諾和諾德 (NVO) 2006 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Novo Nordisk Quarter Two Diagnostics Results Conference Call. [OPERATOR INSTRUCTIONS] I would now like to hand over to today's chairperson, Mr. Lars Rebien Sorensen. Please begin your meeting and I'll be standing by. Thank you.

Thank you very much, and ladies and gentlemen, welcome to this Novo Nordisk conference call regarding our results for the first six months of 2006, released earlier today. I'm Lars Rebien Sorensen, the CEO of Novo Nordisk, and with me, I have our Chief Financial Officer, Jesper Brandgaard, Mads Krogsgaard Thomsen, Chief Science Officer, and present are also our Investor Relations Officer, Mogens Jensen, [speaking in foreign language].

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. As mentioned, the conference call is going to be recorded and it's going to be scheduled to last approximately one hour.

As usual, we'll start with the presentation as outlined on slide #1. The Q&A session will begin in about 25 minutes. Turn to slide number two.

As always, I need to advise you that this call will contain forward-looking statements, and such forward-looking statements are subject to risks and uncertainties that could cause the actual result to differ materially from expectations. For further information on the risk factors, please see the earnings release and the slides prepared for this presentation.

I'd like to start the conference call with some highlights from the first six months of 2006. Turn to slide number three.

Novo Nordisk has delivered strong sales growth in the first six months of 2006, with insulin analogues - i.e., modern insulin products, as the main growth driver. We continue to consolidate our position as the world's leading diabetes care company, with increased insulin market shares, driven by our portfolio of insulin analogues and the strong performance in the United States.

In the biopharmaceutical area, sales of NovoSeven continued to grow in the second quarter and the growth hormone franchise also showed solid performance for our liquid growth hormone Norditropin SimpleXX.

We have recently completed two clinical trials with encouraging results; a Phase 2 trial for Liraglutide in Japan and a Phase 2 dose-escalation trial with NovoSeven for the treatment of traumatic brain injury.

Mads will get back in more details about the results from these trials and other developments in the pipeline data in this call.

We are very pleased with the solid financial performance in the first six months. Sales grew 20% as reported, and 18% in local currencies, while operating profit increased by 17% as reported. We've also demonstrated a solid improvement in our production economy during the first six months. As a consequence of the strong business performance, we have increased our financial expectations for the full year. The expectations for sales growth, measured in Danish krone, has been increased to between 13% and 15%, compared to the previous expectation of between 11% and 13%. And our expectations for operating profit growth is increased to around 13% as reported, compared to previously slightly more than 10%.

Turn to slide number four. In the first six months of 2006, the diabetes care segment grew by 21%, measured in Danish krone, equal to 76% of Novo Nordisk's growth. With our portfolio of insulin analogues as the main growth driver, accounting for 65% of total sales growth. Biopharmaceuticals grew 17%, measured in Danish krone in the first six months. Here sales of NovoSeven increased 19%, while the growth hormone franchise grew a solid 22%.

Sales of other products, predominantly the HRT franchise, increased 5%, compared to the same period last year. We are encouraged by the market success of our strategic products and current market trends indicate a continued growth for the rest of 2006.

Turn to slide number five for an update on our analogue franchise. In the second quarter, sales of modern insulins, i.e. insulin analogues, grew by 50%, measured in Danish krone. The growth is driven by underlying market growth, market share gains for the entire portfolio of modern insulins -- that is NovoRapid, NovoMix and Levemir -- which was introduced in the U.S. market at the end of March this year.

From a regional perspective, growth is driven by North America and Europe; however, Japan [INDISCERNIBLE] in international operations also contributed to the overall growth of the analogue portfolio.

Within international operations, growth is mainly driven by Russia and Turkey. In the first six months, insulin analogues constituted 40% of our total insulin sales, compared to 31% the same period last year, emphasizing the robust momentum in the ongoing conversion from human insulins to insulin analogues. In North America, close to 6% of the total insulin sales are now analogues and the North American market constitutes close to 38% of Novo Nordisk's total analogue sales. NovoRapid is the single largest insulin analogue product for Novo Nordisk, with sales of 2.6 billion in this first six months.

Similar figures for NovoMix and Levemir were 1.8 billion for NovoMix and 600 million Danish krones for Levemir, respectively.

Turn to slide number six for further insights into the dynamics of the analogue market. Around 46% of the global insulin market, measured in volume, has now been converted to analogues, compared to 38% at the same time last year. And we expect this conversion trend to continue within all segments of the markets. Together, with the ongoing conversion to prefilled devices, this drives value growth in the overall insulin market. Novo Nordisk continues to gain market share within the analogue market, maintaining a solid performance since the first quarter of 2002. Novo Nordisk's market share of the analogue segment is now 38%, measured in volume, supported by the continued rollout of Levemir, most recently in the important U.S. market.

Novo Nordisk continues to be the only company that markets a full range of insulin analogues, short-acting, premix, long-acting insulin analogues with the most advanced and user-friendly delivery systems.

Please turn to slide number seven, providing some further insights into the drivers of our analogue market share gains.

