諾和諾德 (NVO) 2006 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to today's Novo Nordisk full year 2006 results conference call.

At this time all participants are in the listen-only mode.

Later we will conduct a question and answer session and instructions will follow at that time. [OPERATOR INSTRUCTIONS] And just to remind you all this conference call is being recorded.

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.

Welcome ladies and gentlemen to this Novo Nordisk conference call regarding our results for 2006 which was 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 our Chief Science Officer and present also Investor Relations Officers Mogens Jensen, Mads Lausten, 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 approximately one hour and, as usual, we'll start with the presentation as outlined on slide number 1.

The Q&A session will begin in about 25 minutes.

Turn to slide number 2.

As always I need to advise you that this call will contain forward-looking statements.

Such forward-looking statements are subject to risks and uncertainties that could cause the actual results to differ materially from expectations.

For further information on the risk factors please see the earnings release and the slides prepared for this presentation.

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

I would like to start this conference call with some highlights from 2006.

Turn to slide number 3.

We are very pleased with the result that we have achieved in 2006.

Novo Nordisk can deliver solid double-digit sales growth in an industry where many companies struggle with low single-digit sales growth due to patent expiries.

Our modern insulin products NovoRapid, NovoMix 30 and Levemir were the main growth drivers in 2006.

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.

Novo Nordisk is now the world's leading company in the market for modern insulins, both in volume and value terms, and we continue to gain market share.

In the biopharmaceutical areas sales of NovoSeven continued to grow in 2006 and the growth hormone franchise showed robust performance for our liquid human growth hormone Norditropin. 2006 was also an encouraging year in the year of clinical development.

All patients in the large Phase 3 program for liraglutide as well as the global ICH phase 3 trial were recruited.

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

We are pleased with the solid financial performance for the full year 2006.

Sales grew by 15% reported and 16% in local currencies while operating profit increased 13% reported.

Furthermore, we continue to demonstrate solid productivity improvements in product supply and for 2006 we are confident to report an improvement of our gross margin of 250 basis point.

For 2007, we expect sales growth of more than 10% measured in local currencies.

And our expectations for operating profit growth, is around 15% measured in local currencies.

Turn to slide number 4.

Since the beginning of this decade Novo Nordisk has communicated the fundamental business case for our insulin businesses being built on the underlying volume growth in the insulin market of 5%.

And on top of that an additional 5% growth in value upgrades derived from the conversion to modern insulins and better insulin devices.

As you can see from this slide, the predictions have been in line with the actual market developments in the period from 2001 to 2006.

And in addition Novo Nordisk has gained market share in the same period, thereby growing our insulin business by more than 10% every year.

The newest estimates and projections for the International Diabetes Federation on the number of people with diabetes, confirms that we are indeed witnessing a global diabetes pandemic.

First, the International Diabetes Federation has increased the estimated number of people with diabetes significantly from 194 million in 2003 to now 246 million.

And secondly the expected number of people with diabetes in 2025 has been increased to 380 million people.

As the market leader in diabetes Novo Nordisk is committed to providing the best possible treatment to people with diabetes, and work with governments, diabetes associations and healthcare professionals to also improve prevention and care of diabetes.

Turn to slide number 5.

In 2006 the diabetes care segment grew by 16%, measured in Danish kroner, equal to 77% of Novo Nordisk growth.

With our portfolios of modern insulin this main growth driver accounting for 69% of total sales growth.

Biopharmaceuticals grew 12% measured in Danish kroner, sales of NovoSeven increased 11, while the growth hormone franchise grew with a solid 19%.

Sales of other products, predominately the HRT franchise, increased 2% compared to 2005.

We are encouraged by the market success of our strategic products in the increasingly competitive market environment, and current market trends indicate a continued growth in 2007.

Turn to slide number 6 for an update on our modern insulin franchise.

In the fourth quarter, sales of modern insulins grew by 40% measured in Danish kroner.

The growth was driven by underlying market growth and market share gains for the entire portfolio of modern insulins, i.e. NovoRapid, NovoMix and Levemir.

And from a regional perspective, growth was driven by North America and Europe.

However, international operations increasingly contribute to growth and Japan and Oceania also added to the overall growth of the modern insulin portfolio.

In 2006, modern insulin constituted more than 42% of our total insulin sales compared to 33% in 2005, emphasizing the robust momentum in the ongoing conversion from human insulins to modern insulins.

In North America around 60% of the total insulin sales are modern insulins, and the North American market now constitutes more than 38% of Novo Nordisk's total modern insulin sales.

NovoRapid is the single largest modern insulin product for Novo Nordisk with sales of DKK5.6 billion in 2006.

The similar figures for NovoMix and Levemir were DKK3.8 billion and DKK1.4 billion respectively.

Turn to slide number 7 for some further insight into the dynamics of the modern insulin market.

Around 49% of the global insulin market measured by volume has now been converted to modern insulins, compared to 42% 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 pre-filled devices this drives the value growth of the overall insulin market.

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

Novo Nordisk's market share in the modern insulin segment is now 40%, measured in volume and Novo Nordisk is also the market leader measured in value.

Novo Nordisk continues to be the only company that markets a full range of modern insulins, with short-acting pre-mix and long-acting modern insulins in the most advanced and user friendly delivery system, such as the easy to use disposable FlexPen.

Turn to slide number 8, providing some further insight into the drivers of our market share gains within modern insulins.

NovoRapid remains the best selling short-acting modern insulin in both Europe and Japan.

