Good day, and welcome to the Q1 2014 Novo Nordisk A/S Earnings Conference Call hosted by CEO, Lars Rebien Sørensen. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Lars Rebien Sørensen. Please go ahead, sir. Lars Rebien Sørensen: Thank you very much, and welcome to this Novo Nordisk conference call regarding our performance of the first 3 months 2014 and the outlook for the full year. I'm Lars Rebien Sørensen, the CEO of Novo Nordisk. With me, I have President and Chief Operating Officer, Kåre Schultz; Chief Financial Officer, Jesper Brandgaard; and Mads Krogsgaard Thomsen, our Chief Science Officer. Present are also our Investor Relations officers. Today's earnings release and the slides for this call are available on our webpage, novonordisk.com. The conference call is scheduled to last approximately 1 hour and, as usual, we'll start with a presentation as outlined on Slide #2. The Q&A session will begin in about 25 minutes. Turn to Slide #3. I need to advise you that this call will contain forward-looking statements. These 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 and the slides prepared for this presentation. Please note that this web -- this conference call is being webcast live, and the replay will be made available on our website. Turn to Slide #4. With the partial loss of reimbursement with a large pharmacy benefit manager in the U.S., generic competition to Prandin and a tough comparative, the start of 2014 was expected to be difficult. The further [ph] impact from the loss of reimbursement and unexpected changes in the inventory level at wholesalers in United States have made…

Thank you, Kåre. Please turn to the next slide. I'll start with Tresiba, for which the cardiovascular outcomes trial, DEVOTE, was initiated in October 2013. DEVOTE recruitment is progressing ahead of plans and, consequently, Novo Nordisk now expects to have sufficient data to support a prespecified interim analysis of major adverse cardiovascular events by mid-2015. Previously, this was expected to be 2 to 3 years from trial initiation. Completion of the trial is now expected to be within 3 to 5 years from trial initiation. Previously, this was 4 to 6 years from trial initiation. Please turn to the next slide. We continue to generate new and exciting data for insulin degludec. This quarter, we've completed 3 Phase IIIb studies, demonstrating its competitive profile, both in the new 200 version and in the combination product within insulin aspart, known as Ryzodeg. The first part on this slide shows the effect of adding once-daily Tresiba to patients with type 2 diabetes already on Victoza treatment, but with an A1c above 7% despite treatment. For a baseline HbA1c of 7.6%, people treated with Tresiba achieved an end of trial A1c of 6.5%, while the control arm showed minimal change in A1c. The primary endpoint of the trial was, thus, clearly achieved. And in fact, 78% of the people using Tresiba, in addition to liraglutide, achieved the A1c target of below 7%. Related to this treatment paradigm, the EU Commission has just approved the use of these GLP-1 and insulin products in loose combination in random sequence. The second Phase IIIb trial on the slide covers Tresiba U 200 to insulin glargine in a crossover trial in people with type 2 diabetes mellitus requiring high-dose insulin treatment. In the trial, Tresiba U 200 met the primary endpoint by providing similar HbA1c lowering as…

Thank you, Mads. Please turn to Slide 16. In the first 3 months of 2014, sales increased by 7% in local currencies and by 2% measured in Danish kroner to DKK 20.3 billion. The reported gross margin improved by 110 basis points to 83.0 in the first 3 months of 2014, driven by a favorable price development in North America, improved productivity and a positive net impact from product mix due to increased sales of modern insulins and Victoza. The gross margin was negatively impacted by 50 basis points due to the depreciation of key invoicing currencies versus the Danish kroner compared to the prevailing exchange rate in 2013. Total non-production-related costs increased by 11% in local currencies and by 4% in Danish kroner. Selling and distribution costs decreased by 4% in local currencies and by 8% in Danish kroner to DKK 5.1 billion. The decline in selling and distribution costs is driven by lower promotional spend in North America and Europe and an adjustment to a legal provision, which more than offset the increased cost related to the expansion of the U.S. sales force during the fourth quarter of 2013, as well as the increased sales and marketing investments in China and selected countries and international operations. R&D cost increased by 21% in local currencies and by 19% in Danish kroner to DKK 3.2 billion. The significant increase in cost reflects the progression of the late-stage diabetes portfolio and the oral GLP-1 portfolio. Within diabetes care, costs are primarily driven by the 2 Phase IIIa programs, Onset, for fast-acting insulin aspart, and Sustained for semaglutide, the once-weekly GLP-1 analogue, as well as an impact from DEVOTE, the cardiovascular outcomes trial for Tresiba. Within biopharmaceuticals, costs are primarily related to the portfolio of development projects within hemophilia and the Phase…

[Operator Instructions] We will take now our first question from Tim Race from Deutsche Bank.

