Novo-Nordisk As (NVO-NYSE) Analyst Note

February 03, 2015 Novo-Nordisk As (NVO-NYSE) Analyst Note NEUTRAL Current Recommendation Prior Recommendation Outperform Date of Last Change 02/10/2014 Current Price (02/02/15) $44.73 Target Price $47.00 SUMMARY Novo Nordisk reported fourth-quarter 2014 earnings of $0.42 per ADR, higher than the year-ago earnings of $0.41. Revenues increased 4.2% to $4.1 billion, driven by solid sales of Victoza and Levemir. In 2014, earnings per share increased to $1.79 from $1.67 per share in the previous year, while revenues of $15.8 billion were up 6.4%. However, Mylan s generic version of Prandin affected sales. Meanwhile, the launch of Xultophy in the EU and Saxenda s approval in the U.S. are important for the company. In 2015, Victoza will continue to drive growth with new launches expected to support the topline. In 2015, the company expects sales growth in the range of 6% 9%. Hence, we maintain a Neutral recommendation on Novo Nordisk. SUMMARY DATA 52-Week High $49.03 52-Week Low $38.43 One-Year Return (%) 14.51 Beta 0.97 Average Daily Volume (ADRs) 1,392,209 ADR Outstanding (mil) 2,750 Market Capitalization ($mil) $123,008 Short Interest Ratio (days) 3.82 Institutional Ownership (%) 7 Insider Ownership (%) N/A Annual Cash Dividend $0.61 Dividend Yield (%) 1.36 5-Yr. Historical Growth Rates Sales (%) 10.2 Earnings Per ADR (%) 22.6 Dividend (%) 30.6 using TTM EPADR 29.4 using 2015 Estimate 24.4 using 2016 Estimate 20.5 Zacks Rank *: Short Term 1 3 months outlook 4 - Sell * Definition / Disclosure on last page Risk Level * Below Avg Type of Stock Large-Growth Industry Large Cap Pharma Zacks Industry Rank * 86 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 3,513 A 3,837 A 3,780 A 4,165 A 15,295 A 2014 3,785 A 3,877 A 3,803 A 2,012 A 13,477 A 2015 4,253 E 4,356 E 4,274 E 3,253 E 16,136 E 2016 17,496 E Earnings Per ADR Estimates (EPADR is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.39 A $0.45 A $0.44 A $0.43 A $1.71 A 2014 $0.45 A $0.48 A $0.42 A $0.17 A $1.52 A 2015 $0.51 E $0.54 E $0.47 E $0.31 E $1.83 E 2016 $2.18 E 1 Share = 1 ADR Projected EPS Growth - Next 5 Years % 12 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 111 North Canal Street, Chicago IL 60606

RECENT NEWS Novo Nordisk s Earnings Rise Y/Y, Provides 2015 Outlook Jan 30, 2015 Novo Nordisk reported fourth-quarter 2014 earnings of $0.42 per American Depository Receipt (ADR), up 1.7% from the year-ago period. Revenues increased 4.2% year over year to $4.1 billion. The top-line was mainly driven by strong sales of Victoza and modern insulin including Levemir. All growth rates mentioned below are on a year-over-year and local currency basis. The Quarter in Detail Total revenue grew 10% in local currency driven by sales growth in North America (up 11%), international operations (up 20%) and China (10%). Although North America was a major contributor from the geographical perspective, partial loss of reimbursement with a large pharmacy benefit manager in North America and expanded Medicaid and Medicare Part D utilization negatively affected growth. Novo Nordisk s diabetes care segment recorded sales growth of 9%. Modern insulin generated strong revenues (up 6%) driven by NovoRapid (up 4%) and Levemir (13%) and NovoMix (flat year-over-year). The company s key drug, Victoza, witnessed sales growth of 19%. Sales in the biopharmaceuticals segment increased 12%. Norditropin s sales were up 10% while NovoSeven s sales increased 9%. Other products witnessed 31% sales growth. Research and development expenses increased 6% due to diabetes pipeline development. Sales and distribution costs remained flat year over year while administration costs decreased by 2%. Full Year Results In 2014, earnings per share increased 7.8% year over year to $1.79 per share. The company generated revenues of $15.8 billion, up 6.4% from the previous year. 2015 Outlook Novo Nordisk expects sales growth in 2015 in the range of 6% 9%. The company expects strong performance of modern insulin as well as Victoza and Tresiba. New launches like Saxenda and Xultophy are also expected to contribute to the top line. However, Novo Nordisk expects sales to be affected by increase in rebate levels in the U.S. and intensifying competition in the diabetes and biopharmaceuticals markets coupled with macroeconomic factors in a number of markets in International Operations. Novo Nordisk expects operating profit growth around 10% in local currencies. Pipeline Update Novo Nordisk is working on strengthening its pipeline. In Dec 2014, Novo Nordisk completed the phase IIIb DUAL V study on its diabetes product, Xultophy. Xultophy was launched in Switzerland in Jan 2015 following its approval in Sep 2014. Novo Nordisk s obesity drug, Saxenda, received FDA approval for the treatment of obesity in Dec 2014. The company is preparing for the U.S. launch of the drug in the first half of 2015. Additionally, Novo Equity Research NVO Page 2

Nordisk expects to receive marketing authorization for the product from the European Commission in the March-April timeframe. Notably, the European Medicines Agency s Committee for Medicinal Products for Human Use recommended Saxenda for the treatment of obesity In Jan 2015. Meanwhile, the company completed patient enrolment in the cardiovascular outcomes study (DEVOTE) on Tresiba and accumulated the required number of major adverse cardiovascular events (MACEs) for conducting a pre-specified interim analysis. The company said that it will decide during the first half of 2015 whether to submit the result of this interim analysis to the FDA or to wait for the completion of the DEVOTE study. The full study is expected to be completed in the second half of 2016. Additionally, in Dec 2014, Novo Nordisk initiated the sixth and final pivotal study (SUSTAIN 5) in the global phase IIIa program on semaglutide as a treatment for type II diabetes. The study will investigate the efficacy and safety of semaglutide as an add-on to basal insulin compared to placebo. VALUATION Novo Nordisk reported fourth-quarter 2014 earnings of $0.42 per ADR, higher than the year-ago earnings of $0.41. Revenues increased 4.2% to $4.1 billion, driven by solid sales of Victoza and Levemir. In 2014, earnings per share increased 7.8% year over year to $1.79 per share and revenues of $15.8 billion were up 6.4%. However, revenue growth was impacted by loss due to increased rebate levels in the U.S. and intensifying competition in the diabetes and biopharmaceuticals markets. Mylan s generic version of Prandin has also affected sales. On the other hand, the launch of Xultophy in the EU and Saxenda s approval in the U.S. are important for the company. In 2015, new launches are expected to support topline growth. Meanwhile, we are pleased with the progress of the cardiovascular outcomes study (DEVOTE) on Tresiba. In 2015, the company expects sales in the range of 6% 9%. Hence, we maintain a Neutral recommendation on Novo Nordisk. Novo Nordisk s current trailing 12-month earnings multiple is 29.4, compared to the industry average of 20.8x and the S&P s 18.3. Over the last five years, shares of Novo Nordisk have traded in a range of 18.7x to 28.3x trailing 12-month earnings. Our $47.00 price target is based on 25.7x our 2015 EPS estimate. Equity Research NVO Page 3

Key Indicators F1 F2 Est. 5-Yr EPS Gr% P/CF 5-Yr High 5-Yr Low Novo Nordisk A/S (NVO) 24.4 20.5 12.4 24.0 29.4 28.3 18.7 Industry Average 19.4 17.1 7.9 16.8 20.8 29.0 10.0 S&P 500 15.9 14.9 10.7 15.0 18.3 19.4 12.0 Bristol-Myers Squibb (BMY) 36.8 27.2 15.6 26.3 32.6 31.9 11.0 Eli Lilly and Company (LLY) 22.9 19.9 8.8 13.6 25.8 24.7 7.3 Allergan, Inc. (AGN) 25.7 21.7 18.4 40.1 37.7 36.8 19.1 H. Lundbeck A/S (HLUYY) N/M N/M N/M 25.5 24.7 N/M 8.6 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Novo Nordisk A/S (NVO) 17.3 20.3 6.2 68.6 0.0 1.4 18.7 Industry Average 7.1 7.1 7.1 33.3 0.6 2.6 15.2 S&P 500 5.1 9.8 3.2 24.8 N/A 2.0 N/A Equity Research NVO Page 4

Earnings Surprise and Estimate Revision History NOTE: THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. Equity Research NVO Page 5

OVERVIEW Denmark-based Novo Nordisk is a global healthcare company and a leader in the worldwide diabetes market. The company is also a key player in hemophilia care, growth hormone therapy and hormone replacement therapy. The company markets its products in more than 180 countries. Novo Nordisk operates through two segments: Diabetes Care and Biopharmaceuticals. While the Diabetes Care segment covers insulins, glucagon-like peptide 1 (GLP-1), other protein-related products, obesity and oral anti-diabetic drugs, the Biopharmaceuticals segment includes hemophilia, growth hormone therapy, hormone replacement therapy and inflammation. Novo Nordisk s most well-known drugs include Levemir, NovoRapid, Victoza, NovoMix 30, NovoMix 50, NovoMix 70, NovoSeven, NovoThirteen and Norditropin. Novo Nordisk has operations in North America, Europe, China, Japan & Korea and International markets. Novo Nordisk reported 2013 revenues of DKK 83.6 billion (up 17% year over year). This includes Diabetes Care and Biopharmaceuticals revenues of DKK 65.4 billion (up 12%) and DKK 18.1 billion (up 12%), respectively. Equity Research NVO Page 6

REASONS TO BUY Strong Foothold in the Diabetes Market: Novo Nordisk has a strong presence in the Diabetes Care market. The company has one of the broadest diabetes portfolios in the industry. The Diabetes Care segment recorded growth of 9% in the first nine months of 2014 with sales coming in at DKK 50.7 billion. The improved results were driven by strong revenues from Victoza, Levemir and modern insulins. Victoza witnessed sales growth of 15% in the first nine months of 2014. Within the segment, modern insulins generated strong revenues (up 13%) driven by NovoRapid (up 6%) and Levemir (up 29%). The company stated that it enjoys a 47% share in the insulin volume market and a 46% share in the modern insulin volume market, as of Sep 2014. The diabetes market, while crowded, represents significant commercial potential growing at an annual rate of over 11% in the last decade. As per the International Diabetes Federation, nearly 600 million people are expected to be diagnosed with diabetes by 2035, up from 382 million diabetes patients in 2013. At the end of Sep 2014, Victoza is a market leader in the GLP-1 segment with a 72% market share compared to 70% in 2013. Tresiba was launched in Japan in Feb 2013. We expect the company s diabetes products to continue performing well and contribute to growth. Deep Pipeline: Novo Nordisk has a strong pipeline with its focus on therapeutic proteins within insulin, GLP-1, blood clotting factors and human growth hormone. We are encouraged by the company s efforts to develop new treatments for diabetes, which is its core area of expertise. Candidate Indication Status Xultophy (brand name of IDegLira Semaglutide Saxenda (Liraglutide 3mg) N8-GP N9-GP Type II diabetes Type II diabetes Obesity Hemophilia A Hemophilia B Approved in the EU in Sep 2014; launch expected in the first half of 2015. Filing in the U.S. is awaiting the additional data required by the FDA for Tresiba (DEVOTE trial initiated in Oct 2013). Phase III ongoing, first phase IIIa results expected in 2015. Under regulatory review in the U.S. and EU FDA action expected shortly. Submission to regulatory authorities expected around 2017-2018. Phase III completed results announced in May 2013 and regulatory submission is expected in 2015. We believe that successful commercialization of these candidates will boost the top line. Another promising candidate is NN1218, faster-acting insulin aspart (FIAsp), with a faster onset of action compared to NovoRapid/NovoLog. A phase III program, Onset (consisting of four trials), on NN1218 was started in Aug 2013 for type I and II diabetes. If developed successfully, FIAsp would provide patients with more flexible insulin administration in connection with meals and improved blood sugar control after meals as well. Steady Performance from Victoza: Victoza is a once-daily human GLP-1 analogue approved for improving blood sugar levels in adult type II diabetes patients. Victoza is available in 62 countries including the EU, U.S., Japan and China. Sales leaped from DKK 1,457 million in 2010 to DKK 11,633 million in 2012. Victoza is currently market leader in the GLP-1 segment with 72% of value Equity Research NVO Page 7

