諾和諾德 (NVO) 2015 Q3 法說會逐字稿

Welcome, everyone.

Welcome to JPMorgan.

I'm Richard Vosser, analyst at JPMorgan.

It's my great pleasure to host Novo senior management at this lunch today; and all of you, of course.

Without further ado, I'll just introduce the Novo management team, and then hand over to Jesper.

There's Jesper, the CFO; Mads, CSO, Chief Scientific Officer; Lars, Executive Vice President, Corporate Development; Jakob, the Executive Vice President of China, Pacific and Marketing; Karsten, SVP at Finance; and last, but not least, Robin, the SVP of Regulatory Affairs.

With that, thanks very much for everyone coming, and, Jesper?

Thanks for coming.

Normally, they said about me that I didn't need a mic, or telephone, I could just open the window and shout.

But I'll certainly keep you awake, do my best efforts.

I've been assigned very few slides, so I'm going to make the most of them.

The first one is to, basically, cover the agenda.

And I've been allowed to talk about highlights and key events.

And then, Lars Fruergaard is, first, going to give a review of the regional development for Novo Nordisk in terms of sales and products; and then, Jakob is going to zoom in on the performance of the individual brands.

Mads is going to give an extensive review on latest news on R&D.

And it's been a pretty busy quarter.

And then, we have asked Karsten to cover the financials, and the outlook.

And we have, in connection with this quarter release, as we normally do, provided guidance also for the following calendar year.

And then, I'm going to round up and, hopefully, lead us through a Q&A session.

I should remind you all that this event is going to be webcast live, so I do ask you to state your name and company you are representing when we get to the Q&A session.

But, of course, first, I have to remind you all that we are talking also about events that will or will not occur in the future, and that gives a high degree of uncertainty.

So you do need, with care, to read this slide regarding forward-looking statements.

And that gets us to the highlight of the first nine months of 2015.

The numbers look very, very impressive.

Of course, we are significantly benefiting from the appreciation of the US dollar versus the euro, and its effect also on the Danish kroner.

We saw a sale increase of 23%; and up 9%, which is I think is more relevant for the ongoing operational performance of Novo Nordisk, when we measure it in local currencies.

Our business is driven by two regions: it's driven by North America with a 33% growth, and international operations growing 23%.

And that, I would also anticipate to be the case as we look for the years ahead.

In terms of Victoza, we're seeing a rebound in the US GLP-1 market.

We have recorded 39% sales measured in Danish kroner, and we are seeing a significant growth in the market.

Jakob will cover that in more detail.

Levemir, our current long-acting insulin on the US market, continues to perform well.

And it has been gaining market share, despite actually seeing introduction of new competition with the U300 version of glargine being introduced on the US market.

In terms of Tresiba, our novel long-acting insulin in the markets where we have launched it, and where it has had reimbursement, it continues to perform really well, and being enabler of an increase in market share for Novo Nordisk in the long-acting insulin segment.

In terms of research and development, we've, luckily, been able to announce that US FDA have approved Tresiba; and also, our mixed component, the combination insulin Ryzodeg 70/30, for the treatment of diabetes in adults.

We've had very solid data on our once-weekly injectable GLP-1 semaglutide in the Sustain 3 study comparing it with once-weekly exenatide, and basically showing very impressive blood glucose regulation and weight effects from that trial.

We have also had to announce that we are not pursuing an indication expansion for liraglutide into Type-1 diabetes, as the results that we got in the ADJUNCT trials did not merit such an expansion.

Mads will also elaborate further on that.

The operating profit growth, when we look at that, at 51% increase, has, of course, been impacted by the divestment of our IT service company that has been listed on the Copenhagen Stock Exchange, and where we now retain a 25.5% share in the company.

But if we back out that divestment, and if we back out the currencies, we are looking at a 16% growth in the business.

And that's on this 9% top-line growth that we have been able to report in local currencies, 16% adjusted growth in operating profit.

In terms of diluted earnings per share, we are seeing a 36% growth, just shy of 3% higher than the net profit growth, reflecting the continuation of share repurchases.

In terms of the financial outlook, the sales outlook for the year has been maintained at 7% to 9%.

And we anticipate that the currency effect now will be approximately 13% higher, versus previously 14%.

In terms of operating profit growth, it's now expected to be around 20%, so it's been upped by 1 percentage point, as reflecting a slightly lower cost consumption in the third and fourth quarter of this year.

And then finally, we have also updated the currency impact on operating profit.

And we are now expecting 22% higher growth, so, in totality, 42% reported in Danish kroner, in terms of operating profit growth.

For 2016, we have said mid to high single-digit expectations for the growth in sales; and likewise, for operating profit if you adjust for the divestment of NNIT, and also the divestment of inflammation assets, which was done in first and second quarter of this year.

So, that's really the highlights.

And, with that, over to you, Lars for a review of regions.

Thank you, Jesper.

As Jesper mentioned, growth was driven by North America and international operations.

And yet, I ought to mention that, North America, the growth was driven by Victoza and Levemir, so I'll now comment much more on that.

With regards to international operations, we have seen strong growth in the Middle East, in Latin America.

So we're quite encouraged with that, also for the future.

If we look at some of the other regions, the European region has been operating in a relative challenging environment, so we're quite pleased with the growth level we see of some 3%.

Here again, it's Victoza that's contributing nicely.

But we also see strong growth from our newly launched products, Tresiba and NovoEight.

Region China had a challenging set of data at the half year.

Q3 was somewhat stronger.

We grew 10% in third quarter.

And that is normalizing the supply chain fluctuations we saw based on NovoNorm at the half year.

So, you can say, the 5% we grow now in region China is somewhat of a more normalized level for this year.

Japan and Korea growing 5% is also a nice comeback.

We have re-launched Victoza, based on an updated label, so we see nice uptake in the GLP-1 area.

And Tresiba also continues to perform well, as Jakob will talk to in a short while.

Overall, a 9% growth in local currencies.

If you look a bit on the brands, I'll not go into a lot of details, as Jakob will call this.

But overall, the diabetes, or, say, the insulin franchise, is growing some 6%, which is also the contribution from the modern insulin stream by Levemir, so delivering around one-third of the overall growth.

Again, Victoza doing very nicely.

The early performance of Saxenda, our beta product, looks promising.