NovoRapid is still the best selling short-acting analogue in both Europe and Japan. From a global perspective, NovoRapid holds 51% of the short-acting analogue segment, while the global market share [AUDIO DROPS OUT] and 64% of the premixed analogue segment. The gains in market share within the analogue segment are also reflected in our overall volume market share, where Novo Nordisk holds a market share of 52% in the twelve months ending May 2006, versus 51% twelve months earlier.

Please turn to slide number eight, which provides you with an update on the development of our analogue market share in Europe, as well as the rollout of Levemir. Novo Nordisk further reinforces their position as the clear market leader within the analogue segment in Europe, with a volume market share of more than 46% compared to 46% twelve months ago. A solid leadership position is fortified by the success of the continued European rollout of Levemir, which now holds more than 20% of the total market for long-acting analogues.

Levemir has now been launched in 41 countries, including most European countries and several countries outside Europe. We'll get back to the United States later in the conference call.

In June this year, at the annual meeting of the American Diabetes Association, Novo Nordisk showed further evidence of the clinical benefits of Levemir. Novo Nordisk presented very encouraging results from more than 10,000 patients in the German arm of the predictive study, which is a global observational study with Levemir in more than 30,000 patients with Type 1 and Type 2 diabetes. The results show Levemir improves glycemic control, reduces hypoglycemia, and reduces weight, compared to other long-acting insulin products. Mads will get back to these results later in the presentation.

Turn to slide number nine for an update on the NovoSeven sales. NovoSeven sales increased by 21%, as reported, and by 20% in local currencies in the second quarter of 2006. Sales growth was primarily realized in Europe, in international operations. Sales in North America increased during the first six months of 2006, primarily driven by increased sales in the second quarter. The overall sales growth of NovoSeven during the first six months reflected increased sales within congenital and acquired hemophilia, as well as perceived higher level of investigational use. Treatment of spontaneous bleeds for congenital inhibitor patients remains the largest area of use.

Turn to slide number ten for an update on the sales of Norditropin SimpleXX. During the second quarter of 2006, sales of Norditropin SimpleXX increased by 25% reported and 26% local currencies, thereby continuing the solid growth momentum in our growth hormone franchise. All regions contributed to growth, with North America as the primary growth driver. Norditropin SimpleXX is a liquid ready-to-use growth hormone, and is increasingly sold in our prefilled delivery device NordiFlex. Our product continues the be the most advanced offering in the market, with significant convenience benefits for patients and their families.

Now turn to slide number 11 for an update on sales by region. North America continues to be one of the main growth drivers for Novo Nordisk. In the second quarter, North America contributes with almost 45% of overall Novo Nordisk growth. We will revert to North America after a review of the development of the other regions.

In Europe, we continued to see solid growth rates for our portfolio of insulin analogues and Levemir contributed to the growth of the overall insulin franchise. NovoSeven continued to show solid growth in Europe during the second quarter of 2006. The growth hormone franchise in Europe also showed solid growth rates in the second quarter, whereas the sales of HRT products were slightly lower compared to the same period of last year.

Sales in international operations in the second quarter have primarily been driven by insulin analogues, NovoSeven and human insulins, while also growth hormone and [INDISCERNIBLE] contributed to growth. Within insulin analogues, the key growth drivers were Russia and Turkey in the second quarter, whereas the growth in human insulin was primarily driven by China and Egypt.

Sales of NovoNorm [branding] continues to benefit from an improved level of reimbursement in major regions in China. In Japan [INDISCERNIBLE] sales of insulin analogues increased with a solid growth rate, and NovoSeven and growth hormone also contributed to growth. Two insulin analogues, NovoRapid -- 30 Mix and NovoRapid remained -- showed solid robust growth in a growing insulin analogue market. The conversion to prefilled delivery devices continues and incident analogues sold and FlexPen [drive growth]. Sales of growth hormone were robust and Novo Nordisk continues to gain market share.

Turn to slide number 12 for a more detailed update on the sales development in North America. The second quarter sales in North America grew solidly, 30% in Danish krone, or 28% in local currencies. The solid growth in North America was primarily driven by the portfolio of analogues, human growth hormone and NovoSeven. In the second quarter, sales of insulin analogues in North America grew by more than 60% in local currencies and constitute almost 60% of total insulin sales in the region. Novo Nordisk continues to see solid market share gains with both NovoLog and NovoLog Mix.

The launch of Levemir, Novo Nordisk's advanced long-acting insulin analogue, took place at the end of March, supported by an entire diabetes sales force of 1,200 individuals. Novo Nordisk has obtained excellent formulary coverage for Levemir, with more than 60% of total [INDISCERNIBLE] covered at a co preferred status at this early stage in the launch.

The launch is going well and the latest weekly market share data shows that Levemir now has more than 5% of new scripts and almost 3% of total strips in the basal analogue segment. Novo Nordisk expects to see continued monthly market share gains of between half and a full percentage point going forward.

