諾和諾德 (NVO) 2005 Q2 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Novo Nordisk first half results conference call. At this time all participants are in listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. [OPERATOR INSTRUCTIONS] Just to remind you all that this conference is being recorded. I would now like to hand over to the chairperson, Mr Lars Rebien Sorensen. Please begin your meeting and I will be standing by.

Thank you very much. Welcome to this Novo Nordisk conference call regarding our first half 2005 results released earlier today. I'm Lars Rebien Sorensen, the CEO of Novo Nordisk and with me, as usual, I have our chief financial officer, Jesper Brandgaard; the science officer, Mads Krogsgaard Thomsen and present are also our investor relations officers, Mogens Jensen, Mads Lausten and Christian Frandsen.

Today's earnings release is available on our homepage, novonordisk.com, along with the slides we will be using for this conference call. The conference call is scheduled to last approximately one hour. As usual, we will start with the presentation as outlined on slide 1. The Q&A session will begin in about 25 minutes.

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, please note, as it as said, the conference call is being webcast live and a replay will be made available on Novo Nordisk's website after the conference call.

I would like to start this conference call with some highlights for the first half of 2005. So please turn to slide number 3. The continuing strong growth momentum is very satisfying. We continue to solidify our position as the world's leading diabetes care company with increased insulin market share, driven by the portfolio of insulin analogues and by the strong US performance in general. We are pleased with the performance of Levemir, the world's most predictable long acting insulin analogue in all the countries where it's been launched, and we expect to launch Levemir in several new countries before the end of 2005.

Outside the diabetes care area, the NovoSeven growth continues and, also, our growth hormone franchise showed strong performance supported by the market success of our leading pre-fill delivery device, NordiFlex. In June 2005, Levemir was approved by the FDA and Novo Nordisk is thereby the only company with a complete range of insulin analogues approved in the United States.

Our new premix analogues, NovoMix 50 and NovoMix 70, have received positive opinions from EMEA and they will be filed for approval also in the United States. We have continued the dialogue with EMEA about the Phase 2 based trauma filing for NovoSeven. Based on these discussions, Novo Nordisk has withdrawn the European trauma file but we expect the clinical results from the recently initiated confirmatory Phase 3 study to support a renewed filing at a later stage.

In the US we are evaluating how to proceed with NovoSeven in trauma studies and Mads Krogsgaard will get back to this later in his presentation.

We are very pleased with the solid underlying financial performance; sales grew by 14% as reported, and by 15% in local currencies in the first half. Operating profit increased by 14% as reported, highlighting the solid earnings growth momentum. Turn to slide number 4.

In the first half of 2005, the diabetes care segment grew 16% in local currencies corresponding to 76% of Novo Nordisk's growth. The growth within diabetes is driven by our portfolio of insulin analogues which accounted for 62% of the overall growth. Biopharmaceuticals grew 12% in local currencies in the first half, sales of NovoSeven increased 14% in local currencies and remains the key growth driver within biopharmaceuticals.

Our growth hormone franchise grew by a solid 19% in local currencies in the first half supported by the pre-fill delivery device, NordiFlex. Sales of other products, predominantly the HRT franchise, remained largely unchanged. We are encouraged by the continued market success of our strategic products, and current market trends indicate continued growth for the rest of 2005.

Turn to slide number 5 for an update on our analogue franchise. In the second quarter, insulin analogues grew 66% in local currencies. The growth was driven by an underlying market growth, strong market share gains of both NovoRapid and NovoMix as well as the successful launch of Levemir.

In terms of regions, growth was driven by Europe followed by North America. However, international operations in Japan and Oceania and increasingly adding to the overall growth of the analogue portfolio. In the second quarter, insulin analogues constituted more than 30% of our insulin sales. In North America nearly 50% of all insulin sold are analogues. The North American market constitutes more than a third of the total analogue sales.

Turn to slide number 6 for some further insight into the dynamics of the analogue market. The industry has now converted around 38% of the insulin market to analogues, and the trend continues. The conversion from human insulin to analogue takes place within all segments of the market and, together with the ongoing conversion from the pre-filled devices driving the value growth of the insulin market.

Novo Nordisk continues to gain market share within the analogue market maintaining the solid performance since the first quarter of 2002. Novo Nordisk's market share in the analogue segment is approaching one third of the market supported by the continued roll out of the Levemir. Novo Nordisk continues to be the only company that markets a full range of insulin analogues with short acting, premix and long acting insulin analogues.

Turn to slide number 7 which will provide some further insight into the drivers of our analogues market share gains. NovoRapid is the best selling short acting analogue both in Europe and in Japan. From a global perspective, NovoRapid holds close to 45% of the short acting analogue segment. The global market share for NovoMix is even larger at 53% of the premix analogue segment. The very solid growth rate of NovoRapid and NovoMix are reflected in our overall insulin market share where Novo Nordisk commands more than 50% volume market share in the IMS [world] in the 12 months ending May 2005 compared to 49% share in the 12 months ending May 2004.

The market share gains within the analogue segments also reflected in our value share, where the comparable figures are market share 44% in the 12 months ending May 2005 versus 42% 12 months earlier.

Turn to slide number 8 which provides you with an update on the development of our analogue market share in Europe as well, and the ongoing Levemir launch. Novo Nordisk continues to solidify its position as the market leader within the analogue segment within Europe with the market volume share of more than 40%. The solid growth trend has been fortified by the European roll out of Levemir. Levemir has now been launched in 11 European countries and the launch in France is imminent.

