Novo Nordisk A/S (NVO) Q1 2010 Earnings Report, Transcript and Summary

Good day and welcome to the Nova Nordisk Quarter One Event Conference Call. For your information, today’s conference is being recorded. At this time, I'd like to turn the conference over to your host Mr. Lars Rebien Sørensen. Please go ahead. Lars Rebien Sørensen: Thank you very much, welcome to this Nova Nordisk conference call regarding our performance in the first three months of 2010 and outlook for the year. I’m Lars Rebien Sørensen, CEO of Novo Nordisk, and with me I have our Chief Financial Officer, Jesper Brandgaard; Mads Krogsgaard Thomsen, our Chief Science Officer; and, present are also our Investor Relations Officers. Today's earnings release is available on our home page novonordisk.com, along with the slides that we will be using for this conference call. The conference call is scheduled to last approximately one hour as usual. I would also like to start the presentation as outlined on slide number two. The Q&A will begin in about 20 minutes. Please turn to slide number three. As always, I need to advise you this call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause the actual results to differ materially from expectations. For further information on the risk factors, please see the earnings release in the slides prepared for this presentation. Also note that this conference call is being webcast live, and a replay will be made available on the Novo Nordisk's website after the call. Please turn to slide number four. We’re very satisfied with the performance in the first three months of 2010. In February, Victoza, our once daily human GLP-1 analog was launched in the United States and so far, performance has been encouraging. Victoza also performs well in Europe where it continues to gain market share and expand the GLP-1 class in key markets. Sales growth in the first three months 2010 was 9%, reported and 11% local currencies. The performance is driven by continued penetration of our modern insulins in all key markets and further support by the launch of Victoza. From a regional perspective, the key growth drivers have been North America, International operations which combine contributed with more than 80% of the sales growth. Within R&D Norditropin FlexPro, a new pre-filled injection pen for growth hormone has been approved and launched in United States. FlexPro has a unique new dosing mechanism, a user friendly design and an audible click confirming dose delivery all of which we believe will significantly increase convenience for our patients. Degludec and DegludecPlus, two new generation insulins, the ongoing Phase 3 program continues to progress according to plan and with the initiation of seven new studies during the first quarter of 2010. The last Phase 3a study to be conducted in the United States, even Japan is expected to initiate during the second quarter of this year. During the first quarter, a Phase 1 study of a new oral GLP-1 was also initiated. Now turning to the financials. Our gross margin improved by 40 basis points to 80.3% during the first quarter of this year which reflects an underlying improvement of 100 basis points in local currencies, operating profits grew 15% reported and around 20% in local currencies. The passage of the US Healthcare Reform and the increased clarity this provides on the future performance has enabled us to raise our guidance for 2010 sales from six to 10 to now seven to 10 growths in local currencies. On operating profit, due to the passage of the Healthcare Reform and higher than expected non-recurring other operating income license we raised our guidance for 2010 for around 10% to now more than 10% also in local currencies. Turn to slide number five. Our portfolio of modern insulins continued to show strong performance overall. In the first quarter of 2010, the portfolio of modern insulins was the main growth driver accounting for almost 70% of total sales growth in local currencies. Sales performance reflects the steady, durable penetration of modern insulins into the expanding market. Victoza sales reached DKK 370 million during the first quarter this year. It is however impacted by pipeline filling in the United States of approximately DKK 250 million in connection with the launch in mid February in the US. Our pharmaceuticals grew 6% reported and 8% in local currencies and here sales of NovoSeven was primary realized in North America and which led to increased sales from treating spontaneous bleeding episodes for congenital inhibitor patients. Room temperature stable version of Recombinant Factor VIIa, NovoSeven RT was launched in Japan in April 2010. The full year sales growth for NovoSeven was expected to be negatively impacted by the loss of the majority of the federal tender for NovoSeven in Russia. Sales of our growth hormone therapy product Norditropin increased 7% in local currencies in the first quarter with North America being the main contributor. Novo Nordisk remains the second largest company in the global growth hormone market with 25% market share measured by volume. Turn to the next slide for an update on the regional sales split. In the first three months of this year, all regions constituted to growth measures in local currencies. North America was a main contributor with 68% share of the growth measured in local currencies followed by International operations and Europe contributing 19% and 12% respectively. Sales in North America increased 21% in the first quarter and is driven by a strong performance in the modern insulins as well the mentioned pipeline filling for Victoza. The European sales is still impacted by the currently low volume growth of the insulin market, assumed to be of temporary nature and linked to the launch of the incretin mimetics in Europe. Sales growth in Japan continues to be impacted by a change in the underlying insulin market dynamics where growth in the basal segment in particular, modern insulins has accelerated at the expense of pre-mix segment where Novo Nordisk has already had its strongest position. Please turn to the next slide for an overview of key elements to the US Healthcare Reform which affects us. The US Healthcare Reform is expected to have a negative effect on Novo Nordisk financially in the coming years. However, longer-term elements such as expansion of number of people covered by medical insurance and new diabetes specific initiatives might be positive to us. We think that the reform will have that financial negative impact of around 1% of global sales in 2010. The main element leading to this is the expansion of the Medicaid fee-for-service pricing to manage Medicaid which previously has been in commercial rates. In 2011, two additional elements will increase the impact to around 2% of sales. These are new manufacturer fees and the industry’s commitment to party cover the out-of-pocket expenses for Medicare patients in the coverage gap known as the donut hole. Please also turn to the next slide for an update on the US launch of Victoza. The rollout of Victoza is progressing well. Globally, Victoza has been commercially launched in 15 markets including US, Germany, UK and France. So we expect to continue the global rollout throughout this year. In the United States, Victoza has also an encouraging start. We are now 10 weeks into the launch of Victoza has gained more than 10% of the GLP-1 market Data and anecdotal feedback from the US confirms a significant awareness of Victoza at a high level of interest in its key characteristics such as effective glycemic control, once daily administration and weight loss benefit amongst physician and patients. To sustain this promising launch, good market access to formulary coverage is, of course important. Current coverage provides for almost all lives at tier III level and coverage which we overtime gradually expect to improve to tier II level. Turning to the next slide on the performance of Victoza in Europe. In Europe where Victoza was originally first launched, market penetration continues to improve, and market leadership had been obtained in a number of European markets. In Germany, Victoza has so far been successful in expanding the whole GLP-1 class. The latest market share data from February 2010 shows a 2.1% market share of the total diabetes market. The penetration is showing further trends and feedback from physicians and patients are very positive. In the UK, Victoza is also gaining market share, now holds more than 1% of the total diabetes care market. This should be seen in the context where we continue to expand the primary care trust formulary access for Victoza. With this I’d like to hand over to Mads who will give you an update on developments within our clinical pipeline.

