Novo Nordisk (Ozempic)

1. 0:00 – 5:29

   Novo Nordisk’s Ozempic/Wegovy moment—and why it took 30 years

   1. BGBen Gilbert0:00

      All right, first episode back. Let's see if I can do this sleep-deprived. [laughing]

   2. DRDavid Rosenthal0:04

      [laughing] Oh, you and me both, Ben. [laughing] Oh.

   3. SPSpeaker0:08

      Who got the truth? Is it you, is it you, is it you? Who got the truth now? Hmm. Is it you, is it you, is it you? Sit me down, say it straight, another story on the way. Who got the truth?

   4. BGBen Gilbert0:25

      Welcome to Season Fourteen, Episode One of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

   5. DRDavid Rosenthal0:33

      I'm David Rosenthal.

   6. BGBen Gilbert0:34

      And we are your hosts. Today's episode is on the company behind the sensational diabetes and weight loss drugs, Ozempic and Wegovy. The company is Novo Nordisk. Now, when I first learned about Ozempic a few years ago, I thought, "Of course, this is gonna 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 okay, 'cause they're probably a big pharmaceutical company that's, you know, very diversified with lots of different drugs."

   7. DRDavid Rosenthal1:14

      Nope.

   8. BGBen Gilbert1:15

      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 one hundred years, and perhaps even more surprising, this pharma giant is unique in that they are owned and controlled by a non-profit foundation. The stats around weight, diabetes, and its impact on our society are staggering. There are thirty-eight million Americans with diabetes. That's one in ten people. Globally, that number is over five hundred million with the disease. Diabetes costs the US alone more than three hundred and twenty-seven billion dollars a year, and on the other side of things, in the weight category, around a billion people suffer from obesity worldwide. A billion, including forty percent of the US population. If you expand that from obesity to overweight, seventy-five 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.

   9. DRDavid Rosenthal2:21

      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 Hermès of the pharma industry.

   10. BGBen Gilbert2:39

       Yeah. So why is today, in the early twenty twenties, the moment in human history for these new GLP-1 drugs? 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 nineties. 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-nineties, 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.

   11. DRDavid Rosenthal3:28

       And as we'll see, that's just the tip of the iceberg. I mean, this company is a hundred years old. The history goes way back and is way more interesting than I think just about anybody knows.

   12. BGBen Gilbert3:38

       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 wanna know every time an episode drops, you can sign up at acquired.fm/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/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 wanna briefly share that our presenting sponsor this season, which we are so pumped about, is J.P. Morgan, specifically their incredible payments business.

   13. DRDavid Rosenthal4:39

       Yeah. We'll be talking about them in depth later in the episode, but we've known J.P. Morgan for a long time. We both personally bank with them, as does Acquired, but we really uncovered the breadth of J.P. 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 J.P. Morgan Payments turns out to be a part of so many of our Acquired companies' journeys. And it's not just the Fortune five hundred, they're also helping companies grow from seed to IPO and beyond.

   14. BGBen Gilbert5:10

       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. Dave 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?

2. 5:29 – 12:55

   Insulin is discovered in Toronto (1921) and the first supply-chain crisis begins

   1. DRDavid Rosenthal5:29

      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.

   2. BGBen Gilbert6:56

      Yeah, and to set some context for the time period here, nineteen twenty-one, the public is not aware of what insulin is. The public is, however, aware of what type One diabetes is. This is the juvenile form of diabetes. Only five percent of diabetes sufferers have type One 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. And there were lots of rumors of people trying to figure out what substances, you know, you could inject or eat or anything to cure this sort of mysterious, horrible way to die. And people were so convinced in the late teens and early twenties that scientists were on the verge of a breakthrough, that the common wisdom was to go on a diet of, like, two to five hundred 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 couple of years long enough when the treatment did arrive to finally get it.

   3. DRDavid Rosenthal8:01

      I mean, we, I 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 attempt to prolong your life as long as possible, but, like, you are going to die unless a treatment is found. So, you know, when we say that this group won the Nobel Prize in nineteen twenty-three, this isn't just, like, a Nobel Prize. This is one of, if not the most important advance in, like, all of modern medicine that they're discovering here.

   4. BGBen Gilbert8:41

      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 rearview 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.

   5. DRDavid Rosenthal9:07

      Yep. All right, so what did Banting and Best do? So scientists had known, even going back to the eighteen hundreds, 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.

   6. BGBen Gilbert9:29

      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."

   7. DRDavid Rosenthal9:45

      So by experimenting with dogs and dog pancreases, they're able to extract something [chuckles] 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, like, severe end-of-life stages. And miracle, like, the human body is able to use this extract from dog pancreases, and these patients have, like, miraculous recoveries.

   8. BGBen Gilbert10:16

      Yeah. I spent a bunch of time reading this book, Breakthrough by Thea Cooper and Arthur Ainsberg, 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, you know, 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, like, getting it to people because they're like: Well, okay, we did this thing that kind of worked once from, like, one dog into one person. So, um, where do we go from here?

   9. DRDavid Rosenthal10:53

      And importantly, this new insulin substance, while it is a miracle, it's not a cure. [chuckles] Injecting patients with it doesn't magically, like, 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, you know, they finally have a new lease on life, but it's kinda also just that, like a lease. In order for them to survive, they need to regularly inject an appropriate amount of insulin, you know, and by regular basis, especially in these early days, that's like every couple hours.

   10. BGBen Gilbert11:33

       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, you know, 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 nineteen twenty-one, 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've gotta 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.

3. 12:55 – 16:33

   Eli Lilly industrializes insulin—and brands it

   1. DRDavid Rosenthal12:55

      Yeah, Banting and Best and Macleod aren't gonna go, you know-- today, they would go, like, start a company, [chuckles] you know, around this. Like, that's not gonna 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.

   2. BGBen Gilbert13:44

      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.

   3. DRDavid Rosenthal13:54

      Yeah. Wasn't Elizabeth Hughes, one of these famous first patients, the daughter of the Secretary of State of the US, right?

   4. BGBen Gilbert13:59

      Charles Evans Hughes. Yeah.

   5. DRDavid Rosenthal14:01

      Yeah. Wild. So it's obviously not practical or maybe not ethical, that's [chuckles] 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.

   6. BGBen Gilbert14:32

      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 the 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?"

   7. DRDavid Rosenthal15:00

      We'll pay you for those. Yeah. [chuckles]

   8. BGBen Gilbert15:01

      And it's actually not an easy sell because those farmers are like, "It's gonna 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 a little Operation Warp Speed going on, kinda 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 wanna 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."

   9. DRDavid Rosenthal16:09

      Yeah, we're gonna 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, kinda leading American and international pharmaceutical company, which it still is to this day. Still bigger than Novo Nordisk.

   10. BGBen Gilbert16:27

       Yep.

   11. DRDavid Rosenthal16:28

       Although not by too much.

   12. BGBen Gilbert16:29

       Well, much more diverse, but not too much larger by market cap.

4. 16:33 – 32:10

   August Krogh’s personal stake: diabetes diagnosis leads to Nordisk’s founding

   1. DRDavid Rosenthal16:33

      Okay, so back to this whole Nobel Prize thing, which, as we said, was awarded to Banting and Assistant Medical School Dean John Macleod. Now, how did Macleod 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 nineteen twenty Nobel Prize winner from Copenhagen, Denmark, a animal biologist named August Krogh.

   2. BGBen Gilbert17:24

      Oh!

   3. DRDavid Rosenthal17:25

      Who also happens to be the founder of Novo Nordisk.

   4. BGBen Gilbert17:28

      Is that how Nobel Prizes work, a previous winner nominates the current nominees, or is that just like, uh... it certainly helps their case if a previous winner?

