諾和諾德 (NVO) 2004 Q2 法說會逐字稿

Good morning and good after noon ladies and gentleman and welcome to the today Novo Nordisk second quarter results conference call.[OPERATOR INSTRUCTIONS] Now I would like to hand over to today's chairperson Mr. Lars Rebien Sorensen CEO. Please go ahead and I will be standing by.

Ladies and gentleman welcome to this Novo Nordisk conference call regarding our results the first half of the 2004 released earlier today. I am Lars Rebien Sorensen the CEO Novo Nordisk. With me, I have our chief financial officer Jesper Brandgaard, Mads Krogsgaard Chief Science Officer. Present are also our investor relations officer Peter Haahr and Palle Holm and with us on the line from the US we have our investor relations officer there Christian Kanstrup.

Today's earnings release is available on our home page novonordisk.com along with the slide show that I will be using this conference call. The conference call is expected to last approximately one hour. As usual we will start presentation as outlined. In slide number 1. The Q&A session will begin in about 25 minutes.

Turn to slide number 2. There is always a need to advise as this call will contain forward-looking statements. Such forward-looking statements are subject to risk 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 live and a replay will be made available on Novo Nordisk web site after the conference call.

I would like start this conference call with some highlights from the second quarter. please turn to slide number 3. The conversion to analogue continues to drive our sales for Novo Nordisk The cause is further accelerated by market share gains of both NovoRapid and NovoMix. In the late June, Levemir was launched in the UK and we are looking forward to further launches in key European market during the remainder of this year.

Within the biopharmaceutical sector NovoSeven continues to drive growth. However more about these products later in this presentation. Novomix 50 has been filed for approval in Japan. In Europe both Novomix 50 and Novomix 70 has been filed for approval. The filing of this (inaudible) insulins further solidifies our position at the company with the broadest insulin portfolio. Based on recent consultation with the European regulatory authorities we expect to file for European approval for NovoSeven in connection with blunt trauma.

Furthermore, we are pleased with the solid underlying financial performance. Sales grew 10% reported and 14% in local currencies in the first half resulting in a reported operating profit close to 12%. Despite a more challenging currency environment compared to the time of our first quarter release, the solid sales development coupled with prudent development of our cost enables us to increase our guidance for full year reported operating profit. We now expect our reported operating profit growth to be slightly more than 5%.

For the first time in 2004, I am on slide number 4 now, the diabetes care segment grew by 13 % in local currencies and accounted for almost two-thirds of Novo Nordisk's growth. The growth in diabetes care is driven by insulin analogues. The biopharmaceutical segment grew by 16% in local currencies and hence contributed to around a third of Novo Nordisk's overall growth in the first half of 2004.

With the local currency growth of 17%, NovoSeven is the key growth driver within the biopharmaceutical segment. Finally, please note that during the first half of 2004, the change in distribution setup for our HRT products in the US has impacted the overall sales growth positively by some 2%. This will not be the case in the second half of this year as the change of distribution setup took place in July 2003.

Turn to slide number 5 for an update on our Analogue franchise. For the second quarter, insulin analogues grew with 86% in local currencies. The growth is driven by strong market share gains of both NovoRapid and NovoMix in all regions. In terms of regions, it is North America followed by Europe which are driving growth. However, also Japan and Oceania as well as international operations are increasingly contributing to total analogue sales.

In 2004, Novo Nordisk has published clinical data clearly illustrating the leading profiles of our portfolio of insulin analogues. In diabetologia, results of close to 600 patient study comparing Levemir and NovoRapid to NPH and short-acting human insulin in an intensified treatment regiment were published. The results showed the patient in the study obtained a statistically significant reduction in both HP1AC as well as octurnal and overall hypoglycemic events.

Importantly the study also showed a statistically significant reduction in weight for patients using Levemir and NovoRapid compared to patients using human insulin. In June, at the American Diabetes Association's annual meeting in Orlando, Novo Nordisk published data establishing NovoMix as the ideal starter insulin for people with Type 2 diabetes.

In a study comprising more than 200 patients comparing NovoMix with insulin (inaudible) and Novo Nordisk shows that close to 50% more of the insulin naive patients reached target HP1AC of below 7 when using NovoMix compared to using insulin glargine. The study was a 28-week over-labeled parallel group study with comparable treatment regiments where patients took NovoMix therapy before breakfast and dinner. Patients using insulin glargine took their treatment at bed times.

Those study (inaudible) and orange (ph) diabetic medication. The results highlight the importance of targeting (inaudible) regulation when initiating insulin treatment of people with Type 2 diabetes.

Turn to slide number 6 for further insight into the dynamics of the analogue market. All in all, the industry has now converted around a third of the insulin market to analogues and the trend still looks solid. The conversion to analogues is driven by all segments and it together with the ongoing conversion to especially disposable devices driving a solid value growth of the insulin market.

Novo Nordisk is continuing to gain market share within the analogue market, maintaining a solid performance since the first quarter of 2002. Novo Nordisk now holds more than a quarter of the analogue market. The second quarter insulin analogue constituted more than 20% of our insulin sales. In North America which is the main growth driver for our insulin analogues, close to 50% of the insulin sold is now analogue.

