諾和諾德 (NVO) 2016 Q4 法說會逐字稿

Good afternoon, and welcome to Deutsche Bank.

My name is Tim Race, pharmaceutical analyst here.

It's my pleasure to introduce the Management of Novo Nordisk.

And we've got Lars, Jesper, Mads, Mike, and also not presenting but are here as well we have Cast and on the IR team here as well, so Lars, over to you, if you'd like to kickoff.

Thank you for hosting us for this full-year review.

Forecasting is inherently difficult, and can involve some risks, so here is a disclaimer slide, so please bear in mind that we are making forward-looking statements, and realize can turn out in a different way.

I'll not go through all the highlights, but I'll just make one key point, and that is we are quite pleased with the way we ended 2016.

We finished the year within our guidance from Q3, and also within the guidance we gave at the beginning of the year, and that is important, because it means that the way the business is evolving right now jives with our assessment and our forecasts.

And when we talk about the start of the year 2017, this is based on our plan.

So the way we look at our business end of Q3 is the same as we look at it now, and that's an important point for us to make, and I'm sure we will be talking a bit about the guidance we have provided later on, so that's just one key point for me here from the beginning.

Then I would like to talk about what it is we have started focusing on with the change in leadership, who we are, what we do, and how we do it at Novo Nordisk is driven by the Novo Nordisk way, and we have a number of essentials we guide our business based on, and I'd like to touch on three priorities that I have, together with Executive Management for the time going ahead.

The first one is commercialization of our products, focusing on the patients.

We have spent quite some money, quite some time in developing what we believe is a leading portfolio, and in the coming time, we are going to focus a lot on increasing our commercialization of these products.

We are going to increase focus, we are going to change a bit in how we operate, and I'll get back to that, and we believe that will make us better equipped to go out and win market share in the territories we are in, so that's the first priority.

The second priority is to make sure that we get research and development aligned for the future.

That from our Q3 announcement, we refocused a bit our research priorities so we make sure that the innovation heights is appropriate to the market access we see in our existing areas, and we also are looking into how we can expand our growth platform by looking into adjacent areas.

The first one we have done that in is obesity, as you know.

Lyra took us into obesity.

Semaglutide has the potential to get us into NASH, and we are looking at how can we further build a portfolio and [competition] within that, and also other cardio metabolic areas, where the entry with Sema can create a step-in where we can build growth.

And then we are talking about the biopharma area also, where we believe there are some adjacencies to what we do based on our existing infrastructure, our contacts with hematologists, where there are, relative rare orphan indications, products that lend themselves well to the capabilities we have, so we can within known territories follow molecules, follow competencies into adjacent areas.

The third one is to optimize how we work, and strive for simplicity.

As Novo Nordisk has grown over the years, we have to admit that we have added a lot of policies, procedures, governance, that has made us not as agile as we could have been.

So we are taking measures to simplify how we operate, and just one key example about how we operate in the commercial space is that if you look back over the years for a long time, Novo Nordisk did not launch products with high frequency, so we could be every fifth, tenth year.

And when you do that and you have relative fast access in the old regulatory regime, you can manage it basically from the center.

The environment we operate in now is one that's much more fragmented.

We do frequent launches, we launch products more or less every year, we get market access in different speeds around the world, and we cannot do that in one-size-fits-all approach.

So we have changed our view on how we govern things, to one where we let more of the individual markets, in terms of putting together the local portfolios to go out and win and be competitive.

And that's you could say a small thing, but it's a fundamental change for how we have been running our operations.

And we believe that will generate energy and clarity in the commercial organization, and make us better suited for winning market share in the short term.

When we talk about changing innovation focus and allowing for more external innovation, that's also a cultural element to that because it's a slightly different mind set for Novo Nordisk.

So the three parts are winning commercially, getting the R&D agenda right for the long term, and then improving how we work from a culture point of view.

A part of that is also that we have taken a close look at our cost base.

We have reduced manning by approximately 1,000 employees at the end of last year.

That has taken out, you can say DKK1 billion, or approximately 1% of sales.

We're doing further initiatives to work with procurement to further accelerate offshoring, so this will be baked in during 2017 and also lead through an optimized cost base for 2018, as we look forward.

A lot of it will be reinvested again, because we need to win commercially.

And we have a fantastic portfolio of products, so we are drastically shifting cost from admin back-office functions to sales directed to activities.

If we look at then the growth drivers, I'd like to start with central operations.

We talk a lot about the US but I'd like to remind you we have a very strong business also outside the US.

Over the past six years, average growth in the new, say expanded in central operations, has been 6.2%.

In 2017 we grew by 7%, and we saw that all regions were contributing to growth.

Significant turnaround, rebound of our Chinese business after a few years back we saw low or negative growth in Europe and Japan back in solid growth territory, and the remaining emerging markets Africa, Asia, Middle East, Australia, Latin America, and to some degree China, is growing very nicely.

When we look ahead, we see a continued opportunity for growth.

We see solid market growth in the emerging markets territories.

We see a continued strong performance of our modern insulins in China, awaiting approval of Tresiba.

We see a continued strong uptake of innovative products in Japan and Korea, and continue to inroad of modern insulins across the territories, including Victoza, and also now also obesity indication with Saxenda coming in.

So historic growth of slightly more than 6%, and we see no reason why we should not continue to see a solid growth in international operations.

If you look to the US, that has been our challenge with a revised price point.

[Jara Base] has done a good job of coming in and assessing what are the changes we need to do, so also here there's an agenda of driving agility, simplifying how we operate, to make sure that there is strong collaboration between medical marketing, sales, making sure the reps have three simple approaches, and that's Tresiba, Victoza, Saxenda.

