諾和諾德 (NVO) 2002 Q4 法說會逐字稿

Good morning and afternoon, ladies and gentlemen. Welcome to today's Novo-Nordisk conference call. It is now my pleasure to hand over to Mr. Lars Rebien Sørensen, CEO of Novo-Nordisk. Please go ahead.

Lars Rebien Sørensen: Thank you very much. Good morning and good afternoon. Welcome. This is the Novo-Nordisk conference call regarding our 2002 results, which were released earlier today. I'm Lars Rebien Sørensen, the CEO of Novo-Nordisk. With me, I have our Chief Financial Officer, Mr. Jesper Brandgaard, and Mads Krogsgaard Thomsen, our Chief Science Officer. Present are also our Investor Relations officers, Peter Haahr, Palle Holm Olesen, Christian Kanstrup and Rasmus Jorgensen who joins as online from New York.

Today's earnings release is available on our home page www.novonordisk.com, along with the slides that we'll be using for this conference call. The conference is scheduled to last approximately one hour, and as usual we'll start with the presentation as outlined on slide No 1. The Q&A session will begin in about 25 minutes. Please turn to slide No 2.

As always, I need to remind 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 the risk factors, please see the earnings release and the slides prepared for this presentation. Also note that this conference call will be webcasted live, and the replay will be made available on Novo-Nordisk's website after the conference call.

Slide No 3. Sales increased by 6% in 2002 in Danish krone and 11% in local currencies. The underlying growth is falling in line with our revised expectations from April last year. In the fourth quarter alone, sales increased by 4% in Danish krone and 11% in local currencies.

Adjusted for the inventory buildup in the fourth quarter of 2001, sales in the last quarter of 2002 increased by more than 6% in Danish krone and more than 13% in local currencies.

2002 was indeed a year of challenges. I'm pleased to say that we met our revised target for operating profit set in April last year. Operating profit grew by 7% for the full year 2002. This was accomplished despite continued negative development in invoicing currencies. Measured in local currencies, we actually met our long-term financial target of growing operating profit by 15%.

Operating profit in the fourth quarter increased by 8%, significantly impacted by the continued negative development on our main currencies.

Over the past year, we have sharpened our focus and skills so that the company is now in better shape to face the challenges ahead. For 2003, this means that we again expect sales in local currencies to grow by double digits. However, given the significantly lower present level of Novo-Nordisk's major currencies for sales growth, measured in Danish krone, will be negatively impacted by approximately 8 percentage points. Measured in Danish krone, sales are expected to increase by more than 5%.

For 2003 growth, operating profit, measured in local currencies, is expected to be close to 20%. Measured in Danish krone, operating profits will grow to 5%, as reported, if currency exchange rates remain at current levels throughout the full year of 2003. Hence, the expected negative currency impact on operating profit growth is around 15% at current exchange rate levels.

Net profit in 2003 is expected to grow to 10%. Apart from growth in operating profit, this reflects an expected significant income from hedging of the exposure of major currencies in 2003, and a lower expected tax rate compared to 2002.

Slide No. 4.

Looking at 2002 sales, Diabetes Care was up 6%, while Haemostasis Management increased 17%. Growth Hormone sales were almost flat, as [foreign] sales took over in the United States and Europe was counterbalanced by re-sales in Japan. Our HRT business was negatively impacted by parallel imports, decreasing market growth in Europe, following the women’s health initiative study. Outside Europe, sales of HRT increased in all regions. Measured in local currencies, the overall sales growth was 11%, both for the full year and for the fourth quarter of 2002.

Please turn to slide No. 5, which illustrates the significant currency impact by therapy areas. As you can see, and Diabetes Care sales increased 11% in 2002, whereas Haemostasis Management showed a growth of 22% when measured in local currencies. For the fourth quarter of 2002, the corresponding growth rates were 12% in 25% respectively, highlighting the continued negative development in our main invoicing currencies in the second half of 2002.

Please turn to slide No.6 for an overview of sales by region. Growth in Europe is still impacted by the week first quarter of the year. North America continues to grow at double digits, while sales in Japan continued to decrease, primarily due to the depreciation in the Japanese yen, but also a challenging market development and the government-mandated reduction in reimbursement prices in April 2002.

We continue to see strong growth in international operations, which was positively affected by acquisition of [inaudible] in Brazil, and negatively impacted by the depreciating currencies. Adjusted for the positive impact on the acquisition and the negative impact from currencies, underlying growth in the region was about 20%.

Slide No. 7. Please note that all regions except Europe have been significantly negatively impacted by currency developments during 2002, especially in the fourth quarter of 2002. Sales in North America increased with 25%, and sales in international operations grew 44%, measured in local currencies.

Diabetes Care on slide 8 increased by 5% as reported, and 12% in local currencies in the fourth quarter of 2002. In terms of regions, the main growth drivers were North America and international operations. In North America, our short-acting insulin analogue [Novolog] is the key driver behind our increasing market share. [Novolog] has increased its market share of the short-acting segment in the US from 4% at the beginning of 2002 to 10% toward the end of 2002. The sales within international operations were positively impacted by the acquisition of [inaudible] in Brazil. But even adjusted for this acquisition, our Diabetes Care franchise grew 15% in this region in 2002. Measured in local currencies, this corresponded to growth exceeding 20%.

