Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

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

Jakob Riis - Executive Vice President of Marketing & Medical Affairs

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

Lars Green - Manager of Corporate Finance and Member of Senior Management Board

Analysts

Richard Vosser - JP Morgan Chase & Co, Research Division

Michael Leuchten - Barclays Capital, Research Division

Nick Turner - Mirabaud Securities LLP, Research Division

Tim Race - Deutsche Bank AG, Research Division

Andrew Shift

Novo Nordisk A/S (NVO) Q3 2013 Earnings Call November 1, 2013 8:30 AM ET

Richard Vosser - JP Morgan Chase & Co, Research Division

Good afternoon, everyone. Welcome to the Novo London Roadshow Lunch in accordance with the third quarter results. I'm Richard Vosser, JPMorgan European healthcare analyst, and it's my pleasure to have, obviously, the Novo management team with us. And I'll just get out of the way and hand over to Jesper to start the presentation.

Jesper Brandgaard

Thanks, Richard. Welcome to everybody. We have brought with us here to London a team of colleagues from executive management. We have Mads Krogsgaard, our Chief Science Officer; we have our Head of Strategy, IT and Corporate Development, no I'm missing one thing -- missing IT, sorry, and Quality, Lars Fruergaard; and we have our Head of Marketing, Jakob Riis; and then we have our Senior Vice President for Corporate Finance, Lars Green, on the podium as well. My name is Jesper Brandgaard, I'm the CFO of Novo Nordisk, and I'm going to review the first slide, and then I'm going to let my colleagues go through it. And then hopefully, in about 25 minutes' time, we'll get to the Q&A part. And we anticipate that we will be able to finish in approximately 50 minutes.

The structure of the presentation is all around -- let's review the highlights and key events, and then I'll hand over to Jakob for sales update. And Mads will review the R&D, and Lars Green will cover financials and outlook.

Of course, this presentation will include a number of forward-looking statements and such statements involve significant uncertainties. We can just see through the experiences that Novo Nordisk have had in 2013 surrounding uncertainty about getting products approved for the limitation of making such predictions about the future, so you carefully need to read this slide.

And then if we assume on the first 9 months of 2013, we have grown our sales in local currency, to be more precise than this, 12.5% in local currency, and 8.4% in Danish kroner. And I think this was the 46th quarter where Novo Nordisk reported a double-digit growth in our top line measured in local currency. Our growth is driven primarily by North America and secondarily by International Operations, growing 20% and 15% in local currency, respectively.

The key of our franchise is our insulin franchise, which was growing 15%, driven by very strong performance of our modern insulin, long-acting modern insulin, Levemir, but also a continued strong performance of our fast-acting insulin, NovoRapid. Our GLP-1, Victoza, its sales grew by 28% in local currencies and we also have now rolled out our next-generation basal insulin Tresiba in Sweden and India, in addition to the current market position in Mexico, Switzerland, U.K., Denmark and Japan, and in market where we have broad reimbursement, we're seeing a very solid and steady penetration of Tresiba. In Japan, we have, after 8 months, reached a 9% penetration of the basal insulin market, which we think is quite a strong performance.

In terms of research and development, we have this quarter started the DEVOTE trial or we have here in October started this DEVOTE trial with the first patient enrolled, and this is the cardiovascular outcome trial that, hopefully, will enable us to file for approval. It will be a resubmission of our file documenting using insulin data in approximately 2 to 3 years' time, that we will be able to show that Tresiba has no cardiovascular excess risk compared to insulin glargine.

Furthermore, and actually life cycle managing another part of our insulin portfolio, the fast-acting segment, we have in the third quarter initiated 3 out of 4 Phase IIIa trials for our faster-acting insulin, as far -- the program portfolio called onset.

And then finally, we have an approval for our first product into traditional hemophilia treatment for hemophilia A, the turoctocog alfa product, which is approved as Novoeight in the U.S., and it has also received a positive opinion in the EU.

On the financial front, we had a growth in our operating profit by 10% and due to income from financial hedging, the diluted earnings per share increased by 25%. If we look at the outlook for 2013, we maintained the guidance we had given, which was a sales growth of 11% to 13% in local currencies, and an operating profit growth of 12% to 15%, and this was maintained. We also, as has been the tradition for Novo Nordisk for almost the last decade, gave a preliminary glimpse of where we saw 2014, i.e., where we saw the next year going, and currently and pretty much in line with the guidance we actually also provided at the same point of time in 2012 and '13, we currently expect the next year, 2014, to work with high single-digit growth in both sales and operating profit, and both of them measured in local currencies. And on that local currency, I should note that we -- in the release sent out yesterday, was indicating that the rates that we were using for that calculation gave a 5% negative impact on reported operating profit. Now if you -- this is, of course, highly sensitive to what spot rates you use. And I just noted that there was a significant correction in the spot rates, euro versus dollar. If you calculate through the current rates, as we have them today, the impact would actually only be 3%. So of course, the currency effect for new year will be very, very sensitive on what spot rates you're using, with the key currency uncertainty for Novo Nordisk being the U.S. dollar. With those comments, I'll hand over to Jakob to -- for review of the sales.