That's clustered in together with the line other diabetes and obesity care.

Saxenda is the key contributor in that line.

If you look at the biopharma, continued strong performance of Norditropin, our growth hormone, driven by US performance, where we are well above 50% market share.

A slightly soft hemophilia quarter or half -- third quarter reporting here.

We see nice contribution from NovoEight's roll out.

We see nice contribution from NovoSeven in international operations.

With that, I'll hand over to Jakob to go into the key brands.

Thank you, Lars.

And we start with one of the main growth drivers here, Victoza, where we've seen strong volume growth.

As you see in the panel to the left, out of -- coming out of the slump, where we had a depression of the growth rates, after all the discussions around safety that were cleared, we went back up with growth rates.

And as we've communicated previously, the launch of dulaglutide from Eli Lilly would, of course, as we also see to the right, put some pressure on the share; but, on the other hand, contribute in growing this segment.

It's now, in total value, 8% of the US market.

It's still less than 2% of the patients.

So, it's a very promising segment.

It's growing very well, and has potential to continue to do so.

If we move to the next growth driver that's also highlighted, Levemir, where we can see here a really good growth in North America.

You will also see that we're moving backwards on Levemir in some of the geographies, mainly impacted in Europe, and in Japan and Korea, by the launch of Tresiba.

Share development has been positive, as you see, with 24% measured here in the month of August, where we can see the first appearance of glargine U300; and a little bit of a levelling off in the share of Levemir towards the end.

But now, we are only weeks or month away from launching Tresiba into this segment.

And when we look at the global penetration of Tresiba in the markets where we launched a while ago, you would see that the yellow curve, to the right there, in Japan we have now taken Tresiba to 31% of the segment.

You may also notice that in the green line, close to it, which is Switzerland, we had a very strong penetration with some leveling off.

And that's why when you read these numbers you need to take into account also that we've launched other products.

In this case, in Switzerland a contribution from launching Xultophy; that is now, in less than a year, having about 13% of the basal segment.

So, you need to add that up to take our total position in the basal segment.

And then to be, of course, completely accurate, you also need to subtract the cannibalization that has taken place for Levemir.

But overall, where we have launched Tresiba, we have greatly strengthened our position.

A couple of other markets I also want to mention is Mexico and India, where some of the leveling off is because we've launched Ryzodeg.

And the sales force have been busy with that; and the physicians also busy, prescribing and trying out Ryzodeg with their diabetes patients.

Lastly, want to take us into the area where we are breaking new ground and opening up a whole new area for Novo Nordisk: our presence in obesity with Saxenda.

What you'll see at the bottom, in the purple graph there, is a steady uptake.

As we've also predicted, it's a market that is very small, very small and limited prescriber base, and we have a lot of educational efforts to undertake to gradually build this market.

We're very pleased with the results so far, the feedback from the market; and the fact that we now have coverture from an insurance point of view in excess of 50 million lives in the US.

So, on that front, we have the premise to continue our growth, and are very excited to do that.

I think, with that, I would hand it over to you Mads with the next comments, which are on the Tresiba label.

Thank you so much, Jakob.

It's a pleasure to be here, as usual.

We were very happy to notify the market, on the evening of September 25, about the dual approval of Tresiba and Ryzodeg 30/70 with what we believe are competitive labels.

I'll just very briefly have a recap.

Patients often experience this very smooth and predictable profile in the way it's pharmacologically described in the label: is the long half-life of 25 hours and a duration of action beyond 42 hours, which also drives the dosing flexibility.

And also, there's some mentioning of the low day-to-day variability to the tune of, within patient, 20%.

Efficacy-wise, the label confirms that the A1C levels are non-inferior.

And we have a documentation of numerically lower, fasting test with glucose levels in the label, despite that we also, in most of the comparator trials, have numerically lower doses of Tresiba.

Safety-wise, we, as you are probably aware, at this point, have not got hypoglycemia data in the label.

This would also be unprecedented, because no insulins do at this current stage.

However, we can discuss later on the SWITCH trials and the DEVOTE trial, and their role in potentially getting us to a situation on that one.

Convenience-wise, it is probably the strongest label we have anywhere in the world where there's just a blunt statement that it can be dosed any time of day, on any day by the patients.

And because we have both U100 and U200 products on the market, or soon will in the US, that basically implies that you could dose all the way up to 160 units in one injection.

And since around one in five Type-2 diabetic American citizens tend to use more than 80 units, this is also, we believe, important for the patients.

On the next slide, this is really, I think, a very exciting page, because the second Phase 3a trial to report for semaglutide, or also known as the Sustain program in Phase III.

It's Sustain 3 where we are going head-on against the, you can say, still most prescribed once-weekly GLP-1 analog, Bydureon, or exenatide once-weekly.

And essentially, what we show in a big trial is that there is a distinct superiority when it comes to the primary endpoint hemoglobin A1C with a 0.6% benefit of 1 milligram sema versus 2 milligrams Bydureon.

The proportion of patients achieving day/day target going below 7% exceeds two out of three patients; and it's only 40% for Bydureon, which is a typical number for a GLP-1 analog, by the way.

Body weight is actually decreased to the extent that more than 50% even hit the FDA approval target of getting greater than 5% weight loss.

To be precise, 52% reported, on average, a 5.6 kilogram weight reduction.

And despite these efficacy data, we were happy to note that on the adverse events side less than 10%, on both products, discontinued due to adverse events.

This is the second out of a total of six trials that will all have reported as we move six months into the future.

We believe that semaglutide is poised to become the best-in-class GLP-1 analog.

Now, as Jesper alluded to, there's a less happy situation.

We thought it was upon us to investigate, because we knew some physicians had been using liraglutide in Type-1 diabetes, even though it is not legal for such; and, hence, we have conducted two trials, ADJUNCT 1 and 2.

In reality, what we did show in these trials, up against placebo or pump insulin therapy, plus placebo versus lira at these three doses, was that we did, indeed, improve somewhat, but not radically, the glucose control.

But the important thing is that despite this, and despite the notion that body weight decreased by 3 to 4 kilograms, unfortunately, there was a confirmed increase in the occurrence of hypoglycemia; somewhat contrasting with the observations that we have in Type-2 diabetes, where it's the other way around.

And based on an overall benefit risk assessment, Rob and I, and the team, together with management, have decided, at this point, not to submit the ADJUNCT data for regulatory approval.

