Novo Nordisk (Ozempic)

0:00 Alright, first episode back. Let's see if I can do this sleep deprived. Oh, you and me both, man. Who got the truth? Is it you, is it you, is it you Who got

0:14 No Is it you, is it you, is it you? Let me down Another story on the way Got the truth.

0:25 Welcome to season fourteen, episode one of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Resenthal. And we are your hosts. Today's episode is on the company behind these sensational diabetes and weight loss drugs, Ozempic and WeGovi. The company.

0:44 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.

1:01 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. Nope.

1:15 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.

1:29 And perhaps even more surprising. This pharma giant is unique in that they are owned and controlled by a nonprofit 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 500 million with the disease. Diabetes costs the US alone more than$327 billion a year.

1:54 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 L VMH last year, David. Yeah. It's wild. I mean

2:23 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 Hermes of the Pharma industry. Yeah. So why is today in the early twenty twenties the moment in human history for these new GLP one drugs? The crazy thing is Semeglutide, the molecule in Ozempic and Wigovi, was pioneered back by Novo Nordisk with the first trial in 2008 for type 2 diabetes treatment.

2:56 And it was built on research started in the early 90s. But here we are in twenty twenty three, almost three decades later, talking about it as a weight loss drug that's sort of magically appeared out of nowhere, or that's at least the public perception of it. Incredibly, the fact that GLP one drugs could be used to reduce food intake was 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.

3:27 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. 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.

3:52 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 want to know every time an episode drops, you can sign up at acquired.fm slash 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.

4:18 FM slash slack. And if you want more from David and I, you should check out our second show, ACQ Two. Where we interview founders, investors, and experts, often as follow ups to the topics on these episodes. 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? Well we start

4:41 In nineteen twenty one. Over a hundred years ago. In Toronto, Canada. With the discovery and extraction. of the pancreatic hormone insulin.

4:51 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

5:12 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.

5:25 Along with a chemist and the head of the laboratory there. and assistant medical school dean John McLeod. Now there's A whole bunch of controversy around who actually deserves credit for the discovery of insulin. The historical consensus at this point.

5:43 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 nineteen twenty three Nobel Prize. in physiology or medicine for the discovery of insulin.

5:59 It is banting. And McLeod, who get The award. Not best. This will come back up in a minute.

6:06 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 1 diabetes is. This is the juvenile form of diabetes. only five percent of diabetes sufferers have type one today.

6:25 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.

6:47 And people were so convinced in the late teens and early twenties. That the 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 a couple of years long enough when the treatment did arrive to finally get it.

7:12 I mean we it 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

7:25 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

7:40 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.

7:52 I mean we're just not that many decades after Snake oil salesman, 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 rear view 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

8:16 This was the big breakthrough. Yeah. Alright, so what did Bantic and Best do? So Scientists had known

8:23 Even going back to the eighteen hundreds. Yeah. 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

8:36 what that hormone was, let alone extract it. 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. So by experimenting with dogs and dog pancreases.

9:00 They're able to extract. Something. That comes to be known as insulin. And not only extract it, they then experiment with it and inject it into human

9:11 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

9:25 Recoveries. Yeah. I spent a bunch of time reading this book, Breakthrough by Thea Cooper and Arthur Ainsburg. And they go way into this. Basically, this team was the first one to figure out you could target the pancreatic eyelets 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.

9:52 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? And importantly.

10:06 This new insulin substance, while it is a miracle. It's not. A cure. Injecting patients with it.

10:14 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.

10:30 But it's kinda also just that, like Elise. 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. And you can imagine the incredible

10:46 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.

11:24 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

11:33 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 got to be really careful and potentially even slow down its development. and be really thoughtful about how we distribute it to the world.

12:03 so that nobody takes it and makes too much money. Yeah, Banting and Best and McCloud aren't gonna go You know. Today they would go like start a company, you know, around this. Like that's not gonna happen back then. But

12:14 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.

12:23 Forever. So what the University of Toronto does do Is They licen and development rights. to a large American

12:33 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.

12:46 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. 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. Yeah, wasn't Elizabeth Hughes, one of these famous first patients, the daughter of the Secretary of State?

13:09 Of the US, right? Charles Evans Hughes. Yeah. Yeah. Wow. So

13:15 It's obviously not practical or maybe not ethical, that's g beyond the scope of this podcast to use Dog pancreases for scaling mass production here. But it turns out they're actually Is

13:28 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. Indiana's got a lot of cow farmers and so the Clever, really startup Eli Lilly. I mean the company had been around for a while, but this idea of taking on real RD risk.

13:54 was sort of a new concept. So these sort of startup 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? We'll pay you for those, yeah.

14:12 And it's actually not an easy sale 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 tail. 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

14:36 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 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.

14:57 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 want to 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,

15:18 the brand actually stays ours. 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

15:28 makes them into one of if not the first kind of leading American and international. pharmaceutical company, which it still is to this day. Still Bigger than Nova Nordisk. Yep.

15:39 Although not by too much. Well, much more diverse. but not too much larger by market cap. Okay. So back to this whole Nobel Prize thing.

15:47 Which as we said. was awarded to Banting. And assistant medical school dean John McLeod. Now How did McLeod end up being the guy who shares

15:58 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.

16:10 Of our story. Today. Because the actual nomination I don't know if you knew this, Ben. The actual nomination for that prize.

16:18 was put forth by a previous Nobel Prize winner in physiology or medicine. The nineteen twenty. Nobel Prize winner. From

16:28 Copenhagen? Denmark. A Animal biologist named August Crow. Oh also

16:37 happens to be the founder of Nova Nordisk. Is that how Nobel Prizes work? A previous winner nominates the current nominees or is it just like uh it certainly helps their case if a previous winner 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.

16:58 So the guy who would go on to found Novo Nordisk is the one that nominated banting in McCloud for the Nobel Prize before starting the company. Yeah. Now. Here's the wild thing about

17:09 August Crew. founder of Nova Nordisk. The world's premier. insulin company focused on insulin and diabetes for a hundred years now. World's premier GLP one company.

17:19 He's not a physician. He's not even a human biologist. Yeah, he was an animal biologist, right? 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.

17:35 was a guy named Christian Bor. B O H R That name might sound familiar to some people. Descendant of Nailsbore? Father. What of Niels Bohr?

17:45 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. 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 father. Yeah, right, right, right.

18:10 Okay. So back to August Crewe. How the hell does he end up Going to Toronto, getting involved in all of this, starting, you know, Nova Nordisk. Well, In nineteen twenty. The same summer that he wins the Nobel Prize.

18:25 His wife, Marie Crow, was is diagnosed with diabetes. And this starts weaving together this whole crazy chain of events that leads to Well. North.

18:36 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.

18:48 And Denmark, I kinda suspect has always been pretty progressive relative to the US, but even still, like we're talking about like the nineteen teens. A woman to earn a doctorate in medicine and then be a practicing physician was um Obviously unique.

19:02 Yes. So When she's diagnosed in nineteen twenty and you know But she basically self diagnoses, she knows what's going on. Like she in August, like she knows exactly what this means. Like she's going to die. This is horrible.

19:15 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

19:26 Is a young Copenhagen based physician named Hans Christian Hagadorn. who is widely respected as sort of the best endocrinologist in town, even though he's very young. And

19:37 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. Okay. Early. He puts her on a closely monitored starvation diet.

19:53 And they stabilize it. Enough. Enough after a year or so. No. Back to August. Ordinarily.

20:00 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.

20:18 Until Nineteen twenty two. So in nineteen twenty two, August and Marie set sail for Boston. Which is, by the way, amazing that a type one diabetic has made it sort of this far in life and is

20:30 in the early twenties. doing transatlantic travel. Totally amazing. So August is gonna give a delayed series of lectures here at both Harvard and Yale.

20:41 while they're in Boston at Harvard, They meet with a guy named Elliot 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 Elliot.

20:56 Tells them. about what's going on in Toronto. This is the world that News of the discovery of insulin.

21:06 hadn't really yet reached Europe. And certainly hadn't reached Denmark at this point in time. So it was like a competitive advantage to be a Nobel Prize winner on an international lecture circuit because you got

21:19 better, faster information about Brand new medical advances. Yes. Well and particular, you know, competitive advantage. Like life advantage. Like they're just concerned about

21:28 Marie's life at this point in time. So Elliot. Says You know, I know the guy who

21:35 Runs the lab up there. John McCloud. Let's write him. A letter. And see if while you're in America, you can go up and

21:44 See them and see the labs, see what's happening and maybe get some of this insulin. So August to Murray, right to McCloud. Marie also writes back home to Denmark to Hagadorn and tells him about what's going on and about this discovery of insulin. She suggests in that letter.

22:01 that since Hagadorn is kind of the leading diabetes physician in Denmark, maybe while they're in Toronto, they might be able to secure like some rights her ability to bring insulin back to Denmark. McLeod in Toronto, you know, he gets the letter. He's like, Of course, come on up. You and Marie, both come, stay in my personal home.

22:21 Sadly, unfortunately, Marie falls ill and she can't make the trip up to Toronto. So August goes alone, but he stays with McLeod. observes the insulin production process, sees everything that's happening. They become

22:35 Close and friendly. Most importantly. McCloud. Takes August. To go meet with the

22:43 Insulin committee. And talk about what Marie had suggested to Hagadorn of like, hey, maybe These are the right people. To bring insulin.

22:52 Two. Europe, essentially, but at least to Denmark. Now funnily enough. At this particular point in time. It turns out you actually can't

23:02 Patent. drugs in Denmark. So any blessing or patent licensing from the insulin committee To the crows. And Hagadorn for Denmark is sort of pointless because it's

23:14 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?

23:24 Norway, Sweden, Denmark, you have our official blessing and any rights that you need. And this is pretty similar deal that they cut with Eli Lilly, that was for North America, and they basically gave him the same thing for Scandinavia. 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.

23:45 And by get to work. They go by Cow pancreas is at the local Livestock market in Copenhagen. This is something so you read more about the Novo Nordis 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.

24:04 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. Right. If it's got eyelet, we want it. Yeah. So

24:20 Using the Toronto Method. They get a bunch of Pancreases. They go to

24:27 August Crowe'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.

24:40 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.

24:52 Hidden. Denmark. Hm. So This leaves just one obvious problem, just like insulin in Toronto.

24:59 This is not gonna scale. You know, maybe you could do this to treat Marie, but They want to treat. The whole country, the whole region. Right, this is like a uh

25:08 very real problem for insulin all the way up until like the nineteen eighties. Which is You are scale constrained by the number of dead animal pancreases you can get your hands on. And I found his wild stat. It takes eight thousand pounds of

25:25 of pancreatic glands from twenty three thousand five hundred animals. To make a single pound. of human insulin. Yeah. That's wild.

25:35 to put that in more real numbers. That means that even by nineteen eighty, with all the advances. It took one million animals annually. For thirty thousand diabetes patients. And there are a lot more than thirty thousand diabetes patients in the world in nineteen eighty.

25:52 And we'll talk about who the pioneers were and how we eventually got out of using animals to create insulin in the eighties. Well. That was also the moment in time where type two diabetes really took off. Yes. You're foreshadowing. It's been a 45 year massive issue. But like we basically Could not

26:11 Have continued to use animal based medicine. To treat. diabetes once it really exploded. Damn, we're gonna get to this in like two hours. Sorry. All good.

26:22 So Back to the crows and Hagadoran in. Nineteen twenty two, twenty three, and Copenhagen. They need to scale.

26:29 Production. So They go to the Lovan's Chemiskey Fabric. And

26:36 I need to like majorly apologize to all people out there. I talked to some Danish folks in research for this episode and thank you very much. And and I just I realized in those conversations I need to give up on trying to pronounce things correctly. Stick to French. Oh we'll stick to French, yes. But that translates to English as the lion. Chemical factory.

26:59 And it is owned and run by another man named August. August Congstead. With the K K O N G S T E D. And so they partnered together. And by the summer of nineteen twenty three.

27:12 The very same summer that the Nobel Committee is debating on The award for that year. And of course Crow at this point has nominated His buddy McLeod.

27:22 Along with panting. By that summer of nineteen twenty three, the combo of the Crows and Hagadorn And the Lion Chemical Factory have produced Enough insulin. That they can complete trials with eight

27:34 human patience with great success. There in Copenhagen. At this point. H C Hagedorn, who remember was originally Marie's physician to help treat her diabetes. He resigns his medical post.

27:47 and decides that he's gonna focus full time. on this project. So the founders are Pagador and and August and Marie Crow. And

27:56 Congstead from the Lion Chemical Factory. These are the founders of the project, but there's no Novo Nordisk yet. And we should say around this time, I believe Eli Lilly was further along in terms of the volume that they had developed. I think they were making Oh yeah. Like hundreds of vials a week of usable insulin. Absolutely. Eli Lilly had insulin on the American market.

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30:40 And just tell'em that Ben and David sent you. Okay, so David, the founding of Nordisk. How does it happen? So

30:49 The Lion Chemical Factory at this point has established a new production line for Anselin. But it's unclear. Do they own this production line? Do the Crows, does Hagadorn? Is the University of Toronto involved?

31:03 Crow and Hagedorn are sort of Consulting on it. When Hagadorn makes this decision to go full time What actually happens is he becomes an employee. of Lion Chemical.

31:14 Which isn't really what he wants. August Crowe 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

31:28 You know, Lion Chemical Factory, they use the brand name. And That would continue to be Nordisk's insulin brand name for the next Sixty years, I think. Wow. Pretty quickly.

31:40 Demand is just off the charts. And They are like we talked about, essentially the first mover in continental Europe. So there's a

31:49 Pretty enormous opportunity here. So in nineteen twenty four Crowd. Hagadorn. And Congstead, who owns Lion Chemical.

31:57 They all come to an agreement. They're gonna set up a new independent and self owning institution. To produce. And distribute this insulin.

32:07 Throughout Europe. Yeah, what does that mean? Still not a company. 'Cause other than Kongstead from Lion Chemical

32:14 Crow and even Hagadorn at this point. They're not particularly commercially minded. No, it's a biologist and a physician. Yes. So what they do

32:25 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.

32:38 By a foundation. That they also set up. And the three of them. are gonna be board members of this foundation and Hagadorn is gonna run it. Day to day.

32:47 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

33:03 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. And Foreshadowing there is a moment. much later in history where

33:20 Absent the control of this foundation. Novo Nordisk would have ceased to exist. It is only because of this structure. That

33:30 Novo Nordis survived. And that We have GLP ones and everything we have today. fascinating. By the way, this is not that uncommon in Danish companies. Lego Same structure. Mayersk, the shipping company, same structure.

33:43 Well I dug into this a little bit. So Yes, this is a very common structure in Denmark. Mostly for tax reasons.

33:51 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.

34:12 with a dual mission. So they give it Two missions. The first mission. is to produce insulin. And sell it.

34:20 A At cost. In Scandinavia in the original kind of territory mandate. In order to maximize access and kind of humanitarian and public health benefit. B though.

34:33 Export it. Elsewhere in Europe and around the world. At market prices. And use the profit. From those exports.

34:43 To fund further Diabetes research and development. So No profits allowed. In Scandinavia.

34:52 Profits are allowed from export activities. 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

35:06 supporting diabetes patients in Scandinavia. Fascinating. I did not know that. Totally fasting. 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. Yeah, there's some caveats that I'll get to when we get to today. Yes.

35:21 The operating company is now publicly traded. But still that foundation control seventy seven percent of the voting shares of Novo Nordisk and twenty eight percent of the economic shares. Yeah. So no shareholder activism in this company, or at least no one's effective in doing so. Yes.

35:38 So The name that they choose for this new institution or really dual institution. Is fittingly. Nordisk insulin.

35:48 Which Nordisk and Danish means. Nordic. Excellent. is the insulin manufacturer for the Nordics. Very creative. Very creative.

35:56 So um You know, you're listening here, you're probably like, Okay, that's Nordisk. What's the novovo 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,

36:11 Our two brothers. Harold and Torvald Peterson. And the Peterson's You gotta remember the time we're in. They're sort of like prototypical nineteen teens, nineteen twenties kind of engineers and tinkerers.

36:24 We're not that far removed from like the Wright brothers and Henry Ford and that kind of stuff here. They're like kind of cast from that mold. So the older brother, Harold He had been working In August Crowe's lab.

36:38 Doing all the mechanical engineering Stuff. The experiments like you know you need to build Devices and contraptions and

36:48 set up experiments. And so Harold was in charge of doing that. Once the insulin project gets going. Harold 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.

37:07 When Lion Chemical gets involved in the spinning up mass production. Harold goes to Hagadorn. And August and Constantin's Hey.

37:17 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. Torvald. 'Cause not only is Torvald a seasoned factory operations manager who's currently running a large soy factory.

37:31 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

37:43 There's just one problem. Haganorn thinks in charge. And Torvald, who's just been hired, thinks Hey, I know what I'm doing here.

37:52 I'm in charge. Like Hagadorn, you're this pompous physician. Like what do you know about Running a factory. So this schism happens like in the first year of Nordisk's existence. Yes. In the first six months. After

38:06 Torvald is hired. They're constantly fighting. one day they get into a huge, huge argument and Hagorn fires him. Six months in.

38:15 Guess we know who's in charge. Yeah. When that happens, Harold, the older brother, resigns in solidarity. And they're super pissed. They go to see. Crow and they're like

38:25 Hey. Yeah, I guess. I've been working for you for a while. Like clearly we know what we're doing here. Why is this happening? And

38:33 Crow sides with Hagadorn. 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.

38:42 As you know, here in Denmark, you can't Patent. Drugs. Oh that's why this is important. We're just gonna go down the street.

38:50 And make insulin too. And the legend has it. That supposedly August looks at them and replies. But you're not capable of that. To which Torvald yells at him, We will show you And they storm.

