Novo Nordisk A/S (NVO) Q2 2013 Earnings Report, Transcript and Summary

Good day, and welcome to the Q2 2013 Novo Nordisk A/S Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lars Rebien Sørensen. Please go ahead, sir. Lars Rebien Sørensen: Thank you, and welcome to Novo Nordisk's conference call regarding our performance in the first 6 months of 2013 and the outlook for the full year. I'm Lars Rebien Sørensen, the CEO of Novo Nordisk. With me, I have our Chief Financial Officer, Jesper Brandgaard; and Mads Krogsgaard Thomsen, our Chief Science Officer. Present are also our Investor Relations officers. Today's earnings release and the slides to be used for this call are available on our web page, novonordisk.com. The conference call is scheduled to last approximately 1 hour. And as usual, I'd like to start with an outline of the presentation. The Q&A session will begin in about 25 minutes. Turn to Slide #3. As always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause the actual results to differ materially from expectations. For further information on the risk factors, please see the earnings release and the slides prepared for this presentation. Please note that the conference call is being webcast live and a replay will be made available on Novo Nordisk website after the call. Turn to Slide #4. We are pleased with the strong sales in the first 6 months 2013. Sales increased 14% in local currencies and 11% in Danish kroner as compared to the same period in 2012. Sales growth was driven by strong performance in North America, International Operations and China. Sales growth was realized within both diabetes care and biopharmaceuticals with majority of growth coming from modern insulins and Victoza. Among the modern insulins in particular, NovoRapid and Levemir drove growth. The launch of Tresiba, the once-daily, new-generation insulin with an ultra-long duration of action, continues. Tresiba has now also commercially launched in Mexico and Switzerland. On the R&D front, we received feedback from the FDA on the clinical trial protocol for the cardiovascular outcome study for Tresiba, confirming our previously announced expectations for trial design. And the trial is now expected to start before the end of the year. Mads will elaborate on this in his presentation. We now successfully completed the SCALE Phase IIIa clinical program investigating the efficacy and safety of liraglutide 3 milligram for the treatment of obesity. We expect to file our liraglutide 3 milligram for regulatory review in the United States and Europe around the turn of the year. In June '13, an exploratory double-blind Phase I trial evaluated the short-term efficacy, safety and pump compatibility of continuous subcutaneous infusion of FIAsp, a novel, faster-acting formulation of insulin aspart, and NovoRapid, in 42 people with type 1 diabetes. Based on the results from this and other Phase I studies with FIAsp, we expect to initiate the Phase IIIa program during the third quarter of 2013. In May, completion of the first Phase III trial with N9-GP, a long-acting factor IX derivative for hemophilia B patients was announced. We're expecting to file N9-GP for regulatory approval in 2015. Turn to financials reporting. Operating profit grew 15% in the first 6 months and diluted earnings per share grew 30%. The robust sales performance has led us to raise expectations for operating profit in 2013. When we measure in local currencies, we now expect sales to grow 11% to 13% against previously expected growth in the range of 9% to 11%. And for operating profit, we now expect the growth in local currencies of 12% to 15%, an increase compared to previous expectation of around 10%. Turn to Slide #5. In the first 6 months of 2013, North America accounted for 70% of growth, followed by International Operations and China accounting for 18% and 9% respectively. Sales growth in North America was 23% in local currencies, reflecting continued robust market penetration of the modern insulins, in particular NovoLog and Levemir. Victoza also continues to perform well in North America. Sales growth in Europe was 2%, measured in local currency. And sales development reflects continued solid growth in Victoza and portfolio of biopharmaceutical products. Insulin sales in Europe are stagnant as the sales growth of the modern insulins, especially Levemir and NovoRapid, are offset by declining human insulin sales. Sales within International Operations grew 17% in local currencies, driven by continued penetration of all 3 modern insulins and solid contribution from human insulin sales growth and continued expansion of the GLP-1 market. Sales in Region China increased 15% in local currencies. The growth was driven by all the 3 modern insulins, while sales of human insulin only grew modestly. Sales in Japan and Korea declined 3% in local currency. The sales development in Japan and Korea primarily reflects the negative impact of the stagnant Japanese insulin volume market and a challenging competitive environment. Turn to Slide #6. The modern insulins continue to exhibit strong growth in the first 6 months of 2013, amounting to 15%, while Victoza also continues its steady growth. In the first 6 months 2013, diabetes care franchise grew 14% while the biopharmaceutical franchise grew 11%, both in local currencies. Modern insulins were the primary growth driver, accounting for 50% of growth, followed by Victoza, accounting for 27% of growth in local currencies. Sales of NovoSeven increased 7%, when measured in local currencies. The market for NovoSeven remains volatile and sales growth is primarily driven by North America and International Operations. Sales in Norditropin increased 14%, measured in local currencies. The sales growth is also here primarily driven by North America and International Operations. We are the leading company in the global growth hormone market now with a 25% market share, measured by volume. Turn to the next slide, please. In the last 10 years, the global diabetes market has grown more than 10% in value annually with injectables growing more than 15% annually. In this period, we've expanded our leadership position within diabetes care and the company now holds 27% value share of the total diabetes care market, up from 25% 12 months ago. Turn to Slide #8. In the last 5 years, the global insulin market has grown 16% in value on an annual basis. The growth in value has been driven by sustained volume growth and a gradual shift from human insulins to modern insulins, as well as an increase in penetration of devices. Novo Nordisk has been able to sustain its strong position and today commands 46% of the modern insulin market measured by volume. Turn to Slide #9 for an update on the U.S. insulin market. A key driver of global insulin market growth as well as for Novo Nordisk has been the North American market. In the first 6 months 2013, our sales of modern insulins increased 22% in local currencies and 21% in Danish kroners in North America. Growth was primarily driven by the U.S. The performance reflects that our 3 modern insulins, Levemir, NovoLog and NovoLog Mix 70/30 continues to perform well in the U.S., where the 3 products are gaining market share in their respective market segments, as well as a favorable pricing environment. The market share of Levemir has now increased 18% -- to 18% of the basal insulin segment, whereas market share of NovoLog and NovoLog Mix has increased to 48% and 33% of the rapid-acting and the premixed insulin segments, respectively. Turn to Slide #10 for an update on Victoza. MAT sales of Victoza reached DKK 10.8 billion in the first 6 months 2013, reflecting robust sales performance, driven by North America, Europe and International Operations. North America accounts for the majority of Victoza sales with 64%, followed by Europe and International Operations. Victoza holds the global market share leadership share, now of 69% of the value market compared to 64% in 2012. The GLP-1 segment's value share of the total diabetes care market has increased to 6.6% compared to 5.2% in 2012. In the U.S., Victoza sales growth continues to be largely unaffected by the 2012 launch of a competitor product. Victoza is gradually increasing its market share and now accounts for 65% of the GLP-1 market value in the United States. In Europe, we continue to see robust uptake of Victoza across key markets. And Victoza remains the leading GLP-1 product now with a market share of 78%. Turn to the next slide for an update on Tresiba. Tresiba, our once-daily, new-generation insulin with an ultra-long duration of action, has now, in addition to the U.K., Denmark and Japan, also been commercially launched in Mexico and Switzerland. In Mexico, we are pursuing access to the national insurance companies, whereas Tresiba has received general reimbursement in Switzerland. Turn to the next slide for an update on Tresiba launch performance. Launch activities are progressing as planned in all markets. Feedback from patients and prescribers are encouraging. The launch of Tresiba in Japan is especially interesting because it was the first market we launched with a broad reimbursement. Here, the launch of Tresiba is progressing well with an estimated 5,900 doctors having prescribed Tresiba are now -- and around 29,000 patients are estimated to be using Tresiba. Tresiba is steadily gaining market share and now holds a value market share of 6.8% of the Japanese basal insulin market 21 weeks after launch. Now over to Mads for an update on research and development.

