Good day, and welcome to the Q4 2016 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 Fruergaard Jørgensen, CEO. Please go ahead, sir. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, and welcome to this Novo Nordisk conference call regarding our performance in 2016 and outlook for 2017. I'm Lars Fruergaard Jørgensen, the CEO of Novo Nordisk. With me, I have our Chief Financial Officer, Jesper Brandgaard; and our Chief Science Officer, Mads Krogsgaard Thomsen. Also present and available for Q&A session are Executive Vice President and Head of North American Operations, Jakob Riis; and Executive Vice President and Head of Investor Relations, Mike Doustdar. Also present are our Investor Relations officers. Today's earnings release and the slides for this 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 2. The Q&A session will begin in about 30 minutes. Please note that this conference call is being webcast live and replay will be available on the Novo Nordisk website. Please turn to slide 3. As always, we 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 actual results to differ materially from expectations. For further information on these risk factors, please see the earnings release and the slides prepared for this presentation. Please turn to slide number 4. Sales growth in 2016 was 6% measures in local currencies and 4% recorded in Danish kroner compared to 2015. North America operations grew by 4% and accounted for 41% share of growth in local currencies. Within international operations, both region Latin America and…

Thank you, sir. Our first question comes from Richard Vosser from JPMorgan. Please go ahead. Your line is open.

Hi. Thanks for taking my questions. First question just on the guidance around operating profit and sales. In the top end of the guidance, if you could give us some color around what upside opportunity from Victoza in terms of gaining the CV benefit label and the contribution from that? How much is that contributing from the middle of the guidance to sort of the upper range? And similarly, in terms of U.S. healthcare reform, potential reform there in terms price pressure in the government channel, what's included to get us towards the bottom end of the range? And second question just on concizumab. I think some of your competitors have moved directly from phase 1 to phase 3, so just wondering why you can't do the same? Why do you need a phase 2 trial to move forward here or could that phase 2 trial be pivotal? Thanks very much. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Richard. So I'll hand over Jesper to give a better flavor for the guidance, and then Mads will touch upon concizumab. Jesper Brandgaard - Novo Nordisk A/S: Richard, the reason why we decided to work with a 5 percentage point interval was to really reflect the increased uncertainty we were seeing both on a market dimension, but also on a political dimension. I think the right way to describe it is that the prime uncertainty that we have in this range is related to the U.S. market. The key uncertainties I see for sales and then linked to that very closely the impact on operating profit, will be on the upside, the speed of which we have benefit from the impressive LEADER results. What we have in our assumption is that it through normal regulatory guideline will get into the…

Thanks very much. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Next question, please.

Our next question is from Mike Leuchten from UBS. Please go ahead.

Thank you. It's Mike Leuchten from UBS. I'm afraid I have to go back to the range of the guidance please, and two questions. And number one, if it is the U.S. that is driving the uncertainty, when I presume you have more visibility in your ex-U.S. business, then the net range all of a sudden becomes very, very wide. And if I take the political questions into consideration as well, that seems a very negative scenario on the downside. So what would have to happen to actually get you into a decline if your ex-U.S. business actually does do okay? And then, the second question. If you look at your share price today, obviously the market's interpretation of your guidance is that you're opening a possibility where that negative, that decline scenario is possible and arguably more possible than the upside scenario of plus 4% on new sales. So what can you give us in terms of the way you think about the balances of those scenarios on the upside and downside, given that the market is interpreting this as a skewed guidance that might be more likely on the downside? Thank you. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Michael. This is Lars Fruergaard. I'll start out and then maybe Jesper can add a bit of additional flavor. So we ended up closing the year as planned. So the momentum we have in our business is as we had forecasted it. Hence, we are starting 2017 also according to plan. So the guidance we provide now is looking at a business that's performing as we look at it when we gave the Q3 guidance. So we are not becoming overly concerned about the underlying performance of the business. We just note that we are operating in…

Thank you. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you. Next question, please.

Our next question is from Tim Race from Deutsche Bank. Please go ahead.

Thanks. Thanks for taking my questions. First question for Jakob, just looking at the U.S. business and your marketing strategy here. You seem to have a lot resources behind Tresiba and Victoza for obvious competitive reasons, but just thinking about Xultophy, you think you'll hold off the gaps a little bit after the approval here? Just wondered what your strategy is here and whether the expectations have changed somewhat? And then maybe just another question on semaglutide and potentially the competition you'll see going forward. What you'd expect in terms of your label – your safety perspective and retinopathy? Obviously, that's sort of rolled into CV study. I'll just be interested to know what your thinking is about that in terms of potential labeling. Would it be in line with what we've seen with insulins in the past, or do you expect this to be more of a specific issue? Thank you. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Tim. So while Mads prepares for the sema – safety question, Jakob, your perspective on the U.S. business and preparing to certify. Jakob Riis - Novo Nordisk A/S: Yeah. So good observation. And you're right that the way we handle Xultophy is a clear indication that the market has changed. Because had this been five years ago, we would have prepared for a major launch as soon as possible. Sanofi has some phenomenal clinical data, but we need to establish a certain level of market access first. And if we were to drive that too fast, we would have to repay too aggressively which would cause also a downside on our existing Tresiba and Victoza business. So we have to take the time to convince the payers about the value when they both compare against SOLIQUA, but also alternative…

The next question comes from Peter Verdult from Citibank. Please go ahead.

