Novo Nordisk A/S (NVO) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q3 2013 Novo Nordisk A/S Earnings Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Lars Rebien Sørensen, CEO. Please go ahead, sir. Lars Rebien Sørensen: Thank you very much, and welcome to this Novo Nordisk conference call regarding our performance for the first 9 months of 2013 and 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; Mads Krogsgaard Thomsen, our Chief Science Officer and also present our investor relations officers. Today's earnings release and the slides for this call are available on our website, novonordisk.com. The conference is scheduled to last approximately 1 hour, and as usual, we'll start with a presentation and an outline on Slide #2. 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 this conference call is being webcast live and that a replay will be made available on our website. Turn to Slide #4. We're pleased with the robust sales in the first 9 months of 2013. Sales increased 13% in local currencies and 8% in Danish krone compared to the same period in 2012. Sales growth was driven by robust performance in North America and in International Operations. Sales growth was realized both in diabetes care and biopharmaceuticals, with the majority of growth coming from the modern insulin and Victoza. The rollout of Tresiba, insulin degludec, the once-daily new-generation insulin with an ultra-long duration of action, continues to progress. Tresiba is now also being commercially launched in Sweden and India. On the R&D front, the first patient has now been enrolled in DEVOTE, the cardiovascular outcomes trial for Tresiba. This marks a significant milestone in the process of making Tresiba available for people with diabetes in the United States. In August, the Phase IIIa program for our faster-acting insulin aspart was initiated, and in October, the U.S. FDA approved Novo Nordisk's Biologic License Application for recombinant coagulation factor VIII, turoctocog alfa, under the brand name of Novoeight. Turning to financials. Reported operating profit grew 10% in the first 9 months of '13, and diluted earnings per share grew 25%. For 2013, expectations to operating profits are unchanged. Sales growth measured in local currencies are still expected to be 11% to 12% -- 11% to 13%, and operating profit growth, measured in local currencies, is still expected to be 12% to 15%. Preliminary outlook for 2014 indicates high single-digit growth in sales and operating profit, measured in local currencies. Turn to Slide #5. The first 9 months of 2013, North America accounted for 69% of growth, followed by International Operations which accounted for 17% of growth, in local currencies. Sales growth in North America was 20% in local currencies, reflecting continuous robust market penetration of the modern insulin, in particular Levemir and NovoLog. Despite increased competition, Victoza continues to perform well in North America. Sales within International Operations grew 15% in local currencies, driven by continued penetration of all 3 modern insulins, a contribution from human insulins and Victoza where sales growth primarily has been driven by a number of Middle Eastern countries. Sales in the Region China increased 12% in local currencies. The growth was driven by all 3 modern insulins while sales of human insulins only grew modestly. The reported growth in Region China reflects a significant negative impact from a change in our inventory setup for NovoLog, our oral anti-diabetic agent. Adjusting for this, the underlying development for our business in China continues to grow around 15%, which is in line with the growth rates achieved in previous years. The performance in Europe and Japan continues to reflect the challenging operating environment and stagnating volume growth in the insulin market. Turn to Slide #6. The modern insulins continues to exhibit robust growth in the first 9 months of 2013 amounting to 15%, while Victoza also continues its steady growth trajectory. In the first 9 months of '13, the diabetes care franchise grew 13%, measured in local currencies. Modern insulins were the primary growth driver, accounting for 51% of growth, followed by Victoza, accounting for 26% of growth in local currencies. In the first 9 months of '13, the biopharma franchise also exhibited robust sales growth with 12% of growth measured in local currencies. Turn to Slide #7. Let's zoom in a bit on the performance of biopharma franchise so far in 2013. In the first 9 months of '13, NovoSeven grew 11% in local currencies. The higher-than-normal growth is driven by higher number of leads, more major surgeries and additional acquired hemophilia cases in a number of countries. Further supporting the growth is the lower level of clinical trial activity and a positive contribution from pricing in the United States. Norditropin grew 12% in local currencies in the first 9 months. Growth is positively impacted by contracting in the U.S., as well as rollout of a new device, FlexPro, which has strengthened the competitive offering of Norditropin. Hormone replacement therapy, HRT, which comprises the majority of other biopharmaceutical sales, grew 17%, in local currencies. This is primarily driven by North America and reflects the positive impact of pricing and nonrecurring rebate adjustments. Turn to Slide #8. Net sales of Victoza reached DKK 11.1 billion in the first 9 months, reflecting robust sales performance in North America, Europe and International Operations. Victoza holds a global market share in the GLP-1 segment of 70% value market share compared to 66% in 2012. In volume terms, the growth of the GLP-1 market have been decelerating, while the GLP-1 segment's value share of the total diabetes care market has increased to 6.8% compared to 5.6% in 2012. Despite the increased competition in the United States, Victoza continues to drive expansion of the U.S. GLP-1 market and now accounts for 68% of the GLP-1 market value in the United States. Turn to the next slide for an update on Tresiba performance in Japan. The rollout activities for Tresiba are progressing as planned in all markets and feedback from patients and prescribers is encouraging. The launch of Tresiba in Japan is especially interesting because it was the first market where the product was launched with a broad reimbursement. The launch of Tresiba is progressing well in the Japanese market, with an estimated 7,300 doctors having prescribed Tresiba by now, and around 42,000 patients are estimated to be using Tresiba in Japan. Tresiba is steadily gaining market share, now holds a value market share of 8.7% of the Japanese basal insulin market, 35 weeks after launch. Over to Mads for an update in the [indiscernible]