Thank you Lars, please turn to the next slide for an overview of the R&D pipeline within diabetes and obesity. With more than 8,000 patients now entered into the BEGIN and BOOST programs for Degludec and DegludecPlus respectively, the pivotal trials for these new insulin products continued to progress at a high pace. During the first quarter of 2010, Novo Nordisk has initiated seven out of eight trials in the fourth wave of the Phase 3a program to support regulatory filing. These trials use insulin glargine as a comparator product and evaluate the use of insulin Degludec once daily or three times weekly. The last of the Phase 3a market trials is expected to be initiated during this quarter. Scientific results as well as several Phase 2 study results on Degludec and DegludecPlus have been accepted for three oral and two poster presentations at the 70th Annual Meeting of the American Diabetes Association in Orlando, Florida which will take place from the 25th to the 29th of June this year. At this conference, more than 20 abstracts on Victoza have also been accepted for oral or poster presentation. Novo Nordisk has completed a Phase 1 study with a fixed ratio combination product consisting of Degludec and Victoza. The results in the study were encouraging and support full product development. Novo Nordisk is engaging at the current time in dialogue with the regulatory authorities regarding the design of the remaining trial program for the Degludec Victoza combination product. In March 2010, Novo Nordisk initiated a Phase 1 trial for an orally administered GLP-1 analog formulated using Merrion Pharmaceutical's GIPET technology. In brief, the Novo Nordisk R&D strategy seeks to maximize the likelihood of success for its oral diabetes protein portfolio by adopting an approach of clinically investigating several different tailor-made degradation persistent analogs of insulin and GLP-1 formulated through the use of various state-of-the-art oral protein delivery technologies. In China, Novo Nordisk filed PrandiMet for approval in March 2010; the fixed dose combination product consisting of repaglinide and metformin for regulatory approval with the SFDA. Please turn to the next slide for an overview of the haemophilia pipeline. This slide provides an overview of our portfolio within haemostasis. It is a mature and clinical portfolio with a handful of the component engineered short and long acting Factors VII, VIII, IX and XIII compounds with which we strive to expand our current product portfolio into both on-demand and prophylactic therapy both within the general haemophilia and inhibitor segments respectively. As all projects are progressing according to plans, I would jump to the final slide on the pipeline of other biopharmaceuticals. I have two comments to our pipeline of growth hormone projects. Firstly in relation to the ongoing pediatric Phase 2a study with NN8630, the growth more derivative intended for once weekly injection, recruitment is slightly delayed and we now expect to complete this trial in the third quarter of this year. Finally as Lars mentioned, we have received US FDA approval last month for Norditropin FlexPro and novel pre-filled pen for growth hormone administrations to children and adults. The Norditropin FlexPro has a unique new automatic dosing mechanism, a user friendly design and an audible click confirming completion of those deliveries. We have already launched Norditropin FlexPro this month at the Pediatric Endocrinology Nursing Society also called PENS conference in the United States and feedback is very positive indeed. With that, over to you Jesper for an update on the financials.

