sFirst Ingram, who runs a ranch in rural Texas, isn’t the kind of person you’d usually associate with a weight-loss fad. But a year ago, he finally got tired of carrying his 320-pound (145-kg) frame all day in the heat. His family has a history of heart disease. As a result of the COVID-19 virus, he has become painfully aware of the dangers of obesity. His efforts to lose weight through diet and exercise haven’t gone anywhere. “I needed some help.”
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So his doctor, a family friend, suggested he use an injectable drug from Novo Nordisk, a Danish pharmaceutical company, that’s approved for type 2 diabetes but, as an added bonus, helps with weight loss, too. To start, the price, at around $1,000 per month, was out of Ingram’s reach. Because he did not have diabetes, his insurance company would not cover him. Then he discovered a Canadian online pharmacy that shipped it to him for $350 a month. Since using it, he has lost 60 lbs. When he goes to the gym and picks up two 30-pound barbells, he thinks, “I’ve been carrying that extra weight around me all day.” It’s changing his life, he thinks – he eats less, exercises more and his doctor “tickles him to death”. “It amazes me that insurance companies don’t want to pay for it.”
The drug he uses, Ozempic, is now a meme. But it’s about more than just the “pencil” strokes of the stars. In America alone, 110 million people like Ingram, many of them low-income, are obese. They need help getting in shape. Novo Nordisk is the new port of call. It’s been a wild ride. Following the stunning success of Ozempic, the company’s latest potential product, Wegovy, was the first drug in years to be administered by the US Food and Drug Administration (FDA).Food and Drug Administration) is approved for obesity. This means that some insurance companies cover it. Over the past two years, the company, which turns 100 in 2023, has traded like a growing stock, doubling in value to $326 billion in hopes that interfering diabetes and obesity drugs will become the biggest-selling drug class of all. Most of the market is expected to be divided with the US company Eli Lilly, whose diabetes drug, Mounjaro, may win Food and Drug Administration Obesity approved this year. It’s such a race for a COVID-19 vaccine. The combined market capitalization of Novo Nordisk and Eli Lilly easily beats that of AstraZeneca, Moderna, and Pfizer combined.
In the eyes of some critics, Nouveau got it wrong. It underestimated demand, mishandled supply, and let that slow its ambitions to roll out Wegovy in Europe. Its boss, Lars Jorgensen, admits to some mistakes. But overall, Novo deserves credit. The hesitant response to an unprecedented surge in demand is not the most serious of its shortcomings. During the pandemic, many companies, from e-commerce and automakers to gun makers, have experienced demand shocks. Instead of lamenting Nouveau’s performance, learn from it. His efforts to tackle obesity offer some golden rules for how to cope in the midst of prosperity.
The first thing to remember is to know the onion. Analysts have long complained that Novo’s focus on diabetes-related diseases makes it the least diversified large pharma company in Europe. But this is the dogma that has gone mad. Specialization is one of the forts of the company, whose founders first made insulin in Denmark in the 1920s. In 1990, Michael Porter, a management expert, called Denmark’s prowess in exporting insulin one of its great competitive advantages. This industrial focus gave Novo a head start in the obesity field. For decades, it ran wild, while its competitors concluded that obesity drugs were neither effective nor safe. But once you discover that the GLP1- The drugs he uses for diabetes, if their effect is longer, can lead to weight loss of at least 15%, and double that. Besides obesity, he hopes to use it GLP1- Related medicines to help treat heart disease and other related diseases. Its success is a testament to the virtue of innovation in a highly specialized neighborhood business, rather than creating something from scratch.
The second lesson is: know your real market. Novo got caught initially because demand for obesity drugs rose much sooner than it usually does, quickly depleting stocks. That deprived some patients of much-needed medication, as influencers have been using TikTok and other social media apps to drive demand. This was a reminder of the dangerous distractions of the hype cycle. And now the company is back to basics. Focuses on clients with a BMI (BMI) over 30, as Mr. Ingram. She works with doctors to make sure they are prescribing the medication correctly. She set out to convince insurance companies and health authorities to pay for obesity treatments.
Third, keep control of the capacity. As demand soared, one of the filling sites contracted by Novo in Europe broke down. Mr Jorgensen says it’s getting better. It already has two more bottling sites in operation, and in 2023 it intends to double capital spending for the second year in a row. But you shouldn’t overreact. Smart companies like Amazon have learned during the pandemic that excessive faith in the “new normal” leads to overcapacity. Since then, many, including the e-commerce giant, have given away people and property. Factories in America and Denmark, where Novo makes the active ingredients for its drugs, take five years to get up and running, at a cost of $2.5 billion. This gives her a generous head start. Even with the huge promise of the obesity market, it’s better to go steadily than rush it.
Skinny pens, fat dividends
Finally, plan for the long haul. Earnings are booming, much to the delight of investors. But many who need obesity medications are unable to afford them. According to a survey by Jefferies, an investment bank, Americans earning less than $15,000 per year have the highest percentage of BMIs. Novo has every right to reap the fruits of its innovation. Insurance companies may cover most of the costs. But to avoid a political backlash, it is important that those who need it most have access to it. In order for obesity drugs to be extended to other diseases, such as cardiovascular disease, it will be necessary to maintain good faith. Like diabetes, obesity may be the start of another 100-year business. ■
Read more from Schumpeter, our columnist on global business:
It’s time for Alphabet to quit YouTube (February 23)
Tech companies with AI are introducing a new form of modern warfare (February 16)
What would Josef Schumpeter have made of apples? (9 February)
