Lessons from Novo Nordisk on the stampede for obesity drugs | The Economist 10/03/23, 4:06 PM

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Business | Schumpeter

Lessons from Novo

Nordisk on the
stampede for obesity
drugs
Dos and don’ts on how to handle a gold rush

Mar 2nd 2023 Share

P aul ingram, who manages a ranch in rural Texas, is

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Lessons from Novo Nordisk on the stampede for obesity drugs | The Economist 10/03/23, 4:06 PM

P aul ingram, who manages a ranch in rural Texas, is

not the type you would normally associate with a
weight-loss fad. But a year ago he !nally got fed up with

lugging his 320lb (145kg) frame around all day in the

heat. His family has a history of heart disease. As a result
of covid-19, he had become painfully aware of the risks of
obesity. His e"orts to lose weight through diet and
exercise had gone nowhere. “I needed some help.”

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So his doctor, a family friend, suggested he use an

injectable drug from Novo Nordisk, a Danish drugmaker,
that is approved for type-2 diabetes but, as a fringe
bene!t, helps with weight loss, too. To start o", the price,
at about $1,000 a month, was out of Mr Ingram’s reach.
Because he didn’t su"er from diabetes, his insurer
wouldn’t cover it. Then he discovered an online
Canadian pharmacy that shipped it to him for $350 a
month. Since using it, he has shed 60lb. When he goes to
the gym and picks up two 30lb barbells, he thinks, “I used
to carry this much more weight around on me all day
long.” It’s life-changing, he reckons—he eats less,
exercises more and his doctor is “tickled to death”. “It
blows me away that insurers don’t want to pay for it.”

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Lessons from Novo Nordisk on the stampede for obesity drugs | The Economist 10/03/23, 4:06 PM

The drug he uses, Ozempic, is now a meme. But it is

about more than just “skinny pen” jabs for starlets. In
America alone, 110m people like Mr Ingram, many on low
incomes, su"er from obesity. They need help getting into
shape. Novo Nordisk is their new port of call. It has been
a wild ride. Following Ozempic’s serendipitous success,
the !rm’s newest potential blockbuster, Wegovy, was the
!rst drug in years that America’s Food and Drug
Administration (fda) approved for obesity. This has
meant some insurers cover it. For the past two years the
company, which turns 100 in 2023, has traded like a
growth stock, doubling in value to $326bn on hopes that
overlapping diabetes and obesity drugs could become the
biggest-selling class of pharmaceuticals ever. It is
forecast to divide most of the market with Eli Lilly, an
American !rm, whose diabetes drug, Mounjaro, may win
fda approval for obesity this year. It is a race like that for
the covid-19 vaccine. The combined market
capitalisation of Novo Nordisk and Eli Lilly easily
eclipses that of AstraZeneca, Moderna and P!zer put
together.
In the eyes of some pundits, Novo has #ubbed its lead. It
underestimated demand, mishandled supply and let this
slow down its ambitions to roll out Wegovy in Europe. Its
boss, Lars Jorgensen, admits to some mistakes. But on
balance, Novo deserves credit. A hesitant response to an
unprecedented surge in demand is not the gravest of
shortcomings. In the pandemic many !rms, from e-
merchants and carmakers to gunsmiths, struggled with
demand shocks. Rather than lament Novo’s performance,
learn from it. Its e"orts to tackle obesity provide some
golden rules on how to cope in the midst of a boom.

The !rst thing to remember is knowing your onions.

Analysts have long complained that Novo’s focus on
diabetes-related illnesses make it the least diversi!ed big
pharma !rm in Europe. But that is orthodoxy gone mad.
One of the beauties of the !rm, whose founders !rst
made insulin in Denmark in the 1920s, is specialisation.
In 1990 Michael Porter, a management guru, called
Denmark’s insulin-exporting prowess one of its big
competitive advantages. That industrial focus gave Novo
a head start on obesity. For decades it toiled in the
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Lessons from Novo Nordisk on the stampede for obesity drugs | The Economist 10/03/23, 4:06 PM

a head start on obesity. For decades it toiled in the

wilderness, while its rivals concluded obesity drugs were
neither e"ective nor safe. But once it discovered that the
glp-1 medicines it used for diabetes, if made longer
acting, could lead to at least 15% weight loss, it doubled
down. Besides obesity, it hopes to use glp-1-related drugs
to help treat heart disease and other related illnesses. Its
success is testimony to the virtue of innovating in
adjacent, highly specialised businesses, rather than
creating something from scratch.

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The second lesson is: know your real market. Novo was at
!rst caught out because demand for obesity drugs spiked
far sooner than that for its other drugs typically do,
quickly depleting inventories. That deprived some
patients of badly needed drugs, as in#uencers were using
TikTok and other social-media apps to pep up demand.
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Lessons from Novo Nordisk on the stampede for obesity drugs | The Economist 10/03/23, 4:06 PM

TikTok and other social-media apps to pep up demand.

This served as a reminder of the dangerous distractions
of the hype cycle. So now the !rm is going back to basics.

It is focusing on customers with a body-mass index (bmi)

over 30, like Mr Ingram. It is working with doctors to
ensure that they prescribe the drug correctly. And it has
set about convincing insurers and health authorities to
pay for obesity treatments.
Third, keep control of capacity. As demand surged, one of
the !lling sites Novo had contracted in Europe
malfunctioned. Mr Jorgensen says the situation is
improving. It already has two more !lling sites coming
on stream, and in 2023 it intends to double capital
spending for the second year in a row. But it should not
overreact. Companies as clever as Amazon learned
during the pandemic that excessive faith in a “new
normal” leads to overcapacity. Many, including the e-
commerce titan, have since shed people and property.
The factories in America and Denmark where Novo
makes the active ingredients for its medicines take !ve
years to get up and running, at a cost of up to $2.5bn.
That gives it a generous head start. Even with the obesity
market’s huge promise, it is better to advance steadily
than to rush.

Skinny pens, fat pro!ts

Last, plan for the long haul. Pro!ts are booming, which
delights investors. But many of those who need obesity
drugs are unable to a"ord them. According to a survey by
Je"eries, an investment bank, Americans who earn less
than $15,000 a year have the highest bmis. Novo has
every right to reap rewards for its innovations. Insurers
may cover most of the costs. But to avoid a political
backlash, it is important that those who need them most
can access them. In order for obesity drugs to extend to
other diseases, such as cardiovascular ones, it will be
crucial to maintain goodwill. Like diabetes, obesity may
be the start of another 100-year business. 7

Read more from Schumpeter, our columnist on

global business:
It’s time for Alphabet to spin o! YouTube (Feb 23rd)
AI-wielding tech "rms are giving a new shape to modern
warfare (Feb 16th)
What would Joseph Schumpeter have made of Apple? (Feb
9th)
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Lessons from Novo Nordisk on the stampede for obesity drugs | The Economist 10/03/23, 4:06 PM

9th)

This article appeared in the Business section of the print edition under the
headline "De Novo"

Business
March 4th 2023

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winter

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→ The uses and abuses of hype

→ Lessons from Novo Nordisk on the stampede for obesity drugs

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