Thanks, Lars. Please turn to the next slide for a status on the insulin degludec products. The regulatory revenues of Tresiba and Ryzodeg continue around the world. New drug applications are under way for Tresiba in 41 countries, and approval has now also been obtained in Russia and Lebanon. Please turn to the next slide for an update on the cardiovascular outcomes trial for Tresiba. As mentioned by Lars, Novo Nordisk, this month initiated DEVOTE, the cardiovascular outcomes trial for Tresiba. DEVOTE is a double-blind trial with insulin glargine as comparator and it is expected to include around 7,500 type 2 diabetes patients that have existing or high risk of cardiovascular disease. The primary endpoint of the study is major adverse cardiovascular events, i.e. cardiovascular death, non-fatal myocardial infarction and non-fatal stroke. The study will be event-driven and complete when a predefined number of major cardiovascular events have occurred. Novo Nordisk expects to have sufficient data to support the prespecified interim analysis within 2 to 3 years and to complete the study in 4 to 6 years. The interim analysis is intended to support the U.S. approval of the degludec family members, while the complete analysis will provide definitive data on CV outcomes. Please turn to the next slide. In August, onset, the Phase IIIa program from the novel's faster-acting insulin aspart formulation was initiated. Two of the three initiated trials investigate the efficacy and safety of faster-acting insulin aspart compared to insulin aspart in combination with basal insulin in around 1,100 people with type 1 diabetes for a total of 52 weeks and around 670 people with type 2 diabetes for 26 weeks, respectively. In the third trial, faster-acting insulin aspart used as part of a basal-bolus regimen is compared with basal insulin treatment for 18 weeks in around 220 people with type 2 diabetes. In all of these trials, the primary endpoint will be HbA1c, but important secondary endpoints will, among others, include postprandial glucose control, outcomes related to continuous glucose monitoring, hypoglycemic episodes as well as general safety and tolerability. Dose and flexibility will also be an element to be studied in the onset program. The last Phase IIIa trial, onset 4, is expected to start later this year. The trial will investigate the compatibility of the new drug formulation with the insulin pump while performing continuous subcutaneous infusion with fast-acting insulin aspart in around 30 people with type 1 diabetes. Finally, within diabetes, Novo Nordisk initiated a Phase IV trial this quarter comparing Victoza 1.8 milligram with lixisenatide 20 microgram. This randomized, open-label superiority trial will investigate the efficacy and safety of Victoza versus lixisenatide treatment for 26 weeks as add-on to metformin in 400 people with type 2 diabetes. Please turn to the next slide for an update on biopharmaceuticals development. In October of this year, the U.S. Food and Drug Administration approved the Biologic License Application for recombinant coagulation factor VIII, turoctocog alfa, known as Novoeight. Novoeight is approved for use in adults and children with hemophilia A, for control and prevention of bleeding, for perioperative management, as well as routine prophylaxis to prevent or reduce the frequency of bleeding episodes. Novoeight is the first biological product to be approved under FDA's PDUFA V Act, which was introduced in 2012. In Europe, the CHMP under the European Medicines Agency, adopted a positive opinion for Novoeight and recommended marketing authorization for the treatment and prophylaxis of bleeding in patients with hemophilia A. Novo Nordisk expects to receive the final marketing authorization from the European Commission in the near future. Novo Nordisk expects to launch the product in Europe early 2014, and in the U.S. in the first half of 2015. In October, Novo Nordisk resubmitted the application for approval of NovoThirteen in the U.S. to the FDA. After the receipt of the complete response letter, as announced in August 2013. Lastly, following completion of Phase I, Novo Nordisk has decided to discontinue the Anti-C5a receptor antibody called 151. However, clinical development continues with the second generation anti-C5a receptor antibody called 215, an antineo human antibody that's documented improved properties compared to the discontinued 151 antibody. With that, over to Jesper for the financials.

