諾和諾德 (NVO) 2017 Q4 法說會逐字稿

It's Michael Leuchten, I cover pharmaceuticals here at UBS.

It's my pleasure to introduce the Novo management team.

So without further ado, thank you, everybody, for joining.

Thank you for Novo for the road show, and over to you.

Thank you, Michael, and thank you to UBS for hosting us here today.

With me, I have Camilla Sylvest who is running commercial strategy and corporate affairs; Mads Krogsgaard Thomsen, our Chief Science Officer; Jesper Brandgaard, our current CFO and Head of Biopharm; and then Karsten Munk Knudsen, our incoming CFO.

I'll give a few highlights initially.

Camilla will then talk more to sales.

Next, we'll give an R&D update, and I think Jesper and Karsten will share the financial outlook.

We'll be talking a lot about the future, and here's a forward-looking statement disclaimer.

The future might not end up exactly as we predict.

So we have to be careful there.

You've all seen the highlights, so this is more for your reference.

So I'll not go through the highlights in detail.

We were quite pleased with our performance in 2017.

We came out on target, and we had a very nice new flow from R&D and also made some key changes to the organization that we can get into later on.

We have announced that we'll change CFO.

Jesper Brandgaard has done an outstanding job for 17 years, and believe it or not, this is number 70 quarterly results that Jesper has delivered, and he deserves all the credit in the world for having done an outstanding job.

But I also understand that, I think, Jesper, you said, been there, done that, got the t-shirt, that now is time to hand over.

And as a great leader, of course, he has developed his successor.

So I think we have a very competent successor in Karsten Munk Knudsen.

Jesper, since May last year also dealt with biopharma, and Jesper will continue to have a close eye on our biopharm business as he takes ownership and clear executive oversight to maximize value of that including also looking at some of the nonorganic options we're looking at.

You have seen that we grew sales by 2% in 2017 in comparable exchange rates, and if you look at the geographic distribution here, 5% of the growth came from what we call International Operations.

I think it's important to note here that all regions in International Operations contributed nicely to the growth.

We saw a flattish growth coming out of North America.

But if you correct for the one-offs in terms of Vagifem patent expiration and also that we in 2016 had a quite favorable rebate adjustment, the underlying growth in North America is actually 4%.

So that is, I think, quite strong in an environment where we have some price pressure on our insulin business.

If you look at it, split on products, diabetes and obesity grew by 7%, quite a healthy growth.

Our next-generation -- or new generation of insulins close to doubled in 2017 in terms of position.

And we saw very strong growth coming from our GLP-1 franchise, Victoza growing by 18% and Saxenda growing by not less than 64%.

The pain point in '17 was the biopharm business where I just alluded to the 2 one-offs, the rebate positive adjustment we had in '16, which we did not have in '17; then also we saw the Vagifem patent expiration impacting us.

If you take those 2 away, the decline was down to 5% linked to both volume and price pressure in our growth hormone business.

On a positive note, the 2% growth in hemophilia we're actually quite pleased with at a time where we also see competition coming in.

And with that, I'll hand over to Camilla who will give a bit more details on the specific brands.

Thank you, Lars.

So let's start with the basal segment.

You see here our penetration in different countries into the basal segment.

To break the graph down in a little bit more details.

What you see in the countries where we have full reimbursement there is, in particular, in Switzerland, in Italy and also in Japan, we have a penetration more than 30% in the basal segment, up to 42% in Japan.

What is also interesting is in countries where we initially didn't have full reimbursement or market access, but have gotten that after launch, we do see quite a big change in the curve.

So for example, the blue line for Denmark or the black line for Holland meaning that even when we get access well into the launch, there is a significant change in terms of our uptake into the basal segment.

On the right-hand side, you see the combination of Tresiba with Xultophy and what that means to our total basal market share.

So if you look at Switzerland, in particular, you see that the penetration into the basal segment of the 2 products combined is now close to 60%.

But you also do see that the Xultophy clearly sort of stopped where Tresiba left.

Tresiba will break off a little bit and then Xultophy will continue the penetration into the segment.

When we look at the U.S. in particular, you see here that our total scripts have increased to 34% for Novo Nordisk basal insulins combined.

You see also that our Tresiba market share has reached more than 10% the way we have also indicated earlier in the year that we would get to by the end of this year.

Our formulary access remains largely unchanged, which is around 70% for commercial and Medicare Part D combined.

But of course, also going into 2018, we do expect further to grow our volume share because we will now have Part D formulary access, you see there Part D formulary access.

So generally, these all contributes to growing our basal market share for the company in total.

Tresiba is also a large growth driver for our company in our full year results.

It's clear that, that is together with Victoza and Saxenda one of the biggest growth drivers of the company.

And Tresiba does represent of our increase in total diabetes share as Tresiba does account for 58% of that increase.

If we look at the GLP-1 segment, I'd like to start with the graph in the middle where you see that the market -- or sorry, you see on the blue bar under the curve that the market is growing 23% in volume.

What you then see in the second graph is that despite that we have lost market share to Trulicity, you see that the number of Victoza scripts keep increasing.

