諾和諾德 (NVO) 2008 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the Novo Nordisk Q2 2008 Earnings Conference Call.

For your information, today's conference is being recorded.

At this time, I would like to turn the conference over to your host President and CEO, Lars Rebien Sorensen.

Please, go ahead sir.

Thank you very much, and ladies and gentlemen welcome, as mentioned, to the Novo Nordisk conference call regarding our first six months release, which was announced earlier today for 2008.

I am Lars Rebien Sorensen, the CEO of Novo Nordisk, with me, I have our chief financial officer Brandgaard, Mads Krogsgaard Thomsen, our Chief Science Officer and present are also our Investor Relations Officer.

Today, our interim release is available on our homepage Novonordisk.com along with a slide that we will be using for this conference call.

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

The Q&A session will begin in about 30 minutes.

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 the expectations.

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

Also note, as mentioned, the conference is being webcast live and a replay will be made available on our homepage after the conference call.

Turn to slide number three.

We are pleased with the performance of the first six months of 2008 with robust sales development for our key products and solid progress in the pipeline including the filing of Liraglutide for regulatory approval in the United States, Europe and Japan.

Our portfolio on modern insulins continues to show a strong sales growth in all key markets.

In the first six months of 2008, sales of modern insulins increased by 13% in local currencies thereby maintaining the robust momentum of our insulin franchise.

In biopharmaceuticals area, NovoSeven sales increased 14% in local currencies and Norditropin also continued the growth pattern with 15% sales growth in local currencies.

Geographically, sales increase is driven by North America, where sales growth in local currencies of 19% and international operations were 23% in local currencies.

In June, Novo Nordisk received a marketing approval by the FDA of PrandiMet, fixed dose combination of Prandin and Metformin for the treatment of Type 2 diabetes.

Furthermore, Liraglutide was submitted for regulatory approval in May in the US as well as Europe.

The filing and the trial at markets were completed in July with the filing in Japan.

In addition, the Liraglutide has now been submitted for regulatory approval in Australia, New Zealand, Canada and Turkey.

In June, headline results from the head-to-head study comparing Liraglutide and Exenatide were announced.

The study reinforced the competitive profile of Liraglutide with a significant difference in Hb1Ac reduction of more than 0.3 percentage points after 26 weeks' treatment for a once daily injection of Liraglutide versus twice daily injection Exenatide.

Turning to the financial performance in the first six months of 2008.

It has been driven by robust sales growth 13% in local currencies corresponding to 7% as reported.

Solid improvement in our productivity, in manufacturing have continued throughout the first six months of 2008 and contributed to an increase in the underlying gross margin of 130 basis points.

This improvement mainly related to increased productivity in insulin bulk manufacturing and insulin [failing] activities.

In [reported] terms this corresponds an increase in 10 basis points as the underlying improvement is countered by significant negative currency impact of around 120 basis points.

The expectations for reported operating profit for 2008 has now increased to the range of 22% to 25% and the expectations for growth in underlying operating profit adjusted for the impact of currencies and non recurring items has likewise increased to around 25%.

Turn to slide number four.

In the first six months of 2008 the diabetes care segment grew 14% measured in local currencies, contributing 74% of Novo Nordisk's growth.

The portfolio of modern insulins were the main growth drivers accounting for more than 70% of total sales growth.

Biopharmaceuticals grew 13% in local currencies and sales of NovoSeven increased 14% while growth of Norditropin grew 15% all measured in local currencies.

Sales of both products are impacted positively by timing of tender sales to the tune of DKK150 million in total in certain IL Markets.

Sales in HRT franchise products increased 3% measured in local currencies despite generic competition for Activelle in United States.

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

In the first six months of 2008, sales of modern insulin products grew 30% measured in local currencies.

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

Market share continues to increase for all three products.

The market performance for all Novo Nordisk three modern insulins exhibit a steady and durable penetration of various insulin segments.

From a regional perspective, growth is driven primarily by North America followed by international operations.

In the first six months modern insulins made up more than 57% of total insulin sales compared to 51% in the first six months of 2007, emphasizing the momentum of the ongoing conversion from human insulins to modern insulins.

NovoRapid is single largest modern insulin product, (inaudible) sales of DKK3.6 billion in first six months of 2008.

The similar figure for NovoMix is DKK2.6 billion and Levemir continues gain momentum with sales increasing from below DKK1.1 billion in the first six months of 2007 to above DKK1.7 billion in the first six months of 2008.

Levemir is contributing the highest share growth and increasing by more than 70% in local currencies compared to the first six months of 2007.

In June, NovoMix reached more than $1 billion in sales during the past 12 months and making NovoMix the second Novo Nordisk modern insulin to reach blockbuster sales level.

The sales growth of NovoMix in the first six months of 2008 is driven by European markets, as well as market in international operations whereas the [premix] segment accounts for approximately 50% of the insulin market in many countries.

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

Around 55% of the global insulin market measured by volume has now been converted to modern insulin as compared to 50% same time last year.

And we expect this conversion trend to continue within all segments of the market.

This drives value growth of insulin market along with ongoing conversion to be prefilled devices.

Novo Nordisk continues to gain market share within the modern insulin market.

Novo Nordisk market share of modern insulins are now 44% measured in volume compared to 43% 12 months ago.

