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Executives

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

Kåre Schultz - Chief Operating Officer, Executive Vice President and Member of the Senior Management Board

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

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

Analysts

Michael Leuchten - Barclays Capital, Research Division

Sachin Jain - BofA Merrill Lynch, Research Division

Peter Verdult - Morgan Stanley, Research Division

Philippe Lanone - Natixis S.A., Research Division

Riccardo Lowi - Crédit Suisse AG, Research Division

Alistair D. Campbell - Berenberg, Research Division

Mark Purcell - Barclays Capital, Research Division

Novo Nordisk A/S (NVO) Q2 2013 Earnings Call August 9, 2013 6:30 AM ET

Jesper Brandgaard

Welcome to this Half Year Novo Nordisk Investor Presentation here in London. With me on the podium, I have our Chief Operating Officer, Kåre Schultz. I have our Chief Science Officer, Mads Krogsgaard Thomsen; and I have our Senior Vice President for Corporate Finance, Lars Green. My name is Jesper Brandgaard, I'm the CFO of Novo Nordisk, and I'm going to lead this Investor Presentation today.

What we're going to go through is I'm going to cover highlights and key events, and Investor Relations has entrusted a full 1 slide to me in this presentation, so I'll try to deal with that. And then I'll hand over to Kåre, who will go through an update on the sales. And then Mads will deal with an R&D update. And then finally, Lars Green will revert with financials and outlooks, and then I'll try to lead the Q&A. We'll try to do this presentation in something like 35 minutes, and then we'll take Q&A after that.

Of course, I need to remind you that this presentation will contain a number of forward-looking statements that inherently has a lot of uncertainty attached to them. So you carefully need to read this slide on the limitations surrounding making statements about the future.

So if we zoom in on the first half year, we had a very strong start to 2013 first half year. We had sales growth of 14% in local currency and 2.5% negative currency effects. So in Danish kroner, the growth was about 11%. It was -- the growth was driven by North America and International Operations growing 23% and 17%, respectively. And we also saw a very solid growth in our Chinese franchise.

The key growth drivers was modern insulin, who grew 15%, and accounting for half of the growth in Novo Nordisk and then also strongly supported by Victoza, which was growing 32% in local currencies. We continued to rollout Tresiba, and we have now also launched our next-generation insulin, basal insulin. We have launched that in Mexico and Switzerland, in addition to the countries where we're already launched, U.K., Denmark and the country where we have full reimbursement, Japan. Kåre will get back and give you an update on how Tresiba is performing in some of the key markets.

In terms of research and development, we have now received feedback from the FDA on how to do -- conduct the cardiovascular risk trial in the outcome trial for Tresiba in the U.S. And we are now able to say that we will start the trial before the end of this year. And remember, previously in April, we said we would start it within 12 months. So that's actually a narrowing in on the timeline and becoming more firm on getting on the way with that trial, and basically, documenting the full cardiovascular safety of Tresiba to the benefit of patients globally.

We have also now completed the SCALE Phase IIIa program for liraglutide, 3 milligrams is completed. We'll be filing in U.S. and also in Europe before or around the turn of the year. In terms of FIAsp, our noble approach to a faster-acting insulin, a new formulation of our insulin aspart, grew rapidly in Europe. We are now moving that into Phase III following some very reassuring pump trials that Mads will also elaborate on during his review of R&D.

And then finally, we have conducted the first of a couple of Phase IIIa trials for N9-GP, our version of a long-acting blood clot in factor IX that was completed in May. And we expect to make regulatory submission for that product in 2015.

On the operating profit side, we increased our operating profit in reported terms by 15% and in local currency terms by 19%. And as we had significant hit in losses last year, we actually had an increase in diluted earnings per share of 30% in the first half of this year.

We updated the outlook for 2013. We upped our estimation of sales growth in local currency by 2 percentage points so the range indication we're giving now is a growth in the ballpark of 11% to 13%. And for operating profit, we also increased the guidance in local currency terms from previously around 10% growth, now to operate with expectation of growth in the ballpark of 12% to 15%.

And with those comments on highlights, over to Kåre for an update on sales.

Kåre Schultz

Thank you, Jesper, and good day to all of you. It's a pleasure to see you here. It's a pleasure that you show interest in our company.

I will try to give you a brief overview of the sales development. And then hopefully, we'll have time for some questions at the end of the presentation. It's the same basic trend we have worldwide. We have 5 sales regions. We have 2 that are showing very low-growth rates, that's Europe and Japan. That's been the case for a while, and we expect that to continue going forward based on different factors, such as the macroeconomic situation in Europe and the competitive situation we have short term in Japan.

And then we have 3 areas that have shown very high double-digit growth. That's North America, emerging markets, or International Operations, as we call it, and China. And in all these cases, we are sort of between 15%, 20% growth. We've been in that ballpark for the last couple of years, and it's also what we see going forward, very strong growth in these areas.

North America is doing extraordinary well, with 23% in underlying local currency growth and is making up, basically, 2/3 of the total sales growth, but also IO in China doing very well. One thing you might notice is that we've reached the inflection point, where what you could call emerging markets. So that's China, plus International Operations. That's now 24% of total sales, exactly the same as Europe. And that's, of course, the last time they're the same going forward. You will see that IO in China combined will be larger than Europe as we move into the future. So this is all very positive, and a picture that we're very happy about.

If you look at the products, there's also the same trend as you've seen in the last couple of years that the growth was driven my modern insulins, which is the key driver and then Victoza. What's a little different this year compared to last year is that we're doing relatively better on biopharmaceuticals, and you see a good contribution coming out from NovoSeven and Norditropi, our growth hormone.

Overall, around nearly 80% of sales are in the diabetes space where we have, you could say, our traditional stronghold. And we are happy to see that, basically, all our key product categories are growing on a worldwide basis.

