1st Quarter Results

Novo Nordisk increased sales by 11% in the first quarter of 2005

 

o        Sales of insulin analogues increased by 67%

o        Sales of NovoSeven® increased by 10%

o        Sales in North America increased by 27%

• Operating profit increased by 1% to DKK 1,512 million, reflecting a negative impact from the depreciation of the US dollar and the absence of non-recurring income in the first quarter of 2005. Adjusted for the impact from currencies and changes in the level of non-recurring income, underlying operating profit increased by around 15%.

• Net profit increased by 17% to DKK 1,232 million and earnings per share (diluted) increased by 19% to DKK 3.70.

• In January 2005, Novo Nordisk filed an application for European marketing approval for the use of NovoSeven® in blunt trauma based on clinical phase 2 data. Novo Nordisk has now received preliminary information that additional clinical data may be needed. Novo Nordisk is in consultation with EMEA (The European Medicines Agency) about these issues and expects a conclusion in the second half of this year. To further support the filing Novo Nordisk has decided to initiate a confirmatory clinical trial.

Financial statement for the first three months of 2005

This interim report has been prepared in accordance with International Financial Reporting Standards (IFRS). The accounting policies used in the interim report are consistent with those used in the Annual Report 2004, which includes the expense impact of share-based payment schemes. The interim report has not been audited.

Amounts in DKK million, except average number of shares outstanding, earnings per share and full-time employees.

 

Sales development by segments

 

Sales increased by 13% measured in local currencies. Growth was realised both within diabetes care and biopharmaceuticals - primarily driven by strategically important products such as the insulin analogues as well as NovoSeven®.

 

 

 

Sales growth was realised in all regions, with North America, now constituting 29% of total sales, as the main growth driver.  

 

Diabetes care

Sales of diabetes care products increased by 16% in local currencies compared to the first three months of 2004 and by 15% in Danish kroner to DKK 5,170 million.

 

Insulin analogues, human insulin and insulin-related products

Sales of insulin analogues, human insulin and insulin-related products increased by 19% measured in local currencies and by 17% to DKK 4,794 million in Danish kroner. All regions contributed to growth both measured in local currencies and in Danish kroner.

 

Sales of insulin analogues increased by 67% in local currencies and by 63% in Danish kroner to DKK 1,448 million in the first three months of 2005. All regions realised solid growth rates, with North America as the primary growth driver. Sales of insulin analogues contributed with 69% of the overall growth in local currencies and now constitute more than 30% of Novo Nordisk's total sales of all insulin and insulin-related products.

 

Sales in North America increased by 46% in local currencies in the first three months of 2005 and by 40% in Danish kroner. The sales growth reflects a solid penetration of the insulin analogues NovoLog® and NovoLog® Mix 70/30, with Novo Nordisk now holding more than 35% of the total insulin market and over 20% of the analogue market, measured by volume. Furthermore, sales of human insulin products also increased as a consequence of increased volume as well as higher prices.

Sales in Europe increased by 7% in local currencies and by 8% in Danish kroner, with growth being driven by the portfolio of insulin analogues. The growth rate for insulin sales in the first three months of 2005 was negatively impacted by accelerated buying behaviour by patients in Germany in the fourth quarter of 2004. Moreover, insulin sales in Europe have been negatively impacted by healthcare reforms in several countries.

 

Sales in Japan & Oceania increased by 17% in local currencies and by 14% in Danish kroner. Growth is primarily driven by sales of NovoRapid® and NovoRapid® Mix 30, supported by a continued conversion from durable to prefilled devices, but is also reflecting a reduction in wholesalers' inventories in the same period last year in anticipation of mandatory price reductions effective as of 1 April 2004.

 

Sales within International Operations increased by 22% in local currencies and by 19% in Danish kroner. The main growth driver is sales of human insulin, driven especially by China, while insulin analogues continue to add to overall growth.  