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

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

NovoSeven sales increased 14% in local currencies and 6% reported in the first six months of 2008.

NovoSeven's sales growth was primarily realized in North America and International Operations, partly due to timing of tender sales in certain International Operations [countries].

The sales growth of NovoSeven reflected increased sales within the congenital and acquired hemophilia segments, where Novo Nordisk is a global leader.

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

Turn to the slide number eight for an update on sales of Norditropin.

Norditropin's sales increased 15% in local currencies and 9% [reported] in the first six months of 2008, thereby continuing again the solid growth in the growth hormone franchise.

Norditropin sales growth was primarily realized in North America followed by International Operations.

However, all regions contributed to growth measured in local currencies.

Novo Nordisk global market share is now 24% measured by volume and 19% is in the United States.

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

It continues to be the most advanced offering on the market, characterized by significant convenience benefits for patients and their families.

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

From a regional perspective, North America and International Operations are the main growth drivers for the company.

In the first six months of 2008, North America and International Operations contributed 46% and 31% respectively to the overall growth of Novo Nordisk.

In Europe, we continued to see solid growth rates for our portfolio of modern insulins due to market share gains and underlying market growth, Levemir contributed around 50% of the growth.

Sales in International Operations in the first six months 2008 grew 43% in local currencies.

Sales of the modern insulins continues to be a significant contributor to growth in the region led by China, Turkey and Algeria.

Furthermore, sales of human insulins continue to add to overall growth in the region driven by China.

The key contributor to growth in the region is China, accounting for more than 30% of total sales growth measured in local currencies.

Sales in Japan are seeing an increase by 3% in local currencies.

The sales development reflects sales growth in all three modern insulins -- NovoRapid, NovoRapid 30 mix and Levemir.

Novo Nordisk has a leading market share in insulin market in Japan holding 73% of the total market and 64% of the modern insulin market, both measured by volume.

Levermir was launched in Japan in December 2007 and has already reached a solid penetration with a current volume market share above 15% of the long-acting insulin market in Japan and around 35% of the long-acting modern insulin market.

Turn to the slide number ten which provides you with an update on the development of our modern insulin market shares in Europe including the rollout of Levemir.

Novo Nordisk holds a clear leadership position within modern insulin segment in Europe, with the volume market share of around 51%.

Solid leadership position is reinforced by continued market share gains of Levemir, which now holds 27% of the total European market for long-acting modern insulins.

Around two-thirds of the Levemir sales volume in Europe is in prefilled devices [and a round] a third in durable devices.

Turn to slide number 11, for the update on the US insulin market.

Total diabetes care sales in North America increased 21% in local currencies in first six months of 2008 and by 6% reported, reflecting a solid penetration of the modern insulin portfolio, Levemir, NovoLog and NovoLog Mix.

Novo Nordisk continues to consolidate the leadership position in the US insulin market with 42% of total insulin market and 31% of the modern insulin market, both measured by volume.

According to the latest monthly market share data covering in June 2008, Levemir has now obtained 11% of the total long-acting modern insulin segment, measured by volume.

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

Thank you Lars.

Please turn to slide 12 for an update on our diabetes care pipeline.

As previously announced, Novo Nordisk has now filed for regulatory approval of Liraglutide, the once daily Human GLP-1 analog, in the US and EU in May of this year and in Japan in July, with only 53 days having elapsed between the submissions in all [triad] markets.

In addition, Liraglutide has been filed for regulatory approval in Turkey, Canada and New Zealand and Australia.

The applications contained documentation from an extensive clinical development program, designed to obtain the indication for use of Liraglutide to treat Type 2 diabetes as an adjunct to diet and exercise, both as monotherapy and in combination with commonly used anti-diabetic medications.

The competitive profile of Liraglutide was further reinforced in a Phase 3b clinical study, known as LEAD 6, in which Liraglutide provided a statistically significantly basal blood glucose control than Exenatide, a twice daily GLP-1 analog.

The 26-week study includes 464 people with Type 2 diabetes, who are randomized to treatment with either Liraglutide once daily or Exenatide twice daily as add-on to the existing treatment consisting of Metformin, sulfonylurea or a combination of both.

From an average HbA1c level at the beginning of the study of slightly above 8%, patients treated with Liraglutide achieved a reduction in A1c of more than 1.1 percentage point compared to a reduction in A1c of less than 0.8 percentage point in the Exenatide group, a difference which was statistically significant.

Both patients treated with Liraglutide and the patients treated with Exenatide lost an average around 3 kilograms during the course of the study, with a trend towards more weight loss in the Liraglutide group.

In the Liraglutide group, the percentage of patients reporting nausea in each week, fell to low single digit numbers after eight to ten weeks, similar to the levels observed in the background population.

In the Exenatide group, the level after eight to ten weeks of treatment remained at the level of 10%.

As expected, the overall rate of hyperglycemia in the study was low.

In July, Novo Nordisk initiated a 26-week Phase 3b study comparing the effect of Liraglutide with Sitaglyptin, a DPP4 inhibitor, in people with Type 2 diabetes inadequately controlled with Metformin alone.

Two doses of Liraglutide in combination with Metformin will be compared individually to 100 milligrams of sitaglyptin in combination with Metformin.

The planned recruitment is 651 Type 2 diabetic subjects and the study is expected to be completed in the second quarter of next year.

