諾和諾德 (NVO) 2003 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Novo Nordisk first half 2003 results. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session and instructions will follow at that time.

If anyone should require operator assistance during the conference, please press star, then zero. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Lars Rebien Sorenson, Chief Executive Officer of Novo Nordisk. Please go ahead, sir.

Thank you very much and, ladies and gentlemen, welcome to this Novo Nordisk conference call regarding our results for the first half of 2003, released earlier today. I'm Lars Rebien Sorenson, the CEO of Novo Nordisk, and with me, as usual, I have our Chief Financial Officer, Jesper Brandgaard; Mads Krogsgaard, our Chief Science Officer. Present are also our investor relations officer Peter Haahr and with him is Christian Kanstrup.

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 call is scheduled to last approximately one hour. As usual, we'll start with the presentation as outlined on slide number one. The Q&A session will begin in about 25 minutes. Turn to slide number two.

As always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause 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, please note that this conference call is being webcast, as was mentioned, and a replay will be made available on the Novo Nordisk website after the conference call.

Please turn to slide number three, providing you with the highlights from this first half 2003. Sales increase of 5% in the first half of 2003, measured in Danish kroner, and 17% in local currencies. Operating profit increased by 3% to DKK2.939b.

We're very satisfied with this solid performance in the first half, however, please note that when comparing this period to the same period last year, several factors have been impacting both sales and cost. When evaluating the sales performance in the first half 2003 of 17% in local currencies, please bear in mind that the realized sales in the first quarter of 2002 were influenced by both performance and timing-related issues, resulting in an unusually weak realized sales. Adjusted for this impact, the growth in local currencies was 15%.

The course of cost development relative to the first half of 2002 is influenced by the strengthening of the euro versus the main currencies, but also reflects the impact from the cost-containment program initiated in April 2002. Non-production costs declined by 1% in the first half of 2003.

With sales performance in line with our expectations and a prudent development of our cost base, we're still on track to meet our expectations for the operating profit for the full year, despite the weakness of our main currencies since our last guidance. There's still a ways to go, though the challenging benchmark for the following quarters and continuing challenging currencies in the environment. As a consequence, Novo Nordisk had hedged the exposure of major currencies and is now expecting that the net financial income will be realized at DKK900m and, therefore, net profit for 2003 is now expected to grow by more than 10%.

In our pipeline, we have initiated exploratory Phase 2 studies on a compound which we call Novo Nordisk NN414 and EMEA has approved human growth hormone within the SGA/IUGR indication, that Mads Krogsgaard will refer to later in his session.

Please turn to slide number four. Looking at figures for the first half 2003, diabetes care was up 5% whereas hemostasis management increased 11%. These two areas constitute approximately 85% of total sales and I'll get back to these areas in more details on the following slides.

Growth hormone therapy was up 8% and in local currencies the growth of that therapy area was 19%. Sales were supported by strong growth in North America and international operations realized solid underlying market growth and market share gains. In Japan, our business was favored by underlying market growth and wholesaler stockpiling, which more than offset the mandatory price cut in April last year. The solid growth in other regions has now reduced Japan's contribution to about 35% of our overall growth hormone business.

Our HRT business continues to be impacted by the overall market contraction caused by a U.S. study of another company's products stopped in mid-2002 and for Europe both effects from parallel trading and mandatory price reductions in some markets have also impacted sales negatively. The sales, as a result of that, declined 17%.

Total sales were approximately 12% negatively impacted by the appreciation of the euro and the Danish kroner versus all our major currencies and, hence, measured in local currencies, the sales increased 17%. Please turn to slide number five, which illustrates this significant currency impact by therapy area. The picture more or less tells the story with the growth within diabetes care and hemostasis management being reduced by around two-thirds in the first half of the year due to the unfavorable currency environment.

Turn to slide number six for an overview by region. Growth in Europe of 8% needs to be seen in the light of the weak first quarter last year, but is primarily driven by diabetes care and NovoSeven and partially counterbalanced by HRT. We're seeing reasonably high market growth in insulin and market share gains in countries like Germany, Italy and Spain.

North America continues to show solid growth rates, driven by our insulin franchise and NovoSeven. Within insulin, increased penetration of especially NovoLog is driving growth. NovoSeven sales are driven by increased investigational use within acquired hemophilia, surgical cases on congenital inhibitor patients and investigational use in general. General prices have increased and impacted sales in both segments.

The performance of international operations might look particularly-- might not look particularly impressive, but bear in the mind that the currencies have been very negative in this region and can be highly volatile from quarter-to-quarter due to large tender orders. The sales growth is driven by insulin, NovoSeven and growth hormone.

In China we are seeing strong growth due to the increasing market penetration driven by increased marketing efforts and market growth. Sales in Japan and Oceania declined by 3% due to an 11% decrease in the Japanese yen versus the Danish kroner.

Turn to slide number seven illustrating the currency impact by region. A key observation from this slide is, apart from the European region, the sales growth in reported numbers for all regions are significantly reduced by the negative development in our main invoicing currencies versus Danish kroner.

Growth in Europe of 8% needs to be seen in the light of the negative currency effect from the British pound and the Polish zlotcyh. Underlying sales growth in Europe, excluding elements from the weak quarter of last year and the negative impact from currencies, is estimated to be approximately 11%. Also note that North America shows a strong underlying growth rate in local currencies.

Please turn to slide number eight, which provides you with the highlights from our diabetes business in the first half of 2003. Diabetes care increase was 5% as reported and 17% in local currencies in the first half. In the second quarter alone, diabetes care grew with 11%.

