* Novo drops inflammation business to focus on diabetes
* Aims to sell or license existing drugs in portfolio
* Increased diabetes focus positive - analyst
* Novo to update full-year outlook end-October (Adds diabetes research details, possible sale, analyst comment, updates shares)
By Stine Jacobsen
COPENHAGEN, Sept 2 (Reuters) - Danish pharmaceutical company Novo Nordisk has stopped research and development activities in inflammatory disorders to concentrate on the prevention and treatment of diabetes, its biggest business.
This follows a decision to halt development of the company's most advanced drug candidate used to treat rheumatoid arthritis and known as anti-IL-20, announced on Aug. 7.
Chief Science Officer Mads Krogsgaard Thomsen said with the setback for anti-IL-20, the earliest possible entrance into the market for anti-inflammatory therapeutics would have been in the late 2020s. Instead, the company aimed to increase its research and development within its core diabetes business.
"Significant un-met opportunities remain within diabetes, including prevention, obesity and diabetes complications," Thomsen said in a statement.
Novo Nordisk, the world's top insulin maker, said it would increase its research and development in these areas but did not disclose any numbers.
The company, whose main rivals include Sanofi and Eli Lilly & Co, aims to increase the number of people using its drugs to 40 million in 2020 from 23 million in 2012, as the world faces a big jump in type 2 diabetes linked to over-eating and lack of exercise.
Last month, the group said it could launch a new long-lasting insulin Tresiba, a future growth driver for the company, at the start of 2016 in the United States. This is the company's largest market, where it has been facing competition from generic drugs and broader pricing pressures.
Another new area within diabetes treatment, where investment is needed to stay ahead of the pack, is in the development of insulin doses in pill form instead of via injection.
"They can see a growth adventure with oral diabetes drugs, so I think that's where they are going to move the R'n'D money," said Alm. Brand Markets' analyst Michael Friis, who has a 'Buy' recommendation on the stock.
An insulin pill would mark a step change in therapy by making treatment more convenient, opening a major new market.
Sydbank analyst Soren Lontoft saw the enforced focus on diabetes as positive. "In the short run this is negative because of the 700 million crowns of non-recurring costs, but in the long run this can give a more focused Novo, which is positive," he said.
Novo Nordisk, the Nordic region's most valuable company by market capitalisation, said it would look into selling or licensing out some of the drugs from the inflammatory business pipeline but it could not yet put a valuation on them.
It expects to incur a non-recurring cost of around 700 million Danish crowns ($124 million) this year from the decision to drop the business.
It said 400 employees would be affected by the decision but that it hoped to offer other positions within the company to more than half of those.
Novo Nordisk has not received any revenues from the business with no drugs on the market so this will not affect analysts' estimates.
"The decision was made because they no longer have anything of significance in their pipeline and if they were to advance with a new product, investments would need to be huge, so it would not be worth the risk," said Alm. Brand Markets analyst Frills.
The company said it would update its full-year financial guidance on Oct. 30 following this announcement.
Novo Nordisk shares were 0.69 percent lower by 1210 GMT against a broadly flat Copenhagen benchmark index. The company's shares are up nearly 30 percent year-to-date, outperforming a 13.3 percent rise in the Thomson Reuters Global Pharmaceuticals Index
1 US dollar = 5.6742 Danish crown Reporting by Stine Jacobsen; Editing by Sabina Zawadzki and Jane Merriman