諾和諾德 (NVO) 2016 Q3 法說會逐字稿

Hi, everyone. (technical difficulty) Either way, I'm delighted to introduce the Novo management team. Without further ado, I'm going to hand over to Lars F. to walk through the presentation and then go to Q&A. Thank you.

Thank you, Pete and thanks to Citi for hosting us. We're glad we made it in. It was a bit difficult, but I guess it was the same for all of you, so I apologize for running a bit late. We just had a quick bite for lunch. So, you all know the disclaimer here about forward-looking statements, so I will not talk too much about that, but be careful. And I guess we will talk a lot about long-term financial targets and the slide is particularly important in that respect.

What I will talk a bit through is the safe development. Mads will come back and talk a bit about news from (inaudible), and then Jesper will cover the financials and not least the long-term financial targets which I assume there will be quite some questions around. I'm the incoming CEO from January 1 (inaudible) organization [party] at the bottom. Also, just note that we are doing some restructuring right now, so we're in the process of laying off 1,000 people. So that's just (inaudible).

We had a relative good report of sales here after the first nine months. We are pleased with that. Overall sales growth was 6%. I'll get a bit back to US on a later slide and also to China. But as you can see here, 2% growth in Europe, pretty okay compared to the growth rates we've seen in the past. International rates are growing by 13% and strong rebound of our Chinese business and also healthy growth of Pacific led by Japan where we continuously see strong performance of Tresiba but also Victoza and the weight franchise.

Talking to the US growth, we have seen unfortunately during the year declining quarterly growth pattern. We do continue to see strong growth of the new launched products Tresiba, Victoza, and Saxenda, but we're also impacted by competition with the modern insulins where we see low growth and price deterioration on the NovoLog and NovoLog mix franchise. NovoSeven is also impacted by [8, 9, 10] a number of trials going on in the industry that creates some pressure.

When we talk about quarter growth, it's encouraging to see that we have turned around growth in China. Remind you that last year we had quite a low growth pattern. This has been turned around. We see a slight increase in market growth in China, and we are taking a larger share of that growth with our portfolio of modern insulins.

We continue to see declining human insulin sales from [Novo] based on local competition, and we are now rolling out these provincial biddings which will impact pricing somewhat, but despite that, we see a quite strong momentum in our Chinese business which we are pleased about.

When we go through the products growth, continue to be driven by next generation insulins, Victoza and Saxenda. You can see that Victoza together with the other tier 1 based product, Saxenda, Saxenda is contributing 49% of growth here in the first nine months, so very strong GLP-1 momentum. We also see confusion from our growth hormone business, but the last part of that is driven by the Q1 rebate adjustments in the Medicaid segment.

The hemophilia segment -- the hemophilia decline of 1% is impacted by the deteriorating NovoSeven business primarily in the US but compensated by NovoEight growth in the markets where we have launched NovoEight. If you look at the GLP-1 business here, Victoza very strong market growth. As you know, the growth of the GLP-1 segment in the US has now come to command more than 10% of [overall] diabetes market. And in this market we see that Victoza continued to have solid total script performance, but as Eli Lilly come in, obviously we lose all our market share, but we are still the absolute market leader with 51% of the market. You can see that it's a relative steady growth here, so we cannot yet from this detect a leader impact in the US.

Moving on here. This is the rollout of Tresiba and we are now in 47 markets. It's the same pattern we've seen for long, that it's a solid uptick. It's encouraging to see that in Europe where we have gotten a new pricing policy, so we're still getting a significant premium compared to the older generation products, but less aggressive than what we launched, and that plays out positively in markets like the Netherlands and Denmark where you can see that after lowering the price premium we see a very strong uptick in these markets.

Japan is now at 40%, so with Levemir we have more than 50% of the base segment value in Japan. Bear in mind that the markets where the trend curve goes flat, those are markets where we have also launched Xultophy or Ryzodeg. So continued strong performance of Tresiba.

Here we have the US where we are now can see been on a commercial for dedicated launch for nine months, and we have a market share of 4%, so we're still heading towards the 5% marketshare we have guided towards the end of this year. And adding up the total base of the presence here, we have managed to increase our base of marketshare by a couple of percentage points since we have launched Tresiba.

We have good coverage. We have around 75%, slightly higher in the commercial segment, slightly lower in Part D, and still the U200 presentation is by far the largest part of our business. With that, over to Mads and an update on SUSTAIN 6.

Thanks, Lars. Pleasure to be here as usual, despite the situation this quarter. What I will show on the first slide is basically what according to media and also physicians was the highlight of the EASD conference in Munich last month, namely the notion that SUSTAIN 6, the final of the semaglutide phase 3 trials, the cardiovascular outcome study, we were able to show no less than 26% and highly significant reduction in cardiovascular events in the form of either cardiovascular mortality, MI's, or strokes.

And this was simultaneously published in the New England Journal of Medicine and the number needed to treat for only two years is 45 to avoid one incident. So this is pretty competitive even compared to the days of statins where they were treated on the background of nothing. This was of course on the background of statins and other drugs. Next step is for us to submit the data to the FDA and EMA later this quarter followed by we hope a 12-month breaking period.

Now this is also been an occasion for us driven by two factors, an internal factor that some of the products, including semaglutide that I just showed you, has shown greater data than was expected in the target product profile. So withstanding the situation where we have had to elevate, strategically speaking, the innovation threshold for new projects, research and development driven only in part by you can say the success of the new generation products we are about to launch, but at the same time the payer environment that talking a lot about the means that in mature areas, such as insulin for instance, it is really a question of having a very high innovation threshold to justify new projects.

