諾和諾德 (NVO) 2012 Q4 法說會逐字稿

Okay, I think we'll kick this off.

We've got roughly an hour before we have to get the management team off to their next meeting.

So it's -- I'm, for those who don't know me, Sachin Jain from Bank of America.

It's our pleasure to have the Novo Nordisk management team on the road for the full-year results road show.

I think the intention is a brief presentation, over to Q&A and, without further ado, over to Lars Rebien.

Yes, thank you very much and also thanks for the invitation.

Yes, we're going to try to make it brief if at all possible.

My colleagues are excited about the results in their individual areas, so let's see how brief we can make it.

I can make this one very brief.

This is the usual slide.

Things may turn out differently and, henceforth, I hope that I have absolution for any mistakes we're going to make in the future.

Highlights, I'm not going to go through the highlights, because that's what the presentation's going to be all about.

So that's also quick.

Here, sustainability highlights, I'll just go through a little bit of this.

It's a big bag of other issues that we highlight in connection with the annual result.

Our social performance, we've built an ambition of wanting to have an aspiration of 40 million people treated with our products by 2020.

That's what we have stated here; 40 by 2020.

Right now we have 23 million patients using our products.

And we have five million people treating with insulin from our Company at a cost of $0.20 per day.

The whole strategy being we have something for the low-price segment, we have something for the medium-price segment and we have something for the high-end segment, so a full-portfolio approach from the Company.

In terms of social performance, the workforce has increased with 5%.

Turnover is stabilized, actually, declined a little.

We can discuss whether that's a good thing or a bad thing.

I guess our HR people think it's a good thing.

Social performance, when we look at the engagement in the Company and adherence with our values, a very high score.

A slight negative point here is that for the first time ever we have received a warning letter from the FDA on GMP and this, of course, is something that we take serious.

It is something that we intend to fix and, hence, this is something that we eventually will be stronger from.

Environmental performance has been impacted by the phasing-in of our factory in Shenzhen in China, which is using coal power as opposed to wind power, which we're using in other plants.

C02 emission increased with 30%, but we're on track to meet the 10% absolute reduction which we set going from 2004 to 2014.

Energy and water consumption is following sales, basically.

So we've taken the opportunity.

The Company has grown significantly over the last 10 to 12 years in terms of size, in terms of complexity and we've basically been the same management team, managing the Company in a rather narrow one, if you want.

We have taken the opportunity to appoint two new members of the corporate management team.

Jakob Riis, whom some of you have met, is responsible for Global Marketing, signaling, of course, the importance of global marketing market access in the future pricing and positioning of our drugs.

And also Lars Fruergaard, who will be responsible for IT and Quality, both these two gentlemen have been with the Company for several years.

I think Lars Fruergaard started in '91, so is an old hand in Novo Nordisk we see and Jakob started in '96.

Both of them have international experience in the United States and Japan before having their previous responsibilities.

And, with that, over to Kare.

Thank you, Lars.

I'll briefly go through the sales.

And if we start here by looking at the geographical distribution, then you can now see that, clearly, North America is the biggest region for us now, grew nicely 29%.

You will see that China is growing nicely also with 28%, will overtake Japan in size this year.

And international operations, where we have more than 4 billion people living, is growing strongly and in a few years' time it will overtake Europe.

So the growth is really coming from those three regions, North America, International Operations and China, whereas, we have a relatively low growth in Europe and Japan both for demographic and market reasons.

In terms of products it's Diabetes Care that carries the growth, 21% growth in Diabetes Care.

And you can see it's really very simple.

It's the Modern Insulins, the three insulin analogues we have.

They carry 55% of the growth and Victoza 39%.

So 95% of all growth coming from Diabetes Care.

Our Biopharm franchise is highly profitable and is growing, but at a low rate.

We have saturated NovoSeven, basically, in many markets and in Norditrop -- in the case of Norditropin we still see some growth, but there's quite some tough price competition in certain parts of the world.

If we look at diabetes, then, 21% reported growth, 15% in local currency.

It is of course the Modern Insulins that are carrying it.

But we also see growth in Human Insulin.

That is due to the fact that in certain emerging markets [Goldmans] are still buying Human Insulin to get some cheap insulin for their nationalized healthcare systems.

Victoza's growing 58% and then we have a few other bits and pieces.

If you look at the split, then, of course, Victoza is starting to be seen as part of our sales with a meaningful size.

And of course we expect this to be more pronounced in the coming years.

Some of you might remember 10 years ago when the Insulin segment was doomed and nearly to be dead by some and it was only one-third of the Diabetes market.

And we stepped out of chemical compounds, OADs, and focused on proteins, and that has turned out to be either clever or lucky.

Anyway, what's happened since then is that now the proteins are more than half of the Diabetes market And we have a very strong position in both Insulins and GLP-1.

I won't bore you with the whole story about this slide over here, just say that the story of OADs, for those of you who have followed the business for a while, is typically from boom to bust.

We had Resilin booming and busting.

We had Glucofast booming and busting.

We had Avandia booming and busting.

We had Actos booming and busting.

We have Januvia booming right now.

And you can see that from this curve here.

And you can see our broad portfolio of proteins is not booming, but it's just growing steadily and we are right now at 26% of the world market in value share.

And if you get the monthly numbers, which we do, of course, and some of you might also do, then it's higher than 26%, so that's good.

