From: acquiredfm
Novo Nordisk is a pharmaceutical giant primarily focused on metabolic health, particularly diabetes and weight loss treatments [00:01:19]. Uniquely, the vast majority of its revenue is concentrated in this category [00:01:16]. This pharma company, Europe’s largest, is owned and controlled by a nonprofit foundation [00:01:31] [00:01:33].
The Dawn of Insulin (1921)
The story of Novo Nordisk begins in 1921 in Toronto, Canada, with the discovery and extraction of the pancreatic hormone insulin [00:05:31] [00:05:38]. Insulin regulates glucose absorption into the body and is the main anabolic hormone [00:05:46] [00:05:50]. Insufficient insulin production leads to diabetes [00:05:56].
The Toronto research group included physician Frederick Banting, medical student Charles Best, a chemist, and laboratory head John Macleod [00:06:04] [00:06:12]. While Banting and Best are credited with most of the work, Banting and Macleod received the 1923 Nobel Prize in Physiology or Medicine for the discovery of insulin [00:06:33] [00:06:40] [00:06:46]. The Nobel committee later admitted the award distribution was an error [00:16:49] [00:16:50].
At the time, Type 1 diabetes was a death sentence with no effective treatment [00:07:17] [00:08:08]. The prevailing “starvation diet” only prolonged life, not cured the disease [00:07:45] [00:08:17]. The discovery of insulin was one of the earliest breakthroughs in modern science [00:08:54].
Banting and Best successfully extracted insulin from dog pancreases and miraculously observed recoveries in human diabetes patients [00:09:46] [00:10:05]. This new substance, however, was not a cure; patients needed regular injections [00:10:56] [00:11:15]. The initial process for refining insulin was even lost and rediscovered [00:11:54] [00:11:58].
Given the immense demand, the University of Toronto licensed production and development rights to Eli Lilly, a large American drug company, granting them a one-year exclusive development license to mass-produce insulin [00:13:14] [00:13:21] [00:13:28]. Eli Lilly utilized abundant cow and pig pancreases from slaughterhouses [00:14:15] [00:14:28]. Under the license, Eli Lilly had to report advances back to Toronto but retained rights to their brand [00:15:20] [00:15:47].
Founding of Nordisk (1923)
The journey to Novo Nordisk’s founding involves August Krogh, a Nobel Prize-winning animal biologist from Copenhagen, Denmark [00:17:15] [00:18:11]. Krogh, whose wife Marie was diagnosed with diabetes in 1920, nominated Banting and Macleod for the Nobel Prize [00:19:12] [00:17:47].
During a delayed lecture tour in 1922, August and Marie Krogh learned about insulin from Elliot Joslin (inventor of the starvation diet) in Boston [00:21:04] [00:21:31] [00:21:36]. August Krogh then visited Macleod’s lab in Toronto, observed the production process, and secured rights to bring insulin production to Scandinavia [00:22:31] [00:23:15] [00:24:10].
Back in Copenhagen, Krogh, his wife Marie, and physician Hans Christian Hagedorn collaborated with August Kongsted of the Lion Chemical Factory [00:24:50] [00:27:14] [00:27:48]. By summer 1923, they produced enough insulin (under the brand name “Insulin Leo”) to complete successful human trials [00:27:59] [00:28:18].
In 1924, these founders established Nordisk Insulin [00:33:00] [00:33:12]. It was set up as an operating company, 100% owned and controlled by a foundation, with the founders as board members and Hagedorn running day-to-day operations [00:33:57] [00:34:07] [00:34:13].
The Foundation’s Unique Structure and Mission
This corporate structure, where a non-profit foundation owns and controls the company, is still in place today [00:34:20] [00:34:26]. The Nordisk Foundation had a dual mission:
- Produce and sell insulin at cost in Scandinavia to maximize public health benefit [00:35:47] [00:35:58].
- Export insulin elsewhere at market prices and use all profits to fund further diabetes research and development [00:36:04] [00:36:11] [00:36:25].
The Birth of Novo and Fierce Competition
Among Nordisk’s first employees were brothers Harold and Torvald Pedersen, skilled engineers and tinkerers [00:37:35] [00:37:40]. Torvald, a factory operations manager and pharmacist, clashed with Hagedorn and was fired within six months [00:39:13] [00:39:56] [00:40:02]. Harold resigned in solidarity [00:39:49].