Please turn to slide number 7, providing some further insights into the drivers of our analogue market share gains. Both NovoRapid and NovoMix now commands close to 40% of the analogues in their respective segments. All regions are contributing to the growth. Underpinning the solid market share gains are clinical profiles of the two insulin analogues but also very importantly the very high preference for flextra (ph) and the consistently prefered a disposable device in which both analogues are launched.

The very solid growth rates of NovoRapid and NovoMix are reflected in our overall insulin market share where we now command 49% market share in the INS world in the 12 months ending March 2004 compared to 47% in the previous 12 months. The continued launch of Levemir in Europe is expected to further underpin this positive market share development.

Turn to slide number 8 which provides you an update on NovoSeven. NovoSeven sales increased by 13% in local currencies and by 10% in Danish Kroner in the second quarter of 2004. The growth of NovoSeven was primarily driven by North America followed by Europe. However also Japan and Oceania was adding to total sales.

A number of factors contributed to NovoSeven sales growth in the first half of 2004. Due to the high penetration with instantaneous bleeding for congenital inhibitor patients, the predominant part of the growth in the inhibitor segment has been generated by treatment of acquired hemophilia patients and the usage of NovoSeven in connection with elective surgery.

Treatment of spontaneous bleedings for congenital inhibitor patients remains the largest area of use. In addition, sales are seen to have been positively affected by increased investigational use of NovoSeven. The recent development within NovoSeven expansion program makes us excited about the future development of NovoSeven. Mads will revert to this later in his presentation.

Turn to slide number 9 for an update on the sales by region. We are seeing solid sales growth in all regions with North America constituting or continuing to be the main growth driver. North America now constitutes more than 25% of Novo Nordisk sales and contributes with more than half of the growth in the first half of 2004. We will return to North America shortly.

Growth in Europe is negatively impacted by the price focused health care reforms in a number of countries. However, we are continuing to see solid growth rates in our key strategic products, the insulin analogues and NovoSeven. Furthermore, also in Europe in somatropin is adding to growth via market share gains.

In Japan and Oceania growth is driven by the insulin analogue and NovoSeven whereas the growth hormone franchise continues to be challenging. Novo Nordisk remains the only company with the two analogues on the market in Japan following the launch of NovoRapid - NovoRapid 30 mix in the latter part of last year. Like is a case for NovoRapid - NovoRapid 30 mix is also showing results in the patient in Japan.

Sales in international operations are driven by insulin analogues and NovoSeven. The growth is analogue driven primarily by solid penetration in Turkey whereas the growth in human insulin franchise is driven by solid sales in China, Brazil and in India.

Turn to slide number 10 for an update on the sales development in North America. In the second quarter, sales in North America grew by 33% in local currencies and 25% in Danish Kroner. The growth in North America is driven by insulin analogues and also here by NovoSeven.

In the second quarter, sales of insulin analogues more than doubled now constituting close to 50% of total sales. Within the NovoSeven area growth is driven by increasing penetration within acquired hemophilia as well as increasing investigational use. Finally, growth in second quarter was positively impacted by the change in distribution setup for our HRT products, which has added some 10 percentage points to the growth in the US. Again note, that the for the reminder of 2004, this will be not be positively affected as the change in distribution setup took place in July last year.

North America is expected to remain the key growth driver for Novo Nordisk. Driven by solid insulin market growth, supported by significant value upgrade opportunities and moreover the solid growth in Novo Nordisk's insulin market shares is continuing in the latest statistics with the overall US insulin volume market share of around 34%.

Within the biopharmaceutical sector, expanding the use of NovoSeven as well as continued and strong penetration for somatropin is expected to add to growth. The ongoing corporate branding program as well as formation of the new partnerships are increasing the awareness of Novo Nordisk and Novo Nordisk's cause in the US. With this I would like to hand over to Mads, who will give on update on the development within our guidelines.

Thank you Lars. Please turn to the next slide. I will first give an update on our diabetes pipeline and then revert to the status of NovoSeven pharma and ICH on the following slides. Over the years, Novo Nordisk has communicated the rationale for having a good portfolio of insulin analogues targeting intensive basal (inaudible) therapy as well as convenience driven premix therapy.

As mentioned already by the Lars, European and Japanese submission of NovoMix 50 and 70 has just taken place. Once NovoMix 50 and 70 complete the premix portfolio of analogues, Novo Nordisk will be the only company providing diabetes patients with the full range of premixed insulin analogues. The high mixes as we call them, NovoMix 50 and 70 will be positioned for the patients who over time need to intensify their twice daily NovoMix therapy regimen with a mealtime dosing regimen using either NovoMix 50 or 70. US filing can be expected later this year.

In the AERx project, it has been decided to support the twelfth-month interim analysis of (inaudible) glucose regulation data in Type 1 diabetes with a pharmacokinetic extension within the current Phase III safety study in Australia. These pharmacokinetic data will be reported in the first half of 2005. Design and completion of the remaining phase of preclinical studies will depend upon the outcome of these analysis. Novo Nordisk and Aerodyne remain committed to the inhaled instant project and will continue to keep you update.

Within the key power (ph) class of all antidiabetic compounds, FDA has recently issued definitive guidance for the timing of preclinical studies, which industry-wide may result in a delay in the initiation of Phase III clinical trials. The reason is that in the future two-year carcinogenicity studies must be completed and submitted to the agency for consideration prior to Phase III initiation.

