Novo Nordisk A/S (NVO) Q2 2010 Earnings Report, Transcript and Summary

Good day, and welcome to the Novo Nordisk Q2 Earnings Conference Call. For your information, today's conference is being recorded. And at this time, I would like to turn the conference over to Lars Rebien Sørensen, CEO. Please go ahead. Lars Rebien Sørensen: Thank you very much, and welcome ladies and gentlemen, to this Novo Nordisk conference call regarding our performance for the first six months of 2010 and the outlook for the year. I am Lars Rebien Sørensen, the CEO of Novo Nordisk and with me I have our Chief Financial Officer, Jesper Brandgaard; Mads Krogsgaard Thomsen our Chief Science Officer; and several Investor Relations officers. Today's earnings release is available on our homepage novonordisk.com, along with the slides that we will be using for this conference call. The conference call is expected to last approximately one hour. And as usual start with an outline of the presentations on slide number two. The Q&A session will begin in about 20 minutes. Turn to slide number three, as always, I need to advise you that this call will contain forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause the actual results to differ materially from expectations. For further information on the risk factors see the earnings release and the slides prepared for this presentation. Also note, as mentioned, that this conference call is being web cast live, and a replay is made available on Novo Nordisk's website after the call. Turn to slide number four, we are very satisfied with the performance in the first six months of this year. Sales growth in the first six months was 14% reported and 11% in local currencies. The performance is driven by continuous penetration of our modern insulins in all key markets. For a regional perspective key growth drivers have been North America and international operations. Victoza was recently launched in Japan and we continue to see a solid performance of Victoza across launched markets. Within R&D, the key events during the second quarter of 2010 has been the completion of this patient recruitment for the Phase III program, Degludec and DegludecPlus, which encompasses 17 clinical trials in more than 9000 patients. The first of five trials with DegludecPlus is now complete. This trial confirms the DegludecPlus improved long term by glycaemic control and reduce hypoglycemic events in people with Type 1 diabetes. Within Hemophilia we have established clinical proof of concept for NN1731, an ultra fast-acting recombinant factor VII analogue based on the results of our Phase II clinical trial evaluating the safety pharmacokinetics efficacy of NN1731 in stopping joint bleeds. Turning to financials, our gross margin improved by 60 basis points to 80.5 during the first six months. Operating profits grew 19% report and 15% in local currencies. The solid performance of our underlying business and the encouraging Victoza launch performance enables us to raise financial guidance for 2010. We now expect sales growth in the range of 9% to 10% in local currencies compared to 7% to 10% previously. Operating profit growth in local currencies is now expected in the range of 12% to 15% compared to previous guidance of more than 10%. Turn to slide number five, our portfolio of modern insulins continue to show a strong performance overall. In the first six months the portfolio of modern insulins was the main growth driver accounting for almost 7% to 10% of sales growth in local currencies. Sales performance reflects the steady and durable penetration of our modern insulins in an expanding market. Victoza sales reach DKK666 million in the first six months representing more than 20% of sales growth this year in local currencies. NovoSeven grew 11% reported and 9% in local currencies. Sales growth for NovoSeven was primarily realized in North America and reflects increasing sales from the treatment of spontaneous bleeding episodes for congenital inhibitor patients. Sales of our growth hormone therapy, from our Norditropin increased 6% in local currencies in first six months with all regions contributing and need to grow. Novo Nordisk remains second largest company in the global growth hormone market with 25% market share measured by volume. Turning to the next slide for an update by region. First six months all regions contributed to growth measured in local currencies North America was a main contributor with 63% share growth measured in local currencies followed by international operations in Europe. Local currencies sales in North America increased 20% in the first six months. Sales growth was driven by strong performance of modern insulins and initial Victoza sales are solid and we noted an encouraging level of reordering during the second quarter of 2010 following the distribution pipeline filling reported in the first quarter of the year. European sales grew 5% in local currencies driven by continued progress for the portfolio of modern insulins and a solid performance of Victoza. The volume growth of 4% of the European insulin market remains slightly lower than the global average of around 7%. Sales within international operations increased 12% in local currencies for the first six months. The main contributor of the sales growth was modern insulins primarily in China. Sales growth in Japan continues to be impacted by change in the underlying insulin market dynamics for a growth. In the basal segment in particular, basal modern insulins accelerated at the expense of the premium segment, where Novo Nordisk has its strongest position. Turn to the next slide for an overview of healthcare reforms across European markets. In the first six months have been characterized by discussing on surrounding healthcare reforms in Europe as a consequence of growing physical pressures in many European countries. Today, we announced the healthcare reforms as focused on cost containment and I expect it to have negative financial impact on Novo Nordisk to the tune half percentage points of global sales in 2010. For Novo Nordisk significant impact is expected to arise from the healthcare reforms announced in Germany and Spain. In Germany, the main impact from the reform is an addition of 10% mandatory rebate for patent-protected drugs whereas the reform in Spain entails an additional mandatory discount of 7.5% on all drugs. Currently no reforms, the significant impact on the Novo Nordisk has been announced in the other three large markets in Europe, United States, United Kingdom, France and Italy. Turn to the next slide for an update on US launch of Victoza. The rollout of Victoza is progressing well and the products that now have been made commercially available in 14 European countries as well as US, Canada and Japan and three countries in international operations. We expect the rollout to continue throughout 2010. In the US, Victoza launch performance is encouraging, we are not 25 weeks into the launch and Victoza has gained more than 25% of the GLP-1 market. We are pleased to note that GLP-1 market has expanded, measured both in volume and valuation launch of Victoza. In volume, the number weekly prescriptions have grown almost 20% in value, the GLP-1 now constitutes approximately 4% of the overall diabetes market. The level of awareness surrounding Victoza amongst physicians and patients remain high and our strategic positioning of Victoza seems to resonate well with our target audience. This positioning is reflected in market data showing that the majority of patients starting Victoza treatment previously were treated with tablets commonly used early in the preparation of type 2 diabetes. With this, I'd like to hand it over to Mads, who'll give you an update on the development of our clinical pipeline.

