Novo Nordisk Annual Report 2021

Contents Introducing Novo Nordisk Strategic Aspirations Key risks Management Consolidated statements Additional information Novo Nordisk Annual Report 2021 63 subcontracted research and development work 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, intellectual property rights, 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. Development costs incurred subsequent to acquisition are treated consistently with internal project development costs. 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 an impairment, any impairment is measured based on discounted projected cash flows. Impairments on intangible assets, other than goodwill, are reviewed at each reporting date for possible reversal. Key accounting estimates and judgements on intangible assets Impairment tests of intellectual property rights not yet available for use are based on Management's projections and anticipated net present value of estimated future cash flows from marketable products. Management makes judgements related to intangible assets when assessing whether a transaction is a business combination or an asset acquisition. The assessment of whether a transaction is a business combination or an asset acquisition involves the optional concentration test, which is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If met the transaction is accounted for as an asset acquisition. If not met, an assessment of any acquired processes is made to determine if they are substantive. Management makes judgements when assessing whether a process is substantive. A process is considered substantive if it is critical to the ability to producing outputs from the transaction. Judgements are also made in evaluating whether payments under collaboration arrangements are acquisition of assets or prepayment of R&D services. Property, plant and equipment Depreciation and impairment losses DKK million 2021 2020 2019 Cost of goods sold 2,836 2,729 2,656 Sales and distribution costs 409 403 354 Research and development costs 736 724 783 Administrative costs 386 433 376 Other operating income and expenses 19 18 23 Total depreciation and impairment losses Of which related to leased assets 4,386 899 4,307 964 4,192 852 Capital expenditure in the reporting 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 is intended to strengthen the Novo Nordisk supply chain. Capital expenditure also related to investments in facility upgrades of the purification plant and establishing additional API capacity, both in Kalundborg. Leased property, plant and equipment DKK million Land and buildings Other equipment Total 2021 2020 3,340 2,901 499 479 3,839 3,380 Novo Nordisk mainly leases office buildings, warehouses, laboratories and vehicles. The right-of-use asset is presented in property, plant and equipment and the lease liability in borrowings. In 2021, the total amount recognised in the income statement related to leases was DKK 1,303 million (DKK 1,373 million in 2020). The total cash outflow for leases amounted to DKK 1,275 million (DKK 1,367 million in 2020). As of 31 December 2021, the lease liability excludes potential lease payments of DKK 2,209 million (undiscounted) related to lease term extension rights on properties that were not considered reasonably certain to be exercised (DKK 2,363 million in 2020). Please refer to note 4.5 for a maturity analysis of lease payments.

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