   5. DRDavid Rosenthal17:38

      Yeah, I do not think it is a requirement, but, you know, certainly a, uh, previous winner and a recent previous winner in the same category, you would imagine carries a lot of weight.

   6. BGBen Gilbert17:47

      So the guy who would go on to found Novo Nordisk is the one that nominated Banting and Macleod for the Nobel Prize, before starting the company?

   7. DRDavid Rosenthal17:55

      Yeah. Now, here's the wild thing about August Krogh, founder of Novo Nordisk, the world's premier insulin company, focused on insulin and diabetes for a hundred years, now world's premier GLP-1 [chuckles] company. He's not a physician. He's not even a human biologist.

   8. BGBen Gilbert18:12

      Yeah, he was an animal biologist, right?

   9. DRDavid Rosenthal18:14

      Yeah, he was an animal biologist. Uh, fun fact, though, this is maybe my favorite sidebar in the episode: he studied at the University of Copenhagen. His, like, advisor was a guy named Christian Bohr, B-O-H-R. That name might sound familiar to some people.

   10. BGBen Gilbert18:29

       Descendant of Niels Bohr?

   11. DRDavid Rosenthal18:31

       Father-

   12. BGBen Gilbert18:32

       What!

   13. DRDavid Rosenthal18:33

       ... of Niels Bohr.

   14. BGBen Gilbert18:34

       [chuckles]

   15. DRDavid Rosenthal18:34

       That Niels Bohr, father of atomic physics, you know, also winner of the Nobel Prize, major contributor to the Manhattan Project. So yeah, like-... 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.

   16. BGBen Gilbert18:51

       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 [chuckles] father.

   17. DRDavid Rosenthal18:58

       Yeah, right. Right, right. Okay, so back to August Krogh. 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 Krogh, 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 kinda suspect, has always been pretty progressive relative to the US, 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, um, obviously unique.

   18. BGBen Gilbert19:51

       Yes.

   19. DRDavid Rosenthal19:51

       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 going 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, you know, 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.

   20. BGBen Gilbert21:13

       Which is, by the way, amazing that a Type 1 diabetic has made it sort of this far in life and is in the early 20s doing transatlantic travel.

   21. DRDavid Rosenthal21:23

       Totally amazing. So August is gonna give a delayed series of lectures here at both Harvard and Yale. While there in Boston at Harvard, they meet with a guy named Elliott 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 Elliott 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.

   22. BGBen Gilbert22:01

       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?

   23. DRDavid Rosenthal22:11

       Yes. Well, and particularly, the competitive advantage, like, life advantage, like, they're just concerned about Marie's life [chuckles] at this point in time. So Elliott says, "You know, I know the guy who runs the lab up there, John Macleod. 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 Macleod. 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, like, some rights or ability to bring insulin back to Denmark. Macleod in Toronto, you know, he gets the letter, and 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 Macleod, observes the insulin production process, sees everything that's happening. They become close and friendly. Most importantly, Macleod 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 Kroghs 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."

   24. BGBen Gilbert24:18

       And this is a pretty similar deal that they cut with Eli Lilly. That was for North America, and they basically gave him the same thing for Scandinavia.

   25. DRDavid Rosenthal24:26

       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. [laughs]

   26. BGBen Gilbert24:41

       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.

   27. DRDavid Rosenthal24:54

       Ah, 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.

   28. BGBen Gilbert25:06

       Right. If it's got islets, we want it.

   29. DRDavid Rosenthal25:08

       Yep. So using the Toronto method, they get a bunch of pancreases, they go to August Krogh's lab at the University of Copenhagen, run them through a meat grinder, pour hydrochloric acid over them, and 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.

   30. BGBen Gilbert25:42

       Hmm.
5. 32:10 – 37:27

   A foundation-owned insulin maker is born: Nordisk’s unusual governance model

   1. BGBen Gilbert32:10

      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?

   2. DRDavid Rosenthal32:20

      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?

   3. BGBen Gilbert32:29

      Mm.

   4. DRDavid Rosenthal32:30

      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.

   5. BGBen Gilbert33:03

      Ah.

   6. DRDavid Rosenthal33:03

      And that would continue to be Nordisk's insulin brand name for the next sixty years, I think.

   7. BGBen Gilbert33:09

      Wow!

   8. DRDavid Rosenthal33:10

      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 Kongsted, who owns Lion Chemical, they all come to an agreement. They're gonna set up a new independent and self-owning institution to produce and distribute this insulin throughout Europe.

   9. BGBen Gilbert33:40

      Yeah, what does that mean?

   10. DRDavid Rosenthal33:42

       Still not a company, because other than Kongsted from Lion Chemical, Crow and even Hagedorn at this point, they're not particularly commercially minded.

   11. BGBen Gilbert33:51

       No, it's a biologist and a physician.

   12. DRDavid Rosenthal33:54

       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 one hundred percent owned and controlled by a foundation that they also set up, and the three of them are gonna be board members of this foundation, and Hagedorn is gonna run it day to day.

   13. BGBen Gilbert34:19

       This is really important to know and really crazy how much this impacts in the future. This is still the corporate structure of the largest company in Europe, and we're gonna 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 hundred years is laid right here in this corporate structure.

   14. DRDavid Rosenthal34:47

       And foreshadowing, there is a moment much later in history where, absent the control of this foundation, Novo Nordisk would have ceased to exist. [chuckles] It is only because of this structure that Novo Nordisk survived and that we have GLP-1s and everything we have today.

   15. BGBen Gilbert35:06

       It's fascinating. By the way, this is not that uncommon in Danish companies. Lego, same structure. Maersk, the shipping company, same structure.

   16. DRDavid Rosenthal35:15

       Well, I dug into this a little bit. So yes, this is a very common structure in Denmark, mostly for tax reasons, because Denmark has very, very high taxes. So this is a common, like, generational transfer mechanism. And Novo, 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 like a foundation of convenience. It really is like a charitable foundation with a dual mission. So they give it two missions. The first mission is to produce insulin and sell it: A, at cost in Scandinavia, in the original kinda territory mandate, in order to maximize access and kinda humanitarian 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. So no profits allowed in Scandinavia. Profits are allowed from export activities-

   17. BGBen Gilbert36:26

       Huh!

   18. DRDavid Rosenthal36:26

       ... And then all of those profits, literally by contract, get shipped one hundred percent to the foundation to then be used for, you know, grants and research about diabetes and supporting diabetes patients in Scandinavia.

   19. BGBen Gilbert36:40

       Fascinating. I did not know that.

   20. DRDavid Rosenthal36:42

       Totally fascinating. And, you know, 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.

   21. BGBen Gilbert36:50

       Yeah, there's some caveats that I'll get to when we get to today.

   22. DRDavid Rosenthal36:52

       Yes, the operating company is now publicly traded, but still that foundation controls seventy-seven percent of the voting shares of Novo Nordisk and twenty-eight percent of the economic shares. [chuckles]

   23. BGBen Gilbert37:04

       Yeah, so no shareholder activism in this company, or at least no one's effective in doing so.

   24. DRDavid Rosenthal37:09

       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 is the insulin manufacturer for the Nordics.

   25. BGBen Gilbert37:26

       Very creative.

6. 37:27 – 47:13

   The split that created Novo: a fired factory leader starts a bitter rival

   1. DRDavid Rosenthal37:27

      Very creative. So, um, you know, 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 Thorvald Pedersen. And the Pedersens, you know, you've gotta remember the time we're in. They're sort of like prototypical 19-teens, 1920s kinda 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, kinda cast from that mold. So the older brother, Harald, he had been working in August Krogh's lab, doing all the mechanical engineering stuff to carry out the experiments. Like, you know, 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. [chuckles] When Lion Chemical gets involved, and they're spinning up mass production, Harald goes to Hagedorn and August and Kongsted 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, Thorvald." 'Cause not only is Thorvald a seasoned factory operations manager who's currently running a large soy factory, he is also trained as a pharmacist and studied chemistry. He's, like, the perfectly qualified person to be, like, a, you know, early employee of this new operation. Except it turns out there's just one problem: Hagedorn thinks he's in charge, and Thorvald, 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?" [chuckles]

   2. BGBen Gilbert39:29

      So this schism happens, like, in the first year of Nordisk's existence?

