STRxATEGY

Big Pharma, bigger strategy. A blog following Novo Nordisk and strategic concepts in the context of Big Pharma.

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Strategic Leadership

Novo Nordisk leaders have a strong approach for the three activities leaders are engaged in: setting direction, designing the organization, and nurturing a culture of excellence and ethical behavior. The company has a clear mission, and is focused on creating medicines for those living with chronic illnesses like diabetes. The company also has a clear culture set forth by the Novo Nordisk Way, which describes a commitment to openness, accountability and respect.

Novo Nordisk takes an interest in the development of their employees, from hire through retirements. A recent article followed a Novo Nordisk Canada employee approaching retirement. She described the investment the company made in both coaching her and helping her to coach others. Angie Ng, senior director of HR for Novo Nordisk Canada, says this aligns with the companies focus on employee experience. Organizations that take an interest in their employees, and treat their employees as individuals, are likely to enjoy higher employee performance and retention rates - making this a solid strategic move.

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Organizational Design and Strategic Control

Novo Nordisk is a publically traded company. Shareholders exercise their rights at the general meetings which adopt the companies Articles of Association and elects the Board of Directors. A two-tier managment structure has been adopted consisting of a Board of Directors and Executive managements. There are 13 members of the Board of Directors, 9 are elected by shareholders and the remaining 4 are elected by the Danish-based ecmployees. There are 10 members of execeutive management.

Below the executive managmenet level, the organization appears to operate using a functional or matrix model. There are a variety of executive commitee divisions such as Research Portfolio and Product Development. There is some level of additional regional division as there are R&D centers and production sites in a variety of countries, and an Executive Vice President for North American Operations.

Regarding strategic control, Novo Nordisk takes a contemporary approach with a focus on agility in the competitive pharmacuetical market. The coproration puts considerable focus on R&D to maintain a robust and diverse portfolio. Copmany culture drives strategic control through the Novo Nordisk Way. They describe this as “a promise we make to one another and to stakeholders”.

The Novo Nordisk Way

https://www.novonordisk.com/content/dam/nncorp/global/en/investors/irmaterial/annual_report/2023/novo-nordisk-corporate-governance-report-2022.pdf

https://www.novonordisk.com/about/corporate-governance.html

https://www.novonordisk.com/about/who-we-are.html

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Novo Nordisk and Adaptive Ventures in Chronic Weight Management

Although not a startup or pioneering new venture, Novo Nordisk continues to leverage its existing resources and knowledge to enter new markets with adaptive ventures. Their most recent adaptive ventures have been focused on medications for chronic weight management.

Novo Nordisk's first FDA approval for semaglutide was granted for inject-able Ozempic for the treatment of Type 2 Diabetes in 2017. Further data collected on the medication would lead to submission of new data and ultimately the approval of Wegovy, another form of inject-able semaglutide, for the treatment of chronic weight management. Wegovy was approved by the FDA in 2021, and was the first weight management drug approved since 2014.

Further adaptive ventures on the horizon as Novo Nordisk studies an oral version of the medication. Only time will tell how competitive these new medications will be as other pharmaceutical companies launch their own weight management medications.

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Novo Nordisk's approach to international business

Healthcare is a global business, and drug manufactures typically operate in the global market. While there can be complications related to different regulations, patent protection in many countries is typically pursued and production may be dispersed as well.

Novo Nordisk is headquartered in Denmark, but has production centers in 9 countries, and R&D centers in 5 countries. Capturing most of the global market, Novo Nordisk provides access to their products in 170 countries. Novo Nordisk appears to take more of a transnational approach to optimize performance across markets.

While no aspect of Novo Nordisk's activities are fully centralized, strategic central locations such as a new facility in Denmark dedicated to late-phase chronic disease products are used when most beneficial. Decentralized activities are also important. For example, the Indian branch of the company recently celebrated the 100th global anniversary. This branch of the company capitalized on tech advancements in India and encourages direct community engagement for reverse innovation.