Novo Nordisk prevailed in a lawsuit in which Sanofi-Aventist sought a preliminary injunction against Novo Nordisk, based on its material for Levemir. This outcome is a confirmation of the strong clinical data, showing that Levemir works for up to 24 hours and can be used once daily, causes less weight gain, and has a consistent blood glucose response. Novo Nordisk continues to be the market leader in the U.S. insulin market, with more than 40% of the market, based on May data, 2006, and measured by volume.

Growth hormone sales more than doubled in the second quarter and the United States is now the largest growth hormone market for Novo Nordisk. As a consequence of the strong growth momentum, we now have more than 10% market share of the U.S. market. In the second quarter, sales of NovoSeven in North America rebounded and North America continues to constitute approximately half of Novo Nordisk's sales. Novo Nordisk expects North America to remain the key growth driver, supported by the recent launch of Levemir in the U.S. market, where Novo Nordisk is now the only company with a full portfolio of insulin analogues.

With this, I would like to hand over to Mads, who will give you an update on the development within our pipeline.

Thank you, Lars. Please turn to slide 13 for an update on our diabetes care pipeline. Starting out with diabetes, I'll initially review some highlights from the recent ADA conference in Washington. At this meeting, a new clamp study showed that clinically relevant doses of Levemir had a significantly higher predictability than, and similar duration of action to, that of [lancets] in Type 2 diabetes, allowing for once-daily administration, the latter being highly consistent with the outcome of the recent Sanofi-Adventist lawsuit described by Lars.

Also, several ADA presentations focused on the German part of the 30,000 patient-size European observational Levemir study being predictive. And in each case, the patients were seen to have better glucose control, fewer hypoglycemic events, and less body weight gain than when treated with their previous therapy, be it oral ant diabetic agents or other basal insulins.

It may be concluded from these presentations that the profile of Levemir, originally found in the Phase 3 program and described in the label of the product, was fully borne out in a real-life setting, seen from the office of the family practitioner.

The ADA conference had a major focus on the GLP-1 class, and of interest, both exenatide and liraglutide were the subject of oral presentations. Based on these, liraglutide was, when injected half as often as exenatide, seemed to decrease HbA1c approximately twice as much and give rise to less than half the nausea rate observed with exenatide in comparable studies.

The weight benefit of the two agents was similar, but in contrast to treatment with exenatide, liraglutide was not associated with a single case of antibody formation. This quarter, the Japanese Phase 2 trial of liraglutide treatment in Type 2 diabetes was completed with extremely positive results. HbA1c reduction of around 2% was observed, bringing more than 75% of the patients below the ADA target of 7%, intriguingly without a single finding of minor or major hypoglycemia. [GI5] test reporting was close to placebo and in no case above 10%. Based on these unsurpassed data, Novo Nordisk has decided to proceed with [INAUDIBLE] trials in Japan as soon as possible.

Finally, we have to mention that NovoRapid has become the first short-acting analog of insulin to receive EU approval for use in pregnancy.

Please turn to slide 14 for an update on our biopharmaceuticals pipeline. Within NovoSeven, the global ICH trial continues to recruit ahead of plan. In this trial, a protocol-defined midterm sample size review has just been conducted in a manner that is blinded to the Company. In order to preserve full statistical [power] of the study, the analysis has a built-in assumption, a presumed Phase 3 efficacy level similar to that found in the study reported in the "New England Journal of Medicine." With this design, sample size review was able to detect if at Day 90 overall pooled NovoSeven and placebo, ranking scale outcome at midterm was different from that predicted from the Phase 2 baseline data. The result of this midterm sample size review was that pooled Day-90 outcomes were better than reported in the Phase 2 study. Bearing in mind the a priori assumption of unchanged efficacy, this led to the conclusion that the patient population should be increased to slightly more than 800 to compensate for an expected mild [INAUDIBLE] state at admission to the trial. Alternatively, if the assumption of unchanged efficacy is incorrect and a typical Day-90 outcome at midterm review could occur as the result of a higher efficacy level than observed in Phase 2.

We believe, however, that adopting a precautionary principal in this case would further increase the likelihood that NovoSeven will become the first treatment ever to be made available to hemorrhagic stroke victims. Study completion, including 90-day follow-up and analysis, will take place during Q1 next year, followed by immediate compilation and submission of regulatory dossiers in the EU and the U.S.

Traumatic brain injury is a condition that, in particular, affects people involved in traffic accidents or present in conflict zones. The condition is reminiscent of ICH in that major unresolved [INAUDIBLE] is bleeding within the brain. Novo Nordisk has just completed a Phase 2 safety study involving approximately a hundred patients with a positive result. The general positive safety profile of NovoSeven was confirmed and this study paved the road for expansion into a large study with a traumatic brain injury.

More details on this and a number of other studies will be presented at the capital markets day on October 6th.

Now over to Jesper for an update on the financials.

Thank you, Mads. Please turn to slide 15, providing you with the details on the financial results. We're very pleased with the overall sales growth in the first six months of 20% as reported, and 18% measured in local currencies. Also very pleased to report a significant improvement in gross margin of 2.6 percentage points in the first six months of this year, which reflects the continued gains from both improved production economy and a more favorable product mix. Gross margin improvement was only to a limited extent, due to foreign exchange rates, which had a minor positive impact of 0.3 percentage points during the first six months.

