Lars Fruergaard Jørgensen - Novo Nordisk A/S Mads Krogsgaard Thomsen - Novo Nordisk A/S Jesper Brandgaard - Novo Nordisk A/S Jakob Riis - Novo Nordisk A/S.

Richard Vosser - JPMorgan Securities Plc Michael Leuchten - UBS Tim M. Race - Deutsche Bank AG Peter Verdult - Citigroup Global Markets Ltd. Johannes M. L. Van Der Tuin - Credit Suisse Securities (USA) LLC Michael Novod - Nordea Bank AB (Denmark) Martin Parkhøi - Danske Bank A/S Simon Baker - Exane Ltd. Carsten Lønborg Madsen - SEB Enskilda (Denmark).

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..

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 region China contributed with double-digit growth and accounted for a combined 37% share of growth measured in local currencies.

Sales growth was realized within both diabetes care and biopharmaceuticals, with the largest contributions coming from Tresiba, Victoza and Saxenda. In November 2016, the headline results from the cardiovascular outcomes trial DEVOTE were announced.

The data confirmed the cardiovascular safety of Tresiba and showed a significant adoption in severe hypoglycemia for patients treated with Tresiba compared to insulin glargine U100. Also, in November, we received the approval of Xultophy in U.S., which will be launched in the first half of 2017.

In the phase 3b study DUAL VII, Xultophy demonstrated a superior risk reduction of hypoglycemic events and weight loss compared to basal-bolus treatment.

Lastly, fast-acting insulin aspart have been approved in EU and Canada, and we have now completed the end-of-review meeting with the FDA, and a Class II re-submission is expected within the next three months. Turning to financials.

Operating profit for 2016 grew by 6% in local currencies, when adjusting for the partial divestment of NNIT and income related to the out-licensing of assets for inflammatory disorders both in 2015. In 2016, the diluted earnings per share, adjusted for the non-recurring items in 2015, increased by 19% to DKK 14.96.

The Board of Directors will propose a final dividend of DKK 4.60 per share for 2016. The expected total dividend for 2016 will hence be DKK 7.60 per share, of which DKK 3 per share was paid out as interim dividend in August 2016. The Board of Directors will additionally propose a new 12-month share repurchase program of up to DKK 16 billion.

The total program may be reduced in size if significant product in-licensing or bolt-on acquisition opportunities arises during 2017. With regards to the financial outlook for 2017, sales growth in Danish kroner is expected to be 1% to 6%, and operating profit growth in Danish kroner is expected to be zero to 5%.

Both sales growth and operating profit growth are positively impacted by currencies of 2 percentage points. Please turn to slide number 5. In 2016, the overall sales growth of 6% in local currencies was derived from a balanced growth across the regions. The U.S.

contributed to be the largest growth driver and accounted for 37% of the growth in local currencies. Within international operations, the largest growth drivers were region China, region Latin America and region AAMEO, which accounted for 19%, 18% and 14% share of total growth in local currencies, respectively. The sales in the U.S.

increased by 4% in local currencies compared to 2015. The growth was driven by Victoza, for which sales increased by 12% in local currencies aided by a high underlying growth of the total GLP-1 markets. Overall, the sales growth in U.S.

was positively impacted by approximately 1 percentage point from a non-recurring rebate adjustment in the Medicaid patient segment in 2016. Within Europe, sales increased by 2% in local currencies, but declined by 1% in Danish kroner. The growth was driven by the most recently launched products, Tresiba, Xultophy and NovoEight.

However, growth was partly offset by a 4% decrease in modern insulin sales in local currencies mainly due to increased competition in the basal insulin segment and a continued market decline for the premix segment. Sales in region AAMEO, comprising Africa, Asia, Middle East and Oceania, increased by 7% in local currencies and 3% in Danish kroner.

The sales growth is driven by continued modern and next-generation insulin penetration supported by a 26% sales growth of the Victoza in local currencies. In 2016, sales in region China grew by 12% in local currencies and by 6% in Danish kroner.

The sales growth is driven by modern insulins aided by stabilization of market shares and a strong underlying insulin market growth. The sales in region Japan and Korea grew by 4% in local currencies and 15% in Danish kroner compared to 2015.

The sales growth is driven by the strong uptake of Tresiba in Japan, where the value market share in the basal segment is 39%. The growth is, however, partly offset by a decline in overall insulin market volume in Japan. The sales growth is further driven by Victoza, reflecting a continued expansion of the GLP-1 market in Japan.

