諾和諾德 (NVO) 2013 Q4 法說會逐字稿

Thank you for joining us.

My name is Keyur Parekh and I cover Novo Nordisk for Goldman Sachs.

It's my pleasure to welcome the entire management team from Novo for the full-year 2013 investor road show in London.

With that, I'm going to hand it over to you, Lars, to make a few introductory comments.

Thank you very much.

Thank you very much to Goldman Sachs for your hospitality, even though it's not been reciprocated in Denmark at the moment, but I'm sure it will be eventually.

You just have to keep doing what you're doing so well.

It's wonderful to be back in London on a bright, sunny day and it feels slightly better than it has felt during the last 12 months the way the situation for the Company is evolving.

First of all, here's the agenda, which is typical boilerplate presentation by us; the forward-looking statements slide which you should familiarize yourself with, because we will at great risk talk about predictions of the future which might turn out quite differently, as has happened occasionally, so please read this.

And I only have one slide.

And I'm not going to even talk about it, perhaps not in details at least, because my colleagues will certainly do that, other than to say that 2013 was a challenging year for Novo Nordisk.

We started out with the unpleasant surprise of receiving a complete response letter on Tresiba, which prompted us to make significant adjustments to our resource allocations and plans, in particular in the US, where, as you can imagine, we had to reallocate the resources.

We had to reallocate manufacturing strategy and supplies.

And it is gratifying to see that in spite of all those changes that the financials actually came out quite nicely in a very, very challenging year, albeit that the currencies have been significantly against us and will be against us also in 2014.

And we very quickly recovered from -- well, some did faster than others -- from the disappointment of the complete response letter and got back to work on designing a study which will hopefully bring the data which is required for the FDA to have another hearing on Tresiba for the US.

And Mads will talk about that.

In addition to that the research organization has made tremendous progress in a number of fields, so much so that the investment in R&D will increase as a percentage of the P&L in 2014 from 14% to 15%.

And I can truthfully say that the R&D organization is running on all cylinders and things are very, very exciting.

And I think with that basically I will stop here, because I could go on and on, but my colleagues are much better at this than I am.

So, Kare, let me introduce you.

Thank you, Lars.

I'm going to comment on the sales and the development we've been seeing.

And if we just take a look at this picture first then you can see that in local currency we grew sales 12% and in reported terms we grew 7%.

And I'm sure Jesper will get back to the currency situation we are living through.

What you can see is that North America is becoming an ever-bigger part of our business.

It's getting close to half of our business, which is in line with the fact that half the world diabetes market is right now in North America.

You can also see Europe is becoming relatively less a part of our business.

It's now down to slightly less than a quarter.

And emerging markets, understood as China plus other emerging markets, are growing very fast and getting close to being a quarter of our business.

So we have three main growth regions.

We have North America growing 18% in local currency, international operations growing 17%, region China reported 13%.

They had a reduction in inventories of Prandin out there, so in reality underlying they grew closer to 15%.

And then we have the two slow-growing areas, Europe, with slow demographics and slow GDP growth, growing just a few percent, and Japan, where we've seen the DPP-IVs taking a big share of the diabetes market, where we had a flat development.

So overall the whole mix of it we are happy about it.

We see strong growth among, you would say, basically 6b of the world's population and it's promising [wealth] for the future.

If we look the products then nothing much new here, diabetes care roughly 80% of our business, but also a nice contribution from our two key biopharm franchises, growth hormone with Norditropin and hemophilia with factor VIIa, NovoSeven.

If you look at the growth in local currency then by chance you could say diabetes care and biopharmaceuticals grow the same, 12%, and the drivers are the same as you've seen before.

If you look at diabetes you will see that it's modern insulin and Victoza that really drives the growth, more than half the growth coming from the modern insulins and more than a quarter coming from Victoza.

And I'll comment just a little bit on those two.

And then you could see in biopharmaceuticals that we've had a good year for both NovoSeven and Norditropin.

The background is slightly different.

You could say NovoSeven we see increased demand in many parts of the world.

We see less generic or biosimilar competition than we thought we would see in international operations.

And we see more acquired hemophilia basically in a lot of markets.

Norditropin, that's more a marketing and market share gain.

Basically, all growth hormones are generic these days.

There's eight manufacturers or more worldwide.

There's a lot of competition, but having a superior device, superior formulation, superior service package, superior clinical data we manage to keep on taking share with growth hormone with Norditropin worldwide.

So we are very also optimistic about that.

Now, if we then go on and take a look at the modern insulins, then we have a classical split here between the pre-mixed, the fast-acting and the long-acting insulins.

And if I start with the smaller segment, the pre-mix segment, we tend to discard it sometimes because it's not really growing in the US or in Europe, but it's still a pretty big segment and it actually grew 10% last year.

So we have some key products there.

We have Ryzodeg coming up and we think that that's very promising.

NovoRapid is the gold standard in fast-acting insulin and remains so and is doing very fine all over the world, and has a high growth rate despite the fact that it's more than a 10-year-old product.

And Levemir is in a way the slow comeback kid, you could say, because we started out behind Lantus in the marketplace.

We still have a relatively low market share worldwide, but we keep on growing it.

And, as Lars was alluding to, when we didn't get Tresiba in the US we pushed full speed ahead with promoting Levemir and it's working out very nicely for us.

