can see in my own country, Denmark, it's far beyond; I think it's more close to 20%.

So it depends on willingness to prescribe and willingness to pay for modern medication, and the current financial and economic situation is pushing that ability and willingness back somewhat.

So I still think that if we could -- we'd be content if we could develop it to 10% of the diabetes market still because, you've got to remember, there are many markets where it's not penetrated to any great extent.

US is 5%/6%.

I think the missing element we also have in that [parcel] is what is going to be the long-term average [stay time] for patients.

It looks, to us currently, in the market like the US that we have a stay time of at least two years on average for the patients.

But what we've only been -- just about two years.

And what the average stay time, how that's going to develop over time, will also have a big implication for what's the size of the market.

Okay.

Sorry, just to follow up.

In the US, do you think there needs to be a pricing cut in GLP for you to hit that higher level of market share?

Do you think that would be important?

No, I don't think that's the key issue.

It's more an estimate of what actual volume share of patients will be in an insurance scheme and in a situation where they will be able to obtain coverage.

And since the coverage is already very high on the US population, more than 70% without any [progress], then I think it's more a gradual process.

And if you look at the current trend then, of course, obviously it will go beyond 10% at some point in time.

But that remains to be seen, of course.

The important thing is to understand the difference between the patient volume share and the sales value share; there's a big gap there.

And you know well, if you take the total pharmaceutical market, it's projected to be in decline 1% or 2%.

That means that societies are paying less for drugs, even though they're consuming more.

So when we have a political discussion with the treasury and the politicians, it's not correct when they say that drugs are getting more expensive and we're paying too much for the drug.

It is the hospital drugs, very specialized drugs, and new introduced drugs, but then so huge patent roll off that on the governmental budgets the bill's not expanding.

We just should remember that.

So there's room for a little bit more diabetes drugs, and a little bit more innovative diabetes drugs, because society will save a lot of money on that because there's less amputations, and heart disease, and blindness.

Thank you very much for joining us this afternoon.

We will be coming back again shortly.