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Operating assets and liabilities
 12 Months Ended
Dec. 31, 2019
Subclassifications of assets, liabilities and equities [abstract]  
Operating assets and liabilities
Section 3
Operating assets and liabilities
Intangible assets


Accounting policies
Patents and licences, including patents and licences acquired for research and development projects, are carried at historical cost less accumulated amortisation and any impairment loss. Amortisation is based on the straight-line method over the estimated useful life. This means the legal duration or the economic useful life depending on which is shorter, and not exceeding 15 years. The amortisation of patents and licences begins after regulatory approval has been obtained.

Internal development of software for internal use is recognised as intangible assets if the recognition criteria are met, for example a significant business system where the expenditure leads to the creation of a durable asset. Amortisation is based on the straight-line method over the estimated useful life of 3-15 years. The amortisation begins when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by Management.

Research and development projects
Internal and subcontracted research costs are charged in full to the consolidated income statement in the period in which they are incurred. Consistent with industry practice, internal development costs are also expensed until regulatory approval is obtained or is probable; please refer to note 2.3.

Payments to third parties under collaboration and license agreements are assessed for the substance of their nature. Payments which represent subcontracted research and development are expensed as the services are received. Payments which represent rights to the transfer of intellectual property, developed at risk by the third party, are capitalised.

For acquired research and development projects, patents and licences the likelihood of obtaining future commercial sales is reflected in the cost of the asset, and thus the probability recognition criteria is always considered to be satisfied. As the cost of acquired research and development projects can often be measured reliably, these projects fulfil the capitalisation criteria as intangible assets on acquisition. Subsequent milestone payments payable on achievement of a contingent event (e.g. commencement of phase 3 trials) are accrued and capitalised into the cost of the intangible asset when the achievement of the event is probable. However, further internal development costs subsequent to acquisition are treated in the same way as other internal development costs.

Key accounting estimates of impairment of assets
Intangible assets with an indefinite useful life and intangible assets not yet available for use are not subject to amortisation. They are tested annually for impairment, irrespective of whether there is any indication that they may be impaired.

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Factors considered material that could trigger an impairment test include the following:

•
Development of a competing drug
•
Changes in the legal framework covering patents, rights and licences
•
Advances in medicine and/or technology that affect the medical treatments
•
Lower-than-predicted sales
•
Adverse impact on reputation and/or brand names
•
Changes in the economic lives of similar assets
•
Relationship to other intangible assets or property, plant and equipment
•
Changes or anticipated changes in participation rates or reimbursement policies.

If the carrying amount of intangible assets exceeds the recoverable amount based on the existence of one or more of the above indicators of impairment, any impairment is measured based on discounted projected cash flows. Impairments are reviewed at each reporting date for possible reversal.

Intangible assets
DKK million
 
2019

 
2018

 
 
 
 
 
Patents and licences
 
4,627

 
3,858

Software
 
1,208

 
1,287

 
 
 
 
 
Total intangible assets
 
5,835

 
5,145

 
 
 
 
 


Additions
Additions to intangible assets amount to DKK 2,179 million. The additions related to patents and licences amount to DKK 1,599 million (DKK 1,403 million in 2018) within Diabetes and Obesity care and DKK 359 million (DKK 1,165 million in 2018) within Biopharm. Please refer to note 5.2 Commitment for an overview of total contractual commitments.

In 2018 and 2019 Novo Nordisk both acquired intellectual property and entered into major patent and licence agreements, as summarised below. Upfront fees and acquisition costs have been capitalised and subsequent milestone payments payable on achievement of a contingent event will be capitalised on the contingent event being probable of being achieved.


2019 additions

Dicerna
Novo Nordisk has entered into a collaboration and license agreement providing development and commercialisation rights to novel therapies for the treatment of liver-related cardio-metabolic diseases using Dicerna’s proprietary GalXC™ RNAi platform technology. The addition relates to the Diabetes and Obesity care segment.

Priority review voucher
During 2019 Novo Nordisk acquired a priority review voucher intended for use in the Diabetes and Obesity care segment.

Esperoct™ milestones
Novo Nordisk has capitalised two milestone payments to the business partner following EU and FDA approval of Esperoct™. The additions relate to the Biopharm segment.



