FullCompanyReportNovoNordisk(NVO)

NovoNordisk(NVO)

BackgroundSize(MarketCap):R1122bnWhatwedo:NovoNordiskisaglobalhealthcarecompany,headquarteredinDenmark,withmorethan90yearsofinnovationandleadershipindiabetescare.Thisheritagehasgivenusexperiencedandcapabilitiesthatalsoenableustodefeatotherseriouschronicconditions:haemophilia,growthdisordersandobesity. Significantevents:LarsRebienSørensenretiredasCEOafter34yearsatthecompanytobereplacedbyLarsFruergaardJørgensenwhopreviouslyheldthepositionofexecutivevicepresidentofCorporateDevelopment.LarsFruergaardJørgensenhasbeenatthecompanysince1991.LowerpricesintheUSduetoanincreaseinrebatesofferedtopharmaceuticalbenefitmanagers(PBMs)meant1000employeeswerecutcosts. StakeholdersShareholders:NovoNordiskFoundation,Ashares(75,4%ofvotes;27,5%ofcapital);Institutionalandprivateinvestors,Bshares(24,6%ofvotes;72,5%ofcapital)Employees:41971Chair:GöranAndoCEO:LarsRebienSørensen(until31December2016),LarsFruergaardJørgensen(from1January2017)StrategyTheFourStrategyPriorities

1. ExpandLeadershipinDiabetes2. PursueLeadershipinObesity3. PursueLeadershipinHaemophilia4. ExpandLeadershipinGrowthDisorders

MaterialitySelf-declaredKeyRisks

• Delaysorfailureofproductsinpipeline• Supplydisruptions• Competitionandmarketdevelopments• Compromisestoproductqualityandsafety• Informationtechnologysecuritybreaches• Currencyimpactandtaxdisputes• Breachlegislationorethicalstandards• Lossofintellectualpropertyrights

NVO-SummaryofAnalysis

Topthreats/challenges MaturityofresponseConsideringitssizeandmarketdominanceinthecontrolofdiabetes,especiallyintheUS,NVOfacesabroaderrangeofissues,andisexposedtomoreriskthanitspeersinthisanalysis.Keythreats:-PresidentTrumpisalreadyaccusingpharmaceuticalfirmsofexploitationintheUSmarket,thusdemandingmeaningfulsupportoftheUSeconomy,-NVOhasbeenhitwithavarietyoflawsuitsaccusingthefirmofpricefixingandcollusion,-Thehealthcareindustryisstartingtorealisethatinsulin(NVO’sprimaryproduct)isnotatreatment,ratheracauseofsugaraddiction,obesityandmetabolicdisease.NVOwillhavetoprepareforthestormtocome.

NVOhasmoveddecisivelytoreplacetheCEOandappointanewleaderfortheUSmarket.ThecompanypromotesinitsreportingitsinvestmentinitsUSmanufacturingplant,withexpansionpromised,thoughitshouldhavereportedbetteraroundhowtheeconomicbenefitsarebeingshared–e.g.taxes,jobs,valueadditionwithintheUS,vsimported,etc.NVOistacticallydivertingattentionawayfrominsulinandpositioningitsthoughtleadershiparoundthefutureofdiabetescontrolthroughotherclassesofdrugs.However,itsmainchallengewillbetopreventthemedicalpressfromdrawingparallelsbetweeninsulinandnicotine.NVO’sreportmakesastart,butthismayultimatelybealosingbattle.

QuestionstoaskNVOleadership• Althoughthecompanyhaslost2%ofitsemployees,shouldNVOnonethelessnotbereportingonitstalent

management?Recommendations• WhileNVOhashighlighteditsinvestmentintheUSeconomy,FSrecommendsitproducea‘sharedvalue’

dashboardofindicatorsandcontextualdiscussiontoshowhowcommittedthecompanyistotheUSeconomyandtheextenttowhichitcanbereliedupontoprovidelocaljobs,aswellasessentialmedicinesforUScitizens.

High-levelassessmentConsideringitssizeandmarketdominanceinthecontrolofdiabetes,especiallyintheUS,NVOfacesabroaderrangeofissues,andisexposedtomoreriskthanitspeersinthisanalysis.PresidentTrumpisalreadyaccusingpharmaceuticalfirmsofexploitationintheUSmarket,NVOfaceslawsuitsforpricefixing,anditsmainproduct,insulinislosingreputationasacurefordiabetes.NVOhasrespondeddecisivelyinreplacingitsCEOandleadershipintheUSandismovingitsthought-leadershiparticlesawayfrominsulin,despitethisstillbeingitsprimaryproduct.NVO’sreportingmaturity,whilehigh,willhavetoimprovefurtherinordertoweatherthestormtocome.

StrengthsAssertionsandclaimsmadeinthereportaresupportedbyaccurateandmaterialKPIs

Reportingisreasonablybalancedandandreliable

Thereisatoneofhumility,andNVOacknowledgesmarketuncertainty,providingagoodanalysisofchallenges.

NVO’smoralcodeappearsconsistentlythroughoutthereport,givingcredencetoitsapplicationinthebusiness.

NVOhasrespondedtotheshiftintheUSenvironmentdecisively,andisfollowingthroughonitscommitmenttoinvestintheUSeconomy.

Weaknesses

NVO’sHRreportisweak,especiallyregardingdevelopingandretainingtalent,possiblytheresultofretrenchmentsmadein2016.

NVOcouldhavemadeaclearercaseforitsdifferentialpricingmodelandthismayhaveresultedinastrategythatmaynothaveledtothelawsuitsthecompanynowfaces.

NVO

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NVO- FarSightscoresfor&against

Aneasy-to-read,descriptiveaccountoftheissuesofbalanceandeffectiveness,backingthisupwithdecisiveactioninthefaceofpoorUSperformance.NVOreportingonexternalrisksistransparentandforthright,givingtheimpressionofhumilityinthefaceofuncertainty,butdecisivenessindealingwithunforeseen,orpoorlymanagedevents.Clearandtransparentreportingonexecutiveremunerationwithgooduseofindicatorstoshowhowandwhypoorperformanceresultedinlowerbonuses.

NVOhasastrongmoralcompassintheNovoNordisk

Wayandappliesthiscodeconsistentlyacrossallitsreporting,suggestingthatethicalbehaviourisembeddedinthebusiness,reducingthevulnerabilitytounethicalbehaviour.NVOexhibitsamatureleadershipresponsetotheaccusationsandlawsuitsitfacesrelatingtopricefixingandcollusionintheUSmarket,includingthereplacementoftheleadershipteam.Aclearercasefordifferentialpricingshouldhavebeenmade.NVOoffersfrankdisclosureofcontingentliabilitiesrelatingtomarketingandpromotionalpractices,butdoesnotmakeenoughofthelinkbetweenitsmoralcodeandthepreventionofcorruptmarketingpractices.

AfrankandfactualreportwithsoundKPIssummariesbrieflyNVO’sengagementandgenerallysoundrelationshipwithitsemployees,despite2%ofstaffbeingretrenchedin2016.NVOmakeslittlereferencetoattracting,developingandretainingemployees,possiblyasaresultofretrenchmentsduring2016.Apartfromethicstraining,novocationaltrainingreported.