Thank you, Lars. Please turn to the next slide. The regulatory revenues of Tresiba and Ryzodeg continued around the world. New drug applications are under review [indiscernible] countries and approval has now also been obtained in India. In Canada, we've been informed by Health Canada that the agency requires additional data for approval. While disappointing, especially since Tresiba is already approved in Europe, Japan and several other countries, Novo Nordisk will continue to work with Health Canada to ensure that the additional data we provide will fulfill their request. In June, we initiated a global 26-week, randomized, open-label, Phase III trial comparing the efficacy and safety of Tresiba with insulin glargine in approximately 800 people with type 2 diabetes. The trial is expected to recruit most of the patients from China and will provide the basis for the NDA submission to the Chinese Food and Drug Administration. Please turn to the next slide. So we have now received feedback from FDA in the U.S. on the clinical trial protocols for the cardiovascular outcomes trial for Tresiba. The feedback confirms the expectations we recently communicated with regard to the trial design. The event-driven trial will thus be double-blind, use insulin glargine as comparator and include around 7,500 patients. The submission of cardiovascular data to FDA is expected to be based on an interim analysis of the major adverse cardiovascular events in the trial. And Novo Nordisk will subsequently continue the trial in order to meet the post-approval criteria as they are described in FDA's CV guideline for diabetes therapies. Following the protocol agreement with the FDA, we've now submitted the clinical trial application in the United States and the trial is now expected to be initiated before the end of the year. The interim analysis is still expected to be available 2 to 3 years after trial initiation. Please turn to the next slide. With the completion of the SCALE sleep apnea trial, Novo Nordisk has now successfully finalized the entire SCALE Phase IIIa clinical program that has investigated the efficacy and safety of liraglutide 3 milligrams for the treatment of obesity and selective important comorbidities. This 32-week trial investigated the effect of liraglutide and a placebo both in combination with lifestyle intervention on the severity of sleep apnea in 350 obese people with moderate to severe obstructive sleep apnea. Obstructive sleep apnea has a prevalence of 6% -- at least moderate to severe sleep apnea has a prevalence of 6% in the United States and is commonly associated with obesity. It is characterized by decreased or total arrest of airflow during breathing when asleep. Actually, the people with severe obstructive sleep apnea have a greatly increased risk of mortality, including a fivefold increase in cardiovascular mortality, according to the landmark study performed in the Wisconsin Sleep Cohort. The sleep apnea trial assessed improvements in obstructive breathing events per hour as measured polysomnographically by the apnea-hypopnea index, known as AHI. From a mean baseline AHI score of 49 corresponding to severe obstructive sleep apnea, people treated with liraglutide 3 milligrams experienced an improvement of 12 index points, compared with 6 points for those treated with placebo after 32 weeks of treatment. The difference was statistically significant and the trial thus met its primary endpoint. In this trial population, the response was, as expected, dependent on the degree of weight loss. And some analysis showed that subjects losing 10% or more of their weight on average experienced a reduction in AHI score of more than 20 index points. The tolerability and safety profile was consistent with the findings from the other trials in the SCALE program. Please turn to the next slide for a recap of the SCALE obesity and prediabetes data. In May, we announced the headline results of this trial. It is the largest trial in the SCALE program and included more than 3,700 people without overt diabetes, who are obese or overweight with comorbidities. In this trial, people treated with liraglutide achieved an average weight loss of 8% after 56 weeks of treatment, compared to the 2.6% weight loss achieved by people treated with placebo. The proportion of people achieving a weight loss of at least 5% was 64% for liraglutide and 27% for placebo. The proportion of people achieving a weight loss of at least 10% was 33% for liraglutide and 10% for placebo treatment. Among the subjects completing 1-year treatment, 4 out of every 10 liraglutide patients achieved a weight loss of at least 10%. All differences between liraglutide and placebo was statistically significant in favor of liraglutide and the trial thus met all coprimary endpoints, as well as the FDA efficacy criteria for approval of obesity drugs. Furthermore, among those with prediabetes at randomization, 69% treated with liraglutide no longer showed signs of prediabetes after 56 weeks of treatment, compared to 33% in the placebo group. Liraglutide was, as previously communicated, generally well-tolerated and the 56-week completion rate was 72% and 64% for liraglutide and placebo, respectively. Withdrawals due to adverse events were below 10% in both arms. The most common adverse events were related to the gastrointestinal system and they diminished over time. To summarize, we have with liraglutide 3 milligrams across the SCALE program, consistently demonstrated a placebo-adjusted, clinically relevant weight loss and improvements in obesity-related risk factors, including the blood glucose, blood pressure, cardiovascular risk biomarkers, lipids and patient-reported quality of life. Furthermore, liraglutide 3 milligrams appears to be safe and well tolerated. No signals of increased risk of cancer, PNS or cardiovascular-related events in the studies have been found. Primarily, I think, there has been observed a higher number of reported gallbladder disease events, however, within the range expected from obese population. It is established that people with obesity are predisposed to gallstone formation. And indications that rapid weight loss is a known risk factor for gallstone formation. Finally, based on the excellent results of the large SCALE program, we expect to file for approval of liraglutide 3 milligram as a treatment for obesity in the U.S. and Europe around the turn of the year. Please turn to the next slide. One of the problems with the management of type 1 diabetes patients with insulin is circulation. FIAsp, the fast-acting, insulin aspart preparation, has been designed to minimize the absorption time for insulin aspart from the skin. In June of this year, we completed an exploratory double-blind Phase I crossover trial evaluating the short-term efficacy, safety and pump compatibility of continuous subcutaneous infusion of FIAsp and NovoRapid in 42 people with type 1 diabetes. People were randomized to 3 treatment periods, each of 14 days, with FIAsp preparations and NovoRapid respectively. To assess of postprandial glucose control, meal tests were conducted on the last day of each treatment period and blinded continuous glucose monitoring was used routinely throughout the trial. In the trial, the meal test showed that people treated with FIAsp experienced statistically significantly