Innovation competitive advantages in a changing environment

Per Falholt Head of R&D

This presentation and its related comments contain forward-looking statements, including statements about future events,

future financial performance, plans, strategies and expectations. Forward-looking statements are associated with words

such as, but not limited to, "believe," "anticipate," "expect," "estimate," "intend," "plan," "project," "could," "may," "might"

and other words of similar meaning.

Forward-looking statements are by their very nature associated with risks and uncertainties that may cause actual results

to differ materially from expectations, both positively and negatively. The risks and uncertainties may, among other things,

include unexpected developments in i) the ability to develop and market new products; ii) the demand for Novozymes’

products, market-driven price decreases, industry consolidation, and launches of competing products or disruptive

technologies in Novozymes’ core areas; iii) the ability to protect and enforce the company’s intellectual property rights; iv)

significant litigation or breaches of contract; v) the materialization of the company’s growth platforms, notably the

opportunity for marketing biomass conversion technologies or the development of microbial solutions for broad-acre crops;

vi) the political conditions, such as acceptance of enzymes produced by genetically modified organisms; vii) the global

economic and capital market conditions, including, but not limited to, currency exchange rates (USD/DKK and EUR/DKK in

particular, but not exclusively), interest rates and inflation; viii) significant price decreases on input and materials that

compete with Novozymes’ biological solutions. The company undertakes no obligation to update any forward-looking

statements as a result of future developments or new information.

Forward-Looking Statements

2

Session outline

• Perspectives on technology development

• Capabilities needed for success

• R&D adjustments for improvement

• R&D priorities

3

Industrial enzymes in an evolutionary context

4 Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages

Time

Enzyme market, USD

1st enzyme described

1900 1950 2000

Röhm & Hass

produces world’s first

industrial enzyme

Novo produces 1st

enzyme by fermentation

The majority of Novozymes’

enzymes are produced by

GMM in containment and

developed with novel toolbox

4bn

3bn

2bn

1bn

Wave 1

Early days…

Enzymes discovered and extracted

from animal sources

Wave 2

Shift to microbes

Enzymes discovered & produced by natural

microbial host open up scope of applications

Wave 3

Genetic revolution

Gene technologies increase scale of

production and cost competitiveness

Novo produces 1st

GMM-derived enzyme Novo Industry starts

enzyme development

Novo produces 1st protein

engineered enzyme

The Lancet raises concern about enzyme

safety. Independent bodies prove safety in

years that follow

1833

1907

1941

1952

1969

1988

1990

2015

Novo

produces 1st

extremophilic

protease

1974

Source: Novozymes research

Today, Novozymes works with +30 enzyme classes (not variants); independently and in multienzyme solutions since early 90s. Main ones selected below

The journey of the protease

Novozymes has expanded the market by leveraging existing enzyme classes for new applications and by introducing new enzyme classes

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 5

1907 1938 1975 2001 2008 2012

1941 1952 1982 1989 1965 1970 1991 1994 1992 2000 2003 2007 1996 2009 1995 1963 1975 1986 2000

1960 B.C.

Since 2000, Novozymes has built a more diverse business – more end markets & new biological technologies

2000 2014

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 6

Feed, 6%

Other tech, 22%

F&B, 24%

HHC, 48%

100% enzymes

Other, 7%

Ag&Feed, 14%

Bioenergy, 18%

F&B, 26%

HHC, 35%

~90% enzymes

~10%

Microorganisms &

proteins (pharma)

New R&D capabilities have been added to classic virtues that are undergoing rapid change

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 7

Enzymology

Microbiology

Chemical engineering

Agronomy

High-throughput screening Biochemistry

Assay development

Fermentation

Formulation technology

Bioinformatics

Protein engineering

Genetics

DNA sequencing (classic ”Sanger”)

Metabolic engineering

Computer science

Classic strain development

System biology

GMM strain development

Regulatory compliance

Next-generation DNA sequencing

In-vitro translation.

Classic virtues (dark green) and “new capabilities” (light green)

DISCOVERY DEVELOPMENT PRODUCTION

Ultrahigh-throughput screening

The speed of development continues at high pace – the cost of “raw” diversity is plummeting

Access more of Nature’s diversity… at a much lower cost, providing exponentially more options for finding an organism that delivers the desired activity

…cheaper… Get a draft genome sequence of bacteria and fungi in a matter of days at costs down to $40 a genome

…and better • Sequence the genome of all production hosts for

understanding/ changing expression levels

• Improve dossiers for regulatory filings

• Identify putative antibiotic genes in production host strains

• Etc.

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 8

Technology allows the discovery of thousands of enzymes per second

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 9

Metagenomics allows for discovery of unique enzymes diversity

• Sample of elephant dung

• ~620,000 genes, most partial, ~90% anaerobic bacterial

• ~20,000 with annotated enzyme domain, of these >3,000 full length

• Identification of a new xylanase with unprecedented activity on xylan retrieved from this sample

Entry to GH5 xylanases, first time we can degrade highly substituted xylan

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 10

Technology is a toolbox. Competitive advantages lie in mastering the innovation value chain – to sales and back It is more than a technology game.

Significant annual investment in R&D/basic technologies as well as application understanding are required for success

→ a large revenue base is needed to yield a return on investment

→ years must be invested to build up expertise, know-how and industry knowledge

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 11

DISCOVERY DEVELOPMENT PRODUCTION SALES

Past:

Access to

diversity was

important

Today:

Competitive advantages:

• Mastering the full value chain

• Ability to learn (from partners)

• Understanding and handling data

explosion

• Intellectual property rights

Technology has fundamentally changed our ability to innovate and produce molecules

… to decrease the average lead time to market from feasability

… to fail faster

… and to increase the commercial hit rate

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 12

Now we must use technology…

Average project lifetime

Feasability > Discovery > Development

Average project lifetime

Projects that do not reach the market

~5 years ~2 years

We are currently implementing changes to the innovation process based on four design principles

Clarified process = less confusion and faster success Scoping, feasibility and market stages created and formalized

Unified project management standards for all stages

Optional process for fast tracking and frontloading formalized

Frontload and gate-keep to improve hit rate Clearly defined gate criteria, hurdles and deliverables

Business case standard based on clearly defined assumptions and risk analysis

Fail faster

Customer centricity mindset Commercial resources allocated throughout all stages for better understanding customer needs,

building customer value propositions and understanding sales opportunities

Focus on learnings and closure of knowledge gaps in early stages

Regional market sign-off and early partner engagement

Steady heartbeats to review, align, increase and prune Fixed project pulse and time boxes added for speed and fewer projects

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 13

We target higher launch rates and more “first time right”

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 14

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014

Total products launched

Public launches

Example 1: Even more products launched to continue positive development

Example 2: Increasingly more accurate upscaling from lab to commercial scale

En

zym

e t

iter

Cultivation time

Protease cultivation scaling

Blue = Lab scale (deciliters)

Green = Lab scale (liters)

Red = Pilot scale (hundreds of liters)

Dark = Production (thousands of liters)

We expect the relative spend on R&D to fluctuate around 14% of sales

This will allow us to continue the trend of being the investment leader in microbial technologies and industrial enzyme innovation

Own estimates indicate that Novozymes spends 2/3 of the entire enzyme industry’s R&D spend on its 48% market share

12%

13%

14%

15%

16%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000R&D costs DKKm

R&D/Sales

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 15

R&D investments drive growth today and enhance technology leadership for long-term impact

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 16

Basic technologies

Advance understanding, application support, development and formulation of biological systems

R&D investments in production systems and productivity

Established business areas

Growth platforms

Household

Care

Food &

Beverages

Grain-based

ethanol

BioAg

Biomass

Conversion Animal Health

& Nutrition

Biopharma

Emerging

industries

Technical

industries

This is exemplified by the breadth of current innovation pipeline of new solutions to customers

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 17

~50 technology projects

~80 ~40 ~30 ~30 SCOPING & FEASIBILITY DISCOVERY DEVELOPMENT LAUNCH

Hundreds of opportunities

explored

We will continue to extract value from global competencies and develop competencies for more local innovation and partnerships

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 18

Novozymes R&D

Curitiba, Brazil

Patent office

New York, U.S.

Novozymes R&D

Saskatoon, Canada

Novozymes R&D,

Raleigh, North

Carolina

Novozymes R&D

Salem, Virginia Novozymes R&D,

Davis, California

Novozymes R&D

Nottingham, U.K.

Novozymes R&D

Bagsvaerd & Kalundborg,

Denmark

Novozymes R&D

Bangalore, India

Novozymes R&D

Beijing, China

Novozymes R&D

Tokyo, Japan Innovation Center

Shandong, China

Main center

Conclusion

• Speed of technology development is accelerating

• Competitive advantages lie in scale

and mastering the full value chain

• Current focus is on streamlining processes

and accelerating pipeline:

• To strengthen sustainable competitive advantages

• To deliver on long-term financial and impact targets

• To build new businesses beyond 2020

Strategy – Sustainability – Innovation – Household Care – Bioenergy – Food & Beverages 19