   3. DRDavid Rosenthal39:34

      Yes. In the first six months after Thorvald 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.

   4. BGBen Gilbert39:47

      Guess we know who's in charge.

   5. DRDavid Rosenthal39:48

      Yeah. When that happens, Harald, the older brother, resigns in solidarity, and they're super pissed. They go to see Krogh, 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 Krogh sides with Hagedorn. He's like, "No, no, he's my guy. He's Marie's physician. He's gonna run this thing." So they say, "Well, all right, fine. You know, as you know, here in Denmark, you can't patent drugs."

   6. BGBen Gilbert40:18

      Oh, that's why this is important.

   7. DRDavid Rosenthal40:20

      "We're just gonna go down the street and make insulin, too." [chuckles] And the legend has it that supposedly August looks at them and replies, "But you're not capable of that." [laughing]

   8. BGBen Gilbert40:31

      Oh!

   9. DRDavid Rosenthal40:31

      To which Thorvald 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- [laughing]

   10. BGBen Gilbert40:44

       [laughing]

   11. DRDavid Rosenthal40:45

       ... 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.

   12. BGBen Gilbert41:06

       Crazy.

   13. DRDavid Rosenthal41:07

       Yep. Now, this is such a key part of the Novo story, that certainly, you know, Krogh, 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've 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.

   14. BGBen Gilbert41:46

       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.

   15. DRDavid Rosenthal42:03

       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 1 at this point in time, it's still a very large and widespread disease in the world, so there'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.

   16. BGBen Gilbert43:02

       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.

   17. DRDavid Rosenthal43:11

       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 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-

   18. BGBen Gilbert43:52

       There's allergic reactions to all the impurities.

   19. DRDavid Rosenthal43:55

       Totally. It wasn't shelf-stable in liquid injectable form. This is wild.

   20. BGBen Gilbert44:01

       Hmm.

   21. DRDavid Rosenthal44:01

       I don't know if you knew this, Ben.

   22. BGBen Gilbert44:02

       No.

   23. DRDavid Rosenthal44:02

       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.

   24. BGBen Gilbert44:30

       Like a glass syringe with a big needle. No pens, none of this fancy stuff we have today.

   25. DRDavid Rosenthal44:35

       Yeah, big-ass needle. And, you know, 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.

   26. BGBen Gilbert44:47

       Yep, and there's no measurement. I mean, there's no, like, one-touch pin prick, 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.

   27. DRDavid Rosenthal44:58

       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.

   28. BGBen Gilbert45:06

       Oh, I didn't realize that wasn't Nordisk, but Novo.

   29. DRDavid Rosenthal45:08

       Yeah, Novo invented the pen, and Nordisk focused on pumps, and they were, um, one of several companies, but one of the leading companies innovating in pumps.

   30. BGBen Gilbert45:16

       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.
7. 47:13 – 56:03

   Insulin innovation arms race—and World War II reshapes the winners

   1. DRDavid Rosenthal47:13

      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 Novoinsulin as insulin at half price-

   2. BGBen Gilbert48:01

      [laughing]

   3. DRDavid Rosenthal48:01

      ... because it's so much more efficient. Now, this is so antithetical to, like, the ivory tower scientists over at Nordisk. You're marketing insulin at half price, and does this liquid stuff work, and is this safe, and all this stuff. The Petersen brothers are like, "Yeah, whatever, you know, we're gonna crush you." [chuckles]

   4. BGBen Gilbert48:17

      Hmm, all right, so Novo, scrappy upstart, counter-positioned, and competition drives innovation, so they create better product.

   5. DRDavid Rosenthal48:24

      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 Hagedorn.

   6. BGBen Gilbert48:42

      Really? Hagedorn is in the name?

   7. DRDavid Rosenthal48:43

      Because H.C. Hagedorn, he himself led the research developing this-

   8. BGBen Gilbert48:48

      [chuckles]

   9. DRDavid Rosenthal48:48

      ... and he puts his own name on it. Kinda 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, [chuckles] and that is Novo.

   10. BGBen Gilbert49:26

       Amazing.

   11. DRDavid Rosenthal49:27

       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 kinda 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.

   12. BGBen Gilbert50:02

       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.

   13. DRDavid Rosenthal50:43

       Yes. To your point, though, it is still quite scientifically difficult. It's not like software here, where like, yeah, yeah, yeah, I write some code, and it's like, "No, no, you still gotta find a molecule that does what you say it does."

   14. BGBen Gilbert50:55

       Yep.

   15. DRDavid Rosenthal50:56

       So this leads to a whole bunch of lawsuits. It actually ends up going to the Danish Supreme Court, where Hagedorn represents Nordisk himself. You know, 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 gonna be my own lawyer." [chuckles]

   16. BGBen Gilbert51:16

       At the Supreme Court case.

   17. DRDavid Rosenthal51:17

       At the Supreme Court.

   18. BGBen Gilbert51:18

       Wow!

   19. DRDavid Rosenthal51:18

       Yeah, amazing, and 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-

   20. BGBen Gilbert51:47

       Much less relevant.

   21. DRDavid Rosenthal51:48

       Much, much less relevant. But what is still super relevant is, how is Europe gonna get insulin [chuckles] in the middle of World War II? And this is a major, major turning point, both for the two companies vis-à-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.

   22. BGBen Gilbert52:18

       Huh, 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.

   23. DRDavid Rosenthal52:28

       Well, so what happens is Denmark is relatively unscathed during World War II. You know, 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, um, and 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.

   24. BGBen Gilbert53:36

       They basically cannot address the market of any Allied countries anymore.

   25. DRDavid Rosenthal53:39

       Yeah.

   26. BGBen Gilbert53:40

       Wow!

   27. DRDavid Rosenthal53:41

       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.

   28. BGBen Gilbert53:57

       'Cause it's Danish-owned, which is Nazi-occupied at the time.

   29. DRDavid Rosenthal54:01

       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.

   30. BGBen Gilbert54:25

       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.
8. 56:03 – 1:08:32

   Post-war growth, diversification, and the 1970s near-merger that didn’t happen

   1. DRDavid Rosenthal56:03

      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 less 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 twenty-four/seven 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.

   2. BGBen Gilbert57:09

      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, a very complex environment? You know, 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.

   3. DRDavid Rosenthal57:53

      Yeah. Hopefully, it's obvious, but, like, 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, no, this is very complicated stuff, and you gotta make sure that the side effects are not gonna kill people. So this is really the first major scientific advance that comes out of Novo, and Eli Lilly licenses this Lente insulin from Novo and kind of rebrands it and 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.

   4. BGBen Gilbert58:53

      I'm really curious if the Eli Lilly folks would agree with that characterization. I know I- you read that great history of Novo Nordisk book, and I'm sure that's the way it paints it, but, uh, at some point, we should dig into Eli Lilly a little more and see if that's how they think about it, too.

   5. DRDavid Rosenthal59:05

      Yeah. Well, that is gonna change in a big way in the 1980s, but during this post-war period, at least that's how, um, Kurt Jacobsen's book makes it sound, and we gotta 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 hundredth anniversary. Unfortunately, you can't buy it in America [chuckles] 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, uh, very, very kind. Thank you, Kurt.

   6. BGBen Gilbert59:38

      Yep.