Growth 3% in Europe was negatively impacted by an all-sales stock movement between the fourth quarter of 2001 and the first quarter of 2002, increased parallel infiltration and the divestiture [Hermetical]. However, our short-acting analogue [Novolog] continued to gain market share in Europe, now accounting for 17% of the short-acting segment in Europe, up from 13% in the beginning of 2002.

In 2002, Novo-Nordisk's market position in Europe was strengthened by the launch Novo Mix 30 in 13 countries and the launch of [Expan] in 15 countries. Together with [Novobracket], these products have been key in supporting the market share development in Europe throughout 2002.

Turning to slide No. 9, which provides you with an overview of the Insulin market. This slide is based on moving annual total market figures for the fourth quarter ending September 2002. We see solid volume growth in all regions, and worldwide growth of 7% continues to be above our long-term guidance of 5%. It's nice to see that Novo-Nordisk is growing above the world market growth. Moreover, we are pleased to see the US growth continues to increase. Overall, Novo-Nordisk has realized a slight increase in world market share. So, the declining share in Japan was more than counter balanced by increasing market share in the United States.

Turn to slide No. 10, which is focusing on Homeostasis Management. Novo Seven's sales increased 17% in the fourth quarter. In local currencies, the increase was 25%. Sales growth in the fourth quarter was primarily realized in North America and international operations. However, all regions contributed to the growth. Several factors contributed to the sales growth of Novo Seven in 2002. The largest segment for Novo seven is the use of the product for congenital breathing disorders, and this segment is still delivering a major part of the growth in sales. However, the increased awareness of the benefits of using Novo Seven in connection with acquired hemophilia has led to increased use for this patient group as well. This has contributed to the growth additionally.

Finally, sales have been positively affected by increased investigation by use of Novo Seven, which is estimated to account for around 10% of total Novo Seven sales.

So much about sales performance in 2002. Let's go to Mads Krogsgaard Thomsen, our Chief Science Officer, who will now provide you with an update on our R&D activities.

Thank you, Lars. Please turn to slide No. 11 for an update on news from our pipeline. As previously announced, [indiscernible] was in fact a Q4 finding last year in the US, Europe than six other countries. We expect to the approval process to take between 12 and 18 months, enabling us to initiate launch sometime during next year. I'm happy to say that the more data we see on this compound, the more convinced we are that we have competitive product with a highly-predictable [indiscernible] profile.

We decided not to pursue further development of the suspended project NN622. The decision was taken after we performed a renewed benefit-risk assessment of both the recent animal and clinical findings in the project. In the fourth quarter of 2002, we completed the analysis and Phase 2 data for the insulin synthesizer balaglitizone, or NN2344. Based on the good clinical, efficacy and safety profile of balaglitizone obtained in these studies, we have decided to continue to development. Still within the area of all ant diabetics, we started phase one studies for NN2501, which is the only glucagons antagonist in clinical development for [eupatic] and glucose regulation.

Within our bio-function clinical pipeline, we are please to announce that we've initiated Phase 2 trials with a protein called ASIS. ASIS is an [enactulated] form of the component factor 7A that is undergoing a treatment study in acute Respiratory Distress Syndrome, also known as ARDS.

ARDS is a life-threatening syndrome involving the failure of multiple organs, including the lungs. With a death rate of more than 100,000 people per year in the US alone, ARDS is far more common than most people realize. Since ARDS was first described more than 25 years ago, little progress has been made in reducing the mortality associated with this syndrome. As evidence by our pre-clinical studies in baboons(ph), exposure of tissue [indiscernible] cells to plasma is of primary importance for the evolution of ARDS. Specifically, plasma factor 7A binds to tissue factor [indiscernible] cells and initiates clotting via an intrinsic coagulation pathway.

In addition, factor 7A in this disease environment initiates an inflammatory response that, if left untreated, ends up resulting in multiple organ failure and potentially death.

Blockade of the severe coagulation and inflammatory responses by use of agents in the [indiscernible] of the [indiscernible], significantly and dramatically prolongs survival of the baboons. [Indiscernible] in lungs, kidneys and other organs was essentially prevented. The present Phase 2 study is expected to be completed next year.

Still within biopharmaceuticals, we expect approval in the first half of this year of our new [geoclugal] indication, SGA, also known as [indiscernible] or [intrauterine growth stimulation], which has been filed for in the US. In this context, approximately 1.5% of all babies are born very small due to growth retardation in fetal life. Even though many of these kids catch up within the first two years of life, a residual of 10% to 15% being much shorter than average throughout childhood. Our studies have shown that growth hormone provides a new growth opportunity to children with this condition.

Finally, we are in Phase 2 trials investigating the use of growth hormone in the form of [indiscernible]simplex as an anabolic agent to improve healing of complicated factures.