Thank you, Mads. Please turn to Slide 14. In the first 9 months of 2013, sales increased by 13% in local currencies and by 8% to DKK 61.9 billion, measured in Danish kroner. Reported gross margin improved by 70 basis points to 82.6% in the first 9 months of 2013, primarily driven by favorable price development in North America and positive net impact from product mix due to increased sales of modern insulins and Victoza. The gross margin was negatively impacted by around 0.3 percentage points due to the depreciation of key emerging currencies versus the Danish kroner compared to the prevailing exchange rate in 2012. Total non-production-related costs increased by 11% in local currencies and by 8% in Danish kroner to DKK 27.5 billion. Sales and distribution costs increased by 13% in local currencies and by 10% in Danish kroner to DKK 16.9 billion. The cost -- the 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, and there was an impact on the cost growth percentage arising from changes to legal provisions in both 2012 and '13. R&D costs increased by 8% in local currencies and by 6% in Danish kroner to DKK 8.2 billion. The modest cost increase reflect the timing of clinical trial activity. Within diabetes care, costs are primarily driven by development costs related to the initiation of the Tresiba cardiovascular outcome study, the ongoing Phase IIIa trials semaglutide, the once-weekly GLP-1 analog for -- sorry, the once-weekly GLP-1 analog and faster-acting -- and finally, faster-acting insulin aspart. Within biopharmaceuticals, costs are primarily related to the continued progress of the portfolio of development projects within hemophilia and the Phase II trial for Anti-IL-20, a recombinant treatment monoclonal antibody in rheumatoid arthritis. Operating profit increased by 17% in local currencies and by 10% to DKK 24.1 billion measured in the Danish kroner during the first 9 months of 2013. Net financials showed a gain of DKK 0.6 billion in the first 9 months of 2013 compared to an expense of around DKK 1.5 billion in 2012. In line with Novo Nordisk's 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 close to DKK 700 million compared to an expense of around DKK 1.5 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 rate in 2012. This positive effect is partly offset by losses on commercial balances, primarily related to non-hedged emerging market currencies. The effective tax rate for the first 9 months of 2013 was 22.7%, which is 0.3 percentage points lower than last year. Please turn to Slide 15. The negative impact from currencies and operating profit during the first 9 months of 2013 is primarily driven by the depreciation of the Japanese yen, which during the first 9 months of 2013, on average, was 20% below the average rate during the first 9 months of 2012. The impact of currencies included in the updated guidance for the full year 2013 reflects that the Japanese yen and the U.S. dollar currently are 24% and 7%, respectively, below the average of 2012. Please turn to Slide 16. For 2013, we still expect sales growth of 11% to 13% measured in local currencies. Given the current level of exchange rates versus Danish kroner, the reported sales growth is now expected to be around 4.5 percentage points lower than the growth measured in local currencies. The sales outlook in local currencies reflect the expectations for continued robust performance for the portfolio of modern insulins and Victoza, as well as a modest sales contribution from Tresiba. These sales drivers are expected to be partly countered by generic competition to Prandin in the U.S., intensifying competition within diabetes care as well as biopharmaceuticals and the macroeconomic conditions in a number of markets in International Operations. For 2013, operating profit growth is still expected to be in the range of 12% to 15%, measured in local currencies. Given the current level of exchange rate versus the Danish kroner, the reported operating profit growth is now expected to be around 7 percentage points lower than the growth measured in local currencies. This reflects significant sales and marketing investments in the portfolio of modern insulins and Victoza in the U.S., the launch of Tresiba outside the U.S., sales and marketing investments in China and in a selected number of countries in International Operations. Further contributing is a significant increase in costs related to the continued progress of key development projects within diabetes and biopharmaceuticals. For 2013, we now expect a net financial income of around DKK 1.1 billion. This primarily reflect 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 rate in 2012. This positive effect is partly offset by losses on commercial balances, primarily related to non-hedged currencies. The effective tax rate for 2013 is still expected to be around 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. The preliminary outlook for 2014 indicates high single-digit growth in sales and operating profit, both measured in local currencies. The outlook reflects expectations for continued robust performance of the portfolio of modern insulins and Victoza as well as a positive sales contribution from Tresiba. These sales drivers are expected to be partly countered by an impact from a more challenging contract environment in the U.S., generic competition to Prandin in the U.S., intensifying competition within both diabetes and biopharmaceuticals, as well as the macroeconomic conditions in a number of markets in International Operations. In addition, the outlook for operating profit reflects significant cost related to the continued progress of key late-stage clinical development projects. Given the current level of exchange rate versus the Danish krone, reported growth in operating profit in 2014 is expected to be approximately 5 percentage points lower than the growth measured in local currencies. The currency impact on reported operating profit growth is expected to be partly offset by a net gain on foreign exchange hedging -- on foreign exchange contracts hedging operating cash flows in 2014. Income recognition of this net gain has been deferred to 2014 when the hedged operating cash flows will be realized. The net hedging gain pertaining to 2014 is currently expected to be around DKK 900 million. 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 in 2014, and that currency exchange rates, especially for the U.S. dollar, will remain at the current level versus the Danish krone. Finally, please note that in order to secure liquidity for both the Novo Nordisk B shares and American Depositary Receipts, ADRs, and to bring price levels in line with market practice for especially for the ADRs, the Board of Directors has decided to split the share in early January 2014 in a five-for-one ratio taking the trading unit DKK 0.20 compared to DKK 1 today. The ratio of B shares to ADR listed on the New York Stock Exchange, will remain 1:1. This concludes the financial update. Now back to you, Lars. Lars Rebien Sørensen: Thank you very much, Jesper, and Mads as well. To summarize, we're pleased with the sustained growth in our company, which is reflected in the robust sales growth achieved in the first 9 months of '13, the outlook for the full year '13, as well as the preliminary outlook we see, as Jesper just outlined, for 2014. The roll-out of Tresiba, our new-generation insulin with an ultra-long duration of action, is progressing well and we remain encouraged by the feedback from patients and doctors. We're especially pleased with the initiation of the cardiovascular outcomes trial DEVOTE which passes a significant milestone in the progress towards making Tresiba available also for people with diabetes in the United States. We're now ready to take the Q&A. [Operator Instructions] Operator, we're ready to take the first question, please.