Thank you, Mads. Please turn to the next slide. We are satisfied with the financial results for the first three months of 2010. Total sales growth was 9% as reported and 11% in local currencies. Growth was realized within both diabetes care and biopharmaceuticals and their primary growth contribution originated from the model insulins. The gross margin for the first three months of 2010 increased to 80.3% compared to 79.9% in the same period of 2009. This reflects improved production efficiency, higher average selling prices in primarily in the US and the favorable product mix development. Gross margin was negatively impacted by around 0.6 percentage point due to the currency development primarily for the US dollar and the Japanese yen. Total non-production related cost increased by 9% to $6.827 million. This development primarily reflects the cost associated with the global launch of Victoza impacting sales and distribution cost and the ongoing Phase 3 program for the next generation of insulins impacting on the costs. It should be noted that our higher than expected non-recurring other operating income of $100 million related to the settlement of an IP dispute was recorded in the first quarter of 2010. Operating profit for the first three months of 2010 increased by 15% to more than $4.3 billion compared to the same period last year. Net financial showed net expense of $65 million in the first three months of 2010 compared to a net expense of $305 million in the same period of 2009. Included in net financial is the result from associated company with an income of $65 million, primarily related to an accounting gain in relation to the successful public offering of shares by ZymoGenetics in January 2010. In the same period of 2009 the results from associated company was an expense of $35 million. The number of full-time employees has increased 6%, reflecting expansion in the markets in the international operations. Please turn to the next slide for an update on the currency development. This slide shows the development of the US dollar and the Japanese yen versus the Danish kroner. Further, it illustrates the expected annual impact on the operating profit of a 5% movement in our key invoice in currencies and the extent of hitching for the same currencies. Recently the US dollar and the Japanese yen have depreciated versus the Danish kroner and they are now above the average level of 2009. For the first three months of 2010, the foreign exchange result was an expense of $137 million compared to an expense of $327 million in the first three months of 2009. This development reflects losses of foreign exchange hedging of especially US dollar due to the recent depreciation versus the Danish kroner. Foreign exchange hedging losses of around $700 million have been deferred for future income recognition in 2010 and 2011 respectively. Please turn to the next slide for the financial outlook for 2010. Novo Nordisk now expects sales growth in 2010 of 7% to 10% measured in local currencies. This is based on the expectations of continued market penetration for Novo Nordisk’s key strategic products within diabetes care, including the continued global roll out of Victoza and biopharmaceuticals as well as expectations of continued intense competition, potential generic competition to (inaudible) branding and the impact from the implementation of the healthcare reform in the US. Given the current level of exchange rate versus Danish kroner, the reported sales growth is now expected to be three percentage points higher than what it is measured in local currencies. For 2010, growth in operating profit is now expected to be more than 10% measured in local currencies, primarily driven by the slight change in the sales growth expectations. Given the current level of exchange rate versus the Danish kroner, the reported operating profit growth is now expected to be six percentage points higher than what measured in local currency. For 2010, Novo Nordisk expects a net financial expense of around $700 million. The current expectation primarily reflects losses on foreign exchange hedging contracts. The effective tax rates for 2010 are expected to be maintained at around 23%. Capital expenditure is expected to be around $3.5 billion in 2010, primarily related to investments in the new insulin formulation and filling plant in China and new device capacity in Denmark. Expectations for depreciation, amortization and impairment losses are around $2.7 billion whereas free cash flow is now expected to be more than $12 billion. All of the above expectations are based on the assumption that the global economic environment will not significantly alter the business conditions for Nova Nordisk during 2010 and that currency exchange rate especially for the US dollar remain at the current level versus Danish Kroner during the remaining part of 2010. This concludes our presentation of the financial results. Lars will now moderate the Q&A session. Please note that there will be a maximum limit of two questions per individual with the objective of allowing as many conference participants as possible to have the opportunity to ask questions. Lars Rebien Sørensen: Thank you very much Jesper and Mads. Please note that this conference is being taped and a replay will be made available on our website and operator, we are now ready to take the first question please?

Thank you. (Operator Instructions) Our first question comes from Michael Novod of Handelsbanken. Please go ahead.

Hello, it’s Michael Novod from Handelsbanken. Two questions; first of all, are you worried about the performance of international operations and could you also elaborate on the reasons to the pressure we’re seeing? In that question, how much is the tender also or the tender in Russia that you lost in terms of ‘07? And also still, what is China growing, at what rate is China growing in Q1? The second question is to your insulin GLP-1 combo. Is it fair to assume that what you’re pursuing now is to piggyback on the Degludec Phase 3 data and the Victoza registration then starts direct into Phase 3 by early 2011? Lars Rebien Sørensen: Thank you very much. This is Lars Rebien and I will talk to address the first questions relating to IO and then hopefully Mads Krogsgaard will address the combo product and what the intentions are going forward in terms of the development program format. Are we worried about the performance of IO? No, not really. We are impacted by some unfortunate developments for our business in partial in Russia which has delayed importation of some insulins in Russia but in particular the very rapid approval of maybe NovoSeven like product from a local manufacturer in Russia and which has come somewhat of a surprise to us. In that, it has been very experienced and was less than transparent in our regulatory requirement being fulfilled. All in all, I wish an intention, a political intention putting for substitution in Russia. So we can expect to see more activities on that front going forward. Maybe in addition to that, when you compare the first quarter of 2010 that we had and we are comparing it to a very strong quarter of 2009 and that makes the comparison slightly more difficult. We’re seeing continuous strong growth of our business in China and the amount you asked for the question about the size of the tender grows certain in Russia. We are estimating requirements to be around 200 million Danish krows certain d sh an intention roner on an annual basis and we had anticipated to win that tender in the beginning of this year and we're not going to do that. All in all, we are used to seeing some inside this, there are a lot of tenders in different part of the world that has been postponed and we're expected in the first quarter and they are likely to appear in the second quarter. And so, we are still expecting to see growth rate in international operation in the area of 15 to 20% on an annual basis but with occasional quarterly sweeps. I think that covers that and then Mads on to the combo products.

