諾和諾德 (NVO) 2014 Q1 法說會逐字稿

(Inaudible) for Deutsche Bank.

Very thankful for Novo choosing us to host the presentation today.

So, I'll hand over to Jesper.

Thanks a lot.

And we're delighted to be here with Deutsche in London with the road show material.

And we're kicking off now.

We've kind of lost the professor along the way, but that is -- when you have professors, they are -- they're brilliant in a lot of things, not necessarily timing.

I'm staring off, and we've done this little bit, and where you can see that they have entrusted one slide upon the CFO, which is the highlights, and then from there on I hand over to our Executive Vice President responsible for Marketing and Medical Affairs, Jakob Riis, and then Mads Krogsgaard will, hopefully, be here, handling the science part, and then Lars Green, our Senior Vice President for Corporate Finance, will take financials and outlook, and then I'll try to deal with the questions and answers.

And I also have on the podium our Executive Vice President responsible for Corporate Strategy, amongst other things, Lars Fruergaard, and if we have questions regarding the strategic development in the industry, I'm sure that Lars will have some perspectives on that.

So, that's what we're going to go through.

Of course, making predictions about how the future will turn out, has just, for Novo Nordisk, also proven to be difficult, and there are some limitations in making statements about the future, which are described in detail in this slide on forward-looking statements.

Then, moving on to the first three months of 2014 for Novo Nordisk, it was a challenging first quarter to the year.

For the first time in 48 quarters, we didn't deliver 10% growth in local currency.

We had anticipated to have a growth in the ballpark of 8% to 9%, but, still, we were somewhat disappointed by the realized growth of 7% in local currencies, and only 2% in Danish kroner, seeing a significant negative currency impact, not only from Japanese yen and US dollars, but also from a number of emerging market currencies, and Lars Green will refer to that later in the presentation.

If we look to the individuals markets, North America, international operations, and Region China grew by 7%, 12%, and 18%, respectively, and you could say compared to our historic performance the big outlier is North America, and North America was impacted by a number of factors.

Three very significant were the impact of -- a negative impact on growth from the patent expiry on Prandin.

That was about 3% negative impact.

Then you had the impact from not having reimbursement with Express Scripts for our fast-acting insulin and Victoza, where we were on a block, and that had also an impact of about 4%, and then, in addition, we did see some significant movements in inventory holdings of US wholesalers, which also account for 3% to 4% negative on US turnover.

So, these three significant factors were the prime reasons behind the lower level of growth in our North American market.

Move to our two core franchises.

Modern insulin grew 10%, and our Victoza franchise grew 13%.

The modern insulin, being driven by our Levemir basal insulin franchise.

We've also seen a very strong growth in our biopharm franchise, and this is the first time in probably more than five years that we've seen our biopharm sales growing more than the diabetes care franchise.

In this first quarter, it was driven particularly by NovoSeven sales in emerging markets, but do be careful in judging full-year trends in that NovoSeven sales.

There are significant tender orders in international operations, NovoSeven sales in the first quarter.

When we look to our performance of our new, long-acting insulin, the very predictable Tresiba product, we are seeing a very strong performance, and in the markets where we have equal reimbursement terms with glargine, we are capturing a high proportion, and typically more than 50% of new patients, and we are seeing a market like Switzerland, within a year, get to 17% market share of value, and also in a market like Japan, we are, by February numbers, looking at a 10% market share and a rapidly expanding share of our share in basal insulin.

If we look to research and development, we have made major progress on our cardiovascular trials to basically satisfy the requirements of the FDA in terms of documenting the cardiovascular safety of Tresiba, and we have updated the timelines by, on average, probably nine months or so, and now assume that we will have enough data for filing by mid-2015.

We've also further documented that IDegLira, or the new brand name, as we intend to call it, Xultophy, we believe that this is a fantastic product, and we've, yet again, proven that you can get approximately 80% of Type 2 patients to control using the combination of insulin and GLP-1.

And we've had positive results from our long-acting version of NovoEight.

The challenging thing is that we need to expand our production capacity, and we need that production capacity for the final operational version of the product, and that basically defers the filing of the product to 2017-18, and we will revert later, when we have more details on those expansion plans, with a more precise timing.

In terms of financial performance, we delivered in local currency a 15% operating profit growth, a significant expansion of the operating margin, but also do bear in mind that the first quarter of 2013 was particularly easy in terms of production economy.

We expanded the earnings per share by 10%.

Do note that even though we have hedging gains in the financial line, last year was also characterized by a year of obtaining hedging gains, as we, now two years in a row, have significant declining, especially Japanese yen, and, hence, the corrective element on our overall earnings growth is not as significant from the hedging line when you have two years in a row with declining currencies.

We've updated the guidance for the year to now be a local currency growth of 7% to 10%, so, we're taking it down by 1 percentage point or so.

Key factors here was an anticipation that the lower stocking levels we are seeing with US wholesalers, we anticipate that that will be there for the full year.

And secondly, that we also believe that the volume growth in the GLP-1 segment will not be as high as we previously anticipated.

So, it's not a market share problem for Victoza, it's more the overall growth of the GLP-1 segment, which is lower than previous anticipated.

The operating profit for the full year will, despite the slightly lower local currency expectations for sales, it will still be around 10%, measured in local currencies.

And with those comments, I'll hand over to Jakob for a review of sales.