It's Tim Race here from Deutsche Bank, as the lady said. My 2 questions. First of all, I'll start off on the ability to change your SG&A spend or the discretionary part of that throughout the year. You sort of talked about still being able to keep 10% operating profit margin despite sort of a relatively wide range in terms of sales growth. Just could you talk to me about your sort of flexibility here and how, if you tone that promotional spend down, how it might impact the business more longer term? Then second question will just be on U.S. pricing. It's a recurring theme at the moment for companies with, let's say, products that are branded but relatively similar product offerings amongst oligopolies. Could you just talk about how Express Scripts is really impacting the market? And does this mean payors have worked out how to break the oligopoly, such as in respiratory or diabetes? Or do you think this is just a temporary bump where we return to normalization next year? Lars Rebien Sørensen: Tim, this is Lars Rebien here. I'm glad that I brought Kåre because it seems like the 2 first questions are in your part, Kåre. SG&A cost changes, to what extent are we able to do that given the broad range of top line guidance and any comments on the long-term implications that, that might have. And secondly, your general speculation on whether or not we are seeing a trend shift in the ability of the benefit managers to impact branded products in the U.S., the pricing. Kåre Schultz: Yes, with regard to SG&A, it, of course, always so that the SG&A's combination of, you could say, relatively fixed costs related to manning and your establishment in terms of offices and the whole…

Yes, and then I think it's important to measure here, Tim, that if you look at the percentage savings in the -- in 2014 first quarter, you saw 270 basis points down on last year. You'll also note that you in 2014, have no major launches planned for the U.S., and the expectations we hence would have for the F&D cost for the full year would be a reduction in the magnitude of 100 basis points. So whereas we, in 2013, operated with around 28%, we see a decline to the level of 27% in 2014 and we believe that is certainly manageable. And then back to Kåre on comments on the U.S. pricing environment. Kåre Schultz: Yes. And as we all know, we lost the ESI contract for NovoLog and NovoLog Mix, and then we lost the ESI contract on Victoza, so to speak, up against the exenatide family. And you can then speculate a lot how does that change the sort of pricing power of the suppliers of different diabetes products, different injectable diabetes products in the U.S. If I should give you a sort of a brief rundown on it, then I think we can all see the weaker market shares, and you will be able to see there that the negative impact on the Victoza market share has been significant but limited. So it's clear to see it happens just after the 1st of January, but it is a limited drop in market share we're seeing. And right now, we're seeing actually a slow increase in TRx market share and the U.S. market share. I would say there has been a limited willingness from patients and doctors to switch from Victoza over to the exenatide family. Consequently, there's probably also very limited gain for net sales…

Our next question will now come from Richard Vosser from JPMorgan. Richard Vosser - JP Morgan Chase & Co, Research Division: It's Richard Vosser from JPMorgan. Two questions, please. Firstly, could you update us on the LEADER trial event rate in terms of the cardiovascular events, how that's progressing with the trial and when that's expected to report now? And whether you've taken that event rate that you're seeing into account for the new timelines for the DEVOTE trial? And the second question, just on CapEx. Clearly, the CapEx investment has come a little bit too late for the hemophilia franchise to come earlier, I suppose. When would you consider doing CapEx investments for the oral GLP-1 or oral insulin products to avoid those issues? Or when would you need to do that to avoid the issues we're seeing for hemophilia? Lars Rebien Sørensen: Thank you, Richard. Mads, I guess you're on in regards to comment on the event rate on LEADER and whether or not you made any assumptions from that onto the DEVOTE trial.