better glucose control during the first 2 hours after the meal, and the trial thus met its primary endpoint. The finding of reduced postprandial glucose excursions at the meal tests were furthermore confirmed during other meals as assessed by routine continuous glucose monitoring. The rates of documented hypoglycemia for people treated with FIAsp were furthermore numerically lower than people treated with NovoRapid. In the trial, both FIAsp and NovoRapid pump treatment appeared to be safe and well-tolerated and with good pump compatibility. Based on the results from the Phase I studies with FIAsp, we expect to initiate the Phase IIIa program, known as onset, including around 3,000 people with type 1 or type 2 diabetes during this quarter. Please turn to the next slide. In May, we announced the completion of paradigm 2, the first Phase IIIa trial with N9-GP, a long-acting factor IX derivative for hemophilia B patients. In the trial, 74 patients were treated for 6 months on demand, or 12 months using a prophylactic regimen of 10 units or 40 units per kilogram of N9-GP once weekly respectively. Pharmacokinetic data documented good recovery of the drug and a steady-state half-life of the 110 hours, thus confirming the very attractive pharmacokinetics of N9-GP. The annualized median bleeding rate for patients treated on demand was 15.6 episodes per year. Patients on prophylactics had a median bleeding rate of 2.9 and 1.0 episodes per year when treated with weekly doses of 10 and 40 units per kilogram, respectively. Increasingly among patients randomized to receive 40 units per kilogram N9-GP, 99% of bleeding episodes were treated with only 1 infusion and 2/3 of the patients experienced complete resolution of bleeding in their target joints. A target joint is a joint that otherwise consistently and repeatedly experiences bleeding episodes. Patients also reported a significant and meaningful improvement in the quality of life during the trial on the 40 unit dose, which is expected to be the approved dose for prophylactic treatment of hemophilia B with N9-GP. In the trial, N9-GP had a safe and well-tolerated profile. No patients in the trial developed inhibitors and no apparent differences between the treatment groups were observed with respect to adverse events and standard safety parameters. We expect to file N9-GP for regulatory approval in 2015, following validation of the commercial scale production and completion of the 2 remaining Phase III trials in the paradigm program covering surgery and pediatric treatment, respectively. Please turn to the next slide. As announced in May, we submitted the marketing authorization application for IDegLira as a once-daily treatment of type 2 diabetes to the European Medicines Agency. The filing of IDegLira is based on results from the DUAL clinical trial program, which involves around 2,000 people with type 2 diabetes, together with the extensive clinical data generated in the development programs of the individual substances, insulin degludec and liraglutide, respectively. Since the announcement in May, IDegLira has also been filed for regulatory approval in Switzerland. Regarding the oral GLP-1 development portfolio, we have, in May, completed the last of 5 clinical pharmacology trials for the semaglutide tablet known as OG217SC, a Phase I program, which in total comprised more than 400 healthy volunteers and 10 people with type 2 diabetes. In the trials encompassing the Phase I program, oral semaglutide treatment appeared to be safe and was well-tolerated. The most frequent reported adverse events were mild or moderate in severity and in line with observations from other GLP-1 class treatments. In a 10-week multiple-dosing Phase I trial, all administration of semaglutide was associated with a statistically significantly larger weight loss than placebo, both in healthy volunteers and in people with type 2 diabetes. Furthermore, a statistically significant and clear improvement in HbA1c once was observed when compared to placebo treatment in the low number of people with type 2 diabetes included in the trial. Thus, the efficacy of oral GLP-1 treatment with semaglutide appears to be fully on par with that observed for subcutaneous treatment as regards both glucose and weight control. This warrants further exploration in a Phase II program that Novo Nordisk expects to initiate towards the end of 2013. We've planned for quite extensive, approximately 2 years long, Phase II program exploring the dose response effects of long-term exposure, as well as providing additional pharmacology studies in this pioneering area of diabetes drug development. Further, still within the oral GLP-1 segment, we have, in May, initiated the first Phase I trial for another semaglutide tablet formulation, OG217GT, using a different carrier technology. The Phase I trial will investigate the safety, tolerability and pharmacokinetics of single and multiple doses of OG217GT in healthy volunteers. Turning to biopharmaceuticals. We have, in June, received a Complete Response Letter from the U.S. FDA regarding our application to market a recombinant factor XIII compound for congenital deficiency of the factor, a rare bleeding disorder with approximately 900 patients diagnosed globally. In the Complete Response Letter, the FDA informed us that completion of the review application -- of the marketing application is pending the resolution of findings from manufacturing facility inspection. We're working closely with the FDA to address these issues. In June, we discontinued a factor XIII trial investigating whether replenishment of factor XIII could provide a benefit in the treatment of ulcerative colitis. The trial was discontinued as the biological hypothesis of the relationship between a low factor XIII level and disease activity could not be confirmed. Within human growth hormone, we've completed a Phase I study investigating safety, tolerability, pharmacokinetics and dynamics of the long-acting growth hormone NN8640 in May. In the trial, single and multiple doses of NN8640 were administered subcutaneously to healthy male volunteers. While NN8640 appeared to be safe and well-tolerated, the compound included a dose-dependent IGF-I response. And the IGF-I profiles indicate that this long-acting growth hormone appears suitable for once-weekly dosing. A multiple dose study investigating in NN8640 in adults with growth hormone deficiency is currently ongoing, and we expect to complete this trial in the second half of this year. Finally, in the 6 first months of 2013, pancreatic safety of the incretin class has been extensively debated, leading up to the NIDDK/National Cancer Institute workshop on pancreatitis, diabetes and pancreatic cancer in June of this year. Here it, among other things, was discussed that data from companies and regulatory agency researchers have failed to confirm the animal safety findings previously published by a single research group. Later, the European Medicines Agency's CHMP announced in July of this year that it has concluded its extensive review of GLP-1-based therapies. Based on the CHMP review that included EMA and external experts, the EMA has cleared GLP-1-based therapies, stating that there's no evidence based on currently available data for potential pancreatic harm from GLP-1-based drugs. With that, over to Jesper.

Thank you, Mads. Please turn to Slide 20. In the first 6 months of 2013, sales increased by 14% in local currencies and by 11% to DKK 41.4 billion, measured in Danish kroner. Sales growth was positively impacted by approximately 2 percentage points due to a number of nonrecurring events, including adjustments in the provisions for rebates in North America, as well as the timing of tenders and shipments and the extraordinary sales in International Operations. The reported gross margin improved by 90 basis points to 82.6% in the first 6 months of 2013, primarily driven by favorable price development in North America and the positive net impact from product mix due to increased sales of modern insulins and Victoza. Gross margin was negatively impacted from currencies by around 0.2 percentage points, primarily as a result of depreciation of the Japanese yen versus the Danish kroner. Total nonproduction-related costs increased by 12% in local currencies and by 10% in Danish kroner to DKK 18.4 billion. S&D costs increased by 15% in local currencies and by 13% in Danish kroner to DKK 11.4 billion. Growth in costs is driven by the expansion of the U.S. sales force in the second half of 2012 and sales and marketing investments in both China and in selected countries in International Operations; costs related to the launch of Tresiba in Europe and Japan, as well as an impact on the cost growth percentage arising from the reversal of legal provisions, which occurred in the first half of 2012. R&D costs increased by 7% in local currencies and by 6% measured in Danish kroner to DKK 5.4 billion. The relative modest cost increase is impacted by timing of clinical trial activity and is primarily driven by development costs related to the completion of the Phase IIIa program for liraglutide 3 milligram in obesity and the ongoing Phase IIIa trial for the once-weekly GLP-1 analog semaglutide. Within biopharmaceuticals, costs are primarily related to the continued progress of portfolio of development projects within hemophilia and the Phase II trial for Anti-IL-20. Operating profit increased by 19% in local currencies and 15% measured in Danish kroner to DKK 16.1 billion. Net financials showed a gain of DKK 0.3 billion in the first 6 months of 2013, compared to an expense of DKK 1 billion in 2012. In line with Novo Nordisk treasury policy, the most significant foreign exchange risks for the group have been hedged, primarily through foreign exchange forward contracts. The foreign exchange result was an income of DKK 368 million, compared to an expense of DKK 963 million in 2012. This development reflects gains on foreign exchange hedging involving especially the Japanese yen and the U.S. dollar, due to their depreciation versus the Danish kroner compared to the prevailing exchange rates in 2012. This positive effect is partly offset by losses on commercial balances, primarily related to nonhedged currencies. The effective tax rate for the first 6 months of 2013 was 22.7%, reduced by 0.3 percentage point compared to last year due to a reevaluation of the net deferred Danish tax liabilities following the implementation of a reform of corporate taxation in Denmark. The new tax reform that will make it more attractive to invest in Denmark will gradually reduce the corporate tax rate in Denmark from 25% in 2013 to 22% in 2016. Once fully implemented, we estimate the reform will result in a lowering of the global tax rate for Novo Nordisk by at least 1 percentage point. Please turn to the next slide. The 2 graphs illustrate the development of the U.S. dollar and the Japanese yen versus the Danish kroner. These are the currencies where fluctuations in the exchange rate against the Danish kroner have the largest impact on the operating profit of the company. The table on the right shows the annual impact on operating profit with a 5% movement in each of our key emerging currencies. Furthermore, the current extent of hedging for the same currencies is also illustrated on the slide. The negative impact from currencies on operating profit during the first 6 months of 2013 is primarily driven by the depreciation of the Japanese yen, which during the first 6 months of 2013 on average was 17% below the average rate during the first 6 months of 2012. The impact of currencies included in the updated guidance for the full year of 2013 reflects that the Japanese yen and the U.S. dollar currently are 21% and 3% respectively below the average for 2012. Please turn to Slide 22. We now expect sales growth in 2013 of 11% to 13% measured in local currencies. Given the current level of exchange rate versus the Danish kroner, the reported sales growth is now expected to be around 4 percentage points lower than the growth measured in local currency. The increased expectations for local currency sales growth reflects the impact of a more favorable-than-expected price environment in the U.S., stronger end market performance of our biopharmaceutical products, primarily Norditropin, as well as the impact of favorable rebate adjustments in North America. The sales outlook in local currencies reflect expectations for: continued robust penetration for the portfolio of modern insulins; a continued steady Victoza performance and a modest sale contribution from Tresiba. These sales drivers are partly expected to be countered by generic competition to branding in the U.S. and NovoNorm elsewhere; an impact from the challenging pricing environment in a number of major markets; intensifying competition within diabetes care as well as biopharmaceuticals and the macroeconomic conditions in a number of markets in International Operations. The 2013 operating profit growth is now expected to be 12% to 15% in local currencies. This reflects the increased expectations for sales, as well as costs related to the expanded sales force and sales and marketing investments in the portfolio of modern insulins and Victoza in the U.S., the launch of Tresiba outside U.S., sales and marketing investments in China and in a select number of countries in International Operations, as well as significant increase in costs related to the continued progress of key development projects within diabetes and biopharmaceuticals. Given the current level of exchange rate versus the Danish kroner, the reported operating profit growth is now expected to be around 6 percentage points lower than the growth measured in local currencies. For 2013, a net financial income of around DKK 900 million is still expected. This expectation primarily reflects gains associated with foreign exchange hedging contracts following the depreciation of the Japanese yen and the U.S. dollar versus the Danish kroner, compared to the average prevailing exchange rates in 2012. The effective tax rate for 2013 is still expected to be close to 23%. Capital expenditure is still expected to be around DKK 3.5 billion in 2013, primarily related to investments in filling capacity and prefilled device production facilities and new offices in Denmark. Depreciation, amortization and impairment losses are still expected to be around DKK 3 billion. Free cash flow is still expected to be around DKK 22 billion. All of the above expectations are based on the assumption that the global economic environment will not significantly change business conditions for Novo Nordisk during the remaining part of 2013, and the currency exchange rate, especially for the U.S. dollar, will remain at the current level versus the Danish kroner. This concludes the financial update. Now back to you, Lars. Lars Rebien Sørensen: Thank you very much, Jesper, and also to you, Mads. Please turn to Slide #23. To summarize, we're pleased with the sustained growth of our company, which is reflected in the strong sales growth achieved in the first 6 months of '13 and the revised guidance for the full year. We also foresee that our new generation ultra-long-acting insulin is progressing, and we remain encouraged by the feedback from patients and doctors. In the U.S., we received feedback from the FDA on the clinical trial protocol for the cardiovascular outcome study for Tresiba, and we're now expecting to initiate the trial before the end of the year. We are now moving to the Q&A part. [Operator Instructions] Operator, we are ready to take the first question, please.

