Novo Nordisk (Ozempic)

In the first episode of season 14 of the Acquired podcast, hosts Ben Gilbert and David Rosenthal delve into the fascinating story of Novo Nordisk, the pharmaceutical giant behind the diabetes and weight loss drugs Ozempic and Wegovy. They explore the company's century-long history, starting with its pioneering work in insulin production, and discuss its unique ownership by a non-profit foundation. The episode highlights Novo Nordisk's evolution into a leader in metabolic health, driven by its development of GLP1 drugs, and examines the broader implications of these medications on the healthcare industry, particularly in the context of rising obesity and diabetes rates.

• Novo Nordisk is primarily focused on metabolic health, particularly insulin and diabetes treatments, for the last century.
• The company is owned and controlled by a non-profit foundation, which is uncommon for a pharmaceutical giant.
• Diabetes and obesity are massive global health issues, with 38 million Americans having diabetes and over a billion people suffering from obesity worldwide.

"Novo Nordisk is unique in that the vast majority of their revenue is concentrated in the category of metabolic health. They have been the insulin and diabetes company for the last 100 years."

• Novo Nordisk's concentrated focus on metabolic health distinguishes it from other pharmaceutical companies, which are typically more diversified.

• Insulin was discovered in 1921 by Frederick Banting and Charles Best at the University of Toronto.
• The discovery was crucial because diabetes was a death sentence at the time, with the starvation diet being the only treatment.
• The Nobel Prize for the discovery was controversially awarded to Banting and John MacLeod, not Best.

"Insufficient insulin production in the body, of course, leads to the disease diabetes... when the Nobel Committee awards them the 1923 Nobel Prize in Physiology or Medicine for the discovery of insulin, it is Banting and MacLeod who get the award, not Best."

• The discovery of insulin revolutionized diabetes treatment, turning it from a fatal disease to a manageable condition.

• August Krogh, a Nobel Prize-winning animal biologist, founded Novo Nordisk after his wife was diagnosed with diabetes and he learned of insulin in Toronto.
• Krogh secured the rights to produce insulin in Scandinavia and partnered with Hans Christian Hagedorn and the Lion Chemical Factory to establish Nordisk Insulin.
• The company was set up as a foundation-controlled entity to ensure profits were used for further diabetes research.

"They set it up as an operating company because that's what they have to do to have employees and make sales and whatnot. But this operating company is 100% owned and controlled by a foundation."

• This unique corporate structure ensures that profits are reinvested into research and public health, influencing Novo Nordisk's long-term strategy and stability.

• The Peterson brothers, former employees of Nordisk, founded Novo after a dispute, leading to intense competition between the two companies.
• Novo innovated with liquid insulin, which was more efficient and cheaper than Nordisk's solid form.
• Nordisk responded with NPH insulin, a longer-lasting variant, but Novo worked around patents to develop their own version.

"The Peterson brothers, they know right off the bat they can't really just go clone what Nordisk is doing... They go to work and pretty quickly, actually, they come up with shelf, stable liquid insulin."

• The rivalry drove significant innovation in insulin production and delivery methods, benefiting patients worldwide.

• During the Nazi occupation of Denmark, Novo was directed to supply insulin across Nazi-occupied Europe, significantly expanding its production capabilities.
• Nordisk's international operations were severely hampered due to blocked revenue from Allied countries.
• Post-war, Novo emerged as the largest insulin producer in Europe and expanded its R&D capabilities.

"Novo is now... the official Nazi sanctioned insulin provider for all of Nazi occupied Europe. So the German government basically directs Novo to massively expand production and supply insulin."

• The war period catalyzed Novo's growth and positioned it as a leading pharmaceutical company in Europe.

• Novo developed Lente insulin, a slower-acting form that provided a basal level of insulin, reducing the frequency of injections.
• The development of insulin pens by Novo in the 1980s revolutionized insulin delivery, making it more convenient for patients.

"Novo comes out with liquid insulin. You don't have to do that. Not only that, because the process for producing liquid insulin that they come up with is so much more efficient."

• Continuous innovations in insulin formulations and delivery systems have significantly improved the quality of life for diabetics.

• In 1989, after decades of fierce competition, Novo and Nordisk merged to form Novo Nordisk.
• The merger combined their strengths in R&D and production, solidifying their position as a global leader in diabetes care.

"For the next 65 years, these two companies would compete in bloodsport head to head. Hated each other, absolutely hated each other until they finally merged in 1989."

• The merger marked a new era of collaboration and innovation, leveraging the combined expertise and resources of both companies.

• Novo emerges as a scaled pharmaceutical company post-war, while Nordisk struggles with reduced production capacity.
• Novo diversifies into the enzymes business, which remains part of the company until 2000 when it spins off into Novozymes.
• Novo's enzyme business becomes a financial burden due to its capital-intensive nature and low profitability.

"Novo follows up Lenta insulin in the 1970s with MC insulin or non immunogen Monocomp insulin, which is the first 100% pure 0 antibody potential insulin."

• Novo innovates with MC insulin, setting a new standard in the insulin market with a highly purified product.

• In the 1970s, Novo approaches Nordisk for a merger due to financial strains, but Nordisk's new CEO, Henry Brenham, revitalizes the company instead.
• Brenham sees the MC Insulin generation as an opportunity for Nordisk to regain market presence and rejects the merger proposal.
• Nordisk invests in rebuilding production capacity and enters the American market, capitalizing on the fragmented healthcare system of the 1970s.

"Branham convinces the board that rather than merging, they should use their capital reserves to rebuild up Nordisk's own production capacity."

• Brenham's leadership transforms Nordisk from a licensing company to a competitive insulin producer, significantly increasing their market share.

• The global insulin market grows, with Novo and Nordisk becoming key players, but Eli Lilly remains the market leader.
• The rise of biotechnology, exemplified by Genentech's innovations, revolutionizes drug development and production.
• Novo and Nordisk face new challenges and opportunities with the advent of genetically engineered drugs, including human insulin.

"Genentech and Eli Lilly announce their partnership... and they're going to make human insulin."

• The biotechnology revolution creates a race for human insulin, prompting Novo to pursue chemical modifications to pig insulin, which ultimately fails.

• The pharmaceutical industry involves multiple layers, including manufacturers, distributors, pharmacies, insurance companies, and PBMs.
• PBMs negotiate drug prices and rebates, significantly impacting the pharmaceutical market dynamics and consumer costs.
• The complex value chain makes it difficult for consumers to directly influence market prices and demand signals.

"PBMs manage pharmacy benefits for 266 million Americans... and there's essentially three that cover about 80% of the market."

• PBMs hold significant power in the pharmaceutical market, acting as gatekeepers for drug access and pricing.

• In 1989, Novo and Nordisk merge, driven by the need for scale in a changing pharmaceutical landscape.
• The merger creates a powerful insulin producer with significant global market share, positioning it for future growth.
• Despite ongoing merger discussions with larger pharma companies, the Novo Nordisk foundation's control prevents a sale, allowing the company to capitalize on market growth.

"Management is in constant merger or sale negotiations with one of these big pharma giants or another... and luckily none of them come to fruition."

• The foundation's decision to remain independent allows Novo Nordisk to leverage market tailwinds and achieve significant growth.

• Lata Biera Knudsen's research at Novo Nordisk leads to the development of GLP1 agonists, a new class of drugs for diabetes treatment.
• Despite initial skepticism and challenges, Knudsen's work results in the creation of liraglutide, a GLP1 analog with a longer half-life.
• The development of GLP1 agonists marks a significant breakthrough in diabetes treatment, with potential implications for weight management.

"Liraglutide ends up having a half life in the human body of 13 hours compared to, you know, like a half life of two and a half minutes for straight up GLP1."

• Knudsen's innovation extends the viability of GLP1 in the body, paving the way for effective diabetes management and potential weight loss benefits.

• Novo Nordisk pursued FDA approval for liraglutide as a weight management drug, despite the challenges and stigma associated with weight loss drugs.
• Liraglutide was initially approved for diabetes, but the potential for weight loss was significant, leading to a push for dual approval.
• The historical context of weight loss drugs includes failures and dangers, such as the fen-phen scandal, which caused significant health issues and stigma.

"Researchers thought it was actually impossible to create a weight loss drug that was both safe and effective."

• The skepticism around weight loss drugs was due to past failures and health risks, making Novo Nordisk's pursuit of liraglutide for weight loss a bold move.

• There was a significant stigma around obesity and weight loss drugs, which affected market dynamics and corporate strategies.
• Novo Nordisk's CEO initially viewed obesity as a social issue, not a medical one, creating internal challenges for pursuing weight loss drug approval.

"Obesity is primarily a social and cultural problem. It should be solved by means of a radical restructuring of society. There is no business for Novo Nordisk in that area."

• This quote illustrates the initial corporate resistance to entering the obesity drug market due to perceived stigma and societal views.

• Liraglutide underwent extensive clinical trials, including a major trial with 9,000 patients across 32 countries, demonstrating its safety and efficacy.
• Despite challenges, liraglutide was approved for diabetes in 2010 under the brand name Victoza, and later for weight management as Saxenda.

"In early 2010, Novo gets final approval for Victoza, which is the marketing name for the diabetes version of liraglutide."

• The approval of Victoza marked a significant milestone for Novo Nordisk, expanding the market for GLP1 drugs.

• Victoza quickly became a blockbuster drug, achieving over a billion dollars in sales in its first full year on the market.
• Saxenda, the higher dose version for weight loss, did not achieve the same blockbuster status due to its limited efficacy compared to expectations.

"Victoza does roughly $300 million in sales. The next year, the first full year it's on the market in 2011, it does over a billion dollars in sales just in that year."

• This highlights the rapid market acceptance and financial success of Victoza, driven by its dual benefits for diabetes and weight loss.

• Semaglutide, a next-generation GLP1 analog, offered significant improvements, including a weekly dosage and greater weight loss efficacy.
• Known commercially as Ozempic for diabetes and Wegovy for weight loss, semaglutide became a major success for Novo Nordisk.

"Semaglutide has several benefits over liraglutide. One, it is much, much longer lasting in the body, so it only needs to be injected once per week."

• The once-weekly dosage of semaglutide improved patient compliance and convenience, contributing to its market success.

• Novo Nordisk's market cap and revenue saw substantial growth, driven by the success of GLP1 drugs like Ozempic and Wegovy.
• The company's focus shifted from insulin to GLP1 drugs, becoming a leader in this therapeutic area.

"Revenue goes from 20 billion in 2019 to 25 in 2021, 30 billion in 2022 and in 2023. So far, in the first three quarters that they've reported, it is up another 30% year on year."

• The financial growth of Novo Nordisk reflects the transformative impact of its GLP1 drug portfolio on its business model.

• The high cost of GLP1 drugs in the U.S. poses challenges for widespread adoption, particularly for weight loss indications.
• Insurance coverage and healthcare system dynamics in the U.S. affect patient access and affordability of these drugs.

"The price of Ozempic to treat diabetes is north of $1,000 and WeGovy for weight loss is north of $1,300 per month before insurance."

• The high cost of GLP1 drugs highlights the challenges of healthcare affordability and access in the U.S. market.

• Eli Lilly and other pharmaceutical companies are entering the GLP1 market, developing competing products like tirzepatide.
• The ongoing innovation and competition in the GLP1 space suggest a new era of therapeutic options for diabetes and obesity.

"Eli Lilly now has a GLP1 diabetes approved treatment on the market under the diabetes brand name Manjaro."

• The entry of competitors like Eli Lilly indicates the growing importance and potential of the GLP1 drug market.

• Discussion on the social dynamics of taking Ozempic, a medication for weight loss, and the taboo associated with it.
• Mention of Elon Musk potentially influencing public perception by tweeting about it.

"I guess the only one would be like the taboo thing. If I'm taking Ozempic and I'm ashamed of it because I'm the first person, if a million more people start taking it, then it is actually better for me."

