Other net sales disclosures

In 2020, Novo Nordisk had three major wholesalers distributing products in the US, representing 19%, 13% and 12% respectively of total net sales (19%, 14% and 12% in 2019 and 20%, 13% and 13% in 2018). Sales to these three wholesalers are within both Diabetes and Obesity care and Biopharm.

Net sales to be recognised from fulfilling existing customer contracts containing fixed or minimum sales volumes, with an original term greater than 12 months, are expected to be DKK 431 million within 12 months (DKK 544 million in 2019) and DKK 216 million thereafter (DKK 32 million in 2019).

Novo Nordisk's sales are impacted by exchange rate changes. Refer to note 4.2 for development in key exchange rates.

Accounting policies

Revenue from sale of goods is recognised when Novo Nordisk has transferred control of products sold to the buyer and it is probable that Novo Nordisk will collect the consideration to which it is entitled for transferring the products. Control of the products is transferred at a point in time, typically on delivery. The amount of sales to be recognised is based on the consideration Novo Nordisk expects to receive in exchange for its goods. When sales are recognised, Novo Nordisk also records estimates for a variety of sales deductions, including product returns as well as rebates and discounts to government agencies, wholesalers, health insurance companies, managed healthcare organisations and retail customers. Sales deductions are recognised as a reduction of gross sales to arrive at net sales, by assessing the expected value of the sales deductions (variable consideration). Where contracts contain customer acceptance criteria, Novo Nordisk recognises sales when the acceptance criteria are satisfied.

In some markets, Novo Nordisk sells products on a sale-or-return basis.

Where there is historical experience or a reasonably accurate estimate of future returns, estimated product returns are recorded as a reduction in sales. Where shipments of new products are made on a sale-or-return basis, without sufficient historical experience for estimating sales returns, revenue is recorded based on estimated demand and acceptance rates for well-established products with similar market characteristics. If similar market characteristics do not exist, revenue is recorded when there is evidence of consumption or when the right of return has expired.

Unsettled rebates are recognised as provisions when the timing or amount is uncertain (note 3.6).

Where absolute amounts are known, the rebates are recognised as other liabilities. Wholesaler charge-backs are netted against trade receivable balances.

The impact of foreign currency hedging is recognised in the income statement in financial items. Please refer to notes 4.2, 4.3 and 4.9 for more details on hedging.

Key accounting estimates of sales deductions and provisions for sales rebates

Sales deductions are estimated and provided for at the time the related sales are recorded. These estimates of unsettled rebate, discount and product return obligations require use of significant judgement, as not all conditions are known at the time of sale, for example total sales volume to a given customer.

The estimates are based on analyses of existing contractual obligations and historical experience. Provisions are calculated on the basis of a percentage of sales for each product as defined by the contracts with the various customer groups. Provisions for sales rebates are adjusted to actual amounts as rebates, discounts and returns are processed.

Novo Nordisk considers the provisions established for sales rebates to be reasonable and appropriate based on currently available information. However, the actual amount of rebates and discounts may differ from the amounts estimated by Management as more detailed information becomes available.


Business segments – Key figures
	Diabetes and Obesity care						Biopharm						Total
DKK million	2020		2019		2018		2020		2019		2018		2020		2019		2018
Total net sales	108,020		102,840		93,904		18,926		19,181		17,927		126,946		122,021		111,831
Cost of goods sold	17,715		16,309		14,716		3,217		3,779		2,901		20,932		20,088		17,617
Sales and distribution costs	29,903		28,729		26,396		3,025		3,094		3,001		32,928		31,823		29,397
Research and development costs	13,535		12,128		12,222		1,927		2,092		2,583		15,462		14,220		14,805
Administrative costs	3,387		3,346		3,266		571		661		650		3,958		4,007		3,916
Other operating income, net	264		309		538		196		291		614		460		600		1,152
Operating profit	43,744		42,637		37,842		10,382		9,846		9,406		54,126		52,483		47,248
Operating margin	40.5	%	41.5	%	40.3	%	54.9	%	51.3	%	52.5	%	42.6	%	43.0	%	42.2	%
Depreciation, amortisation and impairment losses expensed	4,624		3,916		3,210		1,129		1,745		715		5,753		5,661		3,925

Novo Nordisk operates in two business segments based on therapies: Diabetes and Obesity care and Biopharm, representing the entirety of the Group's operations.

