諾和諾德 (NVO) 2006 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Novo Nordisk Q3 2006 results presentation. [OPERATOR INSTRUCTIONS].

I'll now hand you to your host, Mr. Lars Rebien Sorensen, President & CEO.

Please go ahead, sir.

Thank you very much.

Welcome, ladies and gentlemen, to this Novo Nordisk conference call regarding our results for the first nine months of 2006, which was released earlier today.

I'm Lars Rebien Sorensen, the CEO of Novo Nordisk.

With me, I have our Chief Financial Officer, Jesper Brandgaard;

Mads Krogsgaard Thomsen, our Chief Science Officer; and present are also our investor relations officers, Mogens Jensen, Elsebeth Lassen and Christian Frandsen, and Hans Rommer.

Today's earnings release is available on our home page, novonordisk.com, along with the slides that we'll be using for this conference call.

The conference call is scheduled to last as usual approximately one hour, and we'll start with a presentation as outlined on slide number one.

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 note that the conference call is webcast live, and a replay will be made available on the Novo Nordisk website after the conference call.

And I'd like to start the conference call with some highlights from the first nine months of 2006.

Turn to slide number 3.

Novo Nordisk has delivered encouraging sales growth in the first nine months of 2006, with NovoRapids, NovoMix 30, and Levemir, i.e., modern insulin products is the main growth driver.

We have increased our global insulin market share to 52%, and continue to consolidate our position as the world's leading diabetes care company, driven by a portfolio of modern insulins and a strong US performance.

In the biopharmaceutical area, sales of NovoSeven continue to grow in the third quarter, and growth hormone franchise shows solid performance for our liquid growth hormone, Norditropin.

Earlier this month, Novo Nordisk received marketing approval for the use of NovoSeven in acquired hemophilia in the US market.

NovoSeven is the only recombinant treatment option for this serious but rare condition.

Mads will give back more details about other developments in the pipeline later in this call.

We are pleased with the solid financial performance of the first nine months.

Sales grew by 16% as reported, as well as local currencies, while operating profit increased by 14% as reported.

Furthermore, we continue to demonstrate solid improvements in our production economy.

We maintain our financial expectations for the full year, hence the expectation for sales growth measured in Danish kroner is 13% to 15%, and our expectations for operating profit growth is around 13% as reported.

Turn to slide number 4.

In the first nine months of 2006, the diabetes care segment grew 17% measured in Danish kroner, equal to 76% of Novo Nordisk's growth.

With our portfolio of insulin analogs as the main growth driver accounting for 69% of total sales growth.

Biopharmaceuticals grew 13% measured in Danish kroner for the first nine months.

Sales of NovoSeven increased 13%, while the growth hormone franchise grew a solid 21%.

Sales of other products, recombinant and the HR2 franchise, increased 2% compared to the same period last year.

We are encouraged by the market success of our strategic products in an increasingly competitive market environment, and current market trends indicate a continuation of the growth for the rest of 2006.

Turn to slide number 5 for an update on our analog franchise.

In the third quarter, sales of modern insulins, insulin analogs, grew 40% measured in Danish kroner.

The growth is driven by underlying market growth; market share gains for the entire portfolio, NovoRapid, NovoMix, Levemir, which was introduced in the US market by the end of March this year.

From a regional perspective growth is driven by North America and Europe.

However, international operations in Japan [inaudible] also contributed to the overall growth of the analog portfolio.

Within international operations, growth was mainly seen in China and in Turkey.

In the first nine months, insulin analogs constituted more than 40% of our total insulin sales, compared to 32% in the same period last year, emphasizing the robust momentum in the ongoing conversion from human insulins to insulin analogs.

In North America, around 60% of total insulin sales are analogs, and the North American market constitutes 38% of Novo Nordisk's total analog sales.

NovoRapid is the largest insulin analog product for Novo Nordisk, with sales of DKK4 billion in the first nine months.

Similar figures for NovoMix and Levemir were DKK2.8 billion and DKK0.9 billion respectively.

Turn to slide number 6, for further insights into the dynamics of the analog market.

Around 47% of the global insulin market measured by volume has now been converted to analogs, compared to 40% at the same time last year, and we expect this conversion trend to continue within all segments of the market.

Together with the ongoing conversion to prefilled devices, this drives the value growth of the overall insulin market.

Novo Nordisk continues to gain market share within the analog market, maintaining a solid performance since the first quarter of 2002.

Novo Nordisk's market share of the analog segment is now 39% measured in volume, supported by the continued rollout of Levemir in new markets.

Novo Nordisk continues to be the only company that markets a full range of modern insulins, with short-acting pre-mix and long-acting insulin analogs, in the most advanced and user-friendly delivery systems.

Please turn to slide number 7, providing some further insights into the drivers of our analog market share gains.

NovoRapid is still the best-selling short-acting analog in both Europe and Japan.

From a global perspective, Novo Nordisk holds 52% of the short-acting analog segment, while the global market share of NovoMix is even larger, at 66% of the pre-mixed analog segment.

The gains in market share within the analog segment are also reflected in our total volume market share, where Novo Nordisk now holds a market share of 52% in the 12 months ending August 2006, versus 51% 12 months earlier.

Please turn to slide number 8, which provides you with an update on the development of our analog market share in Europe, as well as the roll-out of Levemir.

Novo Nordisk reinforces its position as a clear market leader within the analog segment in Europe, with a volume market share of more than 48%, compared to 43% 12 months ago.