Yes. Well, first of all, Richard, when we planned the LEADER trial back in the -- you can say post-approval phase of early 2010 and agreed with the agency on that one, our assumption was around 2 to 2.1 percentage annual event rate of MACEs based on, you can say, the historic performance in such trials. Now you're probably also aware, and I know you're aware, that we, since then, have updated the market that the de facto event rate occurrence is more to the tune of 3% or 3%-plus in that particular trial. And that's now based on, I would say, very substantial evidence surrounding that particular disease population. Now when we designed the DEVOTE trial, we had, of course, first of all, to realize that geographies may pan out slightly differently for DEVOTE than for LEADER, and that you can say ethnic differences do play a role as to how you can imagine the MACE event rates will be in percent terms. And that has also meant that we've decided to have, you can say, a precautionary approach planning for an event rate in the ballpark of 2% or 2%-plus on an annual basis. But of course, the opportunity, since this population is at least as sick as the population that we have in the LEADER trial, then we are in the situation that we cannot make predictions as of yet because the planned event rate of 2% is maybe seen to be, by some, on the shy side. On the other hand, the trial is too early to make any more firm predictions, and this is a very U.S.-based trial, where the LEADER has a more, you can say, global distribution in terms of geographies. When that is said, the estimated time for completion of the LEADER…

Our next question now from Michael Novod from Nordea.

Yes, this is Michael Novod from the Nordea Markets in Copenhagen. Just two questions to Tresiba. Maybe just a follow-on to the other one on the DEVOTE trial. If you have data in mid-2015, Mads, how fast can you actually compile and add to the new filing if data is positive and, thereby, be able to file with the FDA. What is the best case scenario there? And then secondly, to Tresiba in Germany, I know that you have been launching in Germany. But do you have any kind of pricing negotiation with the German authorities, or how are we to consider this launch? Is it a full launch or is it just, say, a part of a shadow market in Germany? Lars Rebien Sørensen: Thank you very much, Michael Novod. Mads, DEVOTE? Data is available sufficient for filing mid-'15. What's the best timeline for when we will file?

Yes, Michael, you asked about the best case scenario, and that's a very short answer. The best case scenario you can do on such data set is about 2 months, and that is not based on, you can say, total analysis of all data, but that would be the primary analysis of the MACE data, so 2 months. Lars Rebien Sørensen: And then, Kåre, a comment. Are we shadowboxing with the German authorities? Or are we in a full launch with Tresiba in Germany? And what is the reimbursement status?

No, there's no shadowboxing. We are all in, so to speak, on the German launch. So it's a full-blown launch of a uniquely good long-acting insulin, and we are very encouraged about the strong feedback we've seen in Japan, Switzerland and other markets. So we are following the standard German pathway, and we will have different interactions with IQWiG and GBA and so on during the next 12 months.

Our next question now from Michael Leuchten from Barclays.

It's Michael Leuchten from Barclays. Two questions, primarily, on your guidance, please? Just firstly, as you pointed out, 2014 is kind of a tale of 2 halves. And if I look at Q1, you had 7% underlying currency adjusted growth rate in Q1. And in a press release, you call out the impact from ESI and Prandin of 5%. If I net that off, that's 12%. As you point out, that tails off that headwind in the second half, yet your lower end of your guidance of 7% implies that there is some sort of headwind that could actually linger into the second half. So I'm kind of wondering what it is that could drive that headwind? And then the second question on Victoza. I appreciate your comments on the market slowdown for GLP-1. But when we look at the volume growth that IMS gives us, we've seen a nice recovery of the GLP-1 market, and within that, Victoza actually does quite well. So I was just wondering what particularly surprised you outside the maybe faster-than-expected forced switches that ESI has been driving? Lars Rebien Sørensen: Okay. Thank you very much, Michael. Jesper, would you care to guide on how one can make the numbers add up, if you look at first half versus then second half, if we clean out the one-off impact in the first quarter amounting to, as we state, 5%?