From a global perspective NovoRapid holds 53% of the short-acting modern insulin segment while the global market share for NovoMix is even larger at 66% of the pre-mix modern insulin segment.

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

Turn to slide number 9, which provides you with an update on the development of our modern insulin market shares in Europe as well as the roll out of Levemir.

Novo Nordisk further reinforces the position as the clear leader within modern insulins in Europe with a volume market share of 48% compared to 44% 12 months earlier.

The solid leadership position is fortified by the success of the continued European roll out of Levemir which holds 21% of the total European market for long-acting modern insulins.

Levemir has now launched in more than 50 countries, including most European countries and many countries outside of Europe.

We'll get back to the United States later in the conference call.

But first for an update on the NovoSeven sales development.

Turn to slide number 10.

NovoSeven sales grew 6% as reported and 11% in local currencies in the fourth quarter of 2006.

Sales growth was realized in all regions with North America as the primary contributor to growth.

NovoSeven sales in international operations in the fourth quarter were impacted by lower levels of tender business.

For the full year 2006, sales of NovoSeven increased 11% reported and 12% in local currencies.

The overall sales growth of NovoSeven during 2006 reflected increased sales within the congenital and acquired hemophilia segment, as well as perceived higher level of investigational use.

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

Turn to slide number 11 for an update on Norditropin.

During the fourth quarter of 2006, sales of Norditropin increased by 15% as reported and 20% in local currencies, and thereby continuing the solid growth momentum for our growth hormone franchise.

For the full year 2006, sales of Norditropin increased 19% reported and 21% in local currencies.

All regions contributed to growth with North America as the primary growth driver followed by Europe.

Novo Nordisk gained significant market share in 2006, and is now the second largest growth hormone company in the world, with a 23% global market share measured in value.

Norditropin is a liquid, ready to use, growth hormone and is increasingly sold in our pre-filled delivery device NordiFlex.

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

Turn to slide number 12 for an update on sales by region.

From a regional perspective, North America continues to be the main growth driver for Novo Nordisk.

In 2006 North America contributed with more than 50% of overall Novo Nordisk sales growth.

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, due to market share gains in underlying market growth.

Levemir contributes strongly to the growth for the overall insulin franchise.

NovoSeven continued to show solid sales growth in Europe during 2006, and the growth hormone franchise in Europe also showed robust growth rate in 2006, whereas the sales of HRT products were slightly lower compared to 2005.

Sales in international operations in 2006 has been primarily driven by the modern insulins and NovoSeven, while also growth hormone and OADs contributed to growth.

Within modern insulins the key drivers were China, Russia and Turkey.

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

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

In Japan and Oceania sales of modern insulin increased with a solid growth rate in 2006, and NovoSeven and growth hormone also contributed to growth.

The two modern insulins, NovoRapid Mix30 and NovoRapid continue to show robust performance in a growing modern insulin market.

The conversion to pre-filled delivery devices continues and modern insulin sold in FlexPen drive growth.

Turn to slide number 13 for a more detailed update on the sales development in North America.

In 2006 sales of all products in North America grew a solid 29% in Danish kroner as well as in local currencies.

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

In the fourth quarter sales of modern insulins in North America grew around 60% in local currencies and Novo Nordisk continues to see solid market share gains for both NovoLog, NovoLog Mix 70/30 and Levemir.

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

Novo Nordisk has obtained excellent formula coverage with Levemir with close to 75% of total lives covered at a co-preferred status.

The launch is progressing steadily and the latest weekly market share data show that Levemir now has 6.7% of new scripts and 5.6% of total scripts in the base of the modern insulin market.

Novo Nordisk continues to be the market leader in the US insulin market with 41% of the market, based on November data and measured by volume.

As previously communicated, Novo Nordisk has decided to expand the US diabetes field force from 1,200 to 1,900.

The expansion process has been initiated and it still expected to be finalized during the first half of 2007.

The expanded field force will make it possible to reach more primary care physicians, increase the frequency of visits to both primary care physicians and diabetes specialists.

Growth hormone sales continued to show solid growth rates and US remains the larges growth hormone market for Novo Nordisk.

As a consequence of the strong growth momentum, we're now close to 15% market share in the US market.

In 2006, sales of NovoSeven in North American were broadly in line with expectation and North America continues to constitute approximately half of total NovoSeven sales.

Novo Nordisk expects North America to remain a key growth driver supported by the launch of Levemir in the United States where Novo Nordisk remains the only company with a full portfolio of modern insulins.

With this, I'd 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 14 for an update on our diabetes care pipeline.

I'm happy to report that we've finalized recruitment in the large global phase 3 program for the use of liraglutide, the once daily human [GLP]1 analogue in patients with Type 2 diabetes.

The program remains on track for regulatory filing around mid-2008.

Novo Nordisk expects to start the announcement of result from the phase 3 program during the second half of this year.

In Japan, Novo Nordisk has initiated a separate phase 3 study for liraglutide following the previously communicated and very encouraging data from a Japanese phase 2 dose-finding study finalized in mid-2006.

The Japanese phase 3 study is expected to include around 600 patients with Type 2 diabetes.

Novo Nordisk has furthermore initiated a 20-week phase 2 dose-ranging study for liraglutide as an anti-obesity agent for treatment of obese, non-diabetic people.

This study is expected to encompass around 550 individuals and results are expected to be available during the first half of 2008.

In Europe, Novo Nordisk has received a positive opinion from the Europe regulatory authorities Committee for Medicinal Products for Human Use, CHMP, for the use of Levemir in Type 2 diabetes in combination with oral anti-diabetics.