The solid leadership position is fortified by the success of the continued European roll-out of Levemir, which now holds more than 21% of the total European market for long-acting analogs.

Levemir has now been launched in 45 countries, including most European countries, and several countries outside of Europe.

We will get back to the US launch later in the conference call.

Turn to slide number 9 for an update on the NovoSeven sales development.

NovoSeven sales increased 4% as reported, 7% in local currencies in the third quarter.

Sales growth was primarily realized in Europe and international operations, while sales in North America was impacted by relatively fewer major bleeding events.

The overall sales growth of NovoSeven during the first nine months reflects increased sales within the congenital and acquired hemophilia segments as well as perceived higher levels of investigational use.

Treatment of spontaneous bleeds for congenital and inhibitor patient remains the largest use area of NovoSeven.

Turn to slide number 10 for an update on Norditropin.

During the third quarter of 2006, sales of Norditropin increased by 17% as reported, and 21% in local currencies, thereby continuing the solid growth momentum of our growth hormone franchise.

All regions contributed to growth, with North America as the primary growth driver.

Norditropin is a liquid, ready to use growth hormone, and it's increasingly sold in our prefilled delivery device, NordiFlex.

Our product continues to be the most advanced offering in the market, with significant convenience benefits for patients and their families.

Turn to slide number 11 for an update on sales by region.

North American continues to be one of the main growth drivers for Novo Nordisk.

In the third quarter, North America contributed more than two-thirds of the overall growth for Novo Nordisk.

We will revert to North America after a review of the development in the other regions.

In Europe, we continue to see solid growth rates for our portfolio of modern insulins, and Levemir contributed to the growth for the overall insulin franchise.

NovoSeven continued to show a solid growth rate in Europe during the third quarter of 2006.

The growth hormone franchise in Europe also showed a solid growth rate in the third quarter, whereas the sales of HRT products were slightly lower compared to the same period last year.

Sales in international operations in the third quarter have primarily been driven by insulin analogs, and NovoSeven while human growth hormone, and [OADs] also contributed to sales.

Within insulin analogs, the key growth drivers were China and Turkey in the third quarter.

The sales of human insulins were negatively impacted by a lower level of tender sales, primarily related to Brazil.

The sales of [inaudible] continues to benefit from an overall improved reimbursement level in major regions in China.

In Japan and also India sales of insulin analogs increased, with solid growth rates in the third quarter of 2006, and growth hormone and NovoSeven also contributed to sales.

The two insulin analogs, NovoMix 30 and NovoRapid continues to show robust performance in a growing insulin analog market.

The conversion to prefilled devices continues, and insulin analogs sold in FlexPen drive the growth.

Sales of growth hormones 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.

In the third quarter sales is a North America grew by a solid 24% in Danish kroner and 29% in local currencies.

The solid growth in North America was primarily driven by the portfolio of insulin analogs, human insulin and Norditropin.

In the third quarter, sales of insulin analogs in North America grew more than 60% in local currencies and constituted more than 60% of total insulin sales to the region.

Novo Nordisk continues to see solid market share gains for both NovoLog and NovoLog's 70:30 mix.

The launch of Levemir, Novo Nordisk's advanced long acting insulin analog took place at the end of March, supported by an entire diabetes sales force of 1,200 individuals.

Novo Nordisk has obtained extra formula coverage for Levemir with more than 65% of total lives covered and a corporate [first] status.

The launch is going well and the latest weekly market shares show that Levemir now has 6.5% of new scripts and 4.4% of total scripts in the basal analog segment.

Novo Nordisk expects to see continued monthly market share gains of between 0.5 and 1 percentage point going forward.

Novo Nordisk continues to be the market leader in the US insulin market with more than 40% of the market based on August data and measured by volume.

Growth hormone continues to show solid growth rate and the US continues to be the largest growth hormone market for Novo Nordisk.

As a consequence of the strong growth momentum, we now have more than 10% of the growth hormone market in the US.

In the third quarter, sales of NovoSeven in North America were impacted by a relatively lower number of major bleedings.

North America continues to constitute approximately half of Novo Nordisk's NovoSeven sales.

Novo Nordisk expects North America to remain the key growth driver, supported by the launch of Levemir in the US market where Novo Nordisk is the only company with such a full portfolio of modern insulins.

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

Thank you Lars.

Please turn to slide 13 for an update on our diabetes care pipeline.

We're now completing screening of the last patients in the final Phase 3AB trial for Liraglutide, the one stage human GLP-1 analog, thus leading to a high degree of certainty that filing will take place as planned in 2008 followed by launch during 2009.

At the Capital Markets day on October 6, 2006, we announced the initiation of the Phase 2 dose ranging study for the use of Liraglutide as an [inaudible] stage for treatment of obese, non-diabetic patients.

The study is expected to be initiated during the first quarter of 2007 and to encompass around 550 patients.

One of the main problems with existing obesity treatment is the lack of sustainability of weight loss.

Liraglutide, Novo Nordisk's analog has shown the potential increase in pre-clinical studies as well as in non-diabetic patients to reduce food intake and induce weight loss.

Furthermore, Liraglutide treatment has been associated with a very benign side effect profile with the GI tract being the only organ associated with side effects.

And even so, only with occurrence of less than 10% nausea.

Novo Nordisk has completed the first clinical Phase 1 study of the second generation modern basal insulin NN5401 in people with diabetes.

One of the study aims was to determine the pharmacokinetics and action profile of NN5401 in an insulin clump set up in both patients with Type 1 and Type 2 diabetes.