Jakob Riis

Thank you. Yes. So let me give you a few cuts on the sales and the development. We start out here to the left looking at geography, with the biggest sales contributors being North America, Europe, followed by International Operations. Worth noting is North American now approaching half of the sales in Novo Nordisk. And when we look at growth and share of growth, you'd see that North America, 69%, followed by International Operations with 17%. Growth rates within the regions, more or less in line with the patterns we've seen so far, high growth in North America, International Operations and China. China, a little bit down from a decision to change the way we invoice our NovoNorm sales, so there's 2 months of sales in Q3 not present in the Chinese numbers. So that would be incomparable, close to 15. And then, so that's what we've seen. Similarly -- previously Europe with 3%, also following the pattern. And then Japan and Korea, where we have in Japan a very weak development in the diabetes market for now and low growth in the insulin market.

If we look at the product mix, we'll start to the left noting that again, same patterns, 78% of sales in diabetes. Here, with 9% growth. And if we go 1 level deeper over in share of growth, it is half of it with modern insulin and continued growth in the market penetration and 26% in Victoza. Again, that's what we've seen before. Maybe what stands out a little bit in this particular reporting is that biopharm contributes with 21% of the growth.

And on the next one, I'd like to share with you, when we compare the '11, '12 and '13 on NovoSeven, Norditropin and our HRT sales, what you'll see is that we sort of have -- we sort of having outliers, you can see positive outliers over what we've seen previously on both NovoSeven, Norditropin and also in HRT. And to add a comment to guidance without going into that, we would say we -- this is a more volatile market than the bigger diabetes market, that's why we won't count on seeing the exact same positive development next year, but probably, we will regress towards something that is closer to the average of what we've seen in the previous years. Simply a precaution, not betting on a continuation of the very positive results we have this year.

If we go to Victoza, we have North America, being 2/3 of it and 1/4 being Europe. We get an increasing positive contribution from the rest of the world in International Operations, where we continue to launch Victoza, less so in Japan and China. Japan, where the GLP-1 category is not growing that much, is hardly not growing these days. And in China, where it's still early days from a Chinese perspective in the life cycle management.

If we look at -- zoom in on the U.S. market, which is very, very important for the GLP-1 development globally and for Victoza, what we see is that it continues to grow. We're about 2/3 of the segment, and there's nothing precluding this from continuing to grow. Worth noting is that we actually only treat about 1.5% of the patients in the U.S. market, and with the strong medical profile of -- clinical profile of Victoza, so we still believe we'll now continue to grow this segment.

As maybe in the late observation here, a little dip, that's the denominator because of some of the price increases taken in the big basal market, the insulin, the value of the diabetes market in the U.S. has expanded somewhat, and that's what gives this year development, when you look at the GLP-1 percentage of the entire diabetes care market in the U.S., but continuation of the growth and also predicted to continue.

And then, last year, what was alluded to the very encouraging Tresiba performance we have reported in Japan, we launched in multiple countries, but this is indicative of what we see where we compete head-to-head with glargine on equal market access terms, and we've taken 8.7% of the segment since the launch in March. And we also, I can add to this, get very, very favorable feedback from both the prescribers and also patients that's really once converting from a previous basal, most often, the glargine, see an improvement in their day-to-day variation and better outcomes with Tresiba. So financially, not having the major impact, when we look at it from that perspective right now. But as an indication of the future for Tresiba in the global marketplace, very, very encouraging. And with that, Mads, to regulatory status.

Mads Krogsgaard Thomsen

Thanks, Jakob. Yes, and as regards to the last quarter, a small and a big country Russia and Lebanon, in reverse order, have approved the product, which of course, is nice so that it is an ongoing process towards globalizing the launch of this agent.

Now if we move to the very, very critically important trial, the DEVOTE, the cardiovascular outcomes blinded, double-blinded study up against insulin glargine. You will be aware that it has just been started this month. It is indeed a study where patients have been recruited, whether they are on orals or injectables and eligible for insulin therapy all over the world, with a heavy emphasis on the U.S. It is one in which we at the point where we can submit the analysis that can pave the road for approval of the degludec family in the United States, we will do that based on an interim analysis where we rule out kind of, hopefully, the standard criteria that are used to assess at least non-insulins typically for cardiovascular outcomes at the approval point in time. It is a study where we use a strict MACE, i.e., cardiovascular mortality, nonfatal infarctions and nonfatal strokes. And essentially, that should take us to somewhere within the next 2 to 3 years, that we can do this analysis and submit for approval with an expected 6-month approval time, being a Class 2 reapplication. Trial completion is then expected anywhere from 4 to 6 years after we have just initiation.

So that was an important milestone for the entire organization [ph] and we will give this the utmost and highest priority.

Now fast-acting insulin aspart is a patented novel formulation making the already fast-acting insulin aspart even more physiological in that the postprandial glucose increase, as you've seen previously, is further moved towards normality when injected at the meals. And the program that show, hopefully, corroborate and substantiate the benefits that this can incur to the patients include onset's 1 through 4 trials. The first 3 ones being types 1 and 2 diabetes basal bolus, in the case of 1 and 2, and a comparison with bolus-based-only therapy in onset 3, and a pump compatibility study here in the onset 4 trial. Do bear in mind that we seek to have this completed in such a way that we can apply for submission and get approval even before we are running into a potential formulation patent expiry for the existing NovoLog. But that is, of course, independent of the trial program that we are progressing based on its merit.

Finally, within biopharmaceuticals research, I think we've already mentioned that Novo Nordisk is moving towards, in the first quarter, being able to start commercializing our first hemophilia A product, namely Novoeight. It has some nice merits to it being a as good as it gets, third generation product that we can discuss at some other point. We have resubmitted after getting a complete response letter announced in August this year. We have resubmitted NovoThirteen to the U.S. agency and anticipate a 2-month review cycle, being a Class 1 resubmission. And then finally, we have shifted over, from a first to a second generation antibody in the anticomplement 5A receptor project targeting, among other indications, rheumatoid arthritis. With that, over to you, Lars, for the financials.

Lars Green

Thank you, Mads. So Jakob has already covered the drivers behind our increase in sales that, in reported terms, were 8% for the first 9 months, negatively impacted by currencies to the tune of 4.5% or so. If you look at the other elements of our P&L, the gross margin improved, in reported terms, by 0.7 percentage points, a full percentage points if you adjust for the impact of currencies. That margin expansion is primarily driven by the pricing environment in the U.S., as well as a positive impact from the product mix, with the biopharm franchise being a high gross margin area, growing as fast as the diabetes market.

So on the nonproduction cost, total cost grew by 8% in reported terms, 11% in local currency terms. The S&D cost were the area growing the fastest, driven by expansions of our commercial presence, our sales force and also marketing activities in the fast-growing regions, in particular, the U.S., in China and also a number of International Operations markets. And you should note that in this growth from 2012 to '13, there is also an element of adjustment to our legal provisions that have an impact on the growth rate in S&D cost.

On R&D costs, the cost is growing less than sales. You can say, we are in between very significant Phase III programs with the IDegLira program and the obesity program, being finished more or less in 2012. And we are now only ramping up the significant Phase III programs on semaglutide, on faster-acting insulin. And we are also only now starting, you can say, the cardiovascular outcomes trial for Tresiba. So we do expect the growth in R&D cost to pick up in the fourth quarter of this year and also going into 2014.

And so, admin costs, growing you can say around 5%, in line with the -- more or less in line with the overall cost growth. The admin [ph] ratio will includes an element also of nonrecurring costs. And so you can say the underlying growth in our admin cost to support primarily the expansion of our sales force is also around 5%, if you adjust that for currency. Overall, that gives us a growth in profit of around 10%, negatively impacted by currencies, so the underlying growth in profit at the same currency levels was 17% compared to last year. As Jesper said, we have an opposite, you can say, movement in currencies on our financial items, which means that net profit grow by 22% in the first 9 months. We continue to buyback our share, so on an earnings per share basis, that amounts to 25% increase over last year.

So looking at currencies, we did basically take the currency rate on Monday to use as our guidance for the rest of this year, and also give an indication for the impact next year. With this level, we did see some decline in the U.S. dollar and also the Japanese yen compared to the average of this year. This means that if you look at our outlook for the year, even though we maintain our guidance in sales and operating profit, in local currency terms, of the underlying performance, then with the latest exchange rates, there is a slightly higher impact on both sales and operating profit compared to when we last provided guidance in August. And the majority of this is then coming back in the form of gains on financial contracts. A little, you can say, deficit on -- when you balance out these 2 numbers, because the emerging market currencies, some of these have also depreciated with the U.S. dollar. And since we do not hedge emerging market currencies, that leaves, you can say, a net impact on the bottom line. So with this, Jesper, over to you and closing remarks?

Jesper Brandgaard

Thanks, Lars. I think this 46th quarter of double-digit growth shows the sustainability of the Novo Nordisk franchise based on our diabetes-care market presence. We are seeing a diabetes market that continues to grow north of 10%, driven by the growing prevalence of diabetes. We are having 27% market share in diabetes care, and we're expanding our leadership position, primarily through the global rollout of the GLP-1, Victoza. Our market share within insulin is 48% volume share, with leadership position across all regions. In modern insulin, we have a 46% market share. And within GLP-1, we have a 70% value market share, and we are expanding our leadership position with Victoza. In terms of the pipeline, I think it's crucial for our investors that we are the only company with a full portfolio of novel insulin products: Tresiba, Ryzodeg and the new faster-acting insulin aspart, and it also in that shows the long-term commitment to improve care for people with diabetes using insulin.

The GLP-1 portfolio offer expansion opportunities, not only within type 2, but also actually now we're initiating trials within type 1 and prove that GLP-1 can also meaningfully be used to improve treatment of GLP-1, or sorry, of type 1 patients.

IDegLira gives a unique opportunity for intensifying treatment of people who are inadequately treated on tablets, or maybe on GLP-1 alone, and I think the trials that we did for the combination products show that close to 80% of patients can get in good control using IDegLira for type 2.

Liraglutide 3 milligram holds the opportunity of getting Novo Nordisk into obesity treatment. We anticipate that we will be filing for approval both in Europe and U.S. within the next couple of months.

And then finally, I think we have a promising pipeline within biopharmaceuticals. Novo Nordisk have aspart to become a therapy player within the area of hemophilia. And I think with the approval of Novoeight, we are halfway there. And we also have a longer-acting version of factor IX on way. And hopefully, that could lead to a full market presence for Novo Nordisk within the hemophilia space. I think our franchise of growth hormone is the world's leading. I think, we have even also longer-acting version of growth hormone in the pipeline. And then we have a early emerging inflammation franchise that hopefully can provide longer-term growth opportunities to our investors. And with those comments on Novo Nordisk, I think we'll ask for questions from the audience.

Question-and-Answer Session

Richard Vosser - JP Morgan Chase & Co, Research Division

Richard Vosser from JPMorgan. Two questions on Victoza, please. I think yesterday, you mentioned there's a potential slowdown or some slowdown in GLP-1. Just wondering whether there's any patients moving off GLP-1 as they come to -- come out of control, whether there's anything do with that here. And whether you have an idea of how long patients are staying in control on Victoza now, it's been on the market for a while? And then, also on the Express Scripts stuff, you mentioned a negative 1% hit in your guidance from that in the contract loss in 2014. I'm just wondering what you're allowing for Victoza in terms of the losses in patients there, whether you're factoring any greater rebates going forward to defend from Bristol and Astra being more aggressive?

Jesper Brandgaard

If I deal with the Express Script question and then the assumption used for the guidance, then Jakob, and then maybe Mads, but Jakob first on this data on GLP-1. Jakob?

Jakob Riis

I guess the question was is there a dynamic emerging, because of the safety discussion that has changed the pattern on staying time and not primarily we see the staying time gradually increase. And I think some of those who leave Victoza, the predominant dynamic we see in the U.S. market is not really related always to the clinical outcome. But we just see a lot of movement in between the products. I think what has been at play here is that some have been concerned about the discussions around safety and I think that's been the reason maybe for making a choice to go off. And it's also probably had a temporary impact on the inflow of patients, which is what we'll try to sort of counter now with our DTC campaign trying to transfer them all past the notion around Victoza. And see early indications that the market responds to that, so -- but outside that, I would say we see a staying time sort of approaching a basal insulin staying time that's probably, you could say, as good as it will get since basal insulin will not have a tapering off of efficacy. You can basically titrate it as much as you want. So that's probably sort of indicating the max staying time you'll have on a type 2 drug in chronic treatment.

Mads Krogsgaard Thomsen

So just to say that the majority of the specialist community, i.e., diabetologists and endos in the U.S. and elsewhere, are completely comfortable with the notion that the incretins are safe drugs [indiscernible]. Keep in mind, though, that from -- you have this discussion at a meeting like ADA in Chicago in June, until it permeates all the way through into GP practice in Texas and Arizona and so on, takes some time. So I think this whole turmoil is something that's dying out. But it doesn't do it overnight in the minds of [indiscernible] people but that is the direction it's taking.

Jesper Brandgaard

Thanks, Mads. And then in terms of Express Script, it is correct that we noted as one of the factors behind the high single-digit guidance for local currency sales growth next year, noted that we had a contract loss with Express Scripts for their national formulary, and we don't fully know what the effect is going to be because there are some opportunities for individual health care plans to opt out under that national formulary. But I think the currency ballpark figure we can provide is 1% effect on full year turnover. And at this point in time, I would say it will be roughly equally divided between the Victoza franchise and the NovoLog franchise. And then in terms of, you also ask, have we factored in any particular change in the rebate structure in GLP-1 in the U.S. for 2014 guidance? And I would say no. We are assuming a continuation of the rebates, the rebating that's been done for the last couple of years. I note that we have been offering a slightly higher rebate to higher control plans at the Medicare Part B, and that has actually improved -- increased the coverage. And I think we are today in the high 80s in terms of having a good formulary access in the U.S. And I think what we've been working hard with has been the Medicare Part D. And I would assume that, that would continue into next year, but no specific changes to the rebates. Next question, please?

Michael Leuchten - Barclays Capital, Research Division

It's Michael Leuchten from Barclays. This time going back to the rebates, Jesper. You've given an underlying number for the group on ex-rebates, but how does that for delve [ph] into Victoza and NovoLog, I think were the most affected products in Q3? And then a question for Mads, on the fast-acting insulin, thinking about Europe, where really the burden is now on the industry to show a clinically meaningful differentiation between new products and existing products. How does that work? How do you run endpoints that allow you to argue that?

Jesper Brandgaard

I take the first question and Mads will deal with the second one. I think in terms of rebates, there was additional provisions in -- for rebates in the third quarter, and that correction primarily related to adjustments of who was going to pay the doughnut hole for Novo Nordisk. So basically, we get with some delay, the market share statistics. And there, we got data for the first 3 quarters of 2013 and I think the prime impact -- my recollection to the tune of DKK 300 million and the prime impact was to NovoLog and secondarily to Victoza. So those were the 2 products that were significantly impacted by this.

Mads Krogsgaard Thomsen

And Michael, as we're all aware, being an insulin. Even the fast-acting insulin aspart formulation per se, will not be able to depreciate [ph] on hemoglobin A1c because the studies has done a strict to target i.e., striving for the same A1c. So all the secondary endpoints that are going to support this, also in terms of clinical utility, provability, et cetera. They relate to a, the improved postprandial glucose i.e., if you measure both in a real-trial setting but also after standardized meals, you measure the plasma glucose excursion over, for instance, a 4-hour period after the meal and show -- hopefully, as we have seen already in the Phase I program, that there is a movement towards in all physiological glucose curve, i.e. produced PPGs, postprandial glucoses. You can, if you're very lucky and clever on a good day, show something on hypoglycemia even though that is, as we know, a difficult one to hit for prandial insulins in meta-analysis from a rapid, we did do it, but not in individual trials. You can look at things such as dosing flexibility, which is meaningful, for instance, for kids but also for elderly people, i.e., that you can dose your way 20 minutes into the meal, such that you know that you've got this excellent food, you needed a higher dose due to the fast onset of action and importantly, what governs, at least the medical and clinician perception in the United States is its pump performance. In that regard, most U.S. physicians, nurses and relatives that have diabetes will use insulin pumps if they have at least type 1 diabetes, and that means that if we have a good pump performance, which we definitely anticipate this agent to have, that will give a really good perception in the U.S. market. And the product formulation in the U.S. and Europe, at least, is protected now until 2031-ish. So this is really, we believe, the next generation of incrementally improved fast-acting product.

Nick Turner - Mirabaud Securities LLP, Research Division

Nick Turner from Mirabaud. I wonder if you just look at your modern insulin sales in North America and international regions, I wonder whether you would be able to break that down in terms of volume growth and price growth, just in terms of the modern insulin market? Then the second question would be that I was intrigued by a comment on the call yesterday regarding Victoza and obesity having a strong weight loss effect. If I look at the scale of obesity, placebo with just a weight loss is 5.4%, the number -- portion of patients achieving 5% is 2.4x that on placebo. Now that to me is only just above the minimal efficacy level set by the FDA. So why do you see that as a strong weight loss effect? What am I missing?

Jesper Brandgaard

So if I deal first with the volume and price growth for modern insulins, I'd say for North America, you'd say approximately 2/3 is price-driven and approximately 1/3 is volume-driven. And for International Operations, I would say, it's all volume-driven. If I recall right, I think there is a marginal negative price effect, but not insignificant. And then in MESI [ph] the efficacy of the weight loss volume [ph]

[Audio Gap]

Mads Krogsgaard Thomsen

[Audio Gap]

What you really need to do is look at efficacy overall on the disease, as it is now termed by the American Medical Association. And the disease called obesity relates not only to the excess amount of pounds on your body, but to all the comorbidities that they confer upon sensitive patients, including sleep apnea, which is associated with a 4.5-fold increase in the cardiovascular mortality, if you're in the severe sleep apnea group, which we've also studied in Phase III. Moreover, we are all aware about the prediabetes and diabetes enigma surrounding morbidly obese people and even those who are moderately obese, so the overall efficacy feature is very powerful for this agent. When you look at weight loss per se, as you correctly alluded to, what you can say is that unlike certain agents like Belviq or lorcaserin, the serotonergic agent that actually missed, so to speak, the FDA criteria at least in 1 of 2 trials, we have a situation where in the obesity trials we've done, we hit both the FDA endpoints in the trials. So no doubt about the efficacy, but the most compelling part of the liraglutide is the notion, on the one hand, that it controls weight, but it is associated with significant comorbidity reductions, such that we typically, among the 40%, so 40% of those who are completing our trials, they will have experienced a 10% weight loss. And if you have experienced a 10% weight loss, you will typically see the, for instance, apnea-hypopnea index, which is the sleep apnea index, dropped by around 25 points, meaning that they go into the mild to moderate category and normalize their cardiovascular mortality risk. We also see an [indiscernible] ratio of 5:8 in favor of not developing either prediabetes or diabetes on this product as compared to the comparative grouping standard of care or placebo. So the overall efficacy is we believe truly compelling. We are also going to commercialize the product in that regard, such that we are targeting the niche of "30 million people" who have these comorbidities and have severe BMI above 35 obesity class 2 and class 3. And obviously, a document with an algorithm that we can predict who are the ones that expectedly, with a greater than 80% likelihood are going to achieve a 10% weight loss already after the run-in period, we'll be able to predict that based on the data. So this is a very complicated case that you cannot compare to the kind of more mainstream efforts that some companies have taken where they just felt an agent like a lipase inhibitor, for instance, should go out there and be used in anybody with some excess pounds of body weight. We've seen this as a medical treatment in conjunction with behavioral modification.

Nick Turner - Mirabaud Securities LLP, Research Division

Just a quick follow-up really, which would be, do you think that the regulator -- given the fact there have been issues on pancreatic inflammation, pancreatic cancer, and I know that have been discussed at international meetings. Do you think the regulator is going to be comfortable with a 3-milligram dose compared to the diabetes dose of 1.8 milligrams?

Mads Krogsgaard Thomsen

Two comments there. One is that do bear in mind that these big people have on average BMIs of 37 or above. So the exposure in the organism compared to the diabetic situation, where we often had BMIs around 30, rather than 37, it's only to the tune of 30%, 35% more exposure than in the diabetes studies, that's point #1. The other thing is that obviously, there's been the pancreas safety debate, I fully agree with that because we followed it rather intensively as we've discussed. Now that would also imply that, for instance, on cancer, if you had a pancreas cancer signal, such that there was an imbalance, that could really weigh against you. What I can inform you is that, as regards to cancers, including pancreas cancer, we have no imbalances. As regards neuropsychiatric conditions, like suicidal ideation or even worse, we have no imbalances. As regards cardiovascular performance, we don't have any -- if anything, we have only positive signs on everything but pulse including the hard endpoint cardiovascular outcomes. So I agree with you, that the big debate, of course, will be on pancreas safety and potentially gall stones, but they are, as I see, more living issues than the provability issues, because basically, we know for many years of exposure what the profile, more or less is, even though it's still debated. But for sure, those are the things rather than the classical obesity things that will be discussed [indiscernible].

Tim Race - Deutsche Bank AG, Research Division

Tim Race here, from Deutsche Bank. So question for Mads. On hemophilia, just switching tracks, we've now seen Biogen, Bayer and yourselves all announce what you call delays due to manufacturing issues. And I would just like understand what's special about hemophilia here, why are companies delaying their manufacturing ramp up for this, and just trying to understand really what's special here? And then just maybe a question for Jakob on the SGLT2s. Obviously, they've got off to a very good start in terms of prescription trends. It seems to correspond to a slowdown in DPP-4 [indiscernible] if you look at the different temporal arrangement. Just -- are they having any effect on your business?

Mads Krogsgaard Thomsen

So on the technical side, it is true that hemophilia products being very complex molecules. These are coagulation factors that for the first -- first of all, they are greater molecules, bigger molecules than the standard pharmaceutical therapeutic proteins. They are typically folded in strange ways and put together in different chains, and they have posttranslational modifications such as silylation and gamma carboxylation, all kinds of strange things going on, which makes it highly complicated to actually reproducibly be able to produce this with a low batch-to-batch variation. As such, this not the issue for Novo Nordisk. I have no clue, I read the same as you did on Biogen Idec. Our issue has really been one of getting the entire scale and validation process in place for the full commercial, such that we're able to supply the market once we do get the approval and time those optimally together.

Jakob Riis

[indiscernible] You might have noticed that we got a complete response letter for factor 13 in relation to some quality issues and the fact that we now have our Novoeight approved by the FDA. Indication that those have been cleared. So I think that's quite comfortable for us.

Unknown Analyst

[indiscernible] Is that the reason why there's less growth in the GLP-1 franchise curve, how should we read that?

Jesper Brandgaard

No, that's not -- I mean it's a cause-and-effect it's difficult because it happens at the same time as we have the discussion on safety. So it's hard to be definitive about that. I think a very important comment Mads made, that, that's now scientifically been put to rest. And I would say one indication that, that's not the main contributor to what we've seen as a little bit of the slowdown we've had this year is the fact that when we go out now with DTC, we see a pick up and the market respond well. So it's not because they choose a SGLT2 over GLP-1, it's just because they need to be sort of reminded of and get back into their prescription tablet around the GLP-1. And when we do the modeling, we would have to see an SGLT2 penetration at the magnitude of what we've seen on TV before, before we have something that are in a 5-year horizon could constitute a percentage point on the insulin market growth rate. And so to my point, even though we've seen a strong uptake, I could say, there's an impact, yes, of course, there's always an impact when you go into the diabetes market, it's not the explanation for any of our performance right now, it's not of any major significance and we would have to see SGLT2s really copy the DPP-4s before it would be measurable as an impact.

Mads Krogsgaard Thomsen

And I was hoping that the reason the weekly market share statistics on capture rates in the U.S. look like there is expansion in the GLP market -- GLP-1 market and particularly for Victoza. So it seem to us that the concerns are gradually evaporating, but I think we'll have to document that in our Q4 numbers. One more question? Yes.

Michael Leuchten - Barclays Capital, Research Division

Michael Leuchten from Barclays. Few questions. Firstly, can you remind us the price differentials between vials and pen prices in the U.S.? I guess one of your competitors has closed the gap quite considerably, so your thoughts on that? Secondly, I guess we'll get a GPa ruling on Victoza some time early next year, we just heard one on Lickseed [ph], just wondering if can help us understand what you're expecting please, some of the importance comparisons you've studied and others haven't? The third question, just going back to percentage point of pressure to [indiscernible] I didn't quite understand this, it's about DKK 840 million of sales, you're talking about pressure, if you divide it 50-50, Victoza, NovoLog, it would imply Victoza would have to lose around about 8 to 9 percentage points of market share in the U.S. from 1 managed care chain. At the moment, the managed share is 71, but share-of-share is 62 implies the share would have to be down towards 50%. So there must be something else that's worrying you? Can you remind us whether CVS came up -- contract is up for renewal, is there anything else I'm missing? And then the last question, I just wondered whether with the focus on [indiscernible] et cetera, whether your considerations of inorganic growth have changed in terms of diversifying into a new therapy area away from diabetes?

Jesper Brandgaard

Okay, a lot of questions. Lars [ph], can you deal with the U.S. prices on vials and pens.

Unknown Executive

I think the split or the ratio between the 2 devices or administration systems has not changed really significantly. It's true that sort of the margin there has been a slightly higher increase on the vials compared to the pens, but that's on the list price level. And if you take it, there sort of on the net price, the ratio between the 2 has not significantly changed. [indiscernible] so that if you have an insulin user using a device, the price is more than double of compared to the insulin user using a vial and syringe.

Jesper Brandgaard

And then if I deal with the Express Scripts. I think the reason why I gave a rough split was basically to give some common indication on how the impact is going to be. I think as I also said, we don't have full understanding of which plans are going to be in and which plans are going to be out. And the distribution of insulin users and Victoza users will vary between the various plans. So I think that's the best ballpark estimate we can give currently. I think you will see a significant impact on the capture rates in the first quarter, as the effects of this new reimbursement scheme for Express Scripts works its way through and it will have an impact on our market share in the U.S. There's no way that you can get around that. It's not our anticipation that there will be significant other national schemes for 2014 up for bidding to my understanding for our case -- that's an ever-changing game and it's not something that we're in control of. I think you asked specifically about the CVS Caremark situation, and I think there we feel that we're in comfortable situation, we have a good reimbursement status. It's CVS Caremark, it's a core partner of ours. And I think we have a very good collaboration with them and we have a very high market share for Victoza in that plan. And then there was a final comment regarding, was it the inflammation franchise, Mads?

Mads Krogsgaard Thomsen

Yes. Well, I think, Mark, the way we see our progression into the autoimmune disease space or inflammatory disorders, that is to many extents or to a large extent event-driven, such that if and when we do actually get some good convincing early successes like the anti-IL-20 in rheumatoid arthritis, that will be gating for us and [indiscernible] discussing that it a strategy board, actually, as we speak almost, gating for us, planning for when to do what. So it's not as if you're going to beef up a sales force until you are approaching commercialization, but you will, at relevant point in time, start to having to understand the medical affairs, these pre-defined comparative studies and things like that. And that's, of course, ongoing. But it's part of the R&D budget. And today, it's around 10% of the R&D budget that is going into this area in spite of 5 clinical assets actually being tested.

Unknown Executive

And I think one of the things we're currently doing is that we're taking a higher proportion of clinical trials as in-house trials, whereas most of them have been done by contract research organizations previously. And we think that we need to build the capabilities in Phase II in order for us to be able to essentially run Phase III programs if we are able to prove the clinical [indiscernible] concept with the likes of Anti-IL-20. Yes?

Unknown Analyst

[indiscernible]

Jakob Riis

That's a little hard to predict. If you go by the history of GPa, I mean, the objective odds are they will find no benefit. If you look at the profile of Victoza, it's going to be hard for them to come out and claim there is no additional benefit of Victoza, but it could also come down to, you could say, whether they feel we -- the data put forward is adequate with the right comparison. So I would probably not make any sort of comments as to what we expect out of that. I think we expect a discussion with them around, obviously, the price levels as a result of the innovations go. And as I think, I've also indicated earlier, we are fully aware that it's something that could have cause -- potentially lead to that, we cannot sell Victoza in German market. On the other hand, that would put in GPa in a very, very difficult position, knowing that a lot patients in Germany have a lot of benefit from Victoza. And I think the comparison to lixisenatide I think is not entirely valid in this sense, since we have a much stronger clinical profile and also you could say a long exposure and the benefits to the German patients.

Mads Krogsgaard Thomsen

I think I saw, Jakob, that we have some statistics showing that whenever patients stay long time on Victoza, it's something that if they get north of 800 days, they basically tend to stay on the product. So it is -- it would be very likely in the German market that you would have patient with long favorable treatment regimen on Victoza, which they would then have to switch. Is that fair?

Jakob Riis

That is fair, and we will, of course, gather also the real life evidence, so being years into the launch now, we've managed to gather outcome data from various markets on the results on Victoza where we generally see results that are even better than we documented in the clinical trials. And I think from a GPa point of view, it's going to be a little hard to argue against you can say real life data from real life clinical practice. So that's what we bring to the table when we're going to discuss it. But as I said, no doubt, there's going to be a discussion around how they view pricing of Victoza and existing in the German market going forward.

Andrew Shift

Andrew Shift from UBS. First question on the Tresiba safety study. We've had the argument from another company that's been in front of the FDA recently. That filing on interim CV safety data compromised the rest of the file by making the results public. I'm curious if you think there's any risk [indiscernible].

Jesper Brandgaard

First of all, do bear in mind that CV trial like the DEVOTE is double-blinded, i.e., even if there was any notion going in one or the other direction, since the vials are blinded, there is not any, neither investigator nor patient ability to differentiate between the 2 products, and hence, have reporting bias and that kind of thing, point number one. Point number two, is the FDA has a long track record of actually looking into interim analysis of such trials. And if it were so that there was a worry about the public domain presence of such data that, that should compromise statistics or whatever it might be, the notion would just be that you are in a more closed setting, and in a very differentiated manner had access to the data such that you don't go into the public domain but the FDA and relevant staff get access to that data. So there are easy ways to handle that both technically and from a drug development perspective. So I do not buy into the argument that, that is any consideration for Tresiba, but the statistical analysis plan included how the interim analysis will be done is, of course, going to be really in great detail elaborated upon in discussions between the agency and us, so we do it their way, so to speak.

Unknown Executive

Any final questions on that?

Unknown Analyst

Sebastian Brooke [ph] from Citadel. Just wondering, about your expectations for the pricing environment for the modern insulin in the United States for 2014. How do you expect that for the pricing environment to play out compared to 2013 given the sort of stuff for negotiations there, that you're having with managed care? And on secondly, the additional 400 sales reps you want to deploy in the U.S., is that rather to defend your existing franchise, or is that to sort of boost the existing franchise? Obviously, you mentioned that they would be used essentially for a new product launch, but just wondering, in the meantime, how you would like to [indiscernible].

Jesper Brandgaard

Thank you. If I first comment on the pricing environment for modern insulins in the U.S., and maybe Jakob, if you will expand a little bit more on what we're going to use the sales reps for in the U.S.? And in terms of the pricing environment, I think we've had an unusually positive pricing environment, looking at it overall in 2013. I think it's going to moderate somewhat in '14. You do have to note, when you look at the net pricing impact for Novo Nordisk, that it's combination of the list price increases and then the net effect of rebates, it was a substantial positive impact in 2013, especially coming in the basel segment from high price increases there. But still even if you look, zoom in on NovoLog and NovoLog Mix, we have had a slight positive net pricing impact. And I would anticipate that the pricing environment in the basel segment would slow a bit down, and I would anticipate that the NovoLog, NovoMix pricing environment will also be a slightly positive overall net. That would then be a combination of some rebating and also some inflation for us [ph], this price adjustment anticipated to be taking. I think that's kind what would be built into the assumption that we provided forward now. And then Jakob, in terms of the sales force in the U.S.?

Jakob Riis

The way you should look at that is, that's a continued strengthening of our position in the diabetes market that goes in line with our increased sales and portfolio. So that just follows a development that's been fairly steady over the years. Not just in the U.S., but also in other growth markets. And what it means is that once we get to launches, we have such a strong position that we can dedicate the sales force for that particular launch. And once the product, the new product, in this last time, it was Victoza opening up a new category is well-established. We continue to strengthen our position. With an even bigger sales force that can now support, you could say, in those days, the existing insulin franchise with an added GLP-1 franchise, you could see the same, hopefully, repeating itself with obesity. So we now continue to key up on almost an annual basis. We dedicate part of the sales force to obesity. Having that successfully established, we continue to strengthen again now to support life cycle management of both the GLP-1 franchise in diabetes, 1 in obesity and the existing diabetes medication. So it was a longer version of it, it's really not tailored to the individual launches, but just continue to be at the forefront of our position with the field forces, so we can leverage launches and also support the entire portfolio on the backside of these launches.

Jesper Brandgaard

Good. So thanks to JPMorgan for hosting this conference call with -- or this investor meeting, and then like to see you back, and hopefully, some of you 3rd of December at the Capital Markets Day that Novo Nordisk holds in Denmark, and then we'll be back with full year results end of January. Thank you very much.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Novo Nordisk A/S Management Discusses Q3 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts