諾和諾德 (NVO) 2016 Q1 法說會逐字稿

Welcome everybody.

Thank you very much for joining.

My name is Michael Leuchten.

I cover Novo Nordisk at Barclays here in London and it's my distinct pleasure to introduce the Novo team.

Without further ado, I think Jesper is going to pick it up.

Thanks Michael.

And thanks to Barclays for hosting this event here in London.

On the road since Friday with our first-quarter results, a very decent first quarter, but with some elements of non-recurring items that makes it look slightly more favorable than the underlying trends are.

But I'll cover that in more detail.

The way we have decided to split the agenda is that I've been awarded the first four slides and then [Lars Fruergaard], our Head -- or our Vice Chair of our Operations Committee will deal with the sales.

Mads Krogsgaard Thomsen, our Chief Science Officer will deal with the R&D update.

And my Senior Vice President for Corporate Finance, Karsten Munk Knudsen, will deal with the financials and outlook and then I'll try to steer the Q&A.

We'll try to do this review in approximately half an hour.

So first, of course, I need to remind you that we are making predictions about the future.

And whenever you're dealing with signs and regulatory authorities you need to be very careful in making predictions about where the future heads, so do read this slide with a bit of caution.

On the first quarter we had a sales growth of 9% in local currency, 8% reported.

In that 9% we did actually have about 1.5% of positive impact from an adjustment to our rebates in the US related to Medicaid.

That was following the release of more precise guidance on how to calculate the Medicaid rebate from CMS.

And that led to a net positive impact on our sales of approximately DKK400m, or 1.5% of total sales, or 3% of the US sales.

So if you look to the underlying trend in the US it was not 12%, as stated here.

This was an underlying growth of 9%.

International operations grew by 15%, likewise, did Victoza 15% local currency growth and really being helped a lot by a solid underlying growth of the overall GLP-1 market.

Biopharm was significantly impacted by the non-recurring events of Medicaid rebate adjustments in the US.

If you adjust for that you're looking at approximately 4% growth.

For our new generation of insulins, Tresiba, Ryzodeg and Xultophy, we had those products now accounting for 17% share of total growth measured in local currencies.

We have -- in the first quarter probably have the most fantastic development on the development side I've never witnessed in my career with Novo Nordisk.

It seems like every trial we released this first quarter just went Novo Nordisk's way.

We released results from the Victoza LEADER trial documenting a statistically-significant lowering of risk of major adverse cardiovascular events.

We also was able to prove for Tresiba both in type 1 and in type 2 diabetes through the SWITCH 1 and 2 trials that we could lower, statistically significant, the rates of hypoglycaemia in a fully-blinded trial comparing ourselves up against insulin glargine U100.

Finally, and actually the day before we released our first-quarter results, the cardiovascular risk trial SUSTAIN 6 that we had to do as part of the pivotal trial for Semaglutide had result readout that also documented its ability, based on only 250 mace events, that it was able to statistically-significant reduce the risk of major cardiovascular events.

So the two trials in GLP-1 is based both documenting a lowering of the cardiovascular risk.

On the financials side the operating profit grew by 10%, if we adjust for the non-recurring income we had last year in relation to the IPO of NNIT and the out-licensing of assets within the inflammatory disorders.

I know that this way of measuring the growth was also the way we guided the market so it is not something we've done to make things look particularly pretty in this picture, but basically we think that's the best way of giving you an impact of what is the underlying growth in the Company on a recurring basis.

In Danish kroner the growth was 9%, so very similar to the growth measured in Danish kroner for sales, which was 8%.

Diluted earnings per share decreased by 2%, but if we adjust for the divestment of NNIT it actually increased by 23%.

The financial outlook for 2016 in local currencies is maintained both for sales and operating profit at a growth level of 5% to 9%.

However, we had to increase the expectations for the negative currency impact, so the sales impact is now increased to 3% lower, as reported, and for operating profit 4% lower, as expected.

So that's the update highlight.

And then over to Lars for a review of the sales.

Thank you Jesper.

Here we have the split on regions and you might remember that we had changed a bit our regional structure.

There's a footnote for those who need to have reminder on this.

Jesper already alluded to that the significant growth was driven by the US and the international operations and the 3% related to rebate adjustments in the US, just remind you on that.

If we look at China, which has not been commented on yet, growth was 3%.

And here it's important to note that we actually saw a slightly better underlying growth as there were some wholesaler inventory level adjustments taking place in first quarter, but we continue to see a market where we lose market share slightly.

Pacific was encouraging 7% growth and this was driven by Victoza sales in both Canada and in Japan.

I should also note that international operations in local currencies grew by 15%, but when we convert it into Danish kroner we saw significant headwind on the currencies, so growth was down to 15%.

If you look at the product split, growth is driven by Victoza by 27%.

But now we see for the first time that the next generation of insulins is actually outgrowing the modern insulins, so a very strong contribution from Tresiba but also from Xultophy.

As Jesper said, Norditropin growth of 27% is a bit inflated by this adjustment in wholesaler -- sorry, in rebates for [Medicaid] in the US.

And there was an addition of DKK600m related to that and a negative DKK200m related to the insulins.

So strong growth in biopharm driven by this and diabetes insulin sales taken a bit down by these rebate adjustments.