Sales in region Latin America increased by 28% in local currencies and decreased by 3% in Danish kroner, which reflects currency devaluation and inflationary effects. Increased sales growth in local currencies is driven by the rollout of and uptake of Tresiba and continued strong Victoza performance across the region. Please turn to slide 6.

From a product perspective, sales growth was realized both within diabetes care and biopharmaceuticals, with the majority of growth coming from new-generation insulin, Victoza and Saxenda. Sales of Tresiba, the once-daily new-generation insulin, reached DKK 4 billion, compared to DKK 1.2 billion in 2015.

Sales of modern insulin declined by 3% in local currencies and by 5% in Danish kroner. Region China, region Latin America and region AAMEO contributed positively to modern insulin sales growth, but were more than offset by declining sales in the U.S. and region Europe. The rollout of Saxenda is progressing according to plan.

And in 2016, Saxenda was the third largest growth driver and accounted for 19% of total sales growth in local currencies. Growth within biopharmaceuticals was driven by Norditropin, which grew 14% in local currencies and accounted for 18% of total sales growth. The sales growth is primarily derived from the U.S.

and is impacted by a significant positive non-recurring adjustment to rebates in the Medicaid patient segment, which relates to the period 2010 to 2015. In 2016, hemophilia sales was unchanged in local currencies driven by lower sales of NovoSeven in the U.S., offset by rollout of NovoEight in region Europe, region Japan and Korea and the U.S.

Please turn to slide 7. Tresiba is now launched in 52 countries and demand uptake is encouraging in countries with the same level of reimbursement as insulin glargine U100. In the Netherlands and in Denmark, where full reimbursement recently has been obtained, the value market share of Tresiba is now 17% and 21%, respectively.

Xultophy is now launched in nine countries. And following the recent U.S. approval, we expect to launch Xultophy in U.S. during the first half of 2017. Please turn to slide 8. By the end of 2016, Tresiba reached a total script share of 5.5% in the U.S. basal insulin segment. Tresiba has now reached 15% share of new-to-brand prescriptions.

And the combined new-to-brand prescriptions market share of our basal products has increased to 38%. This positive development reflects a strong recent uptake of both Levemir and Tresiba following the changes to CVS formulary coverage in the basal insulin segment.

In 2017, Tresiba will have wide formulary coverage with around 75% access for patients in commercial channels and Medicare Part D combined. Please turn to slide 9. In 2016, total sales of Victoza increased by 12% in local currencies driven by the U.S., which accounted for 74% of total Victoza sales growth.

In the U.S., Victoza sales increased by 12% in local currencies, which projects an underlying GLP-1 volume growth of more than 30%. The GLP-1 segment accounts for 11% of the total diabetes market value in the U.S. Despite intensified competition in the GLP-1 segment, Victoza continues to grow its sales volume.

And with a market share of 50%, Victoza remains the market leader within the U.S. GLP-1 segment. With this, I'll hand over to Mads for an update on R&D..

Thank you, Lars. Please turn to slide 10. In November, the headline results from the blinded cardiovascular outcomes trial DEVOTE were announced. In the trial, more than 7,500 people with type 2 diabetes at high risk of major adverse cardiovascular events were treated for a period of approximately two years.

The data confirmed the cardiovascular safety of Tresiba by demonstrating a non-significant 9% lower occurrence of MACE compared to treatment insulin glargine U100.

In the trial, Tresiba also demonstrated a significant 40% and 53% overall reduction of total and nocturnal episodes of adjudicated severe hypoglycemia respectively compared to insulin glargine U100. Based on the data from DEVOTE, we plan to submit a supplemental NDA for Tresiba and Ryzodeg during the first half of this year. Please turn to slide 11.

In December last year, we released the results of the DUAL VII phase 3b trial comparing Xultophy to basal-bolus insulin therapy and type 2 diabetes. The trial demonstrated that once-daily injection of Xultophy was as efficacious in lowering HbA1c as the four-times daily regimen consisting of insulin glargine U100 plus insulin aspart.

At the end of the trial, people treated with Xultophy required 40 units compared to a total of 85 units of insulin for people treated with a basal-bolus regimen. People treated with Xultophy showed an 89% reduction in the rate of severe or blood glucose confirmed symptomatic hypoglycaemic episodes compared to basal-bolus therapy.