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More diversification on the horizon for Novo Nordisk

Corporate strategy involves ways to expand and diversify the business to create value. This may occur through mergers, acquisitions, and/or internal developments. While these strategies aren't without pitfalls, related or unrelated diversification can enhance shareholder value.

In early June, Novo Nordisk announced exclusive negotiations to acquire a controlling stake in BIOCORP. They would accomplish this purchasing stock from BIO JAG valued at approximately 154 million euros. Last week, BIOCORP followed up with an announcement that an agreement had been reached with Novo Nordisk obtaining 43.5% of its share capital and 62.2% of its voting rights. Novo Nordisk will now file a mandatory tender offer for remaining shares with the French Financial Market Authority.

So who's BIOCORP, and why is Novo Nordisk investing in them? Essentially, they are a company that develops and manufacturers devices and medication delivery systems. Their pharmaceutical device line includes delivery devices under development for both patient and pharmacy or manufacturer use. Their connected device line includes Bluetooth enabled technologies to track medication utilization technique and adherence data.

Acquiring BIOCORP is an "related" acquisition for Novo Nordisk. While you may primarily think of Novo Nordisk as a pharmaceutical manufacturer, they are also involved in the development and sale of delivery devices including injection pens for the medication they develop and the NovoPen smart devices. Acquiring BIOCORP comes with acquiring their innovations and existing R&D, and may create value by accelerating Novo Nordisk's growth in the medical device space.

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How does Novo Nordisk stay competitive?

Any firm will only continue to be successful so long as it has a competitive advantage in the marketplace. A competitive advantage may be obtained from the cost position, value perceived by the customer, or the market served. There are thee generic strategies: cost leadership, differentiation, and focus.

Novo Nordisk achieves its competitive advantage through a focus strategy. The company has a narrow focus on serious chronic disease, primarily developing medications for the treatment of diabetes, obesity, hemophilia, and growth disorders. A sharp focus allows Novo Nordisk to concentrate R&D spending in particular areas, and maintain competitive advantage. While this is a short list of disease states, it's a large market as many people are obese or diabetic. Novo Nordisk is currently the industry leader in both diabetes and obesity care.

However, his lack of diversification poses potential challenges down the line. Novo Nordisk's revenue has increased 85% over the last decade, accompanying key advancements in diabetes and obesity care. If growth in these areas slows, Novo Nordisks overall growth with slow as well. Likewise, market entry by other companies into these areas poses a significant risk.

Novo Nordisk is ware of these risks, and is laying the foundation to ensure sustainability. While semaglutide (Ozempiv, Wegovy) remains the company's blockbuster, Novo Nordisk's 2022 strategy highlighted a plan to grow beyond this drug as a key priority.

Dess, G., Eisner, A., Lumpkin, G. T., & McNamara, G. (n.d.). Strategic Management: Creating Competitive Advantages (11th ed.) [Review of Strategic Management: Creating Competitive Advantages]. McGraw Hill LLC.

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Novo Nordisk and the Semaglutide Shortage

Novo Nordisk's blockbuster diabetes and weight-loss drug semaglutide has been on shortage since last year. While Novo Nordisk currently only address Wegovy, and not Ozempic, on their supply updates page, both are still difficult to obtain. The updates page attributes this shortage to demand outpacing the current supply capacity, and this demand increase is connected to increased online popularity of the drug.

This challenge points to issues in the value chain for Novo Nordisk. Unable to scale up production appropriately, the shortage likely resulted from inbound logistic issues related to sourcing materials and operational efficiency for production of the drug. Despite these challenges, Ozempic and Wegovy remained competitive in the market due to their value and difficulty in imitation and substitution.

Recognizing and protecting intellectual assets is vital for pharmaceutical companies. Intellectual property protections such as patent law protect Novo Nordisk from other entities coming in to make their product. However, some specialized pharmacies started compounding semaglutide products for sale during the shortage. In a statement from the FDA, it was clarified that while compounding of commercially available products is permitted during a shortage, the FDA is not aware of the active ingredients being available for legal purchase by these compounders. Additionally, these compounded products have occasionally been associated with adverse events. This is a concern not only of lost income for Novo Nordisk but also for potential damage to their brand image.

So what can Novo Nordisk do? With dramatically increased public awareness of and demand for weight loss medications, they should ensure the stability of their operation to meet increasing demand. Additionally, patent protections should be utilized to remove compounded competitors from the market after semaglutide is removed from the FDA drug shortage list.

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Should Novo Nordisk be concerned about Mounjaro?

Eli Lilly's Mounjaro (tirzepatide) is an incretin mimetic and direct competitor to Novo Nordisk's leading product - Semaglutide (Ozempic for diabetes and Wegovy for weight loss). Recent studies are promising for Mounjaro to receive an FDA approval for weight loss, maybe even by the end of this year.

Strategic decision making requires a strong environmental awareness in order to forecast appropriately. Firms must conduct environmental scanning to spot key trends, environmental monitoring to tack the evolution of these trends, and collect competitive intelligence to understand the competitive market they operate within.

In examining Novo Nordisk's position in the market, the looming approval of competitive drugs for Obesity falls into both environmental scanning and competitive intelligence. Research and drug development for obesity is on the rise, with incretin mimetics being a key target. Eli Lilly is a major competing drug company, and Novo Nordisk is likely watching them closely.

So should Novo Nordisk be concerned about FDA approval of Mounjaro for weight less? In a recent interview, the CEO of Novo Nordisk said no. The market for obesity medications is so large that Jorgensen expressed there is room in the space for additional market entry. Compared to other medications, where companies may convince providers to prescribe, Ozempic/Wegovy enjoys a unique popularity in which patients are asking to have it prescribed.

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Key Attributes of Strategic Management

Strategy is at the heart of any successful business, and Novo Nordisk is no exception.

In Strategic Management, Dess and colleagues state:

Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

The text goes on to define four key attributes of strategic management:

Directs the organization towards goals and objectives

Includes multiple stakeholders in decision making

Incorporates short-term and long-term perspectives

Recognizes trade-offs between efficiency and effectiveness

The first attribute highlights the importance of organizational goals and objectives. These goals define how the business is moved forward, and are unique to each organization.

Dess, G., Eisner, A., Lumpkin, G. T., & McNamara, G. (n.d.). Strategic Management: Creating Competitive Advantages (11th ed.) [Review of Strategic Management: Creating Competitive Advantages]. McGraw Hill LLC.

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Mission, Vision, and Strategy are closely related but ultimately separate topics. An organization's vision is general and focused on the long-term, while it's strategic objectives are specific and on a shorter timeline.

Novo Nordisk states that their purpose is "drive change to defeat diabetes and other serious chronic diseases such as obesity, and rare blood and rare endocrine diseases".

How does this tie into their strategic objectives?

In their 2022 Corporate Strategy, Novo Nordisk planned to further innovate in diabetes treatment, develop a stronger portfolio for obesity treatment, and continue to strengthen the Rare disease pipeline. Financial goals included sales growth and increased operational efficiency. These strategic objectives are directly tied to the company's stated purpose.

These goals seem to have served the company well. Last year, Novo Nordisk doubled sales target for obesity drugs. They continue to focus heavily on this area, with new research emerging to support a weight loss indication for their oral semaglutide, the active ingredient in Wegovy.

[mgmt7160-summer23]

Key Attributes of Strategic Management

Strategy is at the heart of any successful business, and Novo Nordisk is no exception.

In Strategic Management, Dess and colleagues state:

Strategic management consists of the analyses, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.

The text goes on to define four key attributes of strategic management:

Directs the organization towards goals and objectives

Includes multiple stakeholders in decision making

Incorporates short-term and long-term perspectives

Recognizes trade-offs between efficiency and effectiveness

The first attribute highlights the importance of organizational goals and objectives. These goals define how the business is moved forward, and are unique to each organization.

Dess, G., Eisner, A., Lumpkin, G. T., & McNamara, G. (n.d.). Strategic Management: Creating Competitive Advantages (11th ed.) [Review of Strategic Management: Creating Competitive Advantages]. McGraw Hill LLC.