   7. DRDavid Rosenthal59:39

      So this is basically the way things stay for the post-war era up until the 1980s. Novo follows up Lente insulin in the 1970s with MC insulin or non-immunogen monocomponent insulin, which is the first hundred percent 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, you know, if production capacity has gone down to basically zero, you know, 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, you know, they're not, like, insolvent or anything, but they're the much, much smaller company. Now, Novo, interestingly, they're now a large pharmaceutical company. They wanna 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, you know, that's all well and good to be a diversified, you know, industrial conglomerate, except the enzyme business is both capital-intensive and not that profitable. [chuckles]

   8. BGBen Gilbert1:01:19

      Those don't mix well.

   9. DRDavid Rosenthal1:01:20

      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.

   10. BGBen Gilbert1:01:29

       Oh, is this, uh, Novozymes?

   11. DRDavid Rosenthal1:01:31

       This is Novozymes, yes.

   12. BGBen Gilbert1:01:33

       Ah.

   13. DRDavid Rosenthal1:01:33

       It is still majority-controlled by Novo Holdings, which is the holding company of the Novo Nordisk Foundation.

   14. BGBen Gilbert1:01:40

       ... Interesting. So just like Novo Nordisk is majority controlled by the foundation's holding company, Novozymes still is also.

   15. DRDavid Rosenthal1:01:47

       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.

   16. BGBen Gilbert1:02:24

       Oh, interesting! If only they had a cash-rich partner without a lot of CapEx needs.

   17. DRDavid Rosenthal1:02:30

       Goodness, if only there were such a natural partner- [laughing] ... 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 Brennum, 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.

   18. BGBen Gilbert1:03:24

       Huh. But they don't merge for another decade and a half, so what went wrong?

   19. DRDavid Rosenthal1:03:29

       It's not what happens. So instead, contrary to all sort of what you would think on paper, the new CEO, Brennum, actually turns out to be, like, an amazing leader and CEO-

   20. BGBen Gilbert1:03:44

       The lumber guy

   21. DRDavid Rosenthal1:03:44

       ... for Nordisk. The lumber guy.

   22. BGBen Gilbert1:03:46

       Huh!

   23. DRDavid Rosenthal1:03:46

       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 gonna be a complete reset of all the insulins on the market, whether they're fast-acting or long-lasting insulins, they're all gonna move over to this MC highly purified method and type of insulin.

   24. BGBen Gilbert1:04:27

       Hmm.

   25. DRDavid Rosenthal1:04:28

       But Novo's in this spot where they're gonna be delayed for several years in making the transition in their actual factories 'cause they don't have the CapEx.

   26. BGBen Gilbert1:04:38

       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?

   27. DRDavid Rosenthal1:04:45

       So Brennum convinces the board that rather than merging, they should use their capital reserves to rebuild up Nordisk's own production capacity-

   28. BGBen Gilbert1:04:57

       Hmm

   29. DRDavid Rosenthal1:04:57

       ... go hire a global sales force. Brennum's, he's really ambitious. He says, "We're gonna go enter America directly as this, like, forgotten, you know, Nordisk company." So he goes and hires a global sales force because he knows Eli Lilly is gonna have the same dynamics as Novo. Like, everything's gonna have to shift over to MC, and Eli Lilly's this, you know, big, large, diversified giant. They're not gonna move as fast as he thinks Nordisk can. And even though it's unrealistic that Nordisk is gonna 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. [chuckles]

   30. BGBen Gilbert1:05:48

       Well, and you gotta remember, too, in the '70s, 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, you know, 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 with the... 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 kinda can without too many barriers.
9. 1:08:32 – 1:22:47

   Biotech changes everything: Genentech, recombinant insulin, and the path to the 1989 merger

   1. DRDavid Rosenthal1:08:32

      And this is exactly my point. So you might be wondering, like, "Wait a minute, if you add all that up, the whole global insulin market is about half a billion dollars [chuckles] 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 fifteenth largest company in the world? Like, what gives? What happened?

   2. BGBen Gilbert1:09:00

      Yeah, just look at pictures of people in the '70s and look at pictures of people today.

   3. DRDavid Rosenthal1:09:04

      Yes. The answer is, one, what you just said, we all got fat, and the diabetes market, and specifically Type 2 diabetes, exploded. But two, and this is gonna be such a fun story to tell here on Acquired 'cause it's a huge part of Silicon Valley history that we've never touched.

   4. BGBen Gilbert1:09:23

      Yes, Genentech.

   5. DRDavid Rosenthal1:09:25

      Two, Genentech happened.

   6. BGBen Gilbert1:09:27

      Oh, yes.

   7. DRDavid Rosenthal1:09:28

      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.

   8. BGBen Gilbert1:09:46

      Former Kleiner Perkins employee.

   9. DRDavid Rosenthal1:09:49

      Yeah, was a co-founder of the company. But before we talk about that...

   10. BGBen Gilbert1:09:53

       Yes, now is the perfect time to introduce one of our other new Acquired partners for season fourteen, 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 eighty-five percent of the Fortune five hundred. It has also been one of the absolute best-performing technology companies over recent years.

   11. DRDavid Rosenthal1:10:24

       Yeah, I mean, ServiceNow has outperformed almost every enterprise software company over the past five years, including Microsoft.

   12. BGBen Gilbert1:10:31

       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.

   13. DRDavid Rosenthal1:10:48

       Yeah, we waved hi when we were there to hang out with Jensen. So ServiceNow was started in 2003 by Fred Luddy, and Fred, kinda like August Krogh starting Nordisk, was already the equivalent of a Nobel Prize-winning software developer and founder. He dropped out of college in 1970.

   14. BGBen Gilbert1:11:06

       Yeah, this is like, uh, Nolan Bushnell, Atari-era Silicon Valley.

   15. DRDavid Rosenthal1:11:10

       Totally, and he started programming and ultimately built a four billion dollar 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 industry at age seventeen, 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. Eighty percent 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 eighty percent easier, eighty percent faster, and a hundred percent less soul-crushing.

   16. BGBen Gilbert1:12:04

       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 eighty percent of. So Fred started ServiceNow and took that same simple automation concept and brought it to IT, brought to customer service, HR, ops, risk. Kinda like AI is doing now, and ServiceNow is a part of that, they freed up knowledge workers to go create, you know, 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 one hundred billion dollar-plus Fortune Five Hundred company.

   17. DRDavid Rosenthal1:13:11

       It's an incredible story. So if you wanna learn more about ServiceNow and connect with the team, go on over to servicenow.com/acquired, and when you get in touch, just tell them that Ben and David sent you.

   18. BGBen Gilbert1:13:23

       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.

   19. DRDavid Rosenthal1:13:34

       Yes, more metabolically unhealthy.

   20. BGBen Gilbert1:13:36

       Correct.

   21. DRDavid Rosenthal1:13:37

       And just to put some numbers on that, the number of Type 2 diabetes patients quadruples from 1980 to 2016.

   22. BGBen Gilbert1:13:46

       ... 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.

   23. DRDavid Rosenthal1:14:08

       Yes, and specifically what that meant, using animals to make insulin, was that Type 2 was not treated with insulin. And actually, until this-

   24. BGBen Gilbert1:14:17

       Really?

   25. DRDavid Rosenthal1:14:18

       -point in time, Type 2 used to be called, quote, "non-insulin dependent diabetes", because you didn't treat it with insulin, 'cause there wasn't enough insulin. There weren't enough animal pancreases in the world to do it.

   26. BGBen Gilbert1:14:30

       Oh, I had no idea.

   27. DRDavid Rosenthal1:14:32

       And it wasn't necessarily that insulin didn't help Type 2. I mean, lots and lots of Type 2 diabetics these days use insulin. It was that there just wasn't enough of it.