So what we have done in the [argumentation] management team is, together with executive management, is revisit the research strategy to the extent that we are driven by more and more external collaborations, co-creations, alliances, and license. Will seek to move into also adjacent areas, areas that are part of and yet go beyond diabetes and these include NASH, non-alcoholic steatohepatitis, proved to be kicked off by a phase 2 trial with a semaglutide later this year, but also the buildup of a research pipeline. But it also includes diabetic kidney disease, diabetic nephropathy, and cardiovascular problems associated with diabetes, again spear headed by some of the data that we have from the [GO-1] portfolio, but seeking to cherry pick projects that can be developed by our organization in areas of higher unmet need into the future than, for instance, blood glucose regulation.

Now, other things have happened over the last quarter, quite a lot actually. We have managed to submit supplemental NDA's or variation applications both for Victoza in the form of cardiovascular outcomes driven by the leader data and for Tresiba in terms of hypoglycemia improvements as shown by the blinded switch one and two studies, and these have been submitted to the major agencies, and we expect an action date 10 months later, meaning late summer next year.

Also, certify as is the case for [IDegLira] (inaudible) has witnessed a three-month extension of the review implying that we expect an approval towards the end of this year. Unfortunately, on the other hand, we have seen a complete response letter for fast-acting insulin aspart about which we are of course very sorry it has to do with the assay methodology and immunogenicity analysis. That is something that we will work closely with our regulators in the United States to rectify as soon as possible.

Semaglutide undergoing the Pioneer program in Phase 3A development has kicked off no less than five additional trials over the last quarter, and that means we are very well on track both with the ongoing trials in terms of recruitment and overall the program as such.

And, finally, I have shown this systematically quarter by quarter hoping to check off as many of these boxes as possible, and apart from the fears for the [prospecting aspart] complete response letter, we have successfully, I would argue, made a number of milestones, but more importantly is the milestones that are still to come and they include [divoke] data where you will receive headline data both on [cardiovascular] outcomes and (inaudible) hypoglycemic events later this quarter and, importantly, we are awaiting a certified approval in the US and then next year of course a lot of focus will be on the label upgrades for products such as Victoza and Tresiba. So I think I will keep up with that and let it over to you, Jesper, for the financials.

Thanks, Mads. Just first a summary slide on the first nine months of 2016; 4% reported sales growth underlying 6% in same currencies, gross margin and vary slight deterioration will be cause by bringing new production volume on stream within diabetes care [feeling]. Also, we do have a slight negative mix impact which, despite having Victoza as an increasing part of our overall turnover, we have a decline in NovoSeven and Tresiba is still not up at the average. It will come over the next couple of years, but initially it's still not positive for mix, but it will become as volume growth.

Also, highlight in terms of price. We have a very marginal positive price impact the first nine months of this year, and that is actually slowly coming from the effect of the (inaudible) price adjustments for prior years which have been booked in 2016. If we look to the other cost lines. Sales and distribution costs only growing by 1% primarily related to an expansion of the sales force in international operations to the tune of 250 people or so in the sales force in international operations, but also some impact from the promotion of Tresiba in the US.

In terms of research and development, there is steady development in line with sales positively impacted by the completion of a number of trials like (inaudible) and SUSTAIN leader and then being impacted by research and development costs, research costs including cost in relation to layoffs which have been taken in the third quarter in this line to the tune of DKK150 million or so.

In terms of admin cost, steady development 3.4% and really been driven by expansion of offices in international operations. Other operating income, keep in mind last year we had significant nonrecurring income primarily relating to the divestment of 75% of the shares, and in IT, and if you adjust for those nonrecurring -- income then you get to 7% recurring growth in operating profit on 4% sales growth.

Financial items [most improved] this year. Interesting in a year where we have relative stable currencies that we still have a negative financial (inaudible). That's really an effect of the interest differential we see between especially US and China compared to the European and ends when we sell our US dollar and our Chinese yuan hit, you get that deduction in the value that you actually get for them when you realize them, so that is actually a key element here, but that's also an element from emerging markets as I will refer to shortly.

On the tax line, slightly higher effective tax rate, but that's really more a reflection of last year we had the divestment of IT that was [except] from income tax that gain we had should adjust for that, we are more or less at the same tax level as last year. So, a 10% growth in net profit and 12% in EPS. So steady development in 2016 so far.

I actually covered the main part of that. I think interesting here is you see that the spot rates are actually moving in a favorable direction for us looking into 2017. We have given an estimate of around flat impact from currencies next year, but you can see that dollars and the emerging markets are looking slightly better but, of course, the British pound is a challenge and especially also managing the consequence of very significantly lower pharmaceutical prices here, Britain will be challenged as we go into 2017.

In terms of the outlook for 2016, we have updated that on two key parameters. The first one is that we have lowered our estimate for full-year sales growth in same currencies and that's really a reflection of a lower than anticipated performance on our portfolio of modern insulins in the US where we have had less traction than what we anticipated and, as a consequence, we have lowered the interval to be 5% to 6% and with a similar effect on operating profit growth taking that down from 5% to 8% to 5% to 7%. I would like to highlight that the expected redundancy costs in relation to the program that Lars talked about [DKK600] million that has been included in that guidance. Currency effects is slightly lower than at half year. Apart from that, guidance has been maintained for major [parameters].