39:05 out of the building. And go down the street. And they found a new Insulin company. A novo insulin company there in Copenhagen. Insulin Novo.

39:17 And that Is the beginning of Novo and for the next sixty five years. These two companies. Would compete. In blood sport, head to head.

39:28 hated each other absolutely hated each other Until they finally merged. In nineteen eighty nine. Crazy. Yep. No.

39:37 This is such a key part of the Novo story. Yeah. Certainly, you know, Crow, but then Hagdorn. develops into this amazing scientist, as we'll talk about. The

39:46 advances that Nordisk is able to bring to market in the science insulin and diabetes. It's huge. But certainly without the like bitter competitive motivation from down the street. I don't know that they would have moved as fast and you know, Novo ends up building its own scientific research.

40:03 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 twentieth century. It's amazing. I mean it's the local and

40:18 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. So I think it's worth a quick Pause here. We've already talked about some of this, but just to clarify

40:36 Why? Diabetes and insulin is such a interesting market and large market potential. You know, one even with just type one at this point in time. It's still a very

40:47 Large and widespread disease. in the world. So it's kind of a Large. Patient.

40:53 And potential patient market size. But Two. Unlike many other diseases and drugs for those diseases. You know, it's chronic. You don't

41:02 Cure it. 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

41:16 Decades. Forty, fifty, sixty, seventy, eighty years. Of patient lifespan here. Where they are injecting insulin. Daily.

41:26 If not. You know, in most cases multiple times. Daily. There's basically nothing other than food that you can sell someone for their entire life. But for diabetics.

41:36 Insulin absolutely has that scenario with a customer. Yeah. And there's also kind of another aspect that makes it Particularly.

41:43 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.

41:58 Both in the drug itself, but also in the delivery systems. I mean This early insulin is we've Alluded to a little bit. It was barbaric by modern standards. Like, yes, it saved lives.

42:09 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. There's allergic reactions to all the impurities.

42:23 Totally. It wasn't shelf stable in liquid injectable form. This is wild. I don't know if you knew this, Ben. No. So Everything we're talking about in these days and what Nordisk was originally producing were insulin tablets.

42:38 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.

42:54 Measure and draw that solution into a syringe themselves. Like a glass syringe with a big needle. No pens, none of this fancy stuff we have today. Yeah, big ass needle. And you know, so now you got And it's really important that they get the right amount of insulin for them.

43:14 This makes it really hard. 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. Totally.

43:27 And actually it's kind of a side note to the story, but It's Novo. in the nineteen eighties that invents the insulin pen. Oh, I didn't realize that wasn't Nordisk, but Novo. Yeah, Novo invented the pen and Nordisc focused on pumps. And they were um

43:41 One of several companies, but one of the leading companies innovating in pumps. 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

43:58 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. I'm Quite certain that almost everybody listening right now either is diabetic themselves or has a close family member who is or is pre diabetic. When I was doing research for this episode, one of the people I talked to

44:16 And we'll thank a bunch of folks at the end, but point it out. We're all pre-diabetic in some way. And it's basically like the idea that look, your A1 C levels, if you live long enough, will eventually enter diabetes territory. especially with the food system today and all these foods engineered to leave us very unsatiated. all of our natural inclinations that we had as

44:38 hunter gatherers and farmers and, you know, imagine the paleo life long ago. All the things that served us evolutionarily to stay alive. are now the very things that are killing us. So Everyone's on the path. It just depends how long you live. We also weren't really uh designed to, you know, live this long either. So

44:55 Well. Careful with the word design, David. Mm. So When Novo gets established.

45:02 This starts the competitive race that really leads to a hundred years of R and D pipeline that changes all this. So The Peterson brothers They know right off the bat.

45:14 They can't really just go clone what Nordisk is doing. I mean, technically, legally, they can in Denmark, but what physician and what patients are gonna buy Novo insulin when right down the street you've got Nordisk, which has a Nobel Prize winning scientist. The best diabetes endocrinologist, you know, in Denmark running it.

45:34 And the explicit blessing of Toronto and the insulin committee. If Novo just sells the same thing, like nobody's gonna buy that. Right. But they do have a pretty significant advantage that

45:45 Nordic doesn't have Which is they've got their engineering and tinkering skills. So They go to work. And pretty quickly, actually.

45:53 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.

46:07 Not only that. Because the processed for producing liquid insulin that they come up with. is so much more efficient. They can sell it.

46:17 effectively cheaper. per dose than what Nordisk is selling their salad form as. So they go to market, Nova goes to market. with their Novo insulin as insulin at half price. Because it's so much more efficient. Now this is so antithetical to like the Ivory Tower scientists over at Nordesk. You're marketing insulin at half price, uh, does this liquid stuff work and is this safe and all this stuff and The Peterson brothers are like

46:44 Yeah, whatever, you know, we're gonna crush you. Hm. All right. So Novo, scrappy upstart, counter positioned, and competition drives innovation. So they create better product. Yes. So then Nordisk strikes back. With a new longer lasting form of insulin.

46:59 called protamine insulin. Or NPH. as it is patented and come to be known around the world, which stands for neutral protamine Hagadorn. Really? Hagadorn is in the name? Because H C Hagedorn.

47:13 He himself led the research developing this 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.

47:29 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.

47:44 It's the new widely accepted most advanced treatment for Patients. Except there's one company that they refuse to license it to. And that is Novo. Amazing.

47:56 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.

48:15 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.

48:26 Yeah. They claim is both better and Doesn't infringe on the patents. Which the pharma industry has a rich history of figuring out Exactly how to

48:36 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 anyway.

49:04 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. 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

49:22 What you say it does. Yeah. So This leads to A whole bunch of lawsuits.

49:28 It actually ends up going to the Danish Supreme Court. Where Hagadorn represents Nordisk himself. You know, in the lower courts they had lawyers and I think they lost the case in the lower courts and Hagenard's like, screw this.

49:43 I'm gonna be my own lawyer. At the Supreme Court. At the Supreme Court. Wow. Yeah. Amazing. And They win.

49:50 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 Two starts. And

50:01 Denmark is invaded. by the Nazis shortly after they invade Poland. And in April nineteen forty The Nazis now occupy Denmark. So this sort of like

50:13 in fighting between these two Danish drug companies. Much less relevant. Much, much less relevant. But what is still Super relevant. is how is Europe gonna get insulin? And

50:25 the middle of World War Two. And This is a major major turning point both for the two companies vis a vis each other.

50:35 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.

50:46 Huh, so Novo, not Nordisk, became the globally dominant. Really? I did not know that. I actually don't know the terms of the eighty nine merger, so I'm excited to listen just like everyone else, David. Well, So What happens is

50:59 Denmark is relatively unscathed during World War Two. Yeah, it's a small country, the Danish army was quite small, and so when the invasion happens in April nineteen forty, there's basically no fighting. Germany just Takes over the country.

51:12 I mean there's no distraction. Which means that insulin production continues unabated in Denmark. Now Nordisk, remember. Like I just said, once NPH comes out.

51:24 Their strategy becomes really like we produce Domestically. And then we make our revenue and our profits. Internationally.

51:34 By licensing. Not by production. And with World War Two, you know, most of The dollars.

51:41 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.

51:52 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.

52:05 cannot address the market of any Allied countries anymore. Yeah. Wow. Novo. Is the complete opposite story. They had been scaling production.

52:14 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.

52:25 'Cause it's Danish owned, which is Nazi occupied at the time. Yeah, they are now. Essentially the official Nazi sanctioned insulin provider. For all of

52:37 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

52:51 Everywhere in continental Europe, basically. 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

53:02 Nazi occupied Europe. And the Allied countries no longer have access to anything Novo or Nordisc makes and so they're reliant on their own suppliers like Eli Lilly. Yes. No. They're fine. They can get insulin no problem because Nordisk has

53:15 licensed all the technology and production to them. They just keep doing that. The only problem is for Nordisk that Nordisk can no longer get the payments from them'cause obviously you know, transfer payments from allied countries are now blocked. Right. Fascinating. Totally fascinating.

53:31 So again, we said the ethics of this are quite complicated. There is no doubt that Novo's fortunes. massively changed and expanded. by the German occupation and the Nazis during the war.

53:44 On the other hand. Literally the Nazis ordered them. To expand production. And Provide insulin for Europe.

53:53 And like if they hadn't done it. All the diabetics in Europe would have Died. Oh, it's unquestionably a good thing. Again, I'm learning about this from the first time from you, but like An evil person commanding me to make more life saving drugs and distribute it to more people is fine.

54:07 It's the other things they command you to do that are not fine. Right, right. I definitely agree. It is important to note though, after the war the Danish state Did require both Novo And the Peterson brothers personally. To repay.

54:22 most of the profits that they made during the war. Back to the Danish state. Fascinating. Again, like the ethics are complicated here. Very. Yeah. Wow. So regardless.

54:33 After the war. Novo emerges as Now both a scaled pharmaceutical company Generally. And the largest producer of insulin in Europe.

54:43 And as part of that now They have the resources to really build up their own scientific and R and D Divisions and become a real powerhouse to rival what Nordisk was.

54:56 Before the war. Shortly After the war ends, they develop a new product called Lenti Insulin, L E N T E. Which is slower acting insulin.

55:07 Which means it's thus 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

55:23 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.

55:37 And what you're seeing here is Novo and Nordisk having decades of experience Researching mechanisms to slow the absorption.

55:47 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 for and you put into it.

56:10 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. Yeah, hopefully it's obvious, but like This isn't.

56:24 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.

56:36 So this is really the first major Scientific advanced that comes out of Novo. And Eli Lilly licenses this Lenta insulin. From

56:47 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 kinda Novo that's taking up this mantle. You know, this will come back up later in the episode.

57:03 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

57:19 Sales and distribution channels in the US. 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. Yeah. Well,

57:35 That is gonna change in a big way in the nineteen eighties, but during this post war period At least that's how um Kurt Jacobson'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. So I emailed him a couple of months ago and I said

57:58 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. Yep. So

58:08 This is basically the way things stay for the post war era up until the nineteen eighties. Novo follows up Lenta insulin in the nineteen seventies with MC insulin or non-immunogen monocomponent insulin. Which is the first a hundred percent pure Zero Antibody potential.

58:28 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.

58:40 Novo is now a scaled pharmaceutical company. Nordisk. Is Mostly in rough shape, you know, if production

58:49 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

59:01 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.

59:10 Yeah. Novo Interestingly. They're now a large pharmaceutical company. They want to add a second leg of the stool, a new business line. So they get into the

59:21 enzymes business. This is like laundry detergent enzymes and other industrial uses. They add that on alongside the insulin. And diabetes business.

59:34 And You know, that's all well and good to be a diversified, you know, industrial conglomerate. Except The

59:42 Enzyme business is both capital intensive And not that profitable. Those don't mix well. 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 two thousand. When it gets spun out.

59:58 Oh, is this uh Novozymes? This is Novozymes, yes. It is still majority controlled by Novo Holdings, which is the holding company of the Novendor Desc Foundation. Interesting. So just like Novo Nordisk is majority controlled by the foundation's holding company, NovoSime still is also. Novo Sime's as well. But When we get to the nineteen seventies.

1:00:20 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.

1:00:32 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.

1:00:43 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. Oh interesting. If only they had a cash rich partner without a lot of CapEx needs.

1:00:59 Goodness, if only there were such A Natural partner right down the street. That you know, it might make sense maybe they could Merge with.

1:01:10 So here we are. In the early nineteen seventies, Novo. Approaches the old bitter rival Nordisk. I don't

1:01:19 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 Hagadorn retired.

1:01:38 They're now on their third CEO in seven years. And the new CEO, Henry Brenham. He isn't from the pharma industry at all. He's not a scientist. He was previously the head of a lumber company. So

1:01:50 This merger makes perfect sense. Huh. But they don't merge for another decade and a half, so what went wrong? It's not what happens. So instead. Contrary to all

1:02:02 sort of what you would think on paper. The new CEO, Brenham actually turns out to be like an amazing Leader and CEO guy. For an artist. The lumber guy. Huh. He is like the wartime CEO for Nordisk.

1:02:18 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

1:02:33 Innovated. That this actually represents A golden opportunity. For Nordisk. To get back in the game.

1:02:41 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 M C highly purified. Method and type of insulin.

1:02:56 Hm. But Novo's in this spot where They're gonna be delayed for several years. in making the transition in their actual factories because they don't have the capex. So it's like they're coming to us hat in hand.

1:03:09 Why don't we just put the pedal down now that we realize we have the advantage and press. So Brenham convinces the board. That rather than merging. They should use their capital reserves.

1:03:21 To rebuild up. Nordisk's own production capacity. Go hire a global sales force. Brenums. He's really ambitious. He says We're gonna go enter America.

1:03:34 Directly. As this like forgotten, you know, Nordisk company. So he goes and hires a global sales force. Because he knows. Eli Lilly

1:03:45 is gonna have the same dynamics as Novo. Like everything's gonna have to shift over. To M C And Eli Lilly's this, you know, big, large, diversified giant. They're not gonna move as fast. As he thinks Nordisk can.

1:03:59 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.

1:04:12 And America is By far the largest market for diabetes in the world. Well, and you gotta remember too, in the seventies 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.

1:04:36 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.

1:05:02 Drugs were not plentiful enough. And good enough yet. for the government to cover them as an insurance benefit for people over sixty-five. That's the era we're in. Where if Nordisk wants to enter the American market

1:05:17 They kinda can without too many barriers. Yeah. This is the right window. So I don't know how Brenham Convinced both boards. He does and like

1:05:29 By God, he's right. It works. So For the entire decade of the Nineteen Seventies. Nordisk's sales grow at thirty percent compounded annually. Which is amazing. Wow. Now they're still small.

1:05:46 So By nineteen eighty. Nordisk is still only about one tenth. The size of Novo. Overall.

1:05:54 But they're a third the size of Novo's insulin business. And they've moved from being this licensing company to now an actual production company with capacity all around the world. So this is a Huge win from like

1:06:08 Basically they were gonna be taken over for cash. By their old rivals. And now they're back in the game. So Novo in response, they need to do something to get capital. They actually do a small IPO on the Copenhagen Stock Exchange in 1974.

1:06:24 To raise the capital they need for the transition to M C insulin. So By the time we get to nineteen eighty Just to set some scale here. Novo's annual

1:06:35 global insulin sales. This is Novo, but they're still much larger. They're about a hundred million dollars annually. And Nordis are about thirty million annually. That makes them the number two and number four producers in the world by market share behind Eli Lilly in America, who's first. With about a hundred and sixty million.

1:06:54 In sales. By the way, these numbers are staggeringly small. These are like series C startup. And this is exactly my point. So You might be wondering, like

1:07:04 Wait a minute. If you add all that up, the whole global insulin market is about half a billion dollars here in nineteen eighty. 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.

1:07:21 But what is the path from here to Novo Nordisk today being the fifteenth largest company in the world. Like what gives what happened? Yeah, just look at pictures of people in the seventies and look at pictures of people today. Yes. The answer is One What you just said.

1:07:36 We all got Fat. And the diabetes market and specifically type two diabetes exploded. But two

1:07:44 And this is gonna be such a fun story to tell here on Acquire,'cause it's a huge part of Silicon Valley history that we've never touched. Yes. Genantec. Two.

1:07:54 Genentech happen. Oh yes. Which Totally revolutionized everything. Launched The biotech.

1:08:03 Market. made drug development and production vastly more scalable. And it all Happened. Right here in San Francisco.

1:08:11 Venture backed. by Kleiner Perkins. And it changed everything. Former Kleiner Perkins employee. Yeah.

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1:10:05 That Ben and David sent you. Okay, so David. The eighties are here. For some reason. In the early eighties.

1:10:13 the world starts becoming more overweight. addictive foods being the cause of this. Yes. More metabolically unhealthy. Correct. And just to put some numbers on that.

1:10:23 The number of type two diabetes patients Quadruples. From nineteen eighty. to twenty sixteen. Yeah, and population growth was a lot slower than that. So definitely the share of the population is massively expanding.

1:10:37 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.

1:10:52 Yes, and specifically what that meant using. animals to make insulin. was that type two was not treated with insulin. And actually until this point in time Type two used to be called quote non insulin dependent.

1:11:07 Diabetes. Because you didn't treat it with insulin. Because there wasn't enough insulin. There weren't enough animal pancreases in the world. To do it. Oh, I had no idea. And it wasn't necessarily that insulin didn't help. Type two. I mean

1:11:20 Lots and lots of type two diabetics these days. Use insulin. It was that There just wasn't enough of it. Wow.

1:11:28 And then In nineteen eighty. Genentech. And Eli Lilly. As their partner.

1:11:35 Changed everything. With recombinant DNA. And genetic. Engineering. Of drugs.

1:11:42 And I suspect many people don't know this. I sort of vaguely knew this before researching the episode. But The first Drug.

1:11:51 That they genetically engineered. And that started this whole revolution. Was insulin. Absolutely. It was the founding first application of the idea that Genentech had of commercializing recombinant DNA. The first

1:12:06 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.

1:12:20 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. Yes, because You couldn't really extract human insulin from You know. humans before this point and

1:12:36 People thought That human insulin would be A lot better. to use than animal insulin.

1:12:45 It turns out that that's Debatable. Yeah, it's interesting that this ended up being more of a manufacturing and scale advantage than an efficacy advantage. Yes. But at the time nobody really knew that.

1:12:57 So In nineteen Eighty. Which is when Genentech and Eli Lilly announce Their partnership together that

1:13:06 Eli Lilly is gonna be the go to market partner for Genentex. New recombinant DNA, bioengineering revolution and they're gonna make human insulin. They announced that in nineteen eighty.