For (inaudible) this will imply an estimated delay of 12 to 18 months. Regarding the (inaudible) our once daily human due to one analogue, we are still planning on starting the Phase III later this year expectedly towards the end of the year.

The expansion of EU label for Levemir to include children has recently been applied for within AMEA based upon data to be presented at the forthcoming ESD conference in Munich. Here, we'll also present strong data on the use of Levemir as add-on to all antidiabetic therapy in Type II diabetes, data that will confirm Levemir's unique profile of good control, predictability and low risk of high pulse and weight increase.

Moving to NovoSeven, Novo Nordisk has as part of the clinical expansion program initiated an exploratory Phase IIA US based study on the use of NovoSeven in connection with spinal surgery.

With regard to an update on trauma please turn to the next slide. The data shown here are from the Phase II study that was presented at the World Trauma Conference in March and they have formed the basis for entering into a dialogue with EU regulators. In this context, I am very pleased to inform you that based on the recent consultation with the European regulatory authorities Novo Nordisk now expects to file for EU approval of NovoSeven within blunt trauma.

Following the discussions with EU regulators, this EU file will be based on the existing Phase II data supplemented with a number of other relevant analysis that further document the safety and efficacy of NovoSeven. Filings which is expected in the first quarter of 2005, is earlier than previously anticipated since no Phase III-A study will be needed.

EU approval for the blunt trauma indication could occur later in 2005. In the US, we are very pleased that FDA has lifted the clinical role for NovoSeven in trauma and consequently Novo Nordisk expects to initiate a US trauma study within the next six months. This study will be carefully designed in collaboration with the FDA and external experts in order to achieve the best possible outcome of the trial.

Please turn to the next slide for an update on intracerebral hemorrhage ICH. ICH is the deadliest form of stroke and has currently no effective therapy. On June 22, this year, Novo Nordisk announced results from the Phase II-B NovoSeven study that those dependently demonstrated a significant reduction in Hematoma growth as well as improved 90-day functional outcome.

On this slide, you can see the significant functional improvement following NovoSeven treatment as judged by the modified Rankin scale. It is evident that less than 10% of placebo treated patients return to normal life whereas 25% of the NovoSeven treated patients did so.

Also the various stroke scales utilized in the study highlighted that for every six patients being treated one death or long-term severe disablement was avoided corresponding to approximately 50 patients being saved in this study. These and other key findings from the study have just been presented as late breaking news at the World Stroke Conference in Vancouver, Canada.

The regulatory process for NovoSeven use in ICH will be determined in liaison with the regulatory authorities in Europe and the US at meetings that have already been scheduled. Finally, I would like to state that my colleagues and I are looking very much forward to October 5 where we will host the first NovoNordis capsule market day that will focus on our biopharmaceuticals R&D including of course NovoSeven. Now over to you, jesper.

Thank you Mads, please turn to slide 14, providing you with the details on the financial results. We are very pleased with a solid sale growth of 40% for the first half of 2004 in local currencies. However, due to the continued weakness of our main invoicing currencies throughout 2003 and 2004, sales in reported terms have been impacted negatively.

For the first half of 2004, our reported sales growth was 10%. In the second quarter alone, sales grew by 13% in local currencies and by 12% in Danish Kroner. Reported operating profit increased by 12% in the first half of 2004 whereas underlying operating profit grew by close to 20%.

For the second quarter, operating profit grew by 15% in reported terms. As was the case of the first half of 2004 underlying operating profit also grew by close to 20% in local currencies in the second quarter alone. Net financials showed a net income of 107 million Danish Kroner in the first of 2004 compared to 521 million Danish Kroner in 2003.

Novo Nordisk recorded a net foreign exchange gain of 174 million Danish Kroner primarily related to the hedging of the US dollar. This compared to a gain of 843 millions Danish Kroner in first half of 2003.

The tax rate for the first half was 33% down from 34% in 2003. The lower level of financial income compared to the 2003 results leaves net profit unchanged compared to 2003 where as earnings per share increased by 1% reflecting on going impact from the ongoing 5 billion Danish Kroner share repurchase program announced in April this year.

Please turn to the next slide for an update on our currency exposure. Since the release of our first quarter results on 29th April, we have seen a weakening of the US dollar and the Japanese Yen, where as the British Pound is more or less unchanged. Hence the negative impact from currency development and operating profit continues.

That being said, with the current level of currencies the most significant currency impact was seen in the first quarter of 2004. Currently Novo Nordisk has hedged future cash flows related to the US Dollar, 12 months ahead, the Japanese Yen, 11 months ahead whereas the British pounds is hedged 8 months ahead.

Please turn to slide 16, for an outlook for 2004. Novo Nordisk will expect a sales growth for 2004 of around 10% whereas we now expect a reported operating profit of slightly more than 5%. Hence, despite the deterioration of currencies since the time of our first quarter earnings release in April, we are able to slightly increase our operating profit guidance.

Measured in local currencies, we expect sales growth of some 11% to 14% for 2004 and the resulting growth in underlying operating profit is decreased from 15% to now a growth rate of between 17% to 20%. The increased expectation to operating profit growth in 2004 reflects the continued solid development in sales supported by some overall development in costs.

A change in phasing for some development projects will result in research and development costs growing at somewhat lower rate than forecasted for the reported sales. This may on the other hand lead to a higher relative growth rate for research and development cost in 2005. We will revert to the market with more details to the 2005 outlook once we have outlined the detail plan.