Yes, thank you, Jesper.

And in the interest of time, I'll go through this fairly quickly, so we ensure we leave time, also, for questions.

If you look at the geographical distribution, I think Jesper touched upon that, we see the majority of sales coming out of the US, still, also the share of growth, but it's been lower in Q1 relative to what we've seen in the past.

I think Jesper explained that dynamic.

If we look at the mix within the product portfolio, we see a vast majority being diabetes care.

Nothing unusual there.

What has been a little bit unusual is that we have in this quarter, as you'll see over in the table here, in the OAD, a minus 18% share of growth, or down 37%.

So, that's the comparison on Prandin sales to Q1 last year.

Other than that, you see pretty much the continued decline of human insulin.

You see the insulins now, with the next generation, beginning to add a little bit, driving the growth, and so does Victoza.

Down in the biopharm, I mean, where one quarter we've seen some slightly higher sales because of some timing of tenders in international operations, that brings up the NovoSeven growth.

In Norditropin, it's low.

We are continuing to have good performance in the US, but we've had some timing, also, in IO on Norditropin that's impacting the numbers negatively, so that's why that's a little bit lower.

You should expect for the full year that these things will even out over the quarters, and resemble the pattern we saw last year.

We -- a quick look at the development in the segment that we combine, so all the modern, non-insulin anti-diabetics.

That's the segment that shows a very strong growth, 42% compounded annual growth rate over the last five years.

In the middle panel, important to see that when you look at the share of growth, you would see that actually Victoza now commands 22% of the value growth, which is up from 19% when you compared '13 to '12.

So, the brand in that segment stands strong.

Another important thing to note is the dark blue is the SGLT-2s, and you can quite clearly see that they're eating off the DPP-IV growth.

So, the dynamics we have with SGLT-2s coming in, primarily impacting not the GLP-1 segment, to some extent, but primarily the DPP-IV segment, and the result, over to your far right, is an increasing share in these segment now, being 16%.

If you look at Victoza sales here, a vast majority, about two-thirds out of North America, a quarter out of Europe, and then you could say the contributions from International Operations will increase as we also see the multiple launches beginning to generate some significant value.

I think Jesper alluded to that growth is -- there's still growth in the Victoza franchise.

It's been a little bit lower than anticipated.

We haven't seen the complete rebound from the safety concerns, although very positive to note that those are completely removed.

I think Mads will also briefly touch upon that.

We've discussed a lot the US market here.

We just want to share that, yes, losing a contract with ESI, for sure, has an impact, but lastly, if you look at some of the main drivers of growth in the US, we have coverage in the market, unrestricted market access for the vast majority of lives, so that allows us to promote and drive share growth in the, by far, significant part of the market.

You'll see the green Levemir not being impacted.

That was not part of ESI, so that remains at a very high level.

Share-wise, to your right there, you see the very positive, steady growth of share of Levemir.

Some people ask why?

I would say that's because it's a relatively low share with a very good product that is being promoted by a strong sales force.

That drives share, and that's simply what we see.

Victoza you can see very, very strong development Commands a vast majority of the market with a 60%-plus share, and to the end you see a little dip.

That's the impact of ESI.

We'll begin to see the share sort of return to previous levels now.

And NovoLog has been a steady, strong product in the fast-acting segment.

You also see the dip there, and you should expect that that share sort of continues, but at a slightly lower level.

My last slide will be to touch upon Tresiba.

Very, very positive to see here.

We have monthly data, and you could say we look at a cohort, the core markets, that are up there.

Those are the markets where we even -- either we're on par with the glargine.

So, that can be in case of Japan or Switzerland, where they're both covered by the national reimbursement system, or it can be in the case of India or Mexico, where both products are being bought on a private basis.

But where we are on equal terms, we see that over the course of the first year we're approaching share levels around 15%, and in Japan and Switzerland up towards the 20% level, which is very good to see.

So, prescribers, patients, are really pleased.

They're getting on to Tresiba, and we typically say that an insulin launch would -- a good insulin launch is somewhere between 5% to 10% of the segment.

So, clearly, outperforming, you could say, the standard expectations to an insulin launch.

We have to acknowledge that in some European countries like UK and Denmark where there's very restricted access you also see that that has a significant impact on the penetration.

As I alluded to, Japan we see close to 205, and I need to explain, because this is the monthly data.

It ends sort of at a 10% range, but we now have been around the 20% area in Japan after, in early March, the two-week prescription limitation was lifted.

First year on the market in Japan, you have to see your physician every two weeks, sort of an extra Japanese safety precaution.

After a year, if nothing alarming has occurred, your prescribers will be allowed to write a two month prescription.

And once we came into that period, we saw a good shift upwards.

So, we're about 20% now.

It also means you'll begin to see more glargine patients being switched.

Glargine patients that were not interested in switching last year, because it would mean, as I said, if you have a job that you need to suddenly see your endocrinologist every two weeks.

So, that's a little bit of a barrier.

Now that it's gone, and they want to go on a better basal, and that's what we see.

We're seeing that very positive (inaudible).

And with that, I hand it over to you Mads.

Thank you, Jakob, and why not stay on the topic of Tresiba, which is our favorite one for the time being.

And in that regard, we can start out -- okay, here we start.

