N o v o N o r d i s k A / S A n n u a l R e p o r t 2 0 0 7 financial, social and environmental performance 2007 united to change diabetes Performance highlights 2007 Financial performance Sales total Diabetes care Of which modern insulins Biopharmaceuticals Gross profit Gross margin Sales and distribution costs Research and development costs Research and development costs excl AERx® *) Administration expenses Operating profit Operating profit excl AERx® *) Net profit Effective tax rate Capital expenditure Free cash flow Long-term financial targets Operating profit growth Operating profit growth excl AERx® *) Operating margin Operating margin excl AERx® *) Return on invested capital (ROIC) Cash to earnings Cash to earnings excl AERx® *) Non-financial performance Employees Engaging culture (employee engagement) Employee turnover Employment impact CO2 emissions Water consumption Recycling of waste New patent families (first filing) Share performance Dividend per share (proposed) **) Closing share price (B shares) **) Market capitalisation (B shares) ***) 2007 2006 Change 8.0% 9.4% 29.4% 4.4% 9.9% (1.9%) 12.6% 32.1% (18.6%) 91.5% DKK million DKK million DKK million DKK million DKK million % % of sales % of sales % of sales % of sales DKK million DKK million DKK million % DKK million DKK million % % % % % % % 41,831 30,478 14,008 11,353 32,038 76.6 29.6 20.4 17.2 6.0 8,942 10,267 8,522 22.3 2,268 9,012 (1.9) 12.6 21.4 24.5 27.2 105.7 94.2 38,743 27,866 10,825 10,877 29,158 75.3 30.0 16.3 16.3 6.2 9,119 9,119 6,452 29.6 2,787 4,707 12.7 12.7 23.5 23.5 25.8 73.0 73.0 FTE 25,516 23,172 10% Scale 1–5 % 4.1 11.6 4.0 10.0 Number of jobs 81,600 82,700 1,000 tons 1,000 m3 % Number DKK DKK DKK billion 236 3,231 38 116 4.50 335 172 229 2,995 35 149 3.50 236 124 (1%) 3% 8% (22%) 28.6% 41.9% 38.7% ***) Excluding non-recurring costs related to discontinuation of the development of the AERx® inhaled insulin system. ***) Novo Nordisk B shares were split on 3 December 2007 and ADRs were split on 17 December 2007. ***) Novo Nordisk B shares (excluding treasury shares). See more financial and non-financial highlights on pp 52–53. Reader’s guide Novo Nordisk’s ambition is to defeat diabetes. This report illustrates how our commitment to this goal shapes our work every day across the globe. Welcome to Novo Nordisk’s Annual Report 2007 – a presentation of the company’s performance during the year, our achievements and our challenges. It comprises two main elements: the management re- port (pp 2–50) and the consolidated financial and non-financial statements (pp 51–115). The management report describes how we do business and explains how we will continue to create long-term value for shareholders and for other stakeholders. The section Welcome to Novo Nordisk offers a quick introduction to the business and a letter from the chairman of the Board and the president and chief executive officer. The section Business results presents the com- pany’s strategy, opportunities and key risks, followed by an overview of performance in 2007, with high- lights, progress, comparative data and commentary. The pipeline overview and progress illustrates devel- opment projects aimed to secure Novo Nordisk’s future growth. The section Business environment elaborates on Novo Nordisk’s key challenges as a global health- care company. It puts performance into context, with insights into how Novo Nordisk responds to an increasingly competitive environment and to the business implications of a globalising world. In the articles, we present a review of activities, strategies, ambitions and opportunities in light of the past year and looking ahead. In our selection of themes, we have chosen to focus on presenting the drivers that will enable Novo Nordisk to pursue our vision and achieve our strate- gic objectives: our approach to doing business, our people and the resources we put into supporting each of the two business segments – diabetes care and biopharmaceuticals. The sections Diabetes care and Biopharmaceu - ticals provide an update of the past year’s achieve- ments in each business segment and initiatives to drive continued growth. The section Shareholder information contains a description of Novo Nordisk’s approach to corpo- rate governance and remuneration policy. It also provides profiles of board members and Executive Management as well as information on the Novo Nordisk share. The consolidated financial and non-financial statements give a detailed account of the year’s performance with comparative data. The financial statements of the parent company are included on pp 105–112. References to studies and reports are provided on the inside back flap. To learn more, or to help us turn our vision into real- ity, please get in touch. Japanese design captures the spirit of ‘unite for diabetes’. 02–07 Welcome to Novo Nordisk 02 United to change diabetes 04 Novo Nordisk at a glance 06 Leading the Novo Nordisk way A year in the life of Novo Nordisk Therapeutic proteins take R&D lead 15 January: Novo Nordisk discontinues R&D within small molecules and focuses research and development on therapeutic proteins. See p 8. NovoSeven® results on ICH 26 February: Phase 3 stroke trial shows that NovoSeven® reduces bleeding in the brain, but does not improve long-term clinical outcomes. See p 39. Funding the future in China 5 March: Novo Nordisk and the Chinese Academy of Sciences establish research foundation in China. Novo Nordisk to provide 2 million US dollars for research into diabetes and biopharmaceuticals. See p 36. Landmark renewable energy alliance 1 May: Novo Nordisk and the Dan energy company DONG Energy sig partnership agreement. An increa of Novo Nordisk’s future electricity sumption in Denmark will be supp by wind turbines from 2009. See JANUARY FEBRUARY MARCH APRIL MAY US hiring blitz The US diabetes sales force is expanded. In January 2007, staffing and planning efforts begin, resulting in over 700 new people being hired and fully trained by 4 June 2007. See p 34. Clinton calls for change 13 March: Former US President Bill Clinton is keynote speaker at the Global Changing Diabetes Leadership Forum in New York, organised by Novo Nordisk. See p 27. Expanded Brazil facility opens 26 April: Novo Nordisk inaugurates Latin America’s largest insulin plant in Montes Claros, Brazil. Danish Prime Minister Anders Fogh Rasmussen attends. See p 35. Gore visits Bagsværd On the same day, Nobel Laureate and former US Vice President Al Gore visits Novo Nordisk in Bagsværd, Denmark, to talk about the climate change challenge. See p 22. Most employees outside Denmark April: The number of employees outside Denmark exceeds the number of employ- ees in Denmark – a total of 25,194 people work at Novo Nordisk,12,579 in Denmark, 12,615 in other countries. New HRT product launched 5 May: Novo Nordisk celebrates it of Activella® 0.5mg/0.1mg at the Annual Clinical Meeting in San Di California. The new lower-dose pr extends the company’s HRT portfo which already includes Activella® 0.5 mg. See p 40. Japanese design captures the spirit of ‘unite for diabetes’. On 14 November blue circles were formed around the world to mark the first UN-observed World Diabetes Day. 02–07 Welcome to Novo Nordisk 02 United to change diabetes 04 Novo Nordisk at a glance 06 Leading the Novo Nordisk way 26–37 Diabetes care 26 The challenge to change diabetes 30 Improved prevention, detection and treatment 32 Liraglutide – key to future growth 34 Modern insulins available to more people 36 Tackling diabetes on all fronts in China 08–19 Business results 08 Business strategy, opportunities and key risks 10 Performance in 2007 15 Outlook for 2008 15 Forward-looking statement 16 Pipeline overview 18 Pipeline progress 20–25 Business environment 20 Challenges to the pharmaceutical industry 22 Lean production cuts costs 24 Responsible business practices 25 People put values to work Landmark renewable energy alliance 1 May: Novo Nordisk and the Danish energy company DONG Energy sign a partnership agreement. An increasing part of Novo Nordisk’s future electricity con- sumption in Denmark will be supplied by wind turbines from 2009. See p 23. Board of Directors visits China Novo Nordisk’s Board of Directors and Executive Management hold off-site board meeting in China. They visit the company’s R&D centre in Beijing, the Chinese Academy of Sciences and CEIBS business school as well as major hospitals and distributors. See p 36. Clinical trials and bioethics websites 2 July: Novo Nordisk increases transparency of clinical trials and bioethics through the launch of two new websites. See p 24. PRIL MAY JUNE JULY AUGUST anded Brazil facility opens pril: Novo Nordisk inaugurates Latin rica’s largest insulin plant in Montes os, Brazil. Danish Prime Minister ers Fogh Rasmussen attends. See p 35. t employees outside Denmark The number of employees outside mark exceeds the number of employ- n Denmark – a total of 25,194 people at Novo Nordisk,12,579 in Denmark, 15 in other countries. New HRT product launched 5 May: Novo Nordisk celebrates its launch of Activella® 0.5mg/0.1mg at the ACOG Annual Clinical Meeting in San Diego, California. The new lower-dose product extends the company’s HRT portfolio which already includes Activella® 1.0 mg/ 0.5 mg. See p 40. New pilot plant in Denmark 12 June: A new pilot plant for the devel- opment and production of new biophar- maceuticals based on proteins cultured in mammalian cells is inaugurated in Hillerød, Denmark. See p 41. US insulin filling capacity doubles 21 June: Employees at site Clayton, US, celebrate an expansion of production facilities that will double the company’s insulin filling capacity in the US. See p 34. Buoyant first-half sales 3 August: Novo Nordisk’s interim report for the first six months of 2007 reveals a 14% rise in total sales measured in local currencies (up 9% in Danish kroner). Of all product groups, modern insulins lead the way by increasing 37% (up 31% in Danish kroner). See p 11. Professor Chen Zu of the Chinese Academy of Sciences and Mads Krogsgaard Thomsen, Novo Nordisk chief science officer. Monica Priore, diagnosed with diabetes when she was five, recently swam across the Strait of Messina in Italy. 38–41 Biopharmaceuticals 38 Meeting needs in haemophilia 40 Expanding the range of biopharmaceuticals 42–50 Shareholder information 42 Corporate governance 44 Executive remuneration 46 Board of Directors 48 Executive Management 49 Shares and capital structure 116 Additional information Index Contacts References Novo Nordisk key products 51–115 Consolidated financial and non-financial statements 2007 52 Financial and non-financial statements 54 Consolidated financial statements 89 Consolidated non-financial statements 105 Financial statements of the parent company 113 Management statement 114 Auditor’s reports Focus on childhood diabetes 18 September: Novo Nordisk and the International Diabetes Federation (IDF) launch the Diabetes Youth Charter, an expert review into existing data and global trends in the area of childhood diabetes. It highlights actions to improve the pre- vention and care of childhood diabetes. See p 29. Anniversary milestones 5 November: The day marks the 75th anniversary of the Steno Diabetes Center and the 50th anniversary of the Hagedorn Research Institute. See p 31. Changing Diabetes® Barometer 7 November: Novo Nordisk presents the Changing Diabetes® Barometer, a tool for the diabetes community to track national diabetes developments. See p 27. Stock split 3 December: To accommodate apprecia- tion of the share price, Novo Nordisk’s B shares are split 2:1 on the OMX Nordic Exchange Copenhagen and the London Stock Exchange. Novo Nordisk’s ADRs listed on the New York Stock Exchange are similarly split on 17 December. See p 49. SEPTEMBER OCTOBER NOVEMBER DECEMBER Sustainability leader 24 September: Novo Nordisk ranks as best-in-class in healthcare – one of 18 global supersectors – in Dow Jones Sustainability Indexes, the world’s leading indexes for sustainability-driven invest- ment portfolios. See pp 7 and 89–99. Biking for a cure in Death Valley 20 October: 270 cyclists – including 25 from Novo Nordisk – join the 10th ‘Ride to Cure Diabetes’ in Death Valley, California. The 170-kilometre ride is a fundraising event organised by the Juvenile Diabetes Research Foundation. See p 31. First UN-observed World Diabetes Day 14 November: The first ever UN-observed World Diabetes Day is celebrated. The day is marked by Novo Nordisk together with the International Diabetes Federation and its partners with activities all over the world. See p 26. Levemir® approved in Japan 22 October: Novo Nordisk receives approval for Levemir® in Japan, enabling the launch in December. See p 34. Liraglutide trial results 11 December: Novo Nordisk announces clinical results from a one-year mono- therapy study investigating liraglutide – a once-daily human GLP-1 analogue for the treatment of type 2 diabetes. This study, the last of five phase 3 studies needed for regulatory filing, confirms the effect of liraglutide on blood glucose control and body weight. See p 32. Novo Nordisk Annual Report 2007 1 united to change diabetes Reaching across the globe, Novo Nordisk employees organised human blue circles, gathering more than a quarter of a million people to mark the first UN-observed World Diabetes Day on 14 November 2007. It was a truly magnificent moment and one we are proud to have been part of. Never before have the landmarks of the world been so spectac- ularly lit up, and never before have so many people been engaged in advocacy to protect current and future generations against one of the biggest public health threats that mankind has ever faced. The power of the possible To defeat diabetes – that is our aspiration and our business. At Novo Nordisk we believe in the power of the possible. Our vision is one of civilisation based on sustainability, partnership and respect for the individual. Sustainability is a powerful, unifying force. We believe it is possible to be commercially astute and socially aware. To accelerate growth and minimise environmental impacts. To earn competitive re- turns and contribute to economic prosperity for society. These are the cornerstones of the Triple Bottom Line principle upon which we build our business. These are the messages we convey when we call upon governments to make the frameworks that enable us and our partners to contribute to creating wealth for the benefit of all. Results For Novo Nordisk, the year 2007 was yet another year with remarkable progress. Our financial results and the growth of our business were achieved despite an increasingly competitive environment and adverse currency exchange rates. This is underpinned by a solid track record on measures of economic, environmental and social impact. This was also rewarded: throughout the year, our shareholders have seen a signifi- cant appreciation of their investment in our company. In this report we highlight the assets that will help us sustain and build leadership in the business areas we focus on. Innovation of new or improved therapies is the foundation for the future of the pharma- ceutical industry. In 2007, we invested more than ever in research and development, and we saw progress in a number of areas which are cru- cial to the future of our company. Throughout the world we have in- creased our presence and thereby our ‘share of voice’ in an increasing- ly competitive business environment and with that we have achieved greater acceptance of our products. Our manufacturing operations continue to improve productivity, allowing us to invest more in sales and marketing for the short term – and in research and development for the long term. And, most importantly, people at Novo Nordisk demonstrate that we’ve got what it takes to win: accountability, ambi- tion, responsibility, engagement, openness and readiness for change. Three themes have been the key drivers of success and will remain on our agenda: globalisation, innovation and leadership. Globalisation Demands for proper healthcare are on the rise throughout the world, 2 Novo Nordisk Annual Report 2007 and we must strengthen our global presence to stay competitive and expand the market for our products and services. Today, the number of Novo Nordisk employees outside Denmark exceeds that of our Danish organisation. The expansion of our global supply chain continued to accelerate. In 2007, with the largest investment of any pharmaceutical company in Latin America, we inaugurated our insulin filling plant in Montes Claros, Brazil. We also doubled the insulin filling capacity of our manufacturing facility in Clayton, North Carolina, to meet the growing demand for our products in the US. A significant expansion of our US sales and marketing organisation was completed in the first half of the year, aimed at supporting the contin- ued roll-out of Levemir® and the rest of our portfolio of modern insulins. In China we entered into a long-term strategic collaboration with the Chinese Academy of Sciences, which significantly expands our net- work of contacts with far-reaching implications for our research and development activities there. Sourcing of talent and of services are key engines of globalisation. In addition to the traditional internationalisation of research and develop- ment as well as manufacturing we are now also seeing encouraging results from sourcing services. Innovation Driving organisational development and optimisation of cross-organi- sational interfaces is critical to ensuring the successful execution of global clinical trial programmes such as the suite of phase 3 studies of liraglutide, Novo Nordisk’s furthest advanced new product candidate in the diabetes care business. The successful completion of the studies gives us reason to believe that this new class of diabetes therapy repre- sents a potential, valuable treatment option for people with type 2 dia- betes, and perhaps even prevention if applied for obesity-related health risks. This would represent a significant advance for diabetes care – and the future of Novo Nordisk. We saw unprecedented progress in our pipeline in 2007: next- generation modern insulin and NovoSeven® analogues, new indications for Norditropin®, lower-dose hormone replacement therapies as well as our portfolio of early-stage candidates for treatment of inflammation. Some of this progress can be ascribed to the fact that we have strength- ened the project-centric organisation in our clinical development. We have improved cross-project alignment, systems of performance management, compensation packages and talent development pro- grammes for all groups of employees. Regrettably, Novo Nordisk also experienced some setbacks in research and development in 2007. We began the year with a great disappointment when our final studies investigating rFVIIa for the treatment of intracerebral haemor- rhage failed to show sufficient benefits for the patients. This was de- spite the fact that the trials were conducted at impressive speed, and with the highest level of professionalism. A hope for stroke patients faded away. We also decided to stop our research and development efforts to develop small-molecule oral therapies for type 2 diabetes – after many years of concerted efforts. And finally, in January 2008, we decided to discontinue the develop- ment of the AERx® inhaled insulin system and focus our research and development on a new generation of systems for administering long- acting insulin and GLP-1 via inhalation. Discontinuing a research programme does not mean giving up hope that improved product offerings can be achieved. But if ambitions are high you have to accept that not all objectives will be met – that is how it is when trying to accomplish difficult tasks. And we will continue to invest in pursuing every viable route to offer improved benefits for the people whose healthcare needs we serve. Leadership With aspiration of leadership follows the obligation to speak out on be- half of your constituencies and seek influence on the global agenda. In the spring, Novo Nordisk hosted the first Global Changing Diabetes Leadership Forum in New York. This event kicked off a range of activi- ties, and we are pleased to see that our initiative has resonated well with health policy-makers and others with the power to influence the agenda towards a more sustainable future. In parallel, we advanced our initiatives to face up to the climate change challenge and pursue our ambitious strategy to reduce the company’s CO2 emissions over a 10-year period. Here, a milestone was a unique partnership with our energy supplier in Denmark, where 85% of our CO2 emissions occur, to convert energy savings to increased Welcome to Novo Nordisk Welcome letter supplies of renewable energy. It is our ambition that this too may serve as inspiration for others. We have been active advocates on the interna- tional scene, sharing our experience and supporting coalitions urging immediate and concerted action. 2007 was also the fifth anniversary of the World Diabetes Foundation, an initiative founded and funded by Novo Nordisk to im- prove access to and knowledge about diabetes care in the developing countries. Already now the Foundation is supporting 138 projects across all continents with encouraging results. We are humbled by its potential impact, and are hence seeking extension of funding from our shareholders for a new, 10-year period. Challenges At the beginning of 2008, we can confidently say that Novo Nordisk is well-positioned to meet the challenges posed by our competitive envi- ronment and societal developments. Diabetes care is one of the seg- ments of the pharmaceutical industry with the highest expected future growth rates. This makes it attractive to continue to invest in staying ahead in this market. It is critical that Novo Nordisk continues to deliver on promises and that we are successful in our must-win battles: First, to maintain leader- ship in diabetes care by expanding the use of our modern insulins, en- suring leadership within GLP-1 and progressing the next generation of modern insulins through development. Second, expanding our offerings in biopharmaceuticals by developing the next-generation successors to NovoSeven® and creating possibilities for change in treating haemophilia, growth deficiency, hormone replacement and inflammation. Thanks We are set on one goal: improving value for patients. Looking back at our achievements in 2007, we believe that we are on the right track. We thank our customers, shareholders and partners for their loyalty and support throughout the year. We also believe that our customers, shareholders and partners share with us a great thanks to our employ- ees for their efforts, their creativity and their dedication that makes Novo Nordisk a very special company. Lars Rebien Sørensen President and chief executive officer Sten Scheibye Chairman of the Board of Directors Novo Nordisk Annual Report 2007 3 Welcome to Novo Nordisk Novo Nordisk at a glance novo nordisk at a glance At 73% of sales, diabetes care is the main growth driver for Novo Nordisk’s business. Solid growth and efficient production make it possible to invest in building long-term market presence. Biopharmaceuticals, the company’s other main business area, accounts for 27% of overall sales. In this area, which includes NovoSeven®, human growth hormone and HRT products, Novo Nordisk is also exploring potential new therapies in areas where significant medical needs exist. North America International Operations Europe Sales: 33% of total sales. Sales: 17% of total sales. Sales: 39% of total sales. Insulin volume share: 43% of the total market. Insulin volume share: 57% of the total market. Insulin volume share: 57% of the total market. Modern insulin volume share: 31% of the segment. Modern insulin volume share: 54% of the segment. Modern insulin volume share: 50% of the segment. People with diabetes: 21 million people living in the US and Canada are estimated to have diabetes. People with diabetes: 183 million people living in countries within International Operations are estimated to have diabetes. People with diabetes: 34 million people living in Europe are estimated to have diabetes. Performance: Growth is primarily driven by the complete portfolio of modern insulins, NovoLog®, NovoLog® Mix 70/30 and Levemir®. Novo Nordisk is the leader in the US insulin market. Performance: Growth is driven by modern insulins as well as human insulin. China is a key growth driver, contributing around 50% of the growth in insulin sales. Performance: Growth is primarily driven by the complete portfolio of modern insulins, NovoRapid®, NovoMix® 30 and Levemir®. Novo Nordisk continues to consolidate its lead- ership position in the European insulin market. Capacity-building: 90,000 healthcare profes- sionals have been trained or educated through Novo Nordisk’s National Changing Diabetes Program®. Capacity-building: 134,000 healthcare profes- sionals have been trained or educated through Novo Nordisk’s National Changing Diabetes® programmes. Capacity-building: 54,000 healthcare profes- sionals have been trained or educated through Novo Nordisk’s National Changing Diabetes® programmes. Market share data is based on IMS MAT November volume data. IMS World now includes certain IO countries. 4 Novo Nordisk Annual Report 2007 Production sites Bagsværd, Denmark Chartres, France Clayton, US Dely Brahim, Algeria Gentofte, Denmark Hillerød, Denmark Hjørring, Denmark Kalundborg, Denmark Koriyama, Japan Køge, Denmark Mexico City, Mexico Montes Claros, Brazil Måløv, Denmark Tianjin, China Værløse, Denmark R&D facilities Bagsværd, Denmark Beijing, China Gentofte, Denmark Hayward, US Hillerød, Denmark Måløv, Denmark New Brunswick, US Clinical development centres Beijing, China Princeton, US Tokyo, Japan Zurich, Switzerland Regional and business area offices Affiliates Representative offices For an overview of companies in the Novo Nordisk Group, see pp 100–101. the world of novo nordisk Novo Nordisk is a focused healthcare company headquartered in Denmark. With market presence in 179 countries, and R&D and production facilities spanning five continents, the company’s global reach is expanding. Novo Nordisk is a world leader in diabetes care. Key market figures for the diabetes care business in each of the four regions are provided here. See more on pp 11 and 52. In its other business segment, biopharmaceuticals, Novo Nordisk has a leading position within the therapeutic areas of haemostasis management, growth hormone therapy and hormone replacement therapy. Sales in the biopharmaceuticals business are reported globally and by therapy area. See pp 11–12 and 52. Novo Nordisk has 26,008 employees in 80 countries; 12,689 are based in Denmark and 13,319 abroad. Of these, 4,695 work in R&D, 7,900 in production, 8,368 in sales and distribution and 5,045 in administration. The largest production sites are located in Denmark. The company has invested in establishing a seamless global supply chain and significantly expanded production facili- ties in all regions, particularly the growth markets of the US and China. Ownership structure Novo A/S, an unlisted Danish public limited liability company wholly-owned by the Novo Nordisk Foundation, holds 25.5% of Novo Nordisk’s total share capital and 71% of the total number of votes. The Novo Nordisk Foundation is a self-governing and profit- making foundation, whose purpose is to provide a stable basis for the commercial and research activities conducted by the compa- nies within the Novo Group and to support scientific, humanitari- an and social purposes. Novo Nordisk’s B shares are listed on the stock exchanges in Copenhagen and London. Its ADRs are listed on the New York Stock Exchange under the symbol ‘NVO’. History Novo Nordisk has its origins in two Danish companies founded in the 1920s – Nordisk Insulinlaboratorium and Novo Terapeutisk Laboratorium. These two companies, which merged in 1989 to become Novo Nordisk, independently pioneered several key breakthroughs in diabetes care during the last century. Both com- panies took a broader approach to diabetes: in 1932 Nordisk Insulinlaboratorium founded the Steno Memorial Hospital and six years later Novo Terapeutisk Laboratorium established the Hvidøre Diabetes Sanatorium. This resolve to treat the person and not just the symptoms of the disease is a forerunner of Novo Nordisk’s modern-day commitment to sustainable development and balanced growth. Scientific breakthroughs which characterised both of the com- panies during their history as competitors continued after the merger, and Novo Nordisk’s ongoing commitment to innovation is still evidenced today by its emphasis on research and development. Novo Nordisk Annual Report 2007 5 Japan & Oceania Sales: 11% of total sales. Insulin volume share: 73% of the total market. Modern insulin volume share: 62% of the segment. People with diabetes: 8 million people living in Japan are estimated to have diabetes. Performance: Growth is primarily driven by the modern insulins NovoRapid® and NovoRapid Mix® 30.With the launch of Levemir® in Japan in December 2007, Novo Nordisk continues to consolidate its strong leadership position in the Japanese insulin market. Capacity-building: 58,000 healthcare profes- sionals have been trained or educated through Novo Nordisk’s National Changing Diabetes® programmes. Welcome to Novo Nordisk The Novo Nordisk way leading the novo nordisk way The Novo Nordisk Way of Management forms the values-based governance framework for the company. From vision to policies, it describes how people at Novo Nordisk put values into action and defines the principles for how the company does business. The Novo Nordisk Way of Management consists of three elements: the Vision, the Charter and 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 com- mercial interests and acting as a responsible business. The Charter describes the company’s values, commitments, funda- mentals and follow-up methods. The values underpin the commit- ments to the Triple Bottom Line and sustainable development. The fun- damentals are a set of 11 management principles to ensure focus on business objectives, customers, compliance, collaboration and sharing of better practices, and quality mindset. And the follow-up methods provide ongoing systematic and validated documentation of perform- ance in all material areas of Novo Nordisk. The global company policies set global standards and give opera- tional guidelines in 13 specific areas: bioethics, business ethics, com- munication, environment, finance, global health, health and safety, in- formation technology, legal, people, purchasing, quality and risk management. The Novo Nordisk Way of Management The Vision The Charter Values Commitments Fundamentals Follow-up methodology Policies Fundamentals Management principles Values Accountable Ambitious Responsible Engaged with stakeholders Open and honest Ready for change Commitments Financial, environmental and social responsibility (the Triple Bottom Line) Follow-up methodology Financial and non-financial audit Facilitation Organisational audit Quality audit 6 Novo Nordisk Annual Report 2007 The follow-up methodology has four key components which pro- vide assurance to stakeholders of the quality of the company’s processes and performance. n Financial and non-financial audit is a systematic methodology to assess performance as accounted for in the annual reporting. Furthermore, Novo Nordisk voluntarily includes independent assur- ance of the company’s non-financial reporting. n Facilitation is a specific follow-up method that is unique to compa- nies in the Novo Group. It is used to provide systematic and validated documentation of the levels of compliance with the Novo Nordisk Way of Management. The global facilitator team consists of senior people with deep insight into the business and the business environment. n Organisational development is assessed through an annual Organisational audit, commissioned by the Board of Directors and Executive Management. This process, conducted at senior manage- ment level, includes an assessment of ‘linking business and organisation’ as well as succession management. n Quality audit monitors adherence to the quality requirements, in- cluding quality management systems. It aims to ensure continuous improvements and optimal use of internal standardisation. Quality audit supplements inspections by regulatory bodies. Commitments: the Triple Bottom Line Novo Nordisk is committed to sustainable development and balanced growth. The principles of sustainable development – to preserve the planet while improving the quality of life for its current and future inhabitants – resonate well with the philosophy upon which the com- pany was founded and how it does business today: constantly striving to improve performance as measured by the Triple Bottom Line principle. In Novo Nordisk’s Articles of Association it is stated as the objectives that the company ‘strives to conduct its activities in a financially, envi- ronmentally and socially responsible way’. This implies that any deci- sion should always seek to balance three considerations: Is it economi- cally viable? Is it socially responsible? And is it environmentally sound? This is the Triple Bottom Line business principle, which ensures that decision-making balances financial growth with corporate responsibili- ty, short-term gains with long-term profitability and shareholder return with other stakeholder interests. The Triple Bottom Line is how Novo Nordisk has chosen to interpret its commitment to sustainable development. It is built into the corpo- rate governance structures, management tools, individual perform- ance assessments and reward schemes. Economically viable means managing the business in a way that en- sures corporate profitability and growth, and seeks to leave a positive economic footprint in the community. Environmentally sound decisions address the company’s impact on the external environment as well as the bioethical implications of its activities. 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. Employees from Bulgaria volunteer to build a playground at a children’s hospital. Managers participate in the Novo Nordisk educational programme Lighthouse to increase their leadership skills. Employees put energy into the promise to change diabetes. Setting long-term targets Sustainability is a moving target. Understanding the dynamics of socie- ty and the business environment that can enhance or impede corporate growth helps identify risks and opportunities for the company as a com- mercial business and as a corporate citizen. Such insights are gained via trendspotting, scenario analyses and forecasting in a10-year perspective as part of the Strategic Planning Process (see pp 8–9). This translates into medium- and short-term priorities and targets for the company’s financial and non-financial performance. Novo Nordisk has adopted the Balanced Scorecard as the company-wide manage- ment tool for measuring progress. As part of the remuneration pack- age, individuals are rewarded for performance that meets or exceeds the financial and non-financial targets in the Balanced Scorecard, which comprise corporate, unit-specific and individual targets. Progress is tracked against targets in the annual accounts. Financial perform- ance is guided by a set of four long-term targets focusing on growth, profitability, financial return and cash generation (see p 10). Non-finan- cial performance is guided by measures for the company’s impacts on the Triple Bottom Line. These include socio-economic impacts such as job creation, the ability to manage environmental impacts and optimise resource efficiency, and social impacts related to employees, patients and communities (see pp 14 and 93–94). Guided by the Novo Nordisk Vision The ambition to ultimately defeat diabetes is at the core of the company’s vision. It is a business proposition and the main driver for Novo Nordisk’s contribution to sustainable develop- ment. Good health is a driver of economic growth and a prerequisite for achieving greater social equity. Serving unmet medical needs also motivates the aspiration to offer products and services in areas that make a difference. This vision sets Novo Nordisk’s objectives in context and inspires employees in their work. It is a beacon that keeps everyone’s focus on cre- ating long-term shareholder value and leverag- ing the company’s unique qualities to gain competitive advantage. Novo Nordisk believes in the value that is created by people who are engaged in what they do. Offering an inspiring place to work at- tracts and retains talented people and is a key factor for long-term success in an increasingly competitive business environment. Novo Nordisk’s values are consistent with principles of good governance. Putting values into action is as manifest in employees’ every- day business dealings as in formal global stan- dards and management practices. We will be the world’s leading diabetes care company Our as pi ration is to defeat diabetes by finding better methods of diabetes prevention, detection and treatment. 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 work actively to promote collaboration between all parties in the healthcare system in order to achieve our common goals. 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 Our focus is our strength. We will stay independent and form alliances whenever they serve our business purpose and the cause we stand for. A job here is never just a job We are committed to being there for our customers whenever 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. Our values are expressed in all our actions Decency is what counts. Every day we strive to find the right balance between compassion and competitiveness, the short and the long term, self and commitment to colleagues and society, work and family life. Novo Nordisk Annual Report 2007 7 Business results Strategy and risks business strategy, opportunities and key risks In the face of intensified competition the leadership challenge is to stay focused on pursuing long-term objectives for value cre- ation and overcoming barriers to sustainable growth. Novo Nordisk is a focused healthcare company. This focus underlines the company’s claim to leadership in its markets. Novo Nordisk offers therapies in areas where significant unmet medical needs remain: diabetes care, haemostasis management, growth hormone deficiency and hormone replacement therapy. Over the years, Novo Nordisk has built expertise in protein engineer- ing and expression and protein formulation, supported by device tech- nology for the convenient administration of medicines. Leveraging these core competences is critical to securing long-term success. In line with this strategy, Novo Nordisk has decided to discontinue R&D activi- ties within small molecules for the oral treatment of diabetes and to refocus its activities within inhaled insulin, discontinuing clinical devel- opment of AERx® inhaled insulin (AERx® iDMS). The dedicated focus in just two core business segments – diabetes care and biopharmaceuticals – is supported by a simple organisational structure of functional excellence, a common values-based business approach and global standards. This structure facilitates flexibility and agility in a dynamic and highly competitive business environment. The corporate strategy is based on a 10-year perspective and de- scribes how Novo Nordisk intends to translate its vision into action. The market approach is underpinned by the Triple Bottom Line prin- ciple, which encompasses both risk mitigation and innovation. To better manage emerging risks and act on opportunities, Novo Nordisk engages with a broad range of stakeholders. The company seeks to make a pos- itive economic, environmental and social impact through its opera- tions, global management standards, community engagements, part- nerships, technology transfers and knowledge exchange. Diabetes care Strategic objective: maintaining leadership Novo Nordisk offers a full portfolio of modern insulins and has a strong pipeline with a late- stage product candidate that the company hopes will meet current and future needs. The company has sufficient production capacity to scale up deliveries, and a well-tuned sales force in place globally. Moreover, significant investments in diabetes research make Novo Nordisk the largest player in this field. This position is the foundation of Novo Nordisk’s promise to change diabetes. To curb the diabetes pandemic, which is largely attributable to an escalating consumer culture, action is required on several fronts. First, to improve the quality of life for people with diabetes. Modern insulin therapy serves individuals’ varying needs. Improved outcome, which can be measured as reduction of HbA1c levels, may be achieved by early initiation of insulin therapy and timely intensification. Second, as a longer-term effort, interventions to prevent the onset of type 2 di- abetes. And third, research into finding a cure for type 1 diabetes. Growth drivers and risk factors The market for diabetes care is grow- ing rapidly. It is also becoming increasingly competitive as new products 8 Novo Nordisk Annual Report 2007 and biosimilar products become available. Competing under such conditions hinges on the ability to offer superior products and to effec- tively convey the value proposition to customers and healthcare profes- sionals. Delay or failure of key development projects would impair Novo Nordisk’s ability to successfully market current and new products. Causes of delay may include slow recruitment for clinical trials, safety or efficacy concerns, filing delay or insufficient production capacity. Novo Nordisk seeks to maintain its lead in injectable insulins through continued market penetration of the company’s modern insulins, and to build new platforms with pulmonary insulin and GLP-1, where the compound liraglutide appears to be promising. “Our core competences are in therapeutic proteins, and this is where we can make the greatest difference in driving company growth and achieving better outcomes for people whose healthcare needs we serve.” Lars Rebien Sørensen president and chief executive officer Barriers to success include customers’ willingness and ability to pay. Ageing populations in the developed parts of the world have led to in- creased pressure on healthcare costs, and governments seek to cut prices and do not offer premiums for new, innovative products. This de- velopment threatens to undermine the profitability of bringing im- proved treatments to market. In contrast, in the developing parts of the world the challenge is to provide access to medicines and to healthcare. Novo Nordisk has stepped up its efforts to engage payers and policy- makers in all parts of the world in understanding the magnitude of the economic implications of inaction on diabetes. These efforts include building an evidence-based argumentation for action and for the health-economic benefits of insulin treatment. The company’s global programmes to offer inclusive diabetes care help alleviate the current diabetes burden while simultaneously building long-term presence in emerging markets and paving the way for commercially viable solu- tions in the longer term. Biopharmaceuticals Strategic objective: expand the business With a solid range of therapeutic products, the strategy for biopharmaceuticals is to expand the business by pursuing new indications and exploring new potential in other areas where Novo Nordisk can make a difference. As the primary objective, Novo Nordisk aims at expanding its leader- ship in haemophilia based on the company’s product NovoSeven® and a number of innovative compounds that cover different blood clotting factors, including analogues of FVII, in the pipeline. The therapy areas in the biopharmaceuticals segment predominantly address small patient groups with significant unmet medical needs. The exception here is hormone replacement therapy, where Novo Nordisk has gained market-leading positions despite a generally declining market. Representatives from the External Affairs network in Novo Nordisk. Building on research and development to change diabetes. Growth drivers and risk factors Given the nature of indications investigated and the limited number of patients for whom treatment is relevant, conducting clinical trials is cumbersome and time-consuming. At the same time, the risk of failure is great, and even when results are positive there is no guarantee of commercial viability. Still, Novo Nordisk is committed to pursuing treatment options if there is a sufficiently well- founded hypothesis that the compound could benefit patients. As with diabetes care, delay or failure of key development projects would impair Novo Nordisk’s ability to successfully market current and new products. In the new therapy area, inflammation, success is unlikely to be achieved solely through organic growth, so Novo Nordisk is actively pro- moting itself as an attractive partner in research and development, and is open to acquisitions that could complement the internal activities. Facing industry challenges The pharmaceutical industry is subject to extensive regulation, which aims to ensure patient safety, but also increases costs. The approval process for new products is generally lengthy, expensive and subject to unanticipated delays. Sustaining revenue growth therefore also depends on the timely and successful approval, introduction and marketing of new products, as well as gaining approval for existing products for new indications. Government-imposed industry price regulations, mandatory refer- ence prices with subsequent payment burdens to patients through higher co-payments, and mandatory substitution of biosimilar drugs adversely affect Novo Nordisk and most of the industry in general. Protecting patent rights is material to Novo Nordisk’s business. Loss of market exclusivity and the introduction of lower-cost biosimilar products result in significant loss of sales. The therapeutic proteins mar- ket is becoming increasingly attractive. Novo Nordisk has a generally low short-term exposure to patent expiration, but, like other branded products, is exposed to competition. On a path of continued growth In recent years, Novo Nordisk has grown at a rate that generally outper- forms peers in the pharmaceutical industry. The company is building up a global sourcing programme, having made substantial investments in expanding production capacity in the US, Brazil and China. In doing so, Novo Nordisk seeks to grow its pres- ence in strategic markets, spread risks and optimise costs and logistics. Any failure or breakdown in vital production facilities or with key sup- pliers could, in addition to potential physical damage or loss of life, affect the supply of products. Quality is paramount in pharmaceutical production. Quality failures could jeopardise patients’ well-being and would entail major reputa- tional risks as well as risks of costly compensation payments. With an aim to mitigate this Novo Nordisk has a global quality system in place, with audits, improvement plans and management reviews. To achieve its ambitious business objectives Novo Nordisk depends upon the ability to attract and retain skilled people in key positions across the organisation, and particularly in growth markets such as the US and China. Competition for talent among pharmaceutical and biotechnology companies is intensifying, and, as a result, Novo Nordisk has stepped up its efforts on employer branding. Innovation and high performance depend on people’s engagement at work, leadership de- velopment and lifelong learning. These are the key parameters for suc- cess addressed by the Novo Nordisk people strategy and monitored through regular facilitations, organisational audits and annual surveys. Evidence of good governance and full compliance is a precondition for maintaining the licence to operate and innovate. In a competitive environment with increasing public scrutiny and regulation, the risk of legal action due to perceived or actual failure to adhere to marketing practices is ever present. Monitoring adherence to the Novo Nordisk Way of Management, supported by the company’s business