Please turn to the next slide. This is an overview of our Diabetes Care pipeline, ranging from filed compounds to NN2501, which recently entered Phase 1. We believe that our Diabetes Care pipeline, encompassing four [indiscernible], three or ant diabetic agents and [indiscernible] is the boldest and most interesting diabetes pipeline in the world today.

Please turn to slide 13 for an update on our pipeline outside of diabetes. This slide gives you an overview of our biopharmaceutical development projects, ranging from Phase 2 projects to ones that have been filed for approval. Also within these [diatribuproteins], we have an exciting pipeline, which demonstrates our firm commitment to explore the potential of our R&D assets. Common to both our Diabetes Care and Biopharmaceutical pipelines, is that a very interesting news flow is to be expected in the time to come.

In this regard, please turn to slide Number 14, which provides you with the projected milestone timeline over the next year and a half for the approximately 20 projects we currently have under development. We still expect to report from the Phase 2 trials on the [GOP1] analogue and N2211 in the first half of this year. Furthermore, we expect to file NovoMix 50 and 70 insulin analogue products in major markets in the second half of this year.

From a Novo Seven perspective, 2003 is also going to be very exciting, with three proof of concept studies reporting, including the trauma trial. Data from such trials will be presented at various conferences, of which I'd like to mention next week's American Stroke Association conference, where our introcerebral hemorrhage safety data will be presented. It is these data that have helped us in getting FDA acceptance of conducting high-dose Novo Seven proof of concept ICH trials now also in the US, which is good news.

Finally, we are evaluating how to proceed in the two areas where the new data have already been presented, liver infection in [indiscernible] and [indiscernible]. And now, let me pass the word over to Jesper Brandgaard, our Chief Financial Officer for finance.

Thank you, Mads. Featuring slide 15, financial results. Operating profit increased by 7% in 2002, in line with the revised target set for the year in April. In the fourth quarter, overall operating profit increased by 8%. Total license fees and other operating income amounted to DKK994m in 2002, compared to DKK867m in 2001. In the fourth quarter of 2002, license fees and other operating profit was elevated, primarily due to the transfer of [indiscernible] and marketing rights in the US from Abbot Laboratories to [indiscernible] and a [indiscernible] patent settlement, also related to the US market.

These financials showed net income of DKK321m in 2002, compared to DKK416m in 2001. Novo-Nordisk recorded a net foreign exchange gain of DKK311m in 2002, primarily related to the hedging of the US dollar and the Japanese yen. In 2001, the net gain was DKK202m.

Net interest income was DKK68m in 2002, compared to DKK192m in 2001. The effective tax rate for 2002 was 35%, down from 36% in 2001.

Please turn to the next slide for an update on our currency exposure. As you know, and as I'm acutely aware of, changes in currency rates can have a significant impact on our results. The development in the Japanese yen has been a significant challenge for us during the last couple of years. During the past six to nine months, the development in the US dollar has posed new challenges.

If we look at [indiscernible] since our third quarter in released in October, it should noted especially that the US dollar has moved against Novo-Nordisk. In fact, the US dollar has depreciated by almost 10%. Also, the Japanese yen has moved adversely, down some 7% since the date of our last guidance.

The growth in our US business, coupled with the depreciation of the Japanese yen during the past year, has resulted in the operating profit now being more sensitive to changes to changes in the US dollar than changes in the Japanese yen. It is estimated that the effect on 2003 operating profits of a 5% appreciation of the US dollar equals DKK160m, whereas the effect on operating of a 5% appreciation of the Japanese yen would equal DKK130m. A 5% depreciation of the British pound will increase operating profit by DKK75m.

Please note that this is before hedging activities, as these are recorded as hedging gains at the net financial line, and only reflects the direct impact on operating profit by the specific currency, and not the significant leading effect a currency like the US dollar has on other currencies that will also impact Novo-Nordisk.

At the end of the year, Novo-Nordisk had hedged future expected cash flows related to the US dollar and the Japanese yen 17 and 18 months ahead respectively, whereas the British pound was hedged 8 months ahead.

Please turn to the next slide for an outlook for 2003.

Currencies will also have a significant impact on 2003, while growth in operating profit, measured in local currencies, is expected to be close to 20%. Measured in Danish krone however, operating profit will grow towards 5%, reflecting a negative currency impact of around 15 percentage points on operating profit if the currency exchange rates remain at the current level throughout the full year of 2003. The expectation for both or part of these on license fees and other operating income being realized at a level similar to the one being realized in 2002.

Novo-Nordisk has hedged the cash flow for 2003 in relation to the US dollar and the Japanese yen, the negative influence from the depreciation of those main currencies with the Danish krone on operating profit would be offset by currency hedging gains included in the financials. Net financial income is consequently expected at the level of DKK600m for the year.

For 2003, Novo-Nordisk expects the tax rate to be 34%, one percentage point lower than the tax rate realized in 2002. Net profit in 2003 is consequently expected to grow towards 10%.

We plan to invest DKK3.5b in production facilities in 2003. And depreciation and amortization for 2003 are expected to be realized at the level of DKK1.5b. Given the lower absolute capacity expenditure level, the free cash flow in 2003 is expected to achieve the free cash flow realized in 2002. As usual, the expectations given, has can be seen from the slide, are based on the assumption that currency exchange rates remain at current levels for the remaining part of 2003.