Start out with the DEVOTE trial, and yesterday's announcement of the fact that we now will, by mid-'15, have put together the data on the MACE -- the 100 to 200 MACE events that are needed for the interim analysis.

As Jesper alluded to, this is an upgrade in terms of an acceleration for the timeline towards the interim.

It also means that now we are projecting a total duration of the study starting in October '13 with a total duration of now only three to five years.

As previously communicated, it was four to six years.

Obviously, that will be very exciting, but already now we have new data from existing trials that are not blinded like the DEVOTE.

The whole point of the DEVOTE trial is, as you are aware, that it's a blinded trial against glargine in vials.

We are actually also conducting blinded trials in hypoglycemia.

We're seeking to document the hypoglycemia benefits in a blinded setting.

These trials are ongoing as we speak.

Now we have three trials related to the degludec family that we have committed in this quarter, and, generally speaking, without going in great detail, you can say we have now consistently seen whether we intensify insulin by the use of addition of GLP-1 in the form of Victoza or Xultophy, or whether we intensify GLP-1 therapy in the form of Victoza by the addition or substitution with either Xultophy or the addition of Tresiba, we, every single time, see extremely high efficacy levels, bringing the patients down to the level of 6.5% or even 6.4% A1C in the case of Xultophy.

This is really nice, because it's also been the basis of the European Commission granting us now the ability to promote these products, as per label, either as GLP-1 to be intensified with Tresiba, or vice versa.

Now, the U-200 study in Tresiba is actually one where very big, obese people with type-2 diabetes needed more than 80 units per day, and it's really a study that confirms what we all know, namely, or, at least, Novo Nordisk knows, namely that Tresiba consistently outperforms on fasting tests with glucose control to the tune of half to 1 millimolar levels, while, at the same time, conferring a protection against hypoglycemia with a reduction to the tune of 40% in confirmed hypoglycemia.

Also interesting was the notion that we included the TRIM-D Device questionnaire, which is a validated PRO system, or patient reported outcome questionnaire, that actually showed, as we've seen it before, that the Flex-Touch device is clearly preferred to SoloSTAR, based on a number of reasons that pan out in both of the domains of the questionnaire, what is called Device Bother, and what is called Device Function.

Finally, Ryzodeg has actually been test upon against a classic basal bolus regime.

So, taking Ryzodeg in the morning, taking Ryzodeg at supper time was compared against Tresiba injection any time of day, plus three -- on average, three injections of NovoRapid, and lo and behold what we saw was no statistically significant different.

The non-inferiority margin was actually not met, but there was no statistically significant different in A1C outcomes.

And that's pretty impressive, that you, in one pen, with a total daily injections, can give clinically meaningful and the same degree of glycemic control as with four injections given by two pens, and all the hassle of the many blood glucose monitoring assessments that you have to undertake.

So, exciting data, also, for Ryzodeg.

Now, Jakob alluded to the notion that the old pancreatic cancer scare may not have totally gone in the marketplace, because that takes time to permeate, however, it is an unusual situation that the head of safety surveillance in the US, Amy Egan, together with Curt Rosebraugh, the guy running many of the product divisions in the Agency, actually got together with UK, sorry, European regulators here in the UK, actually, who together are analyzing the entirety of the universe of both pre-clinical and clinical data that surround the incretin drugs, whether they are DPP-IV inhibitors or GLP-1 agonists, and, quite frankly, I think you're all aware of this, but they have agreed that the assertions about the causal association to, in particular, pancreatitis, as it has been expressed by the Butler Group, and only by the Butler Group, but highlighted pretty much in the media, is inconsistent with the current data, and the labels of the various products are adequately reflecting the benefit/risk profiles.

This is very good news.

It came out in the New England Journal of Medicine, and now it's really just up to us to continue the momentum we have, and the product development, including, also, the LEADER trial, of course, that will give further evidence of safety, I believe.

Now, this is a Xultophy trial.

I will not go into much detail other than say that we have previously, in the DUAL-I, shown that on the backing of OADs, including metformin, and DUAL-IV, where sulfonylurea was introduced, we have previously seen that when these patient groups have been inadequately controlled on that therapy, a switch to Xultophy in either case resulted in an Hb1C reduction to the level of 6.4%.

We've also seen compelling data in the DUAL-II trial where it was inadequate response to 50 units or less of basal injunction also was surrounded by excellent improvements with Xultophy.

Now, what we're seeing here is that the GLP-1 inadequate responders segment, i.e., people who have not been able to go to target with a GLP-1-based therapy, in the form of Byetta or Victoza, are actually taken again to the level of 6.4%.

Obviously, since we here already had GLP-1 therapy and we are intensifying with an insulin, in the form of Xultophy, you do see a modest weight gain, and still a low, but increased, level of hypoglycemia, as you would except from a insulin.

Excellent data documenting the high efficacy of this unique product.

Finally, for -- in the case of the N8-GP (inaudible) trial program, we have announced these data previously, so I won't dwell on them, other than to say they are looking really good, and we're looking forward to actually market the product.

It will, as Jesper alluded to, not be accompanied by an NDA or an BLA, rather, until '17-'18, and we'll get back to you on the whole strategy following the expansion of the production capacity.

With that, over to Lars for the financial update.

Yes, thank you, Mads.

So, Jakob shared with you highlights of the sales development, 2% in reported terms, 7% when adjusted for the development in the currencies.

