Novo Nordisk (Ozempic)

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,

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under what terms, and then you layer data privacy requirements on top. You can understand why there

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why J.P. Morgan Payments' array of products, including their healthcare solutions and

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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,

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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.