Measured in local currencies, sales of insulin and delivery systems increased 15% in the first half and key growth drivers were North America and Europe. In North America, our two insulin analogues, NovoLog and NovoLog Mix, contributed to the improvement of our overall market share. Growth in North America is also impacted by general price increases during 2002.

Growth of 11% in Europe can, to some extent, be attributed to the weak first quarter last year, but we are seeing solid market growth trends in the European insulin market and we are also gaining market share in several key markets, including Germany. During last year, Novo Nordisk's market position in Europe has been strengthened by the continued rollout of the Novo Mix 30 and FlexPen, which is now launched in more than 15 countries. Together with NovoRapid, these products have been key to supporting our market share in Europe.

Sales of insulin delivery systems within international operations increased by 20% in local currencies compared to the first half of 2002, with a strong performance in China. Sales growth was significantly impacted by the negative currency environment, especially for the Brazilian reai, the Turkish lira and the Chinese yuan. Growth measured in Danish kroner was only 1%.

Please turn to slide number nine, which provides you with an overview of the insulin market. This slide is based on the moving annual total market figures for the four quarters ending March 2003.

We see solid volume growth in all regions and the worldwide growth of 5.7% continues to be above our long-term guidance of 5%. It's also positive to note that Novo Nordisk is growing above the market growth. Moreover, we're pleased to see that the market growth in the U.S. continues. Overall, Novo Nordisk has realized a slight increase in world market share, with a declining market share in Japan that is more than counterbalanced by increasing share in the United States and in Europe. In the most recent market statistics, this positive development is continuing.

Though volume growth plays an important role for Novo Nordisk's insulin business, it's also important for us to realize our fair share of the value upgrade, both in terms of upgrading the patient to more advanced delivery systems and to insulin analogues. Please turn to slide number 10, which provides some insights into the analogue conversion in the insulin market and also Novo Nordisk's performance in the analogue market.

All in all, in the industry has now converted 26% of the insulin market to analogue and no slowdown is seen to emerge. I also think that it's fair to say that Novo Nordisk is rapidly catching up with this segment, especially since the first quarter of 2002. We now hold 20% of the analogue market and Novo Nordisk's analogue franchise increased by 174% to DKK1.067b in the first half of 2003 and analogues now constitute some 13% of our insulin sales and in the U.S. it's almost a third.

Turn to slide number 11, which provides some impact into our short-acting insulin analogue, NovoRapid's, performance in Europe. The short-acting segment is also here still increasing in size and globally it now constitutes some 29% in terms of volume.

As can be observed from the slide, the conversion within this segment from human insulin towards insulin analogue is continuing and currently approximately 43% of the insulin volume has been converted to analogues. Within the segment of short-acting insulin, our product, NovoRapid, has a market share of 15.8% in the first quarter 2003, a performance in line with our expectations.

In the autumn of 2001 we launched the same product in the United States under the name NovoLog. Please turn to slide number 12 for an update on how the product has performed in this very important region.

Again, it's worth observing that the conversion to analogues is continuing and that our product, within the analogues, continues to capture market share. The conversion within the short-acting insulins has reached now 59% of the insulin volume in the United States.

Looking at the recent data, we can see that within the segment of short-acting insulins, our product, NovoLog, held a market share of more than 10% in the first quarter of 2003. Moreover, analogue conversion is not the only way to increase the treatment outcome for the patient and adds value to patients for Novo Nordisk.

Please turn to slide number 13 to get an update on the pen penetration. Pen penetration is still climbing upwards and now some 53% of the insulin sold in the industrialized world is insulin devices. Global devices remain most common, but the key growth driver is disposable devices, which also is the most common in the United States. Also in this part of the market we're satisfied with our performance as we stop the deterioration in our market share in the disposable segment and are now gaining share again on the back of the launch of FlexPen and NovoRapid, Novo Mix and human insulin, long-acting insulins. All in all, we have now launched FlexPen in more than 25 countries, worldwide.

So much about our diabetes care franchise for now. Please turn to the next slide, updating you on the performance of our hemostasis management business.

NovoSeven sales increased 11% in the first half 2003 and in the local currencies the increase was 28%. Sales growth in the first half was primarily realized in North America, followed by Europe. However, all regions contributed to the growth.

Several factors contributed to sales growth for NovoSeven in this period. The largest segment for NovoSeven is the use of the product for congenital bleeding disorders and this segment is still delivering a major part of the growth in sales. However, the increased awareness of the benefit of using NovoSeven in connection with acquire hemophilia has led to an increased use of NovoSeven for this patient group. Finally, sales have been positively affected by increased investigational use of NovoSeven, which we now estimate accounts for 10% to 15% of the total NovoSeven sales.

So much about the sales performance in the first half. Mads Krogsgaard, our Chief Science Officer, will now provide you with an update on our R&D activities.

Thank you, Lars. On the following two slides, the updated Novo Nordisk development pipeline is shown. On slide 15, I am happy to be able to inform you that we've initiated exploratory Phase 2 trials investigating NN414 in both Type 1 and 2 diabetes, as well as individuals with impaired glucose tolerance. The aim of the three studies is to explore the concept of beta-cell rest as a diabetes therapy. NN414 is an orally active beta-cell selective compound, which has shown a beneficial effect on blood glucose control in preclinical studies.

These exploratory Phase 2 trials are expected to conclude in the first half of next year. The outcome of the investigations will determine the indications for which we will subsequently conduct full-blown clinical proof of concept studies.

