Good day, and welcome to the Q3 2016 Novo Nordisk A/S Earnings Conference Call. Today's conference is being recorded. And at 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. Welcome to this Novo Nordisk conference call regarding our performance in the first nine months of 2016 and outlook for the full year. I'm Lars Rebien Sørensen, CEO of Novo Nordisk, with me I have Lars Fruergaard Jørgensen, Executive Vice President, Head Corporate Development, who will take over as CEO to 1 of January, 2017. With me I also have our Chief Financial Officer, Jesper Brandgaard and; and Mads Krogsgaard Thomsen, our Chief Science Officer. Also present and available for the Q&A session, Executive Vice President-Head of North American Operations, Jakob Riis. Present are also our Investor Relations officers. Today's earnings release and the slides for the call are available on our website, novonordisk.com. The conference call is scheduled to last one hour. As usual, we'll start with the presentation as outlined on slide number 2. The Q&A session will begin in about 30 minutes. Please note that this conference call is being webcast live, and a replay will be made available on our website. Turn to slide number 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 result to differ materially from expectations. For further information on the risk factors, please see the earnings release and the slides prepared for this presentation. Turn to slide number 4. Sales growth of the first nine months of 2016 was 6% in local currencies, and 4% in Danish kroner, compared to the first nine months…

Thank you. Please turn to slide 12. At the annual EASD conference in Munich last month, detailed results from the SUSTAIN six trial were presented. The data showed that semaglutide significantly reduces the risk of major adverse cardiovascular event with 26% compared to placebo added to standard to care. Specifically among the three individual major component, there was a statistically significant 39% decrease in non-fatal stroke, despite the low number of measles overall. In terms of microvascular complications, statistically significantly fewer people treated with semaglutide versus placebo had nuances or of worsening of nephropathy for more people treated with semaglutide experienced diabetic will not see complications, a phenomenon which we believe relates to fast and pronounced blood glucose reduction achieved in patients with existing retinopathy. The significant reduction in the composite endpoint to major cardiovascular event of absurd semaglutide was not expected, given the small study population in the short duration. Hence, in order to further expand on absurd cardiovascular benefit we plan to initiate a large-scale cardiovascular outcome superiority trial as soon as possible after the approval of semaglutide has been obtained. Likewise we'll consider investigating other long-term outcome benefits, such as those observed with our diabetic kidney disease. We expect to submit semaglutide to the regulatory authorities before the end of this year. Please turn to slide 13. We've updated our updated R&D strategy and priorities to reflect both increased payer demand, with actively differentiated new drugs to enable market actors and our own strongly lead product profile that are also raising the innovation bar for ourselves. As a consequence will find even higher innovation threshold when initiating a progressing research project. Going forward there will be ramifications of the new strategy both within research and development. In development, we intend to increase our focus on exploring the…

Thank you, Mads. Please turn to slide 16. During the first nine months of 2016, sales increased by 6% in local currencies and by 4% measured in Danish kroner to DKK282.2 billion. Cost of goods sold increased by 6% in the first nine months of 2016, resulted in a reported gross margin of 85.1% compared to 85.4% in the same period last year. The gross margin was negatively impacted by ramp up cost for new manufacturing capacity and a negative impact from product mix due to lower NovoSeven sales. Sales and distribution costs increased by 4% in local currencies and by 1% in Danish kroner to DKK20.5 billion. The modest increase in cost is driven by sales force investments in selected countries and international operations and also reflect the controlled and focused level of promotional activities in the US. Research and development costs increased by 6% in local currencies and by 5% in Danish kroner to DKK10.1 billion. The increasing cost reflects higher research cost for diabetes and obesity product - project while development costs were largely unchanged. This is explained by the completion of the cardiovascular outcomes trial DEVOTE and the SWITCH, phase 3b development program both for [indiscernible] as well as the phase 3a program SUSTAIN for the once weekly GLP-1 analogue semaglutide. This is partly offset by increasing costs related to the PIONEER program for all semaglutide, but with fix cost that’s been initiated during the first nine months of 2016. Administration cost increased by 7% in local currencies and by 4% in Danish kroner. The increase is mainly related to higher employee-related costs in international operations, as well as cost related to the announced reduction of the workflow, other operating income was DKK640 million compared to DKK3.4 billion in 2015. The lower level of income reflects…

Thank you. [Operator Instructions] We will now take our first question from Richard Vosser from JPMorgan. Please go ahead. Your line is open.

