Novo Nordisk (Ozempic)

In the premiere of Acquired Season 14, hosts Ben Gilbert and David Rosenthal dive into the remarkable journey of Novo Nordisk, a pharmaceutical giant that has dominated the diabetes care market for over a century. Initially focused on insulin production, Novo Nordisk's evolution is marked by its groundbreaking work on GLP-1 drugs, such as Ozempic and Wegovy, which have revolutionized not only diabetes treatment but also weight management. Despite challenges, including a competitive market and shifting healthcare landscapes, Novo Nordisk's unwavering commitment to innovation and its unique ownership by a nonprofit foundation have propelled it to become Europe's largest company. The episode explores the company's strategic decisions, the impact of GLP-1 drugs on society, and the broader implications for the pharmaceutical industry.

• Ben Gilbert and David Rosenthal introduce the podcast and the episode's focus on Novo Nordisk.
• Novo Nordisk is known for diabetes and weight loss drugs like Ozempic and Wegovy.
• Ben Gilbert initially thought Ozempic could disrupt the insulin market but discovered Novo Nordisk also produces insulin.
• Novo Nordisk has a unique business model, heavily concentrated on metabolic health, and is controlled by a nonprofit foundation.

"Today's episode is on the company behind these sensational diabetes and weight loss drugs, Ozempic. And we govi. The company is Novo Nordisk."

The quote explains that the episode will explore Novo Nordisk, the company behind Ozempic and Wegovy, which are notable for their impact on diabetes and weight loss.

• Diabetes affects 38 million Americans and over 500 million globally.
• The U.S. spends over $327 billion annually on diabetes.
• Obesity affects around a billion people worldwide, with 40% of the U.S. population suffering from it.
• 75% of Americans are considered overweight.
• These staggering numbers make Novo Nordisk's market one of the biggest, contributing to its status as Europe's largest company.

"There are 38 million Americans with diabetes. That's one in ten people. Globally, that number is over 500 million with the disease."

This quote highlights the vast number of individuals affected by diabetes, emphasizing the significant market for treatments and the societal impact of the disease.

• Semaglutide, found in Ozempic and Wegovy, was initially trialed in 2008 for type 2 diabetes.
• The discovery that GLP-1 drugs could reduce food intake dates back to the mid-1990s.
• Clinical trials in 2021 confirmed the effectiveness of these drugs for weight loss.
• Novo Nordisk's history goes back 100 years, with a complex story involving the pharma industry.

"But here we are in 2023, almost three decades later, talking about it as a weight loss drug that sort of magically appeared out of nowhere."

The quote captures the long journey from the initial discovery of Semaglutide to its current recognition as a weight loss drug, reflecting on the time it took for it to become a public sensation.

• Pharmaceuticals are described as the most complex industry studied on the podcast.
• Understanding Novo Nordisk requires going back to times before modern regulations and healthcare advances.
• The episode aims to explore the history and development of treatments that are now taken for granted.

"Yeah, pharmaceuticals is without a doubt the most complex industry that we have ever studied."

This quote underscores the intricate nature of the pharmaceutical industry, which the episode intends to delve into, particularly focusing on Novo Nordisk.

• The discovery of insulin by a team at the University of Toronto in 1921 revolutionized diabetes treatment.
• Frederick Banting and Charles Best, along with others, isolated insulin, leading to life-saving treatments for diabetes patients.
• The University of Toronto licensed insulin production to Eli Lilly for mass production.
• Insulin treatment was not a cure but required regular injections to manage diabetes.

"So by experimenting with dogs and dog pancreases, they're able to extract something that comes to be known as insulin."

The quote explains the early experimental process of extracting insulin, which was a monumental step in treating diabetes.

• August Krogh, a Nobel laureate, played a key role in the early development of insulin treatment.
• Krogh's wife's diabetes diagnosis led to their involvement in insulin production in Denmark.
• Nordisk Insulinlaboratorium was established with a unique foundation-owned structure.
• Novo was founded by the Peterson brothers after a disagreement with Nordisk, leading to fierce competition.

"Yeah, Novo Nordisk is unique in that the vast majority of their revenue is concentrated in the category of metabolic health."

This quote highlights the specialized focus of Novo Nordisk on metabolic health, which differentiates it from other pharmaceutical companies.

• World War II dramatically affected the operations of Novo and Nordisk.
• Nordisk faced challenges due to the German occupation of Denmark and loss of international revenue.
• Novo, however, was directed by the Nazis to expand insulin production for occupied Europe.
• Post-war, Novo emerged as a dominant insulin producer in Europe.

"So what the University of Toronto does do is they license production and development rights to a large American drug company based in Indiana, Eli Lilly."

This quote refers to the strategic licensing of insulin production rights by the University of Toronto to Eli Lilly, which was pivotal in the mass production and distribution of insulin.

• Pharmaceutical development is highly complex and challenging due to the need to interact with various human systems.
• Achieving seemingly simple objectives, like altering drug dissolution rates, requires meticulous consideration of side effects and interactions within the human body.
• The process is not as straightforward as software development, where new features can be added with code changes.

"You've got the human immune system wanting to react to anything form, and you put into it. You've just got a lot of systems that you sort of have to make sure that you're interacting well with to achieve something simple."

The quote highlights the intricate balance required in pharmaceutical development to ensure that any introduced substance harmoniously interacts with the human immune system and other bodily systems.

• Novo Nordisk's major scientific advance involved the development of Lenta insulin, which was licensed and rebranded by Eli Lilly in the US.
• Eli Lilly's business strategy involved acting as a technology follower, licensing innovations for their sales and distribution channels.
• Novo Nordisk's post-war era included advancements like MC insulin, which was the first 100% pure insulin with zero antibody potential.

"This is really the first major scientific advance that comes out of Novo."

The quote refers to Novo's significant scientific contribution to the field of insulin development, which was recognized and utilized by Eli Lilly.

• Eli Lilly historically licensed insulin products from Novo and Nordisk, positioning themselves as a technology follower rather than an innovator.
• Novo Nordisk's history, as detailed by Kurt Jacobson's book, suggests Eli Lilly's strategy was to capitalize on Novo and Nordisk's innovations.
• The relationship between the companies may have evolved over time, especially in the 1980s.

"Eli Lilly licenses this Lenta insulin from Novo and kind of rebrands it and makes it part of their flagship insulin offerings in the US."

This quote describes how Eli Lilly utilized Novo's scientific advancements in insulin to strengthen their own product offerings in the United States.

• Novo expanded into the enzymes business post-war, seeking to diversify their portfolio alongside insulin and diabetes treatment.
• The enzyme business proved to be capital-intensive and not as profitable as hoped, presenting a financial challenge for Novo.
• Novo's enzyme business, despite its challenges, remained part of the company until it was spun out as Novozymes in the year 2000.

"They add that on alongside the insulin and diabetes business. And that's all well and good to be a diversified industrial conglomerate, except the enzyme business is both capital intensive and not that profitable."

The quote explains the strategic intent behind Novo's diversification into the enzyme business and the financial difficulties that ensued from this decision.

• In the early 1970s, Novo approached Nordisk for a merger, but Nordisk's new CEO, Henry Brennam, rejected the proposal, seeing an opportunity to capitalize on MC insulin.
• Nordisk's aggressive expansion and investment in production capacity and global sales allowed them to gain significant market share.
• By 1980, Nordisk had grown substantially, prompting Novo to reconsider its position and ultimately leading to the merger of the two companies.

"So here we are in the early 1970s, Novo approaches the old, bitter rival Nordisk, and here's the situation. You know, this is a perfect marriage."

The quote captures the strategic thinking behind Novo's initial merger proposition to Nordisk, which was initially rebuffed but later revisited as both companies evolved.

• Genentech's development of recombinant DNA technology revolutionized drug production, making it more scalable and efficient.
• The partnership between Genentech and Eli Lilly to produce human insulin marked a significant milestone in the biotech industry.
• Genentech's IPO and subsequent success underscored the transformative impact of biotechnology on pharmaceuticals.

"Genentech happened. Which totally revolutionized everything, launched the biotech market, made drug development and production vastly more scalable, and it all happened right here in San Francisco."

The quote emphasizes Genentech's pivotal role in launching the biotech market and changing the landscape of drug development and production.

• ServiceNow, a cloud-based platform for workflow automation, has been a high-performing technology company and a remarkable Silicon Valley startup story.
• Founded by Fred Luddy, ServiceNow focused on automating repetitive tasks, freeing up knowledge workers for more productive activities.
• The company's growth and success illustrate the value of focusing on solving pervasive problems across enterprises.

"ServiceNow was started in 2003 by Fred Luddy...and took that same simple automation concept and brought it to IT, brought to customer service, HR, ops, risk, kind of like AI is doing now."

This quote outlines ServiceNow's origins and its mission to automate and improve workflow management across various enterprise functions.

• The probability of a preclinical study advancing to clinical phases is 69%.
• Approximately half of the drugs get filtered out in each phase of clinical trials.
• The chances of approval after entering regulatory review are high, at 90%.
• The overall likelihood of a drug being approved by the time it reaches phase three is significantly reduced.

"So here's the probability that a preclinical study even makes it to the phases. That's 69%. [...] But in phase one, two, and three, about half of them get weeded out each time."

This quote provides statistical insight into the likelihood of a drug progressing through the various stages of clinical trials, highlighting the challenges and attrition rate in drug development.

• Liraglutide has shown to be more effective than its predecessor, exenatide (Byetta).
• It requires only once-daily injection due to a longer half-life.
• Liraglutide affects appetite, as observed in both animal and human trials.
• The drug's effect on weight loss was not dramatic at the approved dose but was still significant compared to other anti-diabetic drugs that caused weight gain.

"Something that Lada had noticed all the way back in the animal trial phase, that rats who were injected with very large amounts of lyraglutide would stop eating, and it seemed to have an effect on appetite."

The quote indicates the initial observations of liraglutide's impact on appetite, which was later confirmed in human trials, suggesting its potential use beyond diabetes treatment.

• Weight loss medications have a history of dangerous side effects, creating a stigma.
• Obesity is often viewed as a personal responsibility issue, despite scientific evidence of biological factors.
• Effective medical interventions for obesity, like bariatric surgery, are underutilized in favor of lifestyle changes, which often fail.
• The pharmaceutical industry has been wary of developing weight loss drugs due to past failures like fen-phen, which caused heart damage.

"There is also a persistent bias and stigma against the disease that now afflicts nearly half of Americans."

This quote emphasizes the societal bias against obesity and the challenges in developing safe and effective weight loss drugs due to historical precedents and public perception.

• Novo Nordisk initially viewed obesity as a societal issue outside their business scope.
• The company later pursued FDA approval for liraglutide as a weight management drug, recognizing its potential based on clinical trial observations.
• This strategic shift was influenced by the stigma around weight loss drugs and the small market size due to ineffective or unsafe options.

"Novo Nordisk's own official position on the obesity category, as articulated by the then CEO Lars Sorensen, was, 'obesity is primarily a social and cultural problem.'"

The quote reflects the initial corporate stance of Novo Nordisk on obesity, which later changed as the company recognized the medical and commercial potential of liraglutide for weight management.

• Semaglutide, marketed as Ozempic for diabetes and Wegovy for weight loss, has shown significant effectiveness in reducing body weight.
• The drug works by affecting satiety signals and slowing digestion, leading to reduced calorie intake.
• Side effects include gastrointestinal issues, with some patients discontinuing use due to severity.
• Despite these side effects, semaglutide's ability to induce weight loss by changing eating habits is seen as addressing both behavioral and medical aspects of obesity.

"It sort of solves the debate that had been going on for decades of, is it a behavioral problem or is it a medical problem?"

This quote highlights the dual impact of semaglutide on both behavior and biology, suggesting its potential to redefine the approach to treating obesity.

• The high cost of GLP-1 drugs like Ozempic poses an access issue, with insurance coverage varying widely.
• Private insurers and Medicare face challenges in deciding whether to cover these drugs due to short-term costs versus long-term health benefits.
• The stigma around weight loss drugs and the legal prohibition of Medicare from covering them for weight loss further complicate the situation.
• The potential long-term benefits of GLP-1 drugs in reducing obesity-related health complications could make them a worthwhile investment for the government and taxpayers.