Thanks. Good afternoon. Pete Verdult, Citi. Just two questions and maybe we can move away from just 2017 and dissecting the guidance. But for Lars and Jesper, when you think on healthcare reform, you've got an incoming health secretary that's not a fan of direct government intervention on drug pricing, but changes clearly are going to come. So the first question is, is it correct to think about the dual eligibles shifting back to the Medicaid as the biggest risk to Novo. There seems to be a wide range of estimates in the market as to what the impact of that might be. So interested in your perspective there. And then secondly, Jesper, in the past you talked about, obviously, we're in a new paradigm here of ongoing pricing pressure across the portfolio for Novo in the U.S., but that you'd expect it to be less severe going forward than what you've seen this year. Now, I know it's quite early in the year, but people in negotiations have already kicked off for 2018. So interested to know whether your confidence in that statement is still the same or is changed at all. Thank you. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Pete. It's a good question, but it is really difficult to answer because we don't really know. Obviously, there will be an impact, but in our view it's not likely that there will be a short-term change in how the dual eligibles will be handled. Jesper? Jesper Brandgaard - Novo Nordisk A/S: Yeah. In terms of overall impact of prices, we have hinted in relation to the revised long-term financial targets that we've given of growing our business, operating profit about 5% also beyond 2017. There, we have included an assumption of a 2% to 3% negative global pricing impact. And we would expect that part of that pricing impact would largely come from the U.S., but also a balanced negative impact from rest of world. So that kind of remains the same, and there's nothing that currently makes us look significantly different than that. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Jesper. Next question, please?

Our next question is from Johannes Tuin from Credit Suisse. Please go ahead. Johannes M. L. Van Der Tuin - Credit Suisse Securities (USA) LLC: Hi, Johannes from Credit Suisse. Two questions from me. Firstly again, the U.S., we've recently seen Sanofi launching a $10 maximum co-pay strategy with access to Lantus and Toujeo. Can you talk to us about the impact you've seen from this? And maybe going back to Peter's question, how do you think this will affect the price competition notably for the 2018 discussions with the U.S. formularies? And secondly, can you offer a bit more color into the discussions you've had with the FDA about Fiasp re-submission? We've also recently seen Lilly terminate their partnership with Adocia, so I think economic reasons. Are you still confident in this ultra fast-acting insulin opportunity? Thank you. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you very much. Jakob, the impact of Sanofi's tactics. Jakob Riis - Novo Nordisk A/S: Yeah. So we're monitoring volumes in these trends quite closely, but we've not been able to detect any significant signal that they have success with these cards. So I think it doesn't appear to be a dynamic in the market that will have any sort of significant influence. Hence, also not really be a factor, I think, when we talk contracts going forward. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Jakob. Mads, Fiasp, Lilly closing their partnership for the second time with Adocia. What's your perspective there? Mads Krogsgaard Thomsen - Novo Nordisk A/S: Well, before I get that, Lars, I'll just offer a couple of words on the productive integrated conference that we had with the FDA just before Christmas on the complete response data. And it basically was highly and there was agreement as…

Next question now comes from Michael Novod from Nordea. Please go ahead.

Yes. Hello. It's Michael from Nordea. Just two questions. One is the comments regarding value-based contracts. We talked a lot about, say, impact from co-pay vouchers and HE negotiations, but how fast do you actually see the market move more towards value-based contracting? And how will that be in terms of the potential say pricing development for the pharma companies? And then the second question to your CapEx. You're DKK 10 billion in CapEx this year and likely around the same level in 2018. Maybe, Jesper, you could provide some guidance on where we are to be in the next three to five-year horizon. That would be very much appreciated. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Thank you, Michael. Jakob, uptake of value-based contracts and. Jakob Riis - Novo Nordisk A/S: Yeah. We've signed a number of contracts. So far, they have been in the GLP-1 area, where I can say it has been the easiest to implement metrics we could use, where that would be measurements around number of patients, percentage of patients reaching a goal of, A1c goal of 7% or how long they adhere to therapy. We still need to find ways to implement that on the insulin side, so that's for us a development. We need to now go down that path. But SWITCH data and particularly DEVOTE data gives us confidence that if we get good population, they're actually something very, very interesting to look for in value-based contracting here. I would say, the development is very fast. But I think if we look at 2017/2018 that it will have any impact on the way we see the price develop, I think the two things are going to run in parallel, that there's already an expectation that with the increased competition in the segments…