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NVOappearstomanageequitableemploymentresponsibly,disclosingitsgenderparticipationandidentifyingthechallengestoachievegenderequity.Regardingsupportforlocalindustry,NVOgivesprominenceinitsreportingtoitscommitmenttotheUSeconomy,backedupbyKPIsthatincludethescaleoftheinvestmentandjobcreationfigures,thoughUSproductionvsUSsalesfiguresarenotgiven.

Retreatmentofcustomers,NVOpresentsitselfas

sympathetictothechallengesfacingdiabeticsandmeasurescompanyreputationaccordingly.NVOexhibitsamatureleadershipresponsetothechallengeofprovidingaccesstoproductsinpoorermarketswithaclearandmeasurablestrategy,enablingcoursecorrectionstoimproveprogress.Regardingproductsuitability,NVOistacticallydivertingattentionawayfrominsulin(nowcomingtoberegardedasharmful)andpositioningitsthoughtleadershiparoundthefutureofdiabetescontrolawayfrominsulin.Reportingonproductqualityalsomature.

NVOprovidescontextandthoroughreportingforallenvironmentalissuescriticaltothecompany.Thisisreiteratedbymanagementtakingchargeoftheissuebyincorporatingtheseissuesintheremunerationpolicyofcertainexecutives.Thestrategy,whilenotexplicitlyoutlined,isshowntobeanunderlyinginfluenceinallthecompaniesoperations.

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GOVERNANCEFarSightassessmentsummaryNVOgivesaneasy-to-read,descriptiveaccountoftheissuesofbalanceandeffectiveness,backingthisupwithdecisiveactioninthefaceofpoorUSperformance.NVOreportingonexternalrisksistransparentandforthright,givingtheimpressionofhumilityinthefaceofuncertainty,butdecisivenessindealingwithunforeseen,orpoorlymanagedevents.Clearandtransparentreportingonexecutiveremunerationwithgooduseofindicatorstoshowhowandwhypoorperformanceresultedinlowerbonuses.

1.Boardbalance&effectivenessAspectsconsideredBalanceofpowerthroughindependence,qualification&experienceofboardmembers,attendance&involvement,performancereviews,reporting,minorityshareholderrights,committeestructure&effectivenessInformationsourcesLeadershipletters,pp.1-3CorporateGovernancereport,IP,pp.46-49,54-57ReportingChairmanexplainschangestotheboard

Healthcare)Industry

NVO)(December)2016) Context Take)charge Reporting Strategy NVO

GOVERNANCE Net Neg)1 Pos)1 Neg)2 Pos)2 Neg)3 Pos)3 Neg)4 Pos)4 Materiality1 Board/balance/&/effectiveness 0,5 0 2 0 2 1 0 1 0 172 Leadership/selection/and/preparation 2,8 0 2 0 4 0 3 0 2 153 Executive/remuneration 3,0 0 3 0 3 0 3 0 3 164 Management/of/external/risks 3,3 0 3 0 4 0 3 0 3 30

Novo)Nordisk

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Separateboardandexecutivemanagement,independentchairmanBoardcomprisessevenindependentnon-executivedirectors,andfournon-independentdirectors.Nodirectorsserveontheexecutivemanagement.Lengthofservice:notdisclosedBoardmemberprofilessummarisedinthereport,withmoredetailreferredtoonline(seebox)Composition,gender,nationalityandexperience:explainedintextAttendance:NotclearEvaluation:SeeboxCommentaryonreportingNVOgivesafair,descriptiveaccountoftheissuesofbalanceandeffectiveness,backingthisupwithdecisiveactioninthefaceofpoorUSperformance.Clear,easytounderstandtone,butlevelsofdisclosurepatchy.FarSightassessmentNVOgivesaneasy-to-read,descriptiveaccountoftheissuesofbalanceandeffectiveness,backingthisupwithdecisiveactioninthefaceofpoorUSperformance.

2.ManagementofexternalrisksAspectsconsideredStagnanteconomicenvironment,sharpriseindiseaseburden,competitionformarketshareinmarketwherepowerlieswithlargefunders,politicalandregulatoryrisks.SeeFSmaterialityreportfordetail.InformationsourcesLeadershipletters,pp.1-3CorporateGovernancereport,IP,pp.46-49,54-57Article”Definingtimesforthebusiness,p.32Riskmanagement,p.40SummaryofreportingChairmanAndoidentifiedintensecompetitionintheUSashavingsignificantimpactondiabetesmedicationsalestopharmaceuticalbenefitmanagers(PBMs)NVOidentifiesthefollowingrisksandreferenceslinkstootherpartsofthereportwheretheissuesarediscussed:

• Delaysorfailureofproductsinpipeline–aten-yearprocesscanfailatanytime,losingthecompanyitsinvestment.Resultswerebetterthanexpected,buttherewerealsodelaysinUSapproval.Mitigatingactionsdescribedinclude,trials,evaluationsandengagementwithregulators.

• Supplydisruptions–didnotmaterialise,butremainsarisk,dilutedsomewhatbyglobalproduction.• Competitionandmarketdevelopments–intensecompetitionintheUSmarketresultedinlargerrebatesto

retainmarketshare.NVOfocusesontrialdataandreal-worldevidencetoshowbenefitsofitsproducts.• Compromisestoproductqualityandsafety–Externalauthorityinspectionsandinternalaudits,followedupby

rootcauseanalysisandremediation,ifnecessary.• Informationtechnologysecuritybreaches–breachofpatientprivacynotedasarisk• Currencyimpactandtaxdisputes–NVOpaystaxinjurisdictionswhereitgeneratesprofits• Breachlegislationorethicalstandards–duediligence,standardproceduresandtrainingensurecompliance,

alongwithinternalaudit.• Lossofintellectualpropertyrights–internalcontrolsthroughoutapplicationprocessminimisevulnerabilityo

invalidityactions.Inthearticle:Definingtimesforthebusiness,thenewlyappointedVPfortheUSmarketacknowledgesthechallengesfacingNVO:“TheUShealthcaresystemisrecognisedasoneofthemost,ifnotthemost,complex–fromdeliveryofcaretothecostofcare.Navigatingapharmaceuticalbusinessthroughthisenvironmentisequallycomplex.…

Healthcarereformhasputeveryoneonnoticethatqualityandefficiencyareparamount,andthepressuretodelivercostsavingsforanationwithlimitedhealthcaredollarsisintense….”DougLanga,VPforMarketAccessintheUS:“Wecontinuetoseeconsolidation,especiallyatthepayerlevel.Thereusedtobeoveradozenmajorpayers;todaythatnumberhasbeencutinhalf.Transversely,morecompetitorsaredevelopingmoremedicines,includingbiosimilars,today,especiallyinthediabetesarea.Thistranslatestogreaterbargainingpowerforpayersandpricingpressureonpharmaceuticalcompanies.We’realsoseeingmoreexclusivecontracts,whichpotentiallymeanslesschoiceforpatientsandprescribers.There’sahigherbaroninnovationandpayerstakingona‘goodenough’mentalitywhendecidingonformularyaccess.It’snolongerenoughtohavesuperiordatafromclinicaltrials.There’saheighteneddemandfor‘real-world’data,andthat’swhyinnovativecontractingissoimportant.Insomecases,innovativecontractingmeansnegotiatingthepriceofapharmaceuticalproductbasedontheactualimprovedhealthoutcomeitdeliversforthepatient,ratherthanonanup-frontassessmentofitsclinicalvalue.Requirementsregardingregulatorycompliance,datacollection,productlabellingaswellasnewoperationalandadministrativeprocessesthatneedtobeinplacearejustsomeofthefactorsthataddtothecomplexity,notjustforus,butforthepayerswhowantthesecontracts.”CommentaryonreportingNVOidentifiesitsexternalriskswithforthrightdiscussiononthosewiththegreatestexpectedimpactonthecompany.Thecompanyappearstobetransparentastothenatureandimpactoftheidentifiedrisks,butadmitsthatrisksmayarisesoonerandwithgreaterimpactthanexpected,aswithUSmarketcompetition.Thecompanyhasreacteddecisively,replacingtheCEOof14years(and34years’service).FarSightassessmentNVOreportingonexternalrisksistransparentandforthright,givingtheimpressionofhumilityinthefaceofuncertainty,butdecisivenessindealingwithunforeseen,orpoorlymanagedevents.