In terms of the world market we have seen a strong device penetration over the years, a strong penetration of Modern Insulin.

This is seen in volume.

So here you are sort of around the 70%.

If you take it in value, it's, of course, significantly higher.

But it is also important to realize that Modern Insulin will stay around in markets like India and other emerging markets, Modern Insulin -- sorry, Human Insulin will stay around and we'll continue to manufacture and sell that for quite a while.

Market shares of Modern Insulin not much dynamics there you could say.

We are around 46%, Sanofi is somewhat less and Lilly is slowly continuing to lose out now, being less than 20%.

On Victoza it's really straight-line growth, you could say.

The small beep here in the Q4 of 2011 that was just a rebate adjustment, where we had to reduce the accrued rebates due to some realization of the levels of healthcare reform rebates in the US.

And that has stabilized now, so you have a more stable situation this year, so you really had a straight-line growth here in sales quarter on quarter.

It's coming from primarily the US and Europe, but we also saw international operation kicking in; they doubled sales of Victoza.

And we saw China getting on the map for the [reimbursed], but at a good price point.

So we're very happy and satisfied about the sales growth of Victoza.

With that, over to you Mads.

Thank you, Kare.

I'll try to be brief as well.

If you look at this slide, it really just highlights how -- my telephone should be shut off, okay --.

If you look at this slide here, it really just highlights how we have a large number of Diabetes products that are ready to take off, we hope, in the next few years.

Now, interestingly, if you look at FIAsp, Tresiba and Ryzodeg, they all represent our best shot at retaining or regaining leadership in each of the three Insulin segments, fast acting, basal and pre-mix.

If you then look at IDegLira, it represents an invention at Novo Nordisk of a whole new class of insulin or insulin and GLP-1 agents called the fixed-ratio combos.

Semaglutide, obviously, is our, we believe, best-in-class potential once-weekly GLP-1 analogue, destined to enter Phase III in this quarter.

And then Liraglutide for Obesity is what we are all waiting for data on in the next two quarters of this year.

On top of that, we have the activities in Hemophilia.

So if you look at Tresiba or Ryzodeg, quite clearly a lot is happening.

If we start with Europe, we all are extremely happy, or at least at Novo, that we got the approvals.

We can now witness the labels on the website from the EU Commission later on from EMA and they are very strong and powerful labels, as I think we've communicated to you previously.

We'll have the first launches in Denmark and the UK in this first part of the year.

Japan also witnessed approval of the last of the two products, Ryzodeg quite recently, and we're hoping to complete the price discussions on Tresiba, followed by launch, during the first quarter of this year.

In the United States, after the AdCom that happened on November 8, we have continued the, what we call, constructive dialogue with the agency, and there are questions and answers going to and forth.

And we hope to come towards the end of that discussion such that we can launch around, at the latest, mid year this year, but that is obviously not in our hands.

We will always continue to rollout and also submit NDAs all over the world, as you can see under the Other group on this slide.

Now IDegLira holds the promise to become a completely new class of agents with unsurpassed efficacy, in as much as we've combined the truly long-acting Liraglutide and Degludec molecules in one combo that proved itself extremely well in the DUAL I trial, where people were with -- on an OAD background.

But in this particular trial they came in with a typical more than 10-year, you can say, treatment cycle for diabetes.

They were on insulin, yet after the treatment for half a year with IDegLira we saw that the majority, 60%, went from 8.7-ish down to below the [ADA] target of 7.0.

If you compare this up against the [Get Go Health] study from Sanofi or the Harmony Six study from GlaxoSmithKline, where they have allowed loose combination therapy to take place, so where's there's been a full titration with Lanxus and then either Lixisenatide, in the case of Sanofi, or Albiglutide in the case of Glaxo, they achieved 28% and 30% treat-to-target reductions and 60% in the case of IDegLira.

So I think we also on the glucose side, but just as well as on the weight benefit side are seeing something that puts this in its own little league, on top of the convenience factor, of course.

Confirmed hypoglycemia is very low and, actually, lower than you would expect when you compare to the insulin standalone arm.

And this is the hypo-protective effect that a long-acting [GLP-1] seems to have on insulin.

So I mentioned FIAsp, which is our last segment to be superseded in the case of NovoLog and NovoRapid with this even faster-acting version.

Phase III program is destined to start in the second half of this year, entails a trial program of about 3,000 patients, both on multiple daily injections, but also a Type 1 pump infusion study to show that this also can become, hopefully, the preferred future pump insulin, based on an even shorter lag period from the bolus wizard is activated until the insulin appears in the circulation.

If we look here at what else has happened in R&D, well, Victoza has shown in a four-week, very comprehensive study, actually, to show that it's counter-regulatory hormone responses in Type 1 Diabetes are uncompromised after the use of Victoza.

And, with that, plus some insulin dose sparing and weight beneficial effects that we observed during this brief trial, we are now entering Phase III during this year in Type 1 Diabetes, which we think can be interesting and value adding for the patients' lifecycle management and indication expansion for that molecule.

Then, uniquely, we've come up with a new generation of engineered -- both backbone and side gene engineered insulin analogues, the first one being LAI287.

It's a once weekly with a circulation half life anticipatedly of about one week in the circulation, for use by injection initially, theoretically, even for all administration as time goes by.