1:13:18 People go Nuts. And it triggers this race for human insulin. And Novo. Yeah.

1:13:27 Swept up in it. They're like, Oh no. Eli Lilly, they're gonna come back into the research game. They're gonna innovate in product. Oh, we had the chance to work with Genentech. Genentech had actually approached them about being a partner in Europe. Novo had turned them down because they didn't think the science was ready yet and they were wrong. So they're like, shoot, we got to scramble. They Find A team of Japanese researchers

1:13:52 Who have shown That you can actually chemically modify pig insulin. To make it chemically identical to human, it's like this stuff up. So Nova's like great. We're gonna race to market. We're gonna beat Eli Lilly with human insulin.

1:14:08 It's not going to be genetically engineered. We're just going to take our pig insulin and modify it. It turns out to be a huge boondoggle. You know, it works, but It's not any better than pig insulin. So it's a big flop for Novo. Which the timing lines up to really be a nail in the coffin for them. I mean, if this is right after everything you just described with Nordisk scaling up production and compounding at thirty percent per year and massively growing share, like

1:14:36 This is not a good use of Novo's precious dollars right now. Well It's funny you say that. So When the Genentech and Eli Lilly announcement happened And

1:14:49 Nineteen eighty. I mean Truly this was A bombshell. It's hard to remember now. I mean, we weren't even alive, but this was one of, if not the most important announcement to come out of Silicon Valley. Ever still to this day.

1:15:05 Investors went. Nuts. Anything that even you could squint and look like a biotech. was suddenly the hottest thing in the world. So Genentech goes public.

1:15:16 in the fall of nineteen eighty. This is well before Humulin, you know, the product that they create with Eli Lilly comes on the market. They go public. And it is I believe the largest venture backed IPO

1:15:29 Ever. At that time. Until It's eclipsed. Two months later when Apple goes public. But investors are just mad for biotech companies. So when

1:15:42 Novo announces that they're gonna be first to market with human insulin. And like, yeah, yeah, just ignore that it's actually pig insulin that we're modifying. They use the hype on the back of that

1:15:55 To do a US IPO with Goldman Sachs. And raise a hundred million dollars. When your currency's expensive, sell it. Right. There are a number of analogies that we could make from the past few years that I'll uh refrain from here.

1:16:09 So as you say, is this a nail in the coffin for Novo? You know, I mean it's not good for the underlying business. Nordisk, meanwhile, remember, they're in the midst of This aggressive expansion plan and scaling based on MC insulin. They like

1:16:25 You know I don't know that human insulin in and of itself. is all that much more Effective. We're gonna take a wait and see approach. we are going to invest in building up our

1:16:40 recompetent DNA and genetic engineering capabilities because it's clear the whole industry is moving this way for production reasons, if nothing else. And Novo is doing this too in the background. But Nordis like we're not gonna get caught up in the specifically human insulin hype. And this really works out for them. So in nineteen eighty four Nordisk.

1:17:00 Passes the German company Hushed. to become the number three global player in insulin. Oh s I think that's how you say it. Today is part of Sonofi the large international pharma conglomerate. And they're the only other player left besides Novo and Eli Lilly. Yeah, Sonofi today, yeah, the three of those companies are essentially the entire insulin market.

1:17:19 Yep. So nineteen eighty four, Nordisk. Passes them. On the back of that. They do their o

1:17:26 own share listing on the Copenhagen Stock Exchange. So They change the structure of the operating company. And still the foundation controls the majority of the votes. But

1:17:37 For the first time. outside investors can hold shares in the operating company of Nordisk. And by the end of the nineteen eighties Nordisk is now up to twenty percent. Global

1:17:47 Market share. In insulin. And that's really all come at the expense of Novo. Which is down to thirty percent.

1:17:55 Global market share. Whoa. So they're close to matching them. Yeah, they're pretty close. And this brings us finally The summer. When merger discussions begin for real.

1:18:08 Between these two companies. Now on much more equal footing. The last time. Interesting. And this time. There actually is a really compelling reason for both of them.

1:18:19 To merge. and combined scale. Which wasn't true before when it was really just like hey Novo had a problem and needed cash. Now with genetic engineering and the way the whole industry is headed.

1:18:32 Scale is becoming much more important. It takes huge capex. To do this stuff. And scale becomes important for R and D, scale becomes important for trials and approval, scale becomes important for

1:18:46 negotiating with actually getting the product sold. Scale becomes important for everything in healthcare starting around this time, the late eighties, early nineties, and obviously went nuts till today. And a big part of it is the production and, you know, infrastructure side of things.

1:19:04 But the other part is the go to market. Pharma. kinda almost becomes like the enterprise software industry. Like At the end of the day There only are a few companies at scale that have the infrastructure

1:19:16 And the go to market. Two operate and like Yes, you can build a big company. on top of or underneath Microsoft or Oracle or Amazon or Salesforce or Google but

1:19:28 They're the ones with the infrastructure. They're the ones with the channels. 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.

1:19:42 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.

1:20:08 And that simple sentence is A patient. Buys a drug. But really, actually that's not how it's It's like a butterfly flaps its wings. A person doesn't merely buy a drug. So let's actually name all the parties, starting with the manufacturer.

1:20:24 A manufacturer like Novo Nordisk develops a drug. They sell it to distributors like McKessen 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.

1:20:42 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.

1:20:58 Their insurance company does. Well The insurance company doesn't want to 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,

1:21:17 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

1:21:42 As you can imagine, when there are this many middlemen in a transaction Yeah, so that's what, four middlemen, sorry? Uh the PBM, the insurance company, the distributor. And for some reason employers are involved. So we're talking about a Six sided market.

1:21:59 I don't think it's a cited market. There's two good diagrams that I found in the research that will put on the acquired Twitter account and the uh threads account to kind of 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.

1:22:33 we've sort of lost the plot in being able to actually have a functioning free market. But anyways, I want to do a little dive into each of the parties to understand what they do. The drug manufacturers, like Nova Nordis, 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.

1:22:57 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.

1:23:19 in some cases. And so it's You know, thinking of CVS as just CVS is not really right anymore. It's CVS care mark, 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 kind of what matters, even though there are many people interested in keeping a thriving independent

1:23:43 set of pharmacies out there. Then there's the PBM. So Why does the PBM exist? The pharmacy benefits manager. That's a good question. Yeah. Well, in the old days, there are 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.

1:24:06 So PBMs provided value by doing that on everyone's behalf. PBM's created what's called a formulary, which is basically a big ledger, big list of drugs and the prices. And obviously today. that is less necessary because there's less fragmentation.

1:24:23 given all the mergers that have happened, but the PBMs still establish themselves as a Key sort of immovable piece of this puzzle. So are they sort of like Agents? Is that the right way to

1:24:35 Think about them. Agent implies. That the principal can sort of make a decision to go elsewhere. You're not going elsewhere. Uh the PBMs are the ones actually setting the prices.

1:24:47 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 266 million Americans, and that number's old. That's as of twenty sixteen. So think about like basically all Americans get their prescription drugs through uh 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 Optim R X, which is actually owned by United Health Group. So

1:25:20 Interesting to know that CareMark, that PBM is corporately bundled with CVS, a pharmacy, but Optim R X. corporately bundled with an insurance provider. So there's vertical integration happening here too. Yes. So if you want to 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 is not gonna prescribe a drug if only two of the three big PBMs

1:25:44 have it on a negotiated agreement there. So each PBM individually has control. Or 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

1:25:59 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

1:26:17 just do it for the pharmaceutical benefit and not all the other stuff that the health insurance companies do. Mm 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.

1:26:35 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.

1:26:52 Actually the drug manufacturer. Get past the DOJ. 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.

1:27:14 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.

1:27:31 Wow. Wait, so who gets the rebates? Is it the PBMs themselves or the Consumers. Well PBMs say that they tend to pass most of the rebate along to the healthcare plan.

1:27:43 Mm. Yeah, consumers are far away from any of this. 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 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

1:28:08 Game of hide the sausage. Oh gosh. 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

1:28:20 sort of clearing prices of a patient of what they're willing to pay for a drug, all that signal just gets lost. In all of this middleman mania. Wow. So that is the current state of what happens When

1:28:36 many people or most people Go and Fill a prescription. So Bringing it back.

1:28:44 To when the Novo Nordisk merger finally happens. This is the background on The go to market side. At least in the US.

1:28:54 And then there's also The background on the infrastructure side, thanks to genetic engineering. Yeah, like Scale now.

1:29:02 Really matters. And Both companies are now on much more of an even footing. So in January nineteen eighty nine. The Novo Nordisk merger.

1:29:13 is finally announced. And it's a dual merger of both The operating companies. And their respective foundations.

1:29:21 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.

1:29:31 I believe That the final ratio was sixty two percent novo. And thirty eight percent Nordisk. So Novo was still

1:29:41 the kind of 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. It's crazy. The two guys that split off and went to be cowboys and start their own little

1:30:01 competitor, even though they didn't have the license, ended up creating the bigger company. Yeah. Wild. And they drove each other to Create all of this innovation over the years.

1:30:11 So the new combined company has roughly a billion dollars in insulin revenue. And fifty percent, five zero percent. Global share. with Eli Lilly just behind at forty five percent.

1:30:23 And host that. Five percent. That kind of Tells you right there how much the market has grown. Just during the decade of the nineteen eighties.

1:30:32 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. Wow. Yeah. Wow.

1:30:42 The Enzyme and other businesses within Novo, they stay with the company for now. They would get spun out later in the year two thousand. And that contributes another roughly half a billion in revenue, but with lower margins, as we talked about. the Novo CEO and Henry Brenham from the Nordisk side.

1:31:02 they remain as co CEOs for the next couple of years. And Brenum 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 fur on the global stage.

1:31:21 And But they're referencing here is as we were talking about This is the era when to Huge farm emergers start.

1:31:29 happening. So Glaxo and Welcome merge around this time. Astra and Zeneca merge around this time. Sonofi buys Horsch, you know, these are all multi, multi billion dollar, tens of billions of dollar transactions. That makes Novo and Nordisk look.

1:31:46 Kinda like small potatoes at the time. And actually Wall Street in the investment community believes that This is really Just the first step.

1:31:55 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.

1:32:11 And Actually, this is crazy to think about in retrospect, but But Novo Nordisc management agrees with that. That's actually their plan.

1:32:21 Please. There's no rush here, but they think That they do need to merge into a larger organization. So they think the writing is on the wall where we need scale in order to function in this

1:32:34 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.

1:32:45 gets them to scale without merging with anyone else. Yes. Basically. All throughout the decade of the nineteen nineties and into the two thousands. Management is in

1:32:56 constant merger sale negotiations with one of these big pharma giants or another. And Kinda luckily. None of them Come to fruition.

1:33:06 And in the meantime, without anyone including them really noticing The combined company just keeps Compounding on these Tailwinds of the expansion of

1:33:18 The insulin market and Insulin treatment of type two diabetics. And all the supply that's unleashed by genetic engineering. So Revenue and profit compound again at like

1:33:30 twenty percent, sometimes twenty percent plus annually for like Fifteen years there. They're firing on all cylinders. In the year two thousand, 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.

1:33:49 And so By the end of two thousand three 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 Zimes. All the subscale pharma businesses that Novo had are all gone.

1:34:05 And that's when management finally decides To sell the company. Panana. So in two thousand four They have a deal on the table.

1:34:15 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. Which is the only shareholder that matters.

1:34:30 But There's never been a conflict between the foundation board and the management board. Like everybody's always been aligned here. But this is like the whole C suite of Meta deciding to sell the company to Apple.

1:34:44 And then they just have to go get Zuckerberg's approval to do it. It's literally that scenario. 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.

1:35:01 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.

1:35:23 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

1:35:34 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 growth over the last fifteen years?

1:35:47 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.

1:36:01 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? My rubber stamp's feeling like it does not working right now. I'm not sure. Yeah. Oh my daughter loves to say when uh something doesn't go her way these days, she says, Not working. Foundation board is like not working. So

1:36:31 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.

1:36:42 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. It's a fascinating analog. And this is

1:36:58 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. Absolutely. One hundred percent chance. If this ownership structure were not in place. We would not be doing this episode today.

1:37:15 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. That didn't happen here.

1:37:31 Which turns out to be Unbeknownst to Pretty much anyone at the time, and I'm sure not even the foundation board. Mm. Very pressured.

1:37:40 Decision. Because there is a Small group. Of researchers. Within

1:37:47 Never Nordsk. Led. By a woman named Lata Biera Newson. On a pretty

1:37:56 Incredible project. That. It's showing a lot of promise. And that would be GLP one

1:38:03 Agonist drugs. That is a mouthful, David. 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

1:38:20 O Zempic and Weg of you. Or Ribelsis, which just got FDA approval pretty recently. Yes, indeed. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow.

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1:40:20 one receptor agonists. What is it and where did it come from? Well, It really is the story of Lata Biera Newton. She started at Novo in nineteen eighty nine, the same year the merger happened.

1:40:34 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. Yeah, remarkably There is this Paper. I guess it's a paper.

1:40:48 called Inventing Lira glutide, a glucogen like peptide one analog for the treatment of diabetes and obesity that was published in 2019, but it is a first person account by Lata 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 and Translational Science, publicly available to everyone. Like she has just Told the story.

1:41:12 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. And how it all went down. Yeah. Super cool. We'll link to it in the sources. Yep. So

1:41:24 Eventually, after a couple of 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

1:41:43 Type two. Diabetes. Right around this same time. Oral anti diabetic medications. are becoming a big thing in the market.

1:41:52 So these are drugs like metformin, if you've ever heard of that. That's the most commonly used one for a type two diabetics. They're kinda like the first line of defense. For type two diabetes before you progress to insulin treatments. And

1:42:07 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.

1:42:19 So Lata's part of this group. That's looking for new candidates. So In the early to mid nineties. Lata starts digging into the academic research.

1:42:29 And there's new work coming out that in type two patients A big part of the mechanism that messes with actual insulin production is a hormone called glucagon like peptide one. Or GLP one.

1:42:42 Ben, as you were talking about. And the thought is That if you could somehow get more GLP one Into these patients' bodies. You could stabilize

1:42:52 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 one, just like you engineer human insulin, no big deal. Seems pretty straightforward. In fact,

1:43:10 Why don't you just go eat some GLP one. Just get it into your body however you want. I'm sure it'll work out. Right. No big deal. Except. The problem is

1:43:19 DLP one. 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 one all the time and it's regulating your insulin production, et cetera.

1:43:34 Yeah. Type two diabetes that gets disrupted. You can't just put more regular human GLP one in the body. Or it's gonna go away immediately.

1:43:44 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.

1:43:57 Pretty much abandons it as a drug candidate. But Lata is like If we could make it work. This would really, really help people. And be a great drug.

1:44:08 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 nineties.

1:44:20 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

1:44:30 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.

1:44:46 Crazy. What year is this? Uh, this is like ninety five, ninety six. All right. And she's been doing research on this since like ninety one, I think is when her and the team started cranking away on GLP one research. Inside Nobo. Around that. So a few years with nothing to show for it.

1:45:04 Yeah. So she keeps tweaking. the GLP1 molecule. And again, you can do this with recombinant DNA. You can tweak any molecule. So eventually. She develops a GLP one analog.

1:45:17 Analog being, you know, similar type molecule. Called Lira glutide. That includes a fatty acid. Grafted onto the molecule. That helps prevent the body.

1:45:28 From breaking it down. And this is the big breakthrough. Lyra glutide. ends up having a half life in the human body of thirteen hours.

1:45:37 Compared to you know, like A half life of two and a half minutes for straight up GLP one. That'll help. Yeah. That satisfies management's ultimatum. The mechanism.

1:45:47 by which it does this is totally fascinating. So you mentioned that the fatty acid gets attached to the GLP1 to create this GLP1 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

1:46:04 sort of grafted onto that molecule so they can travel together. The fatty acids then make it so the GLP one 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 GLP1 molecule from the degradation. by enzymes and it protects it from being sort of quickly cleared in the kidney because that

1:46:29 sort of bound molecule is now too complex, too large to be filtered. So it kinda makes it like a big truck bouncing down a small highway. in that the molecule is protected. Yeah, and I think that's how she phrases it too when she describes it as protecting the molecule. Yep. The fatty acid sort of uh

1:46:47 Well It makes it big and stick to stuff. Sometimes it's good to have a layer of fat around you. Okay. So uh thirteen hour half life, you know, this Lira glutide. can become basically a once a day drug instead of an every five minutes drug? Yeah. Well I mean eventually. But now here's the thing with this stuff.

1:47:08 To get a whole new class of drugs to market. Takes a really long time. So this is a big breakthrough. kind of ninety seven ish time frame. But

1:47:20 You know, Nova'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

1:47:36 To two thousand five. When the world's first GLP one analog drug. Finally comes to market. For the treatment of type two diabetes.

1:47:47 Of course. I'm talking about the world famous Well known. Bayetta. From Eli Lilly.

1:47:55 Not A nov. Not from Latte's work. And developed in a completely parallel way. Not as empic.

1:48:03 Not Victosa, not Wake of V. Something completely different. This might be the most random occurrence. That we've ever had on acquired.

1:48:13 David, if I called you and said, Ship me a lizard, this is important. Would you do it? Uh knowing this context, I would actually say yes. An actual lizard. Is that where you're going? Yes. Yes. Okay, great. So

1:48:27 During this time. In parallel to Latz's work at Novo. Two American researchers in the VA hospital system, the Veterans Affairs hospital system. Government employees. Government employees.

1:48:40 Somehow discovered That a hormone Contained in the venom. of the Gila Monster Lizard. Literally the lizard.

1:48:49 Called the Gila Monster. Which has poisonous venom. One of the hormones in its venom Also was a GLP one analog.