If we zoom in on Victoza, here we have the US GLP-1 market growth, very strong fundamentals where we see now the market is growing around 30%, so this is a very attractive growth.

We are losing market share as we see Lilly coming in with their dulaglutide molecule.

But we still see an unchanged trajectory of script level and we have an NBRx share of around 40%, so still Victoza is doing well in this segment.

And we see that in the recent months there's been some contracts switched between the products in the once-weekly categories and that has driven some of the share uptick from the [Felicity] product.

If we look at the rollout of Tresiba we see a continued strong performance in the markets where we have launched.

And compared to prior quarters we can see that now we are also having a strong uptick in countries like the Netherlands and Denmark, where we have -- after initial challenges in getting market access we have become a bit more flexible on pricing to a degree where we now see a strong uptick in also these smaller markets.

There's a mid-group of countries where Tresiba sales is growing flat.

That's linked to that we are now also selling Ryzodeg, the mix insulin with a degludec molecule in it.

So you shouldn't put too much emphasis on sales going flat in these countries, because it's actually continuously growing in total if you take the complete generation of next-generation insulins.

If we zoom in on the US we see encouraging uptick.

We have secured what we call wide formulary access, so we have access in more than 50% of the accounts and we believe that's quite attractive and its growing.

We have 8% share of the new scripts and that turns into a total market share of around 1.5 percentage points.

And you can see in terms of total performance for Novo Nordisk in the basal segment the launch of Tresiba has accelerated our performance.

So we are quite encouraged with this performance.

So with that I would hand it over to Mads for the R&D update.

Thank you Lars.

And as Jesper alluded to a lot has happened over the last months and so far I would say so good.

We have actually only had either positive news or even occasionally positive surprises.

The LEADER trial you are pretty much aware of what has happened.

It's going to be presented on June 13 at the ADA in New Orleans.

Just a short recap.

The biggest risk of showing a GLP-1 mediated beneficial effect in, you can say, cardiovascular outcomes terms has been considered to be the population at risk, i.e., these were people who were up in their 60s, 64, they had a high A1C, 80% plus of them had a previous cardiovascular disease history and their BMI was on the high side, disease duration around 13 years.

So overall some of us perceive that to be a risk for us being able to show something, but luckily and fortunately for the patients and for us it panned out in such a way that we created superiority on the strict MACE endpoint.

And that superiority, statistically speaking, was derived from the three components of the strict MACE, death, MI and stroke.

So that will be submitted to the regulators in the second half of this year for label upgrade, where the label update is both seeking to get the data into label but also in expanded dedication to prevent a cardiovascular -- major adverse cardiovascular event.

Now, SWITCH, SWITCH 1 and SWITCH 2 is actually critical, we believe, to the future differentiation of Tresiba from competing molecules, including the glargine -- various glargine versions.

And I would put to you that the data we have here, and you can test that for yourself, clearly differentiates Tresiba from insulin glargine U100 at least to the same magnitude as glargine was differentiated up against human insulin in the old days, if not more so.

So obviously these data, which are blinded, they are stress tested, they are randomized even for the timing of dosing, 50/50 morning and evening and so on, has created the situation where we basically have superiority on these various definitions of hypoglycemia that have been undergoing a special protocol assessment with the FDA and will form the basis for a supplemental NDA submission in the second half of this year.

So we are really happy about SWITCH 2. That confirms what we felt we knew already.

And SWITCH 1 that builds further on the profile in type 1 diabetes.

Now the next slide really deals with the Semaglutide and the SUSTAIN 6 trial, which gave some of us a rather eventful day, because it all happened when we were about to release the quarterly announcement.

So a lot of stress was going on, but it was a good stress.

Because what happened was that somewhat to our surprise the 250 MACE events that were accrued in a population that is pretty identical to that of the LEADER trial.

So what I just had for LEADER you can repeat for this population more or less.

Up against standard of care, blinded, volume-corrected placebo controlled, full multi-trial with a lot of other readouts related to overall safety confirmation, basically, managed to document that the upper part of the two-sided 95% [confidence interval] goes below 1.0%, despite the only 250 major adverse cardiovascular events in the strict MACE setting.

Safety also was basically as we expected and consistent with the previous activities that have been undertaken for Semaglutide.

So basically we are now gearing up with a huge SUSTAIN program that is coming to an end.

Only one small Japanese trial still to report, because we had one Japanese trial reporting on this occasion with a really good result.

Actually, the first trial ever to show that HBA1C starts with a 5. 5.97 was the end-of- trial outcome in the Japanese trial.

And lastly key development milestones, a lot has happened.

I haven't had time to go through SUSTAIN 5, but SUSTAIN 5 basically tells us that four out of five patients who have been treated on basal insulin and are inadequately controlled can actually go to target, despite a baseline A1C of 8.3.

They can go way below 7 down into the mid 6s just by addition of Semaglutide, despite a disease duration of 12 years.

Likewise, PIONEER 3, which is the -- one of the time-critical -- could have been the time-critical oral Semaglutide phase 3 trial, 18 months trial up against sitagliptin has been kicked off, recruitment is going very well.

There is big enthusiasm for participating.

It's of course a blinded, double-dummy and controlled in every single manner.

We are having an advisory committee on May 24 related to IDegLira, the day before [Lichtenhan] has with the FDA.