Hi. Thanks for taking my question. Question on the future great targets, the long-term targets, so could you give us an idea of the future pricing environment factored into that long-term guidance, both for the basal insulin for price environment [ph] and the GLP-1s a as well please. I think overall you highlighted previously zero price growth in the US or I believe was the assumption, what are the sort of assumptions now? And then, and the second question, could give us an idea I suppose, you know, what's got worse in relation to 2017 relative to the position that you outlined at the second quarter '16, I think most of the expectations were sort of mid-single digit growth to that point. So just some idea of what's changed on that dimension as well? Thanks very much.

Thank you, Richard. Jesper Brandgaard, to comment on the long-term financial target, pricing environment assumption both in basal and human growth hormone and GLP-1? Lars Rebien Sørensen: Yes. Thank you, Richard. According to actual Q2 we noted that we saw a negative pricing impact and our US business low to mid-single digit. When we look through the actual impact as we have all plans and all is completed for '17, we think that we are now will be at about 5% negative pricing impact and that has been included in the update of long-term financial target, giving an approximately 2.5% negative impact on sales from this pricing thing. You are also absolutely correctly referring to that we - at the outset of the update of the long-term financial targets we're assuming on a global basis a neutral impact on prices. Looking ahead, it’s apparent that when we look to 2017 in the vicinity of 2.5% negative impact on prices would be apparent for that year and it’s also apparent from the discussion we've had with peers in the US, that we will continue to see a negative pricing pressure also in subsequent years. Although the prime impact of the basal insulin segment probably have been realized in 2017. So a continued negative pricing pressure occurring, especially for the modern insulin, but also with ending to Tresiba and the premium that we are able to obtain on Tresiba in the US. Furthermore, we should also continue to expect a challenging pricing situation and intensifying competition within human growth hormone. We will refrain from giving specific product therapy guidelines by either geography or by individual products, but I think this high level indicates pretty well what we have assumed for the long-term financial target. In terms of the comment in Q2, I…

We will now take our next question from Michael Lutucan [ph] from UBS. Please go ahead. Your line is open.

Thank you. It’s Michael Liston from UBS. Just going back to the long-term targets, could you just help me - could help me understand the 10% versus to 5%, are we, do I think about this as a halving of your expectations as you were looking at it before, or is the slight change in wording in the paragraph where you now talk about an average 5% growth rate, as opposed to target 10%, does that make it an apples-to-oranges comparison and I shouldn’t think about it is as a halving of your long-term growth aspiration? Thank you. Lars Fruergaard Jørgensen: Thank very much that astute question and observation. I think your observation is correct that we receive for the long-term financial target at the 10% was an exploration and we - at the time when we announced it we noted that there was a specific challenges for 2017, that was primarily in relation to the generic competition arising from Vagifem product in the US. We have now ensured that it’s completely transparent. What the objective is for the operating profit growth, it is the average for the period 2016, until we achieve our long-term financial target, which we typically pursue over a 4 to 5 year horizon. So we think we make it even more clear exactly what is meant and I would say in large-scale, it is a halving of the ambition level, but we are making even more clear how we are going to make for this. Lars Rebien Sørensen: Thank you. Next question please?

Thank you. We will now take our next question from Sachin Jain from Merrill Lynch. Please go ahead. Your line is open.

Hi. Sachin Jain, Bank of America. Couple of things, first just a clarification comment, on the pricing comment to the first question, it’s clear that pricing it seems gone from flat to decline. And I wondered if you could also comment on the mix component of your prior guidance at the double-digit diabetes, I think it was 2% to 3%, where are you know in the mix benefit. And I guess, roughly relative broader question within the prior target, I think you alluded sort of 8% to 10% top line growth, where does that fit overall now. Secondly, related just to clarify commentary on mid-term margins and I think, the commentary before was obviously no target, but that sort of flattish outlook, what should we think about now, I think you reference gross margin pressure offset by S&D, does that imply declining margins because you touch on them level on R&D spend within the given the new structure? Thank you. Lars Rebien Sørensen: Thank you very much Sachin. Jesper, you are in demand today.