Furthermore, we've started Phase 3 trials on Levemir in Japan. In other main regions, we still expect launch of Levemir during 2004, depending on the approval process.

Regarding the AERx iDMS pulmonary insulin delivery project, all available data, including those from the ongoing Phase 3 study in Australia and New Zealand, continue to support our belief that this is inhalation-based therapy is safe and efficacious. However, we will undertake certain manufacturing changes to optimize the commercial strip and device production processes. As a consequence, the remaining Phase 3 program is not expected to be initiated before the end of 2004. We continue to have full confidence in our partner, Aradigm, and will continue to support their efforts financially and scientifically as they work on the changes needed to get this innovative product to market.

On the next slide which I'll ask you to turn to, you can see the status of our biopharmaceuticals pipeline in general and the NovoSeven expansion program in particular. Within our human growth hormone business, the EMEA has now approved the use of Norditropin in short children thought small for gestational age and failing to show catch-up growth at two years of age.

The ongoing NovoSeven trials are on track for delivering results according to the previously timelines, which, among others, means that the trauma study will report later this year. In the first half of next year you'll receive the results from the trials with stem cell transplantation and intra-cerebral hemorrhage as well.

2003 has been a very active year, conference-wise. Thus the biannual ISTH meeting has just been held in Birmingham, U.K., and this May the seventh NovoSeven Symposium was hosted in Copenhagen.

In the research area, data have, for the first time, been presented on super-potent analogues of recombinant factor VIIa, designed rationally based on our knowledge of the structure of factor VIIa.

Clinically, numerous presentations based on investigation NovoSeven use by hospital and university-based researchers have given further support to the potential usefulness of this hemostatic agent in conditions as diverse as traumatic brain injury, reconstructive surgery and cardiac oozing following bypass surgery. The increased number of positive reports of this kind contributes to our confidence in stating that NovoSeven is on track to becoming the long sought-for general hemostatic agent.

I'll now hand over the word to our Chief Financial Officer, Jesper Brandgaard.

Thank you, Mads. Please turn to slide 17. As Lars has already alluded to, our sales in local currencies increased by 17% compared to the first half of 2002. Measured in Danish kroner, sales increased by 5% to DKK12.63b. Operating profit increased by 3% to DKK2.939b in the first half of 2003.

Net financials showed a net income of DKK662m in the first half of 2003 compared to DKK99m in the first half of 2002. Novo Nordisk recorded a net foreign exchange gain of DKK674m, primarily related to the hedging of the U.S. dollar, Japanese yen and the British pound.

The tax rate for the first half year is 34%, down from 35% a year ago, thus giving us a 23% growth in net profit and, measured in earnings per share, a 25% increase, reflecting an impact from our share buy-back program.

Please turn to the next slide for an update on our currency exposure. As you've heard throughout our presentation, changes in currency rates have a significant impact on our results. We do, however, hedge our main currencies so that we, short-term, are able to compensate somewhat for the negative impact on operating profit.

At the end of first half, Novo Nordisk has hedged future expected cash flows related to the U.S. dollar and the Japanese yen 18 months ahead, whereas the British pound was hedged nine months ahead. These hedging periods are more or less unchanged compared to our first quarter announcement this year.

Please turn to the next slide for an outlook for 2003. Currencies will also, in 2003, have a significant impact on our ability to grow the business. Despite a currency environment which is slightly more challenging than the level noted at the time of our release for the first quarter of 2003 in April, we still expect to grow our operating profit by a low single digit percentage rate.

As Novo Nordisk has hedged our [inaudible] for 2003, the negative influence from the depreciation of those currencies versus the Danish kroner on operating profit will be offset by currency hedging gains included in net financials and net financial income is, consequently, expected at the level of DKK900m for the year. As a consequence of the revised expected net financial income, growth in net profit is now expected to be more than 10% for the full year of 2003.

Novo Nordisk now plans to invest less than DKK3b in production facilities in 2003, whereas depreciation and amortization for 2003 still are expected to be realized at the level of DKK1.5b. As usual, the expectations given are based on the assumption that currency exchange rates remain at the current levels for the rest of 2003. In addition, I would also like to highlight that exchange rates also must be expected to have an impact on the reported net profit for 2004, as hedging gains will be reduced to a level of around DKK250m in 2004, compared to the expected DKK900m for 2003 under the current exchange rates.

When looking at the financial performance for 2004, one also has to take into account the effect arising from a potential difference between the expected average exchange rates for 2003 and the level that currently can be expected for 2004 and this is a relationship which constantly seems to be changing.

Furthermore, growth in operating profit in 2004 will also be impacted by a lower level of non-recurring income related to the patent settlement with Aventis where the income will be reduced from an expected level of around DKK500m in 2003 to an income of DKK150m in 2004.

This concludes our presentation of the financial results. As a final remark, I would like to note that our first half investor road show starts tomorrow with a special focus on our U.S. operations and slides used in this connection will be available on our home page tomorrow morning.

Lars Rebien Sorensen will now moderate the Q&A session.

Thank you very much, Jesper. Please note, ladies and gentlemen, this conference is being taped and the replay will be made available on our website. Will you please, the operator now, take the first question, please?

Thank you, sir. Ladies and gentlemen, at this time if you have a question, please press the number one on your telephone touchpad. If your question has been answered or you wish to remove yourself from the queue, please press the hash sign. Once again, it's the number one if you have a question and the hash sign to cancel.

Our first question comes from Annette Lykke. Please go ahead, announcing your company name.

Yes, hello, it's Annette Lykke from Carnegie. I just want-- I have three questions, two of them for Lars Rebien or Jesper and the other one for Mads.