The study showed that NN5401 exhibits a smooth action profile for more than 24 hours in both Type 1 and Type 2 diabetes.

The compound was well tolerated and further studies in patients are currently ongoing with the aim of initiating a full Phase 2 program next year.

Please turn to slide 14 for an update on our biopharmaceuticals pipeline.

In October, the FDA approved NovoSeven for the treatment of acquired hemophilia, which is a rare but serious condition in which the immune system starts to generate antibodies against clotting factors 8 or 9.

This reduction in the level of coagulation proteins impairs the patient's normal blood clotting and hence profuse bleeding may result in connection with [ET] surgery.

NovoSeven is already approved for the treatment of acquired hemophilia in Europe and Japan.

Factor 8 and Factor 9 treatment aimed at preventing bleeding of hemophilia A and B respectively, is now well established in patients below age 25; the majority of whom use this therapeutic paradigm.

In contrast, this prophylaxis paradigm has not been established in the management of inhibitor patients.

At the Capital Markets day Novo Nordisk announced that a Phase 3 study of NovoSeven in prophylactic treatment of hemophilia inhibitor patients will be initiated in the first half of 2007.

The study follows a Phase 2 study in which patients treated prophylactically for three months with NovoSeven, experienced no treatment related adverse events and a significant reduction in the number of monthly bleeds.

The target group for prophylactic therapy will be severe inhibitor patients with frequent bleeds and high total societal costs.

In addition, Novo Nordisk announced at the Capital Markets day that it expects to submit a regulatory dossier for a heat stable version of NovoSeven around mid 2007.

The new heat stable product is expected to deliver significant patient benefits including rapid dosing after onset of bleeding and ease of access to treatment outside of home or hospital setting.

Novo Nordisk furthermore announced completion of the Phase 1 program for NN1731, the first [recompetent] Factor 7A analog in clinical development.

NN1731 is rationally designed to amplify the speed and magnitude of clumping formation in patients, thus mimicking more closely the clotting process in a healthy person.

In Phase 1, NN1731 appeared to be safe with no thromboembolic adverse events and no haemogenic response at days 30 and 90.

Furthermore the Phase 1 study results corroborated the data collected generated in pre-clinical experiments through demonstration of the very rapid and prudent [inaudible] as assessed by biomarkers.

Novo Nordisk expects to initiate a Phase 2 program for NN1731 during next year.

Finally, Novo Nordisk informed about a recently completed Phase 2 study for the use of NovoSeven in patients with upper GI bleeding.

In the study, NovoSeven appeared to be safe with a comparable number of adverse events in placebo and NovoSeven groups.

However, there was no significant increase in the treatment success rate and as a consequence, Novo Nordisk will not pursue further clinical development within upper GI bleeding.

Please turn to slide 15 for an update on other biopharmaceuticals.

Patients undergoing hemo dialysis due to chronic renal failure are typically in a highly catabolic state due both to malnutrition and chronic uremic inflammation.

At the Capital Markets day, Novo Nordisk showed promising results from a recently completed Phase 2 study of Norditropin in the treatment of adult patients in chronic dialysis.

In the study Norditropin increased lean body mass and [inaudible] levels, the two leading indicators of survival in this condition.

Novo Nordisk has, based on this, decided to initiate a global Phase 3 program by mid next year with an expected study duration of around three years.

Now over to Jesper for an update on the financials.

Thank you Mads.

Please turn to slide 16, providing you with the details on the financial results.

We're pleased with the overall sales growth in the first nine months of 16% as reported as well as in local currencies.

We're also very pleased to report a significant improvement in gross margin of 2.5 percentage points in the first nine months, which reflect the continued gains from both improved production economies and a more favorable product mix.

The gross margin improvement during the first nine months was not impacted by foreign exchange rates.

The increase in the sales and distribution cost was 22%, primarily reflecting the expansion of the US diabetes sales force that took place during the fourth quarter of 2005, as well as the expenses incurred in relation to the recent launch of Levemir in the US.

Research and development costs increased by 25%, primarily reflecting the higher number of ongoing late stage clinical development projects, including Phase 3 trials with NovoSeven in ICH and trauma as well as Liraglutide and [inaudible].

Reported operating profit increased by 14%, partly impacted by a non-recurring gain of around DKK100 million from the sale and leaseback transaction involving certain office buildings in Denmark, which was recorded under other operating income during the second quarter of 2005.

Adjusted for currency impact and non-recurring items, underlying operating profit of the first nine months grew by around 15%.

Net financials showed an expense of DKK257 million in the first nine months compared to an income of DKK382 million in the same period last year.

This includes the results from associated companies which was an expense of DKK148 million this year, compared to an income of DKK344 million in the first nine months of 2005 when a non-recurring tax exempt income of approximately DKK250 million from sale of shares in [Ferrosani] was realized as well as a non-recurring accounting gain of around DKK200 million from a secondary offering of shares in ZymoGenetics in August 2005.

Net financials also include a loss on foreign exchange of DKK103 million compared to a gain of DKK103 million in the same period last year.

The results from foreign exchange hedging activities in the first nine months have been negatively impacted by the higher level of especially the US dollar versus the Danish kroner in the first three months of 2006 compared to the level prevailing in 2005.

The effective tax rate was 30% compared to 28.7% in the same period last year impacted by the tax exempt status of the non-recurring income related to the sales of shares in Ferrosani and also the secondary offering of shares in ZymoGenetics.

Please turn to the next slide for an update on our currency exposure.

The high levels of volatility for most major currencies including the US dollar and Japanese yen versus the euro and Danish kroner has continued during the third quarter of 2006.

