諾和諾德 (NVO) 2007 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Novo Nordisk Q2 2007 results conference call.

At this time, all participants are in a 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 your chairperson, Lars Rebien Sorensen, CEO of Novo Nordisk.

Please begin your meeting, sir, and I shall be standing by.

Thank you very much.

Welcome, ladies and gentlemen to this Novo Nordisk conference call regarding our results for the first six months of 2007 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 are also our Investor Relations officers.

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

The conference call is scheduled to last approximately one hour.

As usual, we'll start with a presentation, as outlined on slide number one, and the Q&A session will begin in about 30 minutes.

Please turn to slide number two.

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.

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

Also note, as was mentioned, that this conference call is being webcast live and a replay will be made available on Novo Nordisk's webpage after the conference call.

Please turn to slide number three.

We're very pleased with the performance in the first six months of 2007, with the robust sales development of our key products and solid progress in our pipeline.

Sales of modern insulins were the main growth drivers, increased by 37% in local currencies and thereby maintaining the momentum in Novo Nordisk's insulin franchise.

In the biopharmaceutical area, NovoSeven sales increased by 11% in local currencies and Norditropin also continued the growth pattern with 13% sales growth in local currencies.

As previously communicated, Novo Nordisk has announced positive liraglutide Phase 3 data from the LEAD 5 studies which shows statistically significant superiority versus insulin glargine in terms of blood glucose control and weight loss.

Novo Nordisk has initiated a Phase 3 trial with Norditropin for the treatment of adult patients in chronic dialysis.

This trial is expected to include 2,500 patients and is expected to take three years to complete.

Furthermore, Novo Nordisk has completed the U.S.

Phase 3 study of Vagifem low dose.

The expectation is to file for regulatory approval in the U.S.

before the end of the year with this product.

We're very pleased with the solid financial performance of the first six months of 2007.

Sales grew 14% in local currencies and 9% reported, while operating profit increased 14%, as reported.

Adjusting for the impact of currencies, underlying operating profit increased by around 25%.

The operating profit growth also reflects a continued improvement of the gross margin, caused mainly by improved productivity.

The robust sales growth and continued improvement in gross margin are main drivers for our increased outlook for the full year operating profit, with a growth of around 10%, as reported, and around 20% in local currencies.

Turn to slide number four.

The global insulin market continues to follow a predictable growth pattern of around 5% measured in volume and 10% measured in value.

The growth -- the value growth premiums reflect the ongoing value upgrade derived from conversion to modern insulins and better insulin devices.

Novo Nordisk continues to outgrow the market and gain market share, especially driven by the performance in the United States.

This stable growth pattern is expected to continue due to the global diabetes pandemic, which according to projections from the International Diabetes Federation will impact 380m people in 2025.

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

Turn to slide number five.

In the first six months of 2007 the Diabetes Care segment grew 16% in local currencies, equal to 78% of Novo Nordisk's growth.

The portfolio of modern insulins is the main growth driver, accounting for 68% of total sales growth.

In the second quarter of 2007 sales of modern insulins for the first time constituted more than 50% of Novo Nordisk's total insulin sales.

In Biopharmaceuticals sales grew 11% measured in local currencies.

Sales of NovoSeven increased 11%, while the growth hormone franchise grew 13% measured in local currencies.

Sales of other products, primarily HRT products, increased 8% in local currencies.

And turn to slide number six for an update on our modern insulin franchise.

In the first six months, sales of modern insulin products grew 37% in local currencies.

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

NovoRapid, NovoMix and Levemir.

Global market share continues to increase for all three products.

The market progress of all Novo Nordisk's three modern insulins exhibits a steady and durable penetration of the various insulin segments.

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

However, international operations, Japan and Oceania also added to the overall growth of modern insulins.

In the first six months modern insulins constituted more than 50% of our total insulin sales compared to 43% in the same period last year, emphasizing the momentum in the ongoing conversion from human insulin to modern insulins.

NovoRapid is the single largest modern insulin product for Novo Nordisk, with sales of DKK3.2b in the first six months.

And similar figures for NovoMix and Levemir were DKK2.3b and DKK1.1b, respectively.

Share of growth for these three modern insulin products represent roughly equal distribution.

Turn to slide number seven for further insight into the dynamics in the modern insulin market.

Around 52% of the global insulin market measured by volume has now been converted to modern insulins, compared to 46% 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 value growth in the overall insulin market.

Novo Nordisk continues to gain market share within modern insulins.

Novo Nordisk's market share in modern insulins is now 41% measured in volume.

We continue to be the only company with a full range of modern insulins, short acting, pre-mixed and long acting, in the most advanced and user-friendly delivery systems such as the disposable FlexPen.

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

NovoSeven sales increased 11% in local currencies and 5% as reported in the first six months of 2007.

Sales growth for NovoSeven was primarily realized in North America, followed by Europe.

Sales growth in NovoSeven during the first six months of 2007 reflected increased sales within the congenital and acquired hemophilia segments, as well as a perceived higher level of investigational use.

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

Novo Nordisk has filed for regulatory approval of a heat-stable version of NovoSeven in Europe, as well as in the United States.

This implies major benefits for hemophilia patients with inhibitors, since they will now have readily access to treatment outside the home or the hospital.

Moreover, administration of NovoSeven in the form of a single high dose has now been launched in Europe.

The combination of heat-stable NovoSeven administered as a single high dose is expected to support NovoSeven's penetration in the hemophilia inhibitor segment.

Turn to slide number nine for an update on Norditropin.

During the first six months, sales of Norditropin increased by 13% in local currencies and 7% reported, thereby continuing the solid growth in the growth hormone franchise.

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

In June the FDA approved Norditropin for treatment of short stature in children with the Noonan syndrome.

Norditropin has received orphan drug designation for this indication.

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

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

Turn to slide number 10 for an update on sales by region.

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

The first six months of 2007, North America contributed 54% of the overall sales growth of Novo Nordisk.

In Europe we continue to see solid growth rates for our portfolio of modern insulins due to market share gains and underlying market growth.

NovoMix 30 and Levemir contributed the majority of this growth.

Sales in international operations in the first six months grew 19% in local currencies, driven by modern insulin sales in Russia, Turkey and also China, where human insulin remains the main growth driver.

The sales of human insulins were negatively impacted by a lower level of tender sales in Brazil, as we've previously communicated.

In Japan and Oceania, sales in the first six months of 2007 were negatively affected by the mandatory reduction of Japanese reimbursement prices, which took effect April 1 last year.

However, sales of modern insulins increased with solid growth rates.

The two modern insulins NovoRapid 30 Mix and NovoRapid continued to show robust performance in a growing modern insulin market.

The conversion to pre-filled delivery devices continues, driven by FlexPen.

Turn to slide number 11, which provides you with an update on the development of our modern insulin markets in Europe, including the rollout of Levemir.

Novo Nordisk holds a clear leadership position within modern insulins in Europe, with a volume market share of 50% compared to 47% one year earlier.

This solid leadership position is reinforced by the success of the continued European rollout of Levemir, which holds 23% of the total European market for long-acting modern insulins.

In June this year, at an annual meeting of the American Diabetes Association, Novo Nordisk presented the final data from the German cohort of the PREDICTIVE study.

The PREDICTIVE study is a global observational study conducted in 26 countries, including more than 30,000 patients with either type 1 or 2 diabetes who are initiating treatment with Levemir.

The results confirmed the claimed advantage of Levemir in the form of improved glycemic control, reduced level of hyperglycemia and a better weight profile compared to other long-acting insulin products.

Turn to slide number 12 for a detailed update on diabetes sales development in the United States.

Total Diabetes Care sales in North America increased 29% in local currencies and 19% as reported in the first six months of 2007, reflecting a solid penetration of modern insulins.

The sales of modern insulins grew by close to 45% in local currencies in all three modern insulin products.

NovoLog, NovoLog 70/30 Mix and Levemir continued to deliver market share gains.

Novo Nordisk remains the leader in the U.S.

insulin market, with 41% total market measured in volume.

Turn to slide number 13 for a detailed update on the performance of Levemir in the United States.

Novo Nordisk has obtained excellent formulary coverage (technical difficulty) with 80% of total lives covered in a co-preferred status.

According to the latest monthly market share data covering the month of May, Levemir has obtained 6.7% of the total long-acting modern insulin market segment measured by volume.

The latest weekly market share data from the week ending July 20 shows that Levemir has obtained 9.7% of new scrips and 7.9% of total scrips in the basal analog segment in the United States.

The recruitment of 700 new sales reps were completed by the end of June.

The expanded field force of 1,900 representatives will enable Novo Nordisk to reach more primary care physicians and increase the frequency of visits to both primary care physicians and diabetes specialists.

We expect the expanded sales force to further support the Levemir penetration rate towards the end of 2007, as the news sales organization structure will mature and relations with the local healthcare professionals are being established.

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

Mads?

Thank you, Lars.

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

As communicated on June 21 this year, Novo Nordisk received the clinical results from the first of five Phase 3 studies with the once-daily human GLP-1 analogue, liraglutide.

In a moment I'll get back to these headline data.

At the annual conference of the American Diabetes Association held in Chicago in June this year, Novo Nordisk presented detailed results of the Japanese Phase 2 study of liraglutide as monotherapy, a study that included 226 patients with type 2 diabetes and treated over a period of 14 weeks.

From an HbA1c baseline of between 8.1% and 8.5%, the patients treated with the high dose of liraglutide on average improved HbA1c levels by 1.9 percentage points versus placebo, achieved through a reduction in both fasting and postprandial glucose levels.

The study showed that liraglutide was effective and well tolerated within a wide dose range, allowing 75% of the patients receiving the highest dose to achieve the accepted HbA1c target of below 7% in the absence of hypoglycemia.

Novo Nordisk is currently conducting two Phase 3 trials in Japan encompassing around 600 patients and expected to be completed during the first half of next year.

At the ADA meeting Novo Nordisk also presented detailed results from the U.S.

arm of the PREDICTIVE clinical study.

The six-month trial included more than 5,000 patients and showed that the type 2 diabetic patients were able to safely reduce their blood glucose by self-titration of Levemir, compared to dosing adjusted by their primary care physician.

An improvement in HbA1c levels was observed, with a minimal weight change and without an increase in the rate of hypoglycemia.

Furthermore, around 90% of the patients were treated on Levemir once daily at the end of the study.

Please turn to the next slide for an overview of the headline data from the recent liraglutide Phase 3 trial.

The Phase 3 program term LEAD, as abbreviation of Liraglutide Effect and Action in Diabetes, is comprised of five randomized controlled and double-blinded studies conducted in more than 40 countries.

The planned randomization target is close to 4,000 subjects with type 2 diabetes failing to maintain glycemic control either on diet and exercise or on treatment with OADs.

The 26-week LEAD 5 study included 581 patients with type 2 diabetes inadequately controlled by two of the most widely used oral anti-diabetic drugs, metformin and a sulfonylurea.

All patients in the study continued the two oral anti-diabetic drugs and were randomized to add one daily injection of liraglutide, placebo or insulin glargine.

The average HbA1c level at the beginning of the study was between 8.0% and 8.5%, while the average weight of the patients was approximately 85 kilograms.

Both liraglutide and insulin glargine lowered HbA1c by more than 1% from the baseline.

However, liraglutide provided statistically significantly better long-term glucose control than insulin glargine, with the HbA1c reduction being more than 0.2 percentage points greater than that observed for insulin glargine treatment.

At the end of the study, more than 50% of patients in the liraglutide group had reached the American Diabetes Association goal of HbA1c below 7%.

Furthermore, at the end of the study the body weight of patients treated with liraglutide was on average 3.5 kilograms lower than that observed in patients treated with insulin glargine.

Liraglutide in combination with the metformin and glimepiride was well tolerated.

The most frequently reported adverse event in the liraglutide arm was nausea at an absolute level of between 10% and 15%.

Please turn to the next slide for an update on our hemostasis pipeline.

Novo Nordisk has filed for regulatory approval of the heat-stable version of NovoSeven in Europe, as well as in the U.S.

As mentioned by Lars, this product will provide benefits to hemophilia patients with inhibitors since they will now readily have access to treatment outside of the home or hospital.

Previously, patients on average spent 60 to 90 minutes from the onset of a bleed until the product was administered.

Novo Nordisk has recently initiated a randomized control and double-blinded Phase 2 study with the recombinant factor VIIa analogue NN1731, destined to become the next-generation short-acting factor VII product.

The study is expected to include around 75 hemophilia patients with inhibitors, and will evaluate both the safety and efficacy of NN1731 compared to NovoSeven.

The study is expected to take around two years to complete.

Furthermore, Novo Nordisk has initiated a Phase I study with a long-acting glycoPEGylated analogue of recombinant factor VIIa targeted for prophylactic therapy and confirming Novo Nordisk's commitment to develop next-generation factor VII compounds with improved properties.

Both new molecules are patent protected well beyond 2020.

Please turn to the next slide for an update on other biopharmaceuticals.

In June the FDA approved Norditropin for the treatment of short stature in children with Noonan syndrome.

Noonan syndrome is an autosomal dominant genetic syndrome commonly characterized by short stature and sometimes termed male Turner syndrome, even though it occurs in both sexes.

Our growth hormone product has received orphan drug designation for this indication.

We estimate that between 1,600 and 4,000 children are born in the U.S.

with Noonan syndrome per year.

Noonan patients will typically initiate treatment at seven to eight years of age, for a total treatment duration of approximately eight years.

Today we estimate that less than 10% of the Noonan patients are being treated with growth hormone.

Novo Nordisk has initiated a global Phase 3 trial for the use of Norditropin in the treatment of adult patients in chronic dialysis, a study encompassing around 2,500 patients.

This double-blind placebo-controlled study evaluates the impact of growth hormone treatment on the survival rate of APCD patients, following a treatment period of two years.

Growth hormone therapy is expected to increase the patient's lean body mass and serum albumin level, both being indicators of survival prognosis in APCD.

The study is expected to take around three years to complete.

Finally, Novo Nordisk has successfully completed a 12-month double-blind randomized placebo-controlled multi-center U.S.

Phase 3 trial of Vagifem low dose.

The efficacy and safety of Vagifem low dose for the treatment of postmenopausal atrophic vaginitis symptoms was investigated in this trial and a significant improvement was observed in all three primary end-points compared to placebo.

Novo Nordisk expects to file for marketing approval with the FDA later this year.

Vagifem low dose is patent protected until 2021 in the U.S.

Novo Nordisk has a leading position within the topical hormone replacement market with a market share of around 30%.

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

Thank you, Mads.

Please turn to slide 18, providing you with the details on the financial results.

We're very pleased with the overall sales growth in the first six months of 14% measured in local currencies and 9% as reported.

The improvement in gross margin was 2 percentage points in the first six months, reflecting the continued gains from increased production efficiency, improved product mix and the higher average prices in the U.S., but also impacted by a negative currency of around 70 basis points compared to the same period in 2006.

The increase in sales and distribution costs was 10%, primarily reflecting the increase in the U.S.

diabetes sales force finalized by the end of June and, as previously communicated, a provision related to an anti-dumping case in Brazil.

Research and development costs increased by 17% in the first six months due to the high number of ongoing late-stage clinical development projects, including Phase 3 studies with liraglutide, AERx and NovoSeven.

Reported operating profit increased by 14% in the first six months, whereas underlying operating profit adjusted for the currency impact grew by around 25%.

Net financial income was DKK1,634m in the first six months compared to a net expense of DKK289m in the same period last year.

This includes the results from associated companies with an income of DKK1,290m compared to an expense of DKK118m in the same period in 2006.

The result from associated companies is primarily related to the tax-exempt income of DKK1.4b from Novo Nordisk's divestment of the ownership of Dako's business activities, but also includes Novo Nordisk's share of losses in ZymoGenetics.

Net financials also include a gain on foreign exchange of DKK458m compared to a loss of DKK175m in the same period last year.

The results from foreign exchange hedging activities in the first six months were reflecting the lower level of especially U.S.

dollar and Japanese yen versus Danish kroner compared to the exchange rates prevailing in 2006.

The effective tax rate was 20.8% in the first six months of 2007 compared to 30% in the same period last year.

The significant reduction is due to a non-recurring positive effect from the largely tax-exempt gain from the divestment of the ownership of Dako's business activities, as well as a non-recurring effect from the reevaluation of deferred tax liabilities as a consequence of the new Danish corporation tax law.

This effect has been recorded in the second quarter of 2007.

The new Danish corporation tax law, effective for 2007 onwards, also implies a recurring positive effect from the general reduction in the Danish corporation tax rate from 28% to now 25%.

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

The depreciating trend for Novo Nordisk's most important invoicing currencies, including the U.S.

dollar and Japanese yen versus euro and Danish kroner, has continued during 2007.

Based on our forecast for 2007, Novo Nordisk estimates of the expected currency impact on operating profit as a consequence of a 5% deprecation are unchanged, as indicated on this slide.

Currently, Novo Nordisk has hedged future expected cash flows related to the U.S.

dollar 17 months ahead, the Japanese yen 14 months ahead and the British pound is hedged 10 months ahead.

Please turn to slide 20 for an outlook for 2007.

Novo Nordisk expects 11% to 14% growth in sales measured in local currencies.

This is based on expectations of continued market penetration of Novo Nordisk's key strategic products within Diabetes Care and Biopharmaceuticals, as well as expectations of increased competition within the Diabetes Care arena during 2007.

Given the current level of exchange rate versus Danish kroner, this will translate into an expectation of reported sales growth of 7% to 10% for 2007.

Operating profit as reported is now expected to grow by around 10% in 2007, reflecting a sustainable gross margin improvement being partly offset by a continued depreciation of key invoicing currencies versus Danish kroner compared to the exchange rate levels prevailing at the time of the first quarter 2007 results released on May 2, 2007.

Measured in local currencies, the expectation for growth in operating profit is increased to around 20%.

The expectation for operating profit growth still includes an expected higher level of spending on the portfolio of research and development projects, as well as a continued high level of spending on sales and marketing.

Novo Nordisk still expects a net financial income of around DKK1.8b in 2007, including a positive impact from Novo Nordisk's divestment of the ownership of Dako's business activities which was announced on February 28, 2007 and completed on May 31, 2007.

A tax-exempt income of DKK1.4b from the divestment was recorded in the second quarter of 2007.

The cash flows from the transaction are expected to materialize towards the end of 2007.

For 2007 Novo Nordisk expects an effective tax rate of 22%.

The tax rate includes a non-recurrent positive effect of around 3 percentage points from Novo Nordisk's divestment of the ownership of Dako's business activities, and a non-recurring effect of around 1 percentage point from the reevaluation of the Company's deferred tax liabilities as a consequence of the new Danish corporation tax law.

Also included in the outlook for the effective tax rate for 2007 is a recurring effect of close to 2 percentage points caused by the reduction in the Danish corporation tax rate.

Capital expenditure is now expected to be below DKK3m in 2007.

Expectations for depreciation, amortization and impairment losses are still around DKK2.3b and free cash flow is expected to be around DKK7b, which includes a positive impact from the divestment of the ownership of Dako's business activities.

All of the above expectations are provided that currency exchange rates, especially the U.S.

dollar and related currencies, remain at the current level versus the Danish kroner for the rest of 2007.

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, gentlemen.

Please note, ladies and gentlemen, that this conference call will be taped and a replay will be made available on our website, as I mentioned earlier.

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

Thank you, sir.

(OPERATOR INSTRUCTIONS).

Our first question comes from Poul La Cour.

Please go ahead with your question, announcing your company name.

Hello, gentlemen.

This is Poul La Cour from Kaupthing.

Congratulations with the very fine results.

I have two questions.

Can you help me understand why you have raised your expectations for EBIT and you're lowering your expectations for CapEx expenditure, but yet you're keeping your free cash flow guidance?

We'll just start with that, please.

Thank you very much, Poul.

This is Lars Rebien here.

Jesper, would you try to shed a little bit of light on this inter-relationship between EBIT, CapEx and cash flow?

Yes.

There's a slight improvement in our EBIT guidance and there is a slight lowering in our guidance for investments.

And there are actually also a slight improvement in our cash flow guidance, as our cash flow guidance was previously close to DKK7b and now we are saying around DKK7b.

So there is a slight better cash flow anticipated for the full year 2007.

Thank you.

Poul, did you have additional questions?

Yes.

And the second one is on the gross margin, another very good quarter where you're surprising us.

How high can we go?

It seems like your previous two years' guidance on the gross margin is very conservative.

Can you help us understand that going forward, please?

If I may just add a couple of general comments before I hand it over to Jesper.

This is Lars Rebien here.

Of course gross margin is influenced by a number of factors.

It is influenced by the product mix, so in a period where actually our diabetes business is growing significantly stronger than our NovoSeven business, which is -- I think it's not a secret that the NovoSeven business has a very attractive gross margin.

This is indeed a strong performance.

In terms of the future, it has something to do with product mix.

It has something to do with the technological abilities to improve our processes.

It has something to do with the economic scale with which we can get individual components of the product out, our ability to withdraw and how fast we can withdraw human insulin from the marketplace, etc.

But, Jesper, you can comment in terms of size of the margin expectations and what has contributed to the gross margin improvement in the first half and what's your outlook for the foreseeable future in terms of guidance.

Our guidance for this year is now lifted.

Previously we said that we expected to improve our gross margin by more than 100 basis points, and even with a slightly weaker currency situation we are now able to expect it being very close to 150 basis points.

And that's really coming from three factors, as Lars was alluding to.

The prime one and the one probably accounting for two-thirds of the impact is production efficiency, and that's coming from, I'd say, really three factors, where two are of a recurring nature and one is of a non-recurring nature.

The two of a recurring nature is better production economy, producing higher volumes of our modern insulins.

That has especially been the case for our NovoRapid, NovoLog in the U.S.

and NovoMix, and only to a small degree related to Levemir.

We believe there are some efficiency opportunities for Levemir going forward but the main benefits in relation to NovoRapid and NovoMix have probably been harvested.

But still some opportunities there going forward.

The second one, which we still expect to occur also when we look to 2008 and 2009, is a continued efficiency coming from the yield from our filling lines.

We can further up that through a number of lean initiatives and we are seeing a gradual improvement in the efficiency from our filling lines.

And the third one in relation to production efficiency was related to the start-up of a large new filling facility, in fact probably the largest insulin filling facility in the world, which we have located in Brazil.

That facility was started up last year and the cost we had in relation to the start-up was expensed.

Now of course the costs to that facility are allocated to the products as they are produced and expensed, when the products are sold in the market.

And hence that had a negative effect in the first quarter -- first half last year, and that's not been the case but that actually has helped our gross margin in the first half of this year.

Now, that is not going to be an effect going forward.

In terms of price, there is really three factors impacting price.

First, we've had a non-recurrent positive effect in the first quarter of this year, as we have had to readjust our rebates relating to 2006 for Medicaid probably in the ballpark of DKK100m.

And secondly, that we last year only started recording the effect from the conversion of patients from the old Medicaid scheme towards the Medicare scheme.

And that effect, as we actually talked about in the conference call in connection with the full-year results, we estimated to be in the ballpark of DKK200m for the full year, so you'd probably assign some DKK100m in a lag of income related to that in the first half of last year.

The other factor on prices is increased prices in the U.S.

We're probably seeing on average more than 5% price increase in the U.S.

We may not see that being a sustainable level longer term in the U.S., but if we look at 2007 that is on average the price increase that has been effective for us.

That is then being offset by lower prices on average in Europe and also Japan.

And that 00 net of that you'd see probably for the full year 2007 a slight positive pricing effect for the full year.

And then the final effect is the mix effect, where we see a positive effect coming from higher sales of especially our modern insulin NovoRapid and NovoMix, not so much Levemir, it's a more costly product to produce, but converting human insulin to modern insulin.

And then there is also a mix effect coming from the higher sales of growth hormone, but that is being offset by relative lower sales of NovoSeven, so there's a limited effect there.

So a slight mix effect also expected for the full year.

So if you look at 2008, we usually expect us to be able to continue to improve our gross margin going forward, probably in the ballpark of 50 to 100 basis points for 2008 and 2009.

And once we get beyond that, there's too many uncertainties in terms of pricing environment, product mix and not to mention currencies.

So that is as comfortable we feel in giving guidance on gross margins.

Thank you very much, Jesper, for that very significant influence on the P&L also going forward.

Thank you, Poul.

Next question, please.

Our next question comes from Henrik Simonsen.

Please go ahead with your question, announcing your company name.

Yes.

Henrik Simonsen from Enskilda.

Good afternoon, gentlemen.

I also congratulate (inaudible).

Two short questions.

You've broken out insulin-related sales.

We had a growth, I think it was 8%, in the second quarter.

Is that the run rate we should expect, say 5% to 10% growth for these insulin-related sales going forward?

And then secondly, a question to Mads.

The LEAD 1 to 4 studies, when do you expect to report the results of those studies?

Thank you very much, Henrik.

This is Lars Rebien.

The reason why we have broken out the insulin-related sales is that we do believe it gives you a better picture of the relationship between modern insulins and human insulins, as much as the insulin-related sales are generally applicable it's needles, devices and then some hypo kits.

And also to show for the first time that actually our modern insulins are higher than our sale of human insulin.

We are not giving any guidance on the insulin-related sales going forward, but I'll ask Jesper to just give you a ballpark number for what he expects it'll be going forward, so you have something to put in your model.

And then Mads comes in afterwards.

Of course the insulin-related sales are closely related to the number of diabetes patients that we are serving.

As you're seeing there, we are having a volume increase in the developed markets of around 5% higher increase in the developing countries which are not included in the IMS statistics.

And on top of that, Novo Nordisk is gaining market share.

I think a ballpark guidance in terms of local currency growth longer term should probably be in the ballpark of 10% going forward.

Thank you, Jesper.

And then Mads Krogsgaard.

Yes.

Well, the remainder of the LEAD trials, which includes LEADs 1, 2 and 3 and 4, of course basically LEAD 1 to 4 plus you can say the two Japanese trials, in regard to the non-Japanese trials they will report in the remainder of this year and into the first quarter of next year.

And for the Japanese trial, it's going to be the first half of next year.

And you can imagine that among the LEAD trials the last one to report by nature is the 12-month monotherapy study conducted in the U.S., simply due to the extent of the treatment duration.

Sure.

Thank you.

Thank you, Henrik.

This is Lars Rebien.

Next question, please.

Our next question comes from Martin Parkhoi.

Please go ahead with your question, announcing your company name.

Martin Parkhoi from Danske Bank.

I also have two questions.

And sorry to go back to the gross margin, I just want to clarify one thing.

Now that the gross margin is surprising you positively in 2007, does that mean that you will reach the maximum earlier or are you actually upgrading the maximum for your gross margin?

And then a second question in respect to NovoSeven.

I can see out on some of the newswires you are giving some bearish statements on the potential for NovoSeven growth also in the second half.

Can you elaborate a bit on that?

Thank you very much, Martin.

I think the relationship, the comments on NovoSeven, is probably related to 2008, meaning a little bit more medium-term future of NovoSeven.

But, Jesper, are you changing the maximum of the possible gross margin that we can achieve or are you simply parallel shifting the curve, basically to arrive at a top level earlier?

And then what's our current guidance on '07?

Well, I don't think that we have ever operated with a maximum gross margin.

I think the realistic maximum is, of course, going to be 100%.

But in realistic terms, I think the guidance we want to give is that we can see an improvement in our gross margins, and that is a sustainable one.

And we believe that with the current product portfolio, and the progress that we have with the current portfolio, we believe it's realistic to give a guidance both for 2007 but also for 2008 and '09.

What happens beyond 2009 and where that will then pan out in terms of where the longer term gross margin's going to go, how far the similar competition will evolve for Novo Nordisk, I think it's premature to give any guidance.

So, we don't operate with a maximum gross margin.

I believe our gross margin this year will be increased by in the ballpark of 150 basis points.

I believe that when we look towards 2008 and also 2009, both of these years, our investors, in the current political environment and given unchanged currencies, should be expecting to see improvement in our gross margin between 50 to 100 basis points each year.

I hope that was clear, Martin.

And then the second, on the growth rates for NovoSeven, we've given a guidance in January on the expectation for NovoSeven sales, where we said we expect NovoSeven sales in local currencies to be growing this year by around 10%, fueled by increased investigational use in the U.S.

and also a small expansion of our labeling in Europe and in countries in IO.

We still believe that around 10% guidance is realistic for 2007.

But it's also true, based on what we have seen in the second quarter and the current development in the market, that our expectations for 2008 is probably going to be low-single-digit growth.

And I think this is also in line with the previous communication.

I think what I would comment on is the development in Europe, where we have seen a higher level of immune tolerance treatment of hemophilia patients with inhibitors, trying to overcome that inhibitor reaction.

So it's not so that we are facing a losing market share in the inhibitor segment, but it's rather that the inhibitor segment is not growing.

Thank you very much, Jesper.

Thanks, Martin.

Next question, please.

Our next question comes from Michael Novod.

Please go ahead with your question, announcing your company name.

Hello.

This is Michael Novod from Handelsbanken.

Just one question to your tax rate, so it must be for Jesper.

Could you comment on, again, what is your best optimization of the tax rate?

You've been quite good at doing this.

So you could say, beyond the external factors, where could we go in terms of how much could you lower the tax rate in the years to come?

Thank you, Michael.

Jesper, tax rate?

Yes.

I think, first of all, I would like just to state that the strategy for Novo Nordisk in terms of tax is to be a good corporate citizen wherever we do business.

We believe that we, as a corporation, have an obligation to actually contribute to society wherever we do business, and that's an integral part of the way we do business.

That said, we have been aligning the structure of our business and the legal structure, so that we have an improvement in the overall taxation on our business.

And we are now closer to being aligned with where we see the (technical difficulty) in the pharma universe being at the 26%, 27% income taxation level.

It's also true that we have been successful in trying to influence the Danish environment in -- at least judging from the recent change in the Danish Corporation Tax Law, that we have seen a continued lowering of that.

And that, of course, has an immediate impact on Novo Nordisk's taxation rates.

So if we try to strip out from the guidance we've given this year of 22% in income tax rate, if we strip out the non-recurring effects, 3% from Dako and 1% from the lowering of the Danish Corporation Tax effect on the deferred tax liabilities, then you end up at a recurring tax level at around 26%.

And that is the guidance we feel comfortable with at present in general going forward.

I do note that we are seeing a significant growth in our business coming from the U.S., and that the corporation tax levels in the U.S.

are on average higher than our average tax rate.

And then -- this is Lars Rebien.

And then to add, the success of the diabetes business also then will be replacing in the future any impact from the Danish tax environment, which is now starting to become more competitive with Europe.

So thank you very much for that discussion on tax.

Next question, please.

Our next question comes from Sebastien Berthon.

Please go ahead with your question, announcing your company name.

Yes.

Hello, gentlemen.

Sebastien Berthon from Exane BNP Paribas.

Two questions, please, one on Levemir in Europe, where there appears to be a bit of a slowdown in your market share gains towards one quarter of the market, which is, I guess, lower than your own targets.

Is there anything to report there in terms of promotional activities, either from your side or from Sanofi Aventis' side?

Then, secondly, just to make sure I understand the Medicaid adjustments, the DKK200m is for -- is kind of a base effect for the full year 2006.

Is there -- because it's the first time you talk about it in Q2.

Does it affect particularly Q2 or is it really spread over Q1 to Q4?

Thank you.

Thank you very much, Sebastien.

This is Lars Rebien here.

There's no really significant developments as relates to Levemir market share in Europe.

This is a gradual continuation of gain of market share in a number of countries, and I can only report that all of these countries are developing according to our expectations.

So there was, as you may recall, recently a label improvement of our label in Europe, where we had the original label which was a label which was for type 1 diabetes and not indicated for combined use with OADs and type 2s.

That was only recently approved in Europe.

So, with that new label and with continued data coming out from the PREDICTIVE study, with the continued focus on our European organization, we believe that we will see a continuation of the trend where we would eventually end up gaining a dominant position.

But, however, I have to admit that it's going to take a few years yet with the current trend that we have.

So that was Levemir Europe.

No surprises, just hard work.

Medicaid, can you elaborate, Jesper, what was the 2006 effect and what is the 2007 effect?

And what is the ongoing effect from this?

Yes.

As you are aware, Sebastien, the implementation of the Medicare reform happened January 1, 2006 but we only really got -- we only got data on the movement of patients from the Medicaid scheme to the Medicare scheme by May 2006.

And hence we have very, very limited recording of the impact on lower rebates in the first half of last year.

We said that the full-year impact for 2006 from this conversion, from Medicaid to Medicare, was north of DKK200m and that was almost solely recorded in the second half of last year.

So you could say that that -- at least DKK100m of those were probably lagging in the first half of last year.

And then, in addition to that, we actually, when we had the final patient data flow here in May this year for 2006, we can actually see that we underestimated those DKK200m with DKK100m.

So we've actually adjusted the rebates relating to 2006 with another DKK100m in this, which has been recorded in the second quarter.

So you could say that when you compare first half last year to first half this year there are DKK200m in mitigated rebates that you ought to adjust, or when you look at the development.

Most of it is going to be evened out when you look at the full-year effects.

So, there is still going to be some effect when we have compared 2008 to 2007, but when it comes back going forward it should be a wash out and we will see a non-recurring effect, just a different level of pricing, hopefully.

Thank you very much.

Next question, please.

Our next question comes from Sachin Jain.

Please go ahead with your question, announcing your company name.

Good afternoon, gentlemen.

It's Sachin Jain from Merrill Lynch.

Just two questions on NovoSeven, if I may.

Firstly, just following up on your comments on '08 growth, which seem predominantly to be coming from the U.S., could you just give us a bit of a better feel of where you are in the U.S.

in terms of your sales there then, i.e.

what percentage of your sales are now off label and what percentage of your growth is coming from that off-label segment?

I am just thinking about your sustainability of that.

And then secondly, NovoSeven trauma, haven't heard an update on patient recruitment in the form of waiver of consent.

Mads, just an update on that as well, please.

Thank you.

Thank you very much.

This is Lars Rebien here.

It is correct that the main part of the growth comes from the U.S.

We are still talking about an estimated off-label sales and usage in the United States of around 20%.

We'd like to wait giving you more specific data on segmented projections for NovoSeven in 2008 until we give you the full-year guidance for 2008.

We've had some -- in the off-label user area, we've had some surgery in the U.S.

And so basically we'd like to wait with giving you segmented geographic data projections until we give you the full-year guidance.

Trauma, Mads, has been traumatic.

Yes.

It is a long-haul effort, as we've discussed previously, Sachin, and it is a study that takes at least four years, as we've communicated.

In terms of recruitment, the situation is that the non-U.S.

centers are recruiting at an acceptable rate.

And as expected in the U.S., with the informed consent issues there being -- and have been discussed with you, of course recruitment is quite significantly lower.

So it is going at alternating paces but other than that there is no update.

And we will have to look towards the turn of the decade to have any realistic estimates of termination or completion of the trial.

Thank you.

Thank you.

Ladies and gentlemen, two more questions, please.

Our next question comes from Jo Walton.

Please go ahead with your question, announcing your company name.

Jo Walton from Lehman Brothers.

Now you've added the additional sales force in the U.S., can you just give us some help going forwards as to the sort of marketing costs?

Will we notice higher marketing costs for those extra people in the second half?

Are they up and running, or are they just on board but not yet trained?

So, when should we start to see the impact?

And could you give us your idea of what you think your share of voice is?

Have these extra people just restored a position whereby your competitors have been growing, or is this more proactive, does this actually takes you to a higher level of share of voice?

And something we don't really understand much in Europe, can you give us an idea of how your share of voice in competitive position is in Europe?

Thank you very much, Jo.

This is Lars Rebien.

If I comment on the U.S.

first and then, Jesper, if you'd care to comment on the situation in Europe.

The expansion in the U.S.

has been completed.

The numbers in Q2 have been impacted by the expansion to a certain extent.

All of the numbers are included in the guidance for 2007.

And it is correct that we had previously stated that a noticeable impact from these people should await the end of the year 2007.

But, of course, we are very pleased to see the month-to-month development in scrips and share, as you can see them in the presentation that we just gave you, where the last three to four months has been doing quite nicely.

So we believe that the full impact will be seen towards the end of the year.

In terms of share of voice, the share of voice for us has now gone up.

But it, of course, reminds you that this is a dynamic situation.

We were, in fact, according to our own estimations at the turn of the year, we were below where we would want to be in terms of share of voice.

We were out-gunned, so to speak, by Sanofi Aventis.

This situation has changed somewhat with the recruitment, so our share of voice is up.

Jesper, the situation in Europe.

Well, just before we move to Europe, I think I will just comment on the guidance for the sales and distribution costs, Jo.

I think the guidance we would like to give for 2007 is a full-year ratio of around 30.5%.

And with 30.2% in the first half of this year, you should expect slightly higher in the second half, so about -- getting close to 31%.

And that looks like a level that we will maintain into 2008.

And then, of course, liraglutide launch, etc., may impact that when we move beyond 2008.

So I hope that was clear on the cost level in 2007/8 in terms of sales and distribution costs.

In terms of share of voice in Europe, we are seeing that we are maintaining a high level of share of voice, typically in line with our market share being north of the 50%.

We are seeing in certain markets that Sanofi Aventis is making a significant effort.

That could be markets like, for example, France.

But we still maintain a level of contact with the healthcare professionals which is roughly similar to our growing market share, and we remain committed to expanding our sales force to keep us aligned with that.

And we've actually seen increases in our sales force in 2007 in markets like Germany and U.K., and also France, to maintain our share of voice.

So we remain dedicated to do that in Europe.

Thank you, Jesper.

And, ladies and gentlemen, the last question, please.

Our last question comes from Paul Major.

Please go ahead with your question, announcing your company name.

Hi.

It's Paul Major from Redburn Partners.

Two questions for Jesper.

Just with regard to understanding the SG&A line going forward, I was wondering if you could give us some indication of what proportion of your costs are denominated in the dollar, and perhaps just outside of the euro currency area.

And then secondly, with regard to your productivity improvements and the change in the gross margin, I note that you've taken CapEx down slightly for this year.

Could you give us an indication of your expectations for CapEx in the longer term as a percentage of sales, please?

Thank you, Paul.

Jesper, final say.

In terms of SG&A, as you know, we split our costs between the selling, distribution and then the admin, and actually the currency impact is different between the two segments.

On selling and distribution costs, you will see a distribution of the costs being fairly similar to the distribution of our sales, with the caveat that the costs in the U.S.

are higher still than the costs we have in E.U.

or Japan, i.e.

a relative higher proportion of sales and distribution costs relative to sales for the U.S.

That is partly being offset by a relatively lower level in some IO countries.

But broadly speaking a distribution roughly in line with sales, with a slight overweight in dollar zone.

And then, on top of that, for the admin, of course, the opposite is the case.

You'd probably see in ballpark numbers that 50% or so of the admin costs are related to kroner and then the other 50% would then be allocated with sales, if you make it simple in your model.

And then, in terms of the guidance on investments to sales, we have taken down our guidance for this year to now below DKK3b.

And we are also comfortable in making our long-term guidance in terms of investments to sales, leaving that at the 8% level.

I think the (inaudible), as I have commented on previously, will be what investments do we need in the area of pulmonary insulin, and there the jury is still a little bit out.

So we will have to await that.

I'd like to reiterate that we have made the investment necessary for the planned launch of liraglutide, so we feel comfortable in having capacity available for a launch there of this product in 2009.

Just as a follow-up, so the 8% you've just talked about, is that including some sort of assumption about pulmonary insulin, or is that -- are you saying 8% is your base line and then to the extent that you launch pulmonary it will be higher?

The 8% is the guidance we give on the current outlook, including a planned establishment of a production platform for AERx.

Okay.

Thank you.

Well, thank you, ladies and gentlemen.

This was the conclusion of the teleconference on the Q2 release of Novo Nordisk.

Thank you for listening in.

I'd like to remind you that a replay is available, or will be available, on our website, and our Investor Relations officers can be reached by phone.

Thank you very much.

Ladies and gentlemen, thank you for your participation today.

This concludes today's conference.

You may now all disconnect your lines.

Thank you.