Thank you. In terms of the pricing outlook, you correctly understood that we were anticipating a negative pricing environment also in subsequently year and being in the range of probably a 2% to 3% when we get beyond the 2017 year. In terms of the mix effect, I don't see a significant change in the mixed development of our business, yes, we are continuing to see where we operate in the form towards Tresiba in the market around the world. We continue to see a significant value opportunity for the GLP-1 constituting an ever higher proportion of the overall turnover and that’s hopefully is going to be improved also, as we get semaglutide to market. So the overall mix effect would still hold true for business. In terms our operating margin and we stated in connection with the full year that we expected the operating margin to stay largely unchanged compared to the level achieved in 2015 and the level in 2015 is to adjust for the non-recurring factors that we've been discussing all along, in NNIT and the divestment of the inflammatory asset, then we did note in the company announcement that it was at about the level of 43.6% in operating margin. And we are currently operating at a slightly higher level, but it's also clear that the pricing pressure, especially for 2017 will serve a negative pressure on it. We do expect that we are able to compensate some of that and I would assume that the prime compensation will come from the biggest cost ratio, which of course apparently is the selling and distribution cost, and then I would also anticipate that we will continue to improve our admin ratio, but with the prime contribution from selling and distribution. In here embed was also that I didn't say any significant changes to the R&D ratio, which is currently at the 13% level and we wouldn't anticipate any major contribution there. There that not ruling out, that there are individual years, depending on the level of especially clinical activities would be variations depending on what the opportunities are with the late stage portfolio. So broadly assumptions of a relative unchanged level of investment to sale, to R&D. Lars Rebien Sørensen: Thank you very much. Next question please.

We will now take our next question from Peter Bodez [ph] from Citi. Please go ahead. Your line is open.

Thanks. David from Citi. Two questions. Jesper, sorry again to go back to long-term financial target, just to be about clear here, could you just give a little more detail on the balance between the reimbursement pressures you are seeing across the US diabetes portfolio versus potentially reduced expectations for the commercial potential of Tresiba, Xultophy and CS [ph] given recent developments and competitor actions. I just want to know if they are both coming into play in terms of these long-term growth target or changes or one is overriding the other. And then secondly, for Mads, I mean, the reliance on the GLP-1 growth story at Novo increases, particularly with Semi, so could you just discuss what efforts you're making posts staying fix data regarding better understanding the rest, not the signal as well as the device strategy that you intend to pursue there? Thanks very much. Lars Rebien Sørensen: Thank you very much Peter. Jesper, a few comments on what we see other than pricing pressure in terms of Tresiba, Xultophy and CS, I mean, is the fact that we have had a deferral of approval of some of the new generation drug in other areas in basal.

First, in respect to Tresiba, the expectation of Tresiba remain exactly as they are, I think we are well on track to deliver on the objective of delivering a 5% value market share at the end of the first year in full commercial operation and we continue high hopes for our Tresiba franchise in the US and that will be the prime driver of growth, it was a third of the growth in the first nine months and we will continue to invest in that and no changes in our expectations of Tresiba. It is a fantastic product that makes a difference for people diabetes As for Xultophy the three month delay in approval doesn't make a significant difference. I think that this will further focus us on Tresiba in the near-term horizon and then subsequently focus moving towards Xultophy for [indiscernible] is along been seen as a product opportunity to basically and ensure that we safeguard our fast acting insulin patients in the US but not has been assumed as a major driver of value upgrade. And so no significant changes there and it also note that the competing products will materialize in the fast acting segment somewhat later. So no significant changes in those assumption. If there is one assumption that I should highlight that has also been taken into consideration in the update of the growth year, it is that the impact we have seen on our NovoSeven franchise has materialized earlier in the form of a number of Novo patient - high number NovoSeven patient being enrolled in competitive clinical trials and the impact on our business has emerged faster than what we anticipated and that has been factored into the updated target. Lars Rebien Sørensen: Thank you very much Jesper. And then GLP-1 growth all becomes relatively more important and Mads, any comments to the issue of retinopathy in any comments you want to share with the audience the competitors about our device strategy?