The feedback from patients and clinicians continues to confirm the findings from our clinical trial. Levemir is a very predictable insulin which reduces the risk of hypoglycemic events in the absence of weight gain. In May, Levemir reached the market share around 12% of the long acting analogue segment in Europe. In the United States, Levemir was approved in June 2005, and we expect to launch Levemir in the US market within the 12 month period following approval.

Turn to slide number 9 for an update on the NovoSeven sales development. NovoSeven sales increased 18% in local currencies and by 15% Danish krone in the second quarter of 2005. The growth in NovoSeven is primarily driven by North America followed by international operations and Japan Oceania. During the second quarter, growth in NovoSeven picked up in Europe. A number of factors have contributed to sales growth in NovoSeven due to the high penetration with instantaneous bleeding from congenital inhibitor patients, the predominant part of the growth within the inhibitor segment has been generated by usage of NovoSeven in connection with elective surgery. Treatment of spontaneous bleedings in congenital inhibitor patients remains the largest area of use. In addition, sales are perceived to have been positively affected by increased investigational use of NovoSeven, especially within trauma and surgery.

In Japan, the label expansion to include acquired hemophilia by the end of 2004 has added to the growth in the first half of 2005.

Turn to slide number 10 for an update on sales by region. North American continues to be the main growth driver and now constitutes 28% of Novo Nordisk's sales. During the first half of 2005, North American contributed close to half of the overall Novo Nordisk growth. We will revert to North America after a review of the development in the other regions.

Growth in Europe during the first half of 2005 has been negatively impacted by the price focused healthcare reforms in a number of countries. The healthcare reforms are impacting both volume growth and the value growth in the market. However, we continue to see solid growth rates for our portfolio of insulin analogues, and Levemir contributed to the growth of the overall insulin franchise.

NovoSeven sales growth in Europe picked up during the second quarter of 2005, but growth rates for the first half were negatively impacted by fewer bleeding events during the first quarter of 2005 compared to the same period in 2004. Norditropin SimpleXx in Europe is showing solid growth rate whereas our hormone replacement therapy sales are largely unchanged.

In Japan Oceania growth is driven by the insulin analogue growth hormone therapy and NovoSeven with solid growth rate. The two insulin analogues, NovoMix 30 and NovoRapid, show strong performance and increased penetration in the growing insulin analogue market. The conversion to pre-filled devices continues and insulin analogue sold and [inaudible] drives the growth.

In the second quarter 2005 our growth hormone franchise grew supported by continued penetration of the pre-filled delivered device NordiFlex since the launch in July 2004. Sales in international operations are driven by human insulin, insulin analogue and NovoSeven. The growth in insulin analogues is mainly driven by China, Russia and Turkey. In China NovoMix was launched in the second quarter 2005 and initial outtake looks promising. Within human insulin and insulin related products growth is mainly driven by China, Russia and Algeria.

Turning to slide 11 for a more detailed update on the sales development in North America. In the second quarter sales in North America grew by a solid 29% local currencies and 24% in Danish krone. The growth in North America is driven by insulin analogues, human insulin and NovoSeven. In the second quarter sales of insulin analogues in North America grew by more than 50% in local currencies and constituted nearly half the total insulin sales.

Novo Nordisk continues to see solid market share gains for both NovoLog and NovoLog Mix and according to the latest market statistics NovoNordisk holds some 38% of the total US insulin markets measured in volume. Sales of OADs in the second quarter were negatively impacted by lower sales to wholesalers partly due to timing effects compared to the same period last year. In the second quarter NovoSeven showed solid growth driven by congenital hemophilia and also a perceived higher level of investigational use mainly within trauma and surgery. North America is expected to remain the key growth driver for Novo Nordisk and all the strategic products are adding to the growth.

With this I'd like to hand over the presentation to Mads who'll give you an update on the development within our pipeline.

Thank you Lars.

Please turn to the next slide for an update on the diabetes pipeline. In June Novo Nordisk received marketing approval for the long acting insulin analogue Levemir from the FDA for the treatment of patients with Type 1 and Type 2 diabetes. Levemir is the first [spatial] insulin analogue in the US with a weight data and treat-to-target data included in the label. Novo Nordisk is now the only company with a full portfolio of insulin analogues approved in the US encompassing rapid acting NovoLog, pre-mix NovoLog Mix 70/30 and now also Levemir. As previously communicated Novo Nordisk expects to launch Levemir in the US market within the first 12 months following the approval.

We are also very pleased to communicate that Novo Nordisk in June received a positive opinion from EMEA's Committee for Medicinal Products for Human Use also known as CHMP for the premixed insulin analogues NovoMix 50 and NovoMix 70, the so called high mixes.

We expect to receive the marketing authorization for these two new products from the European Commission during the second half. Following the expected approval Novo Nordisk will as the only company also have a full portfolio of approved pre-mix analogue products in Europe encompassing NovoMix 30/50 and also NovoMix 70.

Within the area of pre-mix insulin analogues, Novo Nordisk filed an application in June with the FDA for marketing approval of NovoLog Mix 50/50 and NovoLog Mix 30/70 the US trade names for NovoMix 50 and NovoMix 70. Novo Nordisk expects to receive marketing approval for these new products mid-next year. At the recent annual meeting of the American Diabetes Association, ADA, held in San Diego in June, Novo Nordisk presented clinical data from a treat-to-target study in Type 2 diabetes patients with NovoMix 30 also known as NovoLog Mix 70/30 in the US market. Following a simple treatment regiment of initially one injection per day which may be supplemented by one or two additional daily injections, an impressive up to 76% of the patients were able to improve their long term blood glucose control as measured by [HB1C] to a level below the ADA target of 7%. This is actually the most impressive treat-to-target data announced so far in the entire industry. It also clearly emphasizes that patients with Type 2 diabetes achieve excellent control under NovoMix 30 regiment.