3.ExecutiveremunerationAspectsconsideredIncomedispersionbetweenhighandlowincomeearners,linkwithlong-termcompanyperformance,engagementwithandendorsementbyshareholdersInformationsourcesRemunerationreport,pp.50-53CommentaryonreportingNomentionofincomedispersionbetweentopexecsandlowest,oraveragesalariedemployees.NVOdescribesthelinkbetweenexecremandnon-financialperformanceinclearandplainEnglish,aswellasexplainingtherationaleandoutcomesofexecutiveremuneration:“Someofthenon-financialtargetswerenotmet;amongothersthecompleteresponseletterreceivedforfast-actinginsulinaspartintheUS,slowerprogressoftheearly-stageresearchportfoliothanplanned,thecriticalproductrecallofGlucaGen®Hypokitacross31countriesandalowerthantargetedreputationamongstkeystakeholders.Onthisbasis,27%ofthemaximumshareallocationwillbegrantedtotheparticipantsinthelong-termshare-basedincentiveprogramme.”NVOnotesthat:“Thenon-financialtargetsarelinkedtothecompany’sBalancedScorecardwithinthecategoriesofresearchanddevelopment,reputationandpatients,quality,peopleandenvironment.Targetswithinqualityrelatedtorecallsandwarningletters,andtargetswithinenvironmentrelatedtotheemissionsofCO2fromenergyconsumptionforproduction.”RemunerationissubjecttoshareholderapprovalattheAGM,buttheoutcomefor2015isnotclear.

FarSightassessmentClearandtransparentreportingonexecutiveremunerationwithgooduseofindicatorstoshowhowandwhypoorperformanceresultedinlowerbonuses.

ETHICSFarSightassessmentsummaryNVOhasastrongmoralcompassinthe‘NovoNordiskWay’andappliesthiscodeconsistentlyacrossallitsreporting,suggestingthatethicalbehaviourisembeddedinthebusiness,reducingthevulnerabilitytounethicalbehaviour.NVOexhibitsamatureleadershipresponsetotheaccusationsandlawsuitsitfacesrelatingtopricefixingandcollusionintheUSmarket,includingthereplacementoftheleadershipteam.Aclearercasefordifferentialpricingshouldhavebeenmade.NVOoffersfrankdisclosureofcontingentliabilitiesrelatingtomarketingandpromotionalpractices,butdoesnotmakeenoughofthelinkbetweenitsmoralcodeandthepreventionofcorruptmarketingpractices.

1.MoralDNAoftheorganisationAspectsconsideredClarityofvalues,appropriatenessfortheindustry,consistencyofbusinessapproachandreportingonbehaviourinsupportofsoundvalues,engagementwithstakeholdersastoethicalbehaviour,awarenesstrainingtoembedvaluesandethics,strengthandcompetenceofinternalaudit,maturityofresponsetoethicalbreaches,preventionanddealingwithconflictsofinterest,reportingondisciplinaryprocedures.InformationsourcesLeadershipletters,pp.1-3DoingbusinesstheNovoNordiskWay,p.18-19CorporateGovernancereport,IP,pp.46-49,54-57Riskmanagement,p.40

Healthcare)Industry

NVO)(December)2016) Context Take)charge Reporting Strategy NVO

ETHICS Net Neg)1 Pos)1 Neg)2 Pos)2 Neg)3 Pos)3 Neg)4 Pos)4 Materiality5 Moral-DNA-of-the-organisation 4,5 0 6 0 5 5 6 0 6 266 Theft,-fraud-&-corruption 1,5 3 3 0 1 0 3 1 3 287 AntiGcompetitive-behaviour 3,3 2 4 0 4 0 3 0 4 25

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SummaryofreportingNVOChairman,inmotivatingtheappointmentofJorgensontoCEO,claims:“Furthermore,hepersonifiestheNovoNordiskWayineveryconceivablemanner,alwaysbearinginmindwhatisbestforourpatients,employeesandshareholdersinthelongrun.”IncomingCEOJorgensennotesitisoneofhiskeyresponsibilitiestomaintainwhatmakesNVOspecialandshareshiscorebeliefstomakeNVOspecial:-Productinnovation-Innovationtomeetoutcomes-baseddemandfromfunders-theNovoNordiskWay–whoweare,wherewewanttogoandthevaluesthatcharacterisethecompany-havingpatients’interestsinmind-doingthebestinthelongrun-consideringfinancial,environmentalandsocialimpactsofdecisions-bemoreagile,orrisklosingindividualaccountabilityandtakingtoolongtomakedecisions–sosimplify-berecognisedbyemployees,patientsandotherstakeholdersasoutstandingforwhatNVOdoes,andhowitdoesit.Anannualemployeesurvey,eVoice,isconductedtomeasuretheextenttowhichNVOisworkinginaccordancewiththeNovoNordiskWay.Measuredonascalefrom1to5,theconsolidatedscorewas4.4in2016,comparedwith4.3in2015,reflecting“astrongcultureandcommitmenttothecompany’svalues.”Fromanethicalstandpoint,NVOalsoconducted84auditsofunits’adherencetotheNovoNordiskWay.Thesefacilitationscoveredapproximately25,000employees,12%ofwhomwereinterviewed,whilefeedbackwascollectedfromalmost1,000stakeholders.Thefacilitationsin2016,asin2015,showedahighlevelofcompliancewiththeNovoNordiskWay.Correctiveactionsandcorrespondingdeadlineswereagreedwithlocalmanagementforallactions.Longtermsocialtargetstobeasustainablebusinessinclude:“helpingpeoplelivebetterlives,workingtheNovoNordiskWayandsafe-guardingthereputationofthecompany.”Inthearticle:DoingbusinesstheNovoNordiskWay,theCEOremindsstakeholdersofthe10essentialsthatarethefoundationsofhowthecompanyandallitspeopleareexpectedtobehaveinitsbusinessdealings.ThearticlealsodiscussesthetriplebottomlineapproachtobusinessandcontributingtotheUNGlobalGoals.TheGovernancereportalsoreferencestheNovoNordiskwayassupportingthecriteriafordevelopingtheboardandexecutive,aswellassuccessionplanning.TheconsolidatedsocialstatementanditsnotesalsorefertothemeasurementandauditingofKPIsthatreflecttheNovoNordiskWay.Executiveremunerationislinkedtonon-financialtargets,basedonthecompany’sBalancedScorecardwithinthecategoriesofresearchanddevelopment,reputationandpatients,quality,peopleandenvironment.CommentaryonreportingNVOhasaclearsetofmoralstandardsandbehaviourspresentedinitsmoralcode,theNovoNordiskWay.Thecodeisintroducedbytheleadershipanddescribedindetailinanarticlededicatedtoholdingthecompanyaccountabletoitsstakeholders.Proxymeasuresofperformancearedisclosedandexecutiveremunerationissomewhatlinkedtothisperformance.ConsideringtheintegrationoftheNovoNordiskwayintoalmosteverysectionofthereport,anditsconsistentapplicationacrossalldecision-making,includingcompanystrategy,itisevidentthatthemoralDNAoftheorganisationisstrongandsupportsgenerallyethicalbehaviour.However,aredflagisraisedconcerninghowNVO’s