[Operator Instructions] We will now take our first question from Richard Vosser of JPMorgan. Richard Vosser - JP Morgan Chase & Co, Research Division: It's Richard Vosser from JPMorgan. The first question, just on the oral GLP-1. I was wondering if you could give us an idea of the amount of GLP-1 that's going into each tablet relative to the injectable form, an idea maybe how big the tablet is at this point. And also I think, Mads, you alluded to the HbA1c drops and the weight loss are fully on a par with GLP-1. Could you just clarify that and just confirm that my understanding is that, that is the same sort of level of HbA1c drop of about 1% and certainly larger than a DPP-4. That will be very useful. And then just secondly, commercially, just what you've seen so far in terms of an impact from the incremental competition on Victoza in Germany? Lars Rebien Sørensen: Mads Krogsgaard, why don't you go ahead with that and then I'll come back with the Victoza competition in Germany.

Yes. Well, Richard, first of all, just as a background, the semaglutide has more other things being chosen based on a very, very long intravenous half-life. That means basically, 1% shot, it will have a half-life of a whole week for human beings yet we're administering the tablet on a daily basis to counteract the swings that could be in bioavailability from day to day, actually allowing a surprisingly consistent profile over time. So the size of the tablet is actually smaller, not much smaller but slightly smaller than an average painkiller tablet, and the patients are expected to receive 1 and only 1 tablet on a daily basis. In terms of efficacy, even though the patient came in with a relatively low baseline A1c, below the 8% range, both the weight loss and the A1c decrements were fully in line with some of the best that we've seen in the liraglutide trials. So clearly, it makes sense that 1% A1c drop and the weight loss that was substantial, in particular considering the trial duration of only slightly more than 2 months. Lars Rebien Sørensen: Then on to competition in Germany from Lyxumia. We have not seen any change in Novo Nordisk share on Victoza. It seems like Lyxumia is primarily coming from switches from phenocide [ph] and bardurium [ph]. And the market share so far, depends on whether you use weekly data or monthly data. You can get any [indiscernible] you want. If you look at the current weekly data then it's probably something in the neighbor of 10%. If you use monthly data, then it's back to something like 3% to 4%. So no major impact on Victoza in Germany. However, the GLP-1 market in Germany is developing very -- in a very disappointing way, you might say, by not growing so substantially.

Our next question comes from Michael Novod of Nordea.

