諾和諾德 (NVO) 2013 Q1 法說會逐字稿

Morning, everyone.

For those of you who don't know me, I'm Mark Dainty from Citi.

It's my pleasure to have with us senior management from Novo.

We've got Jesper, Mads, Lars and Lars.

And I guess over to you, Jesper, with a bit of a review (multiple speakers).

Yes, not to forget our Chairman of the Board.

Of course.

Apologies.

And the Chairman.

We thought it would be a good idea also to bring Goran Ando to this roadshow.

Goran just took over at our Annual General Meeting in March, in Denmark, as Chairman.

Some of you may be very familiar with Goran, due to his past history with some major pharma cos, including Glaxo and Pharmacia.

Goran has been on our Board for the last -- I think is it eight years, Goran?

So significant experience, and been Vice Chairman for the last seven years or so.

So we're very pleased to have Goran as Chairman.

And if there are any governance questions, we can also deal with them in the Q&A session.

On the podium, also, I'd like to make a special introduction to Lars Fruergaard, who with effect from the annual general accounts in February was promoted to Executive Vice President.

Lars had been reporting to me up until then.

He is now made responsible for IT.

That's been part of his area until now.

Also, corporate development, including strategy, patents and business development.

And then, in addition, Lars has taken all responsibility for quality.

So if we get down to some of those links, Lars will also be able to give us additional insight.

And then, of course, with me I also have Mads Krogsgaard, CSO, and my Senior Vice President for Corporate Finance, Lars Green, who will cover the finances.

This first-quarter roadshow is one where we are displaying significant strength.

We are seeing an unusually high local currency growth of 14.4%.

I'll get a little bit more into the underlying quality of that.

Of course, we also need to highlight in this presentation, on page two, that there are a whole page on the different difficulties in making forward-looking statements.

I think the period just following last year's -- or this year's full-year release in February just shows the difficulties of making predictions on what is going to happen in the pharma industry.

And we'll have a lot of deliberations on how we'll move forward with Tresiba in the US.

The way we're going to split it is that I'm going to cover highlights and key events, and then also give you a short update on sales.

And then Mads will give the update on R&D and I'll ask Lars Green to cover financials and outlook.

If I then can just take you to slide number four, the highlights for the first three months.

As I said, a local currency growth of 14.4%, very strong.

There are some elements of a non-recurring nature in that first quarter which I would put at about 1.5% of growth.

It's partly related to movements in inventory between Q4 and first quarter of this year and international operations in relation to deliveries of human insulin in Brazil and modern insulin in Russia.

And then it's related to an event we had at a distributor in the Middle East, where he basically froze all the goods and we had to do an extra delivery to them because the first goods were destroyed, and that was also making up for this 1.5%.

Then, in addition, you should bear in mind that the first quarter of last year had particularly weak NovoSeven sales.

So it's not so that our NovoSeven sales in the first quarter of this year is very strong, but the comparator is quite easy.

If you adjust for that as well, you can say the underlying quality in terms of growth is probably more in the ballpark of 12%.

If we zoom in on where we're doing well, we're doing reasonably well in North America, with a very strong performance first quarter of 24%, and coming both from stronger prices but also a clear momentum in both our modern insulin and Victoza in North America, steadily gaining market shares for those two products.

If we zoom in on growth for the modern insulin, a 16% growth, very well anchored by all of the three core products going double-digit.

NovoSeven sales grew 36%.

And you will see the growth rate up particularly (inaudible).

The growth rate for Victoza will gradually go down, as we are growing on an ever-higher base.

And that also actually has implications if you look to the full-year growth numbers for Novo Nordisk.

The relative contribution from Victoza in terms of growth percentages will come slightly down, even though the absolute growth quarter by quarter is pretty stable and also predicted to be in the ballpark of DKK150m to DKK200m, on average, growing quarter by quarter during the year.

We have now launched our next generation modern insulin, the basal very predictable Tresiba product launched now in UK, Denmark and Japan, and we'll go back and talk a little bit about that.

We're also in a constructive dialog with the FDA on how to move forward with Tresiba and getting that approved in the US through a cardiovascular outcomes trial, and Mads will get into that in more detail.

We've also completed the second of the SCALE trials for liraglutide in obesity, and where we saw people with obesity obtaining a 6% weight loss on the obesity dose of liraglutide.

And you have to bear in mind here that the expected weight loss in a diabetic population will be lower than in a non-diabetic population, as the better HbA1c regulation will leave the patients basically storing more energy and secreting less glucose through the urine as they would otherwise have done in a poor glycemic control situation.

In terms of our new program for once-weekly GLP-1, the SUSTAIN 6 program, that we have now initiated in Phase 3, and Mads will also cover that.

The stable level of growth has basically converted the 14.4% sales growth into a 21% operating profit, or in the local currencies reported terms 18%.

And as we this year have challenging financials in terms of headwind from the currencies, we're actually having better net financial impact on these better earnings.

So we're seeing a 32% growth in our earnings per share, both reflecting the development in net financials but also reflecting a continued effect from our share repurchase program.

We have slightly upped the guidance for the sales growth.

So it's now in local currencies around 9% to 11%, and with a currently predicted about 3% negative impact from currencies, primarily coming from the Japanese yen and the US dollar.

And in terms of operating profit, predicting about a 10% growth.

So a relative even growth in local currencies for sales and operating profit.

The currency impact on operating profit will be approximately 5%.

If we look at the growth picture, North America becomes ever more important to Novo Dordisk.

Here you can see the reported growth of 23%, 24% in local currency for North America, really being driven by the portfolio of modern insulin, Victoza in North America.

We're also actually seeing in reported terms a 4% growth in Europe, which is -- in a European setting, this is quite strong numbers.