portrayalofitsmoralsmatchesuptotherealitythatisbeingexposedintheUSmarket,startingwithclass-actionlawsuits,andpossiblyalsosenatecommitteescrutinyatthebehestofPresidentTrump.FarSightassessmentNVOhasastrongmoralcompassintheNovoNordiskWayandappliesthiscodeconsistentlyacrossallitsreporting,suggestingthatethicalbehaviourisembeddedinthebusiness,reducingthevulnerabilitytounethicalbehaviour.AredflagreNVO’sbehaviourintheUSmarketmatchingitsvalues.

2.Anti-competitivebehaviourAspectsconsideredResponsetothespirallingcostsofhealthcare,pricegougingwherethecompanyhasmarketdominancewithadrug.WhilethereissomeoverlapwithCustomers:Accesstoproductsandservices,Higherpricesmaybetheresultofanti-competitivebehaviourwhereacompanyisinapositiontoexploititsmarketdominance,orcolludewithotherstakeholders,includingcompetitorsandintermediaries(suchasPBMsintheUSmarket).Fordrugmanufacturers,theissueisaggravatedbythehighcostsofR&Dandtheuncertaintyofthemarketapprovalprocess,aswellasofthetimeperiodinwhichthecompanycanenjoyreturnsonitsinvestment.WhileNVO’svulnerabilitytoanti-competitivebehaviourisnowconsiderablydiminished,giventhehighlycompetitivenatureofthemarketplace,itisfacinglawsuisintheUS,andFSwouldthuslookforamatureresponsetothislegalaction.InformationsourcesIncomingCEOmessage,p.3Socialperformance,p.11Definingtimesforthebusiness,p.32-34Consolidatedfinancialstatements:Provisionsandcontingentliabilities,p.80SummaryofreportingCasestudy:HowresponsiblyisNovoNordiskdealingwithaccusationsofprice-fixing?ThereputationalimpactforNVOisreflectedinthenewsarticlesthatappearedaroundtheturnoftheyear2016/17:ApositivestoryaroundNVO’sRobinHoodpolicytoprovideaffordableinsulintopoorernationsDanishCPSPostOnlinereportedonSeptember23,2016,that“NovoNordiskwillensurethepriceofmedicinedoesnotexceed20percentofthelistpricesthatpatientsinWesternnationspayforhumaninsulin,andthefigurewillbedecidedbyNovoNordisk’sSocialandEnvironmentalCommittee.NovoNordiskproducesnearlyhalfoftheworld’sinsulinsupply,anditsguaranteeappliestonationsamongtheLeastDevelopedCountriesasdefinedbytheUNandtheWorldBank.Thebiotechgiant’s‘AccesstoInsulinCommitment’willcomeintoeffectasof2017.”ThenegativefalloutintheUSforNVO’sRobberBaronexploitationofUScustomersReutersreportedonJanuary31,that“threeofthebiggestmakersofdiabetestreatments,SanofiSA,NovoNordiskandEliLillyandCo,werenamedinaclassactionlawsuitaboutpricefixingfiledbyagroupofpatients.Thesuit,filedonMondayinafederalcourtinMassachusetts,saidthecompanieshavesimultaneouslyhikedthepriceofinsulinbyover150percentduringthepastfiveyears.PlaintiffsclaimthatSanofi,NovoNordiskandEliLillyraisedtheirpublicbenchmarkpriceforinsulinproductswhilemaintainingalower"true"pricetheychargedlargepharmacybenefitmanagers(PBMs)likeExpressScripts,CVSHealthandOptumRX.ThePBMsactasintermediarieswithhealthinsurersandkeepapercentageofthepricedifference,accordingtothelawsuit.Thelawsuit,whichseeksclassactionstatus,allegedviolationsofthefederalracketeeringstatute,whichallowsfortripledamages,aswellasconsumerprotectionlawsinvirtuallyeverystate.ImpactoninvestorperceptionofNVO’soutlookMarketWatchreportedonJanuary12,2017,that“NovoNordisksharesdropped5.4%onThursdayafteraU.S.lawfirmfiledaclassactionlawsuitagainsttheDanishpharmaceuticalcompanyonbehalfoftheLehighCountyEmployees'RetirementSysteminPennsylvania.ThecomplaintallegesNovoNordiskwaspartyto“collusivepricefixingofinsulindrugs."Thecomplaintalsoallegesthedrugmaker"misrepresentedandconcealedthetrueextentofthepricingpressuresitwasexperiencingfrompharmacybenefitmanagers(PBMs)."NovoNordiskistheworld'slargestinsulinmakerforthetreatmentofdiabetes.ThelawsuitcoversthetimebetweenApril30,2015toOct.27,2016.