Thank you, Lars. Please turn to slide 9. Indeed related to Victoza, we have more than 20 presentations at the 70th annual meeting of the ADA held in Orlando, Florida in June. Let me start however by mentioning that Novo Nordisk presented Phase-II data showing for the first time the efficacy, safety and tolerability profiles of Degludec and DegludecPlus. The studies were as per regulatory requirement designed as treat to target studies and hence demonstrated non-inferior glycemic control compared to Insulin Glargine, while the risk of hypoglycemia was lower for Degludec both in type 1 and type 2 diabetes. Phase II also revealed an extremely long action profile for Degludec highlighting the potential for three times weekly dosing regiment in type 2 diabetes. A new paradigm which is currently being explored in Phase IIIA. The first of five Phase IIIA studies with DegludecPlus has just been completed. It is the trial in type 1 diabetes, a controversial setting for an insulin combination product because insulin pre-mixes have been viewed as increasing the risk of hypoglycemia because they are two components neither allow for individual titration, nor mimic a true basal-bolus profile. The randomized control global clinical trial encompassed one group treated with DegludecPlus once-daily and NovoRapid twice-daily, and their comparison group receiving Levemir in accordance with the label plus NovoRapid three times-daily in a classical basal-bolus regimen. While reducing the number of injections by at least one per day, the DegludecPlus group was further more non-inferior as regards to primary end point HP1C was decreased from 8.3 to 7.6 in both treatment arms. Importantly, the rate of confirmed hypoglycemia defined as the need for third party assistance or plasma glucose levels below 3.1 millimolars per liter, was reduced overall and by more than one third during the night for DegludecPlus. Subjects treated with DegludecPlus and the rapid gained on average slightly more weight than those in comparative group. The safety profile of DegludecPlus was confirmed and DegludecPlus was well tolerated among other demonstrating a very low propensity for injection side reactions and antibody formation. The trials has thus shown that DegludecPlus offers effective, safe and convenient treatment of type 2 diabetes with a reduced number of injections and hypoglycemic episodes. Novo Nordisk expects to announce key results of the remaining 16 Phase IIIA trials in the BEGIN and BOOST programs during the second half of this year and the first half of next year where trials have been completed and analyzed. Please turn to slide 10 for an overview of our clinical pipeline within diabetes and obesity. Novo Nordisk has completed a six month Phase IIIB study with approximately 1000 patients investigating the effect of intensifying Victoza treatment with Levemir in people with type 2 diabetes. Patients previously treated with metformin plus/minus sulfphonylurea were treated in 12 week running period with metformin and Victoza titrated to 1.8 milligrams per day. After the running period patients with HbA1c below 70% were presenting the majority of the population continued on the treatment. While those not below in HbA1c 70% after running were randomized to continue the treatment for 26 weeks with or without addition of Levemir. The randomized cloud data revealed a statistically significant improvement in glycaemic control for a Levemir add-on with 46.3% of the previously inadequately treated subjects reaching the target, versus 17% in the control group. Importantly, the initial mean body weight loss of three to four kilograms achieved during the 12th week running period with Victoza was sustained in both the treatment groups. Furthermore, no major hypoglycemic event occurred, and a very low overall rate of hypoglycemia unprecedented for insulin therapy and corresponding to a quarter of the hypoglycemic event per-patient year was observed in the GLP-1 insulin combination treatment arm. This occurred in spite of an inter--study HB1C of close to 7% and should be compared to the 40 and other treat-to-target studies where annual hypoglycemic events rates typically range from two episodes per year and upwards. Overall, this study demonstrated a combination treatment with Victoza and Levemir is efficacious, safe, and well tolerated. The trial data including an ongoing six month extension study which is currently on-going and intended to be used for labor expansion purposes for the Novo Nordisk products involved. Finally within diabetes, Novo Nordisk has initiated a Phase I study in healthy people with an ultra fast acting instant analogue intended to provide even faster on-site affection than the currently available fast acting instant analogs. Please turn to slide 11, for an update for haemophilia. Novo Nordisk has just completed a double-blinded, randomized, control, global Phase II trial, evaluating the safety, pharmacokinetics, dynamics and efficacy of an ultra fast-acting recombinant factor VIIa analog known as NN1731 in the treatment of joint bleeds. The efficacy parameters included controlled bleeding, re-bleeding, pain, swelling, mobility and number of trial drug infusions needed. Haemophilia A and B patients with inhibitors were included in the trail which was powered for the primary end-point, safety and included NovoSeven as active comparative treatment. In the trail, NN7231 was found to have a very low rate of adversity points, thus building further up on the large therapeutic window described for this recombinant factor VIIa analog in animal studies. Likewise, the ultra fast action profile of the analog was confirmed with a rapid peak factor VIIa clot activity exceeding that of NovoSeven by several clots and similar dose level and retuning to the levels below that of NovoSeven within one hour. This translated into NN1731 being high effective in stopping joint bleeds at doses of 20 micrograms per kilogram and above and, in fact, all efficacy read-outs trended favorably for NN1731 versus NovoSeven treatment at the highest dose of 80 micrograms per kilogram. The NovoSeven control arm confirmed good efficacy and team safety profile of NovoSeven as observed in previous clinical studies in haemophilia patients with inhibitors. Based on these positive safety and efficacy results in Phase II , regulatory meetings are being set up and the pivotal Phase III trials for NN1731 is being designed aiming to take agency input from the inter Phase II meetings diligence into account. Please turn to slide 12 for an overview of our haemostasis pipeline. A pivotal Phase III trail in factor XIII congenital deficiency investigating a recombinant factor XIII compound has been finalized. This genetic factor XIII deficiency represents a very rare bleeding disorder, with about 600 diagnosed patients worldwide. It is usually diagnosed at birth and affects males and females from all ethnic backgrounds. The trial enrolled 41 patients for one year on a once monthly intravenous recombinant factor XIII treatment regimen. The agent was found to be safe and compared to historical control group of patients who did not received prophylactic infusions, recombinant factor XIII significantly decreased, actually more than decimated the annual number of bleeding episodes required in treatment. Novo Nordisk expects to file the margin authorization with the regulatory authorities in the US and EU in the first half of 2013. With that over to you Jesper for an update on the financials.

