Lessons from Novo Nordisk on the stampede for obesity drugs


Paul Ingram, who manages a ranch in rural Texas, is not the type you would normally associate with a weight-loss fad. But a year ago he finally got fed up with lugging his 320lb (145kg) frame around all day in the heat. His family has a history of heart disease. As a result of covid-19, he had become painfully aware of the risks of obesity. His efforts to lose weight through diet and exercise had gone nowhere. “I needed some help.”

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So his doctor, a family friend, suggested he use an injectable drug from Novo Nordisk, a Danish drugmaker, that is approved for type-2 diabetes but, as a fringe benefit, helps with weight loss, too. To start off, the price, at about $1,000 a month, was out of Mr Ingram’s reach. Because he didn’t suffer from diabetes, his insurer wouldn’t cover it. Then he discovered an online Canadian pharmacy that shipped it to him for $350 a month. Since using it, he has shed 60lb. When he goes to the gym and picks up two 30lb barbells, he thinks, “I used to carry this much more weight around on me all day long.” It’s life-changing, he reckons—he eats less, exercises more and his doctor is “tickled to death”. “It blows me away that insurers don’t want to pay for it.”

The drug he uses, Ozempic, is now a meme. But it is about more than just “skinny pen” jabs for starlets. In America alone, 110m people like Mr Ingram, many on low incomes, suffer from obesity. They need help getting into shape. Novo Nordisk is their new port of call. It has been a wild ride. Following Ozempic’s serendipitous success, the firm’s newest potential blockbuster, Wegovy, was the first drug in years that America’s Food and Drug Administration (FDA) approved for obesity. This has meant some insurers cover it. For the past two years the company, which turns 100 in 2023, has traded like a growth stock, doubling in value to $326bn on hopes that overlapping diabetes and obesity drugs could become the biggest-selling class of pharmaceuticals ever. It is forecast to divide most of the market with Eli Lilly, an American firm, whose diabetes drug, Mounjaro, may win FDA approval for obesity this year. It is a race like that for the covid-19 vaccine. The combined market capitalisation of Novo Nordisk and Eli Lilly easily eclipses that of AstraZeneca, Moderna and Pfizer put together.

In the eyes of some pundits, Novo has flubbed its lead. It underestimated demand, mishandled supply and let this slow down its ambitions to roll out Wegovy in Europe. Its boss, Lars Jorgensen, admits to some mistakes. But on balance, Novo deserves credit. A hesitant response to an unprecedented surge in demand is not the gravest of shortcomings. In the pandemic many firms, from e-merchants and carmakers to gunsmiths, struggled with demand shocks. Rather than lament Novo’s performance, learn from it. Its efforts to tackle obesity provide some golden rules on how to cope in the midst of a boom.

The first thing to remember is knowing your onions. Analysts have long complained that Novo’s focus on diabetes-related illnesses make it the least diversified big pharma firm in Europe. But that is orthodoxy gone mad. One of the beauties of the firm, whose founders first made insulin in Denmark in the 1920s, is specialisation. In 1990 Michael Porter, a management guru, called Denmark’s insulin-exporting prowess one of its big competitive advantages. That industrial focus gave Novo a head start on obesity. For decades it toiled in the wilderness, while its rivals concluded obesity drugs were neither effective nor safe. But once it discovered that the GLP-1 medicines it used for diabetes, if made longer acting, could lead to at least 15% weight loss, it doubled down. Besides obesity, it hopes to use GLP-1-related drugs to help treat heart disease and other related illnesses. Its success is testimony to the virtue of innovating in adjacent, highly specialised businesses, rather than creating something from scratch.

The second lesson is: know your real market. Novo was at first caught out because demand for obesity drugs spiked far sooner than that for its other drugs typically do, quickly depleting inventories. That deprived some patients of badly needed drugs, as influencers were using TikTok and other social-media apps to pep up demand. This served as a reminder of the dangerous distractions of the hype cycle. So now the firm is going back to basics. It is focusing on customers with a body-mass index (BMI) over 30, like Mr Ingram. It is working with doctors to ensure that they prescribe the drug correctly. And it has set about convincing insurers and health authorities to pay for obesity treatments.

Third, keep control of capacity. As demand surged, one of the filling sites Novo had contracted in Europe malfunctioned. Mr Jorgensen says the situation is improving. It already has two more filling sites coming on stream, and in 2023 it intends to double capital spending for the second year in a row. But it should not overreact. Companies as clever as Amazon learned during the pandemic that excessive faith in a “new normal” leads to overcapacity. Many, including the e-commerce titan, have since shed people and property. The factories in America and Denmark where Novo makes the active ingredients for its medicines take five years to get up and running, at a cost of up to $2.5bn. That gives it a generous head start. Even with the obesity market’s huge promise, it is better to advance steadily than to rush.

Skinny pens, fat profits

Last, plan for the long haul. Profits are booming, which delights investors. But many of those who need obesity drugs are unable to afford them. According to a survey by Jefferies, an investment bank, Americans who earn less than $15,000 a year have the highest BMIs. Novo has every right to reap rewards for its innovations. Insurers may cover most of the costs. But to avoid a political backlash, it is important that those who need them most can access them. In order for obesity drugs to extend to other diseases, such as cardiovascular ones, it will be crucial to maintain goodwill. Like diabetes, obesity may be the start of another 100-year business.

Read more from Schumpeter, our columnist on global business:
It’s time for Alphabet to spin off YouTube (Feb 23rd)
AI-wielding tech firms are giving a new shape to modern warfare (Feb 16th)
What would Joseph Schumpeter have made of Apple? (Feb 9th)

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