Increase in sales and distribution costs was 27%, primarily reflecting the expansion of a U.S. diabetes care sales force that took place during the fourth quarter of 2005, as well as expenses incurred in relation to the recent launch of Levemir in the U.S..

Research and Development costs also increased by 27% in the first six months, primarily reflecting the high number of ongoing late-stage clinical development projects, including Phase 3 trials with NovoSeven and ICH and trauma, as well as the ongoing trials of liraglutide and AERx IDMS.

Reported operating profit increased 17% in the first six months, partly impacted by a nonrecurring gain of around 100 million from a sale and leaseback transaction involving certain office building which was recorded under "other operating income" during the second quarter of 2005. Adjusted for currency impact and nonrecurring items as just described, underlying operating profit grew by around 16%. Net financial showed an expense of 289 million, compared to an income of 278 million in the same period last year. This includes the results from associated companies, which was an expense of 118 million, compared to an income of 195 million in the first half of 2005, when nonrecurring tax exempting comp of approximately 200 million from sale of shares [INAUDIBLE] was realized.

Net financial also includes a loss of foreign exchange of 175 million, compared to a gain of 135 million in the same period last year. Results from foreign-exchange [INAUDIBLE] activities in the first half have been negatively impacted by the higher level of especially the U.S. dollar versus Danish krone in the first two months of 2006, compared to the level prevailing in 2005.

The effective tax rate was 30% compared to 29 in the same period last year, which was impacted by the tax exempt status of the nonrecurring income related to the sale of shares [INAUDIBLE]recorded during the first quarter of 2005, and also the lowering of the statutory Danish income tax rate.

Please turn to the next slide for an update on our currency exposure. The high level of volatility of most major currencies, including the U.S. dollar and Japanese yen, versus the Euro and Danish krone has continued during the second quarter of 2005. Based on our forecast for 2006, [you will notice] estimate of the expected currency impact on operating profit as the consequence of a 5% depreciation are as follows. We expect a negative full-year impact on operating profit for 2006 of 350 million [of the] 5% depreciation of the U.S. dollar.

And I should note that today's release have been based on a U.S. dollar exchange rate of 5.89 between the Danish krone and the U.S. dollar.

Furthermore, at 5% depreciation of the U.S. dollar, related currencies is expected to decrease full-year operating profit for 2006 by DKK hundred million. Hence, on a combined basis, the sensitivity for the U.S. dollar and the sensitivity for the U.S. dollar related currencies is a total of 450 million as a consequence of a 5% depreciation versus the Danish krone. A 5% depreciation of the Japanese yen is expected to decrease full-year operating profit by 150 million in 2006, and finally a 5% depreciation of the British pound is expected to decrease full-year operating profit by 90 million.

Currently, Novo Nordisk assessed expected future cash flows related to the U.S. 15 months ahead, the Japanese yen, 11 months ahead, and the British pound is also 11 months ahead.

Please turn to slide 16 and the outlook for 2006. The expectation for reported sales growth in 2006 is raised to 13% to 15% growth from the previous expectation of between 11% and 13% growth. The higher sales outlook primarily reflects the solid sales performance during the first six months of the year, whereas the development during the second half of 2006 is expected to be impacted by increased competition due to competitive product launches. Furthermore, the overall currency impact on sales for the remaining two quarters of 2006 will, given the currently prevailing exchange rate, be negative, compared to a positive currency impact on sales of 2% realized during the first six months of the year.

As a consequence, the total currency impact on sales for the full year is expected to be slightly negative. In addition to the currency impact, the sales forecast also reflects the expectation of about evenly quarter distribution of sales in 2006 within international operations, compared to the development we show in 2005.

Please also note that future reclassification of certain sales commission in the third quarter of 2005 from previously being offset in the sales line to being included in the sales and distribution cost, the first of half 2006 has been positively impacted by around a hundred million when comparing to the first half of 2005.

For the full-year 2006, compared to 2005, no impact will be seen. if 2005, 2006, full-year numbers follow the same accounting practices with regards to sales commissions.

Assorted improvement in [INAUDIBLE] growth margin 2.6 percentage points, compared to an underlying improvement of 2.3 percentage points is expected to be sustained around this level during the remaining part of the year so that the gross margin for the full year is not expected to improve by more than 200 basis points.

As a consequence of the increased output for [INAUDIBLE] as well as the expected gross margin improvement, and despite the current slightly level of foreign exchange rates versus the Danish krone, compared to the level at the time of the announcement of financial results, for the first three months of 2006, Novo Nordisk has been able to increase the expectations for full-year operating profit growth.

The expectation is now to increase reported operating profit by around 13%, compared to the previous expectation of slightly more than 10%. Underlying operating profit growth are now expected to increase by around 15%, compared to the previous expectation of around 10%. For 2006, Novo Nordisk still expects an expense of 350 million net financial while the expectation for the effective tax rate remains unchanged at 30%.