We have had, in the first quarter, an improvement in our gross margin in reported terms by a little more than a percentage point, in underlying terms, slightly more.

So, we had a positive contribution from the product mix development, positive contribution from pricing in the US, and we also had a positive comparison to a relatively weak, gross-margin-wise, first quarter of 2013.

In terms of sales and distribution costs in absolute reported numbers, we have reduced our sales and distribution costs by 8%.

Part of that is driven by the development in exchange rates.

So, certain distribution costs, to a large extent, composed currency-wise, very similar to sales, and we also have the one-time effect from a reduction in our provisions for a legal case that impacted the first quarter this year positively.

In underlying terms, we spent more or less the same amount of money on S&D cost in 2014 as we did in 2013.

Research and development expanded quite significantly, driven by the late stage pipeline of clinical projects, including the cardiovascular outcome trial for Tresiba, the DEVOTE trial.

And so, an approximately 20% expansion of our R&D costs, increasing our R&D ratio from a fairly low level last year, just above 13%, to now above 15% in 2014, relative to sales.

Our admin costs were flat in reported terms.

They increased a low digit level in underlying terms, and all together, this gave us a growth in operating profit in reported terms of 6%, a significant headwind on currencies, so had we had the same exchange rate, the underlying growth was -- would be 15%.

Or the underlying growth is 15%, resulting in this 6% reported terms.

Net financials -- more or less the same level as last year.

So, we're not recovering, you can say, relatively speaking, to last year as much on the currency side, basically because we have now, two years in a row, had the decreasing exchange rates of the main invoicing currencies.

Slightly lower tax rate, primarily reflecting a reduction of the corporate Danish tax rate, gradually declining from 25% last year to a level of 22% in 2016, when fully phased in, and so net profit increased by 8%.

We are still buying back our shares, and so, therefore, this result, divided by slightly fewer shares, derives a net profit growth of -- oh, sorry, earnings per share growth of 2%.

So, just reflecting here on the currency development, say in particular Japanese yen, the light green line on the upper chart has depreciated against the euro and Danish kroner quite significantly two years in a row.

But also the US dollar, the Chinese yuan has been depreciating, and if you look at the lower chart with emerging market currencies, they have also been depreciating relatively consistently over this two-year period, and, in particular, the emerging market currencies hit us directly on the net profit, since we are not hedging those.

So, therefore, you see a real sort of impact, so to speak, in Danish kroner on net profit.

We are still hedging our main currencies, the US dollar, the yuan, the yen, and, in particular, approximately 12 months out.

So, then, finally, an update on the outlook.

We have reduced slightly our guidance for sales growth in local currencies, reflecting primarily the impact of reduced inventories at wholesalers in the US, and a slightly lower growth of the total GLP-1 market.

So, we are now saying 7% to 10% in local terms for the full year.

We have upgraded our currency guidance, slightly more adverse now than it was three months ago, both on sales and operating profit.

And then, a reverse impact on net financials, that has increased slightly, although not as much as the impact on operating profit, basically because the emerging market currencies are still impacting negatively.

And finally, free cash flow slightly lower at DKK25 billion, primarily reflecting that US wholesalers and contract partners claim their rebate slightly faster now than what we expected three months ago.

So, with that, over to Jesper on the conclusions and closing remarks, and the Q&A.

Very appropriately, Lars ended his comments on the finances on the rebating in the US, and I should thank Lars for his contribution to the road show here and the few times he's been here in London with us.

He will now be, with effect from 1st of July, he will be going to US to take up the responsibility for finance and IT in North America, and, as such, he will more be participating in the US road shows than the European ones.

But thanks for helping us here, Lars.

And then, just rounding off on the market performance, if we look at the world position, we are benefiting from having the prime part of our franchise, almost 80%, in the diabetes care space, which is characterized by more than 10% annual growth in the franchise or in the diabetes care space overall.

We have leading positions with 27% market share in diabetes care, and also a leadership position in both insulins, modern insulins, and GLP-1.

We're the only company in the industry that has a full portfolio of new insulins on the way to the market, both in the long-acting segment, in the short-acting segment, and in the mixed segment, and that shows Novo Nordisk's dedication to improving insulin treatment for people with diabetes.

On top of that, we have a portfolio, of course, also in GLP-1 where we both have a version that we are trying to test out for once-weekly use, that's semaglutide, we are trying to test out Victoza to use also in Type 1 diabetes.

We have the combination of Tresiba and Victoza in Xultophy, and that's also supporting the growth prospects for Novo Nordisk.

Finally, we are trying to take Victoza or liraglutide, as the compound is called, in the 3-microgram version to be used within the area of obesity, where we filed for approval in Europe and US before the end of 2013.

And then finally, we have a promising portfolio within biopharmaceuticals.

We touched on the full portfolio of products we have within hemophilia now, and then, on top of that, we have a promising version of growth hormones where we can make an even longer-acting version of growth hormone compared to the product today on the market, and a full portfolio of inflammation compounds in mid-stage development.

So, with that, I will then start to take on the Q&A, and I'll take questions.

Tim?

This is Tim Race from Deutsche Bank.

Just three questions, if I can.

First of all, just maybe a bigger picture question on US pricing.

As we go through the second half of this year and into 2015, perhaps healthcare becomes more of a political issue as we start to think about elections.

What do you think about in terms of your ability to take price in the US over this period, relative to what we've seen in the past years or so?

A second question, maybe, on the GLP-1 market and what you talk about as a sort of slight lowering of expectations there.

Is that a long-term lowering of expectations in the GLP-1 market?

Is it driven by price or certain segments that are not being penetrated quite as much as you'd hoped?

And then, perhaps, a third question.

Who scares you the most, AstraZeneca building a diabetes franchise, or Pfizer?

Or is it just a case of the product's not good enough?

Okay.

Thanks, Tim.

First, if I take the bit on the US prices, and then I'll ask Jakob to comment on the growth of the GLP-1 segment and the longer-term outlook, and then, Lars, if you will comment on who scares you first, Asta or Pfizer or none of them?

And then on the US prices, I think we've had a quite positive pricing environment for the last two years or so in the US, and we're seeing a positive momentum in terms of list prices, but a significant proportion of that actually being offset by increased prices of neutralization of the price increases, depending on the negotiated contracts with the managed care organizations and pharmacy benefit managers.

But if I should make kind of a high-level comment, I'd say in the diabetes care space, I think there's an uneven competitive situation with a very intensified price competition, in particular in form of rebates in fast-acting and mixed modern insulins, whereas the situation in the basal market is a more stable one where almost all managed care players are working with dual access on similar terms for both Lantus and Levemir.

And I would anticipate, based on my current knowledge of the portfolio of contracts in negotiation that that would probably continue to be the case, at least until there will be a significant change in the basal insulin market in the US, which probably could be anticipated from mid-'16 when, potentially, the Eli Lilly version of generic glargine could become available to the US market.

And then finally, if you look at the GLP-1 segment, I think near-term I would think that it would -- the GLP-1 segment would also be characterized, broadly speaking, except for the Express Scripts situation, which I only have to think has been very modestly successful.

In a high proportion of (inaudible) patients have actually been allowed to continue treatment.

I think in that segment, we will continue to see, generally speaking, a dual access for the products on the market.

I think the change there in that segment of the market will probably occur when a once-weekly version of GLP-1 from Eli Lilly, potentially, could become available at the turn of this year, and that may change the pricing situation.

But until then, I would assume that there will be inflation-plus price adjustments occurring both in the basal insulin segment and also in the GLP-1 segment.

Of course, it will depend on the regulator, or the competitive environment in both of these segments.

And then over to you, Jakob, on the GLP-1?

A short answer is I think we see a lot -- both perspective in the GLP-1 franchise moving forward.

Mind you that we treat less than a percent of the diabetes population.

So, from a patient point of view, there is ample room to grow.

We previously indicated that we thought a product like Victoza could be at 10% of the diabetes market, and we're at 5% now.

So, again, also there, if you look at it from what good brands will eventually end up commanding of the market, room to grow.

There are probably events moving forward that would impact this.

We look at new entrants.

We see that as, in some ways, a positive, because this is not a matter, as much of shared price, but also continuing to grow the volume.

So, there would be other companies promoting the benefits of GLP-10-based therapy.

I see, also, discussions on weight management that will very much focus on all the benefits beyond weight loss in terms of addressing co-morbidities, also communicating to the market that there is wider perspectives in GLP-1 therapy relative to, maybe, some of the alternatives that command some attention right now, as an SGLT-2 where you pee out the glucose.

I mean, interesting, but the question is, what is the wide applications of that from a diabetes management point of view.

So, there are things where I would say, if you add it all up, we have no reason not to believe that we can continue to grow Victoza as a product.

And then there comes the whole once-weekly, but you can say we can sort of take that separately as a part of the market we'll play in with semaglutide.

Maybe just one comment in addition to what Jakob's saying.

I also think we have kind of the portfolio that lends itself to indication of the labeled -- expansion of the labeled indications.

Type 1 is a pure add-on, because it's limited use at this point The fact Xultophy is a new way of giving GLP-1, together with insulin, and, as alluded to, also, the obesity situation which were the highlights, but you mentioned that already.

So, I think, as a company we're pretty devoted, to actually expanding the use of at least our products in different areas, going forward.

Who do we fear most?

Pfizer or Astra or none, (inaudible) to note that if this thing goes through, Pfizer will be fifth part now owner of the GLP-1 franchise originating out of Amylin.

And I think it's not that it's been lacking investment so far.

So, I don't think I'm really concerned about what will happen there in the future.

Looking at Pfizer's current diabetes care pipeline, it's an early pipeline.

It's small molecule-based.

I'm not particularly worried about that at all.

So, I think it's neither of any of these potential scary options.

Okay, thank you.

Michael, first.

Right here, Michael Leuchten from Barclays.

Yes, it's Michael Leuchten from Barclays.

One question for you, Jesper, on the gross margin comment you made.

How does that work if you have a quarter where your revenues are relatively weak, but you get a tailwind on the gross margin?

And do the dynamics change with your gross margin going forward, with a slightly different outlook, or are we still looking at a similar margin gearing?

And then, a question for Mads.

On the DUAL-III trial, you could argue you're overshooting the goal in these patients and the price you pay for that is increase in weight, and slightly increasing the hypoglycemia.

From a commercial perspective, how do you pitch that to a Type-2 patient?

Okay, Mads, you take the second, and I'll just pitch at the first one.

In terms of gross margin, the first -- I should remark, first, that the first quarter was a particularly easy quarter on gross margin as the comparator in first quarter last year was quite easy.

Remember that last year we were in the situation that because of the complete response letter we had some idle production capacity that was fully expensed in the first quarter.

So, if you look at it from a local currency perspective, we have 150 basis point improvement in our gross margin in the first quarter.

Now, that will not be the case for the full year, as the comparator from last year improves, but I would anticipate that the full year effect would be in the magnitude of 50 basis point improvement in our gross margin in local currency, and then some of it will be disappearing because of currencies, but 20-30 basis point improvement in reported terms for the full year would be my anticipation at present.

And then if you -- then in your question you also allude to well, what change in your operating margin comes from the relative increased expectation when you lower your turnover growth expectations in local currency, and maintain the 10% operating profit ambition?

Well, basically you should anticipate that the savings will come from a slightly lower S&D ratio and a slightly lower admin ratio as the key ones.

So, the current expectations would be around 27% selling and distribution cost, around 15% to 16%, 15.5% R&D, and around 4% admin cost.

And then we've also upped the guidance a little bit for our other operating income to DKK750 million, and those elements are what enable us to maintain the guidance in terms of operating profit growth.

And then, Mads?

Yes, well, first of all, Michael, bear in mind one thing before I get back to the excellent data.

The primary positioning, as you can see in some of the slides that are present today, is actually for optimization of insulin therapy when basal insulin is no longer enough, i.e., Xultophy, like in the DUAL-II trial, did provide an extreme reduction of 1.9% in patients who were inadequately controlled on basal insulin.

And the sheer notion that we announced Tresiba U-200 study in the very obese with the high insulin consumption showed that as they went from 80-plus to 150 units over the study, they still didn't get into control, and that really shows that basal insulin failure patients don't need more basal insulin.

They actually need a prandial squirt of insulin, and that they actually achieve in an unprecedented manner with Xultophy.

So, that's, per se, the primary positioning.

But the DUAL-III actually is excellent.

A couple thing you have to remark in these patients.

It's an artificial situation.

These are not -- in the real-world situation, when you fail on GLP-1 therapy, you will typically not be switched to insulin, which is what happens today, until your A1C is above 8, typically 8.5 or close to 9. Unfortunately, that's how the world functions.

What you have here is patients where I would agree with you, they're coming in at a rather low baseline of 7.7%, 7.8%, so, yes, we do overshoot a great, a tremendous, effect in this trial, which I think is in its own right, fantastic, but generally speaking when you use it in a GLP-1 failure scenario going forward in the real world, I would expect patients would come from a high A1C, and they would desire, actually, to get the full bang for the buck.

One element is, of course, that these patients were allowed to take sulfonylureas for regulatory reasons.

So, about a quarter of the patients were actually taking SUs, and that does give you both an added weight gain, and hypoglycemia.

We know that it uncouples a lot of the good stuff of the GLP-1 therapy.

I would foresee that, medically speaking, I would not, personally, promote that this should be used together with metformin and SU, but just together with metformin.

Your point is well taken, but it's not the primary positioning.

We're actually very happy about it at the current time, go all the way down to 6.4 (inaudible).

Good clarification, Mads.

We'll take Peter down at the corner.

Thanks.

Peter Verdult, Citi.

Just a few topics for you, Mads.

Just big picture on oral insulin.

If you do come through with that, 30% of the current diabetes market is orals.

Would you envisage oral insulin sort of actually coming to that segment as a treatment -- as an option post-metformin failure?

Or is it just about sort of -- it'll still be sort of the end game?

Secondly, you probably don't want to comment, but we were recently at the Cleveland Clinic, and some of the cardiologists we spoke to there believe there's a heart failure signal with the DPP-IV class.

Just interested in your views there?

And then just two, just to wrap up.

I don't want to be too cynical here, but just -- I want to better understand what's going on with Factor VIII.

Why at this stage, suddenly because you want to do increased production capacity, there's this big delay?

It just doesn't -- well, it doesn't smell right, doesn't look right.

I just want to better understand what's going on there.

And then, if I can, this is very small, but it interests, this deal you did with Caisson Biotech on this sort of, for want of a better word, this new pegylation therapy, sugar-based.

I just wanted to know how quickly that's going to go into the clinic, and if you can share some thoughts on that?

If you take oral insulin and the DPP-IV Cleveland data on heart rate failure, et cetera, and also what are we going to use the Ciasson technology for?

I don't think it's a peg technology, but, anyway, you will clarify that, and I can give some comments on Factor VIII.

Okay, so, Peter, your point about is it your end game version like you can say insulin is today, it's the last treatment option, and I think you know what my answer will be.

The answer is no.

That's not the end game of this one.

It's basically something where our view is that oral insulin, based on data we know from the literature, including the Lancet publications, actually suggests that early insulin addition, is good for patients, because it preserves, to a high extent, their endogenous ability both to buffer, of course, up and down, because they get assistance from the exogenous insulin, but also to preserve endogenous insulin secretion, potentially over extended periods.

So, we view this as a non-invasive option to actually come earlier into the game and just, very quickly, anecdotally, we've previously shown that people in a trial, also published in the Lancet, the 1860 study with Victoza, they preferred in terms of quality of life and preference Victoza 1.8 milligram versus Januvia, because they tried both in a crossover design.

However, in the real world setting where at the doctor office you either get a little white tablet or a nasty pin, most of them go on to the tablet directly because it's less invasive, it's less stigmatizing, and so on.

Here we have that option to actually give insulin back early on.

Now on that congestive heart failure signal you can call it for a couple of the DPP-IV inhibitors, I don't really have much comment other than to say that it will be very important to see outcomes from some of the other DPP-IV inhibitors, and also maybe some (inaudible) analysis and stuff like that.

What I can tell you, Peter, and I think you also know that, is that the data we have on congestive heart failure and post-infarction repair associated with GLP-1 agonists is highly positive.

It actually shows in both small and large animal models and early human evidence that was presented at last year's [EAC], as well, that it seems as of the GLP-1 agonists do the reverse.

They actually improve the situation, if anything.

So, that's the only speculation I would do.

And then Caisson, I think you also mentioned it's a sugar chemistry, and it is.

It's a biodegradable option for prolonged macro molecule circulation time by also increasing the so-called [sperodynamic] diameter, just as peg does, but this time it's biodegradable.

So, in a way, it's a precautionary measure on the one hand.

So, if peg were to provide a problem -- I know there's discussions about human peg, or has been and still are discussion, then we have this more green option, so to speak, and who knows, it could also be a new generation of productions for certain molecules, based on a further extended half-life.

These are things we're investigating.

We are actually going to put a product or two into development, clinically speaking, over the next year or two, year and a half.

But it's a very interesting technology that we are going to look to use across both the biopharm universe and also towards the diabetes care arena.

In terms of Factor VIII, you could say, to really go up into the helicopter, we have probably more successful in our hemophilia expansion than what we originally anticipated.

Hence we're looking at both having a -- you could say a more ordinary version of Factor VIII with the N8 product.

We are -- we've been successful in development of the Factor IX segment with our N9-GP, which we anticipate to file next year.

And the challenge we have had with the long-acting version, the pegylated version of N8 is that the number of molecules we need to produce a similar effect of N8-GP compared to just regular N8 is that we need 3 times the N8 molecule.

And, hence, the production volume needs to be ramped up.

Looking at this ramp-up process, we pursued various routes, and we now have to conclude that we will need to pursue a novel production technology, and also include that novel way of producing N8-GP in the regulatory filing, and that's why we are awaiting the completion of this expansion of our production facility, and we would like to get the commercial version of the product included in the Phase 3 trials, and that's why we've ended up with this delay, which is unfortunate, but we will be -- hopefully by 2016 we will be active in all three segments of the hemophilia markets, so in Hemophilia A, Hemophilia B, and the inhibitor segment.

So, it's a bit unfortunate, but we do believe that this is the right way in ensuring that we can provide all hemophilia patients with adequate product.

That was, I think, those four questions.

I think we'll take Keyur in the back from Goldman Sachs.

Thanks, Jesper.

A couple of questions for you, and then one for Mads.

Jesper, you -- in your comments, you mentioned that you're now forecasting a lower growth for the GLP-1 market than you originally did.

Can you just give us some color around some numbers around what it is that you're anticipating?

Secondly, as you are beginning to think about launch for IDegLira in Europe, if you can give us some sense of what your expectations are in the near term for that?

Mads, if you can just give us an update for where you are in your conversations with the Agency on liraglutide in obesity?

I think previously we were expecting an AdCom sometime in the third quarter.

Is that kind of still a base case expectation?

Thank you.

Thank you.

In terms of lower growth on the GLP-1 segment you could say I think Jakob already covered that in some detail.

I think the only comment I would make is that in our current expectation to the market, we are assuming that the market, the GLP-1 market overall will continue to grow at the current rate, whereas we had assumed previously that we would see a re-acceleration as the fears in the market, which have now proven to be unfounded, was diminishing.

That, so far, doesn't seem to be the case and we have to factor that into our expectation.

I think I'll just make that general comment.

And then, Jakob, if I could ask you to comment on the launch preparations for Xultophy in Europe.

What are we thinking about there?

Yes, we're heading towards an expected approval, hopefully in the second half of this year, and we're preparing for launch in Europe.

You could say it's a little special with Xultophy.

Inasmuch as the data is absolutely extraordinary, we have also, because of the issue around cardiovascular clarification around Tresiba in the US, we're limited, and the fact that we've had a different dose of liraglutide in Japan, hence we've not been able to develop IDegLira at this point, yet, for the Japanese market.

Chinese comes even later.

So, for that matter, we're talking Europe.

So, the value in IDegLira is a longer term for us.

We'll be prepared to launch it into the European market, but it's also important to note that we would have a strong preference for launching it into markets where we have clarification of where we stand with Tresiba.

So, in other words, the idea that payers have related to the benefit of Victoza, as well as to a better basal insulin being Tresiba, that gives us a very good starting point for discussing price on IDegLira.

That -- I've heard comments that, on and off, that that appears challenging.

We're combining two of the most innovative products, but I would say with that comes that Victoza's already widely covered, and secondly, as Mads alluded to, we have some very powerful A1C reductions that we typically don't have when we're negotiating price on insulin, because all the trials are treat to target.

So, we don't have an A1C benefit that we can put forward in the modeling.

So, as I said, optimistic because of the profile.

You'll see a slower ramp-up of the sales worldwide because of the dynamics in the roll-out and the focus, initially, on Europe, and also the fact that we want to push through and secure Tresiba widely first.

Mads, comments on lira for obesity, the regulatory process, Europe, US?

Europe is the traditional story with all the datasets and the other feedbacks and list of outstanding issues and questions and clock-stocks and what-not.

So, that's proceeding according to the European very elegant and professional way of doing these things.

In the US we also are, I would say, always in the dialogue, and we have not, as part of that dialogue, received the date for the AdCom, which, of course, we all are eager to learn about.

And as time goes by, it becomes more and more relevant to think about, as you also alluded to, a Q3 date, maybe a month or so in advance of the PDUFA action date, because you are aware of the 55-day pre-notification, et cetera, et cetera.

So, the more days we hear nothing, the more we will be prepared, suntanned and everything after the summer vacation time, to defend what we think is a very exciting product.

And highly likely that there will be an Advisory Committee meeting.

Okay, one more question down there?

Thank you.

It's Matthew Weston from Credit Suisse.

Two questions, if I can.

The first, regarding the decision to cut promotion in the US as a consequence of the slowing revenue trend.

I'd just like to understand -- I mean, I interpreted promotion as DTC.

Is that because you're seeing less power within DTC?

Is this simply just moderating costs because, after a period of very strong growth maybe there's been overspend?

And what I guess I don't understand is the comment around continuing to increase and expanding the US sales force.

And, realistically, without Tresiba and without IDegLira, what's an increment Novo rep doing, when it seems that at the moment all the tension or the pricing power in the US comes with negotiating with managed care?

So, I guess I would expect you to be cutting operating SGA and investing in rebates.

But if you could explain that one.

And then secondly, regarding Novo 9, it seems to get very little attention, but as I recall BeneFix is an $800 million product, and I think, as well, there's relatively use of recombinant IX versus plasma-derived than there is the Factor VIII market.

So, should we think of this as a large product potential for Novo within hemophilia?

And, if so, how confident are you in Novo 9 manufacturing?

Thanks.

I'll cover, and then maybe also, Jakob, you can give some comments on our promotional strategies for North America.

I think, first, a clarification on the US sales force.

It is mentioned in our outlook that there will be an impact in the US from an expanded US sales force, but that was the expansion that was already -- that has already taken place with 500 people going up in the second half of last year.

So, no expansion anticipated.

It is clear that with the expansion taking our sales force to about 3,000 reps, that that will enable us to have the sales force to also market -- launch and market lira in obesity.

So, that's basically been catered for, and we've decided to stick with that level of sales force.

And in terms of promotional cost, it is both the back office costs which are being scrutinized more carefully in a lower growth situation for North America, and then I think our experience is with the direct-to-consumer campaigns that not running them continuously but running them in campaigns seems to work.

And I think it's fair to say that it's been modest, the direct-to-consumer campaigning in the first quarter, particularly, but there was no hinting in the way we looked at the full year that there was a significant change in our expected promotional efforts in terms of direct-to-consumer.

I don't know, Jakob, whether you want to expand on that or that's kind of --?

No.

I think that covers it.

Only just to note that, as you say, we don't have, as planned, a major launch in the US, so we have to get back and have again investments in a major launch in the US.

We did do half an investment last year until we had to abandon the plan because of the complete response letter.

So, you could say, for that matter, also, there is room to reduce the investment somewhat, since we are more focused on having the sales force promote the existing brands.

But in the 10% profit growth guidance, there was an anticipation of 100 basis point lowering of the selling and distribution costs from 28 to 27, so it's not a complete change of the world, and also, do note that in the first quarter of the year 270 basis point lower spend than last year has been realized.

So, the level that we need to save in the subsequent quarters are, everything else being equal, relatively modest.

And then, over to you, Mads, and the prospects for 9. I don't know whether Jakob will also want to comment on that, but you can share that one.

Okay.

Very quickly, I see all the investor boys are standing up.

They're very eager to get out of here.

So, boys, I'll be swift and brief.

The short version is that I agree with you that right now we're not talking that much about it, among other reasons that we're submitting the BLA, et cetera, mid next year or during '15.

And that essentially means, of course, we will intensify also what indications are coming out, and so on and so forth.

But we do agree that once we have a compound that provides, basically, a patient with levels, even in the trough period that are in-between mild or even the non-hemophilia range, it's something that is very attractive.

So, we do like this product.

We also agree that the split between plasma and recombinant base, maybe is not as mature in favor of recombinant as it is for Factor VIII, but, of course, these are maybe not the first candidates for that.

So, I think we are very happy about this, and we can produce the material, so you shouldn't expect further delays on that one.

Jakob, would you add something?

I'll just confirm, it's going to be very exciting to launch that product.

We don't talk so much about it.

Right now we're very busy launching, also, Novo 8 around the world, and we see that as also a very good way of also preparing for launching hemophilia assets.

So, it'll be exciting to launch.

It's a very, very exciting product.

So, with that, I will end the Q&A.

I just wanted to highlight, it's noted on this slide that Frank Mersebach will now be going to the US to head up Investor Relations in North America.

So, you will probably not see him this much -- that much on this side of the Atlantic the next couple of years, but he will be available for investors US time.

So, if you're late in the evening, have a question, he will always be available for you.

Thank you for your interest in Novo Nordisk, and see you back in August.

Thank you.