Please turn to the next slide for an update on our Biopharmaceuticals pipeline. As previously communicated Novo Nordisk filed an application with the EMEA in January 2005 for marketing approval for the use of NovoSeven in blood trauma. The filing was based on results obtained from a Phase 2 clinical proof of concept study. As a consequence of subsequent feedback from EMEA, Novo Nordisk has however decided to voluntarily withdraw the registration file. To support an updated European filing at a later stage Novo Nordisk decided to perform a confirmatory Phase 3 study in the EU and other countries outside of North America; a study that has now been initiated. The Phase 3 study is aimed at recruiting 1,000 patients with either major blood trauma or penetrating torso trauma. NovoSeven will be administered as early treatment, up to four units of blood, in a dosing regiment similar to the previous to the trial. The primary end point is days alive and not on life support, ie the number of organ failure free days during the first 30 days of treatment. This factor includes those patients who die have no organ failure three days after death. In the US the planned FDA guide for Phase 3 study [guide] for the use of NovoSeven in trauma is being evaluated in terms of implied patient benefits versus potential number of patients in the study and related timeline.

An update on the US clinical strategy is expected to be provided in connection with the release of financial results for the first nine months of 2005. Novo Nordisk still expects to file an application in Europe for marketing approval for the use of NovoSeven in connection with intra cerebral hemorrhage ICH. The filing which will be based on clinical data from three Phase 2 studies, that is to say two dose escalation safe-to-trial and one proof of concept study, is now expected to take place during the fourth quarter of this year. The filing may, as previously announced, be supported by additional safety data from the ongoing global confirmatory Phase 3 study. This Phase 3 study reflects the previous Phase 2B study design and has now been initiated both in Europe and in the US. Re-dose groups included [placebo] 20 and 80 micrograms per kilogram of NovoSeven and the 90 day score on the modified ranking scale constitutes the primary end point. It is now expected to enroll 675 patients in clinical centres located in the US, Europe, South America and Asia. The clinical results from this study will be pivotal for the future filing with the ACA for US marketing approval for use of NovoSeven in connection with ICH.

Within hormone replacement therapy Novo Nordisk has completed a successful Phase 3 study and based on this expects to file in the fourth quarter of 2005 for marketing approval with the EMEA and the FDA of an ultra-low dose alternative to Activelle Novo Nordisk continues combined HRT product. This is expected to support the move towards even lower dose versions of HRT products with improved benefit to risk ratio.

Now over to Jesper for an update on the financials.

Thank you Mads.

Please turn to slide 14 providing you with the details on the financial results. The overall sales growth for the first half was 14% as reported and 15% when measured in local currencies. The forward operating profit increased by 14% in the first half whereas underlying operating profit grew by more than 15% in line with Novo Nordisk's long term financial targets.

License fees and other operating income in the first half of 2005 was positively impacted by a real estate sale and leaseback transaction whereby non-recurring income of around 100 million was recorded during the second quarter.

Net financials showed an income of 278 million in the first half of 2005 compared to 107 million in the same period of 2004. Novo Nordisk recorded a gain of around 250 million from the sale of shares in Ferrosan A/S during the first quarter of 2005. Included in these financials are foreign exchange gains of 135 million compared to a gain of 195 million in the same period last year. The results from foreign exchange hedging activities in the first half of 2005 were negatively impacted by the general increase in the exchange rate of the US dollar versus the Danish krone and also other currencies.

In accordance with International Financial Reporting Standards Novo Nordisk had by the end of 2005 deferred unrealized losses of 386 million on forward contracts which serves as hedging of future operational cash flows. The result of these forward contracts will be recognized in the profit and loss statement when the operational cash flows materialize over the next ten months or so.

The effective tax rate for the first half of 2005 is 29.4% as a consequence of the reduction in the Danish corporate income tax rate from 30% to now 28%. This will be effective for the income year 2005 and it was approved by the Danish parliament in June.

Please turn to the next slide for an update on our currency exposure. During the first half of 2005, the US dollar increased compared to the level prevailing at the end of 2004 albeit with a high degree of volatility. The average level of the US dollar for the first half of 2005 is however lower than the average level for the same period last year.

I know that, at the current US dollar rate, this will reverse in the second half of 2005. As a consequence of the very solid performance in our North American operation during the first half of 2005, we have raised our estimate of the expected impact on operating profit as a consequence of a 5% depreciation of the US dollar. We now expect a negative full year impact on operating profit for 2005 by 300 million of a 5% depreciation of the US dollar as compared to the previously communicated sensitivity of 280 million, ie an increase of 20 million Danish Novo in sensitivity.

Furthermore, a 5% depreciation of the US dollar related currencies is now expected to show increased full year operating profit for 2005 by 85 million as compared to the previously communicated sensitivity of 70 million.

For the Japanese yen and the British pound, the foreign exchange rate sensitivities for 2005 on operating profit remains unchanged; a 5% depreciation of the Japanese yen is expected to decrease operating profit by 130 million, and finally a 5% depreciation of the British pound is expected to decrease operating profit by 80 million.

Currently, Novo Nordisk has hedged future expected cash flows related to the US dollar ten months ahead; for Japanese yen, nine months ahead, whereas the British pound is hedged nine months ahead.

Please turn to slide 16 for an outlook for 2005. For 2005 Novo Nordisk now expect sales growth of 12 to 15% in Danish krone and a similar level of growth as measured in local currencies. We now expect reported operating profit to grow by around 10% instead of the previous expectation of operating profit growing around 5%. This is primarily as a consequence of the improved exchange rate environment, but also reflecting the solid underlying business performance. Our expectations for underlying operating profit growth remain unchanged at around 15% in line with Novo Nordisk's long term financial target.

For 2005, Novo Nordisk now expect a net financial income of 200 million, an expected non-recurring accounting gain of around 200 million from a recently completed August 2005 offering of new shares in ZymoGenetics will be partly offset by an expected higher level of losses on foreign exchange hedging contracts. As previously mentioned, and in line with IFRS, Novo Nordisk defers unrealized losses on forward contracts for P&L recognition to the periods where the underlying operational cash flows will materialize.

For 2005, Novo Nordisk now expect the tax rate to be slightly below 29% compared to the previous expectation of 31% primarily as a consequence of the reduction from 30% to 28% in the Danish corporate income tax rate, effective for the income year 2005. It should be noted, however, that there are three elements of a non-recurring nature that reduce the expected tax rate for 2005. First, the tax exempt basis of the gain on sale of shares in Ferrosan provides non-recurring lowering of the tax rate for 2005 of close to one percentage point. Furthermore, the re-evaluation of Novo Nordisk's deferred tax liability as a consequence of the lower Danish corporate income tax rate provides an additional non-recurring lowering of our expected tax rate for 2005 by close to one percentage point.

Finally, the tax exempt basis of the expected accounting gain from ZymoGenetics' share offering is expected to reduce the tax rate for 2005 by around half a percentage point on a non-recurring basis.

Novo Nordisk still plan to invest close to 4 billion in fixed assets in 2005 whereas the expectations for depreciation amortization and impairment losses remain around 1.9 billion. The free cash flow for 2005 is now expected to be around 3,500 million higher than previously communicated.

All the expectations are provided that the currency exchange rate will remain at the current level throughout 2005. During 2005 Novo Nordisk still expect to complete the remaining part of the ongoing share repurchase program by repurchasing B shares during the second half of 2005, equivalent to a cash value of 1.2 billion Danish krone. To stimulate the ownership interest in the company, and to give a financial incentive to the employees, the Board of directors have approved a global offering of shares to the employees. This offering will take place during the Autumn of 2005 and the associated pre-tax cost is estimated to be in the range of 150 to 200 million.

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

Thank you very much Jesper. Please note again ladies and gentlemen that this conference call will be taped and the replay will be made available on our web page. And, operator, we are now ready to take the first question.

Thank you Mr Sorensen. [OPERATOR INSTRUCTIONS] and the first question comes from Poul Lykkesfeldt. Please go ahead and announce the name of your organization and your company please.

Good afternoon, this is Poul Lykkesfeldt of Alfred Berg/ABN Amro. I have three questions relating to the R&D side. One is relating to the [inaudible], in connection with your Q3 '04 release last year you stated that before initiating Phase 3, you would await a further Phase 2B study relating to two areas, safety and dose finding. I understand that the study will not be completed until later this year regarding those findings, but I should have though that you would had a chance to confirm that the earlier adverse findings in rodents are not relevant to humans. Can you confirm that please?

Also, could you provide a comment as to when we can expect a go, no-go decision as to the initiation of Phase 1 with your NovoSuperSeven? And the last question is, in your first quarter release, you stated that the US studies for trauma with NovoSeven would be initiated in Q3. And in this release you say that you will expect to provide an update in the nine months results release. Does that imply the risk of a later initiation of the Phase 3 studies regarding NovoSeven for trauma in the US? That’s all. Please.

Thank you very much Poul, this is Lars Rebien. So these are our three questions from you. May I ask, the first goes to direct to the left hand side. To what extent can you confirm whether we've seen any safety findings in the Phase 2B program that was intended to evaluate safety and those findings before we start Phase 3 on the right hand side.

Yes, well Poul the situation is quite clear. We have recruited all resident patients into the study, that’s around 165. And we have also completed, of course, a great number of those. And both a data monitoring committee and, of course, all relevant staff is monitoring any untoward safety breach and I can tell you everything looks exactly as we were hoping for. So no bad news whatsoever. It will confirm also the relationship between dose and [inaudible] dynamics, that is [inaudible] so it's not purely a safety study.

To confirm the issue about animals; that issue is not out of the way, is that right?

As we hear it, yes.

Okay, thank you.

But of course we don’t have the study terminated yet, but we are seeing that there are no issues to be worried about at this point in time.

Okay, with the alternative of course of not having the full report. So the second question relates to the SuperSeven. When's that going to be a go, no go decision on the Phase 1 Mads.

Yes I think we actually have given a go decision, so the expectation is to go into Phase 1 with that around the end of this year.

And finally, the implications of the statement in the press release about -- on the initiation of NovoSeven Phase 3 started in the United States?

Yes, here the situation is that you know that this has been a very long and tedious discussion with the US agencies. This basically means that we have a situation where we now, more or less, know the views from the agency in terms of number of patients in point whether or not a waiver can be given, and hence we can derive a cost estimate, a duration of trial estimate and all these kinds of things. And we are investigating all of that in the management team and we'll get back to you next quarter.

Thanks. Have a good day.

Thank you very much. Next question please.

The next question comes from Annette Larsen. Please go ahead and announce the name of your company and your location please.

Yes, hello, it's Annette Rye Larsen from HSH Gudme. I wonder about this ICH delay in Europe that you now look for the fourth quarter filing instead of the third quarter, and previously the mid year. Is that because you have to include some of the safety data for Phase 3 or are there any other reasons for this delay?

And then I want to have another question relating to NovoSeven and the current franchise. If you could put some more flavor on the very strong sales trend that we saw here in the second quarter and what you anticipate for the remainder of the year? Because I see some small upgrade in your guidance and the underlying, is that due to this NovoSeven performance? Or should we expect it to slow back again in the remainder of the year?

That’s my questions, thank you.

Thank you very much. Mads Krogsgaard, the filing timing of ICH, can you please give a comment on that?

Yes, well basically, Annette, it's a question of having all the last minute things put into the filing schedule to make sure that everything is as we think it should be. And basically I can only state that we will, in Q4, definitely, or we definitely expect to have the submission. There's no untoward things that have happened vis-à-vis the trial. The trial decides, it is also in terms of the global confirmatory trial absolutely as you heard before; that will be a confirmatory trial with a focus on the modified ranking scale, globally speaking.

The second question deals with NovoSeven. This is correct that we had a rebounding of our NovoSeven sales in the second quarter after a relatively weak first quarter -- the relatively weak first quarter for NovoSeven was relating to relatively weak sales in Europe. We've seen the results and as we state also in the announcement and in the presentation of the application of NovoSeven in Europe, we see a continued ongoing strong development of our business in United States and the current trend is that we will see NovoSeven sales at around the level which we indicated also at first quarter, and actually did last year, that the expectation for annual sales growth in NovoSeven is around 15%.

I think it's also important perhaps to give a general comment on the relationship between the clinical development of the new indications of NovoSeven and the evolution of our sales. It is not so, in our opinion, that the now seemingly postponed approval for the trauma indication, especially in Europe, will have a major impact on the evolution of sales.

We are seeing strong development that the application of NovoSeven in this particular field, especially in the United States, and that has not been impacted by the clinical development that we have recently discussed.

So around 15% for this year and then we will give further guidance as we move on towards the end of the year for the coming next year. We've also got acquired hemophilia approved in Japan and we now start to see meaningful contribution to the growth of NovoSeven for the regions outside of Europe and North America. Japan strong growth and also strong growth in, what we used to call, international operations.

And, Annette, so if you look at why did we increase our overall guidance for the year, it really doesn’t have anything to do with NovoSeven. We are sticking to the 15% local currency growth; this is in line with what we said previously. So where we are seeing a slightly stronger performance is in our diabetes care franchise and it's really the performance of our insulin analogues which have enabled us, any combination with currencies, to offer our guidance from around 5% to around 10%.

Thank you very much. Next question please.

The next question comes from Martin Parkhoi. Please go ahead and announce the name of your company and location please.

Hi this is Martin Parkhoi calling from Danske Bank. I also have a couple of questions. Firstly with respect to the rest of the year. Now we have seen a significant difference between earnings in the first and the second quarter. Could you give some kind of guidance how we should see the difference between the third and the fourth quarter?

Then, secondly, I know that you have previously been a bit skeptical about the DPP4 inhibitors. You're saying that it's not selective enough, or you don’t want to be number four or five into the market? But now we saw that one of your biggest competitors, Eli Lilly, licensed a Phase 1 product this summer. Why can it be that they still see opportunities in this market while you are more skeptical towards it?

And then, also with respect to Eli Lilly, I could imagine that you're waiting on the decision on September 8 which effects Exubera before you make your decision on your own ARICS but now we have seen that Eli Lilly have taken their own inhalable insulin to Phase 3 and this is with a smaller device. How does that impact your decision to take your product into Phase 3?

And then, finally, you said in connection with the first quarter that you expect to take three or four products into Phase 1 this year. No, sorry within the next 12 months? We know that you are taking the NovoSeven analogue but should we still expect two or three more besides the NovoSeven analogue?

Thank you very much Martin. This is Lars Rebien. The first one, Jesper, goes to you. Given the volatility in earnings growth in the first versus the second quarter, what are your projections for Q3 and Q4, given that we given the guidance that we've been giving on operating profit growth, and then we will revert to you Mads.

The Q3 will be a continuation of the business we've seen in the first half. The fourth quarter will be a little bit different. And there you really have to look at the non-recurring events. Bear in mind that we, in the fourth quarter of last year, had a non-recurring income to the tune of 150 million in the final quarter. And we, in this year, expect to have expenses relating to the share based incentive program for our employees which will cost us between 150 to 200 million. So these two factors will significantly draw down the reported growth in operating profit in the final quarter. I think that will be the key factor.

And the other factor that I'd like to highlight is in terms of sales growth; we are seeing that we, in the second half, probably will have slightly less growth in sales compared to what we had in the final quarter of last year as we realize the very, very high growth rate in international operations in the last quarter of last year. And this year, we are expecting a more even distribution of the sales growth in our international operations and we have, in the first half of this year, witnessed about a 20% local currency growth in our international operations. So these factors you have to bear in mind when you look at it.

Then, of course, the final factor would be the currencies, as I mentioned in the previous presentation, the rates for the US dollar in the final quarter is below --was below last year the rate we have currently. So there will be a positive currency impact in the final quarter, whereas the rate in the third quarter last year was similar to the one we currently have.

Thank you Jesper. The second question goes to the new class of potential drugs and treatment of Type II diabetes, DPP4 inhibitors, where it's correctly stated that we have been somewhat skeptical, in particular, because of the competitiveness of this new class, and it's for your question Mads, since Lilly have started a Phase 1 program they've seen something that we haven't seen and what's your comment to that?