We've also given guidance for 2017, and it is apparent when you give guidance for 2017 [insists] that the growth in our business in terms of top line is expected to be low single digit growth and the operating profit growth is going to be flat to low single digits. In that picture, a long-term financial target of growing operating profit 10% per year looks somewhat distant from the actual performance.

As a consequence, we have used the time since half year where we, as promised, provided an update on what would be the pricing impact on our US business from the contract negotiations that have been completed, and remember just two days before we released our half year result the formulary precision of both ESI and [CBS care] (inaudible) was released, so it was quite recent that the update on the US pricing situation was available when we gave that update, and we said at that point in time that we would have 2% to 6% negative impact on prices in the US.

We now firmed that up we indicate that we're going to have approximately 5% negative impact on our prices in 2017 compared to 2016, and as a consequence of that, we've also decided to update our long-term financial targets and in the longer term perspective we estimate that we will probably have 2% to 3% negative pricing impact on a global basis beyond 2017. As a consequence, the target when you have a lowering of your prices, you will have a significant effect on operating profit to the tune of double the effect of sales and in terms of growth rate and consequently the target has been adjusted from previously being a growth target of 10% to a new and updated target of 5%.

I'd like to highlight that this has been a difficult process for us to acknowledge that it will not be feasible for us to operate with a 10% inpatient level, but the reality is when there is a significant difference between the landscape and the map you are using to navigate in that landscape, then you just at a point in time have to realize that you have to provide your investors with a better map for where the landscape is heading. And I think looking at the pricing level we are seeing in the US and the expectations we have for 2018 price discussions, I think this is a more realistic level to aim at and, hence, we have settled for the 5% growth.

I'd like to specify that the 5% is seen as the growth in the years from 2016 onwards compared to 2015, and it's seen as an average over the period. So, when we get to 2019 hopefully or 2020, we will hopefully be able to say if you do the mathematical average of the growth that we are realized in 2016, 2017, 2018, 2019 and potentially 2020, then that gets to an average of 5%.

There are no changes implemented for the two other targets. We still believe that those are realistic performance levels in terms of our ability to return on the invested capital and to convert cash -- or to convert earnings into cash. So those targets remain unchanged.

In addition to the -- we should also mention that in addition to the pricing effects on the US business, the other key effect that we see is slightly changed compared to the February guidance was that the impact on our NovoSeven franchise from competitive compounds have emerged faster than what we anticipated, so it is gradually actually hitting our reported numbers as our NovoSeven patients are recruited into competitive trials and typically patients with a tendency of having a high daily usage of NovoSeven.

And then finally and rounding up, we do believe that we have a unique position for Novo Nordisk still within diabetes care despite the challenges we have on price in the US and our strategy will still be one that focuses and takes its starting point in our market share in diabetes. We are the market leader in diabetes care 27% market share. We have a market that continues to grow globally within insulin. We have a significant annual growth currently of GLP-1.

We have a very strong market position in insulins, and we have an absolute leadership position within GLP-1. We have a portfolio of new compounds coming. We are expecting to file semaglutide before the end of this year as a hopefully new market leader within GLP-1. We have a combination product in Xultophy. We have been successful in launching Saxenda (inaudible) into the obesity treatment and today have the market leader in the US with Saxenda, and then in addition we have a number of other compounds within our biofarma franchise.

So, with those comments I will hand over to the Q& A and we are ready to take your questions. Please at the start, state your name and the company you represent, and please constrain yourself to two questions per participant in order to have everybody given the chance of asking questions.

Simon Baker from Exane. Thank you.

First question on cost savings. Firstly, on the more quantitative aspect. You told us the assumption of costs of achieving the restructuring in 2016 guidance. Can you tell us what costs, if any, will be taken in 2017, and also give us an idea of the timing of the benefits from that cost-saving program, and also the assumption of cost savings within your new long-term guidance target? And then, thinking about this in a broader, more cultural sense, this obviously marks a bit of a change from what we expect from Novo where, partly because of the lack of need you have not really felt any pressure to do cost savings in the past. So I'm just wondering from a cultural perspective how do you go about not so much imposing, but creating this mindset for a newer world going forward, where cost savings becomes an issue, which is not really something that one feels is in the Novo DNA historically. So if you could give us some ideas on how this mindset is practically implemented in the group going forward that would be very helpful.

And then, secondly, on R&D, if you could give us an idea on the costs and timings of some of the non-diabetes research, I was thinking particularly about semaglutide and the potential moving to cardiovascular disease? Thank you.

Okay, thanks.

If I start on the specific cost saving initiative for 2016 and 2017 and then maybe Lars, you want to comment a bit on philosophy and how you see us managing Novo Nordisk going forward.

First, before we go into the specific details of 2016, I'd like to highlight the way that Novo Nordisk has achieved performance where our operating margin has moved from below 20% when I took over as CFO in 2000 to an operating margin of about 45% in the last nine months, that has not been one which has been characterized by being lenient with cost. We only make these improvements in operating margins if you are diligent in how you utilize your resources, but of course it is much easier to work and make improvements on those ratios when you have a top line growing 10%-plus compared to an environment where the expectations are in single-digit range. So that is acknowledged.

In 2016, to be very explicit, the cost-saving program of the 1,000 people which are being made redundant, those costs are to the tune of DKK600 million and approximately DKK200 million that has been charged in Q3, and then there is approximately DKK400 million that will be charged in Q4, so that's the specific improvement. As for the guidance for 2017, does not assume any extraordinary charges. So the guidance we have given you of low single-digit growth in local currencies on sales and flat to low single digit growth in operating profit is based on assumption of no large extraordinary programs. I think we will diligently work with our [core structure] in 2017, and that is incorporated in those numbers.