Given the weakening of the US Dollar and the Japanese Yen since the outlook provided in connection with first quarter results in April, Novo-Nordisk now expects net financial income for 2004 of 100 million Danish Kroner. For 2004, Novo Nordisk still expects the tax rate to be around 33%, 1 percentage point lower than the tax rate realized in 2003.

Novo Nordisk still plans to invest around 3 billion Danish Kroner in fixed assets in 2004 and depreciation and amortization are still expected to be around 1.8 billion Danish Kroner. The free cash flow is still expected to be around 3 billion Danish Kroner. All of the expectations are provided that currency exchange rates remain at the current level for 2004. This concludes our presentation of the financial results. Lars Rebien Sorensen will now moderate the Q&A session.

Thank you very much Jesper. Please ladies and gentlemen note that this conference call is being taped and the replay will be made available on our website after this conference of course. And operator we are now ready to take the first question please.

+++q-and-a:

Thank you sir. [OPERATOR INSTRUCTIONS]. Our first question comes from Henrik Simonsen. Please go ahead with your question and announce your company name.

Hello, and good afternoon gentleman, congratulations on the strong quarter. Few questions if I may. First of all I was wondering if Jesper could provide a little bit of guidance regarding the margin development as far as into the guidance you are providing in local currencies. However we turn around the numbers you should be reporting an average EBIT margins for 2004 of around 26% or so. And looking particularly at the second quarter I was noting that your both the EBIT margins for the Diabetes Care division rose to close to 19% and the gross margin was up to I think 43% in the second quarter.

Perhaps could you tell us a little bit what's going on in by Diabetes Care in terms of margins and how you see the margin development going forward? And then secondly, I was trying if you would be in a position to comment on the expected launches of Levemir in Southern Europe in particular France, Italy and Spain where I know (inaudible) has been into a tough discussion with the regulatory authorities.

Yes, thank you very much, Henrik Simonsen and thanks for your nice greetings. Yes, Lars will take the first question on the margin development in particular because it relates to the Diabetes business.

First, I think overall on the margins I think the - when you look at the operating margin you have to go into the individual elements, and I think the guidance we have given still remains pretty accurate. We have said for our operating margin that we expect the -- sorry for the gross margin we expect that to improve this year. We have actually seen an improvement in the first half, we expect that level of around 72.5% to continue in the second half. And that will then underlying actually be if you adjust for the currency impact, which full year will probably be to the tune of 40 basis point then you are seeing a improvement in our gross margin to the tune of 50 to 100 basis points.

So, that's a - that's a positive development. And there you are seeing the effect of NovoSeven on our raw numbers and also seeing the margin impact coming from the analogues and here it's primarily the US analogues, which are providing the impact in terms of gross margin.

In terms of sales and distribution cost, expect overall a continuation of the level of around 30%, maybe slightly below. Note that the second half will cover more cost in Diabetes Care for the role out of Levemir. We only launched in the UK at the end of second quarter, hence the full year effect will be a higher burden in second half. Also the expansion of sales force will have a full effect in second quarter, only a partial effect in the first half of the year. So, those will be effects that drives our sales and distribution cost to a level of around 30%, second half and also somewhere close to that for the full year.

In terms of R&D we have had to notify the market, that we will be slightly below the 15% to 16% guidance we have given in terms of sales. It looks like we will be just close to the 15% mark as per timing reason of course. We had anticipated that we were to stop a trauma trial in Europe, in the second half of this year to prepare for approval.

Now we've informed that, that is no longer necessary and the trials in the US as Mads has alluded to will only start at the turn of this year and as a consequence, we will have no real currency here, sorry, no real cost impact in 2004. But we will see in 2005 and that was why I mentioned that there might be some effect in terms of both rate in our cost between 2004 and 2005 where you see a slightly higher growth rate in 2005.

And then on the admin front, just finishing the cost picture off. Admin costs continued to decline in percentage of sales last year we were at the 7% sale ballpark. I would expect this will drop a few a few basis points in 2004. So, I think that's the overall picture.

Specific comments on Diabetes Care probably primarily related to the development in gross margin. The more analogues we sell in the US the better our gross margin develops and of course within in the biopharmaceuticals the more we sell of NovoSeven the data for the operating margin within biopharmaceutical, I think that would be the level of detail, I will get into in terms of two segments.

Thank you, Jesper this was quite extensive. To the second question, I would try to defer and try to answer the question in a slightly different way for obvious tactical and comparative reasons. We are marketing Levemir in Switzerland, as you know, in the UK, in Germany and in the Scandinavian countries.

As we get further south, it is true there is an issue relating to greater and greater difficulty in obtaining a reasonable price and the reimbursement for these types of new products that are obviously at higher price and it seems like the further south you go the more difficult it gets. So, those would be my comments and we are in negotiations with the authorities in different places about reimbursement and pricing and we will be ready to roll out in these markets as these prices are settled and we are able to move forward but look for Germany and Scandinavia as the next markets to roll out.

Thank you for your question. Next question please.

Thank you. Our next question comes from Annette Lykke. Please go ahead with your question and announce your company name.

Thank you. Annette Lykke from Carnegie. Lars, I have a question for you. I think it would be very interesting to get or if you could provide us with some insight in the longer-term what you think these new indications for NovoSeven, ICH and trauma will mean for Novo Nordisk both financially, but also for your strategy and then I have a question for Mads afterwards.

