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Novo Nordisk A/S (NYSE:NVO)

Full Year 2013 Investor Road Show Conference Call

February 3, 2014 7:00 AM ET

Executives

Lars Rebien Sørensen – CEO

Kåre Schultz –President and COO

Mads Krogsgaard Thomsen – EVP and Chief Science Officer

Jesper Brandgaard – CFO

Analysts

Tim Race – Deutsche Bank

Michael Leuchten – Barclays

Richard Vosser – JP Morgan

Keyur Parekh – Goldman Sachs

Sachin Jain – BofA Merrill Lynch

Keyur Parekh – Goldman Sachs

Thank you for joining us. My name is Keyur Parekh and I cover Novo Nordisk for Goldman Sachs. It’s my pleasure to welcome the entire management team from Novo for the Full Year 2013 Investor Road Show in London. With that, I am going to hand it over to you Lars to make a few introductory comments. Thank you.

Lars Rebien Sørensen

Thank you, very much. Thank you very much to Goldman Sachs for your hospitality. Even though it’s not been reciprocated in Denmark at the moment. But I am sure there will be eventually just ask to keep doing what you are doing so well. And it’s wonderful to be back in London on a bright sunny day and feel slightly better than it is felt during the last twelve months the way that situation for the company is evolving.

First of all, here is the agenda which is typical boil up plate presentation by us. The forward-looking statement slide which you should familiarize yourself with, because we will at great risk talk about predictions of the future which might turn out quite differently as has happened occasionally. So please read this and I only have one slide.

And I am not going to even talk about it perhaps not in details at least, because my colleagues will certainly do that. Other than to say that, 2013 was a challenging year for Novo Nordisk.

We started out with the on placement surprise of receiving a complete response letter on Tresiba which prompted us to make significant adjustments to our resource allocations and plans, in particular, in the U.S. whereas you can imagine we had to reallocate the resources.

We had to reallocate the manufacturing strategy and supplies and it’s gratifying to see that in spite of all those changes, the financials actually came out quite nicely in a very, very challenging year albeit that the currencies have been significantly against us and will be against us also in 2014.

And we very quickly recovered from – well, some did faster than others from the disappointment of the complete response letter and got back to work on designing a study which will hopefully bring the data which is required for the FDA to have another hearing on Tresiba for the U.S. and Mads will talk about that.

In addition to that, the research organization have made tremendous progress in a number of fields so much so that the investment in R&D will increase as a percentage off the P&L in 2014 from 14% to 15%.

And I can truthfully say that the R&D organization is running on all cylinders and things are very, very exciting. And I think with that, basically I will stop here because I could go on and on, but my colleagues are much better at this than I am. So, Kåre, let me introduce you.

Kåre Schultz

Thank you, Lars. I am going to comment on the sales and the development we are pursuing and if we just take a look at this picture first, then you can see that in local currency, we grew sales 12% and in reported terms we grew 7% and I am sure yes, we will get back to the currency situation we are living through.

What you can see is that, North America is becoming an ever bigger part of our business. It’s getting close to half of our business which is in line with the fact that half of the world the biggest market is right now in North America.

You can also see, Europe is becoming a relatively bigger part of our business. It’s now gone to slightly less than a quarter and emerging markets understood as China plus, all the emerging markets growing very fast and getting close to being a quarter of our business.

So we have three main growth regions. We have North America growing 18% in local currency. International operations growing 17%, Region China reported 13%, they had a reduction in inventories branding out there in reality underlying they grew closer to 15%. And then we have the two slow growing areas, Europe with slow demographics and slow GDP growth growing just a few percent and in Japan where we have seen the typically fourth taking a picture of the diabetes market where we had a flat development.

So overall, the whole mix of it we are happy about it. We see strong growth among, you would say, basically 6 billion of the world’s population and it’s promising world for the future.

If we look at the products then, nothing much new here. Diabetes care roughly 80% of our business, but also a nice contribution from our two key biopharm franchises. Growth hormone with Norditropin and haemophilia with Factor VIIa NovoSeven.

If you look the growth in local currency, then by chance you could say diabetes can and biopharmaceuticals grow the same, 12%, and the drivers are the same as you’ve seen before. If you look at diabetes, you will see that it’s modern insulin and Victoza that really drives the growth.

More than half of the growth coming from the modern insulins and more than a quarter coming from Victoza and now I will comment just a little bit on those two. And then you could see in biopharmaceuticals that we’ve had a good year for both NovoSeven and Norditropin with background that’s slightly different we were saying NovoSeven, we see increased demand in many parts of the world. We see less generic or bio similar competition than we thought we would see in international operations and we see more acquired haemophilia basically in a lot of markets.

Norditropin, that’s more a marketing and market share gain. Basically all growth hormones are generic these days. There are eight manufacturers or more worldwide. There is a lot of competition, but having a superior device, superior formulation, superior service package, superior clinical data. We managed to keep on taking share with growth hormone with Norditropin worldwide. So we are very, also optimistic about that.

Now, if we then go on and take a look at the modern insulins, then we have a classical split here between the pre-mix, the fast-acting and the long-acting insulins. And if I start with the smaller stake in the pre-mix segment, we sort of tend to discard it sometimes because it’s not really growing in the U.S. or Europe, but it’s still a pretty big segment and it actually grew 10% last year.