Novo Nordisk still plans to invest around 3 billion in fixed assets, and the expectation for depreciation and Amortization and impairment losses is unchanged, around 2.1 billion. The cash flow for 2006 is still expected to be around 4.5 million. All these financial expectations are provided the currency exchange rate, especially the U.S. dollar and related currencies, remain at the current level versus the Danish krone throughout 2006.

This concludes our presentation of the financial results. Lars will now moderate the Q&A session. Please note that there will be a maximum limit of two questions per individual, with the objective of allowing as many conference participants as possible to have the opportunity to ask questions.

Thank you, Jesper.

Before we go on to the Q&A, let me remind you, Novo Nordisk invited analysts and institutional investors to a capital markets day on October 6th, 2006, for an update on the Company's overall strategy, as well as key operational and R&D value drivers. We look forward to seeing many of you during the day for the presentations and discussions of Novo Nordisk performance.

Please note also, as I mentioned, that this conference call is taped and the replay will be made available on our website.

And Operator, we're now ready to take the first question.

Thank you. [ OPERATOR INSTRUCTIONS ] The first question comes from Paul Major. Please go ahead with your question, announcing your company name.

Yes, it's Paul Major from Redburn Partners. Just two questions relating to costs of goods. You clearly expected some impressive reductions in cost of goods. I was wondering if you could expand on the sustainability of the gross margin progression, beyond 2006. And in light of this, whether or not you could comment on if an improved gross margin going forward changes your medium-term EBIT margin target of about 25%, or whether or not you expect to reinvest any savings that that generates.

And then secondly, does an improvement in cost of goods have any implications for planned capital expenditure in the medium to long-term? Thanks.

Thank you very much. Jesper, I believe we would like you to try to answer these questions.

Thanks, Paul. Basically the improvement we've seen this year of an underlying improvement half-year at 230 basis points and expected more than 200 basis. Full-year improvement is reflecting that we are selling all analog, which are, especially in the U.S., sold at better prices. So there is an effect from a changed product mix. and we anticipate that the improvement in product mix will also continue when we look to the years beyond 2006. I would assume that it's probably in the ballpark of 25% of the underlying improvements, which can be directed to an improvement in product mix.

The most significant part of the improvement is coming from a better overall economy by producing higher volumes of what we produce. You should however note that the improvement in the first half of this year is, to some degree, helped by a write-down we did last year of our stocks of animal insulin. So when you look beyond 2006, the improvement level which we have been hinting at previously, which is an improvement between 52 basis points, 100 basis points year-on-year is probably in that range. We anticipate being able to deliver 200 basis point year-on-year, when we go beyond 2006.

We don't have any current plans that can support such a significant improvement, but if we can deliver 100 basis year-on-year, that is well in line with our target. And that was an integral part of the way we actually developed the long-term targets of an EBITDA of 25%. So it's an integral part of that EBITDA, and the 25 that we increase the gross margin and then reinvest those resources, partly in our selling and distribution setup. You saw the investment we've done in the first half in U.S. in terms of Levemir, and of course more significantly, raising our [INAUDIBLE] level. And it would be our ambition to grow our [INAUDIBLE] level even further over the coming years, probably towards a level of around 18% to sales in R&D.

The implications of capital expenditure , as we -- notice when we talked about our revised long-term target and when we actually also raised our targets for return on investor capital [INAUDIBLE] from 25 to 30%, we also said that we were set to begin working with our investment schemes. We hoped to bring down our investment level from a previously announced level of 10% of sales down to the 9% ballpark. Three months' result doesn't give us a foundation to change those expectations.

Thank you very much, Jesper, and perhaps I should add to this in terms of a long-term CapEx program. There might be some significant capital expenditure program related to AERx in the midterm that we have to account for. This is completely new technology in terms of the dosage format, the device needs to be manufactured and, as you know, we intend to do most of this ourselves.

Could we have the next question, please?

Thank you. Your next question comes from Paul Lecour. Please go ahead with your question, announcing your company name.

Hello. This is Paul Lecour with Carnegie. First, congratulations on a very fine result, gentlemen. Again, you delivered sales growth in your growth hormone franchise. A very strong sales growth. How should we expect it to continue, firstly. And also on NovoSeven in cardiac surgery, how many sensors have you increased your [enrollment to], please?

Thank you very much. Mads Krogsgaard, if you'll prepare yourself to take care of the NovoSeven question on cardiac surgery. And with regard to human growth hormone, obviously you can say that we have been picking the most easy cherries first. We've been able to gain market share in Europe and we've been able to gain from almost no position in the United States a significant share. Both in Europe and United States, there are generic competition emerging, so estimation, average growth rates midterm around 15%. Not past the 20 percent that we saw recently.

Mads?

Yes, I think, Paul, vis a vis cardiac surgery, a couple of small comments first. This is the first study ever that is performed in the cardiac surgery setting after the operation has taken place, i.e. in the intensive care unit, in very severely bleeding patients. All other studies that have been done in cardiac surgery have been done during the surgery as a kind of preventive or prophylactic therapy to avoid the bleeding. This has the major benefit that we are able to measure a faction of patients that are taken back to reoperation, resurgery, which is a major point in terms of health [INAUDIBLE]. that we knew we were trading on a virgin territory when we entered into the trial.