2018 additions

Macrilen™
Novo Nordisk has acquired the US and Canadian rights to Macrilen™ (macimorelin), the first and only FDA-approved oral growth hormone receptor indicated for the diagnosis of Adult Growth Hormone Deficiency, a rare endocrine disorder. The acquisition relates to the Biopharm segment.

Priority review voucher
During 2018 Novo Nordisk acquired a priority review voucher which has been fully amortised on notification and commitment to the FDA in December 2018 of the intent to use the Priority Review Voucher for the oral semaglutide New Drug Application (NDA) filing. The acquisition relates to the Diabetes and Obesity care segment.

Ziylo Ltd
Novo Nordisk has acquired full rights to Ziylo's glucose binding molecule platform to develop glucose responsive insulins. The acquisition relates to the Diabetes and Obesity care segment.
3.1 Intangible assets (continued)


Amortisation and impairment losses
In 2019, an impairment loss of DKK 982 million was recognised (no impairment losses were recognised in 2018), substantially all of which related to patents and licences. DKK 282 million of the impairment was related to the Diabetes and Obesity care segment and DKK 700 million of the impairment was related to Biopharm. Of the total impairment loss, DKK 529 million was recognised in cost of goods sold and DKK 450 million in research and development costs. The impairment was a result of Management’s review of projected future cash flows from marketable products and expectations related to patents and licences not yet in use.

The impairment losses related to marketable products were based on fair value less cost of disposal calculations. The projected future cash flows were prepared based on Management’s expectations for market access, market share and development in net sales prices. Management has used a post-tax discount rate of 7%. The inherent risk and uncertainty related to cash flows were adjusted for in the expected future cash flows.

Intangible assets not yet in use amount to DKK 3,380 million (DKK 2,612 million in 2018), primarily patents and licences in relation to research and development projects. Impairment tests in 2019 and 2018 of patents and licences not yet in use are based on Management’s projections and anticipated net present value of estimated future cash flows from marketable products. Terminal values used are based on the expected life of products, forecasted life cycle and cash flow over that period, and the useful life of the underlying assets.

Amortisation and impairment losses
DKK million
 
2019

 
2018

 
 
 
 
 
Cost of goods sold
 
916

 
208

Sales and distribution costs
 
24

 
15

Research and development costs
 
522

 
769

Administrative costs
 
3

 
2

Other operating income, net
 
4

 
6

 
 
 
 
 
Total amortisation and impairment losses
 
1,469

 
1,000

 
 
 
 
 
Total amortisation
 
487

 
1,000

 
 
 
 
 
Total impairment losses
 
982

 
—

 
 
 
 
 
Capital expenditure in the reported period was primarily related to investments in facility upgrades and new production facilities for active pharmaceutical ingredients for diabetes, mainly the facility in Clayton, US. The facility in Clayton will also be used for tableting and packing of oral products.

Capital expenditure also related to new diabetes filling capacity in Hillerød. The facility will serve as a backup production facility for the US market and act as a launch site for new injectable diabetes products.

Finally, capital expenditure related to expansion of the facility in Chartres, France. The investment will establish FlexTouch® assembly and packaging capacity at the Chartres site.
 

Depreciation and impairment losses
DKK million
 
2019

 
2018

 
 
 
 
 
Cost of goods sold
 
2,656

 
2,312

Sales and distribution costs
 
354

 
69

Research and development costs
 
783

 
468

Administrative costs
 
376

 
70

Other operating income, net
 
23

 
6

 
 
 
 
 
Total depreciation and impairment losses
 
4,192

 
2,925

 
 
 
 
 

3.2 Property, plant and equipment (continued)

Property, plant and equipment
 
 
 
 
 
 
 
 
DKK million
Land and buildings

Plant and machinery

Other equipment

 
Assets under construction

 
Total

 
 
 
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
Cost at the beginning of the year
25,401

25,412

4,779

 
16,846

 
72,438

 
Change in accounting policy, leases
3,291

—

487

 
—

 
3,778

 
Additions during the year
555

350

498

 
7,580

 
8,983

 
Disposals during the year
(407
)
(504
)
(244
)
 
(74
)
 
(1,229
)
 
Transfer from assets under construction
1,277

2,248

665

 
(4,190
)
 
—

 
Effect of exchange rate adjustment
143

88

30

 
189

 
450

 
 
 
 
 
 
 
 
 
 