It's Michael Novod from Nordea Markets in Copenhagen. Just some questions to the, say, extraordinary items as you clarify them in Q1, Q2. Is there something there you can say you're worried that it's cannibalizing some of the expected sales into the second half? Or is this just, say, something that has occurred on top of good performance in the first half, so we shouldn't be too worried about the second half performance? And then also, regarding the GLP-1 market growth, you have said on media calls that you've seen some impact on the growth from the incretin scare. Do you see that reverse? Or how do you actually expect the market over the next 6 to 12 months? Lars Rebien Sørensen: Jesper, will you take care of elaborating a little bit more, if you can, on the extraordinary items where they are -- where things which will have [indiscernible] in the second half or the issues around the top and so therefore, we're not going to get dropped off dramatically in the second half.

Yes. And the local currency sales growth for Novo Nordisk was to be the size of 113.6% [ph], and the extraordinary elements, we hit the rate at about 1.6% which we rounded to 2%. So net, it was 12%, the 14% minus 2%. The 1.6% can be divided into 2 elements, roughly equal in size. The first bit was a reversal of rebates related to North America, and the second element was related to partly extraordinary sales due to some replenishments of some stocks in the Middle East, where the original drops were destroyed by being frozen and we had to replenish them, by what was full sales value for that replenishment. And then there were some sales which were deferred from 2012 into 2013. So I would estimate out of this totality, there would only be in the ballpark of DKK 100 million, which can be related to earlier delivery of sales and International Operations in Q2, originally anticipated that would be delivered in '13. So very limited impact. The other point we have mentioned in terms of nonrecurring events was actually relating to 2012, and I just like to reiterate that we had in the ballpark of a couple of 100 -- around DKK 200 million or so in reversal of provisions that basically reduced our selling and distribution cost in Q1 and Q2 in 2012. And I previously stated that was partly related to provisions we had established for the issues surrounding overtime pay for the sales force in the U.S., where a Supreme Court ruling, mid-2012, ruled out that, that would be a liability, and that was the reason why this was deferred. But actually, a very limited impact on Q3 and Q4 in 2013. Lars Rebien Sørensen: So back to pancreatic safety. Yes, we would tend to agree with there might have been a slight impact from this first half, a negative publicity around the pancreatic safety. And as such, since the agencies have come out with relatively strong statements, the bad effect, if there was any, should be washed off. There are, however, many moving parts. If we look at the whole incretin base, then it seems like DPP-4s have flattened out somewhat also. Basically, this could be because the patient starts to fail on DPP-4 treatment, then needs something else. It could be because SUFT-2 [ph] has come into the market. So it's going to be difficult to really assess this going forward but, yes, we believe that there has been some minor negative effects on the volume growth.

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

Two, please. One on oral semaglutide. It's obviously very early, but just want to think about the potential timing to market. And I wonder if you could discuss whether you would be considering a faster Phase III study referencing the data package for the injectable formulation, whether it will be a full Phase III program including CV study? And then second question is on U.S. insulin pricing. I understand Lantus took a roughly 15% price increase this week. Assuming you'd follow, could you just clarify what U.S. pricing is assumed within guidance for this -- for the rest of this year, and then your broader expectations given that U.S. insulin pricing remains, I think, stronger than we've all thought? Lars Rebien Sørensen: Yes. Mads Krogsgaard, any speculations on whether there could be a possibility to bridge some of the injectable data into the package so that we can get part of the market on [indiscernible].

Well, certainly, first of all, we are initiating Phase II towards the end of this year. That means that these [indiscernible] meetings with the agency as regards, can you piggyback on the cardiovascular program that is currently already ongoing for the Phase III subcutaneous semaglutide, or do you have to do your own kind of full or partial investigation. That is something that remains to be discussed with the agency. But the company is fully dedicated to utilize, as much as possible, the existing safety data for the new active substance known as semaglutide. And in fact, I was very happy on the day that I realized that semaglutide had these promising properties due to its very stable molecular structure, because it does mean that there a lot of things that do not have to be redone. Obviously, we will seek to -- this is very pioneering, and it also means that the very shortcuts that you can try to make every now and then, as you have seen us do for FIAsp, where we move from Phase I into Phase III and so on. These are obviously not doable in this new era of protein-based tablet therapies. However, of course, it's a priority program and that's why we will also do a comprehensive Phase II followed by an adequately sized Phase III. But we'll do it as fast as we can. Lars Rebien Sørensen: Then, yes, our competitors have raised price on Lantus in the United States, and this is a very recent event. [indiscernible] and we are not decided on how we're going to respond to that. We don't expect to announce it on the call here. But I can say that our guidance that you have just gotten did not include any significant price increases in the second half for Levemir, and so the extent to which we will follow the trend from Sanofi then that will be an add-on[ph].

Our next question comes from Michael Leuchten of Barclays.

Two questions, please. On the Tresiba cardiovascular outcome study, can you just confirm that in your discussion with the FDA, has the FDA actually agreed to the submission of the interim analysis, or is that a working assumption? And then just going back to the pricing discussion just now. When you talk about pricing, or more positive pricing trends, is that actually your ability to put the list prices up more than you thought? Or is that the retention of net price is more than you thought i.e. is this partly related to the rebates that you have benefited from in Q2? Lars Rebien Sørensen: Mads, [indiscernible] that's the question.

Yes, and in reality, the agreement with the FDA is somewhat reminiscent of what you can say is the case for classic -- at least historically non-insulin diabetes products in that you were key to an interim analysis, that if this one falls out, with a reassuring endpoint estimate on the [indiscernible] and a continent [ph] interval that lives up to certain criteria. Then you basically submit on that. If you cannot come up with such data, then you run right to the very end. And in this case, I hope it's obviously to submit on the interim, and the plan is to submit on the interim and then have the definitive assessment post-approval in the full -- you can say, amount of May's events that are at protocol specified. Lars Rebien Sørensen: Okay, and let me just repeat. What has happened is that our competitors have raised the list price. What their net take-home price will be in -- is dependent on which channels they end up serving their products to and hence, which kind of rebate they're offering to these different channels i.e. where the patients come from, that eventually will buy these products. And so -- and typically, of course, the list price increase is higher and then some of this is paid back to the distribution chain in terms of rebate. And in a way, you could say it had nothing to do with the rebates as such, that we had to reverse in the first half of this year. This has more something to do with the fact that we got clarity on some states and some programs that allow us to recalculate the necessary rebates, and we had apparently been more conservative in terms of rebates than what they actually ended up selling and hence, we could reverse that as positive. So it had no -- nothing to do with the price increase which we heard from the competition.