1:48:59 acted similarly to GLP one in the body. And didn't break down. Within five minutes. David, go get that poisonous lizard venom, take all the poison out and inject it into me, please. That's what I'm asking you to do. Let's see if that works.

1:49:15 I just I have no idea how this got proposed and why people thought this was a good idea, but like incredible that it worked. Incredible. So in nineteen ninety five, Daniel Drucker had a lizard shipped from Utah to his lab and he started experimenting with the deadly venom. David, aside from the research done at the VA Do you know where Daniel Drucker was a researcher?

1:49:37 Ooh. Well I know One of the scientists at the VA was a guy named John Ang, and I believe he was at the VA hospital in the Bronx. I'll give you a hint. Daniel Drucker was not a researcher at the VA, he was at a university. Mm.

1:49:53 Daniel Drucker, and I believe still to this day. Was a researcher. at the University of Toronto. Uh, amazing. Yep. It comes full circle.

1:50:04 And he owns the domain glucagon.com. To establish some extra credibility. I love it. Yeah, so I it seems best I can tell that there were sort of parallel research efforts being done on the early GLP one and sort of place to find GLP one in the world.

1:50:21 to eventually. Turn it into a product. The uh naturally occurring. GLP one analog. Yes. As opposed to the engineered Lyrically tied. It actually

1:50:33 Does become a drug candidate. They license it to Eli Lilly. Eli Lilly develops it into Bietta and Bayetta hits the market in two thousand five. It's FDA approved. And It works. It's not poisonous. It doesn't kill people. And it is the world's first GLP one analog.

1:50:50 But Like it is effective. But it's not like overwhelmingly more effective than traditional anti-diabetic orals like metformin and the like.

1:51:03 And more importantly. The half life is not as good. As Lyra glutide. So Bieta requires two injections per day.

1:51:13 Which you know. If you're a type two diabetic and you're not yet at insulin treatments You're like, Well I could stick with oral anti diabetics like metformin. I could go try this new thing, but that's gonna be two injections per day.

1:51:29 Do I really want to do that versus stick with orals and then transition to insulin injections when I need it? I can barely remember to take my multivitamin orally once a day. Asking anybody to do something, especially invasive, twice a day is a big behavior change. B. Big behavior change, totally. And it's important to remember what these GLP one agonists are actually doing. It's just

1:51:48 generally raising the baseline of your body's own ability to secrete insulin. It's sort of making you behave more like a person without diabetes than you otherwise would. Yes, correct. But many people still would need insulin on top, depending how far along the spectrum you are. Yes.

1:52:08 So that's two thousand five. So then in two thousand seven, Lata and Novo Nordisk's Lyra Glutide GLP one agonist. Enters phase three. human clinical trials. Yeah.

1:52:20 And for those who have heard these phrases before phase one, phase two, phase three, and never knew what they meant, phase three is the really big, really expensive one. And I'm gonna quote Alex Telford, who wrote this really amazing long blog post. sort of explaining how the clinical trial process works and why drug development has gotten so expensive and all that. We'll link to it in the show notes. It's one of my primary sources. He says typically phase one trials focus on safety. and finding an appropriate dose, often in healthy volunteers, phase two on establishing preliminary evidence of efficacy in patients, phase three on confirming efficacy in a larger sample of patients and collecting robust safety data. And it is worth pointing out when I say the expensive one.

1:53:02 Twine percent. of all R and D for a drug is spent right here. So phase one is nine percent, phase two is twelve percent, phase three is twenty-nine percent, with the rest of it sort of coming from that early basic research, drug discovery, preclinical studies, and the, you know, a little bit later with the regulatory review, but like almost a third of the entire spend. of the whole R D pipeline for a drug is here. So big freaking deal. to go through a phase three trial.

1:53:29 And my understanding is that most drugs never make it to phase three. And if you make it to phase three, that's like very promising. It's not automatic that you're gonna get approved and it's gonna work, but it's Promising. It's a great question. Thanks to Alex, we have the data right in front of us. So here's the probability that a pre clinical study

1:53:47 even makes it to the phases. That's 69%. So you're a little over two thirds once you enter a pre-clinical study to graduate to phase one, two, and three. But in phase one, two, and three, About half of'em get weeded out each time. So fifty two percent make it through phase one, thirty six percent. through phase two and only 62% through phase three. And once you get into regulatory review, then there's a ninety percent chance that you get approved, but each one of these gates filters out about half of the Drugs eventer. But I guess if you look at the like kinda lifetime risk of approval for a drug, by the time you make it to phase three, you're pretty far.

1:54:20 So of the sixty nine percent that even make it into clinical development. You've got thirty six percent left at graduating phase one. Then thirteen percent left graduating phase two. Then all the way at the end, eight percent.

1:54:35 graduating out of phase three. So it gets pretty winnowed down over that course. But to your point, it's a big deal to enter phase three because it shows that you are one of the thirteen percent. That have made it this far. Yeah. Cool. Okay. So

1:54:50 As they're in trials, and Novo knew this, but it's starting to get confirmed that One. Lira glutide is gonna be more effective than Biana. Two. More importantly.

1:55:02 It's only gonna need to be injected once per day,'cause the half life is longer. And three. It's also now Starting to be observed and confirmed in these human trials. Something that Lotta had noticed all the way back in the animal trial phase.

1:55:19 That rats Who were injected with very large amounts of Lyri glutide. Would stop eating. And it seemed to have an effect on appetite. And if these rats had

1:55:30 Very large amounts of it. They would literally starve themselves to death and refuse to eat. In this effect. is persisting In humans.

1:55:39 Here in the phase three trials. Which wasn't a guarantee'cause there's lots of rat behaviors that then don't replicate in human trials. And so while they were not specifically studying it in this trial, they were studying the effects on type two diabetes. the early reports of this might be replicating in humans. was promising and surprising, but it wasn't happening to huge degrees. Like with the dosage of Lyra glutide that they were planning to sort of make the approved dose, it's not like you were seeing this crazy dramatic weight loss. It was just like Oh, that's interesting. You also eat a little bit less when you're on this Lyra glutide drug.

1:56:15 But nonetheless, it's a pretty interesting thread to pull on. Especially because many Other than anti diabetic drugs up until this point had actually caused patients to gain weight. Right.

1:56:26 Which of course compounds the problem. Right. So Lada and her R and D team They push Novo Nordis to consider

1:56:36 Also pursuing a parallel FDA approval and commercialization path. For the same molecule Lyriclutide As a weight management drug.

1:56:47 Based on this. Evidence that they're seeing in the trials. Which in FDA speak is an indication. You're trying to get it approved for a second indication. Yeah. Now this

1:56:57 Out there idea. There is a Huge. huge stigma around weight loss drugs.

1:57:06 Enormous. Yes. The stigma is real, but there's also an interesting product efficacy thing here. So Vox.com put it really well. They said Not only do weight loss medications have a dangerous history, but there is also a persistent bias and stigma against the disease that now afflicts nearly half of Americans. Obesity is still widely viewed as a personal responsibility problem, despite scientific evidence to the contrary. And history has shown that the most effective medical interventions, such as bariatric surgery, which is stomach stapling, effectively the gold standard in treating obesity often go unused in favor of diet and exercise.

1:57:41 Which for many don't work. And like this is proven over and over and over and over again. You can't just tell people change your lifestyle. Most people literally can't. There's too many things working against it, including their own biology. Additionally, this is pretty interesting. Researchers thought it was actually impossible to create a weight loss drug that was both safe and effective. Yeah.

1:58:03 You talking about Fenfen. Yes. I mean it dates way back even before Fenfen to the amphetamines in the seventies. People are taking speed because that's like the accepted weight loss drug. Yeah. Fenfen was a combination of a drug with speed. One of the fens is speed, I believe. And so in the nineties, uh, was it heart attacks? Yeah, it was major heart damage. Yeah, so that scared the crap out of the FDA, out of companies that are pursuing weight loss drugs. Yeah, this was a disaster.

1:58:33 It kinda was like a grassroots thing that built up and the two fens. Were independently approved for separate use cases. And A physician got the idea to combine them.

1:58:46 And sin both drugs were approved, Big Pharma was like, Oh wow, weight loss drug, miracle drug, let's commercialize this. And so they pushed the FDA to rus the process, which they did, thinking again, both of these drugs are approved. And it turned out that When used in concert, it caused major heart damage. So I think something like six million Americans took this thing and like a large portion of them. ended up with major cardiovascular issues.

1:59:13 I mean that was the worst one, but there's like seven or eight over four decades of these either dangerous or just completely ineffective weight loss drug. So most pharma companies completely steered clear of the black hole budget item that was weight loss research and development. It's kind of going back to uh the beginning of the episode in Rockefeller's dad and the snake oil salesman. Like this is the stigma around this stuff. Totally. And to illustrate this numerically The annual obesity drug sales were only seven hundred and forty four million dollars up until twenty twenty.

1:59:46 The market for weight loss drugs. You know, it was just tiny'cause basically nothing worked and everyone was scared of it. That seven hundred and forty four million included The commercial sale of Lyra glutide for weight loss.

1:59:59 Which had, you know, already been on sale for six years. So why is everyone freaking out about Ozempic now? Like does it feel like basically nothing worked before? It was true. Nothing worked before in a safe way. So there is sort of this like magic number around if you can actually safely enable someone to lose ten percent of their body weight or more. Then there's a market.

2:00:19 But otherwise it basically rounds to zero because people just don't think it's worth the trouble and neither do the companies. Yeah. It's like you need the appropriate amount of activation energy for the uh reaction to catalyze. Exactly. And just to you know put a really close to home, even finer point on this stigma. As recently as two thousand five, two thousand five, like same year Bieta came out.

2:00:41 Novo Nordisc. own official position On The obesity category. As articulated by the then CEO Lars Sorensen.

2:00:51 was quote. Obesity is primarily a social and cultural problem. It should be solved by means of a radical restructuring of society. There is no business for Novo Nordisk in that area. Now imagine your Lata and her team trying to get the company to release a lyra glutide for weight loss when that is the company's official position.

2:01:12 Right. You're like, look, I'm looking at these humans who are eating less. Right. So you know, what's going on here and why is Lada pushing for this? You know, she's A great scientist, well respected, you know, and at this point she's made her career on

2:01:26 The development of Lyriglutide and GLP1 against all odds just for diabetes. Why is she pushing this? This is a very very different situation than what happened with Fen Fen. Totally. We still don't know the super long term effects of it, but we certainly know that Months after taking this thing, large populations of people are not having heart attacks.

2:01:46 Yes. And Lada knows this too. Obviously because Lirilutide, like the drug, the same drug, the same thing. has now been throwel plus years of super rigorous trials, starting with animals, now with humans.

2:02:01 International approval processes. You know, there were issues along the way, like there are with any drug. Dude, the twenty ten trial was nine thousand patients across thirty two countries. This is a big expensive almost two year trial. Yeah. She's like yeah, I mean.

2:02:18 We're pretty sure here this is about as safe as any drug possibly could be. And at least in the medium to short term, like This is not a cause for worry in terms of safety. It's just that all that testing and everything was done for a Different use case.

2:02:34 But it's the same drug. So She eventually convinces the company to push forward with this. And in two thousand seven So only two years after the CEO made that statement.

2:02:44 Novo enters a slightly higher dose version of lyri glutide into human trials for Weight loss. And Why do minds change quickly on this? Like The commercial

2:02:56 If you can get approved, if you can get it to work, if it's safe. Is Unlike anything else the pharma industry. has ever seen. Like if you could really crack

2:03:09 this market. So Huh? this time back here in the mid two thousands already About a third of the US population is medically obese. you know, defined as a body mass index over thirty.

2:03:22 Two thirds are medically overweight. The World Health Organization estimates that five hundred million people worldwide are obese. You know, so that's a total addressable market here of like A hundred million people.

2:03:36 just of medically obese people in the US alone. half a billion plus, probably more like a billion worldwide. There are no other drugs and diseases that affect This many people. Not even diabetes. Yep.

2:03:51 And Just like diabetes, it turns out. That in most cases obesity also is a Chronic disease. So Yes, you have this huge

2:04:01 Tam of people, but It's also people that are then gonna be taking the drug. Probably for the rest of their lives. Which is just like a statin or you know, there's a lot of treatments for chronic diseases that we give people that are drugs that you have to take for the rest of your life. Yeah, you're right. It's like totally different than making a vaccine or making a, you know, hepatitis C cure or something like that. It really is a

2:04:24 For better or for worse, a durable ongoing recurring revenue stream. This is annual recurring revenue here. Yeah. So in early twenty ten, Novo gets final approval for Victosa. Which is the marketing name for the diabetes version of Lyra glutide. So five years after Bayetta Victorza is finally. officially hitting the market in the US.

2:04:46 And remember this is Just FDA approved for diabetes. But of course everybody knows about these trials going on for weight loss and The ability to lose weight. It hits the market.

2:04:58 And It is a enormous hit. It doesn't just overtake Bieta as the leading GLP one drug on the market for diabetes. It massively expands the market. So year one

2:05:11 In the first year that it's on the market, Victosa does roughly three hundred million dollars in sales. the next year, the first full year it's on the market in twenty eleven. It does over a billion dollars in sales. Just in that year. So there's this concept in the pharma industry of a quote unquote blockbuster drug. And these are drugs that achieve a billions in annual revenue.

2:05:32 Sort of like uh the tech industry calling it a unicorn with you have a billion dollar valuation. Exactly. It's the pharma version of a unicorn. And these are like Lipator, Humira, Adavare. There's a bunch of examples, but that really are a huge breakthrough, address a large enough population. There's a bunch of ways to sort of slice it, but usually they're drugs you've heard of. Yeah.

2:05:54 And Victosa hits it in you know, its first full standalone year on the market, which is Super fast. So

2:06:03 What's going on here, obviously, is that People are not using Victorza just for Diabetes. I mean people are using it for diabetes, but People are also using this for weight loss. And you might be asking yourself, how does that work? If the FDA has only approved it for

2:06:18 Diabetes, what's going on there? Well, it is actually at the doctor's discretion if they want to prescribe an off label use. So if a doctor does enough independent research or reads a study or Technically I don't think the drug companies can provide any marketing materials or sway the doctors in any way. So the Information can't come from the drug manufacturer, but should the doctor

2:06:40 believe. That this drug would be good for their patient, even though their patient doesn't have the FDA approved. Illness, right, I guess. Whatever the indication is. The FDA sanctioned indication. Yes, the doctor can prescribe it for an off label use.

2:06:53 Right, and that's not illegal. And Let's be honest here. Like some of this is doctors, but a lot of this is patients going to doctors and being like Hey. I heard that this victorza thing can help me lose weight. What do I gotta do to make you prescribe it for me?

2:07:07 I saw an ad that said Ask your doctor if fictosa is right for you. So I'm asking you if it's right for me. Yeah. We should say everything in healthcare has a

2:07:19 modifier of sometimes. And everything I just said is true sometimes. It's not always true that the doctor has complete control to prescribe off label, but I think it's a reasonable way to think about it. Yeah.

2:07:32 But David. It's not that effective. You can lose weight taking Victosa. But it's not necessarily a life changing thing.

2:07:41 Right. So at the end of twenty thirteen Novo submits saxender. the official weight loss version of Lyra Glutai to the FDA and EU for approval. And it's a slightly higher dose version and

2:07:54 Expectations are at a all time high. For this. Novo's market cap has already been running. It now passes a hundred billion dollars on the anticipation of Saxenda's performance. And It's not that Big ahead.

2:08:10 It's a hit. It has good sales. And to be fair, I think a large amount of the early adopter. DLP one weight loss market. was already just using Victosa. So clearly a lot of the Victosa revenue was actually sexenda revenue that was pulled forward, so to speak.

2:08:26 But Ben, like you're saying, the big issue is that even with the slightly higher dose of lyric lutide. It yields long term on average across populations about an eight percent BMI. reduction.

2:08:41 Which is meaningful. But It's not. that meaningful. In research, it is crazy. I heard over and over again physicians and other people in the industry echo this kind of magical ten percent weight loss reduction number where there was always this belief in the industry that if something could reliably

2:08:57 Help Ten percent or more than it sort of tips. And six and I just didn't get there. Yep. So regardless, the next year, twenty fifteen is a record year, total company revenues for Novo Nordisk hit sixteen billion dollars, which is

2:09:13 Incredible for a Pure play, diabetes and now Diabetes and relatedly obesity pharma company. But the stock flat lines Yeah, and right around the same time you've got the insulin pricing scandal where

2:09:26 America is waking up to the idea that insulin is getting more and more expensive and it's becoming more and more essential for a huge population of people. And this is across the whole industry. It's Sonofi, it's Nova Nordisk, and it's Eli Lilly. Everyone's insulin has gotten more expensive and they come under fire in the public eye. And so the sort of sixtenda not being the blockbuster drug that you know, expectations had trumpeted up to be, plus this increasing pressure around Insulin and I think a CEO change.

2:09:54 Yeah, well the CEO change I think was a result of this. So what you're leading up to is in twenty sixteen the stock takes a forty percent hit. Which is wild, you know, today at the beginning of twenty twenty four, this is a half a trillion dollar company. And A few years ago.

2:10:10 It was a well less than hundred billion dollar market cap company. Yep. But there was that really dangerous narrative that These GLP ones aren't gonna be as crazy as everyone, at least everyone in the know thinks. And also Their only franchise of insulin is suddenly under fire. Yeah.

2:10:27 So In September twenty sixteen, the then CEO, Lars Sorensen, resigns. current CEO Lars Jorgensen takes over Amazing. So wonderfully Danish. Sidebar, this is wild. So

2:10:40 Right now today as we record this. Novo Nordisk is the fifteenth largest company in the world by market cap. And when I was doing research for this episode. I of course Googled Lars Jorgensen. When I did.