Biopharmaceutically, NovoThirteen has now been launched in Denmark and Canada and resubmitted to the FDA in the United States just around Christmas time.

Turoctocog alfa, as you are aware, is our first betting or our first molecule in the realm of Hemophilia A. It's been submitted in the major markets last year and we would hope to see regulatory approval in the first-market [emerger] during this year.

And then we had to discontinue an information project called NKG2D, as I think we've announced previously

With that, over to you, Jesper.

Thanks, Mads.

In terms of financials, we've benefited in 2012 significantly from tailwind.

We had a 6% tailwind on the sales lines for the top line, so 12% underlying growth.

In terms of gross profit we also benefited 70 basis points from the tailwind on currencies, so we had an underlying 100 basis-point improvement in our gross margin.

Sales and distribution costs declined in percentage of sales by almost a -- by a full percentage point and that was really reflecting the deferral of the launch of Tresiba to 2013.

In terms of research and development costs, our ambition was to grow R&D in line with the sales.

In underlying terms sales grew by 11.6% and the R&D line grew by 11.0%, so that was broadly achieved.

However, due to the different currency composition of sales and -- or research and development costs compared to sales we had a decline in the ratio.

Admin cost was partly benefiting from some non-recurring items in 2011 and 2012.

The underlying growth was in the ballpark of 4%, so an all-time low of 4.2% in admin cost to sales.

License fee increasing significantly and significantly, actually, benefiting from a higher recurring level of royalty income, but also a higher level of income from our non-core activities, the engineering company and the IT company.

Net financials of course seeing a loss, reflecting to the benefit that we have achieved on operating profit, whereas, we had a benefit on the top line of more than -- or the operating profit of more than DKK2.5b.

The cost on net financials was to the tune of DKK1.5b from hedging, so a net positive contribution from currencies in the tune of DKK1.1b.

The tax rate was, as expected, around 23%, net profit grew 25% and, because of the repurchase program, EPS increased by 30%.

In terms of currency, you also here clearly see the significant positive impact we had in currencies from US dollar and also from Japanese yen.

But also do note that the current levels that these currencies are operating on are significantly lower than the levels we had in 2012 and, hence, we will be facing headwind.

And we have been illustrating the 5% currency impact from the movements here and we are covered for approximately a 12-month period for the major currencies.

In terms of the outlook, the outlook is now a sales growth in the range of 8% to 11%.

And that range is, of course, dependent on how the rollout will be of Tresiba, but also, for example, how our Prandin product in the US will be faring in terms of potential generic competition.

The currency impact will be negative approximately 4.5 percentage points on sales and around seven percentage point negative on operating profit.

The operating profit growth is, in local currency, estimated to be around 10%.

Net financials will then this year swing around and be a positive impact to the tune of DKK1.4b; unchanged tax rate; unchanged capital expenditure; slightly increased depreciation levels; and an increase in our free cash flow to DKK22b, assumed for 2013.

If we look at how we're spending the cash that we're generating, well, we're assuming that we will pay out some DKK18 -- or DKK18 per share.

That's equivalent to DKK9.7b.

And an unchanged payout ratio of 45% like last year.

And we have proposed a repurchase program of up to DKK14b.

So in totality we will recycle a little bit more than -- or a little bit less than DKK24b and we're expecting cash flow of DKK22b.

So, actually, returning all the cash we generated to our shareholders in 2013.

We have also taken the opportunity in connection with the full-year results to update the long-term targets.

We have maintained the ambition of growing our operating profit by 15% year on year.

An individual year it may be lower, like we are forecasting for 2013 as we have the significant Tresiba growth opportunity ahead of us, and it may also deviate if currencies are against us or with us.

Operating margin is now lifted to 40% and the growth to -- the 40% level is going to come from an expanded gross margin and also over time, hopefully, from an expanded -- increased efficiency in our sales and distribution cost.

Cash to earnings level is maintained.

Remember we measure this on a three-year average basis at the 90% mark.

And then, as a closing remark, we basically continue to see a 10% plus growth in the annual Diabetes Care market and we have a very promising pipeline.

And with that short note I'll hand over to Lars to lead the Q&A.

Yes, thank you very much.

Sachin Jain, Bank of America, three short questions, hopefully.

One, on the call you guided to Victoza growth being lower than the DKK200m quarterly increment, but also recognized limited competition from (inaudible).

I wonder if you could just clarify that commentary from the conference call.

Secondly, on Levemir, I think it's your fastest-growing Insulin now.

So can you discuss the extent that's benefited from the additional marketing effort that potentially should have been on Tresiba last year?

Or has there been any particular perception change to that product in the market?

And then finally, on Victoza Type 1 Diabetes, I am not aware of any other GLP-1 looking at the Type 1 space, so just could you provide some color as to why Victoza's unique in that regard?

Thank you.

Yes, thank you very much.

In terms of Victoza's sales growth, Kare, we've indicated 150 to 200 as the quarterly growth absolute number going forward, as opposed to, historically, 200.

Why's that?

Well, it's because it's difficult to predict the future.

And the current going rate is around 200 and there is different competitive changes in the marketplace.

As you all know, Amylin was acquired by BMS and AstraZeneca and we have not seen them being able to really make any changes or any dents into the TRX development of Victoza in the US marketplace.

However, they have been trying very hard.

You can see that from IMS data on their sales activity.

And I think they will continue to try very hard to somehow justify the $7b acquisition price for Amylin.