And they are actually providing a 6% contribution to overall growth.

So I think the focus on diabetes care and the gradual rollout of Victoza is actually ensuring that we are seeing a quite steady performance from our European operations.

International operations, growing 17% in local currency.

A little bit of inventory movement there, I think, more steady there, growing at the 15% level.

Region China, also doing pretty well at a 16% growth level.

The challenge we have clearly in Japan and Korea, with a declining insulin market share and an overall decline in insulin consumption in the market, due to a very strong introduction of DPP-IV.

That's the challenge and that's what we have to do something about, especially with the rollout of Tresiba in Japan.

If we look to the distribution of our products, we now have almost 80% of our turnover coming from our diabetes care franchise, and the diabetes care franchise growing in local currency terms 15% and providing more than 80% of the overall growth.

Also, do note that the biopharmaceutical franchise has had a very strong first quarter, partly because of the comparison I mentioned for NovoSeven, but also because of very strong performance of our Norditropin franchise.

And we're now the world's leader in terms of value in sales of growth hormone, partly reflecting a very strong performance in our North American markets, where they were contracting, but also a better product offering has delivered these results and also very strong performance in the number of international operations markets.

If we look to the overall growth, we continue to see a diabetes care market which is very attractive.

You can look at the total growth for the market on a five-year -- sorry, a 10-year compound annual growth rate, with a growth of 10%.

And if you zoom in on the injectables, including both GLP-1 and insulin, you're looking at a growth rate north of 15%.

And of course, Novo Nordisk being the market leader in insulin and being the market leader in GLP-1, that basically gradually expands our overall share of the market as GLP-1 increased their share of the total diabetes care market and we're now attracting 26% of the total market.

If we zoom in on the insulin market, the insulin market is growing at a value rate of about 16%, and here we're looking at the last five years.

And the 16% is, of course, being also impacted by the value upgrade towards the modern insulin and devices, as you can see on this slide, and also impacted clearly by a higher level of prices in North America and a relative stable market situation between the three incumbents in the modern insulin space.

If we zoom in then on North America and look at how the performance is in North America, you'll note first on this slide that you have a very strong performance both in volume terms in the very big -- in the US market, basal segment growing just over 9% and the growth in the mealtime segment growing in the ballpark of 9%, but a declining premixed segment.

But Novo Nordisk's market shares in all of the three segments are gradually expanding, and this is very reassuring to us.

Remember that we did a significant expansion of our US sales force in the third quarter of 2012, with a 650 people expansion.

And we're actually seeing a very nice return on that in terms of a steady market performance for all of our three modern insulins in the North American market.

If we then focus on Victoza, we've on this slide actually now moved to focus on the moving annual total, not to get too big impact on the quarterly swings for Victoza.

And do note also that we for Victoza, like we have for the insulin, will have a tendency to see a higher absolute sales number in the fourth quarter of the year to the third quarter.

That's the swing we've seen in our business for decades, and we're also seeing that for Victoza.

But we're very comfortable with the steady growth we see in the Victoza franchise, and that's also clearly replicated in the underlying scrip data that we see for the all-important North American market.

You can see here that North America, from a value perspective, constitutes almost two-thirds of the overall value.

You also note that international operations and China are beginning to be shown in this slide.

Even though the product is not yet reimbursed in China, we are seeing a very steady and solid growth in the Chinese market for GLP-1.

And then, as my final slide, just noting on our launch of Tresiba, launching it March 4 both here and UK and in Denmark.

In both of these markets, obtaining reimbursements is a gradual process that doesn't come overnight, and hence the penetration will be slowly as we gradually get reimbursement from the healthcare institutions.

We do note that the premium that we are pursuing for Tresiba will be a quite significant one, around 70%, and that will ensure that we get a more uniform price level for Tresiba globally.

Do bear in mind that the price we actually take, especially in our home market and then Europe, will be used as reference price for the price setting in other markets.

In Japan, we have obtained what we think is a quite attractive price and a price that's higher than the one we have in Europe.

But do bear in mind that, per patient, the use of insulin is lower so the actual cost per patient may not be that significantly different from the price in Europe.

But we've obtained full reimbursement and the product is doing really well in Japan, and we're seeing that our market share in terms of capture of new patients in the basal segment in the Japanese segment in Japan is improving gradually.

And Mads, will you take it from here to -- in terms of regulatory process and US for Tresiba?

Thank you, Jesper.

Well, first of all, the regulatory process for the insulin degludec compounds, both Tresiba and Ryzodeg, is progressing, at least outside of the US, according to plan, such that we continue to have countries not only approve the product but in the very near future also launch the products, starting with Tresiba.

Obviously the one that is on everybody's mind is the United States, where I will just provide an update on where are we vis-a-vis the discussions with the US regulator, FDA.

First of all, you can put it very briefly and say that in reality what Novo Nordisk is about to embark on, first planning and then conducting, starting within the next year, is a trial that pretty much is reminiscent, expectedly, of what the FDA is asking Type 2 diabetes drugs to be doing, i.e.

a study where you, at the time of submission of your new drug application or resubmission in this case, you rule out an upper bound of the two-sided 95% confidence interval to the tune of 1.8 with a reassuring point estimate for the hazard ratio compared to the comparator, which in this case is insulin glargine in a double-blinded setting.

And then, after completion of the trial, a few years later, once you have put together the complete amount of major adverse cardiovascular events, the MACEs, you rule out the 1.3 pretty much as mandated by the cardiovascular diabetes guideline.

So, in reality, Novo Nordisk is hoping to be able to kick off this trial within the next year.

That would also imply that the interim analysis would be available two to three years after initiation of the trial, with a full analysis of the complete data set at a point in time where we expect it to be four to six years after launch of the trial.