Yes. Well first of all Michael, just on the technical note, like to highlight the notion that this and other products where insulin is an integral partner in the competition product will be considered not as fixed dose combinations for which we have regulatory guidelines to prove both by the FDA and EMA but rather as fixed ratio products that are reminiscent but not identical to for instance the premix insulin. Henceforth, we have no distinct guidelines to follow. On the other hand, it is true that piggybacking on the Victoza approval as we have it today supplemented with the extremely large Degludec safety database that will be existing at the point in time where we submit is expected to allow us to move directly into the page three, pivotal file program. At least, this is what we are discussing with the regulators at present. Ideally of course, such a product compared to GLP-1 is seeking to have the benefit of even higher treatment success rates and compared to pure play insulin less hypo and less weight gain. Lars Rebien Sørensen: Thank you very much, Mads. Thanks for the question. Next question please.

Our next question comes from Sachin Jain of Merrill Lynch. Please go ahead.

Firstly, just to follow on the GLP-1 Degludec combo just to comment on the timing. Is it fair to assume you'd probably need to submit the Degludec package before you could start that Phase 3? Secondly on semaglutide, just to check whether you were thinking about Phase 2 data at ADA? You didn't mention that. And just thought process on that compound and progressing to Phase 3 versus the combo. And then finally, just want the aspect, if you could just talk about second-half growth rate pressures which have resulted in guidance being nudged up a little bit versus the 20% local currency growth rate in the first quarter? Thanks. Lars Rebien Sørensen: Thank you very much. And as for again a comment on the GLP-1 combo and whether or not that requires a filing of Degludec to enable a continuation into Phase 3, Semaglutide what’s the current thinking, are we moving ahead with that into Phase 3 and then yes but, growth prices for the second half of this year.

Well, first of all it is true that to be able to submit the kind of regulatory dossier for this combo product, you would expect to have two individual regulatory dossiers either approved for Victoza or at least submitted and potentially approved in the case of Degludec, in order to support a smaller and more slim and faster program as the one we are suggesting. That does not mean however, that to enter into pivotal trials i.e. Phase 3 program that you would need to have that at that point in time, rather that you need to have completion of the preclinical trials plus a safety database that justifies entry into Phase 3 and this will be the case for sure as we move into that phase. As regards to liraglutide, I have not distinctly mentioned and that is true. I am not sure that the Phase 2 data which are encouraging are being presented there for a host of other data is being presented and they will of course be published. We expect to maintain the notion that we will move towards a Phase 3 stop-go decision in the second half of this year on this once weekly human GLP-1 analog. And as for your question as regards how does Semaglutide stake up against the combo, I think Semaglutide you should see as a product that probably has the same stable profile as Victoza, and the liraglutide being a human GLP-1 analog with a smooth pharmacokinetics, but has a lesser injection frequency. Whereas the combination product on the other hand as I just mentioned is supposed to provide, you can argue, the best of insulin world with even higher efficacy than GLP-1, and that the best of the GLP-1 world with the benefits on glucose dependent, lack of hypoglycaemia and their body weight reductions. Lars Rebien Sørensen: Thank you very much Mads. And Jesper what are your predictions for the second half of this year?

Well we will have to anticipate that the impact from the patent expiry on NovoNorm in Europe will ratchet up during the year. So far we’ve only seen a generic competition occurring in Germany which accounts for less than 10% of the European sales, and we have markets like France and Italy which both covers around 20% of sales, each which are likely to be exposed for generic competition this year. The US situation is also potentially eating loss in the second half of 2010 with the generic competition occurring for branded. In terms of the investments, we have in R&D and selling and distribution you’d also see them ratcheting up in the second half of the year as you get speed and momentum behind the Victoza launches and the full year effect of the Degludec programs, and in combination probably we're starting the CV programs for Victoza also in the second half of 2010. We could also anticipate that we're getting into more challenging quarters for our NovoSeven sales, and we would anticipate a net single digit growth level for NovoSeven for the full year 2010. And then finally, you should be aware that we have recorded $100 million non-recurring gain in the first quarter regarding a settlement of IP property, and we don’t anticipate that we’ll have all the non-recurring IP income in the latter part of the year. So, those four factors should be the front drivers. Lars Rebien Sørensen: Thank you very much Jesper for the answer next question please.

Our next question comes from Jack Scannell of Sanford Bernstein. Please go ahead.

Hi, it's Jack Scannell, Sanford Bernstein. Two Degludec questions, the first is, this is the first new insulin analog since the FDA changed its guidelines on cardiovascular risk. I just wonder what that means to be design and timing of the Phase 3 program. So when might this drug be filed? Secondly, this is also the first insulin analog since at least some people became concerned that Lantus may have higher cancer risk than other analogs. Is that program in any way designed or structured to try and look at that issue more definitively? Lars Rebien Sørensen: Thank you very much. Mads Krogsgaard, this is Lars down your hand, please.