2:10:52 The results that Google gave me Results one through six were for the University of Kentucky swimming coach, who is also named Larry's Jorkinson. Talk about below the radar. Who I'm sure is a great and storied, you know, N C double A swimming coach. But it wasn't until number seven when I actually got the CEO of Novo Nordisk. That is how like underappreciated this company is. Crazy.

2:11:18 Anyway. Right around this same time, Novo begins phase three trials with their new next generation. Improved GLP one analog. Semigli tide. Which I think is pronounced semiconductor.

2:11:32 We've also heard some aglutide. We did an obscene amount of research on this and Don't have a good answer. So if you know Get in touch with us. The most reputable source we could find seemed to say.

2:11:45 Semaglutide. Yes. Which makes sense, you know, coming out of Lira glutide, and I believe there's a duaglutide, so We're rolling with semiglutide. Acquire at fm at gmail dot com if you disagree. Mm-hmm.

2:11:58 And Semiglutide has several benefits over Lyra glutide. One. It is much, much longer lasting in the body. So it only needs to be injected once per week.

2:12:11 Instead of once per day. Massive benefit just on patient convenience there with the half life. Being so much longer. Two. And much more important for the near term.

2:12:23 It is. twice. As effective. as lyric glutath for weight loss. So we're talking fifteen percent plus Long term.

2:12:33 B M I reduction. Which is well beyond Then as you were saying, the ten percent. Magical threshold.

2:12:40 Yeah. It moves from the domain of irrelevancy to the domain of Is this a miracle drug in the press? And there's some more um Benefits, potential benefits that we'll talk about.

2:12:52 In a little bit here. This Compound. This GLP one agonist, semiglutide. Is

2:13:00 Of course, Ozempic. And Wagaby. All the same thing. All semiglutide. Ozembic is the diabetes marketing product.

2:13:08 And Wege is the Weight loss. Marketing product. Yep. So a few words on how it affects weight.

2:13:15 the natural GLP one produced in your gut. Travels to your brain. This is a hormone that moves throughout your body, much like many other hormones, and it triggers a response to tell your brain, hey, I'm satiated. It tells you that you've had enough, that you feel full. And it can cause you to stop thinking about your hunger. And if you're someone that's constantly fixated on food and restraining yourself from indulging,

2:13:37 It can quiet that impulse. Or at least. reports are that that is sort of what people feel. It can also slow digestion. So not only does your brain think you're full, you literally are now full since the food takes longer to move through your digestive system. And David, you mentioned that fifteen percent weight loss.

2:13:55 But they're still studying exactly why it works. But it's believed to be that it's sort of these two mechanisms working in action together. And as you can imagine, food taking longer to move through your system. kind of can make you feel gross. Like the side effects naturally include things like nausea, vomiting, constipation. Things like that. But these reports of side effects are pretty widespread. I listened to a bunch of things, one of which was a Tegas call with a professor of cardiology that cited about one out of six patients have side effects that are so severe that they discontinue the drug. So it's sort of this, we don't exactly know why it works. We have studied it a bunch, so we know that it works.

2:14:31 But you can sort of imagine why the side effects might be linked to the idea that If you're eating You know, really calorie dense food, really fatty food, hard to digest food. And it's moving slower. Right. I wouldn't want food either. Yeah.

2:14:45 The thing that's really fascinating to me about semiglutide as a weight loss drug is that you can't just sit around eating pizza and ice cream and lose weight. the laws of thermodynamics in the universe still apply. Your body will always retain the difference between the digestible calories that you eat and the calories that you burn. But the reports from those who are taking it.

2:15:06 It's really more like you just don't want to eat large quantities. You don't wanna eat really calorie dense food. And it sort of just changes your habits without you trying, or at least you having to try as hard as you did in other attempts to lose weight. You know, it sort of solves the debate that had been going on for decades of is it a behavioral problem or is it a medical problem? Well

2:15:28 If you're taking medicine that Changes the way that your body chemistry works, but also literally causes you to naturally change your behavior. It really actually addresses both concerns. Right.

2:15:40 So Twenty eighteen. Ozempic finally hits the market for diabetes. And then in twenty twenty one, Wegovy gets approved for Weight loss.

2:15:49 Oh, Zempek. Does it be a good thing. Over a billion dollars in revenue in twenty nineteen. It's first year on the market. It's Clear it's gonna be a huge hit.

2:15:58 And it's like even more than that. This is like even more than Victosa back in the day. It does a billion dollars in revenue, but like it's massively supply constrained. Like it could have done A lot more. These drugs still. Osempek and Wegabee could do. a lot more revenue than they are doing right now.

2:16:14 Which by the way, on earnings calls, the company says, Yeah, that's gonna be true for a long time. The demand for this drug. will continue to massively outpace our supply and we will be here on earnings calls over and over and over again, telling you that no matter how many factories we build, we are supply constrained still. Yes. So at this point

2:16:32 You know, it's funny, I think for most people that are discovering Novo Nordisk now. Us included, I didn't know anything about this company until a few years ago. Thirty two years after Alada and her team started this research. Right. If anything, we think of this company as like oh It's the GLP one company. It's the weight loss drug company. And like

2:16:51 No, for a hundred years it was the diabetes and the insulin company. But it's Clear at this point now that no. This is now a GLP one. Yeah.

2:17:01 And that grew naturally out of the diabetes and the insulin research and a lot of his work. And sort of in this. organic fashion that is so different than the rest of the pharma industry.

2:17:14 But The net result of this now is that Yes, Intelin is still a large business within Never Nordsk, but it is a GLP one. Company.

2:17:23 So when Weg of E Finally launches in the US. In twenty twenty one.

2:17:29 as the official FDA sanctioned Weight loss version. I've semicolon tied. It gets The same number of prescriptions.

2:17:38 Written for it by doctors. in the first slightly over one month. than Saxenda had in its entire drug lifetime. People were already quote unquote misusing Ozempic for weight loss before this.

2:17:53 So like Ozempic supply was fulsted. And then now Wigovy supply fulsid. Well, in February of twenty twenty one, after the clinical trial finishes on semiglutide for weight loss, so for Wigovi to hit the market of the US. The New York Tim runs a story and just calls it a game changer. They say for the first time a drug has been shown to be so effective against obesity that patients may dodge many of its worst consequences, including diabetes. So like

2:18:20 with the biggest megaphone you could possibly point at people, they're being told. This thing freaking works and it's a miracle drug. Yeah. And We'll talk a lot more about pros and cons and all of that and

2:18:31 Everything around that in a minute here in analysis, but Just to wrap up the story. The company's market cap basically goes vertical. In Twenty twenty, right before all this hit and as Zozempik was coming online.

2:18:44 The market cap had climbed. Back up above a hundred billion. Summer twenty twenty one, it hits two hundred and fifty billion. By the end of twenty twenty two, it hits three hundred billion. Which

2:18:56 mind you, is against a market and macro backdrop of massively rising interest rates and Stocks and equities being down across the board, like Novo Nordisk is up during this period. And then this past summer in twenty twenty three. It passes four hundred billion market cap and it is currently

2:19:13 Flirting with the Half a trillion dollar. Mark. revenue goes from twenty billion in twenty nineteen to twenty five in twenty twenty one. thirty billion in twenty twenty two. And in twenty twenty three

2:19:26 So far in the first three quarters that they've reported, it is up another thirty percent. Year on year. Of course with Then as you said. Years worth of supply constraint.

2:19:36 Demand pipeline. Yep. That is pretty crazy. David, you mentioned it is the GLP one company already. And that sort of

2:19:44 Transition has already occurred. You're totally right, looking at the numbers. Fifth one percent of their revenue comes from Diabetes focused GLP one drugs, and an additional 18% from obesity related GLP one. So 69% of their revenue. Comes from semiglutide or

2:20:01 Lyra glutide. I mean it's crazy. That happened in a decade. Yeah. Totally wild.

2:20:07 Insulin has become, to your point, it's still a part of the business, a smaller share of the business. Again, this is of revenue, not of profits, but twenty two percent of their revenue today comes from insulin. That leaves about nine percent from the other efforts that they're putting energy into, rare diseases, so things like hemophilia. they continue to be a ridiculously concentrated company. They make about ten billion dollars a year in net income, so they're also a very, very profitable company, among the most profitable in all of pharma.

2:20:36 the fifty five thousand employees, so it's a huge international company at this point. And I want to talk briefly about margins. Later we will talk about why margins are actually not the most interesting measure to look at, but it's worth knowing them because we talk about them on every other episode.

2:20:55 Gross margins are better than software. They run about eighty four percent. Lily is also a very high margin company, running about eighty percent. For Context. Microsoft

2:21:06 has a gross margin of seventy percent and Google is fifty six percent. How is Google's gross margin fifty six percent? They must be stuffing a lot of other revenue besides search into the top line. I assume all the billions they pay Apple comes out of cost of goods sold. All the traffic acquisition costs. Probably also for their infrastructure and for Google Cloud. Yeah.

2:21:26 So at eighty four percent gross margins. You should know they're ten percentage points higher than your average successful big pharma company. They're concentrated. in terms of what they actually focus on, but they're enormous and more profitable than everybody else. So

2:21:42 They've sort of threaded a needle that If you were pitched a blank canvas, you would say, like, well, it's impossible. You need to make a trade off somewhere if you're gonna be so narrowly focused on just one or two conditions and really one singular interrelated condition of metabolic disorders, either you can't have all the revenue. Or you can't be so ludicrously profitable and Turns out the thing that they picked, they can be both.

2:22:03 Yes. And also, it gets better. So Because semiglutide has Such a long

2:22:11 Half life. relative even to Lyriclutide. I mean it's a once weekly injection, so like you know, the half life in your body is days. It's staying in there for a long time. Remember natural human

2:22:24 G L P one. Your body processes that in like five minutes. So Having GLP ones active in your body for so long It's reaching other

2:22:34 Tissues in your body. That normally GLP ones wouldn't. And indications are show that that is beneficial. for those organs. So currently Novo has clinical trials going for

2:22:49 Semaglutide, like same drug, same TLP ones. Use case in treating cardiovascular disease, in treating Alzheimer's, in treating kidney disease. Many others. Again, this is all for like a molecule that Through

2:23:03 FDA processes and EU processes has been deemed safe enough to be on the market for The accepted use cases. Same drug. now is showing evidence that it can also attack these other major disease areas.

2:23:19 This is the gift that keeps on giving here. Could be. Everything is really early, but it really might earn the title of Miracle Drug. They really might. Yeah.

2:23:29 Not a scientist at all. This is just my thought looking at this. But Yes. Could be A miracle jug for

2:23:37 Humanity and certainly already is a miracle drug for Novo Nordisk in terms of financial performance. Like no doubt about that one. No doubt about that. All right listeners. Now is a great time to talk about one of our favorite companies, Statsig. Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI powered experiences at scale. Yep.

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2:24:54 The general state of affairs of GLP ones today. So the first thing to know is sticker price. The price of Ozempic to treat diabetes is north of a thousand dollars and weGove for weight loss is north of thirteen hundred dollars. per month. before insurance. And this is in the US. So

2:25:11 Expensive, right? That's a lot of money. In Canada, of course. Ozempic is a hundred and forty seven dollars a month. In the UK, it's$93 a month. So everything that I'm about to talk about is a uniquely American problem, much like most problems in our healthcare system.

2:25:27 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.

2:25:39 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

2:25:55 Deeply intertwined. One incentive alignment. And two is time horizon. So The average American in the private sector.

2:26:04 holds a job for three point seven years. That means that on average. Insurance companies are going to churn you Every three point seven years or sooner if your company changes the insurance plan. So

2:26:18 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.

2:26:29 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.

2:26:45 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 or your current employer. Oh man. So if I'm an insurer, I'm like, great, I'm gonna offload all that onto Medicare. Exactly.

2:27:09 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. They're invested in your health.

2:27:28 For your plan life with them. 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

2:27:44 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 was actually not that long ago, just like 20 years ago.

2:28:03 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 prohibit from paying for weight loss and it is specifically called that it is legally prohibited.

2:28:28 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. Interesting. Do you know if this was a result of the Fen Fen debacle? 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. Yeah. I could see the argument of like why is the whole taxpayer base covering, you know, people who should just be exercising more? Yeah.

2:28:55 Definitely been proven that That is not the case. It's not their fault. 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.

2:29:24 So what is so interesting about 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 interest for us to stay healthy.

2:29:39 ourselves. And Uncle Sam. And for us, it's actually quite hard to look out for long term interest because 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.

2:29:55 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 ones 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.

2:30:15 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 health care bills down. Later in life. Yeah. 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 study is kind of net out on the benefits of these long term things.

2:30:36 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

2:30:51 Everyone's gonna need knee replacements and hip replacements and diabetes treatment and amputations and cardiovascular interventions. Right. That is kinda 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

2:31:14 Yeah, 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

2:31:26 Cost and tax on society too. save those expenses later. That's the question here. Right. So last thing to say here.

2:31:35 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

2:31:47 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 w expensive it would be right away.

2:32:12 Yep. Which might be a good time to talk about. Eli Lilly and Other companies out there that are Also bringing GLP one drugs to market.

2:32:20 Yes, please tell me about Trizippetide. Ha ha ha. Yeah. So Obviously. Other big pharma companies.

2:32:28 have not just been completely ignoring this incredible development slash cash gusher that has emerged in Novo Nordisk land. Eli Lilly now has A DLP one Diabetes approved.

2:32:42 treatment on the market. Under the Diabetes brand Monjaro. that seems to be as if not more effective as semiglutide in terms of weight loss when used for Obesity.

2:32:54 And tersipatite is basically the same. It's a GLP one receptor agonist. but it is also a GIP, which is they' bas 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. So that's showing great promise. It was approved in the US for diabetes treatment in May twenty twenty two. and approval just came recently in November twenty twenty three.

2:33:23 for official FTA sanctioned weight loss use case. under the marketing name Zepp Bound. So look for that. And Twenty twenty four.

2:33:32 What this really shows though between Eli Lilly and Novo and other Companies that are almost certainly gonna get into the GLP one business. I think this is gonna be like insulin all over again, where there's just gonna be a series of product improvements.

2:33:46 And companies will drive innovation and Increase Supply. I mean, The demand is so huge out there that Monjaro can be a huge hit.

2:33:56 Oh, Zempik and Wegabee will continue to be huge hits. other companies getting into the game will be huge hits. Novo has next generation GLP one drugs in the pipeline themselves. Kagrasema is the big one that they're currently working on.

2:34:11 that they think will be as good, if not better, than what Eli Lilly has with Terzipatide. 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 supercycle here in

2:34:26 pharma development around these compounds just like played out with insulin over the last century. Yeah. 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.

2:34:40 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. Totally.

2:35:08 Other things to know about these GLP one drugs today. For diabetes I tried 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. At least in the US, yeah. Yes. So

2:35:28 There are a lot of reports of people paying somewhere in the neighborhood of three hundred dollars a month. after insurance as their actual cost. And to corroborate that, a different way to arrive at that number one person told me that it is common for most employers to put between a twenty to fifty percent copay on these drugs. So at a thousand dollars, you know, that's two to five hundred dollars. So

2:35:49 On the one hand, it's still very expensive, three to four thousand dollars out of pocket per year. That's probably like My entire out of pocket healthcare spend. in an expensive year. You know, that's a big price tag. But on the other hand

2:36:02 If that's the thing that changes your life. That could be seen as an easy choice. Now it's easy for us sitting here to say something like that'cause there's a lot of people that don't have that kind of cash to spend on something that could potentially change their life. So there's definitely a meaningful access problem.

2:36:17 Not just the supply constraint on the manufacturing side, but even at a highly subsidized rate from insurance, a lot of people still can't actually afford the drugs. The last thing I wanna say on the current state of GLP ones is that Not adherents. Is

2:36:33 a bigger issue with these drugs than many other drugs that have come before it. There's some research that points out that as many as sixty eight percent of people roll off it after a year. And Part of this is related to price or changing insurance that doesn't cover it.

2:36:49 Or that it's hard to find since they're still supply constrained, or maybe there are side effects that a doctor is not sort of like staying on top of with you. So you just get fed up and you're like, screw this, I'm off. But A lot of employers and insurance companies are sort of waving their arms around and saying, Why are we covering this expensive thing when people don't even stay on it and all the benefit goes away when they get off of it, or at least, you know, 90% of the benefit goes away and your weight yo-yo is back up. So there's some very real things to figure out in making sure that you can prescribe these GLP ones in a way that

2:37:19 come with enough hand holding to help you understand and manage the side effects and make all the behavioral lifestyle changes that You sort of need to to make them be effective and sustainable. Interesting. I hadn't found that about. Non adherence. Yeah. It came up in a bunch of Tegus calls. There must been some hedge fund investor trying to dig into building a model of non adherence into their DCF.

2:37:39 Well before we go into analysis. There is A little bit of catching up to do on the insulin market. Because

2:37:47 We kinda left it. As Hey, it's still twenty two percent of uh revenue in Novo's business and you know, big three companies, uh, Sonofi and Eli Lilly and Novo really compete here and

2:37:59 They've iterated to become great products over time. Well One thing that we didn't talk about is The complete destruction of how attractive it is to operate an insulin business. And this is super recent.