 

Oral antidiabetic products

Sales of oral antidiabetic products decreased compared to the same period in 2004 by 7% in local currencies and 10% in Danish kroner to DKK 376 million. The decrease was mainly caused by an inventory build-up during the first quarter of 2004 by some US wholesalers. The sales development in Europe and International Operations was positive compared to the same period last year.   

 

Biopharmaceuticals

Sales of biopharmaceutical products increased by 6% in local currencies compared to the first three months of 2004 and by 4% measured in Danish kroner to DKK 2,088 million.

 

NovoSeven®

Sales of NovoSeven® increased by 10% in local currencies compared to the same period last year. Measured in Danish kroner sales increased by 7% to DKK 1,090 million. Sales growth for NovoSeven® was primarily driven by North America, followed by International Operations.

 

The sales growth of NovoSeven® was driven by several factors during the first three months of 2005. Due to the high penetration within spontaneous bleeds in congenital inhibitor patients, the predominant part of the growth within the inhibitor segment has been generated by treatment of acquired haemophilia patients and usage of NovoSeven® in connection with elective surgery. Treatment of spontaneous bleeds for congenital inhibitor patients remains the largest area of use. In addition, sales are perceived to have been positively affected by increased investigational use of NovoSeven® influenced by data from clinical trials from the NovoSeven® expansion programme.

 

Growth hormone therapy (Norditropin® and Norditropin® SimpleXx®)

In local currencies sales of Norditropin® and Norditropin® SimpleXx® products increased by 10% compared to the first three months of 2004. Measured in Danish kroner sales increased by 8% to DKK 596 million, and the sales growth was primarily driven by North America.

 

Other products

Sales of other products within biopharmaceuticals, which predominantly consist of hormone replacement therapy (HRT) related products, decreased by 7% in local currencies and by 8% in Danish kroner to DKK 402 million. For the first three months of 2005, global sales continued to be negatively impacted by the overall contraction of the HRT market.

 

Costs, licence fees and other operating income

The cost of goods sold increased by 12% to DKK 2,085 million, leaving the gross margin at 71.3%, compared to 71.5% in the first three months of 2004. The gains from an improved product mix as well as productivity increases were more than offset by an adverse currency impact of approximately 0.5 percentage point.

 

Total non-production-related costs increased by 10% to DKK 3,728 million. The increase in non-production-related costs reflects especially costs related to sales and distribution, which increased slightly more than sales. This is primarily a consequence of the increase in the US diabetes care sales force that was implemented during the second quarter of 2004.

 

Licence fees and other operating income in the first three months of 2005 were DKK 67 million, compared to DKK 232 million in the same period last year when a non-recurring settlement income related to Pfizer's early termination of an out-licence agreement for certain HRT products in the US was recorded.

 

Net financials

Net financials showed a net income of DKK 276 million in the first three months of 2005 compared to DKK 87 million in the same period in 2004. As previously reported, Novo Nordisk has recorded a gain of around DKK 250 million from the divestment of the shareholding in Ferrosan A/S. Included in net financials are foreign exchange gains of DKK 38 million compared to a gain of DKK 138 million in the same period last year. The results from foreign exchange hedging in the first quarter of 2005 were negatively impacted by the IFRS mandated mark-to-market valuation of foreign exchange options.

 

Outlook 2005

The expectation for sales growth in 2005 measured in local currencies remains between 10-15%, whereas reported sales growth is still expected to be around 10%. Reported operating profit is still expected to grow by around 5% reflecting a significant impact from the depreciation of the US dollar and related currencies and the absence of non-recurring income in 2005. Excluding the impact from currency movements and non-recurring items, expectations for underlying operating profit growth remain in line with the long-term financial target of growing operating profit by 15%.  

 

 

Novo Nordisk now expects the tax rate for 2005 to be approximately 31%, 1 percentage point lower than previously expected, as a consequence of the tax-exempt status of the capital gain from the divestment of shares in Ferrosan A/S.