That being said, and with the inclusion and exclusion criteria that were incorporated, that we came to realize that the amount of sensors that we started out with being in the ballpark of 10, had to be increased very significantly. And the positive news in that regard is that we have now agreed with the FDA that we can initiate such in the U.S. So we're very substantially increasing amounts of sites, which basically constitutes more than doubling. This is why I can say that we will be completing this trial in the first half of next year.

Thank you, Mads. Next question, please?

Thank you. Your next question comes from Rachel Sledge. Please go ahead, announcing your company name.

Thanks very much. It's Rachel Sledge from UBS. Two questions. First of all, guidance for [INAUDIBLE] seems to imply Q3 and Q4 coming in quite a bit lower than Q2. And currency aside, are there any specific reasons for this, in terms of the phasing of expenses in 2006?

And then secondly, we see you filed suit against Pfizer regarding the Exubera patent infringement. Is there any relationship between this and your recent payment to Aradigm, and also, could this be extended to any other of the inhaled insulin products, or is it specifically to your Exubera?

Thank you very much. Jesper, this first question, if I understand it, is in relationship to the guidance of around 13% in operating profit growth and how that ties up with the current performance level. And the second question, with Pfizer litigation, I will take care of.

There's two elements to bear in mind when you look at third quarter growth. Of course you first have to bear in mind that we're facing a much more challenging currency environment for the remaining part of the year, and that's the prime reason for a low expectation. The second element is of course also that we had a nonrecurring [INAUDIBLE] in the second quarter, which is not expected -- third quarter -- is not expected to be impacted by nonrecurring events.

Thank you, Jesper. Then with regards to the litigation vis a vis Pfizer, we can confirm that it is related to proxy rights developed in a collaboration with Aradigm, and it was dependent on the transaction that we did with Aradigm, which enabled us to file this suit, as we have just done today. And I'm reticent to comment on our litigation strategy other than to say it might be limited to Exubera in as much as these patents involve the breathing technique and the education and teaching of such breathing techniques, and that these may be relevant primarily or only to Exubera. But further than that, I cannot comment on it due to the confidentiality, as you might appreciate, of this.

Great. Thanks very much.

Thank you. Next question, please.

Thank you. Moving on to Henrik Simonsen. Please go ahead, announcing your company name.

Henrik Simonsen, Enskilda. Two questions, if I may. I was wondering if you could comment a little bit on the impact of this German reimbursement situation on [INAUDIBLE] mixed analogues. Should we see an impact if it goes through already on Q2 sales, Q4 sales, and then how do you see that impacting your business?

And secondly, I wanted to ask you, we've seen quite different comments from various companies as to the impact of Medicare part D on their businesses. Could you comment on what impact it has had on your business so far in the U.S. and what impact you expect for the second half?

Thank you, Henrik. This is Lars Rebien first. I will give you a comment on the German situation and then Jesper will give you a comment on what our expectations are in the United States.

With regards to the German situation, it's of course a completely, to us, confusing situation inasmuch as the situation is rather confusing for the patients and the physicians in Germany, where now, patients that are on short-acting analogues that are Type 2 diabetics will have to be switched back to human insulins. With the risk associated in any switches, that is a cause of major concern and will, if anything, delay source switches.

If we should give a ballpark number, we do not believe that we will see significant -- we have seen significant impact in the first half; however, we have seen, when we look at the growth of our analogue franchise in Germany, it's a lower growth rate of analogues in Germany than we see in other European markets. But if we should quantify an annualized impact, it would be a sales impact of around a hundred million fully analyzed for this regulation. And then on a marginal operating profit basis, the impact is less than average, because of the current human cost level, which is slightly higher for the analogue because of the scale of the business of this current point in time.

So that's as much as we can say. We think it is primarily confined to the German situation and hence, a spillover effect into other European markets we deem to be less likely, because the situation is very specific to the way the German authorities have tried to cope with the rising health care costs, whereas other governments have been more radical and more, say, uniform in the way that they've been dealing with this.

So that's the situation vis a vis Germany. And then part D, Jesper, what have we seen in our own -- or have we seen any? Or what impact we expect to see from Part D going forward?

Well, the prime impact we're seeing and that we expect to see going forward is that the Medicare Part D reform will increase coverage for patients in the U.S. There is another element, is which not significant in any way in the first half of the year, but it may become more significant as we gain experience with the program, which is related to the ability of patients, both to be covered under the Medicaid program and under the Medicare program, and then deciding to have their medicine under the Medicare program, which is privately administered.

And there the average selling price for these patients are slightly higher. So there may, over time, be a positive pricing impact coming from a movement patients from the Medicare scheme towards the Medicare scheme. But it's a little bit premature to have a full view on that. But it could be a positive pricing impact overall.

Thank you, Jesper. Next question please.

Thank you. Moving on to [Sylvain Goyon.] Please go ahead with your question, announcing your company name.