Significant sustained weight loss was reported after 52 weeks in a 32-week open label extension of the 20-week Phase 2 obesity study for Liraglutide, in which treatment with Liraglutide was tested in obese people without diabetes.

Around 400 participants continued into the 32 week extension.

After 52 weeks, Liraglutide given once daily at the highest dose led to a mean weight loss from base line of around 7.5 to 8 kilograms and the placebo adjusted weight loss of around 5.5 to 6 kilograms.

Around 75% of the people treated with the highest dose achieved a weight loss larger than 5% compared to around 25% of the people in the placebo group achieving a weight loss larger than 5%.

Of all patients participating in the extension study, approximately 30% showed signs of pre-diabetes at randomization.

After one year of being treated, around 80% of this pre-diabetes sub group of patients treated with the highest dose of Liraglutide no longer showed any signs of pre-diabetes.

The proportion of people that withdrew due to side effects was below 15%.

On another note but still related to Liraglutide, let me provide a few comments about Novo Nordisk's perspective on the discussions that have taken place after the FDA advisory committee on cardiovascular risk for diabetes drugs, which took place on the July 1 and July 2, earlier this summer.

As the leader within diabetes care, Novo Nordisk welcomes the discussion on cardiovascular risk and we have included a wide variety of cardiovascular endpoints in the lead clinical development program as well as in other programs.

Liraglutide may, when compared to many other classes of diabetes drugs, differ from these when it comes to cardiovascular risk.

This relates to the notion that Liraglutide induces statistically significant weight loss as well as in several studies, a statistically significant lowering of systolic blood pressure.

Such lowering of body weight and blood pressure is widely accepted as contributing to cardiovascular health.

In the LEAD program, we have also looked at several other cardiovascular risk markers such as PAI-1, triglycerides, LDL and HDL cholesterol.

Generally, the Liraglutide treatment has led to an improvement in most of these endpoints although these are not in each case necessarily statically significant.

Of greatest relevance to the path towards approval of the Liraglutide is however the interactions between ourselves and the regulatory agencies.

In this regard, I can mention that our dialogue with the FDA has revealed that the regulatory dossier for Liraglutide is considered to be adequate for a full review implying that the agency will be able to assess the approvability of Liraglutide on the PDUFA action date, which is March 23, next year.

In the period from now until the PDUFA action date, we expect many issues, big and small, to be discussed with the FDA.

Specifically, as regards effects of Liraglutide that may relate to the cardiovascular system, it is our clear belief that agreed upon actions such as the potential conduct of clinical studies will be elements of our post-approval commitments.

Also within the GLP-1 area, Novo Nordisk has initiated a Phase 2 clinical study with a longer acting human GLP-1 analogue known as NN9535 and designed for once-weekly treatment.

The Phase two clinical study encompasses 362 patients and will evaluate the efficacy and safety of NN9535.

The trial is expected to be completed in the first half of 2009.

Now let me turn to PrandiMet.

As communicated in June, Novo Nordisk has received approval by the US FDA of PrandiMet, a fixed-dose combination of the fast acting insulin secretagogue, Replaglinide and Metformin for the treatment of Type 2 diabetes.

PrandiMet was approved as an adjunct to diet and exercise to improve glycaemic control in adults with Type 2 diabetes who are already treated with both Meglitinides such as Prandin and Metformin or who have inadequate glycaemic control on a Meglitinide alone or Metformin alone.

Please turn to the next slide for an update on our haemostasis portfolio.

As communicated in June, Novo Nordisk has decided to discontinue the Phase 3 clinical study with NovoSeven for the treatment of bleeding in patients with severe trauma.

The decision was made based on the results of an analysis for futility conducted by the Independent Data Monitoring Committee.

The primary efficacy endpoint of the study was mortality and severe morbidity.

To assess the likelihood of reaching a successful outcome on the primary endpoint, a preplanned futility analysis was conducted due to an observed lower mortality than anticipated in the overall study group.

Thus, mortality was around 10% in the Phase 3 study compared to more than 25% in the Phase 2 study.

The analysis predicted a low likelihood of obtaining a positive trial outcome with the planned size of the study population and as a consequence Novo Nordisk decided to discontinue the study.

The decision was not due to safety concerns.

As soon as the last 90-day follow-up has been finalized for all patients in the trauma study, Novo Nordisk will analyze the results and we expect to present headline results from the study before the end of the year.

Going forward and given the challenges experienced in expanding the NovoSeven franchise into general haemostasis, Novo Nordisk's research in the field will now focus exclusively and broadly on new treatments for haemophilia A and B.

Research activities outside the haemophilia area, which involve 25 employees at the Company's research site in New Brunswick, New Jersey will be terminated, and as a consequence the site will be closed down.

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

Novo Nordisk has initiated a Phase 2 clinical study with a long-acting human growth hormone analogue designed for once-weekly treatment.

The Phase 2 clinical study will evaluate efficacy based on surrogate endpoints and safety and tolerability in 32 adult patients.

The study is expected to report in the first half of next year.

As previously communicated, Novo Nordisk will increase and focus its activities on inflammatory disorders.

An integral part of this new focus will be the establishment of the US research site in Seattle, Washington with the focus on research within inflammatory diseases.

Novo Nordisk expects to employ approximately 80 scientists at the research site by 2010.

With that, over to Jesper for an update on the finances.

Thank you Mads.

Please turn to slide 15 providing you with details on the financial results.

We are satisfied with the overall growth in the first six months of 2008 of 13% measured in local currencies and 7% as reported.

The underlying improvement in gross margin was 1.3 percentage point in the first six months of 2008, primarily reflecting improved production efficiency in both upstream and downstream manufacturing within diabetes and higher average prices in the US.

However, as reported, the improvement was 0.1 percentage point reflecting that these improvements are countered by a significant negative currency impact of around 1.2 percentage point primarily the lower value of US dollars and British pounds versus Danish kroner compared to 2007.

In the first six months of 2008, total non-production related cost increased by 4% to DKK11,244 million compared to the compared to the same period last year.

Sales and distribution costs were largely unchanged, reflecting the combined effect of a provision related to an antidumping case in Brazil recorded in the first quarter of 2007 and higher cost in the first half of 2008 related to the expanded sales force in the US.

Research and development costs increased by 13% reflecting an increased level of activity in late-stage clinical development as well as the non-recurring costs related to the discontinuation of AERx and other pulmonary diabetes projects.

Operating profit increased by 11% to DKK5,675 million, adjusted for the approximately 14% impact from currencies, underlying operating profit increased by around 25%.

Net financials showed an income - a net income of DKK444 million in the first six months of 2008 compared to a net income of DKK1,634 million in the same period last year, where a non-recurring and tax-exempt income of DKK1.4 billion from the divestment of the ownership of Dako's business activities was recorded.

The foreign exchange result was an income of DKK474 million compared to an income of DKK458 million in the same period, last year.

This development reflects gains on foreign exchange hedging activities due to the lower value of especially US dollar versus Danish kroner.

The effective tax rate for the first six months of 2008 was 24%, an increase from last year where the tax rate was impacted by the tax-exempt income from the divestment of the ownership of the Dako's business activities as just mentioned as well as non-recurring effect linked to the re-evaluation of the Company's deferred tax liabilities as a consequence of the reduction in the Danish Corporation Tax Rate implemented in 2007.

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

The depreciating trend for Novo Nordisk most important invoicing currencies including the US dollar and British pound versus euro and Danish kroner has continued during 2008.

With the decline of the US dollar and British pound, the hedging gain arising from our hedging activities have increased.

The expected currency impact on operating profit as a consequence of a 5% depreciation is in-line with the previously given estimate.

With an annual impact of DKK470 million of a 5% movement in the US dollar as well as an impact from the Chinese yuan and Canadian dollar included in the US dollar related line of DKK100 million, the total annual US dollar sensitivity is estimated to be DKK570 million from a 5% movement in the US dollar.

Currently, Novo Nordisk has hedged future expected cash flow related to the US dollar 16 month ahead, the Japanese yen 14 month ahead and the British pound is hedged 12 month ahead.

Foreign exchange hedging gains of around DKK900 million have been deferred for future income recognition, hereof approximately DKK500 million for income recognition in the second half of 2008.

Please turn to slide 17 for an outlook for 2008.

Novo Nordisk now expect between 11% to 13% growth in sales measured in local currencies compared to the previous expectation of a growth in the range of 10% to 13%.

This is based on expectations of continued market penetration for Novo Nordisk's key strategic products within diabetes care and biopharmaceuticals but also expectations of increased competition in both, the diabetes care area and in biopharmaceuticals during 2008.

Given the current level of exchange rate versus Danish Kroner, the reported sales growth in 2008 is still expected to be around 6 percentage point lower than the growth rate measured in local currencies.

The expectation for growth in reported operating profit for 2008 is now within the range 22% to 25% compared to the previous expectation of slightly more than 20%.

This primarily reflects that expectations for the non-recurring costs in relation to the discontinuation of all pulmonary diabetes projects have been reduced from previously DKK500 million to now DKK400 million but also the revised outlook for sales growth.

Adjusted for the impact from currencies and the non-recurring cost relating to the discontinuation of all pulmonary diabetes projects in 2007 and 2008, underlying operating profit is now expected to grow by around 25% compared to the previous expectation of a growth only being close to 25%.

In this connection please note that the underlying operating profit growth for the first six months of 2008 solely is adjusted for the impact from currencies as the R&D costs for pulmonary diabetes activities in the first half of 2007 is at the same level as the total costs including the discontinuation cost in the first half of 2008.

However, the expectations for full year underlying operating profit growth is adjusted for the impact from currencies as well as the non-recurring cost related to the discontinuation of all pulmonary diabetes projects in order to match these expenses in 2007 and 2008.

This includes the non-recurring costs in the fourth quarter of 2007 as well as the costs in the first six months of 2008.

For 2008, Novo Nordisk now expects a net financial income of DKK800 million reflecting significant foreign exchange hedging gains primarily related to the US dollar.

The expectations for the effective tax rate for 2008 is still 24%.

Capital expenditure is now expected to be lower than DKK2 billion in 2008.

Expectations for depreciation, amortization and impairment losses are still around DKK2.5 billion whereas free cash flow is now expected to be around DKK8.5 billion.

All expectations are provided that currency exchange rate especially the US dollar and (inaudible) currencies remain at the current level versus the Danish kroner for the rest of 2008.

Please turn to slide 18.

In 2008 under the safe harbor rules Nova Nordisk repurchased 6.3 million B shares equal to a cash value of DKK2 billion.