[Operator Instructions] And first question comes from Michael Novod of Nordea.

It's Michael Novod from Nordea Markets in Copenhagen. First question relating to the GLP-1 markets. Could you comment on the trajectory you're seeing for Victoza going forward? You've been talking historically about 200 million then 150 million. What should we expect going forward? And in that relation also, how do you see the overall U.S. GLP-1 market and pricing in the U.S.? And then second question relating to guidance and the preliminary guidance. Standing here today in late October, are you more, say, uncertain on next year's guidance than you've been in the other years where you've been giving this preliminary guidance. Because it seems there are a bit more factors to consider? Or do you still feel very confident that you're able to actually live up to these expectations? Lars Rebien Sørensen: And let me ask Jesper first to give a little bit of color to his confidence in the guidance. And then we can both -- Jesper and I can discuss this, and I will come back to the GLP-1 market.

Okay, Michael. First, if we take the guidance on the sales line, and that's really the key one, high single-digit growth. We're quite comfortable with that level. And to take you to that, I'd basically say, well, if you look at the growth so far this year, we are seeing 12.5% growth, first 9 months. We've also noticed that there are elements of a nonrecurring nature this year, primarily related to rebate adjustments which you should adjust 1 percentage for. So underlying,you're looking so far at about 11.5% growth year-to-date and something in that ballpark also expected for the full year, in local currency terms. Then we have some significant swing factors we know will impact us in 2014. The first one, Prandin. I've been warning that Prandin would be exposed to new competition. That has now materialized from August onwards. And that will impact sales next year with approximately 1% negative. Secondly, we are also unfortunate in the fact that we have lost a significant contract with Express Scripts, impacting both our NovoLog franchise and our Victoza franchise in the U.S. And although it's a bit preliminary to estimate the financial amount fully of that contract because it, too, depends on to what degree individual health care plans will decide to opt out under the national scheme operated by Express Scripts. I think it's feasible to assume that an impact in -- on our top line will be in the magnitude of 1%. And then, finally, I think there is an element of lower growth coming from the unusual level of growth, and Lars also alluded to that in his presentation. And we've seen our biopharmaceutical franchise so far this year, growing 12%. And with NovoSeven, growing 11%. And that is probably higher than what we see the long-term trend for the product, although patients seem very reassured in the very safe profile of our NovoSeven brand. So overall, those factors would bring it down into the high single-digit level, and then with a stable operating margin, that should basically provide a similar level of growth in operating profit. And the factors swinging in the P&L will be a continued expansion of our gross margin where we will continue to see an improvement in our gross margin in the ballpark of 50 to 100 basis points. And in 2014, I would anticipate that most of that improvement will be invested in a higher research and development ratio as we continue to progress the significant portfolio, especially Phase III products in -- including diabetes care. Lars Rebien Sørensen: Yes. Thank you very much, Jesper. With regards to the GLP-1 market, it is correct that our performance in Q3 underlying was somewhat shy of DKK 150 million in the quarter. But we would say though going forward, it's probably a reasonable estimate to assume about an underlying added DKK 150 million per quarter. If we look at the development in 2013 of the GLP-1 market, we did see, following the public debate about safety -- pancreatic safety of the incretin class emerged in the beginning of the year in March, a slowdown in demand for these drugs, including GLP-1 products. And with the very strong statements that came out over the summer both from FDA and EMA and other competent organizations, of course, one can hope and wish for a rebounding of the demand for GLP-1 class, as such. It's perhaps a little bit early to have that optimism, but one thing which you can note is that we have -- we're conducting at the moment a major DTC campaign in the United States. And when we measure and look at the new scrips to our brand, we can definitely see a pickup. Whether that will translate itself to also an expansion of the market is something we are hoping for, and we can see some small indications but we need some more data points on that. So -- and the pricing, of course, we have been able to raise price in the United States and that's also anticipated going forward. But also, due to the situation with Express Scripts, we are now seeing the fact that this aggressive price competition even within a class of therapeutically different compounds, which is rather unusual but I'm sure coming back to Express Scripts. So let's leave it at that. Take the next question, please.

And the next question comes from Michael Leuchten with Barclays.