2:38:13 So If you would have asked any of these companies 10 years ago, how durable is this revenue stream and how durable are the profits from the revenue stream, They probably would have told you that it's pretty durable because we have things like uh delivery pen mechanisms that we keep improving over time that are proprietary. that give us some pricing power, that we keep revising the formulations, so we keep getting the ability to patent new things. It's kind of difficult to manufacture because it is

2:38:38 develop from living cells. So we're not just pouring chemicals into a vat. We do have to do some complex work to produce the insulin. So somebody's not just gonna waltz in here and figure it out. And that was a pretty widely held view and one of the reasons why I think these companies thought they had so much pricing power. Which

2:38:55 they got in trouble for. So One thing that happened was a big controversy over pricing that we talked about in twenty twenty one. US officials alleged that Novo Nordisk increased prices more than six hundred percent.

2:39:10 between two thousand and one and twenty nineteen in lockstep with competitors. to the detriment of diabetics. Now Novo, of course, denied this, and they pointed out that the net prices had actually decreased since 2017. So very convenient that they just talked about the last two years of that 18 year accusation. So my read into that is yeah, prices were really rising and yeah, we all thought we had a lot of pricing power and we don't want to dig too much into it.

2:39:34 Now if you look at the last five years and especially the last two The opportunity to sell insulin for a profit. has basically completely fallen apart. So you've got regulation that came in. after the public outcry. So there's real price caps on what you can sell insulin for now. Bio similars also came in.

2:39:51 Biosimilars are effectively what people call generics. But for the category of drugs that involve live cells. rather than mixing chemicals together. So traditional drugs have generics and biologics have biosimilars. Biosimilar insulin became a thing. And so a lot of the profits just got completely arbitraged away. And

2:40:11 GLP ones are here, so those are reducing demand for insulin too. Those three things in the last like five years or so. created this complete perfect storm for insulin to be a super unattractive business. Interesting. Obviously, as we've shown throughout this story, it's not like Novon Nordisk planned it that way.

2:40:29 However. This is really to their great benefit, right? Because of all the insulin manufacturers. I mean I guess Eli Lilly was first to market with TLP ones, but Novo really created the true GLP one market.

2:40:44 And we're the ones to really benefit from these early years while the competitors are catching up. In many ways they disrupted it just in time. In some ways you could say, Wow, it's so courageous of them. to come in and disrupt themselves. But on the other hand, it's like the headphone jack.

2:40:58 Right. Yeah. Was it courageous or Did they see the writing on the wall that eventually we're not gonna make any money from insulin? And so it's time to really start putting our foot on the gas on this thing where we could have bigger market, differentiated profitability.

2:41:12 I kinda think it was a happy accident that the timing worked out. But there are different ways to look at it. Yeah. I certainly didn't find anything in my research that suggests it was anything but a coincidence. Yeah.

2:41:24 It's interesting to think about the fact that these companies thought that biosimilers weren't just gonna waltz in and, you know, eat their lunch and arbitrage all the profits away. Over time, the market for insulin became sufficiently large that they just had a target on their back. the prize became worth it. As we talked about in the NVIDIA episode. Mots are only sufficient if the castle is sufficiently lame to invade.

2:41:48 Otherwise the castle becomes better. You need a bigger moat. In nineteen ninety nine, I think it was, Eli Lilly sold Seven hundred million dollars. of insulin in America. Nineteen ninety nine.

2:42:00 By twenty seventeen, just two of their products sold two point six billion dollars in America. Yeah. Two of their insulin products. Yeah. Seven hundred million to two point six billion. It's just an illustration of how large and how interesting that revenue stream became for other people to go after.

2:42:18 Totally. All right, should we get into power? We're kinda there anyway. We're kind of in analysis land here. 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

2:42:36 differential positive returns versus their competitors in an industry. 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.

2:42:50 Scale economies. Switching costs. network economies Process power. Branding.

2:42:59 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.

2:43:10 Yes. This is a patent driven industry. Yes. Novo Nordisk has the patent on semiglutide until twenty thirty two. And this is an industry. Where

2:43:21 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.

2:43:36 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. More engineering. Yeah, that would fall more under

2:43:55 Process power. And frankly, scale economies because it requires more capital. But right now, like historically Pharma is a patent driven cornered resource industry. Yeah.

2:44:06 I think how This GLP one kinda super cycle is gonna play out if it continues. And what's interesting about the insulin history in the analog to that. It's looking like it's going to be like this.

2:44:20 ever stacking waves of patentable innovation and product innovation happening here. So like Yes. the semiglutide patent will expire in twenty thirty two. But if Cagressema, their new kind of next generation GLP one product shows the promise that they think.

2:44:39 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.

2:44:50 For sure. Yeah. 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 want to prescribe the old thing. And so

2:45:04 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.

2:45:13 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 patent molecules.

2:45:26 Delivery mechanisms also provide defensibility. Yep. Yep, yep. One question I had was There might be like

2:45:34 contractual things. that entrench relationships too. Like When you get really big and this would be a scale economy. Are there

2:45:43 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

2:45:58 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. Yep. I think that falls into scale economies. Yeah. Which for sure also apply here.

2:46:10 Yeah. I think really on three sides. On the R and D and research side. 'Cause that is incredibly capital intensive. Of two point three billion dollars a drug. Yep. the production side, as we've talked about for much of the episode.

2:46:23 And then also here on the go to market side. You can't just, you know, waltz into these markets. Right. And the gigantic amount of R and 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.

2:46:39 You don't necessarily need scale of patients, but you do need scale of dollars in order to outrun the fixed costs of R and D. Yeah. I think we can say There's no network economies here, pretty safely. And I think we can probably also say there's no branding, although

2:46:55 Ozempic has become such a buzzword. Oh, I think there actually is. Normally there isn't. But that's one of the breakout things about Osempic is There actually is Brand power.

2:47:05 The first time I heard about Manjaro was eighteen months after I'd heard about Osempic and I was like, Oh, it must be some kind of knockoff. You know, this is 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 Manjaro helps you lose more weight and has A very similar mechanism plus another mechanism that together worked, but like

2:47:29 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. Jivy Kimmel was talking about it. Yeah. Yes. I think for the first time

2:47:44 And it's happened a little bit before, but for the biggest time in a while, Ozempek has actual brand power. Yeah. I mean there's like Tylenol, et cetera. But like, yeah, it's entering. That category.

2:47:55 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 Manjaro about Wagobi. I was like, Oh, that must be a crappy knockoff. I did a cursory amount of research and I was like Holy crap, it's the same drug from the same company. Like I'm an idiot. It's like literally the same thing. It's literally the same thing. Often in the same doses.

2:48:19 It's technically a higher dosage, but you can get many different dosage levels of either drug. Right. And not only that, it is the one that is supposed to be for weight loss. But you're right, Ozempic has become this brand name. Yeah, vitamin O or Oz or Yeah, there's all sorts of I've been reading the Ozepic subreddit for a while to prep for this episode. I bet you found some fun stuff in there. Totally.

2:48:42 Switching costs. Our thing. Switching costs with any drug are a big thing because once you find something that works for you, you you never change. Like I've been on citrazine hydrochloride for my allergies for Fifteen years. I think it's Zurtek. And like, no, I'm not trying anything else. It works. Why would I try something else?

2:48:59 Yeah. And especially in this case where In the vast majority of patients. It does seem that if you stop treatment, you will regain the weight. Yeah, that's one of the worst things about it.

2:49:10 I will also throw in network economies. Oh. I had said I thought there was none, but uh I want to hear your case for it. Well So I think most of the time in pharma there's none. But

2:49:22 With a Zempek. So I think there's two ways in which GLP ones. Used for weight loss. resemble consumer tech products.

2:49:31 Yeah. One is a tight feedback loop. When I start taking Lepitor. I don't like physically notice anything about myself, despite the fact that something that is potentially very dangerous to me has become less dangerous.

2:49:44 with cholesterol. when I lose weight, I immediately notice like if I lose what, six pounds in the first month. There is a super tight feedback loop there. And so in the same way that Zinga created these feedback loops for Mobile gaming.

2:49:57 And that sort of psychology has been used in all tech consumer products now to create these gratification loops. That totally exists with Ozempic. The second one is what I think as a network economy. you kind of become a walking billboard. Mm. Yeah.

2:50:12 There's a little bit of uh Taboo around sort of saying I'm Taking of Zempek. But people know you lost weight. It has almost like a shareable

2:50:23 O Zempic can go viral. In a different way than most pharma describes going viral. I totally agree with you. I would push back a little bit in the classification. I don't think this is actually a network economy. I think this is just incredible word of mouth marketing.

2:50:38 Because I don't think other people actually get a benefit from you? Taking Ozempic. Yeah. But I mean literally you become a walking billboard. Like it is a Obvious word of mouth marketing.

2:50:49 I guess the only one would be like uh the taboo thing. If I'm taking those epic and I'm ashamed of it, because I'm the first person, if a million more people start taking it. Then it is actually better for me. Right. If Elon Musk tweets that he's taking it. We go V. Yeah. Mm.

2:51:03 But again, it's the same thing. Right. Not to mention Ribelsis, that's the new oral one. They have figured out how to make semiglutide. A once-a-day pill, if you prefer taking that to a once a week injection. It's a little bit weird because you have to take it on an empty stomach and then not eat for 30 minutes afterwards, but If you don't like needles. I believe it is also not quite as effective as the injectable version.

2:51:24 Huh. But still, it is an amazing feat of engineering that they created an oral version of this. And this is the kind of stuff that Novo Nordisk is so good at. It's all these decades of researching how do we make this stuff break down differently in the body? Because it the issue with the GLPs is it can't get absorbed into your bloodstream. By you putting it in your mouth and then it going into your stomach and, you know, it's hitting it the harsh environment of your stomach. So like figuring out how to

2:51:50 make something go from your stomach into your bloodstream for a sustained period of time. Right. protect the molecule enough. Right. That is sort of the novo magic. Yeah. Wow, there's a lot of power here. I think the only one we haven't talked about yet is counter positioning.

2:52:05 Which is interesting. You know, maybe you can make an argument at the beginning there was'cause this could disrupt the insulin market. But I don't really think so. Yeah, and counter positioning basically always exists in the takeoff phase and never exists Later. I think that we keep kind of finding that pattern over and over again is incumbents don't really counter position, startups counter position.

2:52:26 Yep. Yeah, I think In the world of health care There is a ton of power for basically

2:52:34 Any company that we would study. Because the returns over and over and over again keep going to these incumbents that keep getting bigger. And I know biotech investing and startups is a thing, and there'll be new disruptions on the horizon, CRISPR and Gene and Cell therapies and things like that, but The last

2:52:51 Thirty years at least of Healthcare. has consisted of returns. Which would indicate lots of power.

2:53:00 Yeah. And it'll be interesting to explore. Healthcare broadly and specifically biotech more on the show. My sort of arm's length understanding of the industry is that

2:53:11 Where startups primarily are doing drug discovery. And then they get acquired by the big companies for go to market. Yep. That's right. Or they do a deal, uh some kind of distribution deal, but a lot of the economics of that deal are eaten up by the big pharma company as the distributor. Which really they're not the distributor. The PBM

2:53:29 handles making sure that the reimbursements are there so doctors will prescribe them and the wholesaler distributors handle. physically moving the drugs, but when you do a quote unquote distribution deal as a biotech company with a pharma, it's because the pharma has the relationship with those two other parties to ensure that you actually can be available at broad scale. And really this model.

2:53:50 all started going back to Genentech and Eli Lilly. And Genentech ended up getting acquired by Roche. But it was that partnership of Eli Lilly being the go to market for genetic in insulin. That started this whole, you know, startup big pharma partnership. Yeah.

2:54:07 All right. Playbook? Playbook. Let's do it. So the first one that we've hit a few times, but is just worth putting a fine point on.

2:54:15 is concentration. The focus of this company is unbelievable. Eighty-five percent of their revenue is dedicated to metabolic disorders. They are the second largest market cap pharma, second only to Eli Lilly. It's crazy. They're that focused, but they have an ability to be that large by market cap. It is worth knowing they aren't in the top ten pharma companies by revenue. In fact, they're twentieth. Wow, I didn't realize they were that low. Yeah, no, it's a multiples thing. Part of the reason why they're Europe's biggest company is

2:54:45 People are very optimistic about their future and about their ability to be profitable in the future, not just make a lot of revenue. But It continues to blow my mind that They have had the huge success that they have had with how focused they have stayed. You know, it's funny. I was thinking the same thing is my main playbook takeaway from this one. It reminds me of our Sequoia Capital episodes a few years ago and

2:55:07 Sequoia's kind of historical classic mantra and the Don Valentine ethos of Target big markets. Find a big market. target it and then like stay focused on it for decades and decades and decades. And that's the story of a lot of companies we've covered here, but this is such a pure play example of that. Like

2:55:25 One disease. Right. One drug area for a hundred years. And now a second drug area that came out of the first Chug area. Well, but for sixty years it wasn't actually that interesting of a market. That's the crazy thing. Like nineteen twenty to nineteen eighty It was type one diabetes, which

2:55:40 Again. Absolutely incredible for the world that they took children who had a death sentence that gave them life and they got to live basically a full life. But Was type one diabetes actually this colossal mega interesting market. No.

2:55:55 Not at all. Yeah. Something changed. Yeah, absolutely. You're totally right. What did Charlie Munger tell us? He said There aren't many times in a lifetime where you know you're right. And you know you really have an investment that's gonna work.

2:56:07 You may even find it five years after you bought it, your own understanding gets better. And I think that's basically what happened with the Novo Nordisk Foundation. They realized Oh my God, this isn't just a service we're doing for the world, this is one of the most important markets in the world.

2:56:24 Totally right. And it's so funny. I mean Obviously we weren't in the room as these conversations were happening, but From reading the history, it feels like They understood it more than management at the time. Management was like kind of too close to it and thinking You know, industry wisdom. We need to merge. Consolidation is happening. And they were like

2:56:43 No. There's this incredible wave that we are riding here. Let's Keep compounding. You should share the stat on the uh size of the endowment. Oh.

2:56:53 Yes. So um I kinda can't believe we haven't talked about this yet. Novo Holdings, which is the vehicle by which the Foundation.

2:57:03 holds their stakes in Novo Nordisk and Nova Zimes. They're sort of assets under management and does the endowment of the foundation. It's worth a hundred and twenty

2:57:15 billion. Dollars. Which makes it. The single largest Charitable Foundation.

2:57:22 in the world. Over two X larger. than the Gates Foundation. Which is number two. Unbelievable. Unbelievable. And

2:57:31 Through Novo Holdings. It is actually now. become one of the Largest and most active. life sciences and biotech investors in the world too. They hold

2:57:41 Venter stakes in eighty plus other companies. That's on top of giving out lots and lots of grants. to life sciences around the world and fulfilling the foundation's mission. I mean

2:57:53 It's just wild. We're burying this so deep in the episode, but like This is the largest charitable foundation in the world. That's wild. Now it's interesting that it qualifies as that because yes, that is totally true. On the other hand, a hundred and twenty billion dollars is pretty neatly just a little bit larger than a quarter of Novo Nordisk's market cap.

2:58:12 And so like The vast majority of that hundred and twenty billion is their ownership of Novo Nordisk. So it's not like oh my God, they spat off a hundred and twenty billion dollars in cash that they're investing elsewhere. No. So if you know, Jeff Bezos decided to put his what does he have, like nine percent of Amazon decided to put that into a foundation and call it charitable suddenly. That would be the most charitable foundation or, you know, up there. Yes, correct. But the point stands.

2:58:37 It's still pretty cool. Yeah. While we're on the topic of the foundation, before we keep going in playbook. It is worth pointing out that There are formally defined objectives of the foundation.

2:58:48 And those objectives do not include growth. So it's kind of amazing that They have grown the way that they have. The dual mission now is is stability.

2:58:59 and supporting scientific and humanitarian causes. So What does stability mean? I suppose it means like ensure the longevity and duration of Novo Nordisk as a company. But it's interesting when your stated mission is stability.

2:59:15 And this humanitarian cause that is a byproduct. you could end up being this incredible market leader, innovator. Super high growth company too. Yeah. And on the point of mission.

2:59:26 Novo Nordisk has a stated mission that it's not just about supplying treatment and It's about eradicating diabetes. And so there was a twenty fourteen paper that came out that suggested a real cure for diabetes using stem cells. I think it was out of Harvard. And at the time the Novo Nordist chief medical officer replied We feel a responsibility for trying to prevent or eradicate diabetes. And if that means the dissolution of Novo Nordisk, that would be fine.

2:59:50 I'm having such a hard time wrapping my mind around like is that actually true? Is all of the behavior of the executives Actually in service of curing diabetes, even if it means that their revenue would go to zero? Isn't that at odds with the idea of stability? Of Novo Nordisk. That quote was from twenty fourteen, did you say? Yeah. So previous administration, so to speak. And

3:00:14 Pre GLP one's becoming really huge. It's very easy for them to say that now,'cause They could eradicate diabetes now and still be Europe's largest company just based on obesity alone. But From talking to Folks. From the outside. As true as it can be in a corporation.

3:00:31 Yep. I also found a stat that in the last six years four and a half billion dollars of grants have been distributed. So I was a little tongue in cheek about like, well, geez, most of that is their ownership of Novo Nordisk, but like That is a lot of outflows to research. And I I think importantly, that research often supports what Novo Nardis, the corporation.

3:00:51 wants to go do and so it's nice to have a close relationship with researchers. Yes, there is a cycle here. Yes. Which rolls up to the mission of stability. But

3:01:01 Yeah, they deserve to be applauded for the reinvestment. Certainly it is a unique structure in the corporate world. And one that has had a huge impact on the company's history. Yep.

3:01:13 Okay, while we are in corporate structure land. Alignment of incentives is pretty interesting among management. I don't know if you looked into this at all. But their executives are not meaningfully incentivized by stock price performance. Mm. Interesting. No, I didn't look at this at all. Yeah.

3:01:29 So they are sort of forced to think on a different time horizon than if your compensation came primarily in the form of stock options and you wanted to you know, make the stock go up in a three to five year window. So Executives and board members are not given stock options. as a part of their compensation.

3:01:47 And when you talk with folks in the industry, the employees reportedly have lower compensation than their counterparts at other companies. And I couldn't figure out if that was like a Danish versus American thing. Or if they intentionally try to repel the idea of mercenary employees. And attract missionaries.

3:02:04 But it would seem that their excellence in Pioneering diabetes medicine. Is really Mission driven. There's a what they call their renumeration policy.

3:02:14 Which requires all board directors to hold stock. you know, you're not getting it as your comp, but you're required to hold it, which I think is kind of a similar idea to what Berkshire Hathaway has of hey, we should have um sticks, not carrots. And in Berkshire's case, there's no DNO insurance for board members. You actually have to own the liability of the company's actions yourself to be on the board. So they they take it seriously. But in Novo's case

3:02:38 It's hey, you don't get the carrot of big piles of free equity in our company. Yeah, you gotta go buy the stock. Yeah. actually be aligned with the owners. So you get the fruit of the appreciation or the punishment if it doesn't do well. Yeah. I suspect it's probably both I do think Danish culture plays into this too.

3:02:56 Yeah, it is a Much. Much more socialist. Country then. America and actually um

3:03:02 Watching interviews with Lata, she talks about this and uh sometimes she's asked about it of like, Oh, hey, didn't you get rich on Basically inventing GLP ones and she's like, No, I've never asked for a raise in my life. I'm a socialist. But look at what we've done for the world. Yeah. It's pretty crazy.

3:03:18 Now the question is does that thinking lead to the GLP one breakthrough. Other pharma companies certainly didn't make these investments and these decisions on these time horizons. And so there's a reasonable narrative that it was actually Novo Nordisk's focus and their time horizon that led to the decades long work to actually bear fruit. I mean, semiglutide isn't out of nowhere. It was built on all the work that went into Lyra glutide since the early nineties and incorporated all the clever ideas they had. previously developing longer acting insulins and things like that.

3:03:49 There is a reasonable narrative of It's their long time horizon and their focus, their ability to learn from doing the same thing well and iterating it over a hundred years. that actually led them to find this breakthrough when others didn't. Job. The key point is

3:04:04 Long term. Focus. And if you can do that. As we've shown time and time again on this show. You can create something great.

3:04:12 If you do that, it's not like you will create something great. You still gotta get lucky and also be doing the right things in the right areas. But if you're gonna build something really, really big, you gotta have that long term focused mindset. Yeah. Okay, there are a few unexplored areas that I think are interesting to know about healthcare as a whole and about Novo Nordisk that I wanna talk about here in Playbook. One of them.

3:04:35 Is A shift. that Novo has done here to broad populations with relatively inexpensive drugs. versus other pharma companies. And I know you're gonna be allergic to the idea that I just told you a thousand dollars is an inexpensive drug.

3:04:51 But The crazy thing here isn't just that the revenue and the focus is so concentrated. It's concentrated in an area that other companies shied away from. Pharma over the last couple decades shifted away from these mass population drugs to specialty drugs. And these are often to treat specific forms of cancer or rare childhood diseases with super narrow populations and huge price tags. And to put numbers around that, we're talking like total market size of a couple hundred thousand people or fewer.

3:05:20 as few as like three hundred people in these super rare orphan diseases. occasionally these diseases are so rare and the treatment is so you know, life changing. Or life giving. that the treatment, like one dose of the pill or one infusion of the therapy or whatever it is, can be measured literally in the millions of dollars.

3:05:41 So It gets far more extreme than uh a thousand dollars a month. It's understandable why the other pharma companies went there for a few reasons. And this is a little bit of a walk through history, but It's been a while since we saw a breakthrough. in a mass market drug.

3:05:57 Really the last one that we can point to is statins. Which was to treat cholesterol. I don't know, thirty years ago is really when that was kind of the thing. H I V and Hep C are examples we can point to, but again, it's been a while.

3:06:10 Those are small markets compared to Obesity. Well, compared to obesity, but they still qualify as large population. When you're treating millions of people with something Well, A, you can have a different pricing structure. Like you can have much cheaper drugs. But B, like you can just affect

3:06:26 a huge swath of the population. You know, it's not like we're discovering an antibiotic or a cure for polio every other year these days. In fact, the Alzheimer's researchers have really been trying, but the trials have just been disappointing. And so We had this great heyday thirty years ago of small molecule drugs that you could manufacture relatively easily by mixing chemicals, but

3:06:47 After those patents expired and these could be manufactured by other companies as generics and sold to everyone for cheap. We really haven't discovered something like that since. So that's why the shift has really gone and of course we have new technology to do it too, but really shifted to biologics, the complex proteins that are You know, harder to manufacture and

3:07:07 I think a way to summarize that is a lot of the low hanging fruit has been picked. Mm-hmm. Compounding this problem just because this is healthcare and you compound every problem. Different type of compounding. The way that FDA approval works is that you get a label for a drug if you can prove with the right degree of statistical significance that the benefits outweigh the risks.

3:07:29 And that you are better than current alternatives by some measurable amount. So conditions with existing alternatives are harder to get approval for. Mm.

3:07:40 Another factor pushing to rare diseases. A hundred percent. Going back to the piece that Alex wrote, he references this idea of the better than the Beatles problem. Like what if it was a requirement to be releasing a a new pop song in the market that it was better than Hey Jude or better than Here Comes the Sun? You'd have no innovation. Like of course not. Right, right. So the rule both makes sense. And you understand why.

3:08:04 Once we hit some minimum level of treatability for something, you're like, Jeez. Is the juice really worth the squeeze there anymore? Right. No, you go work on something that you're actually likely to get approved for and make your billions of dollars of R D worth it. And your years and years of clinical trials and recruiting all the people for the study and By the way, these studies have just gotten so insanely expensive to run. And you know, it's not just the studies that cost money, but if you just look at the cost to bring a drug to market in nineteen fifty three, it costs forty million dollars for an approval. And that's an inflation adjusted figure.

3:08:39 Today. It averages two point five billion. Wow. Wow, wow, wow. I don't know, it's easy to be kind of like

3:08:46 disillusioned with Why would I go after something large population if there's already something else that treats a large population good enough. Right. Wow.

3:08:55 That's interesting. Almost every other market out there. If it's like a big market, there's insane capitalist incentives to go make a better mouse trap for it. Right. It's super true.

3:09:07 So this leads into this uh another playbook theme. Pharma. is the most classic example of the venture business. It's super high risk.

3:09:19 It's super high return if it works. And the winners need to subsidize all the failures. And in fact, it's even more sort of severe than typical venture capital. Because

3:09:29 A lot of the research can take over a decade of investing before the winners bear any fruit at all. So everyone was like, Oh my God, Figma spent four years writing code before they shipped a product. Like four years. Oh, four years. That's nothing. Yeah. There's no MVP in semaglutide. Like let's put a couple billion to work and then we'll check in a couple decades later and see if we've changed the world. And obviously there are stage gates along the way, but you know, it's adding a zero or two to the venture business, to be honest. I think the the most illustrative stats on this are that The top decile are pharmaceuticals.

3:10:03 Are what matters. For the profits. So if you look at the pipeline Of a hundred drugs that enter clinical development. ten actually make it to market.

3:10:12 And one provides Get this half the profits. One drug. Oh crap. Wow. The initial part of what you just said jives with our math earlier, the ten percent make it to market. I mean that's a power law right there. Right.

3:10:26 Ten percent of the ones that make it to market provide fifty percent of the profits. Most drugs, this is also a crazy stat, even after they are approved, do not ear back their R and D costs. I mean this dynamic showing why

3:10:41 the market force has led to consolidation in this industry. Like you just need to be so large. And have the capital resources to Pool all the risk of these drug pipelines? That's exactly right. Yeah, you need to actually be able to pull risk. Or have some differentiated way.

3:10:57 versus all your other competitors of being more likely to create a hit. Aka Navar. Yeah. You will not be a successful pharma company without blockbuster, and even then blockbusters might not be enough.

3:11:10 Wow. Nuts. All right, so now we're into like healthcare as a whole land, so I have some commentary on this. I'm very excited about this. I think this is gonna be a new chapter of Acquired because there's a lot of stuff to dive into here and we'll still never understand it all, but it's fun learning.

3:11:27 So I think everybody is aware in some sense That For every dollar. that we're investing into the healthcare system.

3:11:37 we're getting less and less incremental utility out. People complain all the time that as a percentage of GDP, which by the way is something like seventeen, eighteen percent. Which is nuts, right? Our healthcare system costs us seventeen to eighteen percent of GDP. that goes up every year and the quality of care goes down or life expectancy goes down. So everyone sort of like heard some variation of this problem before.

3:11:58 On the surface things appear to be broken. Yeah. The seventeen point three percent of GDP that Health care costs us. You should just know as a baseline that in nineteen sixty. That was five percent of GDP.

3:12:12 This hasn't like gone up a little bit. This is like you know, one of the biggest line items for the entire country used to be fairly de minimis and is now enormous. So You should expect a lot of your healthcare system, given what it costs. On the one hand

3:12:27 This is really bad and like there's a zillion people to blame for it. So it's hard to blame one individual or one company. And so it's the little bit of like a tragedy at Commons where everyone throws their arms up and says, Well I'm gonna go do the best I can and You know, make sure I'm okay. Because I I really don't know like who to point to and be like This system is Fed up for this reason.

3:12:46 I mean you could blame oligopoly, you can blame regulatory capture, you can blame too many middlemen. to high of hurdles to get new drugs in the market. But on the other hand, like you would sort of expect this. I mean

3:12:58 A lot of the low hanging fruit is picked. So it seems like it's gonna require more money. To go eke out. More rewards.

3:13:07 People always make fun of pharma with this thing they call Erum's Law, which is Moore's Law backwards. And the idea is like pharma for every next generation gets more expensive. But like semiconductors also require huge amounts of R D. And just because we're getting that speed up every eighteen months.

3:13:25 Have you looked at E U V. It's An order of magnitude more expensive every generation to be able to make Processors like that. So I think that's a little bit of a false equivalence.

3:13:37 I totally understand why. Especially in heavy industry. it should be more expensive to get marginal benefit out. once you have already picked the low hanging fruit. So I have a little bit of pushback on the healthcare is getting more expensive. We're getting less out of it.

3:13:52 The thing that isn't good is that the average life expectancies have actually declined in America the last few years. Despite the fact that we're spending more money. So it's not just that our marginal dollars are earning us less. It's that we're putting more money in and life expectancy is actually decreasing. And unfortunately it's kind of outside the health system's control. It's a lot of like mental health related stuff, overdosing on drugs. A lot of things impacting the length of life are, you know, cutting sixty years off of people's lives when they're young, which obviously will massively. affect the data.

3:14:23 One other thought on this, though. So from eighteen fifty onward, we got these huge increases in life expectancy every decade. If you look at these charts, it's astonishing. You're like Wow, there's like a miracle drug every year, or there's a miracle process, or there's people are washing their hands, or there's indoor bathrooms, or whatever it is. Life expectancies is getting way better. We were like curing infectious diseases that killed kids. All the time.

3:14:47 But once we got those mostly covered. At least for the sort of big large population ones and we got antibiotics and insulin and all this. If you spend money to help a seventy-five year old live to eighty, it has a much different effect on the data than helping a 10 year old live to be seventy-five.

3:15:03 And Once you compound that with the low hanging fruit, of course it's gonna be really expensive to figure out how to make that 75 year old live to be eighty, especially if There's a big fragmentation. Of disease. Yeah, it's also exponentially

3:15:17 harder to get that five extra years of life because you're facing twenty different morbidities out there. Right. We rarely are getting the silver bullets like we did with antibiotics. It's gonna be two point three billion dollars over here to cure this form of melanoma, and it's gonna be two point three billion dollars over there to cure this form of pancreatic cancer. It's just gonna I think just gonna keep getting more expensive.

3:15:40 to cure the more fragmented small population things. I think there's a reasonable question of like what do we do about that as a society? Now that's on the benefit side. There might be some massive cost reduction side. Like you could imagine some technology comes along that makes drug development way cheaper. Or makes us able to like massively collapse the time and dollars spent in a clinical trial by using AI or something. Or

3:16:04 There might be ways to Collapse cost ten or a hundred X. somewhere in the healthcare system. But the current state of affairs is not very free markety, so it's harder to imagine that happening. versus other ecosystems the way it happens in tech.

3:16:17 Yeah. A couple other just like fun things that I heard from people during research, which I think are just like interesting problems to think about. The health system that was created over the last century was really designed to treat acute and infectious diseases. If you think about

3:16:33 Our healthcare system as it exists today, hospitals where you go in when you're sick. doctors that you see when you're sick, surgeries you have when you have an issue. Pills that you take when you have an infectious disease, antibiotics that you take. You look at the chart of life expectancy, the people that designed that system and solved the acute infectious disease problems should just hang up a big mission accomplished banner.

3:16:53 It worked. It was amazing. Right. We made it to the moon. Human quality of life is s just unbelievably high, and there's very little in common today. on the list of things that will kill you versus eighteen fifty. Completely different set of things. So

3:17:07 The next frontier then is chronic illnesses. And they catch up with us later in life and they're basically undetectable for like the first fifty years or the first thirty years. I mean obesity leading to diabetes or cardiovascular health leading to heart attacks and strokes. These are very different things to treat and require a very different way of thinking, of regulating, of paying for.

3:17:29 You don't wanna wait until people are sick to treat it'cause then it's too late. And so in many ways, this entire old system that we created that consumes eighteen percent of our GDP. may actually not make sense in this new world of treating the things that are more likely to kill us now, which is chronic illnesses. Right.

3:17:46 Thanks. I don't really know what to do with that. I think it's a pretty interesting You did so much more of this side of the research than I did. Did you get a sense in Talking to people like That transition is happening or No.

3:17:58 Well It's so hard in healthcare because there's so many buzzwords. Like there's a thing called value based care, which In a sense, it makes sense. It's like we shouldn't have to pay for every little intervention someone does. We should pay for them helping me cure the thing. Don't pay for the interventions, pay for the outcome. And so then that forces the right sort of thinking all the way up the value chain of how can we

3:18:19 Delivery. a quality of service in the cheapest way possible to achieve the same outcome, which is like how free markets work, right? But in healthcare the way everything gets built is on a cost basis, which We've talked a lot about cost plus pricing and the dangers of that on this show. So I mean

3:18:35 To the extent that the value based care stuff helps. No, I didn't hear any solutions. Alright. Well, listeners, if you get inspired. I did hear one credible pushback against why is healthcare getting so expensive as a fraction of GDP. We use a lot more healthcare.

3:18:51 People just have a lot more Life. battering interventions. From doctors, from pills. from facilities.

3:18:59 than we did in a long time ago. And so like I don't know. I had two surgeries a few years ago, one of which was an A CL surgery. And like a whole bunch of PT. And in nineteen eighty

3:19:10 Would I have had those? Maybe the P T. probably a worse surgery because the procedures were worse back then. In nineteen fifty would I have had an A Cl surgery at all? No, I'd probably just limp around the rest of my life. There really is just

3:19:22 actually a lot more care delivered now than there used to be. Oh man, I mean even like gosh, this is so close to home, I mean for Me and Jenny and my family have talked about this on the show before, but Jenny and I both have genetic cancer predisposition mutations. So you know, the amount of screening that we get.

3:19:39 And then for family planning with, you know, having our daughter and other children in the future. The amount that we have used the medical system as very healthy thirty somethings throughout our life.

3:19:50 would not have been imaginable a few decades ago. So like, yes, I totally buy that. All right. We're kind of drifting into value creation, value capture here, because we're making sort of societal judgments around uh You know, are the economics worth it? Do you want to formally enter that section of the show? Let's do it.

3:20:07 Maybe to start, you know, on this segment of the show we talk about for a given company, how much value do they create in the world versus how much they capture? And let's start narrowly with Novo Nordisk. itself. What do we think? Like

3:20:20 Value creation versus value capture. undeniable that over the hundred plus year history of this company It has created incredible value for Diabetics. And now for a much broader population than

3:20:34 Just diabetics, so B. Creation amount is large. It is also undeniable that it's a half trillion dollar market cap company.

3:20:44 On it. thirty to forty billion dollars of revenue. highly, highly profitable revenue. That they have also captured a lot of value. Well,

3:20:53 A lot of people talk about does the pharma sector over earn? This is sort of the way people talk about this. And on other episodes that we've done, there's far less of a value judgment. We're kinda like, Yeah, companies should go be as profitable as they can be. My God, Visa make so much money. And like That's a little bit tongue in cheek, but

3:21:10 In healthcare it's sort of different because there's an expectation Yeah. you sort of start from a place of public good. And then when healthcare companies earn too much money, you sort of look at it and you're like, Ooh, I don't know if I like that.

3:21:22 Which is so interesting, right? It's a very different starting place then I think a lot of people tend to look at businesses. But One thing that is true is Is that

3:21:31 These businesses require a tremendous amount of investment. And so Just merely looking at their margins. is stupid. I alluded to that earlier.

3:21:40 But like Of course they have high gross margins. For the things that they actually end up selling. Rather than killing. They should. Right.

3:21:48 That's not taking into account. All of the research that they did over the past All the research'cause those are below the line costs. And all the failures because they never sell those drugs. So you basically have to say, well, all the margin dollars they earn from the winners. both have to cover all the fixed cost RD of that drug, but they also have to cover all the failures of every other drug.

3:22:08 So when you actually look at their return on investing capital numbers, the ROI C. They are not through the roof. They're like thirteen percent industry wide. But hold for Novo for a second. It's totally in line with other industries like trucking, broadcasting, electronics, when you sort of look at the federal data on it. I mean The fact that on the blockbuster drugs, the compan a ton of money is not the whole picture. The picture really is like.