Our next question is from Martin Parkhøi from Danske Bank. Please go ahead. Martin Parkhøi - Danske Bank A/S: Hello. Martin Parkhøi at Danske Bank. Two questions, one for Jakob and one for Mads. This probably Jakob. Just to talk about the quite strong uptake we have seen recently of both Levemir and Tresiba, which, of course, are driven by lenses. But you can also say that Basaglar came very late to the market and I think also the voucher of Sanofi came very late in the process. So would you assume that the next time we see a large contract swing, then you should not be able to see a similar effect for Tresiba and Levemir again? And then the second question to Mads, just to the semaglutide phase 2 study on a once-daily. And 8.2 kilogram weight loss is of course quite impressive, but it's also a little bit more than double the dose on a weekly perspective versus semaglutide once-weekly. If we look at a comparable dose on a weekly basis, are we then seeing more powerful or less powerful semaglutide when administered once-daily? Lars Fruergaard Jørgensen - Novo Nordisk A/S: Jakob, on the U.S. uptake. Jakob Riis - Novo Nordisk A/S: Yeah. Thanks, Martin. You're right. And I think we have to be cautious, I mean, with the read of the CVS dynamics because it's a couple of weeks and as you said Basaglar has been only briefly in the market. But to that, I would add on the other hand that you could say the CVS letters have not specified Tresiba as an alternative, but have positioned most prominently in their internal communication the Basaglar offering. So you could say the performance we've seen delivered is also because of our presence in the field. We…

Certainly, sir. Our next question is from Simon Baker from Exane. Please go ahead.

Thanks for taking my questions. Firstly, one for Jakob on the U.S. We've seen a few reports recently of some management changes within the U.S., such as the departure of Camille Lee from diabetes marketing. So I wonder if you could give us an update with the changes within the U.S. margin structure and the rationale for those? And then, secondly, for Jesper. On tax, I wonder if you could quantify the amounts of the impacts on the 2016 tax rate from the tax settlements in the year, just to give us an idea of what the clean rate was with a view to 2017? Thanks so much. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Jakob, management changes? Jakob Riis - Novo Nordisk A/S: Yeah. Management. It's correct that some management changes have taken place in the U.S. management team to make sure that there's a team in place that is ready to move, you could say, and not only still through a turnaround, but also through this transformation of how we conduct business in the U.S. And I chose to take over the marketing role myself initially to ensure that we could very rapidly clarify our commercial priorities and, I would say, ensure we connected those priorities, but also how we operate it in the field with the sales force where I've also driven some changes around compensation incentive, the way we work together, back structure and so forth. So some of the changes were also a sign of wanting to drive through some clear changes over very short period of time. But at the same time, also, giving the opportunity to recruit a strong marketeer from the outside, which I am in the process of finding. So we can mix, you could say, all the qualities we have in Novo Nordisk with also somebody from the outside who can augment our thinking around marketing as well. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Good. Jesper, on tax. Jesper Brandgaard - Novo Nordisk A/S: Yeah. First of all, I'd just like to highlight that our Annual Report will be available next week on the 8th of February. So there you'd be able to find a lot of detailed information on our taxes. But to simplify on the impact of the settlement or taxes including a change in our trading setup with U.S., the net effect of that is approximately 1 percentage point on our tax structure. So kind of the underlying tax is very close to the corporate tax level in Denmark of around 22%. And you could say that 22% is, of course, a key element in our overall tax rate, as approximately 50% of our overall taxes are happening here in Denmark as we have substantial operations here and are also substantial intellectual property here. So that correlates well. Lars Fruergaard Jørgensen - Novo Nordisk A/S: One last quick question, please.

Certainly. The final question is from Carsten Madsen from SEB. Please go ahead. Carsten Lønborg Madsen - SEB Enskilda (Denmark): Thank you. So one question, what should I choose? And let me ask Mads on the semaglutide on the safety profile, the once-daily version. Now that you saw some retinopathy in SUSTAIN 6, which I think you also explained by the rapid blood glucose lowering effect, do you see something similar here? Also, on nausea, something else that you previously have seen at semaglutide? And one final question, concizumab, why don't you file it or try to get a breakthrough therapy designation here? Mads Krogsgaard Thomsen - Novo Nordisk A/S: So on the first one, no, we have not seen anything on the once-daily application. The only thing, as I said, is that the GI side effects are simply a question of how fast you titrate and how aggressive you titrate; and that's where that's once-daily or once-weekly. Once you're in steady state, there's no difference in tolerability between once-weekly and once-daily whatsoever. So on sema. On concizumab, we can indeed file for fast-track application and all the usual stuff, but we would rather do it after phase 2 next year than this year. Lars Fruergaard Jørgensen - Novo Nordisk A/S: Good. Thank you. This concludes our conference call. Thank you for participating, and feel free to contact Investor Relations to ask any follow-up questions you might have. We'll be on the road to coming days, and looking forward to meet with many of you. Thank you, and have a good day.

Thank you, sir. Ladies and gentlemen, just to advise, this is now the conclusion of today's call. Thank you for your participation. You may now disconnect.