So, overall, this puts us in a position where we think we have gotten good feedback from the meeting with the regulators, in such a way that we're able to proceed with the plans as shown on this slide.

If we then move from Tresiba into the GLP-1 segment, I'll start with a very quick update, as Jesper also did, on the liraglutide 3 milligram for obesity, and in this case it's the SCALE diabetes which in reality is represented by patients who are both obese and Type 2 diabetic at the same time.

I won't walk you through the data.

We've announced those in a separate Company announcement, but just highlight the notion that there are three important elements in this trial.

One is that we have actually been able to define the dose that seems to be the right one, i.e.

we have a statistically significant difference on numerous parameters, both the primary weight endpoint but also secondary glycemic endpoint and cardiovascular risk biomarkers and quite a few others as well, in favor of the 3 milligram dose, i.e.

we've been able to see a differentiation in favor of the 3 milligram dose.

And moreover, we are actually hitting one of the FDA endpoints in terms of approvability, even though this is a diabetic population.

You're probably aware that as glycemic control improves, as Jesper alluded to, you see two things happening.

One is that glucosuria terminates.

That means that you're preserving calories in your body, which is negating the anti-obesity effect of the product.

And the other is that caloric expenditure goes down as, you can say, glycemic control improves.

So these two factors together imply that Novo Nordisk is very happy with the 6% achievement.

And we will expect in the trial to report in this quarter, which is the SCALE obesity and pre-diabetes trial, to see numbers that relatively and numerically are even better than what is shown up here.

So, if we then look at semaglutide, our liquid ready-to-use once-weekly human GLP-1 analog, we have kicked off the critical path trial, i.e.

the one that is determining when Novo Nordisk can complete the Phase 3 program, also known as the SUSTAIN program.

And this is essentially a cardiovascular outcomes trial, such that we can adhere to the US FDA guidelines and basically achieve the approximately 100 MACEs or so to rule out the 1.8 from the confidence interval prior to submitting the NDA from this compound.

It is actively recruiting, and over the last part of this year you will expect us to see -- kick off of a number of trials with the overall aim to prove superiority against a number of drug classes, including also once-weekly GLP-1 from our peers.

I'd like to mention that the two doses we've selected are the 0.5 and the 1 milligram.

And they have been selected based on the Phase 2 trial, where when you model these, the 0.5 milligram dose is the equivalent or expected equivalent of about 1.2 milligram Victoza, and the 1 milligram dose of semaglutide, given once weekly, will be the equivalent of approximately 2.4 milligrams of Victoza.

This is also why we've designed the trials to actually not only document superior convenience in terms of the drug and the device, but also performance in terms of glycemic and weight control.

Now, lastly, on this slide I'd just like to highlight that for IDegLira, the fixed ratio combination between liraglutide and insulin degludec, we have completed also now the 26-week extension from the DUAL 1 trial, which was in all anti-diabetic failure patients the one where we were able to see superiority versus the individual components of the IDegLira combination.

And the very convincing data, i.e.

approximately four out of five patients that achieved the ADA target for glycemic control, being HbA1C of going below 7, is maintained over a full year of treatment.

This also means that the regulatory dossier in the European Union will be submitted during this quarter.

And obviously, the further regulatory progress vis-a-vis the FDA is contingent upon the discussions that we're having on insulin degludec with that regulator.

In biopharmaceuticals we are progressing, lastly, both with the launch of a new delivery system for NovoSeven called the MixPro in United States, essentially a pre-filled syringe, making the number of steps before intravenous infusion is done by the patient significantly reduced compared to the existing setup.

For the long-acting N8-GP, we have now initiated pivotal pediatric trial which, as you know, according to the European pediatric commission under CHMP, is mandatory before you can submit also your regulatory dossier in EU.

And finally, for the anti-IL-21 very pleiotropic cytokine blocker, the anti-IL-21, where we already are having a Phase 2a trial ongoing for rheumatoid arthritis and a Phase 1 trial for systemic glucose [mitosis], we have also now initiated, in moderate to severely diseased or active Crohn's patients, a Phase 2a trial with anti-IL-21.

So, with that, over to you, I guess it is, Lars, for a financial update.

When it comes to the highlights from the financial results, Jesper walked us through the underlying sales development in the beginning of the presentation.

The 14% underlying growth in sales became 13% in reported terms, as the currencies were slightly lower compared to the average rates of one year ago.

We realized an improvement in the gross margin of approximately 1 percentage point, driven primarily by an improving price or a better price environment in the US, and also to some extent an improved product mix as the modern insulins and Victoza, with higher average gross margins -- higher gross margins than the average, they grow faster than the other products, giving us a positive contribution on the gross margin.

So, sales and distribution costs increased in line with sales, driven primarily by expansion in our US sales force in the second half of last year, but also expansions in sales forces in a number of international markets and international operations.

Approximately 3 percentage points of the growth is related to reversals of legal provisions we did in 2012.

So we can say the organic growth in the S&D cost is approximately 3 percentage points lower than what the reported numbers indicate.

R&D costs grew by 6%.

You'll notice we have a relatively low R&D to sales ratio in the first quarter.

We expect this R&D to sales ratio to come up again in the remainder of the year, as the Phase 3 program for semaglutide gets going, and also as we get started to prepare for the CV outcomes trial.

So the R&D ratio in the first quarter is somewhat lower than what we would expect for the full year.

Admin costs growing 3%, primarily supporting the expansion in international markets and also the expansion of the US sales force.

So, in terms of operating profit, in reported terms growing 18%.

Underlying, if we had the same exchange rates as last year, operating profit grew by 21%.

We have maintained our hedging policies and are hedging our key invoicing currencies approximately 12 months out in the future.