Furthermore, people treated with Xultophy experienced a weight loss of 0.9 kilograms compared with a weight gain of 2.6 kilograms in the basal-bolus arm. The above results were also accompanied by significant improvements in quality of life related patient-reported outcomes. Please turn to slide 12.

In January, the European Commission granted marketing authorization for Fiasp for the treatment of diabetes, including pump use. Fiasp provides improved mealtime and overall glucose control with increased convenience and a safety profile similar to that of NovoRapid. Fiasp will be launched in the first European countries in the first half of 2017.

In Canada, Fiasp was approved by Health Canada with a label broadly similar to the European SPC. In October last year, we received a complete response data from the FDA regarding the approval of fast-acting insulin aspart. We've now evaluated the content of the complete response data and completed the end-of-review conference with the FDA.

Based on this, we expect to submit a New Drug Application and a Class II re-submission within the next three months. Please turn to slide 13. In November of last year, we received the approval of Xultophy 100/3.6 in the U.S.

The product is indicated as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes, inadequately controlled on basal insulin or liraglutide. Launch in the United States will take place during the first half of this year.

In November, we officially submitted a type 2 variation application to the EMA for inclusion of hypoglycemia data from two SWITCH trials in the label for Tresiba. In December, we completed the EU-TREAT study, which is a European non-interventional study with Tresiba.

In this real-world testing, the study confirmed that switching people to Tresiba from other basal insulins improved glycaemic control, reduces the risk of severe and non-severe hypoglycemia and also reduces total insulin doses. We plan to present a detailed dataset from EU-TREAT at scientific meetings during this year.

In December, we submitted a New Drug Application to the FDA and a Marketing Authorization Application to the EMA for approval of semaglutide. The submissions are based on the results from the sustained program, which included more than 8,000 adults with type 2 diabetes.

In November, Canada updated its diabetes treatment guidelines and the American Diabetes Association has also released its Standards of Medical Care in Diabetes 2017, both acknowledging the significant CV data from the LEADER trial.

The Canadian guideline indicates that physicians should consider Victoza directly after metformin in patients with CV problems. In the PIONEER phase 3 program for oral semaglutide, all 10 clinical trials now initiated. Many of which are expected to conclude next year. Within obesity, the phase 1 trial for the Novo FGF21 analogue has been initiated.

The trial will investigate safety, tolerability and pharmacokinetics of the product in approximately 60 healthy adults.

The once-weekly FGF21 analogue represents the seventh molecule to enter the clinical obesity pipeline within Novo Nordisk, building further on the company's leadership position and our aspiration to provide a full and diverse portfolio of therapeutic offerings for weight management in the future.

During the fourth quarter, the phase 2 trial of semaglutide in patients with NASH has been initiated. The trial will investigate the effect of subcutaneous semaglutide for 72 weeks on the histological resolution of NASH. The trial will include 372 patients and is planned to be concluded in 2019.

We have also completed the multiple-dose phase 1b trial for concizumab in hemophilia. And even though the trial was not powered to demonstrate efficacy, a trend in relation to clinically relevant reduction of bleeding frequency was observed. Based on the results from the phase 1b trial, a phase 2 program will be initiated during this year.

Please turn to next slide. Within the next six months, we plan to submit a supplemental NDA in the U.S. and a variation application in the EU for Tresiba to include the data from the DEVOTE study in the label. We also expect to obtain regulatory feedback on the SWITCH study based label update on Tresiba in the U.S.

Semaglutide has been submitted to regulatory authorities in both EU and the U.S., and within the next three months we plan to submit in Japan as well. For N9-GP, the European CHMP opinion is expected within the next three months and U.S. regulatory feedback is expected within the next six months.

With this, over to Jesper for an update on the financials..

Thank you, Mads. Please turn to slide 15. In 2016, sales increased by 6% in local currencies and by 4% measured in Danish kroner to DKK 111.8 billion. Cost of goods sold increased by 6%, resulting in a reported gross margin of 84.6%, compared to 85.0% in 2015.

The slight decline in gross margin reflects an unfavorable product mix primarily driven by lower NovoSeven sales and a 20-basis-point negative impact from currencies. Sales and distribution cost increased by 3% in local currencies and were unchanged in Danish kroner, which reflects a controlled and focused level of promotional activities in the U.S.

The modest increase in cost in local currencies is driven by sales force investments in selected countries in International Operations. Research and development cost increased by 7% to DKK 14.6 billion.