   28. BGBen Gilbert1:14:43

       Wow!

   29. DRDavid Rosenthal1:14:44

       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, 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. [chuckles]

   30. BGBen Gilbert1:15:13

       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, you know, from a pig or cow.
10. 1:22:47 – 1:31:57

    Modern pharma go-to-market: PBMs, formularies, rebates, and why the US is uniquely complex

    1. BGBen Gilbert1:22:47

       Yeah, it'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 US 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 US 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."

    2. DRDavid Rosenthal1:23:29

       [chuckles]

    3. BGBen Gilbert1:23:30

       But really, actually, that's not how it works. [chuckles]

    4. DRDavid Rosenthal1:23:31

       That's like a butterfly flaps its wings.

    5. BGBen Gilbert1:23:33

       [chuckles] 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, so far, there's nothing different about how this is working from any retail supply chain, but here's where it gets weird. In healthcare, 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 wanna 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 a 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-

    6. DRDavid Rosenthal1:25:02

       Yeah, so that's what, four middlemen, sir?

    7. BGBen Gilbert1:25:05

       Uh, the PBM, the insurance company, the distributor, and for some reason, employers are involved.

    8. DRDavid Rosenthal1:25:11

       So we're talking about a six-sided market.

    9. BGBen Gilbert1:25:14

       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, uh, Threads account to kinda 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 wanna do a little dive into each of the parties to understand what they do. The drug manufacturers, like Novo Nordisk, 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 it's, you know, 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, uh, 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 kinda 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?

    10. DRDavid Rosenthal1:27:07

        That's a good question. [chuckles]

    11. BGBen Gilbert1:27:08

        [chuckles] 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 'cause 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.

    12. DRDavid Rosenthal1:27:47

        So are they sort of like agents? Is that the right way to think about them?

    13. BGBen Gilbert1:27:52

        Agent implies that the principal can sort of make a decision to go elsewhere. You're not going elsewhere.

    14. DRDavid Rosenthal1:28:00

        Ah, the PBMs are the ones actually setting the prices.

    15. BGBen Gilbert1:28:03

        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 two hundred and sixty-six million Americans, and that number is old. That's as of twenty sixteen. So think about, like, basically all Americans get their prescription drugs through a PBM. Despite there used to being hundreds of PBMs, there's now fewer than thirty, and there's essentially three that cover about eighty percent of the market, and those are Express Scripts, CVS Caremark, and Optum Rx, which is actually owned by UnitedHealth Group. So interesting to know that Caremark, that PBM, is corporately bundled with CVS, a pharmacy, but Optum Rx, corporately bundled with an insurance provider.

    16. DRDavid Rosenthal1:28:46

        So there's vertical integration happening here, too. [chuckles]

    17. BGBen Gilbert1:28:48

        Yes. So if you wanna be a little bit cynical about it, you could say they've really become kind of the gatekeeper for consumers getting access to drugs, since a doctor's not gonna 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, uh, almost like a veto. If a PBM says, "We're not gonna work with that drug or that drug manufacturer," doctors aren't gonna 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 kinda 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 kinda 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.

    18. DRDavid Rosenthal1:29:39

        Hmm.

    19. BGBen Gilbert1:29:40

        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-

    20. DRDavid Rosenthal1:30:10

        How does any of this get past the DOJ? [chuckles]

    21. BGBen Gilbert1:30:13

        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 seventy-five percent of the sticker price of insulin. If you're getting a rebate on seventy-five percent of the total price, the sticker price is not the price.

    22. DRDavid Rosenthal1:30:47

        Wow! Wait, so who gets the rebates? Is it the PBMs themselves or the consumers?

    23. BGBen Gilbert1:30:53

        Well, PBMs say that they tend to pass most of the rebate along to the healthcare plan.

    24. DRDavid Rosenthal1:30:59

        Ah. Yeah, consumers are far away from any of this. [chuckles]

    25. BGBen Gilbert1:31:03

        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 [chuckles] 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, uh, game of hide the sausage.

    26. DRDavid Rosenthal1:31:25

        [laughing] Oh, gosh. Wow.

    27. BGBen Gilbert1:31:27

        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 sort of 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.

    28. DRDavid Rosenthal1:31:45

        Wow.

    29. BGBen Gilbert1:31:47

        So that is the current state of what happens when many people or most people go and fill a prescription.

11. 1:31:57 – 1:43:49

    The foundation blocks a 2004 sale—then GLP-1 becomes the company’s future

    1. DRDavid Rosenthal1:31:57

       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, like, 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 sixty-two percent Novo and thirty-eight percent Nordisk. So Novo was still the kinda larger majority institution here, but this is a far cry from when discussions first started ten 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 sixty/forty merger.

    2. BGBen Gilbert1:33:12

       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.

    3. DRDavid Rosenthal1:33:21

       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 fifty percent, five zero percent, global market share, with Eli Lilly just behind at forty-five percent and Hoechst at five percent. That kinda 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 two billion for insulin. Ten years ago, the total market size was five hundred million.

    4. BGBen Gilbert1:33:56

       Wow!

    5. DRDavid Rosenthal1:33:57

       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 Brennum from the Nordisk side, they remain as co-CEOs for the next couple years. And Brennum 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 Wellcome merge around this time, Astra and Zeneca merge around this time, Sanofi buys Hoechst. You know, these are all multi, multi-billion dollar, tens of billions of dollar transactions that makes Novo and Nordisk look kinda 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, you know, 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.

    6. BGBen Gilbert1:35:46

       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 gonna 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.

    7. DRDavid Rosenthal1:36:04

       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 kinda 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, twenty percent, sometimes twenty percent plus annually for, like, fifteen years there. [chuckles] They're firing on all cylinders. In the year 2000, they sign 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 four billion dollars, and that's pretty much just on insulin alone. Remember, they've spun out Novo Zymes. All the subscale pharma businesses that Novo had are all gone. And that's when management finally decides to sell the company. [laughing]

    8. BGBen Gilbert1:37:26

       Ba na na.

    9. DRDavid Rosenthal1:37:27

       Ba na na! 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 go get approval from the foundation board-

    10. BGBen Gilbert1:37:43

        Which is the only shareholder that matters.

    11. DRDavid Rosenthal1:37:46

        But there's never been a conflict between the foundation board and the management board. Like, everybody's always been aligned here. [chuckles]

    12. BGBen Gilbert1:37:53

        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.

    13. DRDavid Rosenthal1:38:05

        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. Like, 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 ten plus years, finally found the right deal. So they go to the foundation board expecting that everybody's gonna 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- [chuckles] ... growth over the last fifteen 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? [chuckles]

    14. BGBen Gilbert1:39:30

        My rubber stamp's feeling like it is not working right now. I'm not sure. [chuckles]

    15. DRDavid Rosenthal1:39:36

        Yeah. Yeah. [laughing] Oh, my daughter loves to say when, uh, something doesn't go her way these days, she says, "Not working!" [laughing]

    16. BGBen Gilbert1:39:41

        [laughing]

    17. DRDavid Rosenthal1:39:41

        Foundation board is like, "Not working." [laughing] 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, uh, the opposite of what happened at OpenAI, where, like, the foundation here is saying, like: "No, you must continue as an independent commercial entity." [chuckles]

    18. BGBen Gilbert1:40:12

        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.

    19. DRDavid Rosenthal1:40:24

        Absolutely. One hundred percent chance, if this ownership structure were not in place, we would not be doing this episode today.

    20. BGBen Gilbert1:40:31

        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 twenty-five to thirty percent higher than your shares are currently trading, congratulations, they get to own your company, and that didn't happen.

    21. DRDavid Rosenthal1:40:45

        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.

    22. BGBen Gilbert1:41:21

        That is a mouthful, David.

