NVO

Business Context and Reporting Period

Company: Novo Nordisk A/S
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2009
Accounting Standards: International Financial Reporting Standards (IFRS)
Currency: Danish Kroner (DKK)

Novo Nordisk is a global healthcare company and a world leader in diabetes care, with additional segments in biopharmaceuticals (haemophilia, growth hormone, hormone replacement, and inflammation therapy). The company operates in 179 countries with approximately 29,000 employees. The 2009 fiscal year was marked by strong growth in the diabetes care segment, driven by the transition from human to modern insulins and the launch of Victoza (liraglutide) in Europe.

Key Financial Metrics (2009)

Dividends: Proposed dividend of DKK 7.50 per share for 2009 (up from DKK 6.00 in 2008).

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased by 12.1% to DKK 51.1 billion, driven primarily by volume growth and the continued shift to modern insulins.
• Profitability: Operating profit rose 20.7% to DKK 14.9 billion, and net profit increased 11.6% to DKK 10.8 billion.
• Cash Flow: Operating cash flow improved significantly to DKK 15.4 billion, attributed to stronger operating performance and a decrease in income taxes.
• Capital Expenditure: Net capital expenditure increased to DKK 2.6 billion (from DKK 1.8 billion in 2008), primarily due to the construction of a new insulin filling facility in Tianjin, China.
• Share Repurchases: The company completed a DKK 19 billion share repurchase program initiated in 2006, purchasing 21.7 million shares in 2009.

Outlook, Risks, and Management Commentary

Outlook 2010: Management expects to invest approximately DKK 3.5 billion in fixed assets in 2010, continuing the Tianjin facility construction and establishing production for new delivery devices. The company anticipates continued growth driven by the global increase in diabetes prevalence and the launch of Liraglutide in the U.S. and Japan.

Risks and Contingencies:

• Patent Expirations: Key patents for modern insulins (NovoLog, NovoMix, Levemir) expire between 2011 and 2019 in major markets. Prandin/NovoNorm faces generic competition.
• Regulatory Environment: Dependence on government approvals and reimbursement policies. Price controls and cost-containment efforts in major markets pose risks.
• Foreign Exchange: Significant exposure to USD, JPY, CNY, and GBP. A 5% weakening of the DKK against all currencies would decrease the fair value of financial positions by DKK 811 million.
• Legal Proceedings: The filing references Note 32 for details on legal proceedings but does not disclose specific material pending litigation in the summary text.

Investor Verification Checklist

• Patent Cliff Timeline: Verify the specific expiration dates for key modern insulin patents in the U.S., Europe, and Japan to assess long-term revenue protection.
• China Expansion: Confirm the progress and timeline for the Tianjin facility opening (scheduled for 2012) and its impact on future capacity.
• Share Repurchase Impact: Review the reduction in share capital (cancellation of 14 million shares in 2009) and the proposed cancellation of 20 million treasury shares in 2010 to understand EPS accretion.
• Non-IFRS Measures: Reconcile the reported "Free Cash Flow" and "ROIC" metrics against standard IFRS cash flow and return on equity figures to ensure consistency in performance analysis.
• Related Party Transactions: Review the DKK 1.1 billion purchase of B shares from Novo A/S (a related party) to ensure pricing was at fair market value.