So this actually shows that the market is expanding with 23%.

That means that even if we lose share, we can still continue to increase the number of scripts for Victoza, which is

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to notice now that we will be launching a new GLP-1 into this segment, assuming that we can continue to grow the market segment, and of course, also we aim to take share back in that segment.

You see on the -- in the third graph that we have lost market share from Victoza to Trulicity to the tune that we now have 44% market share in the segment.

And you can say the new scripts are very close to this ratio, but just the other way around, around 44% to Trulicity and 44% for us but they are sort of at this level now just before that we'll be launching Ozempic in the U.S.

So Mads, let's get into a little bit more detail about the approval of Ozempic.

Thank you very much, Camilla.

So what I'll start with is just highlighting the label information that is either in the label, as is the U.S. case, or approaching the label, as is the awaited EU Commission approval of Ozempic over the next month.

In the U.S., we're all aware that we have statistically significant and clinically meaningful reductions in both glucose -- long-term glucose control and body weight as compared to various comparators in the label.

We have a convenient once-week administration in a very easy-to-use Ozempic pen.

And then in terms of the safety that was much debated, we have guidance on the retinopathy complications that is very similar to the wording in insulin labels, i.e., mentioning the early worsening phenomenon associated with the extreme degrees of transient or immediate glucose lowering.

CV safety is mentioned with the 6.6% event rate in the Ozempic arm and the 8.9% event rate in the standard-of-care arm.

Now in the European label, this is still what has been recommended by the CHMP on December 14.

You are all aware that the EU Commission tends to adopt the label as is, and that means that we will have the SUSTAIN 6 data also included in the European label including Kaplan-Meier plots including the 26% statistically significant and highly meaningful reduction in MACE events despite the short duration of this particular trial.

Now we do want, however, to fortify the semaglutide business over the long term by conducting a, you can say, the trial [and] all trials in terms of discussing cardiovascular benefit, namely, the SOUL trial in 13,000 patients.

These are patients who have either established cardiovascular and/or kidney disease, have diabetes and who basically will be monitored until we have put together enough events to prove the point that we are superior.

There will be a data monitoring committee that, of course, will have some stopping rules, and it will be at their discretion if things happen prior to the expected amalgamation of the amount of MACE events by 2023.

If we then look at semaglutide, based on the very strong Phase II data as of last year in the obesity space, we basically have designed a classical Phase IIIa trial program called the STEP program for sema once weekly, 4,500 patients.

They're going to be started in the classic weight loss setting, in the setting where they are obese and have a diabetes and the weight loss, in the setting where we maximize weight loss by actually having an adjunct treatment to intensify behavioral therapy with the add-on of semaglutide.

And finally also, the ability to maintain an already established weight loss.

This is expected to be completed by 2020, well ahead of the Saxenda patent expiring in '23.

Then we've made a bold decision to move into a what I would call landmark study, namely, the study to prove for the first time ever in a prospective setting that it is actually possible via pharmacotherapeutic intervention in the obese state to improve people's outcomes, by which I mean their lifespan, their strokes and their myocardial infarctions.

To this fact, we have actually taken people, men and women above 45 with a event more than 60 days ago, either MI or stroke-wise, and we will simply follow these 17,500 people either on standard of obesity care or standard of obesity care plus semaglutide.

Very exciting.

We believe it will put an end to the story about whether obesity is a serious medical condition or not by proving the point and also give a strong label for a nondiabetic population with cardiovascular risk reduction for semaglutide.

This one I won't go through.

It really is just stating, of course, the Fiasp pump study and so on.

But many, many times, when we do these cardiovascular outcome trials, whether it be LEADER, whether it be DEVOTE, whether it be one of the other, then we, of course, seek to add that data into as many labels as possible.

So if you are a combination product, Xultophy, where you both have liraglutide and you have insulin degludec in the product, of course, you seek to get the great data from these CVOTs into the label of such combo products.

That is what is stated up here.

Biopharm-wise, we have now completed recruitment of the second and last of the Phase II trials for our bypassing agent, the subcutaneous concizumab.

On the last slide, I will actually only dwell on Q1 because Q1 is going to be very, very busy as of now.

We expect a U.S. regulatory decision on getting severe hypoglycemia data into the Tresiba label based on DEVOTE and SWITCH during this quarter.

That's pretty exciting.

We will complete the DUAL studies for submitting Xultophy in Japan later on in the year.

We expect approval of Ozempic with a strong label in Europe, but also in Japan now that the drug committee has concluded that it should be approved.

And then we are waiting eagerly the first set of pivotal data for oral semaglutide, namely, the PIONEER 1 study, to report soon in this quarter and that will kind of take some of the, I hope, uncertainties away as pertains to drug adherence and the things that we've had many long and good discussions about.

And lastly, I've mentioned that we have some very exciting Phase I programs that have been ongoing for a couple of years, one on the once-weekly insulin 287 and the other on the glucagon analogue to speed up energy metabolism to be used together with semaglutide in obesity therapy.