We are further sub-analyzing the data to see, are there specific sub-populations who might, after all, benefit more than others.

Now, on my last slide, it's been a very busy quarter, and many things have been happening.

One of them being the notification to all of you, ladies and gentlemen, that Xultophy has been submitted for what we expect to a PDUFA V, a 12-month review with the agency, even though we haven't been notified about this yet.

FIAsp, importantly, concluded the very last little bit of Phase III, namely, the 26-week extension, in the onset 1 trial.

And that was really nice to see, because it confirms that the benefit that the improved post-prandial glucose incurs upon HbA1c outcomes was still statistically significant in favor of FIAsp, as compared to mealtime NovoLog.

On semaglutide, I think we notified, also during the last quarter, I know we notified, that not only are we moving into a big stage 3 program called Pioneer, because we think it is a pioneering adventure: ten trials in more than 9,000 patients, investigating all the relevant comparator drugs of this potentially unique and new offering.

Phase II for the sub-cut version of semaglutide has actually been initiated also as a once-daily version, because we think we can [squeak] out even more efficacy by dividing the once-weekly dose into daily doses, because day-to-day fluctuation would only be within the realm of 1 percentage point plus/minus around the mean plasma concentration.

Finally, on diabetes, we have completed a program in Phase I of a once-weekly acylated insulin called LAI287, with encouraging data.

Obesity-wise, semaglutide, which is the new kind of big kid on the block, is now also being investigated, dose-range-wise, in a Phase II trial in about 1,000 patients for weight management obesity control.

And likewise, we have a fourth new drug class into the clinic above and beyond GLP-1 and Amylin and glucagon.

That is called PYY, also known as peptide YY, which, as some of you may know, is the other hormone that is shooting up when people get gastric bypass surgery.

So, interesting also to see this a standalone; but potentially, even in combination with, for instance, semaglutide, going forward.

Finally, before I hand over to Karsten, we have acquired two small bioset companies with some of the most excellent protein drug discovery scientists in the world, called Calibrium and MB2.

And that was announced also just a couple of months ago.

Without further ado, over to you, Karsten, for the finances.

Thank you, Mads.

As you can see in our nine-month financials, then we have a sales growth of 9% in comparable exchange rates with the appreciating currencies, most notably the US dollar and the Chinese renminbi, drives a reported sales growth of 23%.

The currency support in our growth you also see when you look at our realized gross margin, which expands by 180 basis points compared to 2014.

Those 180 basis points all come from currency, meaning that in underlying terms our gross margin is unchanged.

We have some favorables in mix and some slight unfavorables here on productivity that explains that.

On our sales and distribution costs, they grow in line with sales; same in local currencies.

Where we do invest predominantly on the sales and the distribution side is in international operations where we added more than 500 people compared to last year.

So, we're investing in future growth.

You see the 17% growth on a year-to-date basis in the international operations, so we continue to invest in those markets; and then, of course, in the United States, where we have been launching NovoEight, Saxenda, and we're preparing to launch Tresiba.

So significant investments going into that as well.

On the flip side, lower R&D costs, 3% down in reported terms compared to last year, and a margin of 12.1%.

The margin has been impacted by currency by roughly 1 percentage point.

However, the key driver behind the drop in the R&D expenses is the fact that we closed down inflammation last year.

You will recall that we took a one-off charge of DKK600 million in the third quarter of last year; and on a year-to-date basis, 2014, we expensed DKK1.6 billion related to inflammation.

So, adjusting for that, our ongoing research and development focus areas grew by 10%.

Admin costs, up by 9% in reported terms.

In underlying terms, you see a continuation of improved admin ratio by roughly 10 basis points in comparable exchange rates.

Other operating income, DKK3.4 billion, driven by NNIT; partial divestment, as Jesper allude to, DKK3.4 billion; and then, we had investment of intangible assets related to the inflammation close down, so there we have, roughly, DKK450 million in one-off income this year.

That drives an operating profit growth of 51% reported.

Take currency out of that, we're at 26%.

Then, backing out the gain from NNIT and the integral assets, and we'll be at 15% underlying operating profit growth.

The currency gain we get in reported terms is partly countered by hedging losses of DKK5.1 billion on a year-to-date basis, driving a pre-tax income profit growth of 29%.

Then, in the third quarter we changed our guidance on our effective tax rate from around 21% to around 20%.

You see the change compared to last year being down 2.7 percentage points, basically, explained by three main factors.

First of all, the lowering of the statutory Danish income tax rate of 1 percentage point, and we pay more than one-half of our taxes in Denmark on a global basis; then secondly, the partial divestment of NNIT, which is tax free; and then, finally, we have changes to international tax cases also reducing our effective tax rate down to around 20%.

All in all, that drives a net profit growth of 33%; and, as Jesper called out before, with the share buyback, a diluted earnings per share growth of 36%.

I called out the currencies before.

Of course, when you look at the currencies, and look at the sensitivity in the chart, then we updated that for the different currencies.

Now, a 5% sensitivity on the US dollar equates to DKK1.8 billion.

US dollar's up more than 20% compared to last year; and, of course, is the key driver compared to our underlying performance.

It also explains, when we'll come to our guidance for 2016, that when you look at our average year-to-date rate for US dollar, close to 670, and then the current spot rate, then that is very close; partly offset by loss on emerging market currencies.

So, net-net, our reported numbers for -- our growth numbers for 2016 are very close to our underlying growth numbers for 2016.

Then, finally, outlook for 2015.

We confirm the 7% to 9% underlying sales growth.

Operating profit growth is -- and then, we have the currency change.

We had a slight weakening of the main currencies between the second quarter and now, so that's why we reduce our outlook in reported terms.

Then, on operating profit growth, we have a slight strengthening in terms of lower spend.

That's why we improve our underlying operating profit growth from 19% to 20%.

Then again, partly offset by lower positive currency impact, taking us pretty much close to the same place.

Update currencies from DKK5.7 billion to DKK5.6 billion in hedging losses.

Effective tax rate, we covered already.

And then, we have a slight benefit on lower depreciations on a full-year basis, reduced from DKK3 billion to DKK2.9 billion.

Free cash flow unchanged.

And then, as alluded to in the beginning, when we look at 2016 our guidance for top line in comparable currencies is mid to high single-digits.