Yes. I mean, if you look at the 5%, there is a 1.5% element of that, that only hits the first 2 quarters and has a limited effect in -- as it was also hitting in July, in the third quarter, and from then on, it has a limited effect. You could say the ESI effect, which we would estimate at around 2 percentage points of sales, that will have a similar effect throughout the -- all of the quarters. The final one, which we are noting, is an impact to the tune of 1.5 percentage points and which is a, what we see, a lowering of the inventory levels, and we see that predominantly be related to the first half of the year. What we are seeing in the U.S. is a -- compared to our original expectation, we're still seeing, everything else being equal, a lower GLP-1 overall market growth. We're also seeing a lower GLP-1 market growth in Europe, and that can have an impact. On top of that, I would argue that the U.S. rebate environment still provides some uncertainty for us. We are seeing that there is a gradual flow of patients from previously being on the managed care setup to moving to a Medicare Part D setup, and through that, actually providing us with rebate cost in terms of us covering a part of the donut hole under Medicare Part D. So that continues also to account for some of the effect. And then the volatility in international operations will always also fluctuate between the years. And everything else being equal, we would probably have a slightly lower part of tender orders in the second half of 2013 compared to what we have in second half of -- sorry, 2014 compared to what we…

Our next question now from Sachin Jain from Bank of America.

It's Sachin Jain from Bank of America. The first question is a clarification for Mads. If in DEVOTE, the event rate was actually 3% rather than the 2% you've planned for, when could that study read out? And do you have any visibility on the geographic variation that led you to plan slightly differently? That was just a clarification question. And my two questions on the GLP-1 market and SGLT-2s. The second SGLT-2 launch is clearly aided market expansion. So if you can just give us some color on do you expect a similar benefit to the GLP-1 market on dulaglutide and albiglutide launches. Or given the slightly low growth that you're seeing, what's the risk that the new players, Glaxo and Lilly, are more aggressive on share gains rather than market expansion than we've been expecting? And then the second question, given you've cited SGLT-2s, how incrementally concerned should we be about the SGLT-2 DPP-4 fixed dose combination launches late next year, given the potential A1c and weight loss profile not materially dissimilar to Victoza. Lars Rebien Sørensen: Thank you very much. Why don't we start with you, Mads, if you can comment on what if 3% event rate, what does that have as implication for the DEVOTE timeline? And then if you'd also care to comment your perspective on the combination, the larger combination probably between DPP-4s and SGLT-2s. And then I'll come back and talk a little bit about how we see dula and albiglutide impacting the market.

Okay. So first of all, Sachin, obviously, right now, what has been the primary determinant for our assessment of when we'll have the data ready for the interim analysis has simply been a question of having exposure to patients, have patients on board. And then at this point, we have not even guesstimated, as I mentioned, about what exact MACE event rate we're going to see. But you're, of course, correct in the sense that if it is higher than protocol-specified, then things will happen earlier. We are speaking just a few months basically at this point, but they -- it will have bigger impact on the end of the trial. So where the truly biggest impact is obviously when you have fully recruited the trial, then there's a huge difference between whether you have 1%, 2%, 3% or 4% annual event rate. That goes without saying, up to a swing factor of twofold or more. Geography-wise, you did ask the question about -- this is a vial-based, blinded vial-based trial, and that means that there are many geographies we are not operating in, to the same extent as we were in the LEADER trial, because basically vials are not popular, for instance, in many Western European countries. When that is said, I cannot go out and claim to you that we are seeing clearly dissimilar MACE event rates, or at least, we don't know the data because they are blinded. But it's not my interpretation that there are very distinct differences at this point. I'm just flagging that the geography is different in this trial than in the other one. But at this point, you can guesstimate all the way from the protocol of 2% to the LEADER rate of 3% or so. It's too early to say. And then, sorry, Lars, on the combo? Lars Rebien Sørensen: Yes, if you could give us your rate on the combo?

