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Novo Annual Review 2016
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in addition to the board of directors,
novo
a/s has an advisory group of external life science professionals, who provide
novo
a/s with feedback and advice on life science investment projects. business and financial
risk
s
novo
a/s? most important
risk
s are related to the business
risk
s of the two operating companies,
novo
nordisk and
novo
zymes
. the business
risk
s vary in the two subsidiaries as a consequence of their different activities. there are inherent
risk
s associated with investing in
novo
nordisk. a rigorous enterprise
risk
management approach is in place to mitigate the potential adverse impacts and protect long-term value creation.
risk
s that have an impact on the company?s performance may materialise as delays or failure of products in the pipeline, supply disruptions, competition and market developments, compromises to product quality and safety, information technology security breaches, currency impact and tax disputes, breach of legislation or ethical standards, and loss of intellectual property rights. in 2016, the most prominent
risk
that did materialise was a more challenging business environment in the us, caused by a combination of factors that put the us business under pressure. in turn, the overall r&d profile improved considerably with results of key clinical trials that were better than expected.
novo
zymes is exposed to a range of
risk
s throughout the value chain and has implemented measures to mitigate these. based on
risk
analyses,
novo
zymes? board of directors has identified four key
risk
s that may impact the company: competition in industrial enzymes, volatility of the starch- based ethanol business, loss of knowledge, and delay of bioag commercialisation. to mitigate the
risk
of competition from existing and new competitors in industrial enzymes,
novo
zymes focuses on its strong innovation pipeline and delivering novel solutions tailored to the needs of customers operating in different local market conditions. to address the
risk
of a persistent low-price environment in the starch-based ethanol business,
novo
zymes is continuously investing in r&d to develop even better enzyme solutions for improving yield and profitability to ensure that biofuels are a commercial alternative to traditional fossil fuels. to ensure protection of knowledge and mitigate the
risk
of cyber-attacks,
novo
zymes pursues an active patent strategy and continuously implements key security procedures and behaviours to prevent theft of e.g. production strains and data.
novo
zymes? board of directors continues to place the bioag alliance high on its agenda, and prioritises and follows developments closely. although a merged bayer?monsanto could cause a delay in bioag commercialisation, the new entity could also be an attractive alliance partner for
novo
zymes in the long term, sharing its vision and commercial commitment, and increasing the commercial reach of the alliance. in the short term,
novo
zymes? priority is to ensure the success of the alliance, and its focus is on getting full value from the recent launch of acceleron ® b-300 sat. for more information about
novo
nordisk and
novo
zymes and their approach to
risk
management, please consult the companies? annual reports. in 2016, a new financial
risk
framework from the
novo
nordisk foundation has become effective. the
novo
nordisk foundation has decided upon a number of
risk
tolerances regarding shortfall
risk
for growth in grant pay-outs, portfolio volatility, idiosyncratic
risk
and access to liquidity.
novo
a/s and its investments must adhere to this
risk
framework. more specifically,
novo
a/s should allocate its capital in a way which ensures that: (i) the
novo
nordisk foundation should generally be able to increase its grants by at least the growth in nominal gdp; (ii) a maximum loss on the invested portfolio, excluding
novo
nordisk and
novo
zymes, in exceptional, negative markets conditions has been defined; (iii) no single investment should represent more than a certain percentage of the invested portfolio, excluding
novo
nordisk and
novo
zymes; and (iv) the
novo
nordisk foundation should at any time be able to liquidate assets without incurring losses from forced disposals, for a value corresponding to the actual commitment as well as expected five-year grant pay-out obligations plus additional buffer.
novo
a/s is adaptive and has a range of strategic levers available for meeting these
risk
objectives. the future
novo
a/s? financial prospects are partly dependent on the results of
novo
nordisk and
novo
zymes. for further information on the outlook for 2017 for these two companies, please consult their annual reports. although pricing and healthcare reforms are adding pressure to the life science industry, we believe that the underlying long-term trends are positive. positive developments in the life science investments portfolio, combined with a number of strong exits and public offerings in recent years, provide the basis for our continued optimism. at their annual general meetings,
novo
nordisk and
novo
zymes approved dividends for 2016 of dkk 4.6 per share and dkk 4.0, respectively. consequently,
novo
will receive dkk 3.5 billion in march 2017 from the two companies. in august 2017,
novo
expects to receive additional interim dividends from
novo
nordisk. 15 management report
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