That will be very exciting times so stay tuned for the next three weeks.

And then finally our long-acting growth hormone, somapacitan, has got the first REAL 2 data, the first phase 3 data in adults with growth hormone deficiency.

It was a safety trial.

It documented that we have no antibodies in any single patient.

We have local tolerability that is good as once-daily Norditropin.

And we have IGF-1 as the biomarker of efficacy totally consistent with the once-daily treatment as well.

So it's off to a good phase 3 starting with that.

Over to you, Kar.

Sorry, wait a minute.

Okay, I was trying to be fast.

Maybe I was too fast.

A lot has happened and you have it all here with the green tick marks.

The second half of this year is actually more related to getting submissions and to getting approvals.

So we are going from a result, result, result mode into a submit, submit, submit and approve, approve mode, with the only extra thing being noted is that DEVOTE is being completed mid this year at the latest and will report towards the end.

With that, over to you Karsten.

Thanks Mads.

So from R&D over to financials.

You saw our company announcement last week coming out, so I'll just take you through the highlights on the numbers on this, [very nice, slightly out].

So starting with our sales, our top line reported sales growth of 8%, 9% in local currencies, as Jesper covered.

Adjusting for the Medicaid rebate adjustment in the US 7% underlying sales growth.

In terms of gross profit then our gross margin is declining by 20 basis points in reported terms.

Adjust for currencies and our gross margin is flat compared to the first quarter of last year.

Sales and distribution costs we see at 10% growth there.

The key drivers in the first quarter in our sales and distribution costs are linked to three main factors, first of all, launch of -- our full commercial launch of Tresiba in the US.

Then it's linked to promotional investments and [TTG] campaigns behind Victoza and the GLP-1 segment in the US.

And then finally continuing to drive market growth and competitiveness in the international operations through hiring of more sales reps.

So those are the three main factors there driving our S&D cost in the first quarter.

R&D cost up 2%.

We see basically two main effects there.

First of all, we see a wind down of trial activities, as Mads was just coloring before, so taking -- resulting in actually a decline in development cost, whereas, we see significant growth in our research costs in the first quarter so that's the mix effect we see there in terms of R&D.

Admin cost up 6% reported or 9% in underlying terms, which is more than we usually see on the admin line.

3% of that is driven by US litigation costs.

So we have a special item in the first quarter there impacting admin costs.

That leads to a decline in operating profit of 11%, but before we go there, then of course as adjusted its 10% in underlying terms because we have to adjust for the non-recurring effects we had in the first quarter of last year, the divestment of NNIT and sale of an inflammation asset.

So adjusted operating profit up 10% in local currencies.

Financials, I'll come back to the currency development, but we see a financial cost of DKK350m in the first quarter driven by an appreciation compared to the first quarter last year of the US dollar.

So we see some hedging losses related to the US dollar in the first quarter.

Unchanged tax rate and that leads to a net profit decline of 4%.

Adjusting for -- again for NNIT then our earnings per share is up 23% in the first quarter.

One click on currencies, so what are we seeing here?

So we see that the US dollar is to the tune of 2% softer compared to our full-year average in 2015.

If we look at the spot rate today and where we see -- if that continues for the full year, which is linked [to us], I'll come back to, and as Jesper also covered, a negative impact on -- negative currency impact on our full-year outlook mostly through the US dollar, but also when we look at our non-hedged currencies where we see a deterioration of non-hedged currencies.

And one currency we don't have on this chart is the Venezuelan bolivar and, basically, the financial situation in Venezuela leading us use a more market-based exchange rate for the Venezuelan bolivar also negatively impacting the currency translation in 2016 compared to 2015.

And as we also state in our company announcement then in the first quarter of the 15% underlying growth we had in international operations to the tune of 2% is related to inflationary effects in Venezuela, but also in Argentina, linked to the inflation and currency situation.

Moving onto our outlook for the year, so no change in terms of local currency performance, so 5% to 9% local currency sales growth.

And adjusted operating profit growth at also 5% to 9%.

What has changed is, as I covered just before, a softening of currencies, the US dollar and non-hedged currencies emerging markets.

So now our reported sales growth would be 3% lower than the local currency growth and the OP will be -- operating profit will be 4% below our local currency growth.

And the flip side to that is that our net financials is moving from a loss of DKK1.3b to only a loss of DKK200m, which is basically that we have less losses on our US dollar hedging contracts for the year.

And then finally a slight adjustment to our free cash flow, so 1 -- the interval being DKK1b lower than our full-year guidance, which is linked to the currency impact and a slight adjustment to our working capital forecast for the year.

So, with that, that covers financials and then over to you, Jesper, with the closing remarks.

Yes, thanks Karsten.

So basically we've hopefully demonstrated that we do have a very solid portfolio of diabetes care products.

And we continue to have great opportunities having the fullest portfolio of innovative products within both insulins and GLP-1s, with a 27% leading position within diabetes care and a 45%, 46% volume share in insulins and a 64% value share within GLP-1s.

The portfolio is innovative and has novel insulins and novel GLP-1s in it.

We also have the combination products with Xultophy.

And we've been able to expand GLP-1 to bring it within obesity treatment with the opportunity of expanding that market for better treatment of overweight individuals.