The diabetes market, if we look at it on a 10-year horizon, as this graph shows, has been growing very nicely and very steadily. Actually, it's the same if you go back 20, 30, 40 years. You will see the same kind of compound annual growth rate around 10% plus. And we have been maintaining a good share of that with the help of our launch into the GLPs. One segment increased our value share of the market, and you can see how, right now, we have a share of 27% of the total group value in the global diabetes market.

You also see some of the graphs that go up and down quite fast, OAD, so tablet products. And you will be able to see what happens to Actos and to Avandia on the graph also. So it's a boom-and-bust game to be in the OAD segment.

Now we are, of course, having our base in the insulin segment for 90 years now, and it's important for us to be leaders worldwide, but also in the individual markets. And since the U.S. marketplace is, by far, the biggest chunk of the worldwide market, then that is, of course, of particular concern that we do well there.

This graph is a little technical, for what it shows is, in a comparable way, the 3 segments in the United States, the long acting, the rapid acting and the premixed insulin segments. And you can see that roughly, the pace of segment, the long-acting segment is as big as the rapid acting and premixed combined. And you can see the strong growth of around 8%, 9% of both the basal segment and the rapid-acting segment, whereas the premixed segment are sort of going out of fashion and is declining. What you can also see is that we are having quite different market shares in all those 3 segments. But what's remarkable is, of course, that this curve is having roughly the same slope. So in all 3 segments, we are slowly and steadily taking market share.

And when you think about our sales growth in the U.S. in total value, it is, of course, a combination of the strong growth of the underlying volume market, the good pricing that's happening in the U.S. and the market's increase. So these 3 factors combined is what's resulting in the growth of around 20% in our U.S. sales.

The other key driver of growth is Victoza. And here you see the quarterly sales numbers for Victoza on a MAT numbers on a quarterly basis. And 2/3 of the growth is coming from North America, and 2/3 of the sales are in North America. Europe is roughly 1/4. And what's nice to see is that we start to see growth now in IO in China, of course, from a low base, but we see growth rates sort of in the 100% range, so that's very encouraging for the long-term development of Victoza sales.

With regard to our new Novo insulin, the basal insulin, Tresiba, that is also long-acting with a action profile that's twice as long as the current long-acting insulins. You all know that we did not get an approval in United States, and Mads we'll get back to what we're going to do there in order to get the approval. But we did get approval in Europe, in most other countries around the world. And we have been launching in a number of countries as you can see here. Roughly, we have 2 types of launches. We have one side in countries where we are able to get reimbursement, that's the case for Japan and Switzerland. And you could say in Mexico, it's the same also in the sense that nobody has reimbursement, so that's a repriced [ph] market. And then we have some countries where we're struggling with the authorities to persuade them to give us full reimbursement, and that's in this case, U.K. and Denmark, where we are having some struggles to get full reimbursement. This is nothing new. This was the same with Victoza. This was the same with Levemir. It's just a question of how difficult it is in the individual markets to get full reimbursement.

What you expect from a new insulin, and we've launched many of them over the last 30, 40 years, is that if it's successful, then it will take some 5 to 10 percentage points of the relevant segment in the relevant market per year.

And we had some early indications from Japan, which is the first market where we launched. And it's not that easy to see, but if you look at the bottom of the graph, then you can see it says 6.8. That is the current market share after roughly half a year, after launch of Tresiba in the Japanese basal segment. So this is the very encouraging performance. We will hopefully be, or most likely be at around 10% or more at the end of the year in Japan. And in the other markets where we have the early indications, in Mexico and Switzerland where it's only a few months, we have the same slope of the curve, so again, growing for somewhere between 5 and 10 percentage points of market capture on an annual basis. So this is very encouraging. And this also convinced us that the perception among key opinion leaders of the product is just where it should be. It is the best-in-class basal insulin in the marketplace. But of course, we would also like to get it to the U.S. marketplace.

And I think, Mads, you will take over here and explain what we're doing in order to get there.

Mads Krogsgaard Thomsen

Thank you, Kåre. Yes, it's a pleasure to do so. A quarter of a year ago, like 3 months ago, there was a lot of uncertainty in the outlook that surrounds the incretin class, the pancreatic safety and so on and so forth. I won't elaborate on that, but I guess we can all rest assured today, that agencies are unanimously in agreement with us as a member of the industry that we have safety agents and that there was nothing to be scared, in particular, as it's surrounded the pancreatic cancer.

But another certainty that has been out there until at least very recently, is when on earth is Novo Nordisk able to start the cardiovascular outcome trial that will be called, the Devote [ph] program or outcome study based on its feedback from the FDA. And the good news is that we have gotten feedback. We are in agreement about the trial, and the trial is now going to start this year. We've submitted a clinical trial application for a study that will encompass around 7,500 people, enriched of course, basically, by defining that people either have the prior history or are predisposed towards a cardiovascular disease. It will be split between patients who are on insulin or naïve to insulin, such that their insulin are requiring based on OAD failures. It will be a multinational study. It will be a blinded comparison up against the insulin glargine and the measurements that we're measuring. The cardiovascular events that we're measuring are a composite of cardiovascular disc, nonfatal myo-cardial infarctions and nonfatal stroke episodes.

Now, since we are starting towards the end of this year, we'll be recruiting next year, and the latter part of this year, and expect to have a data for the interim analysis submission to support the approval that we are then hoping to get in the United States, 2 to 3 years after trial initiation. That means towards the end of '15 or '16, respectively. Depending on 2 things, namely, the recruitment of patients and the event weight of MACE's in these patients as we recruit them.

Obviously, the trial will be completed such that in a post-approval scenario, we would have a definitive assessment ruling out, not the 1.8 upper bound as the interim analysis will do, but the 1.3 upper bound of the 95% confidence interval with the reassuring point estimate.