Yes well, as regards to cardiovascular guidelines recently, the FDA may have in those guidelines stipulated that for an injection based insulin product, there is not a need per se for doing a pre-approved cardiovascular risk assessment in the formulistic form. However Novo Nordisk has decided in conjunction and in collaboration with the US regulatory agency to do a major adverse cardiovascular event adjudication by an independent, external committee to live up to this period of the overall guidelines as per change to cardiovascular risk. The severe, the cancer issue we had very extensively looked into Degludec, it is not possible to study human cancer. You can see rate of diagnosis in trials, even in spite of the size of 10,000 patients as we have it for begin and boost because the numbers are simply too low but that being said, we have done extremely extensive pre-clinical in-vitro and also in in-vivo investigations into the potential for cancer development or I should rather say lack of potential for cancer development associated with this insulin analog. We have completed the pre-clinical trials with no findings of cancer and as pertained to the relative findings with insulin and ideal fund receptors, we have the ratio that is more beneficial than is the case for human insulin.

I think there was a question also in connection with Degludec too, when can we expect the filing.

Well, you can imagine that we are speaking around the turn of next year in as much as we are initiating recruitment in the final of the Phase 3 programs during this quarter.

Our next question comes from Peter Verdult of Morgan Stanley. Please go ahead.

Yes, good morning. It's Peter Verdult here from Morgan Stanley. Jesper on the gross margin on the underlying 100 basis points improvement, can you just give your usual split between price, productivity and mix? And just on price, can we assume that the net price increase in the US are around 2% to 3%. And also just staying on the gross margin, did the accounting for Victoza stock have any meaningful impact that we should be aware of? And then Mads for the second question, just on Degludec again, with respect to the Phase 2 data ADA, are we going to get any sort of data on the hypoglycemia angle here, or is that going to come with the Phase 3 package, and is there any chance of getting Phase 3 data for Q3?

Yes in terms of the productivity improvement can you sort of give a rough break down of the 100 basis points and of course also just comment on whether the pipeline feeling in the initial sales of Victoza had any major impact on this and then Mads over to you on Degludec and whether or not high flow data will be included with the ADA.

Yes, we actually had a positive impact on our gross margin and if we do it in local currencies we are looking at approximately 100 basis point improvement and rough almost half of that was related to actually a mix improvement as we have an improved production economy for our portfolio of modern insulin which provides an upgrade over the human insulin and then linked to that also of course Victoza now enters the mix compared to last year and Victoza is to a large degree produced in the same purification and fermentation facilities that have been used for the insulin and is currently being sold in a device very similar to the FlexPen device. So there's clear economies of scale for Victoza and that of course helps this mix effect. Then in terms of price, we have a slight positive price impact and that price impact is net of the effect of the US healthcare reform. And then the final element usually is a continued improvement in the overall production economy, especially for the portfolio of insulin.

Thank you very much Jasper. Degludec ADA is tied for Mads.

Yes. Well, Peter in terms of the ADA indeed there will be focus on hypo. It is so that as I mentioned we have three old presentations and two posters approved for presentation. And indeed we're looking to the mechanism of protraction which is dual in nature both soluble state self-association in the interstitial fluids giving most of the protraction plus spiced up with albumin binding as in the case of Levemir. There will also be focus on duration of activity and among others there will be presentation of the three times weekly regimen up against once daily glargine. And then all of the chemical studies there will also be a focus on the rate of hypoglycemia which is reduced in the case of Degludec. Phase 3 data will indeed start accumulating in the second half of this year. I have to caution you that the more exciting ones where for instance Lantus is used as the head on comparative drug are not the first studies to report but they would start emerging as the year comes towards an end.

Our next question comes from Jacob Thrane from Standard & Poors. Please go ahead.

Just two questions as I'm allowed to do that. The selling expenses, e cost margins just slightly above 29%, is that a level that we are going to see going forward? Or are there any sort of specific effects bringing it down there? Then secondly, just comparing the performance of Victoza in the UK against Germany, is there any sort of local variation, as it seems that the uptake in the UK, it seems somewhat slower than what we are seeing in Germany? So my two questions. Thank you very much.

Yes, thank you very much. Jesper if you can comment on our expectations for the selling expenses which are currently running at 29-30 and how that is likely to evolve over the next quarter and I'll take care of Victoza in the UK and Germany.

The launch of Victoza of course only happened in mid of this quarter and hence we expect the full quarter impact to hit from Q2 onwards and of course we had a short notice to prepare the extra launch so you can expect them to run at full steam from Q2 onwards and hence I would anticipate that our selling distribution ratio moves up to around 30% in the subsequent quarter and also in that ballpark for the full year.

Yes, and then onto Victoza, there are sort of distinct natural differences between our anticipation and indeed the performance in Germany and the UK. We've traditionally seen that there's usually a faster uptake in Germany whereas in the UK due to the formulary adoption by the PTC that usually takes longer. What we are doing is though is that the overall GLP-1 market in the UK could be larger than that of Germany. So we are off to a fast start in Germany, and there are some leveling off of the growth rates in Germany at the moment whereas there is a slow but very steady sustainable growth of our penetration in the UK. So both markets are meeting our expectations and in fact the most interesting observation is that we are growing the market, in both markets where in a way you could simply ask the former Byetta market to that to of Victoza and that is of course the most important long term perspective and not just outgrowing or taking off patients from Byetta but expanding the GLP-1 market and which is [reasonably] north of France and that should prove also to be quite substantial market and the initial uptakes are quite positive. Thank you.