ethics pol- icy and related audits, aims to mitigate such risks. Legal issues related to intellectual property, product liability claims or business practices are included in the overview of current legal cases on pp 87–88. Financial risks related to currency exposure are described on p 76. Managing risks Novo Nordisk defines risks as ‘events or developments which could re- duce our ability to meet our overall objectives’. This includes both fi- nancial and non-financial risks that could affect the company through- out its value chain: from discovery and development, through manufacturing, sales and support functions. Integrated and systematic risk reporting is aligned with other man- agement reporting and occurs on a quarterly basis. Through this process, risk factors and mitigations are identified and factored into the individual units’ business plans. This disciplined inquiry into the context for identified risks and assessment of which objectives may be threat- ened enables Novo Nordisk to be more attentive to factors that help or hinder long-term value creation. As part of the strategic planning process, Novo Nordisk conducts an annual in-depth identification and evaluation of long-term growth opportunities. Novo Nordisk Annual Report 2007 9 50 40 30 20 10 50 40 30 20 10 30 25 20 15 10 5 Sales by therapy area DKK billion performance in 2007 Novo Nordisk is on a solid growth track. In 2007, the results testified to a robust sales growth in all major markets for the portfolio of modern insulins supported by productivity improvements. Sales increased by 13% in 2007 in local currencies and by 8% in Danish kroner due to a significant negative currency development. This result is in line with the ex- pected growth in reported sales of 6–9%, communi- cated in connection with the release of financial results for the third quarter of 2007. The primary growth con- tribution came from the robust market penetration of the company’s modern insulins – NovoRapid®, NovoMix® and Levemir® – in all markets. Sales of modern insulins increased by 35% (29% in Danish kroner). In Biopharmaceuticals, double-digit sales growth was sustained, with sales of NovoSeven® increasing by 10% (4% in Danish kroner), and sales of Norditropin® increasing by 11% (6% in Danish kroner). Other prod- ucts – primarily the hormone replacement therapy products Activelle® and Vagifem® – also contributed to growth. Sales growth was realised in all regions measured in local currencies, the main contributors being North America and International Operations, which provided 53% and 23% respectively of the total sales growth. Europe contributed 21% and Japan & Oceania 3% of the sales growth in 2007 measured in local currencies. The gross margin increased to 76.6% in 2007, up from 75.3% in 2006, primarily reflecting sustainable productivity improvements. The productivity improve- ments facilitated continued investments in research and development and also in sales and distribution. Significant progress in the research and development pipeline was achieved in 2007, most notably with the completion of the phase 3 clinical studies of liraglutide, Novo Nordisk’s once-daily, human analogue of GLP-1. Reported operating profit of DKK 8,942 million (2% lower than in 2006) was impacted by the non-recurring cost of DKK 1,325 million following the decision to dis- continue the development of AERx®, the company’s pulmonary insulin delivery system, communicated to the market in January 2008. This is significantly below the expectations of growth in operating profit of ‘close to 10% as reported’, communicated at the end of the third quarter of 2007. Adjusted for the non-recurring costs related to the discontinuation of AERx®, operating profit growth was 13%. Net profit increased by 32% to DKK 8,522 million. When adjusted for the non-recurring income from the divestment earlier in the year of Dako’s business activi- ties and the non-recurring costs related to the discon- tinuation of AERx®, net profit increased by 25%. Earnings per share (diluted) increased by 34% to DKK 13.39. Four long-term targets guide the company’s finan- cial development, aimed at ensuring long-term share- holder value creation. These targets are operating prof- it growth, operating margin, return on invested capital and cash conversion. Progress towards achievement of all four long-term financial targets was on track in 2007, and this was underpinned by good progress on the key non-financial goals. The operating margin for 2007 was realised at 21.4%. Excluding costs related to the discontinuation of AERx®, it was 24.5%, being very close to the long- term target of 25%. Operating profit growth was realised at (2%). However, adjusted for the non-recurring costs related to the discontinuation of AERx® and a significant nega- tive currency impact, the underlying operating profit increased by close to 25%. The long-term target is aim- ing at an average annual increase of 15%. The per- formance reflects solid underlying sales growth as well as an improved gross margin. The return on invested capital was 27.2%, edging 03 04 05 06 07 Diabetes care Haemostasis management (NovoSeven®) Growth hormone therapy Hormone replacement therapy (HRT) Other products Sales by geographical area DKK billion 03 04 05 06 07 Europe North America International Operations Japan & Oceania Sales growth Local and reported rates % 03 04 05 06 07 In DKK as reported In local currencies Operating margin Growth in operating profit Return on invested capital (ROIC) Cash to earnings (three-year average) % % % 30 25 20 15 10 5 25 20 15 10 5 0 30 25 20 15 10 5 % 100 80 60 40 20 Market shares are based on IMS MAT November 2007 volume data. Target Realised Realised excl AERx® Target Realised Realised excl AERx® Target Realised Target Realised 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07 10 Novo Nordisk Annual Report 2007 closer to the long-term target of 30%. This was achieved through a solid growth in the underlying prof- it combined with a modest growth in invested capital as a result of reduced unit costs on inventory, and low- er investments in tangible assets. The cash to earnings ratio for the year was realised at 106%, compared to the long-term target of 70%. Adjusted for the non-recurring costs related to the dis- continuation of AERx®, which did not impact the cash flow in 2007, the cash to earnings ratio for 2007 was realised at 94%. Diabetes care Novo Nordisk retained its position as global leader, with 53% of the total insulin market and 43% of the mod- ern insulin market, both measured by volume. The company is determined to sustain its leadership in dia- betes care by leveraging the value of its full portfolio of modern insulins and delivery devices while developing new antidiabetic agents and next-generation insulins to better address future needs for effective diabetes care. See pp 26–37. Sales performance Sales of diabetes care products increased by 14% measured in local currencies and by 9% in Danish kro- ner to DKK 30,478 million compared to 2006. Modern insulins, human insulins and insulin-related products Sales of modern insulins, human insulins and insulin-re- lated products increased by 14%, measured in local currencies, and by 9% in Danish kroner to DKK 28,329 million. All regions contributed to growth, measured in local currencies, with North America and International Operations delivering the highest growth rates. In 2007, sales of modern insulins increased by 35% in lo- cal currencies, and by 29% in Danish kroner to DKK 14,008 million. All regions realised solid growth rates, with North America and Europe as the primary contrib- utors to growth. Sales of modern insulins contributed 76% of the overall growth in local currencies and now constitute 53% of Novo Nordisk’s sales of insulins. Sales of human insulin declined by 7% to DKK 12,572 million ((3%) in local currencies) in line with Novo Nordisk’s increased focus on modern insulins and the general market trend. North America Sales in North America increased by 26% in local cur- rencies in 2007 and by 16% in Danish kroner, reflecting a solid penetration of the modern insulins Levemir®, NovoLog® and NovoLog® Mix 70/30. Novo Nordisk con- tinues to consolidate its leadership position in the US insulin market with 42% of the total insulin market and 30% of the modern insulin market, both measured by volume. Currently, more than 35% of Novo Nordisk’s modern insulin volume is being sold in FlexPen®. During 2007, Novo Nordisk expanded its US dia- betes care sales force from around 1,200 to around 1,900 people. Following training, the enlarged team Business results Financial and non-financial performance set to work on promoting the company’s portfolio of modern insulins across the US. Diabetes care Sales development DKK billion Europe Sales in Europe increased by 7% in local currencies and 7% measured in Danish kroner, reflecting continued progress for the portfolio of modern insulins. At the end of 2007, Novo Nordisk held 57% of the total in- sulin market and 50% of the modern insulin market, both measured by volume, and is capturing the main share of growth in the modern insulin market. International Operations Sales in the International Operations region increased by 20% in local currencies and by 14% in Danish kro- ner. Increases in sales of modern insulins were particu- larly evident in Turkey and China. In addition, sales of human insulins continue to add to overall growth in the region, driven by China. The key contributor to growth in International Operations is China, which accounted for around 50% of the region’s sales growth in 2007. Japan & Oceania Sales in Japan & Oceania increased by 4% in local cur- rencies but decreased by 4% measured in Danish kroner as a consequence of the depreciation of the Japanese yen versus Danish kroner during 2007. This growth in report- ed sales reflects sales growth for the modern insulins, NovoRapid® and NovoRapidMix® 30, both of which were increasingly sold in the leading prefilled delivery device, FlexPen®. In December 2007, Novo Nordisk launched Levemir® in Japan and is now also in Japan the only company with a full portfolio of modern insulins. Modern insulins are increasingly being sold in the lead- ing prefilled delivery device, FlexPen®. At the end of 2007, Novo Nordisk held 73% of the total insulin mar- ket in Japan and 63% of the modern insulin market, both measured by volume. Oral antidiabetic products (NovoNorm®/Prandin®) Sales of oral antidiabetic products increased by 14% in local currencies and by 8% in Danish kroner to DKK 2,149 million compared to 2006. This primarily reflected increased sales in International Operations and North America, mainly due to an increased market share in China and a higher average sales price in the US market. Biopharmaceuticals Novo Nordisk is seeking to expand its leading positions within the biopharmaceuticals therapy areas by pursu- ing new indications for its existing product range and by exploring new potential proteins in other areas. See pp 38–41. Sales performance Sales of biopharmaceutical products increased by 10% measured in local currencies and by 4% measured in Danish kroner to DKK11,353 million compared to 2006. NovoSeven® Sales of NovoSeven® increased by 10% in local curren- 50 40 30 20 10 03 04 05 06 07 Modern insulins Human insulins Insulin-related products Oral antidiabetic products (OAD) Insulin value market share Geographical areas % 100 80 60 40 20 03 04 05 06 07 Europe North America International Operations Japan & Oceania Modern insulins Global value market share of segment % 100 80 60 40 20 18 15 12 9 6 3 03 04 05 06 07 NovoRapid® NovoMix® Levemir® Modern insulins Sales development DKK billion 03 04 05 06 07 NovoRapid® NovoMix® Levemir® Novo Nordisk Annual Report 2007 11 18 15 12 9 6 3 30 25 20 15 10 5 30 25 20 15 10 5 Biopharmaceuticals Sales development DKK billion 03 04 05 06 07 Haemostasis management (NovoSeven®) Growth hormone therapy Hormone replacement therapy Other products Growth hormone therapy Global value market share % 03 04 05 06 07 Norditropin® Hormone replacement therapy (HRT) Global value market share % 03 04 05 06 07 HRT products Market shares are based on IMS MAT November 2007 volume data. cies and by 4% in Danish kroner to DKK 5,865 million compared to 2006. This sales growth, driven by sales in North America, primarily reflected increased sales with- in the congenital bleeding disorder segments, where Novo Nordisk is the global leader. Treatment of sponta- neous 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 formulation) increased by 11% measured in local currencies and by 6% measured in Danish kro- ner to DKK 3,511 million. All regions, and especially North America and Europe, contributed to growth measured in local currencies. Novo Nordisk continues to gain market share in the growth hormone market, and is the second-largest company in the market with a 23% market share measured in volume. Other products Sales of other products within biopharmaceuticals, which predominantly consist of hormone replacement therapy (HRT)-related products, increased by 8% in local currencies and by 2% in Danish kroner to DKK 1,977 million. This development primarily reflects continued sales progress in the US market for Vagifem®, Novo Nordisk’s topical oestrogen product. The launch of Activella® low dose in the US augmented the upward trend. At the end of 2007, Novo Nordisk was the sec- ond-largest participant within the global HRT market. Pipeline progress See pp 16–17 for a status on the current pipeline and pp 18–19 for progress during the year, including major regulatory approvals. Operating performance The cost of goods sold was DKK 9,793 million in 2007, representing a gross margin of 76.6% compared to 75.3% in 2006. This improvement reflects improved production efficiency, a lower level of write-downs and impairment in 2007 compared to 2006 and higher av- erage prices in the US. The gross margin was negative- ly impacted by around 0.8 percentage points due to currency developments, primarily the lower value of US dollars and Japanese yen versus Danish kroner com- pared to 2006. Total non-production-related costs increased by 15% to DKK 23,417 million. The increase primarily re- flects costs related to research and development as well as sales and distribution. Research and development costs increased more than sales, primarily reflecting the non-recurring costs related to the discontinuation of AERx® of DKK 1,325 million, which relates to write- down and impairment of tangible and intangible as- sets, and costs in relation to the discontinuation of clin- ical trials. Sales and distribution costs increased slightly more than sales, primarily reflecting the increase in the US diabetes care sales force. In 2007, Novo Nordisk expensed costs in relation to share-based long-term incentive programmes for senior management and other senior employees (around 525 in total) amounting to DKK 130 million. The compara- ble expense for 2006 was DKK 113 million (around 425 participants in total). Licence fees and other operating income were DKK 321 million in 2007, positively impacted by an income in the first quarter of 2007 related to the outlicensing of an oral antidiabetic compound. As a consequence of the non-recurring costs related to the discontinuation of AERx®, operating profit in 2007 decreased by 2% to DKK 8,942 million compared to 2006. Adjusted for the non-recurring costs related to the discontinuation of AERx®, operating profit growth was 13%. Net financials and tax Net financials showed a net income of DKK 2,029 mil- lion in 2007 compared to a net income of DKK 45 mil- lion in 2006. Included in net financials is the result from associ - ated companies with an income of DKK 1,233 million, primarily related to the non-recurring tax-exempt in- come of approximately DKK 1.5 billion from Novo Nordisk’s divestment of its ownership of Dako’s busi- ness activities as well as Novo Nordisk’s share of losses in ZymoGenetics, Inc, of approximately DKK 0.3 billion. In 2006, the result from associated companies was a loss of DKK 260 million. The foreign exchange result was an income of DKK 910 million compared to an income of DKK 141 million in 2006. This development reflects gains on foreign ex- change hedging activities due to the lower value in 2007 of main currencies, in particular US dollars and Japanese yen, versus Danish kroner compared to the exchange rate levels prevailing in 2006. Foreign ex- change hedging gains of DKK 691 million have been deferred for future income recognition, primarily in 2008. The realised results for net financials in 2007 were slightly higher than the previously communicated ex- pectation of a total net financial income of ‘around DKK 1,950 million’. The effective tax rate for 2007 was 22.3%, a decrease from 29.6% in 2006. The significantly lower effective tax rate for 2007 primarily reflects a non-recurring re- duction of around 3 percentage points from Novo Nordisk’s divestment of its ownership of Dako’s busi- ness activities as well as a non-recurring effect of close to 2 percentage points from the re-evaluation of the company’s deferred tax liabilities as a consequence of the reduction in the Danish corporation tax rate to 25% introduced in 2007. The realised effective tax rate for 2007 was in line with the previously communicated expectation of a tax rate of ‘around 22%’ for the full year of 2007. Capital expenditure and free cash flow Net capital expenditure for property, plant and equip- ment for 2007 was realised at DKK 2.3 billion com- pared to DKK 2.8 billion for 2006. The main investment projects in 2007 were capacity for AERx® insulin strip manufacturing, expansion of FlexPen® assembly capaci- 12 Novo Nordisk Annual Report 2007 Business results Financial and non-financial performance ty, as well as the expansion of the purification and filling capacity for insulin products. The realised capital ex- penditure was slightly lower than the previously com- municated expectation of ‘around DKK 2.5 billion’. Free cash flow for 2007 was DKK 9.0 billion com- pared to DKK 4.7 billion for 2006. Novo Nordisk’s fi- nancial resources at the end of 2007 were DKK 13.6 billion and higher than the amount at the end of 2006. Included in the financial resources are unutilised com- mitted credit facilities of approximately DKK 7.5 billion. The cash flow was higher than the previously commu- nicated expectation of ‘around DKK 7.5 billion’ and is reflecting a stronger operating performance, improve- ments in working capital requirements as well as a low- er than anticipated level of investments in the fourth quarter of 2007. Equity At the end of 2007, total equity was DKK 32,182 mil- lion, equal to 67.4% of total assets, which is the same level as at the end of 2006. Proposed dividend At the Annual General Meeting on 12 March 2008, the Board of Directors will propose a 29% increase in divi- dend to DKK 4.50 per share of DKK 1. This corresponds to a pay-out ratio of 34.9%, when adjusted for the non-recurring costs related to the discontinuation of AERx® and the non-recurring income from the divest- ment of Dako’s business activities, and compares to a pay-out ratio of 34.4% for the financial year 2006. No dividend will be paid on the company’s holding of treasury B shares. Share repurchase programme During 2007, Novo Nordisk repurchased 15,537,012 B shares of DKK 1 each at an average price of DKK 311 per share, equal to a cash value of DKK 4.8 billion. During 2006, Novo Nordisk repurchased B shares equal to a cash value of DKK 3 billion. The Board of Directors has approved an increase of DKK 6.5 billion in the on- going DKK 10 billion share repurchase programme, bringing the total value of the share repurchase pro- gramme to DKK 16.5 billion. The programme is now expected to be finalised before the end of 2009 as compared to the previously communicated completion time ‘before the end of 2008’. Holding of treasury shares and reduction of share capital On 30 January 2008, Novo Nordisk A/S and its wholly- owned affiliates owned 25,815,130 of DKK 1 each of its own B shares, corresponding to 4% of the total share capital. from DKK 539,472,800 In order to maintain capital structure flexibility, the Board of Directors will also propose a reduction in the B share capital to DKK 526,512,800 by cancelling 12,960,000 B shares of DKK 1 from the company’s company’s holding of treas- ury B shares at a nominal value of DKK 12,960,000, equal to 2% of the total share capital. After implemen- tation of the share capital reduction, the company’s share capital will amount to DKK 634,000,000 divided into an A share capital of DKK 107,487,200 and a B share capital of DKK 526,512,800. 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 litigation on pp 87–88. Long-term incentive programmes Novo Nordisk’s remuneration policy aims to attract, re- tain and motivate members of the Board of Directors and Executive Management of Novo Nordisk. See pp 44–45. Novo Nordisk will present for approval at the Annual General Meeting in 2008 its guidelines for incentive-based remuneration for the Board of Directors and Executive Management of Novo Nordisk. Long-term share-based incentive programme for senior management As of 2004, members of Novo Nordisk’s Executive Management (currently five) and the other members of the Senior Management Board (currently 22) partici- pate in a performance-based incentive programme where a proportion of the calculated shareholder value creation is allocated to a joint pool for the participants. See pp 44–45. For 2004, 252,688 B shares were allocated to the joint pool and the market value of the scheme was ex- pensed in 2004. The number of shares in the 2004 joint pool has not been reduced as the financial perform- ance in the subsequent years (2005–2007) reached specified threshold levels. Accordingly, the full number of shares was transferred to 22 current and former members of senior management immediately after the announcement of the full-year 2007 financial results on 31 January 2008. See pp 81–82. For 2007 and based on an assessment of the eco- nomic value generated in 2007 as well as the perform- ance of the R&D portfolio and key sustainability proj- ects, the Board of Directors approved on 30 January 2008 the establishment of a joint pool for the financial year of 2007 by allocating a total of 166,445 Novo Nordisk B shares, corresponding to a cash value of DKK 43 million. This allocation amounts to 6.5 months of fixed base salary on average per participant. This amount was expensed in 2007. As the long-term share-based incentive programme is evaluated by the Board of Directors to have worked successfully in 2007, it is planned to continue in 2008 with an unchanged structure. Novo Nordisk has, how- ever, decided to make this decision subject to the for- mal approval by the Annual General Meeting in March 2008 of the guidelines for incentive-based remuneration for the Board of Directors and Executive Management of Novo Nordisk. Long-term share-based incentive programme for vice presidents As of 2007, around 500 key employees below top level management also participate in a share-based pro- 80 78 76 74 72 70 12 10 8 6 4 2 24 20 16 12 8 4 24 20 16 12 8 4 Gross margin Development in gross margin % 03 04 05 06 07 Development in gross margin Research & development costs DKK billion 03 04 05 06 07* Diabetes care Biopharmaceuticals *) Diabetes care costs excl AERx® US dollar Cover and exchange rate Months Rate 12/06 3/07 6/07 9/07 12/07 Cover (left) Rate (right) Japanese yen Cover and exchange rate Months Rate 12/06 3/07 6/07 9/07 12/07 Cover (left) Rate (right) 600 580 560 540 520 500 4.90 4.80 4.70 4.60 4.50 4.40 Novo Nordisk Annual Report 2007 13 Full-time positions Geographical areas 1,000 full-time positions 30 25 20 15 10 5 03 04 05 06 07 Denmark Europe (excluding Denmark) North America International Operations Japan & Oceania Remuneration Geographical areas % 100 80 60 40 20 03 04 05 06 07 Denmark Europe (excluding Denmark) North America International Operations Japan & Oceania Sales per average full-time position Index (2003 = 100) 130 120 110 100 90 120 100 80 60 40 03 04 05 06 07 Sales per average full-time position Realised during the year Environmental impacts Compared to sales Index (2003 = 100) 03 04 05 06 07 CO2 emissions per sales Waste per sales gramme, based on similar performance criteria as the programmes for senior management. The pool will operate with a maximum contribution per participant equal to four months’ fixed base salary. The shares in the pool are also locked up for a three-year period before they potentially may be transferred to the participants. On 30 January 2008, the Board of Directors ap- proved the establishment of a pool for 2007 by allocat- ing a total of 527,665 Novo Nordisk B shares, corre- sponding to a cash value of DKK 135 million. This was based on an assessment of the economic value gener- ated in 2007 as well as the performance of the R&D portfolio and key sustainability projects. This allocation amounts to 3.25 months of fixed base salary on aver- age per participant. This amount will be recognised over four years. Non-financial performance In 2007, Novo Nordisk continued to perform well in terms of managing direct and indirect economic, envi- ronmental and social impacts in areas of strategic im- portance. The Triple Bottom Line approach aims to de- liver long-term value to the business and contribute to global society. See p 53 for an overview of non-finan- cial measures. Economics Novo Nordisk created 2,344 new positions worldwide and had 25,516 full-time positions, measured as full- time equivalents (FTE) at the end of the year. This is an increase of 10% on 2006 and reflects increased activi- ties in all business areas. Via the multiplier effect, the increase translates into 56,100 indirect jobs in the sup- ply chain worldwide. In 2007, the number of employees outside Denmark exceeded the number of employees in Denmark. This is reflected in the distribution of remuneration between geographical areas. Environment In 2007, the energy-related emissions of CO2 from Novo Nordisk’s global operations increased by 3%. The total energy consumption also increased by 3%. Since 2005, the company has implemented energy-saving projects at all production sites, which have resulted in an estimated 12,000 ton reduction in total CO2 emis- sions. Comparing the CO2 emissions to sales shows a continued positive development from 2003 to 2007. Assessments of performance against the company’s ambitious long-term target to reduce its CO2 emission by 10% over a 10-year period as part of the WWF Climate Savers Programme, indicate that performance is on track. The Eco Intensity Ratios (EIR) showed improved per- formance in both business areas, and for both water and energy. The quantity of waste decreased by 27% from 2006 to 2007. The positive development is due to an in- creased focus on waste, which has resulted in a 56% decrease of the quantity of hazardous waste. In com- 14 Novo Nordisk Annual Report 2007 parison to sales growth there is a continued positive de- velopment from 2003 to 2007. Compliance with environmental regulation is a high priority, and in 2007 the results of preventive measures were clear: the number of breaches of regulatory limit values decreased by 82% from 123 in 2006 to 22 in 2007. In the same period, the number of accidental re- leases decreased by 22% to a total of 105. During 2007, a total of 14 suppliers were audited on their environmental and social performance. As a follow-up on the revised responsible sourcing pro- gramme, nine internal trainings on the new social and environmental implementation procedure were con- ducted with the participation of a total of 168 employees responsible for procurement from all lines of business. Social By the end of 2007, Novo Nordisk employed 26,008 persons (full-time and part-time positions) – an increase of 10% compared to 2006. The level of ‘engaging culture’ (employee engage- ment) is measured by the average answers of 10 equally weighted questions in the annual survey, eVoice. In 2007, the consolidated score (on a scale of 1–5) was as high as 4.1, increasing by 0.1 from 2006. In 2007, the focus on the facilitations and follow-up on resulting action points was maintained. In 2007, 99% of all ac- tion points arising from facilitations were closed. In 2007, the annual spending on training, measured as average spend per employee, increased by 16%, re- flecting the company’s strategic priority on talent and leadership development, and on lifelong learning of- fered to all employees. Moreover, the fact that the company took on board some 4,200 new employees during the year has required that additional resources be spent on induction training. Changing Diabetes®, Novo Nordisk’s global cam- paign to improve prevention, detection and care, effec- tively put diabetes on the public and political agendas. On the first UN-observed World Diabetes Day, 14 November 2007, Novo Nordisk organised events to mark the day across the world. In total 278,764 people in 50 countries took part. The company’s global advo- cacy effort to promote awareness of and action on dia- betes is a response to the UN Resolution on diabetes, adopted in December 2006, in recognition of diabetes as a major global health challenge and in respect of the human right to proper care. See pp 26–29. Novo Nordisk’s strategy to improve access to diabetes care is a long-term leadership strategy to promote medicines as well as to provide sustainable diabetes care for all. The company has revisited its activities and framed a new global programme targeting particularly vulnerable populations: migrant communities in devel- oped countries, people in least developed countries and emerging economies, and children. See p 29. Business results Outlook and forward-looking statement All of the above expectations are provided that currency exchange rates, especially the US dollar and related currencies, remain at the level prevailing on 28 January 2008. All other things being equal, move- ments in key invoicing currencies will impact Novo Nordisk’s operating profit as illustrated below: Invoicing currency USD JPY GBP USD-related* Annual impact on Novo Nordisk’s operating profit of a 5% movement in currency DKK 470 million DKK 140 million DKK 85 million DKK 100 million * For 2008 onwards the currency sensitivity for ‘USD-related’ currencies has been focused to solely reflect the impact from CNY and CAD. Novo Nordisk has hedged expected net cash flows in relation to US dol- lars, Japanese yen and British pounds for 17, 15 and 10 months respec- tively. The financial impact from foreign exchange hedging is included in ‘Net financials’. outlook for 2008 Novo Nordisk expects slightly more than 10% growth in sales measured in local currencies for 2008. This is based on expectations of continued market penetration for Novo Nordisk’s key strategic products within diabetes care and biopharmaceuticals, as well as expectations of increased competition during 2008. Given the exchange rates prevailing on 28 January 2008, the reported sales growth in 2008 is expected to be around 3.5 percentage points lower than the growth rate measured in local currencies. For 2008, reported operating profit is expected to increase by at least 25% despite the negative currency environment. The guidance for reported operating profit for 2008 includes an estimate of non- recurring costs of DKK 300 million in relation to the discontinuation of AERx® to cover severance payments and other costs. Adjusting for the impact from currency and the non-recurring costs in 2007 and 2008 related to the discontinuation of AERx®, underlying operating profit is expected to grow by at least 20%. For 2008, Novo Nordisk expects a net financial income of DKK 450 million, reflecting significant foreign exchange hedging gains, primarily related to the US dollar. The effective tax rate for 2008 is expected to be approximately 24%. Capital expenditure is expected to be around DKK 2.5 billion in 2008. Expectations for depreciations, amortisation and impairment losses are around DKK 2.5 billion, and free cash flow is expected to be around DKK 7.5 billion. Forward-looking statement Novo Nordisk’s reports filed with or furnished to the US Securities and Exchange Commission (SEC), in- cluding this document and the company’s Form 20-F expected to be filed with the SEC in February 2008, and written information released, or oral statements made, to the public in the future by or on behalf of Novo Nordisk, may contain forward-looking statements. Words such as ‘believe’, ‘expect’, ‘may’, ‘will’, ‘plan’, ’strategy’, ’prospect’, ’foresee’, ’estimate’, ’project’, ’anticipate’, ’can’, ’intend’ and other words and terms of similar meaning in connection with any discussion of future operating or financial perform- ance 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, including those related to Novo Nordisk’s products, product research, product introductions and product approvals as well as cooperations in relation thereto, n statements containing projections of revenues, income (or loss), earnings per share, capital expen- ditures, dividends, capital structure or other net financials, n statements of future economic performance, future actions and outcome of contingencies such as legal proceedings, and n statements of the assumptions underlying or relating to such statements. In this document, examples of forward-looking state- ments can be found under the headings ‘Business strategy, opportunities and key risks’, ‘Performance in 2007’, ‘Outlook for 2008’ and note 31, ‘Financial Risk’, on p 76. These statements are based on current plans, esti- mates and projections. By their very nature, forward- looking statements involve inherent risks and uncer- tainties, both general and specific. Novo Nordisk cautions that a number of important factors, includ- ing those described in this document, could cause ac- tual results to differ materially from those contem- plated in any forward-looking statements. Factors that may affect future results include, but are not limited to, global as well as local political and economic conditions, including interest rate and cur- rency exchange rate fluctuations, delay or failure of development projects, unplanned loss of patents, in- terruptions of supplies and production, product re- call, unexpected contract breaches or terminations, government-mandated or market-driven price de- creases for Novo Nordisk’s products, introduction of competing products, reliance on information tech- nology, Novo Nordisk’s ability to successfully market current and new products, exposure to product lia- bility and legal proceedings and investigations, changes in governmental laws and related interpre- tation thereof, including on reimbursement, intellec- tual property protection and regulatory controls on testing, approval, manufacturing and marketing, perceived or actual failure to adhere to ethical mar- keting practices, investments in and divestitures of domestic and foreign companies, unexpected growth in costs and expenses, failure to recruit and retain the right employees and failure to maintain a culture of compliance. Please also refer to the overview of risk factors on pp 8–9. Unless required by law, Novo Nordisk is under no duty and undertakes no obligation to update or re- vise any forward-looking statement after the distri- bution of this document, whether as a result of new information, future events or otherwise. Novo Nordisk Annual Report 2007 15 Pipeline Overview Therapeutic area Compound/product Description Diabetes care Insulin GLP-1 (Glucagon-Like Peptide-1) NovoMix® 50/70 Premixed formulations of the rapid-acting modern insulin, insulin aspart. Provide a combined rapid- and intermediate-acting insulin effect at the ratio 50/50 or 70/30. NN5401 NN1250 Liraglutide Liraglutide A next-generation modern insulin. A next-generation modern insulin. A once-daily analogue of human GLP-1 stimulating the release of insulin only when glucose levels become too high, and inducing weight loss. A once-daily analogue of human GLP-1 stimulating the release of insulin only when glucose levels become too high, and inducing weight loss. Once-weekly GLP-1 A once-weekly analogue of human GLP-1. Oral PrandiMet™ A single tablet formulation combining the short-acting insulin secretagogue repaglinide with an insulin-sensitising agent, metformin. Biopharmaceuticals Haemophilia Haemostasis rFVIIa Temperature stable rFVIIa Short-acting analogue rFVIIa Long-acting analogue rFVIIa Subcutaneous NovoSeven® Novo Nordisk’s recombinant blood clotting factor VIIa A temperature-stable recombinant factor VIIa. A single-dose, short-acting rFVIIa analogue, a next-generation successor to NovoSeven®. A long-acting rFVIIa analogue, a next-generation molecule targeting prophylactic therapy. A subcutaneous formulation of rFVIIa for the treatment of haemophilia patients with inhibitors. The efficacy and safety of NovoSeven® is tested on severe bleeding in trauma patients. The efficacy and safety of NovoSeven® is tested in spinal surgery patients. The efficacy and safety of NovoSeven® is tested in cardiac surgery patients. rFXIII A recombinant blood clotting factor XIII. Growth disorders Norditropin® The efficacy of Novo Nordisk’s Norditropin® in reducing mortality is tested in adult patients in chronic dialysis treatment. Long-acting human growth hormone A long-acting human growth hormone. Hormone replacement therapy Oncology Vagifem® low dose Activelle® low dose IL-21 A low-dose product for vaginal application intended for effective relief of symptoms associated with vaginal dryness. A low-dose continuous-combined product. Interleukin 21 is an immuno-stimulatory protein that helps the immune system attack tumour cells. Anti-KIR A first-in-class therapeutic antibody that stimulates the body’s own immune system to kill cancer cells. 16 Novo Nordisk Annual Report 2007 Indication Phase 1 Phase 2 Phase 3 Filed Type 1 and type 2 diabetes Type 1 and type 2 diabetes Type 1 and type 2 diabetes Type 2 diabetes Obesity Type 2 diabetes Type 2 diabetes Haemophilia patients with inhibitors Haemophilia patients with inhibitors Haemophilia patients with inhibitors Haemophilia patients with inhibitors Bleeding in emergencies, trauma Bleeding during spinal surgery Bleeding during cardiac surgery Bleeding during cardiac surgery Adult patients in chronic dialysis (APCD) Growth disorders Topical hormone replacement therapy Hormone replacement therapy Malignant melanoma Renal cell carcinoma Ovarian cancer Colorectal cancer Acute myeloid leukaemia (AML) Multiple myeloma pipeline overview Novo Nordisk’s research and develop- ment efforts focus on offering superior therapies that help save people’s lives or improve their quality of life. The strategy is to address unmet medical needs by leveraging the company’s core ca- pabilities within diabetes research, protein engineering, expression, formulation and delivery. In diabetes care the aim is to maintain the company’s position as the world leader. In biopharmaceuticals the aims are to expand the franchise within haemostasis and growth hormone deficiency, and to build a presence in inflammation. See more at novonordisk-trials.com The website includes results from clinical trials finalised after October 2002 for Novo Nordisk-marketed products and all Novo Nordisk’s efficacy clinical trials in phases 2–4. As of mid-2008, all phase 1 trials will be posted. In 2007, phase 1 trials were regis- tered upon requirement by authorities and/ or journal editors as a prerequisite for publication. See current pipeline overview novonordisk.com/science/pipeline 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 condition. Phase 3 Studies in large groups of patients worldwide, com- paring 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. Novo Nordisk Annual Report 2007 17 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 condition. pipeline progress In 2007, significant progress was made across Novo Nordisk’s clinical development pipeline. This overview illustrates key development activities: entries into the pipeline, progression of development compounds, exits from the pipeline and major regulatory approvals. Diabetes care With significant investments in the diabetes pipeline, progress was satis- factory in all segments: insulin, Glucagon-Like Peptide-1 (GLP-1) and oral antidiabetics (OAD). Biopharmaceuticals Progress in the biopharmaceuticals pipeline was satisfactory in haemo - philia, growth disorders and hormone replacement therapy. Within haemostasis, ie critical bleeding, there was a setback following results of the phase 3 trial in intracerebral haemorrhage. Type 2 diabetes Once-weekly GLP-1 analogue Once-weekly GLP-1 human analogue for people with type 2 diabetes is being tested in a phase 1 study initiated in 2007 by Novo Nordisk. With the aim of assuming a leadership position also in the GLP-1 segment, Novo Nordisk is building a portfolio of GLP-1 products. Haemophilia patients with inhibitors rFVIIa long-acting analogue In 2007, Novo Nordisk initiated a phase 1 study of its long-acting recom- binant factor VIIa analogue. The analogue is a potential next-generation successor to NovoSeven® in the treatment of haemophilia patients with inhibitors. With its long duration of action it is intended to enable preven- tion of bleeding for the patient. rFVIIa for subcutaneous administration In 2007, Novo Nordisk initiated a phase1 study of a subcutaneous formu- lation of rFVIIa for the treatment of haemophilia patients with inhibitors. The subcutaneous administration is expected to provide con- venience to patients as the current haemophilia treatment regimen is delivered intravenously. Growth disorders Long-acting human growth hormone In 2007, Novo Nordisk initiated a phase 1 study of a long-acting human growth hormone. The product is intended to provide patients with the convenience of fewer injections. Immunotherapy Anti-KIR Anti-KIR is a first-in-class therapeutic antibody that entered phase 1 stud- ies in AML and multiple myeloma aimed at stimulating the body’s natural killer cells to eradicate tumour cells. Novo Nordisk expects to outlicense Anti-KIR. 18 Novo Nordisk Annual Report 2007 Type 1 and type 2 diabetes NN1250 NN1250 is a neutral, soluble, long-acting insulin analogue with improved properties. It entered phase 2 in January 2008. NN5401 NN5401 is a neutral, soluble, insulin analogue with improved properties. It entered phase 2 in January 2008. Haemophilia patients with inhibitors rFVIIa short-acting analogue (NN1731) In 2007, Novo Nordisk moved its fast-acting recombinant factor VIIa ana- logue into phase 2. The analogue is a next-generation successor to NovoSeven® in the treatment of haemophilia patients with inhibitors. From a single dose its fast haemostatic effect is intended to provide faster cessation of bleeding and pain relief for the patient. Haemostasis NovoSeven® cardiac surgery Preliminary results of this phase 2 study confirm the safety profile known from the cardiac surgery setting and from other studies of NovoSeven® outside of haemophilia with inhibitors. While the primary aim of this trial was safety, the trial also demonstrated the biologic haemostatic effect of NovoSeven®. NovoSeven® spinal surgery Novo Nordisk completed its phase 2 study in spinal surgery trial in 2006 and the project has been on hold in 2007, pending detailed analysis of the results from the cardiac surgery phase 2 trial. NovoSeven® traumatic brain injury Given the results obtained in the intracerebral haemorrhage study, Novo Nordisk decided not to pursue this indication further. Immunotherapy IL-21 IL-21 has shown early signs of biological activity in trials with renal cell carcinoma and malignant melanoma. Further phase 1/2 investigations are ongoing. Novo Nordisk expects to outlicense IL-21. Pipeline Progress Phase 3 Studies in large groups of patients worldwide, comparing the new medica- tion with a commonly used drug or placebo for both safety and efficacy. Regulatory approval Following successful completion of phase 3 studies, compounds are sub- mitted for review by national or regional government regulatory agencies. Following regulatory approval the products can be marketed. Type 2 diabetes Liraglutide Liraglutide is Novo Nordisk’s once-daily human analogue of the naturally occurring GLP-1 hormone. In 2007, Novo Nordisk completed five major phase 3 trials in the LEAD™ (Liraglutide Effect and Action in Diabetes) development programme, and regulatory submission is expected by mid- 2008 in Europe and the US. The progress and clinical results of the LEAD™ trials were encouraging. See more on pp 32–33. In 2007, Novo Nordisk successfully completed the phase 2 study of liraglutide as an antiobesity treatment for obese, non-diabetic people. Type 1 and type 2 diabetes AERx® iDMS Novo Nordisk has decided to refocus its activities within inhaled insulin and to discontinue clinical development of AERx® iDMS insulin, which was in phase 3 development. The decision was based on a detailed analy- sis of the future prospects for inhaled insulin and a review of the medical and commercial potential of the AERx® inhaled insulin system. The deci- sion to discontinue the development of AERx® was not due to safety concerns. Haemostasis NovoSeven® intracerebral haemorrhage In 2007, Novo Nordisk completed the phase 3 study with NovoSeven® in patients suffering from a bleeding in the brain, intracerebral haemorrhage. The trial showed that treatment with NovoSeven® significantly reduced intracerebral bleeding compared to placebo treatment. Improvement in clinical outcomes in terms of functional independence and neurological impairment was observed on day 15 after the bleeding, but mortality and severe disability were not improved at the end of the study period (day 90). With regard to safety, study results were in line with the established safety profile of NovoSeven®. Novo Nordisk decided not to file for regula- tory approval. NovoSeven® trauma In 2007, Novo Nordisk continued its phase 3 study with NovoSeven® in severe bleeding in patients suffering a trauma. The phase 3 trial is expected to be completed in 2010. Growth disorders Norditropin® adult patients in chronic dialysis In 2007, Novo Nordisk initiated a global phase 3 study for the treatment of adult patients in chronic dialysis (APCD) with its human growth hor- mone Norditropin®. The 2,500 patients will be treated for two years. Hormone replacement therapy (HRT) Vagifem® low dose In 2007, Novo Nordisk successfully completed the US phase 3 study of Vagifem® low dose, a topical product for vaginal application. The product is now filed for regulatory approval in the US. A phase 3 study with Vagifem® low dose is ongoing in the EU. Type 1 and type 2 diabetes Levemir® Levemir® is Novo Nordisk’s long-acting modern insulin. In 2007, the prod- uct was approved and launched in Japan. This completed the launch of the company’s full portfolio of modern insulins in Europe, the US and Japan. In total, Levemir® has now been launched in 61 countries. Furthermore, the European Commission approved Levemir® for use in combination with oral antidiabetics. NovoRapid® NovoRapid®, Novo Nordisk’s fast-acting modern insulin, was approved for elderly people by the European Commission. NovoMix® 50/70 Following European approval, the two modern premixed insulins were launched in the first European countries in 2007. These insulins contain a higher proportion of short-acting insulin compared to the modern pre- mixed insulin NovoMix® 30. In Japan, NovoMix® 70 was filed for approval in December 2007. Type 2 diabetes NovoNorm® Fixed Combo, PrandiMet™ In 2007, Novo Nordisk filed a New Drug Application in the US for NovoNorm® Fixed Combo, PrandiMet™. The product combines in a sin- gle tablet formulation the short-acting insulin secretagogue repaglinide with an insulin-sensitising agent, metformin. Novo Nordisk further grant- ed Sciele exclusive US marketing rights to the product in 2007. This completed Novo Nordisk’s research and development activities within the oral antidiabetics segment as all other small-molecule projects were discontinued and existing projects divested in 2007. Novo Nordisk took this step to dedicate its resources to protein-based pharmaceuticals. Haemophilia patients with inhibitors NovoSeven® single dose NovoSeven® single dose for haemophilia patients with inhibitors was approved by the European Commission and subsequently launched. The treatment regimen is dosed at 270 microgrammes per kilogramme body- weight and is expected to offer patients protection of veins, fewer injec- tions and less interruption to daily life. rFVIIa temperature stable rFVIIa temperature stable was filed for regulatory approval in Europe, the US and Japan in 2007. A temperature-stable product is expected to deliv- er significant patient benefits, including rapid dosing and ease of access to treatment outside of home or hospital settings. Growth disorders Norditropin® Norditropin® was approved for Noonan syndrome and Turner syndrome in the US. The accessory NordiFlex PenMate® was also approved in the US. Hormone replacement therapy (HRT) Activelle® low dose In addition to the approval in the US in late 2006, the Activelle® low-dose version was approved by the Swedish regulatory authorities in 2007 and the mutual recognition procedure is now ongoing in Europe. Novo Nordisk Annual Report 2007 19 Business environment Industry challenges Concentrated effort to drive progress through the pipeline. Some 4,200 new employees joined Novo Nordisk in 2007. challenges to the pharmaceutical industry The pressure is on in the pharmaceutical industry. Staying competitive requires more than financial muscle – market shares are increasingly earned through innovation, flexi- bility and the ability to respond to societal challenges. The industry is faced with increasing R&D costs, patent expiries and low R&D productivity. Companies must also navigate in a business environment characterised by heightened regulatory pressures, cost containment of public health- care budgets and a general scepticism about the industry’s interest in improving human health. Challenges such as these are surfacing against a backdrop of rising healthcare costs, an escalating chronic disease burden and a growing and ageing population. Globalisation affects both the business environment and health trends: greater wealth frequently translates into un- healthy lifestyles, which in turn prompts an upsurge in health disorders and increased pressure on healthcare budgets in de- veloped and developing countries alike. Innovation in the pipeline The industry’s ability to develop new products is being ques- tioned in light of a decreasing number of approvals of new medicines. In 2006, the US Food and Drug Administration ap- proved just 22 new molecular entities (NMEs) and biologics despite a record 55 billion US dollars expenditure on research and development by North American companies. In 1996, when spending on R&D was less than half this figure, a total of 53 NMEs were approved. 