Whether they will succeed or not remains to be seen.

Of course, we prefer that they don't succeed and that the situation continues the way it is right now, where it's stabilized and Victoza continues to have a good track in the US.

But at the same time we see Sanofi coming out with [Aliximir] in Europe.

We see there's an inferior product profile compared to Victoza, but on the other hand we also have to say that we don't know exactly what's going to happen.

So that's why we're guiding the way we are.

And then, Kare, perhaps also you -- the US position of Levemir, has there been a changed perception, or is it simply a question of marketing power behind the product which is resulting in a quick take-up?

I think it is the result of years and years and years, of course, of staying with the same message and then increased marketing power.

Because we have increased the sales force in preparation for the Tresiba launch and that means we now have four retail sales forces, roughly a field force of 3,000 people in the US.

And that means, of course, we have the power to both promote Victoza, NovoLog and Levemir at the same time.

And that's probably part of the reason why we're seeing a continuation of a relatively nice development for Levemir in the US marketplace, which of course is important, because it indicates that once we switch part of the sales force onto to Tresiba we should have enough coverage.

And one of the reasons why that's the case is also that competition used to really bump up their Diabetes sales forces in the past.

It seems like we are the only ones increasing significantly right now and that's, of course, positive.

And, Mads, perhaps a comment from you on Victoza for Type 1. It's initially a little bit counter-intuitive, since Liraglutide is releasing insulin and there's no insulin-producing capacity left in Type 1. So can you give us a little color on this and the competitive situation there?

Yes.

Well, first of all, Sachin, not only have we seen two external investigators that have been using Victoza in small studies, in anywhere from 10 to 20 patients, then donor in the US and the host group in Copenhagen that have shown some promising data that, of course, intrigues us a little bit.

But on top of that we did some -- various animal models where we actually showed benefits [Type 1] Diabetes that could either be due to beta cells replicating again and that is not likely to happen in human beings.

If you have established Type 1 Diabetes I think you, unfortunately, can forget about replicating your beta cells.

So what is it then?

Well, it's probably more, in humans, the notion that people with Type 1 Diabetes they don't have any insulin but they have too much glucocon, okay?

So since we know that GLP-1 has at least three effects, it stimulates insulin, it inhibits glucocon and it suppresses appetite, two out of those three effects are still present in Type 1 Diabetes.

So what we've shown in our study is that we get the nice glucocon suppression.

And that is something you need 24/7.

You need it around the clock, because it's constantly elevated.

That is why you will actually need a long-acting GLP-1 agonist to have the constant suppression.

The same goes with appetite.

If you only suppress appetite certain hours during the day you will tend to eat more later in the day to compensate.

So those are logical reasons for long-acting GLP-1.

And then there's a safety one.

The safety one relates to the fact that if you interfere in the meal-time prandial insulin regulation in Type 1 Diabetes, which you will do if you use Exenatide or Lixisenatide, they have half lives of three to four hours, meaning that they will actually interfere when taken at the meal.

With the insulin response to the prandial insulin you will end up in a potentially unfortunate situation.

So what you need is a stable base line in GLP-1 agonist that can do the things we just discussed.

And probably that's why you are seeing us most active.

Thank you.

Yes?

Hi, thanks.

Richard Vosser from JP Morgan.

A couple of comments -- a couple of questions, please, first on -- just your comments on the Boehringer Ingelheim pulling out of the joint venture with Lilly.

What do you think this means for Biosimilar competition, how aggressive they might be, and also the requirement for potentially CV studies pre-approval for new insulins beyond Tresiba, their PEG Humalog, what it might mean for that?

And then the second question just on IDegLira.

Assuming approval of Tresiba mid year, is there a chance that the FDA might view this as a new product and, therefore how would they think about this regarding CV studies?

The long-term safety studies for Lira and Tresiba wouldn't be available at filing, so just your thoughts there.

And just a follow-up to Sachin's question on Victoza competitive threat.

Just wondering about the SGLT-2s as an oral therapy that can lower weight quite substantially, obviously, there are side effects, but how do you see the competitive threat there?

Thanks very much.

Thank you very much.

Mads, I guess it's largely you again.

Well, just an initial comment on Boehringer Ingelheim.

This means that Lilly's now got the insulin back and are likely to be pushing that significantly.

So, Mads, what's your view on new insulins and CV as it relates to the PEG insulin from Lilly, and Tresiba, for that matter?

What I think, Richard, is that we have the first insulin since the adoption of the various guidelines, both the new and more assertive AdCom process that came into place, but also the CV guidelines for Diabetes products, originally contemplated as being non-insulin products.

I think I'm seeing the FDA gauging in some ways the whole situation around CV and Insulins as something they are revisiting.

In other words, I have to foresee, as one of the main players in the Insulin space, that we should probably expect CV to be an element of every and any Insulin product we come around with.

So that would actually be my expectation.

Whereas, when I look for IDegLira specifically, my view is that we're doing the LEADER trial in agreement with the agents and we're not going above 1.8 milligram of Liraglutide in the IDegLira formulation, such that I would definitely view -- and it's the same population between them.

So I would definitely view the LEADER commitment as sufficient for IDegLira per se.

And if and when Tresiba gets approved in the US with the PMR commitment, the post-marketing requirement to do the CV outcome trial, as we are, of course, discussing with them to do, that would also hold for the Tresiba or the Degludec component.