Our next question comes from Matthew Weston of Crédit Suisse. Matthew Weston - Crédit Suisse AG, Research Division: Two, if I can, please. On a number of your competitors, Q2 calls, they've specifically said that they are going to invest in further selling infrastructure in injectable diabetes, and many of them have blamed you for retaining the Tresiba infrastructure, which is going to lead them to require further investment to keep their share of voice. Within your second half assumptions, have you assumed that competition is going to hot up? And if you do see some of your competitors add reps, are you comfortable with your current U.S. selling infrastructure, or do you think that you will have to counter with some further hires of your own? And then secondly, just to clarify some comments over the newswires around China. It seems the comment has been attributed to management that you've not been approached for a formal investigation in China associated with the issues around GSK and selling practices. Can you just confirm whether or not you've been informally approached, and just set out whether or not you remain confident that your compliance infrastructure within China is sufficient to mean that we won't see any similar problems at Novo? Lars Rebien Sørensen: This is Lars Sørensen. I'm going to try to answer both questions, please. And in terms of investments and the fact that the competitors pressure its IPs [ph] and injectables are heating up, clearly looks to the fact that we did not launch Tresiba and hence, our current market product continued to have the support for sale forces. Yes, this is correct. And then we see the markets, quite frankly, responding to that, so that's fine. We will make the necessary adjustments to our sales force as we see fit and obviously, this is kind of contagious, to be discussing on a call like this and what we intend to do tactical-wise. But I can assure you, we have one of the largest sales forces in the United States and we want to remain competitive, and just from the sheer point, that we need to push a portfolio product which ahs been on the market for some time. I think you can assume that we will want to stay competitive whatever happens and we'll adjust the sales force accordingly. In terms of China, I can confirm what has been said in the newswires because it's been me and Jesper Brandgaard who have been talking to the newswires. And we have been contacted on August 1 by the local authorities in Tianjin where we have our factory. They do contact companies on a regular basis to inquire about the status of the business, and to submit numbers for them to control their margins and such things. And it has not been disclosed to us that we're a part of a formal investigation and we have no knowledge that we should be. And I said that I wouldn't be too surprised if there will be an industry-wide investigation for the GSK situation that we would be contacted. So it's not like we would be surprised. Let me then go back to what about our compliance programs. We've been one of the first companies to invest significantly in China. We are the first company to build significant biopharmaceutical manufacturing, and the first company to build substantial R&D capabilities. And so we've been operating in China in many, many years. I also have to sadly remind everyone that we had a situation with the oil-for-food program where we were required to significantly improve our compliance programs globally because we had a deferred prosecution agreement with the DOJ in the United States. So consequently, we have been overhauling since many years our compliance programs and that includes our compliance programs in China. So with the knowledge we have today, which we have to admit is very fast, first of all, no formal inquiry into our company and the knowledge around GlaxoSmith are still being relatively inaccurate in the sense that it's all reported through the media. And we feel confident that we have a program where we have good control of sales marketing practices in China and we welcome the [indiscernible] and we will work with them to resolve any issues they may have.

Our next question is from Keyur Parekh from Goldman Sachs.

It's Keyur Parekh from Goldman Sachs. And I have two questions, if I may, please. The first thing to Lars. Lars, I realize it's perhaps slightly a quarter too early for you to start forwarding kind of guidance for 2014 and 2015. But just as we think about some of the changes likely in the marketplace over the next couple of years, can you help us think about the pushes and pulls as you see on the revenue line, specifically into 2014? And then secondly, one for Mads. Mads, as you think about kind of the upcoming data for the dulaglutide, how do you think that data pans out for Victoza, and how do you assess kind of the odds for dulaglutide for showing superiority in the head-to-head trial versus Victoza? Lars Rebien Sørensen: This is Lars Sørensen, first, and you are absolutely right. 2014 is a bit little early, but of course, there are a number of moving parts here. There are currencies; there competitive pressures, which we just discussed; there's pricing environment, and -- but we see more or less 2014 as a normal year. We will, however, draw your attention to the fact that in 2013, we will have had perhaps 3 quarters of the year with Brandon [ph] and then we'll likely be gone in the next year, so that needs to be back up of the U.S. numbers. We have good momentum behind our modern insulins. We still need to see whether there was a short-term trend reversal or negative impact from the pancreatic safety issue on Victoza and other products similar in that category. So yes, there are many moving parts and as usual, we will be starting to give you some color on it when we do our Q3 and then you'll get a more final one when we announce the annual results. So I hope you can bear with us, but it looks like it's more business as usual for 2014. Obviously, had we had Tresiba then the world would have been looking more rosy. It would have been nice, but that's history. Mads?