Okay. Well, first of all, as regards the retinopathy findings, to be aware that in this SUSTAIN 1, 2, 3, 4 and 5 there were neither familiarity or by any means measures any imbalances, only in SUSTAIN where we included patients with pre-existing retinopathy, but not in a way that where there was a lot of baseline fundus photography and things like that which you would normally do, so it was more measured as adverse events reporting. There what we've done is looked at the imbalance that we are seeing and then we have performed what is the quite well-known growth in the field of statistics and in neuro psychology and so on and we've done a so-called mediation analysis and the mediation analysis is one that so dependent from independent variable. And what it shows is when you do it in the three-dimensional network looking at baseline A1C and decremented A1C over time you over time you can actually explain that in those people according to this analysis, who at the base and had a high A1C and hence a every precipitous drop of 2 plus percent AIC units over three to four months. Those predisposed individuals as we have also seen it studies like ECCT and others that can precipitate a competition to the retinopathy. When you take this mediation and adjust for those finding which is base line A1C and degree of A1C in the beginning of the study then there is absolutely no difference. But these are things that we will be discussing with agencies and obviously since it is an observation we have done we do intend to be able to follow up on that also in the post-marketing environment. But what we are seeing neither non-clinically normally think - mechanistically is anything to suggest that there must be any different from any other GLP-1 agonist on any parameter, apart from the fact that does more than the others do with metabolic parameters bodyweight and so on. And that may will be underlying deeper in the package insert as we had for the insulin and mention of the fact that if people have active retinopathy want to you to obviously not go very aggressively to the titration as you would also consider not doing for an insulin. But these are things that I think we are in a good shape to discuss.

And device Mads?

Device wise, we will obviously over time have a kind of dedicated specific cement device what will have from the beginning is using more of the existing device platform technology, disposable devices that are engineered in such a way that you can dial the relevant cement doses to point. 25, 0.5 and one but we will be more elaborative, at this point we can provide you a update on the device strategy as we get closer. Lars Rebien Sørensen: Thank you very much. Next question please.

Thank you. We'll now take our next question from Ronny Gal from Bernstein. Please go ahead. Your line is open.

Good morning. And thank you for taking my questions. I got two, so first you know, the logic of a declining pricing of insulin is well affected and I guess my concern is more under GLP-1 market, there are few options in that market, are you seeing any trend among peers into going to a single award, preferred award situation. The GLP-1 and essentially is assumption of single or glyph one build into your long-term financial projection? Second, I think Jesper mentioned that you probably should have seen the worse of the pressure on the base insulin market this year, am I understanding the part D market have not yet switched to a single award model and that could happen in 2018 given the timing of a plans coming in. Is this already a discounts into that or already visible in 2017 or should we see another point of pressure with the part D plan are introduced in 2018? Lars Rebien Sørensen: Thank you. Ronny, this is Lars Rebien here. And no we have not seen any move towards single source contract and exclusively on the GLP-1 market and that we had not anticipated in the timeframe that we are looking that this will happen. And with regards to basal pricing, it is correct that Jesper mentioned that in our modeling - of the impact is likely to have been seen in '17, but some impact going forward, and we're going to specify that between the commercial and part d plans, but some further negative impact going forward, it’s all been factored in.

Thank you very much. Lars Rebien Sørensen: Thanks. Next question please.

Thank you. We'll now take our next question from Michael Novod from Nordea. Please go ahead. Your line is open.

It’s Michael from Nordea. Again to the updated long-term growth target of 5%, so you said on media that you might see growth coming back in '19 and to get to an average of 5%, we discussed is also earlier regarding the 10% which then became, was a point estimate, now it’s an average. Can you just maybe elaborate a bit more on how you see the space between years, sort 5% in '18 how do you see coming back in '18 or should it more be a '19, '20 thing. And then the last thing is on human growth hormone, are you able to talk about how us see the human growth hormone say, annual sales developed after 2016, so are we due to see a decline in sales or actually just low single digit sales? Lars Rebien Sørensen: Thank you very much. Jesper, I think there must be a misunderstanding here, that Michael has picked up that we have indicated that that would be continuous growth of our business in 2018, could you please comment on how you arrive at the average 5%, over the entire period.