In the third quarter of 2006, sales growth compared to the same period last year was negatively impacted by foreign exchange rate as reported sales was around 3 percentage points lower than the 12% growth rates in the local currencies.

For operating profit growth, the currency impact in the third quarter was around 6 percentage points, i.e., reported operating profit was around 6 percentage points lower than the growth measured in local currencies.

For the first nine months of 2006, the currency impact has been close to zero for both sales growth and operating profit growth.

Currently, Novo Nordisk has hedged future expected cash flows related to the US dollar 14 months ahead, the Japanese yen 11 months ahead and the British pound also 11 months ahead.

Please turn to slide 18 for an outlook for 2006.

The expectation for reported sales growth in 2006 is maintained at 13% to 15%.

The sales outlook reflects the solid sales performance during the first nine months of the year.

The overall currency impact on sales for the remaining quarter of 2006 will, given the currently prevailing exchange rates, be negative compared to a neutral currency impact on sales realized during the first nine 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 reflect expectations of a more even distribution of sales in 2006 within international operations compared to the development last year.

Please also note that due to reclassification of certain sales commission, the third quarter of 2005 was positively impacted by around DKK100 million compared to the third quarter of 2006.

Sales commissions were, as of the third quarter of 2005, included in sales and distribution costs whereas previously they were offset in the sales lines.

The number for the first nine months and full year 2006 will be comparable as the same accounting practices with regard to sales commissions applied to both years.

The solid improvement in reported gross margin of 2.5 percentage points is expected to be sustained around this level during the remaining part of the year so that gross margin for the full year is still expected to improve between 200 and 250 basis points.

As a consequence of the maintained outlook for sales growth as well as the expected gross margin improvement, and despite the currently slightly lower level of foreign exchange rates versus Danish kroner compared to the level at the time of announcement of the financial results for the first six months of 2006, Novo Nordisk has maintained the expectation for full year operating profit growth at 13% as reported.

Underlying operating profit growth is also still expected to increase at around 15%.

For 2006, Novo Nordisk now expects an expense of DKK300 million for net financials while the expectations for effective tax rate remains unchanged at 30%.

Novo Nordisk now expects to invest slightly below DKK3 million in fixed assets in 2006 and the expectation for depreciation, amortization and impairment losses is now around DKK2.2 billion.

The free cash flow for 2006 is now expected to be at least DKK5 billion.

With regard to 2007, Novo Nordisk will provide full guidance on expectations in connection with the release of the full year financial results for 2006 scheduled for January 31, 2007.

However, given the present currency rate environment, the preliminary plans for 2007 indicate a growth in reported sales of at least 10% and an operating profit growth of 10% to 15%.

The preliminary sales expectations for 2007 reflect both Novo Nordisk's solid market outlook for its key strategic products within diabetes care and biopharmaceuticals, as well as the expected impact of increased competition in the diabetes care arena due to competitors' new product introductions towards the end of 2006 and in 2007.

The preliminary expectation for growth in operating profit in 2007 reflects increased spending on R&D relative to sales due to a high number of late-stage clinical development activities as well as increased investments in the sales and marketing area in order to maintain Novo Nordisk's leading market position within the diabetes care arena.

All these financial expectations are provided that currency exchange rates, especially for the US dollar and related currencies, remain at the current level versus the Danish kroner throughout 2006.

This concludes our presentation of the financial results.

Lars Rebien Sorensen 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.

Well thank you Jesper and Mads.

Please note ladies and gentlemen this conference call will be taped and the replay made available on our website.

And operator, we are now ready to take the first question.

Thank you, sir. [OPERATOR INSTRUCTIONS].

Our first question comes from Henrik Simonsen.

Please go ahead and announce your company name.

Good Afternoon gentlemen, Henrik Simonsen of SEB Enskilda.

Two questions please.

On Levemir you said you expected about 0.5 to 1 percentage point gain per month.

As far as I can see from the most recent data we have seen on a weekly share basis, you continue to gain about 0.5 percentage point.

What should bring you up closer to 1% or more in line with the expectation and you are still trending in the low end of that range?

And the second question relating to admin costs.

Why do they continue to increase in line with sales?

I think Jesper said that he expected the admin costs to come down.

Is there a reason coming from legal costs?

What is the reason behind that?

Thank you very much, Henrik.

Levemir development on US market shares and administration costs.

Jesper, why don't you deal with the administration costs first?

Yes Henrik you are right.

I was actually predicting that we would see a slight decline in our admin to sales ratio falling below the 6.2 reported last year.

We are actually seeing in the third quarter a high level of legal costs and this is partly related to the ongoing trial we have in the US regarding HRT.

But also a broad portfolio of litigation in the US, both in a defensive way but also an offensive way; as you are aware we have challenged the patent situation for Exubera and we have also challenged the patent situation for Sanofi-Aventis in relation to OptiClik.

And these areas are leaving us with slightly higher legal costs than we previously anticipated.

I would still expect that we can get a slight improvement in the admin cost to sales ratio for the full year, but it is going to be lower than previously anticipated.

And with regard to the Levemir market share gains, of course it depends a little bit on whether you look at weeks or months.

Our calculations seem to indicate that we are currently gaining at around 0.7% per month and that also correlates to the 6.5% gain from March, April until October.

So we do believe we are within that range and we will try to increase the pressure in the marketplace.

Our force is becoming more and more effective in getting the message across; the data improving support for the marketing from all the studies that we are doing outside the US to support the US launch.