Following the positive opinion from the CHMP, Novo Nordisk expects to receive marketing authorization from the European Commission for the use of Levemir in combination with oral anti-diabetics during the first half of 2007.

The label improvement for Levemir is in line with our commitment to continuously improve our marketing claims for the portfolio of modern insulins.

As previously communicated on January 15, 2007, Novo Nordisk has decided to discontinue research and development activities within the oral anti-diabetic segment and instead focus exclusively on the company's broad pipeline of therapeutic proteins, an area of unique Novo Nordisk strength, related to our skill base within protein engineering, formulation and delivery.

As a consequence, all existing pre-clinical oral anti-diabetic projects and NN9101 a glucokinase activator project, currently in phase 1 clinical testing, are expected to be out-licensed.

Please turn to slide 15 for an update on our haemostasis pipeline.

Novo Nordisk has now recruited all patients in the phase 3 study of NovoSeven in the treatment of intracerebral hemorrhage.

We expect to communicate headline results from the study later this quarter with a more detailed presentation of the study results at a subsequent scientific conference.

In Europe, the CHMP has issued a positive opinion for the use of a single high dose of 270 micrograms of NovoSeven per kilogram bodyweight in the treatment of mild and moderate bleeding events in hemophilia patients with inhibitors.

Single dose administration of NovoSeven in inhibitor patients represents a major step forward in the treatment of bleeds.

Clinical trial evidence shows that a single high dose of NovoSeven has comparable efficacy and safety to that of three repeated administrations of 90 micrograms per kilogram.

This new regimen is expected to reduce the need for repeated dozing, minimize disruption to daily life, and hence to be a convenient alternative for hemophilia patients with inhibitors.

Novo Nordisk expects to receive the marketing authorization from the European Commission during the first half of 2007 for the treatment of mild and moderate bleeding events in hemophilia patients with inhibitors.

Please turn to slide 16 for an update on other biopharmaceuticals.

Novo Nordisk has initiated a phase one study with anti-KIR, a fully human igG4 monoclonal antibody.

Achievement of this milestone represents a first in class effort since the anti-KIR antibody is the first stimulant of natural killer cells ever to be tested in humans.

The study will evaluate the safety of anti-KIR in patients with acute myeloid leukemia, also known as AML.

Finally, Novo Nordisk has received a marketing approval from the FDA for a low dose version of Activella, a continuous combined hormone replacement therapy product.

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

Thank you, Mads.

Please turn to slide 17 providing you with the details on the financial results.

We are pleased with the overall sales growth in 2006 of 15%, as reported, and 16% in local currencies.

We're also very pleased to report a significant improvement in gross margin of 250 basis points in 2006, which reflect the continued gains from productivity improvements and more favorable product mix, as well as higher average prices.

The gross margin improvement during 2006 was only slightly negatively impacted by foreign exchange rates.

Increase in sales and distribution costs was 20%, primarily reflecting the expansion of the US diabetes care 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 market.

Research and development costs increased by 24% in 2006, primarily reflecting the higher non-[profit] ongoing late stage clinical development projects including phase 3 trials with NovoSeven in ICH and trauma, as well as liraglutide and AERx.

Reported operating profit increased by 13% and increased by 15% as measured in local currencies.

Net financials showed an income of DKK45 million in '06, compared to an income of DKK[145] million in 2005.

Net financials includes the results from associated companies, which was an expensive DKK260 million, compared to an income in 2005 of DKK319 million when a non-recurring tax exempt income of approximately DKK250 million from the sale of shares in Ferrosan 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.

Included in net financials in 2006 were, on the other hand, non-recurring capital gains of around DKK150 million from divestment of shares in other companies, primarily realized during the fourth quarter when a gain of more than DKK100 million was recorded from the sale of a minority shareholding in Domantis, a UK biotechnology company.

In addition, net financials include a gain on foreign exchange of DKK141 million, compared to a loss of DKK40 million in 2005.

The results from foreign exchange hedging activities in 2006 have been positively impacted by the lower level of especially the US dollar versus Danish kroner in the fourth quarter of 2006.

The effective tax rate was 29.6%, compared to 28.8% in 2005, the year which was impacted by the tax exempt status of the non-recurring income related to the sale of shares in Ferrosan, I just mentioned, above which was recorded in the first quarter of 2005, as well as the non-recurring accounting gain of more than DKK200 million from a secondary offering of ZymoGenetics.

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

The major currencies continued to fluctuate versus the euro and Danish kroner during 2006.

In 2006, sales growth, compared to 2005, was negatively impacted by foreign exchange rates as reported sales growth was around one percentage point lower than the 16% growth rate in local currencies.

For operating profit growth, the currency impact in 2006 was around two percentage points, i.e. reported operating profit was around two percentage point lower than the growth rate measured in local currencies.

In line with our risk management principles, Novo Nordisk reduces the short-term exposure from exchange rate fluctuation through financial currency hedging.

Currently, Novo Nordisk has hedged future expected cash flows related to the US dollar 15 months ahead, for Japanese yen 12 months ahead, and the British pound is hedged 11 months ahead.

Please turn to slide 19 for an outlook for 2007.

In 2007, Novo Nordisk expects more than 10% growth in sales measured in local currencies.

This is based on expectation on continued market penetration of Novo Nordisk key strategic products within diabetes care and biopharmaceuticals, as well as expectations of increased competition in the diabetes care area during 2005 due to competitors' product launches.