I don't know, Lars, if you want to comment (inaudible).

So basically to the cultural dimensions, (inaudible) point that a company that has been growing by, say, 10%-plus a year, that agenda is about how to best support that growth, and that's about mobilizing everybody and growing and moving forward. In a lower growth environment you need to have a slightly different mindset to make sure that there is a more, say, prudent way of handling costs. We still have a situation where we're going to deliver very solid growth in volume, hence we are going to serve many more patients day in and day out. That's really what motivates (inaudible) of Novo Nordisk.

So I think the message we can give to our [initiatives] is we're still going to expand our leadership. We have the best portfolios, so that's a very encouraging task in front of us, but we are doing it in an environment that's more focused on pricing, hence, we need to tighten the buildup, and that's actually been seen as a quite welcome exercise by the managers and there is some (inaudible) in doing that. Then, also over the years I believe we have made to become a bit too complex in the way we operate. So there is also an opportunity to simplify how we work, and we have come from and model where we sell and launch a few products globally to having a much broader portfolio. We take a more segmented approach in individual markets.

Just look at the European markets. It's quite different with products being providing [market] access, so we need to empower the organization and putting more responsibility out on the front line. So decentralized empowered way of working, and that actually releases a lot of energy and also creates an opportunity for the (inaudible) complexity in how we operate. So from a cultural point of view, I think there is a good opportunity for the Company and actually adapting to the new [reality]. And from a (inaudible) point of view, I actually see a lot of employees being energized by that because it takes a bit more accountability at the local level to execute in this new reality. So overall a welcome change (inaudible).

Cardiovascular program, what do you expect -- when do you expect start and what would be the cost magnitude?

Yes, so quite clearly the indications we have from both the sustained program, the leader, and even academic studies with the Victoza within NASH is that there are multiple diabetes end organ or target organ diseases that may limit themselves to treatment with a 2:1 analog like (inaudible), including, as I mentioned, cardiovascular disorders and diabetes, including kidney disorders, diabetic nephropathy and NASH, and of course these are very different areas.

So in the case of NASH, we have basically decided to start with a Phase 2 trial that has been kicked off after negotiations with the FNDA and other agencies a little bit later this quarter which will seek to define, according to the NASH guidelines, the best dose according to biopsies and histopathology, and that will then be followed by Phase 3 program, pending, of course, the outcomes of Phase 2.

NASH is an underserved area. There are no medicines approved with a label for the NASH disease even though it is clinically highly important. So this is forming part of the strategy, spearheaded by semaglutide, and the cost associated with such a program are not humongous because these are not classic outcome studies where it's a big numbers game; this is histopathology-based biopsy assessments plus a few other things, and that means that we are not speaking many thousand patients for many years but a few thousand patients, maybe 2,000 patients, for a year and a half. That's the guideline. So that's not the most costly part, even though it does take time to accrue these patients with the biopsies and so on.

When we look at cardiovascular disease, it's more like looking into the leader game, where if you take leader as a proxy, here we had 9,000 patients on average for 3.8 years and the cost of the trials were $250 million or so. So these are costly exercises. On the other hand, our assessment of the internal rate of return on such a project, if you have a good product that bodes well for the data, is highly attractive.

In terms of diabetic kidney disease, we've never done any property study since [restrictum], even though there's a big tradition for doing so at the Steno Diabetes Center which is, for a month or two, still a part of the Company. So there's a lot of expertise in the kidney field and typically these studies are of a magnitude that is similar to cardiovascular outcome studies. There we are contemplating on potentially also initiating a nephropathy study, but you will hear more about that later.

US basal pricing; your comments alluded to you believe you're through the worst in 2017 and it gets better in 2018 on a relative basis, if I understand that correctly. So if you could just give us a bit more color on a couple of parts. Is there any color on when net Levemir versus net Lantus (inaudible) in terms of closing that gap, how far are we through that? Tresiba, you've commented in some channels was priced similar to Levemir; so where are you on Tresiba being able to achieve premium pricing? And then to wrap it all up, we've talked a long time about short-acting insulin having found the floor. How far away from that in [basal] and do you think we get there? And if not, why not.

And then a second very quick question just on -- I'll leave it at that.

All right. US basal -- of course I'm not party to Sanofi's net prices, so I can't comment on the net prices. What is our assumption is that it generally -- the formularies for both Lantus and Levemir have access that the prices are not too dissimilar. I would assume that, given the size of the Lantus brand that their rebates are still slightly lower than ours, but of course it's apparent that they have paid a rebate price to get access for the (inaudible). I think that's very likely. In terms of the premium for Tresiba over and beyond the price of Levemir, what it seems to us when we look compared to Levemir is that it has approximately the 10% premium that it also carries in list price that is pretty receptive of the net prices that we have, also reflecting the superior profile.