We keep taking share, although from a low starting point, but that just means the relative increases are so much the better.

If you look regionally then two-thirds of the growth of modern insulin is coming from North America, a big chunk from international operations and then a nice contribution from China, also, so the same three regions that really have the good, strong demographics and the good growth.

In terms of GLP-1 we are very happy about Victoza.

Victoza now has a worldwide market share around 70% and it's been growing steadily.

There was a slowdown in the market.

I'm sure you all noticed that in the US market in Q3, actually started in Q2.

It was all based on the scare about pancreatic cancer based on the Butler article.

I'm sure Mads can comment on it.

But basically we hope it's now refuted in the sense that it was based on poor science and that all the safety data generated on incretins and GLP-1s clearly indicate that there is no signal for pancreatic cancer.

And we did also see growth coming back in the fourth quarter in the United States and we are very positive about that.

You can see that our sales are distributed with two-thirds in North America, a quarter in Europe and then international operations and China are still relatively small.

We do, however, have very high growth rates in international operations and in China for Victoza and we think that the outlook for Victoza in general is very good.

Here we have some of the numbers I alluded to before.

I mentioned that Victoza has about 70% share of the GLP-1 segment.

What we show here is the combined DPP-IV, GLP-1 and SGLT-2 segment.

And you could say out of that segment we have the share of that growth, roughly 30% of that growth in our segment value market share of this segment, which you would call the patented modern type II diabetes medicines.

We have roughly 19% of that value right now.

And you can see that the whole marketplace of these products combined is growing very strongly over the last five years, 32% compounded annual growth.

And the SGLT-2s for sure will take some of the growth out of the probably DPP-IV segment, which might have a slightly lower growth rate, but we are still optimistic that GLP-1s will continue to grow nicely.

And they are still a very small part of total scripts.

Victoza, as an example, is only about 1.5% of TRxs on a weekly basis in the US, so hopefully a good upside there both for the patients and for our performance.

So then turning to Tresiba, where we got the complete response letter in the US, so it's still a couple of years before we can get into the US market.

Mads will talk about that.

Let me just give you some early insight to how is the product doing in the markets where we have launched.

And what you should notice here is that there are three graphs moving very nicely up and three graphs not moving so much.

If we start with the three graphs that are moving up then it's three countries where we have reimbursement at par with the Lantus and Levemir.

It's very different reimbursement situations.

In Mexico there is no reimbursement.

It's out of pocket completely for all the products and we still take, we guess, about 10% market share on a full-year basis.

In Japan the patient pays 30%, the health insurance scheme pays 70%.

It's the same for everybody, all products.

Also in Japan we expect to take around 10% market share of the basal segment in one year.

In Switzerland the health insurance schemes pays everything, so you don't pay for Lantus, Levemir or Tresiba, and also there we think we'll take around 10% on an annual basis.

So basically where we have a level playing field in terms of reimbursement the perception among doctors and patients is this is superior.

This is a brand new ultra long-acting insulin.

It gives a lot of clinical benefits and, therefore, it's preferred and is taking share faster than we've ever done with an insulin in the marketplace.

Normally we say we can take about 6 percentage points of a segment when we have a good launch.

On the other hand, the bottom of the graph shows countries where we are disadvantaged in terms of reimbursement, where there's some kind of block by the authorities, they try to niche the product and there, obviously, as you can see, we need to work with this.

We need to get better access in the UK.

We need to get better access in Denmark.

And it's typically technical blocks that the authorities put up saying that you have to fill out this form or you have to have been on this drug first and so on.

If we look back at Levemir and Victoza, we've tried this before.

It takes several years of convincing based on good clinical data in the marketplace that we should have full reimbursement.

We believe due to the relative low daily treatment cost that this can also be done with Tresiba.

But of course it's also important to generate more data and prove the clinical value.

And with that I think I will hand over to you, Mads, and you can tell us about that.

(Inaudible - microphone inaccessible).

Sorry?

(Inaudible - microphone inaccessible).

These are total prescriptions on a monthly basis, monthly MAT value figures from IMS.

Sorry, over to you, Mads.

Okay, thanks, Kare.

So I'll just start by a very quick update on the DEVOTE trial, which is the blinded Tresiba versus glargine cardiovascular outcome trial that is an event-driven trial, where we're looking forward to, hopefully as soon as possible, pending, of course, good recruitment and a decent rate of MACE events, be able to come up with the interim data that should be gaining for a class-two submission of the data to the United States FDA.

Now in addition to DEVOTE we have initiated two other blinded trials, both seeking to reconfirm the excellent hypoglycemia profile of insulin degludec, or Tresiba.

And the way they are done is in a crossover, as I mentioned, blinded manner, such that people in a stable period after washout and in a good HbA1c-derived control are able to having their symptomatic and confirmed hypo events monitored or measured up against each other.

And being crossover you're your own controller and that strengthens the statistics that surround these trials, which is why they are of relatively modest size.

These have both been initiated and they will of course be used to further solidify the excellent profile that Kare described Tresiba as having and as being noted in the market.

Now, there are a lot of other things that have happened over the last few months actually, one being that on December 20 we submitted Liraglutide 3 milligram for approval both in the US and as -- in Europe as a treatment for obesity as an adjunct to behavioral modification.