Yes. Actually it falls in different categories because it is true that Lilly did license from [inaudible] a Phase 1 compound rather recently. Now several thing to bear in mind, Martin. One of them is, of course, that Lilly is a big company with a big TP sales force so they might be able to make something out of an [inaudible] class compound. But [Tokyo] is around number ten in the DDP4 class and that means that you need a kind of brute force tactics to make that highly profitable.

Second of all, on the frequency side we still believe the DDP4 inhibitors lack the bodyweight change or beneficial effects that we see for, for instance, with [inaudible] and, of course, also Levemir. And in that regard it means that it's going to be a much harder fill than, for instance, the [inaudible]. Also on the pure XP1C side it will not be living up to at least the [inaudible] potential. This is a slightly different situation vis-à-vis their Byetta compound of course.

Third of all, we also said that we will have four compounds into the clinic hopefully pending no attrition, within the 12 month period since last time we talked to you. And one of those will be a OAD, a novel class agent which we would much rather bet some money on than a DDP4 inhibitor like the one you described.

Before you answer the last question Mads, let's just take a minute in the sequence. The next question was relating to pulmonary insulin as to whether or not our regulatory and clinical strategy was impacted by what happens to Exubera and the fact that Lilly is going to Phase 3.

Let me just state initially before I give you over to Mads that our development is predicated upon the fact that we believe pulmonary insulin will become a therapeutic class and as a consequence that our timelines are trying to drive our own concept to the market as quickly as possible. So no, it's not based on whether we sit and wait for whatever happens to Exubera. Obviously, if Exubera is not approved, then that will have some strategic implications for Novo Nordisk, but we do expect that it will be approved, and that’s the way we operate. And Mads?

Yes, I think you basically answered the question Lars. On Lilly specifically it is true that they are initiating a long term Phase 3 safety study with what seems to be an itemized -- the alchemist technology, and that’s what it's like. It's not changing our plans, we will of course have this re-negotiation decision at the end of the year as we have communicated previously. We are not doing this point of the development contingent upon what other competitors are doing.

So the last question was in addition --

Sorry can I just comment here because Mads I recall that you said -- it's a couple of years ago that you said that we don't aim to be the first in class but we aim to be the best in class. But now it seems like with Lilly come with a device which is much smaller, then you will not be the first in class and maybe you will not even be the best in class. So what will you be going for then?

Well Martin Lilly's is of course a powder based concept and ours is a liquid aerosol base. And I think they will have virtues and we will have virtues and we'll see how it pans out.

The final question Mads, as you've already mentioned two of the compounds that expect to go into the clinic over the next 12 months was the Super Seven and it was the Novo class of the all anti-[inaudible] base. What are the two other ones? Or have we had more in the research pipeline just recently?

I think we've also stated that Factor 13 will enter the clinic over the period that we are discussing. And the last one we have not yet disclosed but three out of four are actually the Super Seven as we call it, the new Novo class all anti-diabetic and Factor 13. Okay?

Thank you very much.

Next question please?

The next question comes from Annette Lykke. Please go ahead and announce the name of your company and location please.

Thank you very much; Annette Lykke of Carnegie. First of all I'd just like to get some comments from you in respect to this weight profile you highlighted for Levemir where you're gaining from this in Europe. How do you see the situation in the States where [Bietta] is of course benefiting from its weight loss profile, and how do you see that to your own products? I do expect you to mention the 123 trial but could you elaborate a little bit more on that?

Moreover is there risk or how do you see the risk for EMEA asking to wait this [inaudible] trial you do on ICH so that you will have to wait this trial which is estimated to be around two years I think.

And then I just didn't get it right about the dosing in the ICH trial. Are you looking at 20 and 80 milligram or 20 between -- between 20 and 80 milligram? That's all thank you.

Thank you Annette, this is Lars Rebien. So Mads around the complexity issue on weight, what are we getting from the weight component experience with Levemir in Europe? And how does that then play into the fact that Bayer [Bietta] is marketing itself as a new class that has a weight reducing effect. How do you see the weight issue in general?

Yes and it's quite clear that probably the best study that Lilly colleagues have done so far is the one -- albeit you can of course discuss the inclusion criteria but nonetheless the study where they did compare [Bietta] twice, [inaudible] once and where they showed more or less similar efficacy. This was not a treat-to-target study, that's why I'm discussing the inclusion criteria but however they saw a less degree of weight gain and some weight loss and this is the benefit of the [tier 2 one class]. But may I draw your attention to one fact, namely that [Bietta] first of all is twice daily, its efficacy is rather moderate, typically giving the A1C improvement of around 1 percentage point. And in the case of Levemir you can take as we've shown before two out of every three patients into guideline control; that number is about half the size for [Bietta] in spite of the twice daily application. On top of that you have to refrigerate it even though you actually have to take it both in the morning and the evening giving you some logistic problems.

So basically I see [Bietta] as a move forward in terms of a new nice class of agents. I do feel however that it has some optimum features that we will correct it if and when we get the [inaudible] to the market, but weight is clearly an issue.

So the second issue Mads is this issue on ICH. To what extent you gauge the risk associated with filing based on Phase 2 study? Obviously we've just had a disappointment with the filing of the trauma. How have you planned to mitigate that risk as it relates to the ICH application in Europe?

Yes that is a clear risk that we have to acknowledge. The dose is zero, that's placebo versus 20 versus 80 micrograms so we are talking these three groups of patients or three groups of [included] dosings. If it is so that the agency were to come back to us and say after their assessment that we're in a situation where they want more safety data from a new population we should be able to provide an interim update on the safety, ie [adjustments] in the form of [inaudible] events. And that would fit into the anticipated regulatory timelines compared with what we have in terms of inclusion of patients in the already ongoing study. So I think we will be able to handle that if it were [to end].