We have aligned the incentive to make sure they are rewarded in the base of segment on driving the full base of segment, and not only Tresiba, sacrificing too much on Levemir.

And then again, like I talked about, we need to empower the individual markets.

In the US, we are also empowering the individual sales territories so they have their accountability, and also local responsibility on some of the key decisions that can make them successful going forward.

So we're quite comfortable that with a sharpening commercial focus, starting to work more with value-based contracting.

But also over the coming few years, digital health we can simplify how we operate, we can focus on what matters, and also bring some innovation to the commercial model, which will enable us to become successful in the US going forward.

From 2016 performance that we saw growth coming down, impacted by a loss of [Batufim] at the end of the year.

Very strong still momentum behind Victoza and Saxenda, the new dual class making up for the loss in the insulin space, continued next generation insulin performance.

Tresiba ending up at 5.5% share at the end of 2016.

So we are quite optimistic also based on the early signals we get for general performance, based on the CDS contract coming up.

If we look at our long-term financial target guidance of an average of 5%, on the sales growth side, a continued 3% to 4% volume growth in insulin space, ability to take share, based on our portfolio, and the new portfolio of products having a marginally better margin, sales price point than what we see for the older generation.

Continued strong GLP-1 momentum.

In the US, the growth is more than 30% as we speak, and we believe there could be a continued significant double-digit growth of the GLP-1 class.

With Semaglutide coming to markets we will halt the erosion of market share and can turn that around and take more share in this growing market.

Obesity; Saxenda is doing really well, contributing with 19% of overall growth in 2016, and we believe we can build a presence here, and Sema will be a very interesting molecule and we have five Phase I assets in clinical development on obesity.

Biopharm is challenged on growth, partly because of short-term loss of obegetin, but also of course (inaudible), despite that, NovoEight managed to make up largely for the loss we saw on NovoSeven in 2016, but we will see pressure in the hemophilia space.

So we are looking for opportunities to bolt on late-stage assets that could help accelerate growth a bit in the biopharm area.

I think it would be a strong signal to our biopharm business, and also be a strong signal outwards that Novo Nordisk is indeed considering also external [innovation].

So those are the sales drivers which to some degree will be offset by a continued 2% to 3% negative price impact from the US, and outside of the US.

So we have factored in continued price pressure.

If we look at the cost side, the price decrease will of course impact our gross margin, partly offset by improved mix and productivity gains.

We see that with the focus we do in the commercial area, primarily in the US that there's actually some leverage on the S&D front that can compensate for some of this margin loss, as the US business becomes more and more business-to-business, we have opportunities for focusing our investments.

R&D, we look at being opportunity driven.

Short term, we have reduced some of -- we have pruned the portfolio of research projects, which has released some resources we can reinvest in adjacent areas.

So overall we believe R&D on the 13% ratio we see today is appropriate for the coming few years.

But then again, it should be opportunity-driven, and if we come across existing assets, of course we will have to invest in that.

Admin has continued leverage there, we are at 3.5% now.

We believe over this guidance period that we can take it further down to 3%, and thereby help to mitigate some of the gross margin decline.

So we still believe this is a realistic average, 5% growth for this four to five year guidance period.

If we look at our policy of returning cash to the shareholders, we have quite consistently had a policy of doing that as a combination of dividends and share buybacks, and our principle is that the dividends should be on a comparable basis to the pharma peer group, so that's what you see here.

The red one being our free cash flow.

Bear in mind that in 2016 we introduced this principle of an interim dividend, so you can say for 2016 you have 18 months dividend in.

So when you see the decline it's not because we are reducing the return but we are normalizing it again from 2017.

We have not yet put a number on the interim dividend for 2017 that will come up, but think about that as approximately 40% or some DKK8 billion or DKK9 billion.

You can also see here that we are actually anticipating returning more than the free cash flow, so we will be taking a bit from the balance sheet in 2017 partly to compensate for what we did not pay out in the prior two years.

Then we have put in that if we come across interesting in-licensing acquisitions, we will be looking at potentially making the buyback part the variable part, to front these activities.

You should see that as not massive acquisition amounts.

So we are talking in say in the low single-digits, the $1 billion amount, so something that's relatively easy for Novo Nordisk to comprehend.

And again, the target is within biopharm and these potential new adjacent areas we talked about being NASH or some cardio metabolic disease areas.

And with that, I'll hand it over to Mike for his update.

Thank you very much.

From a product perspective the sales are similar to the past, 80% coming from diabetes, 20% from our biopharm business.

The growth is primarily the next generation insulins, followed by Victoza and Saxenda, and actually it's quite interesting that when you put Saxenda and Victoza together, 55% of the growth has come from GLP-1, so there should be no secret that is where we see our future, and then we have to get it right.

I'll come back to some of these data, a little bit more in my slides, but last year, we sold DKK4 billion worth of Tresiba, and comparing that to 2015, where we sold DKK1.2 billion, so that was a phenomenal growth rate.

Now speaking of Tresiba, first ex-US, then you'll see the uptick quite continuing.

Tresiba is launched in 52 markets and in all markets where we have on-par access with our competitors, Levimir and/or Lantus, we're doing well.

A good example is if you take a look at what has happened here with Denmark or Netherlands, where we did not have on-par access, we were not able to penetrate as fast, and all of a sudden the trend of the market share curve completely changes, the second we adjust the price, and thus get access.

And that is what we have been able to see across all different markets.