Cost at the end of the year
30,260

27,594

6,215

 
20,351

 
84,420

 
 
 
 
 
 
 
 
 
 
Depreciation and impairment losses at the beginning of the year
9,770

17,871

2,906

 
—

 
30,547

 
Depreciation for the year
1,818

1,410

743

 
—

 
3,971

 
Impairment losses for the year
57

70

20

 
74

 
221

 
Depreciation and impairment losses reversed on disposals during the year
(160
)
(504
)
(229
)
 
(74
)
 
(967
)
 
Effect of exchange rate adjustment
43

41

13

 
—

 
97

 
 
 
 
 
 
 
 
 
 
Depreciation and impairment losses at the end of the year
11,528

18,888

3,453

 
—

 
33,869

 
 
 
 
 
 
 
 
 
 
Carrying amount at the end of the year
18,732

8,706

2,762

 
20,351

 
50,551

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
Cost at the beginning of the year
22,032

23,799

4,469

 
14,361

 
64,661

 
Additions during the year
222

365

175

 
8,775

 
9,537

 
Disposals during the year
(267
)
(1,422
)
(178
)
 
—

 
(1,867
)
 
Transfer from assets under construction
3,448

2,667

295

 
(6,410
)
 
—

 
Effect of exchange rate adjustment
(34
)
3

18

 
120

 
107

 
 
 
 
 
 
 
 
 
 
Cost at the end of the year
25,401

25,412

4,779

 
16,846

 
72,438

 
 
 
 
 
 
 
 
 
 
Depreciation and impairment losses at the beginning of the year
8,934

17,808

2,672

 
—

 
29,414

 
Depreciation for the year
1,047

1,377

385

 
—

 
2,809

 
Impairment losses for the year
49

63

4

 
—

 
116

 
Depreciation and impairment losses reversed on disposals during the year
(235
)
(1,346
)
(163
)
 
—

 
(1,744
)
 
Effect of exchange rate adjustment
(25
)
(31
)
8

 
—

 
(48
)
 
 
 
 
 
 
 
 
 
 
Depreciation and impairment losses at the end of the year
9,770

17,871

2,906

 
—

 
30,547

 
 
 
 
 
 
 
 
 
 
Carrying amount at the end of the year
15,631

7,541

1,873

 
16,846

 
41,891

 
 
 
 
 
 
 
 
 
 


Property, plant and equipment


Novo Nordisk´s approach to managing operating assets is to retain assets for research, development and production activities under the company’s own control, and to lease non-core assets related to e.g. administration and distribution. Management believes this is a significant factor in maintaining the quality of the company´s products.

Accounting policies
Property, plant and equipment is measured at historical cost less accumulated depreciation and any impairment loss. The cost of self-constructed assets includes costs directly and indirectly attributable to the construction of the assets. Any subsequent cost is included in the asset’s carrying amount or recognised as a separate asset only when it is probable that future economic benefits associated with the item will flow to Novo Nordisk and the cost of the item can be measured reliably. Depreciation is based on the straight-line method over the estimated useful lives of the assets:

•
Buildings: 12-50 years
•
Plant and machinery: 5-20 years
•
Other equipment: 3-10 years
•
Land: not depreciated.

The depreciation commences when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by Management.

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. If an asset’s carrying amount is higher than its estimated recoverable amount, it is written down to the recoverable amount.

Plant and equipment with no alternative use developed as part of a research and development project are expensed. However, plant and equipment with an alternative use or used for general research and development purposes are capitalised and depreciated over the estimated useful life as research and development costs.
Leases


Accounting policies
Novo Nordisk mainly leases office buildings, warehouses, laboratories and vehicles.

For contracts which are, or contain, a lease, the Group recognises a right-of-use asset and a lease liability. The right-of-use asset is initially measured at cost, being the initial amount of the lease liability. The right-of-use asset is subsequently depreciated using the straight-line method over the lease term. The right-of-use asset is periodically adjusted for certain remeasurements of the lease liability and reduced by any impairment losses.

The lease term determined by the Group is the non-cancellable period of a lease, together with extension/termination option if these are reasonably certain to be exercised.

When determining the term, Management considers multiple factors that create economic incentives to exercise an option to extend the lease or not to terminate the lease, including termination penalties, potential relocation costs and whether
significant leasehold improvements have been capitalised on the lease, with a remaining useful life which exceeds the fixed minimum duration of the lease.