    23. DRDavid Rosenthal1:41:22

        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 Wegovy. [chuckles]

    24. BGBen Gilbert1:41:39

        Or Rybelsus, which just got FDA approval pretty recently.

    25. DRDavid Rosenthal1:41:42

        Yes, indeed.

    26. BGBen Gilbert1:41:44

        So before we tell the story of how GLP-1s started being researched and the very unlikely place that they came from, we wanna thank our longtime friend of the show, Vanta, the world's leading security, compliance, and trust management platform. Vanta automates your security reviews and compliance efforts, so frameworks like SOC 2, GDPR, FedRAMP for payments, and critically for healthcare, HIPAA compliance and monitoring. Vanta takes these otherwise incredibly time and resource-draining efforts for your organization and makes them fast and simple.

    27. DRDavid Rosenthal1:42:18

        Yep, it's the perfect example of a quote we talk about all the time on Acquired, Jeff Bezos's maxim to focus only on what makes your beer actually taste better. In other words, spend your time and resources only on what's actually gonna move the needle for your product and your customers, and outsource everything else that doesn't. Vanta and security, compliance, and trust management is this to a T. Every company needs it, especially every company operating in healthcare, and it plays a major role in enabling revenue because customers and partners demand it, but yet it adds zero flavor to your actual product.

    28. BGBen Gilbert1:42:53

        So enter Vanta. Vanta takes all the spreadsheets, fragmented tools, and manual reviews that go into managing modern security and compliance requirements and turns them into a single software pane of glass that connects all of your services via APIs and eliminates ninety percent of the work for your organization.

    29. DRDavid Rosenthal1:43:09

        And it makes these otherwise static, point-in-time security reviews dynamic, so you can monitor your security posture in real time and share it with your customers and partners.

    30. BGBen Gilbert1:43:19

        Yep, and it scales all the way up from seed-stage startups to large enterprises like Autodesk, Gusto, ZoomInfo, many large AI companies, and more. They have over six thousand customers now and are quite a large enterprise themselves. So if your company is ready to automate compliance and go back to making your beer taste better, head on over to vanta.com/acquired and tell them Ben and David sent you. And thanks to our friend Christina, Vanta's CEO, all Acquired listeners get one thousand dollars of free credit. Our thanks to Vanta.

12. 1:43:49 – 2:27:18

    Inventing GLP-1: liraglutide’s fatty-acid trick, lizard venom, and the long road to Ozempic/Wegovy

    1. BGBen Gilbert1:43:49

       So David, glucagon-like peptide-1 receptor agonist, what is it, and where did it come from?

    2. DRDavid Rosenthal1:43:58

       Well, it really is the story of Lotte Bjerre Knudsen.... 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, uh, last night, I think, about this.

    3. BGBen Gilbert1:44:17

       Yeah, remarkably, there is this paper, I guess it's a paper, called Inventing liraglutide: 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 Lotte 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 & 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.

    4. DRDavid Rosenthal1:44:53

       Yeah, super cool. We'll link to it in the sources.

    5. BGBen Gilbert1:44:56

       Yep.

    6. DRDavid Rosenthal1:44:57

       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 Lotte's part of this group that's looking for new candidates. So in the early to mid-'90s, Lotte 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.

    7. BGBen Gilbert1:46:41

       Seems pretty straightforward. In fact, why don't you just go eat some GLP-1? Just get it into your body however you want, and I'm sure it'll work out.

    8. DRDavid Rosenthal1:46:48

       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, et cetera. In type 2 diabetes, that gets disrupted. You can't just put more regular human GLP-1 in the body, or it's gonna 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 Lotte 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 gonna 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."

    9. BGBen Gilbert1:48:19

       Crazy. What year is this?

    10. DRDavid Rosenthal1:48:21

        Uh, this is, like, '95, '96.

    11. BGBen Gilbert1:48:24

        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.

    12. DRDavid Rosenthal1:48:34

        Around that, so a few years with nothing to show for it.

    13. BGBen Gilbert1:48:37

        Yep.

    14. DRDavid Rosenthal1:48:38

        So [exhaling] 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 thirteen hours, compared to, you know, like, a half-life of two and a half minutes for straight-up GLP-1.

    15. BGBen Gilbert1:49:15

        That'll help.

    16. DRDavid Rosenthal1:49:16

        Yeah. That satisfies management's ultimatum.

    17. BGBen Gilbert1:49:19

        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.

    18. DRDavid Rosenthal1:50:13

        ... Yeah, and I think that's how she phrases it, too, when she describes it as protecting the molecule.

    19. BGBen Gilbert1:50:18

        Yep, the fatty acid sort of, uh, well, it makes it big and stick to stuff.

    20. DRDavid Rosenthal1:50:23

        Sometimes it's good to have a layer of fat around you. [laughing]

    21. BGBen Gilbert1:50:27

        [laughing] Okay, so, a thirteen-hour half-life, you know, this liraglutide can become basically a once-a-day drug instead of an every five minutes drug?

    22. DRDavid Rosenthal1:50:37

        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, kinda ninety-seven-ish timeframe, but, you know, Novo's like, "Great, we're gonna 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 two thousand and five, when the world's first GLP-1 analog drug finally comes to market for the treatment of type two diabetes. Of course, I'm talking about the world-famous, well-known Byetta from Eli Lilly. [laughing]

    23. BGBen Gilbert1:51:26

        Ba-na-na. Not a Novo drug, not from Lotte's work, and developed in a completely parallel way.

    24. DRDavid Rosenthal1:51:35

        Not Ozempic, not Victoza, not Wegovy, something completely different. This might be the most random occurrence that we've ever had on Acquired.

    25. BGBen Gilbert1:51:46

        David, if I called you and said, "Ship me a lizard, this is important," would you do it? [laughing]

    26. DRDavid Rosenthal1:51:51

        [laughing] Uh, knowing this context, I would actually say yes. An actual lizard.

    27. BGBen Gilbert1:51:56

        Is that where you're going?

    28. DRDavid Rosenthal1:51:57

        Yes.

    29. BGBen Gilbert1:51:58

        Yes! Okay, great.

    30. DRDavid Rosenthal1:52:00

        So during this time, in parallel to Lotte's work at Novo, two American researchers in the VA hospital system, the Veterans Affairs hospital system-
13. 2:27:18 – 2:44:51

    GLP-1 economics and access: who pays, why insurers hesitate, and adherence challenges

    1. BGBen Gilbert2:27:18

       No doubt about that. Well, this is a very good place. I've got a couple of broad topic areas that I wanna hit here. Let's start with the general state of affairs of GLP-1s today. So the first thing to know is sticker price. The price of Ozempic to treat diabetes is north of one thousand dollars, and Wegovy for weight loss is north of thirteen hundred dollars per month before insurance, and this is in the US. So expensive, right? That's a lot of money. In Canada, [chuckles] of course, Ozempic is a hundred and forty-seven dollars a month. In the UK, it's ninety-three dollars a month. So everything that I'm about to talk about is a uniquely American problem, much like most problems in our healthcare system. So how do these drugs get paid for in the US? Well, that depends. Rich people, just out of pocket if they don't have coverage. We've seen all the headlines about it being rampant in wealthy New York neighborhoods or around Hollywood, but let's segment that away for a moment and say, well, okay, outside of that. Well, first let's talk about private insurers. You might have coverage by your company's insurance, and this is a good place to talk about the two most pernicious issues in the entire US healthcare system that are deeply intertwined: one, incentive alignment, and two is time horizon. So the average American in the private sector holds a job for three point seven years.

    2. DRDavid Rosenthal2:28:39

       Mm-hmm.

    3. BGBen Gilbert2:28:39

       That means that on average-

    4. DRDavid Rosenthal2:28:40

       I see where you're going with this.