And then finally we have a broad pipeline within hemophilia and growth hormone disorders, as Mads shortly touched upon.

We'll now take the Q&A.

And let's let Michael start as the first one.

Thank you.

It's Michael Leuchten from Barclays.

As you refer to, Q1 has been quite extraordinary from a data perspective with the SWITCH trials, the LEADER trial.

And if I take Mads comments the right way I think you were surprised -- positively surprised by the SUSTAIN 6 trial as well.

If I go back to your long-term guidance that you gave at the full year you made very clear that SWITCH wasn't in there, LEADER wasn't in there.

What really changed strategically for the Company, given you had those results both on the top line maybe but also from an operating expense line perspectives?

Thanks Michael.

I will deal with that myself.

I think when we gave the guidance we had seen the SWITCH 2 data.

We also said we hadn't seen the results yet from the SWITCH 1. I think we were very encouraged by those results, given the challenge of [working out an effect] solely of the basal insulin [net] trial.

The effect from the SWITCH trials will, of course, hopefully go into the label.

We won't see that effect really before that label update is completed by both FDA and [AMEA], so we are into 2017, so that's why you're not seeing any implication on the guidance we are giving for this year, likewise, for the LEADER trial.

If you judge from the [Impereg] outcome there was no immediate effect from the announcement.

There was some positive effect from when the scientific data was fully disclosed at EASD.

I think, likewise, there is an opportunity for us to see a positive effect once all data has been disclosed at ADA.

But of course the real in-market impact should be also deferred to when we have an update of the label for Victoza.

And that also goes for 2017.

I think where Novo Nordisk have put our destiny now is with a fantastic portfolio of products.

We need to be able to commercialize those products in a more challenging external environment.

If your question was is, it likely that we will update our long-term financial targets prematurely as a result of the clinical trials we have seen the answer is no.

We have a long tradition for working with long-term financial targets.

And our approach has always been that we basically set some targets, we demonstrate that we can deliver on them and when we have reached the old targets we sit down and evaluate where will the future take us.

So we'll have to work hard on the current ones.

I do know that we in local currency terms are not fully up at the 10% in the guidance for 2016.

There are some clouds on the horizon for 2017.

That doesn't make that the easiest of years, including the challenges we have with our hormone replacement therapy portfolio in the US.

So I think we are very comfortable with what we have guided.

We'll work hard to deliver on that and then we'll update as and when those targets are achieved.

So the next question, please.

Thank you, Simon Baker from Exane.

You mentioned on the impact of US rebate changes about a DKK200 negative impact on insulins.

If I adjust consensus forecasts going into these numbers for that they still came in slightly lower than we were expecting.

So really any thoughts on whether we simply got it wrong, or whether there were any other adverse factors that were affecting, such as inventory movements, additional rebates on non-Medicaid, to try and explain if there was any other adverse trend we were seeing there?

And then a question for Mads.

Following the surprised success of SUSTAIN 6, given that you've shown what looks like a very unambiguous positive signal there, is there any need to do additional post-approval cardiovascular outcome studies, given the data now have for Semaglutide?

Thanks.

Thanks Simon.

First, on the results first quarter in diabetes care, I think it's -- I rightly alluded to that we had approximately the DKK20m in negative impact mainly related to the modern insulin, a little bit also to human insulin.

There was no other significant events.

I will not speculate in where the average consensus is and what estimates you have included to get to those.

I'll leave that to you guys.

Maybe, Jesper, we can add that we had contracts in [Midas Healthcare], so in the fast-acting segments there was a switch from NovoLog to Humalog which also impacted the growth in first quarter.

Yes, but that was mentioned at full year that that contract had changed so that should be in the consensus estimate anyway.

Mads, over to you on the SUSTAIN 6 and the need for additional trials.

So overall you can say the US FDA guideline on cardiovascular trials in diabetic medicine in 2008 basically states that if you go below 1.8 in the pre-approval situation you are then asked to do a post-approval CVOT that results in your driving the data down below an upper bound of the two-sided confidence interval below 1.3.

It doesn't really state what happens if you go below 1.0, but that is actually what we did.

And I don't believe that has been seen before.

So my take on it would be that from a strictly regulatory perspective we need not do any further.

However, as a company that has only had these data available to us for a few days we are already approaching a commitment to do some more landmark-like study activities.

Because what you have to imagine is that in as much as we will seek to have the data in the label such that you can see the hazard ratios, the confidence intervals, the P values, everything, in the label you are not able to indicate in the indication section unless you have pre-specified a statistically hierarchically-justified superiority analysis for (inaudible) on strict MACE.

Then you're not able to get a label expansion that says that you can use this as a secondary prevention for major adverse cardiovascular (inaudible) or cardiovascular disorders.

That is of course what we're going for with LEADER and Victoza, but here we would have to do a major trial taking into account which is the ideal population, how long would we treat, what should be the outcomes, is it only macrovascular, could we be interested in microvascular, would we do one trial, would we do two trials.

That kind of thinking is ongoing in the heads of management right now.

Do not imagine that we'll do anything more on Victoza.

The future will be predicated on Semaglutide from an R&D perspective.

The LEADER trial we will seek to maximize in terms of the positive impact that it will have on patient health from a more, you can say, sales and marketing perspective once the label is available.

Right.

Richard, I think you had a question.