Two questions. One on the rebates. They seem to be moving up and down. We think we have the benefit of the first half and now in Q3, we had a drag from the rebate bookings. Can you just elaborate what's driving the volatility and whether that's going to continue? Or whether that will quiet down over time? And then the second question is on Levimir in the U.S. So, particularly a strong quarter in Q3, with revenues up 44% in the quarter. Is that -- how much of that is underlying and how much of that is a one-off, please? Lars Rebien Sørensen: Yes. With regards to rebates, it is correct that there were positive rebate adjustments when we look at the beginning of the year compared to 2012, and then there was a drag in Q3. It relates to the amount of the compensation for the donut hole, which we as a company [ph] share on -- as part of the pharmaceutical industry, the agreement that the industry made with the administration in the U.S. And it seems like there are more plans that are changing their plans to become covered by Medicare Part D or become Medicare Part D like, which keeps the benefit to the participants that the pharmaceutical industry will be closing the donut hole. So this has impacted the rebate in Q3. I think all other things being equal, we will see an acceleration in -- or shortening of the time period before rebates will have to be claimed and paid back. And as we see the healthcare reform being enacted and as we see the exchanges starting to work, we should see a smoothing out of this relatively volatile expense that you've seen so far.

And just adding to what Lars is saying, that is actually a factor behind us keeping a constant level of expected free cash flow at DKK 22 billion, actually a effect of this slightly higher rebate payments being conducted in 2013. Lars Rebien Sørensen: Yes. And then -- correct. We're seeing a quite strong performance on our Levemir business, in particular in the United States. This is something that we actually did acknowledge also in 2012. And with regard to disappointment that we received a complete response letter on Tresiba, we actually noted that it was our anticipation that until such time that we'll see a change in the marketplace for basal insulin in United States, which is in about '15 when Lantus goes off patent and when biosimilar Lantus hence can be launched, the market picture will be characterized by us continuing to push and being able to penetrate with Levemir in the U.S. market. The volume growth is around 8% to 10% and of the long-acting segment in United States. And the rest is basically, we're gaining share, and we are taking price up. We are following the price lead of glargine in this case. And the price change has been around 30%, so the rest is the volume.

The next question comes from Tim Race of Deutsche Bank.

First question is just long-term guidance, and do you still stand by your 15% operating profit growth target given that next year, you're guiding to headwinds and I can't see in 2015 headwinds going away given that you might have competition to Victoza and also potentially generic competition? So just any thoughts on there and when you might potentially update us on that. And then just a question on China, just overall, the market's having a lot of, let's say, problems. Your numbers seemed relatively robust. But could you just talk about what you're seeing on the ground? Do you think that there's any major changes to the Chinese dynamic and perhaps the arms race that's going on there and just any first signs of things getting better? Lars Rebien Sørensen: Yes, thank you. Jesper, if can comment on your perspective for the long-term guidance, and then I'll take care of China. After you.

Well, we basically stick to our long-term targets. Targets are something you set for the future, and it is long term. We continue to work towards growing our business in operating profit terms of 15% year-on-year, measured, of course, in local currencies. So we're taking away the fluctuation caused by currencies. It is correct that we, next year, are guiding to high single digits. I think if I take you back to 2012 and 2011, you would see a similar level of guidance. And it still looks like that we, in 2013, will work our way towards what has been a very transcending year for Novo Nordisk. We're close to a 15% growth at the upper end of our guiding range in terms of operating profit. When we look to the years, '14 to '16, no doubt that they will be challenging. I think we have opportunities with our portfolio of course. We now have Tresiba on a number of markets. We have filed IDegLira. We hope to file liraglutide in obesity. So we still have opportunities to work with in the coming years until we clear the degludec family, as Mads alluded to in this presentation, in the U.S., hopefully, towards end of '16 or early '17. And so that leaves us confident that we can continue to work towards this target. And as we've also said, historically, it's likely that we will deviate from the target in individual years if investment opportunities should basically prescribe that as being the best long-term solution for our shareholders. So we're not pragmatic about a 15% target in individual years, but we do believe it's the right long-term objective in a franchise that has great opportunities both for the insulin franchise and the GLP-1 franchise. Lars Rebien Sørensen: Yes. Thank you, Jesper. It is, of course, also our hope and aspiration that with the enactment and the implementation ObamaCare in the U.S. that, that should lead to some volume growth in the U.S., and this should benefit, in particular, businesses like ours where -- with chronic care patients. If you go to China and again here, the right -- our business is largely, when you look at the numbers, unaffected. The 12% growth rate, as we also stated in the call, was impacted by a change in our distribution. We've gone from shipping material -- building and shipping material from Denmark to having consignment stock in China, shortening our distribution chain, and so it's once-off event that we have taken out, which is good for business, good for predictability going forward. It's about 3 percentage points, so if we add that back in, you're looking at a growth of our business in China of around 15%, which is what we've been guiding all along. What we noticed in the marketplace is that there is a reduced or has been over the third quarter, a reduced willingness on the part of physician to see representatives from the pharmaceutical industry. And now in terms of our business, since this is a chronic care, it has not had such a significant impact on the basal stable business we have. People are, after all, getting prescriptions of their insulins to treat their diabetes. However, we should point at one product, which -- where we have may have seen a slight slowdown is the more promotion-sensitive product like Victoza, which is not reimbursed and which are very expensive. There, we perhaps seen a slight slowdown in the Chinese market. So we do see a tendency if we should be so optimistic that things are returning to normal. We do not see in our factories or our operations any vigilance from the authorities in terms of further investigations into the potential marketing practices, which was so prominent and visible over the summer. So we think things are normalizing in China, and that should be good.