First of all, I'd like to hear if we take your expectation of a low single digit growth for 2003, this implies a fairly-- you could say or no growth for the quarters going on in the third and fourth quarter. Could you elaborate a little bit on that? That seems a little bit conservative to me.

And the other question for the finance guys is on how much of the growth in the U.S. of 43% is due to the change in inventories for the analogues?

And my question to Mads is regarding the NN414, what is your primary end point in your three studies you're going to run?

Thank you, Annette Lykke. This is Lars Rebien. Jesper, will you discuss whether or not the Q3 and Q4 inherent in our forecast are conservative compared to the quarters that we have ahead of us? And, Mads, would you kindly look into the NN414, what are the key end points that you're looking for in the clinical studies? Then I will revert with the inventory impact in the U.S. of pipeline filling. Jesper?

OK. The comment I'd like to make on the 2003 year expectations is that we've actually stuck to our forecast as we've outlined for the year, which is exactly the same growth that we have in our sales line and we continue to see that our performance is right in line with our expectations. Currency's impact has been changing and that has been, really, the key factor influencing the slight change in our guidance on sales.

So what enables us to actually slightly upgrade our expectations in terms of operating profit as we maintain the guidance despite a more negative currency environment is really that our cost performance is currently expected to be slightly better. It was so in the second quarter and it's also expected to be slightly better in the last two quarters. Do also note that we in the final quarter will have a significant income from Aventis.

In terms of cost ratios that may be able to help you a little bit in making some estimates for the final two quarters, you should expect our S&P percentage to be below 30%. You should expect our R&D percent to be in the ballpark of 16% and our admin costs to be in the ballpark of 7%. And from that, you can make some reasonable guidance as to the individual quarters.

Thank you, Jesper. This is Lars Rebien. With regard to the inventory impact of the pipeline and stocking of the analogues, that impact has been less than 5%. The underlying sales growth in the United States is around 25% compared to the 8%, which has been recorded. We had a significant negative impact from the currencies and then we have had some pipeline filling, slight price increases, all in all adding up to 25% underlying growth.

So less than 5% due to the pipeline filling. Mads Krogsgaard, 414?

Right. Yeah, the situation is that, as you know, by promoting beta cell rest which insulin secretion is not needed, NN414 in animals and, hypothetically, also in humans will restore the first phase insulin secretion at mealtime and, hence, improve the postprandial hypoglycemia. And basically, this means that what we're measuring in these studies is glucose levels and, as a secondary end point, we have the insulin levels that should be modulated as expected by the drug.

But HB1C [ph] is a target that is more meant for chronic studies of longer duration than the few weeks that we're using in each of these studies. They are to the tune of around six weeks per study.

OK, Mads, then a followup question on that is how and when are you expecting to treat the Type 1 diabetics? How do you see that?

They-- one of the studies is a Type 1 intervention study where the patients have been diagnosed within a matter of weeks before the onset of NN414 therapy. But on top of the NN414, of course, they'll receive insulin therapy. So in the Type 1 study therapy between insulinization and NN414, et al.

Thank you.

Thank you very much, Annette Lykke. Next question, please?

Thank you. Our next question comes from Henrik Simonsen. Please go ahead, announcing your company name.

Good afternoon, gentlemen. Henrik Simonsen from Nordea Securities. Two or three questions. I was wondering if you could talk a little bit about your market share developing in the United States beyond the first quarter performance that you showed on your slide to update us? I see you have growth, still strong growth in the second quarter on top of the strong growth you had in the first quarter.

And secondly, I was wondering if you would go into some more details about the performance in Europe. I noted that you commented on strong performance in Germany, but I was wondering if you'd go into some more detail into how the performance has been in the U.K. where Lantus has been launched recently and, perhaps, you could talk on an overall basis how your performance in the long-acting, the mix and the soluble segment throughout the European market? Thank you.

Thank you, Henrik. This is Lars Rebien. Let me try to answer those questions. This has a lot to do with our position in the market place.

Let's start with market shares in the United States. We have reported how it looked after the first quarter. We, of course, have-- we are buying the data from IMS and we can see the monthly data and you have to, of course, be aware that the monthly data are subject to significant variation from month to month.

So one cannot make direct comparisons, but if I should give you some indications from what has happened the last couple of months in the United States, we can see that Novo Nordisk is continuing to grow market share in the base segments, in spite of the success of Lantus. We are also growing our market share, at least from the month of March to the month of April in the premixed segment.

With regard to the soluble segment, Novo Nordisk is continuing to grow market share, as well, so that if you look at our overall market share, there's strong market share growth continuing after the first quarter result that we have already announced.

Then when we-- when we look at the situation in Europe, the situation overall is such that Novo Nordisk actually is having a stable market share, slightly increasing, depending on which period that you are looking at and which data that you are looking at, but it is slightly increasing.

And if you want some more specific information on U.K., the situation is such that in the basal segment it is clear that Aventis is taking significant market share. They're taking market share both from Novo Nordisk and from Lily. Both of us are suffering, but in the premix segment, which is [inaudible] segment, Novo Nordisk is gaining market share. In the soluble segment, Novo Nordisk is gaining market share. So that the overall impact on Novo Nordisk's business in the U.K. is a small decline in market share as a result of the introduction of Lantus. This is not unsurprising compared to what we have historically seen taking place in Germany where approximately after a year, year and a half, we have been able to compensate for the Lantus launch by introduction of new products in all sectors.

So those would be comments, Henrik. I don't know whether that suffices. You have to be really cautious about the monthly data compared to the mass data that we usually give.

OK. Thank you.

Thank you. Next question, please?

Thank you. Our next question comes from Poul Lykkesfeldt. Please go ahead, announcing your company name.

Hi. It's Poul Lykkesfeldt from ABN Amro/Alfred Berg. Could you provide slightly more specific timing as to the announcement of the forthcoming clinical data regarding trauma for NovoSeven, rather than just later this year? Secondly, could you describe the nature of the changes in manufacturing as to the inhaled insulin product? Was that FDA or any changes by the health authorities? And can you confirm that the most likely filing date will be mid-2005 to mid-2006? Thirdly, until you find a final solution to distribution of your HRT products in the United States, how are you taking care of the marketing and distribution? And finally, even that you're not providing any form of '04 guidance at this point in time, can you indicate whether you expect Novo Nordisk to see an actual increase in reported net earnings for '04 compared to '03? Thank you.

Thank you, Poul. This is Lars Rebien. There was quite a few questions all around. I would like to start by addressing the first two questions to Mads Krogsgaard. They were clinical data, what more specific can you be about the timing of those on trauma? The other one was, questions relating to what it is the manufacturing changes that need to be made by Aradigm, has it been mandated by FDA or is it something that we have come up and can we be more specific about the filing date for the pulmonary insulin project? Then there will be a question about HRT, which I'm going to address and then Jesper will finally address a little bit more whether or not we can say anything on whether Novo Nordisk can report growth in net profit in 2004, given the impact that we have already guided in this announcement?

Mads, you're first.

OK. Poul, regarding the trauma study, this, as I think I've alluded to previously, is a study that is composed of two major groups, namely blunt trauma and penetrating trauma, and, of course, a balanced recruitment of each of these two sub-populations will take place from a multitude of centers. And in order for this to add up at the end of the day, it's impossible for me to predict exactly the timing except to state that it's going to be in the second half of this year.

I'd have to stick to that estimate. So we are on schedule, but I can't give you any more firm guidance than that.

Regarding the AERx situation, it is true that FDA has relatively recently issued new guidances requiring liquid inhalation products, even of acute administration nature, to be sterile. The changes that we have to make in order to accommodate the future sales and also development activities in the U.S. in this regard have taken longer than expected and we will not start new studies before are completely sure that we can produce, on an ongoing basis, living up to all of the derived GMP requirements. We are confident that we can do this, but it does imply that the next Phase 3 studies cannot be initiated until the end of next year.

What this means for the NDA filing and so on and so forth is, of course, a delay that you can predict yourself is more or less in the order of, let's say, the delay that has been imposed by this strict device production process change that we're making.

This is Lars Rebien here. Of course, this is a project which has been repeatedly postponed and we must say it's a complicated project and, therefore, we're not giving any guidance on filing date on this. As you can imagine, we have missed the target a few times.

With regard to HRT in the U.S., the situation is such that we have taken over distribution rights to the product. We've actually booked the first sales in July, a small amount in U.S. dollars. So we are invoicing the business, selling the products in the United States as the physical distribution takes place.

The next decision, strategically and tactically, is how we are going to promote the products. One can envision a couple of scenarios. One is that we initially rent some sales reps to get into the market quickly and then gradually turn these sales reps to our own sales rep. The other is that we partner this business in some way and for tactical reasons we would not like to disclose what our choice is at the moment. We are reviewing our alternatives.

Jesper, 2004, will we be able to deliver net profit growth and so forth?

Well, I think what we have included in this press release is a description of three specific factors that impact the growth between 2003 and 2004. Two of them impacting the growth in operating profit, that's the development in income we can record from the patent settlement with Aventis, and the other one is the impact which is likely to be from a different level for currencies in 2004 than the level that can be expected with the current rates for 2003. These two factors both impact operating profit.

In terms of operating profit in 2004, the best guidance we can give is looking at our long-term financial targets, which is saying that we want to grow our operating profit by 15%. Of course, we can, in individual years, not be able to live up to the guidance of 15% growth if there are significant factors like currency and non-recurring income that impacts individual years.

So there-- from that statement you have a reasonable guidance as to what to expect for operating profit growth in 2004. Of course, we will get back to the market once we have done our plans for the year with more specific communications, but that's as clear as I will get on 2004.

And as for the financial lines, the lines after operating profit, we've also specifically stated what the hedging impact, as we see it currently, will be on our financial line for 2004 and as for tax rate, I would also state that the 34% that we've given in guidance for the tax rate for 2003 that you can expect that tax rate currently to be sustainable also for 2004. And then I hope you have a pretty good chance of making your own calculations.

Thank you very much, Jesper, but nonetheless, it is [inaudible] year 2004, that's clear, based on the numbers that you have provided. Next question, please?

Thank you. Our next question comes from Andrew Baum. Please go ahead, announcing your company name.

Hi. It's Andrew Baum from Morgan Stanley. I apologize in advance for the list of questions.

The first one is, the bulk of the upside surprise versus consensus estimates comes, I think it's fair to say, in licensing income, hedging gains and cost savings. Could you just give us some indication of are there additional cost savings to be squeezed from your business or are we currently at the maximal point?

Secondly, I'm just trying to understand your gross margin progression, given your underlying-- the change in your underlying product mix with NovoSeven and analogues. Could you just give a sense of from what you're seeing and taking into account capacity utilization rates, how that's going to change going forwards?

The third question relates to Levemir. It does sound that there's been some slippage here in anticipated timing of launch. Is it fair to say we may be at this time next year and Levemir might yet to be launched on either the U.S. or European market or about to be launched?

