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Novo Nordisk A/S (NYSE:NVO)

February 11, 2013 2:00 am ET

Executives

Lars Rebien Sørensen - Chief Executive Officer, President and Member of the Senior Management Board

Mads Krogsgaard Thomsen - Chief Science Officer, Executive Vice President and Member of the Senior Management Board

Jesper Brandgaard - Chief Financial Officer, Executive Vice President, Member of the Senior Management Board, Chairman of Novo Nordisk Engineering A/S and Chairman of Novo Nordisk IT A/S

Analysts

Richard Vosser - JP Morgan Chase & Co, Research Division

Michael Novod - Nordea Markets, Research Division

Brian Bourdot - Barclays Capital, Research Division

Peter Verdult - Morgan Stanley, Research Division

Keyur Parekh - Goldman Sachs Group Inc., Research Division

Martin Parkhøi - Danske Bank Markets, Research Division

Sachin Jain - BofA Merrill Lynch, Research Division

Carsten Lønborg Madsen - Carnegie Investment Bank AB, Research Division

Johan Unnerus - Swedbank Large Corporates & Institutions, Research Division

Lars Hevreng - SEB Enskilda, Research Division

Operator

Good day and welcome to the conference call related to the receipt of the complete response letter for the Tresiba and Ryzodeg in the U.S. Today's conference is being recorded. At this time, I would like to turn the conference over to CEO, Lars Rebien Sørensen. Please go ahead, sir.

Lars Rebien Sørensen

Yes. Good morning, and welcome to Novo Nordisk conference call regarding the Complete Response Letter our U.S. affiliate received Friday, February 8, from the U.S. FDA regarding our New Drug Application for Tresiba and Ryzodeg. I'm Lars Rebien Sørensen, the CEO of Novo Nordisk. And with us we have Chief Financial Officer, Jesper Brandgaard; and Mads Krogsgaard Thomsen, Chief Science Officer. Present are also our Investor Relations Officers.

The company announcement we sent out last night and the slides for this call are available on our web page novonordisk.com. The conference call is scheduled to last 30 minutes.

Turn to Slide #2. As always, I need to advise you that 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. Please note that this conference call is being webcast live, and a replay will be made available on Novo Nordisk website after the call.

Turn to Slide #3. Let me briefly remind you of the timeline for the regulatory approval process for Tresiba and Ryzodeg in the U.S. Novo Nordisk submitted the NDAs to the FDA on September 29, 2011, which means the PDUFA action date was 29th of July, 2012. On June 8 last year, the FDA informed Novo Nordisk that the review process would be extended by 3 months, and thus the action date changed to 29th of October 2012.

On July 18 last year, the agency informed us that it would schedule an Advisory Committee meeting in November. In its communication, the agency did not inform us of a new action date. The Advisory Committee meeting was held on November 8 last year. At the meeting, the committee unanimously recommended that a cardiovascular outcomes trial should be conducted and voted 8 to 4 in favor of approving the product, thus supporting the company's commitment to conduct a post-approval outcomes trial.

Since then, the dialogue with the agency has continued to progress. Meanwhile outside the U.S., Tresiba and Ryzodeg has been approved in Japan, the EU and Mexico and is under regulatory review in a number of countries throughout the world. Tresiba has been launched in the first market during the first half of 2013. With this background, let's turn to the Complete Response Letter, which we received late Friday, February 8.

Let me start by saying that we were surprised and disappointed to receive this letter. Based on the positive vote on the Advisory Committee meeting on November 8, and the concluding comments of the members of the committee, we were of the belief that we were heading for an approval in the first half of 2013.

While the recommendations of Advisory Committee are not binding to the FDA, however, this independent scientific advice is helpful to the FDA as they consider the risk-benefit profile of new medicines. Historically, a vast majority, roughly 90% of the applications that have had a positive vote from the FDA Advisory Committee has been approved by the FDA.

I'll now hand over to Mads for further comments.

Mads Krogsgaard Thomsen

Thank you, Lars. Please turn to Slide 4. Regarding insulin degludec, there's no biologically plausible mechanism to suggest or explain that this insulin should have cardiovascular effect that were any different from other insulins. Furthermore, the Phase IIIa program was not designed to study cardiovascular outcomes, but rather the anti-diabetic effects of insulin degludec as per regulatory guidelines for development of new insulin products.