Then your question was, if we look to 2018, what kind of reassurance can I provide you, how the negotiation will turn out in 2018? And I think that's very difficult to negotiate not taking place. It is clear that I think a situation has been established for 2017 for access for basal insulin in the commercial labs with both CVS and with United Healthcare Group. I think there's a lot of challenges ahead in terms of switching patients from a covered basal insulin to -- from a -- not in future covered basal insulin to the future covered. Some interesting challenges for the patients currently using glargine in a vial, where they have to find alternative, either switching to pen-based administration of a glargine or as an alternative use Levemir in a vial: it's an interesting opportunity for us. I would assume that most of those opportunities will occur towards the end of the year and one could even speculate that there will be some glargine holding in the fourth quarter in order to defer the point in time where those changes are actually going to take place. But I think it's going to be a very late December and then January, February where those changes are going to happen.

I think I'd like to highlight that it's the commercial [lives] where solutions seem to have been found. I think what will be the first half of next year's focus of the negotiation is going to be the Medicare Part D. The use of [abaticlar] is unclear and I think those negotiation challenges are ahead of us. I think the impact, given the size of that market compared to the commercial life, will be lower, but there is no guarantees (inaudible) in terms of prices in front of negotiations.

In terms of short-acting insulin, I would say most of that market has now reached a situation where patients are either locked up with Humalog or with NovoLog and it's actually been relatively stable over the last couple of years; and no significant, as I see it, incentives for plans who have quite effective rebates in that market to shift the cost to another one given the challenges involved in the changes.

I think from our perspective, I think there are plenty of challenges ahead from the switches that need to take place for patients. I take some comfort in that we have actually been able to obtain reimbursement for Tresiba for quite a substantial proportion of lives, close to 70% on the Medicare Part D and up around 75% for the commercial lives, and I see that as a desire from the plans to actually have different offerings. But of course, as I also alluded to, in terms of the premium that we are able to give on Tresiba, that there has been a rebate price for us to pay in order to have that access. So I think there is a willingness to have diversity. I think you have got to have both vials, you've got to have vials with the basal insulin, you've got to have devices -- I think there will be diversity. I would also hope that the filing of the switch trials for us will further solidify the need for having low-risk basal insulins available.

Mads, you have additional comments to that?

No, only that when we speak to the physicians, admittedly not the GPs in the Midwest, but the [cupidity] leaders and so on, there's no doubt that they see it as important that these hypoglycemia data become more evident to the US physician population and the way of getting that evident once you're in the doctor's office is by being able to talk about it, so we look very much forward to the action data.

Peter Verdult, Citi.

Two questions: I know Jakob is not here, but the essentially over and above the job cuts that have been announced, I know you've only been at the job a short time, are there any other changes that he has made in terms of commercial business model in the US? Is there anything you're willing to talk about in this forum, changes that he is making? I'd be interested to know about that.

And then secondly for Mads. It's hard given about demonstrating value. Just in relation to the programs that you have initiated with IBM and your competitors, Google, can you just remind us again the scope, the breadth? Are you accelerating efforts to get this data? Just wondering what you're trying to achieve with this to offset what is clearly increasing pricing pressure? Thank you.

I guess start with the commercial model. So what we've done so far as part of these 1,000 people being laid off, half was in Denmark and the other half, the majority came from the US organization. And there we have reduced quite some in marketing and we've also cut part of the sales force directed towards institutions, where there was limited value from having a sales force. But it's clear that we believe we can improve our performance in the US by looking at our commercial operations. We can improve the collaboration between the sales force, the medical people, and marketing to make sure they are better focused and better aligned (technical difficulty).

Then at the same time, you can have a discussion about what drives performance in the US. Clearly, the business is becoming increasingly B2B-type business, where there is contracting and the payers are gradually becoming better at controlling prescriptions. That leads to some reflection about what are in the commercial investments you need to make, because obviously when you launch new products you need to have (inaudible) creating a preference and approval in the market. You need to do some (inaudible) to make sure that script awareness and put in the market, but you also have to balance that with what is the amount of rebates you're giving to get access. So a key priority for [the geography] in the coming months will be to determine what is the adequate, say, allocation of these resources and [S&B] is the biggest fixed cost item we have in the US. So there is some opportunities for both optimizing what we have.

And we can see in China we have turned around performance and we have managed to give all these different functions much better lines and also having a much more detailed and segmented view of where are the opportunities in the market and then go in a more coordinated fashion outlet so that we can do also in the US. And we hope that would make improved performance, but that is also a cost question. What is the right investment at a time where more and more contracting determines how prescription behaviors?

So that's a very broad question, Peter.

There are many aspects of working with people like IBM Watson. Let me just mention for one of them that is the obvious one that is seeking to get the best out of the individual molecules, such as (inaudible) by trying the right guidance via connected devices coming off with the input as to the right dosing for each individual patient in the right moment based on this huge amount of [unstructured] data that is available in the (inaudible) database; or the (inaudible) database from IBM Watson. So that's one element we're working on, starting to do connective device clinical trials where we actually get our feet wet and get this kind of data so that we can use it and ultimately support our products to get the best out of the best molecules.

Other ones are simply getting real-world data so that we can get on par with the PBMs such that we have our own real-world evidence about how does, for instance, a molecule like Victoza perform with efficacy and safety? And let me give you one example. That's the Optum database, where we have done this big forward-looking [metcore] study reconciled over five years. That kind of protocol that we did together with the Optum database and in agreement with a date, that kind of thing is a lot easier to do when you're working with people like IBM Watson who have a unique access to 300 million lives, actually; then you can also use [persisting hypotheses]. For instance, if you have the hypothesis that certain patients are going to develop diabetic nephropathy and these are the ones that you want to prevent the disease in by arguing that high-priced medicine should be used prophylactically in those patients, we can actually identify risk populations using this kind of approach.