And the next question comes from Richard Vosser of JPMorgan. Richard Vosser - JP Morgan Chase & Co, Research Division: Just going back to the price rises that are going through in the basal segment at the moment, have the payers started to signal any concerns there? And allied to that, do you foresee sort of more Express Scripts-type deals for the basal insulin segment in 2015? And if that's the case, then how do you think you could maintain share growth of Levemir during that period given the incremental competition? And then a second question, please, just on going back to China and the lower human insulin growth you're seeing. Just could you shed a little bit more light on how the local players are competing there, whether there's some more pricing pressure coming through or just incremental competition and more willingness to use the local players' human insulins? Lars Rebien Sørensen: Thank you very much. I'll talk a little bit to basals in the United States. Jesper, and if you could care to comment a little bit on what you see in China on the local versus the imported international players. Well, it's interesting because if you look at the Express Scripts story, in the Express Scripts story, we were the incumbent player with about 80% -- 70% of the market in the United States. And that kept -- of course, gave the opposition, if you want, BMS Astra, an opportunity to go in with an aggressive bid because that will be so painful for us if we look at it from a finance perspective to have to adjust all the wages down as they apparently did. It's an already opposite situation when you look at the bases because in the basal, it's glargine that has lion share with 80% and we had 20%. And so how that's going to play out in the future, I'm not going to discuss on the call here. But I do think that there might be others that will start to make similar plans as we've seen with Express Scripts. We have not had any specific pushback on the pricing of basals, and we are not price leader and taker in this market. So I guess, if any criticism has emerged, it would have been directed towards our competitor, not towards us. So I would not exclude others to go down the same route, how that will play out in the basal segment, might be quite different than how they played out due to the different strengths of the players in the marketplace. Jesper, any comments on Chinese market?

Yes. The insulin market in China is very competitive. We actually saw that the Chinese government adopted human insulin on the National Essential Drug List back in -- with the date from May 4 [ph]. It is likely that this will lead to more increased tender bidding for contracts in the regions in China. But so far, we've not seen any significant amount of that. That said, we are seeing that the local manufacturers like Tonghua Dongbao and United Labs are being competitive in those segments of the Chinese market. And where we're seeing the predominant part of our growth is clearly in the modern insulin segment where the biggest opportunities are as we see it for the insulin franchise. We're seeing the Chinese market, we're actually converting towards modern insulin, very high pen penetration and for our business, more than 90% of the business is in pen and 40% of the market in volumes somehow being converted to modern insulins.

The next question comes from Luisa Hector of Crédit Suisse. Luisa Hector - Crédit Suisse AG, Research Division: Could you please comment on your plans for the size of your sales force as you go into 2014? And what's within your guidance assumption there? And could you tell us the contribution of price and austerity measures to the third quarter sales, please? And then finally, just a quick question with the launch of Lyxumia in Europe. Are you feeling any or hearing any comments, I know it's early days, but any feedback on that, please? Lars Rebien Sørensen: Thank you very much. This is Lars Sørensen here. I would have to invigorate Mads Krogsgaard. I will ask Mads Krogsgaard to comment on what he expects from Lyxumia in Europe because, as you probably heard, he is doing a head-to-head comparison study, so I'm sure he has some expectations on how that is going to play out. Then, Jesper will come back on how Q3 was impacted by austerity and price, and then I'll come back and talk a little bit about sales force.

Yes, thank you, Lars. And as we are aware, lixisenatide application has been continued in the U.S, but in Europe, it is on the market. It has only, to the my knowledge, has sold to tune of EUR 3 million [ph] preceding quarter and we have not seen any indentation on our, you can say, penetration in the European market. The feedback we are getting is that, quite clearly, Victoza is also compared to lixisenatide in the different league in terms of efficacy. So we -- that's also why we are setting out to do a superiority trial against lixisenatide, which has started recruiting. So essentially, we do not foresee lixisenatide as a stand-alone product as a serious threat to liraglutide. One comment would be that it is being positioned mostly as an add-on for basal insulin intensification probably in realization of the notion that it is not a very efficacious stand-alone therapy as oral anti-diabetic medication add-on. And Victoza is positioned early in the treatment cascade, but it's actually also being used distinctly in that segment, and we have seen no slowdown in that regard. Lars Rebien Sørensen: Jesper?