Given the currently prevailing level of exchange rate versus the Danish kroner, the sales growth rate for 2007 measured in Danish kroner is expected to be lower than the growth rate measured in local currencies.

In relation to sales also, please note that in 2006 the greater part of the positive impact on US sales from the switch of patients from Medicaid to Medicare Part D was booked and recorded in the fourth quarter as the underlying patient flow data became available.

This is expected to impact the quarterly sales growth in North America in 2007.

Novo Nordisk expects operating profit measured in local currencies to increase by about 15% supported by a continued improvement in the reported gross margin.

This expectation also includes an expected higher spending on the portfolio of research and development projects, as well as a continued high level of spending on sales and marketing.

Measured in Danish kroner the growth in operating profit is expected to be around 10% reflecting a significant negative currency impact in 2007.

For 2007 Novo Nordisk now expect an income of DKK50 million for net financials.

Given the prevailing Danish corporation tax regimen, the expectations for the effective tax rate for 2007 is approximately 28%, a reduction of more than one percentage point compared to the realized tax rate for 2006.

Please also note that the Danish government on January 26 announced that it intends to propose a structural change in the Danish corporation tax regime.

Included herein is a decrease in the Danish corporation tax rate from the current level of 28% to now -- to in future 22%, a potential lower tax rate for certain income categories including income from patents, but also at the same time the tax base is expected to be significantly expanded.

Since the detailed proposal is not yet available it is too early for Novo Nordisk to comment on the potential impact on the company of this change in Danish corporation tax.

Novo Nordisk expects to invest around DKK3 billion in fixed assets in 2007 and the expectation for depreciation, amortization and impairment losses is around DKK2.3 billion.

The free cash flow for 2007 is expected to be around DKK5 billion.

All these financial expectations are provided that currency exchange rate, especially the US dollar and related currency, remains at the current level versus the Danish kroner throughout 2007.

The Board of Directors has approved an increase by DKK4 billion in the ongoing DKK6 billion share repurchase program, bringing the total value of the share repurchase program to DKK10 billion.

The program is extended by one year and is now expected to be finalized by the end of 2008.

Furthermore, the Board of Directors will also propose a cancellation of B shares held by Novo Nordisk as treasury shares at the annual general meeting on March 8.

If formally approved by the shareholders, this cancellation will amount to a 4% reduction of the total share capital, thereby allowing for additional capital structure flexibility.

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.

Thank you very much, Jesper.

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

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

Thank you. [OPERATOR INSTRUCTIONS] And our first question comes from the line of Annette Lykke.

Please go ahead.

Yes, this is Annette Lykke from Carnegie.

I just have two questions, one for Mads and one for Jesper.

Mads, in respect to the ICH trial, I would like to hear your views a bit on the protocol design compared to the trials you had in 2004.

It is my understanding that you have a fairly similar design of the trials, but you have a difference in the exclusion criteria.

Is it correct that you now don't exclude patients with a CV risk?

And does that, in your eyes, increase the risk of arterial thrombosis both in the treatment and the baselines?

That's my first question for Mads.

And my second question is for Jesper.

Jesper, you have a significant increase in your sales and marketing costs in Q4 and you also highlight you have some ongoing legal issues where you made some provisions.

Can you tell us a little bit about those or the nature of those and the size?

Or could you alternatively give us some guidance for 2007 where you think the costs for sales and marketing will be?

Thank you very much, Annette.

And Mads, Krogsgaard the first question and then Jesper.

Yes, well very similar to the phase 2 study.

This is basically a placebo controlled study of 80 micrograms, but also includes a [group] of 20 micrograms per kilo.

This [informed consent] and the baseline CT scan has to be within the first three hours and treatment has to ensue within one hour after the baseline scan.

And as in the phase 2 study we are measuring on a modified ranking scale to address the benefits on the function of the C&S.

Unlike the phase 2 study, it is true that we are not excluding patients with a prior history of CV events, [specifically] the only difference compared to the phase 2 study, otherwise, they are completely similar.

In terms of the, let's say, thrombotic event incidents in this study, it's too early to say.

We'll have a look at the data as soon as they [un-blind] it, which, as you know, is towards the end of the first quarter.

And basically then it all is a question of benefits and risks.

But as you will recall, we did not see much differences as to whether there were a prehistory of CVD or no prehistory of CVD in the phase 2 trial.

So that's the status.

Thank you, Mads.

Jesper, any comments to the Q4 legal exposures and what are your expectations to S&D ratios going forward?

Well, the legal issues we mentioned are also described in the press release.

There are issues relating to HRT in the US and there are also issues in relation to the distribution agreement with Menarini in Italy.

Normally you should not expect us to mention anything specifically in a press release if it's not amount exceeding DKK100 million.

That's probably as precise as I can be on these two matters.

In terms of guidance for 2007, I think I'd utilize this opportunity just to go through the various cost ratios.

In terms of gross margin I would anticipate that we would be able to improve our gross margin in 2007 by an additional 100 basis points.

I would believe our sales and distribution ratio to remain at the 30% level.

I would expect us to further increase our R&D ratio towards the 70% to sales ratio and further decline our admin costs probably towards 6.0% of sales.

And then finally other operating income, there I would expect to see a level broadly in line with the level we've seen for 2006, which was 270.

Thank you, Jesper.

Next question, please.

Thank you.

Our next question comes from the line of Peter Verdult.

Please go ahead.

Yes, morning, two questions.

Jesper, on the top line benefit from Medicaid, I understand that the benefit was significantly larger than the DKK100 million you noted in your press release with regards to Tricare.