Last year, that gave us a financial expense to the tune of DKK300m, so from the financial forward contracts.

This year it is giving us income of approximately DKK200m.

So if we go to net profit, that grew by 28% compared to the first quarter last year.

And as we continue to buy back shares, the earnings per share grew by 32% in the first quarter compared to 2012.

So here are the two main invoicing currencies of importance to the currency development to the reported numbers.

So, beyond Danish krone and euro, these are the most significant ones.

US dollar, first quarter more or less in line with the average of last year, but Japanese yen significantly lower.

So it is primarily the Japanese yen development that gives us some headwind on the reported numbers, compared to the underlying growth in both sales and operating profit.

So, therefore, when we look at the outlook, the revised outlook compared to three months ago, Jesper has shared with us the narrowing of the sales guidance, given the strong first-quarter results.

And apart from that, it is really the movement in currencies that has been updated, with a reduced impact on both sales and operating profit countered by, you can say, a similar effect on net financials.

So the approximately 2 percentage points lower currency impact on operating profit is countered by the approximately DKK500m lower income from forward contracts on net profit.

And we maintain our expectations for around 10% growth in operating profit and comparable local currencies.

So, with this, Jesper?

Thank you.

So I'll just close quickly with this one.

There's nothing significant new in this one.

Basically, our franchise is driven by the growth in the diabetes care market.

We have a 26% value share and we have a 49% volume share in the insulin market and 46% in the modern insulin market.

We now have grown to 68% GLP-1 value market share, and we are still the only company with a full portfolio of novel insulins.

We'd like to have had more of them actually approved, but we're going to face a little bit more challenges there.

And we'll be busy working with that CV outcomes trial the next three, four years.

In terms of IDegLira, we still think that the results we're seeing from IDegLira, including the extension that Mads went into, is basically documenting that here we have a very, very unique way of treating Type 2 diabetes.

And I think this holds great promises for patients around the world.

And also, the results we've seen so far really do encourage us towards using liraglutide more broadly in early stage diabetes care treatment, or even in pre-diabetic therapy among severely overweight patients.

And then we still have some promises in front of us in the biopharmaceutical areas, basically hemophilia, with two new clotting factor products, long-acting 8 and 9 in Phase 3 clinical trials and the NovoNine product just imminently to report the final results from Phase 3.

So, with that, then we'll take questions.

I think we will ask each to constrain themselves to two questions.

Who will go first?

Mark?

Thank you.

So just two quick ones.

Just in terms of the investments in sales and marketing in emerging markets, could you just give us a bit more color about where that is and whatever you can give us around how much?

And then just a quick one for Mads.

You mentioned on the call yesterday a possibility at least that due to glutide's inability to cross the blood-brain barrier might reduce its ability to cause weight loss.

And I just wondered whether there was any evidence from any of the basic science which suggested the relative effectiveness on central versus gut effect and the ability to drive weight loss in GLP-1.

Thanks, Mark.

On the S&D front, I may need to be a little bit more precise than I was on the conference call yesterday in terms of our ability to continue to drive growth through an expanded sales force.

This is a very significant question.

In the US, we have gradually expanded the sales force in a number of international operation markets and also China, and we anticipate that we'll continue to do so.

We've seen great returns on that.

The key cost driver for us on the S&D is clearly the expansion in the US.

Historically, we have chosen to make expansion in the US linked to product launches and not doing them too frequently, because of course every time we do the expansion of the sales force, it does disrupt the overall relationship between the physician and our rep.

But zooming in on the international operation side of things, you should expect us to continue to invest, but of course the investment is to a very large degree enabled by the 15% or so sales growth that we are seeing in those markets, and it will be at least that level of growth occurring in those markets.

And then, in a few selected strategic markets, we may actually grow over and beyond that, and that will continue to happen at the expense of lower growth opportunity markets like, for example, Europe, where we'll be constraining the cost development.

Overall, I do believe that we can continue to make slight improvements in selling and distribution.

And what we have done in 2013 particularly is that instead of channeling a lot of the promotion resources towards Tresiva, those resources have been used to drive especially the portfolio of modern insulin, including some additional direct-to-consumer marketing activities, and we continue also to invest significantly in international operations.

The guidance we've given for S&D this year is in the ballpark of 28%.

I think that's realistic.

I think we would be in the 27% to 28% also in '14 and '15, barring any unforeseen events.

I don't think there will be a rapid improvement in our ratio in that area.

I think we will continue to invest significantly in emerging markets, as that's where we see the biggest growth opportunity for the diabetes care franchise.

I do note that the rollout of potentially a hemophilia portfolio will not have any significant impact on the costs.

It is quite limited what level of expansion of the medical reps we'll need to do in the biopharm area also to cover the two additional clotting factors.

So that will not be a significant effect.

Also bear in mind that the S&D ratio, roughly, for the biopharm franchise only in about 20% range, whereas the S&D ratio for the diabetes is about 30%.

So that gives the weighting.

So I hope that clarifies.

Yes.

So you can address this important issue either empirically or scientifically, and I'll try to do both.

So if you look at the clinical data that are at hand, either as regards in humans or if you want analog, liraglutide, semaglutide, and so on, when you basically extract all those patients that are reporting GI side effects, such as nausea, vomiting, diarrhea, etc., you will find that there's the same statistically significant weight reduction, suggestive of if not a central nervous system mediated then at least not a GI mediated effect.

Now, that is probably also why we are seeing that compounds that molecular size-wise are to the magnitude of either an Fc construct, or an albumin molecule such as dulaglutide being the Fc chimeric construct and albiglutide or Syncria from GSK being the DNA construct with a merge or fusion between albumin and human GLP-1, or actually two human GLP-1s, essentially seem to provide less of a weight loss and in some cases not even significant weight loss.