Meanwhile, Ryzodeg, we are also having a market fit approach to it, 10 markets have been so far launching the product, Ryzodeg, and we will launch that more where we see that there is a predominantly good mix market to launch into, and it's also by nine major launches, followed by an important launch this year, later on within the first half, we will launch Xultophy into the US.

Speaking of US and Tresiba, here you could basically see a little bit of the dynamic.

We have a situation where we set a goal for ourselves for Tresiba volume market share of five percentage points, and we reached that, we actually exceeded that to 5.5 last year, and the chart demonstrates our NBRx right now being at 15% for Tresiba, combining that with the Levimir of 23%, we have a 39% on all of the new-to-brand market share.

A majority of the sales is coming from the U200, 80% over there, and now we have 75% of all of the lives in the US covered with these two products.

There's a bit of a dynamic shift you see here, has to do with CVS, change of formulary, where they have excluded the Sanofi products, and as a result, we see a good uptick on our products but also, quite a bit of those patients are moving to Basaglar.

And Victoza in GLP-1 markets in the US continues at very good growth rates, largely as we alluded, we have a situation where the market is growing by 30% in value or 20% in volume.

And of course, quite a bit of that credit has to go to Lilly and the launch of Trulicity, which is expanding the market.

But of course we are also benefiting from being predominant in this market and seeing a growth rate of 12% for Victoza last year in the US, with Victoza.

And although our market share has come down, we're able to show that growth, and now still an absolute leader with 50%, which will help us no matter what, with our Saxenda launch as this market is being better understood than in the past.

With that, Mads, your update?

So what I'll do is briefly review some things you already know, and in particular, what's going to happen news-flow-wise over the next 12 months.

DEVOTE is the first ever blinded cardiac outcome trial with a major focus on CV hyperglycemia.

As you are aware, it's been awarded a dedicated ADHD [imposium] in early June on a Monday afternoon at the American meeting in San Diego, and basically the difference that we've documented in terms of not only cardiovascular safety and trends favorable to Tresiba, but also in terms of severe hypoglycemia reduction to the tune of 40% to 53% whether it's total or nocturnal respectively are clearly greater than we ever saw from Lantus to human or from Levimir to human, where we are talking about 25% to 30% benefits in terms of meta analysis that have been conducted.

So these are truly meaningful data, and we believe that this will create a new paradigm in basal interim therapy going forward, and we can discuss that more.

Now I will not take you through this slide, other than maybe highlight that the oral Semaglutide PIONEER program has now started recruiting in every single, all 10 trials, the biggest 3a program ever conducted by the Company, and of course that will read out in a major way during the course of 2018.

And maybe important to notice is that our version of the subcutaneous bypassing monoclonal antibody for the management of hemophilia A, B, or inhibitor segments, named Concizumab, is off to a good start.

We've got multiple dose data that were positive in hemophilia A, and will kickoff a Phase 2 trial over the coming months.

Now importantly, this is the list, the to do list, so to speak, and if we look at what has happened the last three months, I think somehow it's worth mentioning that yes, we did get DEVOTE data, and yes we have submitted Sema, once-weekly Type 2 diabetes in both Europe and the United States.

And yes, we have gotten Xultophy approved, both in Europe and the United States, and I mentioned these data here.

More importantly, going forward is that within the next three months you will have the Japanese submission, we do believe the Japanese GLP-1 market is highly attractive going forward.

So Sema once-weekly will be submitted.

And we will actually, with the aim of getting approval for fast-acting insulin [S-part] before the end of this year, have a class 2 resubmission of those data, and we are expecting opinions and decisions both from the European and US regulators on our hemophilia B product, what we believe is poised to be a potentially best-in-class molecule for hemophilia B, namely N9-GP.

Then, over the next three to six months, you should expect us to hopefully get label update for hypoglycemia benefits on Tresiba in the US, and at the same time, we will of course submit the huge DEVOTE trial data package to both European and American regulators for a final label upgrade.

If we go six to nine months into the future, we expect the Europeans to follow suit on the switch, and importantly, the SUSTAIN 7, 1,000 patient size head-on comparative trial between Semaglutide and Trulicity will report the summertime basically

And that is of course important to be differentiated by not only having the best once-daily GLP-1 analog into the future, but also the best once-weekly in a market that is growing 25% globally.

Then, the LEADER US label update for prevention of cardiovascular disease in high risk patients with Type 2 Diabetes is poised to take place also late summer or early autumn.

And as I have not mentioned but would like to mention finally, the Semaglutide, 1,000 patients approximately with obesity, dose range finding prior to initiation of Phase III is going to take place, also completing around six months from now.

Finally, Somapacitan, now that Pfizer and Op Co unfortunately missed the ADHD endpoint in the adult growth deficiency indication for their once-weekly, we are truly looking forward to having our own data on the REAL 1. That's the second and last pivotal trial for the ADHD indication, and with Somapacitan operation of once-weekly growth hormone.

So I think I'll leave it at that, and over to you, Jesper, for the financials.

Thanks, Mads.

The financial results for the full year, as Lars rightly alluded to, came out in line with the guidance we gave, in connection with the third quarter.

In terms of sales, important growth of 4% in local currency, growth was 5.5%, right smack in the middle of the indicated range of 5% to 6%.

Gross profit grew slightly less, reflecting a 20 basis point negative impact from -- partly from prices, and a little bit from product mix, and 20 basis point also coming from the currency impact.

The price impact was related to the US, and was a net effect of actually having a positive price impact from the rebate adjustment on the [five eye] related to Norditropin, that primarily was recorded in the first quarter, and which was a full percentage point on US growth, and the offset by a negative pricing impact on the portfolio of products, primarily the modern insulin, and also human growth hormone.