Thanks, Richard Vosser from JPMorgan.

So just wondering about incremental investment behind Victoza and potentially Semaglutide.

Obviously, all your reps are currently on insulin.

We should see the data presented at ADA.

What sort of incremental investments do you think you might need based on what you're seeing in the market now and, obviously, the data you've seen?

Second question just on the US payer environment and whether they -- you foresee them adopting different approaches to pricing for different classes of diabetes drugs, whether the size of the diabetes cost means that price pressure is on the agenda across classes, or whether that might be confined to insulin.

Your thoughts there would be great.

Thanks.

Thanks, Richard.

Maybe I will just do a short comment on the investment in SMD and maybe, Lars Fruergaard, you would also give a few comments to how you view the US market.

And then I'll comment on the payer environment.

In terms of SMD the guidance we have given for the full year is an investment level to the tune of 26% to 27% of sales.

Now, that's higher than what we've spent in the first quarter, so you should anticipate that the activities in terms of promotional efforts and direct-to-consumer advertising will ramp up as we move through the year and, of course, when we get post ADA.

I think that that is clear.

I don't think we have any current plans for changing the size of the sales force for 2016.

But, Lars, maybe you want to give some comments on how you see the US market and opportunities there.

Yes.

So I'll start by trying to address how we look at it from a payer perspective by first saying that clearly in the US market there is an opportunity to sell innovative products also at a high price.

So when you look across therapy areas you can see in multiple areas that products are getting to the market and there's a willingness to pay for innovation.

Then if you look at the specific segments of the diabetes care market, obviously, we see a different level of differentiation and as a consequence of that different level of competition.

So for long we have seen the fast-acting category being impacted by hefty contracting based on low degree of differentiation between the products.

That will be introduced, we believe, somehow in the basal segment also.

Obviously, when you have two molecules that are similar there'll be relatively easy switching opportunities across those.

There'll be a spillover to Levemir potentially.

But we still see that a product like Tresiba in the basal segment is differentiated and there'll be a preference for such a product.

And you -- we can uphold the value of all of our portfolio based on that.

So looking across there'll be changes, but they are -- those changes are similar to what we have seen in some of the other categories.

And from an overall value point of view we believe that we have the innovative height in our portfolio where we can protect value in a market that has appetite for improved products and also willing to pay for it.

And you actually also see that in the GLP-1 space, where you have a fairly similar daily treatment cost for the two leading compounds in terms of capturing new patients (inaudible) and Victoza.

And we would anticipate that that would continue to be equal access when we go through 2017.

And, Jesper, I'll just do something strange.

I'll have a comment on this.

Because in reality the latest IMS data from US healthcare expenditure last year would suggest that even though diabetes medicines overall took a 10.1b overall increase, then when you looked at it net-net it was only to the tune of 2b.

And if you compare that to hepatitis C, cancer and many other areas that's actually rather small.

So, yes, there's focus on diabetes, but I'm not sure there is overly focus on diabetes compared to other areas.

Okay, next question, please.

Sachin?

Thanks, Sachin Jain from Bank of America.

Maybe I can just kick off on another pricing question with Xultophy, due approval towards the end of the year.

Has your Tresiba experience emboldened the thought process for some of the parts pricing, or is your thought process changing at all?

Can you just comment on pricing relative to perceived LixiLan pricing, where your stated pricing could be double theirs?

And then just a couple of questions on SUSTAIN 6, if I may, Mads.

So firstly is it fair to conclude the risk reduction we're likely to see should be greater than LEADER, given the much smaller number of events?

If that's the case, do you have a view as to what's driving it?

Is it the additional A1C on weight loss, or is it something else?

And if it's A1C on weight loss how are you thinking about outcomes for these in the obesity space, for example, for Saxenda?

Thanks.

Okay.

In terms of pricing Xultophy I think the tactical decision of how to price Xultophy will of course, to a large degree, depend on what is the actual approval going to have in terms of label.

It's clear that we are now up for two advisory committees which will portray the two products and I think -- I would assume that it will be apparent from that review that there are distinct clinical differences between the two compounds.

And I would think the relative value points that would be pursued by the manufacturers as a consequence of that will be different and I think the product quality of Xultophy will justify that.

I think the pricing of Xultophy in the US is likely to take inspiration from the GLP-1 space and then get some value, hopefully, from the added benefit of having the world's leading basal insulin added to it.

So I think that will be what we will say for now and then we'll have to see how the actual label's going to work out and what pricing is in the market when we get closer to market.

History has shown that it's not meaningful to make firm price decisions before you're much closer to actually launch the product on the market.

Mads, in terms of the CV effect of Sema what can we read of the SUSTAIN 6 trial?

Yes, so I'll be a little more precise than maybe I was at the conference call the other day.

And it is a fact that when you have, as correctly alluded to by many of you, only 250 strict MACEs, then you can do simple statistics that will tell you that it is indeed true that you do need a hazard ratio that is to the left of, i.e., lower than around 0.8, in order to get a statistically-significant result, so to speak.

That's not rocket science.

That's pure statistics.

When you then look at what is it that is driving the effect in SUSTAIN 6, the risk engines that we know of from DCCT, UKPDS and other [CBOTs] that have been entertained, they, a, would not predict at all that you see a glycemic benefit kicking in after two years of treatment.