The speculation there is obviously that the molecular size implies that it is difficult to penetrate the blood-brain barrier.

Then you can ask yourself the question is there evidence that GLP-1s at all do penetrate the blood-brain barrier, because these are after all peptides to the tune of 30 amino acids in one stretch.

And I can reveal some data that we will --- where we have actually done an interesting experiment.

So we look specifically at the lateral ventricles, at the fourth ventricle of the brain, which is the area around which you have both the hypothalamus and the appetite and lower hippus, or that had the GLP-1 receptors knocked out.

And interestingly, you will see an accumulation of tritiated, i.e.

radiolabeled GLP-1 analog liraglutide only in those animals that have the intact GLP-1 receptor system.

This is visually extremely appealing, because you basically see the nice staining exactly where you want to see it, whereas in the GLP-1 receptor knockout mice there's no staining at all, i.e.

no accumulation.

So I think we're starting to understand much better the level to which GLP-1 agonists, at least those that gain access, are having effects both on the hypothalamic system, even on the brain stem, and in certain situations maybe, who knows, in cognitive disorders, even in some cases in parts of the frontal cortex.

Okay.

Thank you.

Next, Sachin.

Two questions.

Firstly, just a follow-up from the question on --

You probably --- it's a webcast.

You need to say your name and --

Sachin Jain, Bank of America.

Two questions.

Firstly, a follow-on on the S&D.

So my understanding from what you said is limited leverage [and your basis points have slowed] to '15.

I would imagine that if you launch Tresiba US '17, '18 that would also be an investment period.

So if we thought about a five-year timeframe, '13 to '18, are we thinking about limited S&D leverage?

And where is that relative to your S&D leverage assumed within the 40% margin target that you put out at the beginning of the year?

And then related, as part of a long-term target, I guess there's perceived lower conviction from yourself, understandably given Tresiba.

You said you'd update it in February.

What are the main positives, negatives that could influence your thought process on that in that timeframe?

That's the first question.

Second is just on the Victoza 3 milligram A1c.

I think you made in your comments superior A1c at 3 versus 1.8.

I just wanted to check that, because it doesn't appear like that on the slide.

And so how do you intend on using that A1c data within an obesity label?

Thanks.

Thanks, Sachin.

On the expectations for long-term expansion of operating margin, I think it's highly likely that we will continue to make an improvement overall in our S&D ratio and you've actually seen that gradually occurring.

You don't have to go more than four or five years back, when Novo Nordisk selling and distribution ratio was above 30%.

What we've also said historically, in years of launch, it is likely that you will see that the S&D ratio will increase by approximately a percentage point when we are launching key products, especially in the US market, that being the key driver.

It's quite interesting, when we do the long-term modeling, we've actually done some modelings where you make very significant spikes in the S&D ratio.

In fact, when you then sit and look back at the actual years, it actually turns out to be much more even, because the ability to do launch or to make the big investments will very rarely occur at the same point in time in all markets.

So what I'm trying to say with this is, yes, I think it is likely that you will see a gradual improvement in the S&D ratio in years where there's not significant new launches, and then maybe stable S&D more in the years where rollout has taken place.

And it will then depend on the commercial opportunity of the products, so what this means there will be very substantial investment.

And if you then ask, well, what are the products that could call for substantial investment today in our portfolio currently, I clearly see the investment that is likely to be required to build knowledge with IDegLira will be significant.

I think it is a fantastic opportunity for us.

I would say the obesity opportunity will probably be more focused on the US market and in a market where we to a large degree do have the reach into the market that will enable us to market it.

There's not so many new physicians that we'll need to reach with an obesity indication.

And then, moving on from there, of course the FIAsp will require a significant splash, and then Tresiba, when we hopefully also will get that to the US market, will require a significant investment.

And those would be then depending on what exact [the offices] is going into, at what magnitude, and then a continued, you could say, relative high investment going on in markets like China and the high growth opportunities in international operations and a lower, and potentially even lower than market, growth in markets like Japan and Europe, but that would be the metal.

The second part of your question, Sachin, that was --

(Inaudible) understanding -- understandable, just --- and you said you would review them in February, just the pushes and pulls in that timeframe between now and then that would give you more confidence or less confidence in that.

Well, if you look at --- what we said in February, we're saying we still believe that our long-term financial targets are realistic.

And of course, assuming that we are successful with the cardiovascular outputs trial for Tresiba, from '17 onwards I think we have a major growth opportunity on our hands.

That makes it even more positive.

Then, if you look at the interim period until then, say from '13 to '16, what we can see now in terms of '13, with the start we've had for this year, there's nothing there that leaves us worried that we cannot deliver in the ballpark of double-digit growth near term, and I think that is realistic.

I think the key swing factor that is uncertain, and I think I've been mentioning that quite a few times, will be how exactly will the US basal market develop when we have glargine going off patent in the US.

I think that is the key event which creates some uncertainty.

We believe still that the long-term financial targets are ambitious targets for Novo NorDisk to pursue.

We believe we have an opportunity to expand our operating margins, driven significantly from our production economies but also from admin area and to some degree S&D and we'll continue to pursue that in the near-time horizon.

How the specifics are going to be in the individual years really depends on how is the obesity trial coming out, and I think we'll just have to accept swings in individual years, depending on the launch opportunities.

I don't know if you (multiple speakers).

Yes, and I suddenly realized that the data that you have in that table is not the primary glycemic data, so thanks for pointing that out, Sachin.

So, in relative, the 3 milligram dose was statistically significantly superior to the 1.8 milligram on Hb1c, with a delta of approximately 0.2%.