The increase in cost reflects higher research cost for diabetes and obesity projects, as well as impairment charges for intangible assets related to a number of early-stage projects.

Development cost increased due to the initiation of the PIONEER program for oral semaglutide, while all 10 planned trials now have been initiated and the fast-acting insulin aspart phase 3b development program.

The increase in development cost was partly countered by lower cost related to the completion of the cardiovascular outcomes trial, DEVOTE, the SWITCH trials for Tresiba and the phase 3a program SUSTAIN for the once-weekly GLP-1 analogue semaglutide. Administration cost increased by 5% in local currencies and by 3% measured in Danish kroner.

The increase is mainly related to expansions within International Operations. Other operating income was around DKK 700 million, compared to DKK 3.5 billion in 2015.

The lower level of income reflects the non-recurring income from the partial divestment of NNIT, as well as non-recurring income related to the out-licensing of assets for inflammatory disorders, both occurring in 2015. Operating profit was unchanged in local currencies and decreased by 2% in Danish kroner to DKK 48.4 billion.

Adjusted for the non-recurring income in 2015, the growth in operating profit in 2016 was 6.2% measured in local currencies. Net financial items showed a loss of around DKK 600 million, compared with a loss of approximately DKK 6 billion in 2015. The net financials in 2016 reflect the loss on foreign exchange hedging involving especially the U.S.

dollar, Japanese yen and Chinese yuan versus the Danish kroner. The effective tax rate for 2016 was 20.7% which has been positively impacted by the settlement of a number of tax cases related to prior years and the reduction of the corporate income tax rate in Denmark.

Net profit increased 9% and by 17% when adjusted for the partial divestment of NNIT and the out-licensing of assets for inflammatory disorders, both in 2015. Diluted earnings per share increased to DKK 14.96 corresponding to an increase of 11% or 19% adjusted, as above, compared to 2015. Please turn to slide 16.

In line with our treasury policy, the most significant foreign exchange risk have been hedged primarily through foreign exchange forward contracts. In 2016, the overall impact from currencies on profit was negative. This reflects a loss on foreign exchange hedging involving especially the U.S.

dollar, Japanese yen and Chinese yuan, coupled with the loss on non-hedged currencies driven by the devaluation of the Argentine peso and the Venezuelan bolivar. Please turn to slide 17.

For 2017, sales growth in local currencies is expected to be within a 5 percentage point range, spanning from a decline of 1% to a growth of 4% measured in local currencies. This reflects expectations for a continued robust performance for Victoza and Tresiba, as well as a positive contribution from Saxenda and Xultophy.

These sales drivers are expected to be countered by an impact from lower realized prices in the U.S., especially in the basal insulin and growth hormone segments. Reported sales growth is expected to be around 2 percentage point higher than local currency guidance.

For 2017, operating profit growth is also expected to be within a 5 percentage point range, spanning from a decline of 2% to a growth of 3% measured in local currencies. The expectations for operating profit growth primarily reflects the modest outlook for sales growth.

The outlook also reflects a modest increase in both sales and distribution cost to support continued launch activities, and in research and development cost to support the progress of the pipeline. Reported operating profit growth is expected to be around 2 percentage point higher than the local currency guidance.

For 2017, we expect financial items to be a loss of around DKK 2.4 billion. The current expectation reflect losses associated with foreign exchange hedging contracts mainly related to the U.S. dollar, Japanese yen and Chinese yuan versus the Danish kroner.

The effective tax rate for 2017 is expected to be in the range of 21% to 23%, which is broadly in line with the statutory corporate tax levels in Denmark of 22%. Capital expenditure is expected to increase to around DKK 10 billion in 2017.

The increase is primarily driven by the construction of an active pharmaceutical ingredient production facility in North Carolina, U.S. The ongoing investment is estimated to be around US$2 billion and is expected to be completed in 2020.

The capital expenditure is further driven by an expansion of diabetes billing capacity and an expansion of the manufacturing capacity for biopharmaceutical products. Both of these investments are located in Denmark. Depreciation, amortization and impairment losses are expected to be around DKK 3 billion.

For 2017, we expect the free cash flow to be in the range of DKK 29 billion to DKK 33 billion. The lower level compared with the DKK 40 billion realized in 2016 reflects the increased capital expenditures in 2017, and also a low level of tax payment in 2016 due to settlement of tax cases related to prior years. Please turn to slide 19.