So we have some key products there. We are gradually coming up and we think that’s looking very promising. NovoRapid is the gold standard in fast-acting insulin and remains so and it’s doing very fine all over the world and has high growth rate despite the fact that it’s more than ten year old product.

And Levemir is in a way the sort of slow comeback kid you could say, because we started out behind Lantus in the marketplace. We still have a relatively low market share worldwide, but we keep on growing it and as Lars was alluding to when we didn’t get Tresiba in the U.S. we pushed full speed ahead with promoting Levemir and it’s working out very nicely for us. We keep taking share although from a low starting point, but that just means the relative increases are so much the better.

If you look regionally, then two-thirds of the growth on modern insulins coming from North America. Big chunk from international operations and then a nice contribution from China also. So the same three regions that really have the good strong demographics and the good growth.

In terms of 2Q1, we are very happy about Victoza. Victoza now has worldwide market share around 70% and it’s been growing steadily. There was a slowdown in the market. I am sure you all noticed that in the U.S. market in Q3 that started in Q2. It was all based on the scare about pancreatic cancer based on the – article.

I am sure Mads can comment on it, but basically we hope it’s now refuted in the sense that it was based on poor science and that of the safety data generated on incretins and GLP1s clearly indicate that there is no signal for pancreatic cancer and we did also see growth coming back in the fourth quarter in the United States and we are very positive about that.

You can see that our sales distribution with two-thirds in North America, a quarter in Europe, and then international operations in China still relatively small. We do however have very high growth rates in international operations and in China for Victoza and we think that the outlook for Victoza in general is very good.

Here we have some of the numbers I alluded to before. I mentioned that Victoza has about 70% share of the GLP1 segment. What we show here is sort of the combined DPP-IV, GLP-1 and SGLT-2 segment and you could say, out of that segment, we have sort of the share of that growth roughly 30% of that growth in our segment value market share of this segment which would cause out the patented modern Type 2 diabetes medicines.

We have roughly 19% of that value right now and you can see that the whole marketplace of these product combined is growing very strongly over the last five years. 32% compounded annual growth and the SGLT-2 is for sure will take some of the growth out of the probably DPP-4 segment which might have a slightly lower growth rate.

But we are still optimistic that GLP-1s will continue to grow nicely and they are still a very small part of – Victoza is an example. There is only about a 1.5% of TRXs on a sort of weekly basis. So hopefully a good upside there for the patients and for our performance.

So, then turning to Tresiba where we got the completely strong later in the U.S. So it’s still couple of years we can get into the U.S. market. Mads will talk about that. Let me just give you some early insight to how is the product doing in the markets where we have launched.

And what you should notice here is that there are three graphs sort of moving very nicely up and three graphs not moving so much. If we start with the three graphs that are moving up, then it’s three countries where we have reimbursement at par with advances in Levemir. It’s very different reimbursement situations.

In Mexico, there is no reimbursement. It’s out-of-pocket completely for all the products and we still take, we guess about 10% market share on a full year basis.

In Japan, the patient pays 30%, the health insurance scheme pays 70%. It’s the same for everybody, all products. Also in Japan, we expect to take around 10% market share of the basal segment in one year.

In Switzerland, the health insurance scheme pays everything. So you don’t pay for Lantus or Tresiba and also there we think we’ll take around 10% on an annual basis. So basically, where we have a level-playing field in terms of reimbursement. The perception among doctors and patients is this is superior, this is a brand new ultra-long acting insulin. It gives a lot of clinical benefits and therefore it’s preferred and it’s taking share faster than we’ve ever done with an insulin in the marketplace.

Normally, we’d say we can take about six percentage points of a segment when we have a good launch. On the other hand, the bottom of the graph shows contrast where we have disadvantage in terms of reimbursement where there is some kind of block by the authorities.

They try to niche the product and there obviously as you can see, we need to work with this, We need to get better access in UK, we need to get better access in Denmark and it’s typically technical sort of blocks that the authorities put off saying that you have to fill out this form, or you have to been on this drop the first and so on.

If we look back at Levemir and Victoza, we’ve tried this before, it takes several years of convincing based on good clinical data in the marketplace that we should have full reimbursement. We believe due to the relative low daily treatment cost that this can also be done with Tresiba. But of course it’s also important to generate more data and prove the clinical value and with that, I think I will hand over to you, Mads and you can tell us about that.

There are total prescriptions on a monthly basis. Monthly MAT value figures from IMS. Sorry, over to you, Mads.

Mads Krogsgaard

Okay, thanks, Kåre. So, I’ll just start by a very quick update on the DEVOTE trial which is the blinded Tresiba versus Glargine cardiovascular outcome trial that is an event-driven trial where we are looking forward to hopefully as soon as possible pending of course good recruitment and a decent rate of maintenance be able to come up with the interim data that should be gaining for a Class 2 submission of the data to the United States FDA.

Now, in addition to DEVOTE, we have initiated two other blinded trials both seeking to reconfirm the extend hypoglycemia profile of (insulin degludec or Tresiba and the way they have done is in a crossover, as I mentioned blinded manner such that people in a stable period after washout and in a good hba1c drug control are able to having their symptomatic and confirmed hypo events monitored up or measured up against each other.

And being crossover you are your own control and that strengthens the statistics that’s around these trials which is why they are of relatively modest size. These have both been initiated and they will of course be used to further solidify the excellent profile that Kåre described Tresiba is having and as being noted in the market.