Based on a sustainable lower level for tangible asset investments of around 6% of sales annually, the Board of Directors have approved an increase by DKK1 billion in the ongoing DKK16.5 billion share repurchase program bringing the total value of the share repurchase program to DKK17.5 billion.

The program is still expected to be finalized before the end of 2009.

As a consequence of the increase in the share repurchase program Novo Nordisk now expects to repurchase B shares equal to a cash value of around DKK4.7 billion in 2008 and around DKK5 billion in 2009.

In 2006 and 2007 Novo Nordisk repurchased B shares equal to a total cash value of DKK7.8 billion.

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 to Mads and Jesper, please note that this conference has been 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 sir, question and answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS).

We will take questions in the order received and we will take as many as time permits.

(OPERATOR INSTRUCTIONS).

Our first question today comes from Peter Hugreffe Ankersen of ABG.

Please go ahead sir.

Yes, hi.

Peter Hugreffe from ABG, thanking for taking my questions.

I have one question related to the Liraglutide launch, could you give some kind of insight to the upcoming launch in terms of ramp up of sales reps and should we expect any kind of P&L, in fact for 2008?

And then in addition to the NovoSeven and the discontinuation of trauma study, have you seen any impact yet and should we still expect the same kind of off-label used on NovoSeven?

Thank you.

Thank you very much, this is Lars Rebien, I'll give a shot at both the questions.

In regards to Liraglutide launch, it is clearly a very interesting subject which is something that we focus on everyday, especially in the competitive situation in the market place.

It is clear to us that marketing efforts in the diabetes space has increased significantly and so it is most likely that we will undertake an expansion of our marketing activities to be able to successfully launch Liraglutide.

We will communicate the exact timing and size of this later this year when we announced also our guidance for 2009.

It would be our assessment at the moment that cost in 2008 for any such activities would be rather limited.

But we will give you more visibility to clear that from a comparative perspective, we would like to keep specific information about this as close to our chest as possible.

Obviously, the biggest potential for Liraglutide is in United States and therefore, it is likely that you'll see us announce an expansion of our US sales force.

There is however also the possibility that we will be announcing adjustments through our sales force in certain European markets and as well continued expansion of our sales force in overseas markets to launch Liraglutide in certain countries but also to continuously focus on modern insulins.

With regards to NovoSeven, we've not seen immediate impact on the results from the trauma study on NovoSeven.

As you can see we announced a relatively buoyant and strong sales in the second quarter of NovoSeven so it is not our anticipation that there will be a major impact as we have not seen any safety issues emerging from the trauma studies on those already established so to speak investigational usages of NovoSeven.

And so if we look at the overall growth expectations for current year we announced in the beginning of the year that we would see high single digit growth.

Right now we are above that, it's our expectation when we analyze month-by-month sales that we've had a couple of very good months especially in the second quarter.

And on an annualized basis we usually have only a couple of very, very good months like that.

So we still maintain our guidance of high single digit growth for NovoSeven hence a very modest growth in the second half of NovoSeven but we would like to be positively surprised of course.

Thank you very much.

Thank you.

Next question please.

Thank you.

We will now take our next question from Henrik Simonsen of SEB Enskilda.

Please go ahead.

Hello and good afternoon, gentlemen.

Sorry to come back to the subject of Liraglutide [again in the] United States and but I want to raise a question which I think is on many people's mind regarding what FDA has said to you, has FDA given you any exact assurance that they will not require a cardiovascular outcome study during the communication you had so far with FDA.

And do they still have up to the 90 day timeline to come back to you with any additional requirements for the acceptance of the filing.

And then secondly in terms of the cost structure I was wondering if you could provide us with a bit of guidance if that has changed in terms of the various cost (inaudible) you are guiding for 2008?

Thank you very much Henrik, I will ask Mads to address the very central question which is that of the recent concern on part of the FDA on cardiovascular, effects of diabetes drugs and then yes I will give a run down on the P&L and cost structure issues as you see them right now.

Mads.

Well, Henrik, very briefly and very importantly the dialog with the agency in the US, the FDA, has really shown that they feel we have provided a so-called full and substantive regulatory dossier that allows for a standard review with a PDUFA action date which is on March 23 next year, which is the 10 month as you know period that has elapsed from the formal checking of Liraglutide.

And hence that we have the data package that is needed for them to make the decision hopefully to approve the drug on March 23 next year.

That being said, we are also aware that we of course will entertain with them a lot of discussions about both future risk management plans and post approval commitments of other kinds and they may well, on their part, include of course elements of future cardiovascular studies, which we then would expect to be post approval.

So that is the dialogue we are having.

But Mads [as a direct respect] to you we will not require cardiovascular outcome study prior to approval from --?

(inaudible - multiple speakers) we are saying that we have provided a regulatory dossier that provides full and substantive information on what they need for giving a standard review of our product aiming for a decision on its approvability on the PDUFA action date, which is March 23.

All right.

And that is as close as you can get.

Quite frankly, as I also alluded to drugs are different and I think you have heard the agency in a very I think intelligent way say that also going forward there will of course be an -- based on intelligence and insight, a case by case evaluation of drugs as we proceed going forward.

And what we have with Liraglutide is fortunately a compound that either has significant statistically speaking benefits on cardiovascular risk markers such as systolic blood pressure and body weight or strong trends in the positive direction.

So yes, it's our very clear belief that we have what is needed on the cardiovascular side for approval of this agent.

And Henrik, this is Lars Rebien here.

As we hear from Mads, we feel quite comfortable [getting] from our side but as you can also see from the wording and which is customary from the FDA, FDA wants to keep and maintain their flexibility in terms of demanding whatever they think is needed to protect the American public from any risks.

So that gives of course certain uncertainties but so far we have, as Mads stated, not any reason to believe that there will be a pre-approval.

And then I will let Jesper to give a run down on the cost structures as they see -- they look right now, six months, seven months into the year.

Thanks Lars.

So if we start with the cost of goods sold and related to gross margin.

We continue to see an improvement in our gross margin for the full year, which will be at least 100 basis points.

We have seen 130 basis points so far and a negative impact of 120 basis points.

I would expect that currency impact should be slightly lower in the second half of the year.

So, we would still see an improvement in also reported gross margin for the full year if currencies stay where they are.

In terms of selling and distribution costs, we would anticipate that that would be in the ballpark of 29% as the ratio.

In terms of R&D, I would anticipate that the R&D cost would be in the ballpark between 17% to 18% of sales and this guidance includes the now expected DKK400 million, it would cost us to close down the pulmonary projects within diabetes.

And then, within the admin cost, we are guiding towards a level of around 6%, maybe slightly below 6% and ideally growing at a lower rate than our top line.

And then finally just to compliment the picture within the operating profit -- or the operating income, we would anticipate an income level in the ballpark of DKK300 million and this is also unchanged.

Yes, thank you Jesper and thank you Henrik.

Next question please.

Thank you.

We will take our next question from Carsten Madsen of Carnegie.

Please go ahead.

Yes.

Thank you very much for taking my question.

I just have one question actually related to your modern insulin franchise where growth rates this quarter year-over-year was up -- was 18% which is down from 25% in Q1.

Is there any particular reason for this sudden drop in the growth rates?

And could you maybe also provide us with some sort of outlook for the full year?

Thank you.

Thank you very much.

This is Lars Rebien here and when we have to caution people reading too much into quarterly numbers, when we usually try to analyze whether there are any changes in trend, we are preparing to look at [amenity] data on market share information and we can see that there is absolutely no change in trends in the progression of our modern insulin franchise.

So, what we would rather would like to interpret this as being certain purchasing pattern timing issues, specifically in United States where there has been some changes in distribution for certain wholesalers and some large purchasing groups which have put -- typically put their purchase in major lumps and whether these fall in one quarter or the other can have a significant impact when you compare one quarter against another.

So no major changes and of course then there is the specific issue relating to diabetes that there has been a price reduction in Japan which is kicking-in in April taking a little bit of the growth off but not to the magnitude that you are suggesting with the numbers.

So, no changes.

Next question please.

Thank you.

We will take our next question from Richard Vosser of JP Morgan.

Please go ahead.

Hi.

It's Richard Vosser from JP Morgan.

Two quick questions.

The first question on the one time effect of stocking.

I think you quantified them as DKK150 million.

Could you just confirm whether that was just on the oral anti-diabetics and whether it included the quantification of the stocking in NovoSeven of this quarter?

If you can give an idea of that level that would be great.

And then a quick question on the changes in the hemophilia development.

Could you confirm what those changes are likely to -- how those changes are likely to affect the development, especially of the Factor XIII cardiac surgery compound, is that likely to be discontinued?

And how do you see the new Factor VII analogs and their positioning.

Is that therefore just only for hemophilia now?

Thanks very much.

Thank you very much, Richard.

This is Lars Rebien.

If I take care of the first comment, Mads the one after (inaudible) will respond to the changes perspective in hemophilia.

The once after we have quantified its approximately DKK150 million, of which DKK100 million is once-off purchases of NovoSeven and [DKK50] million is purchases of growth hormone.

So, we didn't make any comments on '08 it is --.

Okay.

-- it is -- it was NovoSeven and growth hormone.

And DKK150 million was correct.

Mads?

Yes.

So, what we hitherto have done has been to focus on the so-called inhibitor segment, i.e., look at the role of NovoSeven in patients with antibodies against Factor VIII and IX.

With that focus, we are now broadening out into looking potentially at all relevant clotting factors in the general hemophilia space.

One of the repercussions of this, plus the notion that we haven't had success on the expansion outside of hemophilia obviously is that we are stopping pre-clinical research outside of hemophilia and focusing the entirety of our research force on hemophilia related products.

Now, that does not mean to say though that our Factor XIII asset and that the NN1731 which we have previously announced are being tested.

As you know Factor XIII not only in cardiac surgery where Phase 1 has been completed but also in congenital deficiency which is the one where we are waiting to proceed to the next step, those will continue on a project-by-project basis.

These are clinical activities and not pre-clinical research activities so they are not affected.

The same goes for the NN1731 cardiac surgery study, which is something which is being discussed with the regulators at the present point.

So for clarification, the research activities are discontinued and in the future, only focusing on hemophilia A and B.

Certain development activities including also using the Factor VII analog within cardiac surgery will still be considered going forward.

Thank you very much.

Next question please.

Thank you.

Our next question today is from Poul La Cour of Kaupthing.

Please go ahead.

Yes, hello.