At the annual general meeting in March, 2017, the Board of Directors will propose a final dividend of DKK 4.60 per share for 2016. The expected total dividend for 2016 will hence be DKK 7.60 per share, of which DKK 3 per share was paid as an interim dividend in August 2016.

This, in total, corresponds to a payout ratio of 50.2% and an expected increase in total dividend of 19% compared to 2015. The Board of Directors additionally intend to initiate to initiate a new 12-month share repurchase program of up to DKK 16 billion.

The total program may be reduced in size if significant product in-licensing or bolt-on acquisition opportunities arise during 2017.

As the expected total cash return, the total cash return to shareholders in 2017 exceeds the expected free cash flow of DKK 29 billion to DKK 33 billion, we expect to return an appropriately additional DKK 4 billion from our net cash position in 2017. This concludes the financial update. Now, back to you, Lars..

Thank you, Jesper. Please turn to slide 19. 2016 was a challenging year for Novo Nordisk. While we met our financial guidance for the year, strong market headwinds in the U.S. meant that we had to revise our long-term financial targets.

However, 2016 was also a year in which we announced very encouraging clinical data for our key products, providing a solid foundation for future growth. We are now ready for the Q&A, where I kindly ask all participants to restrain themselves to two questions. Operator, we're now ready to take the first questions..

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..

Thank you, Richard. So I'll hand over Jesper to give a better flavor for the guidance, and then Mads will touch upon concizumab..

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 label, and from there on expect to have some impact on our sales. If any change in momentum occur earlier, that would be an upside for Victoza.

In terms of Tresiba, we have assumed that for Tresiba we will see a gradual increase in our market share for Tresiba, continuing the current trend of gaining approximately 5 percentage point in market share year-on-year. So that's really – it would be a positive deviation also linked to the improved market access we see currently for Tresiba.

That would then provide an upside to our scenario. On the downside scenario, I think it is in these days pretty challenging to speculate on exactly what will happen to the U.S. environment as regards government initiatives. However, I think there is an uncertain element.

But I don't know whether, Jakob, you want to add a few comments to the flavor of the political risk in the U.S.?.

Yeah. I think it's the take from of those representatives meeting Trump and his administration was it was a positive meeting. So I know your question was about what could drive the downside.

I would say, I think some of the things we could have seen driving a downside in terms of central negotiation seems to be not at the center of the administration's plans. So I would say, I think we're from that end in a fairly good situation. But as Jesper said, it's just a little unpredictable.

But I think, all other things equal, still unpredictable, but more in a positive direction in terms of the Trump administration acknowledging pharma being an important sector, also a sector that drives jobs and represents innovation in the U.S.

So I think it's more of a general uncertainty that I think we can point to something specific from the administration that would drive a downside..

Thank you.

And then, Mads, to concizumab phase 2, phase 3?.

Yeah. So, Richard, the one that I'm aware of is obviously ACE910. And do bear in mind that the way that ACE910 at least are supposed to work is to mimic the action of Factor VIII towards Factor IXa and Factor X found on the activated platelet. So in a way, they're trying to mimic physiology.

That being said, we have seen some things that apparently would not – would have been seen with Factor VIII therapy, but that's another story. Concizumab works by disinhibiting, you can say, the tissue factor pathway through being a monoclonal antibody that binds to and inhibits the tissue factor pathway inhibitor.

And what that means is, it's a new mechanism. And when it's a new mechanism, I think it is prudent and also mandated by agencies to conduct a phase 2 proof-of-concept trial also for finding the right doses to go to phase 3.

With that being said, Richard, the intention is to start ASAP this year and have proof-of-concept and decision to move into pivotal trials, hopefully, already before the end of next year..

Thank you, Mads..

Thanks very much..

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..

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 a more uncertain environment.

And in that environment, and just starting the year, we felt it's prudent to move from what we have traditionally guided, a 4 percentage point range to a 5 percentage point range. We see the momentum in the CVS SWITCH now starting initially quite positive. So we're not trying to portrait only negative picture.

We could also see a positive spin out where we see a positive development in the U.S. So that's where we are.

Do you have some additional comments here, Jesper?.

Yeah. Just maybe to make it apparent that our best guess, if we do a point estimate when we provide a range, is the middle of the range. And there should be an relative equal likelihood of us ending up in the high-end of the range as in the low-end of the range; and there's no difference this time around.