And then, the final point is Liraglutide. If you could just update us as to the reformulation and whether you're on track for your timelines in taking it into Phase 3?

Thank you very much, Andrew. Yes, indeed, this was a full list. I think I would like to address the first couple of questions to Jesper Brandgaard dealing with what are the surprises which seem to have been catching the market consensus a little bit by surprise over and above bulk licensing income, hedging and cost developments? Are there more to come from the cost side? And how do you see the margin progression based on the mix of our portfolio with NovoSeven and analogues?

Then we have Levemir, Mads, what are your expectations for approval and would be discussing approvals for Levemir one year from now and then finally Liraglutide, how is it progressing with the reformulation? Jesper first.

In terms of-- Hi, Andrew. In terms of license income, we've stated that we expect the recurring level of our license income to the tune of DKK425m. Then in addition we have said that we will have approximately DKK60m to DKK70m in income relating to the Aventis patent settlement in each of the first quarter during the year and then the remainder to be recorded in the fourth quarter, giving us DKK500m in totality from Aventis.

So as for the license income in the second quarter, I think it's pretty much in line with the guidance that we've given previously. So there's nothing unusual there and from there you also get a pretty good guidance as to what the license income will be in Q3 and then in Q4 you would see it rise because of a high proportion of income relating to the Aventis patent settlement.

And then, as for the cost savings, will there be more to be squeezed out? Well, I think the second quarter, with the cost ratios you see for the second quarter, they give a reasonable prediction on where we're going to come out in the subsequent quarters. It's really from the second quarter that you begin to see the effects-- only in the second quarter last year we began to have some effect on the cost containment and, therefore, they'll go into the comparative quarters last year and, hence, the comparative quarters we have in Q3 and Q4 is slightly more challenging.

In terms of-- in terms of the cost ratios, I think, as I said, that the ratios that we realized in Q2 are pretty guiding for where the next two quarters are going to come out. I don't expect any significant miracles. Do note that our depreciation level in the final quarter tends to be slightly higher than the three first quarters of the year.

Then finally, on the gross margin side, we have seen an underlying increase in our gross margin coming from the rollout and the higher proportion of turnover coming from analogue and NovoSeven, an increase of 0.3%, 0.4%. That is a reflection that is hidden in the numbers as a consequence of the currency development, which is negative to the tune of 2 percentage points on the gross margin.

Looking for the rest of 2003, I wouldn't expect any significant change in this pattern. It was pretty stable between Q1 and Q2. Expect it to continue in the next couple of quarters and then, as our new production capacity begins to come on stream, hopefully, we'll develop a little bit more positive going into 2004, but it will be a very gradual process as the production volumes are increased in the new facilities.

Thank you, Jesper. Before we switch to Mads, I guess it may be fair to add in regards to the cost, we had no plans of cost cutting initiatives to counterbalance the currency situation. We are in a situation right now where we believe that we are on a momentum, a growth momentum of our business, and we need to continue to invest in our business. However, what we are doing is we are being prudent about it and we are, of course, saving everywhere we can without impacting short-term, medium-term value creation.

But then on to Mads. Two questions. One dealing about Levemir and the other Liraglutide.

Yes, Andrew, regarding Levemir, no, there's no change in what we're communicating. We are in dialogue with the regulators on both sides of the Atlantic and that is as it has been all the time, but we are, as usual, depending on the regulatory process for that to conclude and as soon as they have concluded their process and their assessment, we will update you exactly on what that means.

Obviously, after Levemir has become approved, then there is the price negotiation phase and then you launch the product and we still anticipate that in the next year that's going to take place in markets both on this and the other side of the Atlantic. So there's no change there.

Regard Liraglutide and the reformulation issue, that is proceeding well and we are on track to initiating Phase 3, as we've promised, next year.

Could you give us some sense just on Levemir? Are we talking second half, mid-year, and when do you expect it to actually hit the market?

That is simply impossible to predict, Andrew, because it all depends on the regulatory process and the discussions and then after that, the price negotiations. So simply next year is what I can predict at this stage.

OK. Many thanks.

Thank you very much, Andrew. Next question, please?

Thank you. Our next question comes from Jo Walton. Please go ahead, announcing your company name.

It's Jo Walton from Lehman Brothers. I'm afraid a list of questions, as well, here. If we look at the U.S. insulin sales, they're up in dollar terms around, you know, 39%-40%. I wonder if you could give us a breakdown of the components of that growth, as you did in the first quarter, just to help us understand how sustainable it is? After all, it's only in the first half of this year that we've seen such strong growth. When do we expect to go back to a more sort of pedestrian 10% to 15%?

The second question is relating to local currency profit growth. You're producing more than 20% local currency profit growth this year and that's despite having the launch costs or the rollout of various things. Is it really a 20% rate that we should be looking at going forwards, given the mix shift you have to analogue rather than the aspirational 15% before we overlay issues of currency?

Could you tell us what the impact of delaying your capital expenditure will be? Is that going to have-- constrain you in some way to do with capacity?

And on your inhaled insulin, could you just give us an idea of what sort of things you're going to have to do, once you have reformulated and got your sterile solutions or whatever? Are the additional clinical studies that you are expected to do relatively simply? Are they just the same as you've done before but just for a longer period of time? I wondered if you could help us there, please.