In terms of sales and distribution cost, flat development in absolute terms 3% underlying growth, and a decline overall.

Really an expansion of our sales and distribution costs are related to the international operation activities or the historic international operations activities, now EMEA and Latin America, where we expanded our sales force with some 300 people last year.

In terms of research and development, 13% cost ratio, also the level we expect to operate on.

In 2016, there was some of the growth in costs that were related to research, especially the diabetes care side of things, and partly also related to some write-offs in connection to the changed R&D strategy.

Admin costs declining slightly and the growth in admin costs for us is [invalid] primarily related to the former international operation.

When they established new sales affiliates, some of our costs switched from being sales and distribution costs to becoming admin costs, and that was a key driver behind the 3% reported growth and 5% in local currencies.

Other operating income was last year unusually impacted by the partial divestment of 75% ownership of NNIT, that is separately listed on Copenhagen Stock Exchange but also DKK450 million in common relation to out licensing of assets within inflammatory disorders.

The operating profit declined by 2%.

If we adjust for this non-recurring income, it grew 4%.

If we look at it in local currencies, it grew by 6.2%, i.e., also slightly above the middle of the guidance of 5% to 7% growth, in adjusted operating profit we set in October.

In terms of financial items, last year was significantly impacted by an appreciation of the US dollar.

This year, we've had a stable US dollar, so these costs are partly related to the interest differential between the Euro zone and the US dollar, and it's partly related to a cost of non-hedged currencies, lowered in value.

In terms of the pretax profit, the growth reported then of 10%, and on the tax rate, we have a slightly higher tax cost.

Do bear in mind that in 2015, we had the benefit of having a significant gain on NNIT that was non-taxable, so gains on shares in Denmark are not being taxed, and hence the unusual low tax percent of 19.8%.

This year, 20.7%, there we are partly benefiting from a settlement of a number of tax cases -- central price tax cases.

So net profit growing 9% and when you take the effect of buying back shares, and the non-diluted earnings per share, the growth was 11%.

If you back out the NNIT effect on diluted earnings per share, then there was a growth of 19%.

Currency impact in 2016 was really driven both by the hedged currencies I just alluded to.

You can see that the US dollar is relatively stable, so it was really the interest differential in terms of the average rate, relatively stable, but it was the interest differential that created this effect.

But do bear in mind when you look to the guidance for 2017, that we have inherently at the spot rate used for guidance of DKK6.97 billion, we will have a substantial negative impact on our P&L from the US dollar hedge.

Also note that we have taken down the CNY hedging a bit, we have taken it down from a full year down now to nine months, and that's also a reflection of the quite elevated interest differential we have between the CNH, the offshore yuan that we use for hedging, and the Euro zone, and hence we would like to operate with a slightly shorter hedge horizon for the CNY going forward.

In terms of other currencies, you can also see here that some of the currencies which are currently providing us with some challenges are currencies like the Turkish lira, whereas we are actually beginning to see a rebound from the ruble, which is actually having a positive impact.

And it is a reflection that some of these emerging market currencies tend to be very volatile over time.

If you look to the financial outlook for 2017, we have given a 5% range for both sales and operating profit growth in local currencies, and we've done that to reflect a slightly higher level of uncertainty surrounding our 2017 outlook, compared to 2016, where we operated with a four percentage point interval.

In terms of reported numbers with all I just showed you before, we anticipate that we will have a 2% higher reported number in sales growth, and also for operating profit, and for operating profit we are assuming a minus 2% to plus 3% growth in local currencies.

For the financial line we are anticipating now a loss at DKK2.4 billion, and do bear in mind that's partly a reflection of the end-of-year rate at DKK6.97 billion for the US dollar, but also reflection of this interest differential we have between US dollar and the Euro zone.

The tax rate is 21% to 23%, and you could say the mid-point of that is completely equivalent to the corporate Danish tax rate going forward, which is 22%.

So overall, a similar total tax rate for Novo Nordisk.

Capital expenditure has been off quite significantly by DKK3 billion, reflecting the large investment we are doing in our GLP-1 and insulin port manufacturing facility in Clayton, North Carolina.

That was approved in the final quarter of last year, and of course, this comes quite handy with the new President-Elect, or new incoming President that we do have quite substantial US activities ongoing, both with the facility in North Carolina that will employ something like 2,000 people in the three-year period where the facility is constructed, and then from thereon, 600 to 700 permanent jobs.

We also have expansions ongoing at our production site for biopharma API in New Hampshire.

So that investment level, DKK10 billion up from DKK7 billion last year is really reflecting those significant increased investment, and I would anticipate that the capital expenditure level will remain at the DKK10 billion level for the next couple of years, until we get through the bulk of the investment in North Carolina.

The level for depreciation and amortization is broadly unchanged, that DKK3 billion, the free cash flow is somewhat lower than last year, DKK29 billion to DKK33 billion.

Do bear in mind that we in 2016 had a settlement with the Danish and Swiss tax authorities on some transfer pricing issues, and that actually provided us with, everything else being equal, a DKK6 billion lower tax payment actual in 2016.

And consequently if you adjust for that, the difference between the DKK40 billion we had in free cash flow in 2016 and the mid-point here of DKK31 billion, that is then related to the DKK3 billion higher level expected for capital expenditure.

And then rounding off before I hand over to Lars for Q&A, we believe we have, still have Novo Nordisk Company that has a outstanding market position in diabetes care, with the 27% leadership of the market.

We are looking currently at a global insulin market that is growing 4%, slightly lower than the historic 5%, but still with substantial international growth.

We are looking at a volume market share of about 45% within insulin, and with leadership positions globally.