• Highlights the social pressure and stigma surrounding new medications and how widespread adoption can normalize their use.

• Introduction of Rybelsus, an oral version of Semaglutide, and its administration challenges.
• Discussion on the effectiveness of oral versus injectable versions of diabetes medications.

"Not to mention Rybelsus, that's the new oral one. They have figured out how to make Semaglutide, a once a day pill. If you prefer taking that to a once a week injection."

• Discusses the innovation in drug delivery methods for diabetes management and the engineering challenges involved.

• Novo Nordisk's expertise in drug formulation and delivery, particularly in protecting molecules from the stomach's harsh environment.

"And this is the kind of stuff that Novo Nordisk is so good at. It's all these decades of researching how do we make this stuff break down differently in the body?"

• Highlights the company's long-term focus on research and development to improve drug efficacy and delivery.

• Exploration of counter positioning as a strategy in the pharmaceutical industry, particularly in the context of Novo Nordisk.

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

• Discusses how startups use counter positioning to disrupt markets, a strategy less common among incumbents.

• Discussion on the concentration of power and returns in the healthcare industry, particularly for incumbents like Novo Nordisk.
• Exploration of biotech startups' role in drug discovery and their relationships with big pharma.

"The last 30 years at least of healthcare has consisted of returns to scale, which would indicate lots of power."

• Highlights the industry's structure where large companies dominate due to economies of scale and established relationships.

• Novo Nordisk's strategic focus on metabolic disorders and its impact on their market position and revenue.
• Comparison to Sequoia Capital's strategy of targeting big markets and maintaining focus over decades.

"85% of their revenue is dedicated to metabolic disorders. They are the second largest market cap pharma, second only to Eli Lilly."

• Emphasizes the importance of strategic focus and long-term commitment to a specific market area for success.

• Discussion on the Novo Nordisk Foundation's size, its endowment, and its role as a major charitable foundation.
• Exploration of the foundation's mission and its impact on Novo Nordisk's strategy and operations.

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

• Highlights the foundation's significant influence and its dual mission of stability and supporting scientific and humanitarian causes.

• Examination of Novo Nordisk's unique corporate structure and executive compensation policies.
• Discussion on the alignment of incentives and its impact on the company's focus and innovation.

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

• Explores how different incentive structures can influence company culture and long-term strategic decisions.

• The high-risk, high-reward nature of pharmaceutical development and the significant investment required.
• Discussion on the industry's focus shift towards specialty drugs and the challenges of developing mass-market medications.

"Pharma is the most classic example of the venture business. It's super high risk, it's super high return if it works, and the winners need to subsidize all the failures."

• Highlights the financial and strategic challenges faced by pharmaceutical companies in drug development.

• Analysis of the U.S. healthcare system's costs relative to GDP and the diminishing returns on healthcare investments.
• Discussion on chronic illnesses and the healthcare system's adaptation to new challenges.

"For every dollar that we are investing into the healthcare system, we're getting less and less incremental utility out."

• Explores the economic pressures and inefficiencies within the healthcare system.

• Evaluation of the pharmaceutical industry's value creation versus value capture, specifically looking at Novo Nordisk.
• Discussion on the perception of drug pricing and the industry's return on invested capital.

"Shareholders in pharma companies feel like they're actually not making that much money... their return on invested capital is maybe slightly better, but pretty much on par with other industries."

• Examines the balance between the industry's profitability and its contributions to healthcare advancements.

• Consideration of GLP1 medications as a potential long-term growth area for Novo Nordisk.
• Discussion on possible risks and challenges associated with these medications.

"Are GLP1s the next super cycle? If yes, that is the bull case."

• Evaluates the potential for GLP1s to drive future growth and the factors that could influence their success.

• Reflection on the broader trends and challenges in the healthcare industry, including innovation, regulation, and market dynamics.
• Discussion on the role of pharma companies in driving healthcare advancements.

"Pharma are the guys in the arena, they're out there trying things."

• Highlights the ongoing efforts and challenges in the healthcare industry to innovate and improve patient outcomes.