Also we have gotten further data from the DUAL program, which is IDegLira, where the DUAL IV phase 3b study is one where the agent was added onto sulfonylurea and performed excellently, as it always does with an HbA1c that went all the way down below the 6.5 cut off.

Semaglutide is entertaining the so-called SUSTAIN 6, which is a cardiovascular safety trial in more than 3,000 people, enriched with those at high risk of diabetes -- sorry, of cardiovascular problems.

And that actually both started recruitment and completed recruitment during the course of 2013.

Fast-acting insulin aspart is the revamped version of NovoLog/NovoRapid where we've made the onset of action even faster.

And that is now also having all the onset trials, all the four phase 3 trials ongoing at the same time, the last one being the pump trial that is looking into the compatibility of this exciting new insulin with a pump system.

Liraglutide has been expanded, as we have discussed, not only from type-2 diabetes into weight management, but now more recently also as an adjunct therapy to insulin in type-1 diabetes, such that we are setting out in a phase 3 program that has been initiated, and called LATIN, to look into both insulin-sparing hypoglycemia benefits and certain other elements surrounding what a GLP-1 agonist can do in this population.

Then we have taken our first oral GLP-1 analog that's called OG217SC, also known as Semaglutide in the stack formulation, into phase 2 trials where 600 patients are being investigated with regards to dose response, rapidity of titration and all of that benchmarked up against an arm of subcutaneous Semaglutide.

And finally, but not least, FlexTouch hitting the United States and will be rolled out in the second half of this year.

Biopharmaceuticals wise we had a good year in terms of getting new products approved so that the US FDA have approved both NovoEight and TRETTEN, which is the American word for NovoThirteen, as it's called in the rest of the world.

And furthermore we have also launched NovoEight in Europe and expect to launch it in further markets this year, including the Japanese.

N9-GP is continuing, clinically speaking, what is a success story, namely, by this time coming out with data from a surgery trial where 13 patients undergoing major surgery experienced a 100% success rate in preventing bleeding in the surgical theater.

Then, moving to growth hormone, which we don't speak so much about, but which is pretty exciting, we have completed a multiple-dose study in adults with growth hormone deficiency, and this is the product known as NN8640 that is intended for once-weekly use.

And based on the data we've seen there management expects to be able to make a phase 3 stop-go decision during the middle of this year in the adult growth hormone deficiency indication.

Finally, into the inflammation area, we have reinitiated an antibody project known as Anti-NKG2D, since we have seen encouraging clinical and biological signs of efficacy in a single-dose trial where patients after 12 weeks responded well to one injection of the antibody.

And hence Crohn's disease will be an area entertaining more phase 2 activity for this agent.

Finally, Anti-IL-21, which is moving ahead in lupus and also in Crohn's disease has been discontinued in rheumatoid arthritis not because it didn't work, because there was a statistically significant clinical over and above, you can say, the baseline effect in this indication, however, not at a level where the Company deems it of a competitive nature.

And hence it continues outside of rheumatoid arthritis.

And with that over to you, Jesper, for the financials.

Thank you, Mads.

Well, as Kare alluded to, we had a 7% growth in our sales for 2013, and I think seven was a lucky number for us this year, because operating profit also went with 7% and NovoSeven did really well.

So if you look at it from a local currency perspective we actually had a 5% negative currency impact, a significant part of that coming from the Japanese yen, but also an effect of US dollar decline.

Gross profit wise we increased our gross margin by 40 basis points.

We also had a something like 30 basis point negative currency impact, so in local currencies the improvement was about 70 basis points, and that can basically be ascribed to higher prices in the US and also a better product mix, us selling more of modern insulins and Victoza.

In terms of -- and I should probably also mention for 2014 that we anticipate that we can continue with an expansion in our gross margin in the magnitude of 50 to 100 basis points in 2014.

In terms of selling and distribution costs we saw a slight expansion in that margin in 2013 as we expanded our sales force in US and also in China in the non-broken international operation markets.

We would anticipate that the 2014 year will see a slight decline and probably see percentage of sales between 27% and 28% there.

We should also note that 2013 was characterized by challenging comparators in terms of sales and distribution costs as some provisions in 2012 were reversed on the sales and distribution cost line.

That impacted the growth rates in local currency terms by approximately 3%, so it was 13% local currencies and adjusted for this growth level of around 10%.

Research and development costs steady at 14%, a significant expansion towards the second half of the year in terms of both starting the DEVOTE trial, the cardiovascular trial, and also having a portfolio of phase 3 trials ongoing.

And hence when you look into 2014 you should anticipate that we will be growing our R&D expenses in the magnitude of -- we will be operating at 15% of sales and growing at a higher speed [than in] sales growth.

Admin cost this year was -- 2013 was a bit challenging due to inauguration of new facilities, office facilities both in headquarter in US in Princeton and also at our headquarter in Bagsvaerd.

We would anticipate that the growth in cost in 2014 will be lower, below 5%, and hence we would see an improvement in our admin cost percentage that year.

Operating profit growing 7%, as I alluded to, and we had close to 8% negative currency impact, so in local currency terms operating profit actually grew by 15% or broadly in line with our long-term ambition of growing our operating profit 15% year on year.

Mid financials swung around compared to 2012, primarily reflecting significant hedging gains on Japanese yen and US dollar.