Now, it is of course the first time two different proteins are coupled in one formulation to the best of my knowledge, actually, as a combo protein-based product.

But it shouldn't change the fact that it is the individual safety databases, plus the aggregate from the DUAL trials, and I think we should be in a decent shape there.

And then, Kare, perhaps you'll talk a little bit about how you see the competition to, for instance, Victoza from SGLT-2, or maybe comment on the SGLT-2 class in general, how it might influence our Insulin business and whatnot.

Yes.

I think I have a little populistic explanation about boom and bust of OADs.

I think SGLT-2s will probably get some success when they're launched, due to the fact that they are easy to switch to and it's not a major hassle, some marginal inconvenience and safety concerns.

But the way I see it is it's another player in the OAD space, another combination for another set of combination therapy when people take one, two, three OADs.

I don't think it will be anything that will affect the penetration rate of GLP-1s and of Victoza, because that segment is different, in the sense that you get a much higher efficacy.

It's a factor two or something on the glucose control efficacy.

And you get significant weight loss when you use Victoza.

So in my mind it's not really something that will affect it, also given that the segment that's using Victoza out of Type 2s is tiny.

It's right now 1.3% of scripts that's Victoza.

So it is a tiny segment of people who want high efficacy and see the benefits of it, are willing to cross the injection barrier and are willing to pay the price or can get reimbursement.

So we can say that if they are successful in terms of adopting patients in great numbers then it might have an effect on the growth of the Insulin market.

As we have seen in several occasions in the past with the insulin sensitizers and, perhaps, also with the DPP-4 inhibitors, that they somehow postpone the transition towards insulin therapy for a certain period of time.

The same thing could happen with the SGLT-2s.

Yes, the next question, please, there in the back.

Thanks very much.

Good afternoon, Brian Bourdot from Barclays.

Thank you very much for coming back to London once more.

Questions on FIAsp, please.

If we were to go back to slide 16, and if you were to superimpose endogenous human first-phase insulin release on there for healthy people, how would that look in comparison, please?

And I see you're moving it from Phase I straight into Phase III.

Just wondering what hypotheses you're hoping to show, what clinical benefits over your existing products you're hoping to show and whether you're going to be studying that head to head against aspart?

Thank you very much.

Thank you.

Mads, this must be wonderful for you.

Yes, it should be home turf.

When that is said, though, Brian, I have to start with one admission.

And that is if you superimpose endogenous first-phase insulin secretion it is faster, okay?

So the endogenous first-phase insulin secretion would be faster than this.

We simply not can make it that -- with this technology we can't make it that fast.

On the other hand, what I like is also the right-hand side of the curve.

On the one hand, we have significant absorption within the first five minutes, which is good news.

On the other hand, we actually have more or less a duration of action which is not significantly shorter than NovoRapid.

And I think that's important in, particularly, Type 2 Diabetes, because people are post-prandially hyperglycemic for several hours.

And I've seen some technologies that simply were too short.

This one should not do that.

So I think this is probably as good as we can get it with a really good-old insulin aspart which has only, in reality, been spiced up and accelerated with the addition of some very innocent, endogenous, natural ingredients of the human body.

The way it will do it in Phase III is essentially look at post-prandial glucose control.

We've already done a study where we actually took a standard meal and administered NovoRapid or FIAsp and were able to see a significantly-reduced spike of post-prandial glucose to the tune of 1 millimolar improvement.

So this is the kind of thing we would love to see repeated in Phase III.

Other elements are flexibility, such that we will of course look at can we administer the product 20 minutes into the meal, where the patient knows much more about the load of carbohydrates and other things that he or she actually already has taken on board, such that you can fine tune your dose.

And, finally, we will do also continuous subcutaneous infusion studies, such as pumps, to really show that the lag period from the bolus -- pressing the bolus wizard until you actually see the glucose-lowering effect is significantly reduced.

This is probably going to be easier to show in pumps where there's a very distinct lag phase that you see in a different way than when you use multiple daily injection.

Thank you.

Thanks, Peter Verdult here from Morgan Stanley.

Just three questions.

Lars, firstly, on the warning letter, we've seen many companies in the industry get warning letters and they prove to be nothing, but there's also been a number of warning letters recently affecting companies which has led to a significant delay, taking longer to resolve, costs more.

So I wanted to get some sort of assurance that you think your warning letter is the former rather than latter, and whether there is any link between the lack of clarity on when FDA is going to make a decision on Tresiba and this.

Secondly, maybe for Jesper or Kare, on Levemir pricing and marketing could I just understand, as we launch in Europe -- or as you guys launch in Europe with Tresiba in Japan is all marketing on Levemir being essentially stopped, or are you doing anything with the price?

And then just lastly, very quickly, just to return to the Lilly Biosimilar question, we've obviously seen mixed Phase II data in Boehringer's decision to hand back the rights back to Lilly, but what about their insulin Glargine?

Is it your expectation that that will be a substitutable product eventually in the US?

Or is Lilly content just to [me-too] and something they'll have to promote and they won't be able to price too cheaply?

So I'd be interested in that.

Thank you.

Thank you very much.

I'll deal with the warning letter, and then, Kare, perhaps you want to comment on Tresiba, Levemir and what our intentions are in terms of the competitive situation, and perhaps also the -- what you expect to see from Lilly going forward, since they've given back the insulin to Lilly in the collaboration with Boehringer Ingelheim.