This, as well as the reassuring nonclinical data on this novel insulin has made us, as well as regulatory agencies on several continents, conclude that insulin degludec has a positive benefit-risk profile for use as a basal insulin in type 1 and type 2 diabetes. Nonetheless, based on the U.S. regulators' concerns related to a potential CV signal for insulin degludec, you may recall that Novo Nordisk recommended to perform a post-marketing cardiovascular outcomes trial when presenting at the FDA Advisory Committee meeting.

Returning now to the Complete Response Letter. The main issue of today, as mentioned by Lars, concerns the cardiovascular data of Tresiba and Ryzodeg. Furthermore, the FDA also mentions that approvals cannot be granted until the deficiencies cited in the previously announced Warning Letter dated 12 December last year have been resolved. I'll not comment on the letter as we believe that issues related to the Warning Letter are not the main issue, and we believe that the response we submitted late December 2012 provided a solid plan of action for how to resolve these deficiencies.

As regards to cardiovascular profile of insulin degludec, the FDA has informed us that the data from the post-talk analysis that they requested present a cardiovascular signal that requires submission of additional data. Hence, there is in the letter a request for additional data from a dedicated cardiovascular outcomes trial before the review of the New Drug Applications can be completed. This is as much as we can say about the letter itself at this point in time. Until we've had a meeting with the agency in the near future, it would be premature for me to speculate on the timeline for us to provide the requested information.

I'll now hand over to Jesper who'll comment on next steps and financial implications for 2013.

Jesper Brandgaard

Thank you, Mads. Please turn to Slide 5. So the next step in this process would be to initiate a dialogue with the FDA on how best to address their requirements for additional cardiovascular data and to ensure that they are satisfied with our proposal on how to resolve the violation cited in the previously announced Warning Letter.

With regard to the financial implications, I note that we, in connection with our full year 2012 earnings announcement on 31st of January, said that Novo Nordisk expected sales growth in 2013 of 8% to 11% and an operating profit growth of around 10%, both measured in local currencies. We don't expect the Complete Response Letter to significantly impact this forecast. The growth rate of 8% to 11% included in the sales outlook factored in a positive sales contribution from Tresiba in the U.S., EU and Japan. With the delay of the U.S. approval, we will not have U.S. sales of Tresiba this year, which means we will focus our sales effort in the U.S. on sustaining the positive momentum we're experiencing with both Victoza and our portfolio of modern insulins.

Our forecast for operating profit reflected significant cost related to the expected global launch of Tresiba. As the U.S. launch now not will be materialized in this year, neither will the promotion and related launch costs associated herewith. As a consequence, the expected profit contribution from the U.S. launch of Tresiba will largely be offset by these savings. No other significant factors have changed, and we therefore maintain our outlook for operating profit growth in local currency for the year.

This concludes my review of the financial outlook.

Lars Rebien Sørensen

Thank you very much, Jesper. This is Lars Rebien. This concludes our presentations. We are now moving to the Q&A part. [Operator Instructions] Operator, we're now ready to take the first questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Richard Vosser from JPMorgan.

Richard Vosser - JP Morgan Chase & Co, Research Division

It's Richard Vosser from JPMorgan. Just one question on the potential CV outcomes trial. I think the LEADER trial was a trial that was going to take about 5 years, had over or around 8,000 patients and an interim analysis potentially around 3 years. Could you just give us some sort of framework to help us with potential design? I know you haven't talked to the FDA yet, but potential design for an outcomes trial? And also comment on whether the FDA would like you to rule out the confidence interval of 1.3 in that trial before approval or 1.8 because obviously, that would have implications on the size and duration of the trial. And second question please, just on your thoughts on what other regulators may do with this information that the FDA are requiring this trial, what they might communicate to their doctors and physicians.

Lars Rebien Sørensen

Thank you very much, Richard. I guess, Mads, as much as you can speculate on this at this early stage in the process, please, compared to the LEADER trial and whether it's 1.3 or 1.8 and what do we think the agency want with the data.