Thank you, Mads. Please turn to the next slide. We are pleased with the financial results for the first six months of 2010. The total sales force was 14% as reported and 11% in local currencies. Growth was realized within both diabetics care and biopharmaceuticals, and the primary growth contribution originated from the modern insulins. The gross margin for the first six month of 2010 increased to 80.5% compared to 79.9% in the same period of 2009. This primarily reflects a favorable product mix intake due to the increased sales of modern insulins, but also an impact of the launch of Victoza. Total non-production related cost increased by 14% to $14.369 billion. This development primarily reflects the cost associated with the global launch of Victoza impacting sales and distribution cost and the ongoing Phase III program for the next generation of insulins impacting on the costs. Operating profit for the first six month of 2010 increased by 19% to $9.423 billion reflecting the solid sales growth, the increased gross margin and a higher level of license fees. Net financial showed a net expense of $498 million in the first six month of 2010 compared to a net expense of $511 million in the same period of 2009. The number of full time employees has increased 5% primarily reflecting expansions in the markets in internal operations. Please turn to the next slide for an update on the currency development. This slide shows the development of the US and Japanese yen versus the Danish kroner. Further, the expected annual impact on operating profit of a 5% movement in our key invoice in currencies and the extent of hedging from the same currencies are shown. During 2010 the US dollar and the Japanese yen have appreciated versus the Danish kroner and they remain above the average level for 2009. The positive impact of these developments on our operating profits are to a largely degree countered by loss on our hedging contract which is reflected in mid financials. For the first six months of 2010, the foreign exchange result was an expense of $460 primarily caused by losses on foreign exchange hedging of US dollar due to the appreciation of the dollar versus the Danish kroner. Please turn to the next slide for the financial outlook for 2010. Novo Nordisk now expects sales growth in 2010 of 9% to 10% measured in local currencies. This is based on the expectations of continued market penetration for Novo Nordisk key strategic products within diabetes care including continued global rollout out of Victoza and bio-pharmaceuticals as well as expectations of continued intense competition, potential generic competition to (inaudible) in the US and EU and an impact from the implementation of health care reforms primarily in the US and Europe. Given the current level of exchange rate versus the Danish kroner, the reported sales growth is now expected to be around 6 percentage point higher than the one measured in local currencies. For 2010 growth in operating profit is now expected to be 12% to 15% measured in local currencies, primarily driven by the increased level of sales growth expectations. Given the current level of exchange rate versus the Danish kroner, the reported operating profit is now expected to be 11 percentage points higher than the one measured in local currencies. For 2010, Novo Nordisk now expects a net financial expense of around 1,750 million the current expectation are taking basic full year losses on foreign exchange hedging contracts of around 1.3 billion. In addition, hedging losses of approximately of 550 million have as been deferred for recognition in 2011. The effective tax rate for 2010 is still expected to maintain around 23%. Capital expenditure is expected to be around 3.5 million in 2010 primarily related to investments in the new insulin formulation and filling plant in China and new disposable device capacity in Denmark. Expectations for depreciation, amortization and impairment losses is around 2.7 billion whereas free cash flow is now expected to be close to 12 to 13 billion Danish kroner. The increase in the expected cash flow for 2010 is reflected in an expansion of the share repurchase program for 2010, which is increased with 1 billion to now 8.5 billion Danish kroner. All of the above expectations are based on the assumption of the global economic environment and will not significantly change business conditions for Novo Nordisk here in 2010, and the currency exchange rate, especially the US dollar remain at the current level versus the Danish kroner during 2010. This concludes our presentation of the financial results. Lars will now moderate the Q&A session, please note that there will be a maximum limit of two questions per individual, with the objective of allowing as many conference participants as possible to have the opportunity to ask questions.