I'm wondering, on the first question, whether you could quantify that Medicare -- sorry, Medicaid to Medicare switch benefit?

Secondly, the profitability at the biopharma segment;

I see that drop steeply in Q4.

Is that just a function of just higher R&D and those legal charges coming through that division?

Or is there something else going on that's worth mentioning and might recur going forward?

I know you talked about tender levels for NovoSeven, I was just wondering if we could explore that in a bit more detail?

Thanks.

Thank you very much.

Jesper, I'd like to defer both questions to you.

Can you give us, without being too specific, the quantifiable impact from Medicare Part D on our US business?

And any comments to the development and the profitability of the biopharm business?

Well, there's actually -- in relation to the US there are two specific elements which have been significant, and especially significant in the final quarter of this year.

And the first one is relating to Tricare where we have a positive impact to the tune of DKK100 million due to the resolution of an outstanding issue in relation to the Veterans Administration in the US.

Regarding Medicare and the conversion of patients from Medicaid to Medicare, we, of course, have a delay in the reporting of those patients and how they convert.

And of course, given the nature of the Medicare scheme, the Medicare patient will also be impacted by what prices we are able to obtain from the managed care organization in the US.

So it's both that we have impacted by conversion of patients which have been bigger than what we anticipated from Medicaid to Medicare, and furthermore also that given that we now have a full fledged portfolio and are the market leader with insulins in the US we have been able to obtain better prices on average.

And it's a combination of these two factors and unfortunately there the significant element of it was recorded in the fourth quarter that made it important for us to highlight that it will have an impact on the quarterly distribution in 2007 when you look at the growth rates between 2006 and 2007.

I would estimate that the full year impact in the US will be north of DKK200 million from this, but a little bit depending on what to include in terms of conversion and what you include as an effect from change prices towards managed care in the US.

In terms of biopharm profitability, I would say that the key element in terms of impact on our biopharm business is in reality, that we through the biopharm business are funding the build up of the new activities within oncology.

And also within information where we'd seen very, very solid progress both in our preclinical guideline of information projects, but also as you just saw in this release that our anti-KIR project is moving into clinical development.

And of course, investing in these two projects are significantly increasingly the R&D investments that we are undertaking within the biopharm area.

Within the diabetes care franchise, the overall -- the growth in profitability is very much in line with business growth in NovoSeven, so there's no significant change there.

And of course the biopharm franchise is also clearly benefiting from the growth of our human growth hormone franchise with solid growth in the US and also a favorable pricing environment in the US market.

Thank you very much, Jesper.

Next question please.

Thank you.

Sebastian Berthon please go ahead.

Yes, hello gentlemen.

Just a follow-up on the R&D budget for next year.

Does that include any one-time costs associated with [OAD] oral diabetes development?

And were there any one-time costs also in your Q4 R&D expenditures?

And the other question is regarding internal operations.

They appear to have been slowing down quite a bit over the last two quarters.

Primarily, do you [inaudible] any color of what could be the outlook for February 2007 especially in this country?

Thank you.

Thank you very much.

Jesper, would you comment on what has been included in terms of once-offs in any future effect of the closure of our OAD activities and transfer of those resources to biopharmaceutical research?

There's no significant impact in 2006, due to the closure.

The people have been informed in 2007 and there will be a very minor impact in 2007 from the closure of the OAD activities.

As you probably also noted our -- the number of people that we would actually have to lay off will probably be down to -- in the ballpark of 50 people.

And given the Danish labor laws, the impact from such lay offs in a very buoyant Danish labor market will be somewhat limited.

So I don't believe that the guidance that I've given for 17% R&D expenditure to total sales are in any way significantly impacted by this change.

Thank you.

And with regards to international operations, this is, of course, areas in the world where there are fluctuating sales.

On a broad basis we would be expecting annual sales in international operations to vary anywhere from growth rate to 15% to 25%.

We were impacted, as we also noted in the release and in our conference call, by the loss of a federal tender in Brazil, which was significant, and also lower tender sales of NovoSeven primarily in Iran and Iraq.

We have robust sales and strong market share positions in Turkey, in Russia and in China which are very, very important markets to us.

And then you should also factor in that when you look at the Q4 number for IO that they were significantly impacted by the negative development in currencies to the extent of approximately 7 percentage points of their growth was taken out due to lower exchange rates.

So on average our expectations to international operations on an average year should be around 20%, but we will occasionally see fluctuations as a result of the political and economic development in these areas.

Thank you.

Next question please.

Thank you. [Michael Norwood] please go ahead.

Congratulations with a good 2006.

Two questions, one is when do you expect the full ramp up of the US sales force to be completed?

And when should we expect the full effects to materialize, especially on the Levemir market share?

And then secondly to the human growth hormone franchise, do you see any threat from the newly launched [Easipot] from [Sarrono]?

How do you see the markets develop in 2007 and should we expect the same strong growth i.e. at a 20% level in 2007 as we saw in 2006?

Thank you very much.

Mads, will you answer the question about human growth hormone and competitive entries from Sarrono?

Then I'll take care of the Levemir discussion.

Yes, what you can see very briefly is that there has basically been no change since we have seen different launches of also jet injectors and so on so forth in the field of growth hormone, and here is the first case of an electro injector.

And this is by no means competing with our device which is in a league of its own so to speak, inasmuch as it is basically a liquid pre-filled disposable device.

Hence the NordiFlex device is not really competing against the devices elsewhere in the marketplace including the electro injector.