Warning letter, yes, I wish I could give you 100% assurance.

What I can say to you is that we have -- maybe I should explain the process here.

You have an inspection; you get some observations; you are required to answer how you want to remedy the things that can be improved.

We've already done that.

And then six months later we get a notice from the FDA resulting in a warning letter.

Then we review those same observations one more time to see if we can handle the initial response in a better and more complete way.

We've done that within 15 days.

We've done all the changes which is required.

There's nothing which requires building, new equipment or anything of that sort.

So we see the issues as being something we can deal with.

There is still the uncertainty of how the FDA looks at this.

This is also an unusual situation in that it was us that announced that we had a warning letter.

The typical process is that FDA posts the warning letter so that the company can discuss the nature of the warning letter.

We're somehow precluded from discussing the nature of it, because we might be putting words and perspectives forward which would be taken offense at the FDA and, therefore, there's only a downside risk for us to disclose the nature of the warning letter until such time that they publicize it themselves.

Then we can perhaps discuss it in somewhat more detail.

So the only thing I can say is we've dealt with it.

We think it's doable.

We think it's of the first category that you mention.

And we have committed ourselves to be launching Tresiba in US in the second quarter, so that's as best as we can take it and, hopefully, we're right.

Yes, Kare?

Yes.

And when we will launch Tresiba in a specific market then it's all in, you could say, and that means that all sales and promotion moves away from Levemir and moves onto Tresiba.

It doesn't mean -- we don't discontinue Levemir.

Obviously, a lot of patients use this and are very happy about it.

But all the sales and promotion activity moves 100% onto Tresiba regardless of the pricing strategy in the individual market.

And with regard to Lilly, then of course the PEG long-acting remains to be seen what results come out of that and then we can assess how much of a threat that is once we the results.

The Glargine me-too product I think this is only the way of a me-too, so to speak.

So the way I see it personally it is like an Apidra look-alike.

Like Apidra came late to the party of fast-acting analogs, Lilly will come late to the party with this in the space of basal analogs.

And we will by that time have an ultra-long-acting analog that will be launched and will be hopefully having a very high capture rate at that point in time.

So I don't really see it as a major threat.

I don't see how they can really disrupt the pricing game in the US, because that's already so granular and fine tuned to the different customer segments by us and Lilly and Sanofi that it's not a major threat.

Jo, please?

(Inaudible) a few quick ones, please.

I wonder if you can tell us what you're going to be doing in Japan to restore your market share, which has been falling?

Can you update us on your attitude to getting into Diabetes testing?

One of your major competitors thinks that the two will ultimately be linked, so is that something that you're looking at doing?

And can you give us some idea about the commercial approach you're going to be using with factor VIII, because it's a bog standard factor VIII with no differentiating points?

Is it worth putting a lot of effort behind, toe in the water?

If you could just help us on that, please.

Thank you very much.

Kare, you deal with the Japanese turnaround.

Should we call it that?

Yes.

And how you intend to position and market the factor VIII Biosimilar, if we should call them that.

And then I'll talk about how we see testing.

Yes.

The way to turn around the situation in Japan in the Diabetes space, because, as you know, we're doing fine in Biopharmaceuticals, is to launch Tresiba and Ryzodeg, basically, and then get a capture rate above 50, hopefully above 60, on both products in the basal segment and in the premix segment, and, in doing so, turn around the total capture rate in the market and start gaining market share, instead of losing, as we've been for the last several years.

So that's the short version of it.

It's all hinging on first launching Tresiba and then launching Ryzodeg successfully in the Japanese market.

With regard to factor VIII, we will launch this as what it is, which is a high-quality product, very reliable, very safe, very, very clean clinical trials, state of the art in all aspects, of course, a me-too to the best in the marketplace.

It will not be a discounting game on our part, so it will be a me-too kind of way of doing it, so there will be a sales force overlapping with the NovoSeven sales force.

It will be priced probably at parity to current list pricing and we will not be playing a Biosimilar or generic game on it.

It has a full clinical program behind it, so it will be launched as a high-end, nice device, nice quality, nice reliability.

(Inaudible - microphone inaccessible).

I don't think we have one unique advantage, other than on all parameters we are netting, you could say, the best.

So we have not a single aspect of the development program, the clinical profile, the device, anything which is not on par with the best.

That's how you should look at it.

And in terms of Diabetes testing this is obviously something that we review on an ongoing basis, at least once a year, when we make our strategic plan.

We are still of the view that of course it would be nice if these things were linked.

But the technology, the commercial side of things are completely different than ethical pharmaceuticals and, therefore, in history where we have had collaborations in this area it has been a lot of dust, but not a lot of bread.

So we don't think it's linked for the foreseeable future and we have no intentions of going into it.

Yes, in the front.

Vincent Meunier from Exane BNP Paribas.

Well, two questions, please.

First one on the Obesity program, SCALE, can you refresh us regarding the timing for the publication of the data and then the filing?

And also, on Liraglutide obesity, what's the percentage of overlap in your targeted population of patients with Type 2 Diabetes?

Because indeed we could imagine that existing patients who increase their dose in order to tackle the obesity problem and I would like to know what proportion (multiple speakers).

Yes, Mads, SCALE?