Thank you very much. And Lars, please note that this conference is being taped and the replay is made available on our website and operator we are now ready to take the first question, please.

(Operator Instructions). Our first question today comes from Sam Fazeli from Piper Jaffray.

Hi. Good afternoon, gentlemen. Thank you very much for taking my question; I'll try and stick to two. So, really quick one on the Degludec data, was the overall hypoglycemia rate a secondary end point in the trial rather than the nocturnal part? And if that's the case, was that end point met? And also, you mentioned that the number of injections were reduced by at least one. Can you comment on that a little bit more as to whether you actually had a number of patients who needed less? So that, I hope that counts as one question on Degludec. And also, just very quickly, in terms of the factor VII timelines, you did mention you're going to have a meeting with the FDA, etc.; is there any way you could give us a little bit more color as to are you looking for this product on a 2014/2015 base in terms of filing? And also, would you expect it to have the same gross margins as NovoSeven? Lars Rebien Sørensen: Thank you very much; we will count that as two questions. And Mads, the first is surrounding the Degludec, the issue about whether or not the overall hypo rate was a secondary endpoint and whether it was met, then lets put a little color on your comment on number of injections and then perhaps we shall consult of course comment on the timeline for the NovoSeven follow on compound in 1731 and then we will talk about the gross market.

Sam, as regards hypoglycemia, its by definition a secondary end point in the regulatory driven Type I diabetes trial because it's the only one we are doing type 1 diabetes and hence hemoglobin A1C has to be the primary end point to show that we have an effective product. Now it was with some worry that we went into this because we have been to all the literature on premix insulins in the using type 1 diabetes and in all the cases where they have been non-inferior versus basal-bolus treatment they have been distinctly inferior in causing more hypoglycemic episodes, but hypoglycemia measured both as severe hypos overall and nocturnal and what we call confirmed to hypos overall and not nocturnal were secondary endpoints measured according to different diagnostic criteria and indeed whichever way we look at it on all parameters DegludecPlus came out better IE with the fewer hypoglycemic episodes then the basal-bolus. This occurred in spite of the fact that the group with DegludecPlus did not have titration of both the parental NovoRapid in DegludecPlus and the basal because it's in one compound or in one product and the amount of injections was three per day; two NovoRapids and one DegPlus. In the case of the basal-bolus arm Levemir was used as per label in time use once or twice daily, plus three time NovoRapid inclined that the basal-bolus group was receiving four to five injections per day and the DegludecPlus group receiving three injections per day so that means that that was between one and two reductions in injections per patient day. Let me give you a ballpark figure without being too detailed. These are type 1 diabetic individuals so they will have several episodes typically more than five episodes of nocturnal hypos per patient here and that is reduced as we say by more than a third which if you mention that statistically speaking becomes significant and we look at several episodes, it's the same story so I have to say we are very happy with this, it's probably my mind the first time that a combination product has been able to match A: on hemoglobin A1C and B: stronger on hypoglycemia and on convenience. As regards the NN1731, we are now over the next month or two not only targeting, we are de facto having meeting with the FDA, first this conference call phone call and then as face to face meeting to plan the Phase III study, and before we had that completed IE taken into account FDA and EMA inputs scientific advice typically from the EMA, we will not give you the direct time lines obviously Phase III is one single pivotal trial. But the absolute design of that will get back to you I hope next quarter. Lars Rebien Sørensen: And just a comment what expected margins from that product.

Well assuming that product like that will be priced fairly similar to the current product NovoSeven and noting that NovoSeven clearly is among the absolute top gross margin product in our portfolio wants you to assume very similar level of gross margins. That's the prime problem we have at this point in time. We will have to see how the practical use will be in terms of dosing etcetera in the final Phase III before we can comment on the absolute contribution from the problem. Lars Rebien Sørensen: And this is Lars here then of course there is also the competitive phase shift once we get to registration in launch. We allow the generic or bio-similar and on the same products. So you can understand this slightly difficult to project but the pricing strategy will be similar to what we know today with NovoSeven. With regards to DegludecPlus again here that the conclusion is this was and regulatory requirement that is not intended for us to see DegludecPlus as mean say type 1 treatment. So we were encouraged with these results. Thank you very much. Let's have the next question please.

Our next question today comes from Jacob Thrane of Standard & Poor's. Please go ahead. Jacob Thrane - Standard & Poor's: So I will just ask little about the operational expenses levels. What we've seen in the first and second quarters, are those the levels that we should be expecting for the remainder of the year? Or will we see some increases due to the clinical trial activities? That's actually all from me. Thank you. Lars Rebien Sørensen: Certainly we are seeing a significantly higher expense level due to clinical trails. As we have been ramping up and completing our Degludec and DegludecPlus trials and as much as we are also now starting of the [reader] trials and so I think you should expect the similar level of operational expense not an expansion of the sales and distribution cost of similar level of R&D expenses in the second half. Jacob Thrane - Standard & Poor's: So expansion of R&D sort of flat on sales and distribution? Lars Rebien Sørensen: Yes.