This is Poul La Cour from Kaupthing.

First question is on CapEx.

How much below the DKK2 billion will you go?

I am thinking that in the first half you only spent DKK542 million, and as far as I am concerned you haven't started building the Chinese factory, and so I am having a hard time seeing that it can get close to DKK2 billion.

That was the first part.

The second one is on the free cash flow guidance increase that you gave this quarter.

You were mentioning that part of this is a change in your US distribution system.

Can you give us some more color on this and also tell us if there will be further positive effect from this change in the second half of '08?

Thank you.

Thank you very much, Poul.

This is Lars Rebien here.

Jesper, I think both of these would be to you.

The CapEx, where do you see it short term and if anything, if you have any comments as to the longer term prospective on this compared to, for instance, to the level of depreciations and the impact of that cost on to cash flow, and the specifics about the US distribution system which has been alluded to.

Yes, Poul of course below DKK2 billion is a broad range to give, the way we typically give guidance on these matters would be within the ballpark of DKK500 million.

So, from this you can anticipate that we would expect it to be somewhere in the, let's say, DKK1.7 billion to DKK1.8 billion, DKK1.9 billion.

And that would of course anticipate that we would have a higher investment level in the second half and that's also what we're anticipating including the initiation of the Chinese facility and also cost involved -- cost in relation to upgrading of our [pen] production platform, including potentially new devices and that has a cost implication.

So, that's what is going through the guidance.

But when we look at our longer-term investment levels as Lars was alluding to, we are now looking at investment levels in the ballpark of 6% of sales.

And hence, there is a very close correlation between the current levels of depreciation and the anticipated level of investments going forward.

And as a background for -- and that you should see as a background for the increased share re-purchase program that we announced.

And then secondly in terms of the US distribution system, the comment is just made there that the only impact that has been was an impact on cash flow which was to the tune of DKK300 million.

So we didn't want our investors to overemphasize on the cash flow realized in the first half of this year, as there was a positive benefit from this change in distribution system.

There was no impact on the recorded sales between first and second half in the US from this change in distribution system.

What has happened in fact is that Novo Nordisk has now taken full control of the distribution channel in the US where we previously was relying on distribution services conducted skillfully by Bristol-Myers Squibb.

Now we have reached the size where we can safely and financially viably handle this ourself and that transition took place July 1.

And we now handle the entire distribution process ourself and we have no problems in that respect.

Thank you Jesper and thank you Poul.

Next question please.

Thank you our next question will be from Michael Novod of Handelsbanken.

Please go ahead.

Hello, gentlemen, just a couple of questions.

As a follow-up to the guidelines question, that's last one.

Do you have any intelligence into the timing of these guidelines?

Because when talking to the FDA it's very clear that it could take a very long time, at least, they seem like that on the FDA, so maybe you have some timing guidance.

And then secondly, could you give an update to the SoloSTAR litigations?

Both in the US now we have the appeal over and done.

And what is the timing of a full verdict, and also in Germany?

Thank you very much, Michael.

Mads, are you aware of any commitment the FDA has given in terms of timelines or when they would be more firm on these discussions that we had just elaborated on?

And Jesper would you comment on the status of the SoloSTAR litigation?

Yes, well, first of all, Michael, the FDA have themselves explicitly said that they are not giving guidance on the timelines that they have set for themselves to conclude upon this advisory committee that took place -- meeting that took place on July 1 and July 2.

Second of all, even if I did know the timing, I will probably not be in a position to say it.

But fact of the matter is that we are in a good dialogue with the agency and I can refer you to a remark made by Division Director, Dr.

Mary Parks, during an interview in one of the journals not so long ago that she has both been talking about the need for the FDA to take a case by case approach and also the notion that companies should be aware, and this also goes for Novo Nordisk, that there is obviously a difference between whether they are in a regulatory Phase as we are for Liraglutide or whether they are doing Phase 2, 3/2 or 3 stage development for other compounds such as is the case for other Novo Nordisk pipeline compounds.

They are seen with the FDA minds considered differently from that perspective, but I think it's fair to say that it is not typical that the agency issues guidelines very shortly after having an advisory committee.

We have had obesity draft guidelines, kind of that -- the factual function but that never were formalized.

So I think the agency themselves decide completely at their discretion if and when to conclude on this.

Lars here, and before we just handover to (inaudible) well it's also clear that this has put some political pressure on the FDA so -- which will prompt the FDA to be of course implementing new procedures, new practices along those conclusions which was drawn at the convener meeting.

Otherwise, of course they draw up on themselves larger responsibilities so there will be some changes going forward and then we are looking forward to see how that transpire, also for our own pipeline.

Yes about SoloSTAR --

Yes, the SoloSTAR litigation, the status is that Novo Nordisk has not in US or in Germany been able to convince the lower level courts that the SoloSTAR device infringes both US and EU patents that Novo Nordisk holds.

We are now awaiting for both the US and the court in Dusseldorf in Germany, we are waiting the written ruling from the court.

We will then study that written ruling and based on that we will decide on the future process.

We would expect to get back to the market with our future strategy in that respect in connection with the Q3 release.

Thank you.

Thank you.

Next question please and thank you Michael.

Thank you.

Martin Parkhoi of Danske Bank has our next question.

Please go ahead.

Hello.

I am Martin Parkhoi of Danske Bank, also the two questions.