For contracts with a rolling term (evergreen leases), the Group estimates the leasing period to be equal to the termination period if no probable scenario exists for estimating the leasing period.

The lease liability is initially measured at the present value of the lease payments outstanding at the commencement date, discounted using the incremental borrowing rate. Lease payments consist of the following payments:

•
fixed payments from commencement date
•
certain variable payments
•
residual value guarantees or the exercise price of a purchase option
•
termination penalties

The lease liability is measured using the effective interest method.

The lease liability is remeasured when there is a change in future lease payments, typically due to a change in index or rate (e.g. inflation) on property leases, or if there is a reassessment of whether an extension or termination option will be exercised. A corresponding adjustment is made to the right-of-use asset, or in the income statement when the right-of-use asset has been fully depreciated.

The right-of-use asset is presented in property, plant and equipment and the lease liability in borrowings.
3.3 Leases (continued)


New lease contracts with a lease term of 12 months or less and lease of low value assets are not recognised on the balance sheet. These are expensed on a straight-line basis over the lease term or another systematic basis. Lease of low value assets include personal computers, telephones and small items of office equipment.

Variable lease payments may depend on an index, a rate or other elements. Variable lease payments that depend on an index or a rate are included in the initial measurement of the lease liability using the index/rate at the lease commencement date. Variable lease payments not based on an index or a rate are recognised as an expense in the income statement as incurred.

Residual value guarantees that are expected to be paid are included in the initial measurement of the lease liability. Please refer to note 4.2.

As of 31 December 2019, the lease liability excludes DKK 2,760 million (undiscounted) of potential lease payments related to lease term extension rights on properties, which were not considered reasonably certain to be exercised.

Property, plant and equipment presented in the balance sheet includes the following right-of-use assets.

Right-of-use assets in the balance sheet
DKK million
Land and buildings

Other equipment

 
Total

 
 
 
 
 
 
 
2019
 
 
 
 
 
Balance at 1 January
3,291

487

 
3,778

 
Additions during the year
333

307

 
640

 
Depreciation for the year
(564
)
(288
)
 
(852
)
 
Other movements
(31
)
(3
)
 
(34
)
 
 
 
 
 
 
 
Balance at 31 December
3,029

503

 
3,532

 
 
 
 
 
 
 


Amounts recognised in the income statement
DKK million
 
2019

 
 
 
 
 
Depreciation
 
852

 
Interest on lease liabilities
 
108

 
Variable lease expenses
 
113

 
Short-term leases
 
201

 
Lease of low value assets
 
63

 
 
 
 
 
Total amounts recognised in the income statement
 
1,337

 
 
 
 
 

The lease costs for 2018 were DKK 1,299 million.

Amounts recognised in the cash flow statement
DKK million
 
 
 
 
 
 
 
Total cash outflow for leases
 
1,295

 
 
 
 
 


Please refer to note 4.2 for a maturity analysis of lease payments.
Inventories


Accounting policies
Inventories are stated at cost or net realisable value, whichever is lower. Cost is determined using the first-in, first-out method. Cost comprises direct production costs such as raw materials, consumables and labour as well as indirect production costs. Production costs for work in progress and finished goods include indirect production costs such as employee costs, depreciation, maintenance, etc.

If the expected sales price less completion costs to execute sales (net realisable value) is lower than the carrying amount, a write-down is recognised for the amount by which the carrying amount exceeds its net realisable value.

Inventory manufactured prior to regulatory approval (prelaunch inventory) is capitalised but immediately provided for, until there is a high probability of regulatory approval for the product. A write-down is made against inventory, and the cost is recognised in the income statement as research and development costs. Once there is a high probability of regulatory approval being obtained, the write-down is reversed, up to no more than the original cost.

In March 2019, Novo Nordisk filed oral semaglutide for US regulatory approval of glycaemic control. Subsequent to filing, write-downs on prelaunch inventory was reversed with a net positive income statement effect of DKK 510 million on research and development costs. Regulatory approval was obtained in September 2019.