Now on the next slide, you will see an example of one of the studies we've done in the liraglutide 3-milligram program part of the SCALE, the Phase III for the obesity program, and this is the biggest one. This is the one that we announced a couple of months ago that encompassed more than 3,700 patients that either had or did not have prediabetes in addition to their obese condition. And in reality, slightly more than 60% did have prediabetes, really showing the humongous problem we are facing in the face of the epidemic of obesity worldwide, in particular, in the U.S.

The weight loss achieved, overall, was very appreciative. At night [ph], was 8% and all the FDA, both the FDA criteria, regardless of how you look at the efficacy readouts and the -- which kind of the days that you're looking at does fulfill the FDA criteria for approval based on efficacy. It is actually so that among completers, 4 out of every 10 patients lost more than 10% of their body weight, and that has some repercussions that I'll get back to in a minute. And in reality, we had a very significant improvement in the risk of actually encountering both prediabetes, reverting prediabetes or getting avert Type 2 diabetes in the group that was treated with liraglutide treatment of brand.

Another study that we've done actually, and that completes the entire program is the sleep apnea study. Now, obstructive sleep apnea occurs in 17% of the American adult population, and 6% of Americans actually have moderate to severe sleep apnea. And why I'm saying this, well, first of all, it's a big number. Second of all, it's more dangerous than people tend to think. According to the landmark study called, the Wisconsin Sleep Cohort study, that has been ongoing for more than 2 decades, you have a fivefold increase if left untreated, you have a fivefold increase in cardiovascular mortality in such individuals. That is more than Type 2 diabetes, which is hovering around 2 to 3 fold. So when you combine the 2, you are in a pretty bad shape. And obviously, that's what Novo Nordisk wants to avoid. So in this particular study, we actually showed that, not only did we decrease significantly the sleep apnea severity as measured by the apnea-hypopnea index, the AHI index, which is the polysomnographic readout, with electrodes all over the place, including EEG's being measured. And in reality, among those patients who lost 10% or more, we saw a 20, or more than 20 point improvement in the scale, really showing that we're able to take people from the severe disorder into the mild to moderate categories that are not associated with the same degree of risk of cardiovascular and other causes of mortality.

So we are now wrapping up the program and submitting in U.S. and Europe, the entire new drug application towards the end of this year and are of the clear conviction that we have a drug that will make a difference in the obese population.

Tolerability and safety is as we have got it in the package insert for Victoza for diabetes with the add-on that in these patients, we also see a [indiscernible] imbalance in gallbladder disease, cholelithiasis gallstones. But this is something that is quite prevalent in people who are obese and who are losing weight. And it's something we are investigating further, and of course, something that will be a leaping issue, for sure. Other than that, very well tolerated, no signs as regards to the CNS, cancer, cardiovascular or anything related.

Now moving to a different arena namely, FIAsp. FIAsp is a novel faster-acting formulation of insulin aspart. What we've done is a rather comprehensive Phase I program that has been seeking to optimize how do we, on a knife's edge balance, between having a stable product that is rocksteady and can be used in pumps and pins and bars and whatnot, while at the same time, having the extreme rapid onset of action that you do need to kind of take care of the glucose excursions that start occurring immediately after a meal, in particular, in people with diabetes. And I'm very happy to actually show this slide to you because what it shows is that in pumps, where we did a crossover study, investigating FIAsp obligates NovoLog/NovoRapid and relatively, what it shows is that even the world's most preferred prandial insulin, NovoRapid, is actually shown to the backseat compared to FIAsp in terms of its ability to cope with the glucose excursion at the meal. Here, we've done both samples at different time points, but also validated by continuous glucose monitoring that, indeed, we have a highly significant improvement in the postprandial glucose excursion in the group that receives FIAsp.

Numerically, we also saw a reduction in hypoglycemic episodes, but obviously this is one that is tough to measure in a Phase III environment, but it is, together with the postprandial glucose and safety tolerability, hypoglycemia and dosing flexibility, things that are being measured in the Phase III program that encompasses 4 trials, 2 in Type 2 -- 1 diabetes -- 2 in type 2 diabetes, 1 in Type 1 diabetes and a last one is a pump study, obviously, in Type 1 diabetes. So it's going to start this quarter and enroll a total of around 3,000 patients.

Here, we have on the next slide, a data slide showing that for hemophilia B, we have designed a very long-acting steady state of half life of 110 hours glycopegylated factor IX derivative that was shown in this pivotal trial to actually, very significantly improve the lives and the quality of life of people with hemophilia B. To the extent that in the dose of 40 units per kilogram, which is the expected approved dose, we saw that 99% of the patients could cope with their bleeding episode with just 1 infusion. We also saw that 2/3 of all the target joints, which are notoriously infamous in terms of being more or less intractable or difficult to treat, we saw a complete resolution of bleeding in 2/3 of all target joints.

In addition to that, the median amount of bleeding episodes per annum in the prophylactic group hovered down or went down to 1.0, which is a very low number. And the reason for this is obviously, that even the trough level of N9-GP, i.e., the pre-dosing level, 1 week after you got your last infusion, is almost in the healthy range. It is around 30% of the healthy levels where today's agents typically will have trough levels that are down to 1% to 2% of the healthy level. This agent will be submitted for approval in 2015 because we still have to optimize the commercial manufacturing systems and also complete 2 more studies, 1 in kits and 1 in surgery patients.

My last slide just highlights how we have now also initiated a global, but China-oriented placebo trial where more than half of the patients in this insulin glargine compares to trial for half a year are being found in China. Recruitment is going well, and it's going to form the basis for approval, hopefully, of Tresiba in the years to come in China.

We also have submitted the marketing authorization application for IDegLira, the first and best of the combination product between a basal insulin and a long-acting GLP-1 in Europe, including Switzerland. And obviously, in U.S., that will have to await that we have the CV data for Tresiba, but that is a different story.