And we will of course stay competitive in the future as well.

So we do believe that between 0.5% and 1% is a realistic assumption going forward.

Next question please?

Hello, did we lose the connection?

You are still connected, sir.

Okay.

Next question please.

Thank you.

The next question comes from Poul la Cour.

Please go ahead announcing your company name.

Hello, this is Poul la Cour with Carnegie.

Two questions.

First on insulin analogs.

Your year-over-year growth for insulin analogs has come down notably compared to the last ten quarters.

What is the explanation for this, first?

And second, on your gross margins, a significant improvement there.

Can you give us some more color on the mix behind that and how you expect us to develop going forward if it is still an improvement of 50 to 100 basis points?

Thank you.

Thank you very much Poul.

A question on the growth rates of the insulin analogs [inaudible] and gross margins.

Jesper, I can see you'd like to comment on the gross margins, and the composition of those gross margin improvement.

And perhaps also give a little bit of a heads up on what you expect as continuation into 2007 as we see it right now.

Yes it was a very healthy development.

We also saw it in the third quarter in terms of the development of our production economy. 250 basis points improvement as you are aware, we have approximately 50 basis points given from the animal insulin improvement.

We had the write down of animal insulin we did last year.

So 200 basis points underlying improvement, no currency impact.

That leaves us very comfortable in guiding towards 200 to 250 basis points for the full year, noting that we in the fourth quarter will have a negative currency impact on the gross margin.

The composition is really related to -- the 200 basis point underlying is 25% related to an improvement in price and mix.

The price effect is coming from -- the positive price impact is coming from two areas.

The first is that we are getting -- we have had some price increases on the portfolio in the US.

We have also seen better average prices being achieved through conversion of patients from the previous -- mitigated patients to the Medicare Part B scheme which is helping us in the US average prices.

These price improvements are however broadly offset by lower average prices in Europe due to healthcare reforms and through -- in Japan, through the mandatory price reduction of just over 4% which was announced with effect from April 1.

So that's the pricing impact.

In terms of mix, we are seeing continuous mix improvement within this 25%, and that's really coming from selling more analogs and selling higher volumes of Norditropin;

Norditropin being the second highest margin product we have in our portfolio.

The other -- the 75% of the improvement in gross margin is really coming from first, the better production economy that we get from producing higher volumes of especially insulin, doing that more efficiently.

And secondly in that area, and probably more important, operating the filling activities at ever higher efficiencies, and that's basically lowering the cost per produced unit.

That is also the performance.

This year is also giving us comfort in providing a guidance next year to the tune of an improvement of 50 to 100 basis points.

With the performance we've seen so far this year, it's probably going to be in the upper end of that interval, so that sounds positive.

I think you should also note that we've seen a reduction in the investment area and part of this reduction is of course the [inaudible] linked to the improved production economy.

The higher volumes we can give through the existing facilities, the lower the investment need will be.

And that also has a bearing on our capital tie up in the inventories and we are seeing a lower capital tie up and hence a better cash flow from operations.

And you note that we have increased our guidance from free -- from cash flow from operations so now a free cash flow of more than DKK5 billion.

Thank you Jesper.

That was a very thorough answer.

Back to the insulin analog growth rates year-on-year.

Obviously growth rates eventually will have to come down.

I'd like to draw your attention to a couple of facts that you can see on slide number 7.

Actually you can see it depicted on those slides that the growth rates are coming down for NovoRapid and NovoMix.

And if we note then that DKK4 billion sold of NovoRapid, DKK2.8 billion is sold of NovoMix, then there's the very steep growth rate of Levemir with the total sales right now of about DKK1 billion.

It's not able to compensate for the declining growth rates of NovoRapid and NovoMix.

So basically there is a natural law that eventually the growth rates will come down, but we see no major shift in the trends.

If you look at it quarter-by-quarter over the recent quarters it's obvious that we had a very strong second quarter in 2006, and hence the growth rate, going forward into the third quarter, it's somewhat more modest.

But there are no major trends -- changes at all in the insulin analog franchise development.

Thank you.

Next question please?

Our next question comes from Annette Larsen.

Please go ahead announcing your company name.

Yes, hello, it's Annette Larsen from Gudme Raaschou.

I have one question related to some of the new products coming into the diabetes area.

And actually my question relates to a statement from Jesper Brandgaard on Direct Today, where you allude to these new products may have some impact, even these DPP4 inhibitors.

And I of course, wonder whether anything has made you change your mind compared to the statement from the company recently and particularly when Januvia was approved, because I remember then that the comments were that they could have no affect at all.

So I just wonder about if there has been anything that has made you change your mind or become more conservative in your statement?

Thank you.

Thank you very much.

Perhaps we ought to give Jesper an opportunity to clarify what might have been stated and what might have intended to have been stated.

And then we would ask Mads Krogsgaard to give an overview of the clinical relevance of DPP4 inhibitors, how we see them in the treatment cascade of Type 2 diabetes and whether or not -- if they will have any impact on the current users of insulin, or prospective future users of insulin.

Jesper?

Yes, the comment I gave was basically just commenting on the new introductions that we were seeing within the diabetes care arena.

And there of course I mentioned the three major ones, Bieta, Exubera and the DPP4s coming into the oral segment.

And then I noted that of course, when you have introductions in the oral segment there may be longer term impact on the insulin growth rates, although I probably also have noted that it's uncertain whether this will be the case.

So that was just basically also a comment on what is going to be the competitive environment in the GP office in terms of new product introductions when we look at 2006 and 2007.

Mads, over to you.

Yes I think specifically the question I guess you have is on the DPP4 class.

And I think it's beyond doubt that the positioning as we're also seeing it from the clinical studies of the DPP4 [inaudible] tells us as such that they will basically primarily, A) replace the generic [inaudible] because they more or less give the same glucose control but in the absence of weight gain and with no hypoglycemia.

And B) they will try to tap into the intra [sensitized] market by doing much the same things as the GDCs without the weight gain.

So the de facto of not providing any new mechanism that can obscure or mitigate the insulin growth going forward, because they basically work by secreting insulin from the [inaudible] just like [inaudible] urea would do.

Thank you.

I hope we have clarified that point.

We'll take the next question please.

Our next question comes from Tero Weckroth.

Please go ahead announcing your company name.

Good afternoon gentlemen, Tero Weckroth from Dresdner Kleinwort.

I have two questions please.

Firstly, to clarify on the insulin analog growth rates.

If I look at the presentation from now and in earlier quarters, it looks to me that in the accuracy level that you are disclosing, the Levemir sales have been flat.

It is now DKK0.9 billion and then it was DKK0.3 in the first quarter, and DKK0.6 in the second quarter as a six month figure.

So could you just clarify perhaps and give another detail there.

And then secondly on the new product introductions, could you just give a comment?

Have you seen any negative impact from the growth of short acting and pre-mixed analogs in the US on back of the Byetta growth there?

Referring to the data we saw in ADA that if the products are used in combination, the dose of short acting analogs seems to go down.

Thank you.

Yes, thank you very much.

Jesper, would you care to give a little bit more color on the evolution of the sales of Levemir?

Yes of course.

The sales of Levemir is impacted by the pipeline filling that we did in the US.

And we also noted in connection with the first quarter that we had just over DKK100 million of pipeline fill in the US.

There was a limited sale in the -- a very limited sale in the second quarter as the pipeline was -- the product in the pipeline was being used.

We're beginning to see the re-orders now coming towards the end of the third quarter.

Of course, you get into some roundings; we are of course in the high end of the DKK900 million to DKK1 billion interval but the rounding has to be done the way we've done it.

We're seeing a very solid and stable continued penetration of Levemir, as also illustrated by the market shares you see.

And then with regards to whether or not we have noticed any impact on the short acting insulin consumption in the United States, as a result of the Byetta launch.

It has been very marginal, if any.

By and large we see Byetta as an add on to the protein treatment of diabetes in the US, so it's quite modest actually.

Next question please.

Our next question comes from Michael Leacock.

Please go ahead announcing your company name.

Hi, it's Michael Leacock here from ABN Amro.

Just a couple of questions.

In terms of the sales and distribution, just over the last three quarters there seems to be a delightfully declining trend in terms of percentage of sales there.

I wonder if you could address that trend and where you expect that to be going for the future.

And secondly could you talk a little bit about the international business?

Clearly a drop in Q3.

And I think you mentioned that's due to Brazil.

Could you just talk about the lumpiness of that business and perhaps how we might look at the growth base of that going forward?

Thank you very much.

Two questions here on the [S&P] percentage development in the future and the international business.

I'll first give you a few comments on the international business, and perhaps Jesper you can talk about the evolution of the S&P percentage as part of the P&L development.

Well we have repeatedly stated that the international business is rather lumpy.

What you should be expecting as an average year-to-year basis going forward, and that's also what our internal expectations are, that we see growth rate on about 20% per year.

And so basically what we have seen in the third quarter is a relatively slower growth rate than those.

In fact, by what we have stated in the presentation, we have the effect from the P&L change of the distribution fees offsetting sales.

We have an overall effect of tender markets, and so it's not something that we would be expecting -- we would see expected going forward.

We hold the same optimism about continuing to build our business internationally and so you should expect the growth rates going forward of around 20% for international operations.

And on the sales and distribution side, I like your expression Michael; delightfully low.

It sure is a decline from Q2 to Q3.

Of course the Q2 quarter was marked by the launch cost in relation to Levemir, so that was really the key reason why you saw a quite high Q2.

And do note that in Q3 you will see some effect from the holiday season, primarily in Europe, July/August, where the marketing efforts have been somewhat lower.

I still see for the full year a guidance in the ball park of 29.5% as we've given throughout the year for our sales and distribution costs as being realistic.

And as also noted earlier by Lars, we are seeing a continued increase in the competitive pressure in the area of diabetes.

So I don't think sales and distribution costs in the last quarter of this year or going into next year will be an area where you'd see a significant improvement in our operating ratios.

Thank you Jesper.

Next question please.

Thank you.

Our next question comes from Paul Mann.

Please go ahead announcing your company name.

Hi there, yes, it's Paul Mann from Deutsche Bank.

I've got a quick question on Levemir.

And it looks like -- Levemir's obviously got a great launch.

I'm just wondering where -- what would a typical new patient is who's starting on Levemir; have they historically not taken any insulin?

Are they typically a Type 1 or a Type 2?

And are they starting on a complete regiment or are they just taking it once or twice daily by itself?

And also, perhaps you can also comment on the pre-mix market.

It looks like, just looking at weekly IMS prescriptions data, and I know weekly is not great at getting a long term trend, but it looks like the weekly data has come down to about maybe 10% growth since September whereas previously at the beginning of the year it was more like 30 to 40% growth.

So perhaps you could just comment on that please?

Thank you very much Paul.

I would defer the question of Levemir.

Where do we see the origin of the nature of the patient, and what type of treatment do we see that they evolve with when using Levemir.

And then we will revert with the comment on the pre-mix development.

Yes, well I guess the best evidence we have in the real life setting vis-à-vis which patients are using Levemir comes from our 30,000 patient observational study called Predictive.

In this particular study you basically follow in thousands of GP offices what are the characteristics of those patients who go onto Levemir.

And I have to say they're coming from everywhere.

We are seeing OAD [data] patients in the Type 2 setting going onto Levemir.

We're seeing Lantus patients, who are unhappy with Lantus, switching to Levemir.

And we are basically seeing human insulin users on MPH switching to Levemir.

And I have to add obviously that even though Type 1 diabetic patients are very often treated by specialists, we have also in the GP offices seen substantial numbers of steady state Type 1 diabetics switching either Lantus or human insulin onto Levemir.

So it's a broad mix, and in my mind, Levemir is as ideal a basal insulin analog for Type 2 diabetic subjects as it is for Type 1 diabetic subjects.

It's the same story, but in Type 2 diabetes we're seeing that 80% of them are taking it once daily, which is very good news.

And in Type 1 diabetes; as also goes for Lantus and other insulins, we are seeing that the proportion taken twice daily of course is higher.

Yes, the evolution of the growth rates in the pre-mix segment is sort of a composite of trends going in different directions.

We see a pre-mix share of the total insulin market which is going down in the United States which are relatively flat in Europe, and it's going up in the international operations market.

And on the other hand we see fast acting insulins going up in the US.

So that's one of the overall trends that you have to factor into the model.

If you have any additional specific comments on how to model these three components in the different core markets please call our investor relations people.

They can give you some more details on how to factor that in.

Do you feel that the launch of Lantus has affected -- sorry of Levemir has affected your NovoLog mix, the revenue growth there?

And also, how are your reps marketing the products?

What's the message behind Levemir and the message behind NovoLog at the moment?

Well if I may add a comment here, and then perhaps you can fill in Mads.

We believe that the mix, that's the way we are positioning, is the best starting insulin for the treatment of Type 2 diabetes.

But we also do realize that a number of physicians and a number of patients elect to start themselves on a basal insulin.

And so basically they are given two choices.

Either you -- if you want to go with the best treatment but have to endure that you'd probably have to take, in some cases, more than one injections -- two injections to get proper treatment, then you should be using mixes.

If you want to go with one shot a day, you should be using Levemir because that's the better basal.

And then of course Levemir's positioned in the intensified basal [inaudible] therapy which is primarily used by Type 1 diabetics.

Mads, do you have any other comment to that?

Only just to supplement by saying that one reason why we are seeing rather extensive use in Type 2 diabetes for Levemir also in Europe is of course the fact that it does have a weight benefit compared both to Lantus and, I have to say, also to the mixes, because it's the only insulin that provides this weight benefit.

And I guess your question about whether the introduction of Lantus has put the pre-mix segment under pressure, yes we can see that perhaps is an effect in the US market.

And that we've seen, as I mentioned before, a relative decline in the market share of pre-mixes of the US market as a result of, we believe, the introduction of new basal analogs.

Yes, I actually meant Levemir; whether Levemir has impacted your NovoLog mix revenue.

No.

Okay, thank you.

Okay, next question please.

Our next question comes from Sachin Jain.

Please go ahead announcing your company name.

Hi, it's Sachin Jain from Merrill Lynch.

I just had a couple of follow up questions on sales and distribution.

Firstly for '07 when you talk about increased investments in sales and marketing, I wonder if you would be willing to quantify if you're talking about sales force hires and to what level?

And if that is the case, what has changed in your thought process from, say, a year ago when you felt your sales force size was sufficient to cope with the competition?

And then just to pin you down on '06 sales and distribution, if I put in 29.5% for the full year and assume the top end of your guidance, that gives your fourth quarter sales and distribution absolute spend of around DKK3.2 billion which is the highest you would assume for around eight quarters.

I'm just wondering if you can provide any comments to what's behind that level of increase?

Thank you.

Yes, in regard to the overall perspective that we have on sales force, what we are noticing is that our share has been impacted by an increasing activity from competition from Pfizer coming into the marketplace from really intensifying their efforts behind Byetta; a continued aggressive sales and marketing strategy by Sanofi-Aventis.

And we are expecting also that we will see increased noise level coming from the new companies that are entering the field with the DPP4 inhibitors.

So our overall expectations going forward we will have to adjust our share of voice in the marketplace so that we remain competitive in the marketplace and that's why we are signaling that we'll be continuing to invest.

We will most likely continue to invest in those efforts.

For obvious reasons I cannot be too specific about this because I'm sure the competition will be listening in on this conference call as well.

So if you bear with me, all I would like to say on a global basis is that we are staying focused on staying competitive and we'll take the necessary measures geographically, and the means with which we will compete in the individual markets.

And Sachin, I'll just confirm that your calculation is right, that you will have to be at the 30.5% range to get to the full year number that I noted.

If you look at historic Q4, it is the highest quarter in terms of investment and sales and distribution on an historic basis.

We also expect that to be the case in the fourth quarter of this year.

And with the prime purpose as Lars alluded to, we will invest to remain very competitive in the diabetes care arena.

Can I just have a quick follow on?

Can I take those two comments to mean in the fourth quarter of this year you are likely to be hiring a number of sales reps likely in the low hundreds as a guesstimate?

I'd prefer not to be very specific about how we're going to go about remaining competitive in share voice.

But you will -- we will give you more headline on our plans when we announce the full year results and then you'll also some guidance as to how we see that throughout 2007 and going on.

Okay, thank you very much.

We have about five minutes left ladies and gentlemen.

Let's take the next question please.

Our next question comes from Tim Race.

Please go ahead announcing the company name.

Hi there gentlemen, this is Tim Race here from ING.

Just one question on NovoSeven if I may.

Basically this week has highlighted the inherent risk of stroke treatment, whether it's [inaudible] or asphyxi.

And just looking at NovoSeven and the intracerebral hemorrhage results that we're expecting next year, I'm just wondering how much of the further development of other indications hinges -- such as traumatic brain injury and other surgeries hinges on positive results from this intracerebral hemorrhage?

Because I noticed at you Capital Markets day, you commented that you wanted to see those results first.

So if you could just comment on that please?

Thank you very much.

Mads can you comment on the stroke environment?

Yes well, I have to first of all make a generic comment.

It is true that more than 1,000 stroke trials had failed historically and one more was reported yesterday.

Now the fact is that most of these trials, including the C2 study that was reported by AstraZeneca, are typical examples of so-called antioxidants that are supposed to serve a neuroprotective purpose.

Now the fact of the matter is that animal data on neuroprotectors and antioxidants have never borne out in real life in a clinical situation.

So you cannot compare NovoSeven, which de facto is the first hematoma inhibiting or stopping agent ever to be tried in human ICH.

So I think there are no repercussions whatsoever as to our Phase 3 program; that is, as you know, recruiting the last patients within this quarter, and what we have seen from the AstraZeneca study.

That being said, of course we would be extremely disappointed if we did not get a good result from the ICH trial.

And then we have also said that we are communicating the various programs that we'll take further into development once we have the data in the ICH trial because we have a lot of things on the plate right now, including actually also the new analogs and so on and so forth.

So we'll get back to you with an extended strategic update once we have the ICH data in the first quarter.

Thank you Mads.

Thank you.

Next question and perhaps we can answer the last question ladies and gentlemen depending on how extensive they are.

Thank you.

Our next question comes from John Murphy.

Please go ahead announcing your company name.

Thanks very much indeed.

Lars when you talked about the increased competition in the US market, you didn't mention about Lilly at all, just on the US -- sorry on the insulin analogs there.

Now they've been talking recently about making another push there.

I wonder if you'd seen any signs of that on the ground at all?

And then second on NovoSeven, whether you could give us the growth of NovoSeven in the US in the third quarter and maybe just kind of help us understand some of the dynamics there?

We obviously had a very strong second quarter, a difficult first and third quarter with regards to the US, but maybe just help us understand what's happening with that overall.

Yes absolutely.

I'll deal with the US insulin analog situation and then Jesper you will deal with the NovoSeven sales.

Well, I didn't mention Eli Lilly but not as an oversight but because of the fact that we're not seeing any impact from Lilly's increased activities on the evolution of our market shares.

I know that Lilly's top management has made some commitments about improving and turning their insulin franchise around.

It would seem so odd that it is not at least working in the marketplace.

There is no impact on our market share so the current [inaudible] with us that it's primarily focused on Byetta.

And as I mentioned before Byetta is by and large an addition in the marketplace in terms of protein therapy for Type 2 diabetes competing by and large with oral therapy and less so with insulin therapy.

So we have not seen anything from Lilly.

In a way you could say what is happening globally as we speak, is that Lilly is declining in the insulin market and Sanofi-Aventis is emerging and actually taking over the historic role that Lilly has had as a competitor to Novo Nordisk.

Novo Nordisk is gaining share and holding a very solid leadership position.

Jesper, in terms of the NovoSeven a relatively weak first quarter, a very, very strong second quarter, relatively weak third quarter for NovoSeven in the US.

Is that something we should expect going forward?

I think its interesting to look at what the evolution has been in our NovoSeven forecasts.

We have of course historically said that there's been quarterly fluctuations in the sales and that's also very clear from the slide included in this presentation.

We guided this year through a growth in the ball park of 10% to 15% when we started the year.

After Q1 we had a reported growth of 10% and we said well it may be in the lower end of that range.

Then after Q2 we had a reported growth of 15% and we said it may be in the other end of that interval.

Now after Q3 we are 13% and now we say we are probably in the middle of the interval.

We remain very confident that for the full year 2006, we will see a growth in the middle of this 10 to 15% growth range.

And when we look at 2007, I think you are looking at a growth for NovoSeven probably in the ball park of 10% and then of course, it could be impacted by how the ICH trial, as Mads just talked about.

Of course the approval given there -- we are -- hopefully we will file for approval in both Europe and US around the middle of the year.

And then with a six month approval time, it will be limited in terms of approved sales, but it may have some impact.

If we have positive results, then it may have an impact in the second half of 2007 but that remains to be seen.

The 10% is given the current situation for NovoSeven; the guidance we gave for next year.

In terms of the US and for the third quarter alone, it was a single digit -- a low single digit growth.

We're still seeing a positive trend in the market and I do note that we in October had the approval for acquired hemophilia so we haven't benefited from that in the US in the third quarter.

Thank you very much.

That's very helpful, thanks.

Very good.

Ladies and gentlemen unfortunately we have arrived at the end of the conference call.

We appreciate your attendance.

We are looking forward to talk to you again early next year when we come back with the full year result and give you some more color and more detail on the outlook for Novo Nordisk's business in 2007.

Thank you.

Thank you ladies and gentlemen.

That concludes today's conference.

You may now disconnect your lines.

Thank you.