Mads Krogsgaard Thomsen

Yes, well first of all, Richard, the LEADER trial, as you know, is a large-scale post-marketing required trial of the classic CV trials that are done for diabetes products once they're in the market, and that henceforth has to rule out an upper level of the confidence interval of 1.3 with a 95% likelihood. That is in a post-marketing situation that this is done. I will not, at this point, discuss the upper level specifically for this one because we'll first need to discuss and agree on the appropriate design of the interval with the agency. That said, the execution of such trial takes significant amounts of time, not necessarily the 5 years you're mentioning that relate to a confidence interval of 1.3. But nonetheless, setting up and starting recruitment for such a trial will alone will take at least 9 months. Wherefore, we do not expect to deliver the requested data during this year. The duration of the trial, as I mentioned, of course, depends on the design and the confidence level that must be achieved pending discussions with the agency. But currently, it seems unlikely that we'll be able to generate the data also in 2014.

Lars Rebien Sørensen

And regards to what you expect that the agency will use the data for, Mads.

Mads Krogsgaard Thomsen

I think the agency, according to the Complete Response Letter, will need the data to kind of get less concerned or not concerned about what they perceive to be a cardiovascular signal, unlike the regulatory authorities in other countries, such as Europe and Japan, that have seen the same data but have not seen this as a cardiovascular signal.

Operator

We will now take our next question from Michael Novod from Nordea Markets.

Michael Novod - Nordea Markets, Research Division

It's Michael Novod from Nordea Markets in Copenhagen. Just a few questions on the sales force. Jesper, you mentioned that you will just focus your efforts around existing products. Just to get a confirmation that all the reps you have hired then for Tresiba in the U.S., are they still going to remain intact and hence, that you will have a significant pressure on your sales force to market other products? And then secondly, on IDegLira in Europe, you do mention that you don't see any effects outside of North America. So should we still expect you to be able to file in Europe around the midyear for IDegLira in Europe?

Lars Rebien Sørensen

Yes, this is Lars Rebien here. Yes, we intend to continue to put pressure on our modern insulins in the United States. We have a very strong momentum behind Levemir, our long-acting modern insulin which you saw in the fourth quarter of last year. And so this will be continuing with full force. With regards to IDegLira, yes, there's no plans for changing that timeline. As you know, Tresiba is approved in Europe and hence, we will move along with the filing of IDegLira as indicated earlier.

Operator

We will now take our next question from Brian Bourdot from Barclays.

Brian Bourdot - Barclays Capital, Research Division

Just a question, please, on regulatory requirements for new insulin products. Do you see this development as part of a trend and heralding additional new safety requirements for all future new insulin products in the U.S. market?

Lars Rebien Sørensen

Thank you very much. Mads, I guess, this is your speculation that's important here.

Mads Krogsgaard Thomsen

Yes, well, I think, Brian, I do not see this trend outside the U.S. I think outside of the U.S., there is the notion that this insulin and the kind of data that have been provided by us on all aspects, including adjudicated cardiovascular events and so on from a diabetes-oriented Phase IIIa trial program, suffices probably also in the future. As regards to the U.S. FDA, it is indeed an observation that, as I noted during my conference call a few minutes ago, that the agency clearly is not satisfied with the degree or amount of data that comes from such a program as we have delivered. So I could foresee that the U.S. regulators are maybe shying a little bit away in the future, but this is pure speculation from exempting the injectable insulins from the CV outcome guidelines that normally do require that you rule out the 1.8 upper limit of confidence interval preregistration. This has not been demanded for the insulins as per the guidelines. That could change, but you should probably pose the question to the U.S. agency.

Operator

We will now take our next question from Peter Verdult from Morgan Stanley.

Peter Verdult - Morgan Stanley, Research Division

Just 2 questions from me, please. Mads, I think just to follow up from a question earlier, the post-marketing trial that you had committed to at the AdCom, just a factual question, how long would that trial have -- what was the duration of that trial and the size that you are committing to? And then secondly, rightly or wrongly, the market is probably going to have some sentiment read across regarding Victoza and obesity, the requirement for pre-approval study, et cetera, et cetera. So can you update us on your thoughts and timeline regarding getting clarity on that?