Interestingly, in the early pipeline, a very pioneering effort we are doing. We're investing heavily in trying to make even proteins for diabetes therapy namely, insulin and GLP-1 available by the oral group, which is a very big and delicate task. And there, we have been able to offer a very comprehensive Phase 1 program, with no less than 5 Phase 1 clinical oncology studies in more than 400 subjects, being able to show a very significant weight reduction after only approximately 2 months of therapy in healthy volunteers, but also in a few subjects with Type 2 diabetes and a HbA1c reduction that is fully on par with what you would expect for an injectable GLP-1 agent, but this time, given as a once-daily tablet. This agent seems to have the safety and tolerability profile based on Phase I that is reminiscent of what we know from the GLP-1 class, which is good. And it's targeting entry into full-blown Phase II development where a number of trials will be conducted over the next couple of years in Phase II starting towards the end of this year.

In biopharmaceuticals, we've had a, unfortunately, Complete Response Letter for the niche product factor XIII that awaits some finalization of some outstanding issues surrounding the inspection of the manufacturing facilities for that agent or for the biopharma products; and also ulcerative colitis, which was a add-on indication, where the hypothesis was by replenishing fast-approaching levels, we'll be able to do good for the patients. It seems as if there's no relationship between factor XIII levels in the patients and their degree of ulcerative colitis, so that has been discontinued.

On a positive note before I hand over to Lars Green, we have completed a Phase I multiple dose study in growth hormone subjects, growth motivation [ph] subjects that basically have been treated on a once weekly basis with NN8640, which is a long-acting Novo Nordisk proprietary technology, isolated version of the human growth hormone. And based on that and a dose-dependent induction of an IGF-1 response, we have already at a very modest doses of the agency-potent induction of IGF-1, and we are now entertaining a multiple dose study that will lead up to a full development approval, hopefully, later this year.

With that, over to Lars Green for a financial update.

Lars Rebien Sørensen

Thank you, Mads. So in terms of financial results for the first half year, sales grew in reported terms by 11%. And if you adjust for currency development, that would be 14% in underlying terms. A couple of percentage points of that is a bit more nonrecurring basis related to timing of some rebate adjustments. So sort of taking that out, the underlying organic growth is equivalent to approximately 12% in the first half year.

So gross margin improved in reported terms by 90 basis points and a little bit more than 100 basis points in adjusted for the currency impact, driven primarily by the price development, in particular, coming from the U.S., and so a little bit also to the product mix with the [indiscernible] and modern insulins where the high-margin products are growing faster than the average of the total product portfolio.

Our sales and distribution costs increased by 13%, more or less in line with sales driven by expansion of our commercial operations in a number of regions, particularly those that are growing the fastest, so North America, in the U.S., in International Operations and also in China.

If you look at research and development costs, the growth was a more modest 6%, very much related to signing in when the significant Phase III programs, in particular, they are running, and now we're recruiting for semaglutide, starting soon to include also for the Phase III program for FIAsp and starting the cardiovascular outcomes trial for Tresiba. In the near future, we expect that growth rate to pick up in the second half of the year compared to where we were for the first 6 months.

And if we look at the operating profits, the reported growth was 15%, also impacted somewhat by currencies so if we had -- we could do another currency adjusted comparison between the 2 years, the gross would be 19% in same currencies. The impact of hedging where last year, we saw some expenses on our hedge contracts. This year, a smaller increase means that net profit was up by 27%. And as we have continued to buy back shares also since last year, the diluted earnings per share was up by 30%.

So the fairly strong performance in the first half year of 2013 has led us to upgrade our expectations for sales. And now, 11% to 13% in comparable exchange rates is our estimate; and our guidance, up from 9% to 11% as we expected at 3 months ago. The currency environment is slightly more adverse now, primarily coming from some of the emerging markets, currencies that have depreciated significantly against the Danish kroner over the last 3 months. So that will impact the reported growth rate of sales by approximately 4 percentage points.

On operating profits, we have also upgraded our expectations from previously around 10% in comparable exchange rates, to now 12% to 15%, driven primarily by the stronger sales expectations. And also here, the currency impact is they're slightly more adverse and now expected to take out approximately 6 percentage points of the growth compared to the underlying terms.

Other key financial measures like cash flow, capital expenditures, effective tax rate is unchanged compared to the expectations or guidance we gave in connection with the first quarter results in April.

So with that, Jesper, back to you and the closing remarks and the Q&A.

Jesper Brandgaard

Thanks, Lars. And just maybe before I close it, just to comment on tax in Denmark. We actually had a change in the Danish corporate tax law just before the summer break in the end of June, where they have approved now a lowering of the Danish corporate taxation rate from currently at 25% and going down to 22% gradually from 2014, going down 0.5%, a full percentage point in '15, and 1.5 percentage points in '16. And that is estimated to take, at least, 1 percentage point out of our corporate tax when it's fully implemented in '16.

We have to bear in mind that we have the predominant part of our diabetes care franchise primarily in taxed in Denmark, whereas a part of our pharmaceutical franchise is taxed in Switzerland, and that leaves a mixed effect on the tax that is negative as the BioPharma -- sorry, the diabetes care business growing faster. So there is a positive momentum overall in our tax rate because of this change that will make it more attractive for us to continue to have a high proportion of our activities run out of Denmark.

If we look to the closing remarks, we have our market position primarily in diabetes care. It's a market that is characterized by more than 10% annual growth. We have 27% market share. And we are gradually expanding that primarily by expanding the size of the GLP-1 market out of the totality and approaching currently 8% of the total diabetes care market for GLP-1 treatment.

We have a 49% volume share in the overall insulin market, and we have leadership position across all regions. We have 46% modern insulin share, and we have approaching 70% value market share in the GLP-1 segment. And our leadership position is further -- is continuously expanding.