The segments include research, development, manufacturing and marketing of products within the following areas

– Diabetes and Obesity care: insulin, GLP-1 and related delivery systems, oral antidiabetic products (OAD), obesity and other serious chronic diseases.

– Biopharm: haemophilia, growth disorders and hormone replacement therapy.

Segment performance is evaluated on the basis of operating profit, consistent with the consolidated financial statements. Financial income and expenses, and income taxes are managed at Group level and are not allocated to business segments. There are no sales or other transactions between the business segments. Costs have been split between business segments according to a specific allocation. In addition, a small number of corporate overhead costs are allocated systematically between the segments. Other operating income has been allocated to the two segments based on the same principle.

Accounting policies

Operating segments are reported in a manner consistent with the internal reporting provided to Executive Management and the Board of Directors. We consider Executive Management to be the operating decision-making body, as all significant decisions regarding business development and direction are taken in this forum.

Geographical areas

Sales to external customers attributed to the US are collectively the most material to the Group. The US and Mainland China are the only territories where sales contribute 10% or more of total net sales.

In 2020 Novo Nordisk operated in two main commercial units:

– International Operations

– EMEA: Europe, the Middle East and Africa.

– China: Mainland China, Hong Kong and Taiwan.

– Rest of World: All other countries except for North America.

– North America Operations (the US and Canada)

International Operations was reorganised with effect from 1 April 2020, and the geographical reporting has been amended to reflect the new organisation. Amounts for 2018 and 2019 have been restated. Refer to note 5.6 for an overview of companies in the Novo Nordisk Group based on geographical areas.

The country of domicile is Denmark, which is part of EMEA. Denmark is immaterial to Novo Nordisk’s activities in terms of sales as 99.7 % of total sales are realised outside Denmark. Sales are attributed to geographical areas according to the location of the customer.


Net sales – Business segments and geographical areas
	Total International Operations																								Total North America Operations												Total Novo Nordisk net sales
	Total IO						EMEA						China						Rest of World						Total NAO						Of which the US
DKK million	2020		2019		2018		2020		2019		2018		2020		2019		2018		2020		2019		2018		2020		2019		2018		2020		2019		2018		2020		2019		2018
Diabetes and Obesity care segment:
Long-acting insulin	9,959		9,035		7,942		6,451		5,955		5,289		1,471		1,059		814		2,037		2,021		1,839		8,480		11,741		12,902		7,962		11,271		12,600		18,439		20,776		20,844
– of which Tresiba®	4,407		3,477		2,764		2,574		1,983		1,479		418		87		16		1,415		1,407		1,269		4,561		5,782		5,271		4,191		5,500		5,192		8,968		9,259		8,035
– of which Xultophy®	1,789		1,493		1,085		1,605		1,407		1,060		1		—		—		183		86		25		655		717		529		642		708		528		2,444		2,210		1,614
– of which Levemir®	3,763		4,065		4,093		2,272		2,565		2,750		1,052		972		798		439		528		545		3,264		5,242		7,102		3,129		5,063		6,880		7,027		9,307		11,195
Premix insulin	10,246		9,707		8,862		2,959		3,160		3,034		4,852		4,306		3,783		2,435		2,241		2,045		679		871		1,332		652		839		1,294		10,925		10,578		10,194
– of which Ryzodeg®	1,291		993		714		321		237		152		39		4		—		931		752		562		—		—		—		—		—		—		1,291		993		714
– of which NovoMix®/NovoLog Mix®	8,955		8,714		8,148		2,638		2,923		2,882		4,813		4,302		3,783		1,504		1,489		1,483		679		871		1,332		652		839		1,294		9,634		9,585		9,480
Fast-acting insulin	10,808		10,304		9,332		6,584		6,422		5,931		2,075		1,753		1,450		2,149		2,129		1,951		7,505		8,999		10,021		7,101		8,592		9,634		18,313		19,303		19,353
– of which Fiasp®	832		617		357		764		585		357		—		—		—		68		32		—		553		626		233		519		597		211		1,385		1,243		590
– of which NovoRapid®/NovoLog®	9,976		9,687		8,975		5,820		5,837		5,574		2,075		1,753		1,450		2,081		2,097		1,951		6,952		8,373		9,788		6,582		7,995		9,423		16,928		18,060		18,763
Human insulin	7,339		7,361		7,348		2,370		2,438		2,592		2,655		2,847		2,821		2,314		2,076		1,935		1,534		1,675		1,917		1,431		1,552		1,778		8,873		9,036		9,265
Total insulin	38,352		36,407		33,484		18,364		17,975		16,846		11,053		9,965		8,868		8,935		8,467		7,770		18,198		23,286		26,172		17,146		22,254		25,306		56,550		59,693		59,656
Victoza®	7,095		7,249		6,240		4,251		4,713		4,337		1,033		898		521		1,811		1,638		1,382		11,652		14,685		18,093		11,292		14,217		17,561		18,747		21,934		24,333
Ozempic®	3,634		1,143		39		3,112		969		39		10		—		—		512		174		—		17,577		10,094		1,757		16,650		9,599		1,634		21,211		11,237		1,796
Rybelsus®	36		—		—		36		—		—		—		—		—		—		—		—		1,837		50		—		1,826		50		—		1,873		50		—
Total GLP-1	10,765		8,392		6,279		7,399		5,682		4,376		1,043		898		521		2,323		1,812		1,382		31,066		24,829		19,850		29,768		23,866		19,195		41,831		33,221		26,129
Other Diabetes care	2,946		3,389		3,360		725		1,052		1,064		1,546		1,647		1,672		675		690		624		1,085		858		890		943		705		733		4,031		4,247		4,250
Total Diabetes care	52,063		48,188		43,123		26,488		24,709		22,286		13,642		12,510		11,061		11,933		10,969		9,776		50,349		48,973		46,912		47,857		46,825		45,234		102,412		97,161		90,035
Obesity care (Saxenda®)	2,118		2,083		1,211		1,124		981		547		10		9		1		984		1,093		663		3,490		3,596		2,658		3,230		3,348		2,446		5,608		5,679		3,869
Diabetes and Obesity care total	54,181		50,271		44,334		27,612		25,690		22,833		13,652		12,519		11,062		12,917		12,062		10,439		53,839		52,569		49,570		51,087		50,173		47,680		108,020		102,840		93,904
Biopharm segment:
Haemophilia	5,708		5,946		5,572		3,579		3,646		3,604		361		284		199		1,768		2,016		1,769		3,954		4,335		4,004		3,675		4,031		3,723		9,662		10,281		9,576
– of which NovoSeven®	3,996		4,502		4,424		2,352		2,577		2,694		345		269		194		1,299		1,656		1,536		3,207		3,617		3,457		3,089		3,454		3,278		7,203		8,119		7,881
– of which NovoEight®	1,127		1,143		1,046		790		844		836		16		15		5		321		284		205		335		382		308		312		358		291		1,462		1,525		1,354
Growth disorders (Norditropin®)	4,832		4,225		4,000		2,220		1,960		1,972		66		36		20		2,546		2,229		2,008		2,872		3,050		2,834		2,854		3,035		2,823		7,704		7,275		6,834
Other Biopharm	1,108		1,122		1,017		886		912		817		5		5		4		217		205		196		452		503		500		208		247		262		1,560		1,625		1,517
Biopharm total	11,648		11,293		10,589		6,685		6,518		6,393		432		325		223		4,531		4,450		3,973		7,278		7,888		7,338		6,737		7,313		6,808		18,926		19,181		17,927
Total sales by geographical area	65,829		61,564		54,923		34,297		32,208		29,226		14,084		12,844		11,285		17,448		16,512		14,412		61,117		60,457		56,908		57,824		57,486		54,488		126,946		122,021		111,831
Total sales growth as reported	6.9	%	12.1	%	2.3	%	6.5	%	10.2	%	2.5	%	9.7	%	13.8	%	5.4	%	5.7	%	14.6	%	(0.3	%)	1.1	%	6.2	%	(1.9	%)	0.6	%	5.5	%	(2.4	%)	4.0	%	9.1	%	0.1	%

Research and development costs


DKK million	2020		2019		2018
Employee costs (note 2.4)	6,269		5,968		6,288
Amortisation and impairment losses, intangible assets (note 3.1)	1,025		522		769
Depreciation and impairment losses, property, plant and equipment (note 3.1)	724		783		468
Other research and development costs	7,444		6,947		7,280
Total research and development costs	15,462		14,220		14,805
As percentage of net sales	12.2	%	11.7	%	13.2	%

Novo Nordisk’s research and development is mainly focused on:

– Insulins, GLP-1s and other therapeutic new antidiabetic drugs for diabetes treatment.

– GLP-1s, combinations and new modes of action for Obesity care.

– Blood-clotting factors and new modes of action for treatment of haemophilia and other rare blood disorders.

– Human growth hormone and new modes of action for treatment of growth disorders and other rare endocrine disorders.

– New modes of action including GLP-1 and stem cells for treatment of NASH, cardiovascular disease, Alzheimer's disease, chronic kidney disease and Parkinson's disease, among others.

The research activities mainly utilise biotechnological methods based on advanced protein chemistry and protein engineering. These methods have played a key role in the development of the production technology used to manufacture insulin, GLP-1, recombinant blood-clotting factors and human growth hormone. Research activities further focus on new technology platforms including stem cells and developing RNAi therapies for liver-related cardio-metabolic diseases.

Research and development activities are carried out by Novo Nordisk’s research and development centres, mainly in Denmark, the US, the UK and China. Clinical trials are carried out all over the world. Novo Nordisk also enters into partnerships and licence agreements.

Accounting policies

Novo Nordisk expenses all research costs. In line with industry practice, internal and subcontracted development costs are also expensed as they are incurred, due to significant regulatory uncertainties and other uncertainties inherent in the development of new products. This means that they do not qualify for capitalisation as intangible assets until marketing approval by a regulatory authority is obtained or considered highly probable. Costs for post-approval activities that are required by authorities as a condition for obtaining regulatory approval are recognised as research and development costs.

Research and development costs primarily comprise employee costs, and internal and external costs related to execution of studies, including manufacturing costs and facility costs of the research centres. The costs also comprise amortisation, depreciation and impairment losses related to software and property, plant and equipment used in the research and development activities. Impairment losses recognised on intangible assets not yet available for use related to research and development projects are presented in research and development costs.

Certain research and development activities are recognised outside research and development costs:

– Royalty expenses paid to partners after regulatory approval are expensed as cost of goods sold.

– Royalty income received from partners is recognised as part of other operating income, net.

– Contractual research and development obligations to be paid in the future are disclosed separately as commitments in note 5.2.

Employee costs


DKK million	2020	2019	2018
Wages and salaries	26,778	25,335	25,259
Share-based payment costs (note 5.1)	823	363	414
Pensions – defined contribution plans	1,961	1,910	1,791
Pensions – defined benefit plans (note 3.5)	138	151	73
Other social security contributions	1,862	1,963	1,901
Other employee costs	2,044	2,203	2,087
Total employee costs for the year	33,606	31,925	31,525
Employee costs capitalised as intangible assets and property, plant and equipment	(1,279)	(1,314)	(1,500)
Change in employee costs capitalised as inventories	(60)	(139)	(105)
Total employee costs in the income statement	32,267	30,472	29,920
Included in the income statement:
Cost of goods sold	8,896	8,134	8,164
Sales and distribution costs	14,146	13,463	12,214
Research and development costs	6,269	5,968	6,288
Administrative costs	2,848	2,679	2,755
Other operating income, net	108	228	499
Total employee costs in the income statement	32,267	30,472	29,920


Number of employees	2020	2019	2018
Average number of full-time employees	43,759	42,218	42,881
Year-end number of full-time employees	44,723	42,703	42,672
Employees (total)	45,323	43,258	43,202


Remuneration to Executive Management and Board of Directors
DKK million	2020	2019	2018
Salary and short-term incentive	119	120	102
Pension	26	26	22
Benefits	10	14	4
Long-term incentive1	52	40	22
Severance payments	—	—	28
Executive Management in total2	207	200	178
Fee to Board of Directors2	17	19	17
Total	224	219	195
1. Please refer to note 5.1 for further information. 2. Total remuneration for registered members of Executive Management amounts to DKK 141 million (DKK 135 million in 2019 and DKK 142 million in 2018). All members of the Board of Directors are registered.

Accounting policies

Wages, salaries, social security contributions, annual leave and sick leave, bonuses and non-monetary benefits are recognised in the year in which the associated services are rendered by employees of Novo Nordisk. Where Novo Nordisk provides long-term employee benefits, the costs are accrued to match the rendering of the services by the employees concerned.

Other operating income, net

Accounting policies

Other operating income, net, comprises licence income and income of a secondary nature in relation to the main activities of Novo Nordisk. Licence income from royalties on net sales is recognised as the underlying customers' sale occurs and from sales milestones once the contingent sale milestone is achieved in accordance with the terms of the relevant agreement. Income from the transfer of the right to use intellectual property may contain development or regulatory milestones (variable consideration) on which the income is recognised when the significant uncertainties in achieving the milestones are resolved, due to the significant uncertainties inherent in the development of pharmaceutical products. Operating profit from the wholly owned subsidiary NNE A/S, not related to Novo Nordisk’s main activities, is recognised as other operating income. Other operating income also includes income from sale of intellectual property rights.

Income taxes and deferred income taxes


Income taxes expensed
DKK million	2020	2019	2018
Current tax on profit for the year	11,557	11,275	10,469
Deferred tax on profit for the year	1,105	(1,559)	(1,007)
Tax on profit for the year	12,662	9,716	9,462
Current tax adjustments recognised for prior years	(563)	(191)	(522)
Deferred tax adjustments recognised for prior years	(1,107)	77	47
Income taxes in the income statement	10,992	9,602	8,987
Tax on other comprehensive income for the year, (income)/expense	577	231	(755)


Computation of effective tax rate
DKK million	2020		2019		2018
Statutory corporate income tax rate in Denmark	22.0	%	22.0	%	22.0	%
Deviation in foreign subsidiaries’ tax rates compared to the Danish tax rate (net)	(2.5	%)	(2.1	%)	(1.9	%)
Non-taxable income less non-tax-deductible expenses (net)	(0.2	%)	0.1	%	(0.2	%)
Other adjustments (net)	1.4	%	(0.2	%)	(1.0	%)
Effective tax rate	20.7	%	19.8	%	18.9	%

The deviation in foreign subsidiaries' tax rates from the Danish tax rate is mainly driven by Swiss business activities.

Other adjustments in 2020 comprise of tax related to acquisitions and subsequent transfers of intellectual property rights (around 4%) countered by clarification of tax uncertainties, settlement of tax cases and adjustment of prior years.


Income taxes paid
DKK million	2020	2019	2018
Income taxes paid in Denmark for current year	4,262	7,774	6,640
Income taxes paid outside Denmark for current year	4,508	2,258	2,376
Income taxes paid/repayments relating to prior years	1,336	904	598
Income taxes paid	10,106	10,936	9,614

In 2020, income taxes paid in Denmark and paid outside Denmark are impacted by transfers of intellectual property rights related to acquisitions.

Swiss tax reform

In 2019, a tax reform was passed in Switzerland. The tax reform has a minor positive impact on the effective tax rate, driven by a non-recurring increase to deferred tax assets.