Thank you Annette. This is Lars Rebien. Yes. It's a very significant product for Novo Nordisk and for the future growth of Novo Nordisk you can only look through the release of the operating profit on this segmented data between Diabetes and Bio-Pharm and give us an indication of how important, NovoSeven going forward is for our company?

By expanding into the areas like trauma, like ICH we are getting into, let's call it, therapeutic fields, which are unknown to Novo Nordisk but which may give us an opportunity to on the long-term develop other new protein therapeutics for these areas. It is interesting for us to note that if we talk about emergency room treatment, insulins are being used to insure that patients are not having to (inaudible) excursions in the blood sugar when they go into shock and are admitted into the hospital for intensive care treatment.

Likewise, we have been looking into and we have clinical studies in complicated fractures and growth hormone. So, you can see there is actually, in terms of intensive care and surgery, there are almost portfolio products, which might be emerging. So, basically you should be expecting that Novo Nordisk in the future will be looking to expand the company's business platform.

That based on our (inaudible) pharmaceutical expertise so that we will build on our insulin franchise, new products for the diabetes area preferably for us protein related as it is with Liraglutide but also opportunistically as it relates to (inaudible).

Outside of that we will expand the NovoSeven area, we will find new indications and sort of, gradually build, grow open the growth hormone area and then we seek to build the other BioPharm platform and we already have the inkling of that with in license product that we have from ZymoGenetics in the area such as Oncology and Inflammation.

When we talk about NovoSeven itself, there some opportunities NovoSeven itself to add value to the franchise because we also noticed that the patent is expiring in the beginning of the next decade. As a consequence, we are looking at modifying the molecule so that we perhaps can provide molecules with a different pharmacodynamic profile and thereby allowing us treat areas of critical bleeds, bleeding episodes, which are not lending themselves to treatment as well with NovoSeven today.

In terms of financial expectations for the individual indication area, I think we have already given indications on the number of incidents. We are now getting more and more visibility on the level of dosage. Think only of the dosage recommendation that Mads mentioned, blunt trauma with 200 mcg/kg followed by 100 mcg additional dose until cessation of the bleeding. So, there you start to have now a little bit more modeling to be able to do.

Likewise, when we talked about the ICH, we are starting to see now that dosages in that population could go all the way up to 140, 150 mcg depending on the severity of the bleed and the experience that the cessations are collecting with this product going forward. So, I think we are starting to get some indications for you that you can assess the market potential on. I would not like to go any further however on some of the other indications, other than the peak number of incidents that we mentioned before but perhaps Mads if you have some comments to this and then we ask for analyst next question.

No, I think its fine. I just to stress Lars is last issue, you know we are already doing that in the area of critical care medicine. We have to mention that they are relatively few sites and centers when it comes to trauma treatment and so on, so forth. So, when we now look at, like becoming successful within the trauma and also ICH, we are speaking about a very scientific cell, i.e., this is not an area where huge sales rep forces are needed but rather an area where the (inaudible) driven sales are the name of the game and this means that we need very dedicated staff but in not in a very large numbers.

Then the final comment for me on the financial outlook in this respect would of course be that we then also need to take into consideration what will be the penetration rate in those areas. And we can of course not expect to get full penetration and secondly that we here are dealing with the penetration, which currently, already to some degree, is existing as we have investigational use already occurring for NovoSeven. Our current report seems to indicate that we are seeing approximately 15% of total sales being investigational related and that you could argue an element of that is already penetration of those indications.

But also could I ask if you think its likely that your financial target of an EBIT growth of 15% could be changed due to those outlooks?

I think that's unlikely.

Thank you and then Mads, in respect to the US trials in trauma and thank you for the long answer before, I will make it short. Could you Mads, your trauma trial with the FDA, can you tell us what it is that has changed the mind of FDA since they are now allowing you to make a trial on human beings?

And secondly if you could give, I know of course it's difficult at this point of time, but give us a some line of how many patients you are expecting for this study? Is it a very small study with less than a 100 patients or is it more like the ICH study with 400, may be 500 patient or more than that? And then finally if you could elaborate a little bit in respect to whether you expect to have a composite end point or a clean mortality endpoint?

OK, thank you Annette for those three questions. First of all, I cannot of course speculate on what's going on in the mind of these excellent regulatory officers in the FDA. What I can say is though that we have been, having a meeting with the FDA here over the summer period and what came out of that very constructive meeting was that the clinical rule has now been lifted based upon them reviewing in extenso the data from the non-US trauma study that is actually forming the basis for the regulatory file in EU.

But having the FDA review those data made them conclude that we are now fully free to move into the trauma trial that will be designed in a such a way that we, first of all, will not be looking at mortality. I can tell you the agency have already, this is pretty important because typically the agency has been looking for mortality endpoints. So, the good news is that this is not the case. That's the first guidance for you in terms of numbers needed for the study. The second guidance is that they will probably not allow approval based on blood transfusion alone. This is not the kind of way that the FDA does these things.

Hence, what's there left, well that would be composite end point as the one I showed you on the slide that typically comprises one or more elements of bleeding and the complications of bleeding ranging from AEDs (inaudible) all the way down to mortality. So, with that I cannot give you further guidance other then say that we are looking both in blunt and penetrating trauma in US and the study was that around the year-end or at least within the next six months. So, that is basically it and what's the mortality really?

No thank you.

OK.

: Thank very much Annette. Next question please.

Thank you. Our next comes from Poul Lykkesfeldt. Please go ahead with your question and announce your company name.

Good afternoon. Poul Lykkesfeldt from ABN AMRO. Just a follow-up on the previous question, the NovoSeven study in the US. Would it be possible to - add little bit more about the (inaudible) system, the purpose of the study? Is that dose finding and what we are talking about? And also if you could provide just a vague feel for what is the timeline we are looking at in connection with the approval in the United States?

Then in connection with the original approval process, the US authorities were relatively rigid in their stance. Would you guide caution in connection with the amount of expectation as to approval time for NovoSeven? That was one. Then secondly, the how large of a portion of the increase in the guidance for EBIT '05 is due to savings in the R&D area and what R&D percentage would you guide for '04, if you could? Are we back to the 15-16 range there and then lastly, investigation use, that percentage, if you could update me on that percentage, what is it and is that stable or increasing? Thank you.

Thank you and I will have Mads Krogsgaard with the first question is some characteristics on the US trauma studies that are about to be initiated towards the end of the year and your speculation on whether or not the historical stance on FDA would have any impact on assessment of - and approval time based on this study?

Yes. Several comments to that one Poul. First of all, it is true that the FDA has historically been cautious regarding the safety profile of NovoSeven and what actually has made them convinced this time around that we can move into full blown trials in the US, is that they have seen a safety database in young male trauma victims as the one that we have provided combined with the efficacy that we saw, so hence they have no further undue concerns as to the profile when we move into American trauma patients.

I should say that with regards to dose finding the good news is that the agency are not seeking dose lengths studies within trauma. We have provided them with data on what (inaudible) levels of NovoSeven is achieved following our kind of three dose regimen of 200+100+100 in each patient. And they have also realized along with us that it is not really realistic type different dose groups in as much as there's a huge scatter between the patients in what's actually achieved even using one single dosing regimen like we have done. So that is good news. It is only going to be NovoSeven against a placebo.

In terms of the timeline, well this depends upon the amount of patients and which trauma sites are being involved. And it is true that the US trauma quantity or quality of trauma setups is the highest in the world, hence it will only go for let us say for the top-tier trauma centers, fewer patients would have to be involved and vice-versa and overall you can say that a study of this nature is of up to two years duration here depending on the end value of the number of patients needed.

Regarding approval times, I should mention which I have forgotten to, that this is not a new drug application, it is so called a supplemental NDA i.e. it is something that supplements the data we already have for NovoSeven within hemophilia treatment and likewise in Europe it is a so-called type II variation, which means that the approval time is six months. The regulators have six months to review the file, as opposed to the other numbers that we know for complete new drug application.

Thank you Mads.

One more question here Mads.

OK, go ahead.

Of those studies and then the approval time of around six months, but are we talking - is that the time horizon from now around 30 months or do you have additional studies to be conducted other than the one you will be looking at now?

Well Poul, in regards to Europe, we are pending a positive opinion from the EU regulators. We are expecting to be able to launch over the next year, of course. So, that's the European situation. But in regard to US, you are right that this study, let's say, if it is around two years from now, will also mean that we have to add the regulatory process and then you are on the ballpark of the 30 months.

What I cannot say at this stage is whether this study will or will not be the only pivotal file. That is simply not for me to speculate on at this point in time because in the European situation, we are all aware of the study being originally at least two trials that ended up becoming the pivotal file. So, that's too early to speculate.

Thank you.

Thank you Mads and then Poul if I maybe having the liberty of rephrasing your question little bit because I think that was, there was a little confusion on our side. Was your question, that to what extent as the change in R&D percentage effected EBIT guidance for 2004 and what is our expectations for R&D percentage in 2005, was that the question?

Yes, I mean of the improved profit you get, how much of that is due to R&D?

And what are we expecting for next year, right?

In terms of percentage of sales, yes exactly.

OK, that's clear. The changed guidance approximately 100 million Danish Kroner can be attributed to a lower expected spending on R&D and with that in fact, we mean that we will a little bit be struggling to get within the 15% to 16% R&D, which is our long-term target and also what we incorporate in our long-term financial targets0.

We generally say and we want to speak to that that we don't want to achieve our long-term target by under-investing in R&D. So, soon you will see the deviation in 2004 as a timing issue and consequently the effect for 2005 would be that R&D spending rate there will be higher and I think we will elaborate more on the specific level of R&D expenditure probably in connection with full year result release, which will be end of January 2005

Thank you Jesper. Next question please.

Hello, last question was that the percentage of the investigation use NovoSeven, how much is the percentage now in sense of stable or is that percentage increasing?

We have mentioned just before that we believe that the investigational use is currently amounting to around 15% and we have seen a slight increase over the last couple of quarters.

Thank for your patience.

Thank you. You are welcome, next question please.

Thank you. Our next question comes from Sebastien Berthon. Please go ahead with your question and announce your company name.

Yes, hello gentleman. Sebastien Berthon from Exane BNP Paribas. One question on the inhaled insulin, just to make sure and understand it well, you have no trials right now in Type 2 diabetes patients. So, does that mean that you won't be able to launch your Phase III in that population before the second half of next year? And then a financial question, what is the ForEx income you are estimating for 2004 based on your 100 million Danish Kroner income for all that year? Thank you.

Thank you. (Inaudible), it is correct that we have no Type 2 studies ongoing at the moment and hence what time can it be expected and when do we have the Type 2 studies in Phase III with the average system.

Yes, well the Phase II study that we did basically was in Type 2 patients for 12 weeks and the pre clinical package that we have done would suffice for long-term studies on Type 1 and Type 2 diabetes. So, it is definitely the intention that some of the next studies pending the outcome also of the PK pharmacokinetic investigation that we are now doing in the ongoing Type 1 diabetes studies, they will definitely be in Type 2 diabetes patients, which we believe are by far the largest target population we are dealing into.

Thank you very much.

Sorry, so that means you won't be able to launch any Phase III study in that population before you have the pharmacokinetic study even in the Type 1 population?

Yes we will not launch a Phase III study in that population until we have reporting from the pharmacokinetic analysis. So, what I basically saying is that we are not starting any new Phase III study over the next months but we will give you more guidance once we have the pharmacokinetic data. The intention is to launch further Phase III studies next year obviously.

Thank you Mads. As per ForEx guidance included in expected net financials for 2004?

You have noticed that we have net financials of around 100 million already at half year. We have only had a loss in our associated companies, which primarily related to ZymoGenetics and Aerodyne (ph) Corporation of around 100 million.

The expectation for the net losses in the associated companies in the second half is slightly higher and as a consequence we also expect the finance income, the hedging income in second half should be more or less balancing this, it will probably be in the 100 million to 150 million loss in the associated companies and matching income from hedging and that will basically leave net financial in the second half of 2004 flat and leaving full year at the 100 million mark, we are at currently.

OK, thank you very much.

Thank you Jesper. Next question please.

Thank you. Our next question comes from Mark Purcell, please go ahead with your question and announce your company name.

Yes thanks very much this is Mark Purcell at Deutsche Bank. I just have three questions. Firstly I just wondered if you could give us any idea for the timing of those meetings for the authorities on the ICH negation for NovoSeven, when we should expect to hear anything? Whether it should be between now and the nine months results?

The second question is with reflection on the arEx development program, I just wanted to know if you had any more details on the antibodies that you saw in Type 1 diabetics and if you could just remind me of the main purposes of the PKNPD studies? And then lastly, I think your medium term EBIT margin target is 25% and it looks like you should be achieving that next year. I just wanted if you felt that was reasonable and what a longer term EBIT margin target now might be?

Thank you very much Mark. Mr. Mads -- what are your expectations of those quite interesting meetings with regulatory authorities on these great results and on ICH?

Yes well Mark, they are scheduled both with the European agency and the FDA for later this year. I will not reveal any specific dates on those meetings but I can tell you that they have been scheduled and we, of course, preparing diligently before those meetings and that is of course relating to ICH, if and how to potentially do Phase III studies.

When it comes to the arEx antibody situation, you might recall from the Type 2, Phase II study that we had different antibody types but in some patients but we definitely did not see serious IgE allergenic or so called allergy associated antibodies. That was not the issue.

The issue with this, Phase III study that we have done in Type 1 diabetes seems to be that there are significant antibodies traits (ph) after one year of treatment that might be changing the pharmacokinetic profiles since it looked like mealtime glucose profile was not acceptably controlled.

I have to say though that the overall Hb1c was actually similar between the arEx treated patients and the injectable insulin treated patients. But we would like to investigate if it.s so that the antibodies are changing the pharmacokinetic profile in Type 1 diabetes and that's the purpose of this particular investigation.

Thank you Mads. The next year's EBIT target and what are the long term?

Well I thank Mark, thank you for the confidence in us and already wanting to increase our EBIT targets in 2005. I think there is one key element for me, which makes me a bit more cautious than what you are sounding. You have to remember that we have had this year and will have this year, non-recurring items to the tune of 250 million Danish Kroner or some 5% growth in operating profits and of course 4%, 5%.

And of course those elements are relating to the size of the settlement we did on HRT in the first quarter and the expected income from the last date of the lenses patent settlement, which we have forecasted will get into our numbers primarily in the fourth quarter. And those 250 million odd will be missing next year and that's why the EBIT margin will be a bit challenging next year in terms of getting all the way to the 25% mark, which we set as our long-term target and I think -

So, I wouldn't expect those to revisit our long term financial target and we still have a little bit of way to go with our return on investment capital. That's the final element of the long term targets, which we also had to get there fully in shape. So, I think we will be working hard on the numbers and the long-term targets in 2005 and then let's see if there is - if we can create an opportunity to revisit them when we get to 2006.

Thank you Jesper. Last one or two questions.

Thank you our next question comes from Paul Mann. Please go ahead with your question and announce your company name.

Yes, Paul Mann from Morgan Stanley, thanks for taking my questions. Just two questions, in the discussions with the FDA you had on NovoSeven and trauma, do you think they are happy with the doses that you have been using so far or the dose schedule you have used so far and is it likely you are using multiple doses in your next study if you could do so?

Mads, I believe you have been discussing this slightly earlier; perhaps you should reiterate your understanding of the FDA's decision on multiple doses or dose timing studies in trauma?