So we don't see any change in the competitive forces.

And then I might add, this is Lars Rebien, that we are expecting growth rates going forward of around 15% for our growth hormone franchise.

And if we shall revert to Levemir then perhaps with a few introductory remarks, to the development of our market position in Levemir.

When you compare launch and entry of insulin analogues you should compare them to each other.

And when we look at the performance of Levemir in the US market, the success is actually superior to the launch we had with NovoLog.

And NovoLog is right now reached a market position of north of 30% market share in the US.

When we look at Levemir's position in Europe, two years after launch, we have gained approximately 10% market share of the basal analogue segment in Europe per year, now exceeding 20% market share.

And as I mentioned in my introduction we are now trailing with new scripts at around seven to nine months after launch and TRX has total scripts in the US of around -- between 5% and 6%.

And so we are smack on the predictions that we made when we launched the product in the US, of gaining somewhere between half and a full percentage point of the basal analogue segment in the US.

But it is also correct when we look at the share of voice and the competitiveness of the US market with the launch of additional diabetes products, with the launch of Exubera, that we had to up our share of voice in the marketplace.

And so we announced that we would go to 1,900; we think that that is a good size sales force.

This will be completed by mid-year and you should, of course, expect that you're not going to see an immediate impact on Levemir share because there will be some internal displacement of people that are used to see certain doctors who will have to go see other doctors; we have to introduce new colleagues.

But we are, of course, hopeful that we will see a continuation of the current trend and that you'll start to see positive development towards the end of 2007.

And we will remain competitive in the US market, in terms of insulins and we have not seen a deviation from the very solid trends that we just went through in the conference call.

Thank you.

Another question please?

Thank you.

Our next question comes from the line of [Henrich Seemanson].

Please go ahead.

Yes good afternoon gentlemen.

Lars, a question to you.

You alluded to the fact that the insulin market had grown about 11% for the 2000, 2001.

If I look at your constant currency growth [inaudible] franchise last four years it's been growing around 17%, or at least more than 15%.

And in your opening remarks you said you continue to gain market share or expect to continue to gain market share.

So what kind of expectations do you have for your insulin business in 2007, would be my first question?

And the second question if you could refer to your comments to the competitive environment.

Obviously Jenuvia and [inaudible] was on the market in 2006 and we've had more products coming to the market in 2007.

How do you see that competition spilling out or is that what -- if you could talk a little bit about that please?

Thank you Henrich this is Lars Rebien.

I will talk you through a little bit of our prospective on insulins and then I'll ask Mads to comment on Jenuvia and the potential impact from DPP4 inhibitors.

If we look at the insulin market, of course, 2007 is a difficult year for us to assess.

It is correct that we are coming out of 2006 with a very strong performance and indeed very, very strong performance in the previous years.

But, of course, we also have to take stock of the fact that that we are expecting the world's biggest pharmaceutical company to make a success out of Exubera.

And that might take some market share from our current NovoLog and NovoLog Mix business.

We are also expecting that the growth rates in the insulin market might be impacted by Jenuvia and/or other DPP4 inhibitors coming into the marketplace.

So our predictions are at the moment that we would be in the range of growth of 10% to 15%.

In the other part of the range, should competitors not impact our market shares in the lower part if they become successful, but that's the range that we are anticipating right now.

And, Mads, do you have any qualitative comments to Jenuvia?

Yes, I think only you can say that if you look at sequence-wise in diabetes, obviously Jenuvia is placed somewhat upstream.

It's being used typically just after Metformin or even at the time of Metformin in the case of [Janomed], which is a combination tablet.

Byetta and liraglutide GP-1s, and we will see Byetta coming to Europe this year of course, they are more used as OAD failure agents or at least you can say after the classical use of Metformin and so on.

And then, finally, Exubera is clearly used as an OAD failure agent.

So the impact from Jenuvia is not really one of impacting the insulin consumption per se, because here you can say it replaces the old fashioned [Secretacox] known as sulphonylurea, but it is one of making more competition for share of voice of course and this is largely alluded to.

We are remedying by actually the recruitment of the 700 additional sales reps.

So no direct insulin volume impact or significant impact expected from that one.

Byetta though, the GLP-1s when they're used together with insulin, which is the case in some cases, you actually are seeing somewhat reduced insulin consumption in the individual patient.

However, we've not seen that spill over significantly in the US market towards the insulin volume growth which is more or less steady.

So also not major impact from the GLP-1s.

Where you could have the major impact would be if Exubera have had a phenomenal penetration taking out some of the injectible insulin market share growth or volume growth, and that we have not seen so far.

But, of course, we are monitoring very closely when Pfizer starts the DTC campaign in the second half of this year in agreement with the FDA.

But so far, no impact at all.

So the short version is that we haven't seen any impact and the expectations for this year include whatever minor impacts there could have been.

Okay, thank you very much Mads.

Next question please.

Thank you. [inaudible] please go ahead.

Good afternoon gentlemen.

Two questions please.

First one on CapEx.

You have been guiding in the past for the capital expenditure to be at 10% or recently just below 10% of sales.

And now it looks like you are basically guarding in 2007 only at 7% level.

So my question is, is that sustainable, and if so would you be able to maintain that lower level also through the launches of liraglutide and possibly inhaled insulin?

And then the second question, it looked to me when I look at the US market share data that NovoLog Mix is not gaining really market share any more; there might even be early signs of a decline.

So the question is, do you think that Levemir had any impact on your market share in NovoLog Mix?