20 Novo Nordisk Annual Report 2007 1.2 billion people in developing countries will be middle class by 2030 – three times today’s number. 66% of all older people are living in the developing world; by 2025, it will be 75%, according to the WHO. 50% of people with diabetes in the OECD countries have their eyes checked every year. This approval slowdown, which coincides with lucrative products going off-patent, augurs badly for a sizeable seg- ment of the industry. Compared to its peers, Novo Nordisk is relatively well insu- lated against these trends – flexibility in funding innovation is aimed at keeping the pipeline busy. Globally, competition in the pharmaceutical industry is intensifying. Novo Nordisk recognises that continued spending on R&D is crucial to its ability to remain competitive, and its annual expenditure here is one of the highest in its class. “Novo Nordisk currently has quite a strong pipeline sup- ported by the necessary technology platforms and core com- petences. Two other strengths are our ability to find new indi- cations for existing molecules and our focus on meeting unmet medical needs among neglected groups of patients,” says Lars Rebien Sørensen. R&D investments are accelerating in emerging markets such as India and China with their large pools of highly qualified peo- ple, and Novo Nordisk is building its presence in these countries. Patents and partnerships Over the next few years, the pharmaceutical industry faces a flood of patent expiries, giving generic companies the oppor - tun ity to enter the market with cheaper products. In response, some companies are cutting jobs in an effort to rein in costs be- fore they lose patent protection. Novo Nordisk’s current expo- sure is less severe, allowing it to create – rather than cut – jobs. Another advantage is Novo Nordisk’s biopharmaceutical expertise: the production process is technologically demand- ing and its products, based on large, complex molecules, are more difficult to copy or modify than chemical drugs. Identifying promising new drug candidates in early devel- opment and collaborating with their inventors is an addition- al Novo Nordisk strategy. For Novo Nordisk, partnerships such as the licence agree- ment it signed in December 2007 with C2X Pharma and the French national institute for health and medical research (Inserm) for thrombin-activable factor X, should provide Clinical trials require meticulous measurement. CEO Lars Rebien Sørensen visits the Naivasha District Hospital in Kenya. effective tools in broadening the portfolio of haemophilia and haemosta- sis projects. “Partnerships can be cost-effective methods of leveraging expertise, and we intend to avail ourselves of more such opportuni- ties,” says Lars Rebien Sørensen. More regulatory pressure At the same time as competition between pharmaceutical companies is intensifying, regulatory authorities are exerting more pressure on the industry. Companies are being asked for greater proof that new com- pounds submitted for approval have a benefit over products already available. This includes requests for more safety data, which is also made publicly available, as well as a demand that companies continuously 4 trillion US dollars, according to the World Health Organization. The cost burden is prompting governments and payers to look more closely at the value of pharmaceutical products. While spending on medicines has gone up as part of the overall healthcare bill, medicines’ share of healthcare spending remains very small – about 10 cents of every dollar spent in the US on healthcare, for example. In this challenging environment, pharmaceutical products must demonstrate value for money, which is why Novo Nordisk is increasing- ly focused on producing evidence of the health-economic benefits of its products, and particularly of improved diabetes treatment. One such initiative is the Global Changing Diabetes® Barometer (see pp 27–28), which demonstrates the substantial savings that may accrue to payers from diagnosing diabetes early and before any complications arise. “Compared with many of our peers, we are in a fortunate position. Our top-line performance is strong, productivity in the pipeline is high, we are relatively well protected against patent expiries, and our production capacity and sales forces are geared for continued expansion.” Lars Rebien Sørensen president and chief executive officer track the safety and efficacy of products after they are marketed by way of phase 4 studies. Such requirements are being harmonised internation- ally, increasing the scale and complexity of clinical trials. Novo Nordisk uses its experience and knowledge within its core therapeutic areas to work together with authorities to design studies that address these concerns. Consistently high ethical standards within clinical trials and transparency on clinical trial results are key to the company’s approach. Demonstrable value for money required Healthcare costs are rising, with governments and payers straining to meet the needs of the growing disease burden. Healthcare spending has historically outpaced economic growth everywhere in the world, a trend set to continue. The total global expenditure for healthcare is Ethical conduct is a business imperative Ethical, social and governance issues are also gaining greater promi- nence. Increasingly, investors and customers expect evidence of ethical behaviour in all aspects of business, including the conduct of clinical tri- als and the promotion and marketing of products. Stakeholders are looking at companies’ ability to handle such issues consistently across diverse markets. Well before this trend became common currency, Novo Nordisk formulated its Way of Management (see p 6). This blue- print, with its clear description of core values, implies that the chal- lenges faced by the industry are best resolved by working in partnership with governments, regulators and the healthcare community to meet the world’s healthcare needs. The company-wide implementation of a business ethics policy underpins this values-based approach. “It takes a lot of effort to earn and maintain stakeholder trust. As a healthcare company, we have a particular responsibility when it comes to how we do business, how we make our money, and also how we spend it,” says Lise Kingo, executive vice president and chief of staffs. And the best response to scepticism, she says, is transparency and honest engagement with critical stakeholders. Market research shows that there are five key drivers impacting a company’s reputation: perceived quality of its products, its services, market leadership, corporate responsibility and innovation. Reputation study results in 2007 from four strategic markets – the US, Germany, the UK and China – show a solid performance of Novo Nordisk. Novo Nordisk Annual Report 2007 21 Business environment Productivity Leif Henriksen and Peter Jacobi at Biopharmaceuticals, Gentofte, Denmark. They and their colleagues have optimised energy and water consumption and reduced CO2 emissions from 2004 to 2007 by 9.5%. lean production cuts costs To stay competitive in a globalising world Novo Nordisk has invested in establishing seamless global supply and maintains a strong focus on optimising production efficien- cy. This effort underpins the company’s ambitious strate- gy in response to the climate change challenge. Intensified competition from biosimilar production and cost containment by payers have increased the urgency for opti- mising cost margins. Over the last few years, Novo Nordisk has successfully driven its gross margin upwards and will con- tinue this effort to outperform its peers. In light of the compa- ny’s market leadership in diabetes care and the boost to pro- ductivity achieved by the company’s cLEAN® programme, this goal is attainable. cLEAN® is Novo Nordisk’s version of lean – a well-known process optimisation philosophy. The small ‘c’ stands for current and emphasises that cLEAN® evolves con- tinuously. As of 2007, its methods are also being adopted within research and development and administrative areas. These improvements, along with an improved product mix, make a significant contribution to the company’s finan- cial results. The gross margin improved to 76.6% in 2007 from 75.3% in 2006. This enables Novo Nordisk to invest for the future – by putting more funds into research and develop- ment and expanding the sales force. Empowering people to act Backed by the support of top management, Novo Nordisk has invested substantially in the cLEAN® programme. Through a 22 Novo Nordisk Annual Report 2007 2014 is the year by which Novo Nordisk aims to supply all its Danish facilities with electric- ity from wind farms. 12,000 tons of CO2 emissions are estimated to have been eliminated by recent Novo Nordisk energy-screening programmes. cLEAN® Academy, all employees in Product Supply will have completed training in its basic concepts by 2010. This is com- plemented by more in-depth training for certain employees. The training is as much about behaviour as it is about tools. cLEAN® is a mindset, and one that empowers employees to act whenever they see room for improvement and business benefits, not just in terms of costs. The goal is that continuous improvement leads to more stable and efficient processes and eliminates waste – saving time, money and resources. The programme is global, with production employees in Brazil, China, Denmark, France, Japan and the US all following the same philosophy. As evidence that this strategy is working, Novo Nordisk has not needed to increase its Product Supply staff levels since 2003, even though the company’s production volume has grown significantly in that time. Kim Lorenzen, project manager at the Material Handling warehouse in Hillerød, Denmark, agrees: “cLEAN® shakes us out of our daily routines and inspires us to think along differ- ent lines.” cLEAN® in action As an example of how the cLEAN® philosophy plays out, em- ployees in diabetes product manufacturing at Novo Nordisk in Denmark set the goal of increasing the capacity for the freeze- drying of products to better meet market demand. Freeze - drying is used to ensure long product life, easy transportation and the prevention of chemical and biological reactions. Through a combination of reduced shift times and process optimisations, capacity increased by 236%, saving money, maintenance and equipment. At the Novo Nordisk insulin production facility in Clayton, North Carolina, US, the use of cLEAN® tools to make a mechan- ical improvement and remove a persistent bottleneck reduced downtime by 93% on an insulin pen cartridge filling line. At the Diabetes Active Pharmaceuticals Ingredients Quality Control laboratory in Kalundborg, Denmark, the team was On 30 November 2007, some 70 investors and analysts visit Kalundborg, Denmark – site of the world’s largest insulin plant and the facility that will soon produce liraglutide. Lars Clausen, executive vice president, DONG Energy, and Lise Kingo, executive vice president and COS, Novo Nordisk, seal their ambitious wind power deal with a handshake. able to shorten analysis time by more than 25% by turning the spot- light on one of the ‘invisible’ tasks easily overlooked in the busy daily routine. The key to the results was performance management and im- mediate follow-up. Also in Kalundborg, new cooling towers at the fermentation plant boost capacity by 50% and at the same time achieve the largest single reduction in energy consumption: annual savings of 4 million kWh and an annual reduction in CO2 emissions of some 2,500 tons. Production efficiency accelerates CO2 reduction At the same time, production efficiency underpins Novo Nordisk’s cli- mate strategy and contributes to lowering the levels of CO2 emissions. The company has set an ambitious target, as part of its commitment to the WWF Climate Savers programme, to reduce CO2 emissions in 2014 to a level that is 10% below the 2004 level, despite a significant pro- duction increase. Novo Nordisk is committed to actively addressing climate change. Reducing carbon dependency is a business priority, and the company acknowledges its responsibility to respond to what is now recognised as one of the greatest global challenges to our future. The three levers in Novo Nordisk’s climate strategy are optimisation through cLEAN®, energy savings in production and conversion to re- newable energy. Energy-screening programmes from 2005 to 2007 led to an estimated reduction in CO2 emissions of 12,000 tons. An innovative partnership for wind power In 2007, Novo Nordisk entered into a pioneering agreement with DONG Energy, Denmark’s largest energy company: DONG Energy as- sists Novo Nordisk in identifying energy-saving options and in return Novo Nordisk will purchase corresponding quantities of energy from a new offshore wind farm off the west coast of Denmark. With this agreement Novo Nordisk has devised a cost-neutral way to significantly achieve reductions in CO2 emissions and at the same time help build the market for renewable energy in Denmark. This is what makes the agreement unique: it is commercially viable, and that makes it a solution that both parties would like to see other companies adopt. From 2014, Novo Nordisk is expected to purchase about a third of the total energy produced by the wind farm. The aim is that, by then, electric- ity supplies for Novo Nordisk’s facilities in Denmark, which currently ac- count for 85% of the company’s total CO2 emissions, will be entirely based on power from this wind farm. The partnership will run till 2020. A quality mindset In times of increased regulatory pressure for the pharmaceutical indus- try to meet high safety and quality standards, emphasis on quality goes hand in hand with effective and efficient production. More stable processes serve to ensure product quality. “We are doing more with less, quite simply. Low unit costs allow us to invest more in research and development and in sales and marketing. This is what will keep us strong in the long run, and it’s a very motivating message to our employees.” Per Valstorp senior vice president, Product Supply At Novo Nordisk, cLEAN® in manufacturing is an expression of the Quality Mindset, one of the fundamental management principles in the Novo Nordisk Way of Management: ‘Everyone must continuously im- prove the quality of their work.’ The robust quality system at Novo Nordisk has resulted in a consis- tently high level of performance regarding the quality of the company’s products as well as compliance in the manufacturing of products. Novo Nordisk’s production is generally in compliance with international stan- dards for current good manufacturing practice (cGMP). In 2007, more than 70 inspections by various health authorities or certifying bodies were passed. Novo Nordisk Annual Report 2007 23 Business environment Values in action responsible business practices Consistent messages and a broad perspective take prece- dence over ad hoc solutions to win short-term competitive gains. Novo Nordisk’s presence in its markets relies on trust. This has been built over many decades and is a valu- able asset that must be protected and nurtured. The discovery, development and marketing of medical drugs entail careful attention to a range of ethical considerations. Novo Nordisk upholds high global standards in the areas of human ethics (clinical trial ethics, stem cell ethics), animal ethics (the reduction, refinement and replacement of animal experiments) and the use of gene technology in research and production. These ethical criteria also apply to external part- ners such as contract research organisations. On several occa- sions, the company has been the driver behind new standards that have gained wider adoption in the industry. In 2007, a dedicated website on bioethics was launched. Transparency of clinical trials Since 2005, Novo Nordisk has published the results of all sponsored phases 2–4 interventional trials for marketed prod- ucts. This was done in response to stakeholder demands for increased transparency. In 2007, Novo Nordisk introduced its own dedicated clinical trials website – novonordisk-trials.com – providing an overview of all later-stage (phases 2–4) clinical trials. In 2008, phase 1 studies will also be disclosed. Novo Nordisk only conducts clinical trials in countries where it intends to seek marketing approval and where there is an ethics committee to approve the trial. In 2007, more than 20,000 people in 46 countries were involved in Novo Nordisk-sponsored clinical trials. Around 40% of the people involved live in developing countries. People who participate in Novo Nordisk trials only do so with informed consent and will always be offered the best available and proven treat- ment after the end of the study. 24 Novo Nordisk Annual Report 2007 “When testing investigational compounds we use only one clinical standard. So the same guidelines apply to our clinical trials in any country, supplemented, of course, by adherence to local rules,” says Anders Dejgaard, chief medical officer, Global Development. Ethical marketing practices Novo Nordisk’s business ethics programme includes compli- ance with legislation and offers guidance on individual behav- iour. The Business Ethics Policy is backed by three procedures for ethical business conduct, product promotion and contract- ing with agents and other third parties. Managers and mem- bers of senior management participate in training workshops. Business ethics e-learning is mandatory for all managers, and the e-learning programme is open to all employees. In 2007, 95% of employees in sales and marketing were trained in face-to-face workshops around the world. A Compliance Hotline is in place to alert management to possible breaches of the policy, and performance is monitored via audits. A human rights perspective Novo Nordisk supports the United Nations Universal Declara - tion of Human Rights, which celebrates its 60th anniversary in 2008, and has actively done so since 1999. As a signatory to the United Nations Global Compact, Novo Nordisk is commit- ted to supporting and respecting human rights throughout its sphere of influence, primarily its relations with employees, suppliers and customers. Engaged in the public debate As part of its strategy to achieve broader business goals, Novo Nordisk seeks to make voices heard in order to raise awareness of the current unsustainable path of diabetes. Novo Nordisk’s global public affairs strategy rallies people with diabetes, healthcare professionals, decision-makers, patient organisa- tions, media and constituency groups around new solutions. The aim is to get governments and international organisations to give diabetes priority on a par with its scope and severity and to improve health outcomes for people with diabetes. in The company has Government Affairs offices Washington and Brussels. Both offices focus on efforts to im- prove diabetes treatment. Recent US achievements include the introduction of bipartisan legislation, supported by the American Diabetes Association, which will create a cross- agency programme to promote wider use of Medicare’s dia- betes screening benefit, saving money and lives. Global public affairs standards Novo Nordisk’s Changing Diabetes® campaign leverages both public relations and public affairs activities (see pp 26–29). To ensure consistency with the Novo Nordisk Way of Management and compliance with requirements from governments and international institutions, a set of global public affairs stan- dards is being instituted. This will include rules governing external disclosure. See more on responsible business practices at novonordisk.com/sustainability. Click: Values in action 95% of employees in sales and marketing were trained in business ethics standards. 20,000 people were participants in Novo Nordisk clinical trials in 2007. 40% of people involved in Novo Nordisk clinical trials live in developing countries. People participating in Novo Nordisk trials do so with informed consent and are always offered the best available and proven treatment after the end of the study. people put values to work Novo Nordisk’s culture and values serve to bridge the increasingly diverse global employee base and ensure a consistent approach to its way of working. In pace with its rapidly growing business, Novo Nordisk is ex- panding its workforce. At the end of the year, the total num- ber of employees was 26,008 – an increase from 2006 of 2,395 people. For the first time, the majority are located out- side the company’s home base in Denmark. An expansion of this magnitude carries the challenge of smooth induction into the Novo Nordisk Way of Management. This values-based approach guides the way employees ap- proach their work, no matter where in the world they are located. In the annual organisational review three strategic drivers were identified: globalisation, innovation and leadership. In re- sponse, the Global People Strategy focuses on talent and lead- ership development, talent attraction, performance manage- ment, people engagement and organisational development. An engaging culture Company values – being accountable, ambitious, responsible, engaged with stakeholders, open, honest and ready for change – are seen in daily interactions between managers and employees as well as in dealings with external parties. A high degree of identification with these values is evi- denced by the level of employee engagement. In 2007, eVoice, the global employee survey, included a new index mapping the level of engagement measured by 10 criteria. Employees were asked to indicate on a scale of 1 to 5 the extent to which they agreed with statements such as: “Novo Nordisk is lead- ing the fight against diabetes”, “Novo Nordisk’s results with- in the social and environmental area are important to the fu- ture of the company”, and “I know how my job contributes to the success of Novo Nordisk”. The average score was 4.1. “Employees are inspired by the company’s vision and values, 12,256 more people worked at Novo Nordisk in 2007 than in 2000; a workforce expan- sion of 89%. 1,120 applications were received for 27 Novo Nordisk jobs during a 2007 graduate recruitment drive. 1st place was Novo Nordisk's ranking in the 2007 'Best Places to Work in New Jersey' awards programme. Business environment People and our Triple Bottom Line approach to doing business,” says Executive Vice President and Chief of Staffs Lise Kingo. In external surveys a similar picture is apparent: Novo Nordisk’s values and culture combined with the company’s focus on people development appeal to graduates and other job seekers. In 2007, the company had 1,120 applicants for 27 positions in its graduate programmes. Also in 2007, Novo Nordisk in the US was ranked the top employer in New Jersey in competition with many other, larg- er pharmaceutical companies. In Denmark, Novo Nordisk’s retention rates exceed industry benchmarks. However, in fast- growing and competitive markets like China it remains a chal- lenge to retain talented people. For this reason, the company has established an MBA programme for Novo Nordisk man- agers in China at the prestigious Peking University (see p 37). Spurring talent development “We have a strong organisation with a motivated workforce. But that does not invite complacency. We need to raise the bar constantly for how we develop our leaders and support the development of all our employees. This is key to our fu- ture business success,” says Lars Christian Lassen, senior vice president, Corporate People & Organisation. Novo Nordisk offers tailored education programmes for all employees. These include introductory programmes for new employees, a wide range of professional courses and manage- ment development programmes. The company’s investment in training and development exceeds the industry average, as measured by average training costs per employee. New managers undergo mandatory leadership training and vice presidents and general managers also complete a mandatory programme, Spotlight, which focuses on personal leadership. In addition, there are two talent programmes for leaders who demonstrate high potential: Lighthouse for vice presidents and general managers, and Greenhouse for man- agers and young talent. Since 2004, 75 vice presidents and general managers have completed the Lighthouse programme, which is designed to explore personal leadership, sustainability and innovation in new ways. Participants meet people from diverse back- grounds who can stimulate new thinking: Native American leaders, people living in the favelas of Rio de Janeiro or healthcare workers in Beijing. The Lighthouse pool is the source of eight out of ten senior leadership appointments. Promoting a healthier lifestyle The NovoHealth programme, aimed at pre- venting lifestyle diseases among employees, is now a global effort. This programme encour- ages and supports a healthy lifestyle by offer- ing access to healthy food in the workplace, a smoke-free work environment, exercise and individual health checks every second year. Health-promoting activities across the or- ganisation will be aligned through NovoHealth to ensure sharing of better practices. See more on people and workplace at novonordisk.com/sustainability Click: Values in action Novo Nordisk Annual Report 2007 25 Diabetes care Changing diabetes US ballerina Zippora Karz dances on despite diabetes. Times Square, New York, on World Diabetes Day, 14 November. Today, the quality of life for people with diabetes is far from acceptable. Two out of three people are in poor control of their diabetes because of inadequate access, treatment or care. More than 50% of people with diabetes do not even know they have it. Poor control translates into late-stage complications such as blindness, kidney disease and lower- limb amputations, affecting the quality of life of people with diabetes and their families. When numbers grow so large, they tend to lose their mean- ing. Behind the figures are people with diabetes whose biggest wish is to see this debilitating condition effectively defeated. Advocacy for change Novo Nordisk advocates an ambitious approach to changing diabetes. Firstly, to give priority to people with diabetes and the challenge to change diabetes The scale of the diabetes pandemic continues to escalate and diabetes could become the worst pandemic of the 21st century. As a global leader in diabetes care, Novo Nordisk has the potential and moral obligation to make a differ- ence beyond providing better medicine and devices. The company’s medical ambition sets the bar: The goal is to improve patient outcome and save lives, and this is what drives the Changing Diabetes® activities. It builds on Novo Nordisk’s position as the global leader in diabetes care, under- pinned by its full portfolio of modern insulins and more than 80 years of experience. Novo Nordisk actively supports the implementation of the UN Resolution on diabetes and in 2007 demonstrated its commitment to work with partners: united to change diabetes. There are 246 million people worldwide with diabetes, a number expected to reach 380 million by 2025, according to the International Diabetes Federation (IDF) 1). Millions more may develop diabetes due to the risk factors of overweight and obesity, sedentary lifestyles and unhealthy diets. Other societal factors such as globalisation, urbanisation, an ageing population and migration are driving the diabetes pandemic. 278,764 people in 50 coun- tries were engaged in Novo Nordisk-led activities on World Diabetes Day, 14 November 2007. 55% of diabetes deaths are among women. In March 2007, Novo Nordisk teamed up with former US President Bill Clinton for a debate about the future of diabetes treatment. 26 Novo Nordisk Annual Report 2007 Denise Cleary is a diabetes sales representative in Newfoundland and Labrador on the east coast of Canada. 270 cyclists, including 25 Novo Nordisk employees, joined the 10th Ride to Cure Diabetes in Death Valley, California, on 20 October. convince governments and international organisations of the need to give diabetes priority. Secondly, to drive health outcomes for people with diabetes. And thirdly, to mobilise political support to break the curve of the global diabetes pandemic. These are the strategic cornerstones of Novo Nordisk’s global Changing Diabetes® programme. Leadership in action: sustainable health policy As part of its collaborative, multi-stakeholder approach to changing dia betes, Novo Nordisk held the first Global Changing Diabetes® Leadership Forum in March 2007. The Forum’s ambition was to trans- late the UN Resolution on diabetes, adopted by the United Nations General Assembly in December 2006, into national action plans for the prevention, treatment and care of diabetes. The keynote speaker at the Forum was former US President Bill Clinton, who stated: “There is a rising tide of obesity and resulting dia- betes; it is an unbearably inhumane problem that falls disproportion- ately on the poor. We will compromise our country’s economic future even as we risk raising the first generation of children who will live shorter lives than their parents. We will never be forgiven, and I mean never, if we allow our children to live shorter lives than our own.” The Forum was attended by some 150 representatives of govern- ments, international organisations and patient organisations as well as academics and journalists from 21 countries. Their dialogue took inspi- ration from Redefining Health Care: Creating Value-Based Competition on Results, by professors Elizabeth Teisberg and Michel E. Porter. The book claims that healthcare systems today have “the wrong type of competition – a competition to shift costs instead of improve care”. At the Forum, Novo Nordisk’s President and Chief Executive Officer Lars Rebien Sørensen pledged to launch a ‘diabetes barometer’ – a “We have a medical ambition to improve patient outcomes by focusing on transparency and measurability to drive change. The Changing Diabetes® Barometer will guide our efforts towards our ultimate goal of allowing all patients to have an HbA1c below 7%.” Jakob Riis senior vice president, International Marketing global tool that would track and measure best performance in the pre- vention, treatment and care of diabetes worldwide. “What you can measure, you can manage,” Lars Rebien Sørensen elaborated. This initiative is part of Novo Nordisk’s response to help implement the UN Resolution on diabetes. Barometer: tracking performance In November 2007, Novo Nordisk launched the global Changing Diabetes® Barometer 2). It identifies diabetes indicators such as the HbA1c test of blood sugar level, using published data. The Barometer aims to provide a scorecard for tracking change and pinpointing areas in need of improvement so that healthcare providers, governments and patient associations are better able to measure progress and set priori- ties for national diabetes action plans. The first Barometer report covers 21 countries. It highlights that life- long healthcare cost can be reduced by as much as 20% and that people with diabetes can live longer and better lives if they are treated Novo Nordisk Annual Report 2007 27 Diabetes care Changing diabetes adequately and diagnosed earlier, before any complications arise. The report found that10 of the 21countries did not have a national diabetes strategy in 2007. Seven countries lacked data on important treatment indicators such as HbA1c, blood pressure and lipids levels, and only a couple of countries had systems in place enabling registration of data on key treat- ment indicators and consistent follow-up on a national scope. “It is essential that we figure out how to be far more effec- tive in preventing diabetes, or at least preventing its progres- sion to complications,” says professor Elizabeth Teisberg. “Improved early-stage care can dramatically reduce the inci- dence of amputations, blindness, heart attacks and other complications. The Barometer will spur discussion about ways to improve outcomes over the full cycle of care.” 86,000 people have visited Novo Nordisk’s Changing Diabetes® Bus during its journey across five continents, stopping in 13 countries. 80% of diabetes deaths occur in low- and middle-income countries. The cost of inaction Inaction is far costlier to society than investing today in better diabetes diagnosis, treatment and prevention. That was a key conclusion of The Silent Epidemic 3), an economic study of diabetes in developed and developing countries carried out by the Economist Intelligence Unit (EIU) and sponsored by Novo Nordisk. The EIU study looked at the economic cost of diabetes in five countries: China, Denmark, India, the UK and the US. It concluded that the health spending and productivity loss aris- ing from diabetes are already taking a noticeable share of GDP from many countries. In India, for example, which has the world’s largest number of people with diabetes, produc- tivity losses took the equivalent of 20.4 billion US dollars from India’s economy, or 1.9% of GDP. This amounts to a produc- tivity loss of 497 dollars per individual with diabetes, equiva- lent to around half of India’s per capita GDP. Public affairs roadmap for Changing Diabetes® Novo Nordisk is undertaking several socio-economic stud- ies to examine the burden of diabetes and the costs and ben- efits of improved diabetes care, including in China and India, which have the largest diabetes populations in the world. “If diabetes remains unchanged, the world will face an im- possible economic burden alongside a devastating toll on the lives of many people,” says Charlotte Ersbøll, corporate vice president, Branding and Responsibility. “With leadership comes responsibility. Novo Nordisk has the capability to make changes and innovate for new solutions to the diabetes epi- demic where it is hitting the hardest.” Inclusive access to diabetes care Novo Nordisk supports the United Nations Millennium Development Goals and recognises the link between poverty and ill health. The company’s framework programme ‘Changing global access to diabetes care’ aims to ensure that the company is acting responsibly and proactively to make diabetes care inclusive for all – across geographies, cultures, social standing, age, gender and ethnicity. Access to health – defined as availability, accessibility, affordability and quality – is a critical precondition for effective prevention, treatment and care. The programme targets disadvantaged communi- ties and the most vulnerable population groups with the low- est access to diabetes care, specifically people living in the least developed countries, low-income groups in emerging economies, migrants in developed countries and children. Novo Nordisk’s initiatives towards global access to diabetes care are the result of a long-term leadership strategy not only to promote medicines, but also to provide sustainable dia- betes care for everybody who needs it. This ambition poses huge challenges. The solution hinges on the ability to drive Facilitate dialogue and build consensus Campaign for the need to act Build the case Find new solutions for sustainable health policy development in cooperation with stakeholders. Call for the urgent need for change and action on the UN Resolution. Promote increased measurability and transparency. Impact sustainable change Provide examples of sustainable change through implementation and better practice sharing. 28 Novo Nordisk Annual Report 2007 “By 2025, an estimated 80% of all people with diabetes will live in developing countries. Improving these people’s access to proper care is a moral obligation. Finding commercially viable solutions to curb the diabetes pandemic is a business imperative.” Lise Kingo executive vice president and chief of staffs focused, targeted and collaborative actions. Novo Nordisk cooperates with governments, healthcare providers, NGOs, universities, healthcare professionals and diabetes associations worldwide to establish data, build evidence and pilot new intervention approaches. The new global access programme builds on the experience gained during the past five years of work through several initiatives. Programmes such as the pioneering World Partnership programme in eight develop- ing countries, the National Changing Diabetes® programmes with an accumulated 406 activities in 66 countries, the pricing policy focused on offering affordable insulin to the world’s 50 least developed coun- tries and the projects funded by the World Diabetes Foundation have one common denominator: they offer a partnership approach to filling gaps in under-resourced and unsustainable healthcare systems. New initiatives include: n pilot projects in Cameroon, Guinea, Tanzania and Congo aiming to ensure that the preferential prices offered by Novo Nordisk to gov- ernments in least developed countries make insulin more affordable and available to more patients, n the development of tools to bridge disparities in healthcare, targeted at migrant communities, n pilot projects aimed at securing access at the base of the pyramid, starting in BRIC countries (Brazil, Russia, India and China), n a programme targeted at improving the lives and well-being of chil- dren with diabetes worldwide. Children and youth at risk Type 2 diabetes, once considered the adult-onset form of diabetes, is now on the rise among children and adolescents, due to the same lifestyle factors prompting the rise of the pandemic among adults. World Diabetes Day 2007 centred on the impact of diabetes on chil- dren and adolescents. In September 2007, at the congress of the European Association for the Study of Diabetes (EASD), Novo Nordisk and the IDF presented a global overview of the diabetes burden among children and adolescents. This expert review into existing data and global trends within childhood diabetes, now referred to as the Diabetes Youth Charter 4), highlighted that many children are in poor control of their diabetes. The experts found that early diagnosis, pre- vention and improved control could help prevent many deaths. Following this, Novo Nordisk, together with the IDF and the International Society for Pediatric and Adolescent Diabetes (ISPAD), launched the DAWN Youth programme at the ISPAD Congress in September 2007. This programme will facilitate advocacy, research and action to improve the lives of young people with diabetes and their families. DAWN 5) (Diabetes Attitudes, Wishes and Needs) is Novo Nordisk’s global study of the psychosocial barriers to diabetes care. Maternal health in India: the World Diabetes Foundation turns five At a local maternity clinic on the outskirts of Chennai, hundreds of pregnant women have gathered to be screened for gestational diabetes mellitus (GDM) at the Dr V Seshiah Diabetes Care and Research Institute. Some women are here for the first time, en- couraged by posters or public announcements to take a free blood test. Others already have GDM and are here to have a monthly check-up. All are present as part of a project called Diabetes in Pregnancy – Awareness and Prevention (DIPAP). It tar- gets GDM, a type of diabetes that affects pregnant women who were not known to have diabetes previously. The project is sup- ported by the World Diabetes Foundation (WDF). There is no known specific cause of GDM, but it is believed that the hor- mones produced during pregnancy reduce a woman’s receptivity to insulin, resulting in high blood sugar. Undiagnosed, it can lead to miscarriages or stillbirths, malformations, large babies with the risk of injuries during delivery and a higher risk of mother and child developing diabetes. For the WDF, which marked its fifth anniversary in 2007, the clinic’s work is an example of how small projects can influence the quality of life of thousands of people with diabetes. Five years ago, India had no authentic data from large populations on the prevalence of GDM. The WDF started funding DIPAP in 2004. Since then, 13,139 women in the State of Tamil Nadu have been screened for diabetes and 1,700 cases of GDM have been detect- ed. A healthy diet and exercise are sufficient treatment for 95% of women with GDM. Furthermore, project data has established that 16% of all pregnant women in urban areas and 10% in rural areas develop gestational diabetes. This data has played a signifi- cant role in changing policies for GDM treatment in the southern- Indian state of Tamil Nadu, which has a population of 62 million. The WDF is an independent trust founded by Novo Nordisk to address diabetes in the world’s poorest countries. It is the only in- ternational foundation devoted solely to funding projects within diabetes care. In its first five years, it has funded 138 projects in 77 developing countries, focusing on diabetes awareness, educa- tion, capacity-building and better access to healthcare. “Our mantra is to be a catalyst – to help others do more,” explains WDF Managing Director Dr Anil Kapur. See more at worlddiabetesfoundation.org Novo Nordisk Annual Report 2007 29 Diabetes care Strategy improved prevention, detection and treatment As the world leader in diabetes care, Novo Nordisk’s ambi- tion is to defeat diabetes by finding better methods of pre- vention, detection and treatment. The company’s strategy is framed around the promise of changing diabetes and finding ways to improve people’s lives. Modern insulin therapy serves individuals' varying needs and lifestyles while providing blood sugar control and, in some in- stances, less weight gain in a simple and cost-effective way. Novo Nordisk is the only company that offers a full range of modern insulins (see box). The company is intent on ex- panding its leadership within injectable insulins by pushing market penetration and seeking label extensions, while con- tinually exploring alternative delivery methods. “We are continuously building upon our expertise in pro- tein expression and engineering, protein formulation and de- vice technology. This, coupled with our in-depth understand- ing of diabetes biology and the causes or origins of diabetes, puts Novo Nordisk in a unique position to realise our vision of eventually defeating diabetes,” says Peter Kurtzhals, senior vice president, Diabetes Research Unit. Other building blocks in the strategy to sustain leadership in diabetes care are a deep understanding of customer needs, coupled with the ability to deliver high-quality clinical data as well as convincing health-economic data that support the ar- guments for the company’s products. The control factor The American Diabetes Association (ADA) and the European Association for the Study of Diabetes (EASD) recommend tight blood sugar control and early adoption of insulin thera- 232 billion US dollars was the estimated world spend in 2007 to treat and prevent diabetes and its complications. 9.2% of people in North America had diabetes in 2007. py for people with diabetes who are not meeting their treat- ment goals. With poor control of their condition, these people risk se- rious complications such as cardiovascular disease, blindness, kidney disease and lower-limb amputations. In 2007, the first results of a three-year 4-T trial 6) (Treating to Target in Type 2 Diabetes) were presented by researchers at the Oxford Centre for Diabetes, Endocrinology and Metabolism. It studied people with type 2 diabetes in Ireland and Great Britain who were not in control of their blood sug- ar despite taking two different antidiabetic tablets. The trial compared the effects of adding various Novo Nordisk modern insulins to the treatment regimen for one year: three equally large groups were treated with NovoMix® 30, NovoRapid® or Levemir®. The results showed that participants in the trial could low- er their blood sugar using any of the insulin regimens tested. The one-year outcome confirmed the advantages of starting once daily with Levemir® – fewer hypoglycaemic events and less weight gain. In patients with HbA1c (a measure of long- term blood sugar levels) of above 8.5% when entering the study, a more intensified treatment with insulin may be need- ed to reach target. Blood sugar control is key The IMPROVE® Control programme, a Novo Nordisk global observational study involving more than 50,000 people with diabetes, is also generating insight into the need for improved control. Participants started on treatment with NovoMix® 30. Most of them had either been on tablet therapy or received no treatment. Others had been on insulin therapy, but did not The modern insulin portfolio There is no ‘one-size-fits-all’ approach to dia- betes treatment. Modern insulins are designed to mimic the body’s own physiological insulin regulation of blood glucose levels more closely than human insulin. Modern insulins offer bet- ter glucose control, less hypoglycaemia and in- creased convenience, leading to fewer serious complications and better treatment outcomes. 