And very lastly, Jesper, in the honor of you, we are actually asking you to the podium and also mentioning that N8-GP will be submitted in U.S. and Europe for the intravenous version while we complete Phase I program for the subcutaneous version of the same molecule.

Here you go.

Thanks, Mads.

So it's actually good to be in London for the 70th time releasing quarterly results.

Also fun to see a few faces that's been, along the way, almost all the same [till now].

[Isabella], we've also had you see quite a few times.

There are a few faces over here.

[Simon's] been there, Mark, Richard.

It's been a while.

It's great to pass on.

The way we have split the role between Karsten and me today is that I'm going to do 2017.

That's my responsibility.

Any predictions as regards 2018, Karsten will have to give them and you can keep him accountable for those promises he's making.

So hopefully, he'll be successful in that.

If we look to the financial results for 2017, it came out and that's going to be a little bit tough to look at, more or less exactly where we were last year after full year of hard work.

Local currency 2% growth, but of course with a significant impact, as Lars also alluded to, from the Vagifem patent expiry in the U.S. and generic competition.

In terms of gross margin, I think that's actually one of the things in the numbers for 2017 I'm pretty proud of.

If you back out the effect from currencies, we had a 10 basis point decline and that's kind of actually solely related to the adjustment to growth among rebates in 2016 in the U.S. If you back that out, basically we had an unchanged gross margin.

So we've been able to compensate for the negative pricing pressures, especially in the basal segment in the U.S., from a better overall product mix, and I think that's an achievement in its own right.

In terms of the cost structure, unchanged sales and distribution costs primarily coming from higher investments in markets like Latin America, China and AAMEO as the key areas in International Operations where we're investing and where we are seeing substantial growth is also alluded to in the overview that Lars presented.

In terms of R&D, 12.5%, a little bit lower than what we would ideally have hoped.

It has taken slightly longer than what we anticipated in ramping up our research activities following the change in research strategy late 2016.

But we are getting there and we are ramping up our activities also with a clear focus on doing more external innovation.

In terms of admin costs, a 3% drop in local currencies and an improvement in our admin ratio yet again I think when I took on the responsibility for Novo Nordisk, I think our admin ratio was in the vicinity of 8%.

So that has been managed to a more competitive level.

Other operating income, unusually high in 2017 due to the sale of a inflammation asset to Innate Pharma.

Expect levels to be a little bit lower going into the next year.

Operating margin, hence, ending up improved, also reflecting a very solid cost control throughout 2017.

I'm going to comment on financial items.

Just note on the income tax that we had an unusually low income tax rate in 2016 following settlements of some outstanding tax cases between Denmark and Switzerland, and that had a substantial positive impact on our effective tax rate in '16.

In '17, we are more or less at the level of the statutory corporate tax rate in Denmark of 22%.

Net profit up 1%, and we continue to take out shares.

So 2% taking out against diluted earnings share growth by 3%.

The challenge we have when we look into -- maybe just on the 2% taking out.

I think maybe a nice pass over to Karsten would be that the compounded annual growth rates in our earnings per share from 2000 to 2017 is about 22%.

So Karsten, you just take it from here.

Thanks, Jesper.

So -- and yes, thanks for this very, very nice tee-up, at least, that you've managed expectations going forward like you have done for 17 years.

So thank you for that and leaving the ship in great shape for me.

So now it's on me to deliver going forward.

So of course, I'll take that responsibility.

Jumping into a little bit busy currency slide.

I think it's important this time around, especially because we have seen some significant currency movements over the last quarter, especially the U.S. dollar against the Eurozone.

And since we're a kroner-reporting company, then we measure it in the U.S. dollar against the Danish kroner.

So when you look at this chart, on the right-hand side, we have split it in our hedged currencies and in our unhedged currencies.

So what we have in our treasury policy is that we are hedging around 75% of our currency exposure -- of global net currency exposure.

Right now, we're around 80%.

So the top right-hand side was actually we have hedged as of today 80% of our global net currency exposure.

Then what you're seeing as the key point to look at here is the U.S. dollar development.

So in '17, we had depreciation of the U.S. dollar versus Danish kroner on average from that DKK 6.73 to the DKK 6.60.

So 2%, which links into the results we just disclosed.

But then when you look at the movement into 2018 over the last few months, then a significant depreciation.

So if the current rate and the DKK 5.98 you see in this slide exactly where we are today also on the U.S. dollar-kroner rate, then if that remains where it is for the full year 2018, then it's a 9 percentage point deterioration of the U.S. dollar against the kroner.

We are fully hedged, as you see on the right-hand side, 12 months, but there's a hedging cost associated with hedging the U.S. dollar that I'll come back to.

Then on the lower right-hand side, you see the nonhedged currencies and you see a weakening on a number of currencies there, which are some of our main countries in emerging markets with the rupee linked closely to the dollar and the Argentinian peso also taking quite a hit.

So also, continue to plan on emerging market currencies, which are simply too expensive to hedge, and that's why we've left those unhedged.

So what does that link into for 2018?

We're looking -- or we are guiding at a sales growth in local currencies of between 2% and 5%.

Then the currency development you saw on the prior slide takes out 7 percentage point of that growth.