In terms of pipeline, we believe we are in a unique position, with a full portfolio of Novo insulin products, not only Tresiba and Ryzodeg, but now also moving into Phase IIIa even faster, acting attractive -- faster acting insulin. We have a portfolio of GLP-1 products, not only Victoza but also once-weekly semaglutide. We have it, not only injectable, but now also moving towards Phase II as an oral offering. We have the combination product in IDegLira, that is able to take a impressive, something like 80% of patients, type 2 patients to guideline control in some of our trials. We have liraglutide in 3 milligram, with the potential of moving into prediabetes treatment and treating obesity. And then also a comprehensive pipeline within biopharmaceuticals, centered near-term around the hemophilia franchise.

And with that, those closing comments, I will just highlight a few upcoming investor events before we take the Q&A. On the 24th of September, we will have an Investor Presentation in connection with the EASD meeting in Barcelona. And then, also note that we have called for a Capital Markets Day to be held in Denmark on the 3rd of December where we also hope to see a number of you. And of course, then we will be back in London in connection with our release of the financial statement for the first 9 months, which is coming out on the 31st of October, and where you could also expect us to give a first glimpse of how we see the financial performance in 2014.

And with those comments, I will basically move over to Q&A. And we have a microphone and please remember to state your name and your company before you ask your question. [Operator Instructions]

Question-and-Answer Session

Michael Leuchten - Barclays Capital, Research Division

It's Michael Leuchten from Barclays. In your commentary yesterday, you stated one of the reasons for upgrading the guidance was a better ability to put through prices in the U.S. I just wondered whether you could explain a bit more why you think you're seeing that? Is that because your competitors are happy at the increased prices? Do you find these discussions easier with insurers ? Is there any particular reason why this is a more beneficial environment for you than you thought it was going to be?

Jesper Brandgaard

Why, if I comment first and then, Kåre, you can elaborate a little bit. I think the reason why the wording was chosen was that we hadn't anticipated, when we were looking at the market in April, we hadn't anticipated that there will be a price increase in the basal segment occurring as early as May for our product Levemir, and that was a price increase of 10%. And as that wasn't included in the previous expectation, we thought it was important to highlight that was part of the reason behind the overall price -- positive price we took. But generally, I'd say that the pricing momentum in U.S. have been more favorable than what we anticipated as we move into the year. Kåre?

Kåre Schultz

Yes, I think that there's a macro reason for this and that is that we're seeing massive products growing off-patent in the U.S. So we see a decline in the total U.S. pharma market these days, probably negative to the tune of 1%, 2% for the first half. That basically said, the cost pressure on managed care and the government and other institutions that are paying for pharmaceuticals is reduced. And that means those products that are of high value and that are protected in one way or another, they have the opportunity to take price increases without sort of messing up the whole system. And we are passed the health care reform and the implementation of the different rebates that have been implemented in connection with the U.S. ObamaCare reform. So we have a kind of stable situation from that perspective, and that opens up for strong products with good value to take price increases. And we've seen that at a slightly higher level than what we have been anticipating.

Jesper Brandgaard

And maybe just as a follow-up, we've also been informed yesterday that Sanofi has decided to raise prices on Lantus again here in August. And I just want to clarify that, that was not taking into consideration, when we were basically sitting at the board meeting approving the release with the Board of Directors, when that was announced. So that's not been taken into account in our release. The expectation was basically prepared on the knowledge we had 2 days ago.

Yes, Sachin?

Sachin Jain - BofA Merrill Lynch, Research Division

Sachin Jain, Bank of America. I have 2 questions for Mads. You commented on dulaglutide's superiority yesterday in response to a question referencing a non-inferiority margin. Is there any chance that they could have a different superiority margin in that study? And just broader perspectives on how you view dulaglutide share evolving versus Victoza when that product launches?

And then a second question, again, related to GLP-1s. The SGLT2 platform had a stronger launch than we would, perhaps, have anticipated. How do you think about SGLT2/DPP-4 combos when they come roughly 15, given the potential for similar A1c and weight loss to the GLP-1's [indiscernible] balance between safety versus administration?

Jesper Brandgaard

Mads?

Mads Krogsgaard Thomsen

Okay. So Sachin, yes, just for people to understand, all these things about non-inferiority margin and so on and so forth, what happens is that when you design a clinical trial for whatever comparison purpose, such as looking HbA1c and so on, your protocol had to prespecify, first of all, that you're typically sure that you're not inferior to your comparative agent. That's what is actually is calling the non-inferiority margin, and that can be plus/minus, for instance, 0.4% hemoglobin A1c. And if you're in that range, you're non-inferior. You can, then, from a statistical perspective, hierarchically go down if you pass that one and say, "Yes, we've done that. We're non-inferior," then you can just pursue superiority. In reality the only people who know what the superiority margin would be, it can be the same as the non-inferiority margin, but it can also be different. That is prespecified and, I guess, previous insight that the Eli Lilly colleagues will have. So I think I can't comment any further. But I can give you my prediction because I already have and I'll do it again. And my prediction is that dulaglutide and Victoza 1.8 mg, they are probably of a similar efficacy in terms of hemoglobin A1c, but with Victoza 1.8 having the upper hand as regards body weight and systolic blood pressure reduction. But that's my prediction and we'll have to see come year-end.

Jesper Brandgaard

And if you should maybe, Kåre, just comment on how we're were going to compete up against the dulaglutide if it comes to market?

Kåre Schultz

Yes, so if you see the key difference here is that the market is different in the clinical profile on weight. But there's also the difference, of course, one is once weekly, that's dulaglutide, and one is once-daily, and that's Victoza. And most likely, the way we see it is dulaglutide will be a strong competitor to Bydureon and we'll probably be able to take share very fast from Bydureon. We think it can also probably contribute to the growth of the GLP-1 segment, assuming that Lilly does a good job on marketing it. We don't think it will have a major impact on the sales preparation for Victoza. It might come out something, who knows, maybe corner 25% long term of the market will be carved out for once weekly, that will then be split by Bydureon and dulaglutide, and then once we get to the market, with our semaglutide. So that's the kind of thinking we have a lot. But of course, nobody knows.