    5. BGBen Gilbert2:28:41

       [chuckles] Insurance companies are going to churn you every three point seven years or sooner if your company changes the insurance plan. So their incentive is to cover you only in two categories of things: one, things that pay themselves back in less than three point seven years, or two, things that have such an overwhelming demand from employees that their employers think that they absolutely have to cover them to stay competitive. Now, you're sitting there thinking exactly the right thing, which, David, you already acknowledged: "But if I lose weight today, I'll benefit in the long run. But will my insurance company lower their costs in some way? I mean, if I'm obese, I'll almost certainly have complications later that'll cost hundreds of thousands or millions of dollars once those become acute conditions." But those costs won't be realized by your current insurance-

    6. DRDavid Rosenthal2:29:33

       Yeah

    7. BGBen Gilbert2:29:34

       ... or your current employer.

    8. DRDavid Rosenthal2:29:35

       Oh, man. So if I'm an insurer, I'm like: Great, I'm gonna offload all that onto Medicare. [chuckles]

    9. BGBen Gilbert2:29:40

       Exactly. The insurers are not really holding the bag for this class, you know, these chronic conditions. This is the crux of the incentive problem in our healthcare system. There is just a mismatch in time horizon. You are invested in your own health for your whole life, but your insurance carrier is not.

    10. DRDavid Rosenthal2:29:58

        They're invested in your health for your plan life with them. [chuckles]

    11. BGBen Gilbert2:30:03

        Exactly. So what is the exception? The exception is if your carrier is the US government. So let's talk about Medicare, and Medicaid is a whole different discussion that involves states and is unbelievably fragmented, so we'll just not actually talk about it right now. But let's talk about Medicare. So Medicare is through the US federal government. It is a health insurance for people who are over sixty-five, basically. The US federal government funds that plan with taxpayer dollars, and so a while back, which is actually not that long ago, just like twenty years ago, Medicare did not cover prescription drugs at all. Medicare Part D was passed into law in two thousand and three and took effect in two thousand and six. It allowed Medicare to cover drugs, not just hospital and doctor visits, which was Part A and Part B. So today, Part D, interestingly enough, is legally prohibited from paying for weight loss, and it is specifically called out that it is legally prohibited. There have been efforts to change this, but there was a bill introduced in twenty thirteen that basically has never been passed to try to get through.

    12. DRDavid Rosenthal2:31:07

        Interesting. Do you know if this was a result of the Fen-Phen debacle?

    13. BGBen Gilbert2:31:10

        That's part of it, but I think a lot of it is really just this stigma of like: Well, you really should be taking care of that yourself. You really should be making lifestyle changes.

    14. DRDavid Rosenthal2:31:19

        Yeah, I could see the argument of, like, why is the whole taxpayer base covering, you know, people who should just be exercising more?

    15. BGBen Gilbert2:31:26

        Yeah.

    16. DRDavid Rosenthal2:31:26

        Even though, like, it's definitely been proven that that is not the case, [chuckles] it's not their fault.

    17. BGBen Gilbert2:31:31

        Totally. The Wall Street Journal has this great quote, "The scientific foundation for treating obesity as a disease rather than a lifestyle problem was solidified in the mid-1990s when researchers discovered that fat tissues release proteins that act as hunger and fullness signals to the brain. This system is out of balance in people with obesity, making it more difficult for them to lose weight. And for those who do lose weight, there are biological mechanisms making it hard to keep it off." So what is so interesting about [chuckles] Medicare is that we will all end up on it one day when we retire and we get off of our private insurance. So it does mean the government is left holding the bag with our health for the long term. So there are really two parties with aligned interests for us to stay healthy: ourselves and Uncle Sam. And for us, it's actually quite hard to look out for long-term interests 'cause the feedback loop is too long. So, like, I go out and drink, even though I'm gonna have a hangover the next morning, and that's only a twelve-hour feedback loop. Like, lots of times you make long-term bad decisions. So the question is: Can Uncle Sam fix that problem in some way? Well, it is far too early to say whether these recent GLP-1s are actually miracle drugs that massively reduce the complications later in life. And David, you mentioned there's research being done to figure out it might reduce heart attacks meaningfully, and strokes and liver and kidney disease. But if all of these things turn out to be the case, the American taxpayer has a huge benefit in investing early to keep all of our healthcare bills down later in life.

    18. DRDavid Rosenthal2:32:57

        Yep.

    19. BGBen Gilbert2:32:58

        So I don't have a specific proposal. I'm not saying the government should pay for every single person in the country to be on Ozempic. We'll have to see where the studies kinda net out on the benefits of these long-term things.... and taking the sort of moral thing aside of like, does everyone deserve a miracle drug if it exists, even if there is no economics around it? It might just be ROI positive for Medicare to do this if everyone's gonna need knee replacements, and hip replacements, and diabetes treatment, and amputations, and cardiovascular interventions.

    20. DRDavid Rosenthal2:33:32

        Right. That is kind of the crux of the, uh, broader societal debate and issue here is obesity leads to such a huge amount of comorbidities and disease and health problems and issues, and, you know, that's even just talking about the medical system, let alone everything outside of the medical system that it leads to. And is it worth a certain amount of both risk in terms of the drugs and cost and tax on society to save those expenses later? That's the question here. [chuckles]

    21. BGBen Gilbert2:34:05

        Right. So last thing to say here, payers are scared, and rightly scared, of how much it will cost them in the short term if they do start covering these drugs. Forty percent, as we keep saying, of the population today is obese, and the list price of these drugs is over twelve thousand dollars per person per year. So insurance companies, employers, Medicare, they literally don't have the budget right now to fund all the demand for these drugs. So even if we had all the supply... So there's a lot of, uh, intentional slow rolling and campaigning to try to get people to look at other interventions first before these drugs, given how colossally expensive it would be right away.

    22. DRDavid Rosenthal2:34:44

        Yep. Which might be a good time to talk about Eli Lilly and other companies out there that are also bringing GLP-1 drugs to market.

    23. BGBen Gilbert2:34:52

        Yes, please tell me about tirzepatide.

    24. DRDavid Rosenthal2:34:55

        [laughing] Yeah. So obviously, other big pharma companies have not just been completely ignoring this incredible development/cash gusher that has emerged in Novo Nordisk land. Eli Lilly now has a GLP-1 diabetes approved treatment on the market under the diabetes brand name Mounjaro. That seems to be as, if not more effective, as semaglutide in terms of weight loss when used for obesity.

    25. BGBen Gilbert2:35:26

        And tirzepatide is basically the same. It's a GLP-1 receptor agonist, but it is also a GIP, which they're basically bundling two hormones together that act in concert to be certainly a little bit more effective on weight loss from the early trial data, but also potentially more effective on helping your body produce insulin as well.

    26. DRDavid Rosenthal2:35:45

        So that's showing great promise. It was approved in the US for diabetes treatment in May 2022, and approval just came recently in November 2023 for official FDA-sanctioned weight loss use case under the marketing name Zepbound, so look for that in 2024. What this really shows, though, between Eli Lilly and Novo and other companies that are almost certainly gonna get into the GLP-1 business, I think this is gonna be like insulin all over again, where there's just gonna be a series of product improvements, and companies will drive innovation and increase supply. I mean, the demand is so huge out there that Mounjaro can be a huge hit. Ozempic and Wegovy will continue to be huge hits. Other companies getting into the game will be huge hits. Novo has next generation GLP-1 drugs in the pipeline themselves. CagriSema is the big one that they're currently working on that they think will be as good, if not better, than what Eli Lilly has with tirzepatide. So I think we're basically just assuming that everything continues to be proven safe in the long run. We're kicking off a new super cycle here in pharma development around these compounds, just like played out with insulin over the last century.