Lars Rebien Sørensen

Yes, Mads, I guess you've got the question, what were the original proposed post-marketing commitment from our side on Tresiba in the U.S. and any read across to liraglutide and obesity.

Mads Krogsgaard Thomsen

Yes, well, first of all, Peter, the post-marketing study that we suggested at the AdCom on November 8 was related to that post-marketing situation where you are to rule out the 1.3 of confidence level of risk. And that included henceforth approximately 9,000 patient studied for up to 5 years. That was as a post-marketing requirement that we suggested this. There's, of course, a different vis-à-vis which level of uncertainty you rule out a preauthorization. But those were the numbers we presented at that point. As regards to liraglutide for obesity, we have been, on multiple occasions, in dialogue with the agency about how this GLP-1 agonist should be analyzed vis-à-vis cardiovascular outcomes. And it is a question of basically meet [ph] analyzing all the pre-existing data from the LEAD program as well as the SCALE program plus, of course, Phase IIIb studies and other activities that have been ongoing for Victoza and liraglutide, both before and after its current marketing authorization. And I think that additionally, of course, the opportunity to potentially interim analyze the existing LEADER trial, which is destined to complete around 2016. But there is a plan with the agency and also a plan that does not require specific pre-approval CV outcome activities, as I know we've discussed before, and this is what we expect to adhere to.

Peter Verdult - Morgan Stanley, Research Division

Mads, can I ask you a quick follow-up then? Under a best case scenario, what's the quickest time you might be in a position to generate the data the FDA required regarding degludec?

Mads Krogsgaard Thomsen

We will not comment specifically on the timeline. So Peter, we have to discuss that further with the agency. But we're not speaking the timelines of a full-blown LEADER trial as the one we are conducting right now, which will complete only after a total of about 5 years.

Lars Rebien Sørensen

So there's a large revenue. So as we have learned today, there are still uncertainties about how the regulatory agencies are going to react. So in as much as we currently don't believe there will be a preapproval CV requirement for obesity as we have learned things are uncertain. So please do bear that in mind.

Operator

We'll take our next question from Keyur Parekh from Goldman Sachs.

Keyur Parekh - Goldman Sachs Group Inc., Research Division

Just a couple, please. Lars, first, can you just give us a sense for the CV study that is being required? Should we think of it as a study similar to what alogliptin had, which was a full kind of scale Phase III? Or should we think of it as the one that Conclave [ph] did where interim analysis from the study was okay to meet the FDA requirements? So just based on your understanding of what the FDA is asking for today, can you give us a sense for that. And secondly, as it relates to kind of the Warning Letter, can you give us a sense of where you stand with that? Have you scheduled a reinspection with the FDA for that?

Lars Rebien Sørensen

Well, this is Lars Rebien here. I think, again, here we just have to say that it is a little bit premature for us to speculate on what the outcome of the debate will be with the agency on the cardiovascular study that is required because we haven't had the conversation yet, and the letter does not give us any specific guidance on how to do this. But we would think, if you ask us today, it's probably closer to the kind of cardiovascular trial that Conclave [ph] has been doing. With regards to the Warning Letter, we've had no further dialogue with the agency on our submission, which was made on December 28 that we have communicated to all of you during our just recently concluded road show. So we are of the belief that we have responded adequately to the 2 observations, but this is, of course, something which is in the hands of the agency. Should the agency want to reschedule a reinspection, I guess we now have plenty of time for that.

Operator

We will now take our next question from Martin Parkhøi from Danske Bank.

Martin Parkhøi - Danske Bank Markets, Research Division

Martin Parkhøi at Danske Bank. Firstly, regarding to the impact on Europe, do you think that the negative outcome in U.S. can have any impact on your pricing and reimbursement discussions in Europe? And then second question to Jesper. Jesper, if you have known this 2 weeks ago, would you still have given the same long-term targets to the market?

Lars Rebien Sørensen

Thank you very much, Martin. Jesper, you can think about that while I respond very shortly with regards to Europe, and the answer is no. There will be no impact on the pricing. There'll be no impact on our plans. We still believe that Tresiba holds a significant benefit to patients and society, and hence, our pricing in Europe is still predicated on the same assumptions. So there's no impact neither in Europe or in Japan.