Jesper Brandgaard

Thanks, Kåre. And then, Mads, over to the combo products of SGLT2 and [indiscernible]

Mads Krogsgaard Thomsen

There is no doubt that, Sachin, that what you're looking at is we have new class available maybe the SGLT2 inhibitors from J&J and AstraZeneca and so on. And there's no doubt that the convenience of combining them in a tablet is such that you have a combo coming to market is something, again, from a convenience perspective that we also know from Januvia, Janumet and so on and so forth, is carving out a size or a part of that OAD market. In our view, it doesn't change the point in time when patients are going to need an injectable Victoza, but it will be a, relatively speaking, high-efficacy offering in the OAD segment absolutely.

I think long-term, the only thing that could, for me, radically change the outlook for OADs, apart from the fact that everybody's struggling to find a new class, is if and when we were to succeed with an agents, such as the oral semaglutide or other GLP-1 because there, you are getting a real bang for the buck as if it had been an injectable, yet it was an oral, but still some years to go.

Jesper Brandgaard

Okay, next question? Peter?

Peter Verdult - Morgan Stanley, Research Division

Pete Verdult, Morgan Stanley. Mads, just on the CV trial, could you talk a bit more about the endpoints from an efficacy standpoint in terms of -- I'm sure you're measuring A1c. Are you doing anything on units dosed? And obviously, with the gain in boost, there's a lot of rankling between you and your competitor about when filagium was dosed. I think you're doing in the evening, and they're saying it's mostly done in the morning. So how are you getting around that or changing things for the cardiovascular outcome study?

And then may be 1 for Jesper on CapEx. If these oral programs start to bear fruit in terms of Phase II moving into Phase III, when will we start to see that being reflected in your CapEx plans to build out capacity or is that actually needed?

Jesper Brandgaard

Thanks. Mads, you first, cardiovascular trials.

Mads Krogsgaard Thomsen

Okay. Well, first of all, Peter, in terms of -- there's been this debate about the dosing time for these agents in the beginner boost programs, as you correctly hint there. And in reality, the reason why we did that was quite obvious. Because Lantus had to be dosed as per label. That's the traditional way of doing it, and our agent was then dosed in different ways, such that we've tested evening dosing, we've tested morning dosing and so on. But to avoid that discussion, we have here an apples-to-apples comparison. They're dosed at the same point in time every single day in all patients.

In terms of what we're measuring, what clearly sits -- since it is a CV outcome trial, the MACE definition, the 3 stringed MACE of -- is infarction stroke is the primary point. But you're absolutely right. We have to treat these patients. We have to titrate them. And we have defined or decided together with the FDA, what is the titration algorithm? What is the fasting glucose target range? Do bear in mind that these are patients who have severe risk of a cardiovascular occurrence or event occurring. And as late as last week, there was a publication some of you will have seen, where there is really, when you meta-analyze all data, a huge extra risk to CV events occurring when you have hypoglycemia. So there's this delicate balance that you want to treat them well, but you also have to individualize therapy to what can they actually stand up to, and how volatile is their glucose and so on. So that's all built in, in agreement with the FDA. We are measuring all kinds of stuff, but we're trying to also keep it simple. So we're not implementing a lot of tricky-to-do procedures, but knowing what the dose is in the different -- in the 2 arms, and so on and so forth, that's kind of like a no-brainer because you simply measure the drug consumption and stuff like that.

Jesper Brandgaard

And Mads, before I move on and talk about the CapEx effect of our oral version of GLP-1, maybe you should just comment a little bit on the duration of the GLP oral [indiscernible] trial, which are moving into Phase II.

Mads Krogsgaard Thomsen

Yes, so the oral semaglutide, first of all, it is truly pioneering science. Suddenly you're actually administering a protein, together with the current technology incipient by the oral group, and that means that, not only do you have to understand dose responses, which is traditional. You also have to understand are there drug interactions with other agents that are administered orally. What is the ideal way of timing this, compared to meals and so on and so forth. You have to understand how it comes into play in different subsets of type 2 diabetes, duration of disease. So we're actually doing a relative comparative 2-year program in Phase II, which those of you who remember degludec, was done in actually less than 1.5 years. So this is comprehensive. It will be approximately 2 years and started towards the end of this year.

Jesper Brandgaard

Thanks. And that's also what's leading the time line in terms of implications. So you should anticipate towards '15, into '16 that if we are successful in moving the first wave product into Phase III, then I would anticipate that there will be an effect, everything else being equal, on our CapEx-to-sales ratio, currently running at about 4% to 5%, probably an additional 1 percentage point or so. And you can easily need something like 20x the volume of GLP-1 for patients, and hence, implications for additional API capacity. And furthermore, the tablet producing facilities will require some investment. But I think a reasonable estimate would be approximately and upping about 1 percentage point for, say, 2 to 3 years as a consequence if we were going full scale into Phase III in this area.

Okay. Next question. Yes?

Philippe Lanone - Natixis S.A., Research Division

Philippe Lanone From Natixis. Maybe to dig more on this semaglutide story because we will have the injectable at one point of time '16, '17, and not too far away, the oral. So will you make a choice of whether we want the 2 on the market? And how you're going to manage that? Is the injectable just a test for the oral in a way?

And the second question is on Levemir, because when I look at your chart on Japan, and actually, the sales for Tresiba are mostly incremental. Levemir doesn't seem to suffer too much. So is it what you observe in the other countries? And what do we need to model going forward? 2, 3, 4 years from now, will Levemir continue to be around the sales we have yesterday?

Jesper Brandgaard

Okay. Thanks. The first one to you, Mads, on semaglutide. Will we both have an oral and injectable?