Also note that the tax rate for 2013 went slightly down, reflecting a lower Danish corporate tax.

The Danish corporate tax level is from 2014 onward being lowered from the previous level of around -- or of 25%, down to a level of 22% with effect from 2016.

And that changed level of taxation has an impact on our deferred taxes and is reflected in the tax rate for 2013.

Net profit growing 18% and we continue to repurchase shares and hence 20% growth in our diluted earnings per share.

If we look at the rates for the dollar and the yen you should note that the current levels are below the average rates we've had in 2013.

Although the difference for the dollar is not that big at present, we use the rate of 5.46 as the guidance for the remaining part of 2014.

And as you can also see from here the US dollar is by far the biggest currency risk, impacting operating profit DKK1.3b with a -- on a 5% movement.

And also note that we use the US dollar to hedge our CNY exposure, so in totality these two risks consume something like a DKK1.5b effect of a 5% movement.

If we take the financial outlook, the outlook is a growth of around 10%, so 8% to 11% on the sales growth.

We will with the current rates have a negative impact from currencies of around 3.5 percentage points.

And I do note actually that we in the last 10 days, up until the release and locking the interest rate on January 27, we did have an additional 0.5 percentage point of negative impact basically, more or less solely coming from the movement of a number of emerging market currencies.

So be cautious about the emerging market currencies and their impact for Novo Nordisk in 2014.

We'll try to provide a bit more clarity on that when we get through the first quarter.

Operating profit growth, local currency growth of around 10%, depending on, of course, where we end up in the interval for sales growth, and impact on currencies -- impact from currencies here is about 5.5%.

The net financials will be positive around DKK750m.

Also note that there is an element of our currency gains that will be deferred for income recognition in 2015.

The effective tax rate will be at the 22% level, so here you also see an effect from the positive mix [the] mix effect will help from a lower Danish tax rate blending into the total tax rate.

Capital expenditure being raised to the level of DKK4b from DKK3.5b -- no, sorry, DKK3.2b in 2013, and depreciation amortization just below DKK3b, free cash flow DKK26b, significantly from last year.

And what do we use the DKK26b for?

Well, basically, first we do pay dividend at 47%, or equivalent to DKK11.9b.

And then on top of that we have initiated a DKK15b repurchase programs means that we will return more than the estimated free cash flow of DKK26b.

And then, Lars, shall I just quickly finish this off here?

And basically I think 2013 demonstrated that Novo Nordisk are able to continuously deliver solid growth from our diabetes care platform with more than 10% annual growth coming from diabetes care.

We have a strong market share with 27% in diabetes care.

We have a volume leadership with 48% market share and leadership position across all the sales regions we have.

We have 46% share in the modern insulin market and a more than 70% value share of GLP-1.

We're the only company with a full portfolio of next-generation novel insulin molecules.

We have an exciting GLP-1 portfolio with both Liraglutide and Semaglutide, and opportunity for expanding that both into type 1 and also longer term obesity, and of course combining it with degludec, making a very exciting product, IDegLira, which has the opportunity of taking close to 80% of type-2 patients into guideline control.

And then finally, of course, we have, to supplement that, an exciting portfolio of novel proteins in biopharmaceuticals.

Mads alluded to NovoEight, the new growth hormone we have on the way, and also an interesting portfolio of inflammation compounds in phase 2 clinical development.

So with that we'll move to the Q&A.

And, Lars, will you handle that?

Yes, certainly.

Thank you very much to my colleagues.

When you ask questions could you please state your name and affiliation so that we know, at least those that are listening in on this, who we are talking to?

And you are free to ask your questions directly to my colleagues, because I'm going to just throw it in their face anyway.

So if you know who you want to ask the questions you might as well do so.

And so let's start somewhere here.

Over in the corner, in the back, that was a quick hand there.

Hi, there.

It's Tim here, Tim Race here from Deutsche Bank.

So two questions, first, just a simple one to Kare on his -- on slide 10 where you showed the Tresiba rollout.

I would just be interested on your comments on those markets where you get it about 10% share.

What happened to Levemir in those markets?

And did you do an aggressive switch?

And then just maybe a question on what -- the developments in terms of the 30-month stay for generic glargine.

What does -- in terms of pricing -- I don't expect you to tell me your pricing intentions.

But is this a positive in terms of pricing, or does it give Sanofi more time to make a switch for its U300 and, therefore, make it more difficult for Tresiba later?

It would be interesting just to hear your thoughts.

Kare, would you -- I guess both the questions are to you.

It's a little bit difficult for us to hear the questions, so indulge with us if we get it wrong and -- so ask us again.

Yes, so I'll just repeat how I heard the question to make sure we all agree.

So the question is in page 10 in your little book here.

We have the penetration curves for Tresiba.

And the question is what happened to Levemir in those markets where we see the good penetration of 10%.

What has happened is basically that there has been a gain of market share for Tresiba which has come from the existing players.

That means it's coming from Lantus and it's coming from Levemir.

It is coming not totally in the proportion of the market.

There's slightly more Levemir that's converting, but it's very close to the market mix.

And that means that Levemir is basically holding up quite nicely in the markets where we see Tresiba being launched.