But, of course, it is balancing a lot of moving parts. And, of course, there is also a lot of moving parts in International Operations. Historically, when you look at international Operations, as we currently define it in a five-year horizon, it has actually been a pretty stable growth in that part of the business.

And, hence, I think the key uncertainty relates to North America, but it would be to oversimplify to say that all risk in Novo Nordisk relates to North America..

Thank you..

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..

Thank you, Tim. So while Mads prepares for the sema – safety question, Jakob, your perspective on the U.S. business and preparing to certify..

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 therapies in type 2 diabetes treatment.

That will take a little time. So we will launch. We will put significant resources behind it, but we will do it here in the first half when we're out of the immediate priorities of ensuring that we have a solid momentum behind Tresiba.

And we will do it in a way where we focus on those prescribers that we know from our experience also from Europe will have a high likelihood of wanting to prescribe Xultophy; and in the areas geographically within prescribers that have a high concentration of certain players where we have paved the way with market access.

So where we are going to launch it, we're going to launch it with significant effort. But if you look broadly at the market, we will continue to have an overwhelming priority of resources behind Victoza and Tresiba.

And then, I expect over the coming years we'll continue that momentum and we may actually, in the backside of semaglutide, return to Xultophy as a major priority for the company when it's more broadly established, it's clinically accepted and we can promote it more broadly in the market.

So don't take it as a sign of the medium-term importance of Xultophy, more of tactical short-term approach to optimize our ability to deliver on the 2017 plan..

Thank you, Jakob.

Mads, on sema?.

Yes. A quick background. As we're all aware or as I can inform you, the background literature on GLP-1 and retinopathy would, if anything, indicate something that's towards protection rather than aggravation. And if we look into the SUSTAIN 1 to SUSTAIN 5 trials, there was absolutely no difference in the occurrence of retinopathy.

What was seen in SUSTAIN 6 was that in the study that was not designed and also look at retinopathy. Nonetheless, there was a over representation of people who had a kind of complication to their retinopathy, at least transiently.

And when we then make the analogy to the insulin situation, as you also allude to, where we know that precipitous and profound drops in glucose that happened in very brief periods of time such as seen in the DCCT Trial can give a transient aggravation of pre-existing retinopathy, we went on to do a mediator analysis where the mediator was assumed to be precipitous fall in glucose from the high baseline A1c.

And when that mediator is analyzed, then there is no longer any effect whatsoever also in SUSTAIN 6. So that is our approach. This is basically a consequence of people dropping very, very fast.

Can we prove that? We can prove it or show it statistically, but we may need to discuss with agencies whether like insulin glargine and semaglutide, they actually post-approval did because of the theory underlying glargine binding to the IGF-1 receptor that could be detrimental to the retina of the eye.

They did a post-approval study and showed absolutely no detrimental effect of glargine in the eyes. A similar situation could prevail that we did a post-approval activity, and that is something we are highly willing to discuss with agencies. We do not see any risk with semaglutide other than it's a highly efficacious product..

Thank you, Mads. That's very encouraging to know. Let's go to the next question..

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..

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?.

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..

Thank you, Jesper.

Next question, please?.

Our next question is from Johannes Tuin from Credit Suisse. Please go ahead..

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..

Thank you very much. Jakob, the impact of Sanofi's tactics..

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..

Thank you, Jakob. Mads, Fiasp, Lilly closing their partnership for the second time with Adocia.

What's your perspective there?.

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 to what should be in the Class II re-submission, and that is to the extent that we can resubmit in the next three months. And in terms of the flavor, as you call it, of what was the subject matters being discussed.

We are now totally in agreement as regards the assay for the fast-acting aspart assessment. And the new data that are going in there are available and are being put into the revised dossier such that we hopefully can have an approval in the second half of this year.

In terms of Lilly, who, as you correctly say, now twice entered into and subsequently abandoned the BioChaperone approach from the Adocia company in France, I think it's fair to say that Lilly has not abandoned a super fast-acting plan to insulin approach because they have an internal formulation, or some kind of internal project, I'm not quite sure what it is, but our friends at Lilly are apparently proceeding with that one.

So it tells me that they're still interested in the even better more physiological mealtime insulin for type 1 diabetes, type 2 diabetes and I hope, for them, also for pump usage. So I think they are still in the game.

But when they cite economic consequences, we do know that when you organically discover your own molecular formulation, then there's no milestone payments, there's no royalties and that's one element of finances one could argue..