This concludes our presentation of the financial results. Lars Rebien Sørensen will now moderate the Q&A session.

Lars Rebien Sørensen: Thank you very much, Jesper. Please note, ladies and gentlemen, that this conference call is being taped, and a replay will be made available on our website. We'd like to open the teleconference for questions.

Thank you, sir. Ladies and gentlemen, as a reminder, if you'd like to ask any questions today, please press now the number 1 on your telephone keypad. Once again, ladies and gentlemen, please press the number 1 to register your questions. The first question today comes from Mr. Michael Hensey. Please go ahead, announcing your company name.

Hello. This is Michael Hensey from [indiscernible] in Denmark. Having decided to continue the development of NN2344, I assume you have identified a set of relative strengths compared to the competitors' products on the market. Could you elaborate on these strengths? Furthermore, when do you expect the projects to enter Phase 3 and [indiscernible]? And you state that the studies with NN622 turned out not to be conclusive. Can you elaborate on that?

Lars Rebien Sørensen: Thank you very much. Mads Krogsgaard Thomsen, I guess this is your ballpark. NN2344, we have indicated a number of profiles. We have indicated a timeline of Phase 3 starts, launch and any comments on the termination of NN622.

Yes. Thank you, Lars. I'll take the latter question first. In as much as we communicated already on July 22 last year, that there could be three scenarios for the findings that [indiscernible] tumors, one in a mouse and several in rats. One ended up having inconclusive evidence that it was irrelevant to man, one where we could not rule out that this was the case, and then also the possibility that we have no conclusions on the mechanism. And it is that [indiscernible] error that prevails. We have working hypotheses and so on, and so forth. But we have no conclusive evidence that can rule out whether or not we have animal specificity.

Have you identified any cases in the clinical trials which can relate to these observations?

I'm very happy to inform you that we conducted, during analyses in 2,500 men and women, and we have to say that there's not a single case of any transformed cancerous cell in the urine of these patients related to NN622 treatment. So, we are still very confident that the non-genotoxic mechanisms that we have been arguing all the time is still the case. This means that patients are not being put at any health hazards. Nonetheless, we have made the decision to terminate the project based on the fact that we still have no conclusive mechanism, and also an overall renewed benefit-risk assessment. So, that is the 622 situation.

With regard to 2344, also in the [indiscernible] zone, we have achieved a good-risk ratio in Phase 2 trials, meaning that the side effect profile is very benign and also that the efficacy seems to be very good. Now, of course, the unit selling price that you achieve for any drug of this kind are typically [indiscernible] upon in the Phase 3 trials, where you have larger numbers of patients treating for a longer duration of time. So, we will revert to you on the exact distinctive [indiscernible] at a later point in time. But we are happy to say that Phase 3 will be able to be initiated next year because we do have something in terms of COTs, debility and animal findings or studies that need to be finalized before we can move into Phase 3.

Thank you very much.

Lars Rebien Sørensen: Thank you. Next question, please.

The next question comes from Paul Lucas. Please go ahead, stating your company name, sir.

Hi. Paul Lucas, ABN Amro. Good afternoon. Lantis(ph.) continues to gain ground in the US and Germany and the UK. You have already highlighted NovoMix as your counter strategy. Can you tell us, what are the results and market dynamics you've seen so far? Do you still expect NovoMix to be competitive vis-à-vis Lantis(ph.)? That was the first question.

The second one, in the US, we have seen the pre-mixed segment being flat in terms of [new scripts] over the past two years. And [new scripts] of the [indiscernible] mix has been flat for the past year. Is there a change that the market is moving toward a combination of long- and short-acting insulin analogues? Are you making pre-mixed analogues redundant?

The third question relates to your long-term EBIT target of 15? Could you remind me, what is the precise definition of when and how it should be obtained? Is that an average of several years? Or how do you see that? And do you still consider it very appropriate and realistic to maintain that target?

Lars Rebien Sørensen: Thank you very much, Paul. This is Lars Rebien. Two questions relating to insulin, how the performance [indiscernible] is affecting Novo-Nordisk. To what extent do we have a competitive counter measure in our NovoMix product. And the third one should be how we define the long-term financial target.

Let me try to take a stab at the first one. Let me give you a few facts about the performance of Lantis(ph.) and the impact of that [indiscernible] in 2002. If we look at the German market, we can see that Novo-Nordisk's overall market share during 2002 actually increased in value terms from 41.2% to 42.5%. It is correct that Novo-Nordisk lost market share in the [indiscernible] segment, however, we gained market share in the pre-mixed segment and in the soluble segment. So, we have not in the whole market of [indiscernible] Germany been impacted in the overall market share development. On the contrary, we have been able to gain position in that market.

In the UK, it is correct that Lantis(ph.) has been successful in its initial launch. And Novo-Nordisk are reporting a value market share from 64.9% in the beginning of 2002 to 63.2%. So, we are seeing a slight decline in market share in the UK market.