And then, finally, for clinical trials, we similarly, if we want to go into new areas such as NASH or whatever it might be, we can get a good idea as to which kind of subpopulation is relevant for our trial. And that means that we can get either a bit of power or a small study population and do things cheaper. So there are many things to be said and Management is still working a lot on this evolving strategy.

Tim Race here from Deutsche.

First on just the components of your long-term guidance. Just trying to understand better. Obviously, the long-term [tell] for your business is diabetes and you've obviously scared the market with what you're expecting in terms of the growth for the next few years. So can you just help us understand whether growth hormone is a one-off hit in 2017? Or whether it is sort of a debt spiral for that product going forward? And I think you previously said you expect NovoSeven to decline by 50%. Is that included as a full 50% in that four- to five-year guidance horizon? And also just some of the more positive aspects: what are you including in terms of growth from the leader study, for example, on Victoza and any upside from that?

Then maybe another question on big pharma and M&A. And typically, historically, when you've had consolidating buyers and you have had a change in market environment and lower growth environment, you either need to innovate or buy; and essentially you're not quite at that stage yet, but what is your policy? You put a new CEO in terms of Lars. You've worked in M&A for a while. What is Novo's long-term policy on M&A? And also is it to enhance profits or is it to enhance pipeline?

I think we better let the new incoming CEO answer that question on what is his strategy on M&A; then I'm going to find a (inaudible). In terms of the growth components, I highlighted when we said what are the pricing impacts for 2017 that we saw a negative impact to our growth hormone franchise in the US specifically and that was in relation to a higher proportion of the total volume of business that was flowing through high control formularies. And I think we will see some effect of that going into the subsequent years, but I would see an improvement relative in our growth hormone franchise in the US in the years ahead. I think the numbers this year, you have to meet them with a lot of degree of care because they are distorted by a positive DKK600 million correction to the prices in the first quarter of this year, and you have to adjust them out to get a better feel for what the underlying performance is of our growth hormone franchise in the US.

As for NovoSeven, we previously estimated that approximately 50% of our business was at risk from competition from 2008, 2009, 2010 if and when that product comes to market; and as I just alluded to, we have already seen the effect occurring from second half of 2015 and into 2016 and out into the [way] that it will gradually impact our business in the following year. And that has been assumed in the targets that we have updated now. I do believe that we still have very substantial growth opportunities in our diabetes care franchise.

In terms of what we have assumed, it's interesting to go back to the spring of this year where we said we have not included any outcome of the leader, and then we had the pressure from the market of wanting to update our long-term financial targets in the opposite direction. And I think I would like to use this opportunity to just state that I only anticipate that we will change our long-term targets when we reach them. That's been the tradition for 20 years. This is the first time ever we have had to update them, but I do believe that, that was necessary in the current market situation.

As to what is included in the current outlook we provided, we have assumed that everything that we know and we have reasonable control over, i.e., for example the switch data and the filing of them, the leader data and the filing of them, that we've assumed that we will get a regulatory change of our label based on that. We have not assumed any significant changes in treatment guidelines other than subsequently following a label uptake could have a positive, because there you are dealing with factors which are beyond our control and cannot be factored in as certain. So basically we have assumed the knowledge we have now.

With that, of course, is also the final outcome of the [devote] trial and maybe Mads can comment on that later. Of course, whatever goes there could be positive, could be negative. We have not factored in. We're taking the knowledge we have as of today and assume that will be applied in the portfolio. We have of course also assumed that, as we have completed the pivotal clinical trials for semaglutide we're assuming that we are able to file that and get the product approved, so that would be the base logic behind what would've been [prudent].

Lars?

We know today is a success story of solid organic growth, but as we see that there are [innovation] (inaudible) goes up, when it comes to the next generation instrument (inaudible) we have to broaden out and, that's basically what Mads presented in the strategy. And if we then venture into NASH, CV, kidney disease, based on known molecules, those are adjacencies that are relative lower risks and we can, by adding some competencies, we can handle that. But as we want to grow in those areas and look for more molecules and potentially also get a bit of further away from the core, understanding the area becomes increasingly important. And the learning we have had from the past when we expanded is that we expand growth out in a new technology field and new disease area, it's harder to do it organically. So we have to realize that when we have to broaden our growth platform and if it becomes a bit further away from our core, then it makes sense to consider acquisitions.

But they should be seen in the light of adding growth more than taking, say, cost synergies out. We have a quite focused infrastructure today and we can of course leverage that further, but it's primarily in the area of adding growth that we would be looking and again that can be done in terms of in licensing product positions, but if you move into areas that are slightly outside of our core or as [Bane] called it, more steps away from the core, then it becomes interesting to consider it as an acquisition because you would get both the asset but also some of the knowledge required to be successful and not having to build everything from scratch.

Nicolas Guyon-Gellin, Morgan Stanley.

Just a quick follow up on M&A, if I may push you a bit on this one. Could you elaborate on bolt-ons or large-scale M&A? And particularly, in case you are not successful in turning around the business? And, second, more formats with semaglutide and the landmark trial in the context of the updated R&D strategy, how did that trial meet the new bar for innovation for R&D? In other words, does that make sense to run such a long and expensive trial at a time where payers seem quite reluctant to accept the CV benefit? Thank you.

So to elaborate on the M&A, you said the word of turning around the business. I think we have a quite strong portfolio of products we are rolling out, so we have a quite [limitless] pipeline. Also, the US is doing very well. In the US we have a lower price point but still we expect that we can take volume. So, I still think we have a strong organic business. So in that context, bolt-on acquisitions are more realistic than last conforming (inaudible). So I think that's -- we are on to that.