3:22:33 as an industry are they over earning? No. They kinda used to until like two thousand. But nowadays the ROIC numbers are just actually not that interesting. And in fact, some would argue that

3:22:43 as pharma gets less and less efficient. Capitalists should just not allocate their dollars there. because there's literally not enough incentive. In the profit dollars that you get to earn from your drug after it's patented for many years. Like should you actually index the pharma sector? Probably not.

3:23:00 me it's a little better than other sectors, but not necessarily enough to take the sector risk of putting all your dollars there. Well, you're making me feel better about my career choices here at work in tech. Now Novo Nordisk, on the other hand.

3:23:14 massively outperforms their peers. And it's been this really interesting trend where ROIC for pharma as an industry over the last 50 years has declined. But the variance between companies has increased. And so Novo far outperforms the median pharma company in terms of return on invested capital. But there's companies that way underperform too. And it's interesting that the good companies are getting better and the bad companies are getting worse while the whole industry declines in its ability to produce a return.

3:23:44 Yeah. Ah, so interesting. I mean I'm tempted to say from this whole episode that's a The moral of the story here is focus and long term focus. But I feel like we need to uncover this industry more and hear from folks in it. If that were always true, why are there not more novos out there?

3:23:59 Right. It may also be play compounding games in big markets. I mean, it's very clear, even if not intentionally, that a lot of Novo's historical work led to them understanding something important better than anybody else. And I think they might have lucked into how important it became. But

3:24:16 Play compounding games. Yeah. It's pretty interesting. I mean pharma as a whole of the medical Pi. only occupies about thirteen percent of revenue.

3:24:27 I really would have thought with all the hate toward big pharma that it would be higher. Thirteen percent of revenue in the healthcare industry. Yeah. Yeah. So that means eighty seven percent of healthcare revenue is not going to pharma. Right.

3:24:39 If you could trade never having drugs again or never having doctors again, which one What'd you pick? Wow, that's a good question. I hadn't thought about that. It's of course kind of a farcical. Right. It's totally farcical. You know, I think about my scenario and you know, Jenny and my scenario, like It's both together, for sure.

3:24:57 Yeah, of course it is. But do you think drugs only provide thirteen percent? of the value to all of healthcare? No, certainly not. It's crazy. Definitely more than that. Especially incrementally. If the investments we're making going forward.

3:25:11 in improving Humans. and their quality of life. Some amount of it comes from Amazing new surgeries. Some of that of it comes from amazing new medical devices.

3:25:22 Well some amount of it does not come from new administrative billing practices. Or the four middlemen in the middle of the equation. Right. The improved ability to move uh drug from place A to place B and come up with yet another clever way to build out the formulary so it moves money from this pocket to that pocket. Hospitals if you back out the drugs they prescribe, hospitals Or twenty eight percent.

3:25:45 Of the revenue in all of healthcare. Which is large, but hospitals provide a crap ton of value. Professional services like doctor's offices are twenty six percent.

3:25:55 They also provide a lot of value. Do both of them provide Together four times as much value as The breakthrough drugs do. I mean Freaking health insurance, the administrative costs of health insurance are eight percent. Of a very, very, very large number. Yeah.

3:26:10 Right. Yeah. I mean that's a like the administrative costs of health insurance. are within spitting distance of Pharma. And pharma, I will say like

3:26:20 Who is taking any risk in this whole ecosystem? It's only pharma. Yeah. Who's taking risk? to innovate and make anything better.

3:26:30 Every other bet that a hospital makes or that an insurance company makes is just probably gonna pay off. This is actually pretty interesting. If you look at the net income. of a pharma company, and let's just take the biggest one, or a a very large one, Pfizer. Super spiky. Even though they're diversified, up, down, up, down, up, down.

3:26:48 Some years they make very little profit, some years they make a lot of profit. That is what you should expect from someone who is Taking risk, trying to innovate, sometimes they succeed, sometimes they don't. You look at an insurance company. And by the way, let's define insurance company.

3:27:01 Insurping is someone that In the good years. Collects money. And then in the bad years, they have a big loss. And hopefully they collected enough money such that they can still make some profit.

3:27:13 after covering the losses. Like a hurricane hits. The insurance company has a bad year. Does that ever happen if you look at the net income of the big insurers. No. Yeah.

3:27:24 This is no surprise here, but like health insurance in the US is not insurance. It's access. That's a hundred percent right. So we just had the single greatest healthcare crisis in the last several decades with COVID. And what happened to the profits of the big health insurers? They stayed flat or grew. So I mean, we aren't here unacquired to demonize people for making money or for being capitalists, but I do think we should call a spade a spade.

3:27:46 The health insurance companies are not Actually Insurance. They're not actually holding the bag as the funder of last resort when calamity hits. It's the government.

3:27:55 So really it's the taxpayers. The big insurance companies and the PBMs make Good profits in the good times, but the taxpayer funds the bad kinds. I would be kinder here to the middle bed of the industry if I thought they were innovating and taking risk the way that the drug companies are, but the incredible consolidation that's happened among insurers and PBMs and I mean, frankly, even the hospitals and pharmacies too, like

3:28:17 There's either local monopolies in the hospital case or kind of a three race oligopoly in every other part of the value chain that really is just obfuscated and insulated profits. Hm. So what you're telling me is that pharmace

3:28:31 Are the guys in the arena. They're out there trying things. Exactly. No matter what value judgments you want to place on them or anyone else. And there are years where Pharma way out earns. And frankly, Nova Nordisk has way out earned many of their peers many years in a row. And it's like a very fine question to ask of like does any healthcare company deserve to have such phenomenal returns on invested capital like Novo Nordis does. But There are many players in the ecosystem for whom it is obvious to me that they should not be as large and not be as profitable as they are. I got no arguments here.

3:29:04 All right, Team Novo. Yes. And frankly team pharma, at least relative to its reputation. I think there are many players in the healthcare industry that have a fine reputation and they probably deserve a fine reputation, but it's weird to me what a terrible reputation pharma has when they're the ones innovating and trying to massively affect the trajectory of humans. Yeah. And I think that's why, you know, a lot of scientists, including I think Lata and many, if not most folks at November Nordisk, I think that's why they work there.

3:29:35 Yep. All right, so finally to wrap this section, listeners, this is all very, very complicated. Every time I was tempted to say, well, XYZ party or XYZ mechanism is stupid, which I probably did too much on this episode, I discovered a very rational argument for why that thing exists and why it isn't all that bad. Which is a little bit maddening to research and also explains how the system in America ended up the way that it did today. Me up.

3:30:00 To close value creation, value capture, there is sort of an interesting thing that everyone should just noodle on and try to square the circle. People feel like drugs cost too much and they don't understand how much they're going to cost. And they're upset because they can't get drugs that they want. They think they're being extorted in some way.

3:30:17 This is patients generally. shareholders in pharma companies feel like they're actually not making that much money. If you look at the whole industry. their return on invested capital is Maybe slightly better, but pretty much on par with other industries.

3:30:31 So Square that circle. It's pretty weird. All right. Bare bowl David?

3:30:37 And we can be reasonably quick in this since uh I think we've hit a lot of these points along the way. Yeah. I mean, to me, you know for Novo Nordisk specifically, I think it's pretty simple. R GLP one's the next Super cycle.

3:30:50 If yes, that is the book case. Right, even if Lily's Manjaro and Zetbound are like I think they're like thirty percent cheaper. They might be better, but they can both make a There is room for everybody here. And

3:31:06 The barriers to entry from everything we talked about to competing in this area are very, very high. So like there will be a number of competitors. Including Eli Lilly. But

3:31:17 There will be Plenty of demand and profits for everyone. That's the bull case. And the bare case is For

3:31:24 Any variety of reasons, be it. uh health risk or lack of efficacy or, you know, whatever. Long term This just doesn't Play out.

3:31:33 Or it doesn't play out on the same multi decade long timeline that insulin did. Yeah. I think that is exactly the right way to put it. for some numbers which I think are interesting and Just sort of to illustrate.

3:31:45 If semaglutide becomes truly a mega blockbuster. An example of this is Humira. By Abvey. That generated two hundred billion dollars in lifetime sales since Humura was approved for 11 different indications across this whole spectrum of inflammatory and autoimmune disorders. So

3:32:06 It turns out you actually don't need a deep pipeline if you have a drug that you can be profitable on where there's not a lot of competitors for it. your patent actually gives you a good amount of room. You build a brand around it, you get approved for a ton of indications that all have large populations. I mean, there is such a blockbuster that for a decade

3:32:28 It doesn't matter how deep your pipeline is or how diverse it is. You just win. And like there's a chance that with semaglutide and terzipatide. Both Lily and Novo Nordisk have that for the next decade. Yeah.

3:32:41 And decade plus width. Further. innovations and iterations that are gonna come. Yeah, Eli Lilly has this one in the pipeline called Retat Retride, that is a triple agonist that adds yet another hormone to the mix. So I think Assuming that Novo stays sort of neck and neck with Eli Lily as they both keep coming out with better and better versions.

3:33:00 that this could be the next Humira or potentially much bigger than Humira and I think the defensibility is An open question for how many years, but at least the next decade. Yep. One other downside that I think you didn't point to specifically, but you sort of meant in saying there's some unknown downside to this.

3:33:18 There are some early studies that are showing that you lose more lean muscle mass when you're on a GLP one than if you were just doing diet and exercise. When you're losing weight normally you lose like twenty five percent lean muscle and these early studies are showing it's something like forty percent. So that would be a bare cases that we learn a couple of years from now, like, oh man, this is actually way

3:33:40 worse for some set of people. That could lose weight through diet and exercise. But If you're obese, it's still probably better.

3:33:49 Uh lose weight even if a disproportionate amount of it is lean muscle mass. But I think there's sort of this open question of like, is there a boogeyman in the closet like that? Or is that a significant enough boogeyman to really change things? Yeah. It's probably also worth mentioning quickly here before we wrap.

3:34:04 You know, one potential boogeyman that is out there people have talked about is suicidal thoughts. As best as we can tell from the research, it seems like That's not a major risk with these drugs. Based on the broad population studies, you know, certainly that's what Novo Nordisk says.

3:34:19 regulators have not indicated that that is an actual issue, but that narrative is out there and We don't want to go through the episode and not mention it. That could be one of these buggy men for these drugs. Yep. All right. Well, as much as I don't like leaving it there. I think we have beat this horse and we should do something fun, like carve outs.

3:34:35 Yes. Car mouths. Let's do it. For uh new folks to acquire it, and since it's the top of a new season here. We do this for fun at the end of every episode.

3:34:44 Yep. So I have two. Oh great. I do too. One is uh something that my wife got me as a Christmas present, which is the Nox Gear Tracer Two. And this is I think a Columbus, Ohio company.

3:34:57 It is a running vest and some lights that are rechargeable with USB C And waterproof. And so uh it's super lightweight. It fits really well. Perfect for Seattle.

3:35:08 I know, I wear it on all my winter runs when I'm out walking the baby now. Oh, you sent me a photo and you were all lit up and I was like, Wow. Ben is really invested in some gear. It's pretty hard to hit you when you're this lit up. It also has a optional light you can buy that clicks into the front that's basically like a headlight, but you wear sort of on your chest. You don't really feel it when you're running with it, but you do light up the whole road in front of you. So When you live in a place like I do that is dark from three thirty PM to eight thirty AM, it's a great way to get outside and be seen.

3:35:37 Nice. I bet we will have a lot of folks in Denmark that are interested in that. Yes. To our Danish friends and our Swedish friends at Spotify, I highly recommend this product. Yeah. Nice. All right, that's one. All right, two is a recommendation

3:35:52 from Friend of the Show Ian McCormick. He texted me and said, I listened to the holiday special, I have a show recommendation for you. Go watch Drops of God on Apple TV Plus. I'm Three episodes into it and it is

3:36:05 Awesome. It is like Thrilling. It's a little bit unapproachable if you don't like subtitles because

3:36:13 It takes place in France. and Japan. And so parts of it are in French, parts of it are in Japanese, and parts of it are in English. And so you have to read subtitles for The majority of it. But it is a beautiful story about wine and family

3:36:29 And love. And it's got some very unexpected twists and turns and drama to it. So I highly recommend it. Ooh. Fun. Sounds like Apple TV's got some good shows these days. I've been liking it. Yeah. Nice. Well, I have to give you a big thank you because over the last couple of weeks since your recommendation I have read the book Wool. Which is the first in the series that is the silo series.

3:36:53 on Apple TV plus'cause I'm more of a book guy than a T V guy and it is Awesome. Focus. So good. Uh new addition to my favorite sci fi books and sci fi series.

3:37:03 It's funny. I've been holding off on reading the book because I don't want to spoil the show too much, but I hear it actually deviates pretty significantly from the show. I wouldn't be surprised by that. Having now read the book, I'm excited to uh dive into the rest of the series. Okay, my carve outs, I've got two. The first one.

3:37:18 Is a fun timely In person carve out. It's a guest carve out from my wife, Jenny. San Francisco Ballet, where she works. is premiering A new work.

3:37:29 at the beginning of the season this year. January twenty sixth here in San Francisco is the premiere, a new ballet called Mere Mortals. And this is pretty cool. She was like, You gotta talk about this on Acquired. It is about AI. And it is a um

3:37:45 Pandora's box. analogy for AI. Super cool. The music is composed by the British DJ Floating Points. So it's like super modern ballet.

3:37:56 Choreography from uh great Up and coming choreographer. An SFB's gonna do after parties in the opera house afterwards. Should be like A super cool event. So Denny and I will be there. I think we'll be there on opening night.

3:38:08 January twenty sixth and it runs through February first. For listeners, Dave and Jenny w lived in Seattle and Jenny was involved in the ballet up here and I went to a event. held, you know, where the ballet performs. And it's immensely cool to be in there with the performers and at the place where they perform at in a party setting. Like I highly recommend it for any of the before or after stuff too. Yeah, ballet is such a cool art form because of all the classical art forms, it's the most young and modern you know, like these dancers are athletes. They're like NFL level athletes of what they do. And you know, they're young and so there is this like new life in it relative to I think a lot of other classical art forms. So anyway.

3:38:45 I love it. And obviously it is Jenny's whole life and career. That's one. Two. On uh some holiday travel flights I think

3:38:55 Recommended by an acquired listener, actually. I watched the Blackberry movie. Uh have you seen this yet? No, but I can't believe it's Dennis from Always Sunny. I know. It's so good. It's really, really well done. I just watched it'cause I was on the flight and it was on the entertainment system and I was like, Yeah, sure, whatever, I'll give this a try, like

3:39:12 I don't know, rim, blackberry. Yeah. But it's really, really well done. I really enjoyed it. It's hilarious. It's also like A good business story. You know, it it's a good example of a uh we get asked all the time of like oh can you guys cover like a failed company or you know a a cautionary tale and um

3:39:29 It's hard to do unacquired because a lot of these companies are still going and Rim is still going, but Blackberry is a good one because Yeah, like it's super obvious that they failed. There's no argument about that one. Although, did you just see the uh add on keyboard you can get for your iPhone? Oh no. Someone debuted a physical keyboard. So for you diehards out there who were crackberry heads. You missed the clicks. You missed the clicks. I think it's actually called clicks, maybe.

3:39:53 Oh, nice. With that, we have a bunch of people to thank who massively contributed to this episode. It's been fun doing more and more of this recently, so I think we'll keep doing it too. A huge thank you to the PillPack founders, TJ Parker and Elliot Cohen, for being so generous with their time and having conversations. Yeah, Pill Pack, super cool company that got acquired by Amazon a few years back, right? For over a billion dollars. Something like that.

3:40:16 And became Amazon Pharmacy. Which I actually know some people that use and rave about it. Also thank you to the founder of Cover My Meds and And Health, Matt Scantland. The founder of Blink Health, Jeff Chiken. The CEO of JP Morgan's healthcare arm, Morgan Health.

3:40:31 His name is Dan Mendelson, had an awesome conversation with him and the other folks I mentioned to kind of bounce some ideas around. that we were thinking about is what are the main points that we really need to hit. In this episode. Good friend of the show, Kate Carimes, who spent her career at various pharma companies. And finally, thanks also to some of my favorite reading materials to prep for this.

3:40:52 out of pocket the newsletter from Nikhil Krishnan, very approachable fun way to read about the healthcare industry. a shareholder letter from Tom Williams, who's a friend of the show and a portfolio manager at Fidelity. Yeah, Tom is great. Some blog posts from the Drug Channels Institute that were publicly available that I thought were great. Some very helpful DMs with Ashwin Varma, who pointed me to a lot of the great information about the profitability or frankly lack thereof or the uh returns on invested capital for pharma industry. He's actually a med school student and former Lux Capital Associate, so he's got a foot in both the uh capitalist and the medical camps.

3:41:30 And a truly incredible long form read on GitHub by Alex Telford. I think that helped frame my understanding of how we got here in drug development better than Really anything else I read. So thanks, Alex, for that too. Sign up for notifications of when new episodes drop. Acquire.fm slash email. You can also Get our follow ups and the corrections and teasers at what the next episode will be.

3:41:56 A CQ two. You should go check it out. It is where we do follow up interviews when we have topics we're more interested in. Perhaps we'll do that for healthcare. or just CEOs or investors that we want to talk to. Look in any podcast player. After you finish this episode, come discuss it with us at acquired.fm slash slack. And if you want any of that sweet acquired merch, go to acquire.fm slash store. In fact I am wearing the T shirt now, so

3:42:21 Mm. Yeah. Check it out. Without listeners. We'll see you next time.

3:42:25 We'll see you next time. Who got the truth? Is it you, is it you, is it you Who got the truth now? Oh.

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