Well, first of all, my view is that Victoza, even though we are advocating the use of Victoza being a great product as first-line or second-line therapy after metformin, that's kind of what we've been saying ever since 2009. We also know that in reality, Victoza typically gets chosen after, for instance, also the first DPP-4 inhibitor of the lag rate for where the stay time, typically, is shorter because of the more modest efficacy. And obviously, when you have a combination tablet between, for instance, a DPP-4 inhibitor and an SGLT-2 inhibitor, you do get the added benefit of more efficacy and maybe some weight loss driven mostly by the SGLT-2 component. But you have to bear in mind as such in that the way Victoza is used today is typically in an order where people had been on 2 or even 3 OADs in advance, and in that scenario, it doesn't make a big difference. But of course, the convenience of the patient to use the combo rather than 2 individual tablets before he or she goes on to injection-based therapy, that's, for the patient, different, of course. Lars Rebien Sørensen: And then finally, a comment from me on the GLP-1 market. Sachin, I would in a way say that dula and albiglutide is in a way similar to Victoza and the exenatide in the sense that dula -- our expectations are that dula will be comparable to Victoza on blood glucose-lowering. We don't know what the other part of the profile will look like. It's anybody's guess. But similar -- let's just assume, similar. So I would believe that Lilly would see an interest like us in expanding the market segment. And if GSK study the learnings from the ESI experience of EMS, AstraZeneca, on what they gained out of buying their way into that exclusive contract, actually not gaining anything, and I would tend to believe that the players will ask to expand the segment, if they have long-term interest in being in this field. So that would be my take, rather than clarifies competition. But I mean, your guess is as good as mine. A weakness on product competitors often lead people to do short-term things.

Your next question from Peter Verdult from Citi.

Pete Verdult, Citi. Just a few, maybe, just to round out. Just for Lars or Kåre, U.S. rebate environment getting more challenging, diabetes competition increasing has been a recurring theme on the call. Ahead of, obviously, all the Phase III data readouts next year, could you just update us on your thoughts regarding the opportunity to win back the ESI contract or, more broadly, the willingness to offer more rebates? I'm assuming that's not the -- that your position is unchanged, but I just wanted to sense check that. And secondly, just a quick one for Jesper. Could you just give us the simple price mix volume dynamic that you're seeing for the U.S. modern instrument business at the moment? And then on China, you called out 90% growth, but I wanted to know what the underlying growth was in China when you exclude the distributor inventory levels being raised. And then maybe cheekily, if I may. Mads, just recent interactions with leading U.S. cardiologists highlight a growing concern around the DPP-4 class in terms of heart failure signals. I'd just be interested in your thoughts there. Lars Rebien Sørensen: Thank you, Peter. This was nicely done, 3 more questions added in and the last one. You did not expect that we would comment on our negotiation strategy on ESI, would you? But I'll ask Kåre slightly differently, perhaps. What is his appetite for raising rebates next year and be competitive? Kåre Schultz: Yes, first of all, I would say I don't think there's a fundamental change to the competitive situation. The competitive situation is mainly determined by the demand side that develops stable in terms of demand for injectable diabetes therapy and the supply side. And there are no major launches right now on -- from the supply side. So we have the same competitors, as we normally have. We have the same number of competitors as normal. And with regard to rebating, we constantly optimize our rebating strategy with the aim to secure long-term growth and profitability of our business. So you will see us continue to do that and that's done on a case-by-case basis, and we think we're relatively good at it and that's what we intend to do going forward, also. So optimization on a profit level long-term. Lars Rebien Sørensen: So I'll just -- before I hand over to Jesper to close it off, on China, you should basically see our business in China as growing 15% per year on average. Jesper, then, the final -- close it off. Take it home.

And on the modern insulins in the U.S., Peter, you asked about what would be the price effect and what would be a volume mix effect. And basically, you could say it's slightly more than 2/3 that is priced and slightly less than 1/3, which is a market share and volume increase -- and the volume increase primarily coming, of course, from Levemir in the U.S. And then you also asked what is the impact on the growth rate from the development in inventories in China. And there, I would estimate, probably to the tune of 5% is the split between fourth quarter 2013 being shifted into the first quarter of this year. A magnitude of 5% on China growth, that would be our guesstimate. Lars Rebien Sørensen: Okay. And ladies and gentlemen, that concludes our call for the Q1. We will be back -- our investment team will be out on the road talking to many of you during the next days, but we'll be back after summer holidays with the numbers for the first half. Thank you very much.

Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect.