2024-01-22 03:45:26
Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
All right, first episode back. Let's see if I can do this sleep deprived.
Who got the truth? Is it you? Is it you? Is it you? Who got the truth now? Is it you?
Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Who got
the truth?
Welcome to season 14, episode one of Acquired, the podcast about great companies and the
stories and playbooks behind them. I'm Ben Gilbert.
I'm David Rosenthal.
And we are your hosts. Today's episode is on the company behind these sensational diabetes
and weight loss drugs, Ozempic and WeGoVie. The company is Novo Nordisk. Now, when I first
learned about Ozempic a few years ago, I thought, of course, this is going to be amazing for
a lot of people and could also completely destroy the market for insulin. Those insulin
companies better watch out.
But here is the fascinating thing, listeners. Novo Nordisk is the company behind insulin,
or at least one of the few big ones. Now, you might say, well, that's OK, because they're
probably a big pharmaceutical company that's, you know, very diversified with lots of different
drugs. Nope. No. 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. And perhaps even more surprising, this pharma giant is
unique in that they are owned and controlled by a nonprofit foundation. The stats around
weight diabetes and its impact on our society are staggering. There are 38 million Americans
with diabetes. That's one in 10 people. Globally, that number is over 500 million with the disease.
Diabetes costs the U.S. alone more than $327 billion a year. And on the other side of things,
in the weight category, around a billion people suffer from obesity worldwide. A billion,
including 40 percent of the U.S. population. If you expand that from obesity to overweight,
75 percent of Americans are technically overweight. It is really hard to imagine a bigger market
to go after, which is why Novo Nordisk has become Europe's largest company, surpassing
even LVMH last year, David. Yeah, it's wild. I mean, there are no other
disease and drug categories besides diabetes and obesity that this could be possible to
have a company of this size to have a pharma giant pretty much just focused on this one
area like this is the Hermes of the pharma industry. Yeah. So why is today in the early
2020s the moment in human history for these new GLP-1 drugs? Well, the crazy thing is
semaglutide, the molecule in Ozempic and Wegovy, was pioneered back by Novo Nordisk with the first
trial in 2008 for type 2 diabetes treatment. And it was built on research started in the early
90s. 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, or that's at least the public perception of it.
Incredibly, the fact that GLP-1 drugs could be used to reduce food intake was actually
discovered way back in the mid-90s in the first sort of scientific publication about it,
but only in 2021 did we finish the clinical trials that truly show how effective it can be.
And as we'll see, that's just the tip of the iceberg. I mean, this company is 100 years old.
The history goes way back and is way more interesting than I think just about anybody
knows. Yep. Pharmaceuticals is without a doubt the most complex industry that we have ever studied.
So to fully understand Novo Nordisk, we need to go back to a simpler time,
before the Food and Drug Administration, before all this industry consolidation and healthcare
oligopolies, before there were treatments for everything we take for granted today,
antibiotics, vaccines for polio, tetanus, measles, mumps, you name it.
That is where we will start our story. If you want to know every time an episode drops,
you can sign up at acquired.fm slash email. These will also contain hints at what the next episode
will be and follow-up facts from previous episodes when we learn new information.
Come talk about this episode with us after listening at acquired.fm slash slack. And if
you want more from David and I, you should check out our second show, ACQ2, where we interview
founders, investors, and experts, often as follow-ups to the topics on these episodes.
Before we dive in, we want to briefly share that our presenting sponsor this season,
which we are so pumped about, is JP Morgan, specifically their incredible payments business.
Yeah, we'll be talking about them in depth later in the episode, but we've known JP Morgan for a
long time. We both personally bank with them, as does Acquired, but we really uncovered the
breadth of JP Morgan Payments as we went deep into our industry research for our Visa episode last
year. Just like how we say here on Acquired that every company has a story, every company's story
is powered by payments, and JP Morgan Payments turns out to be a part of so many of our Acquired
companies' journeys. And it's not just the Fortune 500. They're also helping companies
grow from seed to IPO and beyond. Yep. We're pumped to explore payments through all these
different industries this season through both a technology innovation lens, but also a business
model innovation lens. Much more ahead. So with that, this show is not investment advice. David
and I may have investments in the companies we discuss, and this show is for informational and
entertainment purposes only. David, where are we starting our story? Well, we start in 1921,
over a hundred years ago, in Toronto, Canada, with the discovery and extraction of the pancreatic
hormone insulin by a laboratory group at the University of Toronto Medical School.
Insulin, of course, as most of you know, regulates the absorption of glucose from the blood into the
body, and it's the main anabolic hormone in most, if not all, animals in the world. Insufficient
insulin production in the body, of course, leads to the disease diabetes. So this group, if you
could call it that, at the University of Toronto, is comprised of the physician Frederick Banting
and the medical student, his assistant, Charles Best, along with a chemist and the head of the
laboratory there, and assistant medical school dean, John MacLeod. Now, there's a whole bunch
of controversy around who actually deserves credit for the discovery of insulin. The historical
consensus at this point, now being that it really was Banting and Best who did all the work, but
nonetheless, two years later, 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. This will come back up in a minute. Yeah, and to set some context for the time period
here, 1921, the public is not aware of what insulin is. The public is, however, aware of what type 1
diabetes is. This is the juvenile form of diabetes. Only 5% of diabetes sufferers have type 1 today,
but back then, this was the dominant form of diabetes, and it was families whose kids had a
death sentence, and there was basically nothing that could be done. There were lots of rumors of
people trying to figure out what substances you could inject or eat or anything to cure this
sort of mysterious, horrible way to die. People were so convinced in the late teens and early
20s that scientists were on the verge of a breakthrough that the common wisdom was to
go on a diet of like 200 to 500 calories a day and starve yourself so that you could
live long enough, even though you had a terrible quality of life, you could live the months or a
couple of years long enough when the treatment did arrive to finally get it. I mean, we can't
overstate how important this was and how terrible, awful diabetes was. I mean, it was truly a death
sentence. That treatment that you were referring to, that was the official American and globally
accepted treatment for diabetes, it was literally called the starvation diet, and it was just an
attempt to prolong your life as long as possible, but you are going to die unless a treatment
is found. So when we say that this group won the Nobel Prize in 1923, this isn't just like a Nobel
Prize. This is one of, if not the most important advance in all of modern medicine that they're
discovering here. I mean, we're just not that many decades after snake oil salesmen, patent
medicine. We talked on the Standard Oil episode about John D. Rockefeller's father literally
selling snake oil, and that's just barely in the rear view mirror. This is one of the earliest
breakthroughs in modern science. We were still years away from antibiotics and certainly decades
away from the popularization of antibiotics as a treatment. So this was the big breakthrough.
Yep. All right. So what did Banting and Best do? So scientists had known, even going back to the
1800s, that diabetes was caused by the misfunctioning of some type of hormone that was created in the
pancreas. But until Toronto, nobody had been able to actually isolate what that hormone was, let
alone extract it. And to put a finer point on it, Banting and Best didn't even know what the hormone
was. Even when they did figure out what to extract, they thought it was sort of this soup of
a bunch of different chemicals mixed together. They wouldn't figure out for years and years and
years, oh, this is like one very pure specific hormone that we are isolating here. So by
experimenting with dogs and dog pancreases, they're able to extract something that comes to be known
as insulin. And not only extract it, they then experiment with it and inject it into human
diabetes patients who are at severe end-of-life stages. And miracle, the human body is able to
use this extract from dog pancreases, and these patients have miraculous recoveries.
Yeah. I spent a bunch of time reading this book, Breakthrough, by Thea Cooper and Arthur
Ainsbourg, and they go way into this. Basically, this team was the first one to figure out you
could target the pancreatic islets and isolate the extracts in a relatively pure form, and pure
by their standards, not certainly by today's standards. But you're right, totally crazy
extracting from these dogs and injecting in humans in extremely limited quantities.
Once they figured it out, it was still hard to then go from there to getting it to people
because they're like, well, okay, we did this thing that kind of worked once from one dog
into one person. So where do we go from here? And importantly, this new insulin substance,
while it is a miracle, it's not a cure. Injecting patients with it doesn't magically restart
production of insulin in their own pancreases or cure the disease. It only works until your
body uses it all up, which is pretty quickly. So these diabetes patients, they finally have a new
lease on life, but it's kind of also just that, like a lease. In order for them to survive, they
need to regularly inject an appropriate amount of insulin. And by regular basis, especially in
these early days, that's like every couple hours. And you can imagine the incredible high wire act
in the early days where they've extracted from literally one dog. They've kind of written down
the process. Strangely enough, somewhere along the way, the process was forgotten. Someone else had
to replicate it. And then they took his notes, combined them with the original researchers,
and then figured out a path forward. I mean, we discovered the process for refining insulin
enough to put it into humans and then lost it and then found it again. This was the state of medical
science. And so you have people ringing off the hook, newspapers reporting, the breakthrough is
here, the breakthrough is here. And they've got like single digits or dozens of vials of usable
insulin, each of which need to be injected into a single patient every few hours in Toronto. So
there's not enough to go around. The path forward is super unclear. And this is foreshadowing a
little bit, but the era that we're in here in 1921, there is a firewall between industry and
medical science. And it was perceived to be unethical to make money on taking your medical
breakthroughs and sort of turning them into companies. And so there's this extreme culture
at the University of Toronto around we have to protect anyone from making too much money off
this thing. So we got to be really careful and potentially even slow down its development and be
really thoughtful about how we distribute it to the world so that nobody takes it and makes too
much money. Yeah. Banting and Best and McLeod aren't going to go, you know, today they would
go like start a company, you know, around this, like that's not going to happen back then. But
all of a sudden the world needs a lot of this animal insulin and in a supply chain that can't
go down because once you start patients on this, they need it forever. 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. And they give Eli Lilly a one year exclusive development license
to try and mass produce this substance. And again, like you said, this is like a big step for the
University of Toronto to do this, but the need in the world is so great that they're willing to work
with industry here. You literally have presidents and secretaries of state trying to call in favors
and successfully calling in favors to get access to the limited vials that the University of Toronto
has. Yeah. Wasn't Elizabeth Hughes, one of these famous first patients, the daughter of the
secretary of state of the U.S. Right. Charles Evans Hughes. Yeah. Yeah. Wow. So it's obviously
not practical or maybe not ethical. That's beyond the scope of this podcast to use dog
pancreases for scaling mass production here. But it turns out there actually is an abundant
ready supply of animal pancreases that happen to be just sort of lying around in the American
heartland and just about every human food production center in the world. And that is cow
and pig pancreases from, you know, all the meat that we eat. Indiana's got a lot of cow farmers.
And so the clever really start up Eli Lilly. I mean, the company had been around for a while,
but this idea of taking on real R&D risk was sort of a new concept. So they sort of start up. Eli
Lilly is going around hiring salespeople to bang down the door of slaughterhouses all over Indiana
and say, hey, I know your waste product includes pancreases. Do you think you could ship those to
us? We'll pay you for those. Yeah. And it's actually not an easy sale because those farmers
are like, it's going to slow down my process if I have to figure out how to separate the pancreases.
And this is already a real tight ship. So there's a real entrepreneurial tale of Eli Lilly sort of
convincing large, large numbers of slaughterhouses to do this. The other interesting thing to note
about the Eli Lilly license, David, which I thought was really clever is it's a one year
exclusive license where there's two conditions and the conditions are a trade. One, Eli Lilly
has to report back any advances that they make to the University of Toronto. It's almost like
Operation Warp Speed going on, kind of analogous to COVID. As they figure stuff out, they have to
share it back with the University of Toronto to improve the manufacturing yields of whoever else
will be developing the drug. In exchange, the thing that Eli Lilly does get to retain and protect on
their own is a brand. Eli Lilly saw it really important early to say, hey, we want to build
a brand around insulin so that people know it's coming from us, that it's of a certain quality.
And even when we lose our one year exclusive license, and even when we stop contributing
the manufacturing IP back to you, the brand actually stays ours.
Yeah. We're going to talk a bunch more about Eli Lilly here as we go, but this moment,
this insulin moment, this is what really turbocharges them and makes them into one of,
if not the first kind of leading American and international pharmaceutical company,
which it still is to this day, still bigger than Nova Nordisk. Although not by too much.
Well, much more diverse, but not too much larger by market cap.
Okay. So back to this whole Nobel prize thing, which as we said,
was awarded to Banting and assistant medical school Dean John McLeod. Now,
how did McLeod end up being the guy who shares the award with Banting and not Best? And years later,
actually, the Nobel committee would basically admit that they messed that up. It turns out
that the answer to that is the key to the first chapter of our story today,
because the actual nomination, I don't know if you knew this, Ben, the actual nomination
for that prize was put forth by a previous Nobel prize winner in physiology or medicine,
the 1920 Nobel prize winner from Copenhagen, Denmark, a animal biologist named August
Crow, who also happens to be the founder of Nova Nordisk.
Is that how Nobel prizes work? A previous winner nominates the current nominees, or is it just like
it certainly helps their case if a previous winner?
Yeah, I do not think it is a requirement, but certainly a previous winner and a recent
previous winner in the same category you would imagine carries a lot of weight.
So the guy who would go on to found Novo Nordisk is the one that nominated
Banting and McLeod for the Nobel prize before starting the company.
Yeah. Now here's the wild thing about August Crow, founder of Novo Nordisk,
the world's premier insulin company focused on insulin and diabetes for 100 years now,
world's premier GLP-1 company. He's not a physician. He's not even a human biologist.
Yeah, he was an animal biologist, right?
Yeah, he was an animal biologist. Fun fact, though, this is maybe my favorite sidebar in
the episode. He studied at the University of Copenhagen. His advisor was a guy named Christian
Bohr, B-O-H-R. That name might sound familiar to some people.
Descendant of Niels Bohr?
Father of Niels Bohr. That Niels Bohr, father of atomic physics, also winner of the Nobel prize,
major contributor to the Manhattan Project. So yeah, his August's PhD advisor was the father
of Niels Bohr. Everybody's winning Nobel prizes. There must have been something in the water in
Copenhagen at that time.
Also, that tells you how long ago this was, that in my head, Niels Bohr is like someone
from a long time ago, so it would be a descendant, but actually this is his father.
Yeah, right, right, right. Okay, so back to August Crow. How the hell does he end up
going to Toronto, getting involved in all of this, starting, you know, Novo Nordisk?
Well, in 1920, the same summer that he wins the Nobel prize, his wife, Marie Crow, is
diagnosed with diabetes. And this starts weaving together this whole crazy chain of events
that leads to, well, Nordisk. Novo comes a little later. Marie herself is actually a
pretty incredible person. She is a physician. So she's the first woman in Denmark to earn
a doctorate in medicine. And Denmark, I kind of suspect, has always been pretty progressive
relative to the U.S., but even still, like we're talking about like the 19-teens, a woman
to earn a doctorate in medicine and then be a practicing physician was obviously unique.
Yes.
So when she's diagnosed in 1920 and, you know, she basically self-diagnoses, she knows
what's going on. Like she and August, like she knows exactly what this means. Like she's
to die. This is horrible. But given that they're both very, very active in the scientific and
medical community in Europe, they are able to get her the best care possible, which at
this point in time in Denmark is a young Copenhagen based physician named Hans Christian Hagedorn,
who is widely respected as sort of the best endocrinologist in town, even though he's
very young and he's up to date on all the latest workings of the starvation diet and
how to maximize quality of life and prolong life as long as possible. Fortunately, Marie
diagnoses herself very early. He puts her on a closely monitored starvation diet and
they stabilize it enough, enough after a year or so. Now, back to August. Ordinarily, you
know, after you win the Nobel Prize, you go on a major international lecture tour. And
of course, he's invited all over the world, particularly to the elite universities in
America, to come give speeches on his Nobel Prize winning research. But because Marie
fell ill at the same time, he had to delay his trip until 1922. So in 1922, August and
Marie set sail for Boston, which is, by the way, amazing that a type one diabetic has
made it sort of this far in life and is in the early 20s doing transatlantic travel.
Totally amazing. So August is going to give a delayed series of lectures here at both
Harvard and Yale. While they're in Boston at Harvard, they meet with a guy named Elliot
Joslin, who he's actually the inventor of the starvation diet. He is like the world's
foremost diabetes physician and researcher at this point in time. And Elliot tells them
about what's going on in Toronto. This is the world that we're living in back then.
News of the discovery of insulin hadn't really yet reached Europe and certainly hadn't
reached Denmark at this point in time. So it was like a competitive advantage to be
a Nobel Prize winner on an international lecture circuit because you got better,
faster information about brand new medical advances. Yes. Well, and particularly competitive
advantage, like life advantage. They're just concerned about Marie's life at this point
in time. So Elliot says, you know, I know the guy who runs the lab up there, John McLeod,
let's write him a letter and see if while you're in America, you can go up and see them and see
the lab, see what's happening and maybe get some of this insulin. So August and Marie write to
McLeod. Marie also writes back home to Denmark, to Hagedorn and tells him about what's going on
and about this discovery of insulin. She suggests in that letter that since Hagedorn is kind of the
leading diabetes physician in Denmark, maybe while they're in Toronto, they might be able to secure
some rights or ability to bring insulin back to Denmark. McLeod in Toronto, he gets the letter.
He's like, of course, come on up. You and Marie both come stay in my personal home. Sadly,
unfortunately, Marie falls ill and she can't make the trip up to Toronto. So August goes alone,
but he stays with McLeod, observes the insulin production process, sees everything that's
happening. They become close and friendly. Most importantly, McLeod takes August to go meet with
the insulin committee and talk about what Marie had suggested to Hagedorn of like, hey, maybe
these are the right people to bring insulin to Europe, essentially, but at least to Denmark.
Now, funnily enough, at this particular point in time, it turns out you actually can't patent drugs
in Denmark. So any blessing or patent licensing from the insulin committee to the Crows and
Hagedorn for Denmark is sort of pointless because it's not legally binding in Denmark anyway.
But the insulin committee says, well, you're really the right people to do this.
How about we give you rights for all of Scandinavia, Norway, Sweden, Denmark? You
have our official blessing and any rights that you need. And this is pretty similar deal that
they cut with Eli Lilly. That was for North America. They basically gave him the same
thing for Scandinavia. Yes. So August and Marie set sail back for Europe. They arrive in Copenhagen.
They go tell Hagedorn the news. Immediately, they all go get to work. And by get to work,
they go buy cow pancreases at the local livestock market in Copenhagen.
This is something. So you read more about the Novo Nordisk history than I did.
Was it cows or was it pigs? Because I know that Denmark has an abundance of pigs,
which actually made it pretty well suited to be an early insulin manufacturer.
Interesting. It was both. I think pigs may have come later, but certainly it was both cows and
pigs that Nordisk and then Novo were using both of them. They were just basically trying to get
their hands on any animal pancreases that they could. Right. If it's got islets, we want it.
Yep. So using the Toronto method, they get a bunch of pancreases. They go to August Crowe's lab at
the University of Copenhagen, run them through a meat grinder, pour hydrochloric acid over them,
they extract insulin, and then they test it on rabbits and mice and they confirm,
yeah, we've got it. This is insulin. Certainly for the first time in Scandinavia. I think maybe
also for the first time in continental Europe, at least insulin is extracted here in Denmark.
So this leaves just one obvious problem, just like insulin in Toronto. This is not going to scale.
Maybe you could do this to treat Marie, but they want to treat the whole country, the whole region.
Right. This is like a very real problem for insulin all the way up until like the 1980s,
which is you are scale constrained by the number of dead animal pancreases you can get your hands
on. I found this wild stat. It takes 8,000 pounds of pancreatic glands from 23,500 animals
to make a single pound of human insulin. Yeah, that's wild. To put that in more real numbers,
that means that even by 1980, with all the advances, it took 1 million animals annually
for 30,000 diabetes patients. And there are a lot more than 30,000 diabetes patients in the
world in 1980. And we'll talk about who the pioneers were and how we eventually got out of
using animals to create insulin in the 80s. But that was also the moment in time where type two
diabetes really took off. Yes, you're foreshadowing. It's been a 45 year massive issue. But like,
we basically could not have continued to use animal based medicine to treat diabetes once
it really exploded. Then we're going to get to this in like two hours. Sorry. All good.
So back to the crows and Hagedorn in 1922-23 in Copenhagen, they need to scale production. So
they go to the Löwens Chemiske Fabrik. And I need to like, majorly apologize to all
Yeah, your Danish is amazing. Danish people out there.
I talked to some Danish folks in research for this episode. And thank you very much. And I just,
I need to give up on trying to pronounce things correctly. Stick to French.
We'll stick to French. Yes. But that translates to English as the Lion Chemical Factory. And it is
owned and run by another man named August. August Kongsted. K-O-N-G-S-T-E-D. And so they partner
together. And by the summer of 1923, the very same summer that the Nobel Committee is debating
on the award for that year. And of course, Crow at this point has nominated his buddy McLeod,
along with Banting. By that summer of 1923, the combo of the crows and Hagedorn and the Lion
Chemical Factory have produced enough insulin that they can complete trials with eight human
patients with great success there in Copenhagen. And at this point, H.C. Hagedorn, who remember
was originally Marie's physician to help treat her diabetes, he resigns his medical post and
decides that he's going to focus full time on this project. So the founders are Hagedorn and
August and Marie Crow. And Kongsted from the Lion Chemical Factory. These are the founders of the
project, but there's no Novo Nordisk yet. And we should say around this time, I believe
Eli Lilly was further along in terms of the volume that they had developed. I think they
were making like hundreds of vials a week of usable insulin. Absolutely. Eli Lilly had insulin
on the American market available to patients at this point in time. Yep. All right. So how does
this actually turn into Nordisk? But before we do that, I want to pick up the thread that we left
earlier with our new friends at J.P. Morgan Payments. Yes, we are excited to partner with
J.P. Morgan Payments this season and discuss all the ways they are helping businesses grow and
innovate across a broad industry landscape. So whether it's a startup that needs merchant
acquiring, which you now know what that is from our Visa episode, or a company building a new
multi-sided marketplace, or even a business expanding across borders and having to manage
the complications of cross-border treasury and FX, the more we dug into the industry and the more we
got to know J.P. Morgan Payments, the more we realized how relevant it is for founders, CEOs,
and operators to be thinking about how to leverage payments as a source of revenue.
Yep. If you think about it, there are whole companies and industries that couldn't exist
a decade ago without today's modern payment infrastructure. It's become central to businesses
with modern product experiences like ride-sharing, the creator economy, or B2B use cases like SaaS
marketplaces or managing supplier relationships. For those types of companies, payments literally
is their business. Yet, thankfully, they don't need to go it alone. J.P. Morgan Payments has
been pioneering in this industry for decades. I mean, they're J.P. Morgan. They move $10 trillion
a day. Yes, that is trillion with a T, and you can literally never outgrow their capabilities.
Like we said for us at Acquired, the peace of mind of having a single innovative banking and
payments partner for the long-term is pretty powerful. Yep. So let's look at the healthcare
industry through the lens of payments. There are multiple ways of innovation on the horizon with
telehealth, preventative treatment, and new clinical trial processes. Seamless and secure
payments are critical to the improvement of patient experience in unlocking innovation
for businesses and providers. When you zoom out this complicated ecosystem of payments,
healthcare providers, insurance networks, specialists, health monitoring services,
and more, it creates a complex and friction-filled payment experience. Who's paying who, when,
under what terms, and then you layer data privacy requirements on top. You can understand why there
are a lot of forces impeding change in this industry. So if you're a company or a provider
trying to innovate in this space, getting the payments piece right is paramount, which is
why J.P. Morgan Payments' array of products, including their healthcare solutions and
Instamed offering, provides a patented cloud-based technology to securely transform healthcare
payments by driving electronic transactions, processing payments, and moving healthcare data
seamlessly. J.P. Morgan Payments believes that no matter where your business falls on the care
continuum, better payments can help healthcare companies deliver better care. Yep. Some of our
listeners may have attended J.P. Morgan's healthcare conference earlier this month in San Francisco,
so if you did, let us know in the acquired Slack. Dave and I are curious what your takeaways were
from the state of the ecosystem. To learn more about J.P. Morgan's end-to-end payment solution
and how they could be used in your business today, head on over to jpmorgan.com slash acquired,
which just feels good to say. I know. Stay tuned to discover how they're accelerating innovation
across all the industries we are covering this season. Okay, so David, the founding of Nordisk.
How does it happen? So the Lion Chemical Factory at this point has established a new production
line for insulin, but it's unclear do they own this production line? Did the Crows? Does Hagedorn?
Is the University of Toronto involved? Crow and Hagedorn are sort of consulting on it. When Hagedorn
makes this decision to go full-time, what actually happens is he becomes an employee of Lion Chemical,
which isn't really what he wants. August Crow steps back and he returns to his other research
at the University of Copenhagen. But once insulin starts rolling off the line later that summer,
under the brand name Insulin Leo, like, you know, Lion Chemical Factory, they use the brand name,
and that would continue to be Nordisk's insulin brand name for the next 60 years, I think. Wow.
Pretty quickly, demand is just off the charts. And they are, like we talked about, essentially
the first mover in continental Europe. So there's a pretty enormous opportunity here.
So in 1924, Crow, Hagedorn, and Kongstad, who owns Lion Chemical, they all come to an agreement.
They're going to set up a new, independent, and self-owning institution to produce and distribute
this insulin throughout Europe. Yeah, what does that mean? Still not a company. Because other than
Kongstad from Lion Chemical, Crow and even Hagedorn at this point, they're not particularly
commercially minded. No, it's a biologist and a physician. Yes. So what they do is 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 that they also set
up. And the three of them are going to be board members of this foundation, and Hagedorn is going
to run it day to day. This is really important to know and really crazy how much this impacts
the future. This is still the corporate structure of the largest company in Europe, and we're going
to get to this hours from now in Playbook, but this governance structure massively affects the
incentives and the way that this company ends up developing products going to market with them.
The future blueprint of the next 100 years is laid right here in this corporate structure.
And foreshadowing, there is a moment much later in history where, absent the control of this
foundation, Novo Nordisk would have ceased to exist. It is only because of this structure
that Novo Nordisk survived and that we have GLP-1s in everything we have today.
It's fascinating. By the way, this is not that uncommon in Danish companies. Lego, same structure.
Maersk, the shipping company, same structure. Well, I dug into this a little bit. Yes, this is a very
common structure in Denmark, mostly for tax reasons, because Denmark has very, very high
taxes. This is a common generational transfer mechanism. Later, we'll talk about Novo in a sec.
Novo actually has this type of structure that you're talking about. The Nordisk foundation is
not just a foundation of convenience. It really is a charitable foundation with a dual mission.
They give it two missions. The first mission is to produce insulin and sell it, A, at cost
in Scandinavia, in the original territory mandate, in order to maximize access and
humanitarian and public health benefit. B, though, export it elsewhere in Europe and around the world
at market prices and use the profit from those exports to fund further diabetes research and
development. No profits allowed in Scandinavia. Profits are allowed from export activities,
and then all of those profits, literally by contract, get shipped 100% to the foundation
to then be used for grants and research about diabetes and supporting diabetes patients in
Scandinavia. Fascinating. I did not know that. Totally fascinating. More or less, as you said,
that is the same mission and structure that is still in place today. It's obviously changed
a little bit. Yeah, there's some caveats that I'll get to when we get to today.
Yes, the operating company is now publicly traded, but still that foundation controls 77%
of the voting shares of Novo Nordisk and 28% of the economic shares. Yeah, so no shareholder
activism in this company, or at least no one's effective in doing so. Yes. So the name that they
choose for this new institution or really dual institution is, fittingly, Nordisk Insulin,
which Nordisk in Danish means Nordic Insulin. It's the insulin manufacturer for the Nordics.
Very creative. Very creative. So you're listening here, you're probably like,
okay, that's Nordisk. What's the Novo piece of this? Well, it turns out that that is quite the
story too, because among the very first employees of the insulin project, even before Nordisk gets
created, are two brothers, Harald and Torvald Pedersen. And the Pedersens, you got to remember
the time we're in, they're sort of like prototypical 19-teens, 1920s kind of engineers
and tinkerers. We're not that far removed from like the Wright brothers and Henry Ford and that
kind of stuff here. They're like kind of cast from that mold. So the older brother, Harald,
he had been working in August Crowe's lab, doing all the mechanical engineering stuff to carry out
the experiments. Like you need to build devices and contraptions and set up experiments. And so
Harald was in charge of doing that. Once the insulin project gets going, Harald naturally
sort of shifts over and he's the one going out and building and buying and modifying like the
meat grinders and figuring out how to pour hydrochloric acid over it in the right way and
all that sort of stuff. When Lion Chemical gets involved in their spinning up mass production,
Harald goes to Hagedorn and August and Kongstad and says, hey, you're setting up an actual
production line. I've got just the guy to help you set it up and run it, my brother Torvald.
Because not only is Torvald a seasoned factory operations manager who's currently running a
soy factory, he is also trained as a pharmacist and studied chemistry. He's like the perfectly
qualified person to be like an early employee of this new operation. Except it turns out
there's just one problem. Hagedorn thinks he's in charge and Torvald, who's just been hired,
thinks, hey, I know what I'm doing here. I'm in charge. Like Hagedorn, you're this pompous
physician. Like what do you know about running a factory? So this schism happens like in the first
year of Nordisk's existence? Yes. In the first six months after Torvald is hired, he and Hagedorn,
they're constantly fighting. One day they get into a huge, huge argument and Hagedorn fires him.
Six months in. Guess we know who's in charge. Yeah. When that happens, Harald, the older brother,
resigns in solidarity and they're super pissed. They go to see Crow and they're like, hey,
you know, August, I've been working for you for a while. Like clearly we know what we're doing here.
Why is this happening? And Crow sides with Hagedorn. He's like, no, no, he's my guy. He's
Marie's physician. He's going to run this thing. So they say, well, all right, fine. You know,
as you know, here in Denmark, you can't patent drugs. Oh, that's why this is important.
We're just going to go down the street and make insulin too. And the legend has it
that supposedly August looks at them and replies, but you're not capable of that.
To which Torvald yells at him, we will show you. And they storm out of the building and go down
the street and they found a new insulin company, a Novo insulin company there in Copenhagen,
insulin Novo. And that is the beginning of Novo. And for the next 65 years, these two companies
would compete in blood sport, head to head, hated each other, absolutely hated each other
until they finally merged in 1989. Crazy. Yep. Now this is such a key part of the Novo story
that certainly, you know, Crow, but then Hagedorn develops into this amazing scientist,
as we'll talk about the advances that Nordisk is able to bring to market in the science of
insulin and diabetes is huge, but certainly without the like bitter competitive motivation
from down the street, I don't know that they would have moved as fast. And, you know, Novo
ends up building its own scientific research capabilities. And like these two companies in
this unlikely small country in Northern Europe end up leading maybe the most important drug
development of the 20th century. It's amazing. I mean, it's the local and bitter competition.
It's Ferrari and Lamborghini. It's Aldi and Trader Joe's. It's Adidas and Puma. You sort of create
the seeds of competition early and you can really infuse that into a company's DNA for decades.
So I think it's worth a quick pause here. We've already talked about some of this,
but just to clarify why diabetes and insulin is such a interesting market and large market
potential, you know, one, even with just type one at this point in time, it's still a very
large and widespread disease in the world. So it's kind of a large patient and potential
patient market size, but two, unlike many other diseases and drugs for those diseases,
you know, it's chronic, you don't cure it. So what insulin is doing is it is enabling
these diabetes patients who often are diagnosed as children to live essentially normal long lives.
So you're talking about decades, 40, 50, 60, 70, 80 years of patient lifespan here,
where they are injecting insulin daily, if not, you know, in most cases, multiple times daily.
There's basically nothing other than food that you can sell someone for their entire life.
But for diabetics, insulin absolutely has that scenario with a customer.
Yep. And there's also kind of another aspect that makes it particularly interesting commercially,
which is there's also a motivation to constantly improve the insulin product. It's not like
insulin is insulin is insulin. There are so many new products and improvements,
both in the drug itself, but also in the delivery systems. I mean,
this early insulin, as we've alluded to a little bit, it was barbaric by modern standards. Like,
yes, it saved the lives, but it didn't last very long. So you had to inject a lot of it
very frequently. It wasn't super clean. There are tons of impurities in it. So there's swelling,
there's infections. There's allergic reactions to all the impurities.
Totally. It wasn't shelf stable in liquid injectable form. This is wild. I don't know
if you knew this, Ben. No. So everything we're talking about in these days and what Nordisk was
originally producing were insulin tablets, solid insulin tablets. Now, until recent times,
you can't take insulin in tablet form. It doesn't get absorbed by the gut. You have to inject it.
So what patients had to do was take these solid tablets, dissolve them in sterilized,
boiled water, measure and draw that solution into a syringe themselves.
Like a glass syringe with a big needle. No pens. None of this fancy stuff we have today.
Yeah. Big-ass needle. So now you've got patients doing this multiple times a day,
and it's really important that they get the right amount of insulin for them.
This makes it really hard. Yep. And there's no measurement. I mean,
there's no one-touch pinprick. We get to see what your blood sugar content is right now.
We're so far from that existing that you are guessing. You're throwing darts.
Totally. And actually, it's kind of a side note to the story, but
it's Novo in the 1980s that invents the insulin pen.
Oh, I didn't realize that wasn't Nordisk, but Novo.
Yeah. Novo invented the pen and Nordisk focused on pumps, and they were one of several companies,
but one of the leading companies innovating in pumps.
I see. We should say, listeners, and David, you know this, this is a topic that is super
personal to me. A huge number of my family members are diabetic and actively suffer from
the complications and actively benefit from all the advancements in it. And so this is something
I've just had present around me my entire life with family members, as I'm sure many of you have,
too. I'm quite certain that almost everybody listening right now either is diabetic themselves
or has a close family member who is- Or is pre-diabetic. When I was doing research
for this episode, one of the people I talked to, and we'll thank a bunch of folks at the end,
but pointed out, we're all pre-diabetic in some way. And it's basically like the idea that, look,
your A1C levels, if you live long enough, will eventually enter diabetes territory,
especially with the food system today and all these foods engineered to leave us very unsatiated.
All of our natural inclinations that we had as hunter-gatherers and farmers and, you know,
imagine the paleo life long ago. All the things that served us evolutionarily to stay alive
are now the very things that are killing us. So everyone's on the path. It just depends how
long you live. We also weren't really designed to, you know, live this long either. Well,
careful with the word design, David. So when NOVO gets established, this starts the competitive
race that really leads to 100 years of R&D pipeline that changes all this. So the Peterson
brothers, they know right off the bat, they can't really just go clone what Nordisk is doing. I mean,
technically, legally, they can in Denmark, but what physician and what patients are going to buy
NOVO insulin when right down the street, you've got Nordisk, which has a Nobel prize-winning
scientist, the best diabetes endocrinologist in Denmark running it, and the explicit blessing
of Toronto and the insulin committee. If NOVO just sells the same thing, like nobody's going
buy that. But they do have a pretty significant advantage that Nordisk doesn't have, which is
they've got their engineering and tinkering skills. So they go to work and pretty quickly, actually,
they come up with shelf-stable liquid insulin. So what I was just talking about, about how Nordisk
produced these tablets, you had to boil them, 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, they can sell it effectively cheaper per dose than what Nordisk
is selling their solid form as. So they go to market, NOVO goes to market with their NOVO
insulin as insulin at half price, because it's so much more efficient. Now this is so antithetical
to the ivory tower scientists over at Nordisk. You're marketing insulin at half price. Does
this liquid stuff work? Is this safe and all this stuff? The Peterson brothers are like,
yeah, whatever. We're going to crush you. All right. So NOVO, scrappy upstart,
counter-positioned, and competition drives innovation. So they create better product.
Yes. So then Nordisk strikes back with a new, longer-lasting form of insulin called protamine
insulin, or NPH as it is patented and come to be known around the world, which stands for neutral
protamine haggadorn. Really? Haggadorn is in the name? Because H.C. Haggadorn, he himself led the
research developing this and he puts his own name on it. Kind of tells you what you need to know
about him. This is much more stable and needs to be injected fewer times per day, which is a huge
benefit for patients. So Nordisk, rather than building up production facilities around the
world, what they decide to do is license it back to basically any interested pharma company. So
like Eli Lilly back in the States, other companies in continental Europe. It's the new, widely
accepted, most advanced treatment for patients. Except there's one company that they refuse to
license it to, and that is Novo. Amazing. So Novo, undeterred, they go and they work around
Nordisk's patents on this. You know, and again, I'm not sure at this point if the laws have changed
and you can patent drugs in Denmark, but it kind of doesn't matter because it's clear, you know,
Denmark is not a very large country. By far, the bulk of the market is in exports at this point.
And certainly in other countries you can patent drugs. So Novo works around Nordisk's patents
and they come out with an improved version of protamine insulin that they claim is both better
and doesn't infringe on the patents. Which the pharma industry has a rich history of figuring out
exactly how to do this. Because the thing about pharma patents, which is interesting, is they're
fairly narrow. You can patent a molecule. I don't think this is quite true at the time, but the way
it sort of works today is you patent a molecule, which is extremely specific. It's different than
other industries where it's a system and a method for blah, blah, blah. And you can be very broad
with it. So if you can accomplish a similar biological or chemical reaction in the body
with a different molecule in basically any way, then unpatented. And so there's a rich history
in pharma of doing exactly this. What is slightly next to the patent, but does basically the same
thing. Yes. To your point, though, it is still quite scientifically difficult. It's not like
software here. We're like, yeah, yeah, yeah. I write some code and it's like, no, no, you still
got to find a molecule that does what you say it does. Yep. So this leads to a whole bunch of
lawsuits. It actually ends up going to the Danish Supreme Court, where Hagedorn represents Nordisk
himself. In the lower courts, they had lawyers, and I think they lost the case in the lower courts
and Hagedorn's like, screw this. I'm going to be my own lawyer. At the Supreme Court. At the
they win. Nordisk has won here. This is like a huge, huge blow for Novo, you would think.
But then literally right at the same time, World War II starts and Denmark is invaded by the Nazis
shortly after they invade Poland. And in April 1940, the Nazis now occupy Denmark.
So this sort of like infighting between these two Danish drug companies, much less relevant,
much, much less relevant. But what is still super relevant is how is Europe going to get insulin
in the middle of World War II? And this is a major, major turning point, both for the two
companies vis-a-vis each other, but also I think really what sets Novo on the path to becoming
Europe's dominant producer of insulin and then ultimately the dominant producer of insulin in
the world. So Novo, not Nordisk, became the globally dominant. Really? I did not know that.
I actually don't know the terms of the 89 merger. So I'm excited to listen just like everyone else,
David. Well, so what happens is Denmark is relatively unscathed during World War II.
It's a small country. The Danish army was quite small. And so when the invasion happens in April
1940, there's basically no fighting. Germany just takes over the country. I mean, there's no
destruction, which means that insulin production continues unabated in Denmark. Now, Nordisk,
remember, like I just said, once NPH comes out, their strategy becomes really like we produce
domestically and then we make our revenue and our profits internationally by licensing,
not by production. And with World War II, you know, most of the dollars for their licensing
revenue is coming from allied countries. Well, Germany just took over Denmark. So all of that
revenue, all of those profits go to zero overnight. And Nordisk, for the duration of the war,
basically just gets put into hibernation mode. They're still producing a little bit to help
supply Denmark, but there's really nothing going on there. They basically cannot address the market
of any allied countries anymore. Yeah. Wow. Novo is the complete opposite story. They had been
scaling production all throughout Scandinavia, all throughout Europe. And when Germany takes over
Denmark, insulin Novo is now, you know, the ethics of this are really complicated.
Because it's Danish owned, which is Nazi occupied at the time.
Yeah, they are now essentially 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, you know, not only to Germany, but to France, to Poland, to Austria,
to all everywhere in continental Europe, basically. So just to make sure I have it right, it sounds
like Nordisk is only making a small supply for Denmark. Novo is supplying all of Nazi occupied
Europe, and the allied countries no longer have access to anything Novo or Nordisk makes. And so
they're relying on their own suppliers like Eli Lilly. Yes. Now, they're fine. They can get insulin,
no problem, because Nordisk has licensed all the technology and production to them. They just keep
doing that. The only problem is for Nordisk that Nordisk can no longer get the payments from them,
because obviously, you know, transfer payments from allied countries are now blocked.
Right. Fascinating.
Totally fascinating. So again, we said the ethics of this are quite complicated.
There is no doubt that Novo's fortunes massively changed and expanded by the German occupation and
the Nazis during the war. On the other hand, literally the Nazis ordered them to expand
production and provide insulin for Europe. And like if they hadn't done it, all the diabetics
in Europe would have died. Oh, it's unquestionably a good thing. Again,
I'm learning about this from the first time from you, but like an evil person commanding me to make
more life saving drugs and distribute it to more people is fine. It's the other things they
commanded you to do that are not fine. Right, right. I definitely agree. It is
important to note, though, after the war, the Danish state did require both Novo and the
Peterson brothers personally to repay most of the profits that they made during the war back to the
Danish state. Fascinating. Again, like the ethics are complicated here. Very. Yeah. Wow. So regardless,
after the war, Novo emerges as now both a scaled pharmaceutical company, generally,
and the largest producer of insulin in Europe. And as part of that, now they have the resources
to really build up their own scientific and R&D divisions and become a real powerhouse to rival
what Nordisk was before the war. Shortly after the war ends, they develop a new product called
Lente insulin, L-E-N-T-E, which is slower acting insulin, which means it's thus longer lasting.
And this can now be used for diabetics as a basal or background insulin. So they'll still take
fast acting insulin around meals to help process blood sugar from meals. But a normal human
pancreas is also producing insulin 24-7 throughout the day. This now is a new background insulin that
diabetics can take to help stabilize when you're sleeping or not eating. So this is a pretty big
breakthrough. And what you're seeing here is Novo and Nordisk having decades of experience
researching mechanisms to slow the absorption or lengthen the effects of their drugs in the
human body and really developing this incredible competency around how do we sort of finely tune
how we want injections to react in your body over a long period of time in a very complex
environment. You've got the human immune system wanting to react to anything foreign 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 like we'll make it dissolve slower. And I know that's not
technically right, but that is kind of the blunt way to think about it. Yeah, hopefully it's obvious,
but this isn't quite like software. It's like, oh, just you add some new code and you ship a
new feature. It's like, no, this is very complicated stuff. And you got to make sure that the side
effects are not going to kill people. So this is really the first major scientific advance that
comes out of Novo. And Eli Lilly licenses this Lenta insulin from Novo and kind of rebrands it.
It makes it part of their flagship insulin offerings in the US. They were doing this with NPH
insulin before the war from Nordisk. And now, you know, it's kind of Novo that's taking up this
mantle. You know, this will come back up later in the episode. But Eli Lilly, although insulin
was and still is a huge part of the business, what they basically decided is to be a kind of
technology follower and license from all the innovation coming out of Novo and Nordisk,
license that into their sales and distribution channels in the US. I'm really curious if the
Eli Lilly folks would agree with that characterization. I know you read that great
history of Novo Nordisk book, and I'm sure that's the way it paints it. But at some point,
we should dig into Eli Lilly a little more and see if that's how they think about it, too.
Yeah. Well, that is going to change in a big way in the 1980s. But during this post-war period,
at least that's how Kurt Jacobson's book makes it sound. And we got to give Kurt a big shout out.
And he wrote this great history of Novo Nordisk that just came out last year for the company's
100th anniversary. Unfortunately, you can't buy it in America. So I emailed him a couple months
ago and I said, Kurt, is there any way we could buy a copy of your book? And very, very graciously,
he just sent it to us. So very, very kind. Thank you, Kurt. Yep. So this is basically
the way things stay for the post-war era up until the 1980s. Novo follows up Lenta Insulin
in the 1970s with MC Insulin, or Non-Immunogen Monocomponent Insulin,
which is the first 100% pure zero antibody potential insulin that also becomes the
kind of new widely accepted best product in the market internationally. So this is the general
state of play after the war. Novo is now a scaled pharmaceutical company. Nordisk
is mostly in rough shape. Production capacity has gone down to basically zero,
minimal at this point in time. They have resumed the licensing business. And eventually,
they do get back payments from all the allied countries that they were owed during the war.
So they're not insolvent or anything, but they're the much, much smaller company.
Now, Novo, interestingly, they're now a large pharmaceutical company. They want to add a
second leg of the stool, a new business line. So they get into the enzymes business.
This is like laundry detergent enzymes and other industrial uses. 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.
Those don't mix well.
Yeah, those don't tend to mix well. Now, it's still a viable business. It actually stays part
of Novo and then Novo Nordisk all the way until the year 2000, when it gets spun out.
Oh, is this Novozymes?
This is Novozymes. Yes. It is still majority controlled by Novo Holdings,
which is the holding company of the Novo Nordisk Foundation.
Interesting. So just like Novo Nordisk is majority controlled by the
foundation's holding company, Novozymes still is also.
Novozymes as well. But when we get to the 1970s, right as MC insulin is coming online
and Novo needs to undertake a huge amount of CapEx to redo its production lines and expand
them around the world, the enzyme market crashes. And so this enzyme business that they tried to add
as like a diversification and hedge to the company and expansion, all of a sudden it's bleeding cash
and they don't have enough capital resources to do the CapEx upgrades
that they need for the main business in insulin.
Oh, interesting. If only they had a cash rich partner without a lot of CapEx needs.
Goodness. If only there were such a natural partner right down the street that, you know,
it might make sense maybe they could merge with. 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. Let's get the band back together. You know, everybody's basically dead at this point
from the original days. Let's let bygones be bygones. And Nordisk, they've just gone through a
pretty rocky succession period after Hagedorn retired. They're now on their third CEO in seven
years. And the new CEO, Henry Brenham, he isn't from the pharma industry at all. He's not a
scientist. He was previously the head of a lumber company. So this merger makes perfect sense.
Huh. But they don't merge for another decade and a half. So what went wrong?
It's not what happens. So instead, contrary to all sort of what you would think on paper,
the new CEO, Brenham, actually turns out to be like an amazing leader and CEO.
The lumber guy.
For Nordisk. The lumber guy. He is like the wartime CEO for Nordisk. He rejects
Novo's overtures to merge. And then he goes and convinces the board, both of the operating company,
Nordisk, and the foundation, that this new MC insulin generation, which remember Novo
innovated, that this actually represents a golden opportunity for Nordisk to get back in the game.
Because it's going to be a complete reset of all the insulins on the market, whether they're fast
acting or long lasting insulins, they're all going to move over to this MC highly purified
method and type of insulin. But Novo's in this spot where they're going to be delayed for several
years in making the transition in their actual factories because they don't have the capex.
So it's like they're coming to us hat in hand. Why don't we just put the pedal down now that
we realize we have the advantage and press? So Branham convinces the board that rather
than merging, they should use their capital reserves to rebuild up Nordisk's own production
capacity, go hire a global sales force. Branham's, he's really ambitious. He says,
we're going to go enter America directly as this forgotten Nordisk company. So he goes and hires
a global sales force because he knows Eli Lilly is going to have the same dynamics as Novo.
Everything's going to have to shift over to MC and Eli Lilly's this big, large, diversified giant.
They're not going to move as fast as he thinks Nordisk can. And even though it's unrealistic
that Nordisk is going to overtake Eli Lilly in America, if they can get even a small percentage
of the American market, that's huge. Nordisk is a small company and America is by far the largest
market for diabetes in the world. Well, and you got to remember too, in the seventies,
there was still kind of a functioning healthcare market. There wasn't massive consolidation yet.
And so every level was super fragmented. Manufacturers were fragmented. Insurance
companies were smaller. Little doctor's offices existed everywhere. Neighborhood pharmacies were
there. And so entering the American market, you didn't necessarily need huge scale to do it.
And the other thing to note is it wasn't yet the heyday of drugs, like of pharma. There weren't
that many drugs that people had high demand for. It wasn't like today where everywhere you look,
there's some amazing drug that could save your life depending on what conditions you have that
are on TV commercials. The federal government, and we'll get into this later, but Medicare Part D
wasn't even a thing yet. Drugs were not plentiful enough and good enough yet
for the government to cover them as an insurance benefit for people over 65. That's the era we're
in where if Nordisk wants to enter the American market, they kind of can without too many barriers.
Yeah. This is the right window. So I don't know how Brenham convinced both boards to do this,
but he does. And by God, he's right. It works. So for the entire decade of the 1970s,
Nordisk's sales grow at 30% compounded annually, which is amazing. Now they're still small. So
by 1980, Nordisk is still only about one-tenth the size of Novo overall, but they're a third
the size of Novo's insulin business. And they've moved from being this licensing company to now an
actual production company with capacity all around the world. So this is a huge win from basically
they were going to be taken over for cash by their old rivals, and now they're back in the game.
So Novo in response, they need to do something to get capital. They actually do a small IPO
on the Copenhagen Stock Exchange in 1974 to raise the capital they need for the transition to MC
insulin. So by the time we get to 1980, and just to set some scale here, Novo's annual global
insulin sales, this is Novo, they're still much larger. They're about $100 million annually,
and Nordisk's are about $30 million annually. That makes them the number two and number four
producers in the world by market share behind Eli Lilly in America, who's first with about
160 million in sales. By the way, these numbers are staggeringly small. These are like series C
startup. And this is exactly my point. So you might be wondering, wait a minute, if you add all that
up, the whole global insulin market is about half a billion dollars here in 1980. And that's not
exactly tiny and like you were saying, you know, the drug markets themselves weren't that huge back
in this era. But what is the path from here to Novo Nordisk today being the 15th largest company in
the world? Like what gives? What happened? Yeah, just look at pictures of people in the 70s and
look at pictures of people today. Yes. The answer is one, what you just said, we all got fat and
the diabetes market and specifically type two diabetes exploded. But two, and this is gonna be
such a fun story to tell here on Acquired because it's a huge part of Silicon Valley history that
we've never touched. Yes. Genentech. Two, Genentech happened. Oh yes. 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, venture backed by Kleiner Perkins,
and it changed everything. Former Kleiner Perkins employee. Yeah. Was a co-founder of the company.
But before we talk about that. Yes. Now is the perfect time to introduce one of our other new
Acquired partners for season 14, an incredible company that we have gotten to know well over
the last couple of years, ServiceNow. ServiceNow, as many of you know, is the cloud-based platform
that automates and manages workflows across the whole enterprise, making everything about the way
a company or organization works actually work better for 85% of the fortune 500. It has also
been one of the absolute best performing technology companies over recent years. Yeah. I mean,
ServiceNow has outperformed almost every enterprise software company over the past five years,
including Microsoft. Yep. But what you may not know is ServiceNow is also an incredible Silicon
Valley startup story that ranks right up there with Google, Facebook, NVIDIA, Genentech as one
of the best venture investments of all time. Funnily enough, the ServiceNow campus is actually
right next door to the NVIDIA campus in Santa Clara. Yeah. We waved hi when we were there to
hang out with Jensen. So ServiceNow was started in 2003 by Fred Luddy. And Fred, kind of like
August Crowe starting Nordisk, was already the equivalent of a Nobel Prize winning software
developer and founder. He dropped out of college in 1970. Yeah. This is like a Nolan Bushnell
Atari era Silicon Valley. Totally. And he started programming and ultimately built a $4 billion
company as CTO. He really was part of that original technical crew like Woz and others
that formed the backbone of Silicon Valley. But all the way back when he first started in the
at age 17, Fred wrote a simple little program for an order clerk named Phyllis. Now, this was when
he was working at a company that fulfilled building materials orders. And Phyllis spent all day just
typing up the orders on these forms. So one night as a favor, Fred wrote a program that automated it.
80% of each form got filled in automatically. Phyllis comes in the next morning, Fred shows it
to her, and she breaks down crying. He took this incredibly soul-crushing, mind-numbing task that
she hated and made it 80% easier, 80% faster, and 100% less soul-crushing. So fast forward to 2004.
Software as a service is just becoming a thing. And Fred is like, whoa, we now have a delivery
mechanism that can take what I did for Phyllis back in 72 and scale it infinitely. Now, how many
Phyllises are there in the world? Well, it turns out it's hard to remember because ServiceNow
changed this forever. Every single company back then was filled with people just like Phyllis who
spent hours every day on repetitive tasks that software could handle 80% of. So Fred started
ServiceNow 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, and ServiceNow is a part of that. They freed up
knowledge workers to go create more knowledge across the whole enterprise rather than more
forms and more individual point solutions. And like Novo Nordisk, it turned out that singularly
focusing on eliminating suffering from just one pervasive worldwide disease, in this case, not
diabetes, but repetitive manual office work, that was a path to becoming a $100 billion plus Fortune
500 company. It's an incredible story. So if you want to learn more about ServiceNow and connect
with the team, go on over to ServiceNow.com slash acquired. And when you get in touch, just tell them
that Ben and David sent you. Yep. Okay, so David, the 80s are here. For some reason, in the early
80s, the world starts becoming more overweight, addictive foods being the cause of this. Yes,
more metabolically unhealthy. Correct. And just to put some numbers on that, the number of type
two diabetes patients quadruples from 1980 to 2016. Yeah, and population growth was a lot slower
than that. So definitely the share of the population is massively expanding. And at this point in time,
we are still using pigs and cows to harvest pancreases and their islets and their extracts
in order to make insulin, even with this incredibly refined process until Genentech. Yes, and
specifically what that meant using animals to make insulin was that type two was not treated
with insulin. And actually, until this point in time, type two used to be called quote non-insulin
dependent diabetes because you didn't treat it with insulin because there wasn't enough insulin.
There weren't enough animal pancreases in the world to do it. Oh, I had no idea. And it wasn't
necessarily that insulin didn't help type two. I mean, lots and lots of type two diabetics these
days use insulin. It was that there just wasn't enough of it. Wow. And then in 1980, Genentech
and Eli Lilly as their partner changed everything with recombinant DNA and genetic engineering of
drugs. And I suspect many people don't know this. I sort of vaguely knew this before researching
the episode, but the first drug that they genetically engineered and that started this
whole revolution was insulin. Absolutely. It was the founding first application of the idea that
Genentech had of commercializing recombinant DNA. The first implementation was insulin. And to just
paint a little bit of a picture of why this is so amazing, it's not just that we now had a way to
not rely on animal pancreases. It's that for the first time we actually had human insulin. It is
insulin that is chemically identical to the insulin that naturally is produced by your body rather
than injecting something slightly different from a pig or cow. Yes, because you couldn't really
extract human insulin from humans before this point. And people thought that human insulin
would be a lot better to use than animal insulin. It turns out that that's debatable.
Yeah, it's interesting that this ended up being more of a manufacturing and scale advantage than
an efficacy advantage. Yes. But at the time, nobody really knew that. So in 1980, which is
when Genentech and Eli Lilly announced their partnership together, that Eli Lilly is going
to be the go-to-market partner for Genentech's new recombinant DNA bioengineering revolution,
and they're going to make human insulin. They announced that in 1980. People go nuts,
and it triggers this race for human insulin. And Novo gets swept up in it. They're like,
oh no, Eli Lilly, they're going to come back into the research game. They're going to innovate
in product. We had the chance to work with Genentech. Genentech had actually approached
them about being a partner in Europe. Novo had turned them down because they didn't think the
science was ready yet, and they were wrong. So they're like, shoot, we got to scramble.
They find a team of Japanese researchers who have shown that you can actually chemically
modify pig insulin to make it chemically identical to human insulin. You can't make
this stuff up. So Novo is like, great, we're going to race to market. We're going to beat
Eli Lilly with human insulin. It's not going to be genetically engineered. We're just going to
take our pig insulin and modify it. It turns out to be a huge boondoggle. It works, but it's not
any better than pig insulin. So it's a big flop for Novo. Which the timing lines up to really be
a nail in the coffin for them. I mean, if this is right after everything you just described with
Nordisk scaling up production and compounding at 30% per year and massively growing share,
like this is not a good use of Novo's precious dollars right now. Well, it's funny you say that.
So when the Genentech and Eli Lilly announcement happened in 1980, I mean,
truly this was a bombshell. It's hard to remember now. I mean, we weren't even alive, but this was
one of, if not the most important announcement to come out of Silicon Valley ever still to this day.
Investors went nuts. Anything that even you could squint and look like a biotech
was suddenly the hottest thing in the world. So Genentech goes public in the fall of 1980.
This is well before Humulin, the product that they create with Eli Lilly comes on the market.
They go public and it is, I believe the largest venture-backed IPO ever at that time
until it's eclipsed two months later when Apple goes public.
But investors are just mad for biotech companies. So when Novo announces that they're going to be
first to market with human insulin and like, yeah, yeah, just ignore that. It's actually
pig insulin that we're modifying. They use the hype on the back of that to do a US IPO
with Goldman Sachs and raise a hundred million dollars. When your currency is expensive,
sell it. Right. There are a number of analogies that we could make from the past few years that
I'll refrain from here. So as you say, is this a nail in the coffin for Novo? You know, I mean,
it's not good for the underlying business. Nordisk meanwhile, remember they're in the midst of this
aggressive expansion plan and scaling based on MC insulin. They're like, you know, I don't know
that human insulin in and of itself is all that much more effective. We're going to take a wait
and see approach. We are going to invest in building up our recombinant DNA and genetic
engineering capabilities because it's clear the whole industry is moving this way for production
reasons, if nothing else. And Novo is doing this too in the background, but Nordisk like,
we're not going to get caught up in the specifically human insulin hype. And this
really works out for them. So in 1984, Nordisk passes the German company Hosch to become the
number three global player in insulin. I think that's how you say it today is part of Sanofi,
the large international pharma conglomerate. And they're the only other player left besides Novo
and Eli Lilly. Yeah. Sanofi today. Yeah. The three of those companies are essentially the
entire insulin market. Yep. So 1984 Nordisk passes them on the back of that. They do their
own share listing on the Copenhagen Stock Exchange. So they changed the structure of
the operating company and still the foundation controls the majority of the votes. But for the
first time, outside investors can hold shares in the operating company of Nordisk. And by the end
of the 1980s, Nordisk is now up to 20% global market share in insulin. And that's really all
come at the expense of Novo, which is down to 30% global market share. Whoa. So they're close
to matching them. Yeah, they're pretty close. And this brings us finally to the summer of 1988,
when merger discussions begin for real between these two companies, now on much more equal
footing than the last time. Interesting. And this time, there actually is a really compelling reason
for both of them to merge and combine scale, which wasn't true before when it was really just
like, hey, Novo had a problem and needed cash. Now, with genetic engineering and the way the
whole industry is headed, scale is becoming much more important. It takes huge CapEx to do this
stuff. And scale becomes important for R&D. Scale becomes important for trials and approval. Scale
becomes important for negotiating with actually getting the product sold. Scale becomes important
for everything in healthcare, starting around this time, the late 80s, early 90s, and obviously went
nuts till today. And a big part of it is the production and infrastructure side of things.
But the other part is the go-to-market. Pharma kind of almost becomes like the enterprise software
industry. At the end of the day, there only are a few companies at scale that have the infrastructure
and the go-to-market to operate in. Yes, you can build a big company on top of or underneath
Microsoft or Oracle or Amazon or Salesforce or Google, but they're the ones with the infrastructure.
They're the ones with the channels. That's an interesting analogy. I hadn't thought of it that
way. Yeah, this is a good place to try to understand the pharma value chain as it exists today.
I think first off, we should say you basically can't. I'm actually not sure there's a human who
can hold all of it in their head, and we won't promise to make this comprehensive, but it is
worth knowing a few key concepts and the players involved. And I should say this whole thing only
applies to the U.S. market, which many of you listening in other places will be laughing and
saying, like, why is this so complicated? But yes, this is how the U.S. market functions.
So I wrote a sentence, David, that I thought would be a fun way to break it down.
And that simple sentence is, a patient buys a drug. But really, actually, that's not how it works.
It's like a butterfly flaps its wings. A person doesn't merely buy a drug.
So let's actually name all the parties, starting with the manufacturer. A manufacturer,
like Novo Nordisk, develops a drug. They sell it to distributors like McKesson or Cardinal Health,
who then sell the drug to pharmacies like CVS or your local neighborhood store.
The pharmacy then charges a price at the window to a customer. So far, there's nothing different
about how this is working from any retail supply chain. But here's where it gets weird.
In health care, when a consumer goes up to the pharmacy window, they typically don't pay their
own money for the price that the pharmacy actually puts on the register. Their insurance company does.
Well, the insurance company doesn't want to pay whatever price the pharma manufacturer picked for
their drug. And they have huge scale to throw around. So they go negotiate with the pharma
manufacturer to try to get some kind of discounted rate. But rather than do that themselves,
insurance companies outsource that task to a new type of company called a pharmacy benefits manager
or a PBM. The PBM negotiates with the pharma company for a discount, often in the form of
rebate, that the pharma company pays back to the PBM. They then take that discount,
they keep some of it for themselves, and then they pass some of it back to the insurance company,
who can then choose to share it with the employer in some way. And as you can imagine,
when there are this many middlemen in a transaction...
Yeah, so that's what, four middlemen, Sarah?
The PBM, the insurance company, the distributor, and for some reason, employers are involved.
So we're talking about a six-sided market.
Well, I don't think it's a sided market. There's two good diagrams that I'd found in the research
that we'll put on the Acquired Twitter account and the Threads account to get access to these
visuals that I think are pretty good illustrations of the way the dollars flow and the way the
product flows. But you can imagine when there are this many middlemen in a transaction,
it's really hard to have a functioning market, to actually interpret demand signals and have
them clearly flow all the way upstream. And for the end consumer to really be treated as the
customer versus just like a statistic in a large aggregated basket, we've sort of lost the plot
in being able to actually have a functioning free market. But anyways, I want to do a little dive
into each of the parties to understand what they do. The drug manufacturers, like Novonortis,
do all the R&D, and they do all the production. They also own the responsibility of the clinical
trial. So they work with partners to do this, but proving that the drug is safe and efficacious is up
to them. There's the distributor wholesaler that does exactly what you think they do. They buy all
the drugs from all the pharma manufacturers. They warehouse and distribute them. They actually do
take risk. When I say they buy, they actually do buy them and hold them, and they end up distributing
them to the pharmacies. Pharmacies do exactly what you think they do. Those companies have gotten
merged into PBMs in some cases, and so thinking of CVS as just CVS is not really right anymore.
It's CVS Caremark, so they're sort of with a PBM. There's the Walgreens Boots Alliance,
which is the way they named it is sort of all you need to know. So the way to think about
pharmacies is that there are a few big ones, and that is kind of what matters, even though
there are many people interested in keeping a thriving, independent set of pharmacies out there.
Then there's the PBM. So why does the PBM exist, the pharmacy benefits manager?
That's a good question.
Yeah. Well, in the old days, there were lots of drug companies and lots of insurance carriers,
and so it would be nice if every little insurance company or every employer
didn't have to go negotiate directly with every drug company to get all the best prices. So PBMs
provided value by doing that on everyone's behalf. PBMs created what's called a formulary,
which is basically a big ledger, a big list of drugs and the prices. And obviously today,
that is less necessary because there's less fragmentation given all the mergers that have
happened. But the PBMs still establish themselves as a key sort of immovable piece of this puzzle.
So are they sort of like agents? Is that the right way to think about them?
Agent implies that the principal can sort of make a decision to go elsewhere.
You're not going elsewhere.
The PBMs are the ones actually setting the prices.
Well, that's the key question. So maybe a little more context on PBMs and then let's
try to answer your question, David. So one, they're huge. PBMs manage pharmacy benefits
for 266 million Americans, and that number's old. That's as of 2016. So think about basically all
Americans get their prescription drugs through a PBM. Despite their used to being hundreds of PBMs,
there's now fewer than 30. And there's essentially three that cover about 80% of the market. And
those are Express Scripts, CVS Caremark, and OptumRx, which is actually owned by United
Health Group. So interesting to know that Caremark, that PBM, is corporately bundled
with CVS, a pharmacy, but OptumRx, corporately bundled with an insurance provider.
So there's vertical integration happening here too.
Yes. So if you want to be a little bit cynical about it, you can say they've really become
the gatekeeper for consumers getting access to drugs since a doctor is not going to prescribe
a drug if only two of the three big PBMs have it on a negotiated agreement there. So each PBM
individually has control or almost like a veto. If a PBM says, well, we're not going to work with
that drug or that drug manufacturer, doctors aren't going to keep a big list in their head of
what insurance companies work with, what PBMs that have what drugs. So as a pharma company,
you kind of need all three big PBMs to come to some terms with you to be on their formulary and
handle the reimbursement for your drug. So one other way you can kind of think about it is a
PBM is sort of like a health insurance company, but they just do it for the pharmaceutical benefit
and not all the other stuff that the health insurance companies do. So you talked about
prices. A major mechanism for the way that these prices are negotiated and set is the
rebate mechanism that the PBM negotiates. So manufacturers usually have to pay the PBM
a rebate, which lowers the net price of the drug, even though the list price stays the same.
So there's a sticker price, but then there's a rebate that, you know, once the PBM pays the
sticker price, actually the drug manufacturer... How does any of this get past the DOJ?
Great question. So initially the rebates worked well for drug manufacturers since there were a
lot of PBMs and they could negotiate. But now that there are three big PBMs, the pharma manufacturers
have essentially lost all their leverage in most cases. I'll say in most cases, and we should come
back later to what are the exceptions. So rebates are extremely high. Eli Lilly has publicly claimed
that the cost of these discounts and rebates accounted for 75% of the sticker price of
insulin. If you're getting a rebate on 75% of the total price, the sticker price is not the price.
Wow. Wait, so who gets the rebates? Is it the PBMs themselves or the consumers?
Well, PBMs say that they tend to pass most of the rebate along to the healthcare plan.
Yeah. Consumers are far away from any of this. And the healthcare plan says they share it in
some fashion with the employer in some part of their agreement to be the healthcare provider,
the insurance provider for the employer. But this is a quagmire of a debate that is out of scope for
this episode. And my favorite quote from one source that we talked to described rebates as a
game of hide the sausage. Oh, gosh. Wow. But yes, you're right, David. Nowhere in there did I say,
oh, the patient gets the rebate. You can see how demand signals from patient and actual clearing
prices of a patient and what they're willing to pay for a drug, all that signal just gets lost
in all of this middleman mania. Wow. So that is the current state of what happens when
many people or most people go and fill a prescription.
So bringing it back to when the Novo Nordisk merger finally happens,
this is the background on the go-to-market side, at least in the US. And then there's also
the background on the infrastructure side, thanks to genetic engineering, where scale now really
matters. And both companies are now on much more of an even footing. So in January 1989,
the Novo Nordisk merger is finally announced. And it's a dual merger of both the operating
companies and their respective foundations. So the two foundations merged into one and the two
operating companies merged into one as well. And I had to dig a bit to figure out the exact
economic splits. I believe that the final ratio was 62% Novo and 38% Nordisk. So Novo was still
the kind of larger majority institution here, but this is a far cry from when discussions first
started 10 years ago. And Nordisk was this little, you know, hey, we're buying you for cash, essentially.
No, now it's like, this is really a 60-40 merger. It's crazy. The two guys that split off and went
to be cowboys and start their own little competitor, even though they didn't have the license, ended up
creating the bigger company. Yeah. Wild. And they drove each other to create all of this innovation
over the years. So the new combined company has roughly a billion dollars in insulin revenue
and 50%, 5-0% global market share, with Eli Lilly just behind at 45% and Hosted at 5%.
That kind of tells you right there how much the market has grown just during the decade of the
1980s. You know, that puts the total market size at roughly around $2 billion for insulin.
10 years ago, the total market size was $500 million. Wow. Yeah. Wow. The Enzyme and other
businesses within Novo, they stay with the company for now. They would get spun out later in the year
2000. And that contributes another roughly half a billion in revenue, but with lower margins,
as we talked about. The Novo CEO and Henry Brenham from the Nordisk side, they remain as co-CEOs for
the next couple of years. And Brenham notes that they are still a dwarf compared to the increasingly
consolidated pharma market out there. But we are, quote, a specialized dwarf that will probably
create a certain furor on the global stage. And what they're referencing here is, as we were
talking about, this is the era when just huge pharma mergers start happening. So Glaxo and
Welcome merge around this time. Astra and Zeneca merge around this time. Sanofi buys Horsch. These
are all multi, multi-billion dollar, tens of billions of dollar transactions that makes Novo
and Nordisk look kind of like small potatoes at the time. And actually, Wall Street and the
investment community believes that this is really just the first step, that this is Novo and Nordisk
and the leading insulin business in the world sort of preparing itself for a further merger or sale
into one of these new diversified global pharma conglomerates. And actually, this is crazy to
think about in retrospect, but Novo Nordisk management agrees with that. That's actually
their plan. Like, there's no rush here, but they think that they do need to merge into a larger
organization. So they think the writing is on the wall where we need scale in order to function in
this changing marketplace. And so we're going to merge in. And what they didn't realize was
that the market that they were on top of would actually, sadly, be a tailwind that gets them to
scale without merging with anyone else. Yes. Basically, all throughout the decade of the
1990s and into the 2000s, management is in constant merger or sale negotiations with one of
these big pharma giants or another. And kind of luckily, none of them come to fruition. And in
the meantime, without anyone including them really noticing, the combined company just keeps
compounding on these tailwinds of the expansion of the insulin market and insulin treatment of
type 2 diabetics and all the supply that's unleashed by genetic engineering. So revenue
and profit compound again at like 20 percent, sometimes 20 percent plus annually for like
15 years there. They're firing on all cylinders. In the year 2000, they signed a huge deal with
Walmart. They land a supply agreement with the VA hospital system for the first time,
the Veterans Affairs hospital system in the US, which is enormous. And so by the end of 2003,
annual revenue for the company is now over $4 billion. And that's pretty much just on insulin
alone. Remember, they've spun out Novozymes, all the subscale pharma businesses that Novo had are
all gone. And that's when management finally decides to sell the company. So in 2004,
they have a deal on the table to combine with the Swiss company Serono. Management is bought in.
They've got the operating company board bought in. They're ready to do it. They just need to
get approval from the foundation board, which is the only shareholder that matters. But there's
never been a conflict between the foundation board and the management board. Everybody's always been
aligned here. But this is like the whole C-suite of meta deciding to sell the company to Apple,
and then they just have to go get Zuckerberg's approval to do it. It's literally that scenario.
Yes. And there's a clause in the foundation's agreement with the company that there must be
a quote, convincing business argument from the company's board of directors to the foundation
board of directors, that any merger or sale is a necessary precondition for the business to
maintain and expand its position as a competitive business at the international level. Now in
management's eyes, like we've just been talking about, there's so much consolidation happening
in the industry. Of course it is a necessary precondition, given everything going on,
that we need to get to a larger scale. And so that's why we have, after 10 plus years,
finally found the right deal. So they go to the foundation board, expecting that everybody's
going to see the light and just agree here. And the foundation board is like, yeah, I mean,
I hear what you're saying, but have you looked at our revenue and profit growth over the last 15
years? Are you really telling me that we need to do this in order to maintain and expand our
position as a competitive business? Are you really, really telling me that? And management's like,
yes. Isn't this what we've been working to? Why did we spin off the enzyme business? Why did
we do all this if we weren't just preparing for a sale? And the foundation board is like,
uh, how about you come in and present to us with your financial advisors?
My rubber stamp's feeling like it's not working right now. I'm not sure.
Oh, my daughter loves to say when something doesn't go her way these days, she says,
not working. Foundation board is like, not working. So what ensues, management comes in,
they present in two board meetings, first in August, 2004, and then a second one in September
where they get a do-over, and they fail to convince the foundation board. So they block
the merger. This is like the opposite of what happened at OpenAI, where the foundation here
is saying, no, you must continue as an independent commercial entity. It's a fascinating analog.
And this is, I think, one thing that makes this company really, really unique. But for having
foundation control with a very specific charter and mission, this company gets rolled up.
Absolutely. 100% chance if this ownership structure were not in place,
we would not be doing this episode today. And I don't exactly know what the deal terms were,
but basically in public company land, if anybody comes to you and offers you 25 to 30%
higher than your shares are currently trading, congratulations, they get to own your company.
And that didn't happen. That didn't happen here, which turns out to be,
unbeknownst to pretty much anyone at the time, and I'm sure not even the foundation board,
a very prescient decision because there is a small group of researchers within Novo Nordisk,
led by a woman named Lotte Bjerre Knudsen, who is working on a pretty incredible project
that is showing a lot of promise. And that would be GLP-1 agonist drugs.
That is a mouthful, David.
That it is. But I'm pretty sure many of you know what that term means, or even if you don't,
you've probably heard the marketing names for the current class of those drugs that
Novo Nordisk has on the market, which would be Ozempic and Wegavi.
Or Ribelsis, which just got FDA approval pretty recently.
Yes, indeed.
So, before we tell the story of how GLP-1s started being researched,
and the very unlikely place that they came from, we want to thank our longtime friend of the show,
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So David, glucagon-like-peptide-1-receptor agonists.
What is it and where did it come from?
Well, it really is the story of Lotta Biera-Newton.
She started at Novo in 1989, the same year the merger happened.
Right out of undergrad as a scientist, actually in the enzyme division,
which I didn't realize until you sent me an article last night, I think, about this.
Yeah, remarkably, there is this paper, I guess it's a paper,
called Inventing Lyraglutide, a glucagon-like-peptide-1
analog for the treatment of diabetes and obesity that was published in 2019.
But it is a first-person account by Lotta of the entire journey and her career
and how all the research went down and where it came from,
that is published in ACS Pharmacology and Translational Science,
publicly available to everyone.
Like, she has just told the story, and it's very academic, scientifically written,
but it's super cool that she's the hero of this story
and sort of got to write how it all went down.
Yeah, super cool.
We'll link to it in the sources.
Yep.
So eventually, after a couple years,
she switches from the enzyme division to the diabetes business.
And specifically, remember, this is not long after
the genetic engineering revolution has happened,
she gets put on the team that is screening new potential compounds
that they could create for treatment of type 2 diabetes.
Right around this same time, oral anti-diabetic medications
are becoming a big thing in the market.
So these are drugs like metformin, if you've ever heard of that,
that's the most commonly used one for type 2 diabetics.
They're kind of like the first line of defense for type 2 diabetes
before you progress to insulin treatments.
And Novo doesn't have a drug in this category.
Despite being like the insulin leader,
Novo and Novo Nordisk never had a viable oral anti-diabetic.
So Latte's part of this group that's looking for new candidates.
So in the early to mid 90s,
Latte starts digging into the academic research,
and there's new work coming out that in type 2 patients,
a big part of the mechanism that messes with actual insulin production
is a hormone called glucagon-like peptide 1,
or GLP-1, Ben as you were talking about.
And the thought is that if you could somehow get more GLP-1
into these patients' bodies,
you could stabilize their insulin production and thus treat the disease.
Seems pretty straightforward.
You could imagine that you could now just use the same recombinant DNA techniques
to genetically engineer more GLP-1, just like you engineer human insulin.
No big deal.
Seems pretty straightforward.
In fact, why don't you just go eat some GLP-1?
Just get it into your body however you want.
I'm sure it'll work out.
Right. No big deal.
Except the problem is GLP-1 only stays active in your body
for about five minutes
before your body completely metabolizes it and breaks it down.
So in a normal healthy person,
you're just producing GLP-1 all the time,
and it's regulating your insulin production, etc.
In type 2 diabetes, that gets disrupted.
You can't just put more regular human GLP-1 in the body,
or it's going to go away immediately.
So a whole lot of people across the industry
kind of bang their heads against the wall.
Nobody can figure out how to make this work.
And the industry and the academic research community
pretty much abandons it as a drug candidate.
But Lata is like, if we could make it work,
this would really, really help people and be a great drug.
So she faces a lot of pressure inside the company, outside the company.
Why are you still hanging on to this?
Why are you still pursuing this path?
And then finally, a few years later in the mid-90s,
management actually gives her an ultimatum.
And they're like, you either need to crack this
and get an actual drug candidate in the pipeline within a year,
or we're going to shut down this whole program.
And remember, this is even like Novo Nordisk,
the world-class, most focused
on pure play diabetes research company in the world.
And even they are like,
yeah, we're almost ready to abandon this whole thing.
Crazy. What year is this?
This is like 95, 96.
All right. And she's been doing research on this since like 91,
I think is when her and the team started
cranking away on GLP-1 research inside Novo.
Around that. So a few years with nothing to show for it.
Yep.
So she keeps tweaking the GLP-1 molecule.
And again, you can do this with recombinant DNA.
You can tweak any molecule.
So eventually she develops a GLP-1 analog,
analog being, you know, similar type molecule
called liraglutide that includes a fatty acid
grafted onto the molecule that helps prevent the body
from breaking it down.
And this is the big breakthrough.
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 GLP-1.
That'll help.
Yeah. That satisfies management's ultimatum.
The mechanism by which it does this is totally fascinating.
So you mentioned that the fatty acid gets attached
to the GLP-1 to create this GLP-1 analog.
The way it basically works is it has to bind
in a very specific location such that the receptor
is not blocked, but it is sort of grafted
onto that molecule so they can travel together.
The fatty acids then make it so the GLP-1 can bind
to another protein, which I believe is pronounced albumin,
which is this really large protein
that is very common in the bloodstream.
And so it protects the GLP-1 molecule
from the degradation by enzymes,
and it protects it from being sort of quickly cleared
in the kidney because that sort of bound molecule
is now too complex, too large to be filtered.
So it kind of makes it like a big truck
bouncing down a small highway
in that the molecule is protected.
Yeah, and I think that's how she phrases it too
when she describes it as protecting the molecule.
Yep, the fatty acid sort of, well,
it makes it big and stick to stuff.
Sometimes it's good to have a layer of fat around you.
Okay, so 13-hour half-life, you know,
this liraglutide can become basically a once-a-day drug
instead of an every-five-minutes drug?
Yeah, well, I mean, eventually.
But now here's the thing with this stuff.
To get a whole new class of drugs to market
takes a really long time.
So this is a big breakthrough,
kind of 97-ish timeframe.
But, you know, Nova's like,
great, we're going to invest in this.
This is promising.
We'll see in a decade if we can get this to market.
So they start the clinical trial path
first with animal trials for several years,
then many phases of human trials, et cetera.
And that brings us to 2005,
when the world's first GLP-1 analog drug
finally comes to market
for the treatment of type 2 diabetes.
Of course, I'm talking about the world-famous,
well-known, Bayetta from Eli Lilly.
Ba-na-na!
Not a Novo drug, not from Latte's work,
and developed in a completely parallel way.
Not Ozempic, not Victoza, not Wegewee.
Something completely different.
This might be the most random occurrence
that we've ever had on Acquired.
David, if I called you and said,
ship me a lizard, this is important,
would you do it?
Knowing this context, I would actually say yes.
An actual lizard.
Is that where you're going?
Yes.
Yes.
Okay, great.
So during this time,
in parallel to Latte's work at Novo,
two American researchers
in the VA hospital system,
the Veterans Affairs hospital system.
Government employees.
Government employees.
Somehow discovered that a hormone
contained in the venom
of the Gila monster lizard,
literally the lizard called the Gila monster,
which has poisonous venom.
One of the hormones in its venom
also was a GLP-1 analog,
acted similarly to GLP-1 in the body,
and didn't break down within five minutes.
David, go get that poisonous lizard venom,
take all the poison out
and inject it into me, please.
That's what I'm asking you to do.
Let's see if that works.
I just, I have no idea how this got proposed
and why people thought this was a good idea,
but like incredible that it worked.
Incredible.
So in 1995, Daniel Drucker
had a lizard shipped from Utah to his lab
and he started experimenting
with the deadly venom.
David, aside from the research
done at the VA,
do you know where Daniel Drucker
was a researcher?
Ooh, well, I know one of the scientists
at the VA was a guy named John Eng,
and I believe he was at the VA hospital
in the Bronx.
I'll give you a hint.
Daniel Drucker was not a researcher
at the VA.
He was at a university.
Ooh.
Daniel Drucker,
and I believe still to this day,
was a researcher
at the University of Toronto.
Oh, amazing.
Yep.
It comes full circle.
And he owns the domain glucagon.com
to establish some extra credibility.
I love it.
Yeah, so it seems best I can tell
that there were sort of parallel
research efforts being done
on the early GLP-1
and sort of place to find GLP-1
in the world
to eventually turn it into a product.
The naturally occurring GLP-1 analog.
Yes.
As opposed to the engineered
lyriglutide.
It actually does become a drug candidate.
They license it to Eli Lilly.
Eli Lilly develops it into Bayetta,
and Bayetta hits the market in 2005.
It's FDA approved, and it works.
It's not poisonous.
It doesn't kill people.
And it is the world's first GLP-1 analog
to come to market.
But, like, it is effective.
But it's not, like,
overwhelmingly more effective
than traditional anti-diabetic orals
like metformin and the like.
And more importantly,
the half-life is not as good
as lyriglutide.
So Bayetta requires two injections per day,
which, you know,
if you're a type 2 diabetic
and you're not yet at insulin treatments,
you're like, well,
I could stick with oral anti-diabetics
like metformin.
I could go try this new thing,
but that's going to be two injections per day.
Do I really want to do that
versus stick with orals
and then transition to insulin injections
when I need it?
I can barely remember to take my multivitamin
orally once a day.
Asking anybody to do something,
especially invasive, twice a day
is a big behavior change.
Big, big behavior change, totally.
And it's important to remember
what these GLP-1 agonists are actually doing.
It's just generally raising the baseline
of your body's own ability
to secrete insulin.
It's sort of making you behave
more like a person without diabetes
than you otherwise would.
Yes, correct.
But many people still would need insulin on top,
depending how far along the spectrum you are.
Yes.
So that's 2005.
So then in 2007,
Lata and Novo Nordisk's lyriglutide
GLP-1 agonist
enters phase three human clinical trials.
Yep.
And for those who have heard these phrases
before phase one, phase two, phase three,
and never knew what they meant,
phase three is the really big,
really expensive one.
And I'm going to quote Alex Telford,
who wrote this really amazing long blog post
sort of explaining
how the clinical trial process works
and why drug development has gotten so expensive
and all that.
We'll link to it in the show notes.
It's one of my primary sources.
He says,
typically phase one trials focus on safety
and finding an appropriate dose,
often in healthy volunteers,
phase two on establishing preliminary evidence
of efficacy in patients,
phase three on confirming efficacy
in a larger sample of patients
and collecting robust safety data.
And it is worth pointing out
when I say the expensive one,
29% of all R&D for a drug is spent right here.
So phase one is 9%,
phase two is 12%,
phase three is 29%
with the rest of it sort of coming from
that early basic research,
drug discovery, preclinical studies,
and the, you know,
a little bit later with the regulatory review,
but like almost a third of the entire spend
of the whole R&D pipeline for a drug is here.
So big freaking deal
to go through a phase three trial.
And my understanding is that
most drugs never make it to phase three.
And if you make it to phase three,
that's like very promising.
It's not automatic that you're going to get approved
and it's going to work,
but it's promising.
It's a great question.
Thanks to Alex,
we have the data right in front of us.
So here's the probability
that a preclinical study
even makes it to the phases.
That's 69%.
So you're a little over two thirds
once you enter a preclinical study
to graduate to phase one, two, and three.
But in phase one, two, and three,
about half of them get weeded out each time.
So 52% make it through phase one,
36% through phase two,
and only 62% through phase three.
And once you get into regulatory review,
then there's a 90% chance that you get approved.
But each one of these gates filters out
about half of the drugs that enter.
But I guess if you look at the
like kind of lifetime risk of approval for a drug,
by the time you make it to phase three,
you're pretty far.
So of the 69% that even make it
into clinical development,
you've got 36% left at graduating phase one,
then 13% left graduating phase two,
then all the way at the end,
8% graduating out of phase three.
So it gets pretty winnowed down over that course.
But to your point,
it's a big deal to enter phase three
because it shows that you are one of the 13%
that have made it this far.
Yep. Cool. Okay.
So as they're in trials,
and Novo knew this,
but it's starting to get confirmed
that one, Liraglutide is going to be
more effective than Bayetta.
Two, more importantly,
it's only going to need to be injected once per day
because the half-life is longer.
And three, it's also now starting to be observed
and confirmed in these human trials,
something that Lotta had noticed
all the way back in the animal trial phase,
that rats who were injected
with very large amounts of Liraglutide
would stop eating.
And it seemed to have an effect on appetite.
And if these rats had very large amounts of it,
they would literally starve themselves to death
and refuse to eat.
And this effect is persisting in humans
here in the phase three trials.
Which wasn't a guarantee
because there's lots of rat behaviors
that then don't replicate in human trials.
And so while they were not specifically studying it
in this trial,
they were studying the effects on type two diabetes.
The early reports of this might be replicating in humans
was promising and surprising,
but it wasn't happening to huge degrees.
Like with the dosage of Liraglutide
that they were planning
to sort of make the approved dose.
It's not like you were seeing
this crazy dramatic weight loss.
It was just like,
oh, that's interesting.
You also eat a little bit less
when you're on this Liraglutide drug.
But nonetheless,
it's a pretty interesting thread to pull on,
especially because many other anti-diabetic drugs
up until this point
had actually caused patients to gain weight.
Right.
Which of course compounds the problem.
Right.
So Lada and her R&D team,
they push Novo Nordisk
to consider also pursuing
a parallel FDA approval
and commercialization path
for the same molecule, Liraglutide,
as a weight management drug
based on this evidence
that they're seeing in the trials.
Which in FDA speak is an indication.
You're trying to get it approved
for a second indication.
Yeah.
Now this was truly an out there idea.
There is a huge, huge stigma.
Yes.
Around weight loss drugs.
Enormous.
Yes.
The stigma is real,
but there's also an interesting
product efficacy thing here.
So Vox.com put it really well.
They said,
not only do weight loss medications
have a dangerous history,
but there is also a persistent bias
and stigma against the disease
that now afflicts nearly half of Americans.
Obesity is still widely viewed
as a personal responsibility problem,
despite scientific evidence to the contrary.
And history has shown
that the most effective medical interventions,
such as bariatric surgery,
which is stomach stapling,
effectively the gold standard
in treating obesity,
often go unused in favor of diet and exercise,
which for many don't work.
And like this is proven over
and over and over and over again.
You can't just tell people
change your lifestyle.
Most people literally can't.
There's too many things working against it,
including their own biology.
Additionally,
this is pretty interesting.
Researchers thought it was
actually impossible
to create a weight loss drug
that was both safe and effective.
Yeah.
You're talking about Fen-Phen?
Yes.
I mean, it dates way back,
even before Fen-Phen,
to the amphetamines in the 70s.
People are taking Speed
because that's like the accepted
weight loss drug.
Yeah.
Fen-Phen was a combination of
a drug with Speed.
One of the Fens is Speed, I believe.
And so in the 90s,
was it heart attacks?
Yeah, it was major heart damage.
Yeah. So that scared the crap
out of the FDA,
out of companies
that are pursuing weight loss drugs.
Yeah, this was a disaster.
It kind of was like a grassroots
thing that built up.
And the two Fens
were independently approved
for separate use cases.
And a physician got the idea
to combine them.
And since both drugs were approved,
Big Pharma was like,
oh, wow, weight loss drug,
miracle drug.
Let's commercialize this.
And so they pushed the FDA
to rush the process,
which they did,
thinking, again,
both of these drugs are approved.
And it turned out that
when used in concert,
it caused major heart damage.
So I think something like
six million Americans
took this thing
and a large portion of them
ended up with
major cardiovascular issues.
It's awful.
I mean, that was the worst one.
But there's like seven or eight
over four decades
of these either dangerous
or just completely ineffective
weight loss drugs.
So most pharma companies
completely steered clear of
the black hole budget item
that was weight loss
research and development.
It's kind of going back to
the beginning of the episode
in Rockefeller's dad
and the snake oil salesman.
Like, this is the stigma
around this stuff.
Totally.
And to illustrate this numerically,
the annual obesity drug sales
were only $744 million
up until 2020.
The market for weight loss drugs,
you know, was just tiny
because basically nothing worked
and everyone was scared of it.
That $744 million
included the commercial sale
of liraglutide for weight loss,
which had already been on sale
for six years.
So why is everyone freaking out
about Ozempic now?
Does it feel like basically
nothing worked before?
It was true.
Nothing worked before in a safe way.
So there is sort of this
magic number around
if you can actually safely
enable someone to lose
10% of their body weight or more,
then there's a market.
But otherwise,
it basically rounds to zero
because people just don't think
it's worth the trouble
and neither do the companies.
Yeah.
It's like you need the appropriate
amount of activation energy
for the reaction to catalyze.
Exactly.
And just to, you know,
put a really close to home,
even finer point on this stigma,
as recently as 2005,
2005, like same year,
Biotic came out,
Novo Nordisk's own official position
on the obesity category
as articulated by the then CEO,
Lars Sorensen was quote,
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.
Now, imagine your Latte and her team
trying to get the company
to release alleroglutide
for weight loss
when that is the company's
official position.
Right.
You're like, look,
I'm looking at these humans
who are eating less.
Right.
So, you know,
what's going on here
and why is Latte pushing for this?
You know, she's a great scientist,
well-respected, you know,
and at this point,
she's made her career
on the development
of alleroglutide and GLP-1
against all odds,
just for diabetes.
Why is she pushing this?
This is a very,
very different situation
than what happened with Fen-Phen.
Totally.
We still don't know
the super long-term effects of it,
but we certainly know that
months after taking this thing,
large populations of people
are not having heart attacks.
Yes.
And Latte knows this too,
obviously, because
leriglutide, like the drug,
the same drug, the same thing,
has now been through 12 plus years
of super rigorous trials,
starting with animals,
now with humans,
international approval processes.
You know, there were issues
along the way,
like there are with any drug.
Dude, the 2010 trial
was 9,000 patients
across 32 countries.
This is a big, expensive,
almost two-year trial.
Yep.
She's like, yeah, I mean,
we're pretty sure here
this is about as safe as any drug
possibly could be.
And at least in the medium
to short term, like,
this is not a cause for worry
in terms of safety.
It's just that all that testing
and everything was done
for a different use case,
but it's the same drug.
So she eventually convinces
the company to push forward with this.
And in 2007,
so only two years
after the CEO made that statement,
Novo enters a slightly higher dose
version of liraglutide
into human trials for weight loss.
And why do minds
change quickly on this?
Like the commercial opportunity here,
if you can get approved,
if you can get it to work,
if it's safe,
is unlike anything else
the pharma industry has ever seen.
Like if you could really crack
this market.
So at this time,
back here in the mid 2000s,
already about a third
of the U.S. population
is medically obese,
you know, defined as a body
mass index over 30.
Two thirds are medically overweight.
The World Health Organization
estimates that 500 million people
worldwide are obese,
you know, so that's
a total addressable market here
of like 100 million people
just of medically obese people
in the U.S. alone,
half a billion plus,
probably more like a billion
worldwide.
There are no other drugs
and diseases that affect
this many people,
not even diabetes.
Yep.
And just like diabetes,
it turns out that in most cases,
obesity also is a chronic disease.
So yes,
you have this huge tam of people,
but it's also people
that are then going to be
taking the drug
probably for the rest of their lives.
Which is just like a statin
or, you know,
there's a lot of treatments
for chronic diseases
that we give people
that are drugs
that you have to take
for the rest of your life.
Yeah, you're right.
It's like totally different
than making a vaccine
or making a,
you know, hepatitis C cure
or something like that.
It really is a,
for better or for worse,
a durable,
ongoing,
recurring revenue stream.
This is annual recurring revenue here.
Yeah.
So in early 2010,
Novo gets final approval
for Victoza,
which is the marketing name
for the diabetes version
of lyriglutide.
So five years after Bayetta,
Victoza is finally
officially hitting the market
in the US.
And remember,
this is just FDA approved
for diabetes.
But of course,
everybody knows
about these trials going on
for weight loss
and the ability to lose weight.
It hits the market
and it is a enormous hit.
It doesn't just overtake Bayetta
as the leading GLP-1
drug on the market for diabetes.
It massively expands the market.
So year one,
in the first year
that it's on the market,
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.
So there's this concept
in the pharma industry
of a quote unquote
blockbuster drug.
And these are drugs
that achieve a billion dollars
in annual revenue.
Sort of like the tech industry
calling it a unicorn
with a billion dollar valuation.
Exactly.
It's the pharma
version of a unicorn.
And these are like Lipitor,
Humira, Atavir.
There's a bunch of examples,
but that really are
a huge breakthrough
address a large enough population.
There's a bunch of ways
to sort of slice it,
but usually they're drugs
you've heard of.
Yeah.
And Victoza hits it
in its first full standalone
year on the market,
which is super fast.
So what's going on here
obviously is that
people are not using
Victoza just for diabetes.
I mean, people are
using it for diabetes,
but people are also
using this for weight loss.
And you might be
asking yourself,
how does that work?
If the FDA has only
approved it for diabetes,
what's going on there?
Well, it is actually
at the doctor's discretion
if they want to prescribe
an off-label use.
So if a doctor does
enough independent research
or reads a study or
technically,
I don't think the drug
companies can provide
any marketing materials
or sway the doctors in any way.
So the information
can't come from the
drug manufacturer.
But should the doctor
believe that this drug
would be good for their patient,
even though their patient
doesn't have the FDA
approved illness,
or I guess
whatever the indication is.
The FDA sanctioned indication.
Yes.
The doctor can prescribe
it for an off-label use.
Right.
And that's not illegal.
And let's be honest here,
like some of this is doctors,
but a lot of this is patients
going to doctors and being like,
hey, I heard that this
Victoza thing could
help me lose weight.
What do I got to do
to make you prescribe it for me?
I saw an ad that said,
ask your doctor if Victoza
is right for you.
So I'm asking you
if it's right for me.
Yeah.
We should say everything
in health care
has a modifier of sometimes.
And everything I just said
is true sometimes.
It's not always true
that the doctor has
complete control
to prescribe off-label,
but I think it's a reasonable
way to think about it.
Yeah.
But David,
it's not that effective.
You can lose weight
taking Victoza,
but it's not necessarily
a life-changing thing.
Right.
So at the end of 2013,
Novo submits Saxenda,
the official weight loss
version of allergally
tied to the FDA and EU
for approval.
And it's a slightly
higher dose version.
And expectations are at
a all time high for this.
Novo's market cap
has already been running.
It now passes $100 billion
on the anticipation
of Saxenda's performance.
And it's not that big a hit.
It's a hit.
It has good sales.
And to be fair,
I think a large amount
of the early adopter
GLP-1 weight loss market
was already just using Victoza.
So clearly a lot of the
Victoza revenue
was actually Saxenda revenue
that was pulled forward,
so to speak.
But Ben, like you're saying,
the big issue is that
even with the slightly
higher dose of Liraglutide,
it yields long term on average
across populations
about an 8% BMI reduction,
you know, which is meaningful,
but it's not that meaningful.
In research, it is crazy.
I heard over and over again,
physicians and other people
in the industry echo
this kind of magical
10% weight loss reduction number
where there was always
this belief in the industry
that if something could reliably
help you lose 10% or more,
then it sort of tips.
And Saxenda just didn't get there.
Yep. So regardless,
the next year, 2015,
is a record year.
Total company revenues
for Novo Nordisk
hit $16 billion,
which is incredible
for a pure play diabetes
and now diabetes
and relatedly obesity pharma company.
But the stock flatlines.
Yeah, and right around
the same time,
you've got the insulin pricing scandal
where America is waking up
to the idea that insulin
is getting more and more expensive.
And it's becoming more and more essential
for a huge population of people.
And this is across the whole industry.
It's Sanofi, it's Novo Nordisk,
and it's Eli Lilly.
Everyone's insulin
has gotten more expensive
and they come under fire
in the public eye.
And so the sort of Saxenda
not being the blockbuster drug
that expectations
had trumpeted it up to be,
plus this increasing pressure
around insulin
and I think a CEO change.
Yeah, well, the CEO change,
I think, was a result of this.
So what you're leading up to
is in 2016,
the stock takes a 40% hit,
which is wild.
You know, today,
at the beginning of 2024,
this is a half a trillion dollar company.
And a few years ago,
it was a well less than
$100 billion market cap company.
But there was that
really dangerous narrative
that these GLP-1s
aren't going to be as crazy as everyone,
at least everyone in the know, thinks.
And also their only franchise of insulin
is suddenly under fire.
Yeah, so in September 2016,
the then CEO Lars Sorensen resigns.
Current CEO Lars Jørgensen takes over.
Amazing. So wonderfully Danish.
Sidebar, this is wild.
So right now, today, as we record this,
Novo Nordisk is the 15th
largest company in the world
by market cap.
And when I was doing research
for this episode,
I, of course, googled Lars Jørgensen.
When I did,
the results that Google gave me,
results one through six
were for the University of Kentucky
swimming coach,
who is also named Lars Jørgensen.
Talk about below the radar.
Who I'm sure is a great and storied,
you know, NCAA swimming coach.
But it wasn't until number seven
when I actually got
the CEO of Novo Nordisk.
That is how, like,
underappreciated this company is.
It's crazy.
Anyway, right around the same time,
Novo begins phase three trials
with their new next generation
improved GLP-1 analog,
semaglutide,
which I think is pronounced semaglutide.
We've also heard semaglutide.
We did an obscene amount of
research on this and
don't have a good answer.
So if you know,
get in touch with us.
The most reputable source we could find
seemed to say semaglutide.
Yes.
Which makes sense, you know,
coming out of liraglutide.
And I believe there's a duaglutide.
So we're rolling with semaglutide.
Acquiredfm at gmail.com
if you disagree.
And 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
instead of once per day.
Massive benefit
just on patient convenience there
with the half-life being so much longer.
Two, and much more
important for the near term,
it is twice as effective
as liraglutide for weight loss.
So we're talking 15% plus
long-term BMI reduction,
which is well beyond,
Ben, as you were saying,
the 10% magical threshold.
Yep.
It moves from the
domain of irrelevancy
to the domain of,
is this a miracle drug?
In the press.
And there's some more
benefits, potential benefits,
that we'll talk about
in a little bit here.
But this compound,
this GLP-1 agonist,
semaglutide,
is, of course,
ozempic and wegavy.
All the same thing,
all semaglutide,
ozempic is the
diabetes marketing product
and wegavy is the
weight loss marketing product.
Yep.
So a few words on
how it affects weight.
The natural GLP-1
produced in your gut
travels to your brain.
This is a hormone
that moves throughout your body,
much like many other hormones,
and it triggers a response
to tell your brain,
hey, I'm satiated.
It tells you that you've had enough,
that you feel full,
and it can cause you to
stop thinking about your hunger.
And if you're someone
that's constantly fixated on food
and restraining yourself
from indulging,
it can quiet that impulse,
or at least reports are
that that is sort of
what people feel.
It can also slow digestion.
So not only does your brain
think you're full,
you literally are now full
since the food takes longer
to move through
your digestive system.
And David, you mentioned
that 15% weight loss.
They're still studying
exactly why it works,
but it's believed to be
that it's sort of
these two mechanisms
working in action together.
And as you can imagine,
food taking longer
to move through your system
kind of can make you feel gross.
Like the side effects
naturally include things
like nausea, vomiting,
constipation,
things like that.
But these reports of side effects
are pretty widespread.
I listened to a bunch of things,
one of which was a Tegas call
with a professor of cardiology
that cited about
one out of six patients
have side effects
that are so severe
that they discontinue the drug.
So it's sort of this,
we don't exactly know why it works.
We have studied a bunch,
so we know that it works.
But you can sort of imagine
why the side effects
might be linked to the idea
that if you're eating,
you know, really calorie dense food,
really fatty food,
hard to digest food.
And it's moving slower.
Right. I wouldn't want food either.
Yeah.
The thing that's really fascinating
to me about semaglutide
as a weight loss drug
is that you can't just sit around
eating pizza and ice cream
and lose weight.
The laws of thermodynamics
in the universe still apply.
Your body will always
retain the difference
between the digestible calories
that you eat
and the calories that you burn.
But the reports
from those who are taking it,
it's really more like
you just don't want
to eat large quantities.
You don't want to eat
calorie dense food.
And it sort of just changes
your habits without you trying,
or at least you having to try
as hard as you did
in other attempts to lose weight.
You know, 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?
Well, if you're taking medicine
that changes the way
that your body chemistry works,
but also literally causes you
to naturally change your behavior,
it really actually
addresses both concerns.
Right. So 2018,
Ozempic finally hits
the market for diabetes.
And then in 2021,
Wegewee gets approved
for weight loss.
Ozempic does over a billion
dollars in revenue in 2019,
its first year on the market.
It's clear it's going
to be a huge hit.
And it's like even more than that.
This is like even more
than Victoza back in the day.
It does a billion dollars in revenue,
but like it's massively
supply constrained.
Like it could have done
a lot more.
These drugs still,
Ozempic and Wegewee,
could do a lot more revenue
than they are doing right now.
Which, by the way,
on earnings calls,
the company says,
yeah, that's going to be true
for a long time.
The demand for this drug
will continue to
massively outpace our supply.
And we will be here
on earnings calls
over and over and over again,
telling you that no matter
how many factories we build,
we are supply constrained still.
Yes. So at this point,
you know, it's funny.
I think for most people
that are discovering
Novo Nordisk now,
us included,
I didn't know anything
about this company
until a few years ago.
32 years after Lada
and her team started this research.
Right.
If anything,
we think of this company
as like, oh,
it's the GLP-1 company.
It's the weight loss drug company.
And like, no,
for 100 years,
it was the diabetes
and the insulin company.
But it's clear at this point now
that no,
this is now a GLP-1 company.
And that grew naturally
out of the diabetes
and the insulin research
and Lada's work
and sort of in this
organic fashion
that is so different
than the rest of the pharma industry.
But the net result of this now
is that yes,
insulin is still a large business
within Novo Nordisk,
but it is a GLP-1 company.
So when Wegewee
finally launches in the US
in 2021
as the official FDA sanctioned
weight loss version
of semaglutide,
it gets the same number
of prescriptions
written for it by doctors
in the first slightly over one month
than Saxenda had
in its entire drug lifetime.
People were already
misusing ozempic for weight loss
before this.
So like ozempic supply
was fully exhausted.
And then now Wegewee supply
fully exhausted.
Well, in February of 2021,
after the clinical trial finishes,
semaglutide for weight loss,
so for Wegewee to hit the market
in the US,
the New York Times runs a story
and just calls it a game changer.
They say for the first time,
a drug has been shown
to be so effective against obesity
that patients may dodge
many of its worst consequences,
including diabetes.
So like with the biggest megaphone
you could possibly point at people,
they're being told
this thing freaking works
and it's a miracle drug.
And we'll talk a lot more about
pros and cons and all of that
and everything around that
in a minute here in analysis.
But just to wrap up the story,
the company's market cap
basically goes vertical.
In 2020, right before all this hit
and as ozempic was coming online,
the market cap had climbed
back up above $100 billion.
Summer 2021, it hits $250 billion.
By the end of 2022,
it hits $300 billion,
which, mind you,
is against a market and macro backdrop
of massively rising interest rates
and stocks and equities
being down across the board,
like Novo Nordisk is up
during this period.
And then this past summer in 2023,
it passes $400 billion market cap
and it is currently flirting
with the half a trillion dollar mark.
Revenue goes from $20 billion in 2019
to $25 billion 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,
of course, with, Ben, as you said,
years worth of supply constraint
demand pipeline.
Yep, that is pretty crazy.
David, you mentioned it
as the GLP-1 company already,
and that sort of transition
has already occurred.
You're totally right.
Looking at the numbers,
51% of their revenue comes from
diabetes-focused GLP-1 drugs
and an additional 18%
from obesity-related GLP-1.
So 69% of their revenue
comes from semaglutide or liraglutide.
I mean, it's crazy.
That happened in a decade.
Yeah, totally wild.
Insulin has become, to your point,
it's still a part of the business,
a smaller share of the business.
Again, this is of revenue,
not of profits,
but 22% of their revenue today
comes from insulin.
That leaves about 9%
from the other efforts
that they're putting energy into,
rare diseases,
so things like hemophilia.
They continue to be
a ridiculously concentrated company.
They make about $10 billion a year
in net income,
so they're also a
very, very profitable company
among the most profitable
in all of pharma.
They have 55,000 employees,
so it's a huge international company
at this point.
And I want to talk briefly about margins.
Later, we will talk about
why margins are actually
not the most interesting measure
to look at,
but it's worth knowing them
because we talk about them
on every other episode.
Gross margins are better than software.
They run about 84%.
Lilly is also a very high margin company,
running about 80%.
For context,
Microsoft has a gross margin of 70%,
and Google is 56%.
How is Google's gross margin 56%?
They must be stuffing a lot of
other revenue besides search
into the top line.
I assume all the billions they pay Apple
comes out of costs of goods sold,
all the traffic acquisition costs.
Probably also for their infrastructure
and for Google Cloud.
Yep.
So at 84% gross margins,
you should know they're
10 percentage points higher
than your average
successful big pharma company.
They're concentrated
in terms of what they actually focus on,
but they're enormous
and more profitable than everybody else.
So they've sort of threaded a needle
that if you were pitched a blank canvas,
you would say like,
well, it's impossible.
You need to make a trade-off somewhere
if you're going to be so narrowly focused
on just one or two conditions
and really one singular
interrelated condition
of metabolic disorders.
Either you can't have all the revenue
or you can't be so ludicrously profitable.
And turns out the thing that they picked,
they can be both.
Yes.
And also it gets better.
So because semaglutide
has such a long half-life
relative even to liraglutide,
I mean, it's a once-weekly injection.
So like, you know,
the half-life in your body is days.
It's staying in there for a long time.
Remember, natural human GLP-1,
your body processes that in like five minutes.
So having GLP-1s active in your body for so long,
it's reaching other tissues in your body
that normally GLP-1s wouldn't.
And indications are showing
that that is beneficial for those organs.
So currently Novo has clinical trials
going for semaglutide,
same drug,
same GLP-1s,
use case in treating cardiovascular disease,
in treating Alzheimer's,
in treating kidney disease,
many others.
Again, this is all for like a molecule
that through FDA processes
and EU processes
has been deemed safe enough
to be on the market
for the accepted use cases.
Same drug.
Now it's showing evidence
that it can also attack
these other major disease areas.
This is the gift that keeps on giving here.
Could be.
Everything is really early,
but it really might earn the title of miracle drug.
It really might.
Now, not a scientist at all.
This is just my thought looking at this.
But yes,
could be a miracle drug for humanity
and certainly already is a miracle drug
for Novo Nordisk
in terms of financial performance.
Like no doubt about that one.
No doubt about that.
Well, this is a very good place.
I've got a couple of broad topic areas
that I want to hit here.
Let's start with the general state of affairs
of GLP ones today.
So the first thing to know is sticker price.
The price of Ozempic to treat diabetes
is north of $1000
and Wegovy for weight loss
is north of $1300 per month
before insurance.
And this is in the US.
So expensive, right?
That's a lot of money.
In Canada, of course,
Ozempic is $147 a month.
In the UK, it's $93 a month.
So everything that I'm about to talk about
is a uniquely American problem,
much like most problems
in our health care system.
So how do these drugs get paid for in the US?
Well, that depends.
Rich people just out of pocket
if they don't have coverage.
We've seen all the headlines
about it being rampant
in wealthy New York neighborhoods
or around Hollywood.
But let's segment that away for a moment
and say, well, okay, outside of that.
Well, first, let's talk about private insurers.
You might have coverage
by your company's insurance.
And this is a good place to talk about
the two most pernicious issues
in the entire US health care system
that are deeply intertwined.
One, incentive alignment.
And two is time horizon.
So the average American
in the private sector
holds a job for 3.7 years.
That means that on average...
I see where you're going with this.
Insurance companies
are going to churn you
every 3.7 years or sooner
if your company changes the insurance plan.
So their incentive
is to cover you
only in two categories of things.
One, things that pay themselves back
in less than 3.7 years.
Or two, things that have
such an overwhelming demand from employees
that their employers think
that they absolutely have to cover them
to stay competitive.
Now, you're sitting there
thinking exactly the right thing,
which David, you already acknowledged.
But if I lose weight today,
I'll benefit in the long run.
But will my insurance company
lower their costs in some way?
I mean, if I'm obese,
I'll almost certainly
have complications later
that'll cost hundreds of thousands
or millions of dollars
once those become acute conditions.
But those costs won't be realized
by your current insurance
or your current employer.
Oh, man.
So if I'm an insurer, I'm like,
great, I'm going to offload
all that onto Medicare.
Exactly.
The insurers are not really
holding the bag for this class.
You know, these chronic conditions.
This is the crux of the incentive problem
in our health care system.
There is just a mismatch in time horizon.
You are invested in your own health
for your whole life,
but your insurance carrier is not.
They're invested in your health
for your planned life with them.
Exactly.
So what is the exception?
The exception is if your carrier
is the U.S. government.
So let's talk about Medicare.
And Medicaid is a whole different discussion
that involves states
and is unbelievably fragmented.
So we'll just not actually
talk about it right now.
But let's talk about Medicare.
So Medicare is through
the U.S. federal government.
It is a health insurance
for people who are over 65.
Basically, the U.S. federal government
funds that plan with taxpayer dollars.
And so a while back,
which is actually not that long ago,
just like 20 years ago,
Medicare did not cover
prescription drugs at all.
Medicare Part D was passed into law
in 2003 and took effect in 2006.
It allowed Medicare to cover drugs,
not just hospital and doctor visits,
which was Part A and Part B.
So today, Part D, interestingly enough,
is legally prohibited
from paying for weight loss.
And it is specifically called out
that it is legally prohibited.
There have been efforts to change this,
but there was a bill introduced in 2013
that basically has never been passed
to try to get through.
Do you know if this was a result
of the Fen-Phen debacle?
That's part of it.
But I think a lot of it
is really just this stigma of like,
well, you really should be
taking care of that yourself.
You really should be
making lifestyle changes.
Yeah.
I could see the argument of like,
why is the whole taxpayer base
covering, you know,
people who should just be exercising more?
Yeah.
Even though, like,
it's definitely been proven
that that is not the case.
It's not their fault.
Totally.
The Wall Street Journal has this great quote.
The scientific foundation
for treating obesity as a disease
rather than a lifestyle problem
was solidified in the mid-1990s
when researchers discovered
that fat tissues release proteins
that act as hunger
and fullness signals to the brain.
This system is out of balance
in people with obesity,
making it more difficult
for them to lose weight.
And for those who do lose weight,
there are biological mechanisms
making it hard to keep it off.
So what is so interesting about Medicare
is that we will all end up on it one day
when we retire
and we get off of our private insurance.
So it does mean the government
is left holding the bag
with our health for the long term.
So there are really two parties
with aligned interests
for us to stay healthy.
Ourselves and Uncle Sam.
And for us,
it's actually quite hard
to look out for long term interests
because the feedback loop is too long.
So like I go out and drink
even though I'm going to have
a hangover the next morning
and that's only a 12 hour feedback loop.
Like lots of times
you make long term bad decisions.
So the question is,
can Uncle Sam fix that problem
in some way?
Well, it is far too early to say
whether these recent GLP-1s
are actually miracle drugs
that massively reduce
the complications later in life.
And David, you mentioned
there's research being done
to figure out
it might reduce heart attacks meaningfully
and strokes and liver and kidney disease.
But if all of these things
turn out to be the case,
the American taxpayer has a huge benefit
in investing early
to keep all of our health care bills down
later in life.
Yep.
So I don't have a specific proposal.
I'm not saying the government
should pay for every single person
in the country to be on Ozempic.
We'll have to see
where the studies kind of net out
on the benefits of these long term things
and taking the sort of moral thing aside
of like, does everyone deserve
a miracle drug if it exists,
even if there is no economics around it?
It might just be ROI positive
for Medicare to do this
if everyone's going to need
knee replacements and hip replacements
and diabetes treatment
and amputations
and cardiovascular interventions.
Right.
That is kind of the crux
of the broader societal debate
and issue here is obesity
leads to such a huge amount
of comorbidities and disease
and health problems and issues.
And, you know, that's even
just talking about the medical system,
let alone everything
outside of the medical system
that it leads to.
And is it worth a certain amount
of both risk in terms of the drugs
and cost and tax on society
to save those expenses later?
That's the question here.
Right.
So last thing to say here,
payers are scared and rightly scared
of how much it will cost them
in the short term
if they do start covering these drugs.
Forty percent, as we keep saying,
of the population today is obese.
And the list price of these drugs
is over $12,000 per person per year.
So insurance companies,
employers, Medicare,
they literally don't have
the budget right now
to fund all the demand
for these drugs.
So even if we had all the supply,
so there's a lot of intentional
slow rolling and campaigning
to try to get people to look at
other interventions first
before these drugs,
given how colossally expensive
it would be right away.
Yep. Which might be a good time
to talk about Eli Lilly
and other companies out there
that are also bringing
GLP-1 drugs to market.
Yes, please tell me about Terzipatide.
Yeah, so obviously
other big pharma companies
have not just been
completely ignoring
this incredible development
slash cash gusher
that has emerged in
Novo Nordisk land.
Eli Lilly now has a GLP-1
diabetes-approved treatment
on the market
under the diabetes brand
named Monjaro
that seems to be
as if not more effective
as semaglutide
in terms of weight loss
when used for obesity.
And Terzipatide is basically
the same.
It's a GLP-1 receptor agonist,
but it is also a GIP,
which is basically
bundling two hormones together
that act in concert
to be certainly
a little bit more effective
on weight loss
from the early trial data,
but also potentially
more effective
on helping your body
produce insulin as well.
So that's showing great promise.
It was approved in the U.S.
for diabetes treatment
in May 2022,
and approval just came recently
in November 2023
for official FDA-sanctioned
weight loss use case
under the marketing name
ZepBound.
So look for that in 2024.
What this really shows though
between Eli Lilly and Novo
and other companies
that are almost certainly
going to get into the GLP-1 business,
I think this is going to be like
insulin all over again,
where there's just going to be
a series of product improvements
and companies will drive innovation
and increase supply.
I mean,
the demand is so huge out there
that Monjaro can be a huge hit.
Ozempic and Wegaby
will continue to be huge hits.
Other companies getting into the game
will be huge hits.
Novo has next-generation GLP-1
drugs in the pipeline themselves.
Kagrasema is the big one
that they're currently working on
that they think will be as good,
if not better,
than what Eli Lilly has with terzibatide.
So I think we're basically just
assuming that everything continues
to be proven safe in the long run.
We're kicking off a new super cycle here
in pharma development
around these compounds,
just like played out with insulin
over the last century.
And it really also just goes to show
like it was time.
Multiple researchers arrived
at similar ideas concurrently,
which we see over and over again
in the world.
Uber and Lyft is sort of our
modern canonical example.
Cellular connectivity plus GPS
plus iPhone sort of made it possible
to do something for the first time.
Multiple parties were arriving
at the same time to do that.
And I think science had sort of
just arrived at a place
where multiple parties
could develop similar things
side by side.
And so now there's certainly
a catch-up race among
other pharmaceutical companies
who weren't doing this
to now try to get into it
and see if they can compete.
Other things to know about
these GLP-1 drugs today.
For diabetes,
I try to basically figure out
from asking around,
what are people actually paying for this?
Like what are most people
actually paying?
Because list prices of drugs,
as we discussed earlier,
is stupid.
At least in the US, yeah.
Yes.
So there are a lot of reports
of people paying
somewhere in the neighborhood
of $300 a month
after insurance
as their actual cost.
And to corroborate that,
a different way to arrive
at that number.
One person told me that
it is common for most employers
to put between a 20% to 50%
co-pay on these drugs.
So at $1,000,
you know, that's $200 to $500.
So on the one hand,
it's still very expensive,
$3,000 to $4,000 out of pocket per year.
That's probably like
my entire out-of-pocket
healthcare spend
in an expensive year.
You know, that's a big price tag.
But on the other hand,
if that's the thing
that changes your life,
that could be seen as an easy choice.
Now, it's easy for us sitting here
to say something like that
because there's a lot of people
that don't have that kind of cash
to spend on something
that could potentially
change their life.
So there's definitely
a meaningful access problem,
not just the supply constraint
on the manufacturing side,
but even at a highly subsidized rate
from insurance,
a lot of people still can't
actually afford the drugs.
The last thing I want to say
on the current state of GLP-1s
is that not adherence
is a bigger issue with these drugs
than many other drugs
that have come before it.
There's some research that points out
that as many as 68% of people
roll off it after a year.
And part of this is related to price
or changing insurance
that doesn't cover it
or that it's hard to find
since they're still supply constrained
or maybe there are side effects
that a doctor is not sort of like
staying on top of with you,
so you just get fed up
and you're like,
screw this, I'm off.
But a lot of employers
and insurance companies
are sort of waving their arms around
and saying,
why are we covering
this expensive thing
when people don't even stay on it
and all the benefit goes away
when they get off of it
or at least, you know,
90% of the benefit goes away
and your weight yo-yos back up.
So there's some very real things
to figure out in making sure
that you can prescribe
these GLP-1s in a way
that come with enough handholding
to help you understand
and manage the side effects
and make all the behavioral lifestyle changes
that you sort of need to
to make them be effective
and sustainable.
Interesting.
I hadn't found that about non-adherence.
Yeah.
It came up in a bunch of Tegas calls.
There must have been
some hedge fund investor
trying to dig into building a model
of non-adherence into their DCF.
Well, before we go into analysis,
there is a little bit of catching up
to do on the insulin market
because we kind of left it as,
hey, it's still 22% of revenue
in Novo's business
and, you know, big three companies,
Sanofi and Eli Lilly and Novo
really compete here
and they've iterated
to become great products over time.
Well, one thing that we didn't talk about
is the complete destruction
of how attractive it is
to operate an insulin business.
And this is super recent.
So if you would have asked
any of these companies 10 years ago,
how durable is this revenue stream
and how durable are the profits
from the revenue stream,
they probably would have told you
that it's pretty durable
because we have things
like delivery pen mechanisms
that we keep improving over time
that are proprietary,
that give us some pricing power,
that we keep revising the formulation
so we keep getting the ability
to patent new things.
It's kind of difficult to manufacture
because it is developed from living cells.
So we're not just pouring chemicals
into a vat.
We do have to do some complex work
to produce the insulin.
So somebody is not just going to waltz
in here and figure it out.
And that was a pretty widely held view.
And one of the reasons
why I think these companies thought
they had so much pricing power,
which they got in trouble for.
So one thing that happened
was a big controversy over pricing
that we talked about.
In 2021, US officials alleged
that Novo Nordisk increased prices
more than 600% between 2001 and 2019
in lockstep with competitors
to the detriment of diabetics.
Now, Novo, of course, denied this.
And they pointed out that the net prices
had actually decreased since 2017.
So very convenient that they just talked
about the last two years
of that 18-year accusation.
So my read into that is,
yeah, prices were really rising.
And yeah, we all thought
we had a lot of pricing power
and we don't want to dig too much into it.
Now, if you look at the last five years,
and especially the last two,
the opportunity to sell insulin for a profit
has basically completely fallen apart.
So you've got regulation that came in
after the public outcry.
So there's real price caps
on what you can sell insulin for now.
Biosimilars also came in.
Biosimilars are effectively
what people call generics,
but for the category of drugs
that involve live cells
rather than mixing chemicals together.
So traditional drugs have generics
and biologics have biosimilars.
Biosimilar insulin became a thing.
And so a lot of the profits
just got completely arbitraged away.
And GLP-1s are here,
so those are reducing demand for insulin too.
Those three things
in the last five years or so
created this complete perfect storm
for insulin to be a super unattractive business.
Interesting.
Obviously, as we've shown throughout this story,
it's not like Novo and Nordisk
planned it that way.
However, this is really to their great benefit, right?
Because of all the insulin manufacturers,
I mean, I guess Eli Lilly
was first to market with GLP-1s,
but Novo really created the true GLP-1 market
and were the ones to really benefit
from these early years
while the competitors are catching up.
In many ways, they disrupted it just in time.
In some ways, you could say,
wow, it's so courageous of them
to come in and disrupt themselves.
But on the other hand...
It's like the headphone jack.
Right.
Was it courageous
or did they see the writing on the wall
that eventually we're not going to make
any money from insulin
and so it's time to really start
putting our foot on the gas on this thing
where we could have bigger market,
differentiated profitability?
I kind of think it was a happy accident
that the timing worked out,
but there are different ways to look at it.
I certainly didn't find anything in my research
that suggests it was anything but a coincidence.
Yeah.
It's interesting to think about the fact
that these companies thought that biosimilars
weren't just going to waltz in
and, you know, eat their lunch
and arbitrage all the profits away.
Over time, the market for insulin
became sufficiently large
that they just had a target on their back.
The prize became worth it.
As we talked about in the NVIDIA episode,
moats are only sufficient
if the castle is sufficiently lame to invade.
Otherwise, the castle becomes better.
You need a bigger moat.
In 1999, I think it was,
Eli Lilly sold $700 million
of insulin in America.
1999.
By 2017, just two of their products
sold $2.6 billion in America.
Yeah, two of their insulin products.
$700 million to $2.6 billion.
It's just an illustration of how large
and how interesting that revenue stream
became for other people to go after.
Totally.
All right, should we get into power?
We're kind of there anyway.
We're kind of in analysis land here.
Yeah, let's talk power.
And for folks who are new to the show,
this is borrowed from our great friend Hamilton Helmer
and his wonderful book, Seven Powers,
where he talks about the means
by which a company can achieve
persistent differential positive returns
versus their competitors in an industry.
Yeah, or put another way,
how to be more profitable
than their closest competitor
and do so sustainably.
So the seven powers are
counter-positioning,
scale economies,
switching costs,
network economies,
process power,
branding,
and cornered resource.
So the first thing I want to say is
we are in the pharma industry,
and so the one that has a blinking red light around it
is cornered resource.
Yes, this is a patent-driven industry.
Yes, Novo Nordisk has the patent on somaglutide
until 2032.
And this is an industry
where when you have the patent
and you are able to make an N-of-one drug,
and you know,
we're not quite seeing an N-of-one drug here,
but it's an N-of-two drug,
you get the profits.
And frankly, the crazy thing is
when you look at some of the analysis,
the profits evaporate
within two years of your patent going away.
Now, that was from the previous era,
before biologics.
So now that things are harder to copy
because the molecules themselves are more complex
and they require growing living tissue.
More engineering.
Yeah, that would fall more under process power
and frankly, scale economies
because it requires more capital.
But right now,
historically,
pharma is a patent-driven cornered resource industry.
I think how this GLP-1 kind of super cycle
is going to play out if it continues.
And what's interesting about the insulin history
and the analog to that,
it's looking like it's going to be like this
ever-stacking waves of patentable innovation
and product innovation happening here.
So like, yes,
the semaglutide patent will expire in 2032.
But if Kagura Sema,
their new kind of next generation GLP-1 product
shows the promise that they think it'll have,
then that'll be a new patent cycle starting then.
And then they'll develop the next generation
and it'll play out again,
just like insulin.
But yes, absolutely cornered resource for sure.
Yep.
The patents aren't just on the molecules.
They also patent delivery mechanisms.
And so they keep changing delivery mechanisms.
You basically have the scenario
where doctors don't really want to prescribe the old thing.
And so when you introduce a new novel form of a pen,
oftentimes doctors will say,
well, that's the thing we need to be prescribing now.
And so there's like a brand that gets built
around the most current thing that's patented,
even if it's not that much better than the old thing.
And there's a lot of people in pharma
that are going to get mad at me for that characterization.
But in addition to patenting molecules,
delivery mechanisms also provide defensibility.
Yep, yep, yep.
One question I had was,
there might be like contractual things
that entrench relationships too.
When you get really big,
and this would be a scale economy,
are there contractual relationships with formularies
that sort of entrench you
and make it so that even if someone else comes out
with something similar to treat any given condition,
and your patent isn't defending you
because it's a different molecule,
well, sorry, you've locked up a distribution channel
with the PBM and getting on the formulary
in such a way that like, good luck to anyone else.
Yep, I think that falls into scale economies,
which for sure also apply here.
Yep.
I think really on three sides,
on the R&D and research side,
because that is incredibly capital intensive.
$2.3 billion a drug.
Yep.
The production side,
as we've talked about for much of the episode,
and then also here on the go-to-market side,
you can't just, you know,
waltz into these markets.
And the gigantic amount of R&D,
it literally is $2.3 billion
to bring a drug to market on average.
You need to make a lot of profit dollars
on any given drug to benefit.
You don't necessarily need scale of patients,
but you do need scale of dollars
in order to outrun the fixed costs of R&D.
Yep.
I think we can say
there's no network economies here pretty safely.
And I think we can probably also say
there's no branding,
although Ozempic has become such a buzzword.
Oh, I think there actually is.
Normally there isn't,
but that's one of the breakout things about Ozempic is
there actually is brand power.
The first time I heard about Manjaro
was 18 months after I'd heard about Ozempic,
and I was like, oh, it must be some kind of knockoff.
You know, it's my first time studying pharma.
I was like, oh, it's probably something crappy
that's trying to ride this same wave,
but isn't actually the breakthrough molecule.
And like the studies show,
Manjaro helps you lose more weight
and has a very similar mechanism
plus another mechanism that together worked.
But like most people don't know that.
Most people know I read on the cover of the New York Times
that Ozempic is a breakthrough.
And I heard about it at the Oscars
because a joke was made on stage.
Jimmy Kimmel was talking about it.
Yeah.
Yes.
I think for the first time,
and it's happened a little bit before,
but for the biggest time in a while,
Ozempic has actual brand power.
I mean, there's like Tylenol, et cetera,
but like, yeah, it's entering that category.
An admission on that front too.
When we very first started talking
about potentially doing this episode
a number of months ago,
I thought the same thing you did about Manjaro
about Wigovi.
I was like, oh, that must be a crappy knockoff.
I did a cursory amount of research
and I was like, holy crap,
it's the same drug from the same company.
Like, I'm an idiot.
It's like literally the same thing.
It's literally the same thing.
Often in the same doses.
It's technically a higher dosage,
but you can get many different
dosage levels of either drug.
Right.
And not only that,
it is the one that is
supposed to be for weight loss.
But you're right.
Ozempic has become this brand name.
Yep. Vitamin O or Oz or,
yeah, there's all sorts of,
I've been reading the Ozempic subreddit
for a while to prep for this episode.
I bet you found some fun stuff in there.
Totally.
Switching costs are a thing.
Switching costs with any drug
are a big thing.
Because once you find something
that works for you,
you never change.
Like I've been on citrusine hydrochloride
for my allergies for 15 years.
I think it's Zyrtec.
And like, no, I'm not trying anything else.
It works.
Why would I try something else?
Yep. And especially in this case,
where in the vast majority of patients,
it does seem that if you stop treatment,
you will regain the weight.
Yeah, that's one of the worst things about it.
I will also throw in network economies.
Oh, I had said I thought there was none,
but I want to hear your case for it.
Well, so I think most of the time
in pharma, there's none.
But with Ozempic,
so I think there's two ways
in which GLP-1s used for weight loss
resemble consumer tech products.
One is a tight feedback loop.
When I start taking Lipitor,
I don't like physically notice
anything about myself,
despite the fact that something
that is potentially very dangerous to me
has become less dangerous with cholesterol.
When I lose weight, I immediately notice,
like if I lose, what, six pounds
in the first month,
there is a super tight feedback loop there.
And so in the same way that Zynga
created these feedback loops
for mobile gaming,
and that sort of psychology has been used
in all tech consumer products now
to create these gratification loops,
that totally exists with Ozempic.
The second one is what I think
is a network economy.
You kind of become a walking billboard.
Hmm, yeah.
There's a little bit of taboo
around sort of saying I'm taking Ozempic,
but people know you lost weight.
It has almost like a shareable,
Ozempic can go viral in a different way
than most pharma describes going viral.
I totally agree with you.
I would push back a little bit
in the classification.
I don't think this is actually
a network economy.
I think this is just
incredible word of mouth marketing,
because I don't think other people
actually get a benefit
from you taking Ozempic.
Yeah.
But I mean, literally,
you become a walking billboard.
Like it is an obvious
word of mouth marketing.
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.
Right.
If Elon Musk tweets that he's taking it.
We govy.
Yeah.
But again, it's the same thing.
Right.
Not to mention ribelsis.
That's the new oral one.
They have figured out
how to make semi-glutide
a once a day pill.
If you prefer taking that
to a once a week injection.
It's a little bit weird
because you have to take it
on an empty stomach
and then not eat
for 30 minutes afterwards.
But if you don't like needles,
I believe it is also
not quite as effective
as the injectable version.
Huh?
But still, it is an amazing
feat of engineering
that they created
an oral version of this.
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?
Because the issue with the GLPs
is it can't get absorbed
into your bloodstream
by you putting it in your mouth
and then it going into your stomach
and, you know,
hitting the harsh environment
of your stomach.
So like figuring out
how to make something
go from your stomach
into your bloodstream
for a sustained period of time.
Protect the molecule enough.
Right. That is sort of
the Novo magic.
Yep.
Wow. There's a lot of power here.
I think the only one
we haven't talked about yet
is counter-positioning,
which is interesting.
You know, maybe you could
make an argument
at the beginning there was
because this could disrupt
the insulin market.
But I don't really think so.
Yeah. And counter-positioning
basically always exists
in the takeoff phase
and never exists later.
I think that we keep kind of
finding that pattern
over and over again
is incumbents don't really
counter-position.
Startups counter-position.
Yep.
Yeah. I think
in the world of healthcare,
there is a ton of power
for basically any company
that we would study
because the returns
over and over and over again
keep going to these incumbents
that keep getting bigger.
And I know biotech investing
in startups is a thing,
and there'll be new disruptions
on the horizon, CRISPR
and gene and cell therapies
and things like that.
But the last 30 years,
at least, of healthcare
has consisted of returns to scale,
which would indicate
lots of power.
And it'll be interesting
to explore healthcare broadly
and specifically biotech
more on the show.
My sort of arm's length
understanding of the industry
is that where startups primarily
are doing drug discovery
and then they get acquired
by the big companies
for go-to-market.
Yep. That's right.
Or they do a deal,
some kind of distribution deal.
But a lot of the economics
of that deal are eaten up
by the big pharma company
as the distributor,
which really,
they're not the distributor.
The PBM handles making sure
that the reimbursements
are there so doctors
will prescribe them
and the wholesaler distributors
handle physically moving the drugs.
But when you do a
distribution deal
as a biotech company with a pharma,
it's because the pharma
has the relationship
with those two other parties
to ensure that you actually
can be available at broad scale.
And really, this model all started
going back to Genentech
and Eli Lilly.
And Genentech ended up
getting acquired by Roche.
But it was that partnership
of Eli Lilly being the go-to-market
for Genentech and insulin
that started this whole,
you know, startup,
big pharma partnership.
Yep. All right.
Playbook?
Playbook. Let's do it.
So the first one
that we've hit a few times,
but is just worth
putting a fine point on
is concentration.
The focus of this company
is unbelievable.
85% of their revenue
is dedicated to metabolic disorders.
They are the second largest
market cap pharma,
second only to Eli Lilly.
It's crazy.
They're that focused,
but they have an ability
to be that large by market cap.
It is worth knowing
they aren't in the top 10
pharma companies by revenue.
In fact, they're 20th.
Wow, I didn't realize
they were that low.
Yeah, no, it's a multiples thing.
Part of the reason why
they're Europe's biggest company
is people are very optimistic
about their future
and about their ability
to be profitable in the future,
not just make a lot of revenue.
But it continues to blow my mind
that they have had the huge success
that they have had
with how focused they have stayed.
You know, it's funny.
I was thinking the same thing
as my main playbook
takeaway from this one.
It reminds me of our
Sequoia Capital episodes
a few years ago,
and Sequoia's kind of historical
classic mantra,
the Don Valentine ethos
of target big markets,
find a big market,
target it, and then like
stay focused on it
for decades and decades and decades.
And that's the story
of a lot of companies
we've covered here.
But this is such a pure
play example of that,
like one disease,
one drug area for 100 years.
And now a second drug area
that came out of that
first drug area.
Well, but for 60 years,
it wasn't actually
that interesting of a market.
That's the crazy thing,
like 1920 to 1980,
it was type one diabetes,
which again,
absolutely incredible
for the world
that they took children
who had a death sentence
that gave them life
and they got to live
basically a full life.
But was type one diabetes
actually this colossal,
mega interesting market?
No, not at all.
Yeah, something changed.
Yeah, absolutely.
You're totally right.
What did Charlie Munger tell us?
He said,
there aren't many times
in a lifetime
where you know you're right
and you know you really
have an investment
that's going to work.
You may even find it
five years after you bought it.
Your own understanding gets better.
And I think that's basically
what happened with
the Novo Nordisk Foundation.
They realized,
oh my God,
this isn't just a service
we're doing for the world.
This is one of the most
important markets in the world.
Totally right.
And it's so funny.
I mean,
obviously we weren't in the room
as these conversations
were happening,
but from reading the history,
it feels like they understood
it more than management
at the time.
Management was like
kind of too close to it
and thinking,
you know, industry wisdom.
We need to merge.
Consolidation is happening.
And they were like,
no, there's this incredible wave
that we are riding here.
Let's keep compounding.
You should share the stat
on the size of the endowment.
Oh, yes.
So I kind of can't believe
we haven't talked about this yet.
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 billion,
which makes it
the single largest
charitable foundation
in the world,
over 2x larger
than the Gates Foundation,
which is number two.
Just unbelievable.
And through Novo Holdings,
it has actually now become
one of the largest
and most active
life sciences and biotech
investors in the world, too.
They hold venture stakes
in 80 plus other companies.
That's on top of giving out
lots and lots of grants
to life sciences around the world
and fulfilling the foundation's mission.
I mean, it's just wild.
We're burying this
so deep in the episode,
but this is the largest
charitable foundation
in the world.
That's wild.
Now, it's interesting
that it qualifies as that,
because yes,
that is totally true.
On the other hand,
$120 billion
is pretty neatly
just a little bit larger
than a quarter of
Novo Nordisk's market cap.
And so the vast majority
of that $120 billion
is their ownership
of Novo Nordisk.
So it's not like,
oh my God,
they spat off $120 billion
in cash that they're investing elsewhere.
No.
So if Jeff Bezos
decided to put his,
9% of Amazon,
decided to put that
into a foundation
and call it charitable suddenly,
that would be the most charitable
up there.
Yes.
Correct.
But the point stands.
It's still pretty cool.
Yeah.
While we're on the topic
of the foundation,
before we keep going in playbook,
it is worth pointing out
that there are
formally defined objectives
of the foundation,
and those objectives
do not include growth.
So it's kind of amazing
that they have grown
the way that they have.
The dual mission now
is stability
and supporting scientific
and humanitarian causes.
So what does stability mean?
I suppose it means like,
ensure the longevity
and duration of Novo Nordisk
as a company.
But it's interesting
when your stated mission
is stability
and this humanitarian cause,
that is a byproduct.
You could end up being
this incredible market leader,
innovator,
super high growth company too.
Yeah.
And on the point of mission,
Novo Nordisk has a stated mission
that it's not just about
supplying treatment,
it's about eradicating diabetes.
And so there was a 2014 paper
that came out
that suggested a real cure
for diabetes using stem cells.
I think it was out of Harvard.
And at the time,
the Novo Nordisk
chief medical officer replied,
we feel a responsibility
for trying to prevent
or eradicate diabetes.
And if that means
the dissolution of Novo Nordisk,
that would be fine.
I'm having such a hard time
wrapping my mind around like,
is that actually true?
Is all of the behavior
of the executives
actually in service of
curing diabetes,
even if it means that
their revenue would go to zero?
Isn't that at odds
with the idea of stability
of Novo Nordisk?
That quote was from 2014,
did you say?
Yeah. So previous administration,
so to speak.
And pre-GLP1's
becoming really huge.
It's very easy for them
to say that now
because they could eradicate
diabetes now and still be
Europe's largest company
just based on obesity alone.
But from talking to folks
from the outside,
my sense is I think that is
as true as it can be
in a corporation.
Yep. I also found a stat
that in the last six years,
four and a half billion dollars
of grants have been distributed.
So I was a little tongue in cheek
about like, well, geez,
most of that is their ownership
of Novo Nordisk.
But like that is a lot
of outflows to research.
And I think importantly,
that research often supports
what Novo Nordisk,
the corporation,
wants to go do.
And so it's nice to have
a close relationship
with researchers.
Yes, there is a cycle here.
Yes, which rolls up
to the mission of stability.
But yeah, they deserve
to be applauded
for the reinvestment.
Certainly it is a unique structure
in the corporate world
and one that has had
a huge impact
on the company's history.
Yep. Okay.
While we are in
corporate structure land,
alignment of incentives
is pretty interesting
among management.
I don't know if you looked
into this at all,
but their executives
are not meaningfully incentivized
by stock price performance.
No, I didn't look at this at all.
Yeah.
So they are sort of forced
to think on a different time horizon
than if your compensation
came primarily
in the form of stock options
and you wanted to,
you know, make the stock go up
in a three to five year window.
So executives and board members
are not given stock options
as a part of their compensation.
And when you talk
with folks in the industry,
the employees reportedly
have lower compensation
than their counterparts
at other companies.
And I couldn't figure out
if that was like a Danish
versus American thing
or if they intentionally try
to repel the idea
of mercenary employees
and attract missionaries.
But it would seem
that their excellence
in pioneering diabetes medicine
is really mission driven.
There's what they call
their remuneration policy,
which requires all board directors
to hold stock.
You know, you're not getting it
as your comp,
but you're required to hold it,
which I think is kind of
a similar idea
to what Berkshire Hathaway has
of, hey, we should have sticks,
not carrots.
And in Berkshire's case,
there's no DNO insurance
for board members.
You actually have to own
the liability of the company's
actions yourself to be on the board
so that they take it seriously.
But in Novo's case,
it's, hey, you don't get the carrot
of big piles of free equity
in our company.
Yeah, you got to go buy the stock.
Yeah, you have to actually
be aligned with the owners
so you get the fruit
of the appreciation
or the punishment
if it doesn't do well.
Yeah, I suspect it's probably both.
I do think Danish culture
plays into this, too.
You know, it is a much,
much more socialist country
than America.
And actually, you know,
watching interviews with Lotte,
she talks about this.
And sometimes she's asked about it.
I'm like, oh, hey,
didn't you get rich on
basically inventing GLP-1s?
And she's like, no,
I've never asked for a raise in my life.
I'm a socialist.
But look at what we've done
for the world.
Yeah, it's pretty crazy.
The question is,
does that thinking lead
to the GLP-1 breakthrough?
Other pharma companies
certainly didn't make
these investments
and these decisions
on these time horizons.
And so there's a reasonable narrative
that it was actually
Novo Nordisk's focus
and their time horizon
that led to the decades-long work
to actually bear fruit.
I mean, semaglutide
isn't out of nowhere.
It was built on all the work
that went into liraglutide
since the early 90s
and incorporated
all the clever ideas
they had previously developing
longer-acting insulins
and things like that.
There is a reasonable narrative of
it's their long time horizon
and their focus,
their ability to learn
from doing the same thing well
and iterating over 100 years
that actually led them
to find this breakthrough
when others didn't.
Yep.
The key point is long-term focus.
And if you can do that,
as we've shown time and time again
on this show,
you can create something great.
If you do that,
it's not like you will
create something great.
You still got to get lucky
and also be doing the right things
in the right areas.
But if you're going to build
something really, really big,
you got to have that
long-term focused mindset.
Okay.
There are a few unexplored areas
that I think are interesting to know
about healthcare as a whole
and about Novo Nordisk
that I want to talk about
here in Playbook.
One of them is a shift
that Novo has done here
to broad populations
with relatively inexpensive drugs
versus other pharma companies.
And I know you're going to
be allergic to the idea
that I just told you $1,000
is an inexpensive drug.
But the crazy thing here
isn't just that the revenue
and the focus is so concentrated.
It's concentrated in an area
that other companies shied away from.
Pharma over the last couple decades
shifted away from
these mass population drugs
to specialty drugs.
And these are often to treat
specific forms of cancer
or rare childhood diseases
with super narrow populations
and huge price tags.
To put numbers around that,
we're talking total market size
of a couple hundred thousand people
or fewer,
as few as 300 people
in these super rare orphan diseases.
Occasionally, these diseases are so rare
and the treatment is so life-changing
or life-giving
that the treatment,
one dose of the pill
or one infusion of the therapy
or whatever it is,
can be measured literally
in the millions of dollars.
So it gets far more extreme
than a thousand dollars a month.
It's understandable why
the other pharma companies
went there for a few reasons.
And this is a little bit
of a walkthrough history,
but it's been a while
since we saw a breakthrough
in a mass market drug.
Really, the last one
that we can point to is statins,
which was to treat cholesterol,
I don't know, 30 years ago
is really when that
was kind of the thing.
HIV and hep C
are examples we can point to.
But again, it's been a while.
Those are small markets
compared to obesity.
Well, compared to obesity,
but they still qualify
as large population.
When you're treating millions
of people with something,
well, A, you can have
a different pricing structure,
like you can have much cheaper drugs.
But B, like you can just affect
a huge swath of the population.
You know, it's not like
we're discovering an antibiotic
or a cure for polio
every other year these days.
In fact, the Alzheimer's researchers
have really been trying,
but the trials
have just been disappointing.
And so we had this great heyday
30 years ago of small molecule drugs
that you could manufacture
relatively easily by mixing chemicals.
But after those patents expired,
and these could be manufactured
by other companies as generics
and sold to everyone for cheap,
we really haven't discovered
something like that since.
So that's why the shift
has really gone.
And of course, we have new technology
to do it, too,
but really shifted to biologics,
the complex proteins that are,
you know, harder to manufacture.
And I think a way to summarize that
is a lot of the low-hanging fruit
has been picked.
Compounding this problem,
just because this is health care
and you compound every problem.
Different type of compounding.
Yes. The way that FDA approval works
is that you get a label for a drug
if you can prove with the right degree
of statistical significance
that the benefits outweigh the risks
and that you are better
than current alternatives
by some measurable amount.
So conditions with existing alternatives
are harder to get approval for.
Another factor pushing to rare diseases.
A hundred percent.
Going back to the piece that Alex wrote,
he references this idea of
the better than the Beatles problem.
Like, what if it was a requirement
to be releasing a new pop song
in the market
that it was better than Hey Jude
or better than Here Comes the Sun?
You'd have no innovation.
Like, of course not.
Right, right.
So the rule both makes sense
and you understand why
once we hit some minimum level
of treatability for something,
you're like,
geez, is the juice really worth
the squeeze there anymore?
Right.
No, you go work on something
that you're actually likely
to get approved for
and make your billions of dollars
of R&D worth it.
And your years and years
of clinical trials
and recruiting all the people
for the study.
And by the way,
these studies have just gotten
so insanely expensive to run.
And you know,
it's not just the studies that cost money,
but if you just look at the cost
to bring a drug to market in 1953,
it cost $40 million for an approval.
And that's an inflation-adjusted figure.
Today, it averages $2.5 billion.
Wow, wow, wow.
I don't know.
It's easy to be kind of like disillusioned
with why would I go after something,
large population,
if there's already something else
that treats a large population
good enough.
Right.
Wow.
That's interesting.
Whereas you look at
almost every other market out there,
if it's like a big market,
there's insane capitalist incentives
to go make a better mousetrap for it.
That's super true.
So this leads into
this other playbook theme.
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.
And in fact,
it's even more sort of severe
than typical venture capital
because a lot of the research
can take over a decade of investing
before the winners bear any fruit at all.
So everyone was like,
oh my God,
Figma spent four years writing code
before they shipped a product.
Like four years.
Oh, four years.
That's nothing.
Yeah.
There's no MVP in semi-glutide.
Like let's put a couple billion to work
and then we'll check in a couple decades later
and see if we've changed the world.
And obviously there are stage gates
along the way,
but it's adding a zero or two
to the venture business,
to be honest.
I think that the most illustrative
stats on this are that
the top decile of pharmaceuticals
are what matters for the profits.
So if you look at the pipeline
of a hundred drugs
that enter clinical development,
10 actually make it to market
and one provides,
get this,
half the profits.
One drug.
Oh crap.
Wow.
The initial part of what you just said
jives with our math earlier,
that 10% make it to market.
I mean,
that's a power law right there.
Right.
10% of the ones that make it to market
provide 50% of the profits.
Most drugs,
this is also crazy stat,
even after they are approved,
do not earn back their R&D costs.
I mean,
this is another dynamic
showing why the market forces
led to consolidation in this industry.
Like you just need to be so large
and have the capital resources
to pool all the risk
of these drug pipelines.
That's exactly right.
Yeah.
You need to actually be able to pool risk
or have some differentiated way
versus all your other competitors
of being more likely to create a hit.
A.K.A.
Novodorisk.
Yeah.
You will not be a successful pharma company
without blockbusters
and even then,
blockbusters might not be enough.
Wow.
It's nuts.
All right.
So now we're into like healthcare as a whole land.
So I have some commentary on this.
I'm very excited about this.
I think this is going to be a new chapter of Acquired
because there's a lot of stuff
to dive into here
and we'll still never understand it all,
but it's fun learning.
So I think everybody is aware in some sense
that for every dollar
that we're investing into the healthcare system,
we're getting less and less incremental utility out.
People complain all the time
that as a percentage of GDP,
which by the way,
is something like 17-18%,
which is nuts, right?
Our healthcare system costs us 17-18% of GDP.
That goes up every year
and the quality of care goes down
or life expectancy goes down.
So everyone sort of like heard some variation
of this problem before.
On the surface, things appear to be broken.
Yeah.
The 17.3% of GDP that healthcare costs us,
you should just know as a baseline
that in 1960,
that was 5% of GDP.
This isn't like gone up a little bit.
This is like,
you know,
one of the biggest line items
for the entire country
used to be fairly de minimis
and is now enormous.
So you should expect a lot of your healthcare system,
given what it costs.
On the one hand,
this is really bad
and like there's a zillion people to blame for it.
So it's hard to blame one individual
or one company.
And so it's a little bit of like a tragedy at commons
where everyone throws their arms up
and says,
well, I'm going to go do the best I can
and, you know,
make sure I'm okay.
Because I really don't know like who to point to
and be like,
this system is effed up for this reason.
I mean, you could blame oligopoly,
you can blame regulatory capture,
you can blame too many middlemen,
too high of hurdles to get new drugs on the market.
But on the other hand,
like you would sort of expect this.
I mean,
a lot of the low hanging fruit is picked.
So it seems like it's going to require more money
to go eke out more rewards.
People always make fun of pharma
with this thing they call Arum's law,
which is Moore's law backwards.
And the idea is like pharma for every next generation
gets more expensive.
But like semiconductors also require huge amounts of R&D.
And just because we're getting that speed up every 18 months,
have you looked at EUV?
It's an order of magnitude more expensive
every generation to be able to make processors like that.
So I think that's a little bit of a false equivalence.
I totally understand why,
especially in heavy industry,
it should be more expensive to get marginal benefit out
once you have already picked the low hanging fruit.
So I have a little bit of pushback on the
healthcare is getting more expensive
and we're getting less out of it.
The thing that isn't good is that
the average life expectancies
have actually declined in America the last few years,
despite the fact that we're spending more money.
So it's not just that our marginal dollars
are earning us less,
it's that we're putting more money in
and life expectancy is actually decreasing.
And unfortunately,
it's kind of outside the health system's control.
It's a lot of like mental health related stuff,
overdosing on drugs.
A lot of things impacting the length of life
are cutting 60 years off of people's lives
when they're young,
which obviously will massively affect the data.
One other thought on this though,
so from 1850 onward,
we got these huge increases
in life expectancy every decade.
If you look at these charts, it's astonishing.
You're like, wow,
there's like a miracle drug every year
or there's a miracle process
or there's people are washing their hands
or there's indoor bathrooms or whatever it is.
Life expectancies is getting way better.
We were like curing infectious diseases
that killed kids all the time.
But once we got those mostly covered,
at least for the sort of big,
large population ones
and we got antibiotics and insulin and all this,
if you spend money to help a 75 year old live to 80,
it has a much different effect on the data
than helping a 10 year old live to be 75.
And once you compound that with a low hanging fruit,
of course, it's going to be really expensive
to figure out how to make that 75 year old live to be 80,
especially if there's a big fragmentation of disease.
Yeah, it's also exponentially harder
to get that five extra years of life
because you're facing
20 different morbidities out there.
Right. We rarely are getting the silver bullets
like we did with antibiotics.
It's going to be $2.3 billion over here
to cure this form of melanoma.
And it's going to be $2.3 billion over there
to cure this form of pancreatic cancer.
It's just going to,
I think just going to keep getting more expensive
to cure the more fragmented small population things.
I think there's a reasonable question of like,
what do we do about that as a society?
Now that's on the benefit side.
There might be some massive cost reduction side.
Like you could imagine some technology comes along
that makes drug development way cheaper
or makes us able to like massively collapse
the time and dollars spent in a clinical trial
by using AI or something.
Or there might be ways to collapse costs 10 or 100 X
somewhere in the healthcare system.
But the current state of affairs
is not very free marketing.
So it's harder to imagine that happening
versus other ecosystems the way it happens in tech.
Yeah.
A couple other just like fun things
that I heard from people during research,
which I think are just like interesting problems
to think about.
The health system that was created over the last century
was really designed to treat
acute and infectious diseases.
If you think about our healthcare system
as it exists today,
hospitals where you go in when you're sick,
doctors that you see when you're sick,
surgeries you have when you have an issue,
pills that you take
when you have an infectious disease,
antibiotics that you take.
You look at the chart of life expectancy,
the people that designed that system
and solved the acute infectious disease problems
should just hang up a big mission accomplished banner.
It worked.
It was amazing.
Right.
We made it to the moon.
Human quality of life is just unbelievably high
and there's very little in common today
on the list of things that will kill you versus 1850.
It's a completely different set of things.
So the next frontier then is chronic illnesses
and they catch up with us later in life
and they're basically undetectable
for like the first 50 years or the first 30 years.
I mean, obesity leading to diabetes
or cardiovascular health
leading to heart attacks and strokes.
These are very different things to treat
and require a very different way of thinking,
of regulating, of paying for.
You don't want to wait until people are sick to treat it
because then it's too late.
And so in many ways,
this entire old system that we created
that consumes 18% of our GDP
may actually not make sense in this new world
of treating the things that are more likely to kill us now,
which is chronic illnesses.
Right.
I don't really know what to do with that.
I think it's a pretty interesting.
You did so much more of this side of the research than I did.
Did you get a sense in talking to people
like that transition is happening or no?
Well, it's so hard in healthcare
because there's so many buzzwords.
Like there's a thing called value-based care,
which in a sense, it makes sense.
It's like we shouldn't have to pay
for every little intervention someone does.
We should pay for them helping me cure the thing.
You don't pay for the interventions,
pay for the outcome.
And so then that forces the right sort of thinking
all the way up the value chain
of how can we deliver a quality of service
in the cheapest way possible to achieve the same outcome,
which is like how free markets work, right?
But in healthcare,
the way everything gets billed is on a cost basis,
which we've talked a lot about cost plus pricing
and the dangers of that on the show.
So, I mean, to the extent
that the value-based care stuff helps,
no, I didn't hear any solutions.
All right.
Well, listeners, if you get inspired.
I did hear one credible pushback
against why is healthcare getting so expensive
as a fraction of GDP.
We use a lot more healthcare.
People just have a lot more life-bettering interventions,
be it from doctors, from pills, from facilities,
than we did a long time ago.
And so like, I don't know,
I had two surgeries a few years ago,
one of which was an ACL surgery
and like a whole bunch of PT.
And in 1980, would I have had those?
Maybe the PT, probably a worse surgery
because the procedures were worse back then.
In 1950, would I have had an ACL surgery at all?
No, I'd probably just limp around the rest of my life.
There really is just actually a lot more care delivered now
than there used to be.
Oh man.
I mean, even like, gosh, this is so close to home.
I mean, for me and Jenny and my family,
I've talked about this on the show before,
but Jenny and I both have
genetic cancer predisposition mutations.
So, you know, the amount of screening that we get
and then for family planning with, you know,
having our daughter and other children in the future,
the amount that we have used the medical system
as very healthy 30-somethings throughout our life
would not have been imaginable a few decades ago.
So like, yes, I totally buy that.
All right.
We're kind of drifting into value creation, value capture here
because we're making sort of societal judgments around,
you know, are the economics worth it?
Do you want to formally enter that section of the show?
Let's do it.
Maybe to start, you know, on this segment of the show,
we talk about for a given company,
how much value do they create in the world
versus how much they capture?
And let's start narrowly with Novo Nordisk itself.
What do we think?
Like value creation versus value capture.
Undeniable that over the 100 plus year history of this company,
it has created incredible value for diabetics
and now for a much broader population than just diabetics.
So the creation amount is large.
It is also undeniable that it's a half trillion dollar
market cap company on, call it,
30 to 40 billion dollars of revenue,
highly, highly profitable revenue
that they have also captured a lot of value.
Well, a lot of people talk about,
does the pharma sector over earn?
This is sort of the way people talk about this.
And on other episodes that we've done,
there's far less of a value judgment.
We're kind of like, yeah,
companies should go be as profitable as they can be.
My God, Visa makes so much money.
And like, that's a little bit tongue in cheek,
but in healthcare, it's sort of different
because there's an expectation
that you sort of start from a place of public good.
And then when healthcare companies earn too much money,
you sort of look at it and you're like,
I don't know if I like that,
which is so interesting, right?
It's a very different starting place
than I think a lot of people tend to look at businesses.
But one thing that is true
is that these businesses require
a tremendous amount of investment.
And so just merely looking at their margins is stupid.
I alluded to that earlier,
but like, of course they have high gross margins
for the things that they actually end up selling
rather than killing, they should.
Right.
That's not taking into account
all of the research that they did over the past.
All the research,
because those are below the line costs
and all the failures
because they never sell those drugs.
So you basically have to say,
well, all the margin dollars they earn from the winners,
both have to cover all the fixed costs R&D of that drug,
but they also have to cover
all the failures of every other drug.
So when you actually look at their
return on invested capital numbers, the ROIC,
they are not through the roof.
They're like 13% industry wide,
but hold for Novo for a second.
It's totally in line with other industries
like trucking, broadcasting, electronics,
when you sort of look at the federal data on it.
I mean, the fact that on the blockbuster drugs,
the companies earn a ton of money
is not the whole picture.
The picture really is like,
as an industry, are they over-earning?
No.
They kind of used to until like 2000,
but nowadays the ROIC numbers
are just actually not that interesting.
And in fact, some would argue
that as pharma gets less and less efficient,
capitalists should just not allocate their dollars there
because there's literally not enough incentive
in the profit dollars that you get to earn
from your drug after it's patented for many years.
Like, should you actually index the pharma sector?
Probably not.
I mean, it's a little better than other sectors,
but not necessarily enough to take the sector risk
of putting all your dollars there.
Well, you're making me feel better
about my career choices here to work in tech.
Now, Novo Nordisk, on the other hand,
massively outperforms their peers.
And there's been this really interesting trend
where ROIC for pharma as an industry
over the last 50 years has declined,
but the variance between companies has increased.
And so Novo far outperforms the median pharma company
in terms of return on invested capital,
but there's companies that way underperform too.
And it's interesting that the good companies
are getting better and the bad companies are getting worse
while the whole industry declines
in its ability to produce a return.
Yeah. Ah, so interesting.
I mean, I'm tempted to say from this whole episode
that the moral of the story here is focus
and long-term focus,
but I feel like we need to uncover this industry more
and hear from folks in it.
If that were always true,
why are there not more Novos out there?
Right.
It may also be play compounding games in big markets.
I mean, it's very clear, even if not intentionally,
that a lot of Novo's historical work
led to them understanding something important
better than anybody else.
And I think they might've lucked into how important it became,
but play compounding games.
It's pretty interesting.
I mean, pharma as a whole of the medical pie
only occupies about 13% of revenue.
I really would've thought with all the hate toward big pharma
that it would be higher.
13% of revenue in the healthcare industry?
Yeah.
Yeah. So that means 87% of healthcare revenue
is not going to pharma.
Right.
If you could trade never having drugs again
or never having doctors again,
which one would you pick?
Wow. That's a good question.
I hadn't thought about that.
It's of course kind of a farcical.
Right. It's totally farcical.
You know, I think about my scenario
and Jenny and my scenario,
like it's both together for sure.
Yeah, of course it is.
But do you think drugs only provide 13%
of the value to all of healthcare?
No, certainly not.
It's crazy.
Definitely more than that.
Especially incrementally.
The investments we're making going forward
in improving humans and their quality of life,
some amount of it comes from amazing new surgeries,
some amount of it comes from amazing new medical devices,
but some amount of it does not come
from new administrative billing practices or...
The four middle men in the middle of the equation.
Right.
The improved ability to move a drug
from place A to place B
and come up with yet another clever way
to build out the formulary
so it moves money from this pocket to that pocket.
Hospitals, if you back out the drugs they prescribe,
hospitals are 28% of the revenue in all of healthcare,
which is large,
but hospitals provide a crap ton of value.
Professional services like doctor's offices are 26%.
They also provide a lot of value.
Do both of them provide together four times as much value
as the breakthrough drugs do?
I mean, freaking health insurance,
the administrative costs of health insurance
are 8%.
Of a very, very, very large number.
Yeah.
Right.
Yeah. I mean, that said,
the administrative costs of health insurance
are within spitting distance of pharma.
And pharma, I will say,
who is taking any risk in this whole ecosystem?
It's only pharma.
Yeah.
Who's taking risk to innovate and make anything better?
Every other bet that a hospital makes
or that an insurance company makes
is just probably going to pay off.
This is actually pretty interesting.
If you look at the net income of a pharma company,
and let's just take the biggest one
or a very large one, Pfizer,
super spiky,
even though they're diversified,
up, down, up, down, up, down.
Some years they make very little profit.
Some years they make a lot of profit.
That is what you should expect
from someone who is taking risk,
trying to innovate.
Sometimes they succeed.
Sometimes they don't.
You look at an insurance company,
and by the way, let's define insurance company.
Insurance company is someone that in the good years
collects money.
And then in the bad years,
they have a big loss.
And hopefully they collected enough money
such that they can still make some profit
after covering the losses,
like a hurricane hits.
The insurance company has a bad year.
Does that ever happen?
If you look at the net income of the big insurers?
No.
Yeah.
This is no surprise here,
but health insurance in the US is not insurance.
It's access.
It's 100%, right?
So we just had the single greatest healthcare crisis
in the last several decades with COVID.
And what happened to the profits
of the big health insurers?
They stayed flat or grew.
So, I mean, we aren't here unacquired
to demonize people for making money
or for being capitalists,
but I do think we should call a spade a spade.
The health insurance companies
are not actually insurance.
They're not actually holding the bag
as the funder of last resort when calamity hits.
It's the government.
So really it's the taxpayers.
The big insurance companies and the PBMs
make good profits in the good times,
but the taxpayer funds the bad kinds.
I would be kinder here
to the middlemen of the industry
if I thought they were innovating
and taking risks the way that the drug companies are.
But the incredible consolidation
that's happened among insurers and PBMs,
and I mean, frankly, even the hospitals
and pharmacies too,
like there's either local monopolies
in the hospital case
or kind of a three race oligopoly
in every other part of the value chain
that really is just obfuscated
and insulated profits.
So what you're telling me is that pharma,
are the guys in the arena.
They're out there trying things.
Exactly.
No matter what value judgments
you want to place on them or anyone else.
And there are years where pharma way out earns.
And frankly,
Novo Nordisk has way out earned
many of their peers many years in a row.
And it's like a very fine question
to ask of like,
does any healthcare company deserve
to have such phenomenal returns
on invested capital like Novo Nordisk does?
But there are many players in the ecosystem
for whom it is obvious to me
that they should not be as large
and not be as profitable as they are.
I got no arguments here.
All right.
Team Novo.
Yes.
And frankly, team pharma,
at least relative to its reputation.
I think there are many players
in the healthcare industry
that have a fine reputation
and they probably deserve a fine reputation.
But it's weird to me
when a terrible reputation pharma has
when they're the ones innovating
and trying to massively affect
the trajectory of humans.
Yeah.
And I think that's why,
a lot of scientists,
including, I think,
Lata and many, if not most folks
at Novo Nordisk,
that's why they work there.
All right.
So finally, to wrap this section,
listeners,
this is all very, very complicated.
Every time I was tempted to say,
well, XYZ party or XYZ mechanism is stupid,
which I probably did too much on this episode,
I discovered a very rational argument
for why that thing exists
and why it isn't all that bad,
which is a little bit maddening to research
and also explains how the system in America
ended up the way that it did today.
To close value creation, value capture,
there is sort of an interesting thing
that everyone should just noodle on
and try to square the circle.
People feel like drugs cost too much
and they don't understand
how much they're going to cost
and they're upset
because they can't get drugs that they want.
They think they're being extorted in some way.
This is patients generally.
Shareholders in pharma companies
feel like they're actually
not making that much money.
If you look at the whole industry,
their return on invested capital
is maybe slightly better,
but pretty much on par with other industries.
So square that circle.
It's pretty weird.
All right, bear bull, David,
and we can be reasonably quick in this
since I think we've hit a lot of these points
along the way.
Yeah, I mean, to me,
for Novo Nordisk specifically,
I think it's pretty simple.
Are GLP-1s the next super cycle?
If yes, that is the bull case.
Right, even if Lilly's Manjaro
and Zepbound are like,
I think they're like 30% cheaper,
they might be better,
but they can both make a ton of them
and all of them will get pulled off the shelves
right away.
There is room for everybody here
and the barriers to entry
from everything we talked about
to competing in this area
are very, very high.
So like there will be a number of competitors,
including Eli Lilly,
but there will be plenty of demand
and profits for everyone.
That's the bull case.
And the bear case is,
for any variety of reasons,
be it health risk
or lack of efficacy
or whatever,
long term,
this just doesn't play out
or it doesn't play out
on the same multi-decade long timeline
that insulin did.
Yep, I think that is exactly
the right way to put it.
For some numbers,
which I think are interesting
and just sort of to illustrate,
if semi-glutide becomes
truly a mega blockbuster,
an example of this is Humira by AbbVie,
that generated $200 billion
in lifetime sales
since Humira was approved
for 11 different indications
across this whole spectrum
of inflammatory and autoimmune disorders.
So it turns out
you actually don't need a deep pipeline
if you have a drug
that you can be profitable on,
where there's not a lot of competitors for it,
your patent actually gives you
a good amount of room,
you build a brand around it,
you get approved for a ton of indications
that all have large populations.
I mean, there is such a blockbuster
that for a decade,
it doesn't matter
how deep your pipeline is
or how diverse it is,
you just win.
And there's a chance
that with semi-glutide and terzipatide,
both Lilly and Novo Nordisk
have that for the next decade.
Yep, a decade plus
with further innovations
and iterations that are going to come.
Yeah, Eli Lilly has this one
in the pipeline called Retatretride
that is a triple agonist
that adds yet another hormone to the mix.
So I think assuming that Novo stays
sort of neck and neck with Eli Lilly
as they both keep coming out
with better and better versions,
that this could be the next Humira
or potentially much bigger than Humira.
And I think the defensibility
is an open question for how many years,
but at least the next decade.
Yep.
One other downside
that I think you didn't point to specifically,
but you sort of meant in saying
there's some unknown downside to this.
There are some early studies
that are showing that
you lose more lean muscle mass
when you're on a GLP-1
than if you were just doing diet and exercise.
When you're losing weight normally,
you lose like 25% lean muscle
and these early studies
are showing it's something like 40%.
So that would be a bare case
is that we learn a couple of years from now,
like, oh man, this is actually way worse
for some set of people
that could lose weight
through diet and exercise.
But if you're obese,
it's still probably better
to lose weight,
even if a disproportionate amount of it
is lean muscle mass.
But I think there's sort of this open question
of like, is there a boogeyman in the closet like that?
Or is that a significant enough boogeyman
to really change things?
It's probably also worth mentioning
quickly here before we wrap.
You know, one potential boogeyman
that is out there people have talked about
is suicidal thoughts.
As best as we can tell from the research,
it seems like that's not a major risk
with these drugs
based on the broad population studies.
Certainly that's what Novo Nordisk says.
Regulators have not indicated
that that is an actual issue,
but that narrative is out there.
And we don't want to go through the episode
and not mention it.
That could be one of these boogeymen
for these drugs.
All right.
Well, as much as I don't like leaving it there,
I think we have beat this horse
and we should do something fun like carve-outs.
Yes, carve-outs.
Let's do it.
For new folks to acquire it,
and since it's the top of a new season here,
we do this for fun at the end of every episode.
Yep.
So I have two.
Oh, great.
I do too.
One is something that my wife got me
as a Christmas present,
which is the Noxgear Tracer 2.
And this is, I think, a Columbus, Ohio company.
It is a running vest and some lights
that are rechargeable with USB-C and waterproof.
And so it's super lightweight.
It fits really well.
Perfect for Seattle.
I know.
I wear it on all my winter runs
when I'm out walking the baby now.
Oh, you sent me a photo
and you were all lit up
and I was like, wow,
Ben is really invested in some gear.
It's pretty hard to hit you
when you're this lit up.
It also has an optional light you can buy
that clicks into the front
that's basically like a headlight,
but you wear sort of on your chest.
You don't really feel it
when you're running with it,
but you do light up the whole road in front of you.
So when you live in a place like I do
that is dark from 3.30 p.m. to 8.30 a.m.,
it's a great way to get outside and be seen.
Nice.
I bet we will have a lot of folks in Denmark
that are interested in that.
Yes.
To our Danish friends
and our Swedish friends at Spotify,
I highly recommend this product.
Yeah, nice.
All right, that's one.
All right, two is a recommendation
from friend of the show, Ian McCormick.
He texted me and said,
I listened to the holiday special.
I have a show recommendation for you.
Go watch Drops of God on Apple TV+.
I'm three episodes into it
and it is awesome.
It is like thrilling.
It's a little bit unapproachable
if you don't like subtitles
because it takes place in France and Japan.
And so parts of it are in French,
parts of it are in Japanese,
and parts of it are in English.
And so you have to read subtitles
for the majority of it.
But it is a beautiful story
about wine and family and love.
And it's got some very unexpected twists
and turns and drama to it.
So I highly recommend it.
Ooh, fun.
It sounds like Apple TV's
got some good shows these days.
I've been liking it, yeah.
Nice.
Well, I have to give you a big thank you
because over the last couple of weeks
since your recommendation,
I have read the book Wool,
which is the first in the series
that is the silo series on Apple TV+,
because I'm more of a book guy
than a TV guy.
And it is awesome.
Book is so good.
New addition to my favorite sci-fi books
and sci-fi series.
It's funny.
I've been holding off on reading the book
because I don't want to spoil the show too much,
but I hear it actually deviates
pretty significantly from the show.
I wouldn't be surprised by that
having now read the book.
I'm excited to dive into the rest of the series.
Okay, my carve-outs.
I've got two.
The first one is a fun,
timely, in-person carve-out.
It's a guest carve-out from my wife, Jenny.
San Francisco Ballet, where she works,
is premiering a new work
at the beginning of the season this year.
January 26th here in San Francisco
is the premiere.
A new ballet called Mere Mortals.
And this is pretty cool.
She was like,
you gotta talk about this on a choir.
It is about AI.
And it is a Pandora's box analogy for AI.
Super cool.
The music is composed by the British DJ Floating Points.
So it's like super modern ballet choreography
from a great up-and-coming choreographer.
And SFB's gonna do after parties
in the opera house afterwards.
Should be like a super cool event.
So Jenny and I will be there.
I think we'll be there on opening night,
January 26th.
And it runs through February 1st.
For listeners,
Dave and Jenny lived in Seattle.
And Jenny was involved in the ballet up here.
And I went to an event held,
you know, where the ballet performs.
And it's immensely cool to be in there
with the performers
and at the place where they perform
in a party setting.
Like I highly recommend it
for any of the before or after stuff too.
Yeah, ballet is such a cool art form
because of all the classical art forms,
it's the most young and modern.
You know, like these dancers are athletes.
They're like NFL level athletes
at what they do.
And, you know, they're young.
And so there is this like new life in it
relative to, I think,
a lot of other classical art forms.
So anyway, I love it.
And obviously it is Jenny's
whole life and career.
That's one.
Two, on some holiday travel flights,
I think recommended
by an acquired listener, actually.
I watched the Blackberry movie.
Have you seen this yet?
No, but I can't believe
it's Dennis from Always Sunny.
I know.
It's so good.
It's really, really well done.
I just watched it
because I was on the flight
and it was on the entertainment system.
And I was like, yeah, sure, whatever.
I'll give this a try.
Like, I don't know, RIM, Blackberry.
Yeah, but it's really, really well done.
I really enjoyed it.
It's hilarious.
It's also like a good business story.
You know, it's a good example of a,
we get asked all the time of like,
oh, can you guys cover like a failed company
or, you know, a cautionary tale?
And it's hard to do when acquired
because a lot of these companies
are still going and RIM is still going.
But Blackberry is a good one
because you're like,
it's super obvious that they failed.
There's no argument about that one.
Although, did you just see the add-on keyboard
you can get for your iPhone?
Oh, no.
Someone debuted a physical keyboard.
So for you diehards out there
who were Crackberry heads.
You missed the clicks.
You missed the clicks.
I think it's actually called clicks, maybe.
Oh, nice.
With that, we have a bunch of people to thank
who massively contributed to this episode.
It's been fun doing more
and more of this recently.
So I think we'll keep doing it too.
A huge thank you to the PillPack founders,
TJ Parker and Elliot Cohen,
for being so generous with their time
and having conversations.
Yeah, PillPack.
Super cool company that got acquired
by Amazon a few years back, right?
For over a billion dollars?
Something like that.
And became Amazon Pharmacy,
which I actually know some people
that use and rave about it.
Also, thank you to the founder
of Cover My Meds and And Health, Matt Scantland.
The founder of Blink Health, Jeff Chaikin.
The CEO of JP Morgan's healthcare arm,
Morgan Health.
His name is Dan Mendelsohn.
Had an awesome conversation with him
and the other folks I mentioned
to kind of bounce some ideas around
that we were thinking about
as what are the main points
that we really need to hit in this episode.
Good friend of the show, Kate Karams,
who spent her career at various pharma companies.
And finally, thanks also to
some of my favorite reading materials
to prep for this.
Out of Pocket, the newsletter from Nikhil Krishnan.
Very approachable, fun way to read
about the healthcare industry.
A shareholder letter from Tom Williams,
who's a friend of the show
and a portfolio manager at Fidelity.
Yeah, Tom is great.
Some blog posts from the Drug Channels Institute
that were publicly available
that I thought were great.
Some very helpful DMs with Ashwin Varma,
who pointed me to a lot of the great information
about the profitability,
or frankly, lack thereof,
or the returns on invested capital
for pharma industry.
He's actually a med school student
and former Lux Capital Associate,
so he's got a foot in both the capitalist
and the medical camps.
And a truly incredible long-form read
on GitHub by Alex Telford.
I think that helped frame my understanding
of how we got here in drug development
better than really anything else I read.
So thanks, Alex, for that too.
With that, our huge thank you to
JP Morgan Payments, ServiceNow, and Vanta.
You can click the links in the show notes
to learn more.
Sign up for notifications of when new episodes drop.
Acquire.fm slash email.
You can also get our follow-ups
and the corrections and teasers
at what the next episode will be.
ACQ2, just go check it out.
It is where we do follow-up interviews
when we have topics we're more interested in.
Perhaps we'll do that for healthcare
or just CEOs or investors that we want to talk to.
Look in any podcast player.
After you finish this episode,
come discuss it with us
at acquired.fm slash slack.
And if you want any of that sweet acquired merch,
go to acquired.fm slash store.
In fact, I am wearing the t-shirt now.
Yeah, check it out.
With that, listeners, we'll see you next time.
We'll see you next time.
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