Key accounting estimate of indirect production costs capitalised and inventory write-downs
Indirect production costs account for approximately 50% of the net inventory value, reflecting a lengthy production process compared with low direct raw material costs. The production of both Diabetes and Obesity care and Biopharm products is highly complex from fermentation to purification and formulation, including quality control of all production processes. Furthermore, the process is very sensitive to manufacturing conditions. These factors all influence the parameters for capitalisation of indirect production costs at Novo Nordisk and the full cost of the products. Indirect production costs are measured using a standard cost method. This is reviewed regularly to ensure relevant measures of capacity utilisation, production lead time, cost base and other relevant factors, hence inventory is valued at actual cost. When calculating total inventory, Management must make judgements about cost of production, standard cost variances and idle capacity in estimating indirect production costs for capitalisation. Changes in the parameters for calculation of indirect production costs could have an impact on the gross margin and the overall valuation of inventories.

Inventories
DKK million
 
2019

 
2018

 
 
 
 
 
Raw materials
 
2,842

 
2,464

Work in progress
 
11,375

 
11,753

Finished goods
 
4,850

 
4,078

 
 
 
 
 
Total inventories (gross)
 
19,067

 
18,295

Write-downs at year-end
 
(1,426
)
 
(1,959
)
 
 
 
 
 
Total inventories (net)
 
17,641

 
16,336

 
 
 
 
 
Indirect production costs included in work in progress and finished goods
 
9,216

 
8,533

Share of total inventories (net)
 
52
%
 
52
%
 
 
 
 
 
Movements in inventory write-downs
 
 
 
 
Write-downs at the beginning of the year
 
1,959

 
2,219

Write-downs during the year
 
414

 
509

Utilisation of write-downs
 
(68
)
 
(409
)
Reversal of write-downs
 
(879
)
 
(360
)
 
 
 
 
 
Write-downs at the end of the year
 
1,426

 
1,959

 
 
 
 
 


All write-downs in both 2018 and 2019 relate to fully impaired inventory.
Trade receivables


Accounting policies
Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less allowance for doubtful trade receivables.
 
Before being sold, trade receivables in factoring portfolios are measured at fair value with changes recognised in other comprehensive income.

The allowance for doubtful receivables is deducted from the carrying amount of Trade receivables, and the amount of the loss is recognised in the income statement under Sales and distribution costs. Subsequent recoveries of amounts previously written off are credited against sales and distribution costs.
Novo Nordisk’s customer base comprises government agencies, wholesalers, retail pharmacies and other customers. Management makes allowance for doubtful trade receivables based on the simplified approach to provide for expected credit losses, which permits the use of the lifetime expected loss provision for all trade receivables. The allowance is an estimate based on shared credit risk characteristics and the days past due. Generally, invoices are due for payment within 90 days of shipment of goods.

Loss allowance is calculated using an ageing factor, geographical risk and specific customer knowledge. The allowance is based on a provision matrix on days past due and a forward looking element relating mainly to incorporation of the Dun & Bradstreet country risk rating and an individual assessment. Please refer to note 4.3 for a general description of credit risk.

Many of the countries within Region AAMEO have significant sales and low credit ratings. As such, this region has a relatively high impact on the allowance for doubtful trade receivables.

Novo Nordisk closely monitors the current economic conditions of countries impacted by currency fluctuations, high inflation and an unstable political climate. These indicators as well as payment history are taken into account in the valuation of trade receivables. Please refer to note 2.2 for a geographical split of trade receivables and allowance for doubtful trade receivables, and notes 4.3 and 4.8 for the trade receivable programmes.
Trade receivables
DKK million
2019
Gross carrying amount

Loss allowance

 
Net carrying amount

 




 


 
Not yet due
24,359

(763
)
 
23,596

 
1-90 days
1,204

(127
)
 
1,077

 
91-180 days
261

(69
)
 
192

 
181-270 days
96

(49
)
 
47

 
271-360 days
79

(79
)
 
—

 
More than 360 days past due
397

(397
)
 
—

 
 
 
 
 
 
 
Trade receivables
26,396

(1,484
)
 
24,912

 





 


 
 
 
 
 
 
 
DKK million
2018
Gross carrying amount

Loss allowance

 
Net carrying amount

 





 


 
Not yet due
22,359

(692
)
 
21,667

 
1-90 days
1,055

(111
)
 
944

 
91-180 days
235

(79
)
 
156

 
181-270 days
60

(41
)
 
19

 
271-360 days
76

(76
)
 
—

 
More than 360 days past due
371

(371
)
 
—

 
 
 
 