In the US market, where Lantis(ph.) of course has been very successful, in the [indiscernible] segment, our overall development of value market share is up quite significantly, actually 2 percentage points from 15.6% to 17.6%. So, basically, we still believe that our competitive measures towards Lantis(ph.) are promoting intensive therapy using Novo-Nordisk [indiscernible] by using the [indiscernible] insulin’s like NovoMix, actually is the right strategy for the Novo-Nordisk. And we're looking forward, of course, to the time when we will be ready to get into the market with our own long-acting insulin [indiscernible], which we hope we will be able to do sometime during 2004.

If we go up at a little bit more aggregated level, then we could say that in the US we have increased our market share both in terms of volume and value, in spite of [indiscernible]. In Europe we are at current month seeing an increase in our market share, both in terms of volume and value. And in Japan we have stabilized the negative trend that we were seeing due to the success of [indiscernible] in Japan after the launch of [Novo-Rapid] and [Flexpen] and [Inolet] into that market.

In the international operations, of course in those markets we do not see a major impact of the [Inolet] yet, but we have a very strong growth of our insulin [cases] there.

So overall we feel that are confident that we will be able to maintain and grow our markets, in spite of the [indiscernible]. Jesper, could you comment on how you define the [15%] long-term profit target?

Our target is to grow our operating profit on year-on-year basis by 15%. However, Novo-Nordisk will be exposed to issues like currencies and large [non-recurring] issues like this Iraq income we've had for a number of year, ending in year 2000. And like the [indiscernible] settlement, that will be significant in 2003.

If you look at our underlying business, our business is, on a year-to-year basis, to at least deliver 15% growth in operating profit. [indiscernible] individual year, then it might deviate, as you have seen, [indiscernible] level in 2002. Also as we are currently [indiscernible] given the currency situation for 2003. It doesn't change that the focus from Novo's management will be on a year-to-year basis, delivering 15% growth in operating profit.

It is clear that the impact in currencies will impact the numbers reported for any individual year. If you look at the period 1998 to 2002 you will also see that the compounded annual growth rate for that period for our operating profit, exceeds our 15% long-term target.

Lars Rebien Sørensen: Thank you very much, Jesper. The next question, please.

The next question today comes from Mr. Martin Parkhoi. Please go ahead stating your company name.

Danske Equities. A couple of questions. Firstly in connection with the profit line [indiscernible] you initiated a cost containment program. Then I find it quite peculiar that you, in the fourth quarter this year, see administrative expenses being 8.6% of total sales, which is significant higher than the last quarters. So the first question, why can this happen? Then, with respect to [indiscernible] trade, could you explain what impact this has had on your insulin growth in Europe? Then, with respect to your investment level, this will be a little lower than previously expected, why was this taking place? And then, how do you think that Pfizer's potential acquisition Pharmacia could impact the marketing agreement with Pharmacia on HRT market. Then finally a question for Mads. You have usually been unsuccessful with [indiscernible] in rest enosis, what makes the difference now in the new indication?

Lars Rebien Sørensen: Thank you very much Martin, this is Lars Rebien. That was a long list of questions. Let me start with the two first which deals with [April 10] and with [indiscernible] import. Jesper will comment on the investment [indiscernible] and the potential impact for the agreement between Pfizer and Pharmacia on our [indiscernible] business. Mads will talk about the ASIS.

It is correct that we announced on April 10 that we were having to adjust our target for the year. But we at the same time announced that we were going through a major cost containment exercise, which has been quite successful. I have to reiterate that the impact of that exercise has positively contributed some 600m krona to 800m krona to our results.

The fact that administrative expenses is going up slightly more than you had expected is due to some once-off restructuring in the European organization. They relate to primarily administrating costs, which has been made redundant during the year.

You will recall that we said we want to restructure our European sales organization to put more focus on sales and marketing activities, and less focus on back office activities. As a consequence of that obviously, unfortunately there was redundancies made, particularly in the administrative staff.

The level of parallel importation in Europe is about 10%, and has been growing over 2002. We have of course to anticipate that this is a trend that might continue. And in the guidance that we have given you we have, of course, in our own operational sales, anticipated some continuation of the [parallel] importation there which we saw accelerating during 2002.

Jesper, investments?

I understand your question [indiscernible] you're asking why did we come out lower than what we had predicted for the investment level in 2002. The key fact of there, as mentioned, was that included in our investment is ongoing prepayments on the current investments that we have. And there the investment level -- the prepayments on investments was approximately 200m lower than what we anticipated when we made the prediction for the year. And that was the key factor for it falling down to the level of the 4b. It's not that there has been any significant change in the overall schedule of our investment portfolio.

As for the second question, I noticed that was passed on to me. What would the impact be from the Pharmacia merger with Pfizer. We have noted that Pfizer has informed us they expect to start this [indiscernible] HRT portfolio, and that leaves them only with the HRT portfolio that Pharmacia currently are marketing for Novo-Nordisk in North America. We are pleased with that. As a marketing partner, Pharmacia so far has done a tremendous job for Novo-Nordisk, and we see no reason why a combined Pfizer and Pharmacia should not continue to do an excellent job with the Novo-Nordisk low dose portfolio of products, which see to have good market opportunities in today's market.