This is Lars Rebien here. I think what you could say in a sort of figuratively way is that we're walking a tightrope in the sense that it's obvious that we have tried to mitigate it to have the same experience that we've had with trauma by starting a Phase 3 confirmatory trial in ICH giving higher probability that we would be ready to answer questions relating to safety which is the key concern on ICH. But of course by doing so we also invite the authorities the opportunity to say let's wait for the data from this trial. So this is clearly a risk and in that sense you could say that we are walking a tightrope between the benefit in short term and a further postponement.

Could I follow up asking what are your plans for ICH with respect to the US market?

Well this trial is clearly a global trial which will also -- and that's why we had to increase the number of patients because we had to accommodate the view from the FDA that they were only interested in seeing the number of patients that either survive or have got an improvement from the number four in the ranking status. And so that's why it's built in on the European trial as well so we are running a global trial that will yield data which is going to be beneficial for approval both in Europe and in the United States. And the timelines are such that we expect to have it completed two years after we start.

So filing to the FDA is two years from now?

It's the same study so it's two years including the 90 day follow up from the last patient.

Okay thank you.

Okay next question please.

The next question comes from Rachael Sledge. Please go ahead and announce the name of your company and your location please.

Hi it's Rachael Sledge at UBS. First of all you've mentioned seeing increased investigational use for NovoSeven in surgery and trauma. Are you not seeing any investigational use in ICH and would you see that changing going forward?

Secondly how sustainable do you see the sales increases from Q2 in growth hormone and HRT?

Thirdly we've seen Lilly discontinue or plan to discontinue its production of Humulin in the U&L form last month. Is that something you'd also consider or do you actually see this as an opportunity you could benefit from?

And then finally would you just be able to comment on the order in which you'd expect the new indications for NovoSeven to come to the European market? I guess we've got trauma, ICH and maybe also some of the newer ones such as the [upper GIB]. Thanks.

Thank you. So investigations used, Mads are we seeing also -- we just mentioned in our comments increased use for surgery and for trauma. Are we also seeing ICH?

Yes we do Lars. When we say trauma in surgery it's because these are the big areas in terms of trauma being a very large volume area where it's quite well established amongst the experts that NovoSeven works in the patients that are the target patients. For surgery we are lumping together many kinds of surgery including cardiac surgery which is a widely used area of NovoSeven use. And likewise post [inaudible] hemorrhaging in women even though that's not really a surgery indication, and so on and so forth. So ICH yes it's being used. We cannot quantify but of course the neurologists are telling us they are using it on relevant patients.

Thank you. The second question deals with the evolution of our sales in growth hormone HRT. It is correct that we indeed saw a strong performance of these -- the growth hormone franchise primarily built on the SGA indication in Europe and the NordiFlex in the United States and in Europe meaning that we are gaining market share. We are also seeing a slight improvement of our market share in Japan so it's an interesting -- also from a strategic perspective an interesting signal that we have here a franchise of a business which is in a way a generic, a biosimilar business where we are heading into this franchise with formulations and new devices. And then still generating a very nice piece of business.

With regards to HRT it's the first quarter in Q2 where we did not see a decline of our business so therefore that's also a very good sign that perhaps the HRT franchise is stabilizing. And in particular the Vagifem business is expanding in the United States and we are also performing quite well with Activelle. And it was mentioned in the announcement that we have filed for, or we will be filing for a new product which is the lower dose version of Activelle and hence the outlook for our HRT franchise is actually now better than it has been for many quarters.

And I probably should add that in terms of both the growth hormone and HRT products there is a slight positive pricing impact from the US market.

And then you mentioned the fact that Lilly has indicated that they are withdrawing human insulin and streamlining their portfolio. I think this is something that we would be expecting to see also from Novo Nordisk in the future. We have alerted in particular the UK market that within the next four or five years we should be expecting to see that the European market as well as the US market is going on to analogues. And obviously we need to follow that trend. We will be expecting to see human insulin for a great deal of time in the international market because there is still a demand. Their conversion to analogue is going slower and there are also local competitors on human insulin in these markets. But in Europe, the United States and in Japan yes we will be expecting that human insulin will be history in the next five, six, seven years.

The next question was what is the ranking order in terms of expectations for new indications Mads on NovoSeven in Europe.

I think the short answer is I don't really know because no-one can tell the verdict of the EMEA on these issues. But in terms of what you could expect, all other things being equal, you would say that ICH we are filing in the fourth quarter and that would mean that this would be the first of the new indications, all other things being equal. And things such as [inaudible] we have alerted you to the fact that some time next year we will have completed a confirmatory trial in [inaudible]. And then of course after that what we do now is we re-inform [inaudible] a confirmatory [inaudible].

Thank you very much. Next question please? And I have to alert you to the fact that we're getting close to the closing of this conference. So next question please?

The next question is from [Andy Cosen] please go ahead and announce the name of your company and your location.

Hi it's Andy Cosen at [Redfern] in London. A couple of quick questions on NovoSeven and new indications. I understand you don't want to comment on the US trauma situation too much but it sounds -- would it be correct in assuming that it sounds like you're considering whether it's worth satisfying what you consider to be very stringent demands of the regulators? So you may end up making the decision to try to grow off label use and hope that the ex-US Phase 3 shows such good results that the FDA will have to accept it?

Then on European trauma trial, will you be requiring informed consent in that study? And what's your best guess for how long the 1,000 patients will take to recruit given the Phase 2 timelines? Presumably it's quicker than that but maybe some guidance would be helpful there.