Looking at -- and the same for operating profit growth when we adjust for the one-off impact of NNIT, as well as the sale of the intangible assets related to inflammation of DKK2.4 billion, respectively, DKK450 million.

With that, over to you, Jesper.

Thanks, Karsten.

And then, just rounding up on this slide, I think it's important, when we talk about the long-term growth prospects for Novo Nordisk, to remind ourself the journey the Company's been on for the last 15 years, while I've had the pleasure of being the CFO.

When we launched Novo Nordisk back in 2000, we did that with the basic assumption that we can continue to grow our insulin franchise at the level of 10% year by year.

It was coming from an assumption of basically having a volume growth in the magnitude of 5%.

And that 5% volume growth have actually been very well documented by Novo Nordisk.

And we actually also have a slide 43 in the deck, where you can actually see the development in the global insulin markets.

And that volume growth has been very, very stable, and I would anticipate that it would continue to be so.

You should note, when you look at that volume growth slide, that it's only capturing the IMS market and not the additional markets in emerging market that are, of course, also using insulins, and where the growth levels tend to be higher than in the developed economies.

So, that remains a very stable foundation under Novo Nordisk's business platform.

On top of that, historically, we promised that we would see a 5% value upgrade coming from a gradual conversion of patients from human insulin to the modern insulin portfolio.

You can say that we have executed well on that as we have now reached close to 80% of the market converted to modern insulins around the world.

Some opportunities, of course, still exist in that area.

And now, we have built a new opportunity for ourselves, as also [deluded] on this slide, to the right, when we look ahead, saying that we are the only company with a full portfolio of novel insulin products, that is Tresiba, as Mads alluded to; it's Ryzodeg, which, of course, will have a significant opportunity in markets around the world where the tradition is to treat Type-2 diabetes with combination insulin.

And then finally, we have the opportunity of filing, before the end of this year, probably what will be the world's most impressive fast-acting insulin, our faster-acting insulin, aspart, and hopefully be able to launch that early 2017.

That enables us to, basically, have a next-generation of products in each of the three segments.

That, hopefully, will enable Novo Nordisk to continue to get some value upgrade.

Well, that value upgrade in today's market is more going to be at the 3%, that's probable.

But I'm sure that it will provide us with value opportunities.

And then, of course, also, having that full portfolio of insulin that are superior to what is currently available on the market, that should hopefully also bode well for Novo Nordisk's ability to continue to maintain share, or increase the share.

Of course, increasing share is particularly an opportunity for Novo Nordisk in the long-acting segment, which is the only segment where we are not the world market leader, yet.

And then, on top of the insulin franchise, you should, of course, when you go 15 years forward from 2000, note that we have a very strong position in the GLP-1 segment, which is the other part of our business.

We're seeing a GLP-1 franchise with very solid volume growth around the world, and where Novo Nordisk holds a very strong position.

We also have, and Mads alluded to that with semaglutide, a very potential once-weekly approach income -- to add to our current market-leading products.

And through those two products, I'm absolutely certain that we should also, from the GLP-1 franchise, in a five-year horizon, be able to capture at least 10% value growth.

Also, when you look ahead, I think Novo Nordisk positions itself for a stable value growth of the diabetes care franchise.

And having 80% of our franchise income coming from the diabetes care business, this is going to be crucial for the long-term prospects of Novo Nordisk.

Our current position is one of having 28% and be the global market leader in diabetes care; and I'm sure we will do what we can, in the years to come, to defend that with the portfolio I've just talked about.

I won't go through the individual elements here, but also just note that we do have a great opportunity with Saxenda taking us into obesity care.

Obesity care is still a relative modest segment, and it will be a long-haul effort for Novo Nordisk to build this segment.

It's not something that's going to change the financial performance overnight for Novo Nordisk.

But we do see promising sign of a growing franchise at Novo Nordisk with a very competitive and high-value offering in that segment that is actually being reimbursed by a reasonable number of prescribers in the US.

And with those comments to round off, I would then take questions.

Richard, why don't we kick off?

Richard Vosser, JPMorgan.

Just going to the insulin market growth, I think a competitor was alluding that, that was a slowing potentially in the basal area.

Is there an element that the renewed growth of GLP-1s, and maybe the SGLT2s, taking away some growth at the moment?

And should -- how long do you expect that to continue?

And then, on the same vein, just a second question.

That same competitor highlighted pressures on their business yesterday from a rising contribution of the government part of their US sales.

Could you give your perspective on this trend?

How much is the share of Levemir in the government versus commercial?

And is there a risk there from the mix trends on Levemir and Tresiba in the future?

Thanks.

Thanks.

If we, first, take the question on insulin growth; if I give a first stab it, and then maybe Jakob will have some additional comments.

I think we're seeing that there will typically be a spillover effect from introduction of new classes of our OAD on to the insulin growth rates.

We saw that when we had the insulin sensitizers introduced in the US, where we saw a drop, and then a reemergence of growth.

And likewise, there is of course a risk, if there is a higher penetration of SGLT2, that it can have a slight effect on the insulin consumption, and also related to the deal -- GLP-1s.

But in a long-term perspective, I think it has been remarkable how stable the underlying insulin volume growth is.

And I remain quite certain that we will see that growth.

I think one of the markets which is an outlaw -- outlier in this respect has been Japan.

But Japan is a shrinking population, where the penetration of OAD has come quite late, and, hence, they have probably been impacted by a successful introduction of DPP-4s and SGLT2s.

But Jakob, I don't know whether you have additional comments to the volume growth.

No.

There's been the -- we've seen an effect of both the DPP-4s first as an alternative, as a new OAD opportunity before you'd intensify with insulin that had an impact, SGLT2s, with some potential insulin sparing.

GLP-1, we'd have to say, although it's a small volume of the market, of course, all other things equal, also has an impact.

But the growth we've seen in the past couple of years have already been, you could say, influenced by these dynamics.

So there's nothing really new in that.

And I think there's another element of insulin growth that we also need to factor in: that is the more insulins that are being launched and promoted, with better clinical effects, and fewer side-effects will also have a positive impact.

And that's why you can say it's swings and carousels.

And we can also anticipate that we see a little bit of momentum picking up as we are now introducing better versions of the mix; better versions of the basal; and new opportunities to introduce insulin with, for instance, a [sulfate] category.

I think, as you said, the end result is likely going to be we're going to continue to see a volume growth that is right around the fifth -- 5%.

And in terms of the development in the US market in terms of having a rising part of the business going through government channels, it is right that we have seen an increased use of a Medicare Part D. And we've seen private insurers taking the retired part of the employee population and moving them to [340], or moving them through to the Medicare Part D plan.

And that we have seen as a very gradual move occurring over the last two, three years in the US.

So it's not something that is suddenly happening to us, but is something that's happened very gradual to us.

And we've communicated on that trend all along.

Karsten, you used to be heading up our -- or be Finance Director for our North American operations, maybe some additional comments on that movement?

Yes.

When you look at that part of the business, that is clearly where the lowest prices are paid in US, [hitting] Medicaid, the DOD non-federal hospitals.

And the growth in Medicaid that we also see is a -- comes back to the healthcare reform which was enacted in 2010, and insuring the uninsured.

This is the expansion of Medicaid that's driving volume there.

And clearly, Medicaid has very, very low prices.

That's just the matter of fact when you have fairly old parts in the marketplace.

But that's been happening very gradual over the last three to four years.

It's not a rapid change in 2015 in any way.

Michael Leuchten, Barclays.

Two questions; just one on the preliminary outlook for 2016.

You've outlined how you think the fundamentals are still intact for the growth, going forward.

But you admit the high single-digit outlook on the top line for 2016 is either taking share gain out of the equation or value out of the equation, given the components you've outlined.

So question: why?

And then, question number two is on the gross margin.

Can you just help us understand how the capacity expansion that are going into the business in the next couple of years are going to hit, or not hit, the P&L via depreciation charges?

Thanks.

First, on 2016 growth expectations for sales, the specific growth governance we're giving -- or guidance we're giving is a growth between 5% to 9%.

Let's talk from the middle of that range at around 7%, which a percentage point or so lower than what we're looking at currently.

What we do know is hitting us of negatives for 2016 will be an impact from biosimilar competition occurring to our Vagifem hormone tablet in the US for vaginal dryness.

And we know that, that biosimilar competition will materialize, because we're basically providing the drug to the company who's going to be offering it as part of a settlement.

That will be the fourth quarter of 2016 that will materialize, and that will have a negative impact on our turnover in the magnitude of approximately 0.5 percentage points.

And you also have to factor into 2017 growth levels that we will have three quarters of a similar magnitude, so 1.5% negative impact on 2017, from the US growth hormone -- sorry, hormone replacement therapy franchise.

Then, second element is, and that been announced, that we have lost a Medicare Part D with a major US healthcare plan and where Humalog from Eli Lilly won that contract.

As a consequence, we anticipate that there will be a contractual loss which will be to the magnitude of 0.5 percentage point also negative on our growth in 2016.

And then finally, there are specific price changes occurring in Japan in relation to our biopharma business, high single-digit in 2016.

There is a mandatory price reduction occurring across the pharmaceutical industry in Australia to the tune of 5%.

And then, we also anticipate there will be pressure on the human insulin business in China coming from a mandatory requirement to have tenders for the human insulin as they have been entered into the National Essential Drug List in China.

And those pricing pressure we will also, say, have a negative impact to the tune of 0.5 percentage points.

So, in totality, maybe 1.5% negative impact.

On the positive side, there is clearly the contribution from the roll out of Tresiba in the US; a positive contribution from Saxenda.

However, do bear in mind that as we will focus our diabetes care sales force in the US on Tresiba one should assume that the growth level for Levemir in the US market will go down.

I'm not saying it will decline.

I'm just saying that the growth level will go significantly down.

And we believe that, that justifies, may be a growth -- an addition to growth of 1 percentage point, or so.

So, that's some of the key factors that's, basically, developing.

And then, of course, we only provide very broad guidance.

At this point in time, we'd like to get further into 2016 and provide some more detailed comments when we get to early February and our full-year results.

So that was 2016.

Then, the other question you had was do we see significant changes to the growth margin, near term, coming from the expansion of capacity?

The years where we have clarity now, I would say 2016, 2017, I don't see any material change in our gross margin for the next couple of years.

But that also means that I'm not saying that I will see a significant positive efficiency drive coming out of it.

There's a drag from investment in new capacity.

But there's a positive effect coming from ramping up already installed facilities, and I think that is likely to wash out to a breakeven.

We are operating at quite high gross margin levels at around 85%, so I think we will be happy if we're able to maintain that level in the near-term horizon.

Simon Baker, Exane.

A couple of questions.

Just continuing on 2016 guidance, you've given the same range for both sales and operating profit.

Should we assume that the sales and operating profit growth will be moving together, or should we be thinking that the margin could be increasing or decreasing in 2016?

Secondly, on Tresiba, I know this is a difficult area, because it's commercially sensitive, but I was just wondering how your thoughts on the commercialization, and particularly the formulary access, of Tresiba in the US had been influenced by the experience of Toujeo, where they seem to have got very rapid access, but potentially at significant cost, in terms of pricing on their existing franchise.

And finally, a quick question for Mads.

Going back to ADJUNCT and LEADER in Type-1 diabetes, is the reason for the safety issues there down to the mode of action?

Or is there a potential for semaglutide, particularly once-daily semaglutide, in the Type-1 diabetes population?

Thank you.

In terms of the guidance we're giving for 2016, it is correct, if you back out the two non-recurring elements, as I alluded to, the out-licensing of the inflammation assets and the NNIT partial divestment, then we are assuming a stable operating margin in 2016.

It is certainly too early to give any indications of where the years beyond that is faring.

I do note that in terms of longer-term guidance, it looks, with the guidance we have given now, that it's likely that we will reach the historic long-term financial targets.

And then, you should anticipate that we, in connection with the annual report, will try to give some guidance for another three to five-year period in terms of long-term financial targets.

And then, the second question, in terms of Tresiba, Jakob, I guess that one will be to you in terms of access, and are we going to copy what Sanofi has done?

Or what light can you shed on that?

Yes, it's a distinctly different situation.

You could say we will continue to sell and support, and in some channels, also promote Levemir.

But in addition to that, we are going to bring in a distinctly new product that we have priced with a modest premium, 10%, that we think will make it attractive to a lot of the payers and insurers in the commercial part of the market to adopt this, and give us a possibility to promote this product in the market.

We're on a different situation, because we're not up against a certain timeline or deadline for that and can, hence, make the decisions we feel protect the value the most in the long run.

But I would say, as I said, with a product that offers some distinct benefits at a modest premium, I think we have an offering that we feel confident that the commercial part of the US market will be willing to grant us access for.

And Mads, ADJUNCT, was it specific issues to liraglutide, or could we using semaglutide in this setting?

How do you see that world?

The population that we treated had typically had Type-1 diabetes for more than 20 years, implying that they basically had no residual insulin secretion capacity.

And that's important to notice, because the reason why GLP-1s such as liraglutide, or semaglutide tend to reduce the risk of hypoglycemia is obviously that they act glucose-dependently both on insulin secretion and on inhibiting glucagon secretion.

The glucose dependence of these two actions come together to create like a cushion, so that as glucose values get lower and lower towards normality then you basically stop doing the wrong thing with your pancreas.

But this cushioning effect is actually only present for glucagon in Type-1 diabetes, because there's not insulin secretion cushioning, so to speak, or pillow.

And apparently, that effect was simply too little to be discernible, so that even though we did get HbA1c down further than the placebo group it was at the expense of increased hypoglycemia.

And that, we feel, does not justify further investigation in this particular population.

When that is said, though, those of you who are very eager to look into clinicaltrials.gov will probably have witnessed that we are doing a new trial in recent onset Type-1 diabetes, where we are both looking at liraglutide, but, importantly, also an immunological agent called [NCL21], which has been shown in rodents to protect against beta cell destruction, and even these two in a combined cocktail.

So, it's not over and done necessarily in terms of Type-1 diabetes.

But I don't think we would take semaglutide, which we can investigate for so many things, whether it's NASH, or obesity, or whatever we want to do, pre-diabetes, etc., you could argue that Type-1 diabetes is the not the most obvious target.

So there, on a Friday, we got a cocktail as well.

Sachin Jain, Bank of America.

A couple of questions, please.

Firstly, just a follow up on Tresiba, you've talked repetitively about not getting too high expectations for the launch curve, we should think about a slow launch curve.

I wonder if you could just provide any color around that.

In Japan, you did roughly, just [Tresiba] in your chart, 15% share year one; [growth in emerging] market has been 10%.

So how should we think about the US in the context of the consensus if you put an assumption for US market growth, on my numbers, just looking at roughly 3% to 5% value share?

If you could just put that in context for us.

Secondly, just a very simple high-level question, which is how do you rationalize your view of the insulin market in the US relative to Sanofi?

Just very simply, if Sanofi US Lantus is down in teens and are 60% of the market, for you to grow the overall US market implies substantial differentiation on both share and pricing.

And then, a final point, for clarification.

In your discussion of the summary slide you re-referenced the [7 plus 3].

I wonder if you can just touch on the question asked in the call yesterday.

Lars refrained from giving any color on the plus 3 component, didn't rule out that it could be negative; your comments suggested you think it's positive, so I wonder if you could just clarify that.

Thank you.

Okay, first, on the Tresiba launch curve in the US, my initial comment would certainly be that we have to segregate between the situation in Japan, where we had unilateral access with reimbursement once the product was approved, with the sole [limitating] factor that it was 14 days prescription for the first year, as is customary there.

Apart from that, we had a very, very solid access situation.

I think, Jakob, the situation is going to be different than the US, but maybe you will shed a bit more light on the launch plan there.

I think it's we may -- let's be clear about we're going all in on the launch of Tresiba in the US, so there's no doubt about that.

We typically have said and do not want to make statements around what we would expect of exit shares.

As Jesper said, we are competing in a part of the market, given that Part D is down the road and Medicaid is not relevant for the initial years.

So when you look at the first year uptake you have to see it relative to the market that we're actually promoting and having access in.

But I also think we should correct if the impression is that we are not very ambitious, that we are not putting our full thrust behind this product as we launch in beginning of next year and very soon already making it available to the specialists.

But I'm not going to make comments on specific exit shares.

I think that's safer not to do that.

And then you could say, on the other part, the comments on share and pricing, for others, there is the issue that they are both up against a biosimilar version of the product plus a new entrant, being Tresiba.

So, that's two things working against them.

You could say we do not face biosimilar competition in the basal segment.

And Tresiba is, of course, a growth driver for us.

That's why I think the situations are distinctly different.

And finally, on pricing, there's -- the pricing is made between the company and the payers.

And we do compete, but we make our own decisions.

And when we guide on pricing, as we've done both for this year and next year, it is with very, very good visibility; and actually, most, if not all, of the significant contracting done.

I think today we can just repeat how we see the pricing environment, be transparent with you to the extent at all possible on our projections.

And the differences, I think, are harder for us to comment on, because a lot of this is essentially down to decisions and how it's managed within the companies, so I think I'll refrain from that.

Thank you, Jakob.

And then, you asked us to comment on the insulin growth for our competitor.

I think what they have been out stating is a growth guidance in three years to come for their overall diabetes care franchise.

And it's also my understanding that part of -- or one- half of that growth impact was coming from their activities within inhalable insulin, their once-daily GLP-1, and some BGM business.

But the size of those businesses are relative miniscule, so I have a hard time reconciling that to having a substantial impact on the long-term growth rate.

Maybe I don't really grasp that completely.

If we then assume that the rest is then impacted on their insulin franchise, I would assume that, that has to do with an assumed rebating impact occurring, to a large degree in the US, from the emergence of a competing glargine version from Eli Lilly first, and then implications on their franchise.

I think historically, Sanofi, because they were the first with the next generation of modern insulins on the market back in 2000, I think it is likely that they have been operating with lower rebate levels than what Novo Nordisk had to offer to get access to the market when we rolled out our Levemir in 2005, and onwards.

I think it is partly a catch up with some of those rebates that we de facto are seeing, and it's probably an effect of that catch up that they are building into their morals.

So a lot of the plans may actually today obtain better rebates from using -- for the users who are on Levemir compared to the ones currently on Lantus.

But, of course, I don't have transparency into that, so that has to be speculative.

And then, the final one was saying what is our comments in terms of the outlook, and I just -- you said did we want to comment on 7.3 -- 7 plus 3 model?

I think what I wanted to illustrate by my review is I think the foundation has to be the 5% volume.

And then, on top of that, we believe there is an opportunity for a 3% value upgrade, both coming from taking patients from human insulin in the developing economies, where there's still upgrade opportunity to the portfolio of modern insulins; and then also in the developed economies; and also, in the high-end part of markets, like Mexico, markets like India, etc., operating those -- the patients there from modern insulin and to our next generation.

And we hope that that will provide us with an opportunity of getting an additional 3% boost to our insulin growth volumes.

And then, I think it is realistic with the portfolio we have, the clinical documentation we have for this portfolio, especially when you look at the basal segment, where we are not the market leader, that we can add some growth from actually having a higher market share in the basal segment, particularly.

And that should hopefully also lead to an expansion of our overall market share.

I hope that clarifies that question.

Tim Race, Deutsche Bank.

Just coming along these theme for biosimilars, what are your expectations for when we will see multi-source biosimilars for Lantus?

And if you could possibly detail that by market.

Obviously, there's the US and [31 states], etc., but Europe less barriers.

And potentially still on that theme, what have you seen so far in terms of -- could you just give us a feel for different prices and uptakes so far of the biosimilars that have been launched for Lantus that you're seeing.

And if I may, just a last question.

From the launch of the innovative product, Toujeo, what -- obviously, Levemir has lost a little bit of market share in terms of new-to-brand scripts.

What are you seeing in terms of where it's losing that share?

Any channels, particularly, [at all]?

First, how do we see the speed of a biosimilar version of glargine emerging in various markets from more than just Eli Lilly, Jakob, I guess that's your area of expertise.

Well, (laughter) --

Apparently not.

That was not the opening I had hoped for, but -- so when we will see multi-source biosimilars?

I think -- I don't think I would be able to make any very firm predictions market by market.

But I think what we generally comment on that is it's going to take time.

It is a long-term effort.

And it is a daunting task to enter a market with a biosimilar version, because you also need to have a presence in the market, and thereby drive some prescriptions by discussing the product with some doctors, before you in some markets will be prepared to sit in front of the payers and do contracting that may favor you more.

So it's -- we're counting years.

And it's something we are focused on.

But generally, it's much talked about.

Our focus is, clearly, I wouldn't say in the other end, but it's maintaining a presence and utilizing the fact that Tresiba is also liberating Levemir to be very competitive in some of these channels.

We expect to compete there fiercely and promote that product; but we, at the same time, essentially, going to take the classic route of making sure we move ahead and take the market further in terms of innovation, be it both Tresiba, be it Xultophy, new standards for what you can achieve in treatment of Type-2 diabetes.

I'm not going to say it's irrelevant, and we are focused on it, but it's not what we analyze day in, day out.

We are more focused on ensuring a strong launch of Tresiba in the US, and that we further our plans for Xultophy that has immense potential.

And I think if we zoom in on the US market in this respect, I think, Tim, it would probably be more appropriate to phrase the question to Sanofi, who is the one who has patents surrounding their glargine estate; and how they will add, with the next [in wave] potential generic competitors.

We are not subject to that legal battle.

And then, the second question, in terms of Toujeo and the -- I think you called it an innovative product was the wording for Toujeo.

No, I think what I can say you asked also about price and -- no, there was a price component to the biosimilar, I believe, as well, right, where we see largely a branded generic entry with 20%.

You will see in some markets that it differs from that.

Anywhere we've seen it differ from this 15% to 20% level has been because of special regulatory reasons, where actually the regulation dictates your price of a biosimilar.

[NPRX] impact of Toujeo, I'd say, honestly, again, sorry to say, it's too early to really make any imprints on sources of patients and how we see the movements.

So I won't be able to shed more details on that, unfortunately.

Pete, Citi.

Just two questions for Jesper.

If we think about Lilly, if they're not successful with peglispro, and obviously there's some big question marks there, but they haven't quite given up, and I realize it's unfair to start talking about 2017, but how much of a valid threat or concern is it for you guys when you're talking about the basal market that exclusivity starts to enter contracting for the US basal market, because that's not actually happened to date?

So, that's question number one.

And then, number two, I know you're not going to talk about long-term financial targets per se, but there is a bit of an elephant in the room here, which is your margins are comfortably ahead of your existing targets.

And given everything we've spoken about in the last hour, what's going on in the US, got the slow launch, measured launch for new products, the emerging markets, what's going on in China, LatAm, 15% EBIT growth does seem a tall task over the next couple of years.

So, just the philosophy or the thought process that is going in to how you're going to deal with that, rather than asking you to comment on the targets, per se.

Thanks.

First, I don't know, Mads, whether you have any comments to peglispro?

I think we don't have any insight into where their product's fairing.

I think, Mads, maybe, in terms of what will it take for them to move that forward, do you have any comments to that?

Well, my understanding is that because of the signals on the aminotransferases, and so on, in the liver that they've been asked to do further clinical activity that could be looking into patients who have particular risks, such as those with diabetes and NASH, and see whether there's aggravation, or something like that.

If that is the case, which I'm not cognizant about, but that's my understanding, then it's obviously something that takes quite a long time.

I have one semi-commercial remark, though, and that is that Lilly is pretty committed to the diabetes field.

So even though they realize this may take time and be costly, I do believe that if they think there is a way to the end of the tunnel, so to speak, then I think they will pursue that because it seems as if they are back in the game.

And I think these insulins, whether it's peglispro, or Tresiba, well, those two, they are clearly differentiated from the pack, so to speak.

And that argues against these exclusivity things that people have been discussing, as we more see for like the Humalogs/NovoLogs of this world.

Yes.

And, Peter, I will refrain from speculating on what Eli Lilly and Sanofi will do with true version of glargine.

I think one should, however, note, for Eli Lilly, that, of course, the ownership of the biosimilar glargine is in partnership with Boehringer Ingelheim.

And they have to -- I would say, almost regardless of what happens to the peglispro, I would assume that Lilly has a duty of care to basically maximize the value of this shared asset.

I'm not sure whether in reality it will have a tremendous impact what they decide to do on peglispro for what will happen to the biosimilar version of glargine because of differences in ownership model.

But, of course, the right one to ask about how will they be -- what will be their contracting strategies would be the owners of the two assets and not Novo Nordisk.

That said, of course, there may be implication for our Levemir franchise, and I think we've been stating that for the last 1 1/2, two years, and we'll have to take that when we see what happens.

It's not up for us to speculate what they would do contracting-wise.

In terms of financial targets, it is clear that with the size that Novo Nordisk is reaching the growth level and the absolute value that has to be added in terms of sales every year to basically achieve the historic 15% may not be achievable in the current market.

But we will discuss that in more detail when we re-visit the markets with the financial targets, in early February.

So much for now, I think that's fair to say that, that is of course looking extremely ambitious compared to the current sales growth level.

That said, I think it's actually interesting to see, as I think Karsten commented on, that even if you take this year and you back out the currency effect, you back out the non-recurrings, the nine months was actually 15%.

So, that would be the comment.

Jo Walton, Credit Suisse.

I hate to go back to the topic of the US, but two questions.

Sanofi were telling us that they've been growing very strongly in the government market in the US.

Overall, your share seems to be broadly similar.

Presumably, that suggests that you've been losing share in the government side and perhaps gaining share in the commercial side.

Is that what you think has happened?

And if it is, is it something that you have done deliberately, or it's just happened and it may continue to shift further?

Secondly, on marketing costs, we heard you added 500-odd people this year.

You've got an important launch with Tresiba next year, Saxenda, etc.

Should we anticipate the same sort of level of staffing increase going forwards because you've got incremental marketing costs?

Or do you think you now have everybody in place, and they can all handle more products, you've got Saxenda fully resourced, and, therefore, next year might be a smaller year in terms of additional people?

Thanks, Jo.

First, if we take the marketing costs first, the expansion of the sales force in the US actually occurred in front of the originally anticipated launch of Tresiba.

So that was at the turn of 2012, 2013.

We have retained that sales force.

And I think it has been an important value of Novo Nordisk that we have not made any of our diabetes care sales force redundant subject to approval fortunes, but basically kept a relative stable sales force.

And it's now that we are assigning -- or we intend to assign more than 2,000 reps dedicated to the Tresiba launch.

But in terms of Saxenda, I need to highlight that we have a completely separated sales force that handles Saxenda.

So there will be no implications to the sales organization marketing our efforts within obesity; that will remain very separate.

In terms of the implication of the launch on our sales and marketing costs, I think it's fair to comment that we have a scale now in our global franchise that should enable a relative stable level of sales and marketing investment in 2016.

But, of course, it will be dedicated significantly towards Tresiba.

I don't know, Jakob, whether you have more comments on that.

And then we can get back to the market development of (multiple speakers).

No, I think, very briefly, we are well sized in the obesity fields to do that first: to continue to grow Saxenda, and also to launch the products, launched Tresiba.

On the backside of that, after successful launches the portfolio will have been broadened.

And the growth that that also gives will allow us to reconsider if we need more in the field to support a broader portfolio, but that's a choice we can make down the road.

In initial phase here, in launching the products, getting them out, we have what we need.

And I think it is likely that you will see the expansion occurring in the market that Lars alluded to where we see the growth.

So it's going to be in international operation, where we have expanded sales forces this year; and then, also longer term, potentially also in US, if we see a return on such an additional investment.

Then, going back to the development between the commercial side of business and the government market, and if we kind of deliberately had moved away from one to the other, it would be great business.

As I see it, it's been a relative stable situation.

I don't know whether Karsten or Jakob you have any other information.

It's my assumption that it's relative stable, our share in the markets.

Yes, when you look at it, we have grown share actually with Levemir over the past year.

So we have added close to 2 percentage point share with Levemir, all in the total US marketplace.

We've been gaining slightly more in the commercial place compared to the government setting.

But I think you should see their comment more towards the channel mix: that the Medicaid and the government channel has been growing faster in volume terms relative to the commercial channel.

And that's something we've also experienced, and, as you said, that we have commented on over the past couple of years, that, that has had an influence.

Because we're essentially, in some cases, selling the same product to the same customers, but they're now -- we're selling via another channel, maybe from a commercial plan to a Part D plan; and, hence, the rebate levels are higher, and that means less revenue for that patient.

So that's something we have seen over the years here.

Okay, so that -- Vincent, we'll take a quick one question then.

You get one.

Thank you to be so generous to a French guy.

A very quick one then.

When we look at the market shares for Victoza in the GLP-1 market, since the launch of the weekly products the gap which was widening between Victoza and Byetta so that phenomenon has stopped; the two products are now declining.

Do you think that you need the results of LEAD to again stabilize and see the gap widening versus Byetta?

Or do you think you can get that without the LEAD results?

Okay, that was clear.

I don't know whether -- maybe, Mads, a comment on LEADER; and then, Jakob, do we need good results in LEADER to basically close the trend (multiple speakers)?

Jesper, I think from the -- you can say the outlook we see for Victoza is typically being used when oral antidiabetics have failed.

Even though we think it should be second line after metformin, the fact is that most often people have tried more than one oral.

The guidance we're giving right now about the continued growth, that's simply driven by the metabolic effects of Victoza that is needed as a biologic agent when people later on in the disease basically need to intensify.

However, what the LEADER can do, in the event that we were to show superiority on cardiovascular performance, that is basically get the doctors and the patients to think that this is needed early on.

Because if we see something, it's likely there will be a metabolic memory, a so-called legacy effect, that it's something if you treat early it will have a lasting beneficial impact on the cardiovascular health.

That is at least based on what we know from animal and mechanistic studies.

I think there's an upside to finding a positive LEADER outcome, that's for sure, but that's as far as it can go.

Thanks.

And Jakob?

Very quickly, always nice to widen gaps and increase share, but we're at [59%], and we're pleased with that.

Our main focus is ensuring that we continue to grow the brand, that the category is expanding, and a little less concerned where exactly we end, because with the data we've seen on semaglutide, we will have the opportunity to, hopefully, launch a very strong product into this category.

And that's probably going to be the next trigger of significant share movements.

In the meantime, we just need to stay at a very high growth level, and get a lot of patients on Victoza.

So, thanks for all these questions surrounding the wellbeing of Novo Nordisk.

You have a unique opportunity to have further insight into the opportunities that Novo Nordisk can offer shareholders at our Capital Markets Day, November 19, in our fancy new headquarters in Copenhagen.

And we will back here in London, in connection with the release of our full-year results, on February 3. Thank you very much.