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Geronfinancial, social and environmental performance 2006 action defines leadership diabetes care: sustaining leadership biopharmaceuticals: the portfolio expands Business results re Biophuticals Challenging workplace Values in action Glossary visit the online annual report The articles in this printed report make reference to the online Annual Report 2006, which offers additional background, context and data. The online report is available at novonordisk.com/annual-report. Browse the six sections highlighted in the top bar to find topics of interest. Online Annual Report at a glance Online highlights Who we are Provides information about the manage- ment, governance, ownership structure and history of Novo Nordisk. The world of Novo Nordisk See where Novo Nordisk’s production sites, R&D facilities and clinical development centres are located around the world. Game for a challenge? Try the three interactive challenges, which represent topics of specific focus in 2006: business ethics, climate change and eco - nomics & health. Try the three interactive challenges in the online annual report. What we do Gives an overview of Novo Nordisk’s product areas and pipeline. How we perform Accounts for performance during 2006 from access to health to workplace quality. How we work Introduces Novo Nordisk’s approach to doing business, its vision and strategy, and stakeholder engagement. How we are accountable Provides insight into the details of account- ability and assurance. Downloads View, download or order the printed Annual Report 2006. Reader’s guide Novo N Welcome inside! This is Novo Nordisk’s Annual Report 2006. It accounts for the company’s per- formance during the year and presents achieve- ments and challenges. We trust you will find that we have done so in a fair and balanced way. People at Novo Nordisk are guided by the com- pany’s vision and its values. There is a strong sense of shared purpose across the organisation, and a commitment to pursuing the goals set out in the vision: to achieve competitive business results, to sustain leadership in diabetes care, to expand the biopharmaceuticals business, to be a challenging workplace, and to put values into action. This year’s Annual Report seeks to capture the essence of the Novo Nordisk way. It illustrates how we do business and explains how we will continue to create long-term shareholder value. The management report and discussion pre s- ents an overview of business performance during 2006 with highlights, five-year developments and a commentary. The feature articles put performance into con- text. Organised under the vision’s five headings, they provide insights into activities during the year, strategies and goals, risks and opportunities. The articles reflect the key priorities for Novo Nordisk and topics that we have identified as material for readers’ valuation of the company’s pos ition for the future. You will find a more detailed account of per- formance in the consolidated financial and non- financial statements. Finally, the shareholder information presents Novo Nordisk’s corporate governance model, and the approach to risk management, and examples of the current risk profile. Here you will also find profiles of the members of the Board of Directors and Executive Management. And if you are look- ing for information about the share, begin reading from the back. Action defines leadership Working with Novo Nordisk, you will learn what it means to be a values-led company. Our values underpin the commitments, principles and policies that form our global standards for doing business. In everything we do, we will be accountable, am- bitious, responsible, engaged with stakeholders, open and honest, and ready for change. The pictures tell stories of Novo Nordisk people putting these values into action. Action defines leadership. Every day of the year, across the globe, people at Novo Nordisk bring to life what leader- ship is all about. Our aspiration is to defeat diabetes. It is an am- bitious goal, yet we believe it can be achieved. Working with stakeholders, driving concerted ac- tion and thinking out of the box, Novo Nordisk is changing diabetes. This report provides some ex- amples. To learn more, or to get involved in some of the work, please get in touch. Enjoy reading! 02–05 Welcome to 02 Actio 04 The N 06–19 Business res we will compet busines 08 Mana and d 16 The w Novo 18 Pipeli A year in the life of Novo Nordisk Factory expansion 11January: A factory expansion in Clayton, North Carolina, results in doubled insulin filling capabilities, a new assembly and packaging line, and administration and storage space. Page 12. Goodbye to an icon 8 March: Outgoing Chairman of the Board Mads Øvlisen, a Novo Nordisk icon, bids farewell to shareholders at the Annual General Meeting. Sten Scheibye takes over as Chairman of the Board. Pages 112–113. Natural killer cells 5 April: Novo Nordisk and Innate Pharma SA announce partnership to develop medicines targeting one of the body’s first lines of defence against cancer and infections: natural killer cells. Pages 34–35. January February March April Climate agreement 23 January: Novo Nordisk and the World Wide Fund for Nature sign an agreement in which the company pledges to reduce its CO2 emissions. Page 48. CEO rings closing bell at the NYSE 7 February: Novo Nordisk celebrates the 25th anniversary of the company’s listing on the exchange. Pages 115–116. US research facility opens 21 February: Opening of Novo Nordisk Research US, the first haemostasis research facility in the United States dedicated to life-threatening bleeding. Page 37. R&D agreement 14 March: Argos Therapeutics and Novo Nordisk announce agreement to de- velop treatment for systemic auto immune disorders. Pages 34–35. EU leaders prioritise diabetes 24 April: The European Parliament passes a Novo Nordisk-supported declaration calling for increased focus on diabetes. Pages 28–29. US launch of Levemir® 28 March: Announcement of the US commercial availability of Levemir®, a long-acting modern insulin. Pages 24–25. Novo Nordisk’s Vision 14 –17 September: During the EASD annual meeting in Copenhagen, Novo Nordisk sponsors rickshaw bicycles to transport conference dele- gates around the city (left). Novo Nordisk researchers in the haemostasis biology unit are exploring novel ap- proaches to rejuvenate the haemostasis portfolio (right). 02–05 Welcome to Novo Nordisk 02 Action defines leadership 04 The Novo Nordisk way 06–19 Business results we will achieve competitive business results 08 Management report and discussion 16 The world of Novo Nordisk 18 Pipeline overview 20–31 Diabetes care we will be the world’s leading diabetes care company 22 Diabetes care: sustaining leadership 24 Focused strategy in the US targets diabetes crisis 26 Long-term presence in emerging markets pays off 28 Reaching across the global health divide 30 A global drive to change diabetes 32–39 Biopharmaceuticals we will offer products and services in other areas where we can make a difference 34 Bio pharmaceuticals: the portfolio expands 36 Pursuing promising leads in haemophilia 38 Growth at every level 39 Convenience matters ls disk and Innate nce partnership to s targeting one of the f defence against ons: natural killer . AERx® trials resume 1 May: The phase 3 trials for Novo Nordisk’s AERx® resume. The trials will involve more than 2,000 people in more than a dozen countries. Pages 22–23. Denmark’s best image 5 May: A Danish business magazine publishes the results of its annual image poll and Novo Nordisk comes out on top. Page 40. Strengthened patent position 5 July: Novo Nordisk and Aradigm Corporation announce agreement through which Novo Nordisk acquires certain patent rights regarding AERx® iDMS. Pages 22–23. Fast grower in growth hormone market 2 August: In the first six months of 2006, the sales curve for the growth hormone product Norditropin® increased. Page 38. May June July August itise diabetes pean Parliament disk-supported for increased focus s 28–29. Diabetes on the agenda 7 June: Novo Nordisk youth panellists share a common goal: more diabetes awareness through a UN Resolution. Pages 30–31. Norditropin NordiFlex® pen launch 7 July: Novo Nordisk launches a 15 mg version of the liquid growth hormone delivery system Norditropin NordiFlex® in Japan. Page 38. Liraglutide in the news 13 June: New data on liraglutide, Novo Nordisk’s GLP-1 analogue, is launched at the American Diabetes Association’s annual session. Pages 22–23. NovoRapid® approval 31 July: The European Commission approves NovoRapid®, a rapid-acting modern insulin, for use by pregnant women with diabetes. Pages 22–23. Praise for achievements in developing countries 23 August: According to international organisations, Novo Nordisk makes invaluable contributions to changing diabetes in the world’s poorest countries. Pages 28–29. 28 March: US diabetes care specialists celebrate the launch of Levemir® (left). 15 September: Novo Nordisk executives lead the way in the Novo Nordisk- sponsored five-kilometre run during the EASD annual meeting (right). 40–43 Challenging workplace a job here is never just a job 42 People bring engagement to work 43 Learning leadership 44–49 Values in action our values are expressed in all our actions 46 Business ethics training deals with dilemmas 47 Responsible sourcing: revisiting the strategy 48 Climate strategy puts energy efficiency in the spotlight 50–116 Accounts and notes consolidated financial and non-financial statements 52 Financial and non-financial highlights 54 Consolidated financial statements 90 Consolidated non-financial sta te ments 105 Management statement and auditors’ reports Shareholder information 108 Corporate governance 110 Risk management 112 Board of Directors 114 Executive Management 115 Shareholder information The Changing Diabetes Bus 13 September: Novo Nordisk launches the Changing Diabetes Bus – an initiative to create more awareness of the diabetes pandemic. Pages 30–31. Congress in Copenhagen 14 September: Copenhagen hosts the EASD annual meeting, and Novo Nordisk welcomes doctors, researchers and others interested in diabetes. Pages 30–31. Liraglutide obesity trial 6 October: Novo Nordisk announces that liraglutide will now be tested for use as a treatment for obesity. Page 11. Upper-gastrointestinal bleedings 6 October: Due to a lack of statistical difference in treatment, Novo Nordisk decides not to pursue further clinical development of NovoSeven® within UGI bleedings. Page 11. Montes Claros handover 9 November: Novo Nordisk’s newest filling plant, located in Montes Claros, Brazil, becomes an operational production site. Pages 26–27. New research programmes 12 December: EASD, the Juvenile Diabetes Research Foundation and Novo Nordisk announce two new studies that will focus on type 1 and type 2 diabetes. Pages 22–23. September October November December NovoSeven® approval 27 October: The FDA approves a new indication for NovoSeven® – acquired haemophilia, a rare and potentially fatal bleeding disorder. Pages 36–37. Diabetes care field force expansion 30 November: In the US, plans are announced to expand the diabetes care sales force from around 1,200 to approxi- mately 1,900 people. The expansion will take place during the first half of 2007. Pages 24–25. UN Resolution on diabetes 20 December: United Nations adopts a Resolution on diabetes. Novo Nordisk is committed to continuing to play an active role in the ‘Unite for Diabetes’ campaign. Pages 30–31. Novo Nordisk Annual Report 2006 1 Welcome letter action defines leadership Today, one-tenth of the world’s population – more than 550 million individuals – has diabetes or the prestages of diabetes, and the numbers are grow- ing day by day. This will prove to be the most signif - icant public health challenge of the 21st century. Put into this perspective, the promise of Novo Nordisk to change dia- betes could not be more appropriate. It is therefore with great humil- ity and satisfaction that we reflect on what we accomplished in 2006. A few years ago a young woman gave voice to her dream: What if the world’s eyes were opened to the stark facts that diabetes is a chronic, debilitating and costly disease that kills at least as many peo- ple as HIV/AIDS? A disease that not only affects those families whose members have to come to terms with diabetes as part of their lives and need lifelong medical treatment and care, but also has huge social and economic implications for the global society. If that hap- pened, wouldn’t it make a world of difference? A few weeks ago the United Nations passed a resolution making World Diabetes Day a United Nations Day to be observed by the mem- ber states, organisations and people around the world as an occasion to raise public awareness of diabetes and its consequences. This is an important milestone on the way to making that dream come true. Clare Rosenfeld, the young woman mentioned above, was seven years old when she was diagnosed with type 1 diabetes. Since the age of 12 she has been campaigning to bring attention to what diabetes does to people, and – more importantly – the urgency to defeat it. To make proper care available to everyone who needs it. And to relent- lessly pursue every possible avenue to prevent it. A movement gaining momentum The successful ‘Unite for Diabetes’ campaign, effectively orchestrated by the International Diabetes Federation, will stand as a milestone for this effort. It was sparked by Clare Rosenfeld’s bold vision, and, thanks to the tireless efforts of thousands of people, the diabetes community has come together as a powerful coalition with a voice that resonates with policy-makers throughout the world. Novo Nordisk is proud to be a part of this movement. Our aspiration is to defeat diabetes by finding better methods of diabetes preven- tion, detection and treatment. We work actively to promote collabor - ation between all parties in the healthcare system to achieve common goals. In the fight against diabetes, industry can take the lead, offer it- self as a partner and be a catalyst for change, but governments must do their part to achieve sustainable impact. The leadership challenge Stopping the pandemic spread of diabetes and securing access to proper care for all who need it are daunting tasks – but not unsur- 2 Novo Nordisk Annual Report 2006 mountable. We will change the future of diabetes. To be successful, we need to bring the best of our competences, technologies and collect ive resources to bear. We need to continually improve perform- ance and stay focused on targets. We also need to find other ways to stimulate creativity, challenge assumptions, and imagine bold, new possibilities. That is the task at hand for the people at Novo Nordisk and our partners. At Novo Nordisk we are determined to sustain our leadership. But the leadership challenge is one that is ever-present on our agenda, and we will stay vigilant to retain and reinforce our position. In 2006, we paid particular attention to five key business chal- lenges: quality, competition, innovation, organisational development and business ethics. The quality imperative The quality of our products and services and the way we all perform in our jobs are crucial for the prosperity of our company and, increasingly, as a differentiating factor as well. Our customers’ lives depend on the safety and efficacy of our products. It has therefore been reassuring and rewarding to see the continued strong focus on quality processes and activities. Product quality has remained high, with a declining complaint rate. And the level of regulatory compliance, as witnessed by the outcomes of numerous internal and external inspections, is also very high. Tougher competition Considering the magnitude of the diabetes challenge and the fact that current therapies alone cannot solve the problem, it is only nat - ural that many companies see business opportunities in this field. For Novo Nordisk this means increased competition from established in- novation-based pharmaceutical companies and from biosimilar manu facturers. To get our message across in this increasingly ‘noisy’ environment, we need to speak louder and expand our presence globally. In other words, the costs of doing business are going up. In the course of the year we have managed to improve our market posi- tion in all therapy areas and in all markets, which has helped us to achieve our goals. The innovation challenge Discovering new therapies for unmet medical needs in serious illnesses is what dreams are made of. There are still plenty of improvements to be made in each of the therapy areas in which Novo Nordisk has unique expertise. It has been encouraging to see the progress of our early research pipeline, giving great hopes of being able to retain our leadership within diabetes, haemostasis and growth disorders, while at the same time potentially opening up new fields such as inflamma- tion and oncology. Furthermore, we are expanding our late-stage clinical activities to a level never seen before in our company. Product innovation is crucial for long-term value creation. And it is accom - panied by innovation in many other parts of our company, including new manufacturing processes, the provision of shared services, administrative procedures, ways of interacting with our stakeholders, and many more. Innovation is made up of small and big strides alike that improve our productivity and long-term competitiveness, and give hope to and improve the lives of our customers. Just as importantly, it is a key factor in making our company an exciting place to work. These business principles find a lot of resonance across the organ- isation and help us make the company stand out both as a business partner and as an employer. Transformational growth Globalisation is a huge opportunity for our company to gain access to more markets, to recruit new talents and to source our products and services from where they can be most efficiently produced. This re- quires a clear strategy that determines how and where functions are best performed. We believe that certain jobs, particularly in Denmark, will be more specialised, and at the same time we anti cipate that job creation will predominantly take place abroad. This transformation is ongoing in our company; thousands of people are upgrading their competences for the benefit of Novo Nordisk and to secure their future employability. Global growth underlines the need for a clear values-oriented company culture. The Novo Nordisk Way of Management and our vision set the direction for where Novo Nordisk wants to go and how we are going to get there. It aims to inspire everyone at Novo Nordisk to make their contribution to shaping the future of the company. Ethical business conduct Remaining a trusted business partner requires transparency in all as- pects of our business. We disclose our activities in clinical trials. We have procedures in place and offer training for everyone within purchasing, marketing practices and management. We will ensure that governance of third-party contracts lives up to the current standards described in our Business Ethics Policy. This is a long-term process aimed at pro- tecting our company’s reputation and the integrity of our people. Competitive business results Being focused is a particular strength of Novo Nordisk. We will achieve competitive business results so that we can build a sustain- able business. Strong business growth combined with productivity improvements in manufacturing, administration and corporate func- tions has allowed us to increase our investment in research and devel- opment as well as our presence in the marketplace to strengthen our long-term prospects. Most notably, we have been able to better utilise our plants and equipment, with the result that we have ex- panded our capacity, decreased our unit costs, sustained quality, and postponed significant future capital expenditures. This achievement is in spite of adverse developments in Novo Nordisk’s basket of currencies versus the Danish krone emphasising that financial performance in 2006 was very strong. Sales growth ex- ceeded our expectations and, combined with the substantial produc- tivity improvements, has allowed us to invest for the future while still improving our return on invested capital in line with our long-term fi- nancial goals. Consequently, we note with great pleasure that our shareholders have seen a significant appreciation of their holdings in Novo Nordisk – and we are grateful for their continued commitment and trust in the company. Novo Nordisk enters 2007 as a very healthy business, well posi- tioned for future growth and prosperity. This is the result of the efforts of 23,613 Novo Nordisk people working together on a mission. It is thanks to their imagination, ingenuity, dedication and hard work that Novo Nordisk continues to be a very special company. And it is through examples like Clare Rosenfeld that we all at Novo Nordisk find a strong sense of direction and mobilise personal leader- ship, which makes our jobs truly rewarding. Lars Rebien Sørensen President and CEO Sten Scheibye Chairman of the Board of Directors Novo Nordisk Annual Report 2006 3 The Novo Nordisk way Pioneers in diabetes care Novo Nordisk’s strong background in diabetes care builds on more than 80 years’ experience in this area. It began in 1922 when August Krogh, Danish Nobel laureate in physiology, and his wife, Marie, who had type 2 diabetes, visited Professor J J R Macleod, head of the institute in Toronto, where the world’s first insulin extract had been produced. Macleod granted Krogh permission to produce insulin. The Kroghs returned home and the following year August Krogh set up a com pany in Den mark called Nordisk Insulin - lab ora torium with Dr Hans Christian Hagedorn and began producing insulin for the treatment of diabetes. the novo nordisk way The Novo Nordisk Way of Management is the framework for how the company does business. It consists of three elements: the Vision, the Charter, and a set of 13 global company policies. The Vision sets out the direction for Novo Nordisk. It expresses what Novo Nordisk is striving for, how the company works, and how it is guided by its values in its endeavours to find the right balance between commercial interests and the obligations of a responsible business. The Charter describes the company’s values, which underpin its commitment to the Triple Bottom Line and sustainable development, its Fundamentals – 11 management principles – and follow-up meth- ods to provide on going systematic and validated documentation of performance in respect of the Novo Nordisk Way of Management. The global company policies set global standards and give oper - ational guidelines within 13 specific areas: bioethics, business ethics, communication, environment, finance, global health, health and safety, information technology, legal, people, purchasing, quality and risk management. The follow-up methodology has three key components: Facilitation is a specific follow-up method that is unique to com- panies in the Novo Group. It is used to provide systematic and validat- ed documentation of how the values are lived in the company and of the compliance levels with the Novo Nordisk Way of Management. The result of facilitations is part of the annual Organisational Audit. The head of Facilitation & Development reports to Lise Kingo, executive vice president and chief of staffs (COS), and, like the head of Group Internal Audit, has a formal reporting line to the chairman of the Audit Committee. The global facilitator team consists of senior people with deep in- sight into the business who focus on broad themes that are central to the business such as business ethics, diversity and globalisation. The team also helps educate new managers in the Novo Nordisk Way of Management and how it is applied in practice. Õ 4 novonordisk.com/annual-report Click: who we are/management Novo Nordisk Annual Report 2006 Organisational development is assessed through an annual Organisational Audit, commissioned by the Board of Directors and Executive Management. This process, conducted at the senior man- agement level, includes an assessment of ‘linking business and organ- isation’ and succession management, and takes both a retrospective and a forward-looking perspective. Annual reporting accounts for financial and non-financial per- formance against short-term and long-term targets, strategies, activ- ities, and key business risks and opportunities. Novo Nordisk has adopted the Balanced Scorecard as the company-wide management tool for measuring progress. As part of the remuneration package, in- dividuals are rewarded for performance that meets or exceeds the fi- nancial and non-financial targets in the Balanced Scorecard, which comprise corporate, unit-specific and individual targets. The Novo Nordisk Way of Management The Vision The Charter Values Commitments Fundamentals Follow-up methodology Policies Values Accountable Ambitious Responsible Engaged with stakeholders Open and honest Ready for change Commitments Financial, environmental and social responsibility Fundamentals Management principles Follow-up methodology Facilitation Organisational Audit Annual reporting In 1925, two former employees, the brothers Harald and Thorvald Pedersen, formed a competing insulin company, Novo Terapeutisk Laboratorium. In 1989, the two Danish companies joined forces to become Novo Nordisk A/S. The Triple Bottom Line business principle Novo Nordisk ‘strives to conduct its activities in a financially, environ- mentally and socially responsible way’. This statement is anchored in the Articles of Association and embraces the principles upon which the company was founded. This formal commitment to sustainable development and bal- anced growth has been built into the corporate governance struc- tures, management tools and individual performance assessments. The Triple Bottom Line is a broad business principle that ensures that decision-making balances financial growth with corporate responsibility, short-term gains with long-term profitability and share- holder return with other stakeholder interests. It implies that any decision should always seek to balance three considerations: Is it eco- nomically viable? Is it socially responsible? And is it environmentally sound? Economically viable k v v k Diabetes care Biopharmaceuticals vk Socially responsible Environ men tally sound Economically viable means managing the business in a way that ensures corpor - ate profitability and growth and seeks to leave a positive economic footprint in the community. Examples are consistent deliv- ery of solid financial results, business- ethical conduct and health-economic considerations. Socially responsible implies caring for people. For Novo Nordisk, this applies to the people who rely on the company’s products and to employees. It also considers the impact of the business on society. Examples include initiatives to improve access to health, diversity and equal opportunities in the workplace, health and safety, human rights and community engagement. Novo Nordisk’s Vision Environmentally sound decisions address the company's impact on the external environment as well as the bioethical implications of its activities. Examples are environmental management, safe uses of gen etic engineering, a strategy to combat climate change, and con- sideration for the welfare of experimental animals. Priorities and targets Long-term priorities and objectives are identified through a 10-year Strategic Planning Process, which is updated annually and informed by trendspotting and 20-year diabetes scenarios, which are revisited every three years. This plan identifies opportunities for growth, risks and mitigations, and forms the basis for annual target-setting in the company’s Balanced Scorecards. To ensure focus on shareholder value, long-term targets are set for financial and non-financial performance. Engaged with stakeholders Novo Nordisk holds itself accountable to the company’s shareholders and other stakeholders, including individuals or groups affected by its business in local communities. Key stakeholder groups are people with diabetes and others whose healthcare needs it serves, healthcare professionals, policy-makers, educators, employees, investors, sup - pliers and other business partners as well as media, interest groups and other opinion-formers. To better manage emerging risks and act on opportunities, Novo Nordisk proactively maintains engagement with a broad range of stakeholders within its sphere of influence. We will be the world’s leading diabetes care company Our as pi ration is to defeat dia- betes by finding better methods of diabetes prevention, detec- tion and treatment. We will work actively to promote collab- oration between all parties in the healthcare system in order to achieve our common goals. We will offer products and services in other areas where we can make a difference Our research will lead to the disco very of new, innovative products, also outside diabetes. We will develop and market such products ourselves whenever we can do it as well as, or better than, others. We will achieve competitive business results A job here is never just a job Our values are expressed in all our actions Our focus is our strength. We will stay independent and form alliances whenever they serve our business purpose and the cause we stand for. We are committed to being there for our customers when- ever they need us. We will be innovative and effective in everything we do. We will attract and retain the best people by making our company a challenging place to work. Decency is what counts. Every day we strive to find the right balance between compassion and competi tiveness, the short and the long term, self and commitment to colleagues and society, work and family life. Novo Nordisk Annual Report 2006 5 Business results we will achieve competitive business results Delivering value to shareholders is one key measure of business suc- cess. Another is earning and maintaining the trust that sustains the company’s licence to operate and innovate. At Novo Nordisk we hold ourselves accountable to the company’s shareholders and other stakeholders and proactively maintain engagements with a broad range of stakeholders. This approach is a way to better manage risks and act on opportunities. In a global economy, the competition for market share is increas- ingly fierce. The challenge of sustaining diabetes leadership while building a broader business is vividly present to everyone in the com- pany. There is competition in the marketplace. There is pressure from public healthcare systems to contain costs, paired with a demand for improved treatment and better access to care that is bigger than ever. And there is pressure from regulatory bodies for compliance and con- trol. These challenges translate into an increased focus on high per- formance, cost consciousness and a quality mindset, but even more so, they highlight the need to stimulate innovation and the ability to put new ideas into action. Operational excellence is one response that is delivering value on the bottom line and takes the long-term view. By eliminating activities that do not create value, resources can be directed at those activities that stimulate innovation. An improved operating margin and effi- ciency gains in production make it possible to allocate additional funds to research and development and strengthen sales forces as an investment for the future. Novo Nordisk’s global expansion has been achieved with just a few redundancies in the Danish organisation. We have expanded the pro- duction capacity to meet current and future demands for our prod- ucts, and more efficient production methods secure continued growth at competitive costs. Focus is our strength Being a global healthcare company and a leader in our field entails a responsibility to maximise profitability and contribute to sustainable development and balanced growth. This is the foundation for the Novo Nordisk way of doing business. Novo Nordisk is poised for continued growth, with a strong pres- ence in mature markets, in emerging economies and also in less re- sourceful parts of the world. We believe that the company’s solid and sustained performance demonstrates the business rationale for tak- ing a broad, long-term approach. It helps us navigate in a complex business environment, and it is a way to maintain the licence to oper- ate and innovate. Focus is of the essence. Our priorities are clear: We will sustain the lead in the fight against diabetes and expand the biopharmaceuticals business. We will strengthen our global presence. And we will take an active part in the society of which we are part. That way we will stay a healthy business. Novo Nordisk Annual Report 2006 7 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Management report and discussion 2006 in brief Novo Nordisk is pleased to report on yet another year with solid double-digit growth in sales. The key contributors to growth are Novo Nordisk’s strategic products: the complete portfolio of modern insulins, NovoSeven® and growth hormone. Sales n Reported sales increased by 15%. n Sales of modern insulins (insulin analogues) increased by 48%. n Sales of NovoSeven® increased by 11% and sales of Norditropin® increased by 19%. n Sales in North America increased by 29%, and sales in International Operations increased by 17%. Profit n Reported gross profit increased by 19%, reflecting continuous productivity improvements, thereby expanding the gross margin by 2.5 percentage points to 75.3%. n Operating profit increased by 13% to DKK 9,119 million. Measured in local currencies operating profit increased by 15%. n Net profit increased by 10% to DKK 6,452 million, and earnings per share (diluted) increased by 12% to DKK 19.99. Equity n The ongoing share repurchase programme has been increased to DKK10 billion and is now expected to be finalised before the end of 2008. At the Annual General Meeting on 7 March, the Board of Directors will propose a 17% increase in dividend to DKK 7.00 per share of DKK 2. Research and development n Within diabetes care, patient recruitment was completed in the phase 3 trial for liraglutide, the once-daily human GLP-1 ana- logue, and AERx® iDMS, the inhalable insulin, entered phase 3 clinical trials. n Within biopharmaceuticals, patient recruitment was completed in the phase 3 trial for the use of NovoSeven® in intracerebral haemorrhage (ICH). Three NovoSeven® phase 2 trials were completed: traumatic brain injury, spinal surgery and upper- gastrointestinal bleeds. Changing diabetes campaign n In 2006 Novo Nordisk communicated its changing diabetes messages globally and drove initiatives to improve prevention, treatment and care. Novo Nordisk actively supported the campaign for a UN Resolution on diabetes, which was adopted on 20 December, and intends to take active leadership in its implementation. Climate strategy n Significant progress was made towards achieving the CO2 reduction goal as part of the Climate Savers agreement; energy sav- ings and cost optimisations were identified following energy screenings at 10 of the 13 production sites. Operating margin Growth in operating profit % % Return on invested capital (ROIC) % Cash to earnings (three-year average) % 30 25 20 15 10 5 30 25 20 15 10 5 30 25 20 15 10 5 100 80 60 40 20 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 Target Realised during the year Target Realised during the year Target Realised during the year Target Realised during the year 8 Novo Nordisk Annual Report 2006 Business performance 2006 was another year of solid double-digit sales growth for Novo Nordisk in an industry otherwise characterised by patent expiries and a challenging growth outlook. Reported sales increased by 15% to DKK 38,743 million and by 16% measured in local currencies, signifi- cantly higher than the expectations for growth in sales communicated in January 2006. The underlying growth in the insulin market and the conversion to modern insulins in easy-to-use prefilled devices were the main con- tributors to the continued strong demand for Novo Nordisk’s insulin products in 2006. The company has seen significant sales growth for all products in the complete portfolio of modern insulins: Levemir®, the long-acting insulin, NovoMix® 30, the premixed formulation of rapid-acting and intermediate-acting insulin, and NovoRapid®, the rapid-acting insulin. Within biopharmaceuticals, NovoSeven® continued to be the lead- ing product and is the only recombinant treatment option for haemophilia patients with inhibitors. In the growth hormone market Novo Nordisk is gaining market share and now has 22% of the global market, driven by Norditropin NordiFlex®, a liquid formulation of growth hormone in an easy-to-use prefilled device. Operating profit increased by 13% to DKK 9,119 million from DKK 8,088 million in 2005, significantly higher than the expectations for growth in operating profit communicated in January 2006. Measured in local currencies operating profit increased by 15%. The operating margin for 2006 was realised at 23.5%, slightly below the 24.0% achieved in 2005. This development reflects a neg- ative currency impact as well as the absence of non-recurring income in 2006. Return on invested capital (ROIC) was 25.8% compared to 24.7% in 2005 and thereby continued the positive trend, which led Novo Nordisk to increase the long-term target to 30% in connection with the release of the annual results for 2005. The cash to earnings ratio for the year was 73%, down from 82% in 2005 being impacted by significant tax-related payments in 2006. The cash generation has thus been consistently ahead of the long- term financial target since the large capital expenditure programme was completed in 2002. See the financial highlights on p 52 and the consolidated financial statement on pp 54–89. The solid business performance was underpinned by good progress towards non-financial goals. See the non-financial highlights on p 53 and the consolidated non-financial statements on pp 90–99. Diabetes care The strategy in diabetes care is to sustain leadership via focus on mod- ern insulins and delivery devices, while developing novel antidiabetic agents and next-generation insulins. See pp 22–23. Sales of diabetes care products increased by 16% in Danish kroner to DKK 27,866 million compared to 2005. Measured in local cur - rencies the increase was 17%. The operating profit from the diabetes care segment increased by 23% following solid sales growth and significantly improved produc- tion costs. Sales and distribution costs increased mainly as a result of the sales force expansion in the US and other key markets and promo- tion activities related to the global roll-out of Levemir®. Research and development costs increased by 23% reflecting significant invest- ments in the two key late-stage development projects, liraglutide and AERx® iDMS. Sales performance Modern insulins, human insulin and insulin-related products Sales of modern insulins (insulin analogues), human insulin and in- sulin-related products increased by 16% to DKK 25,882 million in Danish kroner and by 17% measured in local currencies. All regions contributed to the sales growth and the largest contributors were North America and Europe. Novo Nordisk is the global leader within the insulin segment, with 52% of the total insulin market and 39% of the modern insulin segment, both measured by volume. Sales of modern insulins increased by 48% in Danish kroner in 2006 to DKK 10,825 million and by 50% measured in local cur - rencies. Sales of modern insulins contributed with 69% of the overall growth in local currencies, and all regions contributed to growth. Sales by therapy area Sales by geographical area DKK billion DKK billion Number of active clinical trials Diabetes care and biopharmaceuticals Indexed Climate strategy CO2 emissions 1,000 tons CO2 42 35 28 21 14 7 42 35 28 21 14 7 150 140 130 120 110 100 300 280 260 240 220 200 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 02 03 04 05 06 Diabetes care Haemostasis management (NovoSeven®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Europe North America International Operations Japan & Oceania 2003 = index 100 Realised CO2 emissions Novo Nordisk Annual Report 2006 9 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Management report and discussion North America Sales in North America increased by 41% in both Danish kroner and local currencies in 2006. The complete portfolio of modern insulins, NovoLog®, NovoLog® Mix 70/30 and Levemir®, continues to be the main contributor to growth. In addition, more than one-third of mod- ern insulin sales in the US are in the leading, prefilled, ready-to-use device, FlexPen®. Novo Nordisk is the leader in the US insulin market, holding more than 41% volume market share of the total market, and has also increased volume market share in the market for modern insulins to more than 27%, reflecting market share gains in all three segments, short-acting, premixed and long-acting. Sales of human insulin products also increased due to higher volume as well as higher average prices. See pp 24–25. As previously communicated Novo Nordisk has decided to expand the US diabetes field force from 1,200 to 1,900 people. The expan- sion process has been initiated and is still expected to be finalised dur- ing the first half of 2007. The expanded field force will make it pos - sible to reach more primary care physicians and increase the frequency of visits to both primary care physicians and diabetes care specialists. International Operations Sales in International Operations increased by 14% in both Danish kroner and local currencies. The sales development during 2006 reflects robust performance of primarily modern insulins, but also human insulin contributed to growth. Whereas Russia and Turkey are the main contributors to growth for modern insulins in International Operations, China continued to be the most significant overall growth driver in 2006, contributing more than 40% of the total in- sulin sales growth in International Operations. In 2006, the quarterly distribution of sales in International Operations was more even com- pared to previous years, in line with the expectation communicated at the beginning of 2006. Sales in the second half of the year were negatively impacted by the loss of a federal tender in Brazil. See pp 26–27. Europe Sales in Europe increased by 10% measured in both Danish kroner and in local currencies. The complete portfolio of modern insulins, NovoRapid®, NovoMix® 30 and Levemir®, was the primary contributor to growth during 2006. Novo Nordisk is the market leader in the European insulin market with a 57% share of the total market and 48% of the modern insulin segment, both measured by volume. Clinical trials by therapy area – 2006 highlights Diabetes care Sales development DKK billion Market volume share development in the US % 18 15 12 9 6 3 60 50 40 30 20 10 02 03 04 05 06 02 03 04 05 06 Modern insulins Human insulin and insulin-related products Oral antidiabetic products (OAD) Modern insulins Human insulin US total In Germany Novo Nordisk has agreed new rebate structures for rapid-acting modern insulins with a majority of healthcare funds, thereby securing access to modern insulins for the majority of people with type 2 diabetes. See pp 28–29. Japan & Oceania Sales in Japan & Oceania were largely unchanged measured in Danish kroner and increased by 6% in local currencies. Sales in Japan were negatively impacted by a mandatory reduction in reimbursement prices as of 1 April 2006. The sales development reflects sales growth of modern insulins, NovoRapid® and NovoRapid Mix® 30. Novo Nordisk continues to be the clear market leader in the Japanese mar- ket holding 74% of the insulin market and 62% of the modern in- sulin segment, both measured by volume. Oral antidiabetic products (NovoNorm®/Prandin®) Sales of oral antidiabetic products increased by 16% in Danish kroner to DKK 1,984 million and by 17% in local currencies compared to last year, primarily reflecting increased sales in North America and International Operations. While North America benefited from higher volumes and higher average prices, the positive sales performance in International Operations was primarily due to higher sales in China, where the reimbursement conditions improved compared to 2005. Diabetes care Biopharmaceuticals Seven phase 3 programmes Human GLP-1: liraglutide Inhalable insulin: AERx® iDMS Metformin-fixed combination tablet: NovoNorm® New NovoSeven® indications: intracerebral haemorrhage (ICH) and trauma Hormone replacement therapy: Vagifem® low-dose and Activelle® low-dose Seven phase 2 programmes New liraglutide indication: obesity; prepared for phase 2 programme Five phase 1 programmes Second-generation modern insulin: NN5401, NN344 New NovoSeven® indications: spinal surgery, cardiac surgery, traumatic brain injury and prophylactic treatment Human growth hormone – new indication: adult patients in chronic dialysis Oncology, malignant melanoma: IL-21 NovoSeven® analogue: NN1731 Factor XIII: cardiac surgery Oncology, acute myeloid leukaemia: anti-KIR 10 Novo Nordisk Annual Report 2006 Research and development progress During 2006, Novo Nordisk initiated a global phase 3 study for the use of liraglutide, the human GLP-1 analogue, in people with type 2 diabetes, and recruitment of all 3,800 patients was completed. Novo Nordisk also decided to initiate a phase 2 dose-ranging study for the potential use of liraglutide as an antiobesity agent for obese, non-dia - betic persons. Furthermore, a global phase 3 study for AERx® iDMS, the pulmonary insulin, was initiated, and recruitment is ongoing. As communicated on 15 January 2007, Novo Nordisk has decided to discontinue research and development activities within the oral antidiabetic (OAD) segment and, instead, focus exclusively on thera- peutic proteins, a key competence area for the company. As a conse- quence, all existing preclinical OAD projects and NN9101 (a glucokinase activator project currently in phase 1 clinical testing) are expected to be out-licensed. Regulatory approvals In 2006, Novo Nordisk received marketing authorisation from the European Commission for a label extension for NovoMix® 30, enabling diabetes patients in Europe to begin insulin therapy with a simple once-daily injection regimen. The European Commission also approved a label expansion for NovoRapid® to be used during pregnancy. The label expansion is a re- sult of Novo Nordisk’s continued focus on expanding labels for the portfolio of modern insulins. In Europe, Novo Nordisk has received a positive opinion from the regulatory authorities for the use of Levemir® in combination treat- ment with oral antidiabetics (OAD) for people with type 2 diabetes. Following this, Novo Nordisk expects to receive marketing authorisa- tion from the European Commission during the first half of 2007. Biopharmaceuticals The strategy in biopharmaceuticals is to expand the portfolio within haemostasis management, growth deficiency and hormone replace- ment therapy, and to build a presence in immunotherapies. Sales of biopharmaceutical products increased by 12% measured in Danish kroner to DKK 10,877 million and by 13% in local currencies com- pared to last year. The operating profit from the biopharmaceuticals segment in- creased by 3%, reflecting solid sales growth and significant invest- ments in clinical development activities. Research and development costs increased by 27% reflecting investments in key late-stage devel- opment projects with NovoSeven® as well as in building a portfolio of projects in immunotherapies. See pp 34–35. Sales performance NovoSeven® Sales of NovoSeven® increased by 11% in Danish kroner to DKK 5,635 million and by 12% in local currencies compared to 2005. Sales growth for NovoSeven® in 2006 was realised in all regions with International Operations and Europe as the main contributors. In the fourth quarter of 2006, sales growth of NovoSeven® in North America picked up but was partially countered by a lower level of tender sales in International Operations. The growth in sales of NovoSeven® dur- ing 2006 reflected increased sales within the congenital inhibitor and acquired haemophilia segments as well as a perceived higher level of investigational use. Treatment of spontaneous bleeds for congenital inhibitor patients remains the largest area of use. Growth hormone therapy (Norditropin®) Sales of Norditropin® (ie growth hormone in a liquid, ready-to-use for- mulation) increased by 19% measured in Danish kroner to DKK 3,309 million and by 21% measured in local currencies. While all regions contributed to growth, supported by the continued success of the prefilled delivery device, NordiFlex®, North America remains the pri- mary growth driver. Sales in Japan were negatively impacted by a mandatory reduction in reimbursement prices as of 1 April 2006. Novo Nordisk continues to consolidate its position as the second- largest company in the global growth hormone therapy market hold- ing 22% of the total market measured in value. Other products Sales of other products within biopharmaceuticals, which predom - inantly consist of hormone replacement therapy-related products, in- creased by 2% in Danish kroner to DKK 1,933 million and by 3% measured in local currencies. Novo Nordisk continued to gain market share in an overall flat market for hormone replacement therapy- related products during 2006. Research and development progress Recruitment for the phase 3 trial for use of NovoSeven® in ICH was com- pleted in 2006. Furthermore, Novo Nordisk has finalised three phase 2 trials for NovoSeven® in traumatic brain injury, upper-gastrointestinal bleeds and spinal surgery. In 2007, the first phase 3 data for the use of NovoSeven® outside of haemophilia are expected to be presented. Based on positive results from a phase 2 clinical trial, Novo Nordisk decided to initiate phase 3 for use of Norditropin® in adult patients in chronic dialysis (APCD). The trial is expected to be initiated in 2007. Further, the company will continue to offer a range of improved, low-dose products for hormone replacement therapy (HRT). See key pipeline progress on pp 18–19. Regulatory approvals In 2006, the FDA approved NovoSeven® in the US for the treatment of bleeding episodes and the prevention of bleeding in surgical interven- tions or invasive procedures in patients with acquired haemophilia with inhibitors. NovoSeven® was approved for the treatment of ac- quired haemophilia in Europe in 1997 and Japan in 2004. Biopharmaceuticals Sales development DKK billion Research & development costs DKK billion 6 5 4 3 2 1 6 5 4 3 2 1 02 03 04 05 06 02 03 04 05 06 Haemostasis management (NovoSeven®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Diabetes care Biopharmaceuticals Novo Nordisk Annual Report 2006 11 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Management report and discussion In Europe, Novo Nordisk has received a positive opinion from the regulatory authorities for the use of a single high dose of NovoSeven® for the treatment of mild and moderate bleeding events in haemophilia patients with inhibitors. This new regimen is expected to reduce the need for repeated dosing, minimise disruption to daily life and, hence, to be a convenient alternative for haemophilia patients with inhibitors. Novo Nordisk expects to receive marketing authorisa- tion from the European Commission during the first half of 2007. Within hormone replacement therapy, Novo Nordisk has received a marketing approval from the FDA for a low-dose version of Activella® (Activelle® in Europe), a continuous-combined hormone replacement therapy product. Operating performance The gross margin improved significantly in 2006 to 75.3%, up from 72.8% in 2005. The improvement in the gross margin reflects con - tinued productivity improvements, but also an improved product line and higher average prices in the US. The ongoing efforts to increase productivity cover all key processes in manufacturing: fermentation, recovery and purification at the sites in Denmark, and formulation, filling and packaging at sites in Denmark, the US, France, Brazil, Japan and China. Part of the productivity improvement is also continued efforts to utilise energy and water more efficiently in the production processes. In 2006, a new measure of water and energy efficiency relative to production, Eco Intensity Ratios (EIR), showed improved performance in both diabetes care and biopharmaceuticals. Total non-production-related costs increased by 20% to DKK 20,311 million. Sales and distribution costs increased by 20% in 2006, primarily reflecting the expansion during the fourth quarter of 2005 of the US diabetes care sales force and costs related to the US launch of Levemir®, which was initiated by the end of the first quarter of 2006. Also included in sales and distribution costs are financial pro- visions and costs for ongoing legal disputes. Research and develop- ment costs increased by 24% in 2006, which primarily reflects a high number of late-stage clinical trials as well as a higher level of spending on research projects in both diabetes care and biopharmaceuticals. Total costs related to depreciation, amortisation and impairment losses in 2006 were DKK 2,142 million compared to DKK 1,930 mil- lion in 2005. Licence fees and other operating income in 2006 were DKK 272 million, compared to DKK 403 million in 2005, reflecting a lower level of non-recurring income in 2006. Net financials and tax Net financials showed a net income of DKK 45 million in 2006 com- pared to an income of DKK 146 million in 2005. Included in net finan- cials is the result from associated companies with an expense of DKK 260 million, primarily related to Novo Nordisk’s share of losses in ZymoGenetics, Inc., compared to an income in 2005 of DKK 319 mil- lion. The income in 2005 included a non-recurring gain in the first quarter of 2005 of around DKK 250 million from a sale of shares in Ferrosan A/S as well as a non-recurring accounting gain of around DKK 200 million from a secondary offering of shares in ZymoGenetics, Inc. in August 2005. Also included in net financials in 2006 were non-recurring capital gains of around DKK 150 million from divestment of shares in other companies, primarily realised during the fourth quarter when a gain of more than DKK 100 million was 12 Novo Nordisk Annual Report 2006 recorded from the sale of a minority shareholding in Domantis Ltd, a UK biotechnology company. The foreign exchange result was an income of DKK 141 million compared to a loss of DKK 40 million in 2005, primarily reflecting a higher level of foreign exchange hedging gains in 2006, in particular during the fourth quarter as a consequence of the depreciation of especially the US dollar and the Japanese yen versus the Danish krone. The effective tax rate for 2006 was 29.6%, an increase from 28.8% in 2005 and in line with the previously communicated expec- tations for the year. The slightly higher effective tax rate for 2006 is partly reflecting a positive impact from the re-evaluation of the com- pany’s deferred tax liabilities in connection with the reduction of the Danish corporate income tax rate from 30% to 28% in 2005. Net profit was realised at DKK 6,452 million, an increase of 10% compared to 2005. Capital expenditure and free cash flow Net capital expenditure for property, plant and equipment for 2006 was DKK 2.8 billion, slightly below the expectations communicated in January 2006. The lower investment level is due to the solid produc- tion base built in previous years and productivity improvements at ex- isting facilities. The main investment projects in 2006 were the expan- sion of purification and filling capacity for insulin products, as well as purification capacity for liraglutide. Free cash flow for 2006 was DKK 4.7 billion, significantly above the expectations communicated in January 2006. Novo Nordisk’s financial resources at the end of 2006 were DKK 11.4 billion; unchanged compared to 2005. Included in the financial resources are undrawn committed credit facilities of approximately DKK 7.5 billion. Equity Total equity was DKK 30,122 million at the end of 2006, equal to 67.4% of total