Now, there are lot of other things that have happened over the last few months actually. One being that on December 20, we submitted Liraglutide 3 milligram for approval both in the U.S. and in Europe as a treatment for obesity as an adjunct to behavior modification.

Also we have gotten further data from the DUAL program which is IDegLira where the DUAL IV phase III b study is one where the agent was added on sulfonylurea and performed excellently as it always does with an hb1c that went all the way down below the 6.5 cut-off.

Semaglutide is entertaining, the so-called sustaining six which is a cardiovascular safety trial in more than 3000 people in which to with those at high risk of diabetes, sorry cardiovascular problems and that actually both started recruitment and completed recruitment during the course of 2013.

Fast-acting insulin aspart is the revamped version of the NovoLog/NovoRapid where we made the onset of action even fast and that is now also having all the onset trials, all the four phase III trials ongoing at the same time. The last one being the Pump trial that is looking into the compatibility of this exciting new insulin with the pump system.

Liraglutide has been expanded as we have discussed, not only from Type 2 diabetes into weight management, but now more recently also as an adjunct therapy to insulin in Type 1 diabetes, such that we are setting out in a phase III program that has been initiated and called LATIN. So look into both insulin sparing, hypoglycemia benefits and certain other elements surrounding what a GLP 1 agonist can do in this population.

Then we have taken our first oral GLP 1 analogue that’s called OG217SC, also known as semaglutide in the snack formulation into phase II trials where 600 patients are being investigated with regards to those response rapidity of titration and all of that benchmark up against in arm of subcutaneous Semaglutide.

And finally, but not least FlexTouch has been approved for use for modern insulins in the United States and will be rolled out in the second half of this year.

Biopharmaceuticals-wise, we had a good year in terms of getting new products approved. So that the USFDA have approved both NovoEight and TRETTEN which is the American word for NovoThird and furthermore we have also launched NovoEight in Europe and expect to launch in further markets this year including the Japanese.

N9-GP is continuing clinically speaking what is a success story namely by this time coming out with data from a certified trial where 13 patients undergoing major surgery experienced a 100% success rate in preventing bleeding in the surgical theater.

Then moving to growth hormone which we don’t speak so much about, but which is pretty exciting. We have completed a multiple dose study in adults with growth hormone deficiency and this is the product known as NN8640 that is intended for once-weekly use and based on the data we’ve seen there, management expects to be able to make a phase III decision during the middle of this year in the adult growth hormone deficiency indication.

Finally, into the information area, we have reinitiated an antibody project known as Anti-NKG2D, since we have seen encouraging clinical and biological signs of efficacy in a single-dose trial where patients after 12 weeks responded well to one injection of the antibody and hence Crohn’s Disease will be an area entertaining more Phase II activity for this agent.

Finally, Anti-IL-21 which is moving ahead in due course and also in Crohn’s Disease has been discontinued in rheumatoid arthritis not because it didn’t work, because there was a statistically significant clinical over and above, you can see the baseline effect in this indication. However, not at a level where the company deems it of a competitive nature and hence it continues outside of rheumatoid arthritis.

And with that, over to you Jesper for the financials.

Jesper Brandgaard

Thank you, Mads. Well, as Kåre alluded to, we had a 7% growth in our sales for 2013 and I think seven was a lucky number for us this year because, operating profit also went with 7% and NovoSeven did really well.

So, if you look at it from a local currency perspective, we actually had a 5% negative currency impact significant of the part of that coming from the Japanese Yen, but also an effect of U.S. dollar decline.

Gross profit-wise, we increased our gross margin by 40 basis points. We also had something like 30 basis point negative currency impact. So with local currencies, the improvement was about 70 basis point and that can basically be ascribed to higher prices in the U.S. and also – but a product mix of selling more of modern insulins and Victoza.

In terms of – and I should probably also mention for 2014 that we anticipate that we can continue with an expansion in our gross margin in the magnitude of 50 to 100 basis points in 2014.

In terms of selling and distribution costs, we saw a slight expansion in that margin in 2013 as we expanded our sales force in U.S. and also in China and a number of international operation markets we would anticipate that the 2014 year will see a slight decline and probably see percentage of sales between 27% and 28% there.

We should also note that 2013 was characterized by challenging comparators in terms of sales and distribution cost as some provisions in 2012 was reversed on the sales and distribution cost line. That impacted the growth rates in local currency terms by approximately 3%, so it was 13% local currencies and adjusted for this growth level of around 10%.

Research and development costs were steady at 14%. A significant expansion towards the second half of the year in terms of both starting the DEVOTE trial, the cardiovascular trial and also having a portfolio of phase III trials ongoing and hence when you look into 2014 you should anticipate that we will be growing our R&D expenses in the magnitude of – we will be operating at 15% of sales and growing at a higher speed in the sales growth.

Admin cost this year was – in 2013 was a bit challenging due to an inauguration of new facilities, office facilities both in headquarter in U.S. in Princeton and also at our headquarter in Bagsvaerd we would anticipate that the growth in cost in 2014 will be lower below 5% and hence we would see an improvement in our admin cost percentage that year.

Operating profit growing 7% as I alluded to and we had close to 8% negative currency impact. So in local currency terms, operating profit actually grew by 15% or broadly in line with our long-term ambition of growing our operating profit 15% year-on-year. The financials swung around compared to 2012 primarily reflecting significant hedging gains on the Japanese yen and U.S. dollar.