The GLP-1 market is, on the other hand, expanding very significantly, and now north of 20% on a global basis, and US currently growing to the magnitude of 30% year on year.

We have a strong leadership position based on Victoza, and we have also used the liraglutide molecule to create a leadership position within obesity treatment, with 15 countries successfully launching Saxenda.

We do believe with the portfolio of products we have, both within insulin and GLP-1, that we really are the ones who are the full-service provider to the healthcare industry.

In terms of our Semaglutide portfolio, it offers exciting opportunities, both in terms of the oral administration, but also taking Semaglutide into new indications like NASH.

Xultophy is a product that combines the benefit of an insulin and GLP-1, and we look forward to launch that in the second quarter of 2017.

Saxenda is a fantastic opportunity, but we also have a number of early stage clinical targets within obesity to create weight loss of even higher magnitude than what Saxenda can offer.

And then finally, we have a broad portfolio within hemophilia and as Mads also alluded to, a longer acting version of growth hormone.

So with that, I'll hand it over to you, Lars.

Let's give the first question to our host.

It's Tim Race here from Deutsche Bank.

So two questions if I may.

First, starting off just on the guidance.

It's quite clear the market has quite a vivid imagination, when it comes to the downside of your guidance.

In terms of the upside, what factors should we be thinking of, to actually get to an upper end of your range?

Obviously you've got the read outs or the approval in the year, but typically they don't generate profit in the early days.

So is it purely just Tresiba and Levemir market share, or what should we be thinking there?

And then a second question on the GLP-1 franchise.

Obviously again, the way the market works is looking at the fear of what may come in terms of pricing.

GLP-1s, there are a lot of products out there, there has been pricing pressure in the past that's actually failed, so how critical is a new indications in terms of CV, how critical is the head-to-head versus Trulicity, in terms of both your market position and on pricing.

I'll leave it there.

So if I start on the guidance, you can say there are, outside of the US, there are a number of markets where we operate and had a strong year in 2016.

And of course, the continued strong performance there, being half of our business, will also have a significant contribution on getting to the high end.

But if we zoom in on the US, obviously there are a couple of contracts up for grabs, the CVS and the United contract doing well in both will be important.

We are now out talking to the SWITCH data for Tresiba.

We can already start to promote that, and we had the full US sales force gathered over the past week or so, and really trained them in going out and delivering that.

We have positive feedback from physicians that now that it's actually a product with a proven benefit compared to the golden standard so that will have an impact.

So obviously some upside in the US, and you're right that some of the label upgrades will have -- will come towards the end of the year.

I think [still LEADER] can start having an impact in the second half of the year, the work will be late.

But we can now already talk to SWITCH but also think about outside the US where we have pretty good momentum, and my good friend Mike here is fully geared up to make sure that we get the full out of that.

Then to GLP-1 franchise, maybe I can talk a bit to the pricing and then Mads, maybe you can talk a bit to the commercial, or the profile.

The pricing we see as still attractive.

It's a market where products are differentiated, and we are not going to drive massive price increases, but we still see that it has significantly different dynamics than what we see from the basal insulin.

So it's not until that we see, or we believe that we see biosimilar or generic Victoza come to market, that we will see a massive change in pricing.

Obviously, Lilly is doing a pretty good job in launching their product, but with summer we will come back in this.

And Mads?

Yes, so briefly as it looks today, I think as Lars also hinted, that there are basically two leagues, two classes in terms of efficacy and also in terms of performance commercially.

And in the good end we have Lira and Dula, and Dula with the benefit of the convenience of once-weekly administration, and in the less good end, you of course have the Exenatide molecules - the lixisenatide Exenatide molecules and Albiglutide.

Despite their rebating, rather [healthy] sometimes, they haven't really made inroads.

So GLP-1 is still market based on efficacy and, of course, also convenience.

And to that end, Semaglutide data, the SUSTAIN will report this summer, and based on as I mentioned looking at what has the AWARD program shown for Dula, and what has the SUSTAIN program shown for Sema, you would argue on body weight in all likelihood, we are in terms of clinical meaningfulness, only stopping the weight loss we see for Dula, or for that, matter for Lira.

So that should be highly meaningful.

And then in terms of efficacy on A1c, which is also of paramount importance in terms of health economics, we have shown up against our own product, Lira, that we are more efficacious already in the Phase II trials, and I would expect to see that also pan out against dulaglutide.

That has also been the basis for the powering hierarchy of the statisticians, looking into how we test the various superiority elements of Sema versus Dula.

Thank you, it's Michael Leuchten from UBS.

One question for Lars, and one for Jesper.

Just going back to doing things slightly differently.

We've seen Novo being quite good control of [DS], saved some distribution costs over the last couple quarters.

So going forward, given the comments you've made, what are you tracking certainly in 2017, to see whether the structural changes you're putting into place now, really have an effect?

And then how do we track it, because looking at your cost base over the last couple of quarters, you actually have done -- Novo has done quite well.

And a question for Jesper.

We've gone back to your slide 7 on the expected future cost drivers.

Can you just confirm the growth coming out of Europe and the emerging markets, I think you commented on that about a year ago, is not margin dilutive?

So to comment a bit on say the competitiveness in the sales area, the most important matter for me is not to drive down cost of our sales activities.

The most value-generating area is to increase effectiveness of what we do.

So if you think about empowering people more, making sure that the local businesses make the decisions required for them to succeed means that you get closer to the underlying segments, where you operate.

In the past, we had a bit of a one size fits all approach, so products were used the same way in all markets, but when you start looking at the underlying markets, they are different traditions, different brands have different roles.