Our next question today comes from Peter Verdult of Morgan Stanley. Please go ahead.

Two questions, one for Jesper. Just given the likely change in the competitive landscape in the GLP-1 market in October, can you just walk us through your current thoughts about maintaining or increasing share of voice and basically what else sales force planned broadly speaking to make sure that Novo maintains that? Secondly, just for this is more on Degludec. With regards to the specific or the key head-to-head data against Lantus, is it still alright to think that that data, top line data, should be coming to market around December or January? Can you just confirm that please? Lars Rebien Sørensen: Yes, we will revert with the timeline for the remaining of the time there are going be some forthcoming during the second half of year. So, just give comment on your perspective of the GLP-1 market and competitiveness there.

As you rightly refer to Peter it is primarily an issue related to the sales force in the US. As you also are aware, we have historically adjusted our sales force in the US with the frequency of around every second year and last time, we adjusted sales force increased in preparation for the Victoza launch albeit slightly early, was at the turn of 2008 into 2009. So the turn of this year would be at appropriate time for us to look at our sales force again, also loading that we not only have to continue to push a successful roll-out of Victoza in the US towards the primary care physicians, but at the same time maintain good momentum behind both primarily Levemir and NovoLog in the US so that would call for expansion of the sales force in the US and we are looking at this currently, you should expect an expansion towards turn of the year and what we are trying to, the way we are trying to implement it is in a way where it will have limited impact on the relationship between the physicians and the rep. So it's expected to be an expansion of our current sales forces, primarily direct towards primary care physicians.

And then when would you be able to say a little bit more about data for the Degludec trials.

Well we actually have a multitude of head-to-heads versus insulin (inaudible) but I think the ones that may be of even greater interest in certain other top of course 12 months studies where we go head-on in type II diabetes and also in type I diabetes. Two of them are with 1000 patients and one of them is with around 600 in type I. And it is true that they do report around the turn or they do complete around the turn of the year, to what we are speaking of is an extremely busy first quarter next year whether you are a medical writer, a statistician or for that matter even management because (Multiple Speakers) instance. So, that is true Peter, those are the timelines and they will have to change.

Our next question comes from Gavin MacGregor from Credit Suisse.

Just two quick financial ones, firstly, on the license fees, I know that 1Q had a one-off but generally it looks like that's going to come in a bit higher than your previous guidance of 550 so if you just, if that's now a bit low? And then looking beyond 2010, whether we should continue at a slightly level? And then secondly, any chance you can give us some sort of break out on or what the US Victoza sales if any were in Q2 just to try and get an underlying growth in Europe? Lars Rebien Sørensen: That license fees and outlook for 2011 on license fees?

The license fees for this year is still expected to be in the ballpark of $550 million and that as you rightly noted that included a $100 million non-recurring one time fee in relation to an IP settlement so you could say the underlying level of intellectual property income is in the ballpark of $450 million which I also believe at present is a reasonable guidance for the level for 2011. And the second. Lars Rebien Sørensen: Yeah, the second question, it deals with the qualities of the US business, we have not decided in this early part of the loss and also disclose the quarter which, it is such that we can already now see that the contribution for the US businesses is very, very significant and what we have stated in the announcement is that we have seen significant re-ordering meaning, that we still have the predominant part of the sales in the first half in the first quarter for a very significant re-ordering in the second quarter. So you should expect going forward that we would see a dominating heart of the business for Victoza coming from the US and we should get into regular quarters where you see gradual growth the demand builds up.

Our next question comes from Henrik Simonsen - SEB.

Lars, just to translate your healthcare reform percentage into real money, if we take US and Europe together, I would assume you have a hit to the tune of say round about 750 million this year, and then rising, correctly to1.5 billion next year; is that the right way to interpret your numbers? Lars Rebien Sørensen: Yes that is approximately the right number it could be actually be little bit higher, because we are seeing a growth of the impact in the US, estimating the impact in Europe is somewhat difficult. If you are making reference to those that have been implemented then I think you are right. We have to assume that the things will implemented in some other countries, where we have not seen legislation come through. So you might actually be higher than what you are suggesting?

For next year of course Lars Rebien Sørensen: Yes.

Then a question on the side effect side of Victoza. I counted around, a little more than 100 million new scripts on Victoza dispensed for the first 25 weeks. In post marketing reports, have you seen any significant reports on pancreatitis and C-cell carcinoma coming in? Lars Rebien Sørensen: Mads, this is your expertise area.

No. We have not seen hemorrhagic necrotizing pancreatitis, and we have not seen medullary thyroid carcinoma.

Right, but you have seen pancreatitis, I guess?

Actually I do get these reports, it's not something that I knew that well, but I'll go and have a check Henrik. Right now we meet once a month to look at our own safety database based on everything reported from Europe and US and that's nothing concerning related to pancreatitis and for sure no cases of the hemorrhagic necrotizing. So the safety profile is completely undisturbed as we concluded it previously.