Yes, very briefly our previous concern and maybe that of others has been that is it really so that one would proceed with 200 mcg and then later on 100 and then later on again a further 100, adding up to a total dose of 400 mcg. And what has come out of the analysis that we have done on the pharmacokinetics of NovoSeven in trauma patients is that there is a huge variability in the plasma levels obtained between two patients receiving exactly the same dose.

Hence the regulators, and that goes both on the American side and the on the European side, have clearly accepted that you cannot with any clinical, meaningfulness do dose connection or dose differentiation in this patients but rather do a dose study weighted 200 and then followed by 100 and other. This does that mean that the labeling is going to say that this is how to proceed, the labeling that we are kind of striving for in Europe is going to see the following. You give 200 mcg and then you continue with the other mcg if the bleeding is not arrested and likewise with a further 100 up to a total 400.

This is just what I told you at the trauma meeting in March where will we also speculated that a total dose of 400 could be needed but would not always be needed in each individual case. I think we gave you the guidance of 200 mcg in total and that's seems for many patients maybe still too but it will be on an individual basis.

Thank you very much, was there another question for Mads here?

Yes, there was a (inaudible) concern that the study you are going to run in US is more of a sort of Phase II study than a Phase III study and in the usual courses of events, you would need to run on an additional study after this next study in order to gain approval. I was wondering if it is possible the FDA may accept your filing on the back of this next study?

Yes that I think we are have learned, you cannot really call things either Phase II or Phase III in this area. It was pretty much depends on the statistical powering of the study. Obviously if you power such study in such a way and have endpoints that are of such a nature that if you end up with the study that is either terminated prematurely or on time with very significant findings. Then it's hardly ethical to conduct further clinical studies.

So, that being said, I cannot at this point in time, differentiate between Phase II and Phase III per se but would rather say that this is the study that we will be initiating over the next six months and then we will basically take it from there but may be we can be more wise at a later point in time. I think the history of NovoSeven in trauma in Europe has thought us that differentiation in the BioPharm area between Phase II and Phase III is not in each and every case, a very sensible.

That's great. Thanks so much.

Thank you. Can we have one last question please?

Thank you. Our last question comes from Vikram Sahu. Please go ahead with your question and announce your company name.

Good afternoon this is Vikram Sahu from Goldman Sachs. Lars, fairly decent performance from the team in the US when it comes to growth rates but in Europe we have seen now, in the diabetes area, I think another quarter where the growth rate is relatively anemic in contrast with the performance you delivered historically. Can you just drill little down into those dynamics and can we see or expect to see a restoration to double-digit growth in the European diabetes franchise?

And then a follow-up question if I may, just again linked to diabetes again, in the US, Lilly is talking about greater resource allocation to its diabetes portfolio and perhaps that's in response to your market share gains. Can you remind us how equipped you are at Phase II to make sure that Lilly doesn't sort of halt your market share gain? Please.

Yes thank you Vikram. This is Lars Rebien here. First about the, yes, rightfully termed, anemic situation in Europe. It is sure that we have been impacted somewhat by the stocking event that took place late last year in an anticipation of these health care reforms. So, there we saw a pipeline filling at the end of last year, which is now been de-stocked and that had some significant bearing on our insulin business in the European business for the first half.

We are expecting that the de-stocking will eventually will be washed out. So that we should underlying end up close to double-digit growth rates of our European insulin franchise. But it is true that we are also concerned about on going health care reforms. All countries are talking about this. We're having the expansion of Europe, bringing new countries in that are having financial and economic difficulties as well.

So, and then we have typically had relatively good pricing of our Eastern European business. So, we think Europe in general is a challenging business and in addition to that what has impacted our performance for the first half of this year is the continued decline in our HRT business, which is quite substantial. It's fallen to 22%. Of course we don't know where that's going to end but we hope to, we have been seeing some stabilization, if you want, of that business but that's not taken place yet.

But at a point in time it will and I am sure we will reach levels where we are back to the real clinically warranted use of HRT products for severe post menopausal symptoms. So, those would be my comments on Europe and then of course against that we have a relatively, seen a relatively strong growth of our NovoSeven business in Europe.

It actually shows that we had the opposite situation that, with the US, that the US growth in NovoSeven was about 10% whereas the growth of the NovoSeven and Europe was about 20%. So, that's all to the development of our European NovoSeven franchise.

And we are of course very happy at this point of time that we have managed and this is not because of skills, but perhaps rather luck. What if we tried many times to create a successful business in United States and that balances our franchise a little bit at this point of time and we also feel that we can start to see a resumption of a pick up in our business in Japan.

Whereas you will remember that some years ago, it was Japan that was pulling and it was Europe that was pulling and United States that was dragging. Now its US that's dragging and Japan is starting to pull again and Europe is dragging.

With regards to Lilly's expected greater effort in the marketplace, it's correct. We more ascribe this as preparation for a launch of (inaudible) than an actual counterattack on our insulin business in the US. We don't think that Lilly is in a position to counter the insulin business with the portfolio that they have on hand right now and with the devices they have on the hands and with the competition they are facing in the business segment from Aventis and, in the mix and rather the analogue session for ourselves. So, we believe that there is an expansion, which is preparation for the loss of genotype.

Thank you very much to all of you and I would like to again remind you that replay at our web site would be available. We like to tell you that we appreciate that you listened in this afternoon and we will be back with our third quarter release very shortly. Bye, bye.

Ladies and gentlemen this concludes today's conference. You may now disconnect your lines, thank you.