Our next question comes from Martin Parkhøi from Danske Bank. Please go ahead. Martin Parkhøi: Two questions. Firstly with respect to US, if you look at the market share development in US it looks like that you are at least losing slight momentum in your analog franchise in US since the launch of Victoza. Is that anything that you also have seen and could you comment on that? And then secondly, with respect to the inventory buildup of Victoza which was around quarter of a billion the first quarter. What should we expect for the rest of the year? Will we end up the year with this 250 million should we go low or should we go higher?

Well, thank you very much. Jesper, would you comment on the last question perhaps in terms of what our expectations are. Definitely expect more than the 250 million that's currently in the pipeline. So with that lead in, over to you Jesper.

Yes, Martin if you just go back and remember the launch we had at Levemir, there we also had a significant initial pipeline too. And then following that more than 100 I think in the ballpark of 150 million in pipeline builds, I think subsequently we saw four to six month after the reorders began for Victoza that would have the indication that you should not expect to see any [Technical Difficulty] the pipeline movements in the US should stabilize and there will be a close correlation between the end market demand and the Novo Nordisk sales that we will record from there on.

Thank you Jesper and in terms of market share in the US overall quite frankly we are seeing a stable market share development of all our franchises in the US. We've had a relatively nice and strong performance in the first quarter of Levemir and that is of course interesting to note and as much as is now secret that most of the trading activities are actually on Victoza at the moment. There seems to be a good attention span in terms of the physicians which allows us to also detail our insurance portfolio while we have their attention in bringing Victoza to their attention. So things are going well also in the US as we speak.

The next question comes from Alistair Campbell of Berenberg. Please go ahead.

I'm afraid it's another one for Mads on Degludec. If I look at clinicaltrials.gov, at least from what I can see you've got about 11 Phase 3 projects BEGIN but only two of those are on the three times a week dosing regime for Degludec. And I've noticed one is dosing in the AM, one appears to be dosing in the PM. So I could sort of interpret from that you've got a lot more confidence in Degludec as a once daily drug as opposed to three times per week. So I'm just trying to assess if that's a fair interpretation of what we see.

Well quite frankly, you do know that that's completely new paradigms in terms of how people treat diabetes in particular with an injectible such as insulin; they typically do not appear overnight. And that means that Novo Nordisk clearly is going to seek a label for the three times weekly concept, because having two trials powered the way they are and as you correctly allude to, also giving both am and pm dosing should allow us for a full label as regards its three times weekly. The same time we have to say the gold standard treatment of insulin therapy is to start when orals fail either prime, second or third line with a once daily basal insulin. And that is what you have to go up against and prove that you are better than. And what we are doing is powering the B11 BEGIN trails, at least those of them that are up against other basal insulins in Type 2 diabetes. So as you prove that we can take glucose levels to the below 7% HB1C level in the presence of benefits such as significant reduced clinically meaningful hypoglycemia rates as compared to for instance, insulin glargine.

Our next question comes from Mark Dainty of Citi. Please go ahead.

I think you've said previously, you do not expect it to contribute anything material to the profit line this year. Do you still stand by that? Then the second question on the Degludec Victoza combination. It's interesting to note that you've gone for fixed ratio. I'm just wondering why you have decided not to go for a fully titratable insulin element for that pen?

Thank you Las Rebien here, in terms of Victoza yes we are doing slightly better, perhaps than what we had originally anticipated, but it’s still largely neutral in terms of the P&L impact this year. Mads, fixed as opposed to titratable insulin regiment as part of a combo, that sounds like a complicated equation. Yes, well actually first of all, the nature of insulin is such that the therapeutic window you're playing within for any insulin, even Degludec is off course rather narrow, i.e. you have to able driven by the mornings or the evenings, fasting glucose levels, be able to on a daily basis adjust your insulin dose. Now the only way through which you could alter the ratio between insulin element and the GLP-1 element, would be if you had a sophisticated device, where you had a dual chamber system with a tritratable insulin dose with a fixed contribution from GLP-1 on a day to day basis. This would on the one hand be very sophisticated and inconvenient to harness. And I have to say our modeling tells us that the GLP-1 ranges will be working within for a most markets I see such that we will reap the benefits of being in the pharmacological range of treatment, for both the insulin analog Degludec and the GLP-1analog liraglutide. But obviously the more creative engineers in the company have been looking into ideas surrounding what you are talking about. It doesn’t seem to be that feasible and maybe not even attractive.

Now then we are like supposed to be talking about Type 2 diabetics where they still have some insulin capacity left. And that renders itself more amenable to a convenient fixed dose combination; as opposed to very narrowly titrating which is what you would like to do ideally on a Type 1 base if that were the case.

We are now going to take a question from Sebastien Berthon of Exane.

It's another question on the combo. Just wanted to make sure how you want to position the drug. Are you targeting that the individual components of the combo would be the same as the one used separately, so that you can shoot for higher efficacy? Or would you rather be targeting similar efficacy to the individual components and have a lower dose of both insulins and GLP-1s to target lower side effects? Lars Rebien Sørensen: Yes Mads.