Its apparent that we've given the guidance now for 2017, we haven’t provided a detail guidance for 2018, but it’s also apparent from the long-term financial target and looking at average that we need to see in j2018 our operating profit into the 5% level in order for us to meet the average and that is certainly also our expectation. That advantage we will have in 2018, is that we get beyond the 12 month effect from the Vagifem passing the competition in the US and hence we should be able to deliver a 5% growth level in '18. That is built into assumptions, but what this specific amount is going to be, we will have to get properly prepared for third quarter 2017, before we make more detailed comment on that. But the growth level will be in that vicinity. Lars Rebien Sørensen: Thank you, Jesper. And then regarding growth hormone, you should remember here, that we had a very significant ones off pricing effect in 2016 on growth hormone, but that we will be seeing weak volume development in United States as a result of loss of an advanced formulary with CVS where we have elected not to participate and that formula actually gained traction and coverage in the US. But then on the other hand, we are seeing a relatively strong volume growth. However, a different pricing point outside the US in particular in emerging markets, especially in the Middle East and Northern Africa region. So short-term declining growth hormone business, longer term, it would be depending on the weight between the US growth hormone business and the growth of our international growth hormone business. Thanks next question please?

Thank you. We will now take our next question from [indiscernible] from Credit Suisse. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. Just going back to the GLP, can you discuss the competitive environment you're seeing them in Europe, Victoza sales are down this quarter and what's impact from the loss of Germany being? Second question is one of the key areas that you speak about is obesity, the Saxenda growth that seems to have slowed in the US, can you give us some color surrounding the formally access and coverage for this product? Thanks very much. Lars Rebien Sørensen: Thank you very much. Yes, the European GLP-1 market is slightly more pressured than the situation is in United States. We have a lot of business in Germany, but however, we had not seen growth of our business in Germany and this is due to very strong performance of a competing product in the German market and then we all influenced in Europe on pricing, there been some pricing adjustment. So our GLP-1 business in Europe is about flat slightly - slightly positive, where as its growing significantly as we've already indicated 14% in the US and its growing double-digits in international operations and in Japan, With regard to Saxenda we have seen the exit of competitors in this market in the US which is a leading us as the main player in the US, but maybe I should further question to the former head of marketing, but now President of our US operations to answer what the t specifics are in the US on Saxenda.

Yes. I'll start with Saxenda we're very pleased with the development of Saxenda globally and as well in the US. There is an element of seasonality in the data, so we typically see a stronger market development earlier in the year that slows off the in the latter part of the year. That is, that is also impacting and Lars said, we are increasingly alone in developing this market, but it is developing a at a satisfactory rate we just need to build it you could say patient-by-patient [indiscernible].So I would say yes, maybe little slowing but it’s a seasonality we've seen before. So all in all, a good development. Lars Rebien Sørensen: Thank you very much both gentlemen. Next question please?

Thank you. We'll now take our next question from Keyur Parekh from Goldman Sachs. Please go ahead. Your line is open.

Good afternoon. Up to big picture questions, please. First, your commentary today and increasingly to the course of the year, it seems to suggest an operating environment for Novo Nordisk that is materially different than the last decade has bought. Do you think the company is currently structured to survive and climb in this new operating business environment, do you have the right mindset and the right people in place to execute on growth in a market environment that is likely to be very different. That's question number one. And question number two, would be, given your commentary on lack of willingness to pay for innovation or at least marginal innovation in the diabetes market, is it fair why is 13% or 14% of revenue still the right money to spend on R&D?. Thank you. Lars Rebien Sørensen: Thank you very much. Could you elaborate in here. I think in order to also have some accountability on the comments about the long-term picture that I - referring to first question that you have, the incoming CEO as to whether or not he sees that - and its obviously everyone that there is a change in the operating environment which has led us to change the short term growth. But how we will be able to operate in such an environment, perhaps Lars should share his perspective of vision what you should be expecting [indiscernible] in the coming period. Lars Fruergaard Jørgensen: Thank you, Lars. So when we across the world, I think we have to acknowledge that the detention operating environment is primarily in the US and we see continued strong performance and actually a rebound of our Chinese business and also very strong performance of our Japanese business and actively growing Europe more than we have done in recent…

Thank you. Ladies and gentlemen, that will conclude today' conference call. And you many now all disconnect.