As an example, in the Swiss market this penetration of Tresiba has been enough for us to become the leaders in the basal segment in the combination of Levemir and Tresiba.

So we do see that we of course lose some Levemir sales, but it's more or less in proportion to the market, maybe slightly more.

So that was the first question.

The second question is about generic glargine -- or biosimilar glargine being developed by Eli Lilly for the US market and the new patent situation with Sanofi suing Lilly and what kind of effects that will have on the pricing for basal insulins in the US marketplace.

Yes, just plus thoughts of in terms of penetration and ability for Sanofi to generate a switch and what that might do to Tresiba longer term.

Yes.

So if we take the pricing and the switching then you could say if we assume and no -- I don't know.

But if we just make the assumption that there will be a 30-month stay and there will be litigation then you should expect that the pricing environment for basal long-acting insulins in the US marketplace the coming three years will be similar to what it has been the past three years, because it's basically an unchanged situation.

We have two long-acting analogs, Lantus and Levemir, fighting over market share through all the classical sales, marketing, contracting means that existing in the marketplace.

And I would guess that the situation will play out more or less the next three years with the same kind of trend lines that you've seen the last three years.

When it then comes to the point where you might see U300 in the marketplace or you might see Tresiba in the marketplace then you should expect that these products will come in at similar list prices, but with lower discounts than the older products, and that they will gain market share from that base.

I won't comment on the likelihood of how much Sanofi can do with U300.

It's not a clinical game changer in the sense that it has not shown any significance in terms of clinical efficacy compared to U100, but they might want to, of course, roll the market over for other reasons.

We will be launching Tresiba hopefully.

That has clearly shown significance on clinical endpoints and that is being seen in the other markets as a game changer in the sense that it's the new and improved long-acting insulin.

So we are very optimistic provided that we get the FDA approval in the US.

Thank you very much.

That was rather clear.

Thank you, next.

Thank you.

It's Michael Leuchten from Barclays.

Two financial question and one for Mads please.

On the financials the range of the guidance includes a scenario where the margin might actually come down.

Just wonder what it would take to get you to that.

So if I look at your revenue guidance, 8% to 11%, and your operating profit growth in constant currencies at 10% there is a scenario that implies margin pressure.

Just wondered what it would take to get that.

And then the second question on pricing.

If I understood your comments last week correctly you do not expect extra script to show any changes for the fixed formula reason.

If I remember correctly [CBS's] care market is also not up for grabs.

Can you just confirm that you are not expecting any major tendering in the US for 2014 from the PBMs?

And then on -- the question for Mads.

On the once-weekly growth hormone are you looking for convenience only, or are you looking for efficacy differences as well?

Okay.

Jesper, margin development, if you use the numbers in a specific sequence then it could indicate a declining margin.

Do you have any comments to that?

Yes.

What I tried to say was that we would have an improved margin on the gross margin perspective in the ballpark of 50 to 100 basis points in local currencies.

I also indicated for sales and distribution cost that you would probably see an improved or lower cost to the tune of 50 basis points or so.

You will see for research and development an increase of 1%.

And then you would probably also see a slight decline, maybe 20, 30 basis points or so, for the admin costs.

So overall that should make the margin -- operating margin in local currency be more or less stable.

And then a little bit depending on whether you're high end of the sales range or the low end it could be more or less under pressure.

So I think that was covering that.

Then the second element was in relation to ESI; what additional assumptions of new contracts in 2014 was built into the guidance we have given.

And from our perspective no very significant contracts are up for renegotiation having impact on 2014.

There is a number of contracts, including CBS care market, which is likely to be up for renegotiation in 2015.

So no significant impact of changed reimbursement terms on major contracts built into the guidance for 2014, except for the ESI impact, which we estimate at about 2.5% of US sales.

That I guess covered also that part, Kare, yes.

[As Kare said], you can say there is constant contracting in all segments of the marketplace.

But many of them are smaller and many of them are linked to the calendar year, as Jesper said.

Then Mads.

Yes.

So NN8640 is the new once-weekly growth hormone analog or derivative from Novo Nordisk and of course convenience wise it does, in particular for kids, but also for adults make a major difference.

If all other things are equal the needle size, the, you can say, delivery process is as simple for the once-weekly.

Then by definition taking seven shots down to one is perceived by the patient as a good thing.

In terms of efficacy what you can argue is we've shown after multiple doses, being four doses spaced with one week between, that there is a highly dose-dependant and very clear IGF-1 response.

And IGF-1 is what you need to grow if you're a kid and what you need to stay bodily healthy if you're an adult.

And what I can say is that the potency was actually higher than we have anticipated.

That means we have no problems in finding the phase 3 doses neither for adults and probably also not for kids.

And they will not be limited by what I know of today any toxicities or untoward effects.

When that is said, efficacy is always a question of dose, so I would expect to see the same as for once-daily growth hormone, certainly not inferior, but also not designed to be superior.

And this has been tried before, Mads, with the once-weekly growth hormone.

And, as I usually always remind people, when you go from once daily to once weekly it usually comes at a cost either in terms of side effect, in terms of needle, in terms of dose.

And it is interesting.

The first growth hormone that was launched was actually withdrawn from the market as a result of this.

Now we of course hope that we are slightly more successful with this, but we don't know yet.

And it's also interesting for us now to see what the final profile of Dulaglutide will be.

We haven't seen yet the headline data, or any details for that matter, but if my thesis is correct it should be very, very interesting to see the full profile.

Next question please, yes.

Thanks.

Hi, Richard Vosser from JPMorgan, a couple of questions please.

Firstly, on hemophilia, on the long-acting factor IX, just some -- factor VIII, sorry, just some of your perspectives on the dosing interval that you might be able to get out of the phase 3 trial, what the design of that is and what you think based on the half life.

Second question just -- you've obviously filed the obesity data.

If you could give us a perspective on some of the safety profile that has -- or some of the safety data that's gone in there maybe with respect to CV, pancreatitis, cancer, the potential hazard ratios, or numeric events, or what you can give us to give us comfort there would be great.

And then finally just on the Tresiba rollout, it looks -- it's one month of data, but it looks like flattening in Switzerland and Mexico.

Just is there a response from some of your competitors, or what's going on there?

Thanks.

Thank you very much.

Well, Mads, in [HEP] what dosing are you looking for?

And when you're done with that, how do you look at the obesity 3 milligrams of Liraglutide in terms of the side effect issues that have been observed?

We know the efficacy data.

You know all the side effect issues, so with some caution if you would deliberate on that.

And then, Kare, if you can comment on the supposedly flattening of Tresiba.

So, Richard, on -- in HEP, as we call our long-acting, site-specific, glycol-pegylated version of factor VIII, where the backbone is actually [toroctocox], so we are piggy backing also on the safety data base from toroctocox, know as NovoEight, we have to admit that the half life is only modestly extended.

And that goes for all these agents.

So from 12 weeks on average after an IV infusion terminal half life of the native factor VIII we've opted to around 20 hours, so from 12 hours to 20 hours, which is more or less what we see the others do as well.

So it doesn't really cater for a true once-weekly dosing interval.

And to be honest there what you should expect for -- in HEP is something that is dosed every four days as compared to every other or every third day.

So it's a benefit, but it's not the end game in terms of innovation for factor VIII.

As regards obesity and Dulaglutide 3 milligram, I've previously told all of you ladies and gentlemen, and I'll repeat it, that the classic graveyard scenario for an obesity product is related to cardiovascular problems right from the [thin fin] to [meridian], over neuro-psychiatric problems such as acomplia and suicidal ideation and so on, all the way through to cancer, as we've seen it for some of the other drugs at least pre-clinically.

We haven't seen anything there on either items, so the CD outlook based on what we know today for Liraglutide 3 milligram is looking benign and very good indeed.

We haven't seen cancer signals and we haven't seen neuro-psychiatric disturbances or reportings.

What we have seen is an imbalance in pancreatitis, which we have in the label already.

It's in the label for diabetes.

It's in -- it's a class label for all compounds in both the DPP-IV inhibitor class and the GLP-1 analog class.

And then we've seen a numeric imbalance in gall bladder disorders which we at this point ascribe to the rapid loss of body weight.

It's classically seen by people who diet vigorously.

That hepatobilliar metabolism changes in the direction of transiently causing an imbalance in gall bladder occurrence -- or sorry, gall stone occurrence, but of course we are investigating further.

So the classic obesity drug killers I don't see present in the data set.

But I can tell you one thing.

When we have an adcom, probably third quarter maybe late second quarter -- probably third quarter I will expect a lot of debate.

We will also have discussions about c-cells like we did for Victoza.

But I can say in terms of c-cells in calcitonin there is nothing to look specifically at in any of these trials.

And then, Kare, flattening out of Tresiba, have we seen any competitive counter activity towards our apparent success in those countries?

We have seen very strong competitive activity, but from day one, I would say even from before launch.

And there is no change in that pattern.

And the monthly numbers here they are just random a bit up and down.

There is no change in the underlying trend.

So when I say 10% in 12 months you have to [know] these curves are only right now eight, nine months long and there will be some random changes.

But we know from all previous insulin launches we have ever done that the perception is basically created the first six months.

And that perception stays in the marketplace then you normally get 5-, 10-year long penetration curves that are surprising steady once you get going.

So we expect the same here.

And we see a lot of counter-promoting and counter-detailing, but nothing that is really changing these graphs on a monthly basis.

Very good, yes.

Good afternoon.

It's Keyur Parekh from Goldman Sachs and I've got four questions please.

First --

Can we take one by one?

Absolutely.

Good.

First for Mads.

Beyond the headline HbA1c level when AWARD-6 reports for Dulaglutide what do you think we should focus on?

Okay.

So I think you should focus on a couple of things.

HbA1c wise you should focus on two things.

There is the so-called pre-specified non-inferiority margin defined in the statistical analysis plan.

That typically is 0.4% A1c.

And the expectation would be that the compounds or the dula is non-inferior to Victoza.

Once you have seen that then you should look at the statistical analysis.

What did it actually say?

What was HbA1c decrement compared to Victoza and was there a statistically significant difference in favor of one of the drugs?

These are two independent factors I expect that you recognize.

Then the two other things that we haven't heard much about from Dulaglutide is body weight, typically not reported so much at this point, even though its early days, where my hope is that Victoza will prevail based on the robust data we've seen in the lead program on weight loss in type-2 diabetes.

And the other one is systolic blood pressure where we have in four out of five lead trials had a statistically significant reduction in systolic blood pressure.

And it hasn't been reported for Dulaglutide which way it works for this compound, so I'd be eager to learn that as well.

And then there is safety and tolerability, where it's the GI scientific profile.

How much and how long do you see nausea?

There has been different speculations between the compounds.

And I'm also looking forward to see them.

And secondly, just as you think about Semaglutide, what do you see as the main differences between -- assuming that Dulaglutide ends up being the best-in-class once weekly today, how do you think Semaglutide is going to potentially differentiate from Dulaglutide in a couple of years?

This will be even more forward-looking statements and speculations.

But if I do -- what we all have to do in lack of better.

If I make tables where I look at the phase 2 data for Semaglutide versus Victoza and then look what has -- have we seen for Dulaglutide in the AWARD program etc., etc., and what have we seen for Semaglutide in the oral and in certain other clinical pharmacology trials, then my speculation is that on body weight --

And I can justify this by some scientific studies we've done.

On body weight I would actually foresee that Semaglutide becomes the best-in-class, once-weekly agent, obviously, in once-weekly class drug, but potentially also with more weight loss than corresponding doses of Victoza.

For HbA1c it's a less clear picture, but if anything I would again here expect to see Semaglutide that actually leveled out at very high A1c decrements, 0.4% above those of Victoza.

We would see the same as Victoza or even better, but it's too early to speculate.

And then on side effects tolerability we had a problem in phase 2. There was a lot of GI side effect reporting.

We have now done two things.

We have done a more subtle titration of four weeks between the steps.

And we have also taken the steps at a lower level, because we underestimated the potency of this molecule in phase 2. And we have reverted that in phase 3 and I would expect to see a GI side effect profile that's fully tolerable also.

And then separately as you -- having experienced some of the Tresiba launch in Europe how do you see the IDegLira launch going in Europe and what [a portion] does IDegLira represent in Europe?

Kare, something on pricing for this molecule.

Yes, we have seen a very strong launch of Tresiba in the markets where we have good reimbursement.

For IDegLira you could say we will have a phenomenally good clinical profile.

And it's going to be difficult to say exactly how we can position it vis a vis the authorities and reimbursement, but most likely it will be an easier sell, you could say, because we have many markets where we do have full reimbursement for Victoza.

And since the main cost component of a combined product, where we will price it one-to-one per milligram, so to speak, for each of the components, then the pricing differential will be easier to overcome and we have a very clear-cut clinical benefit.

So we are optimistic at a European level about it.

Of course, in the US we have to wait to get Tresiba approved.

And in Japan we don't have that exact dosing, so we will probably see the first markets where we see IDegLira really making it will be in Europe.

And then, just lastly, a significant change in your payout ratio this year, a massive increase in dividend.

Is that a trend going forward?

Is that what we should expect over the next few years as well?

I think we -- I wouldn't call it a massive, but a 25% increase over a net profit that's growing 18% was just basically adjusting our payout ratio to the average we saw the pharmaceutical industry acting with.

In the comparison we take out the biotech companies.

Some of them don't pay out dividends, so it was an adjusted peer group that get to 47.

And we adjusted to that.

And then you should expect us to continue to be disciplined in returning cash to shareholders both in the forms of dividend at a competitive payout ratio and then on top of that rest in the share repurchase program and ensuring that we basically take all the cash that we generate off the balance sheet again like we are doing in 2014.

We are consulting with the shareholders prior to the general assembly whether as to they want dividends or they -- or the share buyback.

Some want dividends, some want share buyback and we make nobody happy by taking it right in the middle.

In terms of utilization of capital going forward we have no plans of making major acquisitions.

There is the potential in, say, two to four years' time that our CapEx program will be expanding somewhat.

If and when we are successful in advancing our oral portfolio it will eventually require that we make massive more amounts of active ingredients.

It will require that we somehow or another put solid doses forms in our -- within our capabilities unless we want to have that done with partnerships.

But it will require that for a period of time our CapEx might go up, but it's nothing that will put any burden whatsoever on our liquidity.

So you should expect to see more of the same going forward, gradually moving.

Thank you.

Your welcome, yes.

I've got two questions for Mads that shouldn't be too difficult, one [a little bit] the oral insulin.

Is that still moving ahead, because it's not in you're to-do list?

And the other one, can you elaborate a little bit more on the dosing in the new phase 3 trials, because it's -- for example, glargine, is it dosed early in the morning or later in the afternoon?

And also what's the metric for the dosing?

Thank you.

I guess the dosing was in relation to the DEVOTE trial, or what?

Well, yes, we had quite a lot of contact from some of you, of course, but the dosing was at a funny time and also not the size they would have dosed it.

So I want to make sure that this doesn't -- well, that I understand what's going on.

Okay, Mads, oral insulin first.

So, oral insulin, it is true that it is some time since we gave the last update, unlike the oral GLP-1, where we just provided one.

So I think it will be appropriate that over the next quarter we provide an update.

We are into multiple dosing in patients in phase 1.

And on the other hand we have several analogs that are undergoing phase 1 activities.

And at some point we have to chose the most promising and take that to the next level.

And I think in the not too distant future, being the next quarter or two, I can give you a further update.

But suffice to say it's earlier days, but it's actually looking encouraging based on early data.

And that's I think as much as I'll say now.

It's more difficult than oral GLP-1 for the sheer reason that the patient's tolerability of, you can say, insulin excursions is much less than that of GLP-1 excursions.

Then, as regards the blinded trials, well, we actually feel that everything we've done so far has been done completely state of the art.

But just to cater for any specific criticisms or needs of outside observers, we have of course decided not only to do these things blinded, but also in such a way that the dosing cannot be accused of having skewed the picture.

And when that is said, I am as confident about these trials as I was when we did the Phase 3a trials, because I think it might actually be a benefit to the new experimental insulin to be blinded against the well-established one.

And one of the things we've done is avoid that people can come in on Lantus and go directly -- or glargine and go directly onto glargine, because that gives the benefit in terms of the patient and the physician knowing how to titrate and how to use it.

So as you can see from the cross-over design we've avoided that scenario by not having patients coming in basically on that and by blinding.

Thank you very much, Mads.

Shall we take a last one and then we are here for another half an hour where we can mingle around a little bit and then you can go at us one by one.

Sachin Jain, Bank of America.

First question for Mads on the oral [semi] program.

Would the phase 2 data you're expecting next year be sufficient to move straight to phase 3, or do you think further phase 2b studies would be required just given that you've got roughly 40 to 50 patients per arm?

And just an appraisal of the competitive landscape; where are the -- is anybody else in oral GLP-1 and just where is the competitive landscape is looking like?

And the second question is on dula and some comments Lilly made on their recent results call.

They described non-inferiority in AWARD-6 as a win situation and that that would be sufficient to allow interesting, I think was word they used, payer discussions referencing the price premium for the 1.8 dose versus the 1.2 dose.

How do you interpret that commentary?

Thanks

Thank you very much, Sachin.

Oral, Mads, I hope that the phase 2 trials are not for us to go into phase 3, but you better comment on that.

Is your head on the block?

Well, it's not quite on the block yet, but it will be [soon].

No, we are doing this trial and we are doing a handful of other trials, right?

This is the big one, 600 patients.

We are doing a handful of other trials that relate to drug-drug interactions, further studies about food-drug interactions, interactions at the level of hepatic metabolism, stuff like that.

So of course it's a comprehensive phase 2 program.

And my anticipation would be that what we are doing will suffice and at an end of phase 2 meeting with the agency to actually define a phase 3 program without further phase 2 trials.

But it all depends on your data.

If there are really uncertain things and if it's quite unclear which dose to take further, or safety aspects etc., etc., you will have to do further investigations.

The other thing I would say before -- because this is looking promising, but it's also looking high risk both from the perspective of being a whole new route of administration of a biologic, but also do bear in mind we have this carrier called [snack] that we are also characterizing over the next year or so.

And I expect next year to be able to provide you both with an update on the clinical outlook and the carrier system.

So assuming this works and no problems then I think we should ask Kare how does he see the pricing and the competitive scenario in terms of oral entry to this space.

Yes, and then I guess also the question on dula, I can call that too.

So in terms of oral versions of GLP-1 or insulin for that matter you should of course, first of all, be aware that it's going to take while.

Even with the fantastic results we expect from Mads it's still going to take a while to do the full phase 2 and phase 3 program.

When you then think about where will it be best positioned, then it's of course not with type-1 diabetes.

It's not with where you need very high precision in dosing.

It's with earlier type-2 diabetes where you have some buffer capacity, which means that a long-acting agent, being a long-acting oral GLP-1 or a long-acting oral insulin, makes sense.

So really what you can imagine is that these products will be repositioned early, which is of course a great opportunity, because 75% of all diabetics on medication are basically on OADs.

So getting into that volume and still having the very serious basal bonus there of being injectible and very precise is you know a scenario we would like to see.

And that also means that you should expect the pricing would be more or less one to one.

It's not that the OAD version, so to speak, or the oral version of GLP-1 or of insulin would be in any way cheaper than the injectible version.

Then talking about Dulaglutide, of course, nobody knows the data.

All I can say is that in general when you talk about competition in the serious end of diabetes where you need injectibles then the marketplace normally looks at it this way.

That if you're at par on all the clinical parameters then you can compete on convenience or device, or something like that, but if you have one element that is not at par then you're seriously in trouble.

And to really gain market share you need a hook, so you need one thing where you're better than competition.

And I think that [Peter] is a good example.

Peter in the US they don't have a hook.

They have a sort of looks alike, me-too kind of product, and that's why despite massive sales and promotion they are not really gaining traction.

Dulaglutide will have the same issue.

They need a hook to really convince people that it's clinically better than Victoza.

And it's not enough to be more convenient.

You need -- and if they get into the, for us, very fortunate situation that one of the parameters is superior or just numerically below what we see beats A1c reduction or weight reduction or blood pressure, then of course they have a serious problem, because they may need to go out explain to the market that they should use this despite the fact that this one ailment is worse than for Victoza.

But we have to see the data before we can say more about it.

Yes, a follow up.

(Inaudible) landscape.

Is there anyone behind you, or how far ahead are the competition are you?

It's a quick, quick answer.

There isn't any.

So with that, ladies and gentlemen, thank you very much for attending this lunch.

We will be available for the next half hour or so and be ready to take any of the additional questions you may have.

Thank you.