Operating profit between 1% and 5%.

You will say, why don't you have the same range as for sales growth?

And the 2 main drivers there is, first, that to ensure that we have sufficient resources in launching Ozempic in the U.S.; and secondly, to recall that we had a significant one-off in the third quarter of 2017 related to out-licensing of an asset to Innate Pharma.

So our other operating income is moving from DKK 1 billion in '17 to DKK 700 million guided in '18.

Currency impact on operating profit growth is 10 percentage points, corresponding to DKK 5 billion.

And then when we take one step further down because, as you recall, we book our hedging gains or losses in financial items below OP, you will see that of the DKK 5 billion we're losing on OP, we are recouping DKK 2.5 billion.

And then you say, why don't you have a closer match there.

One piece is linked to our nonhedged currencies.

So the emerging market currencies that were not hedged.

And the second piece is that the hedge in U.S. dollar on a 12-month horizon, then the interest rate differential between the U.S. dollar and euro simply leaves almost a 3% cost of hedging 12 months forward.

So it's pure market pricing linked to interest rate differential.

So that explains the other piece there.

Tax rate, 20% to 22%.

You will see a lowering when you look at the midpoint compared to '17 and that is linked to U.S. tax reform.

So for U.S. tax reform, we see actually it's a benefit to the tune of 1 percentage point on our effective tax rate.

Capital expenditure, DKK 9.5 billion.

And then moving to free cash flow, between DKK 27 billion and DKK 32 billion.

And that links then into our cash return to shareholders.

So just recapping '17, we generated DKK 32 billion in free cash flow and we returned more or less DKK 3 billion more than that to shareholders either through dividends or share buyback through our logic of returning our entire free cash flow to our shareholders.

Then in '18, what we are looking at there is actually the same principle to returning slightly more to our shareholders than what we generated in free cash flow.

So we've proposed a, you would say, final dividend of DKK 4.85 as in connection with our AGM in March.

We'll continue with an interim dividend and then we are initiating a DKK 14 billion share buyback program for 2018.

So with that, to you, Lars, and concluding comments.

Yes, so basically, the investment case here in Novo Nordisk is that an exposure to the world's leading diabetes care company, we have a strong portfolio within a 4% growing insulin market.

We have a leading portfolio also within the GLP-1 segment that's growing more than 20%.

And we have also a leading position in an emerging obesity market.

And then from a pipeline point of view, the growth we have is fueled by a full portfolio of both insulin and GLP-1 products.

A lot of excitement around the next-generation GLP-1, semaglutide, being launched now as Ozempic, start this week in the U.S. Xultophy is, I think, is a bit of a jewel we haven't fully polished yet, but I think there's a big potential there going forward sometime in the future as patients fail on underlying components so basal insulin or GLP-1.

And in addition, through Saxenda, we have a quite promising pipeline also in obesity, [sema in obesity], the first, but also 6 Phase I assets being tested out.

And also our broad portfolio in hemophilia.

So that's kind of the investment case.

And with that, we would like to open up for the Q&A.

So should we give our host the first question?

It's Michael Leuchten from UBS.

Just a simple question on the guidance.

Going forward, you're not going to give preliminary guidance anymore with Q3, but you obviously did this time around.

Has anything changed since the Q3 preliminary guidance and the more specific guidance you've now given for 2018, be that in terms of how you think about Ozempic or you think the about operating expenses or the top line?

Yes, so I can take that one.

So what we guided in connection with Q3 was low to mid-single-digit sales growth and OP growth.

And when you look at our -- it shows up here, we believe that they fit the Q3 guidance very nicely.

So you will say the main change is related to currencies where actually, at Q3, the U.S. dollar was at DKK 6.41 at the time of guidance and then it's now DKK 5.98.

So that's the main change.

Apart from that, no major changes to our assumptions.

I'm not sure if I should announce my name, but Tim Race, Deutsche Bank.

Basically -- well, first of all, Jesper, thanks for all the 17 years you've been here.

You've not always been smiling all the time at us, but we very much appreciate it when you do smile and the honesty you've been able to deliver the results in the last few years.

So anyway, going on to questions.

In terms of the hematology strategy, you delivered to us that obviously you want to expand the business and utilize your sales force.

Obviously, there are other players active in this space, and we've just learned that other players are willing to pay 50% more than you are.

So it makes your current assets more valuable and it makes your hurdle rates for returns more difficult.

So how does that change your strategy in hematology?

And then maybe just a little question to Mads.

Pfizer mentioned a small molecule strategy with the GLP-1.

Just a thoughts about that, please.

So Jesper, on -- yes.

Yes, the hematology business is, of course, everything else looking more challenged due to the innovation that has been emerging.

I think what I'm pleased about if I look to 2017 was that even though our biopharma franchise was declining overall, actually our hemophilia business was actually growing by 2 percentage points.

So we were able to compensate for the decline in NovoSeven sales by increased sales of NovoEight and also a little bit, in fact, NovoThirteen.

Looking into 2018, no doubt it's going to be a more challenging environment as the product HEMLIBRA from Roche will be rolled out.