Thank you very much, Jo. This Lars Rebien. U.S. insulin says, local currency growth, meaning that we have had a growth of operating profit of 20%, is that what we're looking for going forward, Jesper? The capital expenditure programs, what you are looking for there? And inhaled-- the inhaled projects, Mads, what is it that we are actually going to change? Are we going to change the clinical studies and what is that going to require? Let's start with the answer on the local currency growth of operating profit. It's more than 20% and the outlook going forward.

Clearly, the growth level that we were able to record this year is a consequence of the cost containment measures that we took last year and, of course, getting growth level of 20% out of our business is clearly, from my point of view, not sustainable. You have to link it to the expected growth that we have in our sales line and from there you can derive what is realistic and what we're saying is we expect our insulin franchise to grow by more than 10%. We're also guiding near-term that we think it's realistic that our NovoSeven franchise will grow in the ballpark of 15%. And from that kind of growth levels, I think it's pretty realistic to assume an underlying growth in our operating profit looking into the future in the 15% ballpark, which is, indeed, our long-term financial target and that's the best guidance I can give you.

As for the capital expenditure, I think the issues you're seeing and the reduction in guidance we're giving as for the spending specifically for 2003, this is primarily of a timing nature. There is no significant impact on our ability to supply the market in the near run. It's basically specific timing on the investments and I would anticipate that the investment level in 2004 will be slightly higher as a consequence of the lower investment anticipated for 2003.

Thank you, Jesper. Then I will deal with the U.S. insulin-- the components of the insulin sales and then Mads will take the inhaled part. You can comment on that.

The underlying sales growth of insulin in the U.S. was more than 30% and what we can say is that we are reporting 20%. The currency has an impact of more than 25%, whereas stockpiling and pipeline filling is less than 10% negative that needs to be deducted and the prices also-- the price increases also need to be deducted of less than 10%. That will give you some guidance on how to come to an underlying sales growth of around 30%.

Mads, inhaled insulin?

Right. Once these production process changes have been made, of course, you make a quick and valid bio-equipment study to show the same performance of the new system so that your data, basically, can be used throughout the program. Other than that, it's basically resumption of the clinical program in Phase 3 as we know it, implying that there will be both efficacy and safety studies down in both the U.S. and non-U.S. setting, i.e., studies in the efficacy area of 6 to 12 months duration and a major safety study up to two years duration. So we are still talking about a relatively major Phase 3 program that lies ahead of us.

Thank you.

Next question, please? Thank you.

Thank you. Our next question comes from Sebastien Berthon. Please go ahead, announcing your company name.

Yes. Hello, gentlemen. Sebastien Berthon from Exane. Some remaining questions. One is on license fee and other income. Is the fact that Pfizer will not be distributing HRT products in the U.S., I guess it's going to be lowering your license income, which is currently running at DKK125m per quarter. Would DKK100m be a fair estimate, going forward per quarter without Pfizer's license revenues?

And the second question is regarding Prandin. Given the destocking effect and the [inaudible] issue, what are your views for the Prandin development in sales going forward?

Thank you very much. This is Lars Rebien. I'd like to defer the question about how we are going to record the financial impact going forward of the termination of the Pfizer collaboration where we are changing from license income to sales income and, of course, we'll be taking some cost in addition to that. Jesper, how do you see that impacting other operating income, going forward?

The HRT franchise will be impacting five months of this year. We've stayed to our guidance of around DKK1b in other operating income and license fees for the full year 2003, so I'd say the impact on our guidance license this year will be slightly negative in income. On the other hand, you'll see a slight positive impact on our sales.

As for the guidance for 2004, I would rather prefer to wait our decisions in terms of distribution setup for U.S. and the general guidance on 2004 before I get more specific. But, generally speaking, we do not see the HRT-- or the changes in our HRT distribution in the U.S. having a negative impact on our operating profit. It's rather a redistribution of the income between various lines in the P&L.

Thank you, Jesper. With regards to Prandin I think the guidance we can give on that, if you look aside from occasional investment buying on the part of the trade in anticipation of price increases, if we look aside from that, which is what has impacted the stock situation in the first half, we should look at around a 5% growth opportunity for Prandin going forward on a normal quarterly basis.

Thank you for that question. Next question, please? And I'd like to alert you to the fact that we're coming closer to the closing of the conference, so now is the time if you are planning your questions to put them forward.

Thank you, sir. Our next question comes from Ben Yo [ph]. Please go ahead, announcing your company name.

Hello. It's Ben Yo [ph] from HSBC. At the risk of sounding obsequious I wanted to congratulate you on your sustainability agenda, particularly in Africa, but I was wondering if there might be any long-term positive financial impact if you did manage to start selling more insulin in Africa or is it mainly charitable?

Secondly, I noted your comments about the increased use of NovoSeven in elective surgery and I wanted to know how much off-label use of NovoSeven there was. Did I hear right that it was about 10% to 15%? And if this off-label use is going to increase, would it lessen the impact of the ongoing trials in NovoSeven if they were to be positive?

And thirdly, I wanted to know how much of a threat do you think biogeneric growth hormone is to your franchise in Europe and possibly in the U.S. later on?

Thank you very much. And thank you very much -- this is Lars Rebien -- for the kind comment about our activities in Africa. I would have to say that if you want to make an investment calculation on the investment in Africa it would have to have a very, very long payback time.

But what we do see, though, is we do see that we are having a major impact in terms of reputational value derived from this in the United States, in Europe. We have certainly benefited from being a preferred employer in Denmark. We have a significant benefit on the part of the motivation and productivity of our own staff as a consequence of those activities.

So it's far from being philanthropic. It makes sense from a business point of view. We all fee good about it and, of course, we hope that we will make an impact for people living in those parts of the world.