 

However, provided that the Danish parliament (Folketinget) formally approves a recently proposed change of Danish corporation tax laws during 2005, Novo Nordisk expects the tax rate for 2005 to be approximately 29%, as a consequence of:

      a reduction of the tax rate by approximately 1 percentage point caused by a reduction in the Danish corporate income tax rate from 30% to 28% with effect from 2005 onwards; and

      a non-recurring reduction of the tax rate by approximately 1 percentage point due to a re-evaluation of the company's deferred tax liabilities as a consequence of the reduction in the Danish corporate income tax rate.

 

Novo Nordisk still expects capital expenditure of close to DKK 4 billion in 2005. Depreciations, amortisation and impairment losses are still expected to be around DKK 1.9 billion, whereas free cash flow is now expected to be around DKK 2.5 billion.

 

Novo Nordisk has hedged expected net cash flows in relation to US dollars, Japanese yen and British pounds for 14, 11 and 9 months, respectively. The financial impact from currency hedging is included in 'Net financials'.

 

All of the above expectations are provided that currency exchange rates remain at the current level for the rest of 2005.

 

Research and development update

 

Diabetes care

The European Commission has extended the marketing authorisation for Levemir® (insulin detemir) to include treatment of diabetes in children and adolescents 6-17 years of age. Moreover, an extended authorisation has also been received in Europe for NovoRapid® (insulin aspart) to include treatment of diabetes in children 2-6 years of age.

 

In Japan, a phase 2 clinical trial with liraglutide has been started, and some 200 patients are expected to be included in the trial. Novo Nordisk still expects to start phase 3 clinical trials with liraglutide in the US around the turn of the year.

 

The findings from the pharmacokinetic and pharmacodynamic (PK/PD) analysis in connection with the phase 3 safety study for the AERx® iDMS project conducted during 2003-2004 show that the impaired regulation of meal-related plasma glucose is not caused by formation of insulin antibodies. Hence, the lower than expected post-prandial efficacy is likely to be a result of the chosen comparator insulin, which was subcutaneously injected NovoRapid®. Furthermore, data from the phase 3 safety study reveals that patients treated with pulmonary insulin over a 24-month period obtain a similar level of long-term glycaemic control, as measured by glycosylated haemoglobin A1c (HbA1c), compared to patients on an intensified treatment regimen of subcutaneously injected NovoRapid®.

 

Following additional strip and device optimisation and validation, Novo Nordisk expects to make the decision about the re-initiation of the remaining phase 3 clinical studies for the AERx® iDMS project at the turn of the year.

 

Novo Nordisk has decided to cease further clinical development of NN2501, an oral glucagon receptor antagonist, with the potential ability to inhibit excessive glucose production in the liver of patients with type 2 diabetes. Clinical data from the phase 1 trial revealed that NN2501 did not demonstrate a competitive glucose lowering profile. No safety concerns were identified.

As previously communicated, Novo Nordisk filed an application with EMEA (The European Medicines Agency) in January 2005 for marketing approval for the use of NovoSeven® in blunt trauma. The filing was based on results obtained from a phase 2 clinical trial. Given prior discussions with the European regulatory authorities, Novo Nordisk found it prudent to apply for marketing approval on this basis as this would have led to an early approval to the benefit of patients and the company.

 

Preliminary information from EMEA now indicates that additional data related to efficacy/safety may be needed. Novo Nordisk is in consultation with EMEA about these issues and expects a conclusion in the second half of this year. To further support the filing, Novo Nordisk has decided to initiate a confirmatory clinical trial in the EU and other countries outside the US. This trial is expected to start mid-2005.

 

In the US, Novo Nordisk is in the process of finalising the details of the trial protocol for the use of NovoSeven® in trauma. Based on ongoing consultations with FDA (the US regulatory authorities), the clinical trial is expected to encompass around 1000 patients. Pending final FDA approval, the trial is expected to be initiated in the third quarter of 2005.

 

Novo Nordisk expects to file an application in Europe in the third quarter of 2005 for marketing approval for the use of NovoSeven® in connection with intracerebral haemorrhage (ICH). The filing will be supported with additional safety data from a confirmatory clinical trial. 