So it's really important to make sure that you serve the segments the best possible way, and that can only be done by delegating that accountability and authority to individual markets.

So that will bring a lot of energy and it will bring say no excuses for people in succeeding.

So instead of looking for guidance on what to do, they go out and do what they think is right, and I think will have a strong impact.

Then of course, when you look at the cost side, in the US, we've had a very large commercial operation.

And if you are not fully aligned, you end up generating too much [measuring] that's not being used, so there is a significant opportunity for simplifying things, trusting your own organization that they can do it right without having a host of consultants being involved.

So we also are going to drive down the cost but I see that's just as proper management, that's something we have to do.

We don't talk a lot about it, but I can tell you [I've] taken a lot of costs out.

But the success of Novo Nordisk is not by saving.

It's by revenue generation, generating activities, and that's by making sure that people are really clear on what we need to do, really focused and succeed with it.

And then of course some of the savings we do, we can reinvest where it makes sense.

So I hope that answers your question.

Michael, I think there is also [adherences] in our guidance on sales and operating profit that we are more or less assuming an unchanged operating margin.

Hence, if we are in the high end of our interval, we would assume that some of that additional earnings that's generated at the high end of the interval will be reinvested in additional growth activities, whereas of course the low end of the interval would then assume that we with have to do further pruning of the cost base, in order to be able to live on that.

And your question in regards to what are the margin impact, the operating margin impact of having growth coming out of Europe and Japan, Korea, and really, I think slide 5 actually has some pretty good hints at what products is it that's being driven.

Of course, when we are having a Europe driving growth from Tresiba and Xultophy, that will be positive for our margin.

You could say in 2017, we'll get into the situation where Tresiba is not dilutive on our margins.

Up until now, it has been dilutive as we bring more volume up and now we'll reach in 2017 a neutrality effect, and from there on it will be adding to growth on the overall margin Tresiba as a product.

And in terms of the Victoza, it's clearly positive on our overall growth.

So I can confirm that Europe is not dilutive to our margin, and likewise, for Japan and Korea, the growth drivers there will also be Tresiba, Victoza, and hence clearly it will be positive for overall margin development.

I'm very comfortable with that situation.

Keyur Parekh from Goldman.

Last two big picture questions, the first one in two parts.

The first is, it seems like after 10 to 15 years of being a very predictable business, the last six quarters, it seems like Novo has become the difficult business to forecast.

What's changed from your perspective -- clearly the [excellent] environment has changed, but beyond that what's changed internally?

You missed three of the last four quarters, you lowered numbers multiple times last year, so what are we missing?

That's one.

And secondly in the context of that, what drives confidence on a long term operating profit?

Are you seeing even revenue doesn't deliver in the long term, we'll take cost out, particularly with the 5% operating profit growth target that you're still reiterating today?

That's question number one.

And question number two, and this is what I asked you on the third quarter call.

It seemed like the payers are unwilling to reimburse for whether it's marginal differentiation, more grade differentiation, grade differentiation.

But the US payer seems really unwilling to be willing to reimburse for those differences, whether it's LEADER, yet to see what happens with SWITCH.

Why does it make sense to spend 13% of your revenues on R&D?

Okay, thank you for those questions.

In terms of the ability to forecast there is one market that has caused us a challenge, and I don't know how many markets you serve but not to belabor the point, but I think that it's still important to acknowledge that international operations is tracking their ups and downs, but in all it tracks really well.

So it's our read of the US basal insulin pricing markets that we got wrong, or that changed, or was different than we had predicted.

And to your point about several downgrades throughout 2016, I actually think honestly we've been tracking -- that's our view, we've been tracking since what we told at the end of Q3.

So our closure in 2016 was as we had expected and what we look into in 2017 is as we have expected.

Then you can get into a long discussion about how the range looked like, and how people see that, and that has created different perspectives.

But we are quite confident all of us sitting here that what we saw and looked at end of Q3 is what we see today.

So it was really reconfirming for me and all of us to see that the forecast we did during third quarter, actually we tracked according to that for the US market.

And when you look at the start for 2017, it's still early to conclude but I'm comfortable based on the market data that we see that we are also on track for 2017.

And then to the question on confident in operating profit growth and what do we do, so what we are talking about here is pricing.

So if there is a very negative pricing scenario, where you can say the payers get even stronger power, and drive price down.

That presents a market where differentiation by the sales force has less impact, and potentially it's real world dividends, it's value based contracting, et cetera, that determines excess.

We are equipped today with our biggest cost item is sales and distribution, and when you look at having a couple of thousand reps driving around in cars talking to physicians, a few minutes by the call, that is not a really efficient selling model, either, and it's a very expensive one.

So if it's not the sales rep that generates preference for products, but it's contracting that determines what happens.

But then we have to restructure how we sell our products, I don't believe that will happen short-term.

Just to make a point that today we are equipped to make preference for our products, and it works.

We see that Tresiba takes a 5% market share on a yearly basis, so it works.

But if it's no longer that model, then there is also an opportunity to do things in a different way, that will somehow mitigate the operating profit, also.

And to the willingness to pay, I think it's a lot of talk there's lack of willingness to pay.

Despite that, you'll see that new products have massive uptake.

And new products are priced typically slightly higher, Tresiba is slightly priced higher than Levemir, which again might have a small premium to Lantus.

So it's not a small price differential that makes a difference.

It's the key selling points of the product, and we still believe we can penetrate the market with slightly better products.

So it does pay off to do R&D.

But part of our strategy is also to revise our research efforts to make sure we have enough innovative height, because we do acknowledge that the market will probably not be screaming to get a slightly better Tresiba.

