諾和諾德 (NVO) 2004 Q4 法說會逐字稿

Good morning and good day ladies and gentlemen, and welcome to the Novo Nordisk 2004 Full Year Results Conference Call. Today's presentation will be followed by a question and answer session. [OPERATOR INSTRUCTIONS]. I would now like to hand the call over to your host today, Mr. Lars Rebien Sorensen, Chief Executive Officer. Please go ahead sir.

Thank you very much, and good morning also from us, ladies and gentlemen. My name's Lars Rebien Sorensen, the CEO of Novo Nordisk. And with me we have our Chief Financial Officer, Mr. Brandgaard, and Mads Krogsgaard Thomsen, our Chief Science Officer, and present are also Investor Relations Officers, Palle Holm Olesen, Mogens Thorsager Jensen and Christian Kanstrup.

Today's Earnings Release is available on our home page, NovoNordisk.com, along with the slides that we'll be using for this conference call. The conference call is scheduled to last approximately 1 hour and as usual, we'll start with a presentation, as outlined on slide number 1.

The Q&A session will begin in about 25 minutes and please turn to slide number 2. 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 the actual results to differ materially from expectations. For further information on the risk factors, please see the Earnings Release and the slides prepared for this presentation. Also note it was mentioned that this conference call is being web cast live and a replay will be made available on Novo Nordisk's web page after the conference call.

I'd like to start this call with some highlights from 2004. Please turn to slide number 3. We're very pleased with the continued strong growth momentum, and that we are able to solidify our position as the world's leading diabetes care company. Our interim market share continues to increase, driven by the portfolio of insulin analogues and by the strong U.S. performance in general. The rollout of Levemir continues and we're very pleased with the market share development for the world's most predictable long-acting insulin in all countries where it has been launched.

Outside the diabetes area, the solid NovoSeven growth continues, and also our growth hormone franchise is adding to the growth, supported by the launch of the new disposable delivery device.

2004 was an important year for the NovoSeven expansion program. Presentation of clinical data from the use of NovoSeven, in connection with patients bleeding due to trauma. And from the use of NovoSeven in connection with intracerebral hemorrhage, has clearly supported our vision of making NovoSeven the preferred hemostatic agent for managing critical bleeds.

We've now filed for the use of NovoSeven in connection with blunt trauma in Europe and we also expect to file in Europe for the use of NovoSeven in connection with intracerebral hemorrhage in the midst of 2005.

2004 also marked a year when we saw, as the only company in the world, obtain a full portfolio of insulin analogues with a European market approval of Levemir. We expect to obtain U.S. marketing approval mid-2005, after having amended the filing with the FDA just before Christmas last year.

We're very pleased with the solid underlying financial performance. Sales grew 11% reported and by 15% in local currencies for the full year, resulting in a reported operating profit growth of 9%. Growth in underlying operating profits of more than 20% in 2004 furthermore highlights the solid earnings growth momentum of Novo Nordisk.

Please turn to slide number 4. In 2004 the diabetes care segment improved by 15% in local currencies and accounted for more than two-thirds of Novo Nordisk's growth. The growth within diabetes care is driven by our portfolio of insulin analogues, which accounts for more than half of the overall growth.

Our pharmaceuticals grew 15% in local currency in 2004. Following a strong fourth quarter, NovoSeven has seen a 19% growth in local currencies for the full year and remains a key growth driver within biopharmaceuticals. Our growth hormone franchise grew a solid 11% in local currencies in 2004. Other products, predominantly consisting of our HRT franchise, grew 11%. However, the change in distribution setup for our HRT products in the United States has impacted growth positively in 2004. Adjusted for these changes in the distribution setup, our HRT sales continue to remain depressed.

Overall, we're very satisfied with the strong growth rates seen during 2004 and current market trends indicate the continued growth going into 2005.

Turn to slide number 5 for an update on our analogue franchise. In the fourth quarter, insulin analogues grew by 75% in local currencies. The growth is driven by underlying market growth, as well as strong market share gains of both NovoRapid and NovoMix in all regions.

In terms of regions, it's been North American and Europe which is driving growth. However, the other regions are increasingly adding to growth. Japan and Oceania, as well as international operations, continues to show growth rates well in excess of 100%. In the fourth quarter, insulin analogues constituted 25% of our insulin sales. In North America, close to 50% of the insulin sold are analogues.

Turn to slide number 6 for some further insight into the dynamics of the analogue market. The conversion to analogue continues steadily and more than a third of the market has now been converted to analogues. The conversion to analogues is driven by all segments and is, together with the ongoing conversion to special disposable devices, driving a solid value growth in the insulin market.

Novo Nordisk continues to gain market share within the analogue market, maintaining the solid performance in the first quarter of 2002. And Novo Nordisk's market share of the analogue segment is now close to 30%, further supported by the continued rollout of Levemir.

Turn to slide number 7, providing some further insights into the drivers of our analogue market share gains. NovoRapid is now the best-selling short-acting analogue in both Europe and Japan. In the United States, there's still some way to go. However, the trend also there is very solid. From a global perspective, NovoRapid now holds more than 40% of the short-acting analogue segment.

NovoMix also continues the solid market share gain and has close to 50% of the premixed segment in the quarter. The very solid growth rates of NovoRapid and NovoMix are reflected in our overall insulin market share, where Novo Nordisk now commands 49% market share in the IMS world in the 12 months ending with September 2004, compared to 48% in the previous 12 months.