When you then look at the ADA target, i.e.

what fraction went below 7, it is true that there was that one which is a binary measure, so that if you go to 6.95 you are below; if you go to 7.05 you are above.

So it's a very binary measure.

In that one, there's no statistical significant difference.

However, when you then look at the American Academy of Clinical Endocrinology, AACE guidelines, which are the 6.5%, you will also there see a statistical significant difference in favor of 3 milligram dose.

So, basically, what we are seeing is that on glycemic parameters including fasting, glucose, on weight parameters including not only the absolute weight loss but also the fraction that achieve, for instance, a 10% weight loss, which in this case was about one in four and we expect that to obviously be higher for the obesity trial, we are seeing these differences.

And in each and every case, they are in favor of the high dose.

When we look at the clinical chemistry lipid parameters, triglycerides, PAI-1, CRP, etc., etc., you see the very same thing.

So it seems as if we have a situation where there is an add-on effect on glycemic control related to the improved weight profile that is secondary to the weight loss.

So when we originally did our modeling and ended up with a 1.8 milligram dose of Victoza for Type 2 diabetes, it was based on the primary glycemic efficacy.

We're now seeing that if you treat for one year, secondary to the weight loss that is improved at the higher dose because the dose respond curve is different for weight loss as compared to glycemic control, you secondarily reduce your insulin assistance, and that tends to improve beta cell performance and the relative performance of the insulin secretion.

Where's the mike?

Over here.

Brian?

Good morning.

Thanks very much.

Brian Bourdot from Barclays.

A question for your Chairman, please.

Sir, thank you very much for coming to see us today.

Could you please describe what you see as your priorities as incoming Chairman, maybe just some thoughts about how you see the Group and its direction?

And sorry, just a question about GLP-1 use and insulin.

I was wondering if you could give us an update on how patients are using Victoza and what the proportion of those taking Victoza are also taking insulin now, whether there are any differences between the US and outside the US and what the drivers of any differences might be.

Thanks very much.

Thanks Brian.

Goran?

If I start, it's a pleasure to be here, actually.

Clear priority is obviously working with the management to build the medium- to long-term strategies for us.

And we review that every year in great depth and work with that, and we work --- it's a collaborative work.

And once you have that, we have a superb management team to implement that.

So that's key.

Obviously, as you know, the Danish system is a two-tier board system where no-one sits on both of the boards, so although management participates they are actually not board members of the Board of Directors.

So, the work of the Board of Directors is also then obviously very focused on building the competencies, ensuring that we have the overall succession plan in the Board and obviously, in the long-term perspective, also in our top management.

Nothing sensational in any way, shape or form.

Okay.

And then --

Thanks, Goran.

And then I think, Brian -- so, I think we're all aware that the positioning of Victoza has all along been as the preferred agent once a patient is failing on metformin therapy, and that's an easy to understand and logical and based on the clinical data rational positioning.

We did, however, see from day one, even before we had the label upgrade to allow co-use between Victoza and insulins, in particular basal insulins, that there was a widespread use in conjunction with insulin therapy.

Initially, you can say that was off label.

later on, it has become on label.

To the tune of, I would say, around 25%.

Now that, if anything, we are starting to see being increasing, because not only the clinical data but also the clinical experience of the individual physicians is such that they realize multiple benefits, i.e.

you get safer to lower levels of A1c; you get, if anything, weight loss when combining as compared to the weight gain, which is the nuisance to the patient and so on and so forth.

So obviously, for us right now, with IDegLira being submitted in Europe and hopefully also at a relevant point in time in the US and so on, the big drama or challenge is how to position the co-use GLP-1 or insulin.

I have shown you data from DUAL 1 extension, etc., that actually proved the case that over 52 weeks you basically maintain most people at a non-diabetic blood glucose level by one daily injection.

So you could argue use it early and you will get rid of your disease.

But you can also argue, quite frankly, that when people intensify their basal insulin, which today is Lanuts, Levemir or NPH, the way they go about that is by actually typically baby step intensifying with prandial insulin, first one, then two and then three additional daily injections, which is a nuisance, giving hypoglycemia, giving weight gain, giving reduced quality of life.

So there's a big rationale for, actually, one daily injection where you just change the color of your pen, so to speak, and suddenly you operate your therapy by the addition of this GLP-1 component.

So it will be much more crisp, as we move towards the market, to say which of those segments is the optimal one for primary positioning.

But we also realize that in reality the physician, at the end of the day, is going to use it at his or her clinical discretion.

But still we need a primary position.

Right.

Next question?

It's Ben Yeoh at First State.

I also have a question for the Chair.

I was just wondering, Novo Nordisk is very strong on triple bottom line reporting and I think has ESG reporting straight into the Board.

I was just wondering, does this strength in ESG give Novo Nordisk any competitive advantages, do you think, from your point of view?

And then, secondly, I was just wondering what you thought the most important element on your senior management score card would be, and also where you think they might have room to improve on that score card.

I think you probably know where they are pretty good, but I'd be interested to know where you think maybe some of that might be improved.

Good questions.

I actually think that the triple bottom line does give us a long-term competitive advantage.

And you're placing a little -- overall, when I started spending a little time with our subsidiaries and just go out and see people, I like that, you see the pride they have, not only in the Company itself but actually in how we operate it and that --- the triple bottom line is actually a core component of that.

So to me it's a tremendous way not only of operating in an ethical and professional way, but actually also getting --- recruiting and retaining top class people, in many aspects.

Second part, there are obviously others but I'm not going to talk about that.

How are we going to assess our management?

Well, we have a very systematic way of doing that.

This is not that I sit down with Lars Rebien Sorensen at the end of the year and scratch your head and say what's happened this year; it's much more you formalize it, you review it, and it's quite a detailed, if you like, scorecard that we review several times, obviously, and in many ways a continuous way.