market share compared to 70% in 2013. Data showed that patients with type II diabetes have improved blood sugar control when switched to Victoza from Bristol-Myers Squibb s Byetta. The drug witnessed sales growth of 15% in the first nine months of 2014. We expect Victoza to continue to be a significant contributor to the company s top line. We are also encouraged by the company s efforts to develop Victoza for obesity, which has huge commercial potential. REASONS TO SELL Generic Threat to Key Products: We are highly concerned about the upcoming patent expiry on some products in Novo Nordisk s portfolio. Five products, representing 57.5% of 2013 total revenues are expected to lose exclusivity over the next few years. Product 2013 Revenues in North America (DKK Million) % of Total Revenues U.S. Patent Protection NovoRapid 9,953 25.5% Dec 2014 (NovoLog) NovoMix 30 2,694 6.9% Dec 2014 (NovoLog Mix 70/30) Norditropin 2,273 5.8% 2017 (Norditropin SimpleXx) Victoza 7,537 19.3% 2022 Novo Nordisk is also facing a risk from biosimilar products in the human growth hormone market. Post NovoSeven s patent expiry, biosimilar versions were launched in Russia and Iran. Additionally, Novo Nordisk is facing generic threat for its anti-diabetic products. In Jan 2014, Mylan launched its generic version of Prandin. In addition, existing products like Victoza continue to face increasing competition. Regulatory Setback: Novo Nordisk faced a setback when the FDA declined to approve both diabetes candidates Tresiba and Ryzodeg on the basis of the submitted data and issued a complete response letter (CRL) on Feb 10, 2013. It was shocking since in Nov 2012, both candidates had received a positive opinion from the FDA s Advisory Committee. The FDA had asked Novo Nordisk to conduct a dedicated cardiovascular outcomes study and provide additional cardiovascular data. Moreover, the agency had refused to grant approval to these candidates until the company resolves the issues mentioned in a warning letter issued by the agency in Dec 2012. The warning letter specified violations of current good manufacturing practice (cgmp) regulations for finished pharmaceuticals at the company s Novo Alle, Bagsvaerd Denmark facility. Tresiba and Ryzodeg are already approved in the EU (Jan 2013) and Japan (2012). Nevertheless, Novo Nordisk received a feedback from the FDA in the first half of 2013 on the clinical trial protocol for the cardiovascular outcomes study of Tresiba. Finally, in Oct 2013, Novo Nordisk initiated the cardiovascular outcomes study, DEVOTE, on Tresiba. Novo Nordisk expects to have sufficient data to support a pre-specified interim analysis by early 2015 and to complete the study within three to four years from initiation. Based on interim data, the company will decide whether to submit the result of this interim analysis to Equity Research NVO Page 8

the FDA or to wait for the completion of the study. The delay is disappointing as these two candidates would have helped drive Diabetes Care sales. GLP-1s being Investigated: Victoza could be negatively impacted by safety concerns surrounding the use of GLP-1 inhibitors. The FDA as well as the European Medicines Agency is currently conducting an investigation into findings by a group of independent academic researchers that suggest that patients on GLP-1 based therapies face an increased risk of pancreatitis and pre-cancerous cellular changes called pancreatic duct metaplasia. A strict label by the FDA would put a lid on Victoza sales. Moreover, in Oct 2013, Novo Nordisk had to recall a number of batches of NovoMix insulin from some European countries as some of the products in these batches failed to meet the specifications of insulin strength. DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of NVO. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1117 companies covered: Outperform - 15.6%, Neutral - 77.2%, Underperform 6.5%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research NVO Page 9