HowNVOreportedontheissueinitsIRAboutthesametime,JakobRiis,ExecutiveVP,NorthAmericanOperations,writesintheIntegratedReport:“ThecomplexityoftheUSmarketisalsoreflectedinthepriceofmedicines–atopicofheateddebate.Numerousentitiesareinvolvedintheprocess,andthatmeansthatdifferentpeoplepaydifferentpricesformedicines,dependingoninsurancecoverageandotherfactors.Sohowdoesitwork?“Manufacturerssetthe‘listprice’andhavefullaccountabilityforthoseprices.However,afterthelistpriceisset,drugmanufacturersnegotiatewithpayersinorderformedicinestostayontheirpreferreddruglist,orformulary.Therevenuethatcompaniesreceiveafterrebates,feesandotherpriceconcessionsgiventothepayeristhe‘netprice’.Thenetpricemorecloselyreflectsactualcompanysales.AcrossNovoNordiskinsulinproducts,netpriceincreasesyearoveryearhavebeenmid-singledigit.ThisbringsthenetpricedevelopmentclosertotheConsumerPriceIndex–Urban,acommonmeasureoftheaveragepriceofgoods.Yettheaccessandaffordabilityissueisreal.“We’rehearingfrommoreandmorepeoplelivingwithdiabetesaboutthechallengestheyfaceaffordinghealthcare,includingthemedicineswemake.Wetakethisissueseriouslyandareworkingtodomoretobettersupportpatients.Thisisaresponsibilitythatneedstobesharedamongallthoseinvolvedinhealthcare,andwe’regoingtodoourpart,”affirmsJakobRiis.Thecompanyrecentlytookapositiononpricing,outliningthethreeareasitintendstofocusontobetteraddresstheissue:-Transformingthecomplexpricesystem-Creatingmorepricingpredictability,includingacommitmenttolimitanypossiblefuturelistpriceincreasetonomorethansingle-digitpercentagesannually-Reducingtheburdenofout-of-pocketcosts.”InitsIR,NVOpointstoanumberoflegalcasesintheUSwhereitisthedefendant.Theboxalongsideisanexampleofonesuchcase.SeealsounderCustomers:Accesstoproductsandservicesinthisreport.CommentaryonreportingNVOclearlyunderstandsthethreatsitisfacingasaresultofitsdifferentialpricingpolicy.However,itdealswithpricingintheUSmarketasaseparateissuefromitspolicyinpoorercountries.Thismayhavecomeacrossasbeingdisingenuousandamoredirectdiscussionsettingouttheconundrumitfacesandtheinevitabletrade-offresultingincross-subsidisationbetweentheUSandNVO’spoorernationcustomersmighthavebeenmorehelpful.Ifsuchadiscussionweretohavebeenputforward,differentstrategiesmayhavepresentedthemselves,forexample,acampaignintheUStoshowthateveryUSDspentoninsulinbyUScustomerswassubsidisinginsulinforachildinapoorcountry.Instead,NVOhavebeeninflatingpricesintheUSwithoutexplainingwhy.Indeed,thecompanyhasattemptedrathertomakethecasethatmarketpressureshaveforcedittoraiseitsprices.Itnowmakesthepromisethatitwilllimitpriceincreasestosingledigits,whilealsoclaimingfunderconsolidationforcausingdownwardpressureonprices.TheissuehasreceivedtopleadershipattentioninthereportandtheresponsetothethreatsintheUShavebeendecisive,includingtheCEOsteppingdown,anewVPfortheUSappointed,andaclearstrategybeingenunciatedbytheincomingCEO.

FarSightassessmentNVOexhibitsamatureleadershipresponsetotheaccusationsandlawsuitsitfacesrelatingtopricefixingandcollusionintheUSmarket,includingthereplacementoftheleadershipteam.Aclearercasefordifferentialpricingshouldhavebeenmade.

3.Theft,fraudandcorruptionAspectsconsideredVulnerabilitytoofferingkickbackstophysicianstopromotepharmaceuticalproductsandalsototheriskofwronglyincentivisedemployeesviolatingthecompany’sethicalcodes,particularlyrelatingtoinducementsinvolvingthirdparties.ThecorruptinvolvementofathirdpartyininfluencingthechoiceofmedicationiswhatdistinguishesthisissuefromProductsuitabilityandrepresentationunderCustomers.InformationsourcesIncomingCEOmessage,p.3Socialperformance,p.11-13Riskmanagement,pp.40-41CorporateGovernancereport,IP,pp.46-49,54-57Consolidatedfinancialstatements:Provisionsandcontingentliabilities,p.80SummaryofreportingApartfromthesurveyofcompanyreputation(seebelow),NVOdoesnotspecificallymeasureanyKPIsrelatingtotheft,fraudandcorruption.TheCorporategovernancereportrefersrepeatedlytothecompany’sinsistencethatallemployeesbehaveaccordingtotheNovoNordiskWay,butthereisnotspecificreferencetomisdemeanoursinthissectionofthereport.Intheriskmanagementreport,JesperBrandgaard,NVOCFOandchairofNVORiskManagementBoard,pointsoutthat“atanygiventime,apharmaceuticalcompanyofNovoNordisk’ssizeislikelytobefacinglegalrisks,forexamplerelatedtolawsuitsfiledbycompetitorsorcustomers,orinvestigationsbyauthoritiesintocertainbusinesspractices…Investorsareurgedtopayattentiontosuchcases,astheycanhavesignificantfinancialormarketimpacts.”UnderProvisionsandcontingentliabilities,NVOisthedefendantinanumberlawsuitsrelatingtomarketingandpromotionalpractices(seebox).Understandably,thereportdoesnotgointodetailastowhatunethicalbehaviorthecompanymayormaynothavebeenapartyto.Inthesocialperformancereport,NVOreportedareputationscoreof79.2in2016,comparedwith82.4in2015.“Thedeclinereflectsageneraltrendacrossthehealthcaresector.Reputationamongkeystakeholders–peoplewithdiabetes,generalpractitioners,diabetesspecialistsandemployees–isanindicatoroftheextenttowhichthecompanylivesuptotheirexpectationsandthelikelihoodthattheywilltrust,supportandengagewiththecompany.”CommentaryonreportingNVOisclearlyawareofitsvulnerabilitytocorruptmarketingandpromotionalpracticesandoffersafrankassessmentofitsliability,withoutadmittingtoneedingtomakeprovisionstocoverlegalactionsagainstthecompany.However,NVOdoesnotdescribehowdubiousmarketingandpromotionalpracticescanoccur,norhowitscodeofconductcanbeappliedtopreventorreducethisvulnerability.Whileinvestorscanbegenerallyconfidentthattheissueiswellmanaged,giventhemoralDNAofNVOanditsfrankdisclosureofcontingentliabilities,clearerlinkscouldhavebeenmadeastohowNVOmitigatestheissue.FarSightassessmentNVOoffersfrankdisclosureofcontingentliabilitiesrelatingtomarketingandpromotionalpractices,butdoesnotmakeenoughofthelinkbetweenitsmoralcodeandthepreventionofcorruptmarketingpractices.

LABOURFarSightassessmentsummaryAfrankandfactualreportwithsoundKPIssummariesbrieflyNVO’sengagementandgenerallysoundrelationshipwithitsemployees,despite2%ofstaffbeingretrenchedin2016.NVOmakeslittlereferencetoattracting,developingandretainingemployees,possiblyasaresultofretrenchmentsduring2016.Apartfromethicstraining,novocationaltrainingreported.

1.Skills:attraction/development/retentionAspectsconsideredAttractionofdoctorsandspecialists,developmentofresidentnursingcare,efficacyofgovernancestructures,professionalnetworkstoprovideforcontinuousprofessionaldevelopment,clinicalstewardshipforums,fundingmedicalschools,offeringapprenticeships,engagingwithgovernmenttoallowmoreinnovativesolutionstomedicalskillsshortages.InformationsourcesLeadershipletters,pp.1-3Socialperformance:employees,p.11-12DoingbusinesstheNovoNordiskWay,p.18-19Employeecosts,p.71Summaryofreporting

Healthcare)Industry

NVO)(December)2016) Context Take)charge Reporting Strategy NVO

LABOUR Net Neg)1 Pos)1 Neg)2 Pos)2 Neg)3 Pos)3 Neg)4 Pos)4 Materiality8 Fair,labour 1,0 2 4 0 0 0 2 2 2 159 Occupational,health,and,safety 0,0 0 0 0 0 0 0 0 0 1610 Skills:,attraction/development/retention, I1,0 1 0 1 0 2 1 1 0 25