    27. BGBen Gilbert2:37:03

        Yep, and it really also just goes to show, like, it was time. Multiple researchers arrived at similar ideas concurrently, which we see over and over again in the world. Uber and Lyft is sort of our modern canonical example. Cellular connectivity, plus GPS, plus iPhone sort of made it possible to do something for the first time. Multiple parties were arriving at the same time to do that, and I think science had sort of just arrived at a place where multiple parties could develop similar things side by side. And so now there's certainly a catch-up race among other pharmaceutical companies who weren't doing this to now try to get into it and see if they can compete.

    28. DRDavid Rosenthal2:37:39

        Totally.

    29. BGBen Gilbert2:37:40

        Other things to know about these GLP-1 drugs today: For diabetes, I try to basically figure out from asking around, what are people actually paying for this? Like, what are most people actually paying? 'Cause list prices of drugs, as we discussed earlier, is stupid.

    30. DRDavid Rosenthal2:37:56

        [laughing] At least in the US, yeah.
14. 2:44:51 – 2:57:58

    Strategy teardown: Seven Powers, insulin’s collapse, and the broader healthcare value debate

    1. BGBen Gilbert2:44:51

       All right, should we get into power? We're kinda there anyway. We're kind of in analysis land here.

    2. DRDavid Rosenthal2:44:55

       Yeah, let's talk power. And, uh, for folks who are new to the show, this is borrowed from our great friend Hamilton Helmer and his wonderful book, Seven Powers, where he talks about the means by which a company can achieve persistent, differential, positive returns versus their competitors in an industry.

    3. BGBen Gilbert2:45:13

       ... Yeah, or put another way, how to be more profitable than their closest competitor and do so sustainably. So the seven powers are counter positioning, scale economies, switching costs, network economies, process power, branding, and cornered resource. So the first thing I wanna say is, we are in the pharma industry, and so the one that has a blinking red light around it is cornered resource.

    4. DRDavid Rosenthal2:45:42

       Yes, this is a patent-driven industry. [chuckles]

    5. BGBen Gilbert2:45:45

       Yes. Novo Nordisk has the patent on semaglutide until twenty thirty-two, and this is an industry where when you have the patent and you are able to make an N of one drug, and, you know, we're not quite seeing an N of one drug here, but it's an N of two drug, you get the profits. And frankly, the crazy thing is when you look at some of the analysis, the profits evaporate within two years of your patent going away. Now, that was from the previous era before biologics, so now that things are harder to copy because the molecules themselves are more complex, and they require growing living tissue-

    6. DRDavid Rosenthal2:46:24

       More engineering.

    7. BGBen Gilbert2:46:25

       Yeah, that would fall more under process power and frankly, scale economies, because it requires more capital. But right now, like historically, pharma is a patent-driven, cornered resource industry.

    8. DRDavid Rosenthal2:46:38

       Yep. I think how this GLP-1 kind of super cycle is gonna play out if it continues, and what's interesting about the insulin history and the analog to that, it's looking like it's going to be like this ever-stacking waves of patentable innovation and product innovation happening here. So like, yes, the semaglutide patent will expire in twenty thirty-two, but if CagriSema, their new kind of next generation GLP-1 product, shows the promise that they think it'll have, then that'll be a new patent cycle starting then, and then they'll develop the next generation, and it'll play out again just like insulin. But yes, absolutely, cornered resource, for sure.

    9. BGBen Gilbert2:47:23

       Yep. The patents aren't just on the molecules. They also patent delivery mechanisms, and so they keep changing delivery mechanisms. You basically have the scenario where doctors don't really wanna prescribe the old thing, and so when you introduce a new novel form of a pen, oftentimes doctors will say, "Well, that's the thing we need to be prescribing now." And so there's like a brand that gets built around the most current thing that's patented, even if it's not that much better than the old thing. And, you know, there's a lot of people in pharma that are gonna get mad at me for that characterization, but in addition to patenting molecules, delivery mechanisms also provide defensibility.

    10. DRDavid Rosenthal2:48:01

        Yep. Yep, yep.

    11. BGBen Gilbert2:48:02

        One question I had was, there might be, like, contractual things that entrench relationships, too. Like, when you get really big, and this would be a scale economy, are there contractual relationships with formularies that sort of entrench you and make it so that even if someone else comes out with something similar to treat any given condition, and your patent isn't defending you because it's a different molecule, well, sorry, you've locked up a distribution channel with the PBM and getting on the formulary in such a way that, like, good luck to anyone else?

    12. DRDavid Rosenthal2:48:37

        Yep. I think that falls into scale economies-

    13. BGBen Gilbert2:48:39

        Yeah.

    14. DRDavid Rosenthal2:48:39

        -which for sure also apply here. [chuckles]

    15. BGBen Gilbert2:48:42

        Yep.

    16. DRDavid Rosenthal2:48:42

        I think really on three sides: on the R&D and research side, 'cause that is incredibly capital intensive.

    17. BGBen Gilbert2:48:48

        Two point three billion dollars a drug.

    18. DRDavid Rosenthal2:48:50

        Yep. The production side, as we've talked about for much of the episode, and then also here on the go-to-market side. You can't just, you know, waltz into these markets.

    19. BGBen Gilbert2:49:00

        Right. And the gigantic amount of R&D, it literally is two point three billion dollars to bring a drug to market on average. You need to make a lot of profit dollars on any given drug to benefit. You don't necessarily need scale of patients, but you do need scale of dollars in order to outrun the fixed costs of R&D.

    20. DRDavid Rosenthal2:49:18

        Yep. I think we can say there's no network economies here [chuckles] pretty safely, and I think we can probably also say there's no branding, although Ozempic has become such a buzzword.

    21. BGBen Gilbert2:49:30

        Oh, I think there actually is. Normally, there isn't, but that's one of the breakout things about Ozempic, is there actually is brand power. The first time I heard about Mounjaro was eighteen months after I'd heard about Ozempic, and I was like: Oh, it must be some kind of knockoff. You know, it's my first time studying pharma. I was like: Oh, it's probably something crappy that's trying to ride this same wave but isn't actually the breakthrough molecule. And, like, the studies show Mounjaro helps you lose more weight and has a very similar mechanism, plus another mechanism that together work... But, like, most people don't know that. Most people know, I read on the cover of The New York Times that Ozempic is a breakthrough, and I heard about it at the Oscars because a joke was made on stage.

    22. DRDavid Rosenthal2:50:11

        Jimmy Kimmel was talking about it, yeah.

    23. BGBen Gilbert2:50:13

        Yes. I think for the first time, and it's happened a little bit before, but for the biggest time in a while, Ozempic has actual brand power.

    24. DRDavid Rosenthal2:50:21

        Yeah. I mean, there's like Tylenol, et cetera, but like, yeah, it's entering that category. An admission on that front, too: when we very first started talking about potentially doing this episode a number of months ago, I thought the same thing you did about Mounjaro, about Wegovy. I was like-

    25. BGBen Gilbert2:50:39

        Oh, that's so funny!

    26. DRDavid Rosenthal2:50:40

        ... "Oh, that must be a crappy knockoff," and did a cursory amount of research, and I was like, "Holy crap, it's the same drug from the same [chuckles] company. Like, I'm an idiot."

    27. BGBen Gilbert2:50:46

        It's, like, literally the same thing.

    28. DRDavid Rosenthal2:50:48

        It's literally the same thing.

    29. BGBen Gilbert2:50:49

        Often in the same doses. It's technically a higher dosage, but you can get many different dosage levels of either drug.

    30. DRDavid Rosenthal2:50:56

        Right. And not only that, it is the one that is supposed to be for weight loss. [chuckles] But you're right, Ozempic has become this brand name.

Episode duration: 3:45:25