Also note that the tax rate for 2013 went slightly down reflecting a lower Danish corporate tax, the Danish corporate tax level is from 2014 onwards being lowered from the previous level of 25% down to a level of 22% with effect from 2016 and that changed level of taxation has an impact on our deferred taxes and it’s reflected in the tax rate for 2013.

Net profit growing 18% and we continue to repurchase shares and hence 20% growth in our diluted earnings per share.

If you look at the rates for the dollar and the yen, you should note that the current levels are below the average rates we have had in 2013. While the difference for the dollar is not that big at present, we used the rate of 546 as the guidance for the remaining part of 2014 and as you can also see from here.

The U.S. dollar is by far the biggest currency risk impacting operating profit by 1.3 billion Danish Kroner on a 5% movement and also note that we use the U.S. dollar to hedge our C&Y exposure. So, in totality these two risks consume something like a 1.5 billion effect of a 5% movement.

If we take the financial outlook, the outlook is a growth of around 10%, so 8% to 11% of the sales growth, we will with the current rates have a negative impact from currencies of around 3.5 percentage points and I do note actually that we in the last ten days until the release.

And locking the interest rate on the 27 of January, we did have an additional half a percentage point of negative impact basically more or less only coming from the movement of a number of emerging market currencies. So, be cautious about the emerging market currencies and the impact for Novo-Nordisk in 2014. We will try to provide a bit more clarity on that when we get to the first quarter.

Operating profit growth, local currency growth of around 10% depending on of course where we end up in the interval for sales growth and impact from currencies here is about 5.5%. The net financials will be positive around 750 million. Also note that there is an element of our currency gains that will be deferred for income recognition in 2015.

The effective tax rate will be at the 22% level. So here you’ve also seen effect from the positive mix. The mixed effect will have from lower Danish tax rate blending into the total tax rate.

Capital expenditure being raised to the level of 4 billion from 3.5 billion, sorry, 3.2 billion in 2013 and depreciation and amortization just below 3 billion, free cash flow 25 billion, significantly up from last year.

And what do we use the 26 billion for? Well basically, we do pay dividend at 47% or equivalent to 11.9 billion and then on top of that, we have initiated a 15 billion Danish Kroner repurchase programs means that we will return more than the estimated free cash flow of 26 billion.

And then last, shall I just quickly finish this off here? And basically, I think 2013 demonstrated that Novo-Nordisk is able to continuously deliver solid growth from our diabetes care platform with more than 10% annual growth coming from diabetes care. We have a strong market share with 27% in diabetes care. We have a volume leadership with 48% market share and leadership position across all the sales regions.

We have 46% share in the modern insulin market and more than 70% value share of GLP1. We are the only company with a full portfolio of next generation novel insulin molecules.

We have an exciting GLP portfolio with both Liraglutide and semaglutide and opportunity for expanding that both into type1 and also longer term obesity and of course combining it with degludec making a very exciting product IDegLira which has the opportunity of taking close to 80% of type2 patients into guideline control.

And then finally of course we have to supplement that an exciting portfolio of novel proteins in biopharmaceuticals, Mads alluded to NovoEight, the new growth hormone we have on the way and also an interesting portfolio of inflammation compounds in phase II clinical with development.

So with that, we will move to the Q&A and Lars, would you handle that?

Question-and-Answer Session

Lars Rebien Sørensen

Yes, certainly. Thank you, very much to my colleagues. When you ask a question, could you please state your name and affiliation. So that we know at least those that are listening in on this who we are talking to and you are free to ask your questions related to my colleagues, because I am going to just throw it in their face anyway. So if you know who you want to ask the questions, you may as well do so. And so let’s start somewhere here, over in the corner, in the back there was a quick hand there.

Tim Race – Deutsche Bank

It’s Tim here, Tim Race here from Deutsche Bank. So, two questions, first, just a simple one to Kåre on these, on slide 10 what you showed that Tresiba rollout. I would just be interested on your comments on those markets where you get at about 10% share. What happened to Levemir in those markets?

And did you do an aggressive switch? And then just maybe a question on what the developments in terms of the 30 month stay for the generic Glargine. What does – in terms of pricing I don’t expect you to tell me your pricing intentions, but is this positive in terms of pricing or does it give Sanofi more time to make a switch for issue 300 and therefore make it more difficult for Tresiba later? It’d be interesting just to hear your thoughts?

Lars Rebien Sørensen

Kåre, would you? I guess, both the questions are to you. It’s little bit difficult for us to hear the questions. So, indulge with us if we get it wrong and ask us again. So, I’ll just repeat how I heard the question to make sure we all read. So the question is in page 10 in your little book here, we have the penetration curves for Tresiba and the question is what happened to Levemir in those markets, where we see the good penetration of 10%.

What has happened is basically, that there has been a gain of market share for Tresiba which has come from the existing players. That means that’s coming from Lantas and it’s coming from Levemir.

It is coming not totally in the proportion of the market. That’s slightly more Levemir that’s converting, but it’s very close to the market mix and that means that Levemir is basically holding up quite nicely in the markets where we see Tresiba being launched.

There is an example, in the Swiss market, this penetration of Tresiba has been enough for us to become the leaders in the basal segment in the combination of Levemir and Tresiba.