When are the data coming, when is the file being sent in, and what is the overlap with Type 2 Diabetes?

Okay.

So there are three sets of data.

The first one is indeed the one with the overlap.

That's the [Diabesity] study where people both are obese and diabetic.

That's coming in this quarter.

Then the big -- and that's 800 patients.

The big one, in 3,600 patients, that is the pivotal trial where the ultimate benefit-risk will be defined.

That's coming in the second quarter.

That's obese people, of whom about 50% have pre-diabetes in that trial.

And then the third one is a co-morbidity study, specifically looking at obstructive sleep apnea, which is one of the major co-morbidities, along with pre-diabetes and a few others, to obesity.

And all of that -- if things go well and the benefit-risk profile in our assessment is favorable, we will around year end submit the new drug application for obesity.

Now, it's a very good question with the overlap, because if you define obesity as something in United States that 110 million people suffer from or live with, and Diabetes as something that maybe 25 million or so have, you can actually say that out of those 25 million more than 80% are obese.

So those 20 million they are included in the number 110 million.

That is true.

So there is an overlap, you're absolutely right, not surprisingly, because obesity drives insulin resistance that then again drives the overt occurrence of Type 2 diabetes.

Now obviously the reason why we're doing the first study, to bridge the 1.8 and the three milligram dose, is also to be allow -- allow ourselves to understand and discuss with the regulators how do you handle the situation, as you are hinting at, of the 1.8 versus three milligram dose.

And that is something I can't be very crisp on because it will have to depend on also discussions with the regulators once we have the data.

Thank you, Mads.

Yes, take further back?

I'm Keyur Parekh with Goldman Sachs.

Two questions, please.

Lars, this is the first time in a while we have seen the payout ratio flatten out.

As we look at your cash flow generation over the next four, five years how should we think about the split between dividend payout and stock buyback?

And, secondly, just as you are about to launch Tresiba both in Japan and in Europe, what is the sort of feedback you're getting from reverse marketing by Sanofi and what are the areas they are trying to raise up on those ends?

Thank you.

Thank you.

Thank you very much.

Yes, we try to -- we see -- and, Jesper, you should free to chip in here afterwards.

We see dividends as something which you are likely to raise, but not reduce and, therefore, we are going up gradually.

We've hit a point now where we believe the dividend is competitive with our peers.

And then what we say is the remaining surplus liquidity will be paid back by buyback programs.

We do also on a regular basis have interaction with our main shareholders and ask them whether the balance is right, whether they like one or the other, and there are a little bit different of opinions.

And we try to satisfy everybody by finding a way which suits us and something which is sustainable.

So, Jesper, do you have any further comments to that?

(Inaudible) the 45% we are at currently basically matches the pharmaceutical peer group.

We don't use the entire peer group, which also involves Biopharmaceuticals, as they don't pay dividends.

So the 45% we have now is roughly matching what we have.

But we'll have to see what they come up with proposals for 2012 dividend in '13 and then we'll revisit again.

And if it goes towards 50% then we'll move in that direction.

We just basically want to match them.

And with regards to reverse marketing from our dear competitors, I think we are seeing all the tricks in the book that you can imagine.

We've heard from some sources that Tresiba was too short and from other sources that now it was too long.

We have seen excerpts from FDA briefing books being used at the counter, detailing of our product.

So what I can say is this is obviously a very, very serious matter for Sanofi, having their major product being under severe pressure and attack of an approved -- approval of a product that is seemingly superior.

So I think one should expect everything, which we are.

Yes.

Thanks, Nick Turner from Mirabaud.

I was just wondering whether you think that the cardiovascular issues that were raised on FDA review of Tresiba might constrain the uptake of Tresiba in those regions where it's approved until a liability could be ruled out in a post-marketing surveillance study.

And then a second question with you on Victoza, which would be, there's obviously -- the Harmony study showed that Victoza was somewhat more efficacious in dropping HbA1C levels versus Albiglutide.

I was just wondering is there a -- is that different, or how clinically significant do you think that difference is, particularly when you consider maybe the ability of these drugs to prevent or delay diabetic complication and, particularly, cardiovascular -- improve cardiovascular risk?

Yes.

Whether or not the CV discussion at the AdCom would limit the uptake of Tresiba, Mads, why don't you deal with that and perhaps also take the second one if you want.

Yes.

This is something that I feel quite strongly about, because do bear in mind that those studies showed that there was absolutely no difference between Tresiba and Glargine on the cardiovascular profile.

The event rate was 1.44 and 1.48, which is the same.

The upper level of the confidence limit did not exceed 1.8 and the statistical analysis of the point estimate revealed that they were the same.

The only thing that happened was that when certain extension studies were done they were actually only done to a couple of the studies, not the rest, then suddenly reporting became different and biased.

So these data they prove absolutely nothing in regard to Tresiba being any different than any other insulin.

There's no pre-clinical signal.

There's no signal at the level of the cell or the receptor binding or anything.

The European and Japanese authorities have reviewed all of these data, including what was discussed at the AdCom, and come to the same conclusion as I am doing now.

So, no, we don't see anything in that regard.

The fact that we are doing a CV outcome trial is completely natural.

I actually had contemplated on suggesting one about a year ago, because with the Degludec family unfolding, three different major products, it's kind of important that you also show that this is indeed just an insulin with the expected CV profile.

So we don't see any changes in that regard.