And I think in reality you are seeing a gradual diversification of our business towards having a bigger dependence on emerging markets to provide the growth, but that's also where we see the volume growth in patient numbers. And we have the best portfolio in insulin, we have the best portfolio of GLP-1. It makes sense for us to focus our strategy on diabetes care. That's going to be the cornerstone of what we do, and then we're going to bolt things on to that.

And then I will follow up on the CV. You have to bear in mind, because I fully understand your question, but there is a sequence happening when a new paradigm emerges and the sequence starts with the data. Once you have the data, whether you are Eli Lilly and empagliflozin or whether you are Novo Nordisk and lira or (inaudible) and cardiovascular improvements, from there on, you actually publish the data, you submit a supplemental NDA for approval, and then after that you can be lucky or clever and hope that the true experts, the thought leaders who create the treatment guidelines both within diabetology and within cardiology actually adopt that new labeled information into the treatment guidelines. And of course the further you progress down that sequence of events the more likely it becomes the PBMs are going to have to listen to you and make sure that you are actually willing to pay for that kind of innovation.

And right now we're only at step 1. Neither we nor Eli Lilly actually have the label indication for secondary prevention of major adverse cardiovascular events, including mortality. That, we hope is coming next summer, and in the case of our friends at Lilly may be very soon, time will show. And in that context, it is absolutely imperative that using -- if you had a million dollars, like $300 million, $400 million spread over maybe five years or so, to do a major trial that gives you a whole new indication area so that you're not only a diabetes drug -- I was actually at a cardiology advisory board exactly a week ago last Monday and most of the cardiologists, when they saw some of this data they said, this is not a bad diabetes drug. This is a cardiology drug with spillover into diabetes. So you can look at these things in many different ways, but I can tell you, the IRR assessment of this kind of project is actually more favorable than a very early research project because of the much higher risk.

Agreed.

Jo Walton from Credit Suisse. Two questions please.

Your capital markets say in the past you have shown us data that people start taking insulin around the age of 60. If Hillary Clinton gets in, one of the things she suggests is that she's going to lower the age at which you can start going to Medicare to 55. If we started seeing that, what might that do to your business because presumably it would push a fair number of people who are commercial today into Medicare?

My second question is about you've given up on oral insulin; one of the things that you said was in the increasingly challenging commercial world. I wondered if that would also have some implications for oral semaglutide as well, because presumably you're going to have some issues that you have to give an awful lot of that and will payers pay a premium for oral convenience if it's not materially different from the injectable product?

Lars, will you give a stab at the implications to Medicare if the bar is lowered from 65 to 55?

Yes, I would. I don't have a number of the impact, but clearly that would, of course, change the pricing scheme. I don't know what the impact is.

From my point of view, I think it's unlikely if you think about the financial consequences of it. In terms of patient volume, it's positive. I think what has been interesting for me when I look at the implementation of the Affordable Care Act how the actual impact of patients [figures] have been. We've not seen any spike of the insulin volumes in the US following from that; actually getting to the tune of almost 30 million people more under some kind of insurance coverage. So I'd be a little bit hesitant from an investor perspective to expect to see miracles, but it's probably something that will be positive to the insulin volume growth and primarily tied to basal insulin. That would be my broad feeling.

So, first of all, if you look at it from a macro perspective, then of course it's a little bit odd that people are living longer and then you want to start to insure them earlier on, but that's just a side comment to the entire question.

When you look at the insurance schemes and the contracts in place, then you have also to remember that the negotiators in Part D are exactly the same as the people negotiating in commercial. So it's the same entity as UHC, ESI, CVS, and so on. So when we look at our pricing, it's not too dissimilar between those two channels. There is a doughnut hole in difference from the statutory pricing in the US, but apart from that, then it's actually the same negotiators on the other side of the table.

Oral insulin implications to our (inaudible) program?

Yes, just a few biological or chemical facts. A typical dose of insulin is actually by injection route to the tune of 2 mg per day, which is also just by chance more or less the same amount of milligrams you are taking of [liraglutide] by injection. So what then is the difference? The difference is that if we look into oral insulin, where we have a viability of a couple percent, that would mean that we would have to on a daily basis be able to give these patients 100 mg, maybe 150 mg of insulin; whereas in the oral semaglutide program we are administering 3, 7, or 14.

So an order of magnitude less molecules, and since the production strain that we're using for semaglutide without revealing yields is like if we say liraglutide is produced at X milligrams per liter, then it is close to 10 X. So there's a big difference and this we cannot achieve similarly for the insulin production strain. So commercially speaking, if you also take into account the outlook for prices in the basal insulin space versus [TO 2 1], there's a very big difference between the two. When that is said, we went out after the Phase 2 trials to the German, British, and American payers to discuss with them and the feedback we got was quite crisp and clear.

If we could document, and that's being done in the Pioneer 4 trial, the one we got up against 1.8 mg Victoza, that we actually have total equality in terms of glucose and weight control with oral semaglutide as with injectable Victoza, then it will be treated pricing-wise as a GLP-1. And when we do the math on that, that looks attractive, unlike the oral insulin space where also looking into basal insulin prices at that point in time is just not economically viable.