So we do see that we of course lose some Levemir sales, but it’s more or less in proportion to the market may be slightly less, slightly more. So that was the first question. The second question is about, generic Glargine or bio – Glargine being developed by Eli Lilly for the U.S. market and the new patent situation with Sanofi suing Lilly and what kind of effects that will have on the pricing for basal insulins in the U.S. marketplace?

Kåre Schultz

Yes, just in terms of penetration and ability first Sanofi did generated a switch and what – Tresiba longer term. So if we take the pricing in the switching, then you could say, if we assume – I mean, I don’t know, but if we just make the assumption that there will be a 30 month stay and there will be litigation.

Then you should expect that the pricing environment for basal long-acting insulins in the US marketplace in the coming three years will be similar to what has been in the past three years because it’s basically an unchanged situation.

We have two long-acting analogues Lantas and Levemir fighting on the market share through all the classical sales marketing, contracting means that exists in the marketplace and I would guess that the situation will play out more or less in the next three years with the same current trend lines that you see in the last few years.

When it then comes to the point, where you might see U300 in the marketplace or might see Tresiba in the marketplace, then you should expect that these products will come in at similar list prices but with lower discounts than the older products and that they will gain market share from that base.

I won’t comment on the likelihood of how much Sanofi can do with U300. It’s not a clinical game changer in the sense that it has not shown any significance in terms of clinical efficacy compared to U100, but they might want to of course rule the market over for the reasons.

We will be launching Tresiba hopefully that has clearly shown significance on clinical endpoints and that is being seen in the other markets that is a game changer in the sense that it’s the new and improved long-acting insulin. So we are very optimistic provided that we get the FDA approval in the U.S.

Lars Rebien Sørensen

Thank you very much. That was rather clear. Thank you. Next.

Michael Leuchten – Barclays

Thank you. It’s Michael Leuchten from Barclays. Two financial questions and one for Mads, please. On the financials, the guidance includes a scenario where the margin might actually come down. Just wonder what that – what it would take to get you to that to allocate your revenue guidance 8% to 11% and your operating profit growth in constant currencies at 10% as a scenario that implies margin pressure.

Just wondered what it would take to get that? And then the second question on pricing, if I understood your comments lastly correctly, you do not expect express script to show any changes for the fixed formularies and if I remember correctly see this care markets also not up for graphs. Can you just confirm that you are not expecting any major tendering in the US for 2014 from the PBMs? And then on – the question for Mads, on the once-weekly growth hormone, are you looking for convenience only or are you looking for efficacy differences as well?

Lars Rebien Sørensen

Okay, Jesper, margin development, if you use the numbers in a specific sequence, then it could indicate a declining margins. Do you have any comments there?

Jesper Brandgaard

Yes, what I try to say was that we would have an improved margin on the gross margin perspective in the ballpark of 50 to 100 basis points in local currencies. I also indicated for sales and distribution cost that you would probably see an improved or lower cost to the tune of 50 basis points or so, you will see for research and development an increase of 1% and then you would probably also see a slight decline maybe 20, 30 basis points or so for the admin cost.

So overall, that shouldn’t make the margin – operating margin in local currency be more or less stable and then a little bit depending on whether your high end of the sales range or low end it could be more or less under pressure. So I think that was covering that.

Then the second element was in relation to ESI. What additional assumptions of new contracts in 2014 was built into the guidance we have given and from our perspective, no, very significant contracts are up for renegotiation having impact on 2014. There is a number of contracts including CVS Caremark which is likely to be up for renegotiation in 2015.

So no significant impact of changed reimbursement turns on major contracts built into this guidance for 2014 except for the ESI impact which we estimate at about 2.5% of U.S. sales.

Lars Rebien Sørensen

That I guess covered also that, Michael. You can see there is constant contracting in all segments of the marketplace but many of them are smaller and many of them are linked to the calendar year per se.

Mads Krogsgaard Thomsen

So, NN8640 is the new once-weekly growth hormone analogue or derivative from Novo-Nordisk and of course, convenience wise, it does, in particular for kids but also for adults make a major difference, if all other things are equal, the needle size, the – you can say delivery process is as simple for the once-weekly.

Then by definition, taking seven shots bound to one is received by the patient is a good thing. In terms of efficacy, what you can argue is, we have shown after multiple doses being four doses based with one week between.

That is a highly dose-dependent and very clear IGF1 response and IGF1 is what you need to grow if you are kid and what you need to stay bodily healthy if you are an adult. And what I can say is that, the potency was actually higher than we have anticipated that means we have no problems in finding the phase III doses neither for adults and probably also not for kids and they will not be limited by what I know up-to-date any toxicities on to effects.

When that is said, efficacy is always a question of dose, so I would expect to see the same, that’s for one state and a certainly not inferior but also not designed to be superior.

Lars Rebien Sørensen

This has been tried before with the once-weekly growth hormone and as I usually always remind people when you go from once-daily to once-weekly, usually comes at a cost either in terms of side-effect, in terms of needle, in terms of dose and it is interesting.

I mean the first – when that was launched, it was actually it was thrown from the market as a result of this. Now we hope that we are slightly more suggesting with this. But we don’t know yet. And it’s also interesting for us now to see what the final profile of Dulaglutide will be.

We haven’t seen yet the headline data or any details for that matter. But if my thesis is correct, it should be very, very interesting to see the full profile. Next question please? Yes.