Yes, Sylvain Goyon with Access Securities. Good afternoon, gentlemen, and thank you for taking my question. A very quick one for Jesper. We have seen a very strong growth in the biopharmaceuticals franchise, with 17% quarter-over-quarter -- year-over-year, sorry. But looking at the segment of [rising] profit, we have only a 3% increase. I wonder what could be the reasons for such a sluggish growth, in fact. Thank you.

Thank you very much. Jesper, do you have any comments on the operating profit growth, which does not seem to reflect totally the strong growth that we've seen In NovoSeven and then in particular in growth hormone.

Yes, you can rest assured that the growth in the therapy profit, if I look at it before -- actually I look at R&D expenses to the biopharmaceuticals area is actually growing broadly in line with sales. However, I should mention that the improvement in production economy that we saw as I alluded to earlier in the session, both in terms of product mix and also in terms of improved production economy, in terms of high yields, are primarily related to our diabetes care franchise. So the improvement we saw in the first half primarily relates, in production economy, to diabetes care.

That said, the key driver behind the low level of growth in our biopharmaceutical franchise is the increased investments we do in terms of R&D within this area. And especially with build-off for the research of our two new areas -- the inflammation area and the oncology -- which are allocated through this segment, [will not] generate any sales are deducted from this business segment's operating profit. So that is the product relation1.

Thank you very much for the question. Could we have the next question, please?

Thank you. Your next question comes from John Reeves. Please go ahead and, announcing your company name.

Yes, thank you. John Reeves of Blue Oak Capital. Two questions, please. Firstly, gross margin, your remarkable 76.8% level for Q2. I'm unclear why you think that that high level itself is unsustainable looking forward. And secondly, I'd like to better understand the improved growth of NovoSeven to 20% in Q2 from 10% underlying in Q1. Are you seeing an acceleration across your major territories? Can you give an idea, perhaps, of the delta in terms of growth rates? Is the U.S. perhaps growing at about 5% and Europe international up 30, 40% perhaps? Thank you.

Thank you, John. Firstly, Jesper, would you comment on the growth margin development going forward? And taking into [points] in the growth margin in the second quarter. And then I'll deal with the outlook for NovoSeven and how we saw growth of that business in the first half.

Thank you, Lars. As I mentioned, when you look at the development inside the second quarter, there is of course a significant improvement comparing last year's second quarter with this second quarter. There are non-extraordinary events occurring in the second quarter of this year. On the contrary, from a production point of view, there has been no batches which have not turned out perfectly. Historically, we're looking at the way fermentation and all the things in our production works out. I don't expect to see another perfect quarter. That would be unlikely. So I think that is the prime part between [INAUDIBLE] Indeed, if we are able to deliver a 200-basis-point-plus improvement this year in our underlying production, that would be a significant [INAUDIBLE] trends we've seen in previous [AUDIO BREAKING UP] so I'm very pleased with what I've seen and the ability to give this increased guidance.

Thank you, Jesper. And then with regard to NovoSeven selling a little bit more light on what we saw in the first half and what one might expect going forward. We did see a resumption of growth in the United States in the second quarter, where we saw high single-digit growth rates in the U.S. And that growth primarily came from investigational use, whereas growth in the other regions, which was relatively strong growth in Europe and in particular strong in international operations, were related to congenital deficiency and acquired deficiency -- or inquired inhibitors.

The future outlook -- you know, when we guided initially for the year, we guided at the range of 10% to 15%. We were uncertain, in particular, about what would happen in the United States vis a vis the negative publicity we have seen. We saw a weak development in the first quarter of the U.S. We've seen a revival, to some extent, but I wouldn't say that we're out of the woods in terms of having eradicated totally the negative impression in the United States. So therefore, our guidance will still be in the range of 10% to 50%, but obviously now we're more towards the upper part of that range going forward, provided the situation in the United States does not change.

Thank you. What sort of growth rate did you achieve international in Q2?

Hang on a minute. I'll get back to you after the next question. Next question, please.

Thank you. Your next one comes from Mr. [Lackland Tower]. Please go ahead with your question, announcing your company name.

Hi, it's Lackland Tower from HSBC. Firstly, just a quick question on the insulins. Can you give us the underlying pricing benefit you saw, as opposed to the mixed in the price there? And secondly, on liraglutide, are you ever to talk anymore about the details of the Japanese study, things like baseline A1C levels, diarrhea rates, weight loss, that sort of thing, or should we expect that data in October? Thanks.

Thank you very much. I would like to start with the last question and ask Mads to comment on liraglutide in Japan. Then I will ask Jesper to comment on insulins pricing, and then I'll try to revert to growth in international operation on NovoSeven.

Right, the Japanese study was obviously on type 2 diabetes, The average age of inclusion was in the mid-fifties. The patients were non-obese, and they were dosed with different levels of the liraglutide or placebo.

Prior to inclusion in the study, they were, of course, hypoglycemic with an average HbA1C baseline of between around 8.2 and 8.4. They had previously been treated either with diet or OAD therapy. During the study, they were only treated with liraglutide and what we basically saw was a detriment from around 8.3 to 6.4, around two percentage points leaving more than 75% to go into the target range. That being said, we didn't see any hypoglycemia, and since the patients were non-obese, there was weight neutrality because [audio breaking up].