And are there any patients moving away from that product, your combination of short-acting and long-acting products from Novo?

Thank you.

Thank you very much.

Jesper, if you'd kindly first give a little perspective on the development of our CapEx in the recent years and where we are right now and whether or not the level that has been predicted for 2007 is sustainable.

And then I'll revert with some light on the US modern insulin market.

Thanks Lars.

It's rightly pointed out that our investment guidance for 2007 is reflecting a significant lower investment level than what we have made as long term prediction historically.

What we're seeing is a significantly higher efficiency from our existing facilities and, hence, that has a delaying effect on the overall expansion of our facilities -- manufacturing facilities globally.

I believe if you look at 2007 and 2008 in an investment level in the ballpark of 7% to 8%, is a realistic level to work on for Novo Nordisk.

We have actually already now secured a significant production facility producing the bulk product for liraglutide, so there should only be a limited investment impact from the launch of liraglutide.

Of course, subsequent additional facilities we can hope for can be needed, but in the near term probably no significant additional investment in that respect.

So the only joker that really is outstanding in terms of investment levels is what will be the needed capacity expansion to be ready for launching our version of pulmonary insulin, and that is the only uncertainty factor.

But assuming that we follow the current plans, then we would be in the 7% to 8% level for investment going forward.

And you have also seen that reflected in the prolongation of our share repurchase program where we're now also covering 2008.

And hence, you see there a clear sign that we are very confident in the cash flow generating ability of Novo Nordisk both in 2007 and 2008.

And I would predict a rough equal distribution of the repurchase between the two individual years.

Thank you very much Jesper.

And then back to the US insulin market.

Again here I have to caution you in putting too much emphasis on weekly or monthly numbers.

The overall trends that we are seeing for our US business is very solid and I expect it to continue, and that's, of course, also why we invest in that business.

If we take the overall share of our insulin business in the US, both human and analogues, it is up to 41% total scripts now as opposed to 38% last year or the year before.

If we look at total analogue market share, it is up from 23% to 27%.

And if we break that down into the three different segments, short-acting insulin, analogues are from 26% to 32%, as I mentioned, and this is about five years running into the marketplace.

So this is a long-term business where you have to stick at it and continue to work, then you can get to a leadership position.

When we talk about the pre-mix, our market share is up from 13% to 17% and the basals, I mentioned earlier in the presentation, a little north of 5% and this was launched in April of 2006.

So solid trends in all three segments and we're just going to have to stick with it.

Thank you.

Next question please.

Thank you.

It comes from Paul Mann.

Please go ahead.

Fine, thanks, okay.

Just quickly on NovoSeven in ICH.

At the capital markets day I think Mads mentioned that the pooled data from the ICH population in the phase 3 trial was very representative of that seen in the phase 2 trial.

Could you just confirm that that's still the case three months later?

And then, secondly, a question for Jesper.

Perhaps you can just quantify the amount of debt principal you've depreciated each year and how much of that is domiciled within Denmark?

And I suppose, of that debt, how much is fixed duration or how much could be relocated to other regions to allow you to benefit from these proposed tax laws in -- or tax regulation changes in Denmark?

Thank you very much.

Let's start with Mads and could you confirm that the background incidents in the population for the ICH trials are similar to that of the previous phase 2 study?

Yes, it is absolutely true Paul that I mentioned that the two scales that you typically use upon admission to the facility with a CT scanner and so on being available, include the GCS [inaudible] glaucoma score and the NIH stroke scale of neurological impairment.

And in both cases it is true that upon admission to the clinic, first of all, the GCS and the NIH values were similar and -- which in my mind is good news because it means that the populations have had similar severities of their ICH disease upon admission in the two trials.

I should mention that one difference is, of course, that in the phase 3 trial we have also included populations that were not included in the phase 2 trials such as, for instance Chinese, but only to the extent of up to 10%, no more than that.

And that gives us the 821 patients and later this quarter we will have the data.

So we'll just have to wait and see.

Very exciting.

Yes, thank you very much.

And then on to Jesper.

Any light you can shed on any speculation on whether we could place debt in one jurisdiction or the other and take advantage of the US -- or the Danish proposed tax regulations?

It was very deliberate that I didn't make specific predictions on the impact on a future Danish tax legislation.

I have to make it absolutely clear that no detailed legislative proposals have yet been put forward, so it's impossible for us at the current point in time to actually estimate an impact on just some high level indications the Danish government has put forward.

I think the prime elements of these indications are that the tax rate in Denmark is dropping from 28 to 22.

The second element is that they will probably introduce a patent taxation in Denmark at a level of around 12%, so income from patent will be taxed at a lower level.

It's completely unclear what is required to qualify for that and how you enter into that type of lower taxation, so that remains unclear.

And in terms of the taxation base, it's both in terms of interest expenses and how the CFC taxation rules will be also included -- including a CFC taxation potentially in Denmark related to patent income in -- abroad.

So that all these elements make it very unclear for us how the impact will be, and we will have to await a draft legislation before we can make comment.

And you should expect us to update on that inclination with the Q1 release.

I have although a hard time seeing that this can have a negative impact on Novo Nordisk.

In terms of distribution of our assets and saying what proportion of Novo Nordisk assets will be impacted by the -- by a change in Danish depreciation rules, I highlight the financial report.

You have last year accounts currently available on a Monday; on the intraweb you will have this year's financial accounts available including a full set of notes.

And in the note number four with the segment information you can find the distribution of our assets between various geographies.