Lars Rebien Sørensen: But of course -- this is Lars Rebien. The decision that Pfizer has to make, apparently there has been some [indiscernible] issues, which has caused Pfizer to revise its product portfolio. And how that is going to end up playing out on Novo-Nordisk is uncertain.

Mads, why do you believe that you will be able to make headway with ASIS and [ARDS] when you have tried before rest enosis?

First of all I'd like to correct the misunderstanding that we were unsuccessful. We actually saw that at a half a year follow up there was a prevention of rest enosis in the ASIS treated patients. However, the situation competition-wise was one when so-called immunosuppressant coated stents were coming to market at the time, and these were highly effective agents. So from a cost efficiency point of view, it was not really realistic for us to continue that indication. But the results were not bad at all.

Vis-à-vis the new one, being the ARDS indication, here we have done pre-clinical studies in a very, or what is believed to be, the golden standard animal model. Meaning the [indiscernible] ARTS model where we have seen that the compound actually increases the survival of these animals. And since ARDS is a condition that kills of more than 100,000 individuals in the US alone, and a similar number in Europe, and has no medical therapy, we have scientific and animal evidence behind us in doing the studies that we have initiated. So we are cautiously optimistic on this innovative program.

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

The next question today comes from Annette Rodriguez. Please go ahead stating your company name.

Yes, hello, it's Annette Rodriguez, Nordea Securities. I have two questions, and after that I will hand over question to my colleague Henrik Simonsen. First of all in your expectations of 20% in local currency for EBIT this year, there will be an effect of income from [indiscernible]. Could you guide us how much this will be, or if not, could you say a little bit about the movements of one-offs in '02 and '03, so we have a clean organic growth to look at? The other question I have regards NN2344, where I'd like to hear about the promotion strategy for the product. You have not put in the [TP] segment now, and it is a very competitive market. Could you give us an indication what kind of partnership you are looking for, or a licensing agreement?

Lars Rebien Sørensen: Thank you very much, Lars Rebien here. I will defer the questions to my colleagues, Jesper first on the expectation for EBIT growth of 20% local currencies. To what extent does that improve [indiscernible]? And to what extent I see a development in the exceptional one-offs from 2002 through 2003. And Mads Krogsgaard, what's in your strategy for 2344 when we're talking about commercialization?

Thank you, Lars. As previously mentioned we have a level of on the line recurring other operating income in license fee in Novo-Nordisk, of approximately DKK125m per quarter, giving us a full year income to the tune of DKK500m. And in 2002 we have had a number of one-off non-recurring items going into our Other operating income. The predominant part has been in the first quarter, and also in the fourth quarter. In the first quarter it was primarily related to the IPO offering of [Simo] Genetics, bringing income to the tune of DKK240m. And in the final quarter it has been related to the [indiscernible] transfer in the US, regarding [Gabitril] and also relating to a minor patent settlement in the US. But using 125 at the underlying level for 2002, then you can [indiscernible].

If you look at 2003, you will have an impact from the Aventis patent settlement to the tune of DKK500m as a full-year impact on 2003. It will be unevenly distributed, with an impact of around DKK200m in the first three quarters, and approximately DKK300m in the final quarter of the year.

Lars Rebien Sørensen: So that means, if I can say, that other operating income and [indiscernible] income will be at the level of the one we reported in 2002. And then we are talking about local currency and organic growth of around 20%. Just to make that clear. Mads?

Yes, I think you should imagine a situation pretty much like the one we had for NN622, and that is basically what I am saying. We will go for partnerships in the US. In the European setting we will do case by case analogies of which countries we can go it alone, and which will have co-promotion deals with other companies, potentially. And in the international operations, which represents all the countries outside of the triad markets, we actually hold a pretty strong position. Vis-à-vis, diabetes care, also in the [OAD] potentially, as we see from some countries [indiscernible]. And again, it's highly feasible that in a number of these countries we will have to go it along. So it's still early days, but that's the full picture.

Could I give my question to you regarding the cost structure expected for 2003?

Lars Rebien Sørensen: Absolutely, you're welcome, go ahead. Any more details you want?

Yes please. With respect to the same cost structure, we saw production costs go up quite heavily in 2002. What are your expectations for costs, R&D, sales and marketing in 2003?

Thank you, Henrik. Clearly the impact you have been seeing is on some currencies during 2002. And when you look into 2003 the expectation for gross margin will be a decline, because of the currency situation. Not because of product mix. Product mix will have a tendency to improve our gross margins. But overall the impact from currencies currently will -- we've got to expect that gross margin will be slightly lower in 2003.

In terms of sales and distribution costs, they will be more or less at the same levels, maybe declining a bit. R&D costs, the 16% ballpark is still a meaningful area to look for that. And as for Admin costs, you should not read anything specifically in the 8% growth in the final fourth quarter. There's no trending of that going into 2003. I would expect admin costs to come out lower relative to sales, when we look at 2003. Although our admin cost base, of course, is to a significant degree denominated in Euro and Danish Krona.