Mads Krogsgaard Thomsen

I sincerely hope so. And I think, Kåre, very elegantly when he discussed the different segments, there's a once-daily segment, there's a once-weekly segment. And let me give you an example. In the Lancet, we published a study called, study 1860 where we compared Januvia once-daily tablet up against 1.8 milligrams Victoza. In that study, there was a crisp and clear, highly significant quality-of-life improvement and preference for our drug even though it was injectable. Now these patients had been crossed over. So they had half a year on Victoza, half a year on sitagliptin, the tablet. Once they've had that choice, they elected to prefer Victoza because of the weight benefit, because of the glycemic benefits. Now that's not the situation that meet you in the physician's office. There's little white tablet and there's the nasty pin, sorry Kåre. So what you want to go for? Well, you take 5 minutes to educate about the pin. It may hurt you, you can bleed, all these things that people think or fear, and of course, they say, "provide tablet." So my view is that, here, we need a pill, because quite clearly, there are patients who, either for cost reasons, for security reasons, for what have you, don't tolerate the oral or get a bit of response on the injectable. But the big thing is that Victoza's not being used as early as Januvia. Januvia is really used very much as first and second line, where Victoza is used all over the place but quite often after a couple of oral failures. That's because of the injection. Here, we can bypass that and the people will not have the injection barrier. They can get all the benefits in the tablet. We will not shy away from having semaglutide on the market as an injectable because we have a wonderful patent until, at least 2030, '31.

Jesper Brandgaard

And, Kåre, what will -- what is the longer-term effect going to be on Levemir sales from the rollout of Tresiba?

Kåre Schultz

Yes, you should see these, I say, you could say, generations of insulins, and historically, it's so that when you launched a new-generation of insulin, we do not pull out the previous generation. But we do never want to have sort of the 3 or 4 generations at the same time in the marketplace. So expect that Tresiba will have sort of a 10-, 15-year penetration into the market. In that period, you will still, for many years, see Levemir being in the marketplace. But of course, you will probably see most markets, that the old API insulins will be going out. So we typically operate with having 2 simultaneous generations of insulin in each market.

Jesper Brandgaard

Okay. Next question.

Riccardo Lowi - Crédit Suisse AG, Research Division

Riccardo Lowi from Crédit Suisse. I would have a question on cost. I mean, some of your competitors talked about stepping up marketing investments in the U.S. in the second half of the year. So I'm wondering, if we assume, for example, the stand of your progress will increase the marketing infrastructure by 10%, what would be Novo's response to that in the sense, are your competitors catching up with you? Or in that case, you will have to catch up with them?

Jesper Brandgaard

Okay. Maybe before I let Kåre elaborate more on share voice in U.S., I think in general, our expectations for the sale and distribution costs to sales ratio for 2013 is that it's going to be at the -- around 28% mark. We've had a higher growth level compared to last year and the first half of the year is gone to [indiscernible] expanding the sales force in the U.S. in the second half of last year. Looking into next year, I think we'll see a slight improvement in our margin, everything else being equal. And then, Kåre, maybe comment on share voice in the U.S. competitive action?

Kåre Schultz

Yes. You could say that we have been growing our sales force in the U.S. over the last 10 years, and adding gradually to that. And as a consequence of that, we've also been growing our share voice and I think we have a competitive share voice now, both in the insulin space and in the GLP-1 space. We have seen competitors being a bit erratic, up and down, with what they're doing with the sales forces, also because there's been some pretty big restructurings of both the Lilly sales forces in the U.S. and the Sanofi sales forces. And we have also seen some bit erratic behavior from BMS and Astra in connection with Byetta and Bydureon, where they start pushing very hard in the last months of last year and have continued to do so. So we are more doing our own thing, so to speak, and we will be on a steady basis increasing our sales and promotion efforts in the U.S. marketplace over the coming years, just as we've done the last 5 years, nothing dramatic. And we will ensure that we have a competitive share voice for both our GLP-1 products and for our insulin products. So we're not worried about it. And we'll do our own thing, so to speak, to maintain a high share voice, no matter what the competition does.

Jesper Brandgaard

And of course, the -- one of the triggers that we will have and we'll have to prepare for, will hopefully be a launch of liraglutide 3 mg in obesity. And there, we would need the diabetes care sales force to be -- align it to be able, also, to reach some of their physicians, et cetera. It's not that it's a very significant number of new physicians that we'll need to see for the core franchise, but I think that there will need -- there will be a natural point in time for Kåre to assess the size of the sales force.

Kåre Schultz

Yes. And even Lars' comment that with the organic growth we are having in the top line, it is not that we sort of disturbed the percentage that goes into sales and marketing because we expand. Though we will keep on expanding with our success in the marketplace.

Jesper Brandgaard

Thanks. Next question here.

Alistair D. Campbell - Berenberg, Research Division

Alistair Campbell from Berenberg. I have a question on IDegLira because, obviously, it was one of the better-received data sets at ADA this year. If we see U.S. opportunities to 1 side, and just think about this product x U.S. now that you've filed it, can you sort of fill us in where you see this product sitting within your portfolio? What's the patient group you're targeting? And your thoughts on what's the potential you see for this product as it rolls out outside the U.S.?

Jesper Brandgaard

Maybe Mads will comment on portfolio, and then, Kåre, potential.

Mads Krogsgaard Thomsen

So you can imagine that, currently, we have 2 trials running Q3 and Q4. We have many more up the sleeves, so to speak. We've completed Q1 and Q2. And just from what we've done, Q1 was basically positioning this agent in the space of all drug failures, whilst Q2 was basically seeing how does IDegLira perform as a intensification step for an insulin therapy, basal insulin failure as opposed to when this -- what we typically do at a parenteral insulin. So all options are open, based on the excellent data and they were indeed well received Q1. But I think it's more prudent that you comment, Kåre.