Firstly, with respect to US insulin growth which -- there was quite a deceleration to the insulin growth in the second quarter versus the first quarter, taking the half-year growth down to 21%.

What kind of levels should we expect for US insulin growth for the full year and going forward, as this has been one of the absolute key growth lines for you and of course still is?

And then, secondly, with respect to long-term guidance this year your adjusted operating margin will it surpass the 25% target.

When should we expect you to revise your long-term targets?

Thank you very much, Martin.

Why don't we start with the last question first, on the long-term guidance when we will give you more visibility on this and then I will return on the US insulin growth projections for the future?

Yes, it's right Martin that we have now exceeded the 25% operating margin target.

And we probably would have exceeded significantly earlier if we had not had the decline in the US dollar.

That said, we put up those targets for giving guidance on a full year basis and I think that is -- with the current levels of exchange rate, it seems likely that we will be able to achieve the long-term financial targets that we set out at the start of 2006 already at the end of 2008.

And based on that you should expect us in our communication in connection with the full year results where it would be clear whether we have achieved those long-term targets for us to provide new guidance going forward on another, say, around five year horizon.

So, that would be the timing for that.

And then, going back to the growth in the US.

I just would like to highlight first that when you look at our reported numbers in terms of US, bear in mind that we last year had a non-recurring adjustment to our US rebate regarding the Medicare set-up with around DKK100 million which was recorded in Q2 last year.

So, you have to take that out when you look at the growth in the US in particular --

Yes, and then the comment I made before, Martin, about [once-offs] we were primarily relating to the situation in the US.

We see no shift, change in the market share developments for our products.

And -- but it is also clear that the competitive pressures have increased the share [voice, the amount of voice] in the marketplace with the launch of DPP4s with continued effort behind Lantus.

With Lilly's refocused on their insulin business has meant that market share gains are more difficult to come by than they were earlier.

And that has implications of course immediately for our ability to continue to gain share, which is currently more hard to come by but also for the longer term ramp up of our sales force in the US, prior to the launch of Liraglutide.

So the numbers that you had seen in terms of growth in the US in Q2 are not the growth targets that we are seeing.

We are seeing 20% plus growth targets for the US insulin market going forward.

But so, so don't take any one quarter isolates, thank you very much.

Ladies and gentlemen let's have one last question.

Thank you, our final question today comes from Sachin Jain of Merrill Lynch.

Please go ahead.

Hi, Sachin Jain from Merrill Lynch.

I am just back to FDA guidelines if I could Mads.

And just firstly, you got the Phase 2 once-weekly GLP-1 analogue coming in the first half of next year.

How you thinking that a potential Phase 3 study for that in terms of where we are with guidelines?

And it may be a little bit premature but I just wondered if you had any thought there?

And then just back to Liraglutide, again just in clarification, you said in your comments many issues big and small remain.

I just wondered if you could clarify what your view is big issues and when there are largely post approval like in that was you are suggesting.

And there is no discussion of any additional data.

You are very clearly on [CV] outcomes but no safety data from extension studies etc.

would be required.

Thank you very much.

Thank you Sachin.

(inaudible) respect to FDA (inaudible) big and small, what's big and what's small.

Yes, well first of all, Sachin I didn't say we had many small and big issues.

I said we expect many issues big and small to be discussed with the FDA.

So I cannot state at this point that there are many issues big and small to be quite frank -- fortunate you can say.

But that being said this is the case for any regulatory dossier, there will be many issues and they will be big and they will be small.

It is my belief that based on what I know from our product from the regulatory dossier and from my interactions that the PDUFA action date, which is on March 23rd last year is the one, we are heading for and also hence planning for to get approval for the product.

There will be many discussions and there will probably also as all drugs need post approval commitments, they can relate to the cardiovascular system and they can relate to other aspects that the agency finds relevant for us to risk mitigate via either clinical post approval commitments or registries or other kinds of activities.

So that's on the Liraglutide side.

On the once-weekly, obviously it will be very interesting to see because there was absolutely no kind of let's say, harmonization of views as to which things should be done pre-approval and which should be done the post approval at this Advisory Committee meeting.

That's one of the big dilemmas for the agency to work out, will they continue down the line as they did in their draft guidance document from February, stating that having a pre-approval commitment to do cardiovascular studies is done on a case by case basis when there is a safety [sequel] or will they do it more broadly for so called Type 2 diabetes drugs.

In the later case, it could have been implication for once weekly GLP-1 compound.

In the former case, I would still argue that even for that compound cardiovascular assessment in the large scale should be done a post approval, if and when we see the same cardiovascular features as we do for the Liraglutide.

But that is too early to speculate on at this point.

Thank you very much Mads.

Thank you very much ladies and gentlemen for listening in on this first half 2008 release which again was in the focus of Liraglutide and I am sure this is going to be our main focus area for a great number of quarters going forward.

You will be able to revisit the conference call at our website and we will be meeting with individual in the (inaudible).

So then in addition to that we have sent out an invitation for a Capital Market Day for those of you that had the interest on the 26 September, which is going to take place at (inaudible) which is our biopharmaceutical and device-manufacturing site in North Copenhagen.

Thank you very much for listening in.

Bye, Bye.

Thank you ladies and gentlemen, that will conclude today's conference call.

Thank you for your participation.

You may now disconnect.