Neither would they predict, based on the Look AHEAD and other trials in obesity, that a -- let's pretend that the weight loss in SUSTAIN 6 was in the same ballpark as Look AHEAD.

Then you did not see the expected impact on cardiovascular outcomes in the Look AHEAD, which I cannot quite explain and I think nobody can.

So overall you can say this is surprising from a purely metabolic perspective.

And our statisticians will also tell us that we cannot explain this by purely metabolic effects.

So I would suggest strongly based on published data and based on our own in-house pre-clinical data that at least certain GLP-1s have some distinct GLP-1 receptor mediated effects, such as anti-inflammatory effects, that play out in the vessel wall and counteract the atherosclerosis or atherogenesis process.

And then you can argue how can you detect such an effect after only two years.

Well, if you have a relatively diseased population, even though the data are very new so this is pure speculation on my behalf, you can have a scenario where as a plaque matures and is getting ready to rupture, so to speak, there's a lot of inflammatory stuff and degenerative stuff going on in the plaque before it ruptures.

You can actually potentially have impact directly on that and, hence, stabilize the plaque, so to speak.

I'm just trying to explain what we are seeing here.

But what I can tell you, it's not pure metabolic effects, but it seems as if whatever Liraglutide does in terms of metabolic effects, that Sema does more.

Whatever Lira does in terms of non-metabolic effects, Sema does more.

All right.

Jo, did you have a question?

Jo Walton from Credit Suisse.

You talked about being more flexible on your pricing in Europe with the insulin portfolio.

I wonder if you could tell us just a little bit more about what that means, and how things are shaping up in Europe now that we've got a generic Lantus there, whether that's impacting general pricing.

You mentioned that one of the reasons of a slightly lower free cash flow, part of it was currency, part of it was a different working capital assumption.

Could you just explain what that is, what's behind it?

And finally, just going back to US pricing, Glaxo told us that they were entering prices -- they had contracts which were rolling over more than a year that they were seeing some visibility through into 2017 now.

They're in some ways in a similar position as you because they've got potentially a generic coming in, in their space.

So I wondered if you could give us any sense of how payers are thinking about 2017, what information they've given you, whether they'd be prepared to contract out of that, or whether they (technical difficulty) haven't got a clue.

Thanks, Jo.

Why don't I cover the comments on the pricing in Europe and then I think, Karsten, I'll leave you to comment on the working capital situation and then the impact on our free cash flow.

And then I'll comment at the end on how do I see US pricing.

In terms of Europe, if you look to the slide which we have in the deck on the Tresiba rollout, I think it's slide number -- it's number 8, that slide, you can basically see that there are in certain markets where we've changed our pricing strategy, for example, in Holland, where you can see we've basically gone from no penetration in a setup where we had an approximately 20% co-pay by the patient and we weren't able to get traction.

We renegotiated the pricing point in Holland and eliminated that co-pay and once that had been achieved we saw a markedly different take up.

And we have now within some eight, nine months after achieved 8% market share of the basal segment in Holland.

And I think you can also see that we have renegotiated the contract in Denmark where you can see that there's a spike up also at the end of the curve.

It was one of the first markets we went into.

So using a little bit more flexibility and not being as dogmatic as we were initially on pricing point for Tresiba in Europe has enabled a better uptake.

I think there is a very, very distinct correlation between the reimbursement situation and the market performance of the product.

And that's really what I was trying to allude to.

In terms of whether it has specifically been impacted by the launch of Abasaglar in the European markets, no, that was not the prime driver.

And I said in some -- I would say in some markets we've seen a modest impact from Abasaglar, but across the board it has not been a very substantial impact.

I think the first-quarter sales of Abasaglar totally was about $11m, so the impact overall on our business has been certainly modest in the first quarter.

Karsten, comments on working capital?

Yes.

So, as you noted, we're reducing our guidance for the free cash flow for two reasons, currency and working capital.

On the currency side a key driver there is of course the ongoing operating cash flow.

But then also linked into our working capital then we have the rebates outstanding in the US where we have more than $2b in outstanding rebate payments on an ongoing basis.

US dollar.

Yes, $2b outstanding.

Of course, at a lower US dollar that will negatively impact our working capital.

Then secondly on our working capital we have seen in some countries that are very oil dependent that the slight tendency towards longer payment ability.

It takes longer to get our cash out of some of these countries, nothing extreme or significant, but slightly longer payment schedules in some of the oil-sensitive countries.

And in terms of transparency on pricing in 2017 and rebating with contracts we've not experienced that any of the major plants was interested in making contracts for both 2016 and 2017.

So the contracting that we made last year was dedicated for the calendar-year 2016 and the contract negotiation will be ongoing the next three, four months on the basal segment.

And I think it's evident from the launch of the biosimilar version of glargine and that that is hinging upon that product coming to market from the major pharmacy benefit managers.

So unfortunately no two-year contract that gives increased clarity in the basal segment in the US.

Can I just clarity in Europe your more flexible pricing and eliminating the co-pay in Holland has that effectively brought the price of the more modern next-generation insulins down to the same so that you no longer --

No.

No, we're still --

-- you were still able to have a premium?

We're still obtaining a premium, but the objective in terms of premium was more aggressive, or you could say higher.