And then on prices austerity measures, I think, gradually we are seeing a lower impact from these factors in Europe. And if we take a specific comparison Q3 against Q3 last year, I'd say the overall impact on our business probably have been in the ballpark of 0.5 percentage point negative, primarily related to Europe but also some effect coming from China and the lowering of the modern insulins in China in the first quarter of 2013. Lars Rebien Sørensen: Yes, and then finally, on how do we go into 2014, we are quite bullish about that field of the market that we operate in 3 of the regions. And one is United States, where we are currently having around 3,000 sales reps, and we have plans to expand that further in anticipation of an approval of obesity and also to continue to push our modern insulin franchise, as well as our Victoza brand in the U.S. And we plan to continue to invest in China. Some of our peers have been slightly worried about the lack of access to the medical profession in China. We think this is going to normalize, and we are intending to continue to expand our operation there because we want to support the government's intentions of rolling out healthcare capacity to community clinics in more rural and smaller cities. And that means that we need to employ more people going forward. And then finally, the general expansion of our organization in the region we call the IO where -- so China, we had around 1,800 reps at the moment. And if we take the IO region, to us, it's 1,800 as well, slightly more perhaps. And we also are going to expand that, whereas if we look at Europe, it's going to be flat development of manning. And the same thing is applying in Japan going forward.

The next question comes from Martin Parkhøi of Danske Bank. Martin Parkhøi - Danske Bank Markets, Research Division: Martin Parkhøi. Firstly, a question about Tresiba and pricing. We know that you have priced it with a substantial premium in several markets except for Japan where you have been successful. Have you met a larger resistance than you expected in the market that you have entered now with this high pricing? And then secondly, with respect to the trial versus lixisenatide, could you elaborate on what your definition will be on superiority or some kind of a margin or how much you actually have to beat it in order to proclaim it superior? Lars Rebien Sørensen: It's Lars Rebien here. Mads Krogsgaard, speak to what you believe is significant performance of Victoza versus lixisenatide.

Yes. So Martin, the way you do these trials is initially you start by documenting non-inferiority. That's a classical element in the statistical hierarchy. And in that term, in terms of HbA1c difference, we on this occasion, would consider something like 0.3% both clinically meaningful and statistically valid as a both non-inferiority and superiority margin. And based on what we know for these 2 products, that is distinctly expected when you apply these drugs at 20 micrograms and 1.8 milligrams on once daily basis. Lars Rebien Sørensen: Thank you. And then onto Tresiba pricing, you're absolutely right. We have been pursuing a rather, if you want, aggressive pricing strategy because we think the drug offers some significant advantage, and it has been around, on average, if you want, in Europe, for 70%. And that has, of course, meant that it has been somewhat difficult to convince certain authorities that we have an ongoing debate about whether to launch in Germany or not given the NLog [ph] procedure and the concern that the product might be withdrawn again or forced to be withdrawn again because of an evaluation in Germany. We see a relatively slow uptake in the U.K. and Denmark. And we see little, as you already indicated, performance on the product in Japan. It's not because we did not pursue a premium pricing in Japan. It's just such that given the economic situation in Japan, it is very, very difficult for anybody to get any kind of premium even for new products in Japan. And therefore, our assessment was also because the price level, in general, in Japan is high. And therefore, the benefit of our organization, that it was losing the ground in Japan, that we would accept a slight premium in Japan. So it's correct. Japan is the place where we have the most even playing field, if you want, in terms of reimbursement and pricing with the competition. So that's where we can see the true grit of the product itself, whereas if we take Switzerland, where we have full reimbursement, the price differential is, after all, in our favor. But there, the product is actually doing the best. So all in all, yes, we are seeing pushback. We have determined to bring out the issue that the Europeans, in general, have to pay for innovation. We cannot assume that the Americans alone will fund innovation for the rest of the world, and therefore, we had to take a political stand at this is what needs to be done. It will mean a slower penetration, but eventually, it's our hope that once patients gradually gets approved and use this product, then we will also see penetration in Europe.

The next question comes from Keyur Parekh of Goldman Sachs.

I have 2 if I may. First, Jesper, I think you alluded to this in one of your comments earlier but would be great to hear you repeat how -- just how we should think about the level of conservatism you've built into your initial 2014 guidance, both from a top line perspective and then from an operating leverage perspective. And secondly, Lars, would love to hear your thoughts on how you see the opportunity for liraglutide in obesity. Should we think of it as a small product potentially? Or should we think of it as a much broader indication with the data you now have on prevention of kind of to move patients moving from pre-diabetics to diabetes and in the sleep apnea part of the study? Lars Rebien Sørensen: Yes. thank you very, very much. Jesper, why don't you go through to the sort of extent to which you can, of course, the conservatism in the 2014 numbers?