Kåre Schultz

Yes. And we haven't, of course, gone to market yet. We haven't got the approvals yet. But the way we think about it is that it is clearly a superior efficacy profile as seen in the clinical data. We hope that, that will be further confirmed by the coming trials and we have no reason to believe otherwise. But that means that it's going to be a very efficacious therapy. And it's also going to be a relative high value today for us and also clinically for the patient, of course. So the most advantageous position and the way we think about it right now will be to look at failures on basal insulin analogues and recommend them to move on to this product and thereby improving their control and improving their outlook in terms of risk of complications and so on. And this is a very sizable statement as you can imagine, because we know there's quite a large percentage of the people who are, today, on basal analogue insulin and they are not in optimal control.

Mads Krogsgaard Thomsen

And maybe just 1 technical comment. Why it makes sense to do what Kåre is saying. We've actually shown that the whole difference that was present in the dual study between Tresiba on the one hand, which did well, but as it always does, and then IDegLira that fared even better, was all attributable to every single meal being improved. So it was a parenteral effect of liraglutide across all meals that made the whole difference. Nothing but, because the fasting glucose levels were identical. So essentially, it makes a lot of sense because what you need when you're failing basal is parenteral control and what IDegLira gives you is just that.

Jesper Brandgaard

All right. We have time for our final question. Yes, Mark?

Mark Purcell - Barclays Capital, Research Division

Mark Purcell from Barclays. First question on the potential slow down on GLP-1 class. Are you following literally how patients are doing on GLP-1. I guess initial patients on Bydereon, Byetta were quite obese and may be quite different to those who are starting today. I just wondered whether you're starting to see people dropping off GLP-1 therapy and moving on to insulin therapy and whether that's the sort of broader reason why there might be a slow down?

The second question on the oral GLP-1s. If you could give us an idea of the sort of mix per day you're targeting out of your combinations of molecule and carriers? And it sounded like your study 40 mgs would be a target based on your comment yesterday. But I wasn't sure that was based on volume rather than mix today.

And then lastly, the preview chairman's looked at the GLP-1s very differently in terms of cost effects and the economic benefit. I just wondered in the U.S. where these conversations are going, if there's any conversations about cost economic benefits, and whether insulins could potentially move up the GLP-1 prices of today?

Jesper Brandgaard

Okay. Well, if we take first, to Kåre, if you take the potential slowdown of GLP-1. And then Mads, you'll deal with the oral GLP-1 question and then Kåre can comment on cost at the end.

Kåre Schultz

Yes. So if we take the GLP-1 line, in order to comment on, I think we need to start to comment on the U.S. market for GLP-1. Because otherwise, it gets so complex with the [indiscernible] markets. I think what we're seeing in the U.S. is both a mathematical slowdown in terms of, now it's been penetrating for a period and then you get typical S-curve wave will slow down. And that's nothing different from any other product penetrating the market. And then you might speculate, and I don't know, but I would speculate that all the negative press surrounding pancreatic cancer that, in some way, has dampened the growth rate. I think that is about to sort of diminish and go away now with the statements coming from EMEA and FDA. I don't think there's any tendency that the therapy is such showing to not work, all the people switching out of it. We have heard nothing about that. We don't see that in any data. There's one thing that sort of we underlying that, is that we also measure our GLP-1 market share out of a total increase in space and we are seeing new highs all the time of Victoza in the total increase in space, not dramatic but it keeps ticking up and that, to me, indicates that it was the whole scare about the [indiscernible] class that led to margin -- whether that's going to pick up or not, I'm not sure. It might be that it just stays at the current growth level that it has now, but at least the risk of it sort of going down, in my view, is gone, which is a positive.

Jesper Brandgaard

Mads, a comment on oral GLP-1.

Mads Krogsgaard Thomsen

Yes. I think the question was about dosing, Mark. Well, first of all, I can't give you the exact dose because we don't know yet. But what I can tell you is that the active ingredient, i.e. semaglutide, we are speaking below 50 milligrams even at the top dose. You can imagine like if you take any oral anti-diabetes, whether it's a TCD [ph], an SU [ph] or TPP-4 or -- but not TPP-4 but all the others, are available in different sizes, spread in 0.5 mg, 1 mg, 2 mg. Here, you have the same situation because people have different weights, they have different needs and so on. So we will be below 50 mg, and it will differ depending on the patients.

Jesper Brandgaard

And then finally, Kåre, pricing in the U.S. market, sustainability?

Kåre Schultz

Yes. And it's a very interesting question. We have a lot of health economic data and we use that also a lot in United States with the managed care and [indiscernible]. But I believe that the reality of the marketplace is, it's all about supply and demand. It's all classical pricing. It's how many suppliers do you have? What is the demand for the product? What are the options available? And then the pricing comes out of that much more than out of sort of health economic calculations, to be honest. And then there's the public sector, which do their own political game. So the way it's working for us it's very beneficial because there is a limited supply, I would say, of high-quality, high-end products. They carry an enormous value to the patients, we can prove that. And the patients are realizing that and that is why we have a positive pricing environment. And the complexity, and as we talked about that there for a long time, I won't get into it now, but the complexity of doing high-end insulins in high-end devices at a consistent quality and having FDA approve it simply means that there's a limit to how many suppliers you will see in that space.

Jesper Brandgaard

And then on top of that, of course, you cannot judge the sustainability of the U.S. price alone on the list prices, but of course, there is a continued, very intense competition on prices in form of rebate for the various managed care plans, that if anything, and we've had some discussions at prior meetings in terms of the prospecting and the mixed segment, where there's been intense price competition with Lilly in terms of having preferential status at the formulary. So I do feel that we do have in elements of the market, a very, very intense price competition.

And with those comments, I'll thank you, all, for your interest in Novo Nordisk. I hope to see a lot of you back in Barcelona. That's a nice place, 24th of September. Have a great summer. Thank you.

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