Novo)Nordisk

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OutgoingCEOreportsthatregrettably,NVOhadtolayoffcloseto1,000ofthecompany’s42,000employees.UnderSocialperformance:Employees,NVOsaysthedecisionwastakentoreduceoperatingcostsinresponsetoachallengingcompetitiveenvironment,especiallyintheUSA.BriefcommentfromtheCEOabouthowtheretrenchmentwasconducted.Employeeturnoverincreasedfrom9.2%in2015to9.7%in2016.TheeVoicesurveymeasuringemployeesratingoftheNovoNordiskWayrosefrom4.3to4.4.NVOalsoreportedongenderdiversityasawholeandrelatingtomanagement,aswellasoninjuries(onefatality).UnderEmployeecosts,employeebenefitsareitemised.Underfinancialperformance,failuretorecruitandretainemployeesislistedasarisktothebusiness.CommentaryonreportingNVOmadeverylittlereferencetoattracting,developingandretainingemployeesinthereport,possiblybecausethecompanyhadtoretrenchstaffduringtheyear.Reportingonretrenchmentprocesswasnotcompleteorbalanced.Leadershipseemstobeparticularlymindfulofembeddingtriplebottom-linethinkingintotheemployeesandalengthyarticleonthesubjectsupportsthis,aswellasethicstrainingandsurveysofemployees.EngagementbytheCEOwithemployeessuggestsafairlystrongandloyalemployeebase.FarSightassessmentAfrankandfactualreportwithsoundKPIssummariesbrieflyNVO’sengagementandgenerallysoundrelationshipwithitsemployees,despite2%ofstaffbeingretrenchedin2016.NVOmakeslittlereferencetoattracting,developingandretainingemployees,possiblyasaresultofretrenchmentsduring2016.Apartfromethicstraining,novocationaltrainingreported.

SOCIETYFarSightassessmentsummaryNVOappearstomanageequitableemploymentresponsibly,disclosingitsgenderparticipationandidentifyingthechallengestoachievegenderequity.NVOgivesprominenceinitsreportingtoitscommitmenttotheUSeconomy,backedupbyKPIsthatincludethescaleoftheinvestmentandjobcreationfigures,thoughUSproductionvsUSsalesfiguresarenotgiven.

Healthcare)Industry

NVO)(December)2016) Context Take)charge Reporting Strategy NVO

SOCIETY Net Neg)1 Pos)1 Neg)2 Pos)2 Neg)3 Pos)3 Neg)4 Pos)4 Materiality11 Community0impact,0relations0&0development 0,0 0 0 0 0 0 0 0 0 212 Equitable0ownership 0,0 0 0 0 0 0 0 0 0 313 Equitable0employment 1,8 0 2 0 0 0 3 0 2 1214 Local0industry,0enterprise0&0supplier0development2,5 0 1 0 3 0 3 0 3 2215 Social0stewardship0in0supply0chain 0,0 0 0 0 0 0 0 0 0 8

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1.Localindustry,enterpriseandsupplierdevelopmentAspectsconsideredLocaleconomicdevelopment,enterpriseandsupplierdevelopment,largelywithintheUSeconomy.SummaryofreportingNVOgivesprominencetoitscommitmenttotheUSeconomy,withthefollowingtext:“NovoNordiskcontinuestoexpanditsresearch,developmentandproductionfootprintintheUS.Thecompany’sclinical,medicalandregulatoryactivitiesarebasedattheheadquartersinPlainsboro,NewJersey.Inaddition,NovoNordiskhasresearchcentresinIndianapolis,Indiana,andSeattle,Washington,andtwoproductionsitesinClayton,NorthCarolina,andWestLebanon,NewHampshire.“NovoNordiskiscurrentlyinvestingnearly2billiondollarsinanewproductionfacilityinClayton,whichwillproduceactivepharmaceuticalingredientsforthecompany’sdiabetescareproducts.ThisfacilitywillplayavitalroleinenablingNovoNordisktomeettheneedsofpeoplelivingwithdiabetesintheUSforyearstocomeandcreate700newjobs.Thefacilityisexpectedtobeoperationalby2020.Today,NovoNordiskemploysaround6,000peopleintheUS.”FarSightassessmentNVOgivesprominenceinitsreportingtoitscommitmenttotheUSeconomy,backedupbyKPIsthatincludethescaleoftheinvestmentandjobcreationfigures,thoughUSproductionvsUSsalesfiguresarenotgiven.

CUSTOMERSFarSightassessmentsummaryNVOpresentsitselfassympathetictothechallengesfacingdiabeticsandmeasurescompanyreputationaccordingly.NVOexhibitsamatureleadershipresponsetothechallengeofprovidingaccesstoproductsinpoorermarketswithaclearandmeasurablestrategy,enablingcoursecorrectionstoimproveprogress.Inreportingonnewdevelopmentsforthetreatmentofdiabetes,NVOisshowingmaturityofleadershipinpositioningitsthoughtleadershiparoundthefutureofdiabetescontrolawayfrominsulin.Reportingonproductqualityalsomature.

Healthcare)Industry

NVO)(December)2016) Context Take)charge Reporting Strategy NVO

CUSTOMERS Net Neg)1 Pos)1 Neg)2 Pos)2 Neg)3 Pos)3 Neg)4 Pos)4 Materiality16 Treatment1of1customers 2,5 0 3 0 2 0 3 0 2 1817 Product1representation1&1suitability 3,0 0 3 0 3 0 3 0 3 2718 Access1to1products1&1services 3,3 2 4 0 4 0 3 0 4 2419 Consumer1ID1protection1and1data1privacy 0,0 0 1 0 1 3 0 0 1 18

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1.TreatmentofcustomersAspectsconsideredNVOhasaccess,visibilityandexposuretotheendconsumerthoughsomeofitsconsumerbrandsandthusmaybeheldresponsibleforthemanufactureandsupplyofitsproductsandultimatelyforpatientsafety.SourcesofinformationIncomingCEOmessage,p.3Socialperformance,p.11DoingbusinesstheNovoNordiskWay,p.18SummaryofreportingNoreportinginchairman’sreviewNoreportinginoutgoingCEO’sreviewIncomingCEOemphasisestheNovoNordiskwayandthatitisaboutalwayshavingpatients’interestsinmind,aboutalwaysdoingwhatisbestinthelongrun.In2016,99%ofallrelevantemployeescompletedanddocumentedtheirbusinessethicstrainingandpassedtherelatedtests,comparedwith98%in2015.Thishighlevelisattributedtotheconstantfocusonandcommunicationbyseniormanagement.Atotalof52businessethicsreviewswerecompletedin2016with234findings,comparedwith49reviewsin2015with183findings.ItisGroupInternalAudit’sassessmentthatthelevelofcomplianceissound.Closureoffindingsprogressedasplanned,andtherewerenooverduefindingsasof31December2016.Theglobalfacilitatorteamconducted84auditsofunits’adherencetotheNovoNordiskWay(seeunderEthics).Thesefacilitationscoveredapproximately25,000employees,12%ofwhomwereinterviewed,whilefeedbackwascollectedfromalmost1,000stakeholders.Correctiveactionsandcorrespondingdeadlineswereagreedwithlocalmanagementforallactions.NVOmeasurescompanyreputationusingamethodologyfromtheReputationInstitute.Thetotalscoreismeasuresasthemeancompanyreputationscoreamongpeoplewithdiabetes,generalpractitioners,diabetesspecialistsandemployeesacross15keymarkets.NVOtreatsthisasanindicatoroftheextenttowhichthecompanylivesuptotheirexpectationsandthelikelihoodthattheywilltrust,supportandengagewiththecompany.CommentaryonreportingNVOpositionsitselfashighlysympathetictoitscustomersfacingobesityanddiabetes,understandingthechallengestheyfaceandofferingthemthehopeofbetteroutcomesthroughNVOproductsandtheNovoNordiskway.Companyreputationismeasured,thoughstrategiestoprotectagainstreputationalharmarenotenunciated.FarSightassessmentNVOpresentsitselfassympathetictothechallengesfacingdiabeticsandmeasurescompanyreputationaccordingly.