 
 
 
Trade receivables
24,156

(1,370
)
 
22,786

 
 
 
 
 
 
 
 
 
 
 
 
 
Movements in allowance for doubtful trade receivables
 
2019

 
2018

 
 
 
 
 
 
 
Carrying amount at the beginning of the year
 
1,370

 
1,294

 
Reversal of allowance on realised losses
 
(45
)
 
(25
)
 
Net movement recognised in income statement
 
158

 
164

 
Effect of exchange rate adjustment
 
1

 
(63
)
 
 
 
 
 
 
 
Allowance at the end of the year
 
1,484

 
1,370

 
 
 
 
 
 
 
Retirement benefit obligations


Accounting policies
Defined contribution plans
Novo Nordisk operates a number of defined contribution plans throughout the world. These plans are externally funded in entities that are legally separate from the Group. Novo Nordisk’s contributions to the defined contribution plans are charged to the income statement in the year to which they relate.

Defined benefit plans
In a few countries, Novo Nordisk operates defined benefit plans, primarily located in the US, Germany, Switzerland and Japan. In Germany and Switzerland, the defined benefit plans are partly reimbursed by international insurance companies. The risk related to the plan assets in these countries is therefore limited to counterparty risk against these insurance companies.

Recognition of defined benefit plans
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 valuation dates and is based on actuarial assumptions primarily regarding discount rates used in determining the present value of benefits and projected rates of remuneration growth. Discount rates are based on the market yields of high-rated corporate bonds in the country concerned.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. Past service costs are recognised immediately in the income statement.

Pension plan assets are only recognised to the extent that Novo Nordisk is able to derive future economic benefits such as refunds from the plan or reductions of future contributions.

Costs recognised for retirement benefits are included in cost of goods sold, sales and distribution costs, research and development costs, and administrative costs. The total cost recognised for the year amounts to DKK 151 million (DKK 73 million in 2018).

The net obligation recognised in the balance sheet is reported as non-current liabilities.
Net retirement benefit obligations
DKK million
2019


 
2018


 
 
 
 
Retirement benefit obligations
2,508

 
2,488

Fair value of plan assets
1,174

 
1,232

 
 
 
 
Net retirement benefit obligations at the end of the year
1,334

 
1,256

 
 
 
 


The present value of partly funded retirement benefit obligations amounts to DKK 1,845 million (DKK 1,841 million in 2018). The present value of unfunded retirement benefit obligations amounts to DKK 663 million (DKK 647 million in 2018).

Net remeasurement is a loss of DKK 187 million (gain of DKK 87 million in 2018), primarily related to changes in financial assumptions (discount rate), and is included in other comprehensive income.

Please refer to note 5.2 for a maturity analysis of the net retirement benefit obligation. Novo Nordisk does not expect the contributions over the next five years to differ significantly from current contributions.

Actuarial valuations are performed annually for all major defined benefit plans. Assumptions regarding future mortality are based on actuarial advice
in accordance with published statistics and experience in each country. Other assumptions such as medical cost trend rate and inflation are also considered in the calculation.

Significant actuarial assumptions for the determination of the retirement benefit obligation (not considering plan assets) are discount rate and expected future remuneration increases. The sensitivity analysis below has been determined based on reasonably likely changes in the assumptions occurring at the end of the period.

The sensitivities below consider the single change shown with the other assumptions assumed to be unchanged. The table shows the NPV impact of net retirement liabilities.
Key assumptions used for valuation and sensitivity analysis
DKK million
Key assumptions

1 %-point increase

1 %-point decrease

 
 
 
 
 
 
2019
 
 
 
 
Discount rate (decrease)/increase
1.3
%
(366
)
465

 
Future remuneration growth (decrease)/increase
2.4
%
105

(94
)
 
 
 
 
 
 
2018
 
 
 
 
Discount rate (decrease)/increase
2.1
%
(369
)
458

 
Future remuneration growth (decrease)/increase
2.5
%
99

(89
)
 
 
 
 
 
 
Provisions and contingent liabilities


Accounting policies
Provisions for sales rebates and discounts granted to government agencies, wholesalers, retail pharmacies, Managed Care and other customers are recorded at the time the related revenues are recorded or when the incentives are offered. Provisions are calculated based on historical experience and the specific terms in the individual agreements. Unsettled rebates are recognised as provisions when the timing or amount is uncertain. Where absolute amounts are known, the rebates are recognised as other liabilities. Please refer to note 2.1 for further information on sales rebates and provisions.

Provisions for legal disputes are recognised where a legal or constructive obligation has been incurred as a result of past events and it is probable that there will be an outflow of resources that can be reliably estimated. In this case, Novo Nordisk arrives at an estimate based on an evaluation of the most likely outcome. Disputes for which no reliable estimate can be made are disclosed as contingent liabilities.

Provisions are measured at the present value of the anticipated expenditure for settlement. This is calculated using a pre-tax discount rate that reflects current



market assessments of the time value of money and the risks specific to the obligation. The increase in the provision for interest is recognised as a financial expense.

Novo Nordisk issues credit notes for expired goods as a part of normal business. Where there is historical experience or a reasonably accurate estimate of expected future returns can otherwise be made, a provision for estimated product returns is recorded. The provision is measured at gross sales value.

Key accounting estimate regarding ongoing legal disputes, litigation and investigations
Provisions for legal disputes consist of various types of provision linked to ongoing legal disputes. Management makes estimates regarding provisions and contingencies, including the probability of pending and potential future litigation outcomes. These are by nature dependent on inherently uncertain future events. When determining likely outcomes of litigation, etc. Management considers the input of external counsels on each case, as well as known outcomes in case law.

Although Management believes that the total provisions for legal proceedings are adequate based on currently available information, there can be no assurance that there will not be any changes in facts or matters, or that any future lawsuits, claims, proceedings or investigations will not be material.
Provisions
DKK million
Provisions
for sales
rebates

Provisions
for legal
disputes

Provisions
for product
returns

Other
provisions1

 
2019
total

 
2018
total

 
 
 
 
 
 
 
 
 
At the beginning of the year
25,760

1,860

869

1,064

 
29,553

 
24,057

Additional provisions, including increases to existing provisions
102,782

650

679

510

 
104,621

 
83,337

Amount used during the year
(98,655
)
(4
)
(424
)
(161
)
 
(99,244
)
 
(79,243
)
Adjustments, including unused amounts reversed during the year
381

(156
)
(48
)
(29
)
 
148

 
314

Effect of exchange rate adjustment
610

25

6

14

 
655

 
1,088

 
 
 
 
 
 
 
 
 
At the end of the year
30,878

2,375

1,082

1,398

 
35,733

 
29,553

 
 
 
 
 
 
 
 
 
Non-current liabilities2
551

2,375

300

1,387

 
4,613

 
3,392

Current liabilities
30,327

—

782

11

 
31,120

 
26,161

 
 
 
 
 
 
 
 
 

1.
Other provisions consists of various types of provision, including obligations in relation to employee benefits such as jubilee benefits, company-owned life insurance, etc.
2.
For non-current liabilities, provision for sales rebates is expected to be settled after one year, provisions for product returns will be utilised in 2021 and 2022. In the case of provisions for legal disputes, the timing of settlement cannot be determined.



Contingent liabilities
Novo Nordisk is currently involved in pending litigations, claims and investigations arising out of the normal conduct of its business. While provisions that Management deems to be reasonable and appropriate have been made for probable losses, there are uncertainties connected with these estimates. Novo Nordisk does not expect the pending litigations, claims and investigations, individually and in the aggregate, to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow in addition to the amounts accrued as provision for legal disputes.

Pending litigation against Novo Nordisk
Novo Nordisk, along with the majority of incretin-based product manufacturers in the United States, is a defendant in product liability lawsuits related to use of incretin-based medications. As of 3 February 2020, 332 plaintiffs have named Novo Nordisk in product liability lawsuits, predominantly claiming damages for pancreatic cancer that allegedly developed as a result of using Victoza® and other GLP-1/DPP-IV incretin-based products. 209 of the Novo Nordisk plaintiffs have also named other defendants in their lawsuits. Most Novo Nordisk plaintiffs have filed suit in California federal and state courts. Novo Nordisk does not currently have any individual trials scheduled in 2020. Novo Nordisk does not expect the pending claims to have a material impact on its financial position, operating profit or cash flow.