And then the final thing was on the gross margin. It was very high in the quarter, especially considering the write down. What should we expect for the rest of the year? And what else is affecting the gross margin? Thanks.

Thank you very much. Andy this is Lars Rebien. Mads Krogsgard, again back to the comments on the trauma, the situation in the United States.

And also what are the situations as it relates to informed consent, patient recruitment and timelines for the European study?

And then Jesper over to you after that on comments on the gross margin.

Well clearly you delineated one extreme and that is of course to say that this is so meticulous and tedious and from a cost benefit risk perspective not really paying off, that's one perspective to look at it; that you let sales grow off label. Another one is to say that we'll do exactly what the FDA are asking us to do. And third and fourth and fifth options would be to do some more intermediate solutions where we piggyback on what we are doing in the otherwise global trial. But I have to say though that in terms of FDA and their view on what is approvable they are the authority to decide upon that. [Inaudible].

How many patients do they want?

Sorry?

How many patients do you think they want, or you would need to include to satisfy their demands?

Okay right, I can tell you if we had 1,000 in the European trial it's somewhat more in the US trial because of the differing end point. The big problem which quite clearly is the one you're hinting at by your question about informed consent, that is the issue. In the US it's extremely difficult to get a wave of informed consent and if you don't have such in the trial setting where you enter the trauma clinics at 3 o'clock at night and this young man who's been -- it's a traffic accident or a shooting incident, he's not very likely to come with a next of kin in his hand to give that consent. So we have some serious issues that we're discussing.

Sure.

And then Mads the timelines for the European part of it? We've already gone into discussing what is the situation in Europe as it relates to informed consent in 1,000 patients and the timeline.

Okay maybe I should just qualify. I mean we have previously said something like two to three years and I think -- hinted at 2.5 being realistic. Those were in the days when we were talking about the 600 patients. Now we are actually upping that to 1,000 because the trial has been now designed such that it includes both blood and penetrating patients. This doesn't imply -- this [inaudible] implies that the timelines don't change much because we have also included some penetrated patients now and they will be considered the same population because of the selection criteria that we concluded. So we are actually estimating three years including the 90 day follow up on the last patient.

Thank you very much Mads. And then to Jesper Brandgaard on the gross margin?

Well we're seeing several factors impacting our gross margin. First of all we are seeing a changed product mix. It's coming from higher sales of analogues which especially in the US carries a higher value of rate for us. In addition we are seeing very solid growth rates coming from our growth hormone franchise which also adds to our growth margin. There is then in addition improved efficiencies in our production facilities as we especially ramp up the volumes of our analogues. And then finally I would like to note that there will be quarterly fluctuations.

So if we look at the full year guidance we previously stated that we expect our underlying gross margin to improve by 50 to 100 basis points. I should note that the improved employee share program will allocate a bit of these 150 -- or a significant proportion of these 150 to 200 million in costs to our production costs. And hence if we adjust for that and adjust for a slight negative margin I expect that the current rates, the improvement in reported growth margin to be in the ball park between 20 to 70 basis points on a full year basis.

Thanks.

Okay thank you Jesper. Ladies and gentlemen a final question before we close the session?

And this question comes from [Sashan Jaan]. Please go ahead and announce the name of your company and your location.

Hi gentlemen this is Sashan Jaan from Merrill Lynch. A couple of questions if I may. If I could start off with NovoSeven and trauma again I'm afraid. Can I just clarify my understanding Mads. Are you saying that the discussions with the FDA are now largely complete? You know the size, the end points and that it's largely down to an internal discussion?

And then a follow on from that. You've talked about cost and timing. I wonder if you could comment on how the patent expiry of NovoSeven around 2010/11 affects the decision as to whether to proceed with the trial?

And then two financial questions very quickly. Could you quantify the amount of the write down in inventory?

And secondly on the hedging losses, the 386 million, you said they would be taken over the next 10 months. Is it fair to say that will be roughly 50 this year and in 2006? Thank you.

Thank you very much. Mads again back to the discussion with the FDA and the likely outcomes, are they influenced by the patent expiration of NovoSeven?

Jesper comments on the inventory write down and the hedging.

Okay well I guess there are two issues in the FDA question. Now the first one about where we are in the process. Well you're right in the sense that the FDA we have addressed their questions. They are now looking at those and we are looking at how we see the situation. So it's not that you will expect to see much further discussion as we are kind of at the end of the discussion phase.

Now in terms of patent expiry it's a very worthwhile discussion. First of all of course biosimilar products is NovoSeven really amenable to biosimilar competition in an easy way? That's one issue. And if it were no-one knows whether that gives you biosimilar competition with inhibitor treatment of hemophilia or the full range of indications. That is by no means clear this will be the case. So I think that is not what's holding us back. What is right now causing us just to take a pause and discuss and get back to you in the quarter is as you correctly stated the overall assessment of the whole situation.

Thank you Mads. And Jesper, any comments on the inventory write down size?

Yes basically the write down that we did our holdings of [animal crystals] have probably reduced our gross margin underlying improvement in the first half by -- it would have been around 1 percentage point if we hadn't seen that write down. Then in addition on the currency hedging, note that we had about 386 million deferred as at June 30, and then if we have 10 months you'll probably have 6 of them allocated to 2005 and 4 months allocated to 2006 and that will give you around 200 affecting 2005 and a bit more than 150 affecting 2006.

Thank you very much.

Thank you very much ladies and gentlemen. Then again please let me remind you the replay is available on our home page and also you are very welcome to call in to our investor relations staff that will be waiting at the phones for your call. Thank you very much and we look forward to coming back at the third quarter release. Goodbye.