We would primarily expect to see the impact in the U.S. in 2018.

The guidance on our overall NovoSeven sales was that roughly half would be impacted over a 4- to 5-year period, and that still stands and we don't have any additional insight at this point in time.

I do believe that what we should be holding on should still be related to the competencies we have.

So rare bleeding disorders is of high interest.

Unfortunately, we couldn't make ends meet with caplacizumab from Ablynx.

That was a disappointment, but I think it was apparent from the final transaction that we were not the best buyer of that asset and it went somewhere else.

That does not mean that we will not spend a lot of energy on trying to find alternative assets.

I think it's also a story of us actually originally having discussions on in-licensing on that compound, and it actually shows our preference in terms of the hematology franchise that we would like to get additional late-stage product into our pipeline and we'll look for that.

We don't have a preference for necessarily acquisitions.

We'd like to do risk-sharing with the current biotech companies that owns those assets and then together pursue the full global potential where we do believe we have some significant things to bring to the table.

And hence, that would be preferably late Phase II or early Phase III that would be ideal for assets in our respect.

And that is one of the tasks that I have as part of -- as head of our biopharma operations, but of course also ensuring that we maximize the value opportunity we have in our current portfolio.

And I'd just like to highlight that we, in China, currently only have 2% of the total turnover in Novo Nordisk from biopharm whereas we have more than 30% of the turnover in Latin America.

So we have opportunities ahead of us.

We'll be launching our growth hormone in China in 2018 and that will be a way to continue to see growth from our biopharma business.

Turn over to you, Mads.

Thank you.

Yes, and Tim, first of all, yes, Pfizer just announced a small molecule entering Phase I trials as a potential GLP-1 mimetic or agonistic small molecule.

Quick word, as you may know, we have worked in the field also of small molecule agonist for GLP-1 receptor ever since we got the patent rights to the receptor from (inaudible) in the mid-'90s.

And we learned from that, but we also learned from some papers including one we published in Nature last year where you will see Novo Nordisk authors on co-crystallization of the receptor with the ligand binders, that this receptor -- it's a tough one.

It's a so-called class B G protein coupled receptor that, unlike class A, G-protein coupled receptor doesn't lend itself well to pure-play small molecule agonist.

There are plenty for the A-type receptors, not really any ones for B-type receptors.

And the reason being that the ligand, in this case GLP-1, has contact points on several places of the actual domain of the receptor, meaning that you actually need a rather big molecule to stimulate with the ligand.

So what you can do is make so-called allosteric modulators.

These are molecules that do not bind to the ligand binding site, but elsewhere on the receptor and enhance its affinity for general receptor like in the interaction.

And that means that you will typically either have partial agonist or inverse agonist or the likes of it.

So I'll be excited to see the data, but it'll be tough to get the effect of a full-blown semaglutide.

It's Mark Purcell from Redburn.

Just 2 questions, very different.

Firstly, on insulin pricing, could you help us understand in U.S. as well as the in your other parts of the world the impact or lack of impact basically, Lars, made on your business indirectly?

Just thinking about what could happen with AMNOG and the short-acting space given the price discount in the U.S. is also 15% and it's -- I think it was 28% initially in Europe.

And then secondly, could you help us understand the dynamics of the GLP-1 market in the U.S. in terms of new-to-brand in the endo space and in the PCP space?

Asking because, clearly, the SUSTAIN 6 data is clearly showing that Ozempic is a superior product to dulaglutide, although there could be a debate here in terms of the device and the device experience and whether having a disposable device may have a positive impact in certain parts of the market, maybe the PCP part.

And on that, how long it would take you to develop your own disposal device if that seems to be an important part of the patient experience?

I'm sorry for the voice, I'm losing it.

Thank you.

I'll give it a shot and then Camilla can chip in if you have some points.

So when you look at the dynamics around biosimilars in the U.S., I think it was important for CVS in 2017 to show that they would embrace biosimilar products because that's really what unlocked the current dynamics -- pricing dynamics.

So by doing that, you created pressure for all manufacturers leading to giving more rebates.

But when you then look at what actually happened in the market in terms of the volumes and you kind of alluded to it yourself that maybe Lilly did not get the full BASAGLAR volume that some had anticipated, then it leads back to what are some of the tactics that players can have.

Obviously, Sanofi made a decision to hang on to some of the business by actually paying for it for the patients, which led to a situation where CVS did probably not hit the volume they had anticipated and hence did not get the rebates they had budgeted with.

So it's an interesting reflection looking ahead and then say, okay, what will happen going forward and you can discuss different scenarios.

One scenario is clearly that by one time embracing biosimilar, the big player has shown that this is something that we dare to do and everybody is then aware that you could get excluded.

And to fend that off, you give some rebate and that's what we have been doing and that's what we have assumed that would happen going forward, that we'll have to keep enhancing our rebate level to stay on formulary.

And I refrain from speculating what happens going forward because you can paint different scenarios.

If you then look at the fast-acting segment, this is a somewhat different segment.

The products are less differentiated.