Jesper Brandgaard

Thanks, Lars. Martin, as regards to the long-term financial targets that we provided at the end of January is, as you know, providing the financial ambition level for Novo Nordisk on a 3- to 5-year horizon. Inherent in that ambition level is the expectation of an underlying double-digit growth level in sales measured in local currencies. We now have a significant delay in the potential U.S. launch of Tresiba, will, of course, everything else being equal, make the achievement of the long-term financial targets a bit more challenging. However, as we haven't yet had the discussion of what additional clinical activities that need to take place in the U.S. with the FDA, we don't think it's meaningful for Novo Nordisk to make any adjustments, if required, to the financial ambition levels.

Operator

We will now take our next question from Sachin Jain from Bank of America.

Sachin Jain - BofA Merrill Lynch, Research Division

Sachin Jain, Bank of America. Just one long-term question. Obviously, degludec Tresiba was planned as a protection strategy in the long-acting space against potential biosimilars, Lilly's or Sanofi. So I wonder if you could just discuss kind of short term how you view Levemir competitive profile. Obviously, it's going well recently, but also longer term, what other strategic options you have on the table as you think about your long-acting segment.

Lars Rebien Sørensen

Yes, this is Lars Rebien here. Indeed, Sachin, we believe that Levemir has been doing quite well in recent quarters, and that will be our expectations to continue. Of course, the situation gets a little bit more fluid when we get around to the point where Lantus goes off patent and where Lilly might be marketing a biosimilar version of Lantus. We still think that Levemir is a good alternative, and we, of course, hope to finalize the issue of cardiovascular safety that surrounds Tresiba with the U.S. regulators as quickly as possible obviously. And so until we know what that timeline looks like, it's a little bit difficult for me to speculate at this point in time. So you have to pardon me. I can't give you a good answer for how things look in 2015 at this point in time. But once we talk to the agency, once we have the plans clear how we're going to do this, then we'll give you an update.

Operator

We will now take our next question from Carsten Madsen from Carnegie Bank.

Carsten Lønborg Madsen - Carnegie Investment Bank AB, Research Division

Carsten Madsen, Carnegie Bank. Just one question left actually. Jesper, to you, you mentioned that the lost revenue here in 2013 from Tresiba in the U.S. will be offset by cost cutting and thereby not impacting operating profit. But I think you have hinted a lot during the years that launching new drugs is a net loss in year 1. And so will you increase the spend outside U.S.? How should we think about this?

Lars Rebien Sørensen

Jesper?

Jesper Brandgaard

Yes, the expectations that we provided for sales were, of course, providing a range. And we were assuming that if we were at the high end of the range, we would launch Tresiba earlier in the year. And if we were at the low end, it would be later in the year. As we were aware end of January, that there was uncertainty as for the timing of the Tresiba launch in the U.S. Consequently, the profit impact will not be significant, and we will still maintain the expanded U.S. sales force that was hired in Q3 2012. And hence, the overall implication, as I said, on operating profits is largely very limited from the delay in 2013 of Tresiba in the U.S.

Operator

We will now take our last question from Johan Unnerus from Swedbank.

Johan Unnerus - Swedbank Large Corporates & Institutions, Research Division

My question has been answered already.

Operator

We will take our next question from Lars Hevreng from SEB.

Lars Hevreng - SEB Enskilda, Research Division

Can I ask in this safety trial, will you enroll both type 1 patients as well as type 2?

Lars Rebien Sørensen

Thank you very much. Mads Krogsgaard, type 1 and type 2?

Mads Krogsgaard Thomsen

Again, Lars, we have mentioned a couple of times that we will be in immediate discussions with the agency about the specifics of that trial, and then we will get back to all of you as soon as possible, both on the design and the exact proposed time.

Lars Rebien Sørensen

So ladies and gentlemen, thank you very much for listening in this morning. Obviously, not a good day for American patients who will not have access to Tresiba shortly, not a good day for Novo Nordisk and not a good day for our shareholders. But we will return, and we will do our utmost to ensure that this is being resolved as expediently as possible. Thank you.

Operator

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

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