Richard Vosser – JP Morgan

Hi, Richard Vosser from JP Morgan. A couple of questions please. Firstly on hemophilia the long-acting factor VIII. Sorry, just some of your perspectives on the dosing interval that you might be able to get out of the design of that is, what do you think based on the life?

Second question, just, you’ve obviously filed the obesity data, if you could give us a perspective on some of the safety profile that has – or some of the safety data that has gone in there may be with respect to CV, pancreatitis cancer the potential hazard ratios or the numeric events or what you can give us comments, that would be great.

And then finally just on the Tresiba rollout, it looks, H1 months data they looks like flattening in Switzerland and Mexico, is there a response from some of your competitors or what’s going on there? Thanks.

Lars Rebien Sørensen

Thank you very much. Well, Mads, in what dosing are you looking for and when you are done with that, how do you look at the obesity 3 milligrams or Liraglutide in terms of the side-effect issues that has been observed. We know the efficacy data, you know all the side-effect issues. So with some caution, if you deliberate on that and then Kåre, if you can comment on the supposedly flattening of Tresiba.

Mads Krogsgaard Thomsen

So, Richard, on – as we call our long-acting site-specific GlycoPEGylated version of factor VIII where the backbone is actually – so we are piggybacking also on the safety database known as NovoEight. We have to admit that it is modestly extended and that goes to all agents.

So from 12 weeks on average after nine infusions, of the factor VIII we have opted to around 20 hours. So from 12 hours to 20 hours which is more or less what we see the others do as well. So it doesn’t really cater for a true once-weekly dosing interval and to be honest there, what you should expect for in ATP it’s something that is dosed every four days, as compared to every other or every third day.

So it’s a benefit, but it’s not the end-game in terms of innovation for Factor VIII.

As regards to obesity and Liraglutide 3 milligram, I have previously told all of you ladies and gentlemen and I’ll repeat it that the classic graveyard scenario for an obesity product is related to cardiovascular problems right from the thin fin to – over neuropsychiatric problems such as acomplia and suicidal ideation and so on, all the way through to cancer as we’ve seen it for some of the other drugs pre-clinically.

We haven’t seen anything there on either items. So the CV outlook based on what we know today for Liraglutide 3 milligram is looking benign and very good indeed. We haven’t seen cancer sequels and we haven’t seen neuropsychiatric disturbances or reportings. What we have seen is an imbalance in pancreatitis, which we have in the label already, in the label for diabetes. It’s a class label for all compounds in both DPP4 inhibitor class and the GLP1 analogue class.

And then we’ve seen a numeric imbalance in gall bladder disorders which we at this point ascribe to the rapid loss of body weight, it’s classically seen by people who diet vigorously that metabolism changes in the direction of stringently causing an imbalance in the gall bladder – gall stone occurrence but of course we are investigating further. So, the classic obesity drug killers I don’t see present in the data set.

But I can tell you one thing, when we have an outcome, probably in the third quarter maybe late second quarter, probably third quarter, I will expect a lot of debate. We will have discussions about C-cells like we did for Victoza. But I can say in terms of C-cells and Calcitonin, that’s nothing to look specifically at.

Lars Rebien Sørensen

And then Kåre, flattening out of Tresiba, have we seen any competitor counter or activity towards apparent succession in those countries?

Kåre Schultz

We’ve seen very strong competitor – from day one, or say even from before launch and there is no change in that pattern and the monthly numbers here, that just random a bit up and down, there is no change in the underlying trend. So when I say 10% in 12 months, you have to notice these curves only – right now, eight, nine months long and there will be some random changes, but we know from all previous initial launches we’ve ever done that the perception is basically created the first six months and that perception stays in the marketplace and then you normally get sort of five, ten year long penetration curves that are surprisingly steady once, you get going. So, we expect the same here. And we see a lot of counter-promoting and counter-detailing, but nothing that is really changing these graphs on a monthly basis.

Lars Rebien Sørensen

Very good, yes.

Keyur Parekh – Goldman Sachs

Good afternoon, it’s Keyur Parekh from Goldman Sachs and I’ve got four questions please. First,

Lars Rebien Sørensen

We will take one-by-one.

Keyur Parekh – Goldman Sachs

Absolutely, first for Mads. Let’s go beyond the headline HBA1c level when Award Six reports for Dulaglutide what do you think we should focus on?

Mads Krogsgaard Thomsen

I think you should focus on a couple of things. HBA1c-wise, you should focus on two things. There is the so-called pre-specified margin defined in the statistical analysis plan, that typically is 0.4% A1c and expectation would be that the compounds or the – is non-inferior to Victoza.

Once you have seen that, then you should look at the statistical analysis, what did it actually say, what was the HB1c decrement compared to Victoza and what’s the statistically significant difference in favor of one of the drugs. These are two independent factors as I recognized.

Then the two other things that we haven’t heard much about from Dulaglutide is body weight, typically not reported so much at this point even though it’s early days, where my hope is that Victoza will prevail based on the data we have seen in the lead program on weight losing type2 diabetes and the other one is systolic blood pressure where we have in four out of five lead drugs had a statistically significant reduction in systolic blood pressure and it hasn’t been reported for Dulaglutide which way it works for this compound. So I’d be eager to look in that as well.

And then there is safety and tolerability which the GI side-effect profile, how much and how long do you see nausea. There has been different speculations between the compounds and I am also looking forward to see that.