For years, physicians have been used to switching between Humalog and NovoLog, and that has led to that the category is pretty much looked down -- locked down in exclusive contracts.

And when doing that, the one winning a contract gave a significant rebate to get that contract and the PBM made a onetime saving on that.

So if you have to unlock that, when a biosimilar version of Humalog comes in, it's a bit the same.

You would have to be, from a payer's point of view, you have to be very certain that you can move the full volume because if you don't move all patients, you run the risk of losing quite a steep rebate level on the business you do not move.

And there are also some, in some cases, that fast-acting contracts are bundled together with mixed contracts and even human insulin, so you have to unbundle that also, and the payer would have to secure the rebate on that level.

So I think the dynamics between the basal category and the fast-acting category is a bit different, and I've here into a bit how we think about it.

In terms of device, our view is that when you have a similar efficacy of products, a device can be a differentiator.

So if you have a superior product in terms of efficacy like we have, we believe, we have for Ozempic, the decision made by the physician in terms of treating glucose level for a patient is based on the efficacy of the product.

And in the case of Ozempic, you will have a stronger profile, you will have a better weight profile, which will further be acknowledged by the patient.

So we do not believe that the device, again, when you are at a level of device that is well known and well established by the physician that, that is going to be a hindering.

It is a once-weekly compared to once-daily that makes a swing in the clinical profile.

Then you were correct that we are looking to also upgrade our device to something that's matching the best in the industry.

We still need to go through testing that out, and it's too early for us to guide exactly when we'll be launching that.

But we do not see the device as a big barrier in terms of penetrating Ozempic because it's a clinical profile of that will be driving that product.

Thank you.

(inaudible) at RBC.

A couple of longer-term questions.

One, just kind of following up on the biopharma business, I guess Jesper is going to give it some special attention now.

So I was just wondering in the kind of plan A, where would you like that business to be in 5 years' time?

And what's the sort of shape of where biopharma could look?

And the second question is more with your sort of relationship with the board.

Notice that Göran is stepping down, and obviously he had a deep sort of science and medical background and I think Helge has got more of kind of an oil and gas industry background, which is kind of very different.

So I was just wondering whether there's going to be a slight shift in emphasis on what the board is giving you?

And I just wondered what kind of constructive challenges are they giving a new management team and maybe you could give us some color as to how they think they're kind of leading your strategic thinking with the kind of shifting that we've had that we've seen within senior management and a small shift that we've also seen at board level.

Yes.

Jesper, you want to start with the background?

Sure.

I actually think that we -- a biopharm franchise have the basis for having a platform where we can bolt on external innovation to what we already have going internally.

I have great hopes for our extension within growth hormone somapacitan.

I do believe that based on our existing well-known [isolation] technology that we've come up with a compound that's going to provide great benefits.

So I'm confident in our market position there.

So it's more going to be in hemophilia, hematology where I believe we can build out our base, clear focus with rare bleeding disorders, but also going a little bit broader into other orphan rare diseases.

I think we do have a global reach.

Ambition level in 5 years' time will clearly to be a business, which has growth level which resembles the growth level that we can obtain from our diabetes, obesity franchise.

That would be the ambition level.

That would probably occur in a gradually more focused business and a more dedicated form of operation, but how exactly we're going to do that, we'll see over time.

It is really important that we continue to harvest from the benefits of being an integrated part of Novo Nordisk with all the systems, platform and skill set that we benefit from, so how do we make it focused and dedicated whilst at the same time pursuing synergies.

But I guess, that's not really something new to me.

So it's going to be fine.

And to the change in the board of directors, it is correct that Göran Ando being a physician and having spent a lot of time in R&D obviously has much deeper disease and science understanding than Helge Lund who has spent a lot of his career in oil and gas.

I don't think Helge Lund is a specialist in oil and gas.

He is actually a very strong growth leader.

He has a lot of experience from regulated industry with massive investments and also managing different business segments.

So at the board, we have different skills with different board members.

We are looking to -- we have strong R&D competencies already.

We are looking to strengthen that.

So I think, as a board, there'll be enough R&D knowledge to make up what Göran takes with him out of the board.

And from a, say, a governance point of view, I don't think it's the purpose to have the chairman being the R&D and the science leader.

That has to be in the management team and in the R&D organization.

And then you need to have a board that can challenge management and judge us on what we're doing.

But that's not a chairman role alone.

That's with the board.

So I think in Helge, we are getting a very experienced leader who has led companies through significant transformation and have a lot of solid CEO experience and I think that's going to be a good support for all of us in executive management.

And I see no -- I have no concerns about what the board will be able to do going forward in terms of challenging us and guiding us with eventually the board composition that you will end up seeing when we release the call for the AGM.

Thank you.

Trung from Crédit Suisse.

Just a couple on DEVOTE and then one on Xultophy.

On the DEVOTE SWITCH, do you expect to see an FDA AdCom for this?

And we've also seen the uplift for Victoza following LEADER.

We've seen Jardiance with the EMPA-REG study.

Do you expect to see a similar inflection for Tresiba?

And if not, why not?

And then speaking to KOLs, they've had a lot of positive feedback on Xultophy.

When do you expect that push for Xultophy in the U.S?

So to Mads on AdCom for DEVOTE SWITCH, label upgrade on our...

Yes, since the -- as you're probably aware, the PDUFA action date is March 26 this quarter and that by inference means that I would have known if there were an AdCom coming around the corner.

So no, that's not the expectation.

The expectation is a label that, in my view, should for the first time in the U.S. give us a position of having severe hypoglycemia data specifically mentioned, i.e., the 40% and 53%, I hope, that in particular from the DEVOTE study were quite compelling in terms of patient safety.

And then was there another one or...

No, I think that was it.

Then, Camilla, on inflection point for Tresiba based on a potential label upgrade and also what do we -- when is Xultophy taking off.

Yes, so we expect by the end of the first quarter to get information about label update for Tresiba, and that basically means if that is positive, of course, that means that we can further intensify our promotional efforts for Tresiba throughout 2018.

So we would have to wait and see by the end of the first quarter how this turns out.

And then when it comes to Xultophy, it's clear and I showed you some data earlier that when we add Xultophy onto Tresiba, it's clear that we can further lift our market share in the basal segment.

We do, however, also know that the U.S. has not traditionally been a strong market for, you can say, combination products.

On the other hand, of course, there is still an opportunity for us to position this product in the U.S. as well and we will also be putting additional resources behind that in the U.S. as well as in -- within another countries.

And going forward, we also are looking at how we can make sure that Xultophy can play a strong strategic role in our portfolio.

We have some great results on that product and it's great to see in some countries that it can lift the basal market share beyond the 60%.

Thank you.

More over here.

Yes, yes, Richard, yes?

Go ahead.

Richard Vosser at JPMorgan.

Just on Ozempic, it seems like you've been highlighting slow uptake and I'm pointing to relatively limited sales expectations for that in 2018 so just -- and in meetings lower than consensus.

So if you could just give us an idea of the flavor -- of the size and the opportunity this year and then next.

And then just thinking about your hedging policy.

Obviously, costs quite lot and Clayton in a few years' time might come online, and give you a more insulin product and GLP-1 product in the U.S. So is there an argument to stop hedging the U.S. dollar in a few years' time?

Thank you for that.

And if I address Ozempic, so you mentioned that we have a slow uptake.

Well, we first launched this week.

So we've not been able to have an uptake before now.

I was at the launch meeting in Chicago last week and I can tell you the sales force is really fired up.

If you are a diabetes sales rep, I think this is kind of once-a-lifetime opportunity to go out and sell that.

So we are really optimistic about it.

We, however, also of the view that in today's environment, we are not going to sell Ozempic in a cheap way, not getting full value for the clinical profile.

So when we go out and do contracting, it has to be an approach where we make sure that the payer fully understands the clinical profile of the product and then rewards us on that in terms of a rebate that is meaningful compared to the profile of the product, which obviously takes a bit longer time compared to if we just went out and said, okay, give us the Victoza rebate level and move on with it.

So we have already now secured the first contracts with payers who clearly acknowledge the clinical profile of the product and the reps out selling against those contracts.

And then we also have the positive situation that our GLP-1 sales force can all go out and be successful and win because either you promote Victoza with a CV benefit, or if there's access, we switch and then the focus on Ozempic.

So it's not like we have reps that are walking around idle and not creating value.

They can all go out and win and be incentivized and be successful.

So '18 is a year where we make sure that we have the right contracts for the long term, and I think when you look at the value of getting that right, it's a significant, better value case for us compared to start selling it early on.

Still, we expect to sell more than DKK 1 billion in 2018 and still we expect to have double-digit growth of our GLP-1 business.

So still a very robust and strong outlook.

And then in terms of hedging, moving more cost into the [dollar]?

Yes.

So the way it works with us hedging our net currency exposure, so ramping up the Clayton manufacturing facility will put more cost in U.S. dollar-denominated line, so to say.

So our net U.S. dollar exposure will go down as an effect of that.

So that's one piece.

And then the other piece is, which is more uncertain, is of course, the interest rate differential so at what point in time will the euro rate -- the euro interest rates go up and get closer to the U.S. dollar interest rates.

So for instance, today when we are hedging our Japanese yen, that's hardly any interest rate differential, and hence, our hedging is we don't have the hedging cost on the rate for our Japanese yen as an example.

So we hopefully will get a benefit from that at a later point in time when the Eurozone and the economic recovery provides interest rates.

So...

Thank you.

I think, Tim?

Richard just asked a part question I wanted to ask.

But in terms of Ozempic and Victoza, just maybe a bit clearer, do you expect Victoza to grow in 2018?

And maybe first half versus second half?

And then just another question on R&D for Mads and short term, I know PIONEER 1 is reading out.

There's various studies you could compare it to when it does read out, and obviously it's not going to be fully instructive.

But if you look at Trulicity, they have 0.7 as the low end, the 0.8 in terms of A1c reduction, towards the high end on similar sort of studies you've seen sort of 1.5 on some products.

So where should we expect oral sema to read out here?

And are there any caveats to this data?

Yes, and it's quite easy to answer the first question.

Yes, Victoza is going to grow in 2018.

I'm not going to be detailed on what is the split between the first and second half because it is a function of the access we get.

And we switch gradually promotional focus to Ozempic when there's a territory where there's access, and we have used the second half of 2017 to reorganize our commercial activities so we have a much more granular localized model so we can strike on the local territory level as access builds.

So we go from kind of having kind of a one-size-fits-all for the U.S. to something that's much more regional so we can be much more agile and close to the underlying segments as we see that it's switched from being value generating to promote Victoza to generating Ozempic.

But for sure, Victoza growth in '18.

Just to add on this than when the GLP-1 segment is growing more in 23% in the U.S. in volume, then even if we lost market share with Victoza this year -- or 2017, there's still growth in the number of scripts.

So because of the segment growth being so strong, you can say there is room to further expand the market, but also to further expand the number of scripts in this dynamic.

So we, of course, expect that also to happen this year.

And then on the R&D question, PIONEER 1, so the things to look out for there, obviously it's the usual stuff.

You want to document safety and tolerability and that the profile is benign and the patients henceforth like it.

We also want to document, of course, that patients actually adhere to the therapy and the data will speak to that once we have them.

Now in terms of what to compare to, you have to compare to things like the LEAD-3 study for Victoza where there was part of the population that were treatment-naïve.

You should probably compare to the treatment-naïve ones because that's the PIONEER 1 population.

You have in the AWARD program also early type 2 diabetes study you can compare to, as you alluded to.

So the question very briefly, if you come from a high baseline A1c, and I don't know the baseline A1c, but if you come from high one of like 8.3-ish, 8.4-ish then you're expected to have a high absolute A1c reduction, but with a relatively low percent target achievement, i.e., maybe even less than 50% data because they come in from a very high level.

On the other hand, if you have a low baseline A1c, you'll have a high target achievement, but numerically speaking a much lower A1c reduction in percentage points.

So that is what is to look out for.

I -- when I comment on the trial, which I will do as soon as I have the data, I will, of course, make some relevant comparisons to make life easier for you.

Mike?

Just going back to the commercial strategy around Ozempic and Victoza, about 18 months ago when you came out with Tresiba in the U.S. and you gave the same sales force the option to either push Levemir or Tresiba, it was sort of Levemir that gave volume to Tresiba as opposed to taking share from the competition.

You're now opting to do a similar thing to the GLP-1 franchise or at least give the reps the option which product to push more.

Why not give it to separate sales forces?

Why not make it completely separate and go out and push both as hard as you can?

Camilla, you want to answer or should I?

Basically, you can say that there is a couple of differences between the 2 segments and also between the products as such.

So if we take Ozempic, we see very strong clinical results.

There is a clear improvement in the weight profile.

There's a clear improvement in the HbA1c profile, actually 3x better HbA1c improvement than Januvia.

And then a very kind of very safe product in addition.

So with the growth of the GLP-1 segment that we just talked about before, there is an opportunity now to have to do, you can say, either/or but there is also a different market access environment.

That means that we need to grow the GLP-1 -- our market share in the GLP-1 segment with either of the 2 products depending on the access.

And it's not so that it's left up completely to the reps on their own.

There's a very clear sort of threshold in terms of when is it time to promote Ozempic and when will we go full force forward with Ozempic.

You can say in the basal segment, the underlying growth is not as strong, and therefore, of course, one may be more at the expense of the other.

And we did see initially that scripts coming from Levemir were higher than they actually are today.

So we have also been able to move away from that and position Tresiba more strongly in the initiation segment.

I mean, also today that it's only 9% of, say, the source of business to Victoza that come from GLP-1.

So majority comes from OAD.

I think we have time for one more question.

Everything is clear?

Sure?

Yes, yes, I knew it would be Keyur.

Can you just explain your rebate adjustments and why now today?

The rebate adjustments, Karsten?

So we discussed that quite a bit this morning also.

We had a rebate adjustments, as you read, to the tune of DKK 500 million retail U.S. sales exit Q4, and it related to the prior 3 quarters.

And it's basically linked to the fact that during the year we are providing for rebates as we expect them to materialize, but there is a huge lag between the time we sell to wholesalers and the point in time when we receive rebate claims from managed care organizations and PBMs.

So that time lag then, of course, leads to revisions of the model.

Then you get into Q4 and then you have to adjust for the full year in one quarter and that's why it becomes a huge impact now on one product.

When you read our annual report tomorrow, which will be on the website tomorrow, you can go into the notes section and then see the magnitude of our gross to net.

And just to give you one number then, in terms of short-term provisions, we have more than $3 billion on our balance sheet end of year related to rebate provisions.

So even small tweaks in our expectations there lead to a rather big impact, especially when you're catching up for 3 quarters prior.

So there's no underlying change in pricing contracts whatsoever.

It's purely a channel mix adjustment.

Good.

That's very good.

Any absolute, final question?

If that's the case, thank you very much for your interest in Novo Nordisk and see you in the coming quarters.

Thank you.