assets, compared to 65.9% in 2005. Proposed dividend and reduction of share capital At the Annual General Meeting on 7 March 2007, the Board of Directors will propose a 17% increase in dividend to DKK 7.00 per Gross margin % Investments in tangible assets as share of sale % 80 78 76 74 72 70 18 15 12 9 6 3 02 03 04 05 06 02 03 04 05 06 Development in gross margin Development in investments in tangible assets share of DKK 2, corresponding to a pay-out ratio of 34.4% compared to 33.2% for the financial year 2005. No dividend will be paid on the company’s holding of treasury B shares. In order to maintain capital structure flexibility the Board of Directors will also propose a reduction in the B share capital, by can- cellation of nominally DKK 26.96 million (13,480,000 shares of DKK 2) of current treasury B shares, to DKK 539,472,800. This corresponds to a 4% reduction of the total share capital. Treasury shares and share repurchase programme As per 30 January 2007, Novo Nordisk A/S and its wholly-owned af - filiates owned 19,713,069 of its own B shares, corresponding to 5.85% of the total share capital. During 2006, Novo Nordisk repurchased 7,468,957 B shares at an average price of DKK 402 per share, equal to a cash value of DKK 3.0 billion. The Board of Directors has approved an increase by DKK 4 bil- lion in the ongoing DKK 6 billion share repurchase programme, bring- ing the total value of the share repurchase programme to DKK 10 bil- lion. The programme is now expected to be finalised by the end of 2008 as compared to the previously communicated completion time by the end of 2007. Legal issues Novo Nordisk is party to a number of legal cases. See an overview of current legal issues and information on contingencies for pending liti - gation on pp 87–88. Non-financial performance In 2006, Novo Nordisk continued the good performance in terms of managing direct and indirect economic, environmental and social im- pacts in areas of strategic importance. Economic impacts In 2006, Novo Nordisk created 1,165 new positions globally and had 23,172 full-time positions, measured as full-time equivalents (FTE) at the end of the year. This is an increase of 5% compared to 2005 and reflects increased activities in all business areas. These positions trans- late into 59,100 indirect global jobs in the supply chain. Novo Nordisk’s economic contribution to overall economic wealth for the Danish society was 2.2% of Gross Value Added (GVA) in 2006. See the cash value distribution on p 94. Environmental impacts A long-term goal was set in 2006 for an absolute reduction of CO2 emissions: by 2014 to have reduced CO2 emissions by 10% compared to 2004 emission levels. In 2006, total emissions were 235,000 tons, compared with 228,000 tons in 2005. As part of the reduction strat- egy, energy screenings were initiated at 10 of the 13 production sites, and projects with significant CO2 reduction potentials were identi- fied. These projects are expected to be implemented during 2007. In 2006, Eco Intensity Ratios (EIR) showed improved performance in both diabetes care and biopharmaceuticals for energy and water. Screening reports show a potential for energy savings of at least 16,000 tons CO2. Novo Nordisk is confident that in the period 2005–2014 the company will be able to identify energy efficiency projects with reduction potential of 30,000 tons CO2 with a pay-back time of less than four years. Compliance remains a high priority. Preventive measures are be- ginning to show results: the number of breaches of regulatory limit values has decreased by 30% from 2005 to 2006. In the same period, however, the number of accidental releases has increased by 29%. This increasing number reflects particular efforts focused on cooling equipment, improved registration, and hence also a higher number of reported releases than previously. It is assessed that the registered breaches and accidental releases have had no or only minor impact on the external environment. There will be continued focus on legal compliance and preventive measures in 2007. During 2006, a total of 256 suppliers were evaluated on their envir - onmental and social performance, accounting for 18.4% of the total value of Novo Nordisk’s purchases. All of them had a satisfactory performance. Social impacts By the end of 2006, Novo Nordisk employed 23,613 persons – an in- crease of 5% compared to 2005. The number of employees outside US dollar Currency Months Rate Japanese yen Currency Months Rate Full-time employees Geographical areas 1,000 full-time employees Remuneration Geographical areas % 30 25 20 15 10 5 650 625 600 575 550 525 30 25 20 15 10 5 5.75 5.50 5.25 5.00 4.75 4.50 30 25 20 15 10 5 100 80 60 40 20 12/05 3/06 6/06 9/06 12/06 12/05 3/06 6/06 9/06 12/06 02 03 04 05 06 02 03 04 05 06 Rate (right) Cover (left) Rate (right) Cover (left) Denmark Rest of Europe North America International Operations Japan & Oceania Denmark Rest of Europe North America International Operations Japan & Oceania Novo Nordisk Annual Report 2006 13 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Management report and discussion Denmark reached 47%, and it is expected that in 2007 the ratio of employees outside Denmark will exceed those working in Denmark. This development underscores the priority on sustaining an en - gaging culture. The company-wide adherence to the Novo Nordisk Way of Management continues to be highly prioritised, and in 2006, 99% of the action points arising from the facilitations were closed. Engagement at work is a measure of people performance. Using results of the employee survey, eVoice, the target is for the parameter ‘engaging culture’ to remain at a level of 4.0 or above on a scale from 1 to 5, with 5 being the highest score. In 2006, the consoli dated score was 4.0. In 2007, units scoring below 3.5 on average on engage- ment-related eVoice questions must have an action plan in place before the end of the year. See p 42. Leadership development and lifelong learning are strategic param- eters for business success. Novo Nordisk invests in continued educa- tion for all, talent pools and leadership training. In 2006, the annual spending for training, measured as average spend per employee, in- creased by 14% to DKK 11,293. This does not fully reflect invest- ments in training, since on-the-job training, internal seminars and other such activities are not included. See p 43. Changing diabetes, Novo Nordisk’s global campaign to improve prevention, detection and care, helped put diabetes on the public and political agenda. Through its support to the International Diabetes Federation’s campaign for a UN Resolution on diabetes, Unite for Diabetes, which was adopted by the General Assembly of the United Nations in December 2006, Novo Nordisk has been engaging stake- holders and driving awareness initiatives with an estimated outreach to 31 million people in 66 countries. Other community actions, such as the Global Diabetes Walk in collaboration with the World Diabetes Foundation, support this effort. See pp 30–31. Novo Nordisk’s strategy to improve access to diabetes care focuses on education and advocacy (see pp 28–29). A measure of the com - pany’s contribution to global health is the number of healthcare pro- fessionals directly educated, and direct training or treatment offered to people with diabetes. In 2006, Novo Nordisk initiated activities that brought the number of healthcare professionals directly trained or educated and the number of people with diabetes directly trained or treated up to 297,000 and 1,060,000, respectively. Novo Nordisk pro- vided insulin for 13–15 million people with diabetes worldwide. Of these, 7 million live in Europe, North America, Japan & Oceania, the re- maining 6–8 million people live in the International Operations region. Key drivers for success The Triple Bottom Line approach enables Novo Nordisk to deliver long-term value to the business and contribute to the global society. It has two dimensions: risk mitigation and innovation. Novo Nordisk ac- knowledges the company’s social contribution to the markets in which it earns its profits and seeks to make a positive economic, envir - onmental and social footprint via its operations, global management standards, community engagement, partnerships, technology trans- fers and knowledge exchange. Key examples of long-term efforts with significant positive impacts are changing diabetes and the com- pany’s climate strategy. Evidence of good governance and full compliance is a precondi- tion for maintaining the licence to operate and innovate. Consistent behaviour in accordance with the Novo Nordisk Way of Management will drive adherence to global standards, ethical business practices and transparency. Stakeholder trust is another key parameter for suc- cess. To better manage emerging risks and act on opportunities, Novo 14 Novo Nordisk Annual Report 2006 Nordisk proactively maintains engagement with a broad range of stakeholders within its sphere of influence. Climate change presents significant business risks in the long term, with implications for economic growth, eco-balance and social devel- opment. Novo Nordisk’s climate strategy aims to make the company better prepared for a carbon-constrained future and less vulnerable to fluctuations in energy prices. Underpinned by the cLEAN® programme, energy-saving initiatives and more use of renewable energy will result in reduced environmental impacts as well as productivity improvements. Innovation and high performance hinge on people’s engagement at work, leadership development and lifelong learning. These are the key parameters for success addressed by the people strategy and monitored via regular facilitations of units’ performance and annual company-wide surveys. Fair and globally consistent standards and competitive remuneration aim to attract and retain talent globally. Long-term incentive programmes Share-based programme As from 2004, Novo Nordisk’s Executive Management and Senior Management Board (27 in total) participate in a performance-based incentive programme where Novo Nordisk B shares are allocated an- nually to a bonus pool when certain predefined business-related tar- gets have been achieved. The annual maximum allocation of shares to the bonus pool is capped at the equivalent of eight months of salary on average per participant. The shares in the bonus pool are locked up for a three-year period before they are transferred to the executives at the expiry of the three-year lock-up period. Based on an assessment of the economic value generated in 2006 as well as the performance of the R&D portfolio and key sustainability projects, the Board of Directors on 30 January 2007 approved the establishment of a bonus pool for 2006 by allocating a total of 130,750 Novo Nordisk B shares, corresponding to a cash value of DKK 45.8 million. This allocation amounts to eight months of salary on average per participant. Share option programme The grant of share options to approximately 425 senior employees, excluding the members of Executive Management and the Senior Management Board, in accordance with Novo Nordisk’s share option programme is subject to the achievement of shareholder value-based targets as determined by the Board of Directors. For 2006, targets were established for operating profit and return on invested capital, respectively, in addition to a number of non-financial targets. As the non-financial targets and the two financial targets for 2006 were achieved, a total of 1,114,542 share options will be granted at an exercise price of DKK 350 per option. This exercise price is equal to the average trading price for Novo Nordisk B shares on the Copenhagen Stock Exchange for the trading window from 28 January to11 February 2006, following the company’s release of financial results for 2005, when the terms of the option programme, including financial and non-financial targets, were approved by the Board of Directors. The options can be exercised in the period 31 January 2010–30 January 2015. The value of the share option programme is estimated to be DKK 99 million, based on the Black–Scholes model. The company’s holding of its own shares will cover this commitment. As from 2007, it has been decided to replace the share option pro- gramme for the approximately 425 senior employees, excluding the members of Executive Management and the Senior Management Board, with a share-based incentive plan in line with the plan for the members of Executive Management and the Senior Management Board implemented in 2004, as described above. The share-based in- centive programme for key employees will, as is the case for the plan for the top-level executives, be based on an annual calculation of shareholder value creation compared to the planned performance for the year. The share bonus pool will operate with a maximum contri- bution per participant equal to four months’ salary. Outlook 2007 Novo Nordisk expects the fundamental growth drivers of the business to remain intact in 2007. Novo Nordisk expects at least 10% growth in sales measured in local currencies for 2007. This is based on expect - ations of continued market penetration of Novo Nordisk’s key stra - tegic products within diabetes care and biopharmaceuticals, as well as expectations of increased competition in the diabetes care area during 2007 due to competitors’ product launches. Given the current level of exchange rates versus Danish kroner, the sales growth rate for 2007 measured in Danish kroner is expected to be lower than the growth rate measured in local currencies. For 2007, operating profit measured in local currencies is expected to increase by around 15%, including an expected higher spending on the portfolio of research and development projects as well as a continued high level of spending on sales and marketing. Measured in Danish kroner the growth in operating profit is expected to be around 10%, reflecting a negative currency impact in 2007. For 2007, Novo Nordisk expects a net financial income of DKK 50 million. Given the prevailing Danish corporate tax regime, the effective tax rate for 2007 is expected to be approximately 28%, a reduction of more than one percentage point compared to the realised tax rate for 2006. Capital expenditure is expected to be around DKK 3 billion in 2007. Expectations for depreciations, amortisation and impairment losses are around DKK 2.3 billion, and free cash flow is expected to be around DKK 5 billion. All of the above expectations are provided that currency exchange rates, especially the US dollar and related currencies, remain at the current level versus the Danish krone for the rest of 2007. All other things being equal, movements in key invoicing currencies will impact Novo Nordisk’s operating profit as illustrated below: Invoicing currency Annual impact on operating profit in 2007 of a 5% movement in currency USD JPY GBP US-related DKK 400 million DKK 150 million DKK 90 million DKK 110 million USD-related currencies include CNY, CAD, ARS, BRL, MXN, CLP, SGD, TWD and INR Novo Nordisk has hedged expected net cash flows in relation to US dollars, Japanese yen and British pounds for 15, 12 and 11 months, re- spectively. The financial impact from foreign exchange hedging is in- cluded in ‘Net financials’. Forward-looking statement This Annual Report contains forward-looking statements as the term is defined in the US Private Securities Litigation Reform Act of 1995. This relates in particular to information included under the headings ‘Risk management’, ‘management report and discussion’ and note 32, ‘Financial risk’ with reference to plans, forecasts, expectations, strate- gies, projections and assessment of risks. Words such as ‘believe’, ‘expect’, ‘may’, ‘will’, ‘plan’, ’strategy’, ’prospect’, ’foresee’, ’estimate’, ’project’, ’anticipate’, ’can’, ’intend’ and similar words identify forward-looking statements. Examples of such forward-looking statements include, but are not limited to: n statements of plans, objectives or goals for future operations, includ- ing those related to Novo Nordisk’s products, product research, prod- uct introductions and product approvals as well as co-operations in relation thereto n statements containing projections of sales, revenues, income (or loss), earnings per share, capital expenditures, dividends, capital structure or other net financials n statements of future economic performance n statements of the assumptions underlying or relating to such state- ments. These statements are based on current plans, estimates and projections, and therefore undue reliance should not be placed on them. Moreover, such statements are not guarantees of future results. By their very na- ture, forward-looking statements involve inherent risks and uncertain- ties, both general and specific, and risks exist that the predictions, fore- casts, projections and other forward-looking statements will not be achieved. Novo Nordisk cautions that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-look- ing statements. Factors that may affect future results include, but are not limited to, interest rate and currency exchange rate fluctuations, delay or failure of development projects, interruptions of supplies and production, prod- uct recall, pressure on insulin prices, 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 current and new products, exposure to product liability and other legal proceedings and investiga- tions, changes in reimbursement rules and governmental laws and related interpretation thereof, perceived or actual failure to adhere to ethical marketing practices, developments in international activities, which also involve certain political risks, investments in and divestitures of domestic and foreign com panies, and unexpected growth in costs and expenses. Please also refer to pp 110–111. Risks and uncertainties are further described in reports filed by Novo Nordisk with the US Securities and Exchange Commission (SEC), includ- ing the company’s Form 20-F, expected to be filed with the SEC in mid- February 2007. Forward-looking statements speak only as of the date they were made, and unless required by law Novo Nordisk is under no duty and undertakes no obligation to update or revise any of them, after the dis- tribution of this Annual Report, whether as a result of new information, future events or otherwise. Novo Nordisk Annual Report 2006 15 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action the world of novo nordisk Novo Nordisk is a focused healthcare company headquartered in Denmark. The company is the world leader in diabetes care and has the broadest diabetes product portfolio in the industry, including advanced insulin delivery systems. In its other business segment, biopharmaceuticals, Novo Nordisk has a leading position within the therapeutic areas of haemostasis manage- ment, growth hormone therapy and hormone replacement therapy. Novo Nordisk’s products are marketed in 179 countries. Novo Nordisk has 23,613 employees in 79 countries. Of these, 4,105 work in R&D, 8,402 work in production, 6,995 work in sales and distribution, and 4,111 work in administration. The majority of the workforce, 53%, is in Denmark, where the largest production sites are located. Since 2000, the company has grown significantly and ex- panded globally, particularly in the US and International Operations. In 2000, Novo Nordisk employed 13,752 people; 65% were based in Denmark. 16 Novo Nordisk Annual Report 2006 Production sites Bagsværd, Denmark Chartres, France Clayton, US Gentofte, Denmark Hillerød, Denmark Hjørring, Denmark Kalundborg, Denmark Koriyama, Japan Køge, Denmark Montes Claros, Brazil Måløv, Denmark Tianjin, China Værløse, Denmark R&D facilities Bagsværd, Denmark Beijing, China Gentofte, Denmark Hayward, US Måløv, Denmark New Brunswick, US Clinical development centres Beijing, China Princeton, US Tokyo, Japan Zurich, Switzerland For an overview of the Novo Nordisk subsidiaries, see pp 100–101. Europe North America International Operations Japan & Oceania Sales in Europe account for 38% of total sales. Sales in North America account for 32% of total sales. Sales in International Operations account for 18% of total sales. Sales in Japan & Oceania account for 12% of total sales. Performance in Europe is primarily driven by the complete portfolio of modern insulins (insulin analogues), NovoRapid®, NovoMix® 30 and Levemir®. Novo Nordisk continues to consolidate its leadership position in the European insulin market with a 57% volume share of the total market and 48% of the modern insulin segment. 30 million people living in Europe are estimated to have diabetes, and 7 million of these are currently being treated with insulin. Novo Nordisk has directly trained or educated 45,000 healthcare professionals through its National Changing Diabetes Programmes. Performance in North America is driven by the modern insulins NovoLog®, NovoLog® Mix 70/30 and Levemir®, launched in 2006. More than one-third of the sales of modern insulins are in the leading prefilled, ready-to-use device, FlexPen®. Novo Nordisk remains the leader in the US insulin market, holding more than 40% of the total volume market, and now accounts for more than 27% of the modern insulin segment. 21 million people living in North America are estimated to have dia- betes, and 6 million of these are currently being treated with insulin. Novo Nordisk has directly trained or educated 70,000 healthcare professionals through its National Changing Diabetes ProgramSM. Performance in International Operations is driven by modern insulins as well as human insulin. In some countries sales are based on public tenders, and outcomes of these can have a notable positive or negative impact on a year’s sales. China continues to be a significant growth driver, contributing more than 40% of the insulin sales growth. 187 million people living in coun- tries within International Operations are estimated to have diabetes, and 10–13 million of these are currently being treated with insulin. Novo Nordisk has directly trained or educated 124,000 healthcare professionals through its National Changing Diabetes Programmes. Performance in Japan & Oceania reflects the sales growth of the modern insulins NovoRapid® and NovoRapid Mix® 30. 8 million people living in Japan & Oceania are estimated to have diabetes, and 1 million of these are currently being treated with insulin. Novo Nordisk has directly trained or educated 58,000 healthcare professionals through its National Changing Diabetes Programmes. Novo Nordisk Annual Report 2006 17 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Therapeutic area Compound Indication Diabetes care n i l u s n I Levemir® Insulin detemir NovoMix® 50 and NovoMix® 70 Insulin aspart mix Types 1 and 2 diabetes Types 1 and 2 diabetes Biopharmaceuticals AERx® iDMS Types 1 and 2 diabetes NN344 NN5401 Types 1 and 2 diabetes Types 1 and 2 diabetes Liraglutide (NN2211) Type 2 diabetes Liraglutide Obese, non-diabetic people NovoNorm® Fixed Combo (NN4440) Type 2 diabetes NovoSeven® Intracerebral haemorrhage Bleeding in emergencies, intracerebral haemorrhage NovoSeven® Trauma NovoSeven® Cardiac surgery NovoSeven® Spinal surgery NovoSeven® Traumatic brain injury NovoSeven® Prophylactic treatment rFVIIa Analogue rFXIII Cardiac surgery Norditropin® Dialysis patients Activelle® Low-dose Vagifem® Low-dose IL-21 Anti-KIR Bleeding in emergencies, trauma Elective surgery, cardiac surgery Elective surgery, spinal surgery Bleeding in emergencies, traumatic brain injury People with haemophilia with inhibitors Haemostatic agent Elective surgery, cardiac surgery Adult patients in chronic dialysis (APCD) Hormone replacement therapy Hormone replacement therapy Oncology, malignant melanoma Oncology, acute myeloid leukaemia 1 - P L G l a r O s i s a t s o m e a H H G h T R H l y g o o c n O pipeline overview Novo Nordisk’s research and development efforts focus on offering superior therapies that help save people’s lives or improve their quality of life. In diabetes care the aim is to maintain the company’s position as the world leader. In biopharma ceuticals the aims are to expand the franchise within haemostasis and growth hormone deficiency, and to build a presence in inflammation and oncology. The strategy is to address unmet medical needs by leveraging the company’s core capabilities within diabetes research, pro- tein delivery and therapeutic proteins. Phase 1 Studies in a small group of healthy volunteers, and sometimes patients, usually between 10 and 100, to test a new drug for best dosage and potential side effects. Phase 2 Testing a drug at various dose levels in a larger group of patients to learn about side effects, the body’s use of the drug and its effect on the condi- tion. Phase 3 Studies in large groups of patients all over the world, comparing the new medication with a commonly used drug or placebo for both safety and efficacy. Filed A New Drug Application is submitted for review by various government regulatory agencies. Õ The R&D pipeline is updated quarterly at novonordisk.com/investors 18 Novo Nordisk Annual Report 2006 Description Phase 1 Phase 2 Phase 3 Filed A soluble basal modern insulin with neutral pH and a mechanism of protraction that pro- vides a smooth and predictable action profile and offers a longer dur ation of action com- pared with conventional NPH. Approved in Europe and the US. Filed in Japan. Premixed formulations of the rapid-acting modern insulin, insulin aspart. Provide a combined rapid- and intermediate-acting insulin effect (at the ratio of 50/50 or 70/30). The AERx® insulin Diabetes Management System is a delivery system for inhalable insulin. A neutral, soluble, long-acting modern insulin with a very flat and predictable action profile. A next-generation insulin. A once-daily, long-acting analogue of human GLP-1. Potential benefits: reduced food intake and induced weight loss. A tablet formulation combining the short-acting insulin secretagogue repaglinide with an insulin-sensitising agent, metformin, in a single tablet. In a phase 2b study NovoSeven® has been demonstrated to reduce haematoma growth, improve treatment outcome and reduce mortality. In a phase 2b study NovoSeven® has been demonstrated to reduce transfusion needs in patients with severe blunt trauma. Potential benefits: improved haemostasis. In a phase 2a study NovoSeven® has been demonstrated to reduce blood loss during spinal surgery. Potential benefits: reduced intracranial bleeding. Potential benefits: prevention of bleeding. Potential benefits: further reduced bleeding in people with and without haemophilia. Coagulation factor XIII plays an important role in the maintenance of haemostasis through cross-linking of fibrin and other coagulation molecules. Potential benefits: reduced mortality. Low-dose continuous-combined product. Approved in the US. Filed in Europe. Low-dose topical product for vaginal application. Immuno-stimulatory protein that helps the immune system attack tumour cells. A fully human IgG4 monoclonal antibody. Novo Nordisk Annual Report 2006 19 Diabetes care we will be the world’s leading diabetes care company Diabetes is a pandemic. The International Diabetes Federation (IDF) projects an increase from the current 246 million people with dia betes to 380 million in 2025. Some 70% of this growth is predicted to oc- cur in the developing world, driven by increased urbanisation, seden- tary lifestyles and the adoption of diets high in fat, sugar and salt. Type 2 diabetes is now also affecting children and adolescents. Impaired glucose tolerance, often referred to as ‘prediabetes’, is also on the rise. IDF estimates that there could now be more than 308 million people with this condition worldwide, 60% of whom could develop diabetes. The problem is greatest in Asia, but in Africa too the data are alarming. If nothing is done to reverse the trend, many poor countries already overstretched by infectious diseases will face an insurmountable health crisis. Diabetes is a serious, chronic disease, but if it is detected early and treated properly, a person can lead a near-normal life. If not, it causes severe long-term complications and leads to premature death. It is also a costly disease, not so much in terms of medical costs, but be- cause of the cost of treating late-stage complications and indirect costs borne by the individual. Maintaining the edge With a global insulin market share of 52% and an outreach to 13–15 million people, Novo Nordisk is clearly the leader in diabetes care. And even though the marketplace is getting crowded, our biggest and toughest competitor is diabetes. It is our aspiration to defeat diabetes by finding better methods of prevention, detection and treatment. That is what lies behind our promise of changing diabetes. For any person with diabetes, whether type 1 or type 2, intensive blood sugar control is of critical importance to successful treatment. And here insulin remains the only consistently effective treatment. We are determined to maintain our edge, aiming to offer superior treatment and delivery systems. We are the world’s largest private sponsor of diabetes research, and our research efforts focus on pre- vention as well as improved medical treatment. We also see a clear need for collaboration between all parties in healthcare, and we therefore seek to drive more holistic approaches centred on the needs of the person with diabetes. Diabetes research offers many effective tools, but science and technology alone are not the solution. To pave the way for real changes, we need to apply our knowledge and existing technologies in radically new ways by organising our efforts, partnerships and care strategies around the best value for people with diabetes. That is why we develop scenarios to explore the options. The current pharma business model is being challenged, and the healthcare system as we know it today seems unsustainable. Rather than adapting to what the future might bring, we have chosen a more proactive stance. We will shape the future of diabetes. 20 Novo Nordisk Annual Report 2006 Having arrived in the US from Central America as a teenager, Odette Chida is now helping Spanish-speaking patients in a Novo Nordisk-sponsored study of diabetes among low-income minorities. The study is being conducted at the University of California at Irvine. Odette has an interest in helping people with diabetes because the disease runs in her family. Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action The diabetes pandemic is a runaway train gaining speed. Focus is on slowing the train – ultimate success is to make it reverse. Jakob Riis senior vice president International Marketing diabetes care: sustaining leadership The vision of eventually defeating diabetes defines the strategic direc- tion of Novo Nordisk’s research efforts as well as the market approach to providing improved diabetes prevention, detection and care. And with the latest discoveries there is even renewed hope that the pro- gression of the disease may be halted. “We have framed our strategy around the promise of changing dia- betes. It is about improving the quality of life for people living with dia- betes today. That is an achievable goal. With modern insulin therapy that serves individuals’ varying needs and lifestyles, people with dia- betes can bring their blood sugar in control to avoid the devastating long-term complications. This is the focus of our strategy and our portfolio of advanced products and delivery systems,” says Kåre Schultz, executive vice president and chief operating officer (COO). Longer-term efforts will focus on research to find the cure for type 1 diabetes, and on ways of intervening to prevent the onset of type 2 dia - betes. Novo Nordisk’s 20-year scenario planning helps to identify alter- native futures that can shape strategic initiatives and innovative ap- proaches. As the world leader in diabetes care, Novo Nordisk wants to be the preferred partner of healthcare professionals and policy-makers. “We have more than 80 years’ experience, knowledge and re- sources and the commitment needed for the long-term view to drive the change we want to see in diabetes,” says Kåre Schultz. Control matters In 2006, the American Diabetes Association (ADA) and the European Association for the Study of Diabetes (EASD) issued a joint consensus statement on the treatment of type 2 diabetes. They recommended tight blood sugar control and early addition of insulin therapy in pa- tients who do not meet target goals. The two associations also con- cluded that insulin is the most effective of all glucose-lowering agents, with the potential to reduce any level of HbA1c in people with diabetes to, or close to, the therapeutic goal. HbA1c is a measure of a 22 Novo Nordisk Annual Report 2006 Diabetes highlights World leader in insulin sales, with a 52% market share. Levemir® launched in the US. Liraglutide, a GLP-1 product for treatment of type 2 diabetes, has entered phase 3 trials. AERx® iDMS, a delivery system for inhalable insulin, has entered phase 3 trials. Next-generation modern insulins have entered phase 1 trials. FlexPen®, an insulin delivery system, is the most sold insulin delivery device in the world. person’s average blood sugar level over a period of two to three months. Today, an estimated two-thirds of people with diabetes are not in good control. Tailored solutions It all comes down to choice. People with diabetes require different treatments, and requirements may change over time. By choosing the treatment best suited to the individual, there is a greater chance of an optimal outcome. Novo Nordisk’s deep knowledge of the needs of people with diabetes is an asset in a competitive environment. “The insulin market is growing by around 5% measured in vol- ume, and Novo Nordisk is currently outperforming this. We are deter- mined to keep that edge. There is evidently a potential for additional growth that we will seek to capitalise,” says Jakob Riis, senior vice president, International Marketing. In 2006, Novo Nordisk launched its latest modern insulin, Levemir® – already on the market in Europe for almost two years – in the US. At the ADA meeting in 2006, Novo Nordisk presented results from the German arm of the PREDICTIVE™ study, a global observational study of Levemir® in more than 30,000 people with type 1 or type 2 diabetes. The results show that treatment with Levemir® improves total gly- caemic control, and reduces weight gain. More convenient insulin delivery Insulin delivery is a key strategic area of diabetes research at Novo Nordisk, addressing demands for devices that offer a combination of convenience and accurate dosing. For some people with diabetes, in- jections are a significant barrier to insulin initiation, and therefore to optimal diabetes control. That is why the company is strongly com- mitted to pursuing inhalable insulin as an additional delivery option. Novo Nordisk’s inhalable insulin project, AERx® iDMS, entered into phase 3 clinical trials in 2006. A smaller, more compact successor device to the first-generation product is in the design phase. Liraglutide shows solid potential The diabetes care pipeline is built around further improving Novo Nordisk’s modern insulins and new treatment options. Type 2 dia- betes usually progresses over several years as the pancreas gradually The liraglutide molecule (left). 1 May: Researchers at Novo Nordisk Delivery Technologies in Hayward, California, celebrate the resumption of the phase 3 trials for AERx® iDMS (right). Kylie Sims has type 1 diabetes and lives in Australia. She has reached a level of control both she and her doctor are proud of (below). loses the ability to produce insulin and treatments lose their effectiveness. “Today, people diagnosed with type 2 diabetes in its early phase are first offered lifestyle intervention, then oral antidiabetic agents, and eventually insulin. We believe that we can soon offer a range of new protein-based options that could dramatically change diabetes treatment,” says Peter Kurtzhals, senior vice president, Diabetes Research Unit. Such treatment options include liraglutide, the first human com- pound in a new class of therapies for type 2 diabetes. It is a modifica- tion of the natural hormone GLP-1 (Glucagon-Like Peptide) produced in the gut. It can be described as restoring the function of ‘tired’ or worn-out insulin-producing cells. Liraglutide is expected to be the first human, once-daily GLP-1 product available on the market. Results from phase 2b trials presented in 2006 show improved glycaemic control and significant weight loss, which will be evaluated further during phase 3 clinical studies. “Liraglutide’s effect on the pancreas depends on the level of glu- cose in the blood,” says Peter Kristensen, project vice president for liraglutide. “For example, when glucose levels are normal or high, liraglutide improves the secretion of insulin, but if blood glucose levels are below normal, the compound has no effect. No other anti - diabetic medication can achieve that. “With liraglutide we have for the first time the potential to inter- vene in the disease progression. This will have to be investigated in long-term clinical studies,” he says. Next-generation insulins An additional area of diabetes research is next-generation insulins: In 2006, Novo Nordisk entered into phase 1 clinical trials with two next- generation insulins. Next-generation insulins are offering even better safety and efficacy than previous generations. Obesity is a major risk factor for diabetes. That is why in 2007 Novo Nordisk plans to launch a phase 2 trial of liraglutide as an antiobesity agent for treatment of obese, non-diabetic people. Õ novonordisk.com/annual-report Click: what we do What is modern insulin? A look at the Novo Nordisk diabetes portfolio Modern insulins, also called insulin analogues, are designed to mimic the body’s own physiological insulin regulation of blood glucose levels more closely than human insulin. Modern insulins offer better glucose control, less hypoglycaemia and increased convenience, leading to fewer serious complica- tions and better treatment outcomes. Modern insulins are classified by how fast they start to work in the body and how long their effects last. Different types of insulin work differently, depending on many factors such as the body’s individualised response to insulin, lifestyle choices, including type of diet and amount of exercise, and how well blood sugar levels are managed. Because there is no ‘one-size-fits-all’ approach to diabetes treatment, Novo Nordisk offers a full portfolio covering fast- acting, long-acting and premixed modern insulins: n Levemir®, a long-acting basal insulin that provides effective control and less weight gain. n NovoRapid®, which gives tighter blood glucose control at mealtimes without increased risk of hypoglycaemia. n NovoMix® 30, a dual-release modern insulin that covers both mealtime and basal requirements. Novo Nordisk Annual Report 2006 23 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action 28 March: Martin Soeters, president, Novo Nordisk Inc., celebrates the US launch of Levemir® with a crowd of diabetes care specialists (left). 6 October: Kåre Schultz, executive vice president and chief operating officer, discusses the company’s US activities with investors and analysts on Capital Markets Day (right). focused strategy in the US targets diabetes crisis Novo Nordisk employees in the US are on a mission. They are working to slow down one of the biggest public health issues faced by Americans: diabetes. The numbers are staggering. According to the National Institutes of Health, close to 21 million Americans have diabetes and nearly a third of those are unaware they have it. Another 54 million are esti- mated to be at risk of developing diabetes. The US Centers for Disease Control and Prevention predict that by 2025 the number of Americans with diabetes will rise to 50 million. Given the enormous scale of the diabetes epidemic in the US, it is not surprising that the US is a key growth driver for Novo Nordisk. But the way that Novo Nordisk is building its business in the US is not just a matter of presenting a robust portfolio of products. A broad strat - egy, underpinned by the company’s Triple Bottom Line approach, aims to make Novo Nordisk stand out in an increasingly competitive environment. Multi-faceted strategy The main elements of the strategy are: n Products and devices. With the launch of its long-acting basal insulin Levemir® in the US in 2006, Novo Nordisk is the only com- pany offering a complete portfolio of modern insulins and insulin delivery systems. n Dedicated field force with extended reach. To be competitive in an environment of several, much larger companies, Novo Nordisk has been steadily expanding its field force in the US. An additional 400 individuals were hired in preparation for the Levemir® launch, and during the first half of 2007 another 700 people will be hired, bringing the total sales force to 1,900. n Strong values-based culture. The Triple Bottom Line as a business 24 Novo Nordisk Annual Report 2006 principle plays a big part in attracting and retaining talented peo- ple and enhancing relationships with stakeholders. n Focus on health economics. Demonstrating the health and socio- economic benefits of improved diabetes treatment is the key to achieving a high rate of access and reimbursement for Novo Nordisk products. n Public policy initiatives. Through the Novo Nordisk National Changing Diabetes ProgramSM and the Novo Nordisk US Govern - ment Affairs office, Novo Nordisk is working with partners to make positive changes in the prevention, detection and treatment of diabetes. The strategy appears to be successful. Today, Novo Nordisk claims the leading insulin volume share in the US, outpacing much larger competitors. “Novo Nordisk is committed to changing diabetes on a broad scale, in partnership with all the key players in the diabetes field. For us, changing diabetes means more focus on prevention and earlier detection of diabetes as well as improved quality of life for people with diabetes,” says Martin Soeters, president, Novo Nordisk Inc. Approach tailored to the individual A complete portfolio of modern insulins and devices has been instru- mental in building leadership in the US, according to Camille Lee, vice president, Diabetes Brand Marketing, Novo Nordisk, Inc. “This ap- proach makes a big difference not only to people with diabetes, but also to physicians, who find that individually tailored solutions often produce better outcomes among their patients,” says Camille Lee. “The launch of Levemir® in the US is progressing well. It has been well received by healthcare professionals, people with diabetes, and managed care organisations, thereby increasing the use of our mod- ern insulins to enhance patient care,” she adds. Looking at the cost of diabetes Meanwhile, other parts of the organisation have been working hard to secure access and reimbursement of Novo Nordisk products from both managed care and government health insurance providers in Getting people in good control is what drives us. Our competition is diabetes – not other companies. Camille Lee vice president Diabetes Brand Marketing, Novo Nordisk Inc. Beverly Owens lives in Los Angeles, California. She was diagnosed with type 2 diabetes in 2004, and is continually working to stay in good control. the US. This has included ensuring that Novo Nordisk products are on the managed care ‘formularies’, or restricted lists of reimbursable drugs. Today, more than 75% of all Americans with health insurance can choose a modern insulin from Novo Nordisk and claim reimburse- ment in full or in part. Strong health-economic arguments have played a key role in the success in obtaining a high level of formulary coverage for both in- sulin products and devices, according to Garrett Ingram, senior dir - ector, Managed Markets Strategy and Health Economics Outcomes Research. In fact, such arguments were critical to Levemir® receiving a high level of coverage as early as at the time of launch. In comparison, it usually takes 12 to 18 months for a newly launched product to even get reviewed by managed care plans. “We were able to show that in actual clinical practice Levemir® carries a number of clinical benefits such as improved glycaemic con- trol, a low rate of glycaemic episodes, and less weight gain,” says Garrett Ingram. “As healthcare costs continue to rise, it will be in- creasingly vital for companies to demonstrate the overall value of a product,” she adds. A catalyst for change Effective diabetes care relies on more than access and availability of advanced products. Novo Nordisk is working with many different partners to make changes in the US system of healthcare to help im- prove detection and treatment of diabetes. The Novo Nordisk Government Affairs office in Washington DC, for instance, is advocating for legislation that would remove barriers to and provide new incentives for diabetes care, enhance medical training, and help people with diabetes manage their condition more effectively. It is also developing a national effort, together with the American Diabetes Association and other partners, to promote dia- betes and prediabetes screening among Americans 65 years and old- er. Novo Nordisk has made a three-year, million-dollar commitment to pursue this as part of the Clinton Global Initiative. Through the Novo Nordisk National Changing Diabetes ProgramSM, Novo Nordisk is working as a catalyst and collaborator to create change in the US system of healthcare that will provide dramatic im- provements in the prevention and care of diabetes. This includes pro- viding patient education, implementing a system to track the state of diabetes, overcoming barriers and offering incentives for quality dia- betes care, supporting medical education and training in chronic care. In 2006, this led, among other things, to the initiation of a study to assess the impact of federal spending on diabetes in the US, the intro- duction of a National Report Card to assess the current status of dia- betes in the US, and the launch of DiabetesXchange, a national re- sources website to share diabetes projects, ideas and learnings across the country. “The National Changing Diabetes ProgramSM is one of the ways in which we act on our social responsibility,” says Dana Haza, senior dir - ector of the programme. “We are a nation facing a diabetes crisis. As leaders in diabetes care, we have to try to reverse the alarming trend and change things for the better.” Challenges ahead In a diabetes market that is getting ever more crowded, it is this multi- faceted strategy that will sustain Novo Nordisk’s lead, according to Martin Soeters. By the end of 2006, North America represented 32% of Novo Nordisk’s global sales. Martin Soeters wants to see that number rising in the coming years so that Novo Nordisk’s sales in North America get closer to reflecting the 50% share that North America has of the global market for pharmaceuticals. Given the urgency of the diabetes crisis and Novo Nordisk’s deep and long-standing commitment to dia- betes, combined with the success of other key products such as NovoSeven® and Norditropin®, he believes that such a goal is achiev- able – even in a fiercely competitive environment. “There is still a long way to go to optimal diagnosis and treat- ment,” says Martin Soeters. “With two out of three people not in good control of their diabetes, there is still a great deal more that needs to be done. I am excited by the progress we have made in help- ing more people achieve better control and raising the awareness of diabetes for so many others. But this is only the beginning.” Õ novonordisk-us.com Novo Nordisk Annual Report 2006 25 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Hannelore Meyer has type 2 diabetes and lives with her husband in São Paulo, Brazil, one of the four BRIC countries (Brazil, Russia, India and China) with high economic growth. . Novo Nordisk is well positioned for significant value upgrades in the IO region and for future growth in all therapy areas. Jesper Høiland senior vice president International Operations long-term presence in emerging markets pays off In Montes Claros, Brazil, Novo Nordisk is on the fast track. With an in- vestment of more than 200 million US dollars and the exemplary teamwork, with around 2,200 locally hired labourers, craftsmen, technicians and engineers, working alongside Novo Nordisk’s own staff of 760 people, the first batch of Penfill® cartridges went into cold storage in October 2006 at the company’s newest insulin filling plant. Marcelo Zuculin, vice president at site Montes Claros, and his team are in business. This milestone completes a project that began in April 2004 when 11 senior project managers and their families arrived from Denmark. Using the ‘fast-track’ method, construction was completed in just 18 months – ahead of schedule and below budget. After extensive tests, training and validation, concluded by a successful five-day inspection, Novo Nordisk received the formal approval to begin production. Process validation is expected to finish in April 2007. And the site’s insulin products are in great demand. An estimated 7 million people in Brazil have diabetes, and the country’s prevalence of diabetes is at 6–8% and growing fast. With its scaled-up presence in the region, Novo Nordisk is prepared to improve prevention, detec- tion and treatment of diabetes. Focus on opportunities in BRIC countries This commitment is just one example of the investments that Novo Nordisk is making in emerging markets, where access to medicine and healthcare is often limited. Helping to create a sustainable health- care infrastructure is therefore crucial to building the business. Over the years, the company has invested in the education of healthcare professionals and awareness-raising among policy-makers, and has helped build diabetes clinics in many parts of the world. These efforts have helped position the company well for the future in a market with much commercial potential and a significant need for improved dia- betes care. 26 Novo Nordisk Annual Report 2006 Brazil is one of the 150 countries covered by what Novo Nordisk refers to as International Operations (IO). It encompasses markets outside North America, the EU, Japan & Oceania. The population of the IO countries is 5.2 billion people or some 80% of the world’s pop- ulation, and includes 80% – 197 million – of all people with diabetes. The region represents 50% of the GDP growth in the world today, but it is a growth that is very unevenly distributed. For years, Novo Nordisk has been a leader in the diabetes care mar- ket in this region. Jesper Høiland, senior vice president of Inter - national Operations, expects that the company will outperform its current 14% annual growth in sales in the coming years. Today, people using oral antidiabetics (OAD) in the IO region outnumber those who use insulin in line with the joint consensus from ADA and EMEA. Even though Novo Nordisk does have a share of the OAD market with NovoNorm®, the company recommends early initiation of insulin therapy. The strategy is to continue the roll-out of modern insulins, which have so far been introduced in 25 IO markets. The growing middle and upper classes in countries such as China and India represent a vast potential market for optimal treatment. Financial analysts have been particularly interested in the BRIC countries: Brazil, Russia, India and China. Analyst projections indicate that the market here for top-line treatment will grow from the current 3 million to 28 million people with diabetes by 2030. That would make the combined BRIC market for diabetes care greater than in the United States, with a predicted increase from 16 to 27 million. Novo Nordisk’s own analysis of the BRIC markets shows a com- pound annual sales growth rate of 43% from 2002 to 2006. Other markets outside BRIC – Turkey in particular – have also shown strong growth and potential. Staying power Among the reasons for Novo Nordisk’s insulin leadership in IO mar- kets is the company’s presence at a time when no one else has taken an interest in the market and its perseverance through challenging times. Presence is not just about marketing goods. With expanding production sites in Brazil and China as well as a research facility in China, Novo Nordisk contributes to economic growth and social devel- opment in the communities. With its holistic and long-term view of the business, Novo Nordisk has earned invaluable trust among local author- ities, customer loyalty and brand recognition in these strategic markets. Novo Nordisk sales representatives from India celebrate a good month for sales in India (left). 27 October: The filling plant in Mon tes Claros, Brazil, becomes a fully operational production site and celebrates the successful con- clusion of a five-day inspection by the Danish Medicines Agency (right). “Novo Nordisk’s global standards for environmental management, workplace quality and ethical business conduct demonstrate how we strive to do business in a sustainable way, and they are important to win the support of payers, policy-makers and the public to help pro- vide better diabetes care in their countries,” says Jesper Høiland. Performance at a glance This approach is likely to pave the way for sustained success in the IO region. A dual structure, with a growing private market alongside the public tender market, characterised by relatively high volume and low prices, makes for a volatile market in which business forecasting can be a challenge. That is why Novo Nordisk pursues a multi-pronged market strategy based on engagements with key stakeholders and a combin ation of products and services. In Brazil, where 7 million people have diabetes and only 10% are receiving proper treatment, there is a huge market potential. Here, Novo Nordisk offers its full range of modern insulins and has an over- all insulin volume market share of 68% in the private market. In Russia, an estimated 10 million people have diabetes. L’gota, a state-funded healthcare programme, is seeking to catch up with the population’s needs for improved care and has had a positive impact on the market. More recently, diabetes has been given special priority. Novo Nordisk’s insulin volume market share is around 50%. India has about 41 million people with diabetes and no public healthcare plan to support their treatment. This is the largest IO mar- ket in terms of sales volume, but prices are low. Novo Nordisk offers its full portfolio of modern insulins, and although penetration re- mains modest, the company is maintaining its leadership with some 57% volume market share, despite tough competition from lower- priced, biosimilar products. In China, the estimated number of people with diabetes is about 40 million. Only 130 million of its 1.3 billion inhabitants have health insurance. This is the largest IO market with an insulin value market share of 75%, and a volume market share of 60%. Many biosimilar insulin manufacturers reside here, but their market share does not ap- pear threatening. In Turkey, more than 3 million people have diabetes. It is one of the fastest-growing IO markets, and modern insulins are rapidly pene - trating this market. In fact, Turkey represents one-third of all Novo Nordisk’s sales of modern insulins in IO, driven by NovoMix® 30. The company has a value market share of 58%. 17 March: Novo Nordisk inaugurates a major expansion of its produc- tion facilities in Tianjin, China. A strong presence in China In just over a decade Novo Nordisk has built up a stronghold in China, where it is now the largest company engaged in dia- betes care. Company revenues passed 1 billion Danish kroner in 2005, and with an insulin value market share of 75% in 2006, Novo Nordisk is the clear market leader. Today, Novo Nordisk China employs close to 1,000 people. This includes a sales and marketing force with representatives in each of the country’s 31 provinces, plus employees at the recently-expanded NovoPen® 3 production site in Tianjin and at the Novo Nordisk research facility in Beijing – the first R&D centre to be established by an international biopharmaceut - icals company in China. Novo Nordisk China boasts an impressive compound an- nual sales growth rate of 44% since 2002. This is the result of concerted efforts to put diabetes on the agenda and to pres- ent the company as having the best products and the most ex- tensive knowledge of diabetes. Novo Nordisk is working on a five-year programme with the Chinese Ministry of Health to provide diabetes education and establish models of diabetes care in hospitals and community health centres. Every year, an average of 80,000 physicians receive diabetes training in a Novo Nordisk education programme, and the patient net- work NovoCare Club has more than 400,000 members. “Chinese patients want the best possible treatment, and Novo Nordisk is seen as the company with the most sophis - ticated products and devices,” notes General Manager Ron Christie, Novo Nordisk China. “We have also helped establish and support organisations for physicians and patients, and we offer professional diabetes training. All of this is appreciat- ed by the diabetes community and contributes to the percep- tion of Novo Nordisk as the leading diabetes company here.” Novo Nordisk Annual Report 2006 27 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action reaching across the global health divide Changing diabetes is no easy task. The crisis is evident: the number of people with diabetes in the world is expected to grow from the current 246 million to 380 million in 2025. Today, 80% of all people with dia- betes are living in the developing world. Most developing countries lack the resources to provide the health- care that their populations need. But, doing nothing is also costly: the burden of chronic disease has major economic effects on families, communities and societies. The same is true for much of the devel- oped world, where people with diabetes are more likely to receive care, but still more often than not do not achieve their treatment tar- gets, with devastating effects in both human and economic terms. For example, the World Health Organization has estimated that China will forego 558 billion US dollars in national income over the next 10 years as a result of premature deaths caused by heart disease, stroke and diabetes. Strategic approach Novo Nordisk’s strategic response to the challenges of inadequate ac- cess to proper healthcare is embedded in the approach to doing busi- ness in local markets. In 2001, the company launched several initiatives to drive change by coordinated efforts using the four levers recom- mended by the World Health Organization: development of national health strategies, build-up of national healthcare capacity, best possi- ble pricing and additional funding. Key elements in the programmes are public awareness and education, not only of healthcare profes- sionals, but also people with diabetes and those at risk of getting it. Changing diabetes in the world’s poorest countries Novo Nordisk supports the United Nations Millennium Development Goals, and its strategy on access to health recognises the link be- tween poverty and ill health. In the past decade Novo Nordisk has demonstrated leadership in driving measurable improvements in access to diabetes care in the world’s poorest countries. It has also managed to do the right things from the beginning, even under difficult conditions and despite limit- ed resources. That was the conclusion of an independent internation- al advisory board. Overcoming the global health divide relies on a mix of on-the- ground initiatives and structural changes. Medicines are just one ele- ment. That is why Novo Nordisk’s World Partner Project (WPP) engages with local partners, typically health ministries and patient organisations, to help build healthcare strategies. It focuses on eight developing countries: Bangladesh, India, Malaysia, China, Costa Rica, El Salvador, Tanzania and Zambia. New funding has been reserved in 2007 for projects in three new focus areas: Nigeria, Mexico and Indonesia. Since 2001, WPP has delivered proposals for innovative and sus- tainable models of diabetes care in developing countries. Three ingredients are essential: drivers of the process, awareness and knowledge of diabetes, and a healthcare infrastructure. Among other things, WPP has enabled distance-learning for doctors, foot clinics for advocating sustainable healthcare Novo Nordisk advocates a more seamless system of care in which medical treatment is just one element. Equally important are educa- tion, effective data management and clarity on roles and responsibil - ities. The objective is health policies that focus on optimal patient out- comes. The company has laid out a new, global Public Affairs strategy with the overall ambition of breaking the diabetes pandemic curve. Special attention is given to halting the debilitating, costly and largely preventable late-stage complications. The aim is to encourage a more collaborative approach with industry as part of the solution for better health outcomes. This implies an approach that goes beyond debates on costs in the annual budgets. Challenging views on the cost of diabetes care Governments and politicians across Europe are facing a dilemma. They need to curb public spending and surging healthcare costs, but at the same time populations are aging and lifestyle-related diseases abound. In this environment, acknowledging the diabetes pandemic appears 28 Novo Nordisk Annual Report 2006 as yet another cost burden. Reimbursement of advanced pharmaceut - ical products becomes an issue of concern. Diabetes is a chronic condition that requires attention every single day. Proper care relies on self-management as well as consultations with general practitioners and specialist doctors and nurses. Even modest investments in improved medical treatment and care pay off as significantly reduced total healthcare costs, in particular for hospi- talisation to treat late-stage complications. And the poten- tial gains would benefit public healthcare budgets as well as quality of life and personal costs for in- dividuals. Such a long-term view, however, is rarely taken in practice. Try the interactive challenge ‘The Convincer’ at novonordisk.com/annual-report Diabetes on the political agenda in Germany In 2006, the German healthcare authorities decided they would no longer reimburse rapid-acting modern insulins for type 2 diabetes, stating that the higher price as compared with human insulin was not justified. Novo Nordisk opposes this decision, arguing that modern in- sulins provide greater predictability and improved glucose control. The company is now negotiating individually with more than 250 health insurance funds to win reimbursement by offering rebates and demon- strating the benefits of modern insulins in terms of patient outcome. Bich-Chan Thran (left) and Molan Doan are long-time best friends and volunteers at a diabetes clinic with a special programme for people of Vietnamese origin. treatment of diabetic foot complications in Bangladesh, and diagno- sis and treatment of diabetes for thousands of Tanzanians in a net- work of newly established diabetes clinics. Low-income minorities in the developed world A new initiative aims to bridge disparities in the developed world, tar- geting low-income minorities such as various ethnic, cultural and reli- gious groups as well as persons who are marginalised due to age or social standing. In some cases these groups have a significantly high- er risk of developing diabetes, and their chances of successfully man- aging their condition are limited. The project assesses the special needs of these groups and offers sustainable solutions. A report en - titled Dealing with difference, maps the situation, as identified at workshops with stakeholders and offers practical examples of ways to help low-income minorities. The report will serve as the platform for a series of follow-up activities in 2007. Tangible results Results in 2006 include: n Currently 329 National Changing Diabetes Programme activities in 66 countries – reaching out to 31 million people. n A total of 297,000 healthcare professionals were directly trained or educated, and 1,060,000 people with diabetes were directly trained or treated. n Pricing policy offered in the 50 least developed countries. In 2006, Novo Nordisk sold insulin at or below a price of 20% of the aver- age prices for insulin in the western world in 34 of these countries. Õ novonordisk.com/annual-report Click: how we perform/access to health Decisions such as that of the German government may impede the growing recognition that diabetes is one of Europe’s major health challenges. In 2006, the European Union’s Health Council unani- mously adopted a document calling for prevention of type 2 diabetes. improving diabetes care in the poorest nations Closing the gap saves lives and money A recent study conducted by researchers at the University of Southern Denmark and the University of Aarhus in collaboration with Novo Nordisk looked at the socio-economic costs of diabetes care. The hospitalisation costs for a person with severe complications are 10 times higher than the costs for people with well-controlled dia - betes. On average people with diabetes have five years shorter life ex- pectancy and cost almost three times more in hospitalisation cost than the general population. Moreover, the indirect costs are at least as high as the direct costs of treatment and in some countries even higher. The findings show that the complications of diabetes can be avoided by closing the gap between the treatment currently offered to people with diabetes and what could be offered based on available guidelines and scientific knowledge. Closing that gap would save both money and lives. Sustainability is the key when the World Diabetes Foundation (WDF) grants support for the fight against diabetes in the world’s poorest countries. Projects funded by WDF must be designed to remain sustainable and benefit local capacity building once the support ends. The objective is to reach out to people with diabetes and to get diabetes care and preven- tion on the agenda, locally and globally. The ability to facili- tate concerted efforts makes a tangible difference. At the end of 2006, WDF had funded 95 projects in more than 69 countries. If all projects have the intended impact, they could have a direct influence on some 40.5 million peo- ple affected by new initiatives in diabetes awareness, advoca- cy and treatment. WDF is an independent trust, launched by Novo Nordisk in 2001 with a grant of 500 million Danish kro- ner (about 67 million euros) to be spent over 10 years to im- prove diagnosis, treatment and capacity building of diabetes in places where lack of funding is apparent. See more at www. worlddiabetesfoundation.org. Novo Nordisk Annual Report 2006 29 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action The UN Resolution on diabetes provides legitimacy to grassroots efforts: governments will recognise that diabetes is a silent killer and it deserves global attention. Clare Rosenfeld IDF youth ambassador a global drive to change diabetes With diabetes fast becoming the biggest pandemic of the 21st century and now causing at least as many deaths as HIV/AIDS, the Inter - national Diabetes Federation (IDF) has stepped up its efforts to bring this to the attention of policy-makers across the world. The global federation of 200 diabetes representative organisations therefore launched the ‘Unite for Diabetes’ campaign in June 2006 with the ambition to have the United Nations pass a Resolution on diabetes before World Diabetes Day 2007 (14 November) and make World Diabetes Day an official UN healthcare day. To this end, the IDF has suc- cessfully formed an alliance with patient associations, medical associa- tions and industry to rally for this cause. On 20 December 2006, only six months after the launch of the campaign, the General Assembly of the United Nations adopted, by consensus, a Resolution on diabetes. The Resolution designates World Diabetes Day as a United Nations Day, to be observed every year beginning in 2007, and encourages member states to develop national policies for the prevention, treatment and care of diabetes in line with the sustainable development of their healthcare systems. Novo Nordisk is committed to continuing to play an active leader- ship role in the ‘Unite for Diabetes’ campaign to ensure that action is taken and that each UN member state establishes national policies on the treatment, prevention and care of diabetes. The company will also establish high-level groups of experts to facilitate new solutions for change and drive better health outcomes for people with diabetes. Youth ambassadors carry the message Sponsored by Novo Nordisk, a group of youth ambassadors came to- gether for the first time in December 2006 in Cape Town, South 30 Novo Nordisk Annual Report 2006 Africa, just prior to the IDF World Diabetes Congress, to develop their leadership skills and frame individual plans of action. At a Novo Nordisk-sponsored forum entitled ‘Challenge for Change’, Lars Rebien Sørensen, president and CEO, invited the group to challenge the sta- tus quo in diabetes care and brainstorm new ways of addressing the global burden of diabetes. At a later meeting with the international press, they made three clear demands to today’s leaders: treat diabetes care as a basic human right; raise diabetes on the political agenda; and establish a basic understanding of diabetes through education. “We want to be seen as a resource, not as a burden. We know bet- ter than most what diabetes means, we know how big an undertak- ing it is to live with, and we know how to take good care of our health to stay fit and in control. We would like to share this insight, and we have our own stories to contribute,” said 21-year-old Clare Rosen - feld from the United States, who first con- ceived the idea that led to the UN Resolution. Clare has had type 1 diabetes since she was seven years old, and since she was 12, she has been a vocal cam- paigner for diabetes awareness. Each of the youth ambassadors came up with their personal 100- day plan of action for continuing advocacy in their home countries. Access to diabetes care is a human right Many of the youth ambassadors represented countries with a start - ling lack of knowledge about diabetes, resulting in poor access to care and treatment. This is not just a developing world issue, and the youth ambassadors have concluded that access to diabetes care is a human right which should no longer be violated. Novo Nordisk is addressing the need to provide better access to dia betes care and has already seen significant achievements in devel- oping countries through its World Partner Project and the World Diabetes Foundation. However, Lars Rebien Sørensen highlights that this is a task for governments: “Industry can take the lead, offer our- selves as partners and be catalysts for change, but we cannot and should not play the role of governments.” He acknowledges the im- 5 December: Martin Gatehi, John Felix Kusnawidjaja and Anja Nielsen, IDF youth ambassadors, share their vision for diabetes in 2012 at the Challenge for Change Forum in Cape Town, South Africa (far left). 14 September: The Changing Diabetes Bus began its journey with a visit to the Danish Parliament (left). 14 September: Lise Kingo, executive vice president and chief of staffs, talks with Danish MP Lone Møller about the journey of the Changing Diabetes Bus (right). portance of grassroots and the role that the young diabetes leaders will have in shaping a different agenda for people with diabetes. A rally for change As a participant at the IDF congress, Novo Nordisk expressed the urge for change. “Changing diabetes is a rallying cry; it is time to think dif- ferently and create new solutions to curb this silent pandemic,” said Charlotte Ersbøll, vice president of Corporate Branding and driver of the company’s long-term global changing diabetes effort. A sign of Novo Nordisk’s commitment to change diabetes was launched in September 2006 at the European Association for the Study of Diabetes (EASD) congress: the Changing Diabetes Bus, a rolling 63 m2 communication vehicle, will cross five continents in 18 months to reach out to people worldwide with diabetes awareness and edu- cation. Starting in Copenhagen, the bus has toured Germany, the Netherlands, Belgium, France and South Africa. The bus has reached policy- makers, the public, media, healthcare professionals and peo- ple with diabetes at every stop of its journey, and by the end of 2006 more than 28,000 people had visited the Changing Diabetes Bus and more than 25,000 of them signed the petition supporting a UN Resolution on diabetes. Senior public health figures have been engaged in the need for pri- oritising diabetes on the public health agendas and have signed a pe- tition to support a UN Resolution on diabetes. In Cape Town the bus was the centre stage of a Changing Diabetes Village. Here 5,600 guests, including conference delegates, media, policy-makers and local visit ors took the opportunity to have their blood sugar measured and learn about healthy living and ways of getting into good diabetes control. They were also encouraged to support the IDF ‘Unite for Diabetes’ campaign. The bus is continuing its journey to cities in Australia, Asia and Northern America. It will stop in New York on the first UN-observed World Diabetes Day in 2007. Õ novonordisk.com/annual-report Click: how we perform/advocacy OxHA: new partnerships – new solutions The Oxford Health Alliance is a public-private partnership launched in 2003 by Novo Nordisk and the University of Oxford to promote innovative action around preventing and reducing the global impact of chronic diseases such as dia- betes, cardiovascular disease, lung disease and some cancers. The OxHA Annual Summit 2006 was held in Cape Town, South Africa, in November. The Summit was co-hosted by the Medical Research Council of South Africa and the University of Cape Town. It was attended by more than 100 high-level representatives from business, academia, press and public policy-makers, veterans of the anti-tobacco campaigns, econ- omists, nurses, urban planners and youth organisations. More than 20 countries from Africa, North and South America, Asia Pacific and Europe were represented. The overall theme was ‘Health in transition: working together’. The OxHA Summit produced a set of goals to be achieved by next year’s summit in Sydney, Australia. The goals evolve around four themes: workplace health programmes; political priority to the economic case for change; design of healthy cities and an Urban Health Index; and, finally, engaging youth in communicating health. A new website, www.3four50.com, will promote chronic disease prevention. Lise Kingo, executive vice president and chief of staffs (COS), attended the OxHA Summit. “We are on the lookout for the type of partner projects that can drive sustainable change in diabetes. The Oxford Health Alliance is a forum where new ideas and social innovation see the light of day and where opportunities for new partnerships will evolve,” she comments. See more at www.oxha.org. Novo Nordisk Annual Report 2006 31 Biopharmaceuticals we will offer products and services in other areas where we can make a difference The promise of breakthrough discoveries in biotechnology that can benefit many people’s lives is a factor that attracts both talent and venture capital to companies offering the environment, the resources and the critical mass to drive ideas through the pipeline. Few scien- tists will experience the privilege of seeing their own discoveries bene- fit patients, or perhaps even become blockbuster drugs with dramat- ic impacts. But the excitement that it could happen is ever-present. In today’s global healthcare market, it is imperative to focus exclu- sively on areas where leadership is possible. Market leadership is about competence as well as scale. Novo Nordisk is well placed for leadership in biopharmaceuticals; we have strong positions in the markets for congenital haemophilia with inhibitors, human growth hormone and hormone replacement therapy. Novo Nordisk is building a biopharmaceuticals franchise by ex- tending existing therapeutic products to new indications and estab- lishing a portfolio of offerings based on the approach that has suc- cessfully made us the leader in diabetes care. From the positions we have established in haemophilia, growth hormone therapy and hor- mone replacement therapy, we will explore new potential in other therapy areas that rely on the protein technology platform and so- phisticated protein delivery devices that are Novo Nordisk’s core com- petences. Building a presence within oncology and inflammation is a strategic investment in areas of unmet medical needs in which we can leverage our core competences. Innovation through partnerships Partnerships, both project-related and longer-term commitments, are one way of bridging gaps in areas where Novo Nordisk sees room to pursue business opportunities. In-licensing agreements, contract re- search and co-funded studies stimulate cross-fertilisation and mutual organisational learning as well as contributing to innovation for the benefit of patients. We pursue leads that appear medically and commercially viable. At the same time we are strategically scouting for suitable drug candi- dates discovered by others and seeking to form partnerships to help bring them to market. The entrepreneurial approach requires a greater appetite for risk and a sharp eye for making the prudent ‘go’ or ‘no go’ judgements. ‘Not invented here’ must not be a barrier to meeting medical needs. Novo Nordisk managers are encouraged to foster an environment of learning from others, and their perspective must be wide. It takes a global outlook to excel in biotechnology. And it takes patience to reap the rewards. 32 Novo Nordisk Annual Report 2006 At the Novo Nordisk research facility Novo Nordisk Park located in Måløv, Denmark, 843 researchers are working on innovative solutions in the areas of diabetes, critical bleeding, oncology, inflam - mation and growth hormone therapy. Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action We have turbocharged the portfolio of drug candidates in oncology and inflammation. We expect that most of the compounds we have selected will be in the clinic before the end of this decade. Terje Kalland senior vice president Biopharmaceuticals Research Unit Biopharmaceuticals highlights Thirteen clinical development projects with biopharmaceutical products are underway. The world’s second-largest provider of human growth hormone. A study for a novel indication in human growth hormone: adult patients in chronic dialysis, is in phase 2 trials. Low-dose version of Activella™ (Activelle® in Europe) approved by the FDA. Partnerships within oncology and inflam - mation have increased from one to four. biopharmaceuticals: the portfolio expands Some molecules have the potential to build a business. Using the ac- tive ingredient in NovoSeven®, recombinant factor VIIa (rFVIIa), as a basis, Novo Nordisk is expanding its franchise within haemostasis. New NovoSeven® formulations are in the pipeline, along with second- generation versions of rFVIIa. With NovoSeven® the company has the potential to gain a leadership position in haemophilia and to continue to pioneer the field of critical bleeding. “Our strategy is to expand in this area by modelling the biopharmaceuticals business on the full- portfolio franchise that the company has built over the years around another valuable molecule – insulin,” explains Mads Krogsgaard Thomsen, executive vice president and chief science officer (CSO). In October 2006, NovoSeven® was approved by the FDA for use in the US for acquired haemophilia, a rare and potentially fatal bleeding disorder. Sales potential for this indication was thus expanded beyond the markets in Europe and Japan, where the product was already ap- proved for this bleeding disorder. Exploiting the potentials of NovoSeven® Competition is as tough in the haemophilia business as anywhere else. Plasma-derived products are still being widely used for the treat- ment of people with haemophilia with inhibitors. NovoSeven® is a fast and effective alternative that is not plasma-derived, which improves its general safety profile. Another competitive parameter is price, which is why health-economic studies are gaining ground as decision- making tools for payers. Novo Nordisk sees a potential to gain market share by promoting the advantages of first-line use of NovoSeven® more widely. Thorough knowledge of the market is a key to successfully build- ing the haemophilia franchise. By adding new indications and follow- on versions of NovoSeven® to its portfolio, Novo Nordisk will be able 34 Novo Nordisk Annual Report 2006 to meet customer needs even better. For example, the future has the potential for Novo Nordisk to be able to reduce, or even avoid, uncon- trolled bleeds for people who have haemophilia with inhibitors. Within development, the company has assigned high priority to further rejuvenating the portfolio with new and patent-protected molecular entities that offer additional benefits to people with haemophilia. One such example is an improved, next-generation factor VII analogue known as NN1731. The engineered analogue re- combinant molecule will mimic normal clot formation in the patient more closely than the original rFVIIa molecule. Growing strong In the biopharmaceuticals segment, growth hormone showed the strongest growth in 2006; in just six years Novo Nordisk has effective- ly placed itself in the US market, steadily capturing an increasing share of the world’s biggest market for growth hormone. Novo Nordisk’s market share is 13%. A consistent upward trend in global sales solidly places Novo Nordisk as the world’s second-largest player, with an approximate 22% market share. The aspiration is to become number one, and the strategy to get there includes improving con- venience and efficacy as well as exploring new indications. Fuelling this ambition is the liquid Norditropin® product and the prefilled, ready-to-use NordiFlex® device, the convenience of which has been a major selling point. Development achievements in 2006 include phase 2 data from a novel Norditropin® indication targeting a large, unmet medical need among adult patients in chronic dialysis (APCD). An increased mor- bidity is typical for this patient group, and the annual mortality rate is around 20%. So far, it appears that growth hormone may improve this prognosis. Phase 3 clinical development is set to begin in mid-2007. New HRT products Prescriptions and sales of hormone replacement therapy (HRT) prod- ucts in general, including Novo Nordisk products, declined following the publication of results from the Women’s Health Initiative in 2003. Novo Nordisk’s position is that HRT should be prescribed at the lowest Nagisa Kishimoto has taken growth hormone injections and lives in Japan (left). Helen Farrelly from Ireland has benefited from hormone replacement therapy (right). The IL-21 molecule (below). effective doses and for the shortest duration consistent with treat- ment goals and risks for the individual woman. To help meet patient needs, the company is complementing its existing portfolio of HRT products with low-dose versions of Activelle® (Activella® in the US), approved by the FDA in 2006, and Vagifem®, which is currently in late-stage phase 3 development. Building a presence in immunotherapies A few years ago Novo Nordisk announced its intention to also build a presence within inflammation and oncology. “At that time, we had just one compound in the pipeline, namely IL-21. But we have set quite ambitious goals,” says Terje Kalland, senior vice president, Bio - pharmaceuticals Research Unit. Work is still in the early stages, but he is satisfied with progress. There is an on-track goal of having several products in the clinical pipeline by 2008. The strategy is firstly to use and develop the company’s existing knowledge of proteins and autoimmune diseases and secondly, to position Novo Nordisk as a preferred biotech partner for firms with complementary skills, for instance to gain a critical mass of product candidates for cancer therapies. In just one year, the company’s R&D partnerships in the areas of oncology and inflammation have increased from one to four. Two compounds are now in clinical trials. One is IL-21, in-licensed from ZymoGenetics, Inc. The compound is in phase 2a development for treatment of malignant melanoma and renal cell carcinoma, and in phase 1 for treatment of non-Hodgkin’s lymphoma. The other com- pound is anti-KIR, a fully human IgG4 monoclonal antibody, in- licensed from Innate Pharma. Novo Nordisk has obtained regulatory approval to initiate a phase 1 study to evaluate the safety of anti-KIR in patients with acute myeloid leukemia. In inflammation, preclinical work includes studies targeting rheuma - toid arthritis, psoriasis, atopic dermatitis and SLE, an autoimmune dis- ease that attacks the body’s joints, kidneys, heart, lungs and brain. Õ novonordisk.com/annual-report Click: what we do The successes carry you on It takes a special kind of person to work in research and devel- opment. Someone with lots of ideas, of course, but also someone who can live with the fact that only a fraction of their, or anyone else’s, ideas will ever make it all the way to the market. In leading the Biopharmaceuticals Research Unit, Terje Kalland tries to encourage this special way of thinking by con- gratulating people when their projects fail. “I am not happy that they failed, but I am happy to see their drive and the commitment they invest in the project. And I tell them to please continue to run the risk of failing,” he says. “You can reward people who never make mistakes for their solid performance, but innovation is about taking risks.” Even so, how can one be prepared to accept such high risks? “I have been part of putting two products on the market, and the sweet taste of that success is totally dominating. That is what drives you. The rate of project attrition is overwhelm- ing. Failure is a part of daily life. If there is no real benefit to the patient, or if there is even the slightest risk of significant adverse effects, we must discontinue the project. But the suc- cesses carry you on.” Novo Nordisk Annual Report 2006 35 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action NovoSeven® highlights Sales of NovoSeven® increased by 11% to DKK 5,635 million. NovoSeven® approved in the US for acquired haemophilia. Recruitment of patients completed for the phase 3 study on NovoSeven® for the treatment of intracerebral haemorrhage (ICH). Phase 1 studies of the compound NN1731, an improved rFVIIa analogue, completed. pursuing promising leads in haemophilia The effective treatment of haemophilia with NovoSeven® is at the core of Novo Nordisk’s strategy to expand the business and gain global leadership in haemostasis management. Research into the use of NovoSeven® both within and beyond haemophilia has opened up new prospects and is a key priority. The product is currently approved for treatment of haemophilia for patients with inhibitors in Europe, the US and Japan as well as certain markets in the Middle East, Africa, Asia and South America. The company has invested in research programmes within several potential indications with significant medical and commercial oppor- tunities. The results of these studies are avidly awaited. Novo Nordisk expects to complete a phase 3 trial with NovoSeven® in intracerebral haemorrhage (ICH) by the end of the first quarter of 2007, and a filing for regulatory approval is expected by mid-2007 in the EU and the US. At the same time, efforts are being focused on the existing haemophilia business. The main NovoSeven® patents expire in November 2010 (in the US) and February 2011 (in the EU). Novo Nordisk has given high priority to further rejuvenating its haemostasis port folio with new, patent-protected molecules. The development of a heat-stable version of NovoSeven® and studies on the use of NovoSeven® to prevent bleeds in people with haemophilia with in- hibitors are top priorities in this area. Unmet medical needs in haemophilia A heat-stable NovoSeven® product requiring no refrigeration would, for instance, make it possible for a boy with haemophilia with in- hibitors to carry a NovoSeven® kit, ready for quick action in the event 36 Novo Nordisk Annual Report 2006 of acute bleeding episodes. Quick response to bleeding episodes is critical because delays can cause debilitating joint damage. An appli- cation for product approval is expected to be ready by mid-2007. Prophylactic treatment has particular benefits for young people in their teens and early 20s, as it allows them to be active at school, in sports clubs and with friends. It also affects their prognosis for a life without complications due to fewer bleeding episodes and subse- quent risk of joint damage. The short duration of action of NovoSeven® has been considered a barrier to using this product prophylactically for long-term preven- tion. Phase 2 trials with NovoSeven® have shown encouraging possi- bilities, and a phase 3 study is now being prepared. News in the pipeline Another high priority is the development of an analogue of NovoSeven®, NN1731, that might be used in future indications; the project is now moving towards phase 2. This is a modified NovoSeven® molecule with a faster action and stronger effect that could more closely mimic normal clotting. Encouraging preclinical data suggest that it might also have the potential to be developed for use instead of the current NovoSeven® in various indications. In 2006, Novo Nordisk completed phase 1 studies aimed at amplifying the clotting effect solely at the site of a bleeding. Pioneering efforts Beyond haemophilia, Novo Nordisk is pioneering research in critical bleeds in connection with intracerebral haemorrhage (ICH), trauma and cardiac surgery. All these indications represent unmet medical needs and short-term potential value for the company. The results of the ongoing phase 3 study on ICH are expected in the first quarter of 2007 following successful completion of a phase 2 study. Altogether, 1,309 individuals from 25 countries on 5 continents have been enrolled in these studies, which were initiated in 2001. A study of the use of NovoSeven® in cardiac surgery is in phase 2; We are dedicated to addressing high, unmet medical needs in people with haemophilia with inhibitors. That is the starting point for continually defending and expanding our business in haemostasis. Michael Shalmi project vice president NovoSeven® Key Projects Codey Huckstepp from Australia has haemophilia with inhibitors (far left). 21 February: Novo Nordisk celebrates the opening of Novo Nordisk Research US, the first haemostasis research facility in the United States dedicated to life-threatening bleeding (right). milestone results from this study are also expected during 2007. A study on upper-gastrointestinal bleeds was discontinued in October 2006 because treatment outcomes did not offer significant benefits for the patients. At this time, clinical development of the use of NovoSeven® for two other indications, traumatic brain injury and spinal surgery, has been temporarily put on hold after phase 2. “We need to focus and to prioritise resources, so we have postponed the decision on whether or not to continue clinical development within these two indications until we know the results of the ICH and cardiac surgery trials,” says Mads Krogsgaard Thomsen, executive vice presi- dent and chief science officer (CSO). Finally, phase 1 studies in the field of preoperative cardiac surgical care have begun with the recombinant factor XIII molecule, in-licensed from ZymoGenetics, Inc., Novo Nordisk’s long-standing biotech part- ner in the US. Health-economic studies to aid decision-making Healthcare professionals increasingly focus on pricing and reimburse- ment issues. Novo Nordisk has conducted research to assess pharma- coeconomic outcomes following treatment with NovoSeven®. The right to care Lack of access to haemophilia care can be a challenge, particularly in developing countries where this disease is not a priority. The patient organisation World Federation of Hemophilia estimates that the dis- ease affects the lives of some 400,000 people globally, and that only 30% of these receive proper treatment. The Novo Nordisk Haemophilia Foundation (NNHF) was estab- lished in 2005 to address this need with development projects such as patient education, training of healthcare professionals and establish- ment of diagnostic facilities. It is funded by Novo Nordisk donations Õ novonordisk.com/annual-report Click: what we do and works in partnership with healthcare authorities, NGOs and pa- tient organisations. Activities in 2006 centred around the campaign ‘the right to care’. Efforts were documented on film as compelling personal stories, which were shared with Novo Nordisk employees and external stakeholders. “We have a social responsibility to reach out to people, wherever they live, whose survival and quality of life depend on proper detec- tion, diagnosis and treatment. Currently, we are supporting projects in seven countries and setting up projects in another eight countries,” says Stephen Robinson, general manager of the Novo Nordisk Haemophilia Foundation. Media debate about use of NovoSeven® in combat zones In September 2006, an article in the British newspaper The Guardian sparked worldwide media coverage by calling into question the use of NovoSeven® by the military to treat com- bat-related trauma. Novo Nordisk is aware of investigational uses of NovoSeven®, including by military surgeons in Iraq. However, the company does not encourage or promote the use of NovoSeven® or any other of its products for indications other than those ap- proved by the regulatory authorities. NovoSeven® is in phase 3 development for trauma, primarily due to traffic and fall accidents. However, Novo Nordisk is not conducting any studies involving combat-related trauma. Novo Nordisk Annual Report 2006 37 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Growth hormone highlights Solid number two position worldwide: market share of approximately 22%. Sales driven by product and delivery device: Norditropin® and NordiFlex® pen. Phase 3 study of more than 2,000 adult patients in chronic dialysis (APCD) expected to begin in 2007. 7 July: Norditropin® team members from headquarters and Japan celebrate the launch of the new 15 mg product. growth at every level The year 2006 was exceptional for the growth hormone business, first of all because of a steadily growing market penetration that is fuelling the company’s long-term ambition of world market leadership. Underscoring this trend was the 13% value market share in the highly competitive environment in the US, where Novo Nordisk has been building its presence since 2000. It was also the year in which the company was able to present en- couraging phase 2 trial results from a new growth hormone indication for adult patients in chronic dialysis (APCD) that may save lives and help grow the business. Phase 3 trials are expected to begin in 2007; this will be Novo Nordisk’s largest study of growth hormone to date. Potential treatment for dialysis patients The liquid growth hormone Norditropin® may become a future treat- ment for adult patients in chronic dialysis. Currently, the outlook for dialysis patients is bleak. Despite the life-saving treatment they receive for kidney failure, the annual mortality rate is 20%, a rate which is as- sociated with malnutrition, inflammation and other complications. No available treatment has been able to change this. Growth hor- mone therapy, however, may offer an improvement. Among other things, the phase 2 data reveal that patients treated with Norditropin® showed a significant increase in the ratio of lean body mass to body weight and increased serum albumin. Both of these biomarkers have been linked to increased likelihood of survival. An estimated 400,000 patients worldwide could benefit from this treatment. Product preference and market credibility avenue is to optimise treatment and meet patients’ needs, for example by seeking to reduce injection frequency and by the continued development of devices. This year’s robust sales were linked to the convenience of both the liquid, ready-to-use product Norditropin® and the prefilled NordiFlex® pen. This trend is evident in the US, where the sales curve rose with the introduction of Norditropin® in 2000, supported by a dedicated growth hormone sales force. The upward trend was reinforced after NordiFlex® arrived on the market in 2005. Novo Nordisk’s share of voice in the US does not yet match the company’s overall worldwide performance, but the current develop- ment is encouraging. Novo Nordisk is maintaining its ambition for worldwide leadership despite some investor concern about generic competition. Kåre Schultz, executive vice president and chief operat - ing officer (COO) points out that the current sales growth has taken place despite the fact that the Norditropin®/NordiFlex® combination is only one of many growth hormone products in the market. “We have made a new, convenient product with significant bene- fits of use. And the market has been very receptive to this,” he notes. Senior Medical Director Anne-Marie Kappelgaard, Growth Hor - mone Scientific Marketing, points to several initiatives that have con- tributed to the overall sales picture by enhancing Novo Nordisk’s com- mitment in the marketplace. Among these are clinical activities in the US (growth hormone dosage trials), a sponsorship of the US-based Judson van Wyk prize in paediatric endocrinology, and the ongoing work to combat the mis- use of growth hormone at sporting events. The company strongly advises against any use of growth hormone outside of its labelled indication. There is no scientific evidence of its effect as a performance-enhancer, and the long-term side effects are unknown and could be serious. Novo Nordisk is the only pharmaceutical company that continues to co-sponsor development projects of tests for misuse of growth hormone. Collaborators include the World Anti-Doping Agency, the International Olympic Committee, the European Union and the Australian and Japanese Institutes of Sports Sciences. Exploring new indications to expand the label is a key to extending the company’s presence in the growth hormone area. Another Õ novonordisk.com/annual-report Click: what we do 38 Novo Nordisk Annual Report 2006 We trust that our delivery platform and parallel approach are winning formulas. They can take us much further in driving patient convenience and business growth. Kim Steengaard vice president Device Innovation and Development Søren Lilleøre from Denmark has type 1 diabetes. To him, diabetes is not a limitation to physical activity, and using insulin pens for injections provides him with the most flexible solution for an active lifestyle. convenience matters Users prefer delivery systems that enable them to manage their ther- apy conveniently. Twenty years’ published evidence of the use of the NovoPen® devices testifies to the user-related benefits of Novo Nordisk’s delivery systems. Also, customers’ buying behaviour proves their preference for prefilled delivery systems. Novo Nordisk is committed to continuing its user-focused ap- proach, and to making a difference in the lives of people relying on its products. Not only by engineering proteins into safe and effective therapies, but also by developing new and improved delivery systems for proteins. This is a strategic route that the company is pursuing to further en- hance user convenience and adherence to therapy. To this end Novo Nordisk is leveraging a unique competence: developing proteins from inception to injection. Proteins from a to z Novo Nordisk is a world leader in combining protein research with the development of new delivery systems. Since 1985, when the intro- duction of the NovoPen® insulin pen device pioneered this area, Novo Nordisk has developed more than 20 injection systems. The company has built up profound experience in providing safe products and a sol- id understanding of user needs. Based on this knowledge, ongoing development efforts are focusing on improved reliability. Creating convenient delivery systems is a matter of combining pro- tein insight with an understanding of the user’s situation. By taking this perspective into account from the outset, the protein can be opti- mally developed for convenient administration. That is why Novo Nordisk is today undertaking parallel development of proteins and dedicated delivery systems. administration to be easier, more convenient and quicker. The com - pany’s discreet devices also facilitate adherence to intensive insulin therapy, support lifestyle flexibility and reduce injection pain. Growing market shares Convenience matters to patients. It also grows market share for Novo Nordisk. Novo Nordisk is growing market penetration of insulin sold with pen devices. In the developed world, around 60% of all insulin is sold in or for a pen device. Novo Nordisk holds a 60% market share of this segment. In 2006, the prefilled FlexPen® device, which was launched in 2001, became the world’s most-sold device. Also, sales of the Norditropin® growth hormone are primarily driven by the NordiFlex® prefilled delivery device, which was launched in 2003. To further improve this product, NordiFlex PenMate™ was launched in 2006. This new accessory simplifies injection by hiding and automatically inserting the needle. Winning formula Novo Nordisk’s strategy is to expand its position within protein deliv- ery systems while engineering therapeutic proteins in diabetes and human growth hormone. “We have a three-pronged approach to our device pipeline,” says Kim Steengaard, vice president for Device Innovation and Development. First, an array of innovative successors is in place for the products currently available. This enables Novo Nordisk to quickly accommo- date new user preferences or market dynamics and maintain its mar- ket position. Secondly, Novo Nordisk is pursuing exploratory research into new forms of protein delivery that will further improve user convenience. Finally, the company will leverage its proven ability to deliver in- sulin and growth hormone by applying this competence to other therapy areas as well. A large body of evidence has shown that this benefits users of Novo Nordisk’s insulin delivery devices: patients consider this insulin Õ novonordisk.com Click: diabetes care Novo Nordisk Annual Report 2006 39 Challenging workplace a job here is never just a job Being an attractive and challenging workplace is essential to Novo Nordisk’s long-term performance. With growth in the number of people of 72% in just six years, it is important to focus on our values, our Vision and the Novo Nordisk Way of Management. The culture needs to be strong enough to embrace new members, encourage di- versity and adapt to what new people can bring to the team. There is shortage of the kind of talent needed to excel in a highly specialised pharmaceutical business, and attracting and retaining this talent is critical. The consequences of globalisation define the playing field: talent-scouting must have a global scope. The company must demonstrate brand value and reputation, locally and internationally. And the workplace must show itself to be attractive. Quality and workplace spirit are as important as the pay-cheque. Several studies show the importance of alignment between corpor ate and personal values: it is far more attractive to work for a company that demonstrates social responsibility and takes an active part in the global and local community. That is why Novo Nordisk con- sistently ranks at the top in surveys among graduates in Denmark and the other Nordic countries as their preferred future employer. In the US and China, the company has also successfully earned a reputation as a workplace with a very special culture, and as the company ex- tends its global reach, this parameter is becoming increasingly impor- tant for success. Engaging culture The Novo Nordisk Way of Management is the foundation for an en- gaging culture which, in turn, drives performance and retention. Three factors determine success: when people understand the con- nection between their work and the company’s goals, when they see how they contribute to its success, and when they perceive the organ- isation as trustworthy and credible. That is why sustaining an engaging culture and stimulating per- sonal leadership are high on the agenda. The corporate culture must be reinforced by authentic leaders who act in character and bring out the best in others by playing to their strengths and treating them as individuals. Lifelong learning is not just a mantra, but a requirement of every- one. Leaders must embody the responsible business approach and a learning culture, be alert to emerging challenges and ready for change. Novo Nordisk is focused on finding leaders who can take the com- pany through its international expansion. Global presence and local execution calls for globalised solutions and seamless operations across functions. Leadership programmes take people away from their known environment and enable them to build networks within the organisation, share better practices and make the link between corporate goals and local execution. More import antly, they make them see the bigger picture. 40 Novo Nordisk Annual Report 2006 A group of employees working with device manufacturing get some exercise during a break at the production facility in Hillerød, Denmark. Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action 6 July: Hansruedi Stahel organised campD, a diabetes camp for 650 young people, for which Novo Nordisk Germany won the TakeAction! Award 2006 (left). 28 August: In Copenhagen, 3,000 runners from Novo Nordisk took part in the DHL relay, Europe’s largest fitness run (right). 14 November: On World Diabetes Day, employees in Korea made a donation to benefit patients in the developing world (far right). people bring engagement to work Engagement at work involves knowing what is expected of you, being empowered and able to do your best and feeling valued. In an engag- ing culture people have a strong rational and emotional commitment to their job, their manager and their team, and to the company. This is the philosophy that drives performance at Novo Nordisk. There is a strong culture of personal commitment to achieving the goals set for the company. To stay successful, the sense of purpose and values needs to be shared across the organisation.The people strategy supports the values and aims to enable the company to be competitive in the market. It focuses on two key challenges: globali- sation and talent development. “Globalisation sets two forces in motion. We must strengthen a cross-border mindset and reinforce the Novo Nordisk Way of Manage- ment in times of strong global expansion. We also need to demon- strate local presence and an ability to adapt in diverse environments,” says Lars Christian Lassen, senior vice president, Corporate People & Organisation. Shared mission Key drivers of performance include having a common mission and feeling connected to co-workers and management through shared work standards and recognition of a job well done. Recognising this, Novo Nordisk is taking a strategic approach to nurturing an engaging culture that will drive passion and perform- ance. To measure this, questions are built into eVoice, the annual company-wide employee survey. As of 2007, a new index will be intro- duced, and performance will be reported in the Balanced Scorecard. Results from eVoice consistently confirm that people at Novo Nordisk strongly support the company’s Vision and values, and its Triple Bottom Line approach to doing business. “Novo Nordisk is its people, and every single employee contributes to making Novo Nordisk a very special company. This is felt by people 42 Novo Nordisk Annual Report 2006 seeking to work with us. ‘Changing Diabetes’ is embraced by people across functions and locations, and this will be a focal point for Novo Nordisk’s talent attraction,” says Lars Christian Lassen. Global systems for seamless operations Novo Nordisk believes that a remuneration approach based on fair and globally consistent standards is a key component in attracting, engaging and retaining top talent worldwide. By the end of 2006, uniform job classification principles were in place for all management and specialist positions. A new remunera- tion strategy was initiated in 2006, and roll-out continued for an international system of employee evaluation that ties individual goals into the corporate Balanced Scorecard. Taken together these create a more transparent link between job, performance and competitive pay. In 2006, Novo Nordisk gave priority to initiatives to enhance em- ployee mobility across functions or locations in response to business needs and as part of individual development plans. The new global systems make it easier to accept short-term assignments, job swaps or two to three year ‘expat’ contracts. A new Occupational Health and Safety Manual has been adopted to deal more effectively with safety issues for the growing number of employees working at production sites outside Denmark. The manual spells out roles and responsibilities for ensuring safe and healthy working environments. It builds on the well-established standards for the Danish parts of the organisation. A diversity mindset “To stay competitive we need an international workforce and a multi- cultural mindset. Ensuring diversity within the organisation is an expression of our social responsibility to be an inclusive workplace, but it also enables us to run a better business. We serve customers from around the world. In order to truly understand their needs, our workforce must reflect this diversity,” says Ove Munch Ovesen, senior specialist, Global Talent Development. Initiatives to drive diversity management include a focus on women in management, inclusion of ethnic minorities in Denmark, and development and mentor programmes. Leadership training initiatives Lighthouse: 48 current members. Spotlight: 284 attendees by June 2007. Greenhouse: 167 current members. New managers’ programme: Approximately 200 annually. learning leadership As Novo Nordisk expands its global reach, having the right leaders is vital. Leaders must not only deliver business results, they must also af- firm the values of the Novo Nordisk Way of Management and ensure that their teams adhere to its principles. Equally importantly, they must constantly nourish and reinvigorate the corporate culture – the glue that binds the organisation together. Perhaps the single most critical people-related challenge for Novo Nordisk’s continued growth is ensuring leadership capabilities at all levels. The response to this challenge is two-fold: internally it requires solid selection of talents, and a strong line of leaders ready to move up the ranks or fill new positions, while externally, the company needs to build and maintain a strong brand as a leader in its field in order to at- tract talented people to locations where Novo Nordisk operates. Personal leadership ‘Living the values’ is one of Novo Nordisk’s 10 global leadership com- petences and an indicator of performance. In a competitive environ- ment a winning culture can drive results, but if this is done at the ex- pense of employee development and a good work–life balance, success will be unsustainable. Leadership requires more than the ability to set business targets and manage resources. Leadership is more about mindset than about techniques. That is why Corporate People & Organisation is placing a focus on personal leadership – the ability to lead by example and to help others achieve results and develop their potential. Palle Thorsen, president, Novo Nordisk Delivery Technologies, Inc., California, is one of 20 Novo Nordisk managers who took part in the first Novo Nordisk Spotlight programme, a four-day course specifical- ly designed to teach personal leadership. For him, it all starts with ac- knowledging one’s own strengths and weaknesses. “Leadership is not about memorising instructions or guidelines, but about knowing and being yourself,” he says. “That way you de- velop a credible and personal style of leadership that can inspire others. The Lighthouse programme aims to accelerate the development of talented senior managers. A key element of the programme, which has a two-year cycle, is a trip to an unknown environment. In 2006, the Lighthouse group went to China and the trip included an overnight stay on the Great Wall. Having a leader you respect and believe in is a big part of what moti- vates you as an employee to do your best.” By June 2007, all vice presidents and general managers, a total of 284 at the end of 2006, will have completed the programme. Stepping up education The company’s strong growth has increased the need to educate new managers worldwide. At the core of all training programmes is the Novo Nordisk Way of Management and how it is applied in practice. All new managers undergo mandatory leadership training on ap- pointment. Other initiatives include the Greenhouse programme for young managers, the Lighthouse programme for senior managers and a planned programme for members of the Senior Management Board. “Effective leadership development is about learning by doing. Therefore our programmes focus on application rather than theo - retical input. Participants practise a variety of skills such as coaching, giving feedback and delegating responsiblity,” says Bård Grande, vice president, Global Talent Development. Development opportunities for all Novo Nordisk aims to offer learning and development opportunities for all employees. While Novo Nordisk’s industrial workforce continues to grow out- side Denmark, some 4,000 operators at Danish production sites have embarked on a comprehensive educational programme covering a variety of subjects, from PC proficiency courses to training in the prin- ciples and mindset of cLEAN® production. In 2006, management and Danish trade union representatives agreed on an ambitious programme which will allow operators to learn tasks previously performed by skilled craftsmen. This can, for ex- ample, reduce down-time in the event of problems with machinery. “Increased productivity is vital to our ability to stay competitive. At the same time, we have a responsibility to upgrade the skills of our people in Denmark so that they can remain competitive in the future globalised workplace,” says Per Valstorp, senior vice president, Product Supply. Õ novonordisk.com/annual-report Click: how we perform/workplace quality Novo Nordisk Annual Report 2006 43 Vibeke Burchard and Jens Frederik Studstrup are charged with the task to drive the implementation of Novo Nordisk’s climate strategy. Their first mission was to identify potentials for energy savings that can help reduce CO2 emissions. Values in action our values are expressed in all our actions In 1992, when Novo Nordisk and other corporate leaders attended the United Nations Earth Summit in Rio de Janeiro, the key issues were protection of the natural environment and limits to growth. That event effectively put sustainable development on the agenda, and in its wake the environmental impact of the industry became more closely regulated. Today, 15 years later, this debate has been reinvigorated by the challenges of climate change. And the sustainability agenda contin- ues to evolve. Growing social and economic inequities and the im - plications of globalisation are main trends that require business re- sponses. Companies with global reach are key decision-makers with the power to impact economic development and an obligation to contribute to balanced growth. A particular challenge lies in framing and upscaling sustainability-driven initiatives that can add long-term value to the business and to society. For Novo Nordisk, corporate responsibility is a driver of innovation as well as an effective means of mitigating risks. One example that demonstrates Novo Nordisk’s leadership as an environmentally re- sponsible business is its strategic response to the implications of cli- mate change. We are constantly exploring business opportunities for value creation via initiatives that address social needs or help reduce environmental impacts. Often, the business case is clear when consid- ering long-term profitability rather than short-term gains. Responding to business challenges Over the years, we have developed an approach to the sustainability agenda based on a learning process. It begins with trendspotting and issues identification, then proceeds to external review, stakeholder dialogue, and integration into management. As management of the issue matures, the strategy is revised to ensure continuous improvement. A number of key challenges for the pharmaceutical industry stand out: it must demonstrate not only patient safety and high quality standards, but ethical business practices too. These include a firm stance against bribery and corruption, global standards throughout the value chain and transparency in business operations – from re- search priorities to public policy activities. Throughout the company, decision-making is guided by a values- driven approach to doing business. This includes our commitment to the United Nations Global Compact and to communicate on progress. Values must be put into action, and everyone at Novo Nordisk must be constantly vigilant to keep them in sight. We need to adapt to diverse cultural and social environments, and at the same time stay the course. In the daily interactions of the company there will always be dilemmas and answers will not always be clear-cut. This is where management has a particular role to lead by example and to em - power employees to make the right decisions. The message is clear: we will compete to win, but not at any cost. Novo Nordisk Annual Report 2006 45 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action business ethics training deals with dilemmas Each day, Novo Nordisk employees bring ethical standards to work. Doing business globally entails many challenges, particularly when working in diverse cultures where appropriate business conduct can vary widely. Making the right choices becomes more complex – and more important – in the pressures of a competitive business environ- ment. Torben Skindballe, vice president of the Regional Office Near East, knows this first-hand. “It is vital to understand and respect the local customs and practices of the countries we operate in. Giving gifts, for example, is important in many cultures and we must remain respectful in our business relationships. At the same time, we must never compromise personal integrity and the principles that guide Novo Nordisk’s way of doing business. That makes it all the more im- portant to be clear on our Business Ethics Policy, not only among people working at Novo Nordisk, but also with anyone with whom we do business,” he says. Ethical business conduct is about values and integrity as well as compliance and risk mitigation. Taking a proactive approach also presents opportunities such as enhanced trust in the company and improved relationships with customers and other key stakeholders. See examples from the current risk profile regarding ethical mar- keting practices on pp 110–111. Passing the ethical test When is a gift appropriate? Would the gift cause another person to behave inappropriately and provide Novo Nordisk employees with an inappropriate business advantage? Would the decision be considered fair? These questions illustrate some of the dilemmas that employees can be confronted with in work situations. Novo Nordisk’s Business Ethics programme includes compliance with legislation and offers guidance on individual judgements. The Business Ethics Policy sets direction and states that bribery and cor- ruption are unacceptable. It is backed by three procedures for ethical business conduct, product promotion and contracting with agents and other third parties. The company’s president and CEO, Lars Rebien Sørensen, the Executive Management team and the members of the Senior Management Board attended training workshops during 2006, as did all line managers within procurement and sales and marketing – a to- tal of 297 individuals representing 79 countries. The aim was to pro- vide guidance on how to live up to the Business Ethics Policy, which was introduced in 2005. In addition, all Novo Nordisk managers and relevant employees in their units have completed an e-learning mod- ule on business ethics. This programme is now also a mandatory part of new managers’ training. Any employee may complete the e-learn- ing programme, and during 2006 nearly 2,700 employees (close to 10% of the total workforce) did so. ”We are judged by what we do, not only by what we say. The pro- cedures explain the global standards of behaviour that people can ex- pect from us. However, we recognise that despite clear policies and 46 Novo Nordisk Annual Report 2006 procedures, there are dilemmas, and we think it is important to ad- dress these openly,” says Lars Rebien Sørensen. Addressing dilemmas For instance, doctors from underfunded hospitals or clinics, particu larly in emerging or developing countries, sometimes request donations of funds, equipment or medicine from pharmaceutical com panies. From the doctor’s point of view, the company has the financial ability, ex- pertise and social obligation to contribute. The company also sees an obvious need and has a desire to help. If a donation is made, it must adhere to the company’s ethical standards. It may not lead to undue advantage or benefit for the company, such as inclusion in a list of the hospital’s preferred suppliers. Novo Nordisk’s pol icy clearly states that managers and employees must be careful to ensure that charitable contributions and sponsorships do not constitute bribery. If the policy is not adhered to, the consequence can be job termination. “The workshop is an excellent forum for clarifying questions that individuals bring from their work situations. It gives an opportunity to ask questions, have an open and frank discussion and to learn how to stay in compliance,” says Torben Skindballe. Audit and whistleblower Group Internal Audit oversees compliance with the Business Ethics Policy and procedures. The audit team conducts both announced and unannounced reviews of business units worldwide. In 2006, more than 25 such reviews were conducted, and recommendations result- ing from these reviews will be followed up in 2007. Business ethics is also included in regular facilita- tions that serve as audits of ad- herence to the Novo Nordisk Try the interactive ‘Business Ethics Challenge’ at novonordisk.com/annual-report Way of Management, including company policies. Concerns over possible breaches of ethical business conduct can be raised via the Board of Directors’ Audit Committee anonymously and with no subsequent disciplinary or retaliatory action towards the whistleblower. In 2006, 12 concerns related to business ethics were raised through the whistleblower reporting system. Measuring progress Also in 2007, the business ethics programme will be anchored within the corporate Balanced Scorecard against which individual managers’ performance is assessed annually. All country managers are evaluated based on their ability to undertake local risk assessment, develop a lo- cal procedure on business ethics, and ensure continued training for all relevant employees. Monitoring the progress and continued development of the pro- gramme ensures that it is responsive to the most relevant and press- ing concerns as viewed by Novo Nordisk and its stakeholders. Õ See an overview of current legal issues at novonordisk.com/annual-report Click: how we perform/legal issues responsible sourcing: revisiting the strategy The quality of a pharmaceutical product must be unquestionable. To Novo Nordisk this also implies assurance that the product was made with high focus on the environmental impact and with respect for in- ternational labour standards. “Our social and environmental responsibility extends throughout the value chain. By investing in initiatives that drive improved per- formance by our suppliers and subsuppliers we achieve two things: we mitigate risks and we act on our responsibility,” says Lise Kingo, executive vice president and chief of staffs (COS). Global sourcing is an intricate web of interconnected parties, from suppliers of raw materials to agents purchasing goods on the com - pany’s behalf. Often, supply chain relationships are long-lasting and close, with skills and knowledge being developed and shared. This makes fertile ground for sharing better practices, including respon - sible business principles. Novo Nordisk expects suppliers to adhere to the company’s stand- ards for managing environmental impacts and respecting human and labour rights. Selected suppliers are assessed before contracting into a business relationship. All existing suppliers are regularly evaluated on their performance. The company prefers to engage with suppliers to address breach- es of quality, social and environmental standards. However, if a supplier repeatedly demonstrates a lack of interest or unwillingness to im- prove its standards, Novo Nordisk will take appropriate action, which could eventually mean withdrawal from the relationship. Evaluation of performance Systematic evaluation was introduced in 2001 for the company’s more than 300 key suppliers in production. This was based on annual self-evaluation questionnaires, supplemented by audits conducted by Novo Nordisk’s internal auditors. As of 2005, all significant purchasing, including via service companies, has been incorporated in varying forms in this programme. In 2006, 11 audits were carried out, the ma- jority of them in China. Managing a global supply chain As Novo Nordisk expands its supply chain operations globally, there are cost benefits to be gained. However, this must not compromise company standards and the Novo Nordisk Way of Management. In 2006, the supply chain programme was reviewed to assess its effectiveness in mitigating risks and improving social and environ- mental performance. As part of the review, the company consulted selected suppliers in China and Brazil to obtain feedback on the cur- rent programme and to identify areas for improvement. Stakeholder engagement has contributed to framing this new approach. The conclusion of the review was to strengthen risk management and place greater emphasis on suppliers of Novo Nordisk branded products and suppliers with production in countries where enforce- ment of social and environmental legislation is weak. “Since a higher share of our supplier base will be shifting to devel- oping countries, business risks will increase, but so will the opportun - ity to engage with suppliers with a view to ensuring compliance with Novo Nordisk and global standards, thereby often raising the bar lo- cally,” says Kim Tosti, senior vice president, Devices and Sourcing. This more focused approach aligns well with Novo Nordisk’s global sourcing strategy. Any prospective supplier regarded as high-risk will be pre-screened and assessed prior to approval. Approved suppliers regarded as high-risk will be evaluated periodically on their social, en- vironmental and ethical performance as part of the annual business evaluation, which covers both commercial and quality aspects. Roll-out of standards In 2007, Novo Nordisk will issue Responsible Sourcing standards. These standards will be an integral part of doing business with Novo Nordisk. The standards will be classified in six categories: general compliance with laws and regulations; environment; health and safe- ty; labour practices; ethics; and subsup pliers. The new standards will also cover clinical trials and animal welfare, so that suppliers and con- tractors to different parts of the organisation will be informed of all the company’s expectations in a single standard. The aim is to engage with suppliers to promote implementation of these standards. The company recognises that while standards and assessments may uncover areas in need of improvement, they will not necessarily result in improvements per se. Therefore, the company will develop an engagement programme, targeted at a few key sup- pliers that face challenges in implementing these standards. This pro- gramme will be piloted in 2008 and will build on Novo Nordisk’s expe- rience in working with stakeholders to drive change. “It is critical to our business that our suppliers, anywhere in the world, are absolutely reliable in terms of quality, environmental and social standards and commercial stability. Without such strong supply chain, we could jeopardise our ability to deliver our products in a timely manner to people who rely on them. That is a risk we are not willing to take,” says Kim Tosti. With the new insulin filling plant in Montes Claros, Brazil, Novo Nordisk has also extended its supplier base in South America. Novo Nordisk Annual Report 2006 47 Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action climate strategy puts energy efficiency in the spotlight On two Sunday mornings in November 2006, Novo Nordisk employ- ees crowded into a movie theatre in Copenhagen transformed into an Arctic landscape of facts and figures on climate change – the greatest environmental challenge of our time with major social and economic implications. The company had invited all the employees from the Danish organisation to see the documentary film An Inconvenient Truth, along with their spouse, a teenage child or a friend. The ticket office was taken by storm, and more than 1,800 people attended the events. The film was an ideal occasion to kick off internal awareness and debate on climate change and what it means for Novo Nordisk. The company’s climate strategy ties in with its responsible business ap- proach and environmental management. This work already involves many employees, but individuals’ actions and behaviour count as well. The world’s increasing consumption of fossil fuels has accelerated emissions of CO2 that con- tribute to global warming. Climate change presents signif- icant business risks in the long-term. Novo Nordisk believes that de - cisive action is an obligation and also an opportunity to be better pre- pared for a carbon-constrained future and less vulnerable to fluctuations in energy prices. Try the interactive challenge ‘The EnviroMan’ at novonordisk.com/annual-report A need to act In January 2006, Novo Nordisk signed an agreement with WWF that made the company a member of the Climate Savers programme. This programme invites leading global businesses to demonstrate that in- vesting in reduction options can benefit the long-term health of the business. Under this agreement, Novo Nordisk has set an ambitious target for the company’s CO2 reductions: to achieve a reduction of 10% by 2014 as compared with 2004. To do so, the projected signifi- Climate strategy for CO2 emissions 1,000 tons CO2 700 600 500 400 300 200 04 05 06 07 08 09 10 11 12 13 14 2004 CO2 emissions Target 2014: 10% reduction as compared with 2004 With cLEAN®, without CO2 strategy Without cLEAN®, without CO2 strategy 48 Novo Nordisk Annual Report 2006 cant growth in production needs to be decoupled from the levels of energy needed in the processes. Business focus drives change The climate strategy has two elements: energy savings initiatives, and more use of renewable energy. Novo Nordisk is looking into oppor - tunities such as windmills, solar power and geothermal energy. The ongoing cLEAN® programme – an adapted LEAN manufactur- ing programme to increase productivity – in Product Supply underpins the climate strategy and will contribute to lowering the level of CO2 emissions. As a result of this programme Novo Nordisk will achieve a lower energy consumption per produced unit. Energy screenings identify potential Significant progress has been made in identifying opportunities for energy savings at individual production sites. By the end of 2006 Novo Nordisk Product Supply had conducted energy screenings at 10 of its 13 production sites. Sites in Brazil, China and Japan will be screened in 2007. “These screenings have revealed an enormous amount of easy wins with short pay-back times,” says Per Valstorp, senior vice presi- dent, Product Supply. Funding has been secured for sites to conduct feasibility studies, and each site has appointed energy stewards. An internal value on CO2 reductions has also been introduced to promote implementation of energy-saving projects. Small measures, big savings The insulin filling facility in Clayton, North Carolina, US, has identified eight projects ranging from more efficient use of boilers to minimising energy losses in the steam system. All measures will be implemented in 2007 with a total CO2 reduction of 1,033 tons per year and an aver- age pay-back period of 18 months. Substantial savings opportunities were also identified following en- ergy screenings at the production sites in Denmark, where 87% of the company’s CO2 emissions occur. At the factor VIIa factory in Hillerød, significant energy and cost savings are expected to result from im- provements in the ventilation system, which contributes to 40–50% of total energy use. Lessons learned can be transferred to other sites. “The energy screening has taught us to take a step back and see new angles on how we can change the way we do things,” says Asbjørn Christensen, chemist and energy steward at the Hillerød factory. Strategies for long-term environmental challenges Climate change is the primary focus of Novo Nordisk’s environmental strategy, which addresses the use of natural resources and pollution pre- vention throughout the value chain. Other focus areas include the safe use of genetically modified organisms (GMOs), sustainable processes, product stewardship, transportation and responsible sourcing. Environmental management is organised through ISO 14001-certi- fied processes at the sites. Through the Balanced Scorecard managers are held accountable – and rewarded – for performance against specif- ic targets for compliance, pollution prevention and energy efficiency. Õ novonordisk.com/annual-report Click: how we perform/environmental management Environmental protection projects come in all sizes: at the Kalundborg production facility in Denmark, which among other things produces insulin crystals, cooling towers erected in 2003 have provided Novo Nordisk with more effective, resource- saving cooling. Novo Nordisk Annual Report 2006 49 Accounts and notes consolidated financial and non-financial statements 2006 52 Financial and non-financial highlights 54 Consolidated income statement 55 Consolidated balance sheet 56 Consolidated cash flow statement and financial resources 57 Consolidated statement of changes in equity 58 Notes: Accounting policies 63 Financial definitions 64 Notes: Consolidated income statement 68 Notes: Consolidated balance sheet 75 Notes: Consolidated cash flow and financial resources 76 Notes: Additional information 90 Overview of non-financial reporting 91 Notes: Accounting policies for non-financial data 93 Notes: Performance indicators 100 Companies in the Novo Nordisk Group 102 Summary of financial data 2002–2006 104 Quarterly figures 2005 and 2006 (unaudited) 105 Management statement 106 Auditors’ reports Shareholder information 108 Corporate governance 110 Risk management 112 Board of Directors 114 Executive Management 115 Shareholder information 7 February: Lars Rebien Sørensen, president and CEO, together with colleagues from global headquarters and Novo Nordisk Inc., rings the closing bell at the New York Stock Exchange as the company celebrates its 25-year listing on the exchange. Novo Nordisk Annual Report 2006 51 Financial highlights Sales 2002 2003 2004 2005 2006 2005–2006 2005 2006 DKK million DKK million DKK million DKK million DKK million Change EUR million EUR million Diabetes care: Modern insulins (insulin analogues) Human insulin and insulin-related products Oral antidiabetic products (OAD) 1,187 14,651 1,620 2,553 14,492 1,430 4,507 14,383 1,643 7,298 15,006 1,708 10,825 15,057 1,984 Diabetes care total 17,458 18,475 20,533 24,012 27,866 Biopharmaceuticals: Haemostasis management (NovoSeven®) Growth hormone therapy Hormone replacement therapy Other products Biopharmaceuticals total Total sales by segments Europe North America International Operations Japan & Oceania 3,593 2,061 1,333 421 7,408 3,843 2,133 1,322 385 7,683 4,359 2,317 1,488 334 8,498 5,064 2,781 1,565 338 9,748 5,635 3,309 1,607 326 10,877 24,866 26,158 29,031 33,760 38,743 10,889 5,786 4,099 4,092 11,697 6,219 4,227 4,015 12,411 7,478 4,844 4,298 13,447 9,532 6,070 4,711 14,708 12,280 7,086 4,669 Total sales by geographical areas 24,866 26,158 29,031 33,760 38,743 48% 0% 16% 16% 11% 19% 3% (4%) 12% 15% 9% 29% 17% (1%) 15% 979 2,015 229 3,223 680 373 210 45 1,308 4,531 1,805 1,279 815 632 4,531 1,451 2,019 266 3,736 755 444 215 44 1,458 5,194 1,972 1,646 950 626 5,194 Price and vo|ume/mix Currency Total growth Key figures Operating profit Net financials Profit before income taxes Net profit Equity Total assets Capital expenditure (net) Free cash flow Per share/ADR of DKK 2 Earnings per share Earnings per share, diluted Proposed dividend Quoted price at year-end for B shares Ratios Growth in operating profit Growth in operating profit, three-year average Operating profit margin Return on invested capital (ROIC) Cash to earnings Cash to earnings, three-year average Net profit margin Equity ratio 11% (5%) 6% 15% (10%) 5% 15% (4%) 11% 15% 1% 16% 16% (1%) 15% DKK million DKK million DKK million DKK million DKK million Change EUR million EUR million 5,927 401 6,328 4,116 22,477 31,612 3,893 497 DKK 11.87 11.85 3.60 205 % 9.6 19.1 23.8 21.1 12.1 34.4 16.6 71.1 6,422 954 7,376 4,833 24,776 34,564 2,273 3,846 DKK 14.17 14.15 4.40 241 % 8.4 11.0 24.6 20.4 79.6 32.3 18.5 71.7 6,980 477 7,457 5,013 26,504 37,433 2,999 4,278 DKK 14.89 14.83 4.80 299 % 8.7 8.9 24.0 21.5 85.3 59.0 17.3 70.8 8,088 146 8,234 5,864 27,634 41,960 3,665 4,833 DKK 17.89 17.83 6.00 355 % 15.9 11.0 24.0 24.7 82.4 82.4 17.4 65.9 9,119 45 9,164 6,452 30,122 44,692 2,787 4,707 13% (69%) 11% 10% 9% 7% (24%) (3%) DKK Change 12% 12% 17% 33% 20.10 19.99 7.00 471 % 12.7 12.4 23.5 25.8 73.0 80.2 16.7 67.4 1,085 20 1,105 787 3,704 5,624 492 649 EUR 2.41 2.40 0.81 47.73 1,223 6 1,229 865 4,040 5,994 374 631 EUR 2.69 2.68 0.94 63.17 Long-term financial target in% 15 25 30 70 Key figures are translated into EUR as supplementary information – the translation of income statement items is based on the average exchange rate in 2006 (EUR 1 = DKK 7.45912) and the translation of balance sheet items is based on the exchange rate at the end of 2006 (EUR 1 = DKK 7.45600). 52 Novo Nordisk Annual Report 2006 Non-financial highlights Economics R&D Ratio of R&D expenditure to tangible investments R&D as share of sales % 2002 1:1 15.9 2003 1.8:1 15.5 2004 1.5:1 15.0 2005 1.3:1 15.1 2006 2.3:1 16.3 Investments Total tangible investments DKK million 3,893 2,273 2,999 4,009 2,811 Remuneration Remuneration as share of cash received % 34 34 34 34 33 Employment Employment impact worldwide (direct and indirect) Number of jobs 65,1001) 67,9001) 73,1001) 78,0001) 82,700 Corporate tax Total corporate tax as share of sales Exports Novo Nordisk exports as share of Danish exports Environment Resources Water consumption Energy consumption Raw materials and packaging materials Wastewater COD Nitrogen Phosphorus Waste Total waste Recycling percentage Emissions to air CO2 Organic solvents Diabetes care Biopharmaceuticals Diabetes care Biopharmaceuticals Breaches of regulatory limit values Accidental releases EIR6) Water EIR6) Energy Compliance Social Living our values Importance of social and environmental issues for the future of the company8) Managers’ behaviour consistent with Novo Nordisk’s values8) Fulfilment of action points from facilitations of NNWoM People Employees (total) Rate of absence Rate of employee turnover Engaging culture Opportunity to use and develop employee competences/skills8) People from diverse backgrounds have equal opportunities8) Health & safety Frequency of occupational injuries per million working hours Fatalities Training costs Annual training costs per employee Access to health LDCs where Novo Nordisk operates LDCs where Novo Nordisk sells insulin at or below the policy price Healthcare professionals directly trained or educated People with diabetes directly trained or treated Patent families Active patent families to date New patent families (first filing) Animals Animals purchased m3/MU m3/g API GJ/MU GJ/g API Number Number % Number % % Number DKK Number Number Number Number Number Number Number 1) Multipliers have been updated. 2) Estimated number changed to factual number. 3) Previously reported as 2,408 (2004) and 2,591 (2005). Reporting error now corrected. 4) Previously reported as 150. Reporting error now corrected. 5) Minor adjustments to all historic CO2 emissions due to changed emission factors from sites outside Denmark. 6) EIR = eco-intensity ratio. See pp 92 and 96. 7) Previously reported as 83. Reporting error now corrected. 8) On a scale of 1–5, with 5 being the highest. % % 1,000 m3 1,000 GJ 1,000 tons Tons Tons Tons Tons % 8.9 4.4 9.7 4.4 8.4 3.9 7.0 4.72) 9.1 4.0 2,044 2,083 93 971 111 17 2,621 2,299 110 1,187 122 21 2,756 2,3973) 111 1,448 121 21 3,014 2,7183) 1354) 1,303 126 22 2,995 2,666 142 1,000 107 19 12,935 41 21,356 41 21,855 40 23,776 33 24,165 35 1,000 tons Tons 1985) 149 2055) 137 2105) 115 2285) 124 – – – – 30 12 4.1 3.7 95 18,372 2.7 6.4 – 3.7 3.8 8.9 – – – – – 105 20 4.0 3.8 99 19,241 3.1 7.1 – 3.7 3.7 5.4 0 235 102 7.8 4.8 5.5 9.2 122 134 – – – – 74 29 – – – – 174 1047) 4.2 4.0 96 20,725 3.2 7.3 – 3.8 3.8 5.6 1 4.2 4.0 100 22,460 3.2 8.0 – 3.8 3.9 7.3 0 4.3 4.1 99 23,613 3.0 10.0 4.0 3.9 3.9 6.2 0 8,189 7,518 8,992 9,899 11,293 30 19 – – 654 114 30 16 – – 701 140 35 33 – – 778 145 35 35 32 34 – 297,000 – 1,060,000 812 130 913 149 48,128 42,869 47,311 57,905 56,533 Novo Nordisk Annual Report 2006 53 Consolidated financial statements Consolidated income statement DKK million Sales Cost of goods sold Gross profit Sales and distribution costs Research and development costs Administrative expenses Licence fees and other operating income (net) Operating profit Share of profit/(loss) in associated companies Financial income Financial expenses Profit before income taxes Income taxes Net profit Basic earnings per share (DKK) Diluted earnings per share (DKK) Note 4, 5 6, 7 6, 7 6, 7 6, 7, 8 9 16 10 11 12 13 13 2006 2005 2004 38,743 9,585 29,158 11,608 6,316 2,387 272 9,119 (260) 931 626 9,164 2,712 6,452 20.10 19.99 33,760 9,177 24,583 29,031 8,050 20,981 9,691 5,085 2,122 403 8,088 319 498 671 8,234 2,370 5,864 17.89 17.83 8,280 4,352 1,944 575 6,980 (117) 898 304 7,457 2,444 5,013 14.89 14.83 54 Novo Nordisk Annual Report 2006 DKK million Assets Intangible assets Property, plant and equipment Investments in associated companies Deferred income tax assets Other financial assets Total long-term assets Inventories Trade receivables Tax receivables Other receivables Marketable securities and financial derivatives Cash at bank and in hand Total current assets Total assets Equity and liabilities Share capital Treasury shares Retained earnings Other comprehensive income Total equity Long-term debt Deferred income tax liabilities Provision for pensions Other provisions Total long-term liabilities Short-term debt and financial derivatives Trade payables Tax payables Other liabilities Other provisions Total current liabilities Total liabilities Total equity and liabilities Consolidated financial statements Consolidated balance sheet Note 31 Dec 2006 31 Dec 2005 14 15 16 23 17 18 19 20 17 30 21 22 23 24 25 26 27 25 639 20,350 788 1,911 169 23,857 8,400 5,163 385 1,784 1,833 3,270 485 19,941 926 879 169 22,400 7,782 4,794 504 1,455 1,722 3,303 20,835 19,560 44,692 41,960 674 (39) 28,810 677 709 (61) 26,962 24 30,122 27,634 1,174 1,998 330 911 4,413 338 1,712 788 4,863 2,456 10,157 14,570 1,248 1,846 316 335 3,745 1,444 1,500 676 4,577 2,384 10,581 14,326 44,692 41,960 Novo Nordisk Annual Report 2006 55 Consolidated financial statements Consolidated cash flow statement and financial resources DKK million Net profit Adjustment for non-cash items: Income taxes Depreciation, amortisation and impairment losses Interest income and interest expenses Other adjustments for non-cash items Income taxes paid Interest received and interest paid (net) Cash flow before change in working capital Change in working capital: (Increase)/decrease in trade receivables and other receivables (Increase)/decrease in inventories Increase/(decrease) in trade payables and other liabilities Cash flow from operating activities Investments: Acquisition of subsidiaries and business units Sale of intangible assets and long-term financial assets Purchase of intangible assets and long-term financial assets Sale of property, plant and equipment Purchase of property, plant and equipment Net change in marketable securities (maturity exceeding three months) Net cash used in investing activities Financing: New long-term debt Repayment of long-term debt Purchase of treasury shares Sale of treasury shares Dividends paid Cash flow from financing activities Net cash flow Unrealised gain/(loss) on exchange rates and marketable securities included in cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Supplemental information: Cash and cash equivalents at the end of the year Bonds with original term to maturity exceeding three months Undrawn committed credit facilities Note 2006 2005 2004 6,452 5,864 5,013 2,712 2,142 (73) 959 (3,514) 95 8,773 (804) (686) 455 7,738 – 175 (419) 111 (2,898) 514 (2,517) – (23) (3,000) 210 (1,945) (4,758) 463 39 502 2,483 2,985 2,985 1,001 7,456 2,370 1,930 44 1,109 (2,138) (73) 9,106 (1,139) (618) 1,363 8,712 (350) 400 (264) 234 (3,899) (1,032) (4,911) – (29) (3,018) 206 (1,594) (4,435) 2,444 1,892 (128) 1,018 (2,866) 109 7,482 211 (623) 519 7,589 – – (312) 140 (3,139) 1,310 (2,001) 505 (574) (1,982) 87 (1,488) (3,452) (634) 2,136 154 (480) 2,963 2,483 2,483 1,502 7,461 (14) 2,122 841 2,963 2,963 508 6,694 28 29 30 30 17 26 Financial resources at the end of the year 11,442 11,446 10,165 Cash flow from operating activities + Net cash used in investing activities – Net change in marketable securities (maturity exceeding three months) Free cash flow 7,738 (2,517) 514 4,707 8,712 (4,911) (1,032) 4,833 7,589 (2,001) 1,310 4,278 56 Novo Nordisk Annual Report 2006 Consolidated financial statements Consolidated statement of changes in equity Share capital Treasury shares Share premium account Retained earnings DKK million 2006 Balance at the beginning of the year 709 (61) – 26,962 Exchange rate adjustment of investments in subsidiaries Deferred (gain)/loss on cash flow hedges at the beginning of the year recognised in the Income statement for the year Deferred gain/(loss) on cash flow hedges at the end of the year Other adjustments Net income recognised directly in equity for the year Net profit for the year Total income for the year Share-based payment Purchase of treasury shares Sale of treasury shares Reduction of the B share capital Dividends Balance at the end of the year – – (35) – – (15) 2 35 – – 5 5 6,452 6,457 113 (2,985) 208 (1,945) Other comprehensive income Total Exchange Deferred rate gain/loss on cash flow hedges adjust- ments Other adjust- ments 142 14 14 14 (345) 227 27,634 345 420 765 (126) (126) 14 345 420 (121) 658 6,452 765 (126) 7,110 113 (3,000) 210 – (1,945) At the end of the year proposed dividends (not yet declared) of DKK 2,221 million are included in Retained earnings. No dividend is declared on treasury shares. 674 (39) – 28,810 156 420 101 30,122 2005 Balance at the beginning of the year 709 (45) 2,565 22,671 Exchange rate adjustment of investments in subsidiaries Deferred (gain)/loss on cash flow hedges at the beginning of the year recognised in the Income statement for the year Deferred gain/(loss) on cash flow hedges at the end of the year Other adjustments Net income recognised directly in equity for the year Net profit for the year Total income for the year Share-based payment Purchase of treasury shares Sale of treasury shares Transfer of Share premium account to Retained earnings Dividends (40) 182 461 183 26,504 (461) (345) 182 (806) 182 (806) 44 44 44 – – – – (19) 3 – – (2,565) 29 29 5,864 5,893 223 (2,999) 203 2,565 (1,594) 182 (461) (345) 73 (551) 5,864 5,313 223 (3,018) 206 – (1,594) Balance at the end of the year 709 (61) – 26,962 142 (345) 227 27,634 At the end of the year proposed dividends (declared in 2006) of DKK 1,945 million are included in Retained earnings. No dividend is declared on treasury shares. In accordance with changes in the Danish Companies Act the Share premium account is transferred to Retained earnings. Novo Nordisk Annual Report 2006 57 Consolidated financial statements Notes – Accounting policies 1 Summary of significant accounting policies The Consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The Consolidated financial statements are prepared in accordance with the histori- cal cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative financial instruments) at fair value. The Financial statements of the Parent company, Novo Nordisk A/S are in- cluded on the attached cd-rom and are available at www.novonordisk.com. Effects of new accounting pronouncements In 2006 Novo Nordisk adopted all of the new and revised standards and inter- pretations that are relevant to Novo Nordisk and effective for accounting periods beginning on 1 January 2006. In 2006 the following standards and interpretations were implemented in accordance with the effective date 1 January 2006: n Amendment to IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ The implementation of this standard did not result in any changes to amounts reported for 2006 or prior periods. The following standards and interpretations were implemented before the effective date 1 January 2007: n IFRS 7 ‘Financial Instruments: Disclosures’ n Amendment to IAS 1 ‘Presentation of Financial Statements – Capital Disclosures’ The implementation of IFRS 7 ‘Financial Instruments: Disclosures’ and Amend- ment to IAS 1 ‘Presentation of Financial Statements – Capital Disclosures’ has resulted in increased disclosure regarding the Group’s financial instruments and policies for managing capital (see notes 19 and 32). Principles of consolidation The Consolidated financial statements include the financial statements of Novo Nordisk A/S (the Parent company) and all the companies in which Novo Nordisk A/S directly or indirectly owns more than 50% of the voting rights or in some other way has a controlling influence (subsidiaries). Novo Nordisk A/S and these companies are referred to as the Group. Companies that are not subsidiaries, but in which the Group holds 20% to 50% of the voting rights or in some other way has a significant influence on the operational and financial management, are treated as associated companies. The Consolidated financial statements are based on the Financial statements of the Parent company and of the subsidiaries and are prepared by combining items of a uniform nature and eliminating intercompany transactions, share- holdings, balances and unrealised intercompany profits and losses. The Con- solidated financial statements are based on financial statements prepared by applying the Group’s accounting policies. The purchase method of accounting is used to account for the acquisition of businesses by the Group. The cost of an acquisition is measured as the fair value of the assets given and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. Acquired and divested companies are included in the Income statement during the period of Novo Nordisk’s ownership. Comparative figures are not adjusted for disposed or acquired companies. CRITICAL ACCOUNTING POLICIES Novo Nordisk’s management considers the following to be the most important accounting policies for the Group. Sales and revenue recognition Sales represent the fair value of the sale of goods excluding value added tax and after deduction of provisions for returned products, rebates, trade discounts and allowances. Provisions and accruals for rebates to customers are provided for in the period the related sales are recorded. Historical data are readily available and reliable and are used for estimating the amount of the reduction in sales. Revenue is recognised when it is realised or realisable and earned. Revenues are considered to have been earned when Novo Nordisk has substantially accomplished what it must do to be entitled to the revenues. 58 Novo Nordisk Annual Report 2006 Revenue from the sale of goods is recognised when all the following specific conditions have been satisfied: n Novo Nordisk has transferred to the buyer the significant risk and rewards of ownership of the goods n Novo Nordisk retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold n The amount of revenue can be measured reliably n It is probable that the economic benefits associated with the transaction will flow to Novo Nordisk; and n The costs incurred or to be incurred in respect of the transaction can be measured reliably. These conditions are usually met by the time the products are delivered to the customers. Licence fees are recognised on an accrual basis in accordance with the terms and substance of the relevant agreement. As a principal rule, sale of intellectual property is recorded as income at the time of the sale. Where the Group assumes an obligation in connection with a sale of intellectual property, the income is recognised in accordance with the term of the obligation. On the sale of intellectual property where the final sale is conditional on future events, the amount is recorded as income at the occur- rence of such future events. Revenue is measured at the fair value of the consideration received or receiv- able. Research and development Due to the long development period and significant uncertainties relating to the development of new products, including risks regarding clinical trials and regulatory approval, it is concluded that the Group’s internal development costs in general do not meet the capitalisation criteria in IAS 38 ‘Intangible Assets’. Consequently the technical feasibility criteria of IAS 38 are not considered ful- filled before regulatory approval is obtained. Therefore, all internal research and development costs are expensed in the Income statement as incurred. For acquired in-process research and development projects the effect of probability is reflected in the cost of the asset and the probability recognition criteria are therefore always considered satisfied. As the cost of acquired in- process research and development projects can often be measured reliably, these projects fulfil the criteria for capitalisation. Please refer to the section ‘Intangible assets’ regarding the accounting treatment of intangible assets. Property, plant and equipment used for research and development purposes are capitalised and depreciated over their estimated useful lives. Derivative financial instruments The Group uses forward exchange contracts, currency options, interest rate swaps and currency swaps to hedge forecasted transactions, assets and liabili- ties, and net investments in foreign subsidiaries in foreign currencies. Novo Nordisk applies hedge accounting under the specific rules of IAS 39 to forward exchange contracts and currency swaps. Upon initiation of the con- tract, the Group designates each derivative financial contract that qualifies for hedge accounting as a hedge of a specific hedged transaction: either i) a recognised asset or liability (fair value hedge), ii) a forecasted financial trans- action or firm commitment (cash flow hedge), or iii) a hedge of a net investment in a foreign entity. All contracts are initially recognised at cost and subsequently re-measured at their fair values at the balance sheet date. The value adjustments on forward exchange contracts designated as hedges of forecasted transactions are rec- ognised directly in equity, given hedge effectiveness. The cumulative value adjustment of these contracts is removed from equity and included in the Income statement under Financial income or Financial expenses when the hedged transaction is recognised in the Income statement. Novo Nordisk applies the hedge accounting requirements to interest rate swaps hedging forecasted transactions. Consequently, the fair value on interest rate adjustments of these contracts is recognised in equity. Currency options are initially recognised at cost and subsequently re- measured at their fair values at the balance sheet date. While providing effective economic hedges under the Group’s risk management policy, the current use of currency options does not meet the detailed requirements of IAS 39 for allowing hedge accounting. Currency options are therefore recognised directly in the Income statement under Financial income or Financial expenses. 1 Summary of significant accounting policies (continued) Forward exchange contracts and currency swaps hedging recognised assets or liabilities in foreign currencies are measured at fair value at the balance sheet date. Value adjustments are recognised in the Income statement under Financial income or Financial expenses, along with any value adjustments of the hedged asset or liability that is attributable to the hedged risk. Currency swaps used to hedge net investments in subsidiaries are measured at fair value based on the difference between the swap exchange rate and the exchange rate at the balance sheet date. The value adjustment is recognised in equity. All fair values are based on marked-to-market prices or standard pricing models. The accumulated net fair value of derivative financial instruments is pre- sented as ‘Marketable securities and financial derivatives’, if positive, or ‘Short- term debt and financial derivatives’, if negative. Provisions Provisions including tax and legal cases are recognised where a legal or con- structive obligation has been incurred as a result of past events and it is prob- able that it will lead to an outflow of resources that can be reliably estimated. In this connection Novo Nordisk makes the estimate based upon an evaluation of the individual most likely outcome of the cases. In the case where a reliable estimate cannot be made, these are disclosed as contingent liabilities. OTHER ACCOUNTING POLICIES Translation of foreign currencies Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The Consolidated financial statements are presented in Danish kroner (DKK), which is the functional and presentation currency of the Parent company. Translation of transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are included in the fair value reserve in equity. Translation of Group companies Financial statements of foreign subsidiaries are translated into Danish kroner at exchange rates ruling at the balance sheet date for assets and liabilities and at average exchange rates for Income statement items. All exchange rate adjustments are recognised in the Income statement with the exception of exchange gains and losses arising from: n The translation of foreign subsidiaries’ net assets at the beginning of the year Consolidated financial statements Notes – Accounting policies Goodwill is measured at historical cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Other intangible assets Patents and licences that include acquired patents and licences to in-process research and development projects and other intangibles are carried at his- torical cost less accumulated amortisation and any impairment loss. Internal development costs and the related software in connection with major IT projects for internal use are capitalised under Other intangible assets. Amortisation is provided under the straight-line method over the estimated useful life of the asset (up to 10 years). For the patents and in-process research and development projects the amortisation starts when the products are put into use. Property, plant and equipment Property, plant and equipment are measured at historical cost less accumulated depreciation and any impairment losses. The cost of self-constructed assets includes costs directly attributable to the construction of the assets. Interest on loans financing construction of major investments is recognised as an expense in the period in which it is incurred. Subsequent cost is included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Land is not depreciated. Depreciation is provided under the straight-line method over the estimated useful lives of the assets as follows: n Buildings: 12– 50 years. n Plant and machinery: 5 –16 years. n Other equipment: 3 –16 years. The assets’ residual values and useful lives are reviewed, and adjusted if appro- priate, at each balance sheet date. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is higher than its estimated recoverable amount. Leases Leases of assets whereby the Group assumes substantially all the risks and re- wards of ownership are capitalised as finance leases under Property, plant and equipment and depreciated over the estimated useful lives of the assets, ac- cording to the periods listed above. The corresponding finance lease liabilities are included in liabilities. Operating lease costs are charged to the Income statement on a straight-line basis over the period of the lease. Investments in associated companies Investments in associated companies are accounted for under the equity method of accounting (ie at the respective share of the associated companies’ net asset value applying Group accounting policies). Goodwill relating to associated companies is recorded under Investments in translated at the exchange rates at the balance sheet date. associated companies. n The translation of foreign subsidiaries’ income statements using average exchange rates, whereas balance sheets are translated using the exchange rates ruling at the balance sheet date. n The translation of long-term intercompany receivables that are considered to be an addition to net assets in subsidiaries. n The translation of investments in associated companies. The above exchange gains and losses are recognised in Other comprehensive income under equity. Licence fees and other operating income (net) Licence fees and other operating income (net) comprise licence fees and income (net) of a secondary nature in relation to the main activities of the Group. The item also includes non-recurring income items (net) in respect of sale of intel- lectual property. Intangible assets Goodwill Goodwill represents any cost in excess of identifiable net assets, measured at fair value, in the acquired company. Goodwill recorded under Intangible assets is related to subsidiaries. Impairment of assets The Group assesses the carrying amount of intangible assets, long-lived assets and goodwill annually, or more frequently if events or changes in circumstances indicate that such carrying amounts may not be recoverable. Factors considered material by the Group and that could trigger an impairment test include the following: n Significant underperformance relative to historical or projected future re- sults. n Significant changes in the manner of the Group’s use of the acquired assets or the strategy for our overall business. n Significant negative industry or economic trends. When it is determined that the carrying amount of intangible assets, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, any impairment is measured based on discounted projected cash flows. Novo Nordisk Annual Report 2006 59 Consolidated financial statements Notes – Accounting policies 1 Summary of significant accounting policies (continued) This impairment test is based upon management’s projections and antici- pated future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines the discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products, forecasted lifecycle and forecasted cash flows over that period and the useful lives of the underlying assets. While the assumptions are believed to be appropriate, the amounts esti- mated could differ materially from what actually occurs in the future. These discounted cash flows are prepared at cash-generating-unit level. The cash- generating-units are the smallest group of identifiable assets that generates cash inflows from continuing use which are largely independent of the cash inflows from other assets or groups of assets. Financial assets The Group classifies its investments in the following categories: Financial assets at fair value through profit or loss (financial derivatives), Loans and receivables and Available-for-sale financial assets. The classification depends on the pur- pose for which the investments were acquired. Management determines the classification of its investments on initial recognition and re-evaluates this designation at every reporting date. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial derivatives used for hedging purposes. Assets in this category are classified as current assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or deter- minable payments that are not quoted in an active market. Loans and receiv- ables are included in Trade receivables and Other receivables in the Balance sheet. Trade receivables and Other receivables are stated at amortised cost less allowances for doubtful trade receivables. The allowances are based on an individual assessment of each receivable, which also includes an assessment of payment risk associated with individual countries. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in ‘Other financial assets’ unless Management intends to dispose of the invest- ment within 12 months of the balance sheet date. Marketable securities under current assets are classified as available-for-sale financial assets. Recognition and measurement Purchases and sales of investments are recognised on the settlement date. Investments are initially recognised at fair value plus transaction costs for all financial assets not classified as fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has trans- ferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised in equity. When financial assets classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the Income statement as gains and losses from available-for-sale financial assets. The fair values of quoted investments are based on current bid prices. Financial assets for which no active market exists are carried at cost. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets has been impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognised in the Income statement. Impair- ment losses recognised in the Income statement on equity instruments are not reversed through the Income statement. 60 Novo Nordisk Annual Report 2006 Inventories Raw materials and consumables are measured at cost assigned by using the first-in, first-out method. Work in progress and finished goods are stated at cost assigned by using the first-in, first-out method. Cost comprises direct production costs such as raw materials, consumables, energy and labour, and production overheads such as employee costs, depreciation, maintenance etc. The production overheads are measured based on a standard cost method which is reviewed regularly in order to ensure relevant measures of utilisation, production lead time etc. If the expected sales price less completion costs and costs to execute sales (net realisable value) is lower than the carrying amount, a write-down is recog- nised for the amount by which the carrying amount exceeds its net realisable value. Tax Income taxes in the Income statement include tax payable for the year with addition of the change in deferred tax for the year. Deferred income taxes arise from temporary differences between the ac- counting and tax balance sheets of the individual consolidated companies and from realisable tax-loss carry-forwards, using the liability method. The tax value of tax-loss carry-forwards will be included in deferred tax assets to the extent that the tax losses and other tax assets are expected to be utilised in the future taxable income. The deferred income taxes are measured according to current tax rules and at the tax rates expected to be in force on the elimination of the temporary differences. Employee benefits Wages, salaries, social security contributions, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the asso- ciated services are rendered by employees of the Group. Where the Group provides long-term employee benefits, the costs are accrued to match the rendering of the services by the employees concerned. Pensions The Group operates a number of defined benefit and defined contribution plans throughout the world. The costs for the year for defined benefit plans are determined using the projected unit credit method. This reflects services rendered by employees to the dates of valuation and is based on actuarial assumptions primarily regarding discount rates used in determining the present value of benefits, projected rates of remuneration growth, and long-term expected rates of return for plan assets. Discount rates are based on the market yields of high-rated corporate bonds in the country concerned. Differences between assumptions and actual events and effects of changes in actuarial assumptions are allocated over the estimated average remaining working lives of employees, where these differences exceed a defined corridor. Past service costs are allocated over the average period until the benefits become vested. Pension assets and liabilities in different defined benefit schemes are not offset unless the Group has a legally enforceable right to use the surplus in one plan to settle obligations in the other plan. Pension assets are only recognised to the extent that the Group is able to derive future economic benefits in the way of refunds from the plan or reductions of future contributions. The Group’s contributions to the defined contribution plans are charged to the Income statement in the year to which they relate. Share-based compensation The Group operates equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options or shares is recognised as an expense and allocated over the vesting period. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options or shares granted, excluding the im- pact of any non-market vesting conditions. The fair value is fixed at grant date. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. Novo Nordisk recognises the impact of the revision of the original estimates, if any, in the Income statement and a corresponding adjustment to equity over the remaining vesting period. Adjustments relating to prior years are included in the Income statement in the year of adjustment. 1 Summary of significant accounting policies (continued) 2 Changes in the scope of consolidation Consolidated financial statements Notes – Accounting policies In 2006, no changes in the scope of consolidation occurred. In January 2005, Novo Nordisk completed the acquisition of a business unit from Aradigm Corporation related to the AERx ® insulin Diabetes Management System (iDMS). The cost of the combination was DKK 358 million consisting of DKK 350 million in purchase price and DKK 8 million in assumed liabilities. The purchase price was paid in cash. The net assets were included in the consolida- tion as from 26 January 2005. In 2004, no changes in the scope of consolidation occurred. Liabilities Generally, liabilities are stated at amortised cost unless specifically mentioned otherwise. Treasury shares Treasury shares are deducted from share capital at their nominal value of DKK 2 per share. Differences between this amount and the amount paid for acquiring, or received for disposing of, treasury shares are deducted from retained earnings. Dividends Dividends are recognised as a liability in the period in which they are declared at the Annual General Meeting. Consolidated statement of cash flows and financial resources The Consolidated statement of cash flows and financial resources is presented in accordance with the indirect method commencing with net profit. The state- ment shows cash flows for the year, the net change in cash and cash equivalents for the year, and cash and cash equivalents at the beginning and the end of the year. Cash and cash equivalents consist of cash and marketable securities, with original maturity of less than three months, less short-term bank loans. Financial resources consist of cash and cash equivalents, bonds with original term to maturity exceeding three months, and undrawn committed credit facilities expiring after more than one year. United States Generally Accepted Accounting Principles (US GAAP) The Group prepares a reconciliation of the effect on net profit, equity and balance sheet of the application of US Generally Accepted Accounting Prin- ciples (US GAAP) in lieu of International Financial Reporting Standards. Note 38 discloses the US GAAP reconciliation. Novo Nordisk Annual Report 2006 61 Consolidated financial statements Notes – Accounting policies 3 Critical accounting estimates and judgements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assump- tions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the reported carrying amounts of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results could differ from those estimates. Novo Nordisk believes the following are the significant accounting estimates and related judgements used in the preparation of its Consolidated financial statements. Sales rebate accruals and provisions Sales rebate accruals and provisions are established in the same period as the related sales. The sales rebate accruals and provisions are recorded as a reduc- tion in sales and are included in Other provisions and Other liabilities. The accruals and provisions are based upon historical rebate payments. They are calculated based upon a percentage of sales for each product as defined by the contracts with the various customer groups. Factors that complicate the rebate calculations are identification of which products have been sold subject to a rebate, which customer or government price terms apply, and the estimated time lag between sale and payment of a rebate. Novo Nordisk believes that the accruals and provisions established for sales rebates are reasonable and appropriate based on current facts and circum- stances. However, actual amount of rebates and discounts may differ from the amounts estimated by Management. The US market has the most complex arrangements for rebates, discounts and allowances. A reconciliation of gross sales to net sales for North America is as follows: DKK million Gross sales Gross-to-net sales adjustments: Prime vendor charge-backs Managed health care rebates Medicaid and Medicare rebates Cash discounts Sales returns Other rebates and allowances 2006 2005 2004 17,196 13,893 10,748 (2,074) (1,073) (1,186) (310) (116) (157) (1,729) (798) (1,161) (244) (105) (324) (1,508) (511) (746) (177) (132) (196) Total gross-to-net sales adjustments (4,916) (4,361) (3,270) Net sales 12,280 9,532 7,478 The carrying amount of sales rebate accruals and provisions is DKK 1,847 million at 31 December 2006; please refer to note 5 for further information. Indirect Production Costs (IPC) Work in progress and finished goods are stated at cost assigned by using the first-in, first-out method. Cost comprises direct production costs such as raw materials, consumables, energy and labour, as well as IPC such as employee costs, depreciation, maintenance etc. IPC are measured based on a standard cost method which is reviewed regularly in order to ensure relevant measures of utilisation, production lead time and other relevant factors. Changes in the method for calculation of IPC, including utilisation levels, production lead time etc in the calculation of IPC, could have an impact on the gross margin and the overall valuation of inven- tories. The carrying amount of IPC is DKK 4,104 million at 31 December 2006. Allowances for doubtful trade receivables Trade receivables are stated at amortised cost less allowances for potential losses on doubtful trade receivables. Novo Nordisk maintains allowances for doubtful trade receivables for esti- mated losses resulting from the subsequent inability of the customers to make required payments. If the financial conditions of the customers were to deteriorate, resulting in an impairment of their ability to make payments, addi- tional allowances may be required in future periods. Management specifically analyses trade receivables and analyses historical bad debt, customer con- centrations, customer creditworthiness, current economic trends and changes in the customer payment terms when evaluating the adequacy of the allowance for doubtful trade receivables. The uncertainty connected with the allowance for doubtful trade receivables is considered limited. The carrying amount of allowances for doubtful trade receivables is DKK 459 million at 31 December 2006. Income taxes Management judgement is required in determining the Group’s provision for deferred income tax assets and liabilities. Novo Nordisk recognises deferred income tax assets if it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilised. Management has considered future taxable income in assessing whether deferred income tax assets as well as outcome of tax cases should be recognised. The carrying amount of deferred income tax assets and deferred income tax liabilities is DKK 1,911 million and DKK 1,998 million respectively at 31 December 2006. Provisions and contingencies As part of normal business Novo Nordisk issues credit notes for expired goods. Consequently a provision for future returns is made, based on historical statis- tical product returns. The pattern in returns in the future may be different from previous patterns. The carrying amount of provision for returned products is DKK 609 million at 31 December 2006. Management of the Group makes judgements about provisions and con- tingencies, including the probability of pending and potential future litigation outcomes that in nature are dependent on future events that are inherently uncertain. In making its determinations of likely outcomes of litigation, etc, management considers the evaluation of external counsel knowledgeable about each matter, as well as known outcomes in case law. See note 37 for a description of significant litigations pending. 62 Novo Nordisk Annual Report 2006 Consolidated financial statements Financial definitions ADRs American Depositary Receipts. Gross margin Gross profit as a percentage of sales. Basic earnings per share (EPS) Net profit divided by the average number of shares outstanding. Net profit margin Net profit as a percentage of sales. Cash to earnings Free cash flow as a percentage of net profit. Diluted earnings per share Net profit divided by the sum of average number of shares outstanding in- cluding the dilutive effect of share options ‘in the money’ in accordance with IAS 33. The dilutive effect of share options ‘in the money’ is calculated as the difference between the following: 1) the number of shares that could have been acquired at fair value with proceeds from the exercise of the share options and 2) the number of shares that would have been issued assuming the exercise of the share options. The difference (the dilutive effect) is added to the denom- inator as an issue of shares for no consideration. Effective tax rate Income taxes as a percentage of profit before income taxes. Equity ratio Equity at year-end as a percentage of the sum of total liabilities and equity at year-end. Free cash flow The sum of Cash flow from operating activities and Cash flow from investing activities excluding Net changes in marketable securities. Number of shares outstanding The number of shares outstanding is the total number of shares excluding the holding of treasury shares. Operating profit Earnings before tax, financial items and share of profit/loss in associated com- panies. Operating profit margin Operating profit as a percentage of sales. Payout ratio Total dividends for the year as a percentage of net profit. ROIC (return on invested capital) Operating profit after tax (using the effective rate) as a percentage of average inventories, receivables, property, plant and equipment as well as intangible assets less non-interest bearing liabilities including provisions (the sum of the above assets and liabilities at the beginning of the year and at year-end divided by two). Novo Nordisk Annual Report 2006 63 Consolidated financial statements Notes – Consolidated income statement 4 Segment information Primary reporting format – Business segments At 31 December 2006, the Group operates on a worldwide basis in two business segments (the primary reporting format): Diabetes care: The business segment includes discovery, development, manufacturing and marketing of products within the areas of insulin and delivery systems and oral antidiabetic products (OAD). Biopharmaceuticals: The business segment includes discovery, development, manufacturing and marketing of products within the therapy areas haemostasis management Business segments DKK million Segment sales and results Sales Modern insulins (insulin analogues) Human insulin and insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Biopharmaceuticals total Sales Change in DKK (%) Change in local currencies (%) Operating profit Share of profit in associated companies Financial income (net) Profit before income taxes Income taxes Net profit Other segment items Research and development costs Depreciation and amortisation Impairment losses in the Income statement Additions to property, plant and equipment and intangible assets (net) Investments in associated companies (net) Long-term assets Total assets Total liabilities (NovoSeven ®), growth hormone therapy, hormone replacement therapy and other products. There are no sales or other transactions between the business segments. Costs have been split between business segments based on a specific allocation with the addition of a minor number of corporate overheads allocated systematically to the segments. Segment assets comprise the assets that are applied directly to the activities of the segment, including intangible assets, property, plant and equipment, long-term financial assets, inventories, trade receivables and other receivables. Segment liabilities comprise liabilities derived from the activities of the segment, including provisions, trade payables and other liabilities. 2006 2005 2004 Diabetes care 10,825 15,057 1,984 7,298 15,006 1,708 4,507 14,383 1,643 27,866 24,012 20,533 27,866 16.1% 17.0% 4,982 24,012 16.9% 15.9% 4,055 20,533 11.1% 14.7% 3,404 3,898 1,632 45 2,499 – 17,606 29,714 7,470 3,177 1,446 171 3,510 – 17,502 28,484 6,635 2,932 1,312 320 2,652 – 15,270 24,997 4,788 Geographical segments 2006 2005 2004 2006 2005 2004 DKK million Sales Change in DKK (%) Change in local currencies (%) Additions to property, plant and equipment and intangible assets (net) Property, plant and equipment Total assets Europe 13,447 8.3% 7.6% 2,332 16,946 32,523 14,708 9.4% 9.2% 2,065 16,765 35,232 North America 12,411 6.1% 5.9% 2,831 16,519 31,198 12,280 28.8% 29.4% 460 1,480 3,819 9,532 27.5% 26.7% 801 1,212 4,205 7,478 20.2% 31.9% 133 425 2,725 64 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Consolidated income statement Secondary reporting format – Geographical segments The Group operates in four main geographical areas (the secondary reporting format): Europe: EU, EFTA North America: USA and Canada Japan & Oceania: Japan, Australia and New Zealand International Operations: All other countries Sales are attributed to geographical segments based on the location of the customer. There are no sales between segments. Total assets and additions to property, plant and equipment and intangible assets are based on the location of the assets. The segments and regions are the same as those used for internal reporting, allowing a reliable assessment of risk and returns. 2006 2005 2004 2006 2005 2004 2006 2005 2004 Biopharmaceuticals Corporate/unallocated Total 5,635 3,309 1,607 326 10,877 10,877 11.6% 12.7% 4,137 5,064 2,781 1,565 338 9,748 9,748 14.7% 14.2% 4,033 4,359 2,317 1,488 334 8,498 8,498 10.6% 15.4% 3,576 (260) 305 319 (173) (117) 594 2,712 2,370 2,444 2,418 291 – 509 – 3,684 6,783 2,269 1,908 309 – 727 – 3,625 6,566 1,959 1,420 254 6 583 – 3,185 5,644 1,581 – 40 134 1 112 2,567 8,195 4,831 – 4 – 4 – 1,273 6,910 5,732 – – – – 18 1,229 6,792 4,560 10,825 15,057 1,984 7,298 15,006 1,708 4,507 14,383 1,643 27,866 24,012 20,533 5,635 3,309 1,607 326 10,877 38,743 14.8% 15.7% 9,119 (260) 305 9,164 2,712 6,452 6,316 1,963 179 3,009 112 23,857 44,692 14,570 5,064 2,781 1,565 338 9,748 33,760 16.3% 15.4% 8,088 319 (173) 8,234 2,370 5,864 5,085 1,759 171 4,241 – 22,400 41,960 14,326 4,359 2,317 1,488 334 8,498 29,031 11.0% 14.9% 6,980 (117) 594 7,457 2,444 5,013 4,352 1,566 326 3,235 18 19,684 37,433 10,929 2006 2005 2004 2006 2005 2004 2006 2005 2004 International Operations Japan & Oceania 7,086 16.7% 17.2% 465 1,897 4,618 6,070 25.3% 22.2% 1,088 1,546 4,212 4,844 14.6% 20.7% 252 376 2,387 4,669 (0.9%) 5.0% 19 208 1,023 4,711 9.6% 10.5% 20 237 1,020 4,298 7.0% 9.0% 19 239 1,123 38,743 14.8% 15.7% 3,009 20,350 44,692 Total 33,760 16.3% 15.4% 4,241 19,941 41,960 29,031 11.0% 14.9% 3,235 17,559 37,433 Novo Nordisk Annual Report 2006 65 Consolidated financial statements Notes – Consolidated income statement 5 Sales rebate accruals and provisions 7 Depreciation, amortisation and impairment losses DKK million 2006 2005 2004 DKK million 2006 2005 2004 At the beginning of the year Additional rebates deducted from sales Payments and grants of rebates during the year Exchange rate adjustments 1,872 2,543 1,031 2,637 745 1,600 (2,372) (196) (1,943) 147 (1,258) (56) At the end of the year 1,847 1,872 1,031 Specification of sales rebate accruals and provisions: Other liabilities Current provisions 72 1,775 77 1,795 107 924 Included in the Income statement under the following headings: Cost of goods sold Sales and distribution costs Research and development costs Administrative expenses Total depreciation, amortisation and impairment losses 1,682 56 302 102 1,525 67 231 107 1,322 226 218 126 2,142 1,930 1,892 Total sales rebate accruals and provisions 1,847 1,872 1,031 8 Fees to statutory auditors 6 Employee costs DKK million 2006 2005 2004 Wages and salaries Share-based payment costs (refer to note 34) Pensions – defined contribution plans Pensions – defined benefit plans (refer to note 24) Other contributions to social security Other employee costs 10,161 113 761 111 668 962 9,101 223 660 137 584 793 8,119 104 592 100 488 660 Total employee costs 12,776 11,498 10,063 Included in the Income statement under the following headings: Cost of goods sold Sales and distribution costs Research and development costs Administrative expenses 3,656 3,904 2,424 2,055 3,664 3,380 2,095 1,751 3,219 2,868 1,713 1,523 DKK million 2006 2005 2004 Statutory audit Audit-related services Tax advisory services Other services Total 24 7 16 1 48 24 6 20 1 51 17 5 18 3 43 9 Licence fees and other operating income (net) DKK million 2006 2005 2004 Licence fees and settlements Net income from IT, engineering and other services Other income Total licence fees and other operating income (net) 148 55 69 164 51 188 382 58 135 272 403 575 Total included in the Income statement 12,039 10,890 9,323 10 Financial income DKK million 2006 2005 2004 Included in the Balance sheet as: Capitalised employee costs related to assets in course of construction etc Change in employee costs included in inventories Total included in the Balance sheet 660 77 737 605 3 608 598 142 740 Interest income Capital gain on investments etc (net) Foreign exchange gain (net) Foreign exchange gain on derivative financial instruments (net) Total employee costs 12,776 11,498 10,063 Total financial income For information on remuneration to the Board of Directors and Executive Management, please refer to note 35. 11 Financial expenses Average number of full-time employees Year-end number of full-time employees 22,590 23,172 21,146 22,007 19,520 20,285 DKK million Interest expenses Capital loss on investments etc (net) Foreign exchange loss (net) Foreign exchange loss on derivative financial instruments (net) Other financial expenses Total financial expenses 66 Novo Nordisk Annual Report 2006 369 153 – 409 931 210 – 288 – 498 235 – – 663 898 2006 2005 2004 296 – 268 – 62 626 254 20 – 328 69 671 107 12 130 – 55 304 Consolidated financial statements Notes – Consolidated income statement 12 Income taxes DKK million Current tax on profit for the year Deferred tax on profit for the year Tax on profit for the year Adjustments related to previous years – current tax Adjustments related to previous years – deferred tax Income taxes in the Income statement Tax on entries in equity related to current tax Tax on entries in equity related to deferred tax Tax on entries in equity Computation of effective tax rate: Statutory corporate income tax rate in Denmark Deviation in foreign subsidiaries’ tax rates compared to Danish tax rate (net) Non-tax income less non-tax deductible expenses (net) Effect on deferred tax related to change in the Danish tax rate in 2005 Other 2006 2,832 (213) 2,619 964 (871) 2,712 4 125 129 28.0% 2.1% (0.4%) – (0.1%) 2005 2,389 40 2,429 (45) (14) 2,370 18 (70) (52) 28.0% 3.6% (1.6%) (0.7%) (0.5%) 2004 2,293 125 2,418 34 (8) 2,444 – 8 8 30.0% 3.8% (0.5%) – (0.5%) Effective tax rate 29.6% 28.8% 32.8% 13 Earnings per share Net profit DKK million 2006 6,452 2005 5,864 2004 5,013 Average number of shares outstanding Dilutive effect of outstanding options ‘in the money’ in 1,000 shares in 1,000 shares 320,931 1,763 327,711 1,223 336,628 1,482 Average number of shares outstanding incl dilutive effect of options ‘in the money’ in 1,000 shares 322,694 328,934 338,110 Basic earnings per share Diluted earnings per share DKK DKK 20.10 19.99 17.89 17.83 14.89 14.83 Novo Nordisk Annual Report 2006 67 Consolidated financial statements Notes – Consolidated balance sheet 14 Intangible assets DKK million 2006 Cost at the beginning of 2006 Additions during the year Disposals during the year Exchange rate adjustments Cost at the end of 2006 Amortisation and impairment losses at the beginning of 2006 Amortisation for the year Amortisation and Impairment losses reversed on disposals during the year Exchange rate adjustments Amortisation and impairment losses at the end of 2006 Carrying amount at the end of 2006 2005 Cost at the beginning of 2005 Changes in consolidation Reclassifications Additions during the year Disposals during the year Exchange rate adjustments Cost at the end of 2005 Amortisation and impairment losses at the beginning of 2005 Reclassifications Amortisation for the year Amortisation and impairment losses reversed on disposals during the year Exchange rate adjustments Amortisation and impairment losses at the end of 2005 Carrying amount at the end of 2005 Goodwill Patents and Licences etc Other intangible assets 82 – – – 82 65 – – – 65 17 314 – (45) 11 (276) 78 82 289 (20) – (276) 72 65 17 297 194 (2) (3) 486 13 9 – – 22 464 177 – (1) 122 (1) – 297 8 (1) 8 (1) (1) 13 284 470 28 (3) (4) 491 286 54 (3) (4) 333 158 327 8 46 89 (3) 3 470 207 21 57 (3) 4 286 184 Total 849 222 (5) (7) 1,059 364 63 (3) (4) 420 639 818 8 – 222 (280) 81 849 504 – 65 (280) 75 364 485 68 Novo Nordisk Annual Report 2006 15 Property, plant and equipment DKK million 2006 Cost at the beginning of 2006 Additions during the year Disposals during the year Transfer from/(to) other items Exchange rate adjustments Cost at the end of 2006 Depreciation and impairment losses at the beginning of 2006 Depreciation for the year Impairment losses for the year Depreciation and impairment losses reversed on disposals during the year Exchange rate adjustments Depreciation and impairment losses at the end of 2006 Consolidated financial statements Notes – Consolidated balance sheet Land and buildings Plant and machinery Other equipment Total Payments on account and assets in course of construction 10,017 285 (90) 1,389 (76) 12,670 400 (770) 1,810 (44) 11,525 14,066 2,817 486 15 (62) (25) 3,231 5,957 1,188 164 (593) (39) 6,677 2,492 184 (165) 148 (36) 2,623 1,659 226 – (125) (29) 1,731 5,195 2,029 – (3,347) (102) 30,374 2,898 (1,025) – (258) 3,775 31,989 – – – – – – 10,433 1,900 179 (780) (93) 11,639 Carrying amount at the end of 2006 8,294 7,389 892 3,775 20,350 2005 Cost at the beginning of 2005 Changes in consolidation Additions during the year Disposals during the year Transfer from/(to) other items Exchange rate adjustments Cost at the end of 2005 Depreciation and impairment losses at the beginning of 2005 Depreciation for the year Impairment losses for the year Depreciation and impairment losses reversed on disposals during the year Exchange rate adjustments Depreciation and impairment losses at the end of 2005 9,030 84 139 (219) 920 63 11,162 – 199 (191) 1,447 53 10,017 12,670 2,467 369 70 (111) 22 2,817 4,897 1,094 101 (160) 25 5,957 2,272 26 164 (173) 158 45 2,492 1,538 231 – (142) 32 1,659 3,997 235 3,397 – (2,525) 91 26,461 345 3,899 (583) – 252 5,195 30,374 – – – – – – 8,902 1,694 171 (413) 79 10,433 Carrying amount at the end of 2005 7,200 6,713 833 5,195 19,941 Novo Nordisk Annual Report 2006 69 Consolidated financial statements Notes – Consolidated balance sheet 16 Investments in associated companies 18 Inventories DKK million 2006 2005 DKK million Raw materials and consumables Work in progress Finished goods Total inventories Indirect production costs included in work in progress and finished goods Amount of write-down of inventories recognised as expense during the year Amount of reversal of write-down of inventories during the year 19 Trade receivables DKK million Trade receivables (gross) Allowances for doubtful trade receivables: Balance at the beginning of the year Change in allowances during the year Realised losses during the year Balance at the end of the year Trade receivables (net) are equal to an average credit period of (days) Overdue by: Between 1 and 179 days Between 180 and 359 days More than 360 days Total trade receivables (gross) 20 Other receivables DKK million Prepayments Interest receivable Amounts owed by affiliated companies Other receivables Total other receivables 2006 2005 1,088 4,697 2,615 1,131 4,581 2,070 8,400 7,782 4,104 3,536 443 548 45 146 2006 2005 5,622 5,213 419 55 (15) 459 369 72 (22) 419 49 52 4,319 4,111 873 184 246 815 127 160 5,622 5,213 2006 2005 835 34 99 816 522 53 94 786 1,784 1,455 Total trade receivables 5,163 4,794 2006 2005 Trade receivables (gross) can be specified as follows: Not due Aggregated financial information of associated companies: Sales Net profit Total assets Total liabilities Novo Nordisk’s share of profit/(loss) in associated companies Novo Nordisk’s carrying amount of investments in associated companies Market values of shareholdings in listed associated companies: – ZymoGenetics, Inc (NASDAQ symbol: ZGEN) – Innate Pharma SA (Euronext symbol: IPH) 1,825 (782) 4,272 1,942 (260) 788 1,948 (446) 4,828 2,051 319 926 1,842 219 2,248 – In 2006 Novo Nordisk acquired additional shares in the French company Innate Pharma SA and at the end of the year holds 19% of the share capital. As Novo Nordisk and Innate Pharma SA furthermore have a research and develop- ment collaboration Innate Pharma SA is considered an associated company of Novo Nordisk. In 2006, Novo Nordisk’s share of profit/(loss) in associated companies includes unrealised capital loss amounting to DKK 16 million net related to Zymo- Genetics, Inc. In 2005, Novo Nordisk’s share of profit/(loss) in associated com- panies included unrealised capital gains amounting to DKK 186 million net related to ZymoGenetics, Inc. In 2005 Novo Nordisk divested all of its share- holding in Ferrosan A/S and recorded a gain of DKK 260 million. The carrying value of investments in associated companies include intangible assets and goodwill amounting to DKK 82 million at the end of the year (DKK 13 million in 2005). Please refer to page 101 for a list of Novo Nordisk’s associated companies. 17 Financial assets DKK million Financial assets classified as fair value through profit and loss: – Derivative financial instruments (refer to note 36) Available-for-sale financial assets: – Listed shares – Unlisted shares – Bonds Loans: – Amounts owed by affiliated companies – Amounts owed by third parties 814 198 9 91 1,001 36 51 85 56 1,502 50 – Total financial assets 2,002 1,891 Specification of financial assets: Long-term (Other financial assets) Current (Marketable securities and financial derivatives) Total financial assets Revaluation surplus on available-for-sale financial assets recognised in equity during the year Bonds with maturity exceeding 12 months from the balance sheet date Duration of the Group’s bond portfolio (years) Redemption yield on the Group’s bond portfolio 169 1,833 169 1,722 2,002 1,891 (27) 2 – – – 1,001 0.7 2.9% 70 Novo Nordisk Annual Report 2006 21 Share capital DKK million Development in share capital: A share capital B share capital At the end of the year Consolidated financial statements Notes – Consolidated balance sheet 2006 2005 107 567 674 107 602 709 The A share capital remained unchanged at DKK 107 million from 2002 to 2006. In 2006 the B share capital was reduced by DKK 35 million from DKK 602 million to DKK 567 million. The B share capital remained 602 million from 2002 to 2005. At the end of 2006 the share capital amounted to DKK 107,487,200 in A share capital (equal to 53,743,600 shares of DKK 2) and DKK 566,432,800 in B share capital (equal to 283,216,400 shares of DKK 2). Treasury shares: Holding at the beginning of the year Cancellation of treasury shares Holding of treasury shares, adjusted for cancellation Purchase during the year Sale during the year Value adjustment Number of B shares of DKK 2 As % of share capital before cancellation As % of share capital after cancellation Market value DKK million 30,979,219 (17,734,160) 13,245,059 7,468,957 (1,000,947) 8.73% (5.00%) 3.73% 3.93% 2.22% (0.30%) 10,984 6,288 4,696 3,000 (210) 1,799 Holding at the end of the year 19,713,069 5.85% 9,285 Acquisition of treasury shares during the year is part of the share buy-back programme of up to DKK 6 billion worth of Novo Nordisk B shares announced in January 2006, which was initiated in order to align the capital structure with the expected development in free cash flow. Sale of treasury shares relates to exercised share options. Of the treasury B shareholding at the end of the year 5,421,309 shares are regarded as hedge for the share-based incentive schemes. 22 Long-term debt DKK million Mortgage debt and other secured loans *) Unsecured loans and other long-term loans **) Total long-term debt The debt is payable within the following periods as from the balance sheet date: Between one and two years Between two and three years Between three and four years Between four and five years After five years Total long-term debt The debt is denominated in the following currencies: DKK EUR USD JPY Other currencies Total long-term debt Adjustment of the above loans to market value at year-end 2006 would result in a loss of DKK 6 million (a gain of DKK 14 million in 2005). *) Terms to maturity between 2008 – 2016 and a weighted average interest rate of 4.07% **) Terms to maturity between 2010 – 2011 and a weighted average interest rate of 5.46% 2006 2005 658 516 659 589 1,174 1,248 159 1 1 510 503 1,174 3 657 510 – 4 16 158 – – 1,074 1,248 3 656 570 12 7 1,174 1,248 Novo Nordisk Annual Report 2006 71 Consolidated financial statements Notes – Consolidated balance sheet 23 Deferred income tax assets and liabilities DKK million At the beginning of the year Deferred tax on profit for the year Adjustment relating to previous years Tax on entries on equity Exchange rate adjustments Total deferred tax liabilities (net) DKK million Assets Liabilities Specification The deferred tax assets and liabilities are allocable to the various balance sheet items as follows: Property, plant and equipment Intangible assets Indirect production costs Unrealised profit on intercompany sales Allowances for doubtful trade receivables Tax-loss carry-forward Other Netting of deferred tax assets and deferred tax liabilities related to income taxes for which there is a legally enforceable right to offset Total deferred tax liabilities (net) (188) (904) – (1,561) (110) (7) (915) (3,685) 1,425 141 1,149 – – – 1,057 3,772 1,774 (1,774) (1,911) 1,998 2006 Total 1,237 (763) 1,149 (1,561) (110) (7) 142 87 – 87 2006 2005 967 (213) (871) 125 79 87 Assets Liabilities (147) (321) – (1,861) (87) (14) (443) (2,873) 1,371 102 998 – – – 1,369 3,840 1,994 (1,994) (879) 1,846 1,084 40 (14 ) (70) (73) 967 2005 Total 1,224 (219) 998 (1,861) (87) (14) 926 967 – 967 Unremitted earnings have been retained by subsidiary companies for reinvestment. No provision is made for income taxes that would be payable upon the distribution of such earnings. If the earnings were remitted, an immaterial income tax charge would result, based on the tax statutes currently in effect. No deferred tax has been calculated on differences associated with investments in subsidiaries, branches and associates as the differences by nature are permanent differences. However, deferred tax has been calculated if the differences are tax deductible. Tax-loss carry-forward Deferred tax assets are recognised on tax-loss carry-forwards that represent income likely to be realised in the future. The deferred tax assets of a tax loss of DKK 214 million (DKK 137 million in 2005) have not been recognised in the Balance sheet. Hereof DKK 27 million expire within three years. 72 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Consolidated balance sheet Post-employment benefit plans are usually funded by payments from Group companies and by employees to funds independent of the Group. Where a plan is unfunded, a liability for the retirement obligation is recognised in the Group’s Balance sheet. The costs recognised for post-employment benefits are included in Cost of goods sold, Sales and distribution costs, Research and development costs or Administrative expenses. 24 Provisions for pensions Most employees in the Group are covered by retirement plans in the form of primarily defined contribution plans or alternatively defined benefit plans. Group companies sponsor these plans either directly or by contributing to independently administered funds. The nature of such plans varies according to the legal regulations, fiscal requirements and economic conditions of the countries in which the employees are employed, and the benefits are generally based on the employees’ remuneration and years of service. The obligations relate both to existing retirees’ pensions and to pension entitlements of future retirees. Other post-employment benefits consist mostly of post-retirement healthcare plans, principally in the United States. DKK million 2006 2005 DKK million 2006 2005 Changes in present value of the defined benefit obligations are as follows: At the beginning of the year Changed classification of pension plans Current service cost Interest cost on pension obligation Actuarial (gains)/losses Past service costs Benefits paid to employees Other Exchange rate adjustments 875 – 107 30 7 (2) (26) (5) (48) 609 70 104 27 77 (11) (27) (7) 33 Present value of defined benefit obligations at the end of the year 938 875 Specification of present value of defined benefit obligations: Present value of funded obligations Present value of unfunded obligations Total present value of defined benefit obligations Changes in fair value of plan assets are as follows: At the beginning of the year Changed classification of pension plans Expected return on plan assets Actuarial gains/(losses) Employer contributions Benefits paid to employees Other Exchange rate adjustments Fair value of plan assets at the end of the year 648 290 938 435 – 16 3 65 (17) 9 (16) 495 576 299 875 313 53 15 (6) 72 (21) 6 3 435 The Group expects to contribute DKK 74 million to its defined benefit pension plans in 2007. The major categories of assets held as a percentage of total plan assets are as follows: Equities Bonds Cash at bank Property 27% 56% 12% 5% 50% 30% 18% 2% Amounts recognised in the Balance sheet for post- employment defined benefit plans are as follows: Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Unrecognised actuarial gains/(losses) (net) Unrecognised past service costs Net liability in the Balance sheet The above amounts include non-pension post-retirement benefit plans, principally medical plans as follows: Actuarial present value of obligations due to past and present employees Unrecognised actuarial gains/(losses) (net) Net recognised (assets)/liabilities 648 (495) 153 290 (110) (3) 330 576 (435) 141 299 (120) (4) 316 219 (39) 180 227 (57) 170 Amounts recognised in the Balance sheet for post-employment defined benefit plans are predominantly non-current and are reported as either long-term assets or long-term liabilities. The amounts recognised in the Income statement regarding post-employment defined benefit plans are as follows: Current service cost Interest cost on pension obligation Expected return on plan assets Actuarial (gains)/losses recognised in the year Curtailment/settlement gains Past service cost Total expenses included in employee costs Actual return on plan assets The actuarial assumptions used in the computations and valuations vary from country to country due to local economic and social conditions. The range of assumptions used is as follows: Discount rate Projected return on plan assets Projected future remuneration increases Healthcare cost trend rate Inflation rate 107 30 (16) 4 (18) 4 111 19 104 27 (15) 2 – 19 137 11 2.0% to 6.0% 1.0% to 6.0% 2.0% to 4.0% 2.0% to 13.0% 2.0% to 3.0% For all major defined benefit plans actuarial computations and valuations are performed annually. Novo Nordisk Annual Report 2006 73 Consolidated financial statements Notes – Consolidated balance sheet 25 Other provisions DKK million At the beginning of the year Additional provisions Unused amounts reversed Used during the year Exchange rate adjustments At the end of the year Specification of other provisions: Long-term Current Total other provisions Provisions for returned products Provisions for sales rebates Other provisions 496 269 – (156) – 609 – 609 609 1,795 2,289 – (2,121) (188) 1,775 – 1,775 1,775 428 634 (19) (42) (18) 983 911 72 983 2006 Total 2,719 3,192 (19) (2,319) (206) 2005 Total 1,718 2,673 (5) (1,852) 185 3,367 2,719 911 2,456 3,367 335 2,384 2,719 Provisions for returned products: Novo Nordisk issues credit notes for expired goods as a part of normal business. Consequently, a provision for future returns is made based on historical statistical product returns, which represents management’s best estimate. The provision is expected to be used within the normal operating cycle. Provisions for sales rebates: In some countries the actual rebates depend on which customers purchase the products. Factors that complicate the rebate calculations are the identification of which products have been sold subject to a rebate, which customer or government price terms apply, and the estimated lag time between sale and payment of the rebate. Please refer to notes 3 and 5 for further information on rebates deducted from sales. Other provisions: Other provisions consist of various types of provisions including provisions for legal disputes, which represents management’s best estimate. Refer to note 37, Commit- ments and contingencies for further information. 26 Short-term debt and financial derivatives 27 Other liabilities DKK million 2006 2005 DKK million Employee costs payable Taxes and duties payable Accruals and deferred income Amounts owed to affiliated companies Other payables Total other liabilities Bank loans and overdrafts Long-term debt, amounts falling due within one year Derivative financial instruments (refer to note 36) Total short-term debt The debt is denominated in the following currencies: DKK EUR USD JPY Other currencies Total short-term debt 285 12 41 338 18 196 57 11 56 338 820 25 599 1,444 61 199 986 25 173 1,444 At year-end, the Group had undrawn committed credit facilities amounting to DKK 7,456 million (DKK 7,461 million in 2005). The undrawn committed credit facilities consist of a EUR 400 million and a EUR 600 million facility committed by a number of Danish and international banks. The facilities mature in 2009 and 2012 respectively. 2006 1,857 447 81 86 2,392 4,863 2005 1,734 463 83 55 2,242 4,577 74 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Consolidated cash flow and financial resources 28 Other adjustments for non-cash items 31 Appropriation of net profit incl proposed dividends for the Parent company DKK million 2006 2005 2004 Proposed appropriation of net profit in the Parent company, Novo Nordisk A/S: Dividends Net revaluation reserve according to the equity method Retained earnings 2,221 1,945 1,594 5,472 (1,246) 3,898 15 3,377 35 Net profit 6,447 5,858 5,006 Total equity in the Parent company, Novo Nordisk A/S: Share capital (not available for dividends) Share premium account *) Net revaluation reserve according to the equity method (not available for dividends) Retained earnings Exchange rate adjustments 674 – 15,932 13,342 156 709 – 709 2,565 10,460 16,310 142 6,562 16,701 (40) Total equity 30,104 27,621 26,497 Dividends per share 7.00 6.00 4.80 The Financial statements of the Parent company Novo Nordisk A/S are prepared in accordance with Danish GAAP. Compared to the Group accounting policies this also includes amortisation of goodwill. The net profit and equity in 2006 of Novo Nordisk A/S are DKK 5 million (DKK 6 million in 2005) and DKK 18 million (DKK 13 million in 2005) respectively lower than the net profit and equity of the Group. *) In accordance with changes in the Danish Companies Act, the Share premium account was transferred to Retained earnings. DKK million 2006 2005 2004 Share-based payment costs Increase/(decrease) in provisions (Gain)/loss from sale of property, plant and equipment Allowances for doubtful trade receivables Unrealised (gain)/loss on shares and bonds etc Unrealised foreign exchange (gain)/loss Share of (profit)/loss in associated companies Unrealised capital gain on investments in associated companies Other, including difference between average exchange rate and year end exchange rate 113 889 134 65 (7) (143) 244 223 890 (64) 72 37 96 127 16 (186) (352) (86) 104 501 104 (10) (8) 204 212 (95) 6 Other adjustments for non-cash items 959 1,109 1,018 29 Cash flows from acquisition of subsidiaries and business units DKK million 2006 2005 2004 Intangible assets Property, plant and equipment Current assets Long-term liabilities Current liabilities Net assets acquired Goodwill on acquisition Consideration paid Acquired cash and cash equivalents Net cash flow – – – – – – – – – – 8 345 5 – (8) 350 – (350) – (350) – – – – – – – – – – 30 Cash and cash equivalents DKK million 2006 2005 2004 Cash at the end of the year 3,270 3,303 3,433 Short-term bank loans and overdrafts at the end of the year (refer to note 26) (285) (820) (470) Cash and cash equivalents at the end of the year 2,985 2,483 2,963 At the end of 2006, 2005 and 2004 there were no marketable securities with original maturity of less than three months. Novo Nordisk Annual Report 2006 75 The financial instruments included in the foreign exchange sensitivity analysis are the Group’s cash, accounts receivable and payable, short- and long-term loans, short- and long-term financial investments, foreign exchange forwards and foreign exchange options hedging transaction exposure. Furthermore, interest rate swaps and cross-currency swaps are included. Not included are anticipated currency transactions, investments and fixed assets. Cross-currency swaps hedging translation exposure are excluded from the sensitivity analysis, as the effects of changing exchange rates hereon are recognized directly under shareholders’ funds. Novo Nordisk only hedges partially invested equity in major foreign affiliates. Equity hedging takes place using long-term cross-currency swaps. At the end of 2006, hedged equity made up 14% of the Group’s JPY equity. At the end of 2005 20% of the Group’s JPY equity was hedged. Interest rate risk Changes in the interest rates have a limited effect on Novo Nordisk’s financial instruments. At the end of 2006 an increase in the interest rate level of one percentage point would, everything else being equal, increase the fair value of Novo Nordisk’s financial instruments with DKK 53 million (DKK 51 million in 2005). DKK and EUR interest rates rose steadily during the first half of 2006, and continued at a more moderate pace in the second half of 2006. The Danish 2-year bond yield was 3.94% at the end of 2006, up from 2.86% at the end of 2005. The financial instruments included in the sensitivity analysis consist of marketable securities, deposits, short- and long-term loans, interest rate swaps and cross currency swaps. Not included are foreign exchange forwards and foreign exchange options due to the limited effect that interest rate changes have on these instruments. Liquidity risk Novo Nordisk ensures availability of required liquidity through a combination of cash management, highly liquid investment portfolios, and uncommitted as well as committed facilities. Counterparty risk The use of derivative financial instruments and money market deposits gives rise to counterparty exposure. To manage and reduce the credit risk on financial counterparties, Novo Nordisk only enters into derivative financial contracts with financial counterparties having a satisfactory long-term credit rating assigned by international credit rating agencies. Money market deposits are only entered into with financial counterparts having a satisfactory short-term credit rating. The credit risk on bonds is limited as investments are made in liquid bonds with solid credit ratings. Credit risk on Trade and Other receivables is limited as Novo Nordisk has no significant concentration of credit risk, with exposure being spread over a large number of counterparties and customers. Capital management Novo Nordisk’s capital structure is characterized by a substantial equity ratio. This is in line with the overall capital structure of the pharmaceutical industry and reflects the need for long term decision horizons in an industry with more than 10 years development time for new products. Novo Nordisk’s equity ratio, calculated as equity to total liabilities, was 67.4% by the end of the year (65.9% at the end of 2005). Consolidated financial statements Notes – Additional information 32 Financial risk Novo Nordisk has centralised the management of the Group’s financial risks. The overall objective and policies for the company’s financial risk management are outlined in the Treasury Policy, which is approved by the Board of Directors. The Treasury Policy consists of the Foreign Exchange Policy, the Investment Policy, the Financing Policy and the Policy regarding Credit Risk on Financial Counterparts, and includes a description of allowed financial instruments and risk limits. Novo Nordisk only hedges commercial exposures and consequently does not enter into derivative transactions for trading or speculative purposes. Novo Nordisk uses a fully integrated Treasury Management System to manage all financial positions. All positions are marked-to-market based on real-time quotes and risk is assessed using generally accepted standards. Foreign exchange risk Foreign exchange risk is the principal financial risk within Novo Nordisk and as such has a significant impact on the Income statement and the Balance sheet. The major part of Novo Nordisk’s sales is in EUR, USD, JPY and GBP, while a predominant part of production, research and development costs is carried in DKK. As a consequence Novo Nordisk’s foreign exchange risk is most significant in USD, JPY and GBP, leaving out EUR for which the exchange risk is regarded as low due to the Danish fixed-rate policy vis-à-vis the EUR. The overall objective of foreign exchange risk management is to limit the short-term negative impact on earnings and cash flow from exchange rate fluctuations, thereby increasing the predictability of the financial results. Novo Nordisk hedges existing assets and liabilities in major currencies as well as future expected cash flows up to 24 months forward. Currency hedging is based upon expectations of future exchange rates and takes place using mainly foreign exchange forwards and foreign exchange options matching the due dates of the hedged items. Expected cash flows are continuously assessed using historical inflows, budgets and monthly sales forecasts. Hedge effectiveness is assessed on a regular basis. USD depreciated during 2006 versus DKK ending with a 10.5% decrease. In 2005 the USD increased by 15.7% versus DKK. In 2006 the JPY depreciated by 11.5% whereas the GBP appreciated by 2.0%, both versus DKK. In 2005 the JPY and the GBP appreciated by 1.8% and 3.7% respectively versus DKK. At year-end 2006 Novo Nordisk has covered the foreign exchange exposures on the Balance sheet together with 16 months of expected future cash flow in USD. For JPY and GBP the equivalent cover was 12 months and 11 months of expected future cash flow respectively. At the end of 2005 the USD cover was 12 months, and for JPY and GBP the cover was 11 months and 10 months respectively. A 5% change in the following currencies will have an impact on operating profit in 2007 of approximately: DKK million USD JPY GBP USD-related currencies Estimated for 2007 Estimated for 2006 400 150 90 110 350 150 90 100 At the end of 2006 a 5% increase in all other currencies versus EUR and DKK would result in a decrease of the value of the net financial instruments of the Group, of approximately DKK 644 million (DKK 546 million in 2005). A 5% decrease in all other currencies versus EUR and DKK would result in an increase of the value of the net financial instruments of the Group of approximately DKK 693 million (DKK 570 million in 2005). 76 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Additional information 33 Related party transactions Novo Nordisk A/S is controlled by Novo A/S (incorporated in Denmark), which owns 25.5% of the shares in Novo Nordisk A/S. The remaining shares are widely held. The ultimate parent of the Group is the Novo Nordisk Foundation (incorporated in Denmark). Other related parties are considered to be the Novozymes Group due to joint ownership, associated companies, the directors and officers of these entities and management of Novo Nordisk. Following the demerger, Novo Nordisk has access to certain assets of and may purchase certain services from Novo A/S and the Novozymes Group and vice versa. All agreements relating to such assets and services are based on the list prices used for sales to third parties where such list prices exist, or the price has been set at what is regarded as market price. The main part of these agreements is for one year. The Group has had the following material transactions with related parties: DKK million Novo A/S Services provided by the Group Facilitation provided by Novo A/S Purchase of treasury shares The Novozymes Group Services provided by the Group Services provided by the Novozymes Group Associated companies Purchased intangible assets, fees and royalties etc paid to associated companies by Novo Nordisk 2006 Purchase/ (sale) 2005 Purchase/ (sale) (14) 40 1,835 (12) 35 646 (207) 157 (248) 142 70 96 There have not been any material transactions with the Novo Nordisk Founda- tion or with any director or officer of Novo Nordisk A/S, the Novozymes Group, Novo A/S, the Novo Nordisk Foundation or associated companies. For informa- tion on remuneration to management of Novo Nordisk A/S, please refer to note 35. Apart from the balances included in the Balance sheet under Other financial assets, Other receivables and Other liabilities, there are no unsettled trans- actions with related parties at the end of the year. Novo Nordisk Annual Report 2006 77 Consolidated financial statements Notes – Additional information 34 Share-based payment schemes Share options Novo Nordisk has established share option schemes with the purpose of mo- tivating and retaining qualified management and to ensure common goals for management and the shareholders. Each option gives the right to purchase one Novo Nordisk B share, and in total approximately 425 employees in Novo Nordisk hold share options. All share options are hedged by treasury shares. Ordinary share option plans The granting of share options under the Group’s ordinary share option plans is subject to the achievement of financial and non-financial goals decided by the Board of Directors aligned with the Group’s long-term targets. The options are exercisable three years after the issue date and will expire after eight years. For options granted based on performance targets for the financial years 1997–1999, the exercise price was equal to the market price of the Novo Nordisk B share at the time of issuance. The exercise price for options granted based on performance targets for the financial years 2000 –2006 was equal to the market price of the Novo Nordisk B share at the time when the plan was established. The options can only be settled in shares. For 2006, 1,114,542 options were granted. This corresponds to 100% of the maximum number of options available for grant. The exercise price is 350. The exercise price is fixed during the lifetime of the share option plan. Launch-share option plan In connection with the demerger of Novozymes A/S in 2000, a specific share option plan was established for Executive Management and Senior Manage- ment Board, where the granting of the options was subject to the successful and timely completion of the demerger. The options are exercisable three years after the issue date and will expire after six years. The exercise price corresponds to the market price of the Novo Nordisk B share at the time when the plan was established. As a prerequisite to receiving the options, each participant had to establish an investment in Novo Nordisk B shares equal to one year’s gross salary. For each Novo Nordisk share invested under the scheme, four options were received, and the Novo Nordisk B share investment had to be maintained at least until the end of the vesting period for the options, ie until 31 January 2004. After this date, the investment in Novo Nordisk B shares was no longer required, and the Novo Nordisk B shares could be sold by the individual launch-share option plan partic- ipant, whereas the launch-share options could be exercised within a period of three years until 31 January 2007. The launch scheme was mandatory for members of Executive Management and voluntary for the Senior Management Board. In 2001 and 2002, a launch- option incentive programme was also offered to newly appointed members of Senior Management Board. Assumptions The market value of the Novo Nordisk B share options has been calculated using the Black-Scholes option pricing model. The assumptions used are shown in the table below: 2006 2005 2004 Share options on Novozymes shares Options granted prior to the demerger of Novozymes A/S in 2000 have been split into one Novo Nordisk option and one Novozymes option. At the end of the year, the Group’s outstanding Novozymes options amount to 80,185 with an average exercise price of DKK 98 per share of DKK 10 and a market value of DKK 31 million. These options are hedged by the Group’s holding of Novozymes A/S B shares. As from 2007 it has been decided to replace stock options for all eligible employees with a share based incentive plan in line with the plan for senior executives (see the description below). The maximum contribution per partici- pant will correspond to 4 months’ salary. Long-term share-based incentive programme As from 2004, the 5 members of Executive Management and 22 members of the Senior Management Board are no longer included in Novo Nordisk’s share option plan. The option plan has been replaced by a share-based incentive programme. This incentive programme is based on an annual calculation of shareholder value creation compared to the planned performance for the year. In line with Novo Nordisk’s long-term financial targets, the calculation of value creation is based on reported operating profit after tax reduced by a WACC-based return requirement on average invested capital. A proportion of the marginal value creation will be transferred to a bonus pool for participating executives. The calculated bonus pool may, subject to the Board of Directors’ assessment, be reduced by a lower than expected performance on significant research and development projects and key sustainability projects. The bonus pool will operate with a maximum contribution per participant equal to eight months’ salary. Once the performance-based bonus pool has been approved by the Board of Directors, the bonus pool is converted into Novo Nordisk A/S B shares at the market price prevailing when the financial results for the year prior to the bonus year were released. The bonus pool of shares will be established when approved by the Board of Directors, but will be locked up for three years before it is transferred to the participants at the end of the three- year period. In the lock-up period, the bonus pool may potentially be reduced due to lower than planned value creation in subsequent years. The participant will have to be employed by Novo Nordisk at the end of the lock-up period to be eligible for the transfer of shares from the bonus pool. In 2006, the allocation to the bonus pool amounts to DKK 46 million, corresponding to 8 months’ salary. This amount was expensed in 2006. The cash amount has been converted into 130,750 Novo Nordisk B shares using a share price of DKK 350, equal to the average trading price for Novo Nordisk B shares on the Copenhagen Stock Exchange from 29 January to 12 February 2006. Based on the split of partici- pants at the establishment of the bonus pool, approximately 40% of the pool will be allocated to the members of Executive Management and 60% to the members of the Senior Management Board. The total number of shares in the bonus pool relating to the years 2004, 2005 and 2006 now amounts to 373,107 shares. As the long-term share-based incentive programme is evaluated by the Board of Directors to have worked successfully since 2004, it will continue in 2007 with an unchanged structure. Expected life of the option in years (average) 6 6 15% 6.00 6 35% 4.80 17% 7.00 3.60% 3.25% 3.50% 390 320 288 471 355 299 113 223 104 Expected volatility Expected dividend per share (in DKK) Risk-free interest rate (based on Danish government bonds) Novo Nordisk B share price at the date of grant Novo Nordisk B share price at the end of the year Share-based payment expensed in the Income statement 78 Novo Nordisk Annual Report 2006 34 Share-based payment schemes (continued) Outstanding share options in Novo Nordisk Outstanding at the end of 2003 Granted in respect of 2004 (issued on 31 January 2005) Exercised in 2004: of 1997 Ordinary share option plan of 1998 Ordinary share option plan of 1999 Ordinary share option plan of 2000 Ordinary share option plan of Launch-share option plan Expired/cancelled in 2004 Value adjustment Outstanding at the end of 2004 Granted in respect of 2005 (issued on 31 January 2006) Employee share options (issued Oct–Dec 2005) Exercised in 2005: of 1997 Ordinary share option plan of 1998 Ordinary share option plan of 1999 Ordinary share option plan of 2000 Ordinary share option plan of Launch-share option plan Expired/cancelled in 2005 Value adjustment Outstanding at the end of 2005 Granted in respect of 2006 (issued on 31 January 2007) Exercised in 2006: of 1997 Ordinary share option plan of 1998 Ordinary share option plan of 1999 Ordinary share option plan of 2000 Ordinary share option plan of Launch-share option plan of 2001 Ordinary share option plan of 2002 Launch-share option plan of 2005 Employee share options Expired/cancelled in 2006 Value adjustment Outstanding at the end of 2006 *) The market value has been calculated using the Black-Scholes model with the parameters existing at year-end 2006. Consolidated financial statements Notes – Additional information Average exercise price per option DKK Market value per option DKK Market value DKK million Share options 4,037,703 809,416 (5,500) (55,083) (99,166) (143,083) (92,280) (6,356) 4,445,651 820,234 113,540 (9,500) (51,500) (103,667) (91,624) (134,040) (13,208) 216 267 190 125 198 198 198 216 227 306 0 190 125 198 198 198 227 75 104 75 75 75 75 75 75 99 57 312 99 99 99 99 99 99 4,975,886 238 127 1,114,542 350 89 190 (13,500) 125 (80,750) (135,200) 198 (140,208) 198 198 (422,940) 332 (141,800) 332 (18,000) 0 (175) 238 (89,653) 5,048,202 268 127 127 127 127 127 127 127 127 127 222 307 84 (1) (4) (7) (11) (7) (1) 79 439 47 35 (1) (5) (10) (9) (13) (1) 152 634 99 (2) (10) (17) (18) (54) (18) (2) 0 (11) 519 1,120 *) Novo Nordisk Annual Report 2006 79 Consolidated financial statements Notes – Additional information 34 Share-based payment schemes (continued) Exercisable and outstanding share options in Novo Nordisk 1997 Ordinary share option plan 1998 Ordinary share option plan 1999 Ordinary share option plan 2000 Ordinary share option plan 2001 Ordinary share option plan 2000 Launch-share option plan 2001 Launch-share option plan 2002 Launch-share option plan Issued share options Exercised share options Expired/ cancelled Outstanding/ exercisable share options Exercise price DKK 104,500 355,000 687,500 763,000 684,980 718,600 10,764 26,024 (77,500) (259,083) (389,033) (374,915) (141,800) (649,260) – (18,000) (27,000) (50,917) (77,167) (23,252) (43,394) – – – 0 45,000 221,300 364,833 499,786 69,340 10,764 8,024 Exercisable at the end of 2006 3,350,368 (1,909,591) (221,730) 1,219,047 2003 Ordinary share option plan 2004 Ordinary share option plan 2005 Ordinary share option plan 2005 Employee share options 2006 Ordinary share option plan 1,092,500 809,416 820,234 113,540 1,114,542 – – – (175) – (38,833) (36,500) (30,484) (15,085) – 1,053,667 772,916 789,750 98,280 1,114,542 Outstanding at the end of 2006 7,300,600 (1,909,766) (342,632) 5,048,202 Average market price of Novo Nordisk B shares per trading period in 2006 February May August November Total exercised options 190 125 198 198 332 198 332 322 195 267 306 0 350 Exercise period 19/2 2001 – 18/2 2006 25/3 2002 – 24/3 2007 *) 24/3 2003 – 23/3 2008 22/2 2004 – 21/2 2009 8/2 2005 – 7/2 2010 1/2 2004 – 31/1 2007 *) 8/2 2005 – 7/2 2010 7/2 2006 – 6/2 2011 6/2 2007 – 5/2 2012 31/1 2008 – 30/1 2013 31/1 2009 – 30/1 2014 1/11 2008 – 31/12 2008 31/1 2010 – 30/1 2015 Average market price DKK 350 388 405 445 Exercised share options 282,551 259,790 213,867 196,365 952,573 *) For 3,750 1998 Ordinary share option plan and 35,560 2000 Launch-share option plan, the Board of Directors has extended the exercise period to 3 August 2007. 80 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Additional information 35 Management‘s remuneration, share options and shareholdings For information on the Board of Directors, the members of Executive Management and of the Senior Management Board, please refer to pages 112–114 of the Annual Report. Remuneration It is the policy of Novo Nordisk that remuneration to the Board of Directors (11 in total), Executive Management (5 in total) and the Senior Management Board (22 in total) must be at a competitive level compared to other major Danish companies and similar international pharmaceutical companies. Except for regulations of amounts, no changes in the application of the policy is expected in 2007. Fee to the Board of Directors and the Audit Committee The fee to the Board of Directors and the Audit Committee is a fixed annual fee. Directors receive a fixed amount while the chairmanship receives a multiplier thereof: the Chairman (2.5 times) and the Vice Chairman (1.5 times). The Audit Committee also receives a multiplier thereof in addition to the director’s fee: the Audit Committee chairman (1.25 times) and an Audit Committee member (0.5 times). In 2006, the base fee was DKK 300,000. The R&D facilitator role is paid a fee according to the actual number of working days used. In addition to the fee the members’ costs in connection with participation in the meetings and education, such as travel and hotel expenses etc, are refunded. No other amounts or benefits are paid to the Board members or Audit Committee members. DKK million Mads Øvlisen (Chairman of the Board, until 8 March 2006) Sten Scheibye (Chairman of the Board, from 8 March 2006, Vice chairman of the board) Göran A. Ando (Vice chairman of the board and R&D facilitator, from 8 March 2006, board member until 8 March 2006) Kurt Anker Nielsen (Chairman of the Audit Committee) Other Board of Directors/Audit Committee members Total Board of Directors Audit Committee 2006 Total Board of Directors Audit Committee 2005 Total 0.2 0.7 0.6 0.3 2.4 4.2 – – – 0.4 0.3 0.7 0.2 0.7 0.6 0.7 2.7 4.9 0.8 0.5 0.2 0.3 2.0 3.8 – – – 0.4 0.3 0.7 0.8 0.5 0.2 0.7 2.3 4.5 Executive Management and the Senior Management Board The remuneration to Executive Management and the Senior Management Board is based on a fixed salary, a potential cash bonus of up to four months’ salary, pension contributions of 20% to approximately 30% of the cash salary including bonus, as well as non-monetary benefits in the form of car, phone etc. Additionally, Executive Management and the Senior Management Board participate in a long-term share-based incentive programme. The performance-based incentive programme is based on long-term value creation where Novo Nordisk B shares will be allocated annually to a shared bonus pool when predefined overall business-related targets have been achieved. The maximum annual allocation is capped. Subject to satisfactory subsequent performance, the bonus pool of shares may be paid out to the executives after a three-year lock-up period. The size of the cash bonus depends on the achievement of individual performance targets, whereas the incentive from the long term share- based programme is based on an annual calculation of shareholder-value creation compared to planned performance for the year for the Group. The remuneration package for members of the Senior Management Board employed in foreign subsidiaries differs from the general package in respect of other benefit and bonus schemes included in the package in order to ensure an attractive package compared to local conditions. In addition, Executive Management and Senior Management Board members receive ordinary allowances in connection with business travelling, conferences and education etc, which are based on refunding of actual costs. DKK million 2006 Executive Management: Lars Rebien Sørensen Jesper Brandgaard Lars Almblom Jørgensen **) Lise Kingo Kåre Schultz ***) Mads Krogsgaard Thomsen Executive Management in total Senior Management Board in total Share bonus pool ****) Fixed salary Cash bonus* ) Pensions Car allowance etc Share-based payment Total remuneration 5.7 3.1 0.7 2.9 5.5 3.1 21.0 39.8 2.1 0.9 0.6 0.9 1.6 0.8 6.9 2.0 1.0 0.4 1.0 1.2 1.0 6.6 11.3 10.7 0.3 0.3 0.1 0.3 1.6 0.3 2.9 5.3 – – – – – – – – 45.8 10.1 5.3 1.8 5.1 9.9 5.2 37.4 67.1 45.8 Bonus paid out in 2006 related to performance in 2005. In addition, Lars Almblom Jørgensen has received severance package in 2006 amounting to DKK 16.5 million. *) **) ***) The total remuneration in 2006 is reflecting costs in relation to Kåre Schultz’ expatriation to Switzerland. Out of the total remuneration approximately 20% is related to cost compensation and associated tax effects of being expatriated. ****) The share bonus pool is locked up for three years before it is transferred to the participants employed at the end of the three-year period. The value is the cash amount of the share bonus granted in the year using the grant date market value of Novo Nordisk B shares. Based on the split of participants at the establishment of the bonus pool, approximately 40% of the pool will be allocated to the members of Executive Management and 60% to the members of the Senior Management Board. In the lock-up period, the bonus pool may potentially be reduced as a result of lower than planned value creation in subsequent years. Novo Nordisk Annual Report 2006 81 Consolidated financial statements Notes – Additional information 35 Management‘s remuneration, share options and shareholdings (continued) DKK million 2005 Executive Management: Lars Rebien Sørensen Jesper Brandgaard Lars Almblom Jørgensen Lise Kingo Kåre Schultz Mads Krogsgaard Thomsen Executive Management in total Senior Management Board in total Share bonus pool ****) Fixed salary Cash bonus* ) Pensions Car allowance etc Share-based payment Total remuneration 5.5 2.7 2.6 2.7 2.9 2.7 19.1 33.9 1.6 0.9 0.8 0.9 0.9 0.7 5.8 9.0 1.8 0.9 1.1 0.9 1.1 0.8 6.6 9.7 0.3 0.3 0.3 0.3 0.8 0.3 2.3 3.3 – – – – – – – – 9.2 4.8 4.8 4.8 5.7 4.5 33.8 55.9 35.5 35.5 Bonus paid out in 2005 related to performance in 2004. *) ****) The share bonus pool is locked up for three years before it is transferred to the participants employed at the end of the three-year period. The value is the cash amount of the share bonus granted in the year using the grant date market value of Novo Nordisk B shares. Based on the split of participants at the establishment of the bonus pool, approximately 40% of the pool will be allocated to the members of Executive Management and 60% to the members of the Senior Management Board. In the lock-up period, the bonus pool may potentially be reduced as a result of lower than planned value creation in subsequent years. In relation to severance payment, the members of Executive Management are, in the event of termination by the Company or by the individual due to a merger, acquisition or takeover by an external company, entitled to a severance payment of up to 36 months’ salary plus pension contributions. This equals amounts between DKK 11.7 million and DKK 23.4 million. Lars Rebien Sørensen serves as a member of the Board of Directors of ZymoGenetics, Inc and Scandinavian Airlines until 20 April 2006 and retains the remuneration received from Scandinavian Airlines, which amounts to SEK 83 thousand in 2006 (SEK 300 thousand in 2005) but does not retain the compensation from ZymoGenetics, Inc. Lars Rebien Sørensen furthermore serves as a member of the Supervisory Board of Bertelsmann AG and retains the remuneration of EUR 58 thousand in 2006 (EUR 41 thousand in 2005). Lise Kingo serves as a member of the Board of Directors of GN Store Nord and retains the remuneration of DKK 200 thousand (DKK 200 thousand in 2005). Mads Krogsgaard Thomsen serves as a member of the Board of Directors of Cellartis and DTU and retains the remuneration of SEK 50 thousand (SEK 0 in 2005) from Cellartis and DKK 50 thousand (DKK 0 in 2005) from DTU. Management‘s share options Share options in Novo Nordisk Executive Management: Lars Rebien Sørensen Jesper Brandgaard Lise Kingo Kåre Schultz Mads Krogsgaard Thomsen Executive Management in total Former member of Executive Management **): Kurt Anker Nielsen ***) At the beginning of the year Exercised during the year Additions during the year At the end Market value *) DKK million of the year 115,500 65,280 37,520 28,750 65,280 52,000 22,750 17,020 – 20,000 312,330 111,770 37,840 37,840 37,840 37,840 – – – – – – – – 63,500 42,530 20,500 28,750 45,280 200,560 – – 15.7 10.8 5.2 7.0 11.7 50.4 – – Senior Management Board in total ****) 433,744 189,230 28,525 273,039 65.6 Total 783,914 338,840 28,525 473,599 116.0 Calculation of market values at year-end has been based on the Black-Scholes option pricing model applying the assumptions shown in note 34. *) **) Kurt Anker Nielsen is now member of the Board of Directors. ***) ****) Additions during the year cover the holdings of share options by Senior Management Board members appointed in 2006. In addition, Kurt Anker Nielsen has share options in Novo Nordisk, issued by Novo A/S. At the end of 2006, 21,000 of these options were outstanding. 82 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Additional information 35 Management‘s remuneration, share options and shareholdings (continued) Management’s holding of Novo Nordisk shares The internal rules for board members’, executives’ and certain employees’ trading in Novo Nordisk securities only permit trading in the 15-calendar-day period following each quarterly announcement. Shares in Novo Nordisk Board of Directors: Sten Scheibye Göran A. Ando Anne Marie Kverneland Henrik Gürtler Johnny Henriksen Jørgen Wedel Kurt Anker Nielsen Kurt Briner Niels Jacobsen Stig Strøbæk Søren Thuesen Pedersen Board of Directors in total Executive Management: Lars Rebien Sørensen Jesper Brandgaard Lise Kingo Kåre Schultz Mads Krogsgaard Thomsen Executive Management in total Senior Management Board in total Share bonus pool for Executive Management and Senior Management Board **) Total At the beginning of the year Purchased during the year Sold during the year At the end Market value *) DKK million of the year 400 – 1,660 – 360 5,555 27,612 – 11,000 160 260 – – – – – – 37,840 – – – – – – – – 30 1,555 25,000 – – – – 400 – 1,660 – 330 4,000 40,452 – 11,000 160 260 47,007 37,840 26,585 58,262 3,860 160 1,615 160 160 52,000 22,750 17,020 – 20,000 55,450 22,750 17,020 – 20,000 5,955 111,770 115,220 410 160 1,615 160 160 2,505 0.2 – 0.8 – 0.2 1.9 19.0 – 5.1 0.1 0.1 27.4 0.2 0.1 0.7 0.1 0.1 1.2 39,473 187,570 197,190 29,853 14.1 242,357 130,750 – 373,107 334,792 467,930 338,995 463,727 175.5 218.2 *) Calculation of the market value is based on the quoted share prices at the end of the year. **) The annual allocation to the share bonus pool is locked up for three years before it is transferred to the participants employed at the end of each three-year period. Based on the split of participants at the establishment of the bonus pool, approximately 40% of the pool will be allocated to the members of Executive Management and 60% to the members of the Senior Management Board. In the lock-up period, the bonus pool may potentially be reduced as a result of lower than planned value creation in subsequent years. Novo Nordisk Annual Report 2006 83 Consolidated financial statements Notes – Additional information 36 Derivative financial instruments Novo Nordisk uses a number of financial instruments to hedge currency exposure and, in line with the Group’s treasury policies, Novo Nordisk only hedges commercial exposures and consequently does not enter into derivative transactions for trading or speculative purposes. Novo Nordisk’s currency-hedging activities are categorised into hedging of forecasted transactions (cash flow-hedges), hedging of assets and liabilities (fair value hedges) and hedging of net investments. Hedging of forecasted transactions The table below shows the fair value of cash flow-hedging activities for 2006 and 2005 specified by hedging instrument and the major currencies. The fair value of the financial instruments qualifying for hedge accounting under IAS 39 is recognised directly under equity until the hedged items are recognised in the Income statement. At year-end a gain of DKK 420 million is deferred via equity (a loss of DKK 345 million in 2005). The fair values of the financial instruments not qualifying for hedge accounting under IAS 39 are recognised directly in the Income statement. Financial instruments hedging forecasted transactions qualifying for hedge accounting under IAS 39 DKK million Forward contracts, net sales: USD JPY GBP Other Total forward contracts Cross currency and interest rate swaps: EUR/EUR EUR/USD Total cross currency and interest rate swaps Total hedging of forecasted transactions qualifying for hedge accounting under IAS 39 2006 2005 Contract amount at year-end Positive fair values at year-end Negative fair values at year-end Contract amount at year-end Positive fair values at year-end Negative fair values at year-end 7,029 1,847 896 357 10,129 319 460 779 254 129 – 20 403 14 20 34 – – 17 – 17 – – – 5,941 1,738 807 234 8,720 – – – – 18 – – 18 – – – 348 – 6 9 363 – – – 10,908 437 17 8,720 18 363 Financial instruments hedging forecasted transactions qualifying for hedge accounting under IAS 39, but for which hedge accounting is not applied Cross currency and interest rate swaps: DKK/DKK EUR/EUR EUR/USD JPY/JPY JPY/ DKK Total hedging of forecasted transactions qualifying for hedge accounting under IAS 39, but for which hedge accounting is not applied 310 183 44 380 314 – – 2 2 99 1,231 103 14 1 – – – 15 Financial instruments hedging forecasted transactions, but not qualifying for hedge accounting under IAS 39 Currency options: EUR/USD (purchased USD put) EUR/JPY (purchased JPY put) Total hedging of forecasted transactions not qualifying for hedge accounting under IAS 39 1,536 – 1,536 13 – 13 – – – 310 502 – 430 – 1,242 1,056 835 1,891 Total hedging of forecasted transactions 13,675 553 32 11,853 – – – – – – 3 7 10 28 34 8 – – – 42 – – – 405 84 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Additional information 36 Derivative financial instruments (continued) 2006 2005 The financial contracts existing at the end of the year (cash flow hedges) are expected to be recognised in the Income statement within the following number of months: USD JPY GBP The cash flows covered by the above financial contracts are expected to occur within the following number of months: USD JPY GBP 16 months 12 months 11 months 18 months 13 months 13 months 12 months 11 months 10 months 15 months 13 months 12 months The maturity of the swaps existing at the end of 2006 is December 2007, December 2011 and December 2012 (December 2007, December 2011 and December 2012 at the end of 2005) and the interest margins are (1.46%) to 4.05% ((2.79%) to (0.22%) at year-end 2005). Hedging of assets and liabilities The table below shows the fair value of fair value hedging activities for 2006 and 2005 specified by hedging instrument and the major currencies. All changes in fair values are recognised in the Income statement amounting to a gain of DKK 248 million in 2006 (a loss of DKK 35 million in 2005). As the hedges are highly effective the net gain or loss on the hedged items is similar to the net loss or gain on the hedging instruments. DKK million Forward contracts, net sales: USD JPY GBP Other Total forward contracts Cross currency swaps: EUR/USD JPY/ DKK Total currency swaps 2006 2005 Contract amount at year-end Positive fair values at year-end Negative fair values at year-end Contract amount at year-end Positive fair values at year-end Negative fair values at year-end 3,137 810 312 1,795 6,054 – – – 166 86 – 5 257 – – – – – 9 – 9 – – – 9 2,399 531 273 204 3,407 504 314 818 4,225 – 14 – – 14 61 84 145 159 185 – 4 5 194 – – – 194 Total hedging of assets and liabilities 6,054 257 The financial contracts existing at the end of the year hedge the currency exposure on assets and liabilities in the Group’s major currencies other than DKK and EUR, ie assets and liabilities in USD, JPY and GBP. Novo Nordisk Annual Report 2006 85 Consolidated financial statements Notes – Additional information 36 Derivative financial instruments (continued) Hedging of net investments in foreign subsidiaries The table below shows the fair value of hedging activities relating to net investments in foreign subsidiaries for 2006 and 2005 specified by hedging instrument and the major currencies. All changes in fair values relating to currency are recognised directly under equity, amounting to DKK 4 million in 2006 (DKK 10 million in 2005). All changes relating to interest rates are recognised in the Income statement, amounting to DKK 0 million in 2006 (DKK 1 million in 2005). DKK million Cross currency swaps: JPY/ DKK Total hedging of net investments in foreign subsidiaries 2006 2005 Contract amount at year-end Positive fair values at year-end Negative fair values at year-end Contract amount at year-end Positive fair values at year-end Negative fair values at year-end 100 100 4 4 – – 145 145 11 11 – – The maturity of the swap existing at the end of 2006 is October 2009 (September 2006 at the end of 2005) and the interest margin is 2.94% (2.69% at year-end 2005). The financial contracts existing at the end of the year hedge the following share of the major net investments: DKK million USD JPY GBP EUR *) Other Total 2006 2005 Net investment % covered Net investment % covered 1,906 691 159 4,399 3,511 10,666 0% 14% 0% 0% 0% 1,762 716 128 2,114 3,066 7,786 0% 20% 0% 0% 0% *) Including subsidiaries with EUR as functional currency regardless of the local currency in the subsidiary. Total hedging activities The table below summarises the fair values of all the hedging activities of Novo Nordisk. 2006 2005 Contract amount at year-end Positive fair values at year-end Negative fair values at year-end Contract amount at year-end Positive fair values at year-end Negative fair values at year-end DKK million Currency-related instruments: Forward contracts Currency options Cross currency swaps Total currency-related instruments Interest-related instruments: Interest rate swaps Total interest-related instruments Total derivative financial instruments included in marketable securities and in short-term debt 19,829 814 The fair values at year-end are recognised in: Income statement Equity: – Cash flow hedges – Equity swaps (included in exchange rate adjustment of investments in subsidiaries) Total fair values 373 437 4 814 86 Novo Nordisk Annual Report 2006 16,183 1,536 918 18,637 1,192 1,192 660 13 125 798 16 16 26 – – 26 15 15 41 24 17 – 41 12,127 1,891 963 14,981 1,242 1,242 32 10 156 198 – – 557 – – 557 42 42 16,223 198 599 170 18 10 198 236 363 – 599 Consolidated financial statements Notes – Additional information 2006 2005 Contingencies 37 Commitments and contingencies DKK million Commitments Operating lease commitments The operating lease commitments below are related to non-cancellable operating leases primarily related to premises, company cars and office equipment. Approximately 46% of the commitments are related to leases outside Denmark. The lease costs for 2006 and 2005 were DKK 806 million and DKK 752 million respectively. Lease commitments expiring within the following periods as from the balance sheet date: Within one year Between one and two years Between two and three years Between three and four years Between four and five years After five years 651 553 437 339 286 602 456 386 306 261 332 722 2,868 2,463 Purchase obligations 935 819 The purchase obligations primarily relate to con- tractual obligations to investments in property, plant and equipment including purchase agreements re- garding medical equipment and consumer goods. Novo Nordisk expects to fund these commitments with existing cash and cash flows from operations. Obligations relating to research and development projects 2,313 1,241 Novo Nordisk has engaged in research and develop- ment projects with a number of external corporations. The major part of the obligations comprises fees on the NovoSeven ® expansion programmes and liraglutide and AERx ® clinical trials. Other guarantees 215 255 Other guarantees primarily relate to guarantees issued by Novo Nordisk in relation to rented property. Security for debt 2,025 1,791 Land, buildings and equipment etc at carrying amount. World Diabetes Foundation At the Annual General Meeting of Novo Nordisk A/S in 2002 the shareholders agreed on a donation to the World Diabetes Foundation, obligating Novo Nordisk A/S for a period of 10 years from 2002 to make annual donations to the Foundation of 0.25% of the net insulin sales of the Group in the preceding financial year. However, annual donations shall not exceed the lower of DKK 65 million or 15% of the taxable income of Novo Nordisk A/S in the financial year in question. The donation of DKK 62 million in 2006 is recognised in the Income statement. See note 3 for the principles for making accounting estimates and judgments about pending and potential future litigation outcomes. Pending litigation against Novo Nordisk As of January 2007, Novo Nordisk Inc, along with a majority of the hormone therapy product manufacturers in the US, is a defendant in product liability lawsuits related to hormone therapy products. These lawsuits currently involve a total of 43 individuals (as compared to 37 individuals in January 2006) who allege to have used a Novo Nordisk hormone therapy product. 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 Company (now Pfizer Inc.). According to information received from Pfizer, an additional 21 individuals (as compared to 13 individuals in January 2006) currently allege, in relation to similar lawsuits against Pfizer Inc, that they also have used a Novo Nordisk hormone therapy product. Novo Nordisk does not have any court trials scheduled for 2007 and does not presently expect to have a trial scheduled before 2008. Novo Nordisk does not expect the pending claims to have a material impact on Novo Nordisk’s financial position. Novo Nordisk Inc is currently a defendant in four separate cases filed in the US alleging that Novo Nordisk and a number of other pharmaceutical companies provided a false Average Wholesale Price for certain drugs covered by Medicaid. These cases have been brought by the State of Alabama, and the counties of Oswego, Erie, and Schenectady, New York. Novo Nordisk was recently dis- missed from a similar action brought by the State of Mississippi. Further, in 2005, Novo Nordisk was dismissed in 31 similar cases brought by counties in the State of New York. Novo Nordisk does not expect the pending claims to have a material impact on Novo Nordisk’s financial position. In November 2006, Novo Nordisk A/S and its Italian affiliate Novo Nordisk Farmaceutici s.p.a was sued by A. Menarini Industrie Farmaceutiche Riunite s.r.l. and Laboratori Guidotti s.p.a. (‘Menarini’) in the Civil Court in Rome. Menarini alleges that Novo Nordisk breached an alleged contract with Menarini for the sale and distribution of insulin and insulin analogues in the Italian market or, in the alternative, has incurred a pre-contractual or extra contractual liability arising from negotiations between the parties. Novo Nordisk disputes the claims made by Menarini. Currently, it is expected that the first hearing will take place in 2007. Novo Nordisk cannot predict how long the litigation will take or when it will be able to provide additional information. At this point in time, Novo Nordisk does not expect the pending claim to have a material impact on Novo Nordisk’s financial position. Pending claims and investigations involving Novo Nordisk The Polish Customs and Tax Authorities have been investigating a number of international companies, alleging overstatement of the customs value of imported pharmaceutical products. Such overstatement is claimed to have led to margins higher than allowed under Pricing Regulations in force until April 2002, a misstatement of VAT, and potential increases in reimbursement from the Polish National Health Fund. In the opinion of management, Novo Nordisk has acted in compliance with Polish legislation, but in spite of this there is a risk of further legal actions against Novo Nordisk. The outcome of such legal actions is not expected to have a material impact on Novo Nordisk’s financial position. In December 2005, the office of the US Attorney for the Eastern District of New York served Novo Nordisk with a subpoena calling for the production of documents relating to the company’s US marketing and promotional practices. The company believes that the investigation is limited to its insulin products. The subpoena indicates that the documents are necessary for the investigation of potential criminal offences relating to healthcare benefit programmes. Novo Nordisk is cooperating with the US Attorney in this investigation. At this point in time, Novo Nordisk cannot determine or predict the outcome of the investi- gations. In addition, Novo Nordisk cannot predict how long the investigations will take or when the company will be able to provide additional information. In February 2006, Novo Nordisk received a subpoena from the US Securities and Exchange Commission (SEC) calling for Novo Nordisk to produce documents relating to the United Nations Oil-for-Food Programme. Other companies have disclosed that they have received similar subpoenas. Novo Nordisk has fully co- operated with the SEC’s investigation. Novo Nordisk Annual Report 2006 87 Consolidated financial statements Notes – Additional information 37 Commitments and contingencies (continued) 38 Reconciliation to US GAAP (continued) In April 2006 the Danish Public Prosecutor initiated preliminary investigatory steps against Novo Nordisk, and against other Danish Companies, however on 21 September 2006, The Ministry of Justice decided not to pursue potential criminal charges against Novo Nordisk and other companies due to expiry of the limitation period, but the Danish Prosecutor continues to investigate the pos- sibility of disgorging profits earned under the Programme. Novo Nordisk cannot determine or predict the outcome of these investigations, nor how long they will take. Other litigation proceedings In addition to the above, the Novo Nordisk Group is engaged in certain litigation proceedings. In the opinion of management, settlement or continuation of these proceedings will not have a material effect on the financial position. Liability for the debts and obligations of Novozymes following the demerger of Novozymes in 2000 Novo Nordisk A/S and Novozymes A/S are subject to joint and several liability for any obligation which existed at the time of the announcement of the demerger in 2000. At the end of the year the remaining part of the joint and several liability in Novozymes A/S amounted to DKK 557 million. Debts and obligations pertaining to the period before 1 January 2000, which are recognised after 1 January 2000 and which cannot be clearly attributed to either Novo Nordisk A/S or Novozymes A/S, will be distributed proportionally between the two companies according to an agreement established in connec- tion with the demerger in November 2000. Disclosure regarding Change of Control The EU Take-Over Directive, as implemented by the Danish Financial Statements Act contains certain rules relating to listed companies on disclosure of informa- tion that may be of interest to the market and potential takeover bidders. According to US GAAP, such projects are expensed immediately following the acquisition as the feasibility of the acquired research and development project has not been fully tested and the technology has no alternative future use. The future amortisation of the assets is therefore reversed under US GAAP. In 2006 acquired in-process research and development projects amounts to DKK 190 million and the amortisation amounts to DKK 8 million. c) Acquired single-purpose research and development tangible assets US GAAP requires a company to expense acquired tangible assets used in a research and development project if these assets do not have an alternative use in future R&D projects or otherwise (single-purpose R&D assets). Under IFRS there is no such requirement to expense single-purpose R&D assets. The future amortisation of the assets is therefore reversed under US GAAP. In 2006 acquired single-purpose tangible assets used in research and development projects amounts to DKK 131 million and the amortisation amounts to DKK 4 million. d) Unrealised capital gain on investments in research and development companies According to IFRS, the gain on a capital injection, where the shareholding of Novo Nordisk is diluted, is recognised in the Income statement. Under US GAAP, the gain is recognised in retained earnings where the issued securities are not common stock or the main activity of the investee is research and development. e) Sale and lease-back transactions on operating leases Under IFRS, gains on assets sold in a sale and lease-back transaction resulting in an operating lease are recognised immediately, whereas US GAAP requires the gains to be amortised over the lease term. In 2006 gains on assets sold in a sale and lease-back transaction amounts to DKK 0 million and the amortisation amounts to DKK 11 million. For information on the ownership structure of Novo Nordisk, please see ‘Share- holder information’ on pp 115–116. f) Impairment of goodwill Novo Nordisk discloses that the company has significant agreements to which the company is a party and which take effect, alter or terminate upon a change of control of the company following a straight takeover bid. If effected, a takeover could – at the discretion of the counterparty – lead to the termination of such agreements and the loss of approximately 5% of Novo Nordisk’s turn- over, corresponding to approximately 4% of Novo Nordisk‘s gross profit. 38 Reconciliation to US GAAP Novo Nordisk’s Consolidated financial statements have been prepared in ac- cordance with International Financial Reporting Standards (IFRS), which as applied by the Group differ in certain significant respects from United States Generally Accepted Accounting Principles (US GAAP). The effects of the ap- plication of US GAAP to net profit and equity are set out in the tables below. A description of the Group’s IFRS accounting policies is set out in notes 1, 2 and 3. a) Borrowing costs Under IFRS an entity can choose whether to capitalise or expense borrowing costs on self-constructed assets. Novo Nordisk has chosen to expense bor- rowing costs under IFRS. Under US GAAP, borrowing costs incurred during the construction period must be capitalised and depreciated as part of the asset. In 2006 capitalised borrowing costs under US GAAP amounts to DKK 49 million and the amortisation amounts to DKK 28 million. b) Acquired in-process research and development projects Under IFRS, acquired in-process research and development projects are capitalised as intangible assets at the price paid, with annual impairment testing and subsequent amortisation when the product receives marketing authorisation. The impairment test models under IFRS and US GAAP are different and can lead to different impairment losses. According to US GAAP, goodwill must be tested for impairment annually and whenever an indication occurs on each “reporting unit level”. According to IFRS, goodwill must be tested for impairment annually and whenever an indication occurs on each “cash-generating unit level”. g) Provision for pensions The methodology for accounting for defined benefit plans in the income statement is similar under IFRS and US GAAP. However there are some minor differences in the details relating to the actuarial assumptions and past service costs. In 2006 the difference in the income statement amounts to DKK 2 million. Amounts recognised in the balance sheet under IFRS are the net total of the present value of the defined benefit obligation minus the fair value of plan assets, plus/minus any unrecognised past service costs and unrecog- nised actuarial gains and losses. Full recognition in the balance sheet of defined benefit obligation less fair value of plan assets applies under US GAAP as from 2006 according to SFAS 158. Any past service costs and actuarial gains and losses which are not recognised in the income statement are recognised in other comprehensive income. The implementation of SFAS 158 has resulted in recognition of defined benefit obligation amounting to DKK 129 million in the beginning of 2006, and DKK 116 million at the end of 2006. In 2006 actuarial gains/losses and past service costs not recognised under IFRS, but recognised under US GAAP amounts to DKK 113 million of which DKK 116 million relates to SFAS 158 and DKK (3) million relates to previous difference in recognition of past service costs. Under IFRS an entity participating in a multi-employer pension plan is required to recognise any pension deficit in the multi-employer plan that they are contractually obligated to cover. Under US GAAP such a liability is considered a contingent liability and is not recognised. Any additional pay- ments to cover the deficits are expensed under US GAAP In 2006 deficits recognised under IFRS amounts to DKK 43 million and additional payments expenses under US GAAP amounts to DKK 7 million. 88 Novo Nordisk Annual Report 2006 Consolidated financial statements Notes – Additional information 38 Reconciliation to US GAAP (continued) h) Deferred taxes related to intercompany profits i) Tax arising from the difference between IFRS and US GAAP Under IFRS and US GAAP, unrealised profits resulting from intercompany transactions are eliminated from the carrying amount of assets, such as inventories. In accordance with IFRS, the Group calculates the tax effect with reference to the local tax rate of the company that holds the inventory (the buyer) at period-end. However, US GAAP requires that the tax effect is cal- culated with reference to the local tax rate in the seller’s or manufacturer’s jurisdiction. Before 2005 the differences between the IFRS and US GAAP calculations have been immaterial; hence no reconciliation item had been reported. Due to a significant increase in internal profits in 2005, Novo Nordisk has in- corporated the difference between IFRS and US GAAP figures as from 2005. In 2006 the difference amounted to DKK 407 million. This reconciliation item includes all tax effects due to the above-mentioned reconciling items. j) Statement of cash flow and financial resources In the Statement of cash flow and financial resources, cash and cash equiva- lents comprise marketable securities with a remaining term to maturity of less than three months and cash less short-term bank loans. According to US GAAP, cash and cash equivalents consist solely of marketable securities with a remaining term to maturity of less than three months and cash. The application of the US GAAP described would have resulted in the following adjustments: DKK million 2006 2005 2004 Adjustments to net profit: Net profit in accordance with IFRS Borrowing costs Acquired in-process R&D projects Acquired single-purpose R&D assets Unrealised capital gain on investments in research and development companies Sale and lease-back transactions Impairment of goodwill Provisions for pensions Deferred taxes related to intercompany profits Tax on the above-mentioned differences between IFRS and US GAAP Net profit in accordance with US GAAP Adjustments to equity: Equity in accordance with IFRS Borrowing costs Acquired in-process R&D projects Acquired single-purpose R&D assets Sale and lease-back transactions Impairment of goodwill Provisions for pensions Deferred taxes related to intercompany profits Tax arising from the difference between IFRS and US GAAP a) b) c) d) e) f) g) h) i) a) b) c) e) f) g) h) i) 6,452 21 (182) (127) – 11 – (9) 59 85 6,310 30,122 416 (483) (278) (125) – (70) (407) 60 5,864 15 (131) (160) (186) (110) – 6 (466) 66 4,898 27,634 395 (301) (160) (136) – 58 (466) (40) 5,013 (2) (170) – (96) (26) (53) – – 19 4,685 26,504 380 (170) – (26) – – – (106) Equity in accordance with US GAAP 29,235 26,984 26,582 The application of the described US GAAP would have resulted in the following adjustments to balance sheet items: Total assets in accordance with IFRS Intangible assets Property, plant and equipment Total assets in accordance with US GAAP Total liabilities in accordance with IFRS Deferred income tax liabilities Provision for pensions Other liabilities Total liabilities in accordance with US GAAP US GAAP earnings per share: Earnings per ADR from continued operations and in accordance with US GAAP Earnings per ADR from continued operations and in accordance with US GAAP diluted 44,692 (483) 138 44,347 14,570 347 70 125 15,112 41,960 (301) 228 41,887 14,326 499 (58) 136 14,903 37,433 (170) 380 37,643 10,929 106 – 26 11,061 19.66 19.55 14.92 14.86 13.92 13.86 Novo Nordisk Annual Report 2006 89 Consolidated non-financial statements Overview of non-financial reporting This is the third year that Novo Nordisk reports on the company’s financial and non-financial performance in one, inclusive document, the Annual Report. Novo Nordisk continues the process to drive integration of the financial and non-financial perspectives to business and seeks to reflect this in the approach to reporting. In the absence of global standards for inclusive reporting, this ap- proach takes its point of departure in current standards for mandatory, financial reporting and current guidelines for voluntary, non-financial reporting. The aim is to drive business performance and enhance shareholder value by exploring the interactions between financial and non-financial objectives. This entails alignment of key priorities, target-setting and definition of key performance indicators, in consultations that involve internal and external stakeholders. The Annual Report is prepared in respect of current best practice and the prin- ciples of materiality, completeness and responsiveness. Stakeholder engage- ment informs the process, which also incorporates independent expert reviews of the company’s annual reporting. The selection of information included in the annual reporting reflects evolving priorities in response to business and societal challenges. Defining materiality It is Novo Nordisk’s responsibility to ensure that those areas are addressed in which the company has significant impact or where it has a responsibility to and ability to act. Novo Nordisk has sought inspiration in AccountAbility’s mate- riality test to define what is material to Novo Nordisk, what should be included in the Annual Report and on which grounds topics should be excluded. Applying the materiality test as a tool, sustainability-related issues are prioritised to be reported either in the printed Annual Report or in the online report (most material; business critical), in the online report only (material, often to specific stakeholder interests) or not reported (not material). The same process applies for the assurance provider’s recommendations. Read the recommendations and Novo Nordisk’s reply to these at novonordisk.com/annual-report:how-we- perform. The outcomes of formal reviews, research, stakeholder engagement and inter- nal materiality discussions are presented as a proposal for the annual reporting to Executive Management and the Board of Directors, and subsequently ap- proved. In addition, Novo Nordisk’s external assurance provider is requested to assure whether the non-financial performance included in the Annual Report covers the material aspects. The conclusion is available in the Assurance Report on Non-financial Reporting 2006. Read more about how Novo Nordisk uses the Five-Part Materiality Test at novonordisk.com/annual-report:how-we-perform. Ongoing stakeholder engagement and trendspotting help identify new issues which are or could become material to Novo Nordisk. The Novo Nordisk learning curve is a tool that aligns the process of defining materiality with integration into business practices. Emerging issues that are identified as rele- vant and potentially material are included at the bottom of the learning curve. Following a review of its implications for Novo Nordisk’s long-term business, a strategy is framed for those issues that are deemed material and subsequently data, indicators and targets are identified. Stakeholder engagement is part of this process. Once management of the issue has been embedded in the organi- sation so that it is fully integrated into business processes, the strategy will be revisited as appropriate. Moreover, issues that are included on the learning curve are monitored as part of the integrated risk management process (see pp 110 –111). Indicators and targets In 2006, a set of new indicators and long-term goals for three material issues for Novo Nordisk was identified; global health, people and environment. The result was four new Triple Bottom Line indicators with targets to ensure focus and per- formance in support of the company’s commitment to the Triple Bottom Line and sustainable development. These are supplemented by short-term targets that are included in the Balanced Scorecard for 2007. For other focus areas, such as business ethics, short term indicators and targets have been defined which focus on embedding into the organisation. The materiality test and the learning curve are dynamic tools that reflect the level of knowledge and understanding of the issue as well as the level of business integration. This implies that the non-financial reporting will be con- tinuously adjusted to reflect current priorities. The consolidated non-financial statements on the following pages present and discuss performance during 2006. Global standards Novo Nordisk’s non-financial reporting follows the accountability standard, AA1000 Framework. It states that reporting must provide a complete, accurate, relevant and balanced picture of the organisation’s approach to and impact on society. As a signatory to the United Nations Global Compact, a platform to promote good corporate principles and learning in the areas of human rights, labour, environment and anti-corruption, Novo Nordisk reports on actions during 2006 to implement its 10 principles in a Communication on Progress including per- formance metrics aligned with the GRI Guidelines. The consolidated non-financial statements are prepared in accordance with the Global Reporting Initiative’s (GRI’s) 2002 Sustainability Reporting Guidelines, which require reporting according to 11 principles and against a list of indica- tors covering economic, environmental and social aspects of the business performance. In 2006, Novo Nordisk fully reports on 108 of the 142 indicators. Novo Nordisk’s GRI Content Index 2006 at a glance Indicators Level of reporting Vision and strategy Profile Governance structure and management systems 1.1, 1.2 2.1–2.22 3.1–3.20 GRI Content Index 4.1 Economic performance EC1– EC13 Environmental performance EN1– EN35 Social performance LA1– LA17 HR1– HR14 SO1–SO7 PR1– PR11 2 22 20 1 11 18 12 8 7 7 2 17 5 6 4 Fully reported / Number of indicators Not reported / Number of indicators 90 Novo Nordisk Annual Report 2006 Consolidated non-financial statements Notes – Accounting policies for non-financial data Accounting policies for non-financial data In 2006, there have been no significant restatements. The following changes have been made to accounting policies applied to non-financial data: n Four new indicators have been identified and included in the non-financial Economic data The economic indicators are based on data from the financial registrations. See financial definitions. highlights table and the accounting policies. n The Eco Intensity Ratios (EIRs) for the two production areas Diabetes and Biopharmaceauticals replace the Eco-Productivity Indices. n Animal test types are no longer reported upon as the company has been un- successful in receiving the authorities’ acceptance for omitting the remaining two test types. Novo Nordisk is now investigating other means for replace- ment of these test types. To Novo Nordisk, the AA1000 Assurance Standard (AA1000AS) is an essential component in creating a generally applicable approach to assessing and strengthening the credibility of the company’s public reporting of non-financial data. Novo Nordisk’s assurance process has been designed to ensure that the qualitative and quantitative data that document sustainability performance plus the systems that underpin the data and performance are assured. The principles outlined by the AA1000AS have been applied as described below. 1. Completeness As a pharmaceutical company with global reach, Novo Nordisk is engaged in a range of activities to support sustainable development. All of these are founded on the company’s corporate governance framework, the Novo Nordisk Way of Management. The Annual Report aims to capture the organisation’s ‘footprint’ in terms of social, environmental and economic impacts on society. Hence, performance is accounted for in relation to targets, major achievements and key issues. The report does not provide full coverage of all the company’s non- financial activities. A full coverage of the company’s non-financial activities can be found in the online report at www.novonordisk.com. See scope of the report below. 2. Materiality Key issues are identified through ongoing stakeholder engagement and addressed by programmes or action plans with clear and measurable targets. Stretch targets are set to guide the long-term efforts in strategic areas, such as global health. The issues presented in the Annual Report are deemed to have a significant impact on the company’s future business performance and may support stakeholders in their decision-making and are therefore regarded as Novo Nordisk’s material issues. 3. Responsiveness The report reaches out to a wide range of stakeholders, each with their specific needs and interests. To most stakeholders, however, the Annual Report is just one single element of interaction and communication with the company. It reflects how the company has addressed stakeholder concerns and interests in dealing with the dilemmas and issues. Stakeholder dialogue is an invaluable part of Novo Nordisk’s efforts as a responsible business, and readers are en- couraged to give their feedback. Scope Accounting policies for the non-financial data in the Annual Report are based on data for Novo Nordisk A/S, ie Novo Nordisk A/S, Novo Nordisk IT A/S, NNE A/S and Novo Nordisk Servicepartner A/S and subsidiaries. The activities in Novo Nordisk Servicepartner have per 1 January 2007 been taken back into Novo Nordisk A/S and there is therefore no longer a separate legal entity for the future reporting. Environmental data cover the significant environmental im- pact of the organisation’s activities at its production sites. No production sites have been added in 2006. The activities at site Værløse have been closing down during 2006 and reporting from this site will be discontinued in 2007. Social data cover all employees. Economic data cover the Novo Nordisk Group. Engagements in joint ventures and contract licensees are not included in the report scope. However, data for animal testing include testing taking place at contract research organisations. Data To ensure consistency of data, all data have been defined and described in com- pany guidelines. Internal control procedures have been established to ensure that data are reported according to the definitions. R&D n The R&D investments and sales are calculated based on Novo Nordisk’s global financial registrations. Investments n The total investments and sales are calculated based on Novo Nordisk’s global financial registrations. Remuneration n The cash value distribution is calculated based on Novo Nordisk’s global financial registrations. Corporate tax n All types of tax reported are based on financial registrations of taxes paid in Denmark, except corporate tax as a share of sales. Employment n Direct and indirect effects on the number of jobs, job income and income tax are calculated using financial registrations and general statistics from public sources such as Statistics Denmark, Updated Economic Multipliers for the US Economy 2003 (Economic Policy Institute) and China Statistical Yearbook. The indicators are an estimate of the effects created by Novo Nordisk in Denmark and globally. Exports n Novo Nordisk exports as a share of Danish exports are based on ‘Finans- ministeriets Økonomiske Redegørelse’. Environmental data The environmental data cover those activities which, based on an overall envir- onmental assessment, could have a significant impact on the environment. Resources n Water consumption includes consumption of drinking water, industrial water and steam. Data are based on meter readings and checked against invoices. n Energy consumption (direct and indirect supply) includes both direct supply of energy (internal produced energy), eg natural gas, fuel oil and other types, and indirect supply of external energy (external produced energy), eg elec- tricity, steam and district heat. The consumption of fuel and external pro- duced energy is based on meter readings and invoices. n Raw materials and packaging materials comprise materials for production and related processes and packaging of products. Consumption of raw materials and packaging is converted to tons. Data are based on registrations in Novo Nordisk’s stock-system. Wastewater n Quantities of components such as COD, nitrogen and phosphorous are cal- culated based on test results or standard factors. Waste n Total waste is the sum of non-hazardous and hazardous waste. The disposal of waste is registered based on weight receipts. n The recycling percentage is calculated as the proportion of waste recycled of the total waste. Waste for recycling can be both non-hazardous and hazardous. The remaining part of the hazardous waste is waste for special treatment. Emissions to air n Emissions of CO2 from energy (total) are based on standard factors for fuel and for energy on a three-year average of available emission factors from the external suppliers of energy. Hence, emission factors for 2006 are the three- year average of 2003 to 2005. n Organic solvents cover the sum of emissions of different types of organic sol- vents such as acetone, ethanol etc exclusive of emissions of ozone-depleting substances. Data are based on measurement and ensuring calculations. Novo Nordisk Annual Report 2006 91 Consolidated non-financial statements Notes – Accounting policies for non-financial data Accounting policies for non-financial data (continued) Eco Intensity Ratios (EIRs) for water and energy n Environmental performance relative to production size is monitored by the production related KPI Eco Intensity Ratio – in short EIR – defined as: ‘EIR = Resource consumption per produced or released unit’ By using the performance indicator ‘EIR’, the total performance, measured for water and energy, of a production facility or a business area can be calcu- lated by adding the EIR ratios in standard units from each process step or intermediary product in the process flow from eg fermentation to packaging of the finished product. Compliance n Compliance data consist of breaches of regulatory limits and accidental releases. All data are based on information from departments and test re- sults. All breaches and accidental releases are reported to the authorities. Social data The social data cover all employees included in Novo Nordisk’s headcount. Living our values n Average of respondents’ answers as to whether social and environmental issues are important for the future of the company is based on employee feedback on the question in the employee survey database eVoice. The aver- age is a simple average calculated in the database of answers given by the employees. n Average of respondents’ answers as to whether ‘my manager’s behaviour is consistent with the Novo Nordisk values’ is based on employee feedback on the question in the employee survey database eVoice. The average is a simple average calculated in the database of answers given by the employees. n The percentage of fulfilment of action points planned arising from facilita- tions of the Novo Nordisk Way of Management is calculated as the number of overdue action points at year-end per total number of action points with deadline in the period, minus the action points abolished during the year due to organisational changes. Access to health n Novo Nordisk A/S has formulated a pricing policy for the Least Developed Countries (LDCs). The purpose of the policy is to offer insulin to the world’s LDCs at or below a price of 20% of the average prices for insulin in the western world. The western world is defined as Europe (EU, Switzerland, Norway), the United States, Canada and Japan. n The term ‘operates in’ does not denote actual physical presence by Novo Nordisk. It is defined as direct or indirect sales by Novo Nordisk via govern- ment tender or private market sales to wholesalers, distributors, NGOs etc. n The estimated number of healthcare professionals directly trained or edu- cated is based on registrations by subsidiaries and corporate functions in Novo Nordisk in the Best Practice Database of the activities conducted within National Diabetes Programmes. n The estimated number of people with diabetes directly trained or treated is based on registrations by subsidiaries and corporate functions in Novo Nordisk in the Best Practice Database of the activities conducted within various National Diabetes Programmes. The indicator covers all activities, hence it encompasses people with diabetes directly treated and trained in Less Developed Countries, in developing and developed countries. Our employees n All basic employee statistics are based on registrations in the company’s SAP Human Resource system. The number of employees is calculated as the actual number of employees at year-end. n Rate of absence: For employees in Denmark excluding FeF Chemicals, absence data are registered in the SAP Human Resource system. For em- ployees outside Denmark, data for rate of absence are based on local registrations. Types of absence include absence due to the employee’s own illness, pregnancy-related sick leave, and occupational injuries and illnesses per total available working hours in the year adjusted for national holidays. n Rate of employee turnover: The rate of employee turnover is calculated as the number of employees who left Novo Nordisk during the financial year compared to the average number of employees in the financial year. n Average of respondents’ answers to ten selected questions related to em- ployees engagement in Novo Nordisk in the employee survey database eVoice. The average is a simple average calculated in the database of answers given by the employees. n Average of respondents’ answers as to whether their work gives them an opportunity to use and develop their competences and skills is based on employee feedback on the question in the employee survey database eVoice. The average is a simple average calculated in the database of answers given by the employees. n Average of respondents’ answers as to whether people from diverse back- grounds have equal opportunities is based on employee feedback on the question in the employee survey database eVoice. The average is a simple average calculated in the database of answers given by the employees. Health & Safety n The frequency of occupational injuries is the number of injuries reported for all employees per million working hours. An occupational injury is any work- related injury causing more than one day of absence in addition to the day of the injury. n The number of fatal occupational accidents is based on registrations cen- trally and locally in subsidiaries. Training costs n Training costs are all costs recorded in a specific account in the financial accounts. The amount covers internal and external training posted in the financial accounts. Patent families n Patent families are the ‘number of active patent families to date’ and the ‘new patent families (first filing)’. Animals n Animals purchased for testing are the number of animals purchased for all testing undertaken for Novo Nordisk either in-house or at Contract Research Organisations (CROs). The number of animals purchased is based on internal registration of purchased animals and yearly reports from CROs. All data are documented and evidence has been submitted to the auditors. 92 Novo Nordisk Annual Report 2006 Economics Economic impacts The development in the economic indicators has been as expected. Expenditure on R&D is an important capacity builder for society and a source of innovation creating future profitability for Novo Nordisk. The ratio of expenditure on R&D to expenditure on physical investments (2.3:1) reflects the continued increasing importance of R&D for Novo Nordisk. In the period 2002–2005 this ratio varied from 1:1 to 1.8:1. The increase in the share of R&D as a share of sales (from 15.1% in 2005 to 16.3% in 2006) reflects the fact that R&D expenditure has risen by 24% while sales have risen by 15%. The wage share of R&D (38.4%) is an indication of the company’s impact as a capacity builder in the community. Most production facilities, 53% of the full-time employees and 78% of tangible assets are in Denmark. The level and location of the absolute investment is a measure of the company’s economic capacity in the near future and reflects its aim to supply the market with products and to continue its internationalisation. In 2006, Novo Nordisk invested DKK 2.8 billion primarily in Denmark (64%), but also in new production facilities globally (in Brazil, the US, France and China), down from DKK 4 billion in 2005. Remuneration constituted 59% of the cash added value, mainly in the de- veloped world, and particularly in Denmark (58%), where the majority of Novo Nordisk’s workforce is located. However, the share of full-time positions in IO has increased from 14% in 2005 to 18% in 2006. The value added per employee is DKK 936,000 indicating a high productivity of Novo Nordisk’s employees. Consolidated non-financial statements Notes – Performance indicators In 2006, Novo Nordisk created 1,165 new positions globally and had 23,172 fulltime positions; measured as full-time equivalents (FTE). These jobs translate into 59,100 indirect global jobs in the supply chain from production needs and employees’ private consumption. The majority is due to production (43,000) but also the effect of private consumption from Novo Nordisk employees is significant (16,100). Measured by turnover Novo Nordisk is the 10th largest company in Denmark, up one place from last year. In terms of R&D investments Novo Nordisk is the largest Danish company and ranks as number 33 on a European scale (in 2005 numbers). Among European pharmaceutical companies Novo Nordisk ranks as number seven regarding R&D investments. In 2006, total corporate taxes constituted 9.1% of sales. In Denmark 87% of taxes are paid as local taxes and 13% as state taxes. In 2006, Novo Nordisk accounts for 3.9% of Danish corporate taxes and an estimated 0.55% of employment in Denmark. Novo Nordisk employees accounted for 0.6% of total Danish income taxes. Novo Nordisk’s sales in 2006 accounted for 2.4% measured as a share of Danish GDP, as compared to 2.2% in 2005. In 2006, the company’s economic contri- bution to overall economic wealth for the Danish society was 2.2% of Gross Value Added (GVA) compared to 2.6 in 2005, and 4.0% of Danish exports com- pared to 4.7% in 2005. Target Unit 2006 2005 2004 Ratio of R&D expenditure to tangible investments R&D as share of sales Total tangible investments Remuneration as share of cash received Employment impact worldwide (direct and indirect) Total corporate tax as share of sales Novo Nordisk exports as share of Danish exports 1) Multipliers have been updated. 2) Estimated number changed to factual number. – – – – – – – % DKK million % Jobs % % 2.3:1 16.3 2,811 33 82,700 9.1 4.0 1.3:1 15.1 4,009 34 1.5:1 15.0 2,999 34 78,0001) 73,100 1) 7.0 8.4 4.7 2) 3.9 Novo Nordisk Annual Report 2006 93 Consolidated non-financial statements Economic stakeholder model Novo Nordisk’s economic stakeholder model This model illustrates Novo Nordisk, its economic stakeholders and the interactions that drive economic growth in well-developed societies. When, for instance, investors provide risk capital so that Novo Nordisk can develop new products, this will benefit customers, employees and suppliers. For customers, in turn, the products from Novo Nordisk improve their ability to contribute to society. When employees, suppliers and investors spend their income on goods and services and make investments, they too contribute to wealth generation in society. And in their capacity as citizens in the local and global community, all economic actors pay taxes to the public sector in return for services. Novo Nordisk’s sustainable business practices are mechanisms that improve the outcome of the market economy model. The interactions and multiplier effects are illustrated by the blue circle linking the stakeholders. Society As a business, Novo Nordisk impacts through sustainable business practices, investment, employment (estimated 82,700 jobs globally), environmental impact and contribution to GDP/export (2.4%/4.0% in Denmark). As a pharmaceutical company, Novo Nordisk provides knowledge, R&D and healthcare products (insulin for 13–15 million people) and outreach through improved awareness, diagnosis or treatment of diabetes (for at least 31 million people). Investors/funders Risk capital for development and production of new products is rewarded through divi- dend and share prices (43% are non-Danish investors). vk v k k v k vk vk vk v k v k v k v k v k i L h Novo Nordisk provides products and quality of life to customers, dividend and return on investment to investors, income and profit to suppliers, wage income to employees and taxes to the public sector. h Turnover Products f k v k v k v v Employees 23,613 employees’ know ledge and product - ivity are a major part of the company’s intangible value. 47% of employees work outside Denmark. 33% of cash received is remuneration. k v k v k v k v k v h C a R pit e t u r al n o & f u n in n d v e s f s t m e n t h Remuneration Productivity f h Pay m ents M aterials f k k v Suppliers Suppliers profit from the location of Novo Nordisk in their local community and from the com pany’s need for long-term stable supply partnerships globally. An estimated 31,300 jobs are created at suppliers in Denmark and 43,000 globally. e t a r e p o o t e c n e c f h t l a e W T a x e s f h S e r v c e s i vk vk vk vk vk v k v k vk vk Public sector Taxes are paid to fund public activities in society. In return, services are received. Novo Nordisk’s tax payments are 3.9% of corporate taxes in Denmark. Novo Nordisk’s employees in Denmark pay 0.6% of the country’s total income tax. Customers Novo Nordisk’s products provide health for customers in inter action with the healthcare sector. Novo Nordisk has 52% of the global insulin market and 21% of the global diabetes care market measured by value. v k v k v k vk v Cash value distribution (2006) Customers Suppliers Company cash Employees Investors/funders Public sector Management a: b: c: d: e: f: Cash received for products and services (from sales) Cash payments for materials, facilities and services*) Cash added value (a minus b) Remuneration Dividend and interest payments Taxes Future growth DKK million Cash received Cash added value 38,374 16,690 21,684 12,653 5,054 3,514 463 100% 44% 33% 13% 9% 1% 100% 59% 23% 16% 2% *) Cash payments outside Novo Nordisk. The figure includes cash received from licence fees, realised exchange rate gains and interest income. 94 Novo Nordisk Annual Report 2006 Consolidated non-financial statements Notes – Performance indicators Environment Resources For the first time since Novo Nordisk began to report on consumption of water and energy, the performance data now show a slight decrease from 2005 to 2006 of less than 1% and 2%, respectively. It is expected that the CO2 reduction initiatives will have a continued positive effect on the consumption of energy. The consumption of materials increased by 5%. This increase is mainly due to production increases in Kalundborg, Denmark, and at the sites in Chartres, France, Clayton, US, and Montes Claros, Brazil. Water consumption Energy consumption Materials Target – – – Unit 1,000 m3 1,000 GJ 1,000 tons 2006 2005 2004 2,995 2,666 142 3,014 2,7181) 1352) 2,756 2,397 1) 111 1) Previously reported as 2,408 (2004) and 2,591 (2005). Reporting error corrected. 2) Previously reported as 150. Reporting error corrected. Wastewater The total volume of waste water increased by 1% from 2005 to 2006. In the same period, the discharged quantity of COD decreased from 1,303 tons to 1,000 tons, corresponding to a 23% decrease. The quantity of nitrogen de- creased from 126 tons to 107 tons, a 15% decrease. The discharged quantity of phosphorus was reduced from 22 tons to 19 tons, corresponding to a decrease of 14%. The significant reductions of COD, nitrogen and phosphorus are partly due to improved efficiency of the waste water treatment plant in Kalundborg, owned by Novozymes A/S, and the closing down of the insulin purification factory in Bagsværd. COD Nitrogen Phosphorus Target – – – Unit Tons Tons Tons 2006 2005 2004 1,000 107 19 1,303 126 22 1,448 121 21 Waste In 2006, Novo Nordisk approved a new waste strategy. As a result, Novo Nordisk has regrouped its waste data. There has been an increase in the total waste volume of 2% compared to 2005. This is due to an increase in hazardous waste of 17%, counterbalanced by a decrease in non-hazardous waste of 13%. The recycling percentage has increased to 35% from 33% in 2005. Of the 13% decrease in non-hazardous waste, 9% is due to a decrease in a specific waste water fraction from site Hillerød. The remaining 4% decrease is due to a decrease in the amount of paper, cardboard and mixed construction/ demolition waste at several sites. The non-hazardous waste sent for special treatment is waste water treated at a hazardous waste treatment facility in accordance with the precautionary principle. The 17% increase in hazardous waste is mainly due to an increase in the amount of contaminated soil from site Kalundborg. A significant part (66%) of the hazardous waste is the waste fraction ethanol, which is recycled or incinerated. A high rate of ethanol is regenerated before it becomes waste. The 35% waste for recycling includes a large quantity of contaminated soil. If contaminated soil was excluded from the recycling percentage, the figure would be 26%. Total waste – Non-hazardous waste Recycled Incinerated 1) Landfill Special treatment – Hazardous waste Recycled ethanol 2) Incinerated ethanol 3) Recycling percentage Target – – – – – – – – – – Unit Tons Tons % % % % Tons % % % 2006 2005 2004 24,165 10,594 39 33 10 18 13,571 17 48 35 23,776 12,145 – – – – 11,631 – – 33 21,855 9,203 – – – – 12,652 – – 40 1) 99% with energy recovery. 2) Ethanol recycled in eg biogas or waste water treatment plants. 3) Incinerated at combined heat and power plants or at plants for special treatment of hazardous waste with energy recovery. Novo Nordisk Annual Report 2006 95 Consolidated non-financial statements Notes – Performance indicators Environment (continued) Emissions to air While Novo Nordisk’s total energy consumption has decreased by 2% in 2006, the energy-related emission of CO2 increased from 228,000 tons in 2005 to 235,000 tons 2006, corresponding to a 3% increase. The increase in CO2 is primarily due to increased emissions from the production sites in Clayton, US; Kalundborg, Denmark; Måløv, Denmark; and Tianjin, China, mainly due to increased energy consumption, in combination with increases in CO2 emission factors for some external energy suppliers, but also due to increases in the CO2 emissions from the energy purchased. Emissions to air of organic solvents decreased from 124 tons in 2005 to 102 tons in 2006, a decrease of 18%, which is primarily due to the close down of an insulin purification factory in Bagsværd, Denmark. The organic solvents consist of ethanol (78%), isopropanol (13%) and acetone (9%). CO2 Organic solvents Target 10% reduction by 2014 compared to 2004 – Unit 1,000 tons Tons 2006 2005 2004 235 102 2281) 210 1) 124 115 1) Minor adjustments to all historic CO2 emissions due to changed emission factors from sites outside Denmark. Eco Intensity Ratios (EIR) In 2006, the EPI has been replaced by a new key performance indicator to measure water and energy efficiency relative to production; the Eco Intensity Ratios (EIR). EIR is reported in the Annual Report for the two business areas; Diabetes Care and Biopharmaceuticals. The long-term EIR target for 2006 – 2010 is a 2% reduction of water and energy consumption relative to production on average per year, which corresponds to almost 10% reduction for all four EIR indicators. To get the best foundation for the EIR, the target is based on a bottom-up process where production has given its best estimates for energy and water consumption and related these to the forecasted production. The EIR targets are implemented in the Balanced Scorecard for Novo Nordisk as well as in the bonus scheme. In 2006, the EIR Water and EIR Energy improved for both Diabetes Care and Biopharmaceuticals. The EIR concept and the long-term targets will be evaluated – and revised if necessary – in the beginning of 2007 on basis of the 2006 process. 2006 was considered as a test period for the new EIR concept. EIR Water Diabetes Biopharmaceuticals EIREnergy Diabetes Biopharmaceuticals Target Unit 2006 2005 2004 10% reduction by 2010 10% reduction by 2010 10% reduction by 2010 10% reduction by 2010 m3/ MU m3/g API GJ/ MU GJ/g API 7.8 4.8 5.5 9.2 – – – – – – – – Compliance Compliance is a high priority. Preventive measures are beginning to show re- sults: the number of breaches of regulatory limit values has decreased by 30% from 2005 to 2006. Out of the 122 breaches, 97% are related to pH and waste water temperatures, which are monitored through continuous measurements. In the same period, however, the number of accidental releases has increased by 29% to a total of 134, of which 81 are releases of cooling agents such as HCFC’s and HFC’s. This increasing number reflects particular efforts focused on cooling equipment, which were initiated in 2006. This focus has resulted in im- proved registration of releases and what causes them, and hence also a higher number of reported releases than previously. There were no accidental releases of GMOs in 2006. All of these incidents have been reported to the authorities. It is assessed that breaches of regulatory limit values and accidental releases have had no or only minor impact on the external environment. The target to avoid breaches of regulatory limit values and accidental releases altogether has therefore not yet been met. Preventive measures are long-term efforts, consisting of training of key employees, risk assessment of production sites and technical solutions to mitigate these risks. In 2007 and the following years there will be continued focus on compliance and preventive measures, which can further reduce the number of breaches and help curb the curve of accidental releases. Breaches of regulatory limit value – related to pH and temperature in waste water Accidental releases – releases of cooling agents 1) Was reported as 83. Reporting error now corrected. Target 0 0 Unit Number Number 2006 2005 2004 122 118 134 81 174 164 104 1) 67 74 58 29 10 96 Novo Nordisk Annual Report 2006 Consolidated non-financial statements Notes – Performance indicators Social Living our values Novo Nordisk’s performance improved or remained at a high level on all param- eters in the area of ’living our values’. In the annual climate survey, eVoice, the average of respondents’ answers as to whether ‘social and environmental issues importance for the future of the company’ remained at a high level of 4.3 (on a scale from 1–5, with 5 being the highest score). Also in eVoice, the average of respondents’ answers as to whether ‘my manager’s behaviour is consistent with Novo Nordisk’s values’ increased by 0.1 to 4.1. Both above the target of >_3.5. There has been 99% fulfilment of action points arising from facilitations, thus exceeding the target of 80% fulfilment. At the end of the year all action points except two were closed; one action point was overdue and one action point will be dealt with later as agreed. Both action points will be finalised in the first quarter of 2007. Importance of social and environmental issues for Managers’ behaviour consistent with Fulfilment of action points planned arising from facilitations Target >_ 3.5 by 2007 >_ 3.5 by 2007 >_ 80% by 2007 Unit % 2006 2005 2004 4.3 4.1 99 4.2 4.0 100 4.2 3.8 96 Our employees By the end of 2006 Novo Nordisk employed 23,613 persons – an increase of 5% compared to 2005. This number equals a full-time equivalent of 23,172. It reflects increased activities in all business areas, particularly in Research & Development and Sales & Marketing. The ratio between men and women has changed slightly; at the end of 2006, 50.8% of the employees were men, as compared with 51.2% at the end of 2005. The rate of absence is slightly lower than in 2005 with a performance of 3.0. Employee turnover increased to 10.0 from 8.0. One of Novo Nordisk’s key risks, as described on pp 110 –111, is an in- ability to attract and retain the right talent. The average answers of ten equally Employees (total) – Female – Male Rate of absence Rate of employee turnover Engaging culture Opportunity to use and develop employee competences/skills People from diverse backgrounds have equal opportunities Target – – – – – >_ 4.0 >_ 3.5 by 2007 >_ 3.5 by 2007 weighted questions in the annual survey, eVoice, are used to calculate the level of ‘engaging culture’. In 2006 the consolidated score was 4.0. The target is to remain at a level of 4.0 or above on a scale from 1 to 5, with 5 being the highest score. The average of respondents’ answers as to whether ‘my work gives me an opportunity to use and develop my competences and skills’ increased from 3.8 to 3.9 and the average of respondents’ answers as to whether ‘people from diverse backgrounds have equal opportunities’ remained at a high level of 3.9; both above the target of >_3.5. Unit Number % % % % 2006 2005 2004 23,613 49.2 50.8 3.0 10.0 4.0 3.9 3.9 22,460 48.8 51.2 3.2 8.0 – 3.8 3.9 20,725 49.1 50.9 3.2 7.3 – 3.8 3.8 Novo Nordisk Annual Report 2006 97 Consolidated non-financial statements Notes – Performance indicators Social (continued) Health & safety Performance on the health & safety indicator ‘frequency of occupational in- juries’ was satisfactory, as the frequency decreased from 7.3 to 6.2 in 2006, meeting the target of a continuous decrease. There were no fatalities in 2006. There is a continued focus on ensuring health & safety standards for employees in Novo Nordisk. In 2006 the work to adopt a health & safety management system certifiable according to OHSAS 18001 for Novo Nordisk in Denmark and Product Supply globally was initiated. The first certifications are expected in 2008. Frequency of occupational injuries Fatalities Continuous decrease – Per million working hours Number 6.2 0 7.3 0 5.6 1 Target Unit 2006 2005 2004 Training costs In 2006, the annual spending on training, measured as average spent per employee, increased by 14%, reflecting the company’s strategic priority on talent and leadership development, and on life-long learning offered to all employees. The average spent per employee does not fully reflect investments in training in Novo Nordisk, since on-the-job-training, internal seminars and other activities are not included. Annual training per employee Target – Unit DKK 2006 2005 2004 11,293 9,899 8,992 Access to health For 2006, Novo Nordisk offered its best possible pricing scheme, as part of the global health initiatives, to all 50 Least Developed Countries (LDCs) as defined by the United Nations. During 2006 Novo Nordisk sold insulin to either govern- ments or to the private market in a total of 34 of the LDCs at or below a price of 20% of the average prices for insulin in the western world, compared to 32 in 2005. In 15 countries Novo Nordisk is not selling insulin at all, for various reasons. The one LDC country, in which Novo Nordisk does not sell insulin at the policy price is Laos. The public authorities in Laos have been offered to buy insulin at the policy price. The insulin sold in Laos in 2006 is to the private market. In several cases, the government has not responded to the offer, there are no private wholesalers or other partners with whom to work, or wars or political unrest make it sometimes impossible to do business. While Novo Nordisk prefers to sell insulin at the preferential price through government tenders, the company is willing to sell to private distributors and agents. The target is to offer the best possible pricing scheme to the governments of all LDCs. Unfortunately, there is no way to guarantee that the price at which Novo Nordisk sells the insulin will be reflected in the final price on the pharmacist’s shelf. Wholesalers and pharmacies may mark up the drug before selling it to the consumer. A measure of the company’s contribution to global health is the number of healthcare professionals directly trained or educated and direct training or treatment offered to people with diabetes. The aim is to continue activities to educate healthcare professionals and to train and treat people with diabetes. In 2006, 297,000 healthcare professionals were directly trained or educated, and 1,060,000 people with diabetes were directly trained or treated. LDCs where Novo Nordisk operates LDCs where Novo Nordisk sells insulin at or below the policy price Target Best possible pricing scheme in all LDCs Best possible pricing scheme in all LDCs Healthcare professionals directly trained or educated People with diabetes directly trained or treated – – Unit Number Number Number Number 2006 2005 2004 35 34 297,000 1,060,000 35 32 – – 35 33 – – Patent families The number of Novo Nordisk patent families has developed as expected in 2006. The number of active patent families to date has increased by 12%. The number of new patent families (first filing) has increased from 130 in 2005 to 149 in 2006 – an increase of 15%. Active patent families to date New patent families (first filing) Target – – Unit Number Number 2006 2005 2004 913 149 812 130 778 145 98 Novo Nordisk Annual Report 2006 Consolidated non-financial statements Notes – Performance indicators Social (continued) Animals Novo Nordisk sets goals to reduce, refine and replace experiments on animals and to improve animal welfare. Despite a significantly higher level of research activity in early phases, when animal experimentation is required, the number of animals purchased in 2006 decreased by 2% to 56,533 animals, of which 95% is mice, transgenic mice and rats. In 2006, Novo Nordisk only housed animals in Denmark. Animals purchased Target – Unit Number 2006 2005 2004 56,533 57,905 47,311 To ensure transparency, more details on reported data, additional non-financial reporting, an update of the complete ‘Environmental and social highlights table’ and the ‘Triple Bottom Line performance indicators’ are available online along with interactive charts for underlying data in the online report at novonordisk.com/ annual-report Click: how-we-perform. Novo Nordisk Annual Report 2006 99 Consolidated financial statements Companies in the Novo Nordisk Group Country Year of incorporation / acquisition Issued share capital / paid-in capital Percentage of shares owned Activity l t n e m p o e v e D d n a h c r a e s e R A . c t e s e c i v r e S A g n i t e k r a M d n a l s e a S A n o i t c u d o r P A Parent company Novo Nordisk A/S Subsidiaries by region Europe Novo Nordisk Pharma GmbH S.A. Novo Nordisk Pharma N.V. Novo Nordisk s.r.o. Novo Nordisk Region Europe A/S Novo Nordisk Farma OY Novo Nordisk Pharmaceutique SAS Novo Nordisk Production SAS Novo Nordisk Pharma GmbH Novo Nordisk Hellas Epe Novo Nordisk Hungary Sales and Trading Ltd. Novo Nordisk Limited Novo Nordisk Farmaceutici SPA UAB Novo Nordisk Pharma Novo Nordisk Farma B.V. Novo Nordisk Scandinavia AS Novo Nordisk Pharma Sp z.o.o. Novo Nordisk Comércio Produtos Farmacêuticos Ltda Novo Nordisk, trzˇ enje farmacevtskih izdelkov d.o.o. Novo Nordisk Pharma S.A. Novo Nordisk Scandinavia AB Novo Nordisk Femcare AG Novo Nordisk Health Care AG Novo Nordisk Pharma AG Novo Nordisk Holding Ltd. Novo Nordisk Limited North America Novo Nordisk Canada Inc. Novo Nordisk Region North America A/S Novo Nordisk Delivery Technologies Inc. Novo Nordisk of North America Inc. Novo Nordisk Pharmaceutical Industries Inc. Novo Nordisk Inc. Japan & Oceania Novo Nordisk Pharmaceuticals Pty Ltd. Novo Nordisk Region Japan & Oceania A/S Novo Nordisk Pharma Ltd. Novo Nordisk Pharmaceuticals Ltd. Denmark 1931 DKK 673,920,000 – A A A A Austria Belgium Czech Republic Denmark Finland France France Germany Greece Hungary Ireland Italy Lithuania Netherlands Norway Poland Portugal Slovenia Spain Sweden Switzerland Switzerland Switzerland United Kingdom United Kingdom Canada Denmark United States United States United States United States Australia Denmark Japan New Zealand 1974 1974 1997 2002 1972 2003 1959 1973 1979 1996 1978 1980 2005 1983 1965 1996 1984 2006 1978 1971 2003 2000 1968 1977 1978 1983 2003 2005 1988 1991 1982 1985 2002 1980 1990 EUR EUR CZK DKK EUR EUR EUR EUR EUR HUF EUR EUR LTL EUR NOK PLN EUR EUR EUR SEK CHF CHF CHF GBP GBP CAD DKK USD USD USD USD 36,336 69,000 14,500,000 108,370,500 420,500 5,821,140 57,710,220 614,062 1,050,000 371,000,000 635 516,500 2,150,000 61,155 250,000 29,021,000 250,000 79,286 1,502,500 100,000 1,100,000 159,325,000 50,000 2,802,130 2,350,000 200 500,000 20,001,000 283,835,600 55,000,000 2,000 500,001 AUD 15,500,000 DKK JPY 2,104,000,000 1,000,000 NZD 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A 100 Novo Nordisk Annual Report 2006 Consolidated financial statements Companies in the Novo Nordisk Group Activity Year of incorporation / acquisition Issued share capital / paid-in capital Percentage of shares owned International Operations Aldaph SpA Novo Nordisk Pharma Argentina SA Novo Nordisk Produsao Farmacêutica Do Brasil Ltda. Novo Nordisk Farmacêutica do Brasil Ltda Novo Nordisk Pharma EAD Novo Nordisk (China) Pharmaceuticals Co, Ltd Beijing Novo Nordisk Pharmaceuticals Science & Technoloy Co., Ltd. Novo Nordisk Hrvatska d.o.o. Novo Nordisk Region International Operation A/S Novo Nordisk Egypt, LLC Novo Nordisk Hong Kong Limited Novo Nordisk India Private Limited PT. Novo Nordisk Indonesia Novo Nordisk Pharma Kish Novo Nordisk Pars Novo Nordisk Ltd Novo Nordisk Farma dooel Novo Nordisk Pharma (Malaysia) Sdn Bhd Novo Nordisk Mexico S.A. de C.V. Novo Nordisk Pharma SAS Novo Nordisk Pharma P.V.T. Novo Nordisk Pharmaceuticals (Philippines) Inc Novo Nordisk Farma S.R.I. Novo Nordisk Limited Liability Company Novo Nordisk Pharma d.o.o Belgrade (Serbia) Novo Investment Pte Ltd. Novo Nordisk Asia Pacific Pte Ltd. Novo Nordisk Pharma (Singapore) Pte Ltd. Novo Nordisk (Pty) Ltd Novo Nordisk Pharma Korea Ltd Novo Nordisk Pharma (Taiwan) Ltd Novo Nordisk Pharma (Thailand) Ltd Novo Nordisk Tunisie SARL Novo Nordisk Saglik Ürünleri Tic Ltd Sti Novo Nordisk Pharma Gulf FZ-LLC Novo Nordisk Venezuela Casa de Representación C.A. Other subsidiaries FeF Chemicals A/S NNIT A/S NNE A/S Novo Nordisk Servicepartner A/S Associated companies Dako A/S Innate Pharma SA ZymoGenetics, Inc Country Algeria Argentina Brazil Brazil Bulgaria China 1994 1997 2002 1990 2005 1994 2006 China 2004 Croatia 2002 Denmark 2004 Egypt 2001 Hong Kong 1994 India 2003 Indonesia 2005 Iran 2005 Iran 1997 Israel 2006 Macedonia 1992 Malaysia 2004 Mexico 2006 Morocco 2005 Pakistan 1999 Philippines 2005 Romania Russia 2003 Serbia & Mentenegro 2005 1994 Singapore 1997 Singapore 1997 Singapore 1959 South Africa 1994 South Korea 1990 Taiwan 1983 Thailand 2004 Tunisia Turkey 1993 United Arab Emirates 2005 2004 Venezuela Denmark Denmark Denmark Denmark Denmark France United States 1989 1998 1989 1998 1992 2006 1988 DZD 1,742,650,000 7,465,150 ARS 736,280,984 BRL 84,727,136 BRL 2,000,000 BGN 35,000,000 USD 2,000,000 USD 5,000,000 HRK 113,302,310 DKK 50,000 EGP 500,000 HKD 265,000,000 INR 827,900,000 IDR 10,000,000 IRR 10,000,000 IRR 100 ILS 305,800 MKD MYR 200,000 MXN 138,491,127 300,000 MAD 10,000,000 PKR 50,000,000 PHP 1,675,000 RON 38,243,360 RUB 640,000 EUR 12,000,000 SGD 2,000,000 SGD 200,000 SGD ZAR 8,000 KRW 6,108,400,000 9,000,000 TWD 15,500,000 THB 400,000 TND 25,296,300 TRY AED 100,000 VEB 2,250,000,000 DKK DKK DKK DKK 10,000,000 1,000,000 500,000 1,000,000 DKK EUR USD 78,687,748 1,249,139 732,914,014 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 100 100 100 100 27 19 31 n o i t c u d o r P A A A A g n i t e k r a M d n a l s e a S A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A A l t n e m p o e v e D d n a h c r a e s e R A . c t e s e c i v r e S A A A A A A A A A A A A A A Novo Nordisk Annual Report 2006 101 Consolidated financial statements Summary of financial data 2002– 2006 DKK million Sales Sales by business segments: Modern insulins (insulin analogues) Human insulin and insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Biopharmaceuticals total Sales by geographical segments: Europe North America International Operations Japan & Oceania Licence fees and other operating income (net) Operating profit Net financials Profit before income taxes Income taxes Net profit Total assets Total current liabilities Total long-term liabilities Equity Investments in property, plant and equipment (net) Investments in intangible assets and long-term financial assets (net) Free cash flow *) Net cash flow Ratios Sales in percent: Modern insulins (insulin analogues) Human insulin and insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Biopharmaceuticals total Sales outside Denmark as a percentage of sales Sales and distribution costs as a percentage of sales Research and development costs as a percentage of sales Administrative expenses as a percentage of sales Gross margin *) Operating profit margin *) Growth in operating profit *) Growth in operating profit, three-year average *) Net profit margin *) Effective tax rate *) Equity ratio *) Payout ratio *) ROIC *) ROIC adjusted **) Cash to earnings *) Cash to earnings, three-year average *) 102 Novo Nordisk Annual Report 2006 2002 2003 2004 2005 2006 24,866 26,158 29,031 33,760 38,743 1,187 14,651 1,620 17,458 3,593 2,061 1,333 421 7,408 10,889 5,786 4,099 4,092 758 5,927 401 6,328 2,212 4,116 31,612 6,152 2,983 22,477 3,893 81 497 56 4.8% 58.9% 6.5% 70.2% 14.4% 8.3% 5.4% 1.7% 29.8% 99.2% 28.9% 15.9% 7.9% 73.5% 23.8% 9.6% 19.1% 16.6% 35.0% 71.1% 30.2% 21.1% 20.6% 12.1% 34.4% 2,553 14,492 1,430 18,475 3,843 2,133 1,322 385 7,683 11,697 6,219 4,227 4,015 1,036 6,422 954 7,376 2,543 4,833 34,564 7,032 2,756 24,776 2,273 40 3,846 (64) 9.8% 55.4% 5.5% 70.6% 14.7% 8.2% 5.1% 1.5% 29.4% 99.3% 28.5% 15.5% 7.1% 71.7% 24.6% 8.4% 11.0% 18.5% 34.5% 71.7% 30.8% 20.4% 20.3% 79.6% 32.3% 4,507 14,383 1,643 20,533 4,359 2,317 1,488 334 8,498 12,411 7,478 4,844 4,298 575 6,980 477 7,457 2,444 5,013 37,433 7,280 3,649 26,504 2,999 312 4,278 2,136 15.5% 49.5% 5.7% 70.7% 15.0% 8.0% 5.1% 1.2% 29.3% 99.3% 28.5% 15.0% 6.7% 72.3% 24.0% 8.7% 8.9% 17.3% 32.8% 70.8% 31.8% 21.5% 21.3% 85.3% 59.0% 7,298 15,006 1,708 24,012 5,064 2,781 1,565 338 9,748 13,447 9,532 6,070 4,711 403 8,088 146 8,234 2,370 5,864 41,960 10,581 3,745 27,634 3,665 (136) 4,833 (634) 21.6% 44.4% 5.1% 71.1% 15.0% 8.2% 4.6% 1.0% 28.9% 99.2% 28.7% 15.1% 6.3% 72.8% 24.0% 15.9% 11.0% 17.4% 28.8% 65.9% 33.2% 24.7% 23.9% 82.4% 82.4% 10,825 15,057 1,984 27,866 5,635 3,309 1,607 326 10,877 14,708 12,280 7,086 4,669 272 9,119 45 9,164 2,712 6,452 44,692 10,157 4,413 30,122 2,787 244 4,707 463 27.9% 38.9% 5.1% 71.9% 14.5% 8.6% 4.2% 0.8% 28.1% 99.2% 30.0% 16.3% 6.2% 75.3% 23.5% 12.7% 12.4% 16.7% 29.6% 67.4% 34.4% 25.8% 25.8% 73.0% 80.2% Consolidated financial statements Summary of financial data 2002– 2006 Supplementary information in EUR EUR million Sales Sales by business segments: Modern insulins (insulin analogues) Human insulin and insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Biopharmaceuticals total Sales by geographical segments: Europe North America International Operations Japan & Oceania Licence fees and other operating income (net) Operating profit Net financials Profit before income taxes Income taxes Net profit Total assets Total current liabilities Total long-term liabilities Equity Investments in property, plant and equipment (net) Investments in intangible assets and long-term financial assets (net) Free cash flow Net cash flow Share data Basic earnings per share in DKK *) Diluted earnings per share in DKK *) Dividend per share in DKK Number of shares at year-end (million) Number of shares outstanding at year-end (million) *) Average number of shares outstanding (million) *) Average number of shares outstanding incl dilutive effect of options ‘in the money’ (million) Employees Total full-time employees at year-end Denmark Rest of Europe North America International Operations Japan & Oceania 2002 2003 2004 2005 3,347 3,520 3,902 4,531 160 1,972 218 2,350 484 277 179 57 997 1,465 779 552 551 102 798 54 852 298 554 4,258 829 402 3,027 524 11 67 8 11.87 11.85 3.60 354.7 345.3 346.7 347.2 344 1,950 192 2,486 517 287 178 52 1,034 1,574 837 569 540 139 864 129 993 343 650 4,643 945 370 3,328 305 5 517 (9) 14.17 14.15 4.40 354.7 338.2 341.2 341.6 606 1,933 221 2,760 586 311 200 45 1,142 1,668 1,005 651 578 77 938 64 1,002 328 674 5,033 979 491 3,563 403 42 575 287 14.89 14.83 4.80 354.7 332.1 336.6 338.1 979 2,015 229 3,223 680 373 210 45 1,308 1,805 1,279 815 632 54 1,085 20 1,105 318 787 5,624 1,418 502 3,704 492 (18) 649 (85) 17.89 17.83 6.00 354.7 323.7 327.7 328.9 2006 5,194 1,451 2,019 266 3,736 755 444 215 44 1,458 1,972 1,646 950 626 36 1,223 6 1,229 364 865 5,994 1,362 592 4,040 374 33 631 62 20.10 19.99 7.00 337.0 317.2 320.9 322.7 18,005 11,104 2,361 1,481 2,248 811 18,756 11,414 2,430 1,590 2,455 867 20,285 11,839 2,454 1,949 3,104 939 22,007 12,160 2,702 2,465 3,746 934 23,172 12,214 2,944 2,846 4,188 980 *) For definitions, please refer to page 63. **) ROIC adjusted: Operating profit after tax (using the effective rate adjusted for non-recurring tax effects arising from financial transactions) as a percentage of average inventories, receivables, property, plant and equipment as well as intangible assets less non-interest bearing liabilities including provisions (the sum of the above assets and liabilities at the beginning of the year and at year-end divided by two). Key figures are translated into EUR as supplementary information – the translation of income statement items is based on the average exchange rate in 2006 (EUR 1 = DKK 7.45912) and the translation of balance sheet items is based on the exchange rate at the end of 2006 (EUR 1 = DKK 7.45600). The figures in DKK reflect the economic substance of the underlying events and circumstances of the Group. Novo Nordisk Annual Report 2006 103 Consolidated financial statements Quarterly figures 2005 and 2006 (unaudited) DKK million Sales Sales by business segments: Modern insulin (insulin analogues) Human insulin and insulin-related sales Oral antidiabetic products (OAD) 2005 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 7,258 8,283 8,793 9,426 8,946 9,727 9,583 10,487 1,448 3,346 376 1,692 3,753 391 1,929 3,871 487 2,229 4,036 454 2,324 3,703 477 2,678 3,707 483 2,701 3,697 516 3,122 3,950 508 Diabetes care total 5,170 5,836 6,287 6,719 6,504 6,868 6,914 7,580 Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy Other products 1,090 596 328 74 1,248 704 410 85 1,336 700 406 64 1,390 781 421 115 1,265 709 373 95 1,507 882 396 74 1,393 821 383 72 1,470 897 455 85 Biopharmaceuticals total 2,088 2,447 2,506 2,707 2,442 2,859 2,669 2,907 Sales by geographical segments: Europe North America International Operations Japan & Oceania Gross profit Sales and distribution costs Research and development costs Administrative expenses Licence fees and other operating income (net) Operating profit Net financials Profit before taxation Income taxes Net profit 3,006 2,092 1,128 1,032 5,173 2,139 1,106 483 67 1,512 276 1,788 556 3,405 2,282 1,395 1,201 6,073 2,267 1,197 470 202 2,341 2 2,343 659 3,434 2,462 1,750 1,147 6,435 2,402 1,231 545 55 2,312 104 2,416 664 3,602 2,696 1,797 1,331 6,902 2,883 1,551 624 79 1,923 (236) 1,687 491 3,403 2,764 1,755 1,024 6,531 2,728 1,419 580 76 1,880 (151) 1,729 518 3,761 2,968 1,790 1,208 7,475 2,850 1,498 557 59 2,629 (138) 2,491 748 3,699 3,062 1,683 1,139 7,246 2,699 1,489 605 49 2,502 32 2,534 760 3,845 3,486 1,858 1,298 7,906 3,331 1,910 645 88 2,108 302 2,410 686 1,232 1,684 1,752 1,196 1,211 1,743 1,774 1,724 Depreciation, amortisation and impairment losses 412 422 559 537 460 508 600 574 Total equity Total assets Ratios 25,729 36,497 25,620 37,731 26,589 40,181 27,634 41,960 27,042 41,299 28,908 43,145 28,288 43,744 30,122 44,692 Gross margin Sales and distribution costs as a percentage of sales Research and development costs as a percentage of sales Administrative expenses as a percentage of sales Operating profit margin Equity ratio Share data Basic earnings per share/ADR (in DKK) Diluted earnings per share/ADR (in DKK) Average number of shares outstanding (million) – basic Average number of shares outstanding (million) – diluted 71.3% 29.5% 15.2% 6.7% 20.8% 70.5% 3.71 3.70 332.0 333.2 73.3% 27.4% 14.5% 5.7% 28.3% 67.9% 5.11 5.09 329.6 330.8 73.2% 27.3% 14.0% 6.2% 26.3% 66.2% 5.38 5.36 325.8 326.9 73.2% 30.6% 16.5% 6.6% 20.4% 65.9% 3.70 3.68 323.4 324.8 73.0% 30.5% 15.9% 6.5% 21.0% 65.5% 3.74 3.72 323.6 325.2 76.8% 29.3% 15.4% 5.7% 27.0% 67.0% 5.40 5.37 322.9 324.5 75.6% 28.2% 15.5% 6.3% 26.1% 64.7% 5.54 5.51 320.1 321.8 75.4% 31.8% 18.2% 6.2% 20.1% 67.4% 5.44 5.40 317.1 319.2 Employees Number of full-time employees at the end of the period 20,942 21,246 21,631 22,007 22,556 22,792 23,071 23,172 104 Novo Nordisk Annual Report 2006 Consolidated financial statements Management statement The Financial Statements of the Parent Company, Novo Nordisk A/S are included on the attached cd-rom and is available at novonordisk.com The Financial Statements of the Parent Company, Novo Nordisk A/S, form an integral part of the Annual Report. The complete Annual Report has the below Management Statement and Auditors Reports as provided on page 106. Statement by the Board of Directors and Executive Management on the Annual Report Today, the Board of Directors and Executive Management approved the Annual Report of Novo Nordisk A/S for the year 2006. The Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and the Financial Statements of the Parent Company, Novo Nordisk A/S, have been prepared in accordance with the Danish Financial Statements Act and Danish Accounting Standards. Further, the Annual Report has been prepared in accordance with the additional Danish annual report requirements for listed companies. In our opinion, the accounting policies used are appropriate and the Annual Report gives a true and fair view of the Group’s and the Company’s assets, liabilities, equity, financial position, results and cash flows. Novo Nordisk’s non-financial statements have been prepared in accordance with the non-financial reporting principles of materiality, completeness and responsiveness of AA 1000AS, the 2002 GRI Sustainability Reporting Guidelines – and include Communication on Progress in support of the United Nations Global Compact. It repre- sents a balanced and reasonable presentation of the organisation’s economic, environmental and social performance. Gladsaxe, 30 January 2007 Executive Management: Lars Rebien Sørensen President and CEO Jesper Brandgaard CFO Lise Kingo Kåre Schultz Mads Krogsgaard Thomsen Board of directors: Sten Scheibye Chairman Göran A Ando Vice chairman Kurt Briner Henrik Gürtler Johnny Henriksen Niels Jacobsen Audit Committee member Anne Marie Kverneland Kurt Anker Nielsen Chairman of the Audit Committee Søren Thuesen Pedersen Stig Strøbæk Jørgen Wedel Audit Committee member Novo Nordisk Annual Report 2006 105 Auditors’ reports Auditors’ report on the Annual Report for 2006 To the Shareholders of Novo Nordisk A/S We have audited the Annual Report of Novo Nordisk A/S for the financial year 2006, which comprises Management Statement, Management’s review, signif- icant accounting policies, income statement, balance sheet, statement of changes in equity, cash flow statements and notes for the Group as well as for the Parent Company. The Consolidated Financial Statements are prepared in ac- cordance with International Financial Reporting Standards as adopted by the EU, and the Parent company Financial Statements are prepared in accordance with the Danish Financial Statements Act and Danish Accounting Standards. Further, the Annual Report is prepared in accordance with additional Danish dis- closure requirements for annual reports of listed companies. Management’s Responsibility for the Annual Report Management is responsible for the preparation and fair presentation of the Annual Report in accordance with the said legislation and accounting stand- ards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of an Annual Report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on the Annual Report based on our audit. We conducted our audit in accordance with International and Danish Auditing Standards. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the Annual Report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the Gladsaxe, 30 January 2007 PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab amounts and disclosures in the Annual Report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Annual Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the Annual Report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the Annual Report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the Annual Report gives a true and fair view of the financial position at 31 December 2006 of the Group and of the results of the Group operations and consolidated cash flows for the financial year 2006 in ac- cordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of listed companies. In addition, in our opinion, the Annual Report gives a true and fair view of the financial position at 31 December 2006 of the Parent company and of the results of the Parent company operations for the financial year 2006 in accordance with the Danish Financial Statements Act, Danish Accounting Standards and additional Danish disclosure requirements for annual reports of listed companies. Lars Holtug State-Authorised Public Accountant Mogens Nørgaard Mogensen State-Authorised Public Accountant 106 Novo Nordisk Annual Report 2006 Assurance Report on Non-Financial Reporting 2006 Subject, responsibilities, objective, and scope of assurance statement We have reviewed the Novo Nordisk Annual Report 2006 with a view to express a conclusion on the non-financial reporting against the principles of materiality, completeness and responsiveness of the AA1000 Assurance Standard (AA1000AS) and in accordance with the International Standard on Assurance Engagements (ISAE) 3000 ‘Assurance Engagements other than Audits or Review of Historical Financial Information’. Management of Novo Nordisk is responsible for defining stakeholders and for the collection and presentation of the non-financial information in the Annual Report. Basis of conclusion Our work was undertaken to perform an evaluation of the Annual Report against the principles of materiality, completeness and responsiveness of the AA1000AS. Moreover, we planned and performed our work in accordance with the ISAE 3000 to obtain limited assurance that the non-financial reporting in the Annual Report is free of material misstatements and that the information has been presented in accordance with the accounting policies. In addition, our work covered the corporate consolidated performance data published in the section ‘Interactive Charts’ in the online report at novonordisk.com. Based on an assessment of materiality and risk, our work included on a sample basis a review of management systems, reporting structures and boundaries as well as enquiries, interviews and testing of registration and communication systems, data and underlying documentation. We tested whether data and the underlying components are accounted for in such a way as to fulfil the asser- tions of materiality and completeness in accordance with the Novo Nordisk accounting policies for non-financial data. In addition, our work comprised an assessment of stakeholder engagement and of the materiality of reporting against peer-reporting, media reports and industry knowledge. Two major pro- duction sites were visited in Kalundborg, Denmark and Clayton, United States. Our work also included an assessment of significant estimates made by Management. We believe that the work performed provides a reasonable basis for our conclusion. We have assessed Novo Nordisk’s statement that it reports ’in accordance’ with the 2002 GRI Guidelines by checking that the reporting contains the required information and indicators and whether these are consistent with the eleven Reporting Principles of Part B in the GRI Guidelines. We have also reviewed Novo Nordisk’s own assessment of how the reported information and the underlying policies, systems and activities are aligned to and support the prin- ciples of the UN Global Compact. Conclusion Based on the work performed we state our conclusion in relation to each of the key principles of the AA1000 Assurance Standard: materiality, completeness and responsiveness. Materiality Nothing has come to our attention that would cause us not to believe that n the reported non-financial targets and indicators in general are used in strategic and operational decision-making and several of these are included in top management, management, and business units’ balanced scorecard. n the Annual Report, designed primarily to meet the information needs of shareholders, financial analysts and other corporate stakeholders, includes significant information material to Novo Nordisk’s corporate stakeholders. Auditors’ reports Objectives, policies, processes and performance in respect of conduct of clinical trials, animal health practices, approach to responsible lobbying, human rights, bioethics, and product safety and quality are more compre- hensively addressed in the online Annual Report. n the inclusion of information is aligned with robust and well-functioning governance and risk management structures and processes as well as regular and informal stakeholder engagement and systematic trend spotting activities ensuring attention to key corporate stakeholder concerns and expectations. Completeness Nothing has come to our attention that would cause us not to believe that n the Annual Report presents a fair and balanced account of Novo Nordisk’s material non-financial performance at the corporate level. n Novo Nordisk can identify and understand material aspects of its corporate non-financial performance as well as significant impacts outside the boundaries of which it has direct management control including upstream and downstream issues such as social and environmental performance of suppliers, animal health practices of contract research organisations, carbon emissions of energy suppliers, training of health care professionals via the National Diabetes Programme, and accessibility for less developed countries to medicine at reduced prices. n Novo Nordisk has an effective process in place at corporate level for iden- tifying, exploring and defining its approach to material impacts while an as effective approach is not mirrored in some local levels of the organisation. Responsiveness Nothing has come to our attention that would cause us not to believe that n through the Annual Report, the online report and other communications, Novo Nordisk is responsive to significant issues raised by corporate stake- holders in an accessible manner. n Novo Nordisk has an effective process and relevant governance structures in place for defining its response to corporate stakeholders as well as processes in place to promote integration in management and business processes although registration, controls and reporting processes for some environ- mental and health and safety data at site level can be strengthened. n Novo Nordisk has policies, programmes and procedures to address material stakeholder concerns and recently processes have been initiated to develop a response to the issue of ‘responsible lobbying’ as well as a comprehensive approach to human rights beyond existing key human rights initiatives relating to diversity, including non-discrimination, access to health and re- sponsible purchasing. Based on our work nothing has come to our attention that disproves Novo Nordisk’s statement that it has met the conditions for reporting ‘in accordance’ with the GRI guidelines. In addition, we consider that Novo Nordisk’s policies, systems and activities taken as a whole support Management’s commitment to the UN Global Compact. Commentary According to AA1000AS, we are required to include recommendations for improvements in relation to environmental and social responsibility. The recom- mendations as well as our statement of independence and competencies are stated in the online report in the ‘How we are accountable’ section. Our recom- mendations do not affect the above stated conclusion. Gladsaxe, January 30 2007 PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab PricewaterhouseCoopers AG Switzerland Lars Holtug Danish State-Authorised Public Accountant Thomas Scheiwiller Dr Sc.nat Novo Nordisk Annual Report 2006 107 Corporate governance The Novo Nordisk Way of Management forms the values-based governance framework for the com - pany and is an integrated part of the company’s corporate governance. Novo Nordisk’s share capital is divided between A shares and B shares. All A shares are held by Novo A/S, a Danish private limited liability company fully owned by the Novo Nordisk Foundation, which is a pri- vate self-governing institution. The B shares are traded on the stock exchanges in Copenhagen and London and in the form of ADRs on the New York Stock Exchange. Each A share carries 10 votes, where- as each B share carries one vote (see p 116). Novo Nordisk is not aware of the existence of any agreements be- tween shareholders on the exercise of votes or control. Novo Nordisk is of the opinion that the current share and owner- ship structure is appropriate and preferable for the long-term devel- opment of the company. The current differentiation of voting rights cannot be revoked as this would violate the Articles of Association of the Foundation as approved by the Danish authorities. The Board may issue new shares or buy back shares in accordance with authorisations granted by the general meeting. Shareholders’ general meeting Shareholders have the ultimate authority over the company, and exer- cise their right to make decisions regarding Novo Nordisk at general meetings. The annual general meeting approves the annual report and amendments to the Articles of Association. The general meeting elects 4–10 directors, plus the auditor. All shareholders may, no later than 1 February, request that proposals for resolution be included in the agenda. Shareholders may also ask questions at the general meetings. Simultaneous interpretation from Danish into English is available and the meeting is webcast live. Management structure The company has a two-tier board structure consisting of the Board of Directors and Executive Management. The two bodies are separ - ate, and no person serves as a member of both. The Board of Directors On behalf of the shareholders, the Board actively contributes to de- veloping the company as a focused global pharmaceutical company and supervises Executive Management in its decisions and oper - ations. Hence, the aim is to compose a Board consisting of individuals whose particular knowledge and experience enable the Board as a whole to attend to the interests of shareholders, employees and other stakeholders. New board members undergo an induction programme equivalent to two full days during their first year on the board and subsequently participate in educational activities as required. The Board has 11 members, of whom seven are elected by share- holders at general meetings. Shareholder-elected board members serve a one-year term and can be re-elected at the general meeting. Board members must retire at the first general meeting after reaching the age of 70. A proposal for nomination of shareholder-elected board members is presented by the chairmanship to the Board taking into account required competences and the result of the self-assess- ment process. A balance between renewal and continuity will be en- 108 Novo Nordisk Annual Report 2006 sured when nominating candidates. An executive search has helped identify board members that meet such criteria. Four shareholder-elected board members are independent as de- fined by the Danish Corporate Governance Recommendations; three shareholder-elected board members are related to the majority share- holder through board or executive positions, and two of these have also previously been executives at Novo Nordisk. See pp 112–113. Under Danish law, Novo Nordisk employees in Denmark are en - titled to be represented by half of the total number of board members elected at the general meeting. Thus, in 2006, employees elected from among themselves four board members for a four-year term. Board members elected by the employees have the same rights, dut ies and responsibilities as shareholder-elected board members. Board meetings The Board ordinarily meets seven times a year, including a strategic session over two to three days. In 2006, the Board met eight times and all board members attended all board meetings and the Annual General Meeting, except for one member being absent on one occa- sion. With the exception of agenda items reserved for the Board’s in- ternal discussion at each meeting, executives attend and may speak, without voting rights, at board meetings to ensure that the Board is adequately informed of the company’s operations. Executives’ regu- lar feedback from meetings with investors allows board members an insight into major shareholders' views of Novo Nordisk. Chairmanship A chairman and a vice chairman elected by the Board from among its members form the Chairmanship of the Board. They carry out admin- istrative tasks, such as planning board meetings, to ensure a balance between determination of strategy and the financial and managerial supervision of the company. The Chairmanship reviews the fixed asset investment portfolio. Other tasks include recommending remunera- tion of directors and executives, and suggesting candidates for elec- tion by the general meeting. In practice, the Chairmanship has the role and responsibility of a nomination committee and a remune - ration committee. The Audit Committee The Audit Committee has three members elected by the Board from among its members. All members qualify as independent as defined by the US Securities and Exchange Commission (SEC). One member is designated as chairman and two members are designated as Audit Committee financial experts. One member is not regarded as inde- pendent under the Danish Corporate Governance Recommen - dations. In 2006, the Audit Committee held four meetings and all members attended all meetings. The Audit Committee assists the Board with oversight of a) the external audit ors, b) the internal audi- tors, c) the procedure for handling complaints regarding accounting, internal controls, auditing or financial reporting matters (whistle- blower function), d) the accounting policies, and e) internal control systems. In 2006, its responsibility was extended to include a post- completion review of fixed asset investments previously approved by the Board. Research & development facilitator In 2006, the Board appointed a research & development facilitator to assist the Board and Executive Management in preparing the Board's discussions in the R&D area. The key tasks comprise review of R&D strategies, and evaluation of the competitiveness of the R&D organ - isation, processes and projects. Executive Management Executive Management is responsible for the day-to-day management. It consists of the president and CEO, and four other executives. Executive Management’s responsibilities include organisation of the company as well as allocation of resources, determination and im- plementation of strategies and policies, direction-setting and ensuring timely reporting and provision of information to the Board and the stakeholders of Novo Nordisk. The Board appoints Executive Manage - ment and determines its remuneration. The Chairmanship reviews the performance of the executives. As part of the Organisational Audit process, the Board identifies potential successors to executives. Executives must retire on reaching the age of 62 (see p 114). Remuneration policy The Remuneration Policy is designed to attract, retain and motivate board members and executives. Board members receive a fixed amount, and the Chairmanship and Audit Committee members re- ceive a multiplier thereof. Board members are not offered stock op- tions, warrants or participation in other incentive schemes. Executive remuneration must be competitive, and is evaluated against Danish and international benchmarks. It consists of a basic salary, a cash bonus, pensions, non-monetary benefits and a long-term incentive, designed to align the interests of the executive with those of the shareholders (see pp 81–83). Assessment The Board conducts an annual self-assessment procedure to improve the performance of the Board and its cooperation with Executive Management. This process is directed by the Chairmanship and may be facilitated by an external consultant. Written questionnaires form the basis for the process, which evaluates whether each board mem- ber and executive participates actively in the board discussions and contributes with independent judgement. It is further assessed whether the board member is inspirational and whether the environ- The Novo Nordisk model for corporate governance ment supports open discussion at board meetings. The Audit Committee also conducts an annual self-assessment based on written questionnaires. The performance of each executive is continuously assessed by the Board, and formally once a year the Chairman also conducts an interview with each executive. Risk management Executive Management is responsible for the risk management process, including risk identification, assessment of likelihood and potential impact, and initiation of mitigating actions. Major risks are systemat - ically identified and regularly reported to the Board (see pp 110–111). Internal controls Novo Nordisk is in compliance with section 404 of the Sarbanes–Oxley Act, which requires detailed documentation of the design and opera- tion of financial reporting processes. Novo Nordisk must ensure that there are no material weaknesses in the internal controls which could lead to a material misstatement in its financial reporting. The com - pany’s conclusion and the auditors' evaluation of these processes are included in its Form 20-F filing. External audit The annual report and the internal controls over financial reporting processes are audited by an external auditor elected at the annual general meeting. The auditor acts in the interest of the shareholders and the public (see p 106). The auditor reports any significant findings regarding accounting matters and internal control deficiencies via the Audit Committee to the Board and in the auditor’s long-form report. Internal audit The internal audit function provides independent and objective assur- ance, primarily within internal control and governance. To ensure that the function works independently of management, its charter, audit plan and budget are approved by the Audit Committee. The head of internal audit is appointed by and reports to the Audit Committee. Framework Governance structure Assurance Codes and regulations Novo Nordisk Way of Management Risk managememt Internal controls Shareholders I I Board of Directors h x i I Chairmanship Audit Committee s Executive Management I Organisation External audit Internal audit Organisational audit Facilitation Quality audit The Novo Nordisk corporate governance model sets the direction and is the framework under which the com pany is managed. Corporate governance codes and practices As a company listed on the stock exchanges in Copenhagen, New York and London, Novo Nordisk is in compliance with Danish, US and UK securities laws, with the Danish Corporate Governance Recommendations, and in general with applicable corporate governance standards on the New York and London Stock Exchanges. For a detailed review of Novo Nordisk’s compli- ance with and deviations from the codes on corpor ate governance designated by the stock ex- changes in Copenhagen, New York and London, see novonordisk.com/annual-report Click: who we are. Novo Nordisk Annual Report 2006 109 Risk management Identifying and mitigating risks is a key part of any manager’s job. At Novo Nordisk a formal risk identi- fication process encourages everyone to keep an eye on both immediate risks and those emerging on the horizon. opportunities. Through this process, risk factors and mitigations are identified and factored into the individual units’ business plans. This disciplined questioning of the context for identified risks and assess- ment of which objectives may be threatened enables Novo Nordisk to be more attentive to factors that help or hinder long-term value creation. Strategic risk management is high on the agenda of the Board of Directors and Executive Management. The aim is not to avoid risks, but to ensure that key risks are proactively managed. This allows Novo Nordisk to better allocate resources and to target future growth op- portunities. An analytical and systematic approach to risk manage- ment makes the assumptions behind decisions more transparent. It allows management to discuss risks and choose whether to accept, transfer, share or eliminate the individual risk in order to align Novo Nordisk’s consolidated risk profile with the readiness of Executive Management and the Board of Directors to take risks. Clearly, the ap- petite to take calculated risks will be higher in early discovery phases, while in other areas such as quality and patient safety the tolerance of risks will be close to zero. Novo Nordisk defines risks as ‘events or developments which could reduce our ability to meet our overall objectives’. This broad definition includes all types of risk, both financial and non-financial, ranging from discovery and development, through manufacturing, sales and support functions that might impede the long-term objectives set out in the company’s Vision and reflected in its business plans. Novo Nordisk is operating in an industry that is impacted by consol- idation, cost containment and intensified competition. Articulating risks can improve decision-making, and Novo Nordisk has developed an integrated and systematic risk reporting approach, which is aligned with existing reporting and recurs on a quarterly basis. It is de- signed to ensure that key business risks are identified, assessed and reported to Novo Nordisk’s Executive Management and Board of Directors. Once a year Novo Nordisk undertakes a strategic planning process involving in-depth identification and evaluation of long-term growth Assessing risks In all assessment of risks two factors are considered: the likelihood of the event and its potential impact on the business. Impacts are quan- tified and assessed in terms of potential financial loss and reputation- al damage. The risks are assessed at both gross level and net level. The gross level is the assessment of the risk with the assumption that no mitigating actions have been implemented. The net risk level is the residual risk when taking into account the mitigating actions and their anticipated effect. Impact in terms of reputational damage is included because Novo Nordisk sees its repu tation as one of its most valuable assets. A good reputation, based on solid performance and the business principles laid down in the Novo Nordisk Way of Management, helps the com- pany to attract talented people, investments and collaboration part- ners – and opens doors to customers and regulators. Consequently, any significant damage to its reputation impairs Novo Nordisk’s ability to meet its business goals in the longer term. In 2006, Novo Nordisk developed a more comprehensive and sys- tematic method for assessing the reputational impact of potential risks. It aims to make more fact-based assessments of the likelihood and impact of a risk from a reputation perspective. As such, the tool serves as a common starting point for management’s discussion on specific risks. Examples from the current risk profile To provide an understanding of the factors that constitute key risks to Novo Nordisk, some examples of critical assets, risk factors and their contexts are given below. Current risk profile – examples On the right are Novo Nordisk’s risk management structure and reporting lines. The lean organisational structure with clear report- ing lines to the Executive Management team makes it relatively easy for senior management to oversee risks reported through the line organisation and to ensure that the risk reporting addresses any event that could have an impact elsewhere in the organisation. Examples of key risks for illustrative purposes: 1 Inability to attract and retain talent 2 Insufficient production capacity 3 Biosimilar competition 4 Healthcare cost containment 5 Ethical marketing practices 6 Currency exposure Legal issues are not included in the illustration of the risk profile examples. See the list of current legal issues on pp 87–88. 1 Gross risk 1 Net risk t c a p m I Critical 2 Major 6 6 Moderate 2 Minor 1 1 5 5 4 4 3 3 110 Novo Nordisk Annual Report 2006 Unlikely Possible Likely Very likely Likelihood Board of Directors I Executive Management I Risk Management Board I Risk Office I Organisation Inability to attract and retain talent The ability to drive innovative products into and through the pipeline and to ensure cost-effective, high-output performance relies on at- tracting and developing the right people. In areas where Novo Nordisk does not currently have a leadership position, recruiting tal- ent is a constant challenge. Another potential risk factor is loss of key talents to big pharma companies seeking to build a strong platform within the diabetes therapeutic segment. Novo Nordisk focuses on the individual employee by investing in ongoing career development and a high degree of empowerment. Insufficient production capacity There is a risk of failure or breakdown in any of the company’s vital production facilities, which, in addition to the potential physical dam- age or loss of life, could affect the supply of products. Fire-prevention design, alarms and fire instructions, annual inspections, back-up fa - cilities and minimum safety inventories help mitigate this risk. To spread risks and optimise costs and logistics, Novo Nordisk is building up a global sourcing programme, with major investments in expanding production capacity in for example the US, Brazil and China. This also entails contracting with local suppliers. To mitigate risks of non-compliance with Novo Nordisk’s environmental and so- cial standards, specific requirements are made and audits conducted. In pharmaceutical production, quality is paramount. The gross risk of a potential failure in quality levels is very high because ultimately patient safety could be put at risk. The net risk is low, because Novo Nordisk has a corporate-wide quality system in place, ensuring com- pliance with all external and internal standards, maintaining product quality at the highest levels, and continuously surveying and improv- ing products, processes and training. Biosimilar competition The market for therapeutic proteins is becoming more attractive to biosimilar producers as more lenient regulatory rules in Europe and in the US give biosimilar companies an easier pathway to these markets, when branded products go off-patent. Low-priced biosimilar human insulin from producers in China, India and Poland is one example. Novo Nordisk’s exposure to this risk factor is diminishing due to the in- creasing use of patented modern insulins in Novo Nordisk’s portfolio. Healthcare cost containment In mature markets the increased government focus on rising healthcare costs is putting pressure on pharmaceutical companies’ commercial pricing structures. Such a situation may discourage investments in re- search into therapeutic areas with limited prospects for commercialisa- tion. Government price regulation and other healthcare reforms would most likely result in lower prices on products if their benefits are not well-documented. Novo Nordisk is therefore conducting several clini- cal and health-economic studies of the benefits of modern insulins to further support its product claims by pharmaco-economical evidence. Ethical marketing practices In a competitive environment with increasing public scrutiny and regu - lation, the risk of legal action related to marketing practices is ever present. A Business Ethics Policy and related audits as well as other initiatives to reinforce the Novo Nordisk Way of Management paired with close monitoring of performance and enhanced reporting requirements help to mitigate such risks. The policy supplements existing local ethics and compliance pol - icies. However, cases may occur in which the policy is violated. In December 2005, Novo Nordisk was served with a subpoena request- ing documents relating to the company's US marketing and promo- tional practices. Investigations of potential criminal offences relating to healthcare benefit programmes are ongoing. Novo Nordisk is also under investigation for a possible breach of the UN sanctions related to the Oil-for-Food programme in Iraq. Legal issues Vigilant compliance with regulations and legislation is expected of any pharmaceutical company. Patient safety must never be comprom - ised. Any questioning of this entails a violation of Novo Nordisk’s values as well as major financial and reputational risks. A related risk is product liability claims. The most significant risk for Novo Nordisk in this context is in relation to HRT products, where Novo Nordisk Inc., together with the majority of hormone therapy product manufactur- ers in the US, is a defendant in product liability lawsuits related to hor- mone therapy products. There is a risk of an unfavourable outcome for Novo Nordisk in the HRT litigation. Also, Menarini, Italy, has sued Novo Nordisk for damages relating to distribution on the Italian mar- ket. At this point in time, Novo Nordisk does not expect the pending claim to have a material impact on Novo Nordisk’s financial outlook. See the list of current legal issues on pp 87–88. Currency exposure Foreign exchange risk is the principal financial risk to Novo Nordisk. To limit the short-term negative impact on earnings and cash flow from exchange rate fluctuations, the company undertakes currency hedging based on expectations of future exchange rates and cash flows. Hedging is mainly done by using foreign exchange forwards and foreign exchange options matching the due dates of the hedged items. Novo Nordisk only hedges commercial exposures and does not enter into derivative transactions for trading or speculative purposes. See p 76. Risk management set-up Executive Management has established a dedicated Risk Management Board of senior executives representing all key business activities and selected support functions. Chaired by the chief financial officer, it re- ports to Executive Management and the Board of Directors. The Risk Management Board meets at least four times a year. It sets the strategic direction and challenges for risk management, and analyses the risk and control information generated by the individual business areas. This process helps to reduce blind spots and consider potential cross-functional impacts. In quarterly reports to Executive Management and the Board of Directors, risks are assessed and quanti- fied in terms of potential financial impact and reputational damage. For each risk the potential impact is specified, as are mitigating actions. The Risk Office is the secretariat of the Risk Management Board. It drives and consolidates risk reporting from discovery and development, through manufacturing and logistics, to marketing and sales. In addi- tion, risks related to support functions such as regulatory, business de- velopment, finance, legal & IT and people & organisation are included. This is done in consultation with relevant Novo Nordisk committees, boards and management groups. Novo Nordisk Annual Report 2006 111 Board of Directors Sten Scheibye Sten Scheibye is chairman of the Board of Directors of Novo Nordisk A/S. Since 1995, he has been president and CEO of Coloplast A/S, Denmark. Besides being a member of the boards of various Coloplast companies, Mr Scheibye is a member of the Board of Danske Bank A/S, Denmark. Furthermore, he holds a seat on the Central Board and the Executive Committee of the Confederation of Danish Industries. Mr Scheibye has an MSc in Chemistry and Physics from 1978 and a PhD in Organic Chemistry from 1981, both from the University of Aarhus, Denmark, and a BComm from the Copenhagen Business School, Denmark, from 1983. Mr Scheibye is also an adjunct professor of applied chemistry at the University of Aarhus. Mr Scheibye was elected to the Board of Novo Nordisk A/S in 2003 and re- elected several times, most recently in 2006. His term as a board member expires in March 2007. Mr Scheibye is regarded as an independent* board member. Mr Scheibye is a Danish national, born on 3 October 1951. Göran A Ando Göran A Ando, MD, is vice-chairman of the Board of Directors of Novo Nordisk A/S. Dr Ando is a former CEO of Celltech Group plc, UK, until 2004. He joined Celltech from Pharmacia, now Pfizer, US, where he was executive vice president and president of R&D with additional responsibilities for manufacturing, IT, busi- ness development and M&A from 1995 to 2003. From 1989 to 1995, Dr Ando was medical director, moving to deputy R&D director and then R&D director of Glaxo Group, UK. He was also a member of the Glaxo Group Executive Committee. Dr Ando is a specialist in general medicine and is a founding fellow of the American College of Rheumatology in the US. Dr Ando serves as chairman of the boards of Novexel SA, France, and Inion Oy, Finland, as vice chairman of the Board of S*Bio Pte Ltd, Singapore, and as a board member of Novo A/S, Denmark, Bio*One Capital Pte Ltd, Singapore, A-Bio Pharma Pte Ltd, Singapore, NicOx SA, France, and Enzon Pharmaceuticals, Inc, US. Dr Ando qualified as a medical doctor at Linköping Medical University, Sweden, Kurt Briner Kurt Briner works as an independent consultant to the pharmaceutical and biotech industries and is a board member of OM Pharma, Switzerland, Progenics Pharmaceuticals Inc, US, and GALENICA SA, Switzerland. From 1988 to 1998, he was president and CEO of Sanofi Pharma, France. He has been chairman of the European Federation of Pharmaceutical Industries and Associations (EFPIA). Mr Briner holds a Diploma of the Commercial Schools of Basel and Lausanne, Switzerland. Mr Briner was elected to the Board of Novo Nordisk A/S in 2000 and re-elected several times, most recently in 2006. His term as a board member expires in March 2007. Mr Briner is regarded as an independent* board member. Mr Briner is a Swiss national, born on 18 July 1944. Henrik Gürtler Henrik Gürtler has been president and CEO of Novo A/S, Denmark, since 2000. He was employed in Novo Industri A/S, Denmark, as an R&D chemist in the Enzymes Division in 1977. After a number of years in various specialist and managerial positions within this area, Mr Gürtler was appointed corporate vice president of Human Resource Development in Novo Nordisk A/S in 1991, and in 1993 corporate vice president of Health Care Production. In 1996, he became a member of Corporate Management of Novo Nordisk A/S with special responsibility for Corporate Staffs. Mr Gürtler is chairman of the boards of Novozymes A/S, Denmark, and Copenhagen Airports A/S, Denmark, and a member of the boards of COWI A/S and Brødrene Hartmanns Fond, both Denmark. Mr Gürtler has an MSc in Chemical Engineering from the Technical University of Denmark from 1976. Mr Gürtler was elected to the Board of Novo Nordisk A/S in 2005 and re-elected in 2006. His term as a board member expires in March 2007. Mr Gürtler is not regarded as an independent* board member due to his former position as an executive in Novo Nordisk A/S and his present position as president and CEO of Novo A/S. in 1973 and as a specialist in general medicine at the same institution in 1978. Mr Gürtler is a Danish national, born on 11 August 1953. Dr Ando was elected to the Board of Novo Nordisk A/S in 2005 and re-elected in 2006. His term as a board member expires in March 2007. Dr Ando is designat- ed Research and Development Facilitator by the Board of Novo Nordisk A/S. Dr Ando is not regarded as an independent* board member due to his mem- bership of the board of Novo A/S. Dr Ando is a Swedish national, born on 6 March 1949. 112 Novo Nordisk Annual Report 2006 Kurt Anker Nielsen Kurt Anker Nielsen is former CFO and deputy CEO of Novo Nordisk A/S and for- mer CEO of Novo A/S. He serves as chairman of the Board of Reliance A/S, Denmark, as vice chairman of the Board of Novozymes A/S and of Dako A/S, Denmark, and as a member of the Board of Directors of the Novo Nordisk Foundation, and as a member of the boards of LifeCycle Pharma A/S, Denmark, ZymoGenetics, Inc, US, Norsk Hydro ASA, Norway, and Vestas Wind Systems A/S, Denmark. In the four last-mentioned companies and in Dako A/S he is also the elected Audit Committee chairman. Mr Nielsen serves as chairman of the Board of Directors of Collstrup’s Mindelegat, Denmark. Mr Nielsen has an MSc in Commerce and Business Administration from the Copenhagen Business School, Denmark, from 1972. Mr Nielsen was elected to the Board of Novo Nordisk A/S in 2000 and has been re-elected several times, most recently in 2006. His term as a board member expires in March 2007. Mr Nielsen is chairman of the Audit Committee at Novo Nordisk A/S and is also designated as Audit Committee financial expert. Mr Nielsen qualifies as independent Audit Committee member as defined by the US Securities and Exchange Commission (SEC). He is not regarded as an inde- pendent* board member under the Danish Corporate Governance Recommen - dations due to his former position as an executive in Novo Nordisk A/S and his membership of the Board of the Novo Nordisk Foundation. Mr Nielsen is a Danish national, born on 8 August 1945. Søren Thuesen Pedersen Søren Thuesen Pedersen has been an employee-elected member of the Board of Directors of Novo Nordisk A/S since 2006 and a member of the Board of Directors of the Novo Nordisk Foundation since 2002. His term as a board member of Novo Nordisk A/S expires in March 2010. Mr Pedersen is currently working as a specialist in Global Quality Development. He joined Novo Nordisk in January 1994. Mr Pedersen has a BSc in Chemical Engineering from the Danish Academy of Engineers from 1988. From left to right Henrik Gürtler Stig Strøbæk Kurt Briner Søren Thuesen Pedersen Göran A Ando Sten Scheibye (chairman) Niels Jacobsen Anne Marie Kverneland Jørgen Wedel Johnny Henriksen Kurt Anker Nielsen Johnny Henriksen Johnny Henriksen has been an employee-elected member of the Board of Directors of Novo Nordisk A/S since 2002 and was re-elected in 2006. He joined Novo Nordisk in January 1986 and currently works as an environmental adviser in Product Supply. His term as a board member expires in March 2010. Mr Henriksen has an MSc in Biology from the University of Copenhagen, Mr Pedersen is a Danish national, born on 18 December 1964. Denmark, from 1977. Mr Henriksen is a Danish national, born on 19 April 1950. Niels Jacobsen Niels Jacobsen has been president & CEO of William Demant Holding A/S and Oticon A/S, both Denmark, since 1998. He is a board member of Nielsen & Nielsen Holding A/S, Denmark, and is also a board member of a number of companies wholly or partly owned by the William Demant Group, including Sennheiser Communications A/S, Himsa A/S, Himsa II A/S, Hearing Instrument Manufacturers Patent Partnership A/S (chairman), William Demant Invest A/S (chairman), all in Denmark, and Össur hf. (chairman), Iceland. Mr Jacobsen also holds a seat on the Central Board of the Confederation of Danish Industries. Mr Jacobsen has an MSc in Business Administration from the University of Aarhus, Denmark, from 1983. Mr Jacobsen was elected to the Board of Novo Nordisk A/S in 2000 and re- elected several times, most recently in 2006. His term as a board member expires in March 2007. Mr Jacobsen is a member of the Audit Committee at Novo Nordisk A/S and is designated as Audit Committee financial expert. Mr Jacobsen qualifies as independent Audit Committee member as defined by the US Securities and Exchange Commission (SEC) and is regarded as an inde- pendent* board member under the Danish Corporate Governance Recommendations. Mr Jacobsen is a Danish national, born on 31 August 1957. Anne Marie Kverneland Anne Marie Kverneland has been an employee-elected member of the Board of Directors of Novo Nordisk A/S since 2000. Ms Kverneland works as a laboratory technician in Discovery. She was re-elected by the employees in 2002 and in 2006. Her term as a board member expires in March 2010. Ms Kverneland has a degree in medical laboratory technology from the Copenhagen University Hospital, Denmark, from 1980. Ms Kverneland is a Danish national, born on 24 July 1956. Stig Strøbæk Stig Strøbæk has been an employee-elected member of the Board of Directors of Novo Nordisk A/S and of the Board of Directors of the Novo Nordisk Foundation since 1998. He is currently working in Product Supply as an electrician. Mr Strøbæk was re-elected by the employees in 2002 and in 2006. His term as a board member expires in March 2010. Mr Strøbæk has a diploma as an electrician. He also has a diploma in further training for board members from the Danish Employees’ Capital Pension Fund (LD) from 2003. Mr Strøbæk is a Danish national, born on 24 January 1964. Jørgen Wedel Jørgen Wedel was executive vice president of the Gillette Company, US, until 2001. He was responsible for Commercial Operations, International, and was a member of Gillette’s Corporate Management Group. Since 2004, he has been a board member of ELOPAK AS, Norway. Mr Wedel has an MSc in Commerce and Business Administration from the Copenhagen Business School, Denmark, from 1972 and an MBA from the University of Wisconsin, US, from 1974. Mr Wedel was elected to the Board of Novo Nordisk A/S in 2000 and has been re-elected several times, most recently in 2006. His term as a board member expires in March 2007. Mr Wedel is a member of the Audit Committee at Novo Nordisk A/S. Mr Wedel qualifies as independent Audit Committee member as defined by the US Securities and Exchange Commission (SEC) and is regarded as an inde- the Danish Corporate Governance pendent* board member under Recommendations. Mr Wedel is a Danish national, born on 10 August 1948. * In accordance with Section V4 of Recommendations for corporate governance designated by the Copenhagen Stock Exchange. Novo Nordisk Annual Report 2006 113 Executive Management From left to right Jesper Brandgaard Lise Kingo Lars Rebien Sørensen Kåre Schultz Mads Krogsgaard Thomsen Lars Rebien Sørensen President and chief executive officer (CEO) Lars Rebien Sørensen joined Novo Nordisk’s Enzymes Marketing in 1982. Over the years, he has been stationed in several countries, including the Middle East and the US. Mr Sørensen was appointed member of Corporate Management in May 1994 and given special responsibility within Corporate Management for Health Care in December 1994. He was appointed president and CEO in November 2000. Mr Sørensen is a member of the Board of ZymoGenetics, Inc, US, and in May 2005, he was elected a member of the Bertelsmann AG Supervisory Board, Germany. Mr Sørensen received the French award Chevalier de l’Ordre National de la Légion d’Honneur in 2005. Mr Sørensen has an MSc in Forestry from the Royal Veterinary and Agricultural University in Denmark from 1981, and a BSc in International Economics from the Copenhagen Business School, Denmark, from 1983. Mr Sørensen is a Danish national, born on 10 October 1954. Jesper Brandgaard Executive vice president and chief financial officer (CFO) Jesper Brandgaard joined Novo Nordisk in 1999 as corporate vice president of Corporate Finance and was appointed CFO in November 2000. He serves as chairman of the boards of NNE A/S and NNIT A/S, both Denmark. Mr Brandgaard has an MSc in Economics and Auditing from 1990 as well as an MBA from 1995, both from the Copenhagen Business School, Denmark. Mr Brandgaard is a Danish national, born on 12 October 1963. Lise Kingo Executive vice president and chief of staffs (COS) Lise Kingo joined Novo Nordisk’s Enzymes Promotion in 1988 and over the years worked to build up the company’s Triple Bottom Line approach. In 1999, she was appointed corporate vice president, Stakeholder Relations. She was appointed executive vice president, Corporate Relations in March 2002. Ms Kingo is a member of the Board of GN Store Nord A/S, Denmark, and asso- ciate professor at the Medical Faculty, Innovation and Sustainability, Vrije Universiteit, Amsterdam, the Netherlands. Ms Kingo has a BA in Religions and a BA in Ancient Greek Art from the University of Aarhus, Denmark, from 1986, a BComm in Marketing Economics from the Copenhagen Business School, Denmark, from 1991, and an MSc in Responsibility and Business Practice from the University of Bath, UK, from 2000. Ms Kingo is a Danish national, born on 3 August 1961. Kåre Schultz Executive vice president and chief operating officer (COO) Kåre Schultz joined Novo Nordisk in 1989 as an economist in Health Care, Economy & Planning. In November 2000, he was appointed chief of staffs. In March 2002, he took over the responsibility of COO. Mr Schultz has an MSc in Economics from the University of Copenhagen, Denmark, from 1987. Mr Schultz is a Danish national, born on 21 May 1961. Mads Krogsgaard Thomsen Executive vice president and chief science officer (CSO) Mads Thomsen joined Novo Nordisk in 1991. He was appointed CSO in Novem - ber 2000. He sits on the editorial boards of three international journals and is a member of the Board of Governors of the Technical University of Denmark. He is also a non-executive director of the Board of Cellartis AB, Sweden. Dr Thomsen has a DVM from the Royal Veterinary and Agricultural University, Denmark, from 1986, where he also obtained a PhD degree in 1989 and a DSc in 1991, and became professor of pharmacology in 2000. He is a former president of the National Academy of Technical Sciences (ATV), Denmark. Dr Thomsen is a Danish national, born on 27 December 1960. Other members of the Senior Management Board Jesper Bøving – Preclinical and CMC Supply, Mariann Strid Christensen – Quality, Flemming Dahl – Product Supply, Biopharmaceuticals, Eric Drapé – Diabetes Finished Products, Peter Bonne Eriksen – Regulatory Affairs, Per Kogut – NNIT (effective1January 2007), Lars Green – Corporate Finance, Jesper Høiland – International Operations, Per Jansen – Novo Nordisk Servicepartner, Lars Fruergaard Jørgensen – IT & Corporate Development, Lars Guldbæk Karlsen – Global Development, Terje Kalland – Biopharmaceuticals Research Unit, Peter Kurtzhals – Diabetes Research Unit, Lars Christian Lassen – Corporate People & Organisation, Claus Eilersen – Japan & Oceania, Ole Ramsby – Corporate Legal, Jakob Riis – International Marketing, Martin Soeters – North America, Kim Tosti – Devices and Sourcing, Per Valstorp – Product Supply, Hans Ole Voigt – NNE 114 Novo Nordisk Annual Report 2006 Shareholder information Share highlights n The closing share price for Novo Nordisk’s B shares was DKK 470.5 at the end of 2006. n The total turnover in 2006 for Novo Nordisk’s B shares on the OMX Nordic Exchange was DKK 90.2 billion. n DKK 7.00 dividend is proposed for 2006. n 25.5% of shares belong to Novo A/S. n 42.9% of share capital is held outside Denmark. To keep investors updated on financial and operating performance as well as the progression of clinical programmes, Executive Management and Investor Relations travel extensively to meet investors and attend investor conferences after each quarterly financial announcement. Moreover, meetings and presentations directed specifically at investors and focusing on non-financial performance factors (environment, so- cial and governance) are undertaken once or twice a year. Share price performance In 2006, the price of the Novo Nordisk B shares increased from DKK 354.5 to DKK 470.5 corresponding to 33%. The dividend for 2005 paid in March 2006 was DKK 6 per share, corresponding to an additional yield of 1.7%. The return was significantly higher than the return on the OMX Copenhagen 20 Index at 12% and the return on the MSCI Europe Health Care Index at 2%, both measured in DKK. Measured in USD, the price of the Novo Nordisk B shares increased by 48%, which compared favourably with a modest USD return of 5% for the MSCI US Health Care Index. The strong share price performance of Novo Nordisk is perceived to reflect the underlying strong operating performance as well as positive results and new initiatives within research and development. The foun- dation for the strong share price performance is believed to have been laid by solid overall growth in sales of all strategic products. The gross margin improvement of 250 basis points in 2006, due to significant improvements in operating efficiency and a more favourable product mix, exceeded expectations. The complete set of data from the phase 2b study of liraglutide presented at the American Diabetes Association meeting in Washington in June and at the European Association for the Study of Diabetes meeting in Copenhagen in September raised expectations for the future potential of this product. Finally, the announcement of expected initiation of three new clinical trials at the Capital Markets Day in October was positively received. Capital Markets Day 2006 Capital Markets Day, which was held on 6 October at the primary Novo Nordisk research facility in Måløv, just outside Copenhagen, was well attended by more than 125 people. The presentations and Q&A sessions provided insights into the company’s overall strategy as well as key operational and R&D value drivers. The growth potential within North America and International Operations was substantiat- ed, along with the underlying factors driving the continued improve- ment of the gross margin. The strong liraglutide phase 2b data were presented along with data and priorities for the NovoSeven® clinical expansion programme. The focus of attention was on the announcement of the initiation of three new clinical trials: a phase 2 dose-ranging trial for the use of li- raglutide as an antiobesity agent, a phase 3 study for the use of NovoSeven® in prophylactic treatment of people with haemophilia with inhibitors and a phase 3 programme for Norditropin® in adult patients in chronic dialysis. Capital structure It is the assessment of the Board of Directors that the current capital and share structures of Novo Nordisk serve the interests of the share- holders and the company. In the event of excess capital after funding of organic growth opportunities and potential acquisitions, in gene ral Novo Nordisk will return capital to investors through dividend pay- ments and/or share repurchase programmes. As part of the agenda for the Annual General Meeting 2007, the Breakdown of shareholders % of capital Geographical distribution of share capital % of capital Price development and monthly turnover of Novo Nordisk’s B shares on the OMX Nordic Exchange 2006 DKK DKK billion 500 400 300 200 100 15 12 09 06 03 Novo A/S 25.5% Novo Nordisk A/S 5.9% The Capital Group Companies 13.0% Danish ATP pension fund 3.9% Other 51.7% Denmark 57.1% UK 15.1% North America 24.8% Other 3.0% Jan Feb Mar Apr May June July Aug* Sep Oct Nov Dec Novo Nordisk’s B shares (prices in DKK) Turnover of B shares in DKK billion * In August Novo Nordisk A/S repurchased shares worth DKK 1.8 billion from Novo A/S. Novo Nordisk Annual Report 2006 115 Shareholder information Board of Directors will propose a reduction of the company’s B share capital, corresponding to approximately 4% of the total share capital, using treasury shares. In 2006, Novo Nordisk repurchased shares worth DKK 3 billion. In 2007–2008, the company expects to repur- chase DKK 7 billion worth of shares. Share capital and ownership Novo Nordisk’s share capital is divided into A share capital of nominally DKK 107,487,200 and B share capital of nominally DKK 566,432,800 of which DKK 39,426,138 is held as treasury shares. Novo Nordisk’s A shares are non-listed shares and held by Novo A/S, a Danish private limited company which is 100% owned by the Novo Nordisk Foundation. According to the Articles of Association of the Founda - tion, the A shares cannot be divested by Novo A/S or the foundation. In addition, Novo A/S holds DKK 64,362,400 of B share capital. Each holding of DKK 2 of the A share capital carries 20 votes. Each holding of DKK 2 of the B share capital carries two votes. With 25.5% of the total share capital, Novo A/S controls 71% of the total number of votes excluding treasury shares. The total market value of Novo Nordisk’s outstanding share capital (A and B shares excluding treasury shares) was DKK 143 billion at the end of 2006. Novo Nordisk’s B shares are quoted on the stock exchanges in Copenhagen and London and on the New York Stock Exchange in the form of ADRs. The B shares are traded in units of DKK 2. The ratio of Novo Nordisk’s B shares to ADRs is 1:1. The B shares are issued to the bearer but may, on request, be registered in the holder’s name in Novo Nordisk’s register of shareholders. As Novo Nordisk B shares are in bearer form, no official record of all shareholders exists. Based on the available sources of information on the company’s shareholders, it is estimated that Novo Nordisk’s shares at the end of 2006 were distributed as shown in the charts on p 115. At the end of 2006 the free float is 73%. Form 20-F The Form 20-F Report for 2006 is expected to be filed in mid-February 2007 with the United States Securities and Exchange Commission. Copies can be downloaded from novonordisk.com/investors. Payment of dividends Shareholders’ enquiries concerning dividend payments, transfer of share certificates, consolidation of shareholder accounts and tracking of lost shares should be addressed to Novo Nordisk’s transfer agents (see opposite). For 2006, the proposed dividend payments for Novo Nordisk shares are illustrated in the table below. Novo Nordisk does not pay a dividend on its own holding of treasury shares. Dividend payment A shares of DKK 2 B shares of DKK 2 ADRs DKK 7.00 DKK 7.00 DKK 7.00 Internet investors can be Novo Nordisk’s homepage found at for novonordisk.com. It includes historical and updated information about Novo Nordisk’s activities: press releases from 1995 onwards, financial results, a calendar of investor-relevant events, investor pre- sentations, background information and recent annual reports. See the 2006 online report at novonordisk.com/annual-report. Financial calendar 2007 Annual General Meeting 7 March 2007 Dividend Ex-dividend Record date Payment B shares 8 March 12 March 13 March ADRs 8 March 12 March 20 March Announcement of financial results 2007 First three months Half year Nine months Full year 2 May 3 August 31 October 31 January 2008 Price development of Novo Nordisk’s B shares relative to the MSCI Europe Health Care Index measured in DKK Index 1 January 2002 = 100 Price development of Novo Nordisk’s B shares relative to the MSCI US Health Care Index measured in USD Index 1 January 2002 = 100 2002 2003 2004 2005 2006 300 250 200 150 100 50 2002 2003 2004 2005 2006 300 250 200 150 100 50 Novo Nordisk’s B shares (prices in DKK) MSCI Europe Health Care Index 116 Novo Nordisk Annual Report 2006 Novo Nordisk’s B shares (prices in USD) MSCI US Health Care Index Get in touch Novo Nordisk values stakeholders’ reviews of the company’s reporting and welcomes any questions or comments concerning the report or the company’s performance. Visit the corporate website at novonordisk.com. This report is about how we do business. When it comes to building relations – that is what Novo Nordisk people across the globe are doing every day. If reading the report inspires you to learn more or to get involved in some of the work, please get in touch. Enquiries, comments and suggestions are very welcome. Investor Relations Mads Veggerby Lausten Tel +45 4443 7919 E-mail: mlau@novonordisk.com Hans Rommer Tel +45 4442 4765 E-mail: hrmm@novonordisk.com In North America: Christian Qvist Frandsen Tel +1 609 919 7937 E-mail: cqfr@novonordisk.com Headquarters Novo Nordisk A/S Novo Allé 2880 Bagsværd Denmark Tel +45 4444 8888 webmaster@novonordisk.com Media Corporate Communications Novo Nordisk A/S Novo Allé 2880 Bagsværd Denmark Mike Rulis Tel +45 4442 3573 E-mail: mike@novonordisk.com Transfer agents Shareholders’ enquiries concerning dividend payments, transfer of share certificates, consolidation of shareholder accounts and tracking of lost shares should be addressed to Novo Nordisk’s transfer agents: Danske Bank Holmens Kanal 2–12 1092 Copenhagen K Denmark Tel +45 3344 0000 In North America: JP Morgan Chase Bank PO Box 3408 South Hackensack, NJ 07606 USA Tel +1 800 990 1135 Tel +1 201 680 6630 for enquiries from outside the United States Produced by: Corporate Branding, February 2007 Contributing writers: Amy Brown and Anne Nielsen Translation and proofreading: Corporate Communications Photos: Jesper Westley, Willi Hansen, Torben Flindt, Lars E Andreasen, Finn Fons, Asger Carlsen and Novo Nordisk Design and production: Branded Design ApS Accounts and notes production: team2graphics Printed in Denmark by Bording A/S (DS/EN ISO 14001:1996) Accounting for performance The Novo Nordisk Annual Report covers the fiscal year 2006. It is issued in February 2007 for approval by shareholders at the Annual General Meeting in March. In note 31, p 75, the appropriation of net profit including pro- posed dividends of the Parent company, Novo Nordisk A/S, is included. The Annual Report is filed with the Danish Commerce and Companies Agency. Enclosed with the Annual Report is the Financial Statements 2006 of the Parent company, Novo Nordisk A/S, on a CD-ROM. A printed version can be obtained from Investor Relations on request. The Annual Review contains the same information as the Annual Report, but does not include the consolidated financial and non-financial state- ments. This document is intended for shareholders and other readers want- ing a quick overview of the company’s activities. The Annual Report and the Financial Statements 2006 of the Parent com- pany are available for online reading and downloads at novonordisk.com. As a supplement, the company provides additional information and a full data set on environmental and social performance in its online reporting. See novonordisk.com/annual-report. The accuracy, completeness and reliability of the company’s reporting is verified through internal controls, assurance and independent audits. Compliance with codes and regulations is further supported by manage- ment processes such as the Quality Management System, assurance and internal and external audits. Business results Diabetes care Biopharmaceuticals Challenging workplace Values in action Index at your fingertips Are you looking for specific information and do not immediately see it when leafing through the pages of the Annual Report 2006? If so, this index might be of help; the list below includes the topics covered in the online annual report. Go to novonordisk.com/annual-report and look up the topic of interest in the index overview. Topic of interest Advocacy Audit and assurance About Novo Nordisk Access to health Accountability Animal welfare Awards and recognitions Biopharmaceuticals Board of Directors Business ethics Business strategy Where in printed report? Where in online report? pp 30–31 pp 106–107 pp 4–5 pp 28–29 pp 90, 107 p 99 pp 34–38 pp 112–113 p 46 how-we-perform/advocacy how-we-are-accountable/audit-and-assurance who-we-are/about-novo-nordisk how-we-perform/access-to-health how-we-are-accountable how-we-perform/animal-welfare how-we-perform/awards-and-recognitions what-we-do/haemostasis-management who-we-are/management how-we-perform/business-ethics pp 8–15, 22–23, 34–35 how-we-work/vision-and-strategy Brand and reputation management how-we-work/brand-and-reputation-management Capital structure Changing diabetes Climate change Clinical trials Compliance p 115 who-we-are/ownerships pp 8, 15, 22–25, 28–31 how-we-work/brand-and-reputation-management pp 48, 96 p 10 how-we-perform/climate-change how-we-perform/bio-ethics/clinical-trials pp 13, 46, 96, 108–109 how-we-work/compliance Community engagement how-we-perform/community-engagement Corporate governance pp 108–109 who-we-are/corporate-governance Definitions Diabetes care Diversity Donations p 63 pp 20–31 p 42 how-we-work/definitions what-we-do/diabetes-care how-we-perform/workplace-quality/diversity pp 29, 37, 46 how-we-perform/donations Economic footprint p 94 how-we-perform/socio-economics/economic-footprint Environment pp 45, 47, 48 how-we-perform/environmental-management Executive Management Financial performance Gene technology Global Compact GRI Health and safety Human rights Legal issues Materiality Memberships p 114 pp 8–15 p 48 p 45, 90, 105 pp 90, 105 pp 42, 98 who-we-are/management how-we-perform/financial-performance how-we-perform/bio-ethics/gene-technology how-we-are-accountable/global-compact how-we-are-accountable/gri how-we-perform/workplace-quality/health-and-safety how-we-perform/human-rights pp 13, 87, 111 how-we-perform/legal-issues p 90 how-we-are-accountable/materiality how-we-work/stakeholder-engagement/memberships The Novo Nordisk Way pp 4–5 who-we-are/about-novo-nordisk Partnerships People strategy Pipeline Product stewardship Quality Remuneration Responsible sourcing Risk management Social responsibility Socio-economics Share information pp 30–31, 32, 34–35 how-we-work/stakeholder-engagement/partnerships pp 40–43 pp 18–19 p 48 pp 110–111 how-we-perform/workplace-quality/people-strategy what-we-do/pipeline how-we-perform/environmental-management how-we-perform/quality pp 4–5, 42, 76–83, 108–109 who-we-are/corporate-governance p 47 pp 110–111 how-we-perform/responsible-sourcing how-we-work/risk management pp 24–25, 36–37, 40, 42 how-we-work/triple-bottom-line pp 24–25, 28–29, 94 how-we-perform/socio-economics pp 115–117 how-we-perform/financial-performance Stakeholder engagement p 5 how-we-work/stakeholder-engagement Stem cell research Sustainability Talent development Triple Bottom Line Workplace quality pp 45, 90 pp 40, 43 how-we-perform/bio-ethics/stem-cell-research how-we-work/sustainability how-we-perform/workplace-quality/talent-development pp 4–5, 24–25, 42 how-we-work/triple-bottom-line how-we-perform/workplace-quality Novo Nordisk key products In the report, reference is made throughout to European product trade names. The list below provides an overview of European trade names with accompanying generic names. In other countries, trade and generic names may differ. For a complete overview of country-specific product names, please visit novonordisk.com Click: Your COUNTRY. Therapeutic area Trade name Generic name Diabetes care Modern insulins (insulin detemir) Levemir® NovoRapid® NovoMix® Human insulin Insulatard® Actrapid® Mixtard® Diabetes devices FlexPen® NovoPen® 4 InnoLet® NovoFine® GlucaGen® Insulin detemir Insulin aspart Biphasic insulin aspart Insulin human Insulin human Insulin human Prefilled insulin delivery system Durable insulin delivery system Prefilled insulin delivery system Needles Glucagon Oral antidiabetic agent NovoNorm® Repaglinide Biopharmaceuticals Haemostasis NovoSeven® Recombinant factor VIIa Human growth hormone Norditropin® NordiFlex® Somatropin (rDNA origin) Prefilled multi-dose delivery system NordiFlex PenMate™ Auto-insertion accessory NordiLet® HRT Activelle® Estrofem® Novofem® Vagifem® Prefilled multi-dose delivery system Estradiol/norethisterone acetate Estradiol Estradiol/norethisterone acetate Estradiol hemihydrate 5 December: Erik Dunham, Sergi Vernet i Mañe, Zinnea Ethel Rivas, Karen Rae Siegel and Alex Chapman are members of the Novo Nordisk Youth Panel (cover). Through their work in the Youth Panel, together with another 12 young people, they are dedicated to raising awareness of diabetes in their respective countries. The young people represent 14 countries. The youth panellists take turns on board the Changing Diabetes Bus on its journey around the world. They report on activities via websites and blogs, editorials, media contacts and engagements with politicians and other stakeholders. Starting out in Denmark in September 2006, the Changing Diabetes Bus is travelling through Europe, Africa, Australia, Asia and the US. The journey will end in New York on World Diabetes Day, 14 November 2007, to celebrate the UN Resolution on diabetes. Novo Nordisk has set up the Youth Panel to engage with those who are most at risk of being affected by the diabetes pandemic: today’s young people. Working through the Youth Panel offers insights into how to communicate with the generation of tomorrow, and a better understanding of the attitudes, wishes and needs of young people with diabetes. Follow the journey at www.diabetesbus.novonordisk.com. Novo Nordisk A/S Novo Allé 2880 Bagsværd Denmark CVR No 24 25 67 90 novonordisk.com
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