First of all, we will be targeting a broad label i.e., we will seek realizing. You have to consider two facts. One is that in the case of Victoza, we are really advocating that this should be positioned logically as a second line therapy as add-on to metformin. And this is happening very successfully. But in spite of that, we are also seeing rather extensive use of Victoza in other label indications such as combination with the two orals; and even as monotheraphy and sometimes in combination with insulin, even though that is not formally approved at this point, as you know we have the major trial ongoing. So, learning from the past you can say GLP-1 being the kind of agent it is, it’s actually rendering itself to treatment both, as monotherapy combination with orals and even combination with insulin. And what we hence are seeking here is to have a broad label, which will allow us on the one hand to use it to intensify therapy where people need something more than Victoza, they may have been using Victoza for a few years, and need some element of intensification. But also those patients who have been on basal insulin and who seek to reap some of the benefits of adding a GLP-1 could render themselves to this kind of a therapy. And even multiple OAD failures or anti-diabetic failures of course are logical choices. So I cannot give you a very crisp and clear response other than say, we will be seeking a broad label, and then we will be optimizing our marketing strategy before we hit the market.

So the benefits you are likely to derive enter where you are coming from basically. So thank you very much. Next question?

Our next question comes from Brian Bourdot of Barclays Capital. Please go ahead.

Yes, thanks very much. It’s Brian Bourdot from Barclays Capital calling from London. Two questions please; the first on liraglutide and the second on your guidance. Firstly on liraglutide, I was just wondering whether you can give us an update in terms of your conversations with regulators, whether you will be pursuing that indication, or whether you think the risk benefit equation doesn't work anymore, or whether approaches by other companies might be more competitive. The second question is your guidance. I see you're still including an allowance for generic Prandin in the US, despite a favorable appeals court ruling recently turning the issue into one of felicity for your combination patent. Don't you think this is on the conservative side? Thanks very much.

Thank you very much. Two questions, one in connection with obesity that’s Mads, and the other one guidance on the court case. Yes I do care to disclose what we have in our guidance at the moment. Mads first.

Yes. Well indeed as you know we do have a one smallish Phase 3 trial you know only about 500 patients ongoing which is the body weight maintenance study, where people have first loss, at least 5% of body weight and then we see whether we can maintain or further increase that loss with Victoza and liraglutide. In the case of the full blown program that has not been initiated, we have actually asked a number of questions to the US regulators, the FDA, and we expect to provide you with an update on how they stand on this one at around the half year release in August. So more on that at that point in time but in terms of the competitor landscape, we stand firmly by the belief that liraglutide from a benefit risk perspective, i.e. in terms of what does liraglutide do to body mass index as compared to it's overall side effect profile? We believe this fully stacks up in a favorable way as compared to some of the late stage products that have for instance been submitted to the agency but that are mostly either combinations or standard loan products within the CNS kind of field of obesity research. So pending the regulatory dialogue, we intend to proceed of course if the outcome from the FDA back is allowing us to do so.

So Jesper conservative or not, what we’ve put in is assumptions for Prandin in the US based on the current legal situations.

And I guess if you give a range for something where you don’t have a certain view and what will be the outcome, if providing such a range would qualify you for being conservative, yes so then I guess we are conservative because we don’t exactly know what was going to materialize and that’s part of the reason why we provide the range we do, and I think it’s probable that we will have impact in Europe from the normal situation and I think its possible that we will have an impact from the US situation and also the trial is starting on the first of June on the validity of the pattern and we should expect the ruling in Q3 and as we all are aware the impact from potential generic competition in the US is more or less imminent following a possibility of entering the market. So we'll have to wait and see how that goes out and then we’ll probably narrow in our range as we get closer and get more knowledge. Lars Rebien Sørensen: Thanks very much. And the next question please.

Our next question comes from Richard Vosser of JPMorgan. Please go ahead.

Hi, thanks for taking my question. It's Richard Vosser from JPMorgan. A question on your US healthcare reform guidance. I just wanted to just clarify the 2% guidance of a hit incentive in '11, whether that was a full 2% incremental on 2010 or whether it was an extra 1%? Secondly on the growth in Europe, the growth stayed relatively low, 4%, I'm just wondering if there are any impacts from, European healthcare reform measures. And you've quantified the impact on the US but just I'm wondering what the impact might be from the German white paper on healthcare reforms? And more widely from the pricing measures implemented in Europe as a result of the deficit? And one question on Degludec if I could. Just for a moment assuming that there would be a generic Lantus, how much better do you think Degludec has to be to be able to sustain premium pricing whether that's in terms of the convenience of the three times a week dosing or hypoglycemia? Any views you could give on that would be great. Thank you very much. Lars Rebien Sørensen: Thank you. Yes, that's a couple of questions on healthcare reform and then there's Degludec again Mads, so you'd better be warned. It turns out US healthcare reform, it's an additional 1%, over and above the impact that we see this year, so it's not another 2%, lets be clear on that. We're talking about an impact, overall impact turnover to around DKK 1 billion. So that is very clear. And yes, the European market is to some extent impacted by healthcare reform. In Germany, we have a ruling on a basal modern insulins where the German GBA has requested that basal modern insulins can only be reimbursed to the level of that of human insulins for Type 2 diabetes, but they are in the market that fully reimburses the Type 1 diabetes and other individuals that are particular cases. And how that is going to pan out depends a little bit on the individual contracts that the individual manufactures will strike with the Krankenkassen in Germany and for obvious reasons I cannot disclose our negotiation strategy, but its our anticipation that there will be a negative impact on our business in Germany as a corp. As a result on this, as we will of course try to find the best possible solution, for Novo Nordisk to mitigate that situation. And then in terms of other destinations here, we are seeing in particular, impact on Days Sales Outstanding. Even European nations and Southern European nations are finding it increasingly difficult as a result of the pressure on public finances to repay their bills and we have to extend credit terms and in some cases we get into dispute with the governments as to whether or not we are willing to offer our most modern products and we credit price reductions. We have seen recent cases in former Eastern Europe where there has been some quite severe represses for price reductions and our stance on this is that we are not going to reduce the prices on modern insulin below what we believe is a feasible sustainable European price level because of the parallel export which takes place in Europe that would then impact and give a cascade of price reduction throughout Europe. So it's not like we are withdrawing from this market. We will of course continue to have very high quality human insulin available in this market should the government decide that they wish to go to a more inexpensive alternative. Usually the case I have to say is that at the end of the day the government’s way of the inconvenience of transferring a large number of patients for modern insulin back to human insulin. That risk of being at a disadvantage to helping at reasonable pricing for these modern products. So, yes we've seen pressure in almost all countries in Europe as a consequence of the economic crisis that we had lined out. Next, Degludec and whatever answer do you require, to maintain outlook for Degludec introductions in face of a generic threat.

Yes, well that's a good question. You can address it from two perspectives: Either the payer’s perspective or the patient’s perspective. And if you look at the payer’s perspective, we've investigated quite a bit of the health technology assessment models that have been used, the tools that are being used for instance for cost effectiveness assessment by the Nice Institute in UK etcetera and they are pretty harsh on one thing, hard outcomes in terms of hypoglycemia and the likes of it. And in that regard our assessment is that the benefit that the analogs of the first generation such as Glargine and Levemir or Detemir provided over and above human (inaudible) insulin i.e. in the 30% to 35% range a reduction in hypoglycemia for instance nocturnal hypos is something that there is a willingness to pay for and on the one hand our Phase 2 studies fully substantiate that we will be able to meet such an improvement and so do the claim studies that have investigated glucose variability and inter patient coefficient of variability as you will see at the FDA conference late this year. Then from the patient perspective, it all boils down to other elements on top of hypos such as built in convenience which is clearly even more elaborate for Degludec that can be used any time of the day, from day to day without any strings attached but also dosing frequency with the three times weekly being perceived to be beneficial compared to once daily. And there will be other convenience elements also in Degludec that I will refrain from elaborating on at this point.

And this Lars Rebien. This is of course a very, very good question indeed because we can anticipate that there will be European markets where reimbursement levels will be adjusted and hence it is of course of utmost importance that we can show clinical superiority with Degludec if Degludec trusts over and about the current parts which are being used. Otherwise we might end up in similar situations like the one we were just discussing in Germany of being sort of mugged in with old fashioned human insulins because there is a quasi-scientific assessment that the benefits are not substantial enough.

Our last question comes from Sam Fazeli of Piper Jaffray.

Actually many of my questions have been dealt with, but one thing I wanted to just touch on quickly. In your assessment looking at the European pricing, et cetera, do you have any assumptions that take account of the possibility of (inaudible). Clearly an insulin analog going off patent and the generic, whether they are true generics or not, but hitting on a pricing perspective, so kind of making the equation a bit more difficult when it comes to just straight comparison with human insulin. Just talking about what you were referring to in Germany. Actually that's the main thing. And then the NovoSeven patents, do you feel there is any opportunity there again for a similar kind of question. Not a truly generic, but a pricing competition issue.

In general we do not see therapeutics which is between proteins and so our general assumption is that with regards the competition between NovoRapid and a potential future as human or generic that we will still be able to operate our operate our offering in terms of devices and what not, Mads was talking about, a whole new generation of devices, which we are currently launching for our growth hormone product. You can anticipate that these will be extended also to our insulin franchises, and then that should be enough for us to anticipate the differentiation as such that we do not end up in this situation. But I cannot exclude the fact that certain governments will use that as an opportunity to determine where the reference price levels should be. So that is correct. That may have some economic impact for us. In terms of NovoSeven patents, I think the situation is even more favorable to a long term sustainable franchise but Mads you should probably comment on that.

Yes. Well, two things there. On the one hand as Lars alluded to earlier, in as much as our basic DNA patents for the full human sequence of Factor VII is expiring, then we have two major lines of defense; one being of course that the room temperature stable highly specific formulation of NovoSeven is patented for about a decade into the future. But as important as that is the notion that even after the Obama Reform, we had the situation where proteins in particular complicated ones such as Factor VII will not lend themselves apart from, in a special situation such as the Russian one, will not lend themselves to a quick route into the market as biosimilars. I.e., since we have not seen on clinicaltrials.gov, any Phase 1 activities from any company, we do expect that there needs to be an originator comparison, i.e. a comparison with NovoSeven in patients with inhibitors against their classic therapy, and the full mounted program before biosimilar can emerge in the marketplace. And in our minds, that means beyond 2015.

And ladies and gentlemen, this concludes the last question and we are now into one hour, and we like to thank you for your attention, and we’d be looking forward to seeing many of you in connection with ADA and the ASD, and the reporting of our first half numbers, which takes place in the beginning of August. Thank you very much.

Thank you ladies and gentlemen. That does conclude today’s conference call. You may now disconnect your lines.