I just want to actually and there were no reports of medullary cancer, is that correct?

That's correct. Absolute correct, yeah. Lars Rebien Sørensen: Thank you very much, Henrik. Next question please.

We now have Richard Vosser from JPMorgan, please go ahead.

Basically, on Victoza, I'm just wondering whether there was any stocking in this quarter's figures; obviously not in the US, but in terms of the rest of world sales as you rollout into other markets. I'm just wondering where we are in terms of the rollout in the ex-US countries; if you could give us a sort of a percentage in terms of the total rollout that you are targeting, that would be useful. And then secondly, on Victoza as well, just in the US, I'm wondering how much of a contribution you're seeing from endocrinologists relative to primary care physicians. Those two questions would be great. Thank you very much. Lars Rebien Sørensen: Let me start with the last question first, it is so that in most market indeed in fact also in United States, as we speak the predominant part of the strengths are coming from the endo from the specialists. As we have done a classic rollout where we bring the specialists on board and then we rollout later to the PCPs, and we're standing right at that junction right now in United States where we're going to going to broaden out and reach more broadly into the PCPs. We've also just recently had our detailing it approved by DDMAC. So there is still some improvement in our marketing efforts in the United States to come. With regard to the rollout in the other markets, we have rolled out in 14 European countries; we have only two months rollout in France which is the major European market. It's a little bit difficult for me to calculate at this point in time how larger proportion of the remaining market potential we have covered. We have no sales for Japan and we are expecting a significant business opportunity for the product in Japan and we of course also are expecting large markets in the overseas in Turkey and in China to be meaningful to the product. So I think we are still only scratching the surface but the main part we still retain is the US part of the business and you are going to see going forward that the predominant part of the business will come from the US.

Our next question today comes from Michael Novod of Handelsbanken, please go ahead.

Yes, just some few follow-up questions; one is to the sales force expansion. Will the sales force expansion by the end of 2010 mean that you are now also then set for the launch of Degludec and DegludecPlus? Or should we expect you also to add on significant sales force around 2012 before the launch of those two new insulins? Then perhaps you could elaborate a bit more on both international operations and also on Japan. Are there any significant changes in trends, competitive pressure in international operations that we should be worried about? And then also for Japan, when do you see this extremely, say you can say, sluggish trend change? Do you see any signs of that changing right now? Lars Rebien Sørensen: It's a little bit delicate to comment in too much in detail about the sales force expansion as it is a key tactical issue for us. But and what we have noticed up until now in United States which is that the most important observation is that our modern insulin business has not deteriorated as a result of an over focus on Victoza. So what will determine the way we deal with the sales force expansion at the end of the year will depend on one, how the market reacts at that point in time i.e. are we still having a pull through of our modern insulins as a result of the increased awareness in the physicians office of our company and our brand and our portfolio. Number two, how is the competitive situation? We will be guiding you to an expansion in connection with the full results of the sales force in United States and elsewhere reaches also capable I would suggest of launching Degludec and DegludecPlus. So, the next step we take as we don't want this drop of sales force too often we'll be also able to deal with the launch of Degludec and DegludecPlus. But then look at your second part of your question IO in Japan. In IO, there are a couple of pressures, there are pressures from healthcare reforms and then parts is the result of that also pressures from our generic manufacturers. We are talking primarily in China and in Russia. You know that we have been significantly impacted in our biopharma business in Russia as a result of local initiative to favor local manufacturing of essential drugs and they are actually coming out of healthcare reform and strategic initiatives at the policy level by the government. So you have to combine those when you look at the IO markets. Then you will also have the normal run of the mill healthcare reforms in such major markets as Turkey and other markets that are significant to us that are facing the fiscal pressures that we also feel in Europe. With regards to Japan, the sluggish development we have, we've increased our sales force in the beginning of this year and towards the end of the last year. We hope of course that we will see a stabilization. We seem to notice stabilization in the trend of our insulin market share. But the Japanese market will remain sluggish until we see the impact from Victoza and the eventual launch of Degludec and DegludecPlus. That is the nature of our business and the price reforms that are having in Japan. Thank you very much. Next question please.

The next question comes from Martin Parkhøi of Danske Bank. Please go ahead. Martin Parkhøi - Danske Bank: Two questions from me. Firstly with respect to DegludecPlus, just if you can make some comments on the weight gain with DegludecPlus compared with Levemir. Anything we should be concerned about that? And maybe you also can comment what should we expect in comparison with Lantus given that Levemir probably already had a better weight profile than Lantus. And then my second question is regarding your long-term guidance. Now we are half way through 2010, your expectation now for 2010 is better than your initial guidance. Are you seeing anything which has changed your view on the long-term guidance that you still expect the 15% growth on operating profit and 2010 is the only low year due to the investment in retail Victoza launch? Lars Rebien Sørensen: Mads would you comment on the extent that you can, of course, first of all the observations are of the narrow amount of patient and is your understanding of why we have weight loss with Levemir; perhaps not as clear as we would like to. What's your take on this and also comparing to Lantus.