Keyur Parekh – Goldman Sachs

And secondly, just as you think about Semiglutide, what do you see as the main differences between – assuming that Dulaglutide and the being the best-in-class once-weekly today, how do you think Semaglutide is going to potentially differentiate from Dulaglutide in a couple of years?

Mads Krogsgaard Thomsen

This will be even more forward-looking statements and speculations, but if I do, what we also have to do in lack of data, if I make tables where I look at the phase II data for Semaglutide versus Victoza, and then look at what have we seen for Dulaglutide in the award program et cetera, et cetera and what have seen for Semaglutide in all and in certain other clinical trials, then my speculation is that on body weight and I can justify this by some scientific studies we’ve done.

On body weight, I would actually foresee that Semaglutide becomes the best-in-class once-weekly agent, obviously in once-weekly trials drug, but potentially also with more weight loss than corresponding doses of Victoza. For HB1c, it’s a less clear picture, but if anything I would again here expect to see Semaglutide that actually leveled out at very high A1c decrements 0.4% above those of Victoza, we would see the same as Victoza or even better. But it’s too early to speculate and then on side-effects tolerability.

We had a problem in phase II. There was a lot of GI side-effect reporting. We have now done two things, we have done a more subtle titration of four weeks between the steps and we are also taking the steps at a lower level because we underestimated the potency of this molecule in phase II and we’ve reverted that in phase II and I would expect to see the GI side-effect profile that’s fully tolerable.

Keyur Parekh – Goldman Sachs

And then, as you are having experience some of the Tresiba launch in Europe, how do you see the IDegLira launch going in Europe and what sort of opportunity does IDegLira represent in Europe?

Lars Rebien Sørensen

Kåre, there is something on pricing with this molecule?

Kåre Schultz

Yes, we have seen a very strong launch of Tresiba in the markets where we had good reimbursement. For IDegLira you could say we will have a phenomenally good clinical profile, and it’s going to be difficult to say exactly how we can position in vis-à-vis the authorities and reimbursement.

But most likely it would be sort of an easier sell, you could say it because we have many markets where we do have full reimbursement for Victoza and since the main cost component or combined product where we would price it sort of one-to-one per milligram so to speak for each of the components, then the pricing differential will be sort of easier to overcome and we have a very clear cut clinical benefit.

So, we are optimistic at a European level about it. Of course, in the U.S. we have to wait to get Tresiba approved and in Japan we don’t have that exact dosing. So, we will probably see the first markets where we see IDegLira really making it will be in Europe.

Keyur Parekh – Goldman Sachs

And then just lastly, a significantly change in your payout ratio this year kind of massive increase in dividend, is that kind of a trend going forward? Is that what we should expect over the next few years as well?

Kåre Schultz

I think, I wouldn’t call it a massive, but a 25% increase over net profit is growing 18%. It was just basically adjusting our payout ratio to the average we saw the pharmaceutical industry acting within the comparison we take out the biotech companies, some of them don’t payout dividends.

So it was kind of adjusted, the peer group that get to 47 and we adjusted to that and then you should expect us to continue to be disciplined in returning cash to shareholders both in the forms of dividend at a competitive payout ratio and then on top of that in the share repurchase program and ensuring that we basically take all the cash that we generate off the balance sheet again like we are doing in 2014.

Lars Rebien Sørensen

We are consulting with the shareholders prior to the general assembly, whether as to they want dividends or they want share buyback. Some want dividends, some want share buyback and we make nobody happy by picking it right in the middle and in terms of utilization of capital going forward we have no plans of making major acquisitions.

There is the potential in say, two to four years’ time that our CapEx program will be expanding somewhat if and when we are successful in advancing our oral portfolio. It will eventually require that we make massive more amounts of active ingredients.

It will require that we’ve somehow or another put solid doses forms within our capabilities unless we want to have that done with partnerships, but it will require that for a period of time, our CapEx might go up, but it is nothing that will put any burden whatsoever on our liquidity. So, you should expect to see more of the same going forward gradually moving.

Keyur Parekh – Goldman Sachs

Thank you.

Lars Rebien Sørensen

You are welcome. Yes.

Unidentified Analyst

I’ve got two questions that shouldn’t be too difficult. One for – the oral insulin, is that still moving ahead, because it’s not in your to do list and the other one can you elaborate a little bit more on the dosing in the new phase III trials, because for example Glargine is a dose early in the morning or later in the afternoon? And also what’s the metric for the dosing? Thank you.

Lars Rebien Sørensen

I guess, the dosing was in relation to the DEVOTE trial or what?

Unidentified Analyst

Yes, we had quite a lot of concerns from Sanofi of course that the dosing was at a funny time and also not that they would have dosed it.

Lars Rebien Sørensen

Okay.

Unidentified Analyst

So I want to make sure that this doesn’t – I understand what’s going on.

Lars Rebien Sørensen

Oral insulin first.

Mads Krogsgaard Thomsen

Oral insulin, it is true that it’s sometimes since we gave that the last update unlike the oral GLP1 where we just provided one. So I think it will be appropriate that over the next quarter, we’ll provide an update. We are into multiple dosing in patients in phase I. And on the other hand, we have several analogues that are undergoing phase I activities and at some point we have to choose the most promising and take that to the next level.