Knowing that drugs could not be patented in Denmark at the time, the Pedersen brothers immediately founded a new insulin company, Insulin Novo (“Novo” meaning “new”) [00:40:14] [00:40:40]. This marked the beginning of a 65-year “blood sport” competition between Nordisk and Novo, fueled by intense rivalry [00:40:53] [00:40:59].
Novo quickly innovated, developing shelf-stable liquid insulin (unlike Nordisk’s tablets that required boiling) and selling it at half the price due to more efficient production [00:47:20] [00:47:26]. In response, Nordisk developed “NPH” (neutral protamine Hagedorn) insulin, a longer-lasting form that needed fewer daily injections [00:48:26] [00:48:34]. Nordisk licensed NPH widely but refused to license it to Novo [00:49:09] [00:49:23]. Novo then worked around Nordisk’s patents to create its own improved protamine insulin [00:49:30]. This led to lawsuits, with Nordisk eventually winning in the Danish Supreme Court [00:50:58] [00:51:19].
World War II and Novo’s Rise
World War II dramatically altered the competitive landscape [00:52:03]. Germany’s occupation of Denmark in 1940 left the country relatively unscathed, allowing insulin production to continue unimpeded [00:52:31]. Nordisk, whose revenue primarily came from international licensing to Allied countries, saw its profits plummet to zero [00:52:50] [00:53:12]. They entered “hibernation mode” for the war’s duration [00:53:25].
Novo, however, had been scaling production across Europe [00:53:42]. The German government directed Novo to massively expand production and supply insulin across Nazi-occupied Europe [00:54:08] [00:54:17]. While ethically complicated, this move saved countless lives and propelled Novo to become Europe’s dominant insulin producer [00:55:10] [00:56:06]. After the war, the Danish state required Novo to repay most of its wartime profits [00:55:46].
Post-war, Novo continued to innovate, developing “Lent insulin” (slower-acting, longer-lasting basal insulin) in the 1970s, which Eli Lilly licensed for the US market [00:58:13] [00:59:10]. Novo also diversified into the industrial enzymes business, which became a capital-intensive and less profitable segment [01:00:50]. This enzyme business (later spun out as Novozymes) bleeding cash in the 1970s, prompted Novo to seek a merger [01:02:06] [01:02:15].
The Novo Nordisk Merger (1989)
In the early 1970s, Novo approached Nordisk about a merger [01:02:44]. Nordisk, then smaller and struggling with leadership changes, was led by new CEO Henry Brenham, a former lumber company head [01:03:00] [01:03:06] [01:03:15]. Brenham rejected the merger, seeing an opportunity for Nordisk to re-enter the market with MC insulin (a highly purified method Novo had innovated) [01:04:09] [01:04:22]. Nordisk embarked on an aggressive expansion, hiring a global sales force and entering the US market directly [01:04:53] [01:05:05]. Nordisk’s sales grew at 30% compounded annually throughout the 1970s [01:07:07].
By 1980, Nordisk was one-fifth the size of Novo overall but one-third the size of Novo’s insulin business, becoming a global production company [01:07:19] [01:07:31]. Novo, needing capital for the MC insulin transition, did a small IPO in Copenhagen in 1974 [01:07:49] [01:07:56]. By 1980, the global insulin market was about $500 million, with Novo and Nordisk being the number two and four producers [01:08:39] [01:08:18].
The 1980s brought significant changes to the insulin market and diabetes treatment evolution [01:08:29]. The number of Type 2 diabetes patients quadrupled from 1980 to 2016 [01:13:38]. Prior to 1980, Type 2 diabetes was not treated with insulin due to supply constraints from animal pancreases [01:14:12]. In 1980, Genentech and Eli Lilly revolutionized the industry with recombinant DNA and genetic engineering, creating human insulin [01:14:46] [01:15:09]. This meant not relying on animal pancreases and producing chemically identical human insulin [01:15:27] [01:15:35].
Novo initially tried to chemically modify pig insulin to match human insulin, which proved to be a flop [01:17:11] [01:17:30]. Despite this, Novo leveraged the biotech hype from Genentech’s IPO to do a US IPO with Goldman Sachs, raising $100 million [01:18:56] [01:19:10]. Nordisk, meanwhile, took a “wait and see” approach to human insulin but invested in genetic engineering capabilities [01:19:41]. By 1984, Nordisk became the number three global player in insulin, and by the end of the 1980s, held 20% global market share, eroding Novo’s position [01:20:15] [01:20:58].
In summer 1988, merger discussions resumed on a more equal footing [01:21:20]. The industry was consolidating, making scale important for R&D, trials, approvals, and market negotiation [01:21:50]. In January 1989, the Novo Nordisk merger was finally announced, combining both operating companies and their foundations [01:22:39] [01:22:45]. Novo held 62% and Nordisk 38% of the merged entity [01:32:49]. The new combined company had roughly $1 billion in insulin revenue and 50% global market share [01:32:56] [01:33:29].
The Foundation’s Prescient Intervention (2004)
Throughout the 1990s and into the 2000s, Novo Nordisk’s management was in constant merger or sale negotiations with larger pharma giants [01:36:09]. Their plan was to merge into a larger organization to gain scale in the consolidating industry [01:35:32] [01:35:47].
In 2004, Novo Nordisk had a deal on the table to combine with the Swiss company Serono [01:37:27]. Management and the operating company board were on board, but needed approval from the foundation board, the controlling shareholder [01:37:34] [01:37:40]. The foundation’s agreement required a “convincing business argument” that any merger was necessary to maintain and expand competitiveness [01:38:08].
Despite management’s belief in the necessity of scale, the foundation board rejected the merger, arguing that the company’s strong revenue and profit growth over the past 15 years showed it didn’t need to merge [01:39:04] [01:40:00]. This decision, driven by the foundation’s control, allowed Novo Nordisk to remain independent and survive [01:34:49] [01:40:19].
The GLP-1 Breakthrough: Ozempic and Wegovy
This prescient decision was made while a small team within Novo Nordisk, led by Lotte Bjerregaard Nielson, was working on a promising project: GLP-1 (glucagon-like peptide 1) Agonist drugs [01:40:56] [01:41:06]. Nielson, who started at Novo in 1989, began researching GLP-1 in the early to mid-1990s as a treatment for Type 2 diabetes [01:45:50] [01:46:00].
The challenge was that natural GLP-1 only remains active in the body for about 5 minutes [01:46:51]. Despite industry-wide abandonment, Nielson persevered, developing liraglutide, a GLP-1 analog with a fatty acid that prevents its breakdown, extending its half-life to 13 hours [01:47:50] [01:48:49] [01:49:04].
In 2005, Eli Lilly launched Byetta, the world’s first GLP-1 analog drug for Type 2 diabetes, derived from Gila monster lizard venom discovered by other researchers [01:51:10] [01:51:51]. Byetta required two daily injections and was not overwhelmingly more effective than existing oral anti-diabetics [01:54:37].
In 2007, Novo Nordisk’s liraglutide entered Phase 3 human clinical trials for diabetes [01:55:45]. During these trials, researchers observed that liraglutide also had an effect on appetite and weight reduction [01:58:44] [01:59:00]. Despite a significant stigma and historical issues with weight loss drugs (like Fen-Phen), Nielson and her team pushed Novo Nordisk to pursue parallel FDA approval for liraglutide as a weight management drug [02:00:05] [02:00:41] [02:06:09].
In early 2010, Victoza (the diabetes version of liraglutide) received final approval and became a “Blockbuster” drug, hitting over $1 billion in sales in its first full year (2011) [02:08:05] [02:08:10] [02:08:52]. A significant portion of this success was due to off-label use for weight loss [02:09:40].
In late 2013, Saxenda (the official weight loss version of liraglutide, at a slightly higher dose) was submitted for approval [02:11:16] [02:11:20]. While a hit, its long-term average BMI reduction of 8% was just below the “magical 10% threshold” considered truly life-changing [02:12:03] [02:12:20].
By 2015, Novo Nordisk’s total revenue reached $16 billion, primarily from diabetes [02:12:39] [02:12:45]. However, the stock flatlined due to Saxenda’s performance and the public scrutiny over rising insulin prices [02:12:54] [02:13:15]. In 2016, the stock took a 40% hit, and CEO Lars Rebien Sørensen resigned, with Lars Fruergaard Jørgensen taking over [02:13:32] [02:14:01].
Around this time, Novo Nordisk began Phase 3 trials for its next-generation GLP-1 analog, semaglutide [02:15:02] [02:15:08]. Semaglutide had two key benefits over liraglutide:
- Longer-lasting: It only needed to be injected once per week [02:15:34] [02:15:42].
- More effective: It was twice as effective for weight loss, yielding 15% plus long-term BMI reduction [02:15:56] [02:16:03].
Semaglutide is marketed as Ozempic for diabetes (approved 2018) and Wegovy for weight loss (approved 2021) [02:16:33] [02:19:16] [02:19:18]. Ozempic became a massive hit, reaching over $1 billion in revenue in its first year (2019), despite being supply-constrained [02:19:25] [02:19:30]. Wegovy’s launch in 2021 garnered the same number of prescriptions in just over a month as Saxenda had in its entire drug lifetime [02:21:07] [02:21:19].
This led to Novo Nordisk’s market cap soaring: 250 billion by mid-2021, 500 billion by early 2024 [02:22:11] [02:22:23] [02:22:27] [02:22:45]. By 2023, 69% of Novo Nordisk’s revenue came from GLP-1 drugs, marking its transition into a GLP-1 company [02:23:20] [02:23:25].
Corporate Structure and Philosophy
Novo Nordisk remains largely concentrated, with 85% of its revenue from metabolic disorders [02:56:50]. It is the second-largest market cap pharma company, though only 20th by revenue [02:56:55] [02:57:01]. Its gross margins are about 84%, higher than average successful big Pharma companies [02:24:28] [02:25:04].
The Novo Nordisk Foundation (through Novo Holdings) has an endowment of $120 billion, making it the single largest charitable foundation in the world [02:59:30] [02:59:51]. While much of this is its ownership of Novo Nordisk, the foundation also actively invests in life sciences and biotech, holding venture stakes in over 80 companies and distributing billions in grants [03:00:03] [03:00:13] [03:01:14].
The foundation’s formal objectives prioritize stability and supporting scientific and humanitarian causes, not necessarily growth [03:01:15] [03:01:21]. This long-term, mission-driven focus, coupled with a compensation structure that does not significantly incentivize executives with stock price performance, may have contributed to its ability to pursue decades-long research [03:03:03] [03:04:03].
Playbook & Power
Novo Nordisk demonstrates several of Hamilton Helmer’s “Seven Powers”:
- Cornered Resource (Patents): Novo Nordisk holds the patent on semaglutide until 2032 [02:45:47]. The pharma industry is patent-driven, providing significant profit [02:45:43] [02:45:53]. Patents also extend to delivery mechanisms, reinforcing defensibility [02:47:25].
- Scale Economies: These apply across R&D, production, and go-to-market [02:48:42]. Bringing a drug to market costs an average of $2.3 billion [02:48:47]. The sheer cost of drug development necessitates large capital resources and scale to absorb failures [03:11:51] [03:13:11].
- Branding: While typically less prevalent in pharma, Ozempic and Wegovy have developed significant brand power, influencing patient and doctor perception beyond mere efficacy [02:49:31] [02:50:16].
- Switching Costs: Once a patient finds an effective treatment, they rarely switch, especially with chronic conditions where stopping treatment leads to reversal of benefits [02:51:16] [02:51:37].
- Network Economies: GLP-1 weight loss drugs show elements of network effects; as more people use them and achieve visible results, it creates word-of-mouth marketing and reduces social stigma [02:51:58] [02:52:41] [02:52:51].
Novo Nordisk’s strategy involves “broad potion with relatively inexpensive drugs” [03:09:42], targeting mass populations with therapies for chronic conditions like obesity and diabetes [03:07:29]. This contrasts with the broader pharma trend towards specialty drugs for rare diseases with huge price tags [03:07:32] [03:08:10].
Value Creation vs. Value Capture
Novo Nordisk has undeniably created incredible value for diabetics and a broader population with its treatments [02:22:02] [02:22:06]. It has also captured substantial value as a half-trillion-dollar company with highly profitable revenue [02:31:02] [02:31:08]. While pharma companies are often criticized for “over-earning,” their high gross margins must cover immense R&D costs and numerous drug failures [03:24:04] [03:24:22]. Industry-wide, return on invested capital (ROIC) for pharma is not exceptionally high, but Novo Nordisk significantly outperforms its peers [03:24:41] [03:25:48].
The company’s success is a testament to its long-term focus, ability to learn from historical efforts in insulin development, and a unique corporate structure that prioritizes a mission beyond short-term financial gains [03:05:50] [03:06:22] [03:26:18]. The company’s future hinges on whether GLP-1s become the next “super cycle” in pharma, with potential benefits across multiple disease areas [02:26:19] [03:31:18].