30 Novo Nordisk Annual Report 2007 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. Novo Nordisk offers a full portfolio of modern insulins covering fast-acting, long- acting and premixed modern insulins: n Levemir®, a soluble long-acting basal insulin analogue for once-daily use. n NovoRapid® (NovoLog® in the US), a rapid- acting insulin analogue to be used at meal- times. n NovoMix® 30 (NovoLog® Mix 70/30 in the US), a dual-release modern insulin that cov- ers both mealtime and basal requirements. Novo Nordisk also has advanced products within insulin delivery systems. These include FlexPen®, the world’s most-used insulin delivery device. For 50 years, researchers at the Hagedorn Research Institute have worked to find a cure for diabetes. Over 30 children had lots of fun while learning about diabetes during a ‘bring-your-kids-to-work’ day at Novo Nordisk in Bagsværd, Denmark. achieve the treatment targets. Safety and efficacy results after six months’ treatment will be presented at the annual meeting of the American Diabetes Association in 2008. The need for better understanding of diabetes is underscored by re- search 7) presented in 2007 by the Global Task Force on Glycaemic Control. This panel of global experts in diabetes and endocrinology, in association with Novo Nordisk, conducted a survey of nearly 1,400 healthcare professionals and more than 1,000 patients in eight coun- tries, and found limited patient awareness and understanding of HbA1c testing. Healthcare professionals underestimated the value of the test in managing diabetes. Another issue highlighted by the study is the fact that in general people only begin insulin treatment after complications have occurred and have become serious. Convenience drives compliance People with type 2 diabetes typically start insulin therapy with long - acting or pre-mixed insulin, and experience shows that they want very simple, very convenient devices for administering their insulin. Novo Nordisk offers a broad range of injection devices for added convenience and accurate dosing, but is also committed to pursuing alternative deliv- ery models. This is an area in which Novo Nordisk is determined to gain the lead. Fast-acting inhaled insulin in the form it is known today is un- likely to offer significant clinical or convenience benefits over injections of modern insulin with pen devices. A completely new approach to in- haled insulin is needed. Novo Nordisk has therefore refocused its re- search and development activities towards inhalation systems for long- acting formulations of insulin and GLP-1. This work will be done in Hayward, California, US, and Hillerød, Denmark, and will target both liquid-based and powder-based technologies. Opportunities in new treatment options The scope of the diabetes pandemic and the many unmet treatment needs of those millions of people with diabetes who do not achieve their treatment targets invite fierce competition to offer improved treatment. “Proper treatment of diabetes is not just about medicine but about awareness, education and training.” Lise Kingo executive vice president and chief of staffs While modern insulins are currently proven to be the best option, investments are funnelled to research into two new areas. One is next- generation modern insulins, which may offer even better safety and efficacy. The other is GLP-1, a new class of therapies that offer new options for early- and intermediate-stage diabetes. In 2007, Novo Nordisk announced results from phase 3 trials for li- raglutide. Liraglutide, Novo Nordisk’s once-daily human analogue of the hormone GLP-1, is an experimental protein-based option being studied for the treatment of type 2 diabetes. It has been shown to inter- vene earlier in the disease progression and offer blood sugar control and weight loss. Development of liraglutide and other GLP-1 products is central to Novo Nordisk’s strategy for sustaining its leadership in dia- betes care (see pp 32–33). Search for a cure While much focus is being directed at the earlier detection and im- proved treatment of type 2 diabetes, Novo Nordisk’s commitment to finding a cure for type 1 diabetes remains firm. Through the Hagedorn Research Institute, an independent basic research component within Novo Nordisk that celebrated its 50th anniversary in 2007, Novo Nordisk is the world’s largest private sponsor of research into diabetes. Hagedorn is a major industrial partner in two cutting-edge research efforts: Beta Cell Biology Consortium (BCBC), supported by the National Institutes of Health (NIH); and the Juvenile Diabetes Research Foundation (JDRF) Center for Beta Cell Therapy in Diabetes in Europe, funded by the European Union. Novo Nordisk Annual Report 2007 31 Diabetes care Liraglutide liraglutide – key to future growth Diabetes is a demanding condition. It requires constant attention and measuring of blood sugar levels. And with type 2 diabetes being a progressive disease, too many patients never reach an acceptable level of control of their diabetes. The consequence is debilitating and expensive late complications. 3,992 persons participated in Novo Nordisk's LEADTM phase 3 programme. 300 million people in the world are obese, according to the World Health Organization. Liraglutide, Novo Nordisk’s once-daily human analogue of the naturally occurring hormone Glucagon-Like Peptide-1 (GLP- 1), is a compound being developed for the treatment of type 2 diabetes. GLP-1 works by stimulating the release of insulin only when glucose levels become too high, and by decreasing appetite. The effect can be described as enhancing the func- tion of ‘tired’ or worn-out insulin-producing cells. Liraglutide is being studied as a once-daily product that may be adminis- tered any time of day. Because of the mechanism of action, glucose monitoring may not be necessary. In contrast to some other antidiabetic treatments, liraglu- tide may also lead to weight loss instead of weight gain. It is being studied for its potential as a therapeutic option in early- stage diabetes. In 2007, Novo Nordisk concluded phase 3 studies of liraglutide. The LEADTM programme – Liraglutide Effect and Action in Diabetes – is the largest and most complex set of clinical trials Novo Nordisk has ever undertaken for a diabetes product. As one of the most important products in Novo Nordisk’s pipeline, liraglutide is critical to drive the future growth of the company. Liraglutide phase 3 programme LEAD™ (Liraglutide Effect and Action in Diabetes) “We are very pleased with the clinical results. The phase 3 studies have investigated the use of liraglutide throughout the progressive stages of diabetes: from early diagnosis where oral agents are used to intensified insulin therapy. In these studies, reduction in HbA1c and body weight were mea sured,” says Mads Krogsgaard Thomsen, chief science officer. The lev- el of HbA1c reflects the average blood glucose level over the past two to three months, and a decrease is therefore consid- ered a measure of treatment effect. The American Diabetes Association recommends a treatment goal of HbA1c <7%. The data, to be submitted for publication in peer-reviewed journals, makes Novo Nordisk confident, that once approved by regulatory bodies, liraglutide has the potential to become an important new treatment option for people with type 2 dia betes. Novo Nordisk hopes to become a leader in the GLP- 1 market. Novo Nordisk expects to file for regulatory approval of liraglutide in Europe and the US before the end of the sec- ond quarter of 2008. How GLP-1 works Liraglutide mimics GLP-1, which is a hormone released in the intestine. “Liraglutide is intended to work on several levers in type 2 diabetes, most importantly increasing beta cell function and leading to improved glucose control, but without the weight gain that is a natural consequence of this change in metabo- lism. In clinical studies weight loss was generally observed. It Study objective Primary endpoint Number of persons Results announced LEAD™ 1 Effect of liraglutide in combination with sulphonylurea (SU) (glimepiride) LEAD™ 2 Effect of liraglutide in combination with metformin LEAD™ 3 Effect of liraglutide in monotherapy LEAD™ 4 Effect of liraglutide in combination with metformin and TZD (rosiglitazone) LEAD™ 5 Effect of liraglutide in combination with metformin and SU (glimepiride) HbA1c (26 weeks) HbA1c (26 weeks) HbA1c (52 weeks) HbA1c (26 weeks) HbA1c (26 weeks) 1,041 1,091 746 533 581 20 August 2007 20 August 2007 11 December 2007 14 September 2007 21 June 2007 Detailed results from the full LEADTM programme are expected to be communicated at scientific meetings and in peer-reviewed journals. More details can be found at novonordisk-trials.com 32 Novo Nordisk Annual Report 2007 “The innovation space of GLP-1 fits perfectly with our skill base. GLP-1 and insulin are the two most promising areas in diabetes care be in, and where the most advancement seems possible.” Mads Krogsgaard Thomsen executive vice president and chief science officer is believed that the glucose-dependent action, sustained beta cell func- tion and weight loss work together in a virtuous circle,” says Peter Kristensen, who as project vice president for liraglutide has overseen the trial programme. The LEADTM programme spanned more than 40 countries and in- cluded around 4,000 people with type 2 diabetes whose blood glucose was inadequately controlled. The programme is comprised of five ran- domised, controlled, double-blind studies. The conclusive study, the results of which were announced in December 2007, indicates that the effects of liraglutide appear to be sustainable after one year’s treatment. This is to be further investigated. Liraglutide studied for obesity treatment In November 2007, Novo Nordisk announced the clinical results from a double-blind, placebo-controlled phase 2 study of the use of liraglutide for treatment of obesity in people who do not have diabetes. It is aimed at clinically obese people with a Body Mass Index (BMI) above 30. In the study liraglutide was given once daily over 20 weeks. All doses of liraglutide were seen to reduce body weight. The study also indicat- ed a beneficial effect on systolic blood pressure after treatment with liraglutide, most likely associated with the weight loss. In order to study the long-term weight reduction of liraglutide treat- ment, around 85% of all participants in the study volunteered to con - tinue into an open-label extension phase of the study. Production capacity in place The making of GLP-1 is quite similar to the production processes re- quired for the production of modern insulins, and Novo Nordisk’s pro- duction capacity is geared to begin supplying the market once regula- tory approval has been obtained. With the company’s extensive programme to build global sourcing and optimise production efficiency (see pp 22–23), facilities in Kalundborg, Denmark, are available for a dedicated production of liraglutide. Looking ahead As part of the longer-term life-cycle management initiatives supporting the GLP-1 franchise, Novo Nordisk initiated a phase 1 study of a once- weekly human GLP-1 analogue in 2007. Based on Novo Nordisk’s protein acylation technology, this compound is designed for treatment with expected administration in a convenient injection device. “With the ambition to also become the leader in the GLP-1 field, we are working actively to secure this position by building up a portfo- lio of products,” says Mads Krogsgaard Thomsen. Obesity – a 21st century health crisis Being overweight and obese significantly increases the risk of de- veloping type 2 diabetes. According to the World Health Organization, at least 300 million people in the world are obese 8). With numbers such as these, obesity – and its related disorders – is set to become one of the 21st century’s biggest health crises. Already today, more than half the OECD population has a BMI at more than 25, currently applied as the upper level of normal weight. In the US, 66% of the population is overweight and 33% obese.The global prevalence of overweight adults is projected to increase by 50% over the next 10 years to 1.5 billion people and by 2015 roughly half a billion people will be obese, if the current trend is not reversed. There is broad consensus among experts and decision-makers that successful control requires collaborative efforts of govern- ments, communities, civil society, healthcare, industry, individuals and other stakeholders. Clearly, there is considerable consumer demand for safe and effective weight loss medicines without too many unpleasant side effects. Still, there is widespread medical consensus that the first line of intervention to control obesity should be advice on exercise and dietary adjustments. Medicines or surgery should only be considered if this route fails and the individual is at risk of devel- oping medical complications to obesity. Novo Nordisk’s Diabetes 2025 scenarios forecast that, in the future, antiobesity medicines are likely to play a central role simi- lar to today’s highly efficacious cholesterol and blood pressure lowering medications, namely as the lead intervention in large populations. However, costs for life-long treatment may affect the prospect of any new obesity-related medicine from achieving widespread use. Certainly, long-term health-economic benefits will affect reimbursement by health management groups. Future Novo Nordisk antiobesity medications will be devel- oped and marketed to tackle obesity associated with serious health risks. Novo Nordisk will work within the existing consensus and guidelines regarding antiobesity pharmacological interven- tions, but will strive to better define the obese subjects with a substantial health risk, so treatment can be targeted at those who need it most. Novo Nordisk believes that diabetes leadership involves taking an active role in the promotion of the value of wellness and healthy eating and exercising campaigns (see p 25). Novo Nordisk Annual Report 2007 33 Diabetes care Markets modern insulins available to more people With 53% of the total insulin market and 43% of the mod- ern insulin market, both measured by volume, Novo Nordisk is the global market leader. The modern insulin and device portfolios showed continued strong sales growth in 2007. “We offer excellent products and devices, and we put a strong organisation behind it, focusing on delivering results to the people with diabetes using our products. That is our simple recipe for success,” says Kåre Schultz, executive vice president and chief of operations. “This doesn’t mean it is a smooth road ahead. But we have good reason to be confident about our future.” “As the market leader, our commitment has been unwa- vering over time, backed by our products and business ap- proach. We put all our efforts into making sure that what we do truly makes a difference for people with diabetes,” says Kåre Schultz. Levemir® gains momentum Market performance in 2007 reflected the success of Novo Nordisk’s portfolio of modern insulins. Both NovoRapid® and NovoMix® 30 (NovoLog® and NovoLog® Mix 70/30 in the US respectively) consolidated their market positions. In addition, a number of pivotal developments in 2007 helped strengthen the position of Levemir®, the company’s long-acting basal insulin – not least its entry into crucial new markets. Levemir® was launched in Japan in 2007, making Novo Nordisk the only company in Japan to offer a full portfolio of modern insulins. Novo Nordisk has long been the market leader in Japan. In Europe and the US, where Levemir® was launched in 2004 and 2006 respectively, it is gaining a solid foothold in the basal insulin category. Today, it is marketed in 61 countries worldwide. Diabetes highlights 2007 n Levemir® launched in Japan. n European Commission approves use of Levemir® once-daily in combination treatment with tablet-based antidiabetics for people with type 2 diabetes. n European Commission approves NovoRapid® for treatment of diabetes in the elderly and in people with renal or hepatic impairment. n NovoLog® takes leadership position in the US. n Once-daily Levemir® gains momentum in the US through PREDICTIVETM 303 results and widened outreach to primary care. n FlexPen® is the most used insulin device in the world. 34 Novo Nordisk Annual Report 2007 53% was Novo Nordisk’s estimated share of the global insulin market (by volume) in 2007. 700 people joined Novo Nordisk’s US diabetes care sales team in 2007. 20% of the world’s elderly population has diabetes. 61 countries offer Levemir®, Novo Nordisk’s once-daily, soluble, long-acting basal insulin analogue. At the meeting of the American Diabetes Association in 2007, Novo Nordisk presented detailed results from the Levemir® PREDICTIVETM clinical trial in the US. This six-month study included 5,604 persons with type 2 diabetes and showed that they were able to reduce their blood sugar level by adjusting their own dosage of Levemir®, compared to dos- ing adjusted by their primary care physician. This underscores the simplicity of starting insulin therapy with Levemir®. Once-daily use of Levemir® In 2007, Novo Nordisk received marketing authorisation from the European Commission for the use of Levemir® once-daily in combination treatment with tablet-based antidiabetics (OADs) for people with type 2 diabetes. During 2007, a number of publications based on clinical trials, the observational study PREDICTIVETM and reviews 9), all supported the fact that once-daily Levemir® is effective in managing glucose levels in type 2 diabetes. The Weight of the World The finding from the PREDICTIVETM study that Levemir® also resulted in less weight gain is attracting attention from healthcare professionals. Historically, insulin treatments have had negative weight implications for patients; an unfortunate side effect which can exacerbate the problems associated with the condition it is intended to improve. ‘The Weight of the World’, a review of clinical research, tri- als and surveys regarding weight in diabetes and its impact, which was conducted by leading diabetes experts, concluded that even a relatively modest weight loss can result in im- proved glycaemic control, reduce the risk of heart disease and can also increase life expectancy. United States – expanded sales force Novo Nordisk is the only company in the United States – the world’s largest pharmaceutical market – to offer a complete portfolio of modern insulins. The company expanded its US diabetes sales force in 2007 with an additional 700 people, bringing the total to around 1,900. In this fiercely competitive market, Novo Nordisk managed to achieve a 43% share in the modern insulin market (by vol- ume) in 2007, making it the leader, measured by volume. Along with the expanded sales force, more focused selling with greater responsiveness to understanding the needs of customers, particularly primary care physicians, is driving mar- ket penetration of Levemir®. “The clinical data from PREDICTIVETM has strengthened our message to healthcare professionals about the advan- tages of Levemir® for people with type 2 diabetes,” says Camille Lee, vice president, Diabetes Brand Marketing, Novo The long-acting basal modern insulin Levemir® entered new markets in 2007. Beatriz de Lourdes Gonçalves from Belo Horizonte, Brazil, has type 1 diabetes. Nordisk Inc. “In 2007, NovoLog® (NovoRapid®) became the leading brand in the rapid-acting category. In addition, Novo Nordisk products have at minimum 80% coverage in the managed care formularies, which are restricted lists of reimbursable medicines. All of these ele- ments put us in a strong position in the US diabetes care market,” says Camille Lee. 36–37) and is expected to be its second- or third-largest within the next five years. Other key markets are Brazil, Russia, India and Turkey. “International Operations is contributing significantly to creating new growth for Novo Nordisk. Average earnings in the IO countries are still low, but a growing middle class in countries like China, India and Brazil is stimulating demand for modern insulins,” says Jesper Høiland, Europe – modern insulin growth In Europe, Novo Nordisk continued to increase the market share of its modern insulins. This was boosted not only by the Levemir® once-daily approval with OADs, but also the approval in Europe in 2007 of NovoRapid® for the treatment of diabetes in the elderly and in people with renal or hepatic impairment. Since diabetes is a progressive disease, many older people with dia- betes require more intensive insulin therapy over time. According to the International Diabetes Federation (IDF), approximately 20% of the world’s elderly population has diabetes, and the figure is increasing steadily. ”We have become the European market leader in modern insulins. Our next ambition is to bring the benefit of modern insulins to all peo- ple with diabetes in Europe,” says Kåre Schultz. Emerging markets – on the move Novo Nordisk’s International Operations (IO) consists of 142 countries that between them generate more than 50% of global GDP growth. These emerging markets are home to more than 85% of the world’s population and 80% of all people with diabetes in the world – some 183 million in all. Sales of diabetes care products in the region in 2007 grew by 20% measured in local currencies and by 14% in Danish kro- ner. China is currently Novo Nordisk’s fifth-largest market (see pp “Leadership in modern insulins is key to realising both our vision and our financial targets.” Kåre Schultz executive vice president and chief operating officer senior vice president, International Operations. “If you look at the phar- maceutical industry as a whole, analysts anticipate significant growth rates of 10–15% in the emerging markets. Due to our early and sus- tained presence and our market leadership, Novo Nordisk is in a strong position to capture a large share of that growth.” Japan & Oceania – leading the market With the launch of Levemir® in 2007, Novo Nordisk is the only company in Japan offering a full portfolio of modern insulins. Novo Nordisk has long been the market leader in Japan and had 73% of the insulin mar- ket (by volume) in 2007. Japan, with a population of 130 million people, is the world’s second-largest pharmaceutical market. Diabetes is a large and growing public health issue. It is estimated that diabetes currently affects more than 16 million people in Japan: 8 million have diabetes or glucose levels indicating diabetes, and 8.8 million have prediabetes. Novo Nordisk Annual Report 2007 35 Diabetes care Emerging markets tackling diabetes on all fronts in China China’s rapid economic transformation poses major chal- lenges to society, and one of these is diabetes. A growing middle class is adopting Western lifestyles with too little exercise and diets high in saturated fat – proven risk fac- tors for diabetes and other chronic diseases. Over weight and obesity are on the rise, even among children and youth. Globalisation, an ageing population and urbanisa- tion are contributing factors to the health crisis. Nearly 40 million Chinese are estimated to have diabetes, the second-highest number of people with diabetes in any single country after India. As a sign that the problem will get worse before it gets better, 64 million Chinese have impaired glu- cose tolerance, or prediabetes. At this rate, the International Diabetes Federation (IDF) predicts that the number of adults with diabetes in China will reach 46 million by 2025, or 12% of the worldwide figure. This is expected to have a major impact on China’s econo- my. The World Health Organization predicts that by 2015, China’s economy will experience a net loss in national income from diabetes and cardiovascular disease of 558 billion US dollars. Early, long-term presence In 1994, Novo Nordisk began to invest in building a strong presence in China. Today, Novo Nordisk is the market leader in the insulin market and is also among the fastest-growing pharmaceutical companies in China. Achieving market leadership is the result of a concerted 80% of deaths in China are attributable to chronic diseases, according to the Chinese Centre for Disease Control and Prevention. 2 million Chinese migrate every month from rural areas to coastal cities. effort to put diabetes on the agenda and to present Novo Nordisk as having better products and the most extensive knowledge of diabetes. The commitment to change diabetes, with a focus on education, training and public awareness, has made Novo Nordisk a trusted partner in China. Because the causes of the diabetes pandemic in China are so complex, Novo Nordisk, together with key opinion-leaders within diabetes, launched a study in 2007 to examine the socio-economic impact of the condition. This study will look at the cost and benefit of improved diabetes care using evi- dence-based research, and will contribute to providing data that can help build a better understanding of the dynamics of diabetes. Staying focused Novo Nordisk China employs 1,250 people, has a production facility in Tianjin and a thriving R&D centre – the first R&D centre established in China by an international pharmaceuti- cal company. The Tianjin plant has been expanding its pro- duction capacity by around 40% a year. Novo Nordisk is also expanding its sales force in China, extending its outreach beyond the biggest cities into many smaller cities. Distribution and logistics are a challenge in a country as vast as China. Price negotiation, which takes place at national, provincial and even city level, is another challenge. Staying in the lead requires constant focus and continued investments. There is fierce competition for a share of the growing diabetes market, and Novo Nordisk intends to sus- Investing in scientific innovation Novo Nordisk’s R&D centre in China is located in Zhongguancun Life Science Park just out- side Beijing. The centre has been developing and expanding since 2002. As an integrated part of Novo Nordisk’s Biopharmaceuticals Research Unit, the 45 employees work closely with R&D colleagues in Denmark. With a strong technology platform within the areas of 36 Novo Nordisk Annual Report 2007 molecular biology, protein chemistry and cell biology, the R&D centre plays a key role in Novo Nordisk’s overall R&D strategy. ”China today is moving towards a very innovative cul- ture with lots of opportunity and resources within life sciences,” says Baoping Wang, head of the centre. He expects that the centre will soon be able to identify a first new drug dis- covery project of its own. As a further recognition that the company’s scientific innovation will focus increasingly on China in future years, Novo Nordisk and the Chinese Academy of Sciences signed an agree- ment in 2007 establishing a joint research foundation in China. The aim of the Novo Nordisk–Chinese Academy of Science Research Foundation is to fund or co-fund activities of common inter- est within the fields of diabetes and biophar- maceuticals, including related disciplines and technologies such as protein chemistry, immunology, inflammation, toxicology, en- docrinology and drug delivery. Novo Nordisk is funding 2 million US dollars in support of re- search into diabetes and biopharmaceuticals. Nearly 40 million people in China are estimated to have diabetes. The China Health Star Search is a contest for people with diabetes. In quizzes and presentations they compete on knowledge about how to reach treatment targets. “With our promise of changing diabetes, we believe that we are making a difference. That’s why many people join us and why many people stay.” Ron Christie general manager, China tain its market leadership by building the market for the company’s modern insulins, maintaining a strong sales organisation and relent- lessly making the case for earlier detection and improved treatment of diabetes. Novo Nordisk will continue to expand its activities in China. The cur- rent number of employees is likely to more than double within the next five years, and Ron Christie, Novo Nordisk’s general manager in China, is confident of the future direction. ”We believe that within five years China will represent the second- or third-largest market in Novo Nordisk,” he says. Education is the key The first step to improving diagnosis and treatment is education. It is es- timated that only 25% of people with diabetes in China are diagnosed and treated; only about 40,000 doctors in the country of 1.3 billion peo- ple are trained in diabetes care. In 2002, Novo Nordisk established the National Diabetes Management programme with the Chinese Ministry of Health. This led, among other things, to the creation of the first-ever national guidelines for the diagnosis and treatment of diabetes and the education of doctors in 300 cities. Through Novo Nordisk education pro- grammes more than 150,000 healthcare professionals in China have re- ceived training in diabetes care since 2002. The Novo Nordisk China Health Star Search raised public awareness by involving more than 40,000 people with diabetes in a contest to share their positive stories about living with diabetes. It has run in 43 cities and through media coverage reached out to millions of people. Other initiatives include a Changing Diabetes® bus that will cover 100 cities over a three-year period and a patient network of some 600,000 members. Ongoing medical reform Access to national healthcare insurance has been a barrier to improved care in China. Today, only 12% of Chinese have comprehensive med- ical healthcare insurance. This is set to change in coming years, with the Chinese government pledging to establish a medical service system covering all urban and rural Chinese by 2010. In 2007, the Chinese government extended national health insurance coverage to 32 million migrant workers. As health insurance spreads and more Chinese peo- ple get access to advanced pharmaceutical products, the market for dia betes care is set to grow at an even faster pace. Investment in people Competition for market share as well as employees and knowledge is fierce. To help retain talent, Novo Nordisk prioritises the creation of attractive career opportunities, but even more importantly, shared values and a corporate culture underpin the Novo Nordisk Way of Management. In 2007, the Novo Nordisk Peking University International MBA pro- gramme was established at the prestigious Peking University, offering Novo Nordisk managers in China a tailored programme to develop busi- ness knowledge, strategic thinking and leadership. “With our promise of changing diabetes, we believe that we are making a difference. That’s why many people join us and why many people stay,” says Ron Christie. Novo Nordisk Annual Report 2007 37 Biopharmaceuticals Haemophilia Enea Atroce is a nine-year-old from Switzerland who has haemophilia. meeting needs in haemophilia 1st haemostasis research laboratory in the US dedicated to life- threatening bleeding is Novo Nordisk’s research facility in New Brunswick, New Jersey, US. 1 billion US dollars. When sales of NovoSeven® hit this figure in June 2007, it became a block- buster. With next-generation successors to NovoSeven® in the pipeline and several new molecules Novo Nordisk demon- strates its commitment to offering improved treatment options for people with haemophilia. A decade ago, recombinant factor VIIa (rFVIIa), the active ingredient in NovoSeven®, dramatically changed the lives of two boys with haemophilia A who had inhibitors (antibodies) to coagulation factor VIII and could not control their bleed- ings. Today, NovoSeven® is the leading treatment for people with congenital haemophilia with inhibitors, about 3,500 people worldwide. Novo Nordisk is a leader in developing therapies to stop or reduce bleeding episodes in haemophilia patients with inhibitors. Haemophilia is a disabling, inherited bleeding disorder that has a tremendous medical, social, psy- chological and financial impact upon patients, their families and society. There remain many unmet needs in this group of people. “It is our intention to develop a range of product improve- ments for this patient population to address serious unmet medical needs,” says Anne Prener, corporate vice president, NovoSeven® Management. NovoSeven® is used intravenously in the acute treatment of bleeding episodes and for the prevention of bleeding dur- ing surgery or invasive procedures in patients with congenital haemophilia with inhibitors to coagulation factors VIII or IX. In addition, it has been approved for use in patients with 38 Novo Nordisk Annual Report 2007 acquired haemophilia and other rare bleeding disorders such as Glanzmann’s thrombasthenia (approved in 82 countries) and and FVII deficiency. Sustaining the lead in haemophilia NovoSeven® is positioned as the first-line treatment for bleed- ings in haemophilia patients with inhibitors because of its ef- ficacy, safety profile and onset of action. Further improve- ments in terms of formulation and dosing have been made, making NovoSeven® even more convenient, while at the same time maintaining efficacy and safety profiles. With the main NovoSeven® patents due to expire in November 2010 (in the US) and February 2011 (in the EU), Novo Nordisk is placing high priority on sustaining its haemophilia inhibitor portfolio with new, superior, patent-protected molecules. With the portfolio advancements during 2007, Novo Nordisk is pro- gressing well. In 2007, NovoSeven® sales exceeded one billion US dollars, thereby reaching blockbuster status. “NovoSeven® is still expected to show growth, albeit at a lower pace,” notes Jesper Brandgaard, chief financial officer, Novo Nordisk. Just one infusion In 2007, NovoSeven® was launched in Europe for single-dose use (270 µg/kg), making administration of NovoSeven® more convenient for mild to moderate bleedings. The approval means that NovoSeven® can be administered with just one infusion to treat a bleeding episode. The single dose will help haemophilia patients with inhibitors to cope with the disruption that multiple intravenous infusions cause to their lives. In addition, Novo Nordisk has filed for regulatory approval of a temperature-stable version of NovoSeven® in Europe as well as in the US. A temperature-stable product is expected to deliver significant patient benefits, including ease of access to treatment irrespective of where the patient expe- riences a bleed, since the product will become portable without the need for refrigeration. Next-generation compounds To be able to offer better treatment and protect patent rights, Novo Nordisk is developing a class of future-generation rFVIIa compounds with improved properties. In 2007, Novo Nordisk initiated a phase 2 study of the short-acting rFVIIa analogue (NN1731). The study is ex- pected to include around 75 haemophilia patients with inhibitors and will evaluate both safety and efficacy. In June, Novo Nordisk initiated a phase 1 study of GlycoPEGylated factor VIIa, a long-acting version of coagulation factor VIIa (recombinant) to determine if it will provide long-term prevention of bleeding episodes. A subcutaneous formulation of rFVIIa is being studied for the treat- ment of haemophilia patients with inhibitors. Novo Nordisk is also actively pursuing the development of several new molecules for the treatment of haemophilia patients with in- hibitors. The company has a pipeline of clotting factors destined to be used in haemophilia and other congenital bleeding disorders. NovoSeven® in critical bleedings Novo Nordisk is currently exploring the potential of NovoSeven® for managing critical bleedings in selected areas where rFVIIa can poten- tially make a clinical difference to patient outcomes. While several proj- ects in the pipeline show promise, research in this area suffered a set- back in 2007 when Novo Nordisk decided not to pursue regulatory approval for NovoSeven® in the treatment of people suffering from bleeding in the brain, also known as intracerebral haemorrhage, or ICH. Preliminary results of a phase 3 trial confirmed the safety profile and showed that NovoSeven® reduces bleeding in the brain, but does not improve long-term clinical outcomes. Consequently, Novo Nordisk has discontinued its ICH development “Novo Nordisk is committed to building leadership and providing therapeutic improvements for people with haemophilia.” Anne Prener corporate vice president, NovoSeven® Management programme. Data from the phase 3 clinical trial, as well as the extensive analyses of the study results that have been conducted, have been sub- mitted for publication in peer-reviewed journals. With regard to safety, study results were in line with the established safety profile of NovoSeven®. The results came as a disappointment, particularly given the encouraging results from the phase 2 trial. “We hoped that NovoSeven® could become a treatment for the people who suffer from ICH, and for whom no effective medical treatment exists,” says Lars Rebien Sørensen, president and chief executive officer, Novo Nordisk. NovoSeven® is being studied in a phase 3 trial for treatment of criti- cal bleeding in trauma patients. In a completed phase 2b study, NovoSeven® was demonstrated to reduce transfusion needs in patients with severe blunt trauma. A phase 2 safety study of the use of NovoSeven® in cardiac surgery has been completed. The study con- firmed the safety profile known from the cardiac surgery setting and from other studies of NovoSeven® outside of haemophilia with in- hibitors. While the primary aim of this trial was safety, the trial also demonstrated the biologic haemostatic effect of NovoSeven®. Outreach projects that work Lack of access to haemophilia care is particularly daunting in the developing part of the world, where this disease is not a priority. It is estimated that the disorder affects some 600,000 people globally, of whom an estimated two thirds live in developing countries. Haemophilia only affects males, and about half of the patients may require treatment for bleeding episodes several times a month. But today, only a small minority in the developed world – some 30,000 – receive proper treatment. In many developing countries, young boys with haemophilia risk spontaneous and severe joint, muscle and internal bleedings with complications such as chronic joint disease and crippling. Without proper diagnosis and care they may die at an early age. The Novo Nordisk Haemophilia Foundation (NNHF) was estab- lished in 2005 as an independent, non-profit entity to address the significant need to improve treatment of people with haemophilia in the developing world. It funds programmes to improve haemophilia care and treatment and to raise awareness by focus- ing on capacity-building, patient education, diagnostic program - mes and registries in the developing world. With an annual grant from Novo Nordisk of approximately 10 million Danish kroner it currently supports 21 projects in South America, North Africa, Asia, the Middle East and Eastern Europe in partnership with healthcare authorities, medical professionals, NGOs and patient organisations. The first project to be completed provides a good example. In Uzbekistan, a relatively small investment from the NNHF led to training of doctors and nurses and the creation of a diagnostic fa- cility, resulting in a national screening programme and registry. A local organisation supported the project and funded a new centre for the treatment of bleeding disorders. It is estimated that the NNHF’s work impacts the lives of about 20,000 people with haemophilia in the countries where it has projects. “We have a social responsibility to reach out to people whose survival and quality of life depend on proper detection, diagnosis and treatment,” says Stephen Robinson, general manager, the Novo Nordisk Haemophilia Foundation. See more at nnhf.org Novo Nordisk Annual Report 2007 39 Biopharmaceuticals Other therapy areas expanding the range of biopharmaceuticals Novo Nordisk’s strategy to expand its biopharmaceuticals business is two-pronged. While seeking additional uses for existing products, the company also explores potential new therapies for neglected medical conditions. In 2007, this strategy delivered several successes. These in- cluded the approval of new indications for the company’s human growth hormone product Norditropin®, new product launches within hormone replacement therapy, and a new pi- lot production facility to spur faster advancement in areas of unmet needs within inflammation. The growth hormone business continued in 2007 to steadily penetrate the market, including hard-won success in the competitive US market. With a global market share of approximately 23% in terms of value, Novo Nordisk ranks second worldwide in growth hor- mones. In 2007, the company made significant progress to- wards taking top place. New indications for Norditropin® There is a number of very small patient groups with few, if any, medical options. For these people, the development of new treatments is vital. Such was the case with NovoSeven®, which was developed for a population of 3,500 individuals with congenital haemophilia (see p 38). To encourage the development of treatment for rare disorders that may not otherwise be commercially viable, the US Food and Drug Administration (FDA) designates drugs that treat fewer than 200,000 US patients with an ‘orphan drug’ status. Having or- phan drug status in the US means that no other company can promote this new indication for a seven-year period. This offers a win-win proposition for patients, companies and society. In June 2007, Norditropin® received the designation along with FDA approval for use of Norditropin® in the treatment of short stature associated with Noonan syndrome. Noonan syndrome is defined as an autosomal dominant genetic syndrome commonly characterised by short stature, congenital heart defects and characteristic facial features. It is classified as a rare condition, with a population of less than 200,000 US patients. Up to 80% of children with Noonan syndrome suffer from significantly short stature, with few treatment options available to help their physical growth. The area of paediatric growth hormone treatment is one where approval of new indications is rare. In fact, the ap- proval of Norditropin® is the first new indication approval in six years within this field. Helping girls with Turner syndrome In September 2007, Norditropin® also received approval from the FDA for the treatment of children with short stature asso- ciated with Turner syndrome. This FDA approval gives physi- 40 Novo Nordisk Annual Report 2007 80% of children with Noonan syndrome have significantly short stature. 20% is the annual mortality rate for US adults in chronic dialysis. 23% of the global market for growth hormones (in value) makes Novo Nordisk number two in this market. 2008 is the year when Novo Nordisk’s first projects to treat autoimmune diseases enter clinical trials. cians in the US the option of dosing up to higher levels than previously. Turner syndrome is a rare chromosomal condition caused by complete or partial absence of the second sex chro- mosome (X chromosome) in females. This occurs in approxi- mately one in 2,500 live female births. Short stature is the most common feature associated with Turner syndrome and affects the majority of patients. Children born with growth disorders that can be treated with growth hormone benefit not only in terms of physical growth but also in terms of their quality of life and well-being, according to data 10) from Novo Nordisk’s group for Global Health Economics and Outcomes Research. New hope for dialysis patients Norditropin® may also have potential for the treatment of complications associated with adult patients in chronic dialy- sis (APCD). In 2007, Novo Nordisk initiated a phase 3 trial en- compassing about 2,500 patients worldwide. This double-blind, placebo-controlled study evaluates the impact of growth hormone treatment on the survival rate of APCD patients following two years’ treatment. Growth hor- mone treatment is being studied for its ability to increase the patients’ lean body mass and level of serum albumin, which have been shown to be leading indicators for survival in APCD. The study is expected to take around three years to complete. The annual mortality rate for adult patients in chronic dialysis in the US is a discouraging 20% (17% in Europe and 9–10% in Japan). A number of patients in chronic dialysis suf- fer from serious malnutrition and frequent inflammation that no available treatment has been able to remedy. This malnu- trition-inflammation state has been closely associated with a higher death rate. Worldwide, more than one million people with advanced kidney disease have to go to hospital several times a week for dialysis. A few of these people will receive kidney transplants, but most will be in dialysis for the rest of their lives. This possi- ble new use of growth hormone would address a significant unmet medical need for thousands of patients. Novo Nordisk is currently the only company pursuing this indication. Lower-dose HRT products Sales of Novo Nordisk hormone replacement therapy (HRT) products showed solid growth in 2007. This is in contrast to the situation following the publication of results from the Women’s Health Initiative in 2002, when sales of HRT prod- ucts in general, including Novo Nordisk products, declined. Novo Nordisk’s position is that HRT should be prescribed at the lowest effective dose and for the shortest duration consis- tent with treatment goals and risks for the individual woman. To help meet patient needs, the company is complementing its An investment of 350 million Danish kroner – Novo Nordisk’s new pilot plant in Hillerød, Denmark. Only girls have Turner syndrome. existing portfolio of HRT products with lower-dose versions of Activelle® (Activella® in the US, where it was launched in 2007) and Vagifem®. New pilot plant Novo Nordisk is using its existing knowledge of proteins and autoim- mune diseases to build a presence within inflammation. In 2007, Novo Nordisk boosted its potential to produce proteins for investigational clinical trials with the inauguration of a new pilot plant in Hillerød, Denmark, which over the next few years will double the company’s capacity for producing investigational compounds for clini- cal trials and enable Novo Nordisk to move new biopharmaceutical candidates into its pipeline significantly faster. The new plant, a 350 million Danish kroner investment, will be used to develop and manu- facture new biopharmaceutical products based on proteins produced in mammalian cells for use in haemostasis and inflammation. Progress in new areas Novo Nordisk is pursuing treatment of autoimmune inflammatory dis- eases such as rheumatoid arthritis, psoriasis, inflammatory bowel dis- ease and systemic lupus erythematosus (SLE) because of large unmet medical needs for which the company’s solid foundation of existing competences in proteins and delivery devices could offer therapeutic solutions. In type 1 diabetes, the body’s immune system destroys the in- sulin-producing cells in the pancreas, and similar processes are the cause of other autoimmune diseases. The first projects to treat autoim- mune diseases are ready to enter clinical trials during 2008. maceuticals area has been updated. Based on an evaluation of the gen- eral competence level required, the level of investments needed and the likelihood of success, Novo Nordisk has decided to increase and focus activities on inflammatory diseases. As a consequence, research and development activities within oncology will be terminated and resources applied to the growing inflammation portfolio. Existing oncology proj- “We are intent on addressing significant unmet medical needs wherever we have the competence to develop solutions.” Lars Rebien Sørensen president and chief executive officer ects, including the IL-21 programme and the anti-KIR project, are expected to be outlicensed. The ongoing development activities for these two projects will continue while discussions with potential new partners are taking place. The first two compounds targeting inflam- matory diseases are expected to enter clinical development in 2008. Immunotherapy is an area where Novo Nordisk is working closely with partners. Partnerships can stimulate innovation for the benefit of patients and bridge gaps in fields where Novo Nordisk sees room to pursue business opportunities. In 2007, the company established a new website to set out the company’s assets as a preferred biotech partner for firms with complementary skills. The research and development strategy for the emerging biophar- See novonordisk.com/science. Click: Partnering Novo Nordisk Annual Report 2007 41 corporate governance Corporate governance refers to the way a company is managed and the major principles and frameworks that regulate interaction between the company’s managerial bodies, its owners and other stakeholders. Novo Nordisk's values are consistent with principles of good govern- ance. The Novo Nordisk Way of Management forms the values-based governance framework for the company and is an integrated part of the company’s corporate governance (see pp 6–7). Governance structure The company has a two-tier board structure consisting of the Board of Directors and Executive Management. The two bodies are separate, and no person serves as a member of both. Shareholder rights Novo Nordisk’s share capital is divided between A shares and B shares. All A shares are held by Novo A/S, a Danish public limited liability com- pany wholly-owned by the Novo Nordisk Foundation, which is a pri- vate, profit-making, 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, whereas each B share carries one vote (see p 50). Special rights attached to A shares include preemptive subscription rights in case of an increase of the A share capital, and preemptive pur- chase rights in case of a sale of A shares and priority dividend if dividend is below 0.5%, while B shares take priority for dividend between 0.5% and 5% and B shares take priority for winding-up proceedings. Novo Nordisk is of the opinion that the current share and ownership structure is appropriate and preferable for the long-term development of the company. A study 11) commissioned by the European Commission concluded in 2007 that control-enhancing mechanisms such as the A and B share structure are allowed in all European countries investigated and that they do not have a negative impact on shareholder value cre- ation. Novo Nordisk believes that the transparency inherent in its share structure is to the benefit of shareholders, who know in advance the relative voting power of each share class. The current differentiation of voting rights cannot be revoked as this would violate the articles of as- sociation of the Foundation, which have been approved by the Danish authorities. Novo Nordisk is not aware of the existence of any agreements be- tween shareholders on the exercise of votes or control. Shareholders have the ultimate authority over the company, and ex- ercise their right to make decisions regarding Novo Nordisk at general meetings, either in person or by proxy. Resolutions can be passed by a simple majority, while resolutions to amend the articles are subject to adoption by at least two thirds of votes cast and capital represented un- less stricter requirements are imposed by Danish company law. The an- nual general meeting approves the annual report and any amendments to the articles. The general meeting elects 4–10 directors plus the audi- tor. All shareholders may, no later than 1 February, request that propos- als for resolution be included on the agenda. All shareholders may also ask questions at the general meetings. Simultaneous interpretation be- tween English and Danish is available, and the meeting is webcast live. The Board of Directors On behalf of the shareholders, the Board determines the overall strate- gy and actively contributes to developing the company as a focused global pharmaceutical company. It supervises Executive Management in its decisions and operations. The Board may issue new shares or buy back shares in accordance with authorisations granted by the general meeting and recorded in the minutes. The guiding principle in composing the Board is that it should com- prise individuals whose particular knowledge and experience enables the Board as a whole to attend to the interests of shareholders, em- ployees and other stakeholders. New board members undergo an induction programme equivalent Corporate governance benchmark 2007 In 2007, Novo Nordisk commissioned ISS Corporate Services Inc. (ISS) to appraise the company’s corporate governance practices against those of its national, European and US peers as well as international best practice standards. The ISS study confirmed Novo Nordisk’s strong performance in its corporate governance disclosure practice. It also provided compelling evidence of Novo Nordisk’s firm commitment to good corporate governance and to the maximisation of shareholder value. ISS also revealed areas where Novo Nordisk could consider adjustments. Some adjustments have already been implemented and others will be considered in coming years. Novo Nordisk remains committed to the general principles of good corporate govern - ance and aims to enhance its culture so as to foster these principles at every level of the organisation. One recommendation that will be put to the Annual General Meeting 2008 concerns an adjustment of the threshold for calling an extraordinary general meeting. So as to bring this procedure into line with best practice, it is proposed that the threshold be reduced from the current 10% of total share capital to 5%. This would, naturally, simplify the process of calling an extraordinary general meeting and would give shareholders greater voice. Another recommendation in the ISS report, which will also be put to the 2008 Annual General Meeting, concerns the Board’s stand- ing mandate to increase the share capital. Best practice in this regard is that a board’s ability to issue B shares without preemptive subscription rights for current B shareholders is limited to a maximum of 20% of the share capital. Novo Nordisk’s Board currently has the right to issue B shares without preemptive subscription rights to a value corresponding to 34.1% of the share capital. The proposal is to reduce this to approximately 20%. 