On the [INAUDIBLE] side of things, in addition to the lack of hypos, which saw a GI side effect profile that was extremely benign. There was no dose dependency and there were no signs on the GI that exceeded single-digit levels.

Thank you, Mads. Jesper, on the insulin pricing?

If you look at the pricing environment for this six months, 2006, compared to last year, you have a pricing environment where the sales in Japan is clearly negatively impacted by approximately 3% price decline. You have a pricing environment overall in Europe between 1 to 2% negative pricing environment, and that is being offset then in the U.S. by a price increase in the ballpark of between 5% and 10% on insulin analogues and human insulins, when you compare first half last year to this year. However, you have to bear in mind in the U.S. setup that rebates and the various agreements we make with wholesalers, also ensuring that we get adequate coverage on Levemir, those rebates can have an influence on the pricing.

If you nip that all out, you probably have a pricing impact which is slightly positive because of the improved overall share of the turnover within our diabetes care franchise, which comes from the U.S. So I would estimate that approximately a third of the overall positivity on gross margins, which I alluded to before, was about a quarter coming from price mix. And the improvement we saw was related to price and I'll say the two-thirds, I would then relate it to a mix effect.

Thank you, Jesper. And then finally, on the growth of NovoSeven in the area of international operation, we can conclude that we saw an approximate doubling of sales in Q2 of NovoSeven in the region. And some quality on that, in order of magnitude, the growth came from Russia as the strongest growth, driven by positive development under the social benefit program. It came second from Iraq, due to the impact of the improved infrastructure in the country and the [unfortunate] requirement, due to the situation in Iraq.

[INAUDIBLE] from Saudi Arabia, but then was negatively impacted by Turkey because of so few patients that were intensively treated last year, which was not treated to the same level in the 2006.

I hope that gives you a little quality on NovoSeven in I.O. Thank you. Next question, please.

Thank you. The next question comes from Annette Larsen. Please go ahead, announcing your company name.

Yes, hello, it's Annette Larsen from Gudmer. Congratulations. I have two questions. First of all, on Levemir in the U.S., it seems to be going strongly, but could you comment on whether there is any further inventory buildup effect here in the second quarter? And then my second question relates to NovoSeven and the ICH delay. Could you clarify -- you mentioned this 90-day analysis time before filing. Do you expect to file during the first quarter of 2007 or is it during the second quarter of 2007? Thank you.

Thank you very much. With regards to Levemir in the United States, I would concur with your statement that it goes well in the United States. It meets our expectations. However, our expectations are high because we're making significant investment. There is no further inventory buildup, so when you review the IMS data, please note that the inventory buildup took place and is noted in the IMS data in the first quarter and hence, we see a sluggish IMS data in the second quarter and we need to see that pipeline being eaten up.

Interestingly, we made internally a comparison between the launch of exenatide and Levemir. In the sense that we tries to estimate how many patients and how quickly was the ramp-up with number of patients with the exenatide launch. And we can conclude that Levemir, at least in the first three or four months, tracks number of patients treated [INAUDIBLE] launch. However, as you know, in terms of value, [INAUDIBLE] is significantly higher priced than Levemir, so therefore, you see the very visible impact [INAUDIBLE] on the numbers for Levemir [INAUDIBLE] But nonetheless, for us it is satisfying to see that we've gotten off to a reasonably good start. It meets our expectations but it's a long haul. As you know, if we want to get to the ambition level, which is the ambition level that we have, globally of having more than 50% of the basal segment, we're talking about a whole of about seven to ten years of continuing to focus on this.

Mads, when do we plan to file?

Yes, what has happened is that we've increased these three trial populations by clearly more than a hundred patients. And that of course, in spite of rapid recruitment, adds a few months. So from now on, the timescale is that we will have -- dose the last patients within this year, but then you add 90 days and after the 90 days, follow up where you the modified ranking scale, plus a number of other scores, of course, you have to have a defined database with these. And once that is done, you basically have your result meeting and after the result meeting, you complete the compilation of your regulatory dossiers that are then submitted to EU, i.e. EMEA, and the United States.

And all of that is done within the first half of next year. So you should expect that the patients are completed their treatment this year. The 90-day follow-up and data analysis is in the first quarter, and then submission in the second quarter.

Mads, we'd like to take the last question, please.

Hello? Are we dead?

Uh-oh.

Operator? Are we on line?

Operator?

If you just have patience a moment, we will find somebody who will reestablish contact with the Operator and see if we can get the last question, please. So please hang on, if you're still on the line, and we will be patiently waiting for your last question.

Ladies and gentlemen, since we seem to have a technical problem, I hope you'll apologize with us that you were not allowed to ask your last question, unfortunately.

We would like to close from here. Should you have any questions in addition to what has been reported here, please call our Investor Relations people. They'll be standing by for your questions.

I'd like to thank you for your attention and we'll see you again in Q3.

And then we hope, of course, that also that we see as many of you as possible at the Capital Markets Day, October 6th in Copenhagen. Thank you very much.