But that's why we have made the changes we have in our research strategy so the mandate to Mads and his team is to say okay, we need disruptive or markedly improved innovation, and it's -- if you one day could make say a glucose sensitive insulin, I'm pretty certain we could price that in a good way, and redefine the market.

Now, it's not in any way given that we can do that, but just to say that there's still room for innovation, but it will be, it has to be significantly improved molecules compared to what we see today.

And as a consequence, we are also looking into growing into adjacent areas where we know the business.

We know obesity better than others, NASH is close to obesity, so we believe we can broaden our future growth platform, without stepping completely into unknown territory.

Thank you.

Sachin Jain, Bank of America.

A few questions please.

First to follow on Tim's question on upside drivers for 2017, you didn't mention removal of political uncertainty, which you framed as part of the range.

So is there any point in time or any specific commentary you're waiting for that you can frame what part of 2017 uncertainty accounts for?

Second one is for Jesper.

On the third-quarter call you referred to I think an aspiration of returning to in the vicinity of 5% growth in 2018.

Given that range you've put in for 2017, does that still remain the case, and if you could just run through the drivers that take you from minus 2% to 3% up to 5%?

And then the third question you touched on the call, can we just discuss Sanofi's recent behavior in the basal market to a greater extent to the maximum [temporary] co-pay voucher, quite an aggressive move to try and retain volume?

If you could touch on how effective you think that's been and B, more importantly, what were the spectrum trying to retain volume at almost any cost implies for your thought process for 2018 contracting.

Shall I start on the political uncertainty linking into the upside?

To be honest it's really, really difficult to put a number on the political uncertainty, both in terms of downside and upside.

I believe that Trump will make an effort in showing results for all of the topics he has talked to in his campaign, so he will probably repeal Obamacare.

How it will be replaced is a big question mark.

He talks a lot to competition, and competition as a way to drive down pricing, leading to potentially lower regulatory barriers.

We welcome that.

We already see, as you know competition in our space, so it's clearly effective in driving down pricing.

But it's just difficult to be very specific, to be honest, on the political arena.

But there is clearly some volatility that is in our view potentially more dramatic than what Hillary would do, because she would probably follow say the political process, and it would, it could end up having a bigger impact, but it would take quite some time.

I think Trump is quite unpredictable.

Well if you compare to the factors included in the minus 2% to plus 3% guidance on operating profit for this year, you'll have two items, which are a very significant and of a non-recurring nature.

The first one is that this year, we have to grow on an inflated base of approximately DKK600 million in relation to reversed rebate accruals for the period 2010 to 2015, for primarily Norditropin related to a changed rebate regulation from CMS for Norditropin -- so that's the first one.

The second one is that of course we also have the challenge of losing a quite substantial part of our business, and say the profit impact to the tune of DKK1.5 billion from that, so if you add these two together, then you will be in the vicinity of 4 percentage point on operating profit growth.

So instead of minus 2% to plus 3% if you add those on both end of the range, then you'll be from 2% to 7%.

Now that gives a mid point range of 4.5% and I'm not sure I'll go into 50 basis points of guidance for 2018 at this point in time.

Just observing based on market share trends, it seems like it's not that effective but I'll refrain from commenting on it and in detail, there is a legal discussion between our companies, so I don't think it's appropriate.

With regards to volumes and the discussions leading into 2018, it's hard to be very specific.

Also, you can have different hypothesis about what dynamics would play out.

For 2017, 2 PBMs decided to exclude Sanofi, ESI decided to go for all probably still getting good rebates out of that, so you can even speculate about tactics.

[Wysini] it could be that just the fact that some have shown the card of being willing to exclude would mean that everybody participates going forward.

Others could also again decide to go for excluding products.

We believe that the portfolio Novo Nordisk brings a degree of innovation that most payers would like to have access to, so it's hard to be much more specific at this point in time.

Simon Baker from Exane.

Two questions, if I may.

First on Xultophy, given the comments you just made about the market's willingness to pay being perhaps higher than was suggested, could you explain why the launch of Xultophy has been delayed, and give us an update on what steps have been put in place before the US commercial launch?

And then secondly, on the productivity and procurement gains that you talked about, I wonder if you could give us an idea of how those will fall between cost of goods, SG&A and R&D, just to give us a feel for the evolution of the margins on that element?

I'll talk to Xultophy, Jesper can talk to the savings.

So we have not really, you can say, delayed Xultophy for any reason other than we believe it's important to sustain the momentum we have today in Tresiba and Victoza and Saxenda.

And to willingness to pay, you also have to look at the label, so you need to fail on basal or Victoza, before you can get on Xultophy.

As such, that reduces the segments that will be ready for being targeted with Xultophy.

And we believe we have to price it in accordance with underlying components, still with a discount, by getting it in one injection.

So we remain optimistic about Xultophy as a really good product.

But also from a total healthcare and value-based healthcare point of view, you should not bring people on a product where there is a cheap alternative.

So when I meet with the policy makers, health ministers, et cetera, it's really important that Novo Nordisk and the industry talk to the partner about making sure the right products get to the right patients.

This old Big Pharma blockbuster strategy of trying to shovel one product down the throat of each and every patient doesn't work, and we lose trust and faith among our customers.

So it's really important that we can segment the market, and I think as a Company there's nobody else better equipped than Novo Nordisk to make sure that we sell to each and every patient.

But it has to be the right product and if you have failed on Victoza, if you failed on Tresiba or Levemir, then the payers will be willing to pay for Xultophy, because the value of paying for it is there, but don't get into selling expensive medicine to people who don't need it.

Then our industry fails.

Jesper?