42 Novo Nordisk Annual Report 2007 Shareholder information Corporate governance to two full days during their first year on the board and subsequently participate in educational activities as required. and evaluating the competitiveness of the R&D organisation, processes and projects. 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 mem- bers is presented by the Chairmanship to the Board taking into account required competences and the result of the self-assessment process. In nominating candidates, the Chairmanship seeks to achieve a balance “Transparency, both in terms of corporate governance practices and the risk management process, should be viewed as a precondition for retaining shareholder confidence.” Jesper Brandgaard executive vice president and chief financial officer between renewal and continuity. Executive search has helped identify board members who meet such criteria. Four of the shareholder-elected board members are independent as defined by the Danish Corporate Governance Recommendations, while three shareholder-elected board members are related to the majority shareholder through board or executive positions, and two of these have also previously been executives in Novo Nordisk (see pp 46–47). Under Danish law, Novo Nordisk employees in Denmark are entitled to be represented by half of the total number of board members elected at the general meeting. Thus, in 2006, employees elected four board members from among themselves for a four-year term. Board members elected by the employees have the same rights, duties and responsibili- ties as shareholder-elected board members. The Board has appointed a research & development facilitator to as- sist the Board and Executive Management in preparing the Board’s dis- cussions in the R&D area. The key tasks are reviewing R&D strategies Self-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 Chairman and may be facilitated by an external consultant. Written questionnaires form the basis for the process, which evaluates whether each board member and executive participates actively in board discussions and contributes with independent judgement. It is further assessed whether the board member is inspirational and whether the environment encourages open discussion at board meetings. The Audit Committee also con- ducts an annual self-assessment based on written questionnaires. The performance of each executive is continuously assessed by the Board, and once a year the Chairman also conducts a formal interview with each executive. Board meetings The Board ordinarily meets seven times a year, including a strategic ses- sion over two to three days. In 2007, the Board met eight times and all board members attended all board meetings and the Annual General Meeting, with the exception of one member who was absent on one occasion. By means of a fixed annual calendar, the Board ensures that it addresses its main tasks in a timely manner. With the exception of agenda items reserved for the Board’s internal discussion at each meet- ing, executives attend and may speak, without voting rights, at board meetings to ensure that the Board is adequately informed of the com- pany’s operations. Executives’ regular feedback from meetings with in- vestors 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 held eight meet- ings in 2007. The Chairmanship carries out administrative tasks, such as planning board meetings to ensure a balance between overall strat- The Novo Nordisk model for corporate governance Framework Governance structure Assurance Codes and regulations Novo Nordisk Way of Management Risk management Internal controls Shareholders I Board of Directors h x I I I Chairmanship Audit Committee I Executive Management I Organisation Financial and non-financial audit Facilitation Organisational audit Quality audit The Novo Nordisk corporate governance model sets the direction and is the framework within which the com pany is managed (see also pp 6–7). Corporate governance codes and practices Novo Nordisk is in compliance with the Danish Corporate Governance Recommendations and is – as a foreign-listed issuer – in general compliance with the corporate governance standards of the stock exchanges in London and New York, where the Novo Nordisk B shares and ADRs respectively, are listed: n OMX Nordic Exchange Copenhagen Danish Corporate Governance Recommendations (2005) n New York Stock Exchange Corporate Governance Standards (2006) n London Stock Exchange The Combined Code (2006) The applicable codes and a detailed review of Novo Nordisk’s compliance are available at novonordisk.com/about_us. Click: Corporate_governance/compliance Novo Nordisk Annual Report 2007 43 Shareholder information Corporate governance and executive remuneration egy-setting and financial and managerial supervision of the company. It also reviews the fixed asset investment portfolio. Other tasks include recommending the remuneration of directors and executives and sug- gesting candidates for election by the general meeting. In practice, the Chairmanship has the role and responsibility of a nomination commit- tee and a remuneration committee. 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 Recommendations. In 2007, the Audit Committee held four meetings and all members par- ticipated in all meetings. The Audit Committee assists the Board with oversight of a) the external auditor, b) the internal auditors, c) the procedure for handling complaints regarding accounting, internal controls, auditing or financial reporting matters (‘whistleblower function’), d) the accounting policies and e) internal controls systems. The Audit Committee also undertakes a post-completion review of fixed asset investments previously approved by the Board. Executive Management Executive Management is responsible for the day-to-day management of the company. It consists of the president and chief executive officer, and four other executives (see p 48). Executive Management’s responsibilities include organisation of the company as well as allocation of resources, determination and imple- mentation of strategies and policies, direction-setting and ensuring timely reporting and provision of information to the Board and the stakeholders of Novo Nordisk. Executive Management meets regularly and at least once a month. The Board appoints Executive Management and determines its remuneration. The Chairmanship reviews the per- formance of the executives. As part of the Organisational Audit process the Chairmanship identifies successors to executives and presents the names of such candidates to the Board for approval. Assurance External audit and assurance The annual report and the internal executive remuneration Novo Nordisk’s remuneration policy for its Board of Directors and Executive Management covers both fixed and incentive-based payment. It aims to attract, retain and motivate board members and executives. Remuneration levels are designed to be competitive and to align the in- terests of the board members and executives with those of the share- holders. In light of recent changes in Danish legislation, Novo Nordisk will present its guidelines for incentive-based remuneration for ap- proval at the Annual General Meeting 2008. Board members Remuneration of the Board of Directors is aligned with other major Danish companies, and the Board regularly reviews board fees based on recommendations from the Chairmanship. See board members’ fees for the year 2007 on p 81. The remuneration of the board members is approved by the annual general meeting in connection with the approval of the annual report. Changes in the board fees will be announced at a general meeting in advance of being presented for approval. Each board member receives a fixed fee per year. Ordinary board members receive a fixed amount (the base fee) while the Chairmanship receives a multiplier thereof: the chairman receives 2.5 times the base fee and the vice-chairman 1.5 times. Service on the Audit Committee entitles members to additional pay- ment: the Audit Committee chairman receives 1.25 times the base fee and Audit Committee members receive 0.5 times. Individual board members may take on specific ad hoc tasks outside the normal duties assigned by the Board. In such cases the Board deter- mines a fixed fee for the work. 44 Novo Nordisk Annual Report 2007 Expenses, such as travel and accommodation in relation to board meetings as well as relevant training, are reimbursed. Board members are not offered stock options, warrants or other incentive schemes. Executives Executive remuneration is proposed by the Chairmanship and subse- quently approved by the Board. See executive pay for 2007 on p 81. Levels are evaluated annually against a Danish benchmark of large companies with international activities. This information is supple- mented by information on remuneration levels for similar positions in the international pharmaceutical industry. To ensure comparability, ex- ecutive positions are evaluated in accordance with an international po- sition evaluation system which, among other parameters, includes and reflects the development of the company size measured in terms of company revenue and number of employees. The remuneration package consists of a fixed base salary, a short- term cash bonus, a long-term share-based incentive, pensions and non-monetary benefits. For executives being expatriated at the request of the company, the remuneration package is based on current Danish remuneration levels, including pension entitlements, while a specific expatriation package is added for the period of expatriation. The short-term incentive programme may result in a maximum payout per year equal to four months’ fixed base salary plus pension contribution. The long-term incentive programme may result in a max- imum grant per year equal to eight months’ fixed base salary plus pen- sion contribution. Consequently, the aggregate maximum amount that may be granted as incentives for a given year is equal to 12 months’ base salary plus pension contribution. Fixed base salary The fixed base salary for each executive accounts for between 40% and 60% of the total value of the remuneration package. Short-term incentive programme The short-term incentive programme consists of a cash bonus that is linked to the achievement of a number of predefined functional and in- controls over financial reporting processes are audited by an external auditor elected by the annual general meeting. The auditor acts in the interest of the shareholders, as well as the public (see auditor’s report p 114). The auditor reports any significant findings regarding account- ing matters and any significant internal control deficiencies via the Audit Committee to the Board and in the auditor’s long-form report. Furthermore, Novo Nordisk voluntarily includes an auditor assurance report for non-financial reporting in its annual report (see p115). 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 in- ternal audit is appointed by and reports to the Audit Committee. Risk management Executive Management is responsible for the risk management process, including risk identification, assessment of likelihood and po- tential impact, and initiation of mitigating actions. Assessing and articulating risks, whether financial or reputational, can improve decision-making. Novo Nordisk has developed an integrat- ed and systematic risk reporting approach. To simplify the process it 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 re- ported to Novo Nordisk’s Executive Management and Board of Directors (see p 9). Internal control Novo Nordisk is in compliance with the Sarbanes–Oxley Act section 404, which requires detailed documentation of the design and operation of financial reporting processes. Novo Nordisk must ensure that there are no material weaknesses in the internal controls that could lead to a ma- terial misstatement in its financial reporting. The company’s conclusion and the auditor’s evaluation of these processes are included in its Form 20-F filing to the US Securities and Exchange Commission. See a description of other assurance mechanisms on pp 6–7. dividual business targets for each executive. The targets for the chief executive officer are fixed by the chairman of the Board while the tar- gets for the executive vice presidents are fixed by the chief executive of- ficer. The chairman of the Board evaluates the degree of target achieve- ment for each executive, and cash bonuses for a financial year – if any – are paid at the beginning of the subsequent financial year. Long-term incentive programme Each year in January the Board decides whether or not to establish a long-term incentive programme for that calendar year. The long-term incentive programme is based on an annual calcula- tion of shareholder value creation as compared to the budgeted per- formance for the year. In line with Novo Nordisk’s long-term financial targets, the calcula- tion of shareholder value creation is based on reported operating prof- it after tax reduced by a WACC-based (weighted average cost of capi- tal) return requirement on average invested capital. A proportion of the calculated shareholder value creation is allocated to a joint pool for the participants, which in addition to Executive Management includes the other members of the Senior Management Board. For executives the joint pool operates with a yearly maximum alloca- tion per participant equal to eight months’ fixed base salary plus pen- sion contribution. The joint pool may, subject to the Board’s assessment, be reduced in the event of a lower than planned performance in significant research and development projects and key sustainability projects. Targets for non-financial performance related to sustainability and research and development projects may include achievement of certain milestones within set dates. Once the joint pool has been approved by the Board, the total cash amount is converted into Novo Nordisk B shares at market price. The market price is calculated as the average trading price for Novo Nordisk B shares on the OMX Nordic Exchange Copenhagen in the open trad- ing window following the release of financial results for the year prior to the bonus year. The shares in the joint pool are allocated to the participants on a pro rata basis: the chief executive officer participates with three units, executive vice presidents participate with two units each and other members of the Senior Management Board participate with one unit each. The shares in the joint pool for a given year are locked up for three years before they are transferred to the participants. Upon resig- nation during the lock-up period by a participant, the shares will remain in the joint pool to the benefit of the other participants. In the lock-up period, the Board may remove shares from the joint pool in the event of lower than planned value creation in subsequent years if, for example, the economic profit falls below a predefined threshold compared to the budget for a particular year. In the lock-up period the value of the joint pool will change depen - dent upon the development in the share price, and consequently the interests of the participants, including the members of Executive Management, are aligned with those of the shareholders. Pension The pension contribution is between 25% and 30% of the fixed base salary including bonus. Non-monetary benefits Non-monetary benefits such as company car, phone etc are negotiated with each executive individually. Severance payment In addition to their notice period executives are entitled, in the event of termination, whether by Novo Nordisk or by the individual due to a merger, acquisition or takeover of Novo Nordisk, to a severance payment of 36 months’ fixed base salary plus pension contribution. In the event of termination by Novo Nordisk for other reasons, the severance pay- ment is three months’ fixed base salary plus pension contribution per year of employment as an executive, but in no event less than 12 and no more than 36 months’ fixed base salary plus pension contribution. Novo Nordisk Annual Report 2007 45 Sten Scheibye Göran A Ando Kurt Briner Henrik Gürtler Johnny Henriksen Niels Jacobsen Anne Marie Kverneland Kurt Anker Nielsen 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 has been re-elected several times, most recently in 2007. His term as a board member ex- pires in March 2008. 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 by 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 he was appointed corpo- rate 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 and Copenhagen Airports A/S, both Denmark. He is vice-chairman of the Board of COWI A/S, Denmark, and a member of the Board of Brødrene Hartmanns Fond, 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 and 2007. His term as a board member expires in March 2008. 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. Mr Gürtler is a Danish national, born on 11 August 1953. Sten Scheibye Chairman of the Board of Directors 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 has been re-elected several times, most recently in 2007. His term as a board mem- ber expires in March 2008. Mr Scheibye is regarded as an independent* board member. Mr Scheibye is a Danish national, born on 3 October 1951. Göran A Ando Vice-chairman of the Board of Directors Göran A Ando, MD, is vice-chairman of the Board of Directors of Novo Nordisk A/S. Dr Ando was CEO of Celltech Group plc, UK, until 2004. He joined Celltech from Pharmacia, now Pfizer, US, where he was executive vice president and pres- ident of R&D with additional responsibilities for manufacturing, IT, business de- velopment 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 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, Enzon Pharmaceuticals, Inc, US, and EUSA Pharma, UK. Dr Ando qualified as a medical doctor at Linköping Medical University, Sweden, in 1973 and as a specialist in general medicine at the same institution in 1978. Dr Ando was elected to the Board of Novo Nordisk A/S in 2005 and re-elected in 2006 and 2007. His term as a board member expires in March 2008. Dr Ando is designated 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. 46 Novo Nordisk Annual Report 2007 Shareholder information Board of Directors Kurt Anker Nielsen Kurt Anker Nielsen is a former CFO and deputy CEO of Novo Nordisk A/S and a former CEO of Novo A/S. He serves as vice-chairman of the Board of Novozymes A/S and as a member of the Board of Directors of the Novo Nordisk Foundation, LifeCycle Pharma A/S, Denmark, and ZymoGenetics, Inc, US. He is chairman of the Board of Reliance A/S, Denmark, and a member of the boards of StatoilHydro ASA, Norway, and Vestas Wind Systems A/S, Denmark. In LifeCycle Pharma A/S, ZymoGenetics, Inc, StatoilHydro ASA and Vestas Wind Systems 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 2007. His term as a board member ex- pires in March 2008. 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 an independent Audit Committee member as defined by the US Securities and Exchange Commission (SEC). He is not regarded as an independent* board member under the Danish Corporate Governance Recommendations 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 Stig Strøbæk Jørgen Wedel Johnny Henriksen Søren Thuesen Pedersen 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. His term as a board member expires in March 2010. He joined Novo Nordisk in January 1986 and currently works as an environ- mental adviser in Product Supply. 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. Mr Henriksen has an MSc in Biology from the University of Copenhagen, He joined Novo Nordisk in January 1994. Denmark, from 1977. Mr Pedersen has a BSc in Chemical Engineering from the Danish Academy of Mr Henriksen is a Danish national, born on 19 April 1950. Engineers from 1988. Mr Pedersen is a Danish national, born on 18 December 1964. Niels Jacobsen Niels Jacobsen has been president and CEO of William Demant Holding A/S and Oticon A/S, both Denmark, since 1998. Mr Jacobsen is a board member of A.P. Møller - Mærsk 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 (chairman), 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. 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. Mr Strøbæk was re-elected by the employees in 2002 and in 2006. His term as a board member expires in March 2010. He is currently working in Product Supply as an electrician. 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 Jacobsen has an MSc in Business Administration from the University of Mr Strøbæk is a Danish national, born on 24 January 1964. Aarhus, Denmark, from 1983. Mr Jacobsen was elected to the Board of Novo Nordisk A/S in 2000 and has been re-elected several times, most recently in 2007. His term as a board mem- ber expires in March 2008. 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 an independent Audit Committee member as defined by the US Securities and Exchange Commission (SEC) and is regarded as an independent* board member under the Danish Corporate Governance recom- mendations. 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. She was re-elected by the employees in 2002 and in 2006. Her term as a board member expires in March 2010. Ms Kverneland joined Novo Nordisk in July 1981. She works as a laboratory technician in R&D. 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. 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 2007. His term as a board member ex- pires in March 2008. Mr Wedel is a member of the Audit Committee at Novo Nordisk A/S. Mr Wedel qualifies as an independent Audit Committee member as defined by the US Securities and Exchange Commission (SEC) and is regarded as an independent* board member under the Danish Corporate Governance recom- mendations. Mr Wedel is a Danish national, born on 10 August 1948. * In accordance with Section V4 of Recommendations for corporate governance designated by the OMX Nordic Exchange Copenhagen. Novo Nordisk Annual Report 2007 47 Shareholder information Executive Management Lars Rebien Sørensen Jesper Brandgaard Lise Kingo 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 was 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 DONG Energy A/S, Denmark, as well as 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 University of Copenhagen, Denmark, from 1981, and a BSc in International Economics from the Copenhagen Business School, Denmark, in 1983. Since October 2007, Mr Sørensen has been adjunct professor at the Life Sciences Faculty of the University of Copenhagen. 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 Pharmaplan A/S and NNIT A/S, both Denmark, and is also vice-chairman of the Board of SimCorp A/S, 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 Enzyme 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, 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 is a member of the Board of LEGO A/S, Denmark. 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 Krogsgaard Thomsen joined Novo Nordisk in 1991. He was appointed CSO in November 2000. He sits on the editorial boards of 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 University of Copenhagen, Denmark, from 1986, where he also obtained a PhD in 1989 and a DSc in 1991, and became adjunct 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 – CMC Supply Kim Bundegaard – Facilitation and Group Internal Audits Mariann Strid Christensen – Global Quality *) Flemming Dahl – DAPI Biopharmaceuticals Claus Eilersen – Japan & Oceania Peter Bonne Eriksen – Regulatory Affairs Lars Green – Corporate Finance Jesper Høiland – International Operations Per Jansen – NNS *) Lars Fruergaard Jørgensen – IT & Corporate Development Terje Kalland – Biopharmaceuticals Research Unit Lars Guldbæk Karlsen – Global Development **) Jesper Kløve – Devices & Sourcing Per Kogut – NNIT Peter Kurtzhals – Diabetes Research Unit Lars Christian Lassen – Corporate People & Organisation Ole Ramsby – Legal Affairs Jakob Riis – International Marketing **) Martin Soeters – North America **) Kim Tosti – Diabetes Finished Products Per Valstorp – Product Supply Hans Ole Voigt – NNE Pharmaplan **) Until 31 December 2007. **) Takes new position as of 1 January 2008. 48 Novo Nordisk Annual Report 2007 Shareholder information Shares shares and capital structure Novo Nordisk aims at communicating openly with stakeholders about the company’s financial and business development as well as strategies and targets. Through active dialogue, the company seeks to ensure fair and efficient pricing of its shares. To keep investors updated on financial and operating performance as well as the progress of clinical programmes, Executive Management and Investor Relations travel extensively to meet institutional investors and attend investor conferences after each quarterly financial announcement. This ensures that all investors with a major holding of Novo Nordisk shares can attend meetings on a regular basis and that a high number of smaller investors or potential investors also have access. Roadshows are concentrated on, but not limited to, major European and North American financial centres. A wide range of other investor activities are held during the year. Investors and financial analysts are welcome to visit Novo Nordisk at the headquarters in Bagsværd, Denmark, as well as at regional headquar- ters. In 2007, meetings with investor groups were held at regional headquarters in Princeton, US, in Bangalore, India, and in Moscow, Russia. Furthermore, investors and analysts are invited every year to presen- tations of the most recent scientific results in connection with the two major medical diabetes conferences, ADA and EASD. In November 2007, a one-day tour of Novo Nordisk’s largest production site was arranged. This visit to the Kalundborg site gave investors and analysts insight into the production processes of biologics and an understand- ing of ongoing efforts to optimise production processes. Share price performance In 2007, in line with share price appreciation and in order to enhance liquidity, Novo Nordisk’s Board of Directors approved a stock split of the company’s B shares. This 2:1 split took effect on 3 December for B shares traded on the OMX Nordic Exchange Copenhagen, and on the London Stock Exchange. Novo Nordisk’s ADRs listed on the New York Stock Exchange were split on 17 December. Between the closing price of 2006 and 30 November 2007 (the last day of trading before the stock split), the price of the Novo Nordisk B share increased by 38% to DKK 647 from DKK 470.5. In December, following the stock split, the share price rose by 4%, thus the total increase for 2007 was 42%. This was significantly better than the 2007 performance of the OMX Copenhagen 20 Index, up 5%, and the MSCI Europe Health Care Index, down 11%, both measured in DKK. Measured in USD, the price of the Novo Nordisk B share increased by 58%, which compared favourably with a USD return of 5% for the MSCI US Health Care Index. Novo Nordisk’s positive share price development is perceived as a re- flection of the company’s position in a growth market, strong operating performance and ongoing progress in research and development. In 2007, operating performance was bolstered by solid sales growth (re- ported sales 8%; sales measured in local currencies 13%) driven by the strategically significant modern insulin products. Substantial productivity increases, achieved through the production efficiency improvement programme cLean®, also contributed. These factors led to an improve- ment in the gross margin of around 130 basis points in 2007. Within research and development, the results of the phase 3 pro- gramme intended for regulatory filing outside Japan for the human GLP-1 analogue liraglutide are believed to have made a positive impact on the share price. Factors on the negative side were the NovoSeven® ICH phase 3 results, which did not support a filing for this indication, and unfavourable currency developments for some of Novo Nordisk’s key invoicing currencies, including the US dollar. Capital structure The Board of Directors believes that the current capital and share struc- tures of Novo Nordisk serve the interests of the shareholders and the company. In the event of excess capital after the funding of organic growth opportunities and potential acquisitions, Novo Nordisk’s guid- ing policy is to return capital to investors through dividend payments and share repurchase programmes. As decided at the Annual General Meeting 2007, a reduction of the company’s B share capital, corresponding to approximately 4% of the total share capital, was effected in June 2007 by cancellation of treasury shares. Breakdown of shareholders % of capital (% of votes, excl treasury shares) Geographical distribution of share capital Price development and monthly turnover of Novo Nordisk’s B shares on the OMX Nordic Exchange Copenhagen 2007 % of capital DKK 500 400 300 200 100 DKK billion 15 12 09 06 03 Novo A/S 26% (71%) Novo Nordisk A/S 4% (0%) The Capital Group Companies 15%* (6%) Other 55% (23%) *) As disclosed by The Capital Group Companies on 10 December 2007. Denmark 54% UK 17% North America 24% Other 5% 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 * Historical prices in the graph are adjusted for the share split in December 2007. Novo Nordisk Annual Report 2007 49 Shareholder information Shares This enables Novo Nordisk to continue to buy back shares without exceeding the limit for total holding of treasury shares of 10% of the total capital. In 2007, Novo Nordisk repurchased shares worth DKK 4.8 billion, compared to DKK 3 billion in 2006. This is part of the ongoing share repurchase programme of DKK 16.5 billion for the period 2006–2009. As part of the agenda for the Annual General Meeting 2008, the Board of Directors will propose a reduction of the company’s B share capital, corresponding to approximately 2% of the total share capital, by cancelling treasury shares. Share capital and ownership Novo Nordisk’s total share capital of DKK 646,960,000 is divided into A share capital of nominally DKK 107,487,200, and B share capital of nominally DKK 539,472,800 of which DKK 25,815,130 is held as trea - sury shares (figures as of 31 December 2007). Novo Nordisk’s A shares (each DKK 1) are non-listed shares and held by Novo A/S, a Danish pub- lic limited liability company which is 100% owned by the Novo Nordisk Foundation. According to the Articles of Association of the Foundation, the A shares cannot be divested by Novo A/S or the Foundation. In addition, as of 31 December 2007 Novo A/S held DKK 57,487,600 of B share capital. Each holding of DKK 1 of the A share capital carries 10 votes. Each holding of DKK 1 of the B share capital carries one vote. With 25.5% of the total share capital, Novo A/S controls 71% of the to- tal number of votes, excluding treasury shares. The total market value of Novo Nordisk’s B shares excluding treasury shares was DKK 172 billion at the end of 2007. Novo Nordisk’s B shares are quoted on the OMX Nordic Exchange Copenhagen and the London Stock Exchange, and on the New York Stock Exchange in the form of ADRs. The B shares are traded in units of DKK 1. 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 2007 were distributed as shown in the charts on p 49. At the end of 2007 the free float was 71%. Form 20-F The Form 20-F Report for 2007 is expected to be filed with the United States Securities and Exchange Commission in February 2008. The re- port 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 inside back cover). For 2007, the proposed dividend payments for Novo Nordisk shares are illustrated in the table below. Novo Nordisk does not pay a dividend on its holding of treasury shares. The dividend for 2006 paid in March 2007 was DKK 7 per share of DKK 2, equivalent to DKK 3.50 a share, adjusted for the 2:1 share split of December 2007. Proposed dividend payment for 2007 A shares of DKK 1 B shares of DKK 1 ADRs DKK 4.50 DKK 4.50 DKK 4.50 Internet Novo Nordisk’s homepage for investors is novonordisk.com/investors. It includes historical and updated information about Novo Nordisk’s activities: press releases from 1995 onwards, financial and non-financial results, a calendar of investor-relevant events, investor presentations, background information and recent annual reports. Financial calendar 2008 Annual General Meeting 12 March 2008 Dividend Ex-dividend Record date Payment B shares 13 March 17 March 18 March ADRs 13 March 17 March 25 March Announcement of financial results 2008 First three months Half year Nine months Full year 30 April 7 August 30 October 29 January 2009 Price development of Novo Nordisk’s B shares relative to the MSCI Europe Health Care Index measured in DKK Price development of Novo Nordisk’s B shares relative to the MSCI US Health Care Index measured in USD Index 1 January 2003 = 100 Index 1 January 2003 = 100 2003 2004 2005 2006 2007 600 500 400 300 200 100 600 500 400 300 200 100 2003 2004 2005 2006 2007 Novo Nordisk’s B shares (prices in DKK) MSCI Europe Health Care Index Novo Nordisk’s B shares (prices in USD) MSCI US Health Care Index 50 Novo Nordisk Annual Report 2007 Consolidated financial and non-financial statements 2007 Table of contents consolidated financial and non-financial statements 2007 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 and other notes to the financial statement 89 Overview of non-financial reporting 90 Non-financial indicators and targets 91 Notes: Accounting policies and other notes to the non-financial data 100 Companies in the Novo Nordisk Group 102 Summary of financial data 2003–2007 104 Quarterly figures 2006 and 2007 (unaudited) 105 Financial statements of the parent company, Novo Nordisk A/S 113 Management statement 114 Auditor’s reports Novo Nordisk Annual Report 2007 51 Consolidated financial and non-financial statements Financial highlights Sales 2003 2004 2005 2006 2007 2006–2007 2006 2007 DKK million DKK million DKK million DKK million DKK million Change EUR million EUR million Diabetes care: Modern insulins (insulin analogues) Human insulins Insulin-related sales Oral antidiabetic products (OAD) 2,553 13,140 1,352 1,430 4,507 13,033 1,350 1,643 7,298 13,543 1,463 1,708 10,825 13,451 1,606 1,984 14,008 12,572 1,749 2,149 29.4% (6.5%) 8.9% 8.3% Diabetes care total 18,475 20,533 24,012 27,866 30,478 9.4% Biopharmaceuticals: Haemostasis management (NovoSeven®) Growth hormone therapy Hormone replacement therapy Other products Biopharmaceuticals total 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 5,865 3,511 1,668 309 10,877 11,353 Total sales by segments 26,158 29,031 33,760 38,743 41,831 Europe *) North America International Operations *) Japan & Oceania 12,053 6,219 3,871 4,015 12,887 7,478 4,368 4,298 14,020 9,532 5,497 4,711 15,300 12,280 6,494 4,669 16,350 13,746 7,295 4,440 4.1% 6.1% 3.8% (5.2%) 4.4% 8.0% 6.9% 11.9% 12.3% (4.9%) Total sales by geographical areas 26,158 29,031 33,760 38,743 41,831 8.0% 1,451 1,804 215 266 3,736 755 444 215 44 1,458 5,194 2,051 1,646 871 626 5,194 1,880 1,687 235 288 4,090 788 471 224 41 1,524 5,614 2,194 1,845 979 596 5,614 Price and volume/mix Currency Total growth Key figures Operating profit Operating profit excl. AERx® **) Net financials Profit before income taxes Net profit Equity Total assets Capital expenditure (net) Free cash flow Per share/ADR of DKK 1 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 excl. AERx® **) Growth in operating profit, three-year average Operating profit margin Operating profit margin excl. AERx® **) Return on invested capital (ROIC) Cash to earnings Cash to earnings excl. AERx® **) Cash to earnings, three-year average Net profit margin Equity ratio 15% (10%) 5% 15% (4%) 11% 15% 1% 16% 16% (1%) 15% 13% (5%) 8% DKK million DKK million DKK million DKK million DKK million Change EUR million EUR million 6,422 – 954 7,376 4,833 24,776 34,564 2,273 3,846 6,980 – 477 7,457 5,013 26,504 37,433 2,999 4,278 8,088 – 146 8,234 5,864 27,634 41,960 3,665 4,833 DKK 7.09 7.08 2.20 121 % 8.4 – 11.0 24.6 – 20.4 79.6 – 32.3 18.5 71.7 DKK 7.45 7.42 2.40 150 % 8.7 – 8.9 24.0 – 21.5 85.3 – 59.0 17.3 70.8 DKK 8.95 8.92 3.00 178 % 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 DKK 10.05 10.00 3.50 236 % 12.7 – 12.4 23.5 – 25.8 73.0 – 80.2 16.7 67.4 8,942 10,267 2,029 10,971 8,522 32,182 47,731 2,268 9,012 (1.9%) 12.6% 4408.9% 19.7% 32.1% 6.8% 6.8% (18.6%) 91.5% DKK Change 34% 34% 29% 42% 13.49 13.39 4.50 335 % (1.9) 12.6 8.9 21.4 24.5 27.2 105.7 94.2 87.0 20.4 67.4 1,223 – 6 1,229 865 4,040 5,994 374 631 EUR 1.35 1.34 0.47 31.65 1,200 1,378 272 1,472 1,144 4,316 6,401 304 1,210 EUR 1.81 1.80 0.60 44.96 Long-term financial target in % 15 25 30 70 **) Comparative sales figures from 2003 and 2006 have been adjusted in order to reflect a changed organisational structure from 1 January 2007 which transfers eight countries, incl. Bulgaria and Romania, from International Operations to Europe. **) Excluding costs related to discontinuation of AERx®. Key figures are translated into EUR as supplementary information – the translation of income statement items is based on the average exchange rate in 2007 (EUR 1 = DKK 7.45078) and the translation of balance sheet items is based on the exchange rate at the end of 2007 (EUR 1 = DKK 7.4566). Novo Nordisk Annual Report 2007 52 Non-financial highlights Economics R&D Ratio of R&D expenditure to tangible investments *) R&D as share of sales % 2003 1.8:1 15.5 2004 1.5:1 15.0 2005 1.4:1 15.1 2006 2.3:1 16.3 2007 3.2:1 17.2 Investments Capital expenditure (net) DKK million 2,273 2,999 3,665 2,787 2,268 Remuneration Remuneration as share of cash received % 34 34 34 33 32 Employment Employment impact worldwide (direct and indirect) Number of jobs 67,900 73,100 78,000 82,700 81,600 Corporate tax Total corporate tax as share of sales Exports Novo Nordisk exports as share of Danish exports (estimated) 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 EIR Water EIR Energy Diabetes care Biopharmaceuticals Diabetes care Biopharmaceuticals Compliance Breaches of regulatory limit values Accidental releases Social Living our values Importance of social and environmental issues for the future People of the company ****) Managers’ behaviour consistent with Novo Nordisk’s values ****) Fulfilment of action points from facilitations of the NNWoM Employees (total) Rate of absence Rate of employee turnover Engaging culture (employee engagement) ****) Opportunity to use and develop competences/skills ****) People from diverse backgrounds have equal opportunities ****) 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 trained or educated People with diabetes trained or treated Patent families Active patent families to date New patent families (first filing) Animals Animals purchased ****) Excluding costs related to discontinuation of AERx®. ****) Previously reported as 9.1. Reporting error now corrected. ****) Data have been restated due to changed emission factors in Denmark. ****) On a scale of 1–5, with 5 being the highest. % % 1,000 m3 1,000 GJ 1,000 tons Tons Tons Tons Tons % 1,000 tons Tons m3/MU m3/g API GJ/MU GJ/g API Number Number % Number % % Number DKK Number Number Number Number Number Number Number 9.7 4.4 8.4 3.9 7.0 4.7 7.0 **) 4.0 5.9 3.4 2,621 2,299 110 1,187 122 21 2,756 2,397 111 1,448 121 21 3,014 2,679 135 1,303 126 22 2,995 2,712 142 1,000 107 19 3,231 2,784 152 813 107 14 21,356 41 21,855 40 23,776 33 24,165 35 17,576 38 205 137 – – – – 105 20 210 115 – – – – 74 29 228 124 – – – – 174 104 229 102 7.8 4.8 5.5 9.2 123 135 4.0 3.8 99 19,241 3.1 7.1 – 3.7 3.7 5.4 0 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 0 236 81 7.3 4.1 5.1 7.9 22 105 4.4 4.2 99 26,008 2.7 11.6 4.1 4.0 4.0 5.9 0 7,518 8,992 9,899 11,293 13,130 30 16 – – 701 140 35 33 – – 778 145 35 35 38 34 297,000 32 36 – 336,000 – 1,060,000 1,260,000 812 130 913 149 1,003 116 42,869 47,311 57,905 56,533 54,675 Novo Nordisk Annual Report 2007 53 Consolidated financial statements Consolidated income statement DKK million Sales Cost of goods sold Gross profit Sales and distribution costs Research and development costs Hereof costs related to AERx ® discontinuation 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 2007 2006 2005 4, 5, 25 6, 7 6, 7 6, 7 3 6, 7, 8 9 16 10 11 12 13 13 41,831 9,793 32,038 12,371 8,538 (1,325) 2,508 321 8,942 1,233 1,303 507 10,971 2,449 8,522 13.49 13.39 38,743 9,585 29,158 11,608 6,316 – 2,387 272 9,119 (260) 931 626 9,164 2,712 6,452 10.05 10.00 33,760 9,177 24,583 9,691 5,085 – 2,122 403 8,088 319 498 671 8,234 2,370 5,864 8.95 8.91 54 Novo Nordisk Annual Report 2007 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 reserves Total equity Long-term debt Deferred income tax liabilities Retirement benefit obligations 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 balance sheet Note 31 Dec 2007 31 Dec 2006 14 15 16 23 17 18 19 20 17 30 21 22 23 24 25 26 27 25 671 19,605 500 2,522 131 23,429 9,020 6,092 319 1,493 2,555 4,823 639 20,350 788 1,911 169 23,857 8,400 5,163 385 1,784 1,833 3,270 24,302 20,835 47,731 44,692 647 (26) 30,661 900 674 (39) 28,810 677 32,182 30,122 961 2,346 362 1,239 4,908 405 1,947 929 4,959 2,401 10,641 15,549 1,174 1,998 330 911 4,413 338 1,712 788 4,863 2,456 10,157 14,570 47,731 44,692 Novo Nordisk Annual Report 2007 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) Dividend received Net cash used in investing activities Financing: 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 2007 2006 2005 8,522 6,452 5,864 2,449 3,007 (16) (309) (2,607) (29) 11,017 (702) (617) 289 2,712 2,142 (73) 959 (3,514) 95 8,773 (804) (686) 455 9,987 7,738 (59) – (118) 40 (2,308) (541) 1,470 (1,516) (18) (4,835) 241 (2,221) (6,833) 1,638 (6) 1,632 2,985 4,617 4,617 1,486 7,457 – 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) (634) 154 (480) 2,963 2,483 2,483 1,502 7,461 28 29 16 30 30 17 26 Financial resources at the end of the year 13,560 11,442 11,446 Cash flow from operating activities + Net cash used in investing activities – Net change in marketable securities (maturity exceeding three months) Free cash flow 9,987 (1,516) (541) 9,012 7,738 (2,517) 514 4,707 8,712 (4,911) (1,032) 4,833 56 Novo Nordisk Annual Report 2007 Consolidated statement of changes in equity Other reserves Total Exchange Deferred rate gain/loss on cash flow hedges adjust- ments Other adjust- ments 156 53 53 53 420 101 30,122 (420) 691 12 (41) (93) 21 271 (101) 53 (420) 691 12 (41) (93) 21 223 8,522 271 (101) 8,745 130 (4,835) 241 – (2,221) Other reserves 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 (27) 36 (129) (6) (126) 14 345 420 (27) 36 (129) (1) 658 6,452 765 (126) 7,110 113 (3,000) 210 – (1,945) – – (27) – – (16) 2 27 – 8,522 8,522 130 (4,819) 239 (2,221) – – (35) – – (15) 2 35 5 5 6,452 6,457 113 (2,985) 208 (1,945) DKK million 2007 Balance at the beginning of the year 674 (39) 28,810 Share capital Treasury shares Retained earnings Exchange rate adjustment of investments in subsidiaries Deferred (gain)/loss on cash flow hedges at the beginning of the year recognised as financial income/expenses for the year Deferred gain/(loss) on cash flow hedges at the end of the year Fair value adjustments on financial assets available for sale Novo Nordisk share of equity recognised by associated companies Tax on equity adjustments 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 Exchange rate adjustment of investments in subsidiaries Deferred (gain)/loss on cash flow hedges at the beginning of the year recognised as financial income/expenses for the year Deferred gain/(loss) on cash flow hedges at the end of the year Fair value adjustments on financial assets available for sale Novo Nordisk share of equity recognised by associated companies Tax on equity adjustments 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 At the end of the year proposed dividends (not yet declared) of DKK 2,795 million (DKK 4.50 per share) are included in Retained earnings. No dividend is declared on treasury shares. 647 (26) 30,661 209 691 0 32,182 DKK million 2006 Balance at the beginning of the year 709 (61) 26,962 Share capital Treasury shares Retained earnings 674 (39) 28,810 156 420 101 30,122 At the end of the year proposed dividends (declared in 2007) of DKK 2,221 million (DKK 3.50 per share) are included in Retained earnings. No dividend is declared on treasury shares. Novo Nordisk Annual Report 2007 57 Consolidated financial statements Notes – Accounting policies 1 Summary of significant accounting policies The Consolidated financial statements are prepared in accordance with Inter - national Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and with the International Financial Re - porting Standards as adopted by the EU. The Con solidated financial statements are prepared in accordance with the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative financial instru ments) at fair value. The Financial statements of the Parent company, Novo Nordisk A/S, are pre - pared in accordance with The Danish Financial Statements Act. These are pre - sented on pages 105 to 112 and the accounting policies are set out on page 108. Further, the Annual Report is prepared in accordance with additional Danish disclosure requirements for annual reports for listed companies. Effects of new accounting pronouncements In 2007, there have been no adoptions of new or revised standards and inter- pretations relevant to Novo Nordisk effective for the accounting period be - ginning on 1 January 2007. The following standards and interpretations relevant to Novo Nordisk have been issued as per 31 December 2007 and are mandatory for the Group’s accounting periods beginning on or after 1 January 2008. None of these have been adopted by Novo Nordisk: n IFRS 8 ‘Operating segments’ (effective from 1 January 2009). The amend- ment to the standard is endorsed by the EU. The impact is expected to be limited as the reportable segments – diabetes care and biopharmaceuticals – will be unchanged as they are consistent with the internal reporting provided to management. n IAS 23 (Amendment) ‘Borrowing costs’ (effective from 1 January 2009). The amendment to the standard is still subject to endorsment by the EU. The option of immediately expensing borrowing costs of a qualifying asset will be removed. Given the present capital structure of the Group the impact is expected to be limited. n Interpretation guideline to IAS 19, IFRIC 14 – ‘The limit on a defined benefit asset, minimum funding requirement and their interaction’ (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 ‘Employee benefits’ on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The guideline is not expected to have any material impact on the Group’s accounts. 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, 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 critical accounting policies for the Group. 58 Novo Nordisk Annual Report 2007 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. 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 ‘Financial instruments’ to forward exchange contracts and currency swaps. Upon initiation of the contract, 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 fair value 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 re cognised 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. 1 Summary of significant accounting policies (continued) Novo Nordisk applies the hedge accounting requirements to interest rate swaps hedging forecasted transactions. Consequently, the fair value effect of interest rate adjustments on 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. 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 Finan - cial 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 financial assets classified as available-for-sale, 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 translated at the exchange rates at the balance sheet date. 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 investments in subsidiaries. n The translation of investments in associated companies. The above exchange gains and losses are recognised in Other reserves under equity. Notes – Accounting policies 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. 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, are carried at histo rical cost less accu mu - lated amortisation and any impairment loss. Internal development software and the costs related 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 commence in the year in which the rights first generate sales. Property, plant and equipment Property, plant and equipment are measured at historical cost less accumulated depreciation and any impairment loss. 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 associated companies. 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 follow ing: Novo Nordisk Annual Report 2007 59 Consolidated financial statements Notes – Accounting policies 1 Summary of significant accounting policies (continued) 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. This impairment test is based upon management’s projections and anti - cipated 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. 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. 60 Novo Nordisk Annual Report 2007 The fair values of quoted investments are based on current bid prices. Financial assets for which no active market exists are carried at cost if no reliable valuation model can be applied. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets have 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. 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. Notes – Accounting policies 1 Summary of significant accounting policies (continued) 3 Critical accounting estimates and judgements 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 or shares that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options or shares 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. Liabilities Generally, liabilities are stated at amortised cost unless specifically mentioned otherwise. Treasury shares Treasury shares are deducted from the share capital at their nominal value of DKK 1 per share. Differences between this amount and the amount paid for acquiring, or received for disposing of, treasury shares are deducted from re - tained 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. 2 Changes in the scope of consolidation In 2007, the Novo Nordisk subsidiary NNE A/S (Novo Nordisk Engineering) completed the acquisition of the engineering activities in Pharmaplan GmbH from the German medical group Fresenius. The cost of the business combina- tion was DKK 59 million. The purchase price was paid in cash. The net assets were included in the consolidation as from 1 April 2007. 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. 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 judgements used in the prepara- tion of its Consolidated financial statements. Non-recurring costs related to AERx ® discontinuation Novo Nordisk conducted a detailed analysis of the future prospects for inhaled insulin and a review of the medical and commercial potential of the AERx ® iDMS inhaled insulin system (AERx ®). This analysis has resulted in a non-recurring impairment cost regarding intangible assets and manufacturing activities related to the AERx ® system and cost of discontinuing all clinical development expected to amount to around DKK 1,325 million which have negatively impacted operating profit in 2007. The impairment of tangible and intangible assets and provision for onerous contracts are based on management’s best estimate after reviewing the engaged contracts and the project-related assets. Commitments regarding clinical trials consist of legal and constructive obliga tions which have been assessed by Management, based on best estimate. In 2007, Novo Nordisk recorded the following charges related to the impair- ment of the AERx ® project. Impairment of intangible assets Impairment of tangible assets Commitments regarding clinical trials Leasing and investment commitments DKK 117 million DKK 753 million DKK 326 million DKK 129 million DKK 1,325 million These charges are included in Research and development costs. In addition a cost of DKK 52 million, related to the AERx ® discontinuation, is included as financial expense. In January 2008 Novo Nordisk has decided to refocus its inhaled insulin activities and discontinue all further development of AERx ®. The decision to discontinue the development of AERx ® was not due to safety concerns. 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: n Identification of the products which have been sold subject to a rebate n The customer or government price terms which apply n The estimated time lag between sale and payment of a rebate. The largest sales rebate and discount amount are rebates from sales covered by Medicaid and Medicare, the US health care insurance systems. Provisions for Medicaid and Medicare rebates have been calculated using a combination of historical experience, product and population growth, price increases, the impact of contracting strategies and specific terms in the individual agree- ments. For Medicaid, the calculation of rebates involves interpretation of relevant regulations, which are subject to challenge or change in interpretative guidance by government authorities. Although accruals are made for Medicaid and Medicare rebates at the time sales are recorded, the Medicare and Medicaid rebates related to the specific sale will typically be invoiced to Novo Nordisk up to six months later. Due to the time lag, in any particular period the rebate adjustments to sales may incorporate revisions of accruals for prior periods. Novo Nordisk Annual Report 2007 61 Consolidated financial statements Notes – Accounting policies 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 542 million at 31 December 2007. Please refer to note 19 for further information. 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 should be recognised. The carrying amount of deferred income tax assets and deferred income tax liabilities is DKK 2,522 million and DKK 2,346 million respectively at 31 December 2007. Please refer to note 23 for further information. 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 statisti- cal product returns. The pattern in returns in the future may be different from previous patterns. Revenue recognition for new product launches is based on specific facts and circumstances for the specific products, including estimated demand and acceptance rates from well-established products with similar market characteri - stics. In recent years the products launched by Novo Nordisk have been com - parable with either other products already on the market or products in therapy areas well known to Novo Nordisk, and therefore uncertainties surrounding products launched have been limited. The carrying amount of provision for returned products is DKK 593 million at 31 December 2007. Please refer to note 25 for further information. 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 uncer tain. 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. Provisions for pending litigations are recognised under Other provisions. Please refer to notes 25 and 36 for a description of significant litigations pending. 3 Critical accounting estimates and judgements (continued) Customer rebates are offered to a number of managed health care plans. These rebate programmes provide that the customer receives a rebate after attaining certain performance parameters relating to product purchases, for- mulary status and pre-established market share milestones relative to compe - titors. Since rebates are contractually agreed upon, rebates are estimated based on the specific terms in each agreement, historical experience, anti cipated channel mix, product growth rates and market share. Novo Nordisk considers the sales performance of products subject to managed health care rebates and other contract discounts and adjusts the provision periodically to reflect actual experience. Wholesaler charge-backs relate to contractual arrangements Novo Nordisk has with indirect customers, mainly in the US, to sell products at prices that are lower than the list price charged to wholesalers. A wholesaler chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s contract price. Provisions are calculated for estimated charge back using a combination of factors such as historical experience, cur- rent wholesaler inventory levels, contract terms and the value of claims received yet not processed. Wholesaler charge-backs are generally settled within one to three months of incurring the liability. Novo Nordisk believes that the accruals and provisions established for sales rebates are reasonable and appropriate based on current facts and circum- stances. However, the 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 (includes the US and Canada) is as follows: DKK million Gross sales Gross-to-net sales adjustments: Medicaid and Medicare rebates Managed health care rebates Prime vendor charge-backs Cash discounts Sales returns Other rebates and allowances 2007 2006 2005 20,109 17,196 13,893 (1,279) (1,333) (2,594) (381) (432) (344) (1,186) (1,073) (2,074) (310) (116) (157) (1,161) (798) (1,729) (244) (105) (324) Total gross-to-net sales adjustments (6,363) (4,916) (4,361) Net sales 13,746 12,280 9,532 The carrying amount of sales rebate accruals and provisions is DKK 1,833 million at 31 December 2007. Please refer to notes 5 and 25 for further information on sales accruals and provisions. 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 parameters for calculation of IPC, including utilisation levels, production lead time etc could have an impact on the gross margin and the overall valuation of inventories. The carrying amount of IPC is DKK 4,418 million at 31 December 2007. Please refer to note 18 for further information. 62 Novo Nordisk Annual Report 2007 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 deno minator 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 tax 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 2007 63 Consolidated financial statements Notes – Consolidated income statement 4 Segment information Primary reporting format – Business segments At 31 December 2007, 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, GLP-1 and related delivery systems as well as oral antidiabetic products (OAD). Biopharmaceuticals: The business segment includes discovery, development, manufacturing and marketing of products within the therapy areas haemostasis management (NovoSeven ®), growth hormone therapy, hormone replacement therapy, in- flammation therapy and other therapy areas. 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. Business segments DKK million Segment sales and results Sales Modern insulins (insulin analogues) Human insulins Insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy Other products Biopharmaceuticals total Sales Change in DKK (%) Change in local currencies (%) Operating profit Operating profit adjusted for costs related to discontinuation of AERx ® Share of profit in associated companies Financial income (net) Profit before income taxes Income taxes Net profit Other segment items Research and development costs Hereof costs related to discontinuation of AERx ® Depreciation and amortisation Impairment losses in the Income statement Impairment losses in the Income statement adjusted for discontinuation of AERx ® Additions to property, plant and equipment and intangible assets (net) Investments in associated companies (net) Long-term assets Total assets Total liabilities 2007 2006 2005 Diabetes care 14,008 12,572 1,749 2,149 10,825 13,451 1,606 1,984 7,298 13,543 1,463 1,708 30,478 27,866 24,012 30,478 9.4% 14.1% 4,259 5,584 27,866 16.1% 17.0% 4,982 – 24,012 16.9% 15.9% 4,055 – 6,117 (1,325) 1,774 931 61 1,995 – 16,884 30,257 7,980 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 Geographical segments 2007 2006 2005 2007 2006 2005 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 15,300 9.1% 8.9% 2,065 16,765 35,232 16,350 6.9% 6.8% 1,651 16,398 38,428 North America 14,020 8.8% 8.1% 2,332 16,946 32,523 13,746 11.9% 21.8% 509 998 2,873 12,280 28.8% 29.4% 460 1,480 3,819 9,532 27.5% 26.7% 801 1,212 4,205 *) Comparative sales figures from 2005 and 2006 have been adjusted in order to reflect a changed organisational structure from 1 January 2007 which transfers 8 countries, incl. Bulgaria and Romania, from International Operations to Europe. 64 Novo Nordisk Annual Report 2007 Notes – Consolidated income statement 4 Segment information (continued) Secondary reporting format – Geographical segments The Group operates in four main geographical areas (the secondary reporting format): Europe: EU, EFTA North America: The US 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. 2007 2006 2005 2007 2006 2005 2007 2006 2005 Biopharmaceuticals Corporate/unallocated Total 5,865 3,511 1,668 309 5,635 3,309 1,607 326 11,353 10,877 11,353 4.4% 9.9% 4,683 4,683 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 – 1,233 796 2,449 (260) 305 319 (173) 2,712 2,370 2,421 – 263 – – 391 – 3,470 6,685 2,488 2,418 – 291 – – 509 – 3,684 6,783 2,269 1,908 – 309 – – 727 – 3,625 6,566 1,959 – – 37 2 2 – – 3,075 10,789 5,081 – – 40 134 – 1 112 2,567 8,195 4,831 – – 4 – – 4 – 1,273 6,910 5,732 14,008 12,572 1,749 2,149 10,825 13,451 1,606 1,984 7,298 13,543 1,463 1,708 30,478 27,866 24,012 5,865 3,511 1,668 309 5,635 3,309 1,607 326 11,353 10,877 41,831 8.0% 12.9% 8,942 10,267 1,233 796 10,971 2,449 8,522 8,538 (1,325) 2,074 933 63 2,386 – 23,429 47,731 15,549 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 2007 2006 2005 2007 2006 2005 2007 2006 2005 International Operations Japan & Oceania 7,295 12.3% 17.8% 222 2,031 5,648 6,494 18.1% 18.7% 465 1,897 4,618 5,497 25.8% 22.4% 1,088 1,546 4,212 4,440 (4.9%) 3.1% 4 178 782 4,669 (0.9%) 5.0% 19 208 1,023 4,711 9.6% 10.5% 20 237 1,020 41,831 8.0% 12.9% 2,386 19,605 47,731 Total 38,743 14.8% 15.7% 3,009 20,350 44,692 33,760 16.3% 15.4% 4,241 19,941 41,960 Novo Nordisk Annual Report 2007 65 Consolidated financial statements Notes – Consolidated income statement 5 Sales rebate accruals and provisions 7 Depreciation, amortisation and impairment losses DKK million 2007 2006 2005 DKK million 2007 2006 2005 At the beginning of the year Additional rebates deducted from sales Adjustments to previous year’s accruals and provisions Payments and grants of rebates during the year Exchange rate adjustments 1,847 3,176 1,872 2,761 1,031 2,705 (168) (218) (68) (2,835) (187) (2,372) (196) (1,943) 147 At the end of the year 1,833 1,847 1,872 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 1,652 31 1,205 119 1,682 56 302 102 1,525 67 231 107 3,007 2,142 1,930 Specification of sales rebate accruals and provisions: Other liabilities Current provisions *) Hereof costs of DKK 870 million related to discontinuation of AERx ®. 89 1,744 72 1,775 77 1,795 8 Fees to statutory auditors Total sales rebate accruals and provisions 1,833 1,847 1,872 DKK million 2007 2006 2005 6 Employee costs DKK million 2007 2006 2005 Wages and salaries Share-based payment costs (refer to note 33) Pensions – defined contribution plans Retirement benefit obligations (refer to note 24) Other contributions to social security Other employee costs 10,344 130 774 109 717 1,126 9,703 113 712 111 652 940 8,659 223 618 137 576 766 Total employee costs 13,200 12,231 10,979 Included in the Income statement under the following headings: Cost of goods sold Sales and distribution costs Research and development costs Administrative expenses 3,603 4,498 2,813 2,121 3,656 3,904 2,424 2,055 3,664 3,380 2,095 1,751 Statutory audit Audit-related services Tax advisory services Other services Total 25 6 15 1 47 24 7 16 1 48 24 6 20 1 51 9 Licence fees and other operating income (net) DKK million 2007 2006 2005 Licence fees and settlements Net income from IT, engineering and other services Other income Total licence fees and other operating income (net) 229 26 66 148 55 69 164 51 188 321 272 403 Total included in the Income statement 13,035 12,039 10,890 10 Financial income 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 DKK million 2007 2006 2005 58 107 165 115 77 192 86 3 89 Interest income Capital gain on investments etc (net) Foreign exchange gain (net) Foreign exchange gain on derivative financial instruments (net) 322 – – 981 1,303 369 153 – 409 931 210 – 288 – 498 Total employee costs 13,200 12,231 10,979 Total financial income For information on remuneration to the Board of Directors and Executive Management, please refer to note 34. 11 Financial expenses Average number of full-time employees Year-end number of full-time employees 24,344 25,516 22,590 23,172 21,146 22,007 In addition to the employee costs of DKK 13,200 million NNE Pharmaplan A/S, which is consolidated in the line item ‘Licence fee and other operating income (net)’, has employee costs in 2007 of DKK 800 million (2006: DKK 545 million, 2005: DKK 519 million) of which DKK 264 million (2006: DKK 545 million, 2005: DKK 519 million) has been capitalised as assets in course of construction in the Group. DKK million 2007 2006 2005 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 324 60 71 – 52 507 296 – 268 – 62 626 254 20 – 328 69 671 *) Hereof including unrealised capital loss of DKK 52 million related to Novo Nordisk’s invest ment in Aradigm Inc. 66 Novo Nordisk Annual Report 2007 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 and 2007 Other Notes – Consolidated income statement 2007 2006 2,835 (347) 2,488 (11) (28) 2,449 43 50 93 25.0% 2.9% (3.2%) (2.0%) (0.4%) 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%) Effective tax rate 22.3% 29.6% 28.8% 13 Earnings per share Net profit DKK million 2007 8,522 2006 6,452 2005 5,864 Average number of shares outstanding *) Dilutive effect of outstanding share bonus pool and options ‘in the money’ *), **) in 1,000 shares in 1,000 shares 631,783 4,639 641,862 3,526 655,422 2,446 Average number of shares outstanding incl. dilutive effect of options ‘in the money’ in 1,000 shares 636,422 645,388 657,868 Basic earnings per share *) Diluted earnings per share *) DKK DKK 13.49 13.39 10.05 10.00 8.95 8.91 *) In 2007 there was a stock split of the company’s A and B shares. The trade unit was changed from DKK 2 to DKK 1. The comparative figures for 2006 and 2005 have been updated accordingly. **) For further information on outstanding shares bonus pool and options, please refer to note 33. Novo Nordisk Annual Report 2007 67 Consolidated financial statements Notes – Consolidated balance sheet 14 Intangible assets DKK million 2007 Cost at the beginning of 2007 Additions during the year Addition regarding acquisitions Disposals during the year Exchange rate adjustments Cost at the end of 2007 Amortisation and impairment losses at the beginning of 2007 Amortisation for the year Impairment losses for the year **) Amortisation and Impairment losses reversed on disposals during the year Exchange rate adjustments Amortisation and impairment losses at the end of 2007 Carrying amount at the end of 2007 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 Includes primarily internally developed software and costs related to major IT projects. *) **) Impairment losses of DKK 117 million relates to discontinuation of AERx ®. Goodwill Patents and licences etc Other intangible assets *) 82 52 – (1) – 133 65 – – – – 65 68 82 – – – 82 65 – – – 65 17 486 21 26 (11) (2) 520 22 14 117 (1) 1 153 367 297 194 (2) (3) 486 13 9 – – 22 464 491 97 18 (41) 7 572 333 32 – (37) 8 336 236 470 28 (3) (4) 491 286 54 (3) (4) 333 158 Total 1,059 170 44 (53) 5 1,225 420 46 117 (38) 9 554 671 849 222 (5) (7) 1,059 364 63 (3) (4) 420 639 68 Novo Nordisk Annual Report 2007 Notes – Consolidated balance sheet 15 Property, plant and equipment DKK million 2007 Cost at the beginning of 2007 Additions during the year Addition regarding acquisitions Disposals during the year Transfer from/(to) other items Exchange rate adjustments Cost at the end of 2007 Depreciation and impairment losses at the beginning of 2007 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 2007 Land and buildings Plant and machinery Other equipment Total Payments on account and assets in course of construction 11,525 284 7 (241) 640 (7) 14,066 387 – (720) 1,847 (16) 12,208 15,564 3,231 500 30 (133) (10) 3,618 6,677 1,302 25 (685) (2) 7,317 2,623 203 2 (646) 129 (22) 2,289 1,731 226 26 (609) (8) 1,366 3,775 1,434 – (33) (2,616) (13) 31,989 2,308 9 (1,640) 0 (58) 2,547 32,608 – – 735 (33) – 702 11,639 2,028 816 (1,460) (20) 13,003 Carrying amount at the end of 2007 8,590 8,247 923 1,845 19,605 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 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 *) Impairment losses of DKK 753 million relates to discontinuation of AERx ®. 16 Investments in associated companies DKK million Harno Invest A/S Other 2007 2006 Aggregated financial information of associated companies: Sales Net profit/(loss) Total assets Total liabilities Novo Nordisk’s share of profit/(loss) in associated companies Hereof unrealised capital gains/(losses) Novo Nordisk’s carrying amount of investments in associated companies Hereof Novo Nordisk’s carrying amount of goodwill related to investments in associated companies Market values of shareholdings in listed associated companies: – ZymoGenetics, Inc (NASDAQ symbol: ZGEN) – Innate Pharma SA (Euronext symbol: IPH) 8 5,811 1,693 33 1,503 18 159 0 325 (867) 1,888 847 (270) (3) 341 69 1,237 128 333 4,944 3,581 880 1,233 15 500 69 1,237 128 1,825 (782) 4,272 1,942 (260) (16) 788 82 1,842 219 Novo Nordisk recorded in 2007 an income of DKK 1,518 million related to the divestment of the business activities in Dako A/S. As a shareholder in Harno Invest A/S (formerly Dako A/S) Novo Nordisk received a dividend of DKK 1,470 million in December 2007. The divested business activities in Harno Invest A/S contributed with a loss in the period from 1 January 2007 to 28 February 2007 of DKK 1 million. For the full year 2006 the divested business activities in Harno Invest A/S contributed with a loss of DKK 23 million. Please refer to page 101 for a list of Novo Nordisk’s associated companies. Novo Nordisk Annual Report 2007 69 Consolidated financial statements Notes – Consolidated balance sheet 17 Financial assets DKK million 19 Trade receivables 2007 2006 DKK million Financial assets classified as fair value through profit and loss: – Derivative financial instruments (refer to note 35) Available-for-sale financial assets: – Listed shares – Unlisted shares – Bonds Loans: – Amounts owed by affiliated companies – Amounts owed by third parties Total financial assets 1,048 814 5 107 1,486 *) 9 91 1,001 35 5 36 51 2,686 2,002 *) Danish AAA-rated mortgage bonds issued by Danish credit institutions governed by The Danish Financial Supervisory Authority. 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 Total trade receivables 6,092 5,163 Trade receivables (net) are equal to an average credit period of (days) Trade receivables (gross) can be specified as follows: Not due Specification of financial assets: Long-term (Other financial assets) Current (Marketable securities and financial derivatives) Total financial assets 131 2,555 169 1,833 2,686 2,002 Overdue by: Between 1 and 179 days Between 180 and 359 days More than 360 days 2007 2006 6,634 5,622 459 119 (36) 542 419 55 (15) 459 53 49 5,255 4,319 835 182 362 873 184 246 6,634 5,622 2007 2006 602 79 105 707 835 34 99 816 1,493 1,784 Total trade receivables (gross) 20 Other receivables DKK million Prepayments *) Interest receivable Amounts owed by affiliated companies Other receivables Total other receivables *) In 2007 prepaid costs of DKK 116 million were expensed in connection with the dis - continuation of AERx ®. 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 12 (27) 985 1.6 4.4% – – – 18 Inventories 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 2007 2006 1,210 6,010 1,800 1,088 4,697 2,615 9,020 8,400 4,418 4,104 188 443 81 45 70 Novo Nordisk Annual Report 2007 21 Share capital DKK million Development in share capital: A share capital B share capital At the end of the year Notes – Consolidated balance sheet 2007 2006 107 540 647 107 567 674 The A share capital remained unchanged at DKK 107 million from 2003 to 2007. In 2007 the B share capital was reduced by DKK 27 million from DKK 567 million to DKK 540 million. 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 2003 to 2005. At the end of 2007 the share capital amounted to DKK 107,487,200 in A share capital (equal to 107,487,200 A shares of DKK 1) and DKK 539,472,800 in B share capital (equal to 539,472,800 B shares of DKK 1). 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 Holding at the end of the year Number of B shares of DKK 1*) As % of share capital before cancellation As % of share capital after cancellation Market value DKK million 5.85% (4.00%) 1.85% 39,426,138 (26,960,000) 12,466,138 15,537,012 (2,188,020) 25,815,130 9,285 7,786 2,936 4,835 (241) 1,118 8,648 1.93% 2.40% (0.34%) 3.99% *) In 2007 there was a stock split of the company’s A and B shares. The trade unit was changed from DKK 2 to DKK 1. Acquisition of treasury shares during the year is part of the share buy-back programme of up to DKK 10 billion worth of Novo Nordisk B shares announced in January 2007, 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. At the end of the year 9,079,072 of the treasury B shareholding 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 2007 2006 504 457 961 0 0 457 0 504 961 2 502 457 0 0 961 658 516 1,174 159 1 1 510 503 1,174 3 657 510 – 4 1,174 Adjustment of the above loans to market value at year-end 2007 would result in a loss of DKK 2 million (a loss of DKK 6 million in 2006). *) Terms to maturity between 2016 – 2022 and a weighted average interest rate of 4.96% **) Terms to maturity in 2011 and a weighted average interest rate of 4.94% Novo Nordisk Annual Report 2007 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 Deferred tax on items recognised on equity Addition regarding acquisition Exchange rate adjustments Total deferred tax (assets)/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 (451) (677) – (1,643) (61) (22) (1,188) (4,042) 1,321 1 1,103 – 1 – 1,440 3,866 87 (347) (28) 50 7 55 (176) 2007 Total 870 (676) 1,103 (1,643) (60) (22) 252 (176) Assets Liabilities (188) (904) – (1,561) (110) (7) (915) (3,685) 1,425 141 1,149 – – – 1,057 3,772 2007 2006 967 (213) (871) 125 – 79 87 2006 Total 1,237 (763) 1,149 (1,561) (110) (7) 142 87 – 87 Netting of deferred tax assets and deferred tax liabilities related to income taxes for which there is a legally enforceable right to offset 1,520 (1,520) – 1,774 (1,774) Total deferred tax (assets)/liabilities (net) (2,522) 2,346 (176) (1,911) 1,998 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 224 million (DKK 214 million in 2006) have not been recognised in the Balance sheet. Hereof DKK 7 million expire within three years. 24 Retirement benefit obligations Most employees in the Group are covered by post-employment retirement plans in the form of primarily defined contribution plans or alternatively defined benefit plans. Group com panies sponsor these plans either directly or by contributing to independently administered funds. The nature of such plans varies according to the legal regula tions, 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. 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 un funded, a liability for the retirement obligation is recognised in the Group’s Balance sheet. In accordance with the Accounting Policies 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. 72 Novo Nordisk Annual Report 2007 Notes – Consolidated balance sheet 24 Retirement benefit obligations (continued) DKK million 2007 2006 DKK million 2007 2006 Balance sheet obligations for: Defined benefit pension plans Post-employment medical benefits Total retirement obligations Income statement charge for: Defined benefit pension plans Post-employment medical benefits Total income statement charge The amounts recognised in the Balance sheet are determined as: Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Unrecognised actuarial gains/(losses) (net) on pension benefit plans Unrecognised actuarial gains/(losses) (net) on post-employment medical plans Unrecognised past service costs 738 147 885 79 30 109 695 (566) 129 190 2 44 (3) 719 219 938 81 30 111 648 (495) 153 290 (74) (36) (3) Net liability in the Balance sheet 362 330 Amounts recognised in the Balance sheet for post-employment defined benefit pension plans and medical plans are predominantly non-current and are re - ported as either long-term assets or long-term liabilities. Change/development in the fair value of plan assets of the year: At the beginning of the year Expected return on plan assets Actuarial gains/(losses) Employer contributions Benefits paid to employees Addition regarding acquisition Other Exchange rate adjustments At the end of the year 495 18 3 68 (10) 1 – (9) 566 435 16 3 65 (17) – 9 (16) 495 The Group expects to contribute DKK 61 million to its defined benefit pension plans in 2008. Weighted average asset allocation of funded retirement obligations: Equities Bonds Cash at bank Property Amounts recognised in the income statement for the year: Current service cost Interest cost on pension obligation Expected return on plan assets Actuarial (gains)/losses recognised in the year Curtailment/settlement (gains)/losses Past service cost Total income statement charge Actual return on plan assets 27% 56% 12% 5% 27% 56% 12% 5% 91 32 (18) 1 – 3 109 21 107 30 (16) 4 (18) 4 111 19 4% 4% 3% 7% 2% 4% 4% 3% 10% 2% Change/development in the retirement obligations of the year: At the beginning of the year Current service cost Interest cost on pension obligation Actuarial (gains)/losses Past service costs Benefits paid to employees Addition regarding acquisition Plan amendments Other Exchange rate adjustments At the end of the year 938 91 32 (151) – (23) 31 3 – (36) 885 875 107 30 7 (2) (26) – – (5) (48) 938 The weighted average assumptions used for computation and valuation of defined benefit plans and post-employment medical benefits are as follows: Discount rate Projected return on plan assets Projected future remuneration increases Healthcare cost trend rate Inflation rate The following shows a five-year summary reflecting the funding of retirement obligations and the impact of historical deviations between expected and actual return on plan assets and actuarial adjustments on plan liabilities: For all major defined benefit plans actuarial computations and valuations are performed annually. DKK million Retirement obligations Plan assets Deficit/(surplus) Actuarial (gains)/losses on plan assets Actuarial (gains)/losses on plan liabilities 2007 2006 2005 2004 2003 885 (566) 319 (3) (151) 938 (495) 443 (3) 7 875 (435) 440 6 77 609 (313) 296 (2) 16 500 (246) 254 (1) 10 Novo Nordisk Annual Report 2007 73 Consolidated financial statements Notes – Consolidated balance sheet 25 Other provisions DKK million At the beginning of the year Additional provisions *) Adjustments to previous year’s provisions 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 1,775 2,816 (168) (2,495) (184) 983 444 (59) (60) (5) 2007 Total 3,367 3,510 (316) (2,731) (190) 2006 Total 2,719 3,410 (223) (2,333) (206) 1,744 1,303 3,640 3,367 – 1,744 1,744 1,239 64 1,303 1,239 2,401 3,640 911 2,456 3,367 609 250 (89) (176) (1) 593 – 593 593 *) Under Other Provisions DKK 339 relates to discontinuation of AERx ®. 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. Please refer to note 36 for further information on commitments and contingencies. 26 Short-term debt and financial derivatives 27 Other liabilities DKK million 2007 2006 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 35) Total short-term debt The debt is denominated in the following currencies: DKK EUR USD JPY Other currencies Total short-term debt 206 154 45 405 13 179 108 11 94 405 285 12 41 338 18 196 57 11 56 338 At year-end, the Group had undrawn committed credit facilities amounting to DKK 7,457 million (DKK 7,456 million in 2006). 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. 2007 2,025 346 122 93 2,373 4,959 2006 1,857 447 81 86 2,392 4,863 74 Novo Nordisk Annual Report 2007 Notes – Consolidated cash flow and financial resources 28 Other adjustments for non-cash items 30 Cash and cash equivalents DKK million 2007 2006 2005 DKK million 2007 2006 2005 Cash at the end of the year 4,823 3,270 3,303 Short-term bank loans and overdrafts at the end of the year (refer to note 26) (206) (285) (820) Cash and cash equivalents at the end of the year 4,617 2,985 2,483 At the end of 2007, 2006 and 2005 there were no marketable securities with original maturity of less than three months. Share-based payment costs Increase/(decrease) in provisions (Gain)/loss from sale of property, plant and equipment Change in 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 Recognised income of divestment of business activities in the associated company, Harno Invest A/S Unrealised capital gain on investments in associated companies Other, including difference between average exchange rate and year-end exchange rate 130 490 140 119 54 37 300 (1,518) (15) (46) 113 889 134 65 (7) (143) 244 – 16 223 890 (64) 72 37 96 127 – (186) (352) (86) Other adjustments for non-cash items (309) 959 1,109 29 Cash flows from acquisition of subsidiaries and business units DKK million 2007 2006 2005 Intangible assets Property, plant and equipment Other long-term assets Current assets Long-term liabilities Current liabilities Net assets acquired Goodwill on acquisition Consideration paid Acquired cash and cash equivalents Net cash flow Please refer to note 2 for further information. 44 9 18 149 (37) (176) 7 52 (59) – (59) – – – – – – – – – – – 8 345 – 5 – (8) 350 – (350) – (350) Novo Nordisk Annual Report 2007 75 Consolidated financial statements Notes – Additional information 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 recognised directly under shareholders’ funds. Novo Nordisk only hedges invested equity in major foreign affiliates to a limited extent. Equity hedging takes place using long-term cross-currency swaps. At the end of 2007, hedged equity made up 12% of the Group’s JPY equity. At the end of 2006, 14% 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 2007, 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 by DKK 15 million (DKK 53 million in 2006). DKK and EUR interest rates rose steadily during the first half of 2007, where- as the second half of 2007 was much more volatile with an overall declining trend. The Danish two-year bond yield was 4.23% at the end of 2007, up from 3.94% at the end of 2006. 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 credit rating. The credit risk on bonds is limited as investments are made in highly 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 structure Novo Nordisk’s capital structure is characterised by a substantial equity ratio. This is in line with the general capital structure of the pharmaceutical industry and reflects the inherent long-term investment horizons in an industry with typically more than 10 years’ development time for pharmaceutical products. Novo Nordisk’s equity ratio, calculated as equity to total liabilities, was 67.4% by the end of the year (67.4% at the end of 2006). 31 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 finan cial 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 fluctua tions, 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 2007 versus DKK ending with a 10.4% decrease. In 2006 the USD depreciated by 10.5% versus DKK. In 2007, the JPY depreciated by 5.5% whereas the GBP depreciated by 8.6%, both versus DKK. In 2006, the JPY depreciated by 11.5% whereas the GBP appreciated by 2.0%. At year-end 2007, 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 15 months and 10 months of expected future cash flow respectively. At the end of 2006, the USD cover was 16 months, and for JPY and GBP the cover was 12 months and 11 months respectively. A 5% change in the following currencies will have a full-year impact on operating profit of approximately: DKK million USD JPY GBP USD-related currencies Estimated for 2008 Estimated for 2007 *) 470 140 85 100 400 150 90 90 *) Definition of “USD-related currencies” have been changed to CAD, CNY in 2008 from ARS, BRL, CAD, CNY, MXN, SGD, TWD, INR in 2007. Comparative figures for 2007 have been changed accordingly. At the end of 2007 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 714 million (DKK 644 million in 2006). 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 772 million (DKK 693 million in 2006). 76 Novo Nordisk Annual Report 2007 32 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). In 2000, the Novozymes Group was demerged from the Novo Nordisk Group with Novo A/S retaining a controlling shareholding. Related parties are considered to be the Novo Nordisk Foundation, Novo A/S, the Novozymes Group (due to the shared controlling shareholder, Novo A/S), asso ciated companies, the Board of Directors and officers of these entities and Management of Novo Nordisk. Novo Nordisk has access to certain assets of and can 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 material terms of these agree- ments are renegotiated annually. The Group has had the following material transactions with related parties: DKK million Novo Nordisk Foundation Donations to the Group Novo A/S Services provided by the Group Services provided by Novo A/S Purchase of Novo Nordisk B shares Net balance The Novozymes Group Services provided by the Group Services provided by the Novozymes Group Net balance Associated companies Purchased intangible assets, fees and royalties etc paid to associated companies by Novo Nordisk 2007 Purchase/ (sale) 2006 Purchase/ (sale) (30) (29) (15) 1 2,090 3 (253) 159 14 (14) 40 1,835 0 (207) 157 30 63 70 There have not been any material transactions with any director or officer of Novo Nordisk, the Novozymes Group, Novo A/S, the Novo Nordisk Founda tion or associated companies. For information on remuneration to Manage ment of Novo Nordisk A/S, please refer to note 34. Apart from the balances included in the Balance sheet under Other financial assets, Other receivables and Other liabilities, there are no material unsettled trans actions with related parties at the end of the year. Notes – Additional information Novo Nordisk Annual Report 2007 77 Consolidated financial statements Notes – Additional information 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: 2007 2006 2005 Expected life of the option in years (average) 6 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 6 17% 3.50 6 15% 3.00 21% 4.50 4.25% 3.60% 3.25% NA 195 160 335.0 235.5 177.5 Share-based payment expensed in the Income statement 130 113 223 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 45,367 with an average exercise price of DKK 101 per share of DKK 10 and a market value of DKK 22 million. These options are hedged by the Group’s holding of Novozymes A/S B shares. 33 Share-based payment schemes Long-term share-based incentive programme For a description of the programme please refer to page 44– 45. In 2007, the allocation to the bonus pool for the Senior Management Board amounts to DKK 43 million, corresponding to 6.5 months’ salary. This amount has been expensed in 2007. The cash amount has been converted into 166,445 Novo Nordisk B shares of DKK 1 using a share price of DKK 256.5, equal to the adjusted average trading price for Novo Nordisk B shares on the OMX Nordic Exchange Copenhagen from 31 January to 14 February 2007. Based on the split of participants at the establishment of the bonus pool, approximately 35% of the pool will be allocated to the members of Executive Management and 65% to the members of the Senior Management Board. The shares allocated to the bonus pool for 2004 (252,688 shares) were released to the individual participants following the approval of the Annual Report for 2007 by the Board of Directors on 30 January 2008. The total number of shares in the bonus pool relating to the years 2005, 2006 and 2007 now amounts to 659,971 shares split in the following way: Year allocated to pool Number of shares Vesting 2005 2006 2007 232,026 261,500 166,445 659,971 2009 2010 2011 For the management group below the Senior Management Board, a similar share-based incentive programme was introduced in 2007. The allocation to the bonus pool for this group consisting of approximately 500 employees was DKK 135 million in 2007, corresponding to 527,665 shares. The cost of this allo - cation will be amortised equally over the period 2007–2010. Share options Novo Nordisk had established share option schemes in 1998 –2006 with the pur pose of motivating and retaining qualified management group and to ensure common goals for management and the shareholders. Each option gives the right to purchase one Novo Nordisk B share. All share options are hedged by treasury shares. No options were granted in 2007 as the future long-term incentive programme from 2007 onwards will be based directly on shares. 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. 78 Novo Nordisk Annual Report 2007 33 Share-based payment schemes (continued) Outstanding share options in Novo Nordisk 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 Exercised in 2007: of 1998 Ordinary share option plan of 1999 Ordinary share option plan of 2000 Ordinary share option plan of 2001 Ordinary share option plan of Launch-share option plan of 2001 Launch-share option plan of 2002 Launch-share option plan of 2003 Ordinary share option plan of 2005 Employee share options *) Expired/cancelled in 2007 Value adjustment **) Outstanding at the end of 2007 Notes – Additional information Average exercise price per option DKK Market value per option DKK Market value DKK million 114 153 0 95 63 99 99 99 114 119 175 95 63 99 99 99 166 161 0 119 134 63 99 99 166 99 166 161 98 0 134 140 50 29 156 50 50 50 50 50 50 64 45 64 64 64 64 64 64 64 64 64 439 47 35 (1) (5) (10) (9) (13) (1) 152 634 99 (2) (10) (17) (18) (54) (18) (2) 0 (11) 519 111 1,120 111 111 111 111 111 111 111 111 111 111 201 (8) (32) (34) (40) (15) (2) (2) (109) 0 (31) 688 1,535 Share options 8,891,302 1,640,468 227,080 (19,000) (103,000) (207,334) (183,248) (268,080) (26,416) 9,951,772 2,229,084 (27,000) (161,500) (270,400) (280,416) (845,880) (283,600) (36,000) (350) (179,306) 10,096,404 (73,000) (287,434) (306,800) (356,280) (138,680) (21,528) (16,048) (979,010) (840) (278,036) 7,638,748 *) Granted to employees in some countries outside of Denmark with a benefit equal to the employee-share benefit obtained by employees in the rest of the world. **) The market value has been calculated using the Black-Scholes model with the parameters existing at year-end of the respective year. Novo Nordisk Annual Report 2007 79 Consolidated financial statements Notes – Additional information 33 Share-based payment schemes (continued) Exercisable and outstanding share options in Novo Nordisk 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 2003 Ordinary share option plan Issued share options Exercised share options Expired/ cancelled Outstanding/ exercisable share options Exercise price DKK 710,000 1,375,000 1,526,000 1,369,960 1,437,200 21,528 52,048 2,185,000 (591,166) (1,065,500) (1,056,630) (639,880) (1,437,200) (21,528) (52,048) (979,010) (118,834) (153,000) (46,504) (86,788) – – – (77,666) 0 156,500 422,866 643.292 0 0 0 1,128,324 Exercisable at the end of 2007 8,696,736 (5,842,962) (482,792) 2,350,982 2004 Ordinary share option plan 2005 Ordinary share option plan 2005 Employee share options **) 2006 Ordinary share option plan 1,618,832 1,640,468 227,080 2,229,084 – – (1,190) – (110,000) (123,768) (51,240) (141,500) 1,508,832 1,516,700 174,650 2,087,584 Outstanding at the end of 2007 ***) 14,392,200 (5,844,152) (909,300) 7,638,748 Exercise period 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 63 99 99 166 99 166 161 98 134 153 0 175 For 3,750 1998 Ordinary share options and 35,560 2000 Launch-share options, the Board of Directors had extended the exercise period to 3 August 2007. *) **) Granted to employees in some countries outside of Denmark with a benefit of the 2005 employee share programme equal to the employee-share benefit obtained by employees in the rest of the world. ***) All stock options will vest if there is a change of control of Novo Nordisk A/S, cf. note 36 Commitments and contingencies. Average market price of Novo Nordisk B shares per trading period in 2007 31 January – 14 February 2 May – 16 May 3 August – 17 August 31 October – 14 November Total exercised options Average market price DKK Exercised share options 256.5 285.5 297.0 312.5 1,094,120 612,990 215,160 257,350 2,179,620 80 Novo Nordisk Annual Report 2007 Notes – Additional information 34 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 46– 48 of the Annual Report. Fee to the Board of Directors and the Audit Committee 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 until 8 March 2006) 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 Executive Management and the Senior Management Board DKK million 2007 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 *****) 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 *****) Board of Directors Audit Committee 2007 Total Board of Directors Audit Committee 2006 Total – 1.0 0.6 0.4 3.2 5.2 – – – 0.5 0.4 0.9 – 1.0 0.6 0.9 3.6 6.1 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 Fixed salary Cash bonus *) Pensions Car allowance etc Share-based payment Total remuneration 6.0 3.5 3.2 5.3 3.5 21.5 48.6 5.7 3.1 0.7 2.9 4.7 3.1 20.2 39.8 2.0 1.2 1.1 1.7 1.2 7.2 2.0 1.2 1.1 1.3 1.2 6.8 17.6 14.9 1.9 1.1 – 1.0 1.7 1.1 6.8 2.0 1.0 0.4 1.0 1.2 1.0 6.6 13.3 10.7 0.3 0.3 0.3 1.3 0.3 2.5 7.4 0.3 0.3 0.1 0.3 1.6 0.3 2.9 5.3 – – – – – – – 42.7 – – – – – – – – 45.8 10.3 6.2 5.7 9.6 6.2 38.0 88.5 42.7 9.9 5.5 1.2 5.2 9.2 5.5 36.5 69.1 45.8 *) **) As from Annual Report 2007 Cash bonus disclosed for 2007 is the expected bonus payment in 2008 relating to performance in 2007. The disclosure for Cash bonus disclosed for 2006 has been changed accordingly to bonus paid out in 2007 relating to performance in 2006. The total remuneration in 2006 and 2007 is reflecting costs in relation to Kåre Schultz’ expatriation to Switzerland. Out of the total remuneration approximately 12% related to cost compensation and associated tax effects of being expatriated. Fixed salary for 2006 is adjusted to appropriately reflect the tax implications of the expatriation. In addition, Lars Almblom Jørgensen received severance package in 2006 amounting to DKK 16.5 million. ***) ****) The total remuneration for 2007 includes remuneration to 25 Senior Vice Presidents of which 5 resigned during the year. The total remuneration for 2006 includes remuneration to 22 Senior Vice Presidents and no one resigned during the year. *****) 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 35% of the pool will be allocated to the members of Executive management and 65% to the member of the Senior Management Board (2006: 37% and 63% respectively). 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 2007 81 Consolidated financial statements Notes – Additional information 34 Management‘s remuneration, share options and shareholdings (continued) The shares allocated to the bonus pool for 2004 (252,688 shares) were released to the individual participants following the approval by the Board of Directors on 30 January 2008. Based on the share price at the end of 2007, the value of the released shares is as follows: Value of shares released in 2008 Executive Management: Lars Rebien Sørensen Jesper Brandgaard Lise Kingo Kåre Schultz Mads Krogsgaard Thomsen Executive Management in total Senior Management Board in total No of shares Market value *) DKK million 26,138 17,426 17,426 17,426 17,426 95,842 156,846 8.8 5.8 5.8 5.8 5.8 32.0 52.5 *) The market value of the shares released in 2008 is based on Novo Nordisk B share price at the end of 2007 of DKK 335. 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 reimbursement of actual costs. 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 does not retain the compensation. Lars Rebien Sørensen furthermore serves as a member of the Supervisory Board of Bertelsmann AG and retains the remuneration of EUR 59 thousand in 2007 (EUR 58 thousand in 2006) and as a member of the Supervisory Board of DONG Energy and retains the remuneration of DKK 113 thousand in 2007 (DKK 0 in 2006). Lise Kingo serves as a member of the Board of Directors of GN Store Nord A/S and retains the remuneration of DKK 350 thousand (DKK 200 thousand in 2006). Mads Krogsgaard Thomsen serves as a member of the Board of Directors of Cellartis AB and DTU and retains the remuneration of SEK 25 thousand (SEK 50 thousand in 2006) from Cellartis AB and DKK 60 thousand (DKK 50 thousand in 2006) from DTU. Jesper Brandgaard serves as a member of the Board of Directors of SimCorp A/S and retains the remuneration of DKK 203 thousand in 2007 (DKK 0 in 2006). Kåre Schultz serves as a member of the Board of Directors of Lego A/S and retains the remuneration of DKK 171 thousand (DKK 0 in 2006). 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 At the beginning of the year Exercised during the year Additions during the year At the end Market value *) DKK million of the year 127,000 85,060 41,000 57,500 90,560 36,000 38,560 21,000 23,000 44,060 401,120 162,620 – – – – – – 91,000 46,500 20,000 34,500 46,500 238,500 19.5 10.0 4.7 7.2 10.0 51.4 66.6 Senior Management Board in total **) 546,078 327,528 105,350 323,900 Total 947,198 490,148 105,350 562,400 118.0 *) Calculation of market values at year-end has been based on the Black-Scholes option pricing model applying the assumptions shown in note 33. **) Additions during the year cover the holdings of share options by Senior Management Board members appointed in 2007. 82 Novo Nordisk Annual Report 2007 Notes – Additional information 34 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 800 – 3,320 – 660 8,000 80,904 – 22,000 320 520 116,524 820 320 3,230 320 320 – 1,200 – – – – – – – – – 1,200 36,000 38,560 21,000 23,000 44,060 – – – – – – 18,000 – – – 400 800 1,200 3,320 – 660 8,000 62,904 – 22,000 320 120 18,400 99,324 36,000 38,560 24,110 23,000 44,060 820 320 120 320 320 5,010 162,620 165,730 1,900 59,706 213,528 250,198 23,036 746,214 166,445 – 912,659 927,454 543,793 434,328 1,036,919 0.3 0.4 1.1 – 0.2 2.7 21.1 – 7.4 0.1 0.0 33.3 0.3 0.1 0.0 0.1 0.1 0.6 7.7 305.7 347.3 In addition to the shareholdings, Kurt Anker Nielsen has share options in Novo Nordisk, issued by Novo A/S. At the end of 2007, 42,000 of these options were outstanding. *) Calculation of the market value is based on the quoted share prices of DKK 335 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, between 35– 40% of the pool will be allocated to the members of Executive Management and between 60– 65% 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 2007 83 Consolidated financial statements Notes – Additional information 35 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 2007 and 2006 specified by hedging instrument and the major currencies. The fair value of the financial instruments qualifying for hedge accounting under IAS 39 ‘Financial instruments’ is recognised directly under equity until the hedged items are recognised in the Income statement. At year-end a gain of DKK 691 million is deferred via equity (a gain of DKK 420 million in 2006). 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 2007 2006 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 10,043 2,765 840 357 14,005 251 504 755 534 88 34 – 656 17 25 42 14,760 698 – – – 7 7 – – – 7 7,029 1,847 896 357 10,129 319 460 779 254 129 – 20 403 14 20 34 – – 17 – 17 – – – 10,908 437 17 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 – – – 314 – – – – 101 624 101 7 8 51 – – 66 310 183 44 380 314 – – 2 2 99 1,231 103 14 1 – – – 15 *) For financial instruments including both currency and interest rate swaps, hedge accounting is applied for the interest rate part whereas hedge accounting is not applied for the currency part. The contract value is disclosed only in the upper table. 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 2,498 224 2,722 44 3 47 – – – 1,536 – 1,536 13 – 13 – – – Total hedging of forecasted transactions 18,106 846 73 13,675 553 32 84 Novo Nordisk Annual Report 2007 Notes – Additional information 35 Derivative financial instruments (continued) 2007 2006 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 15 months 10 months 17 months 16 months 13 months 16 months 12 months 11 months 18 months 13 months 13 months The maturity of the swaps existing at the end of 2007 is December 2011 and December 2012 (December 2007, December 2011 and December 2012 at the end of 2006) and the interest margins are (0.57%) to 4.05% ((1.46%) to 4.05% at year-end 2006). Hedging of assets and liabilities The table below shows the fair value of fair value hedging activities for 2007 and 2006 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 221 million in 2007 (a gain of DKK 248 million in 2006). 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 Total hedging of assets and liabilities 2007 2006 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 1,937 679 389 276 3,281 3,281 145 55 22 4 226 226 – – – 5 5 5 3,137 810 312 1,795 6,054 6,054 166 86 – 5 257 257 – – 9 – 9 9 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, i.e. assets and liabilities in USD, JPY and GBP. Novo Nordisk Annual Report 2007 85 Consolidated financial statements Notes – Additional information 35 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 2007 and 2006 specified by hedging instrument and the major currencies. All changes in fair values relating to currency are recognised directly under equity, amounting to DKK 9 million in 2007 (DKK 4 million in 2006). All changes relating to interest rates are recognised in the Income statement, amounting to DKK 1 million in 2007 (DKK 0 million in 2006). DKK million Cross currency swaps: JPY/ DKK Total hedging of net investments in foreign subsidiaries 2007 2006 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 9 9 – – 100 100 4 4 – – The maturity of the swap existing at the end of 2007 is October 2009 (October 2009 at the end of 2006) and the interest margin is 2.94% (2.94% at year-end 2006). 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 2007 2006 Net investment % covered Net investment % covered 2,017 746 204 10,238 3,746 16,951 0% 12% 0% 0% 0% 1,906 691 159 4,399 3,511 10,666 0% 14% 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. 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 Financial instruments with both positive and negative fair values recognised net in the balance Total derivative financial instruments included in marketable securities and in short-term debt 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 86 Novo Nordisk Annual Report 2007 2007 2006 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 17,286 2,722 918 20,926 561 561 882 47 143 1,072 9 9 21,487 1,081 12 – 59 71 7 7 78 16,183 1,536 918 18,637 1,192 1,192 19,829 – (33) (33) – 19,829 21,487 1,048 374 698 9 1,081 45 71 7 – 78 660 13 125 798 16 16 814 – 814 373 437 4 814 26 – – 26 15 15 41 – 41 24 17 – 41 Notes – Additional information 2007 2006 Contingencies 36 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 55% of the commitments are related to leases outside Denmark. The lease costs for 2007 and 2006 were DKK 886 million and DKK 806 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 728 609 445 355 312 719 651 553 437 339 286 602 Total 3,168 2,868 Purchase obligations 2,018 1,595 The purchase obligations primarily relate to con - tractual obligations to investments in property, plant and equipment as well as purchase agreements re- garding medical equipment and consumer goods. Novo Nordisk expects to fund these commitments with existing cash and cash flows from operations. The figure for 2006 includes DKK 660 million related to purchase obligations of energy in a houseowners’ association/energy guild which is consolidated in the Annual Report. In 2006 this amount was not included in the Annual Report. Obligations relating to research and development projects 2,471 2,313 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. Other guarantees 347 215 Other guarantees primarily relate to guarantees issued by Novo Nordisk in relation to rented property. Security for debt 2,166 2,025 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 2001 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 65 million in 2007 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 21, 2008 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 45 individuals (as compared to 43 individuals in January 2007) who allege to have used a Novo Nordisk hormone therapy pro duct. These pro ducts (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, 27 individuals (as compared to 21 individuals in January 2007) 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 2008 and does not presently expect to have a trial scheduled before Q3 2008. 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 were 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. A hearing in the matter is scheduled to take place in April 2008. 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. Novo Nordisk Inc is currently a defendant in five separate cases filed in the US alleging that Novo Nordisk and a number of other pharmaceutical com panies 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, Schenectady and Orange, New York. Novo Nordisk was dismissed from a similar action brought by the State of Mississippi. Further, in 2005, Novo Nordisk was dismissed in 38 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 March 2007, Novo Nordisk was informed that the Superior Court in Brazil reversed a decision from a lower court in an anti-dumping case against Novo Nordisk initiated by the Brazilian authorities. According to the decision Novo Nordisk had to pay anti-dumping duties and interest related to the period 2001–2005. Duties and interest have been deposited in Brazil and are re - cognised in the Annual Report. Novo Nordisk disputes the anti-dumping claim and has appealed the decision to the Supreme Court in Brazil. A decision is expected in 2008. Pending claims against Novo Nordisk and investigations involving Novo Nordisk 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 investiga- tions. In addition, Novo Nordisk cannot predict how long the investigations will take or when the company will be able to provide additional information. Novo Nordisk Annual Report 2007 87 Consolidated financial statements Notes – Additional information 36 Commitments and contingencies (continued) 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 been discussing the matter with the SEC and the US Department of Justice, and has fully cooperated with the US authorities. Further, since 21 September 2006, the Danish Prosecutor has investigated the possibility of disgorging profits earned under the Programme. Novo Nordisk can neither determine or predict the out- come of these investigations, nor predict how long they will take. At this point in time, Novo Nordisk does not expect the pending claim to have a material impact on Novo Nordisk’s financial position. 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 are not expected to 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 (DKK 557 million in 2006). 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 partially implemented by the Danish Financial Statements Act contains certain rules relating to listed companies on disclosure of information that may be of interest to the market and potential takeover bidders, in particular in relation to disclosure of change of control provisions. For information on the ownership structure of Novo Nordisk, please see ‘Share - holder information’ on pp 42–50. For information on change of control clauses in share option programmes please see pp 78– 80 with note 33 ‘Share based payment schemes’, and in relation to employment contracts of executive mana - ge ment of Novo Nordisk, please see note 34 ‘Management’s remuneration, share options and shareholdings’ on pp 82– 83. In addition, Novo Nordisk discloses that the company has significant agree- ments to which the company is a party and which take effect, alter or terminate upon a change of control of the company following implementation of a take - over 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 turnover, corresponding to approximately 4% of Novo Nordisk‘s gross profit. 88 Novo Nordisk Annual Report 2007 Consolidated non-financial statements Overview of non-financial reporting This is the fourth 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 indica tors, 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. Based on engagements with stakeholders, this year’s annual status and regular updates of non-financial performance will be available online at novonordisk.com/sustainability. Click: Values in action 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 (most material; business critical ), online (material, often to specific stakeholder interests) or not reported (not material). The same process applies for the assurance provider’s re - commendations. Read the recommendations and Novo Nordisk’s response be - low and at novonordisk.com/sustainability. Click: Values in action 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 2007. Read more about how Novo Nordisk defines materiality at novonordisk.com/sustainability. Click: Values in action 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. Assurance provider’s recommendations An important element of the assurance process is the disclosure of recom - mendations from the assurance provider*). In previous years, Novo Nordisk has disclosed these in the online report. To increase transparency, the recommen - dations and Novo Nordisk’s responses are included below. 2006 recommendations 1. The Eco Intensity Ratios (EIR) for water and energy in the Diabetes area have been developed to measure the eco-efficiency of Novo Nordisk’s production by measuring annual energy and water consumption against annual pro - duction. We recommend that Novo Nordisk revises the calculation method for the EIR for water and energy in the Diabetes area in 2007 to ensure that the indicator covers all the steps of the production process. *) The assurance provider’s recommendations to the Annual Report 2006 and Novo Nordisk’s response are available at annualreport.novonordisk.com/how-we-are-accountable Click: Recommendations Novo Nordisk’s response The EIR concept and the long-term targets will be evaluated – and revised if necessary – in the beginning of 2007 on the basis of the 2006 process. The first year was considered as a test period for the new EIR concept. Our assurance provider will be invited to review the EIR calculation method no later than mid March 2007. Conclusion The EIR methodology was reviewed in 2007. Novo Nordisk has not found a solution to how to cover all steps of the production process. There was there- fore no change in the EIR methodology in 2007 and there will be no change in the 2008 calculations. The 2007 review will continue into 2008 and Novo Nordisk expects to either have a revised EIR methodology or a new indicator for reporting in 2009. 2. In view of Novo Nordisk’s commitment and overall efforts to promote inter- nationalisation and integration in lines of business of Triple Bottom Line issues as well as the continuously evolving sustainability agenda, we recom- mend Novo Nordisk to consider whether the existing governance structures, including committee memberships and mandates, are fully aligned to sup- port these commitments and efforts. Novo Nordisk’s response Triple Bottom Line issues continue to evolve and faster than ever. In Novo Nordisk, the responsibility for managing issues is allocated to a committee, and all current issues are anchored with a committee. However, Novo Nordisk will review the governance structure for Triple Bottom Line issues to ensure align- ment between committees, target-setting and reporting. Conclusion The review of the governance structure showed that all issues are dealt with by the existing committees. 3. We recommend Novo Nordisk to continue its work on developing longer- term targets for its non-financial performance with a view to drive per - formance by targets and objectives aligned with vision and strategy as well as to identify and report performance targets in key areas such as business ethics, internationalisation, and customer care and product quality. Novo Nordisk’s response As part of the review of the internal governance structure for Triple Bottom Line issues, special focus will be placed on identifying indicators to measure the per- formance and impact of the activities, and on setting targets wherever possible. This will rely on the ability to define meaningful and relevant indicators. Conclusion A non-financial indicators and targets table has been introduced as part of the reporting. See p 90. 2007 recommendations In 2007, the assurance provider had no recommendations for Novo Nordisk. 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 2007 to implement its 10 principles in a Communication on Progress. In 2007, Novo Nordisk signed the UN Global Compact initiative – Caring for Climate. A specific reporting on this initiative has been included in this year’s Communication on Progress. In 2007, Novo Nordisk upgraded its reporting against the Global Reporting Initiative’s (GRI’s) Sustainability Reporting Guidelines from the 2002 version to the G3. Complete reporting according to the 11 principles and against the list of indicators covering economic, environmental and social aspects of the business performance can be found at novonordisk.com/sustainability. Click: Reporting Novo Nordisk reports on the GRI G3 because the G3 is the only international recognised set of indicators. By reporting on the indicators, it is possible for our stakeholders to compare Novo Nordisk performance to other organisations’ performance. Novo Nordisk Annual Report 2007 89 Consolidated non-financial statements Non-financial indicators and targets Non-financial indicators and targets Novo Nordisk is committed to continuous improvement in the company’s environ mental, social and economic performance. Setting high objectives and targets and reporting on progress in meeting these targets are core elements of the Novo Nordisk Way of Management. Against this governance framework, targets are set to provide direction and impetus for moving forward. The table shows the extent to which targets were met in 2007 in terms of non-financial performance. This set of top-level Triple Bottom Line targets and indicators links into Novo Nordisk’s Balanced Scorecard, which also focuses on sustainable develop ment. In addition to the non-financial performance targets, process targets are also iden tified. Strategy area Indicator Target 2007 performance measured against target Access to health LDCs where Novo Nordisk operates Best possible pricing scheme in all LDCs LDCs where Novo Nordisk sells insulin at or below the policy price Best possible pricing scheme in all LDCs Business ethics Employees in sales and marketing trained in business ethics 90% by 2008 Climate change CO2 emissions 10% reduction by 2014 compared to 2004 38 36 95% 12% Company reputation Maintain or improve company reputation with external key stakeholders Positive or negative deviation of <0–1 deviation from mean brand score by 2008 The rating is undertaken every second year. The next rating is due in 2008. Compliance Breaches of regulatory limit values Accidental releases 50% reduction by 2010 compared to 2005 50% reduction by 2010 compared to 2005 Employees Engaging culture (employee engagement) Maintain level of 4.0 or above up to 2014 Opportunity to use and develop employee competences/skills Maintain level of 3.5 or above up to 2014 People from diverse backgrounds have equal opportunities Maintain level of 3.5 or above up to 2014 Health & Safety Frequency of occupational injuries Continuous decrease Quality *) Fatalities Number of warning letters and re-inspections 0 0 Resource efficiency EIR Water Diabetes care EIR Water Biopharmaceuticals EIR Energy Diabetes care EIR Energy Biopharmaceuticals Importance of social and environmental issues for the future of the company Values 10% reduction by 2010 compared to 2005 10% reduction by 2010 compared to 2005 10% reduction by 2010 compared to 2005 10% reduction by 2010 compared to 2005 Maintain level of 3.5 or above up to 2014 Managers’ behaviour consistent with Novo Nordisk’s values Maintain level of 3.5 or above up to 2014 Fulfilment of action points from facilitations of the NNWoM Maintain level of 80% or above up to 2014 (87%) 1% 4.1 4.0 4.0 5.9 0 0 (6%) (15%) (7%) (14%) 4.4 4.2 99% *) In 2008, a new quality indicator on ‘quality cost’ will be developed. The consolidated non-financial statements on pp 93–99 present and discuss performance during 2007 and include comparative data for 2005–2007. 90 Novo Nordisk Annual Report 2007 Accounting policies for non-financial data In 2007, there have been no significant changes to the accounting policies for non-financial data. The following changes have been made to the basis for the non-financial data compared to 2006: n The activities in Novo Nordisk Servicepartner were taken back into Novo Nordisk A/S as of 1 January 2007 and there is therefore no longer a separate legal entity for the future reporting. n Due to a change in the recommendation from the Danish Energy Agency on how to calculate the CO2 emission factors (changed from the 200% calcula- tion method to the 125% calculation method), Novo Nordisk has revised its emission calculations. This affects the reported emissions from 2000 to 2006. 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 at www.novonordisk.com/sustainability. 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 access to 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, including NNIT A/S, NNE A/S and subsidiaries. Environmental data cover the significant environ mental impact of the organisa- tion’s activities at the production sites, which produce approved products for the market – 13 in total. No pro duction sites were added in 2007. New pro - duction activities were initiated at site Værløse in May 2007. The environmental impact from site Værløse has therefore been included for 2007. Social data cover all employees. Economic data cover the Novo Nordisk Group. Engage - ments 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. Notes – Accounting policies for non-financial data Economic data The economic indicators are based on data from the financial registrations. See financial 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 Den - mark 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 envi- ronmental 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 electricity, steam and district heat. The consumption of fuel and externally produced 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 2007 are the three- year average of 2004 to 2006. The emissions are calculated according to the GHG protocol. n Organic solvents cover the sum of emissions of different types of organic sol- vent such as acetone, ethanol etc, exclusive of emissions of ozone-depleting substances. Data are based on measurement and ensuring calculations. Novo Nordisk Annual Report 2007 91 Consolidated non-financial statements Notes – Accounting policies for non-financial data 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 registra tions. 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 at least one day of absence in addition to the day of the injury. n The number of fatalities is based on registrations cen trally and locally in sub- sidiaries. 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 assurance providers. 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 cal - culated 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. The consolidation of the EIR ratios does not account for spills, changes in stock and production of intermediatry products for external clients. 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 trained or educated in- cludes healthcare professionals directly trained, educated, interacted with or reached through awareness campaigns. The estimated number is based on registrations by subsidiaries and corporate functions in Novo Nordisk in the Best Practice Database of the activities conducted within various National Changing Diabetes ® programmes. The number covers the total number Novo Nordisk has engaged with since the National Changing Diabetes ® program - mes were initiated in 2002. n The estimated number of people with diabetes trained or treated includes people with diabetes targeted with training, awareness or treatment. The estimated number is based on registrations by subsidiaries and corporate functions in Novo Nordisk in the Best Practice Database of the activities conducted within various National Changing Diabetes ® programmes. The indicator covers all types of activities, hence it encompasses people with dia- betes directly treated and trained in Less Developed Countries, in developing and developed countries. The number covers the total number Novo Nordisk has engaged with since the National Changing Diabetes ® programmes were initiated in 2002. 92 Novo Nordisk Annual Report 2007 Notes – Performance indicators Economics The development in the economic indicators was 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 tangible investments (3.2:1) reflects the continued increasing importance of R&D for Novo Nordisk. In the period 2003 –2007 this ratio varied from 1.8:1 to 3.2:1. The increase in the share of R&D as a share of sales (from 16.3% in 2006 to 17.2% in 2007, adjusted for the effect of AERx ®) reflects the fact that R&D expenditure has risen by 14% while sales have risen by 8%. The wage share of R&D (39%) is an indication of the company’s impact as a capa city builder in the community. Most production facilities, 49% of the full-time employees and 76% 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 2007, Novo Nordisk invested DKK 2.3 billion primarily in Denmark (67%), but also in production facilities globally (in the US, Brazil, China and France), down from DKK 2.8 billion in 2006. Remuneration constituted 51% of the cash added value, mainly in the de - veloped world, and particularly in Denmark (55%), where nearly half (49%) of Novo Nordisk’s workforce is located. However, the share of full-time positions in International Operations increased from 18% in 2006 to 19% in 2007. The sales per employee is DKK 1.6 million and the cash added value per employee is 1 million, indicating a high productivity of Novo Nordisk’s employees. Ratio of R&D expenditure to tangible investments R&D as share of sales Capital expenditure (net) 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 (estimated) *) Previously reported as 9.1. Reporting error now corrected. In 2007, Novo Nordisk created 2,344 new positions globally and had 25,516 full-time positions; measured as full-time equivalents (FTE). These jobs translate into 56,100 indirect global jobs in the supply chain from production needs and employees’ private consumption. The majority is due to production (40,300) but also the effect of private consumption from Novo Nordisk employees is significant (15,800). Measured by sales in 2006, Novo Nordisk is the ninth largest company in Den - mark, up one rank from 2005. In terms of R&D investments Novo Nordisk is the largest Danish company and ranks as number 30 on a European scale (in 2006 numbers), up from number 33. Among European pharmaceutical com panies Novo Nordisk ranks as number seven by sales and regarding R&D invest ments number five, up from number seven, indicating that in terms of R&D Novo Nordisk is investing at a higher rate than the European pharma industry on average. In 2007, total corporate taxes constituted 5.9% of sales. In Denmark 13% of corporate taxes are paid as local taxes and 87% as state taxes. In 2007, Novo Nordisk accounted for an estimated 4.5% of Danish corporate taxes. Novo Nordisk employees accounted for an estimated 0.6% of total Danish income taxes and an estimated 0.5% of employment in Denmark. In total, Novo Nordisk’s income taxes in Denmark for the year amounted to DKK 1,212 million. Novo Nordisk’s sales in 2007 accounted for 2.4% measured as a share of Danish GDP, ie the same level as in 2006, and 3.4% of Danish exports compared to 4.0% in 2006. Unit 2007 2006 2005 % DKK million % Number of jobs % % 3.2:1 17.2 2,268 32 81,600 5.9 3.4 2.3:1 16.3 2,787 33 82,700 7.0 *) 4.0 1.4:1 15.1 3,665 34 78,000 7.0 4.7 Novo Nordisk Annual Report 2007 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, patients, employees and suppliers. For patients, 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 serv- ices 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 sus- tainable 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. Investors/funders Risk capital for development and production of new products is rewarded through dividend and share prices (46% are non-Danish investors). h C Society As a business, Novo Nordisk generates wealth for society and contributes to socio- economic development through its sustainable business practices, investment, employment (estimated direct and indirect impact amounting to 81,600 jobs globally), and contribution to Denmark’s GDP is 2.4%, and 3.4% of Danish exports. As a pharmaceutical company, Novo Nordisk provides knowledge, R&D and healthcare products (insulin for 13.9–17.5 million people) and outreach through improved awareness, diagnosis or treatment of diabetes for at least 58 million people. R a p e t u r it al n & o f u n in n d v e s f s t m e n t h Remuneration Productivity f Employees 26,008 employees’ knowledge and product ivity are a major part of the company’s intangible value. 51% of employees work outside Denmark. 32% of cash received is remuneration. Novo Nordisk provides products to the healthcare sector and quality of life to patients, dividend and return on investment to investors, income and profit to suppliers, wage income to employees and taxes to the public sector. h Sales Products f Customers and patients Novo Nordisk’s products are sold to hospitals, doctors and health- care professionals for treatment of their patients. Novo Nordisk has a 53% market share of the global insulin market (by volume) and 21% of the global diabetes care market (by value). h Pay m ents M aterials f T a x e s f h S e r v c e s i 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 part- nerships globally. An estimated 26,800 jobs are created at suppliers in Denmark and 40,300 globally. Public sector Tax payments fund services offered by the public sector. Novo Nordisk’s tax payments are an estimated 4.5% of corporate taxes in Denmark. Novo Nordisk’s employees in Denmark pay an estimated 0.6% of the country’s total income tax. In total, Novo Nordisk’s income taxes in Denmark for the year amounted to DKK 1,298 million. Cash value distribution (2007) *) Customers Suppliers Company cash Employees Investors/funders Public sector Management Cash received for products and services (from sales) Cash payments for materials, facilities and services **) Cash added value (cash received minus cash payments) Remuneration Dividend, share repurchase and interest payments Taxes Future growth DKK million Cash received Cash added value 40,902 15,143 25,759 13,032 7,157 2,607 2,963 100% 37% 32% 18% 6% 7% 100% 51% 28% 10% 11% **) Research and development costs have been adjusted for the discontinuation of AERx® as these do not have any cash outflow. **) 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 2007 Notes – Performance indicators Environment Resources The performance data for water and energy show a slight increase from 2006 to 2007 of 8% and 3% respectively. The consumption of water and energy increased due to increased production at Novo Nordisk’s production sites. The energy screening programmes are continuing at all sites, identifying additional Water consumption Energy consumption Materials areas for reduction of energy consumption. The consumption of materials in - creased by 7%. This increase was mainly due to production increases at site Hillerød and site Kalundborg in Denmark. Unit 1,000 m3 1,000 GJ 1,000 tons 2007 3,231 2,784 152 2006 2,995 2,712 142 2005 3,014 2,679 135 Wastewater The total volume of wastewater increased by 7% from 2006 to 2007. In the same period, the discharged quantity of COD decreased from 1,000 tons to 813 tons, corresponding to a 19% decrease. The quantity of nitrogen remained at 107 tons. The discharged quantity of phosphorus was reduced from 19 tons to 14 tons, corresponding to a decrease of 26%. The significant reductions of COD and phosphorus were partly due to improved efficiency of the wastewater treatment plant in Kalundborg, owned by Novozymes A/S, and the closure of the insulin purification factory in Bagsværd in 2006. COD Nitrogen Phosphorus Unit Tons Tons Tons 2007 813 107 14 2006 1,000 107 19 2005 1,303 126 22 Waste In 2007, there was a decrease in the total waste amount of 27% compared to 2006. This was due to a decrease in hazardous waste of 56%, counterbalanced by an increase in non-hazardous waste of 10%. The recycling percentage in- creased to 38% from 35% in 2006. The 10% increase in non-hazardous waste can be explained by smaller increases in different non-hazardous waste frac- tions. There were increases in the waste fractions construction and demolition, electric and electronic equipment, food, glass, waste for landfill and wood at several sites. The non-hazardous waste sent for special treatment is wastewater containing certain chemicals that is treated at a hazardous waste treatment facility for precautionary reasons. The 56% decrease in hazardous waste was mainly due to a significant decrease in the amount of contaminated soil and ethanol waste from site Kalundborg. Together these two waste fractions de- creased by 68% from 2006. Total waste – Non-hazardous waste Recycled Incinerated *) Landfill Special treatment – Hazardous waste Recycled ethanol **) Incinerated ethanol ***) Recycling percentage Unit Tons Tons % % % % Tons % % % 2007 2006 2005 17,576 11,604 48 26 13 13 5,972 18 40 38 24,165 10,594 39 33 10 18 13,571 17 48 35 23,776 12,145 – – – – 11,631 – – 33 ***) 98% with energy recovery. ***) Ethanol recycled in eg biogas or wastewater treatment plants. ***) Incinerated at combined heat and power plants or at plants for special treatment of hazardous waste with energy recovery. Novo Nordisk Annual Report 2007 95 Consolidated non-financial statements Performance indicators Environment (continued) Emissions to air Novo Nordisk’s total energy consumption increased by 3% in 2007, which trans- lates into an increase in the energy-related emissions of CO2 from 229,000 tons in 2006 to 236,000 tons in 2007, corresponding to a 3% increase. The increase in CO2 was primarily due to increased emissions from the production sites in Clayton, Kalundborg and Måløv. This was mainly due to increased energy con- sumption in combination with increases in CO2 emission factors for some exter- nal energy suppliers. Total CO2 emission increased by 12% compared to the base line year 2004. However, Novo Nordisk has implemented energy-saving projects since 2005 that have resulted in an estimated 12,000-ton reduction in *) CO2 Organic solvents *) Data have been restated due to changed emission factors in Denmark. the total CO2 emissions. Therefore, despite the increase of 12%, assessments of performance against the company’s ambitious long-term target to reduce its CO2 emission by 10% over a 10-year period, as part of the WWF Climate Savers Programme, indicate that performance is on track. Emissions to air of organic solvents decreased from 102 tons in 2006 to 81 tons in 2007, a decrease of 21%, which was primarily due to decreases in emissions of ethanol and isopropanol. The organic solvents consist of ethanol (79%), isopropanol (10%) and acetone (11%). Unit 1,000 tons Tons 2007 2006 2005 236 81 229 102 228 124 Eco Intensity Ratios (EIR) In 2006, the Eco Productivity Index (EPI) was replaced by a new key performance indicator to measure water and energy efficiency relative to production; the Eco Intensity Ratio (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 in water and energy consumption relative to production on average per year, which corresponds to a reduction of almost 10% 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 water and energy consumption and related these to the forecasted pro - duction. The EIR targets are implemented in the Balanced Scorecard for Novo Nordisk as well as in the management bonus scheme. In 2007, the EIR Water and EIREnergy improved for both Diabetes care and Biopharmaceuticals. The EIR for water were improved by 6% for Diabetes care and by 15% for Biopharma - ceuticals. Like wise, the EIR for energy improved by 7% and 14% for Diabetes care and Biopharmaceuticals respectively. Unit m3/ MU m3/g API GJ/ MU GJ/API 2007 2006 2005 7.3 4.1 5.1 7.9 7.8 4.8 5.5 9.2 – – – – All 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 environ ment. The 2010 target of a 50% reduction in the number of breaches of regulatory limit values is progressing according to plan with a 87% reduction. The long-term target to avoid breaches of regu latory limit values and accidental releases altogether has however not been met yet. Preventive measures are long-term efforts, consisting of training of key employees, risk assess ment 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. Unit Number Number Number Number 2007 2006 2005 22 16 105 82 123 119 135 82 174 164 104 67 EIR Water Diabetes care Biopharmaceuticals EIREnergy Diabetes care Biopharmaceuticals Compliance Ensuring compliance with legal requirements on environment is a high priority for Novo Nordisk. Preventive measures are beginning to show results: the number of breaches of regulatory limit values decreased from 123 in 2006 to 22 in 2007, a decrease of 82%. Of the 22 breaches, 73% were related to pH in wastewater, which is monitored through continuous measurements. In the same period, the number of accidental releases decreased by 22% to a total of 105, of which 82 were releases of cooling agents such as HCFCs, HFCs and ammonia. This decreasing number reflects particular efforts focused on cooling equipment, which were initiated in 2006. This focus has resulted in improved knowledge of what causes the releases, and hence which preventive actions to implement. There were no accidental releases of GMOs in 2007. Breaches of regulatory limit values – related to pH in wastewater Accidental releases – releases of cooling agents 96 Novo Nordisk Annual Report 2007 Notes – Performance indicators Social Living our values Novo Nordisk’s performance improved or remained at a high level on all para - meters 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 are important for the future of the company’ remained at a high level of 4.4 (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 Importance of social and environmental issues for the future of the company *) Managers’ behaviour consistent with Novo Nordisk’s values *) Fulfilment of action points planned arising from facilitations of the NNWoM *) On a scale from 1–5, with 5 being the highest. Novo Nordisk’s values’ increased by 0.1 to 4.2. Both are above the target of >_3.5. There was 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; these two action points were overdue. The two overdue action points will be closed in the first quarter of 2008. Unit % 2007 2006 2005 4.4 4.2 99 4.3 4.1 99 4.2 4.0 100 Our employees By the end of 2007 Novo Nordisk employed 26,008 persons – an increase of 10% compared to 2006. This number equals a full-time equivalent (FTE) of 25,516. 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 2007, 50.6% of the employees were men, as compared with 50.8% at the end of 2006. The rate of absence was slightly lower than in 2006 with a performance of 2.7. Employee turnover increased to 11.6% from 10.0%. One of Novo Nordisk’s key risks, as described on pp 8–9, is an inability to attract and retain the right talent. The average answers of ten equally weighted questions in the annual survey, eVoice, are used to calculate the level of ‘engaging culture’. In 2007, the con - solidated score was 4.1, increasing by 0.1 from 2006. The target is to remain at a level of 4.0 or above on a scale from 1–5, with 5 being the highest score. The average of respondents’ answers as to whether ‘my work gives me an op- portunity to use and develop my competences/skills’ increased from 3.9 to 4.0, and the average of respondents’ answers as to whether ‘people from diverse backgrounds have equal opportunities’ remained at a high level of 4.0; both were above the target of >_3.5. Employees (total) – Female – Male Rate of absence Rate of employee turnover Engaging culture (employee engagement) *) Opportunity to use and develop competences/skills *) People from diverse backgrounds have equal opportunities *) *) On a scale from 1–5, with 5 being the highest. Unit Number % % % % 2007 2006 2005 26,008 49.4 50.6 2.7 11.6 4.1 4.0 4.0 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 Novo Nordisk Annual Report 2007 97 Consolidated non-financial statements Performance indicators Social (continued) Health & safety Performance on the health & safety indicator ‘frequency of occupational in- juries’ was satisfactory, as the frequency decreased from 6.2 to 5.9 in 2007, meeting the target of a continuous decrease. There were no fatalities in 2007. There is a continued focus on ensuring health & safety standards for employees in Novo Nordisk. In 2007, adoption continued of a health & safety management system certifiable according to OHSAS 18001 for Novo Nordisk in Denmark and Product Supply globally. The first certifications are expected in 2008. Unit 2007 2006 2005 Frequency of occupational injuries Fatalities Per million working hours Number 5.9 0 6.2 0 7.3 0 Training costs In 2007, the annual spending on training, measured as average spent per employee, increased by 16%, 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. Moreover, the fact that the company took on board some 4,200 new employees during the year, has required that additional resources be spent on induction training. Annual training costs per employee Unit DKK 2007 2006 13,130 11,293 2005 9,899 Access to health For 2007, 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 2007 Novo Nordisk sold insulin to either govern- ments or to the private market in a total of 36 of the LDCs at or below a price of 20% of the average prices for insulin in the western world, compared to 34 in 2006. In 12 countries Novo Nordisk is not selling insulin at all, for various reasons. The two LDC countries in which Novo Nordisk does not sell insulin at the policy price are Cambodia and Gambia. The public authori ties in both countries have been offered the opportunity to buy insulin at the policy price. The insulin sold in Cambodia and Gambia in 2007 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 sometimes make it impossible to do business. While Novo Nordisk prefers to sell insulin at the preferential price through government tenders, the LDCs where Novo Nordisk operates LDCs where Novo Nordisk sells insulin at or below the policy price Healthcare professionals trained or educated People with diabetes trained or treated 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, educated, interacted with or reached through awareness campaigns and the number of people with diabetes targeted with training, awareness or treatment. The aim is to continue activities to educate healthcare professionals and to train and treat people with diabetes. Since 2002, 336,000 healthcare professionals were trained or educated and 1,260,000 people with diabetes were trained or treated. Unit Number Number Number Number 2007 2006 2005 38 36 336,000 1,260,000 35 34 297,000 1,060,000 35 32 – – Patent families The number of Novo Nordisk patent families developed as expected in 2007. The number of active patent families to date has increased by 10%. The number of new patent families (first filing) decreased from 149 in 2006 to 116 in 2007 – a decrease of 22%. Active patent families to date New patent families (first filing) Unit Number Number 2007 1,003 116 2006 2005 913 149 812 130 98 Novo Nordisk Annual Report 2007 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 2007 decreased by 3% to 54,675 animals, of which 95% were mice, transgenic mice and rats. In 2007, Novo Nordisk only housed animals in Denmark. Animals purchased Unit Number 2007 2006 2005 54,675 56,533 57,905 To ensure transparency, more details on reported data and additional non-financial reporting are available online along with interactive charts for underlying data at novonordisk.com/sustainability. Click: Values in action Novo Nordisk Annual Report 2007 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 Denmark 1931 DKK 646,960,000 – A A A A 1974 Austria 1974 Belgium 2005 Bulgaria 2004 Croatia 1997 Czech Republic 2002 Denmark 1972 Finland 2003 France 1959 France 1973 Germany 1979 Greece 1996 Hungary 1978 Ireland 1980 Italy 2005 Lithuania 2006 Macedonia 1983 Netherlands 1965 Norway 1996 Poland 1984 Portugal Romania 2005 Serbia & Montenegro 2005 2007 Slovakia 2006 Slovenia 1978 Spain 1971 Sweden 2003 Switzerland 2000 Switzerland 1968 Switzerland 1977 United Kingdom 1978 United Kingdom Canada Denmark United States United States United States United States United States United States Australia Denmark Japan New Zealand 1983 2003 2005 2007 2007 1988 1991 1982 1985 2002 1980 1990 EUR EUR BGN HRK CZK DKK EUR EUR EUR EUR EUR HUF EUR EUR LTL MKD EUR NOK PLN EUR RON EUR SKK EUR EUR SEK CHF CHF CHF GBP GBP CAD DKK USD USD USD USD USD USD 36,336 69,000 5,880,000 5,000,000 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 14,068,285 61,155 250,000 29,021,000 250,000 2,795,000 640,000 8,000,000 2,679,286 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 50,000 50,000 283,835,600 55,000,000 2,000 500,001 AUD DKK 15,500,000 JPY 2,104,000,000 1,000,000 NZD 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 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 A A A A A Parent company Novo Nordisk A/S Subsidiaries by region Europe Novo Nordisk Pharma GmbH S.A. Novo Nordisk Pharma N.V. Novo Nordisk Pharma EAD Novo Nordisk Hrvatska d.o.o. 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 S.P.A. UAB Novo Nordisk Pharma Novo Nordisk Farma dooel Novo Nordisk Farma B.V. Novo Nordisk Scandinavia AS Novo Nordisk Pharma Sp z.o.o. Novo Nordisk Comércio Produtos Farmacêuticos Lda. Novo Nordisk Farma S.R.L. Novo Nordisk Pharma d.o.o. Belgrade (Serbia) Novo Nordisk Slovakia s.r.o. 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 US Holdings Inc. Novo Nordisk Production Holdings 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. 100 Novo Nordisk Annual Report 2007 Companies in the Novo Nordisk Group Activity Country Year of incorporation / acquisition Issued share capital / paid-in capital Percentage of shares owned International Operations Aldaph SpA Novo Nordisk Pharma Argentina S.A. Novo Nordisk Pharma (Private) Limited Novo Nordisk Produção Farmacêutica do Brasil Ltda. Novo Nordisk Farmacêutica do Brasil Ltda Novo Nordisk Farmacêutica Limitada Novo Nordisk (China) Pharmaceuticals Co, Ltd Beijing Novo Nordisk Pharmaceuticals Science & Technoloy Co., Ltd. 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 Pars Novo Nordisk Ltd Novo Nordisk Lebanon s.a.r.l. Novo Nordisk Pharma (Malaysia) Sdn Bhd Novo Nordisk Mexico S.A. de C.V. Novo Nordisk Pharma SAS Novo Nordisk Pharma Limited Novo Nordisk Pharma P.V.T. Novo Nordisk Pharmaceuticals (Philippines) Inc Novo Nordisk Limited Liability Company 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 Pharmaplan A/S *) Novo Nordisk Servicepartner A/S Associated companies Harno Invest A/S Innate Pharma SA ZymoGenetics, Inc Algeria Argentina Bangladesh Brazil Brazil Chile China 1994 1997 2007 2002 1990 2006 1994 2006 China 2002 Denmark 2004 Egypt 2001 Hong Kong 1994 India 2003 Indonesia 2005 Iran 1997 Israel 2007 Lebanon 1992 Malaysia 2004 Mexico 2006 Morocco 2006 Nigeria 2005 Pakistan 1999 Philippines 2003 Russia 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 *) In addition to the listed companies NNIT A/S and NNE Pharmaplan have own subsidiaries. DZD 1,742,650,000 ARS 7,465,150 17,500,000 BDT 736,280,984 BRL 84,727,136 BRL 758,581,245 CLP 35,000,000 USD 2,000,000 USD 113,302,310 DKK 50,000 EGP 500,000 HKD 265,000,000 INR 827,900,000 IDR 10,000,000 IRR 100 ILS 600,000,000 LBP 200,000 MYR 138,491,127 MXN 2,597,000 MAD 10,000,000 NGN 10,000,000 PKR 50,000,000 PHP 188,243,360 RUB 12,000,000 SGD 2,000,000 SGD 200,000 SGD ZAR 8,000 KRW 6,108,400,000 TWD 9,000,000 15,500,000 THB TND 400,000 TRY 25,296,300 100,000 AED VEB 2,250,000,000 DKK DKK DKK DKK 10,000,000 1,000,000 500,000 1,000,000 DKK EUR USD 70,419,910 1,249,139 752,966,000 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 100 100 100 100 30 19 30 n o i t c u d o r P A 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 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 Novo Nordisk Annual Report 2007 101 Consolidated financial statements Summary of financial data 2003– 2007 DKK million Sales Sales by business segments: Modern insulins (insulin analogues) Human insulins Insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy Other products Biopharmaceuticals total Sales by geographical segments: Europe *) North America International Operations *) Japan & Oceania Licence fees and other operating income (net) Operating profit Operating profit (excl. AERx ® ) **) 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 insulins Insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy Other products Biopharmaceuticals total Sales outside Denmark as a percentage of sales Gross margin ***) Sales and distribution costs as a percentage of sales Research and development costs as a percentage of sales Research and development costs as a percentage of sales (excl. AERx ®) **) Administrative expenses as a percentage of sales Net profit margin ***) Effective tax rate ***) Equity ratio ***) Payout ratio ***) Payout ratio adjusted for impact of Dako and AERx ® discontinuation Long-term financial targets Operating profit margin ***) Operating profit margin (excl. AERx ®) **) Growth in operating profit ***) Growth in operating profit (excl. AERx ®) **) Growth in operating profit, three-year average ***) ROIC ***) Cash to earnings ***) Cash to earnings, three-year average ***) Cash to earnings adjusted for net profit impact of AERx ® discontinuation 102 Novo Nordisk Annual Report 2007 2003 2004 2005 2006 2007 26,158 29,031 33,760 38,743 41,831 2,553 13,140 1,352 1,430 18,475 3,843 2,133 1,322 385 7,683 12,053 6,219 3,871 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% 50.2% 5.2% 5.5% 70.6% 14.7% 8.2% 5.1% 1.5% 29.4% 99.3% 71.7% 28.5% 15.5% – 7.1% 18.5% 34.5% 71.7% 30.8% – 24.6% – 8.4% – 11.0% 20.4% 79.6% 32.3% – 4,507 13,033 1,350 1,643 20,533 4,359 2,317 1,488 334 8,498 12,887 7,478 4,368 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% 44.9% 4.6% 5.7% 70.7% 15.0% 8.0% 5.1% 1.2% 29.3% 99.3% 72.3% 28.5% 15.0% – 6.7% 17.3% 32.8% 70.8% 31.8% – 24.0% – 8.7% – 8.9% 21.5% 85.3% 59.0% – 7,298 13,543 1,463 1,708 24,012 5,064 2,781 1,565 338 9,748 14,020 9,532 5,497 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% 40.1% 4.3% 5.1% 71.1% 15.0% 8.2% 4.6% 1.0% 28.9% 99.2% 72.8% 28.7% 15.1% – 6.3% 17.4% 28.8% 65.9% 33.2% – 24.0% – 15.9% – 11.0% 24.7% 82.4% 82.4% – 10,825 13,451 1,606 1,984 27,866 5,635 3,309 1,607 326 10,877 15,300 12,280 6,494 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% 34.7% 4.2% 5.1% 71.9% 14.5% 8.6% 4.2% 0.8% 28.1% 99.2% 75.3% 30.0% 16.3% – 6.2% 16.7% 29.6% 67.4% 34.4% – 23.5% – 12.7% – 12.4% 25.8% 73.0% 80.2% – 14,008 12,572 1,749 2,149 30,478 5,865 3,511 1,668 309 11,353 16,350 13,746 7,295 4,440 321 8,942 10,267 2,029 10,971 2,449 8,522 47,731 10,641 4,908 32,182 2,268 118 9,012 1,638 33.5% 30.1% 4.2% 5.1% 72.9% 14.0% 8.4% 4.0% 0.7% 27.1% 99.2% 76.6% 29.6% 20.4% 17.2% 6.0% 20.4% 22.3% 67.4% 32.8% 34.9% 21.4% 24.5% (1.9%) 12.6% 8.9% 27.2% 105.7% 87.0% 94.2% EUR million Sales Sales by business segments: Modern insulins (insulin analogues) Human insulins Insulin-related sales Oral antidiabetic products (OAD) Diabetes care total Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy Other products Biopharmaceuticals total Sales by geographical segments: Europe *) North America International Operations *) Japan & Oceania Licence fees and other operating income (net) Operating profit Operating profit (excl. AERx ®) **) 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 Summary of financial data 2003– 2007 Supplementary information in EUR 2003 3,520 344 1,768 182 192 2,486 517 287 178 52 1,034 1,622 837 521 540 139 864 – 129 993 343 650 4,643 945 370 3,328 305 5 517 (9) 7.09 7.08 2.20 709.4 676.4 682.4 683.2 2004 3,902 606 1,752 181 221 2,760 586 311 200 45 1,142 1,732 1,005 587 578 77 938 – 64 1,002 328 674 5,033 979 491 3,563 403 42 575 287 7.45 7.42 2.40 709.4 664.2 673.2 676.2 2005 4,531 979 1,819 196 229 3,223 680 373 210 45 1,308 1,882 1,279 738 632 54 1,085 – 20 1,105 318 787 5,624 1,418 502 3,704 492 (18) 649 (85) 8.95 8.91 3.00 709.4 647.4 655.4 657.9 2006 5,194 1,451 1,804 215 266 3,736 755 444 215 44 1,458 2,051 1,646 871 626 36 1,223 – 6 1,229 364 865 5,994 1,362 592 4,040 374 33 631 62 10.05 10.00 3.50 674.0 634.4 641.9 645.4 2007 5,614 1,880 1,687 235 288 4,090 788 471 224 41 1,524 2,194 1,845 979 596 43 1,200 1,378 272 1,472 328 1,144 6,401 1,427 658 4,316 304 16 1,210 220 13.49 13.39 4.50 647.0 621.1 631.8 636.4 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 25,516 12,401 3,281 3,935 4,882 1,017 *) Comparative figures from 2003–2006 have been adjusted in order to reflect a changed organisational structure from 1 January 2007 which transfers 8 countries, incl. Bulgaria and Romania, from International Operations to Europe. Excluding costs related to the discontinuation of AERx ®. **) ***) For definitions, please refer to page 63. ****) In 2007 there was a stock split of the company’s A and B shares. The trade unit was changed from DKK 2 to DKK 1. The comparative figures for 2003 to 2006 have been updated accordingly. Key figures are translated into EUR as supplementary information – the translation of income statement items is based on the average exchange rate in 2007 (EUR 1 = DKK 7.45078) and the translation of balance sheet items is based on the exchange rate at the end of 2007 (EUR 1 = DKK 7.45660). The figures in DKK reflect the economic substance of the underlying events and circumstances of the Group. Novo Nordisk Annual Report 2007 103 Consolidated financial statements Quarterly figures 2006 and 2007 (unaudited) DKK million Sales Sales by business segments: Modern insulins (insulin analogues) Human insulins Insulin-related sales Oral antidiabetic products (OAD) 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 8,946 9,727 9,583 10,487 9,818 10,563 10,504 10,946 2,324 3,325 378 477 2,678 3,301 406 483 2,701 3,306 391 516 3,122 3,519 431 508 3,065 3,136 419 523 3,464 3,222 437 529 3,568 3,098 445 585 3,911 3,116 448 512 Diabetes care total 6,504 6,868 6,914 7,580 7,143 7,652 7,696 7,987 Haemostasis management (NovoSeven ®) Growth hormone therapy Hormone replacement therapy Other products 1,265 709 373 95 1,507 882 396 74 1,393 821 383 72 1,470 897 455 85 1,411 784 406 74 1,508 924 411 68 1,427 878 414 89 1,519 925 437 78 Biopharmaceuticals total 2,442 2,859 2,669 2,907 2,675 2,911 2,808 2,959 Sales by geographical segments: Europe *) North America International Operations *) Japan & Oceania Gross profit Sales and distribution costs Research and development costs Research and development costs (excl. AERx ®) **) Administrative expenses Licence fees and other operating income (net) Operating profit Operating profit (excl. AERx ®) **) Net financials Profit before taxation Income taxes Net profit 3,541 2,764 1,617 1,024 6,531 2,728 1,419 – 580 76 1,880 – (151) 1,729 518 3,903 2,968 1,648 1,208 7,475 2,850 1,498 – 557 59 2,629 – (138) 2,491 748 3,843 3,062 1,539 1,139 7,246 2,699 1,489 – 605 49 2,502 – 32 2,534 760 4,013 3,486 1,690 1,298 7,906 3,331 1,910 – 645 88 2,108 – 302 2,410 686 3,931 3,214 1,696 977 7,498 3,048 1,647 – 614 138 2,327 – 47 2,374 665 4,035 3,424 1,953 1,151 8,205 3,110 1,754 – 594 60 2,807 – 1,587 4,394 742 4,036 3,500 1,870 1,098 7,990 2,993 1,724 – 623 31 2,681 – 175 2,856 672 4,348 3,608 1,776 1,214 8,345 3,220 3,413 2,088 677 92 1,127 2,452 220 1,347 370 1,211 1,743 1,774 1,724 1,709 3,652 2,184 977 Depreciation, amortisation and impairment losses Depreciation, amortisation and impairment losses (excl. AERx ®) **) 460 – 508 – 600 – 574 – 509 – 516 – 586 1,396 – 526 Total equity Total assets Ratios 27,042 41,299 28,908 43,145 28,288 43,744 30,122 44,692 29,676 44,742 33,475 48,300 33,161 48,423 32,182 47,731 Gross margin Sales and distribution costs as a percentage of sales Research and development costs as a percentage of sales Research and development costs as a percentage of sales (excl. AERx ®) **) Administrative expenses as a percentage of sales Operating profit margin Operating profit margin (excl. AERx ®) **) 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 73.0% 30.5% 15.9% – 6.5% 21.0% – 65.5% 1.87 1.86 647.2 650.4 76.8% 29.3% 15.4% – 5.7% 27.0% – 67.0% 2.70 2.69 645.8 649.0 75.6% 28.2% 15.5% – 6.3% 26.1% – 64.7% 2.77 2.76 640.2 643.6 75.4% 31.8% 18.2% – 6.2% 20.1% – 67.4% 2.72 2.70 634.2 638.4 76.4% 31.0% 16.8% – 6.3% 23.7% – 66.3% 2.69 2.68 635.0 639.4 77.7% 29.4% 16.6% – 5.6% 26.6% – 69.3% 5.75 5.71 635.8 640.2 76.1% 28.5% 16.4% – 5.9% 25.5% – 68.5% 3.46 3.43 632.0 636.4 76.2% 29.4% 31.2% 19.1% 6.2% 10.3% 22.4% 67.4% 1.56 1.55 624.4 629.6 Employees Number of full-time employees at the end of the period 22,556 22,792 23,071 23,172 24,045 24,729 25,206 25,516 *) Comparative figures from 2006 have been adjusted in order to reflect a changed organisational structure from 1 January 2007 which transfers 8 countries, incl. Bulgaria and Romania, from International Operations to Europe. **) Excluding costs related to the discontinuation of AERx ®. ***) In December 2007 there was a stock split of the company’s A and B shares. The trade unit was changed from DKK 2 to DKK 1. The comparative figures have been updated accordingly. 104 Novo Nordisk Annual Report 2007 Financial statements of the Parent company Novo Nordisk A/S Financial statements of the Parent company Novo Nordisk A/S for 2007 Novo Nordisk Annual Report 2007 105 Financial statements of the Parent company Novo Nordisk A/S 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 Profit before tax in subsidiaries Share of profit in associated companies Financial income Financial expenses Profit before income taxes Income taxes Net profit Proposed appropriation of net profit: Dividends Net revaluation reserve according to the equity method Retained earnings Note 2 3 3 3 3, 4 5 10 10 6 6 7 2007 2006 26,023 9,871 16,152 5,754 7,142 1,187 478 2,547 6,450 1,490 1,351 871 10,967 2,449 8,518 2,795 5,883 (160) 8,518 26,430 11,834 14,596 5,574 5,194 1,168 360 3,020 6,242 (25) 573 651 9,159 2,712 6,447 2,221 5,472 (1,246) 6,447 106 Novo Nordisk Annual Report 2007 DKK million Assets Intangible assets Property, plant and equipment Financial assets Total long-term assets Inventories Trade receivables Amounts owed by affiliated companies 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 Net revaluation reserve according to the equity method Retained earnings Exchange rate adjustments Total equity Long-term debt Deferred income tax liabilities Amounts owed to affiliated companies Other provisions Total long-term liabilities Short-term debt and financial derivatives Trade payables Amounts owed to affiliated companies Tax payables Other liabilities Other provisions Total current liabilities Total liabilities Total equity and liabilities Balance sheet Note 31 Dec 2007 31 Dec 2006 8 9 10 11 12 13 14 15 15 430 15,242 16,014 31,686 8,146 889 6,840 – 499 2,547 4,460 504 15,561 14,012 30,077 6,788 929 6,443 218 836 1,810 2,839 23,381 19,863 55,067 49,940 647 21,815 9,489 209 32,160 961 768 82 342 2,153 270 956 15,781 172 3,085 490 20,754 22,907 674 15,932 13,342 156 30,104 1,168 948 68 129 2,313 250 983 13,325 – 2,405 560 17,523 19,836 55,067 49,940 Novo Nordisk Annual Report 2007 107 Financial statements of the Parent company Novo Nordisk A/S Notes – Income statement 1 Accounting policies The Parent company’s financial statements have been prepared in accordance with the Danish Financial Statements Act (Class D), and other accounting regu- lations for companies listed on the OMX Nordic Exchange Copenhagen. The accounting policies for the Parent company are unchanged compared to last financial year and are the same as for the Group with the following additions. For a description of the accounting policies of the Group please see note 1 – Summary of significant accounting policies, pp 58–61. 3 Employee costs DKK million Wages and salaries Share-based payment costs Pensions Other contributions to social security Other employee costs Supplementary accounting policies for the Parent Company Total employee costs 2007 2006 5,200 75 471 147 261 4,867 64 430 123 246 6,154 5,730 Financial assets In the financial statements of the Parent company investments in subsidiaries and associated companies are recorded under the equity method, ie at the re - spective share of the net asset values in subsidiaries and associated com panies. Any cost in excess of net assets in the acquired company is capitalised in the Parent company under Financial assets as part of investments in subsidiaries (‘Good will’). Amortisation of goodwill is provided under the straight-line method over a period not exceeding 20 years, based on estimated useful life. Net profit of subsidiaries less unrealised intercompany profits is recorded in the Income statement of the Parent company. To the extent it exceeds declared dividends from such companies, net re - valuation of investments in subsidiaries and associated companies is transferred to net revaluation reserve according to the equity method under equity. Fair value adjustments of financial assets categorised as ‘Available for sale’ are recognised in the Parent company in the income statement. Tax The Parent company is assessed jointly for Danish tax purposes with its dome - stic subsidiaries. The Danish jointly taxed companies are included in a Danish on-account tax payment scheme for Danish corporate income tax. All current taxes under the scheme are recorded in the individual companies. Cash flow statement No separate cash flow statement has been prepared for the Parent company – please see the Consolidated cash flow statement and financial resources in the Annual Report, page 56. Included in the Balance sheet as change in employee costs included in inventories 143 (4) For information regarding remuneration to the Board of Directors and Executive Management please refer to consolidated accounts note 34, page 81. Refe - rence is furthermore made to consolidated accounts note 33, page 78, and consolidated accounts note 34, page 81, for information regarding share-based payment schemes to the Board of Directors, Executive Management and the Senior Management Board. Average number of full-time employees in Novo Nordisk A/S 4 Fees to statutory auditors DKK million PricewaterhouseCoopers of which statutory audit fee to PricewaterhouseCoopers 2007 2006 10,412 10,293 2007 2006 21 8 19 8 2 Sales DKK million Sales by business segments *) Diabetes care total Biopharmaceuticals total Total sales Sales by geographic segment *) Europe North America International Operations Japan & Oceania Total sales 5 Licence fees and other operating income (net) 2007 2006 For information regarding ‘Licence fees and other operating income (net)’ please refer to consolidated accounts note 9, page 66. 25,316 707 23,242 3,188 6 Financial income and Financial expenses 26,023 26,430 DKK million 10,972 6,482 5,631 2,938 11,560 6,144 5,180 3,546 26,023 26,430 Interest income relating to subsidiaries included in Financial income Interest expenses relating to subsidiaries included in Financial expenses Foreign exchange loss (net) recognised in the Income statement 2007 2006 162 85 608 406 51 222 Sales are attributed to geographical areas based on location of the customer. *) For definitions of the segments please refer to consolidated accounts note 4, page 64. 7 Income taxes Of the total tax payment of DKK 2,607 million by the group in 2007, the parent company’s share of paid taxes amounts to DKK 1,298 million, which was posi- tively impacted by a tax refund of DKK 83 million relating to prior years. In 2006 the total tax payment by the group amounted to DKK 3,514 million of which the parent company’s share of paid taxes relating to current year amounted to DKK 2,378 million. Of the paid tax in the parent company in 2006, DKK 572 million was payment relating to prior years. For specification of income taxes please refer to consolidated accounts notes 12 and 23, pages 67 and 72. 108 Novo Nordisk Annual Report 2007 8 Intangible assets DKK million Cost at the beginning of the year Additions during the year Disposals during the year Cost at the end of the year Amortisation at the beginning of the year Amortisation during the year Impairment losses for the year *) Depreciation reversed on disposals during the year Amortisation at the end of the year Carrying amount at the end of the year *) Impairment losses of DKK 117 million relates to AERx ® discontinuation. 9 Property, plant and equipment DKK million Cost at the beginning of the year Additions during the year Disposals during the year Transfer from/(to) other items Cost at the end of the year Depreciation and impairment losses at the beginning of the year Depreciation for the year Impairment losses for the year Depreciation reversed on disposals during the year Depreciation and impairment losses at the end of the year Notes – Balance sheet Goodwill Patents and licences Software 2007 Total 2006 Total 51 – – 51 51 – – – 51 0 407 21 (10) 418 22 8 117 – 147 271 342 59 (39) 362 223 18 – (38) 203 159 800 80 (49) 831 296 26 117 (38) 401 430 581 219 – 800 263 33 – – 296 504 Land and buildings Plant and machinery Other equipment 8,853 174 (211) 496 12,426 288 (691) 1,043 9,312 13,066 2,642 338 3 (110) 2,873 5,845 1,086 19 (652) 6,298 Payments on account and assets in course of construction 2007 Total 2006 Total 2,219 904 (33) (1,613) 25,186 1,452 (1,383) 0 24,174 1,828 (816) – 1,477 25,255 25,186 – – 33 (33) 0 9,625 1,549 58 (1,219) 10,013 8,616 1,473 173 (637) 9,625 1,477 15,242 15,561 1,688 86 (448) 74 1,400 1,138 125 3 (424) 842 558 Carrying amount at the end of the year 6,439 6,768 The latest official valuation of properties of the Parent company for property tax purposes amounts to a total of DKK 2,447 million (DKK 2,057 million in 2006). Cost of property not officially valued amounts to DKK 658 million (DKK 710 million in 2006). Novo Nordisk Annual Report 2007 109 Financial statements of the Parent company Novo Nordisk A/S Notes – Balance sheet 10 Financial assets DKK million Cost at the beginning of the year Additions during the year Disposals during the year Cost at the end of the year Value adjustments at the beginning of the year Profit/(loss) before tax Income taxes on profit for the year Amortisation and impairment of goodwill Dividends received Disposals during the year Exchange rate adjustments Other adjustments Value adjustments at the end of the year Offset against amounts owed by subsidiaries at the beginning of the year Additions during the year At the end of the year Unrealised internal profit at the beginning of the year Change for the year Exchange rate adjustments At the end of the year Investments in subsidiaries Amounts owed by affiliated companies Investments in associated companies Other securities and investments 2007 Total 2006 Total 6,443 – – 6,443 15,466 7,068 (1,035) – (150) – (93) (104) 21,152 11 153 164 (8,447) (4,015) 272 (12,190) 80 20 (27) 73 – – – – – – – – – – – – – – – – 296 – (1) 295 41 1,494 – (4) (1,470) – – (77) (16) – – – – – – – 397 21 (42) 376 (275) – – – – – – (8) (283) – – – – – – – 7,216 41 (70) 7,187 15,232 8,562 (1,035) (4) (1,620) – (93) (189) 6,983 398 (165) 7,216 10,126 5,799 192 (5) (539) – (127) (214) 20,853 15,232 11 153 164 (8,447) (4,015) 272 7 4 11 (5,625) (3,289) 467 (12,190) (8,447) Carrying amount at the end of the year 15,569 73 279 93 16,014 14,012 Carrying amount of investments in subsidiaries does not include capitalised goodwill at the end of the year. No additions or disposals were made during the year. Carrying amount of investments in associated companies includes net capitalised goodwill of DKK 65 million at the end of the year (DKK 69 million in 2006). A list of companies in the Novo Nordisk Group is included on pages 100 –101. 11 Inventories 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 2007 1,077 6,048 1,021 8,146 2006 1,032 4,402 1,354 6,788 4,027 3,127 188 81 443 45 110 Novo Nordisk Annual Report 2007 Notes – Balance sheet 12 Statement of changes in equity DKK million Balance at the beginning of the year Appropriated from net profit for the year Proposed dividends Appropriated from net profit for the year to net revaluation reserve according to the equity method Purchase of treasury shares Sale of treasury shares Share-based payments Reduction of the B share capital Dividends 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 Deferred gain/(loss) on cash flow hedges at the end of the year Other adjustments Share capital Net revaluation reserve Retained earnings Exchange rate adjustments 2007 Total 2006 Total 674 15,932 5,883 (27) 13,342 (160) 2,795 (4,835) 241 75 27 (2,221) (420) 691 (46) 156 53 30,104 (160) 2,795 5,883 (4,835) 241 75 – (2,221) 53 (420) 691 (46) 27,621 (1,246) 2,221 5,472 (3,000) 210 64 – (1,945) 14 345 420 (72) Balance at the end of the year 647 21,815 9,489 209 32,160 30,104 Regarding average number of shares please refer to note 13, page 67. Regarding total number of A and B shares in Novo Nordisk A/S and treasury shares please refer to consolidated accounts note 21, page 71. 13 Long-term debt DKK million Mortgage debt Other long-term debt Total long-term debt Long-term debt falling due after more than five years from the balance sheet date amounts to At the end of 2007 none of the long-term debt was falling due within one year. 14 Deferred income tax liabilities DKK million The deferred tax assets and liabilities are allocated to the various balance sheet items as follows: Property, plant and equipment Indirect production costs Unrealised profit on intercompany sales Other Total income tax liabilities The deferred income tax has been calculated using a tax rate of 25%. 2007 2006 504 457 961 504 658 510 1,168 504 2007 2006 1,274 1,007 (1,270) (243) 1,406 876 (1,326) (8) 768 948 Novo Nordisk Annual Report 2007 111 Financial statements of the Parent company Novo Nordisk A/S Notes – Balance sheet 15 Other provisions DKK million At the beginning of the year Additional provisions Adjustments to previous year’s provisions Used during the year At the end of the year Specification of provisions: Long-term Current Total other provisions Provisions for returned products Other provisions 560 183 (171) (82) 490 – 490 490 129 213 – – 342 342 – 342 2007 Total 689 396 (171) (82) 832 342 490 832 2006 Total 617 228 14 (170) 689 129 560 689 16 Commitments and contingencies 17 Related party transactions For information on transactions with related parties please refer to consolidated accounts note 32, page 77. 18 Financial risk For information on financial risk please refer to consolidated accounts note 31, page 76. DKK million Commitments Lease commitments Contractual obligations relating to investments in Property, plant and equipment Guaranties given for subsidiaries Obligations related to research and development projects Other guarantees and commitments Leasing commitments expiring within the following periods as from the balance sheet date Within one year Between one and five years After five years Total lease commitments 2007 2006 612 635 84 1,515 2,471 1,478 107 254 251 612 64 1,427 2,313 1,489 104 265 266 635 The lease costs for 2007 and 2006 were DKK 233 million and DKK 200 million respectively. Security for debt Land, buildings and equipment etc at carrying amount 1,989 1,963 For information on pending litigation and other contingencies please refer to consolidated accounts note 36, page 87. 112 Novo Nordisk Annual Report 2007 Consolidated financial statements Management statement The Annual Report has the below Management Statement and Auditor’s Reports as provided on pp 114–115. 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 2007. The Consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB), and 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. Further, the Annual Report has been prepared in accordance with the additional Danish annual report requirements for listed com panies. 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 and results, and the consolidated 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 and include Communication on Progress in support of the United Nations Global Compact. It represents a balanced and reasonable presentation of the organisation’s economic, environmental and social performance. Gladsaxe, 30 January 2008 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 2007 113 Consolidated financial statements Auditor’s reports Auditor’s report on the Annual Report for 2007 To the Shareholders of Novo Nordisk A/S We have audited the Annual Report of Novo Nordisk A/S for the financial year 2007, which comprises Management Statement, the Management Report, significant accounting policies, income statement, balance sheet, statement of changes in equity and notes for the Group as well as for the Parent Company and consolidated cash flow statement. The Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and 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. Further, the Annual Report is prepared in accordance with ad- ditional Danish disclosure requirements for annual reports of listed companies. An audit involves performing procedures to obtain audit evidence about the 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. 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 ap propriate to provide a basis for our audit opinion. 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 stan- dards. 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 that the Annual Report is free from material misstatement. 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 2007 of the Group and of the results of the Group operations and consolidated cash flows for the financial year 2007 in ac - cordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and 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 2007 of the Parent Company and of the results of the Parent Company operations for the financial year 2007 in accordance with the Danish Financial Statements Act and additional Danish disclosure requirements for annual reports of listed companies. Gladsaxe, 30 January 2008 PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab Mogens Nørgaard Mogensen Danish State Authorised Public Accountant 114 Novo Nordisk Annual Report 2007 Auditor’s reports Assurance Report on Non-Financial Reporting 2007 Subject, responsibilities, objective, and scope of assurance statement We have reviewed the non-financial information in the Annual Report of Novo Nordisk A/S for the financial year 2007, which comprises Management State - ment, the Management Report, non-financial Accounting policies and the Con - solidated non-financial statements, and the non-financial information in the section ‘Values in action’ at novonordisk.com (’the non-financial reporting’). Our review has been performed 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 to express a conclusion on whether this reporting is free of material misstatements and has been presented in accordance with the accounting policies. Further, we express a conclusion on whether Novo Nordisk’s policies, systems and activities support Novo Nordisk’s commitment to the United Nations Global Compact. Management’s responsibility Management is responsible for the collection and presentation of the non- financial information in the non-financial reporting. Basis of conclusion Our work was undertaken to perform an evaluation of the non-financial report- ing against the principles of materiality, completeness and responsiveness of the AA1000AS. Moreover, we planned and performed our work in accordance with the International Standard on Assurance Engagements (ISAE) 3000 ‘Assurance Engagements other than Audits or Review of Historical Financial Information’ to obtain limited assurance that the non-financial reporting is free of material mis- statements and that the information has been presented in accordance with the non-financial accounting policies. Based on an assessment of materiality and risk, our work included on a sample basis a review of management systems, reporting structures and boundaries. The assurance obtained is limited, as our work compared to that of an engage- ment with reasonable assurance has been limited to, principally, inquiries, inter- views as well as analytical procedures related to registration and communica- tion systems, data and underlying documentation. We reviewed whether data and the underlying components are accounted for in such a way as to fulfil the assertions of materiality and completeness in accordance with Novo Nordisk’s non-financial accounting policies. In addition, our work comprised an assess- ment of stakeholder engagement and of the materiality of reporting against peer-reporting, media reports and industry knowledge. Three major production sites were visited in Kalundborg and Hillerød, Denmark and Chartres, France. Our work also included an assessment of significant estimates made by Mana - ge ment. n the Annual Report, designed primarily to meet the information needs of share holders, financial analysts and other corporate stakeholders, includes significant non-financial information material to Novo Nordisk’s corporate stakeholders. Objectives, policies, processes and performance in respect of other key non-financial issues e.g. bioethics, human rights and environ - mental management are more comprehensively addressed in the non- financial reporting in the section ‘Values in action’ at novonordisk.com/ sustainability. 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 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, 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 non-financial reporting and other communications, Novo Nordisk is responsive to significant issues raised by corporate stakeholders 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 of such responses in management and business processes. In some areas such as responsible purchasing, promotion of equal opportunities and business ethics additional controls could be put in place to ensure consistent and effective implementation of responses. n Novo Nordisk has corporate policies, programmes and procedures to address material stakeholder concerns in key pharmaceutical industry areas such as business ethics and marketing practices, bioethics including clinical trials and animal welfare, access to health and advocacy. We have reviewed Novo Nordisk’s own assessment of how the non-financial reporting and the underlying policies, systems and activities are aligned to and support the principles of the UN Global Compact. Based on our work nothing has come to our attention that disproves that Novo Nordisk’s policies, systems and activities taken as a whole support Novo Nordisk’s commitment to the UN Global Compact. We believe that the work performed provides a reasonable basis for our con - clusion. 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 non-financial reporting presents a fair and balanced representation of Novo Nordisk’s material corporate non-financial performance and impacts. n the reported non-financial targets and indicators in general are used in strategic and operational decision-making and some of these are included in top management, management, and business units’ balanced scorecard. In addition, based on our review, nothing has come to our attention that causes us not to believe that the non-financial information in the Annual Report of Novo Nordisk for the financial year 2007 is free of material misstatements and has been presented in accordance with the accounting policies. 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 section ‘Assurance’ at novonordisk.com/sustainability/values in action. Our recommendations do not affect the above stated conclusion. Gladsaxe, 30 January 2008 PricewaterhouseCoopers Statsautoriseret Revisionsaktieselskab Mogens Nørgaard Mogensen Danish State-Authorised Public Accountant Novo Nordisk Annual Report 2007 115 Index This index might be of help if you are looking for specific information. It includes topics covered in this Annual Report and additional information avail- able online at novonordisk.com. Topic of interest About Novo Nordisk Access to health Accountability Advocacy Animal welfare Audit and assurance Awards and recognitions Biopharmaceuticals Board of Directors Brand and reputation management Business ethics Business strategy Capital structure Changing diabetes Climate change Clinical trials Community engagement Compliance Corporate governance Definitions Diabetes care Diversity Donations Economic footprint Environment Executive Management Financial performance Gene technology Global Compact Global Reporting Initiative (GRI) Health and safety Human rights Legal issues Materiality Memberships Novo Nordisk Way, the Partnerships People strategy Pipeline Product stewardship Quality Remuneration Responsible sourcing Risk management Share information Social responsibility Socio-economics Stakeholder engagement Stem cell research Sustainability Talent development Tax Triple Bottom Line Workplace quality 116 Novo Nordisk Annual Report 2007 Covered in this report Online information pp 4–5 pp 28–29, 98 pp 89, 91 pp 26–27 p 99 novonordisk.com/about_us novonordisk.com/sustainability/values_in_action Click: Access to health novonordisk.com /sustainability/values_in_action Click: Assurance novonordisk.com/sustainability/values_in_action Click: Advocacy novonordisk.com/sustainability/values_in_action Click: Bioethics pp 44–45, 114–115 novonordisk.com/sustainability/values_in_action Click: Assurance pp 38–41 pp 46–47 p 90 pp 24, 90 pp 8–9 pp 49–50 pp 26–29 novonordisk.com/sustainability/awards_and_recognition novonordisk.com/about_us novonordisk.com/about_us/management/board_of_directors novonordisk.com/about_us/changing-diabetes novonordisk.com/sustainability/values_in_action Click: Business ethics novonordisk.com/sustainability/vision_and_strategy novonordisk.com/about_us/about_novo_nordisk Click: Ownership novonordisk.com/sustainability/values_in_action Click: Advocacy pp 22–23, 96 novonordisk.com/ /sustainability/values_in_action Click: Environmental management p 24 p 7 pp 24, 96 pp 42–45 pp 63, 91–92 pp 26–37 pp 90, 97 p 87 p 94 pp 95–96 p 48 pp 10–14 p 96 pp 24, 89 p 89 p 97 p 24 pp 87–88 p 91 pp 89, 91 pp 6–7 pp 20–21 p 25 pp 16–19 pp 23, 90 pp 44–45 p 14 pp 8–9, 45 pp 49–50 pp 6–7, 97–99 pp 93–94 p 89 p 31 pp 6–7, 89 pp 25, 90 pp 67, 93 pp 6–7, 89–99 pp 25, 97–98 novonordisk.com/sustainability/values_in_action Click: Bioethics novonordisk.com/sustainability/values_in_action Click: Community engagement novonordisk.com/sustainability/governance Click: Compliance novonordisk.com/sustainability/governance Click: Corporate governance novonordisk.com /sustainability/values_in_action Click: Assurance novonordisk.com/about_us Click: Diabetes care novonordisk.com/sustainability/values_in_action Click: Workplace quality novonordisk.com/sustainability/values_in_action Click: Community engagement novonordisk.com/sustainability/values_in_action Click: Economic footprint novonordisk.com/sustainability/values_in_action Click: Environmental management novonordisk.com/about_us/management Click: Executive management novonordisk.com/sustainability/values_in_action Click: Financial performance novonordisk.com/sustainability/values_in_action Click: Bioethics novonordisk.com/sustainability/reporting Click: Global compact novonordisk.com/sustainability/reporting Click: GRI novonordisk.com/sustainability/values_in_action Click: Workplace quality novonordisk.com /sustainability/values_in_action Click: Human rights novonordisk.com /sustainability/values_in_action Click: Legal proceedings novonordisk.com/sustainability/values_in_action Click: Assurance novonordisk.com/sustainability/stakeholder_engagement Click: Memberships novonordisk.com/sustainability/governance Click: Novo Nordisk Way of Management novonordisk.com/sustainability/stakeholder_engagement Click: Partnerships novonordisk.com/sustainability/values_in_action Click: Workplace quality novonordisk.com/science/pipeline novonordisk.com/sustainability/values_in_action Click: Environmental management novonordisk.com/sustainability/values_in_action Click: Quality novonordisk.com/about_us Click: Corporate governance novonordisk.com/sustainability/values_in_action Click: Responsible sourcing novonordisk.com/sustainability/governance Click: Risk management novonordisk.com/investors/share_information novonordisk.com/sustainability/sustainability_in_short novonordisk.com/sustainability/values_in_action Click: Socio-economics novonordisk.com/sustainability/stakeholder_engagement novonordisk.com/sustainability/values_in_action Click: Bioethics novonordisk.com/sustainability/sustainability_in_short novonordisk.com/sustainability/values_in_action Click: Workplace quality novonordisk.com/sustainability/values_in_action Click: Tax novonordisk.com/sustainability/sustainability_in_short novonordisk.com/sustainability/values_in_action Click: Workplace quality Contacts 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 re- lations – 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 2008 Contributing writer: Amy Brown Translation: Anne Nielsen and Corporate Communications Photos: Arrowood Photography, Asger Carlsen, Philip Elberling, Peter Elmholt, Finn Fons, Willi Hansen, Thorkild Jensen, Shane Kelly, Kevin J McCormick, Jesper Westley 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 2007. It is issued in February 2008 for approval by shareholders at the Annual General Meeting in March. The Financial Statements of the parent company, Novo Nordisk A/S, are included (see pp105–112). The Annual Report is filed with the Danish Commerce and Companies Agency. The Annual Report and the Financial Statements 2007 of the parent company are available for online reading and downloads at novonordisk.com/ investors. Click: Download centre. As a supplement, the company provides additional information and a full data set on environmental and social performance in its online reporting. See annualreport2007.novonordisk.com. The accuracy, completeness and reliability of the company’s reporting is verified through internal con- trols, assurance and independent audits. Compliance with codes and regulations is further supported by management processes such as the Quality Management System, assurance and internal and ex- ternal audits. References The report makes reference to several publications. The list below provides titles and publication details of the key studies, reports and reviews referred to. Information on Novo Nordisk’s clinical trials and pipeline can be found at novonordisk-trials.com 1) International Diabetes Federation, Diabetes Atlas, Third Edition, 2006, p.5. 2) International Diabetes Federation & Novo Nordisk, Changing Diabetes® Barometer, First Report, 2007. 3) Economist Intelligence Unit, The Silent Epidemic, an economic study of diabetes in developed and developing countries, 2007. 4) Henk-Jan Aanstoot et al, Novo Nordisk & International Diabetes Federation, Diabetes Youth Charter, 2007. 5) Novo Nordisk, DAWN (Diabetes Attitudes, Wishes and Needs), 2001. 6) R R Holman et al, Addition of biphasic, prandial, or basal insulin to oral therapy in type 2 diabetes. N Engl J Med, 2007 Oct 25;357(17):1759-61. 7) E S Kilpatrick et al, Global Task Force on Glycaemic Control & Novo Nordisk, HbA1c: the gap between guidelines and clinical reality across eight countries, 2007. 8) World Health Organization, Global Strategy on Diet, Physical Activity and Health, Obesity and Overweight, Factsheet. 9) A Dornhorst et al. Safety and efficacy of insulin detemir in clinical practice. Int J Clin Pract 2007; 61(3):523–8. 10) T L Christensen et al: An evaluation of the relationship between adult height and health-related quality of life in the general UK population. Clinical Endocrinology (2007) 67, 407–412. 11) ISS Europe, ECGI, Shearman & Sterling: Report on the proportionality principle in the European Union, 2007. Novo Nordisk key products This report makes reference to European product trade names. The list below provides an overview of European trade names with accompanying generic names. Trade and generic names may differ in the US and Japan. 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 insulins 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™ Automatic needle insertion accessory NordiLet® HRT Activelle® Estrofem® Novofem® Vagifem® Prefilled multi-dose delivery system Estradiol/norethisterone acetate Estradiol Estradiol/norethisterone acetate Estradiol hemihydrate N o v o N o r d i s k A / S A n n u a l R e p o r t 2 0 0 7 United to change diabetes On World Diabetes Day, 14 November 2007, Novo Nordisk employees across the globe organised human blue circles, the symbol of the Unite for Diabetes campaign. More than a quarter of a million people in 50 countries took part in this global advocacy effort to promote aware- ness and action on diabetes. which Novo Nordisk was an active and supportive partner. It recognises the urgent need to pursue multilateral efforts to promote and improve human health and encourages member states to develop national poli- cies for the prevention, treatment and care of diabetes in line with the sustainable development of their healthcare systems. World Diabetes Day marks the birthday of Sir Frederick Banting, the Canadian physician and Nobel laureate who co-discovered insulin, the pancreatic hormone used for treating diabetes. For years, it has been marked around the world, but in 2007, for the first time, the event was endorsed by the United Nations. The UN Resolution on diabetes, adopt- ed in December 2006, was the successful result of a tireless multi-stake- holder campaign, led by the International Diabetes Federation, in In New York City, home of the United Nations, Novo Nordisk’s Changing Diabetes® Bus and a Diabetes Village on Union Square offered the 5,500 visitors an opportunity to have their waist and blood sugar meas- ured and learn about the prevention and management of diabetes. Together with our partners, Novo Nordisk stands united to change diabetes. Novo Nordisk A/S Novo Allé 2880 Bagsværd Denmark CVR no 24 25 67 90 novonordisk.com