And I think in the not too distant future being the next quarter or two, I can give you further update, but suffice to say, it’s earlier days, but it’s actually looking encouraging based on early data and that’s I think as much as I’ve seen now, it’s more difficult than oral GLP 1 for the sheer reason that the patient’s tolerability of – you can say insulin excursions is much less than that of GLP1 excursions.

Then as regards the blinded 12, we actually feel that everything we have done so far has been done completely state-of-the-art. But just to cater for any specific criticisms or needs of the outside of service, we have of course decided not only to do these things blinded, but also in such a way that the dosing cannot be accused having skewed the picture.

And when that is said, I am as confident about these trials as I was when we did the phase IIIa trials, because I think it might actually be a benefit to the new experimental insulin to be blinded against the well-established one and one of the things we’ve done is avoid the people can come in on Lantus and go directly on to Glargine, because that gives kind of the benefit in terms the patients and the physicians knowing how to titrate and how to use it. So as you can see from the cost, we have avoided that scenario by not having patients coming in basically on that and buy blinding.

Lars Rebien Sørensen

Thank you, very much, Mads. So we take the last one and then we are here for another half-an-hour where we can mingle around a little bit and then you can go ahead one-by-one.

Sachin Jain – BofA Merrill Lynch

It’s Sachin Jain, Bank of America. First question for Mads on the oral sema program, with the phase II data you are expecting next year be sufficient to initiate phase III would you think further phase IIb studies would be required, just given that you’ve got roughly 40, 50 patients per arm? And just on price with the competitive landscape, is there anybody else in oral GLP1 and just where the competitive landscape looking like?

And the second question is on Dula and some comments Lilly made on their recent results call. They described non-inferiority in NovoSix as a win situation, whether that would be sufficient to allow interesting, I think whether you – discussion is referencing the price premium for the 1.8 dose versus the 1.2 dose? How do you interpret that commentary? Thanks.

Lars Rebien Sørensen

Thank you very much, Sachin. Oral, Mads, I hope that the phase II trials are not for us to go into phase III, but you made a comment on that as your head on the block.

Mads Krogsgaard Thomsen

Well, it’s not quite in the block yet, but it will be. No, no, we are doing this trial and we are doing a handful of other trials, right. This is the big one, 600 patients, we are doing a handful of other trials that relate to drug, drug interactions further studies about food drug interactions, interactions at the level of metabolism, stuff like that.

So of course, it’s comprehensive H2 program and my anticipation would be that what we are doing will suffice at an into phase II meeting with an agency to actually define a phase III program without further phase II trials. But it all depends on your data, if there are really uncertain things and if it’s quite unclear which dose to take further or safety aspects et, cetera, et cetera, you will have to do further investigations.

The other thing I would say before, because this is looking promising but it’s also looking high risk, both from the perspective but being I heard you would have administration of a biologic but also to bear in mind we have this carrier called snack, that we also characterizing all the next year and I expect next year to be able to provide you both with an update on the clinical outlook and the carrier existent.

Lars Rebien Sørensen

So assuming this works and no problems, then I think we should ask all of how to see the pricing and the competitive scenario in terms of oral entries to this space and then I guess also the question on Dula I can cover that too.

So in terms of all versions of GLP1 insulins for that matter, you should of course, first of all be aware that it’s going to take a while, even with the fantastic results we expect from Mads, it’s still going to take a while to do the full phase II and phase III program. When you then think about where will it be best positioned then it’s of course not with type1 diabetes, it’s not with where you need very high position in dosing.

It’s with very earlier type2 diabetes where you have some capacity which means that a long-acting agent, being a long-acting oral GLP1 or long-acting oral insulin makes sense. So really what you can imagine is that, these products will be repositioned early which is of course a great opportunity, because 75% of all diabetics on medication are basically on OIDs.

So getting into that volume and still having the very serious basal bolus there being injectible and very precise – this scenario we would like to see and that also means that you should expect the pricing will be more or less one-to-one. It’s not that the OID version so to speak are the old version of GLP1 or of insulin would be anyway cheaper than the injectible version.

Then talking about Dulaglutide of course nobody knows the data. All I can say is that, in general, when you talk about competition in sort of the serious end of diabetes, where you need injectables then the marketplace normally looks at this way, that if you are at par on all the clinical parameters then you can compete on convenience or device or something like that.

But if you have one element that is not at par, then you are seriously in trouble and to really gain market share, you need to hook. So you need one thing where you are better than competition and I think P2 is a good example. P2 in the US they don’t have a hook, they have a sort of look to like kind of product and that’s why despite massive sales and promotion they are not really gaining traction.

Dulaglutide will have the same issue. They need a hook to really convince people that it is clinically better than Victoza and it’s not enough to be more convenient. And if they get into the very fortunate situation that one of the parameters is superior or just numerically below what we see A1c reduction or weight reduction or blood pressure, of course they have a serious problem.

Because they need to go out to explain to the market that they should use this despite the fact that this one element is worse than for Victoza. But we have to see the data before we can say more about it. The follow-up.

Sachin Jain – BofA Merrill Lynch

Landscape, is anyone behind you? How far ahead of the competition?

Mads Krogsgaard Thomsen

It’s a quick answer, there isn’t any.

Lars Rebien Sørensen

So, with that, ladies and gentlemen, thank you very much for attending this launch. We will be available for the next half an hour or so and be ready to take any of the additional questions you may have. Thank you.

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