I don't, Kare, whether you have additional comments.

Just [wanted to say] we don't expect it to in any way affect the uptake on the product.

It's more a case of getting reimbursement in Europe, which will take time, just like it did for Victoza, and in the US it's more once we get the approval we think we are pretty much ready to go.

I was just really wondering -- I'll take your argument, but I just was really wondering whether -- I think it was a 12-nil vote by the FDA (multiple speakers) whether that would actually sit in physicians' minds more than the detail that you've talked about.

Yes.

The experience that we have when we talk to physicians, and I've obviously spoken to quite a few, both cardiologists, but also diabetes specialists, that is that they are not worried.

But the other thing is that the physician does not sit and look at page so and so, line so and so in a label.

Once the physician has prescribed the product a few times it's almost as being in the clinical trail.

Once you've gotten feedback -- because these are open label, so actually you know who's getting Glargine and who's getting Degludec.

Once you've got the first few visits of patients coming back who are extremely happy, and the physician realizes this, this is really what drives the prescribing behavior, the clinical experience of the physician, unless you have something with a huge black-box warning that is clearly of detriment to the patient that has to be weighed against some benefit, which this is not the case.

You also had a question about Albiglutide and --

Yes, I was just wondering what the -- in terms of the difference in HbA1C levels, which I think was something like 0.7 of a percentage point in terms of the difference between Victoza and Albiglutide, what the clinical significance of that might be if one relates it to the diabetic complication in cardiovascular risk.

Mads, it is probably better you answer that than I.

Yes.

But if you take Albiglutide, so what happens is that Albiglutide was given on top of Glargine so that it was a loose combo between Albiglutide given once a week and then Glargine given every day, the data from this study, which is the Harmony 6 study, you're absolutely right, they do show a difference in A1C between our study, the DUAL II, and their study, which is at least 0.7% in our benefit.

And on weight we had a five-pound decrement of weight and they basically had more or less, give or take, no change in bodyweight, max one pound.

So, overall, if you combine the weight effect with the fact that we actually have a more than 0.5% improvement in A1C compared to their product, and the fact that blood pressure reductions, as I recall it, are larger in the DUAL studies than what I've seen for Albiglutide, then on top of the fact that it's also a more convenient product, because here it all comes in one injection, quite frankly, making life simpler, because you don't have two treatment modalities -- but that was not your question.

Your question was about CV.

I would calculate that the CV risk would be measurably lower when you have these things, but that's just a postulate based on these three lines of [equality].

And, as you can gather, Mads is not biased at all.

So could we take the last question, please, and then we're going to be around for, I think, at least another 15 minutes for individual conversations, if we may.

Any last questions?

Does seem to be the case.

Then we'll -- no, yes.

Saved.

Okay, two last questions.

First, on Hemophilia, Mads, could you just comment on the timelines now for the factor VIII and IX long-action versions, given you made some comments which were very quick on the call last week?

And then, just on Insulins in Europe, I know it's not the major market for the long-acting products, but we now have quite similar guidelines, or at least a draft that's been published in the last month or so.

What do you think of that?

Do you have any horizon -- anything on the horizon that you see other than the Lilly product potentially entering into the European market, and what does that do for pricing?

Mads, Hemophilia timelines?

Yes.

So, Tim, what I explained is that because we have to prepare everything, including, you can say, pre-launch supply activities getting everything in good shape, what I said that was from we complete the clinical program until we submit the biologics license application or the equivalent of the NDAs it will actually be approximately one year.

So clearly we are behind Biogen Idec, which is the frontrunner in this field both as regards factor IX and factor VIII, so we'll of course have to hope that our factor IX data show the longer half life data plays a role, but that's simply too early to speculate, because we don't have data until around summertime.

And, Kare, Biosimilar Insulin in Europe?

Yes, just a little thought about it.

Insulin has been a Biosimilar since it was born and there's been Biosimilar competition for 90 years now, and that's how we built the business.

So we're not so worried about it.

There is a lot of Biosimilar competition in Europe today on Human Insulin.

There might be a -- what you could call a Biosimilar Glargine from Lilly coming into play.

And there might be others.

Most of the ones who've been trying the last, I would say, five to 10 years have for maybe odd reasons been either delayed or giving up in getting regulatory approval and getting to the marketplace.

So we don't really see any significant moves, which is funny, in the sense that the whole Human Insulin segment is wide open to Biosimilar competition in Europe and that it's not going to be long before some of the analogs will be open to that.

So my take on it is that insulin, for a lot of reasons -- I won't get into now because it would be a long explanation.

But for a lot of competitive reasons, scale, know-how, distribution, manufacturing and so on, it's not really the ideal Biosimilar product to go for, because it's simply too complex and the price is too low per milligram.

So it's not that attractive and we probably won't see a lot of it.

And that is, in a way, confirmed by two deals that have separated; the Biocon-Pfizer deal, which when, upon closer look and studying the detail,, was terminated; and very recently, Actavis and Bioton.

I think the Biosimilar manufacturers are very good at selling their case of the Insulin market being a very attractive one and, hence, they should share that upside with somebody else.

But once people start to take a look at it they realize that profitability is not there, so not a very attractive case for generic companies in general.

I think, with that, we would like to thank you again for inviting us to London and for your attendance and your questions.

We will be around another 15 minutes or so.

Thank you very much.