The next question comes about NovoSeven and elective surgery, investigational use. It is correct that we stated that the investigational use at the moment amounts to 10% to 15%. It is also clear that if we get positive indications from phase studies that this number could go up. If we look longer term on our NovoSeven franchise, we can see that the growth is expected to come from the new indications and, as a consequence, any clinical data which is supporting these new indications would increase the growth rate of our franchise. Otherwise, if we didn't get that, we would end up at a saturating situation where there would be less and less growth due to the maturation of the hemophilia franchise.

Mads, would you care to comment on the growth hormone situation, whether or not the possibility of a generic growth hormone would be a threat in Europe?

Yes, Lars. Of course, generic growth hormone, by definition, will always inherently pose some threat. We have to say, though, that the underlying reason why Novo Nordisk is now successful in actually growing our-- from albeit a relatively low baseline in the U.S., our growth hormone business, that is based on the success of our device system, the Norditropin Simplex system, which is the preferred liquid-based growth hormone.

So from that perspective, it doesn't really pose a threat because we're using our device as the lever to gain market share. And the other aspect-- and actually 95% of our sales is in that Simplex device. The other aspect is, of course, the focus of the therapy, whether it's children, adults, kidney-failure patients, AIDS [inaudible] and so on and so forth, but overall, it's not a major threat as we see it, because of our device-based strategy.

Thank you, Mads. Then, ladies and gentlemen, I'd like to ask for the last question, please?

Thank you. Then our last question comes from Mark Purcell. Please go ahead, announcing your company name.

Yeah, thank you very much. It's Mark Purcell at Deutsche Bank. I have just a couple of questions.

Clearly, the insulin analogue business is having a tremendous impact on your product mix in the United States. Could you remind us of roughly where your-- where the analogue base is, in terms of volume, what volume of your U.S. insulin business is insulin analogues? And where do you expect it to go in the medium term?

The second question was on NovoSeven. Obviously, off-label use of NovoSeven is running over 20% in the United States. I just wondered if you could tell us roughly where it's being used off-label and if there's been any influence from the recent studies that you mentioned, for example ISTH, or other studies last year, as well?

The third question is also regarding Pfizer. Perhaps to help you out with your 2004 numbers, do you expect to get any payment from Pfizer, given that they've terminated the deal with you on the HRT business in the U.S.?

And then lastly, just in terms of the sales guidance being under 5%, would that include or exclude the HRT business, which you've just started to book sales from in the U.S.?

Thank you very much, Mark. This is Lars Rebien. The first question was about insulin analogues in the U.S., what percentage is it and where do we see it going? The second one was NovoSeven off-label use, which you referred to as being more than 20% and has the last communication at ISTH had any impact on this and how would it be going forward? And Pfizer payments, how do we-- are we expecting a payment from Pfizer? And the HRT business going forward, our sales guidance, is that including the fact that the HRT business is now moving in the U.S., becoming on the top line as opposed to as a royalty payment?

Thanks.

Jesper, would you like to start with the last one? Do you expect to see any many changes or any changes that would be noticeable to the external world based on the change of the agreement with Pfizer?

Well, there's no agreement with Pfizer yet. We're discussing with Pfizer and then I'll probably cover point three, as well, the Pfizer payment. We are thinking that Pfizer unrightfully terminated a distribution agreement. We are discussing with Pfizer to find a meaningful solution. In the meantime, we are taking over the distribution to ensure that our patients have access to the products. We are evaluating what our strategy will be. What the outcome of the discussion with Pfizer will turn out to be, time will show.

As for the impact from taking all of the HRT distribution in the U.S. on our financial numbers looking at 2004, on the overall numbers I don't think it will have material impact. When you look at the specific growth rates for our HRT sales growth line, of course, it will record the sales in 2004, if that's the solution, then the growth rates for our HRT franchise will be positively impacted in 2004.

Yes, why haven't you included that, therefore, in your less than 5% guidance or should we assume it's over 5%, including the HRT reverting to the top line?

The guidance for 2003 is for sales growth of close to 5% includes the expected development in our HRT sales, including that we are now distributing HRT as from effective the first of August.

OK, thanks.

With regard to the insulin analogue business in the United States, it accounts for approximately 15%, 15% to 20% of our business. If you'd like to have a more thorough breakdown of sort of the model elements of the U.S. insulin business, analogues versus human insulin and on segments and competitors, I would encourage you to call our investor relations people. They can guide you through how we see the total model.

Sure.

And then, Mads, the off-label use illustrated by Mark was around 20%. I think it's a little bit on the high side, but have you seen any impact of the ISTH and where do you believe it's being used currently?

Yeah, OK, Mark. If we look at some of the recent conferences such as the ASH [ph] meeting, the ISTH and our own NovoSeven Symposium here in Copenhagen, my basic impression is that it's a multitude of areas where we are seeing investigational use.

If I should single out three areas, it would probably trauma, not unexpectedly, but definitely also the C&S area where both C&S bleeds and C&S surgery come into play, and then finally elective surgery in general where profuse bleeding might call for NovoSeven use on an investigational basis. So I think these are the three areas where we probably have observed most presentations in the field of off-label or investigational NovoSeven use. That's as far as I can quantify today.

OK. Thank you, gentlemen.

OK, ladies and gentlemen, thank you very much. Again, please know that it has been recorded this conference and it's available on our webcast, including the slides, and also that the slides from our road show, which commences tomorrow and which has a particular focus on the United States, will be available on our website.

Thank you very much for attending.