What is it that our Company can improve?

I think in terms of top management, we're very fortunate to have an extremely stable and, as you can hear and I can hear, extremely knowledgeable group in our management and that has tremendous opportunities and advantages to me.

You can always ask more.

I think for us it is a medium- to long-term outlook that is important.

One of the key elements is just what we've been talking about here, how do we actually bridge the temporary loss of revenues for Tresiba that we're looking at, and we will work very hard at that to see how we do that.

And obviously, that is one key component that's showed out slightly off our charts, but obviously will be an important additional part for us.

Otherwise, it's performance on all the parameters.

We do mean the triple bottom line when we're talk about it.

So, nothing special.

Maybe just a specific comment on that.

The way we do the performance scorecard for each of the executive vice presidents is basically linked on the total scorecard for the Company.

So we try to basically distribute all the responsibilities into the individuals in the key areas.

And furthermore, and zooming in on the triple bottom line, when we look at our long-term incentives, we don't solely look at the economic profit generation in the year.

And in the economic profit generation, we actually subtract if we're saving on R&D, because we believe that saving on R&D is not generating long-term economic profit.

But we're also setting very clear and defined growth sustainability targets but, what is more important, also specific milestone targets for our R&D portfolio.

And one of the things we already know now and have discussed with the Chairmanship is that we will actually get a deduction in the long-term target achievement for 2013 because of having this key milestone which was approval of Tresiba in the US, and then there's just a straight deduction from that, from the maximum you can get.

So there's a clear link between achieving very strategic important key milestones and the long-term remuneration of the management team.

Hi.

Kerry Holford, Credit Suisse.

A couple of questions.

Firstly, market share, you talk about very strong position in the US, which is growing.

If we look at the international regions China and Japan, it's declining somewhat.

So I wonder if you could talk about what's driving that.

Is it that you're actively pulling away from low margin contracts, or is it competition, perhaps, from the multi-nationals or is it local players that the domestic players are preferring?

And then secondly, for Mads, on oral insulin, I see we have another product into Phase 1, joining, I think, two others that are still there in Phase 1. So what's the next steps to go into Phase 2?

What are you looking for from these products?

And how should we think about timelines there?

Thank you.

If I start with the market share development, you're rightly pointing to that there is a decline.

If we take them market by market first, Japan; in Japan we have clearly been suffering from a movement in the market for Type 2 patients in starting more predominantly on the basal insulins instead of the mixed insulins.

If you go back five years, mixed insulin in Japan was almost 50% of the market, and that has gradually declined towards a 40% market at the expense of a higher usage especially of basal insulin but also to some degree of mealtime insulin.

And as we have a much lower capture rate, at about 30% in the basal segment compared to a dominant capture rate in the mixed segment, there's basically a market shift that's making it challenging for us in Japan.

And the only thing we can in reality do to rectify that (inaudible) that is the rollout of Tresiba and we're working on that.

I think you will gradually see that the decline is flattening out, and then it will be for Tresiba to rectify that position.

If we look to China, the regulatory situation in China is not as progressed for Tresiba.

We are hopefully soon embarking on the final Phase 3 trials there, to enable an approval there, but we'll have to compete with what we have in the market there.

The challenge in China is slightly different.

That's actually relating to that we had a very favorable situation.

Remember, our market share was north of 60% in China overall in the fast-acting segment, also in the mixed segment in China.

We have not obtained reimbursement in all of the provinces and they've rectified that situation over the last two years, so now we're in a more competitive situation vis-a-vis Eli Lilly, both for the rapid auction insulin but also to some degree the mixed insulin.

And then there has also been more intensified bidding in human insulin in China, and remember that the modern insulins in China have only reached about 40%, so there's still some significant human insulin market and there we have seen a more active bidding from some of the local manufacturers.

So, in the low end of the Chinese market there is some activity by local producers, which is slightly eroding prices, and we still, of course, stand out as the high quality offering.

Remember that about 90% of insulins we sell in China are still in [device] portfolio.

And then, for international operations it is a very different situation, market by market.

We come from a very strong position.

But generally I would say the challenge we have, if you should generalize, the challenge is, broadly speaking, the basal segment and capturing enough of the basal segment, and basal segment broadly is growing the fastest of the segments and that's the key challenge we have market share wise.

Right.

So you can ask the question why on earth do you keep on pouring new analogs into humans.

That more or less was the question.

And I think, first of all, this is a highly iterative process.

So, for instance, the analogue 287 that is mentioned on the chart is a, you can say, first-in-class agent with an extreme half-life, at least in animals, and we'll hopefully confirm that in man, with a truly extreme half-life.

Obviously that raises titration issues, but that will address clinically as part of the program.

And why would you want an extreme half-life for an oral insulin?

The reason would there be that we are all aware of the notion that as you give a macro molecule like in insulin via the gut, the absolute viability will never be anywhere close to 100% or even 50% or even 20%.

It will be, you can say, hopefully high single digit, if we do it really well at the end of the day.

And that will imply that the day-to-day variability in that bioavailability can become dangerous to the patient unless you have means and measures to counteract that.

And probably most efficient way of doing that is actually having a half-life that in relative will justify every week application or every other week application of your drug, but still administering the tablet every single day, such that you would have a buffering of the day-to-day variability driven by the long duration of action of the molecule, i.e.

if you on a Wednesday have a reduced uptake into the body, the dose that you got on Tuesday and on Monday and so on will buffer against that variability.

This is the reason behind that.

In other instances, you will see that we, for instance, are changing around either with the carrier principle, the coding principle, the granulation principle.

We've actually built a --- not an army, but close to an army of researchers that are specializing on protein based tablet formulation technology, about 200 specialists.