Well, it is clear, the further you stand away for a period that you are trying to explain the outcome of, that is the more deviation you will have in the likely outcome, and that's why we use a rather broad range in saying high single digit. As I also commented to it before, we've used the similar guidance for the 2 prior years. And there, it was proven that we, at the end of the day, turned out to be slightly too conservative. I think when I look at 2013, it was not apparent to us that we would get the repeat response level that's clear. On the other hand, we have seen a very strong performance of our portfolio of modern insulin, and certainly, those modern insulin operating in a pricing environment in the U.S. that has been more positive than what we anticipated. And secondly, I also think it's clear when you look at '13 that the development for our biopharmaceutical franchise have been much more favorable than what we thought of. I think I mentioned -- I know that some of the key events that will swing for '14, I won't repeat all of them. But to say that, I think, there are some factors currently that makes us uncertain. I think when we stand in January, we'll probably have more understanding of the impact of, for example, an event like the loss of contracts from Express Scripts. And hence, I would anticipate that we would be able to firm up the range in January, and then, hopefully, I'll be proven to be conservative. But I'd say my gut feeling now is that I'm branding it with exactly the same level of realism as has been used in prior years. Lars Rebien Sørensen: Yes. And then, I think an interesting discussion is the opportunity for us with liraglutide 3-milligram for obesity. Now of course, we have to mention the disclaimer in here that we don't know whether we're going to get an approval. We are very, very cautious recently that it's very difficult to predict what the agency is going to do. But you're right in saying that, on the efficacy side, we have very strong data suggesting a very strong weight-lowering effect of liraglutide 3-milligram with around 30% of cohort in our studies losing 10% or more, and that is very significant. It is believed that even 5% to 10% of body weight loss has clinical relevance. And now we know that obesity as such is underdiagnosed significantly and is undertreated today significantly in the United States. So there are a number of hurdles to overcome. It's just only recently obesity is being characterized as a condition and a disease in United States, and hence, it, up until then, been looked upon as a social psychiatric problem rather than a medical condition. I attended the Cleveland Clinic's Obesity Innovation Summit just 2 weeks ago, where there were about 400, 500 attendees that were both physicians, investors and entrepreneurs in the field of medical technology. Cleveland Clinic, they greet you with one hand and the knife in the other hand, meaning that they'd like to cut your stomach off, and they're highly aggressively promoting bariatric surgery as a way of dealing with obesity. But there were a number of other potential avenues introduced. And the audience was asked by the presenters in a query how big they thought the obesity drug market would be, and they were given 3 different options. And the majority of the attendees believed there will be $10 billion market eventually. So there are people out there that believe it will eventually be a pharmaceutical market. Whether or not it would be life-long treatment, what we can see so far is that when you stop treatment, people start to regain weight. So it may be in -- at conjunction with behavior modification, maybe even conjunction with other types of intervention, surgery, preparing for surgery. There's a lot of combinations that one can think of. We are optimistic that we will be able to get an approval because we do believe that the biotech profile we have seen in the clinical trial is known and is something that we would be able to deal with. But that, of course, pending FDA discussion, which we expect will take place some time mid-next year because our filing will be done towards the end of the year. And so we should, all other things being equal and with a little luck, a tailwind on the pipelines, we should have a chance to be on the market in 2015 in United States. And that goes back to the discussion about long-term financial targets. This is going of course, support our growth opportunity in exactly that window, which seems a little challenging, which is for '14 and '15 before we, in all likelihood, will be able to get Tresiba to the market, let's say, late '16, early '17 in the United States.

Our final question comes from Carsten Madsen of Carnegie. Carsten Lønborg Madsen - Carnegie Investment Bank AB, Research Division: This is Carsten from Carnegie Copenhagen. Then, I'll just ask you one question then about NovoEight in Europe. Could you elaborate a little bit about which strategy you will be pursuing also when it comes to pricing? Maybe also talk a little bit about how your label compares to the one of Advate and what type of opportunity we are looking at here. Lars Rebien Sørensen: Thank you very much. Mads, can you give an update on the comparison between the label of Advate and our product, and then I'll talk a little bit about the rest.

Yes. So well, first of all, you can say it's good news that we have a complete label based on the Phase IIIa program. Of course, you do always get some provisions-based post-marketing requirement. But already at approval, we have the full label for the product, so we are on parity. In fact, when we look, because of the purity and homogeneity of the product, we indeed have the upper hand in terms of these clinical claims of 30 degrees in use time for 6 months, which is kind of unusual idea, unprecedented for this group of products. We also believe that we have very strong, you can say, safety position based on the way that we produce the product and so on and so forth. So this is a, you can say, as good as it gets third-generation factor VIII product. And hopefully, my understanding is that is also being perceived so by the community that we're speaking to. Lars Rebien Sørensen: Yes. And then in terms of the market opportunity, I think you need to bear in mind here that this is a genetic disease where the number of new entries to treatment is only 1% of the total patient population every year. And then in addition to that, another 5% will be switching or will be amenable to switch from one product to the other during the year. So it is a rather conservative market. Comparing to, for instance -- we usually say that the insulin market is conservative. But it's significantly more conservative than the insulin market, therefore, pricing being the same, label being the same, the product, we, of course, hope that we'll be able to position that as being an innovative, a very high-quality product. You should not look at this opportunity as something that's going to transform our P&L in '14 and '15. Of course, it is something that we'll build over time. Thank you very much, ladies and gentlemen, for listening in, and as usual, if you have additional questions, call our Investor Relations officers. And a replay of the conference will be made available shortly on our website. Thank you.

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