Thank you, Mads. Thank you, Jakob. Next question, please..

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..

Thank you, Michael. Jakob, uptake of value-based contracts and..

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 of basal insulin GLP-1 in particular, there's an expectation that's going to fall through to some improved rebate seen from a payer point of view.

But as we look in the medium-term, I think we're going to see that the payments for products are going to a much larger extent reflect the result delivered for patients. It means that we get a vested interest in also further investing in digital health in ways to help the patients achieve glycaemic targets, get support in the everyday diabetes care.

So it's going to be a factor, but I think it's going to be a couple of years before we see it as a dynamic that plays in, but we need to make the contracts work very fast right now. So I hope that answers the question of when we see the dynamic coming..

I can supplement that over the past few months I've met with a number of health ministers in Europe, and there is a huge interest in value-based healthcare because there's a growing acknowledgement that there's probably a 20% to 30% wastage in the whole healthcare sector, not linked to drugs per se, but in whole system.

So there's a keen interest in developing metrics to really asses what are good outcomes. I think that's the same challenge Jakob talked to that it takes some time before all the stakeholders become comfortable about what is the right way to measure outcomes.

But it's clearly something that has a higher interest, and we have no doubt that it will come into fruition. And I think the portfolio we have lends itself very well to compete in such environment because we have more positive outcomes than the average portfolio out there. Jesper, a comment on CapEx..

Our expectations, as you rightly allude to for 2017 is a capital expenditure of about DKK 10 billion, and the increase is primarily related to the ongoing investments in the U.S. I would anticipate that we would be operating at approximate that level for the next two years.

So, basically, 2017 to around 2019 at a investment to sales level of 8% to 9% or so. I would assume, everything else being equal, that then it will gradually decline by 2020 to the tune of 1 percentage point to 2 percentage point, but that's as clear as I can get at this point in time.

But you see the DKK 10 billion 2017 as being a part of the peak that will last for probably one to two more years..

Sure. Thank you, Jesper.

Next question please?.

Our next question is from Martin Parkhøi from Danske Bank. Please go ahead..

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?.

Jakob, on the U.S. uptake..

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 are continuing to promote Tresiba.

And I think as time goes by, the clinical experience – expense, we'll get a chance to get more and more of our data out there. So I think, also, you could say that the average prescriber will have a more and more positive view in Tresiba.

So when there's an opportunity to prescribe, because it's covered, you could say as time goes by that will play in our favor. But you're likely right that one of the reasons we should be cautious about the first interpretation is that there was a very short period of time between Basaglar availability and the actual occurrence of the switches.

But I mean, it's an early read. But as I said, I remain very, very optimistic about the future, particularly because we still have great data to come and to put in the field, all SWITCH data and data on DEVOTE data. So that's why I'm optimistic, but not only because we saw the good initial data..

Thank you, Jakob. Mads, on sema..

Yeah. So, Martin, obviously, having a compound with a human half-life of one week and which doesn't peak more until after two days post-injection, you can argue that the logical approach is a once-weekly application. That's also what we've applied in the SUSTAIN program. Nonetheless, we are curious scientists, so we wanted to investigate two things.

One, whether you by this more subtle titration using a once-daily dose are able to get to higher doses and higher levels of efficacy. And the other theory was moving one phase to once-weekly due to the smaller fluctuations from peak to trough you'd be able to achieve higher levels of efficacy.

And this is being studied both in the trial that you're hinting at where we see twice the weight loss on sema versus lie of 1.8, but also in clin-pharm studies that we've conducted and not really reported because they are phase 1-ish, not reported yet at least, where we basically see that titration is important.

You can titrate once-weekly in a way where you achieve basically exactly the same efficacy as you would expect from once-daily application. This, on the one hand, bodes well for once-daily, all sema, but also it bodes well for a once-weekly approach whether we are looking at diabetes or for that matter obesity.

Because we do know from a convenience perspective, the patients tend to prefer once-weekly application of injectables as compared to once-daily if they are safe, tolerable and efficacious.

And all the data that I have amalgamated today tell me that once-weekly application of sema is a good way to go by the injection route as long as you titrate in the adequate manner..

Thank you, Mads. Operator, we have time for two last questions, please..

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..

Jakob, management changes?.

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..

Good. Jesper, on tax..

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..

One last quick question, please..

Certainly. The final question is from Carsten Madsen from SEB. Please go ahead..

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?.

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..

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..