Yes, Lars, and then of course, that's why we will seek to start the CV trial such that can have Tresiba, although it will for sure not be in 2014. But we'll start the trial in the second half of this year. Now dulaglutide, it's clearly as we see it in a [indiscernible] and logged in a disposable device, clearly the one that we're looking out for, but in terms of the head-on comparison trial that is ongoing and reporting, maybe turn of the year or so, the likelihood that we would show A1c superiority or be able to show A1c superiority is probably rather immodest because my understanding is that the number and periodic criterion for A1c that has been put into the protocol is the 0.4% cutoff, which is relatively useful but it's clinically meaningful difference. So the likely that anyone will show superiority on the primary endpoint is rather low. My expectation as regards body weight is actually that 1.8 milligram of liraglutide, based on what I've seen from Phase II and the limited data I've seen from Phase III, suggesting that the liraglutide seems to hold the upper-hand in terms of body weight, probably related to the large, molecular size weight and hence, difficult permeation via the blood-brain barrier of dulaglutide as compared to liraglutide. In terms of CV risk markers such as systolic operation and so on, we know that the liraglutide has a very consistent ability to lower systolic blood pressure. It's more debated than the time for dula and I'm looking forward to more data. But you're quite right in stating that dulaglutide is one the we're looking out for and looking forward to, together with the Lilly colleagues to further expand this exciting market. Lars Rebien Sørensen: And ladies and gentlemen, since we started a little late and took a very long time for our presentations we are going to ask for 2 more individuals to be able to pose their questions. So let's have the next question, please.

The next question comes from Peter Verdult of Morgan Stanley.

Peter Verdult, Morgan Stanley. Two questions, one for Mads and one for Lars. Mads, how should we think about getting further clarity on whether the FDA requires a CV study pre-approval for Victoza and obesity? I know we're all waiting for the guidelines to be published. If they are published before year end, is it right to say FDA will communicate to you whether you can go ahead and file? Or could we potentially have to wait until the PDUFA later next year? And then secondly, just Lars, you've spent a lot of time talking about the pricing amounts for U.S., for basal insulins going forward. Could you just maybe update us on your thoughts for how you think the outlook for the basal market has changed with the top line data we've seen for U300 and the potential for Sanofi to be on the market with that product in 2015? Lars Rebien Sørensen: Mads Krogsgaard, what are your thoughts about CV requirements for Victoza 3 milligrams?

Well, Peter, this has been an ongoing dialogue with pretty many, you can say, exchanges of request and discussion items with the agency that we've discussed previously. And the notion is that a number of meta-analyses, both ones whether you lump together the lead trials, the Phase IIIb trials or glucose regulation type 2 diabetes with the SCALE program, such that you have a grand, you can say, meta-analysis of lira versus all other comparators, as well as more specific Phase III SCALE-oriented meta-analysis across the trials there. That is what is assessed to be part of the package and the approval criteria. But I can inform you, now that we do have all the data at hand, is that we can fully confirm, as we did in diabetes, that [indiscernible] the GLP-1 agent, we are seeing point estimates that are, you can say, below 1.0 as you would also expect. And that also applies to the obese population. So on the cardiovascular side, I think we have a good proposition and we are following the delineated package put forth by the agency. Lars Rebien Sørensen: And this is Lars here. yes, and what can happen in 2015? I think that for the patients and for the suppliers, the relation is good. And Sanofi coming out with the U300 with some unique selling points which are better than Lantus will be stabilizing for the future pricing environment in the United States. We would hope that Lilly comes out with similar innovations of their own. Because then I think that we will have a much further price level than if we had a -- Sanofi with no U300 and Lilly with basal biosimilar glargine in the marketplace. So I think from that perspective, it's positive. I would say if you ask Medtrosa [ph] He would probably say that the selling benefits of U300 is not flabbergasting. So therefore we believe that placebo would be a better product than the U300 and hence, we would be able to position when we do hopefully finally get to the marketplace.

Our last question today comes from Philippe Lanone of Natixis.

Two quick questions, first on the tax rate. You said that it will be 1% less but when -- will it be already in 2014? And more generally, most of the competitors have indicated or guided for the next few years for a decline in tax rate by more than 1%. So will there be more going forward? And one question on NovoSeven, which had a very strong quarter again on -- despite the -- that high base. I understand it's still a tight quarter-after-quarter, but do we have to fear, that in the second half we might have some weak figures to compensate for that because of inventory or something? Lars Rebien Sørensen: Jesper, tax?

That gives me opportunity to clarify what is the actual development in the Danish corporate tax rate. Now the current rate is 25%, and that 25% will be lowered by 0.5 percentage points in 2014 and by another full percentage point in 2015 and then it was 1.5 percentage points in 2016, thereby taking it from 25% to 22%. Now in most cases, more than 50% of our total taxes in Denmark and hence, the consequence of this, everything else being equal, should be around 1.5 percentage points. We do however, have a tax structure so that the biopharmaceutical products in Novo Nordisk is generally owned and managed out of Switzerland and with a lower taxation rate than what applies to the Danes and whereas it's the diabetes care portfolio that is growing the fastest. So everything else being equal, there's also a mix effect in moving a higher proportion of overall products towards the diabetes care space and hence, everything else being equal, we estimate that the net effect will probably be at least 1% when you get to 2016, and it will be a gradual and -- a gradual thought [ph] accelerating to the period as the decline in the Danish corporate tax rate is progressive. The change in the second quarter and -- to 22.7%, which is currently the expected full tax rate for the full year of 2013 is reflecting a reevaluation of our deferred taxes, so that's also been taken into account, the new long-term Danish corporate tax rate. Lars Rebien Sørensen: Okay, and then for the final question. This is Lars Sørensen. Here, yes, we have a -- we've been spectacularly poor at forecasting quarterly sales of NovoSeven. And the first 2 quarters this year was very strong. I mean, [indiscernible] our guidance is including numbers which are not of the same magnitude that we saw in the first quarter. So we're in a way hinting that it will go back to normal in the second half. If it does not, then it's an upside for our company. But again, I'm just tossing you, it's very difficult to predict what happens. This time we're talking about individual bleeding episodes, we're talking about a lot of moving parts. So difficult to predict but we are cautious in our guidance for the second half of the year. With that, ladies and gentlemen, thank you very much for listening in. Our Investor Relations officers will be available, once we have completed the calls in Copenhagen, to talk to investors. So you can call them all subsequently. Thank you very much.

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