In terms of the impact of the initiatives we are taking, both in terms of procurement, but I also think in terms of the lower number of employees the 1,000 people, let me just run through those.

First, on cost of goods sold, the reality is that we have to deliver something like 6% more products actually next year, compared to what we do this year.

And we will do that more or less at a unchanged operating margin, and with relative modest sales growth at the mid-point.

So our anticipation currently is for about a 20 basis point lower gross margin, compared to where we are and what we delivered in 2016.

And in that, you should also remember that there are costs in relation to production sites in part of Mike's area, so places like Russia, Iran, and [in theory] we are ramping up local production.

Something you may not need for efficiency purposes, but which give you improved market access, and that's actually included in the cost of goods sold, even though one could argue that it was in selling and distribution costs.

So approximately 20 basis point decline, assume mid point of range.

Then in terms of selling and distribution cost, we would assume that we would be in the 25% to 26% range of sales, and included in there would be savings partly related to the activities that we had, with a reduction in people, where we have reduced our salesforce in the US somewhat.

And we've also reduced some of the regional structures within the new international operations amongst which we have closed down the European headquarters in Zurich, and moved it and downsized it to Copenhagen, which both provides lower cost per head and also an absolute lower number of people employed, so that's helped there.

And hopefully that will be one of the examples where we move more of the cost forward.

It will be within the selling and distribution cost, where the predominant part of our purchasing savings will fall.

And I would estimate them in total to about DKK1 billion, but I should also mention that each year, the purchasing organization will have had a target of saving about DKK500 million to DKK600 million.

So you would say the additional saving and procurement will be maybe in the vicinity of DKK500 million.

For R&D I would anticipate approximately 13%, and included in there will also be savings.

So hopefully, we get more innovation for the same cost.

One of the areas we're looking in at is laboratory equipment, and basically aligning the both the purchase of machinery, the service contracts, and the utilities you use for running those, that laboratory equipment across the board will be a driver.

And then finally, admin.

I think we will be driving it slightly lower this year, maybe 10 basis points lower or so, that would be some of the indication, and here also, benefiting from continued offshoring.

I think as Lars also alluded to, gradual offshoring of activities to India.

We expect to take our Bangalore [shared] service center from 1,100 at the end of 2016 to approximately 1,500 when we go into 2018, so an expansion of 400 people there.

Richard Vosser from JPMorgan.

First question, just could you give us an update on you mentioned Tresiba in China, so the regulatory situation, how your discussions are going there?

Also in China the pricing environment, I think there was some headwinds in 2016.

What's the environment?

An update there would be great.

And then the CapEx increase of DKK3 billion has that been, I think you said that some bulk insulin production was going to place as well, is that a change in response to Trump, or has that always been planned?

Just thoughts about that import tax.

Thank you, Richard so first of all on Tresiba approval in China, Mads?

It is so that the Chinese FDA has had a major backlog, as you're aware, Richard in that they have been understaffed grossly but they are coming up to snuff, in terms of their staffing.

Also there is actually a collaboration between Novo Nordisk, the Danish Medicines Agency and Chinese Food and Drug Administration on how to build world class control elements of drug approvals.

And that being said, I think we are moving up in the queue and we are getting closer to a point in time where we will hopefully get approval.

Could be this year, could also be next year.

And we're doing everything we can but it is still in the queue, so to speak, albeit closer to the first position.

And then Mike?

So the pricing in China last year ended up to be better than we had planned and hoped for.

We had a minus 1% price decline as a result of some close to 10 of the provinces being negotiated.

And as we're moving into 2017, we still believe that of course we will be hit by pricing, further pricing declines, due to the mandate but perhaps lower than it was initially thought just some 18 months ago.

So it looks in a better shape.

And then if you combine that with the fact that the market growth has almost doubled over the last 18 months, so we have gone from 5 percentage point volume growth to about 10 percentage points.

Our share of the growth has also doubled from 21% to now 45%, we are actually ever more hopeful for Chinese market turnaround that we have seen to continue in 2017.

Thank you Mike.

And then on the investment in the US, the investment has been the same plan the last six months, and it's really to have a facility in the US that both can produce GLP-1 for injectable Sema, and also have the opportunity of providing bulk GLP-1 for the tablet version.

And then in addition, we have laid out the plan so that it also will be possible to do the precursor for insulin production for Tresiba and Levemir, so it's also been prepared for that.

And it can also help producing the precursor to Victoza.

So it has multiple purposes, and of course it gives us higher degree of supply certainty by having such multiple use of the facility.

Also of course, recognizing that all GHP-1 is still only in Phase 3, so there is a regulatory process risk with that, and having multiple use for the facility, we believe is sound.

But no significant changes since you last commented on that, and the investments on this broadly unchanged, at the $2 billion level.

You had one additional element?

Oh yes, the US, in terms of if we look at our ability to supply product to the US market, produced in the US, we currently have our Clayton filling facility, where we are both filling our insulins and Victoza for the US market, so that will get us close to 80% of our product volumes being filled in Clayton.

But however, the EPI molecules are of course not produced there.

Presently, they are produced in Denmark, so we'll have to see how that whole thing plays out.

But I think it's important that we also are expanding our facility in New Hampshire for bulk production for biopharm, so both the long-acting growth hormone and our [Away] franchise can be produced in the US.

So I think we have a pretty strong footprint.

Now, how that will play out against the potential regulation.

That's extremely hard to speculate, but with the benefit of hindsight, I think we have timely initiated a number of large fixed asset investments in the US that may turn out to come in handy.

Thank you for your interest in Novo Nordisk.

We have to close here, thank you.