And that is also why we are ready to enter Phase 2 hopefully late this year.

I think we announced one or two Company announcements ago that we were targeting actually a Phase 2 decision for the first long-acting oral GLP-1 analog during mid-year 2013.

So, with GLP-1 we're slightly more progressed, but we are getting there as we go along on insulin.

And I would probably favor having not just one but at least two bets into Phase 2, so that you can select the right analog, the right coding technology, the right carrier technology, based on human data in Phase 2 as opposed to dogs or rats, for that matter.

Thanks, Mads.

Do you want to have the final one?

Keyur Parekh from Goldman Sachs.

I wanted some clarification on something you said in response to Sachin's question, which was that when you do launch Tresiba in the US you would expect it to be a high S&D investment.

My understanding was you've already recruited the sale force you need back half of last year.

And therefore, should we think of it as extra direct marketing spend that would be on top of what you have, or do you plan to expand your sales force back in the US?

And then, two questions.

First, on the human insulin segment, I understand there's some variability in the quarter but 80% of your reported revenues this quarter comes from markets that are growing north of 10%.

The consensus forecasts that market to go down double digits over the next five years.

How do you think the human insulin market pans out over the next two to five years?

And secondly, you mentioned about the big unknown on the US market being what happens when Lantus loses protection and what happens to basal market.

As you think about the long-term 10% growth on the revenue line, what are your base assumptions on how that market pans out?

Let's just take them in order.

First, the sales force, it's quite interesting to give to me what is a tactical decision, which is sales force adjustments, and then on a strategic perspective which is 2017, it is going to be pretty hard to say now what exactly you can do in '17 as of course the key factor there is looking at how is the competitive environment, what share of voice do we have.

But I think it's going to be almost impossible to give a specific reply to that.

Clearly, there will be a lot of direct promotions at that point in time.

What I do think is quite reassuring, if I look at our share voice currently and the payback that we are seeing in terms of the development in the market share position, both of the portfolio of modern insulins and for Victoza in the US market, we actually feel, and we discussed that with the Board two days ago, I think we feel that the situation is very reassuring.

We feel that we get a very good return on the sales force.

As I mentioned, obesity could be one of the factors near term that could call for an adjustment.

There are some new physicians, periatric physicians that we may want to get access to.

It will not have a significant impact on sales forces.

There may be some adjustment.

Apart from that, with the diabetes portfolio we have --- I don't think that there will be significant changes near term.

But we're happy with what we have.

What we will do in '17 will clearly depend on share of voice.

So far it looks good.

I think we have also noted that Lilly will probably basically let a third or, sorry, about 30% of its sales force go, as we have heard it.

So there's nothing to me that indicates that we will not be competitive with the current sales force in a one- to two-year horizon on the US market.

So that was the first one.

Then, in terms of emerging markets, and the question there was to what degree do we see a change in the growth level that we're seeing from the insulin franchise in the emerging markets, and I think what you will see and that we've actually seen over the last five years is a gradual decline in the growth percentage from the market but not in the absolute volume added in the market.

So, with the development trends I see, GDP wise, globally, I think this will continue.

We're seeing very solid growth and a high degree of willingness to continue to invest in better healthcare, especially diabetes.

So I would assume that will continue, but I think also it's likely, when we look at our model, that the percentage of growth for international operation in China will gradually come down, but they will grow from a bigger base and they will have a higher weight in the total portfolio.

I think we're not far away from saying that we have two-thirds of Novo NorDisk's portfolio in high growth markets and one-third only in the lower growth markets, and that trend will continue.

So I do feel that that's pretty reassuring.

If we then go to the strategic model for how do we see the situation in '16, maybe, Lars, that's an area that you could also give a comment on.

So, you can say we believe there is an underlying growth in the volume in the market demand going to take place.

Then you ask what will the scenarios be when biosimilar competition is brought after an expiration of Lantus.

We believe that the future it's possible will not be too different from what we see today.

Today, you have premium price products and you have lower priced products, and you need to have -- to compete in all the segments of the market you need to have products in both ranges.

So, as long as there is a drive for innovation like the one we have, and what we also see from Sanofi and Eli Lilly, we believe the [oral spot] will be the same also in the future, that there will be a premium priced market for those who can afford that and pay a premium price, and there will be a contracting market or tender market based on a second generation or an earlier generation of products.

So that will drive a price increase also for the future, on top of the volume growth we'll see probably continuing at the same level as we've seen today.

So, of course, it takes that there is a drive for innovation, but we see that that is basically a strategy being pursued by the three largest players in the industry.

So we believe that spot will be the same for the future.

And being a little bit more specific in terms of what is the modeling assumed in terms of price changes occurring in the market, I think we've taken the biggest inspiration from what has happened in growth -- with the generic growth hormone.

We would be assuming that some of the biosimilar offerings will come at an approximately 30% lower price, and then they will try to basically contract their way through high controlled plans to capture a share of the market.

One of the elements that is also a very key element in Novo Nordisk's strategy is to ensure that we -- on the device front, that our offering comes with a more convenient offering, and that will make it more challenging to actually convert patients from one brand to another.

And we see that very clearly occurring at times in Europe, when some governments have tried to halt reimbursement for the modern insulins.

There's been a high degree of patient loyalty and through patient loyalty, through the diabetes organizations putting big pressure on the healthcare provider in terms of getting access to the device that they used to have.

So you should also expect that we will see a continued offering on the device offering that we have as an element in ensuring high patient loyalty and lower impact from biosimilar modeling.

Okay.

I think that will end the Q&A session.

Thank you very much for coming and the interest.

And we will be back first at the American Diabetes Association Conference in Chicago.

I hope to see some of you there.

If not, then we will meet in August.

Thank you very much.