And in there you can see that it's close to 80% of the total assets which are in Europe, and out of the total assets there the prime part in terms of fixed assets are located in Denmark.

So from that you get a reasonable guidance for what proportion of the fixed assets will be impacted by Danish tax legislation.

But as I say, overall I see a potential upside for Novo Nordisk.

It still remains to be outlined in more clear terms what the precise impact is going to be.

Thank you very much, Jesper.

Next question, please, and we are approaching the closure of the conference, ladies and gentlemen, so now is the time.

Thank you.

Our next question comes from [inaudible].

Please go ahead.

Good afternoon gentlemen, I have one point of clarification then two questions.

Firstly, a point of clarification on your -- one of the earlier questions on fourth quarter SG&A.

Just to be clear, did you say that legal charges were booked within sales and distribution and were accounting for the bulk of the increase there?

I think -- the reason for the question, I think legal has historically been booked in admin.

And then related to that, are those charges recurring?

And then, two follow-on questions, firstly in terms of your sales rep hiring.

Your commenting that you plan to complete that within the first half.

Can you give us any idea where you are with the phasing of that rep hiring at the moment and through the next two quarters?

And then thirdly, in terms of a company approval and Sanofi sales force sitting on [Lance] at the moment, do you have a contingency plan for potentially hiring further reps should there be further delays to [accompanier]?

Thank you.

Thank you very much.

Jesper, would you start commenting on legal charges and whether they are recurring and where you have positioned these legal charges on P&L?

Yes.

It's actually true, as you say, [inaudible] that if we are incurring specific cost in terms of legal advices, historically those costs would have been accounted for on the administrative costs and they will also so in the future.

If we make specific issues for legal matters they will then be related to what function the matter is relating to.

So it's not as per se a cost to our legal advisors which I was talking about when I was talking about the Q4 impact.

It was provision for ongoing legal issues, not the law firm costs per se and that was what was included in the fourth quarter.

We have made provisions which we mean is appropriate for the ongoing issues and hence we mean we intend to -- or we -- it's our belief that they will be of a non-recurring nature and hence do not impact 2007 for the SG&A line.

In terms of the hiring of the reps, in the US the reps are hired during -- gradually during the first and second quarter.

You should expect the first quarter to be impacted by the cost of hiring them including recruiters helping us with that process and then the 700 reps coming on to our books in the second quarter.

And as Lars alluded to earlier, begin to have a full -- or have an impact on the sales results when we get towards the end of 2007.

And then lastly --

Thank you very much.

I think we'd like to close with one additional question, ladies and gentlemen.

We are approaching --

[inaudible] the contingency plan on,

Well, yes.

I think I -- sorry about that, I think I already commented that we have every ambition to stay competitive in the US market and therefore we will take stock on an ongoing basis of all our share of voice is, but obviously we have to expand the sales force in chunks that are handling -- that we can handle and that we can implement.

So we will alert you should there be any requirements for any further expansion of our US sales force in the future.

Thank you.

One final question, ladies and gentlemen as we are approaching two o'clock?

Thank you.

Our next question comes from Jo Walton.

Please go ahead.

Thank you.

This is just a point of clarification.

In the US, where you had such strong growth there was about DKK100 million of let's say, exceptional Tricare income and was there an additional DKK200 million of, effectively benefits from the switch from Medicaid to MediCare?

If I understand that correctly, have you taken a whole year's benefit in the fourth quarter?

Because actually the fourth quarter is often extremely strong in terms of your growth rates.

Would -- is there any further benefit to come through in terms of 2007 or have we seen the whole of that effect?

I'm assuming that if you've moved from Medicaid to MediCare with fewer discounts that's sort of effectively a price rise and that higher level of profitability continues.

Could you also say whether you did have any list price rises for your commercial book, the non-Medicaid/MediCare?

Thank you very much, Jo.

Jesper, can you take her through what has been included in the fourth quarter and then I will revert on the pricing?

Yes.

Thank you, Jo.

The comment on the Tricare, the DKK100 million, that's absolutely correct that that is a fourth quarter adjustment.

It was clear in the fourth quarter that the ruling would not be appealed and hence it was certain that the DKK100 million we had in income could be recorded as income.

So that is a non-recurring event hitting solely the fourth quarter of this year and partly reflecting income provisions taken in prior quarters and also provisions relating prior years.

That's the DKK100 million.

The DKK200 million that was my estimate of the total impact in 2007 from the conversion of patients from Medicaid to MediCare.

And that hasn't -- that had been taken gradually over the year, but with a high proportion in the final quarter as the data became available.

So it's not a full $200 million impact in the final quarter.

I also noted that, DKK200, sorry DKK200 impact in the final quarter.

I also noted that we obtained better prices gradually during 2006 from the healthcare providers and -- who was also participating in the MediCare scheme.

And it's rightly assessed, Jo, that when you look into 2007, that that renegotiated prices would gradually impact us during 2007.

And it was for those reasons that we said that the growth rate in the US is probably going to be higher in the first couple of quarters of the year and you should expect the final quarter of growth in the US to be lower for these specific reasons.

I hope that was more clear?

Thank you.

Thank you very much.

To all of you I would like to, ladies and gentlemen, conclude this conference call and please do remember that a version of this conference call is on our web where you will be able to replay this.

And we'd like to thank you for your attention and we'll be seeing you when we have our release of the first quarter results.

Thank you.

Bye-bye.

Ladies and gentlemen, thank you for your participation.

This concludes the conference and you may now disconnect all your lines.

Thank you.