The market share gains within the analogues segments are also reflected in our value market share, where the comparable figures are a growth in market share of 42% versus 41% 12 months before.

Please turn to slide number 8, which provides you with an update on the development of our analogue market share in Europe, as well as the ongoing Levemir launch. Novo Nordisk continues to solidify its position as the market leader within the analogue segment in Europe, now holding a market share of more than 40%. This trend has been fortified with the European rollout of Levemir.

Levemir is now launched in 10 countries in Europe and more launches are planned for 2005. The feedback from the marketplace continues to confirm the findings from our clinical trial. Levemir is a very predictable insulin, which reduces the number of hypoglycemic events in the absence of a [weight gain]. In November, Levemir reached a European market share of 9% of the long-acting analogue segment in Europe. We look forward to the continued rollout of Levemir and the expected FDA approval mid 2005, which is on track.

Turn to slide number 9 for an update on the NovoSeven sales development. NovoSeven sales increased by 32% in local currencies and by 25% in Danish kroner in the fourth quarter of 2004. The growth in NovoSeven sales is primarily driven by North America, by Europe and international operations. Sales in the fourth quarter in international operations were positively impacted by timing of orders and furthermore, quarterly NovoSeven sales do fluctuate. However, in general the fourth quarter did post very solid growth rates.

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

Treatment of spontaneous bleeding or congenital inhibitor patients remains the largest area of use. In addition, sales are perceived to have been positively affected by increasing investigational use of NovoSeven, especially within trauma and surgery.

The positive elements within our NovoSeven expansion program continues with a filing in January of this year for the use of NovoSeven in blunt trauma in Europe. And we expect a filing for the use of NovoSeven in intracerebral hemorrhage in Europe mid-2005. Furthermore, during 2005 we will initiate 2 new clinical studies in these areas. Mads will go into more details about this later in this presentation.

Turn to slide number 10 for an update sales by region. North America continues to be the main growth driver and now constitutes more than 25% of Novo Nordisk's sales. During 2004, North America contributed with more than half of the overall Novo Nordisk growth. We'll revert to North America after a run down on the development of the other regions.

Growth in Europe is negatively impacted by price-focused health care reforms in a number of countries. The healthcare reforms are impacting both the volume growth and the value growth of the market. However, we continue to see solid growth rates in our key strategic products, the portfolio of insulin analogues and NovoSeven.

Sales in Germany in the fourth quarter of 2004 were positively impacted by patients' purchasing behavior, primarily motivated by reimbursement considerations. Norditropin SimpleVx in Europe is showing solid growth rates of 16%, driven by market share gains there. Our hormone replacement therapy sales continues to decline, due to an overall contraction of this market.

In Japan and Oceania, growth is driven by the insulin analogues and NovoSeven. Novo Nordisk remains the only company with 2 analogues in the market in Japan, following the launch of NovoRapid, [NovoMix] in late 2003. All the analogues are showing solid penetration in Japan and the conversion to pre-filled disposable devices continues according to our plans. During 2004, the growth hormone environment will remain challenging. However, a solid penetration of the pre-filled delivery device NordiFlex has been observed since the launch in July 2004.

Sales in international operations are driven by insulin analogues, human insulins and NovoSeven. The growth in insulin analogues is driven primarily by a solid penetration in Turkey, whereas the growth in human insulin franchises is driven by China.

In 2004 NovoSeven grew close to 70% in local currencies, although to some extent [indiscernible] impacted by timing of orders in the fourth quarter.

Turn to slide number 11 for a more detailed update on sales development in North America. In the fourth quarter, sales in North America grew by a solid 25% in local currencies or by 15% in Danish Kroner, despite the growth being negatively impacted by de-stocking [indiscernible] and the wholesaler stocking that was noted in connection with the third quarter of 2004.

The growth in North America is driven by insulin analogues and by NovoSeven. In the fourth quarter, sales of insulin analogues in the United States grew by more than 60% and now constitutes close to 50% of the total insulin sales. The [insulin] levels with wholesalers are estimated to be back on normal trading levels, following the de-stocking observed in the fourth quarter.

So while we continued to see solid market share gains [indiscernible] major core insulin-related market statistics Novo Nordisk holds some 37% of the total insulin market share measured in volume.

Sales of [OSEs] in the fourth quarter were also negatively impacted by the de-stocking, partly accounted by higher prices. In the fourth quarter, NovoSeven grew 18% in local currencies, driven by acquired hemophilia, and also perceived higher levels of investigative use.

North America is expected to remain the key growth driver for Novo Nordisk and all therapy areas are adding to growth. With this, I'd like to hand over to Mads Krogsgaard, who will give you an update on the developments within our pipeline.

Thank you Lars. Please turn to slide 12. As alluded to by Lars, Novo Nordisk a month ago filed the amended new drug application related to the use of Levemir in diabetes with the U.S. regulatory authorities, the FDA. We subsequently expect the U.S. regulatory approval around mid-2005.

The liraglutide phase 2b study was, as planned, initiated in January and Novo Nordisk expects to initiative the phase 3 clinical program around the turn of the year.

Novo Nordisk has completed the restructuring transactions with Aradigm Corporation related to the AERx insulin diabetes management system, iDMS, given Novo Nordisk's [core] development and manufacturing rights to the program as of January, 26 2005. Following approval by the U.S. competition authorities, as well as approval by Aradigm shareholders, Novo Nordisk's fully owned affiliate, Novo Nordisk Delivery Technologies Incorporated, now employs approximately 130 former Aradigm employees, fully dedicated to the development program on AERx iDMS.

Novo Nordisk and Medtronic Incorporated agreed in November to co-develop the world's first pre-filled pump cartridge to be used with Paradigm, which is Medtronic's external insulin pumps. Pre-filled cartridges containing NovoLog are expected to offer the most convenient therapy or therapeutic option for people using pump therapy.

2004 was also the year in which we technically completed the development of our next generation superior durable pen, NovoPen 4, and 2 different new needles for insulin therapy. These will all be launched in 2005 and underpin our leadership position within insulin delivery.

In November, the University of Oxford's Diabetes Trials Unit, in collaboration with Novo Nordisk, initiated the 4T study. An abbreviation of the treating to target in Type 2 diabetes study. This landmark trial will investigate for the first time ever aspects related but not limited to the efficacy and safety of different insulin treatment paradigms in patients with Type 2 diabetes, who are inadequately controlled on tablet treatment.

The objective of the 3-year study is, as previously requested, industry wide by the [nice] U.K. institute, to provide evidence and guidance on how best to treat people with Type 2 diabetes with insulin. The aim of preventing long-term complications and preserving quality of life. Initial results from the study I expect during 2006, with the final results expected during 2008.

Please turn to the next slide for an update on our biopharmaceuticals pipeline. As mentioned by Lars, Novo Nordisk submitted the regulatory dossier related to the use of NovoSeven in blunt trauma to the European Medicines Agency in early January 2005. The application is a type 2 variation, the EU equivalent of a supplementary new drug application, with an excepted 6 months review time.

Novo Nordisk still expects to initiate a trauma trial targeting the U.S. in the second quarter of 2005. This study is expected to comprise approximately 600 blunt and penetrating trauma patients. Following recent consultations with the F&DA, Novo Nordisk expects to initiate a confirmatory clinical trial in the U.S. and Europe, as well as other countries, for the use of NovoSeven in the intracerebral hemorrhage by mid-2005, involving some 450 patients.

Novo Nordisk expects this trial to generate further clinical documentation for the ICH filing of NovoSeven with the FDA. We still expect to file an application by mid-year for marketing authorization in Europe for the use of NovoSeven in connection with ICH, based on the 3 clinical trials conducted at this point.

In November, the Japanese Minister of Health, Labor and Welfare granted the approval of NovoSeven for the treatment of bleeding episodes in patients with acquired hemophilia, in addition to the existing approval of treatment of congenital hemophilia patients with inhibitors.

Also in November, Novo Nordisk was granted marketing authorization in the United States for Norditropin, for the treatment of severe growth hormone deficiency in adults. Following analysis of the phase 2 data on the use of human growth hormone in complicated factures, further clinical development has been discontinued. The phase 2 data showed acceleration of the rate of fracture healing. However, pharmaco-economic analysis did not justify further clinical development of the efficacious growth hormone [dose].

Novo Nordisk will, of course, continue to develop the human growth hormone for other new therapeutic indications.

Within HRT, and in a similar fashion to the pioneering Novo Nordisk development of low-dose HRT compound years ago, we're now on track to becoming the first company to develop ultra low-dose HRT therapy with an improved limited risk ratio, for women with menopausal symptoms.

Finally, our biopharmaceutical pipeline is on track to meet the various milestones communicated at a recent capital markets day.

Now, over to Jesper for an update on the financial results.

Thank you Mads. Please turn to slide 14, providing you with the details on the financial results. We're very pleased with the solid growth rate -- sales growth of 15% in local currencies during 2004. However, due to continued weakness of our main invoicing currencies, the reported sales were impacted negatively.

In 2004, our reported sales growth was 11%. In the fourth quarter alone, sales grew by 16% in local currencies and by 12% in Danish kroner. The underlying sales growth for 2004 was close to 13% when adjusting for the change in euros, HRT distribution and a minor purchaser-induced accelerated sales effect noted in Germany in the fourth quarter.

Reported operating profit increased by 9% during 2004, whereas underlying operating profit grew by more than 20%. For the fourth quarter alone, operating profit grew by 7% in reported terms, reflecting a significantly lower level of non-recurring income compared to the fourth quarter of 2003. Whereas the underlying operating profit grew by some 13%.

Net financials showed a net income of DKK477m in 2004, compared to DKK954m in 2003. Novo Nordisk recorded a net foreign exchange gain of DKK663m, compared -- primarily related to the hedging of the U.S. dollar. This compares to a gain of DKK1.195m in 2003.

Foreign exchange hedging gains in the fourth quarter of 2004 were positively impacted by unrealized gains from the mark-to-market valuation of foreign exchange options, primarily related to the U.S. dollar. The tax rate for 2004 was 33%, down from 34% in 2003. The lower level of financial income compared to 2003 resulted in net profit growth of 4%, despite operating profits growing by 9%.

Earnings per share increased by 5%, reflecting an impact from the ongoing share repurchase program. At the Annual General Meeting on March 9, the Board of Directors will propose a 9% increase in dividends, to DKK4.80, corresponding to a payout ratio of 31.8. We're also proud of the solid free cash flow generated in 2004, which amounted to DKK4.3b, an increase of 11% on 2003. The increase in cash flow reflects a continued effort towards more efficient collections of accounts receivables and other initiatives regarding invested capital tie-up.

Please turn to the next slide for an update on our currency exposure. Currency has remained a challenge to Novo Nordisk. The weakening of the U.S. dollar has continued into 2005. Despite the recent recovery in the U.S. dollar rate versus the euro, 2005 looks set to be another year where currency is negatively impacting a solid underlying performance when converting the results into Danish kroner. For 2005, our estimate for the impact of currencies on operating profits is as follows.

The 5% depreciation of the U.S. dollar is expected to decrease operating profit by DKK280m. Whereas a 5% depreciation of the U.S. dollar-related currencies, like the Chinese yuan, is expected to decrease operating profit by DKK70m. For the Japanese yen, a 5% depreciation is expected to decrease operating profit by DKK130m. And finally, a 5% depreciation of the British pound is expected to decrease operating profit by DKK80m.

Currently, Novo Nordisk has hedged future expected cash flows related to the U.S. dollar 14 months ahead, the Japanese yen 11 months ahead, whereas the British pound is hedged 8 months ahead. Hence, some of the impact on our operating profits due to currencies will be recovered at mid financials, of note that approximately 3 months of U.S. dollar hedging is it already was recognized in the profit and loss statement in 2004. Which reflects that the unrealized gains from currency options cannot, according to IFRS, be deferred to income recognition in the period when the hedge cash flow is being realized.

Please turn to slide 16 for an outlook for 2005. For 2005 we expect sales growth of 10 to 15% measured in local currencies. However, due especially to the lower level of the U.S. dollar and related currencies, reported sales are expected to grow by around 10%. We expect underlying operating profit growth to grow by 15%, in line with Novo Nordisk's long-term financial target. However, due to currencies and a lower level of non-recurring income, the growth in reported operating profit is expected to be around 5%.

Novo Nordisk expects a net financial expense for 2005 of DKK100m, arising from a financial income of DKK100m, mainly related to currency hedging gains, and a financial expense of DKK200m, primarily reflecting Novo Nordisk's share of the expected loss in ZymoGenetics.

For 2005, Novo Nordisk expects the tax rate to be 32%, a reduction by another 1 percentage point compared to last year. Novo Nordisk plans to invest close to DKK4b in fixed assets in 2005, whereas depreciation and amortization is expected to be around DKK1.9b.

Capital expenditure will include purchase of fixed assets on Paradigm Corporation of approximately DKK300m, related to the transfer of the AERx iDMS project to Novo Nordisk. The free cash flow is expected to be more than DKK2b.

In 2005, Novo Nordisk expects to repurchase shares worth DKK2b, as part of our ongoing DKK5b share repurchase program, which we initiated last year. All of the expectations are provided that currency exchange rates remain at the current level throughout 2005.

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

Thank you Jesper. Please note, ladies and gentlemen, that this conference is being taped and the replay will be made available on our web page. And please, operator, we are now ready to take the first questions.

Thank you very much sir. [OPERATOR INSTRUCTIONS]. Today's first question comes from Annette Lykke of Carnegie. Please go ahead.

Thank you very much. My first question is regarding Levemir. Could you tell us a little bit how the product has been received in the 10 markets where it's already introduced? And also, which markets -- key markets are you still lacking, except from the U.S. I would like you to follow up on how your statements about predictability, no weight gain and fewer hypos is received amongst professionals and patients.

Moreover, I would like you to elaborate a little bit on the launch in the U.S. of Levemir. When will be the timing and what kind of initiatives do you expect in terms of increasing your sales force? And are you expecting a similar selling profile for the product as you have in Europe?

And a last question will go to Mads in terms of if you have, or when you have, the approval for trauma and ICH in Europe, how will that affect [indiscernible] use in the U.S.? Thank you.

Thank you very much Annette Lykke. This is Lars Rebien and I will take the 2 first questions, pertaining to Levemir launch in Europe and the expected launch in the United States. And Mads Krogsgaard will try to answer the second question.

With regard to the Levemir launch, as we stated in the presentation, Levemir has been very well received by the physicians in the markets. If we add up, we could say that we have 9% overall market share of the basic analogue segment. There are some markets which have performed the trauma [with the data]. A mix between countries which are doing very well and countries that are doing less well.

Overall, we're very satisfied with the performance. We had a very good reception on the part of the physicians to the methods and the level we are at. Mostly data for [basic] insulin in the Type 1 segment. And we are also expecting, in the future, to be able to market this product for Type 2, where the main feature that we will be highlighting will be the rate issue, which is an issue which was problematic for people with Type 2 Diabetes.

The mix, countries, it is clear that we have not launched Levemir in France yet. That's a big country, obviously. And they are a big country, where it's not been launched yet. So there is still significant potential for competitive reasons. Going up to television and the [hydro] launch is next, because obviously it is a very highly competitive market.

With regard to the U.S., the situation is such that we, first of all, have to get the U.S. FDA approval and with that a label, which will allow us to position Levemir in the United States. And as a consequence, also because of the competitive situation, I am not to disclose how we're going to launch the product in the United States.

Then also, depending on the [sector] rollout in Europe, the launch in the United States will take place as soon as we have assured ourselves that we have capacity so that we can do this without being restrained to do that launch in the United States.

Mads Krogsgaard, some comments on the clinical aspect?

Yes. Well, I'll dig directly into the trauma and ICH situation. Yes. And because I think everything you said on the clinical aspects of Levemir were absolutely as we see it. And regarding the trauma and ICH enabling discussion, I think in it you have to realize that since we cannot, at this stage, estimate current or [indiscernible] use very exactly, it's even more impossible to do so or to forecast future investigation use. So I would not embark on such an exercise. What I would rather say, that the European approval process is less important when a clear leader or an expert decides on whether to use it in a different [continent].

The parameter which is important there is the publication of peer-reviewed papers in journals that are being read by the decision makers. And that is what you really should be looking out for in this year, that there will be papers related to both trauma and ICH, and they are what the scientific evidence base behind the [peer opinion] leaders' use of the product will be decided by.

Would it be wrong to expect articles published in peer-reviewed magazines, like The Lancet or the New England Journal, within the first quarter?

Annette, we never comment on specifically which journals. We are sending it to leading journals and [indiscernible] publications throughout the year, yes.

Thank you.

Thank you very much. Next question please.

Thank you. The next question comes from Henrik Simonsen of Enskilda Securities. Please go ahead.

Good morning gentlemen. I hope you can hear, the line is a little bit weak. I hope you can hear me.

We can hear you, Henrik, fine.

Okay. My first question relates to a follow on by [indiscernible]. I know that Sandoz got approval in Australia for Omnitrope, the growth hormone product. I was wondering if you could give us your opinion on how you see the European and U.S. markets develop for follow-on biologicals. I know there's some movements going on, both in Europe and the U.S.

And secondly, I wanted to ask you how you see your performance in Europe with insulin. You alluded to the fact that your share in the analogue market has grown. But as far as I can see, your performance in the European market is still around the 6 percentage growth in local currency terms for both 9 months and the fourth quarter. So what is the trend for your performance in the European insulin market?

And then finally, I just want to ask you how you look at the overall insulin market. A number of years back you were alluding to a growth around 10%. But as far as I can see, both in '03 and '04, the market has been developing much more favorably. What is driving that growth and how do you see that going forward?

Thank you Henrik. The first question I will defer to Mads Krogsgaard. What is the regulatory situation in Europe and the United States on follow-on biologics signified by Novartis' intended launch of a growth hormone compound.

Yes. Well Henrik, first of all, as you are pretty much aware, the situation is that in the U.S. one has actually -- or the regulatory authorities at a certain point communicated that they would issue some views, a report on this whole thing about biogenetics. To the best of my knowledge, this process has actually been delayed.

And in my mind, it's a relatively uncertain issue also in light of the U.S. regulatory environment that, as you are aware, there is a huge focus on the pharmaceutical safety in general. And here there are actually ongoing conferences and symposia, looking into what went wrong, for instance, on the approaching case that gave these more than 100 product limitations due to antibody formation and so on and so forth.

And there, I think, the current dogma is changing a little bit, so that you will expect at least a more complicated protein to have to see somewhat more extended anti-genetic testing than we historically thought would be the case.

Now this might not be the situation for simple proteins such as insulin and growth hormone. And that's why I cannot comment specifically on that, because we will be the first here, probably, to be able to enter the market. But as you know, we are a Company that strives to put our patients onto patented products, such as insulin analogues, rather than human insulin.

In Europe, the situation is one of where having originally given a positive opinion on the approval of Omnitrope, that was then overthrown by the national authorities, ending up in a situation where there is actually right now a struggle between Sandoz and the Europeans. So I cannot comment more specifically, but say that the European issued guidelines will probably be somewhat ahead of those in the U.S.

Thank you Mads. With regards to the insulin market, let me first say, on a worldwide basis, the model that we are looking at, we are looking at a growth in volume terms of around 4.5% when we aggregate the world iDMS market. And Novo Nordisk's volume in the 4 quarters that I'm alluding to, again, through Q3 2004 was 7.2%. So this really is back to our own strategic outlook, which is 5% volume growth and 5% market growth.

Then it's correct when you state that we have seen an overall global volume growth, which has been somewhat higher due to the penetration of analogues. And in Japan, where there is not a price premium for analogue, at the end of the day you increase due to the introduction of higher price pre-filled devices.

That is also correct when we look at the situation in Europe, that here we see the value of upgrades as a result of transfer from human insulin to insulin analogues, countered by healthcare reforms. And as a consequence, when we look at Europe, aggregated our overall market share is stable. And the European volume growth is around 6% and our value growth is slightly more volume -- more or less volume growth is slightly more but the value is being countered by price recurrence.

So 1 thing which, of course, we can note and which is something that you can note is that in recent quarters the volume growth in the United States has been relatively modest, down to around 2%. And of course, the long-term outlook for the global insulin market is, of course, dependent upon a growth in the U.S. market, for instance.

And there, if I could just mention in the 4 quarters there was also [indiscernible] where the market grew, whether on 2% in the United States. Novo Nordisk grew the volume with 10%. So that will be the overall comments on the European, the global and also a little bit of comment on the U.S. insulin market.

Thank you for the question and the next question please.

Thank you. The next question comes from Jo Walton of Lehman Brothers.

2 sets of questions please. Firstly following on, just to ask a little bit more about the U.S. insulin market. You have shown that you had 34% local currency growth. You told us that you had 10% volume growth. Could you just help us get from the 10 to the 34%?

How much is price that you are able to realize? Is there absence of rebates? Effectively, how long is it sustainable that you can grow your U.S. business at 30, 35%? And as you are growing it, are you going to have to put more people behind it? I know you had some more U.S. reps last year. Would you anticipate that they are paying off so well that you might put some more reps in this year?

And secondly, just to understand the cash flow a bit better. Last year you managed to take out money from your working capital. Is that your expectation, that you can continue to do that for the next couple of years? Otherwise I can't quite get to the free cash flow forecast going forwards.

Thank you very much, Jo. This is Lars Rebien. It is correct. We had a very strong performance in the United States of our U.S. insulin [basis]. When we look at the overall compensation, as I say, there was a 10% volume increase. Consequently, there is a value [already checked] of going from human insulin to insulin analogue, and also going from insulin vials to insulin in devices. And then there is a price effect in the U.S. insulin market of around 4 or 5%. And that [was opening] the 34% that you alluded to.

We think, for Novo Nordisk, there is a very, very solid underlying opportunity for us to be able to still convert, and that you operate U.S. patients. We are on a very, very solid trend. And as a consequence, we are also looking at relatively strong growth rates for 2005 in the United States.

Of course, how prices are going to develop is determined in the competitive situation. And we are, of course, also taking notice of the fact that there is pressure on prices and potential political interference in the United States on the free pricing system. So I think overall expectations for actual price increases should be modest.

But the value upgrade component is very, very significant in the U.S. market. This is a model that you may recall that we have shown you several times, where one can upgrade human insulin in a vial into an analogue and the vial to a disposable device. And that carries with it a significant benefit to the patients but also a significant value-added opportunity, as illustrated by the growth that we see currently in the United States.

So over to you, Jesper. Just 1 comment. You may ask a question about what we expect for the future. I think that the future manning of our sales force in the United States will be determined by the competitive situation. There is a bit of a flux in the situation. We believe Aventis -- Sanofi-Aventis has been very, very active in the U.S. market. And they have successfully launched Lantus.

We have significantly expanded our sales force, so that we now are very competitive in the U.S. market. So it will depend on the future sales and promotion activities of Sanofi-Aventis, but also of [indiscernible], which has in some ways contracted from the marketplace globally in the insulin market. So our future activities will depend on the activities of these companies.

All other things being equal, I think we have a sales force which is sufficient to make a full launch of Levemir in the United States with the current sales force we have.

Jesper, onto cash flow?

Maybe an additional comment on the U.S. situation. I think if you analyze our cost development on certain distribution costs in 2004, it will be more than 50% of our increase in costs that actually relates to the North American market. So where you have seen our key investments coming in, that's North America, and I would also expect a significant proportion of the growth when we look into 2005 will be related to the U.S. market.

In terms of cash flow, you asked where we would continue to take out working capital on a year-to-year basis. Probably you will see some growth in the working capital element. There will also, and I need to highlight that to you, there will be a lower cash payable element, as I expected, looking at 2005.

In addition, there will be a low [hold] in our inventory levels in 2005, compared to sales. We have, over the last 3 to 4 years, regrouped our inventory levels to [inaudible] to work with. And hence I would expect the growth levels in our inventories going forward to be somewhat lower.

Another area of improvement will be our base of payables outstanding. And that could be another area where we should be able to deliver a bit of improvement. So those would be the 2 elements of working capital that really should enable us to get to the more than 2b, which is still a significantly lower level, given that the extraordinary level of more than 4b will be realized in 2004.

Thank you Jesper. I would just add a comment there that overall, from a strategic point of view, you will perhaps remember that we have, over the last 5 years -- 8 years, did a lot of [indiscernible] because of the supply obligations we had to the marketplace.

We have also seen temporary situations where the competition has not been able to fulfill market demand. So as a consequence, that has been building up. And inventories, we think that has reached a satisfactory level now. We think we have, with the implementation of inventory management system with SAP, managing our distribution chain.

We have some opportunities going forward to stay at this level while, relatively speaking, take inventories up. But that has to be proven. We have to balance that up against our obligation to be able to deliver because if we can't, then unfortunately people will die.

Thank you. Next question please.

The next question comes from Martin Hall of Eden Group.

Good morning. I have 2 questions. Firstly, I don't fully understand, or could you give a slightly more detailed explanation why the increase in NovoSeven sales in the fourth quarter was not mimicked by a large increase in the margin for biopharmaceuticals? In fact, the biopharmaceutical margin seemed to collapse down to 35% in the fourth quarter.

And secondly, on the ZymoGenetics or the associate line, there seems to have been a large surplus on that line in the fourth quarter, whereas I think we were expecting a negative. Could you give us a better understanding of what's been going on there please?

Thank you. This is Lars Rebien. I would like to defer the answer to both questions to Jesper Brandgaard. Jesper, the increasing NovoSeven sales in the fourth quarter have not been translated into an improvement in the margin. On the contrary, it's been steady decline to 35% of biopharm margins. [Your speculation] on that? That's the first question.

The second question is what have been the underlying developments in ZymoGenetics and other associated companies on the finance line?

Thank you. In terms of the biopharmaceuticals and the segment profitability, I would always take a little bit of caution into reading individual quarters. And within each quarter, it's especially sensitive for year-end closing, that would be the fourth quarter. So that would be the first comment.

The second element of the answer would be that the fourth quarter is impacted by acquisition of new projects going into the biopharmaceutical segment. And there are also several wins on some patent issues, not related to that, which are included in the fourth quarter. You see the full-year profitability coming from our biopharmaceutical segment as a better guidance going forward, when reading too much into this specific segment.

In terms of the final -- the final question on shared profit in associated companies in the fourth quarter, I think the level of a loss of 32m in the fourth quarter, if you look at that alone, is pretty much in line with the historic -- in the historic number.

The number in the third quarter, which was positive, was impacted by the share purchase by Serono in ZymoGenetics, which enabled us to revalue our share of the capital in ZymoGenetics. But it was more that the third quarter involved an unusual element, whereas the fourth quarter is more in line with the trend.

I think the net cash burn in ZymoGenetics, on an ongoing basis, is to the tune of U.S.$90m. And of course we have to reflect our share of that at around 35%. So that's what's predominantly also impacting our 2005 numbers when you look at the associated companies.

Thank you very much Jesper. Next question please.

The next question comes from Sebastien Berthon of Exane BNP Paribas.

Yes, hello gentlemen. A few questions. The first one to come back on Levemir. Could you give us the sales you achieved in 2004 and also in the last quarter? And also could you give us some market shares per country, especially in Germany and the U.K.?

Then the second question is on any price increases you have taken in insulin or NovoSeven in the U.S.?

And the last question is regarding R&D. How do you see it evolving as percentage of sales? Next year especially, given the new trials you are starting now.

This is Lars Rebien here. [Indiscernible] data to answer the first couple of questions you have, because we do not disclose individual product revenues on Levemir, in particular. And we're not clear on numbers. And also about the market share in individual countries, it's not something that we like to get into on a detailed basis.

But what I have always stated is that we are making a strong launch, that Levemir has now reached 9% of the European [basal] segment. And that would mean that Levemir has been introduced in 10 countries. So there is still potential to expand even further. But for competitive reasons I prefer not to get into where and when and how. So I hope you will bear with me that I am not able to be more specific.

Mads, will you take the R&D question and then I will come back with the pricing element on NovoSeven and other pricing in the U.S.

Yes. We are seeing consistently that we are using to the tune of between 15 and 16% of the overall turnover on investments in R&D. And you can argue that that will, of course, be in the high end of that once we have the [coupling] programs, and not only phase 3-wise in NovoSeven, but also [polyretocide] and AERx [keto].

And that means that you could expect that there would be a slightly higher R&D spend in percent of turnover once all of that is up and running. But it is not going to be something that is completely blow -- going to blow the R&D budget. We have taken that into account.

Thank you. And with regards to the price increases in the U.S, there have been price increases on insulin analogues around 5%. And there have been price increases in human insulin around 5%. There have been no price increases on NovoSeven.

But for further details on these particular product categories, I would like to draw your attention to the option to call our investor relations people because they can give you much more in detail on the components.

We realized an R&D to sales ratio in 2004 of around 15% and I would expect to see a slight increase in that going into 2005, with the increased number of investigational trials. However, I would not expect it to be a significant increase.

Thank you. Next question please.

The next question comes from Annette Larsen of HSH Gudme. Please go ahead.

Yes, hello. It's Annette Larsen from HSH Gudme. I have 3 questions, if I may. The first question regards to your investment in capacity and related to Levemir. Is this increase in investment, is that relating to scale up investment capacity for Levemir, or is it mainly for the NovoSeven franchise?

And then my second question regards to pricing issues. Do you know any price rebates that you need to give in any European countries throughout 2005? And regarding Japan, do you expect any price reduction there?

Yes, I keep it to those 2 questions. Thank you.

Thank you Annette. This is Lars Rebien. Jesper, the capacity investment, will you please elaborate on where those investments are [going for] our primary to expand on capacity?

The key investments that we have going into 2005 is our expansion of capacity for Levemir. We have previously told that we have the facility under construction in [Calombor]. I can note that their facilities Lars alluded to is critical for our launch in the U.S. The next construction is ongoing, as planned. And it actually started ahead of planned.

And in addition we have inaugurated a second facility in [Calombor], given the high cost base we have for Levemir. So we actually have 2 Levemir facilities which are exactly alike on the construction plan in [Calombor] and in Denmark.

In addition, we of course have a number of filling facilities under construction. The mains ones are in France, the U.S. and in Brazil. And then on the NovoSeven front, there is no product production currently under investment. But there are some investments relating to our downstream filling capacity for NovoSeven, which is an element of the investment that goes into 2005.

Thank you Jesper. With regards to the pricing picture in Europe and Japan, we have, of course, included in our outlook for 2005 and the [basics] that we put together, in using the [indiscernible] already known today likely price performance, price reductions in Europe. And then of course also assessed the risk of additional price reform taking place in Europe and put that into our final ratio forecast for the year.

What we know is that prices will be going down in the U.K. of approximately 7%. There will be a general price decrease in Europe of around 1 to 2% on average prices. In Japan, the mandatory reduction in prices is only coming in 2006. So there is no expectation of any -- unless the Ministry of Health and Welfare devises something [indiscernible], you should expect to see the next round of price reductions in Japan in 2006.

Thank you very much.

You are welcome. Next question ladies and gentlemen.

The next question comes from Rachael Sledge of UBS.

Hi. Good morning. 3 questions please. Firstly, could you quantify the increased sales for NovoSeven in those international markets, and also comment on whether you expect any associated shortfall next year.

And the second 1 is any comment on timelines for new NovoSeven data? And in which order would you expect to see data come of the phase 2 trials you have ongoing.

And thirdly, could you give us some idea of when we will get an update on the AERx program?

Thank you. This is Lars Rebien. We mentioned in the fourth quarter performance of NovoSeven that we have seen some timing issues relating to international market. This relates to the fact that there are a number of these countries on the international market than buy NovoSeven on a tender basis. And therefore timing issues could negatively influence 1 quarter to the other.

Also, when you look at the NovoSeven sales in the fourth quarter, we have to compare with the performance of NovoSeven in 2003. And in particular the United States, we had a relatively modest, one might call weak sales of NovoSeven in 2003 fourth quarter. So the comparables for the fourth quarter were relatively easy for NovoSeven.

Our expectation is that we will see a continuous [inaudible] going forward. And of course we believe that we are in a growth trend. And the clinical data that was presented by our research organization at the beginning of 2004 on both trauma and on ICH, are driving investigational use, to the extent that we would have a labeling of trauma later this year and could [push] towards the end of the year, beginning of next year on ICH in Europe. That will continue to drive solid performance of NovoSeven.

And to give you some kind of feel for the NovoSeven sales in international operations, you should see that around 10% of overall NovoSeven sales are growing at a slightly faster rate than the overall growth rate, as Lars alluded to.

Yes, part of the growth that we are seeing is coming from Japan where we have had a relatively modest adoption of NovoSeven initially. We are now seeing that that is starting to move.

So Japan is, and the international operations are becoming more important. But you have to remember that a 50% -- around 50% of the sales comes from [indiscernible]. So if you look [also at 29%] will determine your success going forward for NovoSeven.

Mads, [indiscernible].

Yes, very quickly, when it comes to NovoSeven, the situation is that this is pretty much going to be a year of getting the studies that we now in all 6 areas are embarking on. Getting the [in line 3s] and the low [PV falling] off into next year. This means that for ICH and trauma, they will be initiated in the last 3 trials to totality with more than 1000 patients, that I discussed during my presentation.

[Indiscernible] [intracerebral] bleeding, that might be a [indiscernible] some time for the E.U. only. That is completely on track, whereas the other programs, cardiac, spinal and traumatic brain injury, are basically also on track, and we'll hence report some time in 2006. We also aim to initiate a factor 13 clinical trial within this year.

When it comes to -- then of course 2005 will be the year when we publish in [periodical] journals a number of papers, primarily relating to, first of all, the upper GI bleeding, the ICH and in trauma. In particular in these 3 areas.

So when it comes to AERx, the situation is that we are now in the phase where we are getting in the data on the Australian study. It's the addition to the PK/PD relationships. And once we have analyzed those we will be able to communicate much better exactly what the process going forward is going to be towards a full phase 3 program.

Thank you very much. We would like to take 1 final question ladies and gentlemen before we close the questions.

The next question comes from Tero Weckroth of ABN Amro.

Good morning gentlemen. Most of my questions have been answered. Can you just -- if you could give the sales of the hormone treatment product, which has been previously reported but now is just part of the other sales.

Also I would like to confirm, did you say that the R&D, as a percentage of sales in 2004, is likely to be in the higher end of the 15 to 16% there? There was a pretty bad line when that was answered.

And then finally a question on the insulin market. There has been a trend recently where the premixed segment had been declining when the ramp -- the roll out has been going on the U.S. But now you are reporting pretty strong sales and I noticed that 1% [you were] quite weak. Can you confirm if there is any change in the current or do you expect still the premixed insulin to continue to go down? Thank you.

Thank you very much. I will start with the last question and then I will ask Jesper to comment and Mads also to comment on the R&D expenditure levels. And Jesper can answer the question on HRT products.

It is correct your observation that when you look at the 3 different segments in the insulin market, there has been a decline in the premixed segment. The premixed segment has been the largest segment, and has gone down. And especially with the introduction of Lantus.

Our key message -- key marketing message is that premixed insulin twice a day is the right [starter] in terms people who have type 2 diabetes that are not under proper control. So you could say that in event -- to an extent that we are successful in getting that message across, we will see a migration of -- a decline in the premixed segment.

Right now, if you look at the global market, there is a part of [indiscernible] with a big stage of sales in the United States, with small [indiscernible] segment being in Japan. And then the 2 markets cancel each other out. So that we have today about a third [indiscernible] Rapid and Mix.

[Indiscernible] gaining market share because of our success in the short-acting segment and the Rapid drove it up, really gaining market share. And also, as you pointed out, the strong performance of premixed. Of course, because of the launch of Lantus, we have in certain markets, and in particular [Multi Allegra] to follow Sanofi-Aventis. But overall, [NovoMix] is gaining share, [indiscernible] is gaining share and [indiscernible] is moving strongly their share. Jesper?

Yes. On the HRT front, you should expect HRT to constitute approximately 75% of the total other part of sales. And you can also -- I would note for the HRT sales in 2004, that you were seeing just [indiscernible] growth. But it was impacted by the change in distribution in the U.S. If you correct for that you had a slight single-digit drop, reflecting an increase in sales in the U.S., offset by a significantly declining market in primarily Europe but to some degree also international operations.

And for the checking point, and I will probably jump ahead of Mads to make sure that it is the CFO that makes the prediction on the expenditure rate for R&D and not the Chief Science Officer, you should expect it to be in the low end of the range of 15 to 16%, unless we invest in something new and exciting and then we will, of course, update the markets on that.

Hoping not to start a debate between my 2 officers here, I would like to give Mads Krogsgaard the chance to have a final comment before we close the conference.

No, thank you. That's absolutely true. It's -- with the current activity level it will be in the lowish end.

Just 1 comment to solidify what Lars was saying, you can actually now directly see the publication where we have head-on compared NovoMix 30 and proven utility-wise its superiority over a basal analogue approach. And that is online as of last week.

Thank you very much ladies and gentlemen. Thank you very much for your interest in Novo Nordisk for this conference call. We will be looking forward to seeing you again at the first quarter release.

I would also like to draw your attention to the fact that the presentation is available on our web page, so please enjoy that. And also our investor relations team are available to take your calls should you have any questions which we have not been able to deal with during this call.

Thank you very much.

Ladies and gentlemen. On behalf of Novo Nordisk, thank you for your participation and have a nice a day.