Accounting policies

The tax expense for the period comprises current and deferred tax. It also includes adjustments to previous years and changes in provisions for uncertain tax positions. Tax is recognised in the income statement except to the extent that it relates to items recognised in equity or other comprehensive income.

Provisions for ongoing tax disputes are included as part of deferred tax assets, tax receivables and tax payables.

Deferred income taxes arise from temporary differences between the accounting and tax values of the individual consolidated companies and from realisable tax loss carry-forwards. The tax value of tax loss carry-forwards is included in deferred tax assets to the extent that these are expected to be utilised in future taxable income. The deferred income taxes are measured according to current tax rules and at the tax rates assumed in the year in which the assets are expected to be utilised.

In general, the Danish tax rules related to dividends from group companies provide exemption from tax for most repatriated profits. A provision for withholding tax is only recognised if a concrete distribution of dividends is planned. The unrecognised potential withholding tax amounts to DKK 337 million (DKK 315 million in 2019).

The value of future tax deductions in relation to share programmes is recognised as deferred tax, until the shares are paid out to the employees. Any estimated excess tax deduction compared to the costs realised in the income statement is charged to equity.

Management judgement regarding recognition of deferred income tax assets and provisions for uncertain tax positions

Novo Nordisk is subject to income taxes around the world. Significant judgement and estimates are required in determining the worldwide accrual for income taxes, deferred income tax assets and liabilities, and provisions for uncertain tax positions.

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 and applied its judgement in assessing whether deferred income tax assets should be recognised.

In the course of conducting business globally, tax and transfer pricing disputes with tax authorities may occur. Management judgement is applied to assess the possible outcome of such disputes. The 'most probable outcome' method is applied when making provisions for uncertain tax positions, and Novo Nordisk considers the provisions made to be adequate. However, the actual obligation may deviate and depends on the result of litigation and settlements with the relevant tax authorities.


Development in deferred income tax assets and liabilities
DKK million	Property, plant and equipment	Intangible assets	Inventories	Liabilities	Other	Offset within countries	Total
2020
Net deferred tax asset/(liability) at 1 January	(1,591)	(718)	1,811	3,452	1,087	—	4,041
Income/(charge) to the income statement	(47)	(2,883)	963	1,449	520		2
Income/(charge) to other comprehensive income	—	92	(216)	16	(469)		(577)
Income/(charge) to equity	—	(92)	—	—	20		(72)
Acquisition of subsidiaries	—	—	—	—	276		276
Effect of exchange rate adjustment	24	1	(2)	(300)	(30)		(307)
Net deferred tax asset/(liability) at 31 December	(1,614)	(3,600)	2,556	4,617	1,404	—	3,363
Classified as follows:
Deferred tax asset at 31 December	755	46	2,568	4,895	2,903	(5,302)	5,865
Deferred tax liability at 31 December	(2,369)	(3,646)	(12)	(278)	(1,499)	5,302	(2,502)

2019
Net deferred tax asset/(liability) at 1 January	(703)	(564)	973	2,402	667	—	2,775
Change in accounting policy, leases	(865)	—	—	865	—		—
Income/(charge) to the income statement	(5)	(155)	820	133	689		1,482
Income/(charge) to other comprehensive income	—	—	18	47	(296)		(231)
Income/(charge) to equity	—	—	—	—	18		18
Disposal of subsidiaries	—	—	—	(18)	—		(18)
Effect of exchange rate adjustment	(18)	1	—	23	9		15
Net deferred tax asset/(liability) at 31 December	(1,591)	(718)	1,811	3,452	1,087	—	4,041
Classified as follows:
Deferred tax asset at 31 December	769	58	3,428	3,580	1,843	(5,557)	4,121
Deferred tax liability at 31 December	(2,360)	(776)	(1,617)	(128)	(756)	5,557	(80)

The total tax value of unrecognised tax loss carry-forwards amounts to DKK 628 million in 2020 (DKK 144 million in 2019).