Yes well you can say Levemir, if you look at the totality of the randomized control [assets] being conducted, its probably the only insulin that has panned out as being either weight neutral or at least having weight benefits compared to all other insulins being Lantus in patient against which it has been tested on the one hand, at the same time it is at this highly beneficial hypoglycemia profile by reducing hypoglycemic episodes. And you can say so much surprisingly, we actually sold reduction to hypoglycemia for DegludecPlus given even in the combination product, up against Levemir which was a positive surprise. On the body weight side, what we are speaking about is a kilogram and a kilogram over half a year is the same magnitude of the benefit that Levemir would have against Lantus or (inaudible). So that it is a possibility but not a proven fact that the only insulin that confers to specific weight benefit would be Levemir and where Degludec really pans out is the low glycaemic variability, the less frequency of hypoglycemia, more convenience, longer action profile, etcetera, etcetera. But that remains to be seen, we have 16 trails to be analyzed and completed before we know the full profile on the specific parameter. Lars Rebien Sørensen: So, and then this is Lars here, before I give the word to Jesper. On his views on the long term guidance, you will recall that we announced that this year would be a challenging year for a number of reasons, one more that we're expecting a patent run off of branding; we are expecting impact, we were expecting impact, US healthcare reform and well you could say that impact on both of these two risk factors have been modest, more modest than we anticipated but they have kind of be felt entirely and fully in 2011. So the lower than the long-term guidance of performance if you want in 2010 is going to be somewhat more positive and for then we are going to be having some pressures next year. But Jesper, will you care to comment on this sort of more long-term?

The final comment there would be that you can see now in the local currency growth estimate we are giving that the high end of that is I think the 15% local currency growth objective that we have in longer term feature which we believe is quite expected to deliver in a year where we are rolling out a future blockbuster like we chose this. So we are confident in the financials we see this year that they are well in line with the long-term guidance we gave. In terms of obtaining the long-term targets for 2010, of course clearly that is being positively impacted by the significant increase we've had in all major currencies and not only the US dollar and yen but also a number of significant other currencies which we do not hedge, have actually moved in our favor in 2010. Overall, that could make it possible, potentially for us to reach the long-term target. We'll have to see when we get to the full year report and assess whether we can reach the target we've set. If that's feasible then we'll have to look at new targets and then provide them, and again you should expect them to be announcement when we have realized the old target. So whether that's going to be '10 or '11 will depend on a few swing factors including currencies. Lars Rebien Sørensen: I think that is worth noting. What I just mentioned before that, as you're not seeing that we have such a big market presence and particularly in the United States but also elsewhere that we can launch big products without significant immediate expansions of our sales force, and yet not lose traction on the last part of the portfolio. So I would assess that we in the future as we launch product in the diabetes area being it Degludec/DegludecPlus that we can do this with relatively modest occasional increases in sales force because it is our home field, we have strong position, we have portfolio approach and therefore I think we should be in a good position to retain our objective of growing operating profit of 15% on average year-by-year with the exception of certain years where there are patent roll outs; where there are certain one-off elements or where we have significant headwind from the currencies. Lars Rebien Sørensen: Thank you, next question please.

We now have Stuart Harris of New Street Research, please go ahead.

Two quick questions. When the ACCORD study was published a couple of years ago, there was some chatter amongst diabetologists, that we could see a slowdown in insulin volumes not treating patients as aggressively; it never really came. You still see some diabetologists talking about that. Is it ever going to have any effect, do you think? Or is it something we should just completely put behind us because maybe nobody gets treated in the real world that aggressively anyway? Is it something that we can completely ignore? And secondly, on the whole Lantus and cancer concern, we're not really seeing much in numbers in terms of share shifts, etcetera. What's your take on the feeling amongst patients and diabetologists as to how real it is? Are you getting many questions asked? How do you think that will pan out going forward? Thank you. Lars Rebien Sørensen: Mads, the ACCORD study and the aim of trying to drive HP1AC very, very low and with that incurred risks and whether or not that has in the real world of everyday practice impacted the insulin usage and then your sentiment on the Lantus and cancer issue, whether or not that has had any significant impact?

Well actually that's a good question on the ACCORD. As you probably would have followed, things are emerging that maybe even more complicated and it was not affect that people bringing down the A1C fast caused them to suddenly die from a sudden death and so on. What turns out to be more the case, is that those who were in the [intensify] treated group and who failed to achieve the (inaudible) i.e. those who is despite being in intensive group were above seven, they have an increased perpetuity towards hypoglycemia and death. So the conclusion there is that it may well more be the glycemic variability is difficult to treat patients that drive this problem. If that is true which I think is the sentiment among many care workers at this point. Then any drop that reduces glycemic variability by having a low day-to-day variance or variability between and within patients is a preferred drug and in that regard, Degludec and DegludecPlus will come in extremely handy. So we are not seeing any negative sentiment neither towards the target of going below seven nor to what's the usage of insulin. And that is fine in line with the latest evolutions from the ACCORD study. As regards the diabetes and cancer relationship, the ADA and the American Cancer Society consensus report that came out in diabetes care in June does say that we need more studies to see whether Lantus is associated with an increased risk of cancer. And they do overall say that for the average patient cancer should not be the determining factor of which product to use. When that is said, we have a situation where of course it's still unclear and that means we need more studies and we know the company per se i.e. Sanofi-Aventis, are doing their studies as I believe was requested by some regulators but also we are aware that others in the academic society and community are doing database analysis and registry analysis, and we will see you what comes out of those down the road I think the jury is still out on this one. Lars Rebien Sørensen: An interesting observation here , this is Lars Rebien here adding in it seems to be the consensus that high levels of insulin do increase the rate of cancer, being a high levels of insulin injected exogenously or endogenously, and the interesting aspect here is that would bodes very well for a combination therapy between insulins and GLP-1 where you get the glucose lowering effects, the glucose dependent lowering effect by the GLP-1 which prevents the hypos, and you get the lower risk of cancer because the lower dosage of insulins. So there is lot more to be seen here but I think there are combinations therapies that may go a long way in terms of giving a better risk profile for people with type 2 diabetes in general.