Since January 2017, several class action lawsuits have been filed against Novo Nordisk, former CEO Lars Rebien Sørensen, former CFO Jesper Brandgaard and former President of Novo Nordisk Inc. Jakob Riis in the United States District Court for the District of New Jersey on behalf of all purchasers of Novo Nordisk American Depositary Receipts between February 2015 and February 2017. All lawsuits have been consolidated into one case. The lawsuit alleges that Novo Nordisk artificially inflated its financial results, failed to disclose pricing pressure and rising rebate payments to PBMs, and made other materially misleading
3.7 Provisions and contingent liabilities (continued)


statements to potential investors. Novo Nordisk does not expect the litigation to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.

In August 2019, a securities lawsuit was filed against Novo Nordisk in Denmark by a number of institutional shareholders. The claim is for a total amount of DKK 11.6 billion based on trading and holding of shares in Novo Nordisk during the period between February 2015 and February 2017. The lawsuit alleges that Novo Nordisk made misleading statements and did not make appropriate disclosures regarding its sales of insulin products in the US. It appears to contain broadly similar allegations to those of the previously disclosed securities class action lawsuit filed in the US in 2017 on behalf of all purchasers of Novo Nordisk American Depository Receipts. Novo Nordisk does not expect the lawsuit to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.

Since January 2017, thirteen lawsuits, including several putative class actions, have been filed in various federal and state courts against Novo Nordisk Inc., Sanofi, Eli Lilly, and others relating to the pricing of diabetes medicines. Six of these lawsuits were consolidated into one matter pending in the United States District Court for the District of New Jersey, yet one of these six lawsuits was later deconsolidated and voluntarily dismissed without prejudice. Additionally, two of the thirteen lawsuits were also voluntarily dismissed in 2019 and 2020. Accordingly, six lawsuits remain pending against Novo Nordisk in various jurisdictions. Three lawsuits are pending in the same New Jersey federal court as the consolidated matter referenced above, while two other lawsuits are pending in other jurisdictions (Kentucky state court and Texas federal court). All pending matters allege that the manufacturers and Pharmacy Benefit Managers (PBMs) colluded to artificially inflate list prices paid by consumers for diabetes products, while offering reduced prices to PBMs through rebates used to secure formulary access. Novo Nordisk does not expect the lawsuits to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.

Pending claims against Novo Nordisk and investigations
involving Novo Nordisk
Several authorities in the US have served Novo Nordisk with Civil Investigative Demands (CIDs) or subpoenas calling for the production of documents and information. Below is a list of ongoing matters:

•
United States Department of Justice CID (2016) and Washington State Attorney General’s Office CID (2014 and 2016) both relating to, among other things, the promotion and marketing of NovoSeven®, interactions with physicians and patients, and the use of haemophilia-related patient support programmes.
•
Washington Attorney General’s Office CID (2017), relating to, among other things, pricing and trade practices for insulin products, including Levemir®, NovoLog®, and Novolin®, from 1 January 2005 through the present date.
•
New Mexico Attorney General’s Office CID (2017), relating to, among other things, trade practice and pricing of insulin products, namely NovoLog® and Novolin® from 1 January 2012 through the present date.
•
Texas Attorney General’s Office CID (2019), relating to, among other things, marketing and promotional practices for Ozempic®.
•
New York State Attorney General’s Office Subpoena (2019), relating to, among other things, pricing and trade practices for insulin products, from 1 July 2013 through the present.
•
Colorado Attorney General’s Office CID (2019), relating to, among other things, pricing and trade practices for insulin products, for the period from 1 January 2010 to present.

In all matters Novo Nordisk is cooperating with the authority in question. Novo Nordisk does not expect the above investigations to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.

Novo Nordisk is one of several pharmaceutical companies that received requests for information involving pricing practices for its diabetes products from several committees of the Unites States House of Representatives and/or United States Senate. Novo Nordisk is working with the staff of the various committees to respond to their questions. Novo Nordisk does not expect the inquiries to have a material impact on Novo Nordisk’s financial position, operating profit or cash flow.

Other contingent liabilities
In addition to the above, the Novo Nordisk Group is engaged in certain litigation proceedings and various ongoing audits and investigations. In the opinion of Management, neither settlement or continuation of such proceedings, nor such pending audits and investigations, are expected to have a material effect on Novo Nordisk’s financial position, operating profit or cash flow.
Other liabilities


Other liabilities primarily comprises employee cost payables, payables related to non-current assets and sales rebates.