2.AccesstoproductsandservicesAspectsconsideredAstheworld’slargestmanufacturerofdrugstotreatdiabetes,NVOsuppliesbothdevelopedmarkets,suchastheUS,aswellaspoorerregions,suchasAfrica.Managingfairaccesstoitsproductsinbothrichandpoornationsraisesexternalities,suchasaccusationsofpricefixing,orraidingonemarkettosubsidiseanother.SourcesofinformationIncomingCEOmessage,p.3Socialperformance,p.11Definingtimesforthebusiness,p.32-34SummaryofreportingNoreportinginchairman’sreviewNoreportinginoutgoingCEO’sreviewIncomingCEOacknowledgesthechallengeofdiabetesandtheimportanceofinnovationtoofferbettermedicaltreatments.NVOintroducesthreedimensionstosocialperformance:accesstomedicaltreatment,ahealthyworkenvironment,andresponsiblebusinesspractices.UnderSocialperformance:Patients:NVOpresentsthechallenge:¾ofthe415milliondiabeticsliveincountrieswithinadequateaccesstodiabetescare.NVOstrategyistomeetthisneed,reaching40mby2020,doublethe2010baseline.Achieved28min2016(2015:26.8m),a4%increase,belowtheincreaseraterequired.NVOadmitsdefeat,butremainscommittedtotheideal.Newstrategy:NovoNordiskAccesstoInsulinCommitmentprovidingtheneedywithaguaranteeofinsulinatalowerceilingpriceof$4perviallowerthanthepreviousdifferentialpricingpolicy.Thiswillbeofferedthroughgovernmenttenderswiththeideathatmoreofthe48leastdevelopedcountrieswoulddobusinesswithNVO(2016:22/48,2015:23/48).In2016,ceilingpriceperdaywas$0.18andrealisedpricewas$0.15perday.Totalnumberbuyingatorbelowceilingpricedecreasedfrom411,000to349,000outofatotalof6.5mNVOcustomers(2015:5.5m).NovoNordiskisunabletoguaranteethatthepriceatwhichthecompanysellstheinsulinwillbereflectedinthepricetotheconsumer.Printingthepriceontheactualproductisoneinitiativetoavoidmark-upsonprice.WhileNovoNordiskpreferstosellinsulinatthedifferentialpricethroughgovernmenttenders,thecompanyiswillingtoselltoprivatedistributorsandagents.Additionalprogrammesareaimedatchildren,aswellasatpregnantmothers.A‘BaseofthePyramid’programmeisbeingrolledoutinAfrica.OtherprogrammesincludeCitieschangingdiabetes,aninitiativetomaptheproblemandfindsolutions.Donationshavealsobeenmadefordiabetesandhaemophilia.Inthearticle,‘Definingtimesforthebusiness’,thecompanysetsoutthechallengesitfacesintheUSmarket,butnonethelessmakesasincerecaseforansweringthedesperateneedofdiabeticsforaffordablemedicines.Threeresponsesaregiven(seebox).

CommentaryonreportingNVOpresentsthechallengefacingaccesstoitsproductsandservicesclearlyanddrivesperformanceatleadershiplevelthroughconsistentmessagingandreporting,thoughthecompanycouldhavemadeabetterlinkbetweenpricingintheUSandinpoorercountries.TransparentKPIs,substantiated,material,reliableandcomparable,areusedtotrackprogress.NVOrespondstochallenges,suchasflaggingperformance,orthirdpartymark-ups,withinnovativeanddecisivestrategies.FarSightassessmentNVOexhibitsamatureleadershipresponsetothechallengeofprovidingaccesstoproductsinpoorermarketswithaclearandmeasurablestrategy,enablingcoursecorrectionstoimproveprogress.

3.ProductrepresentationandsuitabilityAspectsconsideredClaimsaboutdrugefficacy,side-effectsandimpactthroughsanctionsorreputationaldamage.Liabilityforharmtoendcustomers.Drugtestingprotocolsandbiastoachievecertification.Inappropriatepromotion,excludinginducementand/orcorruptionofthirdparties,thatleadstoover-prescription.SourcesofinformationIncomingCEOmessage,p.3Socialperformance,p.11Aneweraofdiabetestreatment,pp.24-25Changingdiabetes,onecityatatime,p.27Livingwiththestigmaofobesity,pp.28-29Contingentliabilities,p.80SummaryofreportingNoreportinginchairman’sreviewNoreportinginoutgoingCEO’sreviewIncomingCEOemphasisesthattheaimistoimprovediabetescareviainsightsfromreal-time,real-worldevidenceoftheclinicalbenefitsofNovoNordisk’sdiabetestreatmentsanddevices.CEOJorgensenoffersasoundleadershipmessageSocialperformance-assurance“NovoNordiskhadsixproductrecallsfromthemarketin2016,ofwhichonewascritical,comparedwithtwoin2015.Twooftherecallswereduetoinappropriateproductstorageintheexternaldistributionchainwhilefourwereduetoproductsthatdidnotfullymeetspecifications.Localhealthauthoritieswereinformedinallinstancestoensurethatdistributors,pharmacies,doctorsandpatientsreceivedappropriateinformation.“In2016,asin2015,therewerenofailedinspectionsbyregulatoryauthoritiesamongthoseresolvedatyear-end.Atotalof74inspectionswereconductedin2016atNovoNordisk’ssites,atclinicsconductinginvestigationsforNovoNordiskorforvoluntaryISO9001certification,comparedwith82inspectionsin2015.Atyear-end,49inspectionshadbeenpassedand25wereunresolved.”Inthearticle:‘Aneweraofdiabetestreatment’,NVOacknowledgesthemainconcernofinsulinasadrug,inthatitcontrolsbloodsugar,butpromotesinsulinresistanceandconsequentcardiovasculardiseases.NVOadmitstheneedforadiabetestreatmentthatalsoaddressestheassociatedCVrisk.ThereportthencontinuestodescribetheprospectsofnewproductsbeingdevelopedbyNVOinthisarena.Thissuggestsamorematureresponsebythecompanythanthe

traditionaltreatmentprotocolofinsulin,andmayreducethechanceofclassactionsuitsagainstpharmaceuticalcompaniesinthefutureforknowinglypromotingdrugsthatmadediabeticpatientsmoresusceptibletocardio-vascularevents.Inthearticle,‘Changingdiabetes,onecityatatime’,NVOisaligningitselfwiththepopulationlivingwithdiabetes,orthethreatofdiabetes.Ifthecompanycanbalancecarefullytheassociationofitsbrandwithpreventionaswellascure,itmaybeabletonavigatethedifficultethicalwatersassociatedwiththedisease.Inthearticle,‘Livingwiththestigmaofobesity’,NVOagainsympathiseswiththeobeseandpresentstheconditionasbeingcomplexandnotsimplytheresultofbadbehaviour.NVOiscarefultopositionitselfasanhonestresearcher,searchingfortherealcausesofthediseaseandpromotingitsexpertisebasedonitsexperienceindiabetescontrol.CommentaryonreportingNVOhasbeensmartaboutnotadmittingtothefailureofinsulinasaprotocolfortreatingdiabetes,insteadshiftingthefocustowardsdrugsinitsportfoliothatcontrolbloodsugarwithoutraisinginsulinlevels,thusreducingcardio-vascularrisk.Reportingonproductrecallsisalsoclearandtransparent,andthereisevidenceofstronggovernanceofproductquality.NVOalsopointstoitscontingentliabilities,wherependinglitigationisdescribed,butdoesnotexpectmaterialimpactfromthese.FarSightassessmentInreportingonnewdevelopmentsforthetreatmentofdiabetes,NVOisshowingmaturityofleadershipinpositioningitsthoughtleadershiparoundthefutureofdiabetescontrolawayfrominsulin.Reportingonproductqualityalsomature.

4.ConsumerIPprotectionanddataprivacyFarSightassessmentMisuseofpatientinformationwasmentionedinoneofthelawsuitsagainstNVO,butnomentionismadeofthisissueinthecompany’sreporting,thoughNVOappearstomanageITsecurityasahygienefactor.AspectsconsideredPatients’orotherindividuals’privacycouldbecompromisedifconfidentialinformationisdisclosed,andbreachesofITsecuritycouldhaveasevereimpactonthecompany’sabilitytomaintainoperationsandhenceonitsfinancialsituation.Inproductionenvironments,breachesofITsecuritycouldimpactonthecompany’sabilitytoproduceandsafeguardproductquality.SummaryofreportingUnderkeyrisks,NVOdescribeshowitmanagesITsecurity,butthereisnoreportingonprogress.Strategiestomitigatetheriskareinplaceandeffectivenessaudited.FarSightassessmentMisuseofpatientinformationwasmentionedinoneofthelawsuitsagainstNVO,butnomentionismadeofthisissueinthecompany’sreporting,thoughNVOappearstomanageITsecurityasahygienefactor.

ENVIRONMENTFarSightassessmentsummaryNVOprovidescontextandthoroughreportingforallenvironmentalissuescriticaltothecompany.Thisisreiteratedbymanagementtakingchargeoftheissuebyincorporatingtheseissuesintheremunerationpolicyofcertainexecutives.Thestrategy,whilenotexplicitlyoutlined,isshowntobeanunderlyinginfluenceinallthecompaniesoperations.

1.GeneralenvironmentAspectsconsideredEnergy/carbonfootprint(consistentsupplyofreliableenergyforoperations),water(stableanduncontaminatedsupply),pollution(wasteand,incaseofpharmaceuticalmanufacturers,spillsandhazardouswaste),materialsandresources(stablesupplyofcriticalrawmaterialsinthepharmaceuticalmanufacturingsector).

Healthcare)Industry

NVO)(December)2016) Context Take)charge Reporting Strategy NVO

ENVIRONMENT) Net Neg)1 Pos)1 Neg)2 Pos)2 Neg)3 Pos)3 Neg)4 Pos)4 Materiality20 Energy/carbon)footprint 3,5 0 3 0 5 0 4 0 2 821 Water 4,0 0 3 0 6 0 5 0 2 1622 Materials)and)resources 4,0 0 3 0 6 0 5 0 2 1523 Waste,)water)and)air)pollution 4,0 0 3 0 6 0 5 0 2 1524 Environmental)impact)of)products)&)services 0,0 0 0 0 0 0 0 0 0 125 Environmental))stewardship)of)supply)chain) 0,0 0 0 0 0 0 0 0 0 1

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InformationsourcesforNVOresponseIR:EnvironmentalPerformance,p.13-15RiskManagement,p40Remuneration:ExecutiveManagement,p.52StatementofEnvironmentalPerformance,p.104-106SummaryofreportingNVOfirstbroachesenvironmentalissuesintheirreportonenvironmentalperformance.Theystatethatperformanceismeasuredacrossfourdimensions;useofresources,emissions,organicresiduesandwaste.Abriefdescriptionofeachdimension’sperformance,includingthecontributingfactorsisfollowedbyKPI’s(withcomparativesforthepreviousfouryears)forenergyconsumption,waterconsumptionandshareofrenewablepowerforproductionincludingyear-on-yeartargets.Abreak-downofenvironmentalperformanceacrossenergyconsumption(1000GJ),waterconsumption(1000m3),CO2emissionsfromenergyconsumption(1000tons),organicresidue(tons),waste(tons)andlong-termenvironmentaltargetsacrossenergyconsumption(vspreviousyear),waterconsumption(vspreviousyear)andshareofrenewablepowerforproductionprovideNVO’smetricsfortheirenvironmentalissues.AlsoprovidedisacomparisonofsalesandCO2emissions(2012=index100).RiskmanagementincludesNVO’slong-termrisks:“NovoNordiskaspirestobeasustainablebusinessandtakesanactiveroleindealingwithrisksrelatedtoglobaldevelopmentandlong-termprosperity,suchasglobalhealth,climatechange,waterscarcityandinequality.Thisincludessettingscience-basedtargetsalignedwithinternationalagreementsandthoroughduediligencetoensureadherencetouniversallyacceptedstandardsforresponsiblebusinesspractices.Actionsarereportedtoinvestor-ledindices,suchasCDPonclimaterisks,ATMIonaccesstomedicinesandDJSIoneconomic,environmentalandsocialperformance.”

Remunerationpolicyincludesnon-financialtargetslinkedtothecompany’sBalancedScorecard,ofwhichoneofthecategoriesisenvironment.Assuch,NVOspecifiesthe“targetswithinenvironmentrelatedtotheemissionsofCO2fromenergyconsumptionforproduction”.

NVO’sStatementofEnvironmentalPerformanceprovidesadetailedbreak-downofeachoftheaforementioneddimensions.Energyandwaterconsumptionarebrokenupbetweendiabetesandobesitycare,andbiopharmaceuticalsasareCO2emissions.Organicresiduesaresplitbetweenbiomassandrecyclableethanolwhilewasteisbrokenupbetweennon-hazardouswasteandhazardouswaste.Wastedisposalisalsosplitbetweenrecycling,incinerationwithenergyrecovery,incinerationwithoutenergyrecovery,specialtreatmentandlandfilling.

CommentaryonreportingNVOprovidesathoroughanalysisofenvironmentalissuesacrosstheirself-identifiedfourdimensions.Eachissueisanalysedindividuallywithintensitymetrics,whichflowthroughtotheremunerationreport.Thereisevidenceofcontextandreporting(includingKPI’sforeachdimension)withevidenceofmanagementtakingchargethroughremunerationpolicytakingintoaccountenvironmentalmetrics.Whilethereislimitedlinktostrategy(intheirstrategicobjectives)thereisevidencetosuggestthatenvironmentalissuesformpartoftheunderlyingethosofNVO.FarSightassessmentNVOprovidescontextandthoroughreportingforallenvironmentalissuescriticaltothecompany.Thisisreiteratedbymanagementtakingchargeoftheissuebyincorporatingtheseissuesintheremunerationpolicyofcertainexecutives.Thestrategy,whilenotexplicitlyoutlined,isshowntobeanunderlyinginfluenceinallthecompaniesoperations.