We now have Lars Hatholt from Nordea Markets. Please go ahead.

I had a question regarding your guidance, where you've said that some of the explanations for the raised guidances that you now see a delay of generic competition on Prandin. Could you be more specific about your expectations that you put into your guidance regarding this generic competition on and the effect on Prandin sales in 2010? And furthermore, regarding your guidance on net financial expense, that you put it down pretty significantly you could say. I'm aware that of course you are losing on your hedging contracts on because of the appreciation of the dollar, but there must be some other explanations I think because we haven't seen that extent of dollar appreciation since last reporting as far as I can see it. So, yes, that was my questions. Thank you. Lars Rebien Sørensen: Two questions. Yes, I think since it's not yet legal matter, your assessment of where we are with Prandin and what we had actually put in terms of assumption for the year and then the significant adjustment of net finance where you arrive that from.

First on the assumption around surrounding the generic competition for Prandin in both US and Europe. It was our anticipation that we would have generic competition occurring both in US and in Europe by mid year, and we have had it in Europe and Germany but the key markets of both France and Italy are coming here in the third quarter and that means add significantly. I know that it's $500 million out of the deal of NovoSeven sales in Europe which are related to Italy and France and there will be generic competition. As for US, we have a limited trial ongoing in US and there was hearing in the court case in June and it was however not concluded and that court case is continuing into August, and depending on the outcome of that trial that could be generic in competition occurring in the later half of this year, and of course you see that we bring forward a range and that range include that this trial could develop both favorable and non-favorable for Novo Nordisk. So that as precise as you can get it from me. In terms of the finance, it's rightly noticed that the adjustments we've made to our net financials are over and above the negative impact from the hedging of currencies even addition more than couple of hundred million in interest expense related to non-recurring tax issues which we don't expect to be relevant for subsequent years of that remains to be seen. Lars Rebien Sørensen: Thank you very much Jesper and then ladies and gentlemen I have to disappoint you. One last question and then we have to be moving on. Seeing some of you perhaps in the afternoon. Last question please?

Our last question today comes from Tim Race of Deutsche Bank.

Just two questions, if I may, though? The first one, the ultra fast acting insulin analog, can you just talk around why you're developing this product? What you might need for new product here? Sort of what was on the obvious need for a new patent and price point in the future? And then perhaps just, maybe I missed this, but was there any stocking of human insulin in China and any over sort of stocking effects on modern insulins that you can talk about at all? Lars Rebien Sørensen: Mads, what are the objectives and needs I think from a patent perspective over and beyond what commercial needs we might have to continue building on a franchise which is quite attractive in terms of the short-acting or ultra-fast insulin analog.

Well, I think if a diabetes patient, your need for an onset of insulin action is actually rather fast and with the insulin analog we noted today like NovoRapid, we've gone from a max action profile going from two hours in human insulin down to one hour on NovoRapid. But it seems as if a even further acceleration of the onset affection while trying to retain the offset affection more as this would analogs would provide the most physiologically ideal profile for the glycemic excursions that we have seen people with diabetes. So that is indeed a potential unmet patient need. But, of course it depends on also proving the benefits typically in the form of a less late, high proglycaemias and potentially less body weight-gain. Lars Rebien Sørensen: Thank you Mads, I have to apologize I didn't answer before about Victoza stocking that no-one has no significant stocking effect in the second quarter because the most significant one was the one we had in the US in the first quarter. But apart from that, Jesper, any unusuals in the second quarter that we should note.

No it's been remarkably a stable quarter so we have not noted any levels of stock piling, neither for human insulin nor for modern insulin. So basically, the reported sales for Q2 has a, except for the adjustment related to Victoza and the pipeline filling there in Q1, has a pretty accurate reflection of the underlying market growth surrounding our products. So you could take that as the best estimate for market growth. Lars Rebien Sørensen: Well thank you then to my colleagues, and thank you ladies and gentlemen for your attention. This concludes our conference call, and we thank you for participating and feel free to contact our Investor Relations officers to ask any follow-up questions you may have. We are looking forward to meeting as many of you as we can during our investor road show over the next couple of weeks, and also please remember that our Investor Relations road show presentation in London tomorrow can be followed live by webcast as well. Thank you very much and bye for now.