 

This confirmatory clinical trial is still expected to be initiated around mid-2005. In addition to supporting the European filing, it is also expected to generate the necessary clinical documentation for filing with FDA for regulatory approval in the US of the use of NovoSeven® in connection with ICH. The trial is expected to involve around 450 patients and to involve clinical centres in the US, Europe as well as other countries.

 

Within HRT, a phase 3 clinical trial with an ultra-low dose version of Vagifem®, Novo Nordisk's topical oestrogen product, has been initiated in the US. The study will involve around 600 patients and a treatment period of twelve months. The results from this study are expected to support the move towards lower-dose versions of HRT products.

 

Equity

Total equity was DKK 25,729 million at the end of the first three months of 2005, equal to 70.5% of total assets, compared to 70.8% at the end of 2004. Please refer to appendix 5 for further elaboration of changes in equity during 2005.

 

Holding of treasury shares

As per 27 April 2005, Novo Nordisk A/S and its wholly-owned affiliates owned 23,174,069 of its own B shares, corresponding to 6.53% of the total share capital.

 

Novo Nordisk expects to accelerate the ongoing DKK 5 billion share repurchase programme announced in April 2004, which was originally communicated to last until 2006. As a consequence of the solid free cash flow generation in 2004 as well as the improved expecta-tions for free cash flow generation in 2005, Novo Nordisk now expects to repurchase shares with a market value equivalent to the remaining DKK 3 billion of this programme during 2005.

 

Sustainability issues update

On 31 March 2005, Novo Nordisk was awarded the MIA Prize 2005 - 'Diversity in Working'. This award is given to companies that take the lead in promoting diversity and consistently prevent discrimination. It was launched in 2004 by the Danish Institute for Human Rights with support from the European Union, which has adopted new rules ensuring equal opportunities for all regardless of gender, ethnic background, religion, handicap, age or sexual orientation. In its motivation, the jury highlighted the fact that Novo Nordisk has realised a compassionate and respectful people policy in an exemplary way, viewing diversity and equal opportunities as requirements for competitive strength.

 

Legal issues update

Novo Nordisk Inc, together with the majority of hormone therapy product manufacturers in the US, is a defendant in product liability lawsuits related to Novo Nordisk's hormone therapy products. These lawsuits currently involve a total of 31 plaintiffs who allege to have used Novo Nordisk's hormone therapy products. These products (Activella® and Vagifem®) have been sold and marketed in the US since 2000. Until July 2003, the products were sold and marketed exclusively in the US by Pharmacia & Upjohn Corporation (now Pfizer Inc). According to information received from Pfizer an additional 11 individuals allege, in relation to a similar lawsuit against Pfizer Inc, that they have used Novo Nordisk's hormone therapy products.

All of these proceedings are in their preliminary stages; however, Novo Nordisk is not expecting the claims to impact Novo Nordisk's financial outlook.

 

At 14.00 CET today, corresponding to 8.00 am New York time, a conference call will be held. Investors will be able to listen in via a link on novonordisk.com, which can be found under 'Investors - Download centre'. Presentation material for the conference call will be made available approximately one hour before on the same page.

 

Forward-looking statement

The above sections contain forward-looking statements as the term is defined in the US Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of events such as new product introductions, product approvals and financial performance.

 

Such forward-looking statements are subject to risks, uncertainties and inaccurate assumptions. This may cause actual results to differ materially from expectations. Factors that may affect future results include interest rate and currency exchange rate fluctuations, delay or failure of development projects, production problems, unexpected contract breaches or terminations, government-mandated or market-driven price decreases for Novo Nordisk's products, introduction of competing products, Novo Nordisk's ability to successfully market both new and existing products, exposure to product liability and other lawsuits, changes in reimbursement rules and governmental laws and related interpretation thereof, and unexpected growth in costs and expenses. 