Then just finally, on Japan, are you expecting a price [indiscernible] on growth hormones and insulin on the first April?

Lars Rebien Sørensen: This is Lars here. No, we are not expecting this would be. We would have known by now if they were playing for that. It would be outside of the season for the usual price reductions in Japan. So we're not expecting that to take place.

Okay, thank you.

Lars Rebien Sørensen: Next question please.

The next question today comes from Mr. Erik Schult. Please go ahead stating your company name. Mr. Erik Schult, Deutsche Bank, London. Please go ahead with your question. This question might have been withdrawn. We move on to Miss Iben Jordan. Please go ahead stating your company name.

Hello, I have sever questions if I may, please. First of all we have seen increasing pricing pressure due to health care reforms in several Europe countries. Including Germany, which is an important market for you. Can you tell us, what is the economic impact from these healthcare reforms for Novo-Nordisk?

My second question is regarding the recent Danish tax judgment, which was in favor of Novo-Nordisk. How big is the economic impact for Novo, and is that impact included in the 2002 results, or will it be included in 2003?

Then I have a third question. In the US as well as in Europe, health authorities discuss how to ease market access for biogenerics. How do you expect this could impact your insulin and your growth hormone business?

My last question is your license income from Pharmacia for the sale of your HRT product. How much do you get from Pharmacia?

Lars Rebien Sørensen: Thank you very much. This Lars Rebien. Pricing pressures in Europe, impact on Novo-Nordisk. Tax judgment, how is that going to impact us? US and European attempts to [indiscernible] the biologics business? And the HRT license income.

Let me first give you a few comments on the pricing pressures in the European market. Then I'd be expecting Jesper to talk about the tax judgment. Maybe I can come back and then talk a little bit about the [genericization] of insulin and human growth hormone. And then Jesper can come back and talk about the HRT license income.

It is correct that we are seeing several countries' attempts to give price reforms. To the best of our knowledge and assessment - and these are of course assumptions which we have put into our estimates for the year - I'm sure that they're in the guidance we've given to you. There is not going to be any immediate effect on Novo-Nordisk from reimbursement changes in France.

There is a relatively significant revision of the German situation, where some of the price discounts of products that are not in the [indiscernible] system will have an impact on Novo-Nordisk. The impact has been included in our estimates for our [indiscernible] already with an estimate of what we believe will take place. There’s supposed to be a relatively minor price impact on the [valium] situation, but most of them we will have included in our forecast for the full year. So, there should be no major surprises coming from there.

We have also, of course, as I mentioned earlier, anticipated some level of parallel trade in Europe, continuing to expand somewhat from the level that we saw in 2002. So, to the best of our abilities, we have made a projection based on the knowledge we have today on these reforms and the parallel trade.

So, what about the tax, Jesper, and what effect that will have?

There was a [reason] tax in Denmark regarding the ability to deduct the cost for a company of issuing employee shares. And there Novo-Nordisk won that ruling. The effect on Novo-Nordisk will not impact the P&L, as the impact of employee share offerings has been taken over [indiscernible]. So, the impact from the tax ruling on that will also go by the [indiscernible] and, hence, there will be no impact on 2002 or 2003 on the P&L charge for tax.

Lars Rebien Sørensen: Thank you. Mads would like to comment on the generalization of insulin growth hormones based on some new information from FDA.

Yes. Well, basically, you know that the FIBA, the biologics division in the US FDA, has now been merged into the FIDA, the drug evaluation division. And one of the consequences is that, if anything, what we have heard and what has been communicated is that there’s going to be a strengthening of the grip vis-à-vis the documentation needed to try to seek approval for biogeneric. Such approval has actually not yet been sought, neither in the US nor in Europe, even for [Super Prodene].

I have to state that, when it comes to [Prodenes] such as Novo Seven, a more complex dichotomy that unfolded in strange ways, simply being able to fulfill the [documenting] equivalent will be extremely difficult and is unprecedented. This invention and growth hormone, as you know, there are a lot of barriers. But even if you could circumvent the one I just alluded to, you need to get over vis-à-vis production know-how, investment and manufacturing facilities, brand laws and all these things. So, this is not something that makes us sleepless at night.

Lars Rebien Sørensen: Finally, HRT guidance income from our business in the United States [indiscernible] and now [indiscernible].

Yes. The HRT license income is included in this 500 level that I was alluding to before, being reasonably equally distributed between the quarters of the year, of recurring licensing income and other operating income [indiscernible]. The HRT will in 2003 will approximately be one-third of that.

Lars Rebien Sørensen: Thank you. Next question, please. We are getting towards the end of the conference, so we have a couple more questions, please.

The next question today comes from Geraldine O’Teefe. Please go ahead, madam, stating your company name.

Geraldine O’Teefe: Thank you. From Fortis bank. I have just a few short questions for you? One, just coming back to the pipeline, the NN2344. You’ve done some Phase 2 trials in that. Can you give us a feel for how much data you have there? How many patients may have been tested? For how long have they been treated? Just to get a feel for how much safety data you may have.

Lars Rebien Sørensen: Thank you. Yes, other questions you might have.

Geraldine O’Teefe: Okay. And then also, just on that as well, I think you mentioned earlier that you plan to move that product into Phase 3 next year. How certain are you about that? Are you going to do some additional Phase 2 trials first, and then announce the Phase 3? Or are you pretty sure you’re going into Phase 3? And then the final part was just if you could give us a feel for the split between the market in the US between the analogues and the standard insulin’s? Is most of the growth going to come from the analogues in 2003?

Lars Rebien Sørensen: Thank you very much. Mads Krogsgaard, back to 2344.

I can tell you that studies have been to the tune of 10 to 12 weeks’ duration in several hundred patients. What we’ve seen is that those intended reductions in glucose parameters and also in the relevant lipid parameters, vis-à-vis the certainty with which we will or will not go into actually into Phase 3 next year, that is something that is beyond my control, in as much as we still have to do some long-term animal studies before we have the required documentation. That means that there can be show-stoppers. Having said that, I have not seen any signs of that occurring. So, we cannot give any certainty, just to say that we’re progressing towards that phase.

Lars Rebien Sørensen: Thank you very much. We have seen strong growth in the US market in terms of [indiscernible] analogues. We can say that, if you look to the performance of NovoLog, our product, that NovoLog has now attained a share of the targetable market, which is 10%, whereas in total the share of the short-acting segment in the US, which is analogues, is actually past 50%. We are expecting that we’ll see a strong growth, continued growth of our analogues, both in the United States and in Europe. You will note form our release that the increase in sales of analogues was more than 100%; it was around 160% increase. For the first time, it past DKK1b. And we are tracking to see a continuation of this penetration over the next 8, 10, 12 years where we are converting the human insulin market to analogue market. And this has a duel effect. It has the effect that it’s better therapy for the patient and for the producers, the marketers, it has better margins. So, all in all, a significant part of the value growth going forward is going to come from the analogues.

Geraldine O’Teefe: Okay. Thank you.

Lars Rebien Sørensen: You’re welcome. Last question, please.

The last question today comes from Mr. Eric Le Brego. Please go ahead, announcing your company name.

Yes. Good afternoon. Eric Le Brego from the [indiscernible]. First question, please, to explain the 15% currency impact you’re expecting for 2003. On slide 17, you showed at the current level the impact of the US dollar as +13%, on the Japanese yen +10% and the British pound +5%. I guess Europe represents roughly 40% of your sales, stripping out the British market, probably one-third. So, on average, I cannot understand why it may come so close to 15%. I guess probably the average with all those figures should be around 10%, and not around 15%.

The second question is related to the tax rate. I was wondering whether the 34% tax rate for 2003 was related to the change in the mix between operating and financials, or if going forward we have retain that kind of tax rate at that kind of level, or even below? Thank you.

Lars Rebien Sørensen: Thank you very much. Jesper, the 15% currency impact, how do you arrive at that, given the tables shown on page 17? And the tax rate?

I have to make clear that the 15% impact is mainly the impact that we will have on growth in operating profit due to movements in currency. The exchange rates that are listed in the table, the +13%, +10% and +5%, for US dollar, Japanese yen and British pound, is the movement in the currency rate.

They will have a direct impact on the sales, and you will see a reasonable link between +13%, +10% and +5% over to the division of an 8% movement on sales from currencies. So, there’s clearly a link there that will tie reasonably well into the calculations you made. The 15% impact is on operating profits. And of course, the currency impact on sales will unfortunately have a bigger impact on our operating profit.

Lars Rebien Sørensen: And then the tax rate, Jesper, 34%. There was a question on the tax rate.

Can you elaborate a bit on the question? I got hung up on the currency rates.

Yes. I was wondering whether the 34% tax rate was-- well, the one point drop in 2003 was linked to the change in the mix between operating profit and income from hedging or financial results, let’s say? Or if going forward we can see the tax rate going somewhat downward more than the 34%? And if we may see in 2004 even beyond?

I think you’re looking a little bit further out than I would be willing to commit to. But I can confirm that the 34% tax rate for 2003, that I believe that that will be a sustainable level for Novo-Nordisk also looking into 2004. That should be the level that I would recommend to use in your models.

Can I add just one short question? On NN2211, could we expect the Phase 2 data to be released at the ADA in June?

Lars Rebien Sørensen: Mads Krogsgaard.

What I can tell you is that, Eric, we will have the data available by that time. Whether you can convince the main organizer of the ADA meeting allow us to send them at that conference, that would be hopefully wonderful. But it’s probably more realistic that you will see it IMF meeting in August/September. It should be because of the submission deadlines that are prevailing. But the data will be available communicated one or the other forums within the first half of this year.

Okay. Thank you.

Lars Rebien Sørensen: I’d like to conclude this teleconference to tell you that we have appreciated your calling in today, and that we are looking forward to meeting you all. All management is preparing itself to go on a road show, which will start next week, on a major tour of Europe, and then subsequent to that a major tour of the US. We’ll be looking forward to seeing you. Thank you very much.