I think we readily pursued a level which was up to 70%, which sounded quite high.

In reality, the daily -- that would take the daily treatment cost to EUR2.00, EUR2.20.

And we had challenges in obtaining reimbursement for that so we took that somewhat down.

We are still seeing that the [Tresiba] daily treatment cost is at a premium to the Levemirs and Lantuses of this world.

So it's not taking it down to that level, but it's at lower premium.

Sorry, yes, Peter?

Thanks, Pete Verdult, Citi.

I suppose -- correct me if I'm wrong, but before we have a discussion about pricing and contracting for Levemir or the basals, or Xultophy for that matter, there's one piece of the puzzle that we still need, which is the DEVOTE results.

So, Mads, could you just -- two things.

Could you just remind us what is the earliest the market might see that data?

I know you're saying second H, but what is the earliest we might see the DEVOTE headline results?

And just can you remind us how you're handicapping the odds or the chances of showing a severe hypo benefit?

Because it seems -- we've obviously seen SWITCH 1 and 2, which are very encouraging, but some doctors are saying, look, there's more confounding factors in DEVOTE.

Physicians have much more choice about what they use on top of basal insulin.

And then just coming back to the AdComm, we haven't seen much from LixiLan, but we have seen an interesting use of words about no additional instance of hypos for LixiLan.

So can you just clarify some of the comments you've made in the last 72 hours in terms of what specifically of that clinical dataset for LixiLan that you are most focused on?

Thanks.

They were all for you, Mads, I guess.

Yes.

So, DEVOTE, we are starting to roll down or wind down the clinical activities.

That takes time in such a big trial.

Because we will have put together the required amount of MACEs, being above 630, to document the safety that is needed from a cardiovascular perspective.

In terms of the adjudicated blinded severe hypoglycemic episodes they are more prevalent than MACEs, so do expect anywhere from 750 to 800 severe hypos adjudicated.

And then the question becomes can we show a difference based on that amount?

Well, if there is a difference I can tell you we can show one, because it's a stronger power to detect any given percent reduction than the MACE power just by sheer numbers.

So essentially you can then argue is this more like SWITCH 1 or SWITCH 2?

Well, in both SWITCH studies we actually saw benefits.

But in some respects it reminds me a little more of SWITCH 1, because even though these are type 2 diabetics they've had diabetes for a long time and 60% plus of them are on insulin already, including actually prandial insulin.

And that basically means that we have a situation where the hypoglycemia occurrence is split between prandially-mediated and basally-mediated [severe] hypos.

But when that is said, do bear in mind that in SWITCH 1, which was pure-play basal [bolars] among all patients, we did see severe hypoglycemia risk reduction to 35%, highly significant, with the P.00 something before there was a digit.

So I cannot promise anything, but after the confidence that we've got from SWITCH 1 and 2 I think we are very strongly powered to see the difference.

Yes, and the other one was LixiLan.

Yes.

So at the AdComm, well, we all know the same because no phase 3 results have been revealed from LixiLan.

We also know that in the phase 2 trials they had a slightly different dosing regimen that they could go all the way up to 30 micrograms lixisenatide per day, but Lyxumia is only approved for 20 micrograms per day.

So the phase 3 dosing must differ a little from phase 2, so we cannot necessarily read out totally.

But I've also seen the same slide where they are basically saying we don't see more hypoglycemia and we don't see more weight gain.

Put it the other way around, they don't see an improvement in hypoglycemia and in weight.

And that's in my view the whole point of IDegLira.

That is actually to take the best of the GLP-1, which is a weight reduction and reduction of hypoglycemia, with the best of insulin, which is a powerful A1C lowering.

So we'll simply have to see the data before we can make predictions, but I would agree with Jesper that these are two quite different products.

And I think we'll shed more light on it in the next 21 days.

All right.

Hi, Nicolas Guyon-Gellin, Morgan Stanley.

Two quick ones, please, first on Levemir in the US.

I was surprised to see that you still have some positive pricing, so I think you alluded to 50/50 for the 11% growth.

So could you please elaborate on that?

And second for Mads again.

Regarding the landmark trial could you maybe discuss the pros and cons, or at least the risks, of moving towards a much more early- stage population with obviously so much lower A1C and much less cardiovascular events?

Thanks.

On the Levemir pricing in the US I think there was a slight positive benefit from price increases implemented in 2015 that hit the comparison numbers.

So I think the last price increase was implemented in August of 2015 and that has an effect in Q1 of 2016.

Mads?

Yes.

I guess it's the -- it's a useful discussion.

If you go early the cardiovascular system, including the vessel wall biology, is less disturbed, giving you a greater chance of having a signal-to-noise ratio that can give you a stronger reduction than if you go into very stiffened arteries with a lot of plaques present and so on and so forth.

So it's a trade off between going early and meeting more patients and longer exposure time, versus going slightly later, where you need fewer patients and less exposure time, but then again the hazard ratio might not be as magnificent as if you went early.

So what we are doing is we are investigating in great detail, I have to say, both the LEADER and the SUSTAIN 6 trial to see what are the predictors of the best possible response.

What about patients who had kidney disease versus those who did not?

So we're actually doing more analysis than you could dream of to make sure that such a landmark study is clinically relevant, but also in a population that can give us really robust [data].

All right.

Just to clarify that, price effect was quite marginal.

It was about just 10% of the total growth, so about a 1% impact, so it's a quite marginal price impact there.

All right.

Next question, please.

Yes?

[Mark Bussey] from [Picktay].

Firstly, congratulations on the LEADER and SUSTAIN 6 outcomes.

So you've got the results and, as you rightly say, you now move on to submission and approval.

What I felt a little bit more nervous about was when you said 'excitement', because some of us who've followed it for a while don't really like that.

So, with that, there's three questions.

Firstly, on the LEADER study, given the characteristics you talked about of the patients that had duration of therapy, a higher than average HbA1C, prior CV events and higher BMI, can you tell us how representative that is of the patients in the US on Victoza at present and, therefore, how applicable you think the data is to the label in general?

Secondly, [would that you] would expect a priority review based on the strength of the data that you're presenting?

And if you are why you think Lilly have been offered a standard review and whether this is a -- had any implications for the FDA's review of the cardiovascular safety.

And then finally, just on LEADER, are there any implications for the Xultophy panel in May?

Will we hear anything in May on that panel around the cardiovascular outcome?

And then just as a cheeky follow-on, on Xultophy, can you maybe talk about the types of patients you're getting in the EU and how these may differ from the patients in the label that you're looking for in the US?

All right.

That sneaked up to four questions in total.

Well done.

Well done.

First, Mads, the comment on the characteristics of LEADER and how does it fit to the current population of Victoza patients in the US.

Well, unfortunately, it fits relatively well.

By that I mean that we would have liked to have Victoza used as a second-line therapy already at this point.

But fact of the matter is that in most occasions it is third- or fourth-line therapy and something that is used mostly among rather overweight Americans.

And since it is third, sometimes fourth line, they will very often be above 60.

So even though these might be slightly more sick from a cardiovascular perspective there are clear resemblances between whom we actually treat and whom we enrolled in this trial.

In fact, when you move into people who have a certain age there is a very high prevalence of cardiovascular.

It doesn't mean to say everybody has had a myocardial infarction, but they fulfill some of the inclusion criteria.

So I would actually say that this is not a highly-selected population and that's also why we could recruit very fast, because it was easy to get the patients.

[Less] enthusiastic about the cardiovascular protective effect of diabetes care drugs than we are, as Eli Lilly didn't get a priority review for reviewing their cardiovascular data on the [STLC-2].

Yes.

Well, of course, I can't comment on the Impereg because I'm not privileged to know, but we will of course (inaudible) a priority review and then we'll just have to get back to you with whether or not we get one.

But the FDA, when you ask for one, they will look into what they perceive to be the rigor, or maybe not rigor, of a given trial as to whether they should prioritize having additional resources to do an accelerated review.

And that's something they will probably also look into for our trial.

For Xultophy, Mads, how will the advisory panel judge the CV risk profile of the compound given that it both have Tresiba and Victoza as active ingredients and with the limitations the blinded trial for -- of DEVOTE has for that assessment?

Yes, that is a really tricky question.

And my view would be that the LEADER data are under embargo until June 13, in the afternoon at 3 o'clock New Orleans time -- the FDA --

Because I have to say I don't want to comment on our dialogue with the agency, but you must imagine that the agency shouldn't go blinded into an AdComm.

So, yes.

And when it comes to Tresiba they have it and I don't, because I have no DEVOTE cardiovascular data and the FDA does, otherwise they couldn't have proved on September 25.

So I would expect actually very little on the cardiovascular side.

I think this is more a discussion of [new] product class that encompasses two biological [agents] in one shot.

And they will want a better feel for how and when and which patients to use such an agent.

Finally, Mads, any significant learnings from the launch of Xultophy in Europe?

And what kind of patients do we see adopting Xultophy treatment?

Yes, so it's early days because we only have very few markets, so this should be taken with some caveats.

But I have to say it doesn't seem to be directly cannibalizing what I would call the Victoza segment, the GLP-1 segment.

And by that I mean the biggest influence you can actually see is that, for instance, in Switzerland there's no doubt that the patients who otherwise could have gone on a basal insulin, or who need to further optimize from the basal insulin, they seem to be the ones that we're picking up with Xultophy.

So it is probably more in the insulin and insulin-plus space than it is already in the GLP-1 space that we see certainly.

And that's consistent, by the way, with our strategic (technical difficulty).

That's also why we typically measure it as part of our insulin franchise, the Xultophy product.

And just being very specific on Mads's comment regarding Switzerland, you can actually see from the same Slide 8 I referred to before that you actually have a plateauing out of the Tresiba market share in Switzerland from around 20 months after launch.

And that was -- that coincided with the launch of Xultophy.

And I think the most recent data from Switzerland shows that we have in the high teens of market share in value of the basal segment with Xultophy which you, actually, in all fairness could add to the share that has been achieved by Tresiba.

So together Tresiba and Xultophy in Switzerland have taken close to the majority of the basal market in Switzerland and certainly made Novo Nordisk the overall market leader when you include Levemir in that market.

So we think it's a fantastic portfolio to have together, but you should see them co-exist.

So should we have one last question?

That doesn't seem to be the case.

Fantastic.

Fantastic.

Thank you very much for your interest.

We look back to come back in August with the half-year result.

Thank you.