 

Risks and uncertainties are further described in reports filed by Novo Nordisk with the US Securities and Exchange Commission (SEC) including the company's Form 20-F, which was filed on 21 February 2005. Please also refer to the section 'Risk Management' in the Annual Report 2004. Novo Nordisk is under no duty to update any of the forward-looking statements or to conform such statements to actual results, unless required by law.

Management statement

Today, the Board of Directors and Executive Management reviewed and approved the interim report and accounts of Novo Nordisk A/S for the first quarter of 2005.

The interim report and accounts have been prepared in accordance with International Financial Reporting Standards and the additional Danish disclosure requirements applying to listed companies' interim reports and accounts.

In our opinion the accounting policies used are appropriate and the overall presentation of the interim report and accounts is adequate. Furthermore, in our opinion the interim report and accounts give a true and fair view of the Group's assets, liabilities, financial position and of the results of the operations and consolidated cash flows for the period under review.

 

Bagsværd 28 April 2005

 

Contacts for further information

 

 

 

Further information on Novo Nordisk is available on the company's internet homepage at the address: novonordisk.com

Appendix 1: Quarterly numbers in DKK

 

(Amounts in DKK million, except number of employees, earnings per share and number of shares outstanding.)
								% change
	2005		2004					Q1 2004 -
	Q1		Q4	Q3	Q2	Q1		Q1 2005
Sales	7,258		7,944	7,408	7,164	6,515		11%
Gross profit	5,173		5,783	5,318	5,219	4,661		11%
Gross margin	71.3%		72.8%	71.8%	72.9%	71.5%
Sales and distribution costs	2,139		2,364	2,039	1,991	1,886		13%
Percent of sales	29.5%		29.8%	27.5%	27.8%	28.9%
Research and development costs	1,106		1,243	1,086	983	1,040		6%
Percent of sales	15.2%		15.6%	14.7%	13.7%	16.0%
Administrative expenses	483		534	502	431	477		1%
Percent of sales	6.7%		6.7%	6.8%	6.0%	7.3%
Licence fees and other operating income (net)	67		213	59	71	232		-71%
Operating profit	1,512		1,855	1,750	1,885	1,490		1%
Operating margin	20.8%		23.4%	23.6%	26.3%	22.9%
Share of profit/(loss) in associated companies	238		(20)	12	(40)	(69)		-
Financial income	114		491	125	104	178		-36%
Financial expenses	76		186	52	44	22		245%
Profit before taxation	1,788		2,140	1,835	1,905	1,577		13%
Net profit	1,232		1,462	1,226	1,272	1,053		17%
Depreciation, amortisation and impairment losses	412		549	576	387	380		8%
Capital expenditure	723		1,092	873	642	392		84%
Cash flow from operating activities	1,343		2,103	2,426	1,710	1,350		-1%
Free cash flow	614		903	1,533	956	886		-31%
Equity	25,729		26,504	25,557	24,827	23,942		7%
Total assets	36,497		37,433	35,587	34,248	33,838		8%
Equity ratio	70.5%		70.8%	71.8%	72.5%	70.8%
Full-time employees at the end of the period	20,942		20,285	20,001	19,631	19,179		9%
Diluted earnings per share (in DKK)*	3.70		4.37	3.63	3.74	3.10		19%
Average number of shares outstanding (million)*
- used for diluted earnings per share	333.2		334.7	338.2	339.8	339.8		-2%
Sales by business segments:
Insulin analogues	1,448		1,332	1,252	1,037	886		63%
Human insulin and insulin-related sales	3,346		3,944	3,593	3,640	3,206		4%
Oral antidiabetic products (OAD)	376		403	445	379	416		-10%
Diabetes care total	5,170		5,679	5,290	5,056	4,508		15%
NovoSeven®	1,090		1,170	1,086	1,084	1,019		7%
Growth hormone therapy	596		651	559	557	550		8%
Hormone replacement therapy	328		364	396	389	339		-3%
Other products	74		80	77	78	99		-25%
Biopharmaceuticals total	2,088		2,265	2,118	2,108	2,007		4%
Sales by geographic segments:
Europe	3,006		3,364	3,057	3,106	2,884		4%
North America	2,092		1,816	2,098	1,837	1,727		21%
International Operations	1,128		1,559	1,171	1,134	980		15%
Japan & Oceania	1,032		1,205	1,082	1,087	924		12%
Segment operating profit:
Diabetes care	750		1,047	746	936	675		11%
Biopharmaceuticals	762		808	1,004	949	815		-7%
*) For Q1 2005 diluted earnings per share/ADR of a nominal value of DKK 2, which include options on Novo Nordisk's treasury
shares with an exercise price below current market value, have been based on an average number of shares of 333,232,912.