"Medicare is through the US federal government. It is a health insurance for people who are over 65. [...] Medicare Part D was passed into law in 2003 and took effect in 2006."

This quote provides context on the role of Medicare in the US healthcare system and its limitations in covering prescription drugs for weight loss, highlighting the need for policy considerations in light of emerging treatments.

• Ozempic has a unique shareability factor that can make it go viral in a non-traditional sense for pharmaceutical products.
• Word of mouth plays a significant role in its marketing.
• Users become walking billboards, showcasing the effects of Ozempic.

"It has almost like a shareable Ozempic can go viral in a different way than most pharma describes going viral."

This quote highlights the unconventional way Ozempic can gain popularity through user experiences rather than typical pharmaceutical advertising.

• Disagreement on whether Ozempic's spread is due to a network economy or simply strong word of mouth.
• The benefit of widespread Ozempic use may reduce the taboo around taking it.
• The concept of network economy doesn't fully apply as others don't directly benefit from one's use of Ozempic.

"I don't think this is actually a network economy. I think this is just incredible word of mouth marketing."

David Rosenthal clarifies that Ozempic's spread is due to effective word of mouth rather than a network economy where users benefit from others' usage.

• Discussion of Rybelsus, an oral alternative to Ozempic's injectable form.
• Rybelsus is a once-a-day pill with specific intake requirements, which is less effective but avoids needles.
• Novo Nordisk's expertise in drug formulation is credited for this development.

"Not to mention Rybelsus, that's the new oral one."

Ben Gilbert introduces Rybelsus, highlighting Novo Nordisk's innovation in creating an oral medication option for those averse to injections.

• Novo Nordisk's history of research in drug absorption and breakdown in the body is praised.
• The ability to protect a molecule enough for it to pass from the stomach to the bloodstream is considered a significant achievement.

"That is sort of the Novo magic."

Ben Gilbert acknowledges Novo Nordisk's specialized skill in pharmaceutical innovation, particularly in drug delivery methods.

• Counter positioning is typically found in the takeoff phase of startups, not in later stages.
• Incumbents in healthcare do not generally counter-position against startups.
• The pattern of incumbents not counter positioning is consistent across various industries.

"Counter positioning basically always exists in the takeoff phase and never exists later."

Ben Gilbert notes that counter positioning is a strategy used during a startup's initial growth but is not sustained in the long term, particularly in healthcare.

• Novo Nordisk's concentration on metabolic disorders is a key factor in their market success.
• Despite being highly focused, Novo Nordisk is not ranked in the top ten pharma companies by revenue.

"85% of their revenue is dedicated to metabolic disorders."

Ben Gilbert emphasizes Novo Nordisk's strategic focus on a specific health area, which has contributed to their significant market presence.

• Novo Holdings, the investment arm of the Novo Nordisk Foundation, is the world's largest charitable foundation.
• The foundation's endowment is primarily composed of its ownership in Novo Nordisk.
• The foundation actively invests in life sciences and biotech, supporting scientific and humanitarian causes.

"Novo holdings, which is the vehicle by which the foundation holds their stakes in Novo Nordisk and Novozymes, their sort of assets under management, and thus the endowment of the foundation is worth $120,000,000,000."

David Rosenthal points out the immense value of the Novo Nordisk Foundation's endowment, highlighting its significant impact on the life sciences sector.

• Novo Nordisk's management is not primarily incentivized by stock price performance.
• Executives and board members do not receive stock options; instead, they are required to hold stock.
• This compensation structure is designed to align with long-term company stability and mission.

"Their executives are not meaningfully incentivized by stock price performance."

Ben Gilbert discusses the distinctive incentive structure for Novo Nordisk's executives, which focuses on long-term success over short-term stock gains.

• The shift towards treating broad populations with relatively inexpensive drugs is counter to the trend in pharma.
• Pharma has moved from mass-market drugs to specialty drugs for rare diseases with high price tags.
• The cost and complexity of drug approval have increased, pushing companies to focus on rare diseases.

"Pharma over the last couple of decades, shifted away from these mass population drugs to specialty drugs."

Ben Gilbert explains the industry-wide shift in pharma towards developing drugs for smaller populations with more significant individual costs.