So, Jo, the assumption is that we are able to sell an oral GLP-1 at the same price as an injectable GLP-1, not at the premium; and if that's feasible, and assuming that we have relative stable prices in the GLP-1 universe, then it should be feasible to introduce. That's our reading. Of course, it will be the higher-priced markets like US, Japan, which will be the initial focus.

Next question, please.

(Inaudible), IFP.

How much more aggressive do you think Lilly has been in the basal insulin commercial Medicare markets versus expectations of 15% to 20% lower net prices?

I think that question ought to be directed to Eli Lilly. I think the reality is that we are seeing in the [prospecting] in the mix segment we are seeing a relative stable situation between the players.

So was in the context of getting access for [beticlare]?

Yes. Sorry. So obviously we don't know, but there is also scenario where they have not had to be that much more aggressive because the payers have an interest in getting access to buy a similar product because that's disruptive in itself. So we don't know, but most likely not a whole lot more than what we've seen in other markets.

I think as Lars alluded to, I think it's been my understanding from the payers that it was important for them to illustrate that it would be feasible for a similar producer to actually obtain meaningful market access and hence one of the three large formularies, I think knew that they would have to offer an opportunity for them to sell the product.

I think that, that's -- we will take one more question.

[Michel Dera] from Generation.

So just clarification on the 5% price assumption in the US. Does that apply just for the diabetes business or the whole business? Secondly, what about mix? And, thirdly, what is the price assumption for the non-US part of your portfolio? Thanks.

The 5% is a specific implication for the total Novo Nordisk US business volume in 2017, so that is the total impact. That's primarily an impact on the basal insulin, but we also noted a negative impact on our growth hormone franchise. If we look to the rest of the business, we have historically seen a slight negative impact from the rest of the world and we would anticipate price impact would continue to be slightly negative for rest of world, although of course it lends over a huge volume of businesses and countries.

On the mix side, mix side has gradually been what has been compensated for some of the price effects and we would anticipate to continue to see a 2% to 3% positive impact going forward from mix in our business, of course being driven by the new generation insulin, being driven by Victoza and Saxenda as some of the key drivers, and hopefully also semaglutide over time. So that will be the high level implication.

So if we look ahead on the prices, we see 2% to 3% negative beyond 2017 and we anticipate that some of that effect will be a slight 0.5 to maybe 1.0 percentage point on what I call rest of world and the rest probably US but of course with swings in between the years. But that's kind of (inaudible) numbers. And then on the other hand, offset by a roughly similar positive impact from the mix in our business. So the key driver underlying is then going to be the absolute volume growth, and on top of that hopefully a market share gain driven by the strongest portfolio of insulins and GLP-1. A short one, we'll take a short one there.

(Inaudible), JPMorgan Asset Management.

So, in January of this year you had a 15% growth target which you lowered to 10% in February, and then eight months, nine months later you lowered it again to 5%. And you February you said US pricing has gotten worse by 2% or 3%, and a week ago -- a few days ago you said pricing has gotten worse in the US by 2% to 3%. So that is a five percentage point delta in US pricing that has gotten worse? If US is half your sales, and I understand it's double the profit impact, but it's still a five percentage point delta, so I'm just wondering how 15 goes to 5 in a space of 9 months, just broadly if you can address that? And, secondly, do you actually need to have a long-term target? What's the genesis of this, how is it set? And if you don't have visibility, why have it?

Thanks. First clarification, as I said for our long-term targets, we've worked with them since 1996. We've had a long practice of actually -- when we achieve them, then we set new targets. I think we alluded to already at our capital market day in November 2015 that we were very likely to achieve our long-term targets and we would be likely to be adjusting them and any new targets that we would set would be based on the premise that hopefully our diabetes care franchise could deliver to the tune of 10% growth in the business. And we said at that point in time also that, that 10% growth in the diabetes care business would require that we would have volume growth, we would have a mix effect to the 2%, 3%, and we would hopefully also have a positive effect on market share gains given we have the best portfolio.

At that point in time, we said that global pricing was looking to be roughly flat, and if you look back to the years, 2012 to 2014, one of the key characteristics of those years were that we had a continuous positive effect from pricing in the US that was no longer prevailing. So, the long-term targets were updated based on that understanding and with an understanding that prices going forward would be flat. I am disappointed that, that prediction has not played out, that the pricing environment, especially the basal segment in the US, has become more negative and which has led us to a reduced to the now expected 5% operating profit growth on average.

In terms of deciding to adjust your long-term targets, or as an alternative to say we don't have any clarity, we don't provide any guidance. I think it would've created more volatility among our investors if we just basically said we have no clarity, we don't see where things are heading. I think it was wiser to basically base the logic on what we knew for 2017; all majority of contracts for 2017 has been concluded, and provide some clarity on that impact on the business, and then use the best of our knowledge about where we see the US segments faring for 2018 and beyond and use that to provide a reasonable clarity. And then I would hope that we could get to a situation where we have achieved those revised targets and then we could have an evaluation whether in a situation with significantly increased volatility in terms of prices whether it would be meaningful at that point of time to then provide new long-term targets.

I do acknowledge that we provide more clarity to our investors in terms of where our business is faring, but that long-term commitment, on the other hand, does give us some guidance as to what direction we are trying to grow the business. And I think that is providing a meaningful basis for a constructive dialogue with our investors, and we think it will create value both for the investors and to have those as the basis for the discussion but not providing any guidance. I don't think that would have been meaningful in the current situation.

Thank you very much for your interest in Novo Nordisk and we look forward to being back if not before then for the full-year results in early February.