 

Appendix 2: Quarterly numbers in EUR   

 

(Amounts in EUR million, except number of employees, earnings per share and number of shares outstanding.)
Key figures are translated into EUR as supplementary information - the translation is based on average exchange rate
for income statement and exchange rate at the balance sheet date for balance sheet items.
								% change
	2005		2004					Q1 2004 -
	Q1		Q4	Q3	Q2	Q1		Q1 2005
Sales	975		1,068	997	962	875		11%
Gross profit	695		778	715	701	626		11%
Gross margin	71.3%		72.8%	71.8%	72.9%	71.5%
Sales and distribution costs	287		318	274	268	253		13%
Percent of sales	29.5%		29.8%	27.5%	27.8%	28.9%
Research and development costs	149		167	146	132	140		6%
Percent of sales	15.2%		15.6%	14.7%	13.7%	16.0%
Administrative expenses	65		72	67	58	64		1%
Percent of sales	6.7%		6.7%	6.8%	6.0%	7.3%
Licence fees and other operating income (net)	9		28	8	10	31		-71%
Operating profit	203		249	236	253	200		1%
Operating margin	20.8%		23.4%	23.6%	26.3%	22.9%
Share of profit in associated R&D companies	32		(1)	-	(5)	(9)		-
Financial income	15		65	17	14	24		-36%
Financial expenses	10		25	7	6	3		245%
Profit before taxation	240		288	246	256	212		13%
Net profit	166		197	165	171	141		17%
Depreciation, amortisation and impairment losses	55		74	77	52	51		8%
Capital expenditure	97		147	117	86	53		84%
Cash flow from operating activities	180		283	326	230	181		-1%
Free cash flow	82		121	207	128	119		-31%
Equity	3,454		3,563	3,434	3,340	3,216		7%
Total assets	4,899		5,033	4,782	4,608	4,545		8%
Equity ratio	70.5%		70.8%	71.8%	72.5%	70.8%
Full-time employees at the end of the period	20,942		20,285	20,001	19,631	19,179		9%
Diluted earnings per share (in EUR)*	0.50		0.58	0.49	0.50	0.42		19%
Average number of shares outstanding (million)*
- used for diluted earnings per share	333.2		334.7	338.2	339.8	339.8		-2%
Sales by business segments:
Insulin analogues	195		179	169	139	119		63%
Human insulin and insulin-related sales	450		531	483	489	430		4%
Oral antidiabetic products (OAD)	51		54	60	51	56		-10%
Diabetes care total	696		764	712	679	605		15%
NovoSeven®	146		157	147	145	137		7%
Growth hormone therapy	80		87	75	75	74		8%
Hormone replacement therapy	44		49	53	52	46		-3%
Other products	9		11	10	11	13		-25%
Biopharmaceuticals total	279		304	285	283	270		4%
Sales by geographic segments:
Europe	404		452	411	418	387		4%
North America	281		244	282	247	232		21%
International Operations	152		210	157	152	132		15%
Japan & Oceania	138		162	147	145	124		12%
Segment operating profit:
Diabetes care	101		141	101	125	91		11%
Biopharmaceuticals	102		108	135	128	109		-7%
*) For Q1 2005 diluted earnings per share/ADR of a nominal value of DKK 2, which include options on Novo Nordisk's treasury
shares with an exercise price below current market value, have been based on an average number of shares of 333,232,912.