In Good Company with Nicolai Tangen - Lars Fruergaard Jørgensen CEO of Novo Nordisk

Episode Date: March 15, 2023

“I'm very concerned that European citizens will have lack of access or much lower access to some of the new medicines” says CEO of Novo Nordisk. He also share some interesting perspectives about the importance of purpose and their new weight loss drug.The production team on this episode were PLAN-B’s Niklas Figenschau Johansen and Nikolai Ovenberg. Background research was done by Sigurd Brekke with input from portfolio manager Gemma Game.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi, everybody, and welcome to our podcast, In Good Company. I'm Nikolaj Tangen, the CEO of the Norwegian Sovan Velfa. In this podcast, I talk to the leaders of some of the largest companies we are invested in so that you can learn what we own and meet these impressive leaders. Today, I'm speaking to Lars Fugard Jørgensen, the CEO of Nordo Nordisk, the second largest pharma company in the world. Lars is a bit like a quiet assassin, really, really impressive. Novo's goal is to defeat some of the biggest health challenges the world is facing, such as obesity.

We own almost 2% of Novo Nordisk, translating into 57 billion kroner or almost 6 billion US dollars. This was a truly amazing conversation. Stay tuned. So Lars, very welcome to the podcast. Novo Nordisk has got an unrivaled reputation worldwide, so it's fantastic to have you on. Thank you, Nicolai. It's an honor to be here. Now, I thought I'd kick off on obesity because it's such a big problem and it's tripled since 75. More than 1 billion people are obese and I read somewhere that it now accounts for nearly, the cost of obesity nearly accounts for 3% of world GDP. Now, what are the drivers behind this? It's interesting to reflect on obesity and the fact that it's now being recognized as a disease, not among all, but increasingly.

And until now, there has not been real efficacious medicine. And when you don't have efficacious medicine, often the medical community is not highly engaged in a disease. So what's happening now is that we acknowledge that it's not just about lifestyle, it's not just about how much we eat, it's actually about genetics, that different people are in different situations from a physiology point of view, and it really takes help for those people. So that's what's now opening up the whole market. We've been researching in this for 25 years, at a time where most felt that obesity is

a graveyard, it's not a place to go. So we're really excited to see that now there's hope for many of those people who have been struggling, keeping weight down for many of their whole life. Would you say it's mainly an illness or a lifestyle problem? I think it's a combination. It's a very complex disease. We know that nowadays it has become very easy to get access to food, often processed food. We live in ways where we're not expending as much energy as we used to. And then if you are genetically disposed to store fat, so to say, you will be storing fat.

And that is seen from your body's point of view as a sign of health. So it's really difficult to reverse when we become bigger, so to say, because it's seen as a way to protect you and prepare you for difficult times. So, of course, it's a complex matter. We also know that some do not put on weight. Some stay lean their whole life, almost no matter what they do,

whereas others, they store fat and they gain weight. So it's not one or the other. It's actually a complex disease that there are many factors at play. How are the demographics changing this? You can say when I was born, the world population was probably a couple of billion. Now we're approaching 8 billion. We live longer and longer.

And wealth today and price of food means that even in the developing countries, you can access food and calories in a way where you don't have to work that long to be able to buy unhealthy food. So wealth and demographics actually plays in here. And we see it as a problem that's hitting all societies, both the Western world and also the emerging countries. Yeah, because historically it was a high-income problem, right? But now it's widened out. Yeah. And some of the worst foods in this world to buy, so to say,

are really, really inexpensive. And in big cities where you end up spending a lot of time commuting forth and back to go to work, often the time available for actually cooking a healthy meal is very limited. And it also often ends up costing more to actually do the healthy choice compared to the less healthy choice.

So lifestyle, socioeconomic conditions, societal structures, together with genetics plays in. Where does childhood obesity come in? Yeah, that's kind of the alarming thing that we see now that childhood obesity is growing significantly. And we know that if you already as a child

have been living with obesity, there is a big risk that you'll actually be struggling with that your whole life. There's also a big risk that you will be, say, stigmatized. You will get, say, a lower degree of education. Your lifetime income level will be lower. So it's a very large societal challenge to deal with.

And of course, when we talk about children, I still think there's an opportunity to focus on prevention, making sure that school systems, how we organize societies, is decided in a way that we can prevent childhood obesity with the aim of then also reducing obesity as an adult. But when adults like you and I, we become obese, it becomes much harder because then you are starting to see it as a chronic disease and it becomes really, really difficult to reverse. Yeah, I saw that only 1% of obese people

get back to healthy body weight. So certainly it doesn't look so good for me. Now, you have the kind of solution here, right? With your drugs. And you were the first pharma company, I think, actually to have a product which went viral on social media, on TikTok. with your drugs. And you were the first pharma company, I think, actually, to have a product which went viral on social media, on TikTok, helped by Elon Musk.

So tell us about your drug here. Yes, so we have been focused on diabetes for 100 years now. We're celebrating our 100th anniversary this year. And in those efforts, we come across this GLP-1 mechanism, which works in a way where it reduces glucose level when it's too high, and then it stops working when you have brought down the glucose level. When we took it into clinical development, we realized that it's actually a mechanism that has a number of benefits on different biologies. And it also turns out that it works in a way where it can be used in obesity. For instance, it reduces the appetite, so it makes you feel full,

which is obviously a key benefit when you want to address obesity. a key benefit when you want to address obesity. So some probably 15, 20 years back, we had to make a choice whether we actually wanted to take it into obesity research. And it was actually a tough discussion because back then we knew that most obesity medicines actually had failed in the marketplace. Some of them had turned out to have some side effects

that were not acceptable, and products had to be withdrawn from the market. So we had this situation where we had something we knew was a safe and efficacious product in diabetes, a big business opportunity, and did we really dare to take it into obesity? But we back then felt that if it actually works in obesity, we need to create those data. We need to demonstrate to the world that opportunity because obesity is a leading cause of type 2 diabetes.

So it will actually prevent the disease that we are put in the world to deal with. So we took the chance and it turned out that the first molecule reduced weight by some 6, 7, 8 percent. Some got to 10 percent. That was actually what good looked like back then. We took it to market and we saw some uptake, but it was not something that really opened the obesity market. Then we explored a second iteration, a type 2 GH1 mechanism, which was prolonged in its action profile. So it was a weekly medicine.

So the GH1 circulated, say, in the body for a week. And that proved to be even more efficacious. Glucose-lowering agents, it also proved to have a significant risk in cardiovascular disease, and we then also tested it in obesity, and there we saw that patients lost some, say, 16%, 17%, 18% weight loss and a significant part, also more than 20%. And that was really what, say, created a change in the marketplace because if you can get to that level of weight loss, you're redefining what the individual patient feels about being obese.

And you're also, from a medical point of view, really generating a weight loss that's really interesting from the medical community. And that's what now has opened up and created this very, very significant uptake we see. How do you make sure that only the people who really need it get it? Yeah, that's one of the challenges we are dealing with because obviously weight is a significant issue for many people. These products are injectable products. They require a physician that makes a script.

So you have to talk to your doctor. We communicate to the doctors how to use the products, what's the mechanisms, what are some of the, say, safety concerns that takes that you have to start patients in a right and compliant way. So we have a keen focus on that. But also clear that when you bring a product with these characteristics, it takes a lot of attention and you also have a lot of activity on social media, which is difficult for us to control because we cannot. So we are, of course, doing whatever we can do to make sure that it's established as a medical condition. It's the patients with

a high BMI as what is indicated on the label that's getting the products. But it is a difficult setting to manage fully. How do you balance making profits with actually helping people around the world? Yeah, that's one of the other challenges we are working on. And you can say to take the risks we take to spend, say, a quarter of a century in researching, for instance, obesity or curing diabetes with stem cells. That takes a very, very strong balance sheet. It takes that you can shoulder the risks of the failures. So that's a platform for future innovation.

But of course, we only succeed if we really get the innovation to patients. So last year, we served 40 million patients. So we keep adding more and more patients to those we serve. But 40 million is still a very, very small fraction of the numbers we spoke about. There's more than 500 million people living with diabetes. So in the eye of society, you could say that we have failed because we have not yet reached more of those patients. So we try to, across the world, where last year, as an example, 63,000 Americans got free insulin from Illinois. So if you fall between the cracks of the US healthcare system,

we pick up the bill. If you live as a child in Africa or other low-income settings, we have a cap price of a vial of insulin at a few dollars in the low- and middle-income countries. So that brings down the daily treatment cost to, say, 10 cents or something like that, which is actually quite inexpensive. But if there's no cool chain, if there's no healthcare infrastructure, it's not enough just to have inexpensive medicine because the markup in just transportation in Africa can be higher than the drug cost.

We are shareholders, so we want you to make money and actually each Norwegian owns the equivalent of 10,000 kroners worth of NovoShare. So it's a very big holding for us. But is there a way to get farmer prices down and volumes up in a bigger way, like in a proper shift? Yeah, if you look at it, one could say that generic companies who produce big volumes inexpensively should be getting products out to many more patients. But actually, they do not because they serve established markets.

So to really get to many more patients, you need to develop infrastructure and you need to develop markets. And there is a limitation to how products are adopted in, say, lower-income settings, because healthcare is less advanced. So it's as much about building capacity. How do you now see the development in the US versus Europe for the pharma industry? In the US, you have a market structure which is basically driven by, say, private healthcare.

And it's funded via insurance schemes where employers or the government buy insurance scheme and then you have private, say, healthcare delivery in most cases. So that creates a market that's very open for innovation, because if you're an employer and you have employees in your staff, you would like that population to be as healthy as possible, have a high health resilience. So that leads to adoption of innovation. And then you can scale quickly in the US if you have innovation, but you also have very quick erosion when you have loss of exclusivity

and competition comes in. And then the government is trying to make healthcare reforms, trying to mitigate some of the downsides of this rather complex private healthcare system. Another key element of the U.S. market is that there's a big venture capital focus on biotech and translating science from academia into companies, and that's sourcing, that's creating a source of innovation for the industry. So there is a very, very strong ecosystem for life science in the US. If you compare that to Europe, it's unfortunately much less attractive. It's unfortunately much less attractive. There is much less capital in the venture side of funding innovation to be established in biotech to receive much fewer biotechs.

You also see that it takes much longer time to get products approved by the European Medicines Agency. And after that, we have to go country by country to seek reimbursement. And now, recently, the EU Commission is still not officially posted, but there's been a leaked policy proposal where they actually make, say, data protection even shorter. So we run the risk of making drug development in Europe even less attractive. So I'm very concerned that innovation will move out of Europe.

I'm very concerned that European citizens will have lack of access or much lower access to some of the new medicines. And that creates less economic activity for the industry in Europe. So I think that's a lose-lose-lose, less health benefit for patients, healthcare systems that are more challenged because you are not getting the benefit of the medicines, and you have less economic activity, so less tax payments in Europe. So when Europeans get into regulating for the benefit of health and then actually doing it by destroying, say, conditions for industry, I think it's a big issue that I'm working hard to address. Yeah, when you add together your arguments here, it sounds pretty

seriously worrisome. So are you going to become more of an American company than Los? You could say we are very much an American company. Maybe around 45% of our business is in the US. We have research in the US. We have manufacturing in the US. But we are a global company. We also do research manufacturing elsewhere. But it's clear that if you look at our latest obesity innovation, that was launched in the U.S. first. And now we are in Denmark and

Norway, our two home countries. And Europe will come down the road. And this is the general picture that medicines are launched the first in the US. And when there is capacity, say Europe is being considered. I think that's a problem because I think if you take obesity, that's going to turn into the medical intervention with the highest return on society because if you can prevent type 2 diabetes, if you can prevent a number of cardiovascular diseases,

if you can prevent a number of cancer forms, etc., that's a very, very big benefit for the individual, but also for the healthcare system in terms of avoiding cost and also making our populations more and more productive at a time where we have aging populations. And in Europe and elsewhere, we have a smaller and smaller population of active people to actually support that. And so I think there's a lot at play here that we have to get right in Europe as we transform to, say, a new geopolitical context where there are a lot of threats on the horizon, so to say. But what exactly can you do to change the commission is to make sure that all Europeans will have access to the latest innovation. And as an industry, we support that, obviously.

We want all to have access. We don't want to force people to take our medicines, but we want all to be able to have the chance to consider whether you, country by country, want to adopt people to take our medicines, but we want all to be able to have the chance to consider whether you, country by country, want to adopt this innovation. So we have actually committed to make it very transparent that for all our new products, where are we in the regulatory approval process? So country by country, where are we in getting it to market? Some countries decide not to reimburse it.

Some countries say that until it's launched in these four countries, we are not going to start the process of assessing it. Then we're also saying that we will actually support selling at differentiated pricing levels linked to purchase power of the individual country. pricing levels linked to purchase power of the individual country. So if you live in Romania and have lower, say, GDP per capita, price can be lower. And we commit to actually strive towards bringing products to the market within two years in all countries.

So that's actually the first time the industry has come forward with a solution that's actually addressing the political wish of giving all the opportunity to access the latest innovation. And we think that's a better solution than starting to deteriorate, say, industry conditions, where at least the leak proposal indicates that unless we have launched in all 27 member countries, we'll actually have a reduced, say, period of data protection down to six years.

And many products take more than six years to recoup the investment. And that means that if you have that uncertainty whether you will actually have a longer data protection period, which you will not know until you have launched and negotiated country by country, if you have to deal with that risk upfront, many countries will opt out of actually developing that opportunity. And we take the risk as an industry. We spend all the money in developing the data, and then we actually offer society the opportunity to assess

whether you want to use a medicine or not. But if the conditions are such that we never get to take the risk, we don't create that opportunity for society. So I think it's a very, you know, it's a flawed logic to actually do, say, industrial, say, policy change

to achieve the aim of health benefit for all Europeans. Changing tack a bit. Now, you talked about different countries. You have lived in the Netherlands, US, Japan. How do you see the differences between these cultures? And do you have different type of corporate cultures within Novo? So there are these differences among national cultures. And it was interesting when I worked in the Netherlands,

there were actually some tensions between headquarters and the Dutch team. And often Denmark and the Netherlands are compared as very, very similar. But I was relatively young back then, and I still remember what I learned in business school. And there we had one topic on cultural differences between countries. And I remember a book by Gerd Hofstede actually talking to how you can measure different cultures on, I think it's seven dimensions. And power distance was one dimension. And it turns out that the power distance in Denmark is very, very low.

So basically, you can just walk into the boss's office and start arguing with the boss. Whereas in the Netherlands, there's a higher power distance. So the boss is the bus. And perhaps even more so in France and Germany, right? Exactly. So sometimes the Dutch team would come to a meeting in Denmark and be seen as arrogant because here comes a person you think is just like you because Denmark and the Netherlands are often compared.

But then because of this national trait of having a higher power distance, they show up a bit more self-confident. But that was perceived as arrogant. So I actually made a small slide, an opening slide, whenever the Dutch team came and told us, okay, we look the same, but on this dimension, our national cultures are different. So we just wanted to say that if we come across as a bit arrogant,

it's not because we are not respecting you. It's because of our national culture. And when you travel around the world, you find that Americans have certain traits, Japanese quite different traits. Japanese are very consensus-based. You run a very long discussion. If the manager starts by saying what he or she believes, the team would not disagree.

So we have to invite for a discussion, say that there are different ways forward here. I would like the team to discuss what could options be. And then you kind of, there's a Japanese word for binding the roots. So you bind the roots behind a decision, but then when you have made it, you can make sure that it's implemented exactly as you have agreed. So selling in the idea is part of the process. If you in the U.S. start by saying, you know, I'm the manager, I'm very much in doubt, what should we do? Then Americans would say, okay, what kind of manager are you?

What do you believe in? okay, what kind of manager are you? What do you believe in? So you can say, you know, in Nordic, we want to have respect and we want to respect differences, but you have to show it in different ways based on that underlying national culture. So I think we can still have the same Nordic way, but, you know, showing respect in different ways

based on that national underlying culture so you uh you now run the second largest pharma company in the world and novo accounts for 10 of danish gdp so how do you make sure that you stay grounded i'm i'm born as a very grounded individual and that that helps I have people around me who reminds me that I'm just a hired hand and don't think too much of myself. And you grew up on a farm, right? I grew up on a farm

and that also helps you being grounded. But there is this thing in Denmark, this Jande law, that you're not supposed to show off. Maybe we do show off a bit more in Copenhagen than in the rest of Denmark. We are accused of doing that. But being a large company in Denmark also creates an opportunity to get close to the decision makers. Being a small country also means that we can actually work together and collaborate in private-public partnerships that can actually showcase the world how you can tackle societal challenges. And together with ministries, municipalities, regions in Denmark, academic institutions,

we actually try to deal with, for instance, obesity as a societal challenge, acknowledging that if we succeed in preventing in school systems, we take a burden away from the individual, we take a burden away from the healthcare system. Very interesting. It ties in burden away from the healthcare system. Very interesting. It ties in with your long-term thinking. And Nova has been in business for 100 years, yet you only ever had five CEOs. It's kind of incredible, right?

And I think the only other company that comes to mind would be L'Oréal in Paris. What are the advantages of having this longevity? When you look at our business cycles, which is based on innovation, it takes 10, 20 years to develop medicines. So you can say the positive cycle we are in now, that's fueled by what prior generation of leaders

and employees in Illinois developed. So that means that I can look good based on that. But my real contribution is actually what the next generation of leaders will be bringing to patients. So having that very long perspective, what are the sources of innovation? How should the company look like, say, in 10, 20 years? That's my key focus.

While doing that, of course, there are a lot of important aspects to handle right now. Ramping up supplies, getting commercial tactics right, develop the obesity market and all of that. tactics right, develop the obesity market and all of that. But really setting us up for sustainable growth in decades to come is important. And there it makes sense to have a really long focus, which jives with also our ownership structure of having a foundation controlling the shares of NoNoisk, not having more than 25% of the shares approximately, but say majority control via more votes per share. Which is a really interesting Danish ownership structure. But knowing that perhaps you'll hang in there for 20 years,

I mean, don't you wake up in the morning and think, gee, I'm going to be in this hamster wheel for another 15 years? I mean, isn't that a bit depressing? No, it's not. You know, I don't have much to compare with because I've been with the company for 32 years. So for me, you know, I'm the first one in my family who's not a farmer. But all my ancestors on both my mother's and father's side, they kind of lived on the farm.

So they had the same, you know, every day you wake up and you run the farm and you do that until you pass it on to the next generation. So being in the hamster wheel is a family thing. Yeah. But the thing about farming is that you put some seeds in the ground, you nurture it, and if you're lucky, because you're also up against nature and biology, then you can also do a good harvest.

So for me, that's, you can say, living the purpose, and it's a huge privilege. And then, of course, I have to organize myself in a way that it doesn't come across as being in a hamster wheel, but actually a fun exercise. Very interesting. Now, how do you make decisions? You come across as a very analytical person. Are you analyzing all kinds of things to death?

Or do you believe in pattern recognition and gut feel? Have you got gut feel? Yeah, I'm a censor. So I pick up a lot of impressions. I try to talk to our stakeholders, employees, our scientists, and I form my views. And of course, we also need to do business cases and a lot of analysis. And when we look to acquire technology or a pipeline asset,

we have to somehow assess that market opportunity. But I might also say that there are a lot of biases. If you look at how we saw obesity, we were biased by the relative modest uptake of the prior generation product and didn't see the inflection point. So it's a combination you need to really understand the fundamentals.

And that's about, you know, I'm not a scientist, but there's something about believing in some core capabilities, really understanding what are our unique strongholds, and when we tend to double down on that, even though it looks difficult, we tend to succeed. Now we are operating with more uncertainty from a geopolitical perspective, and I think what has happened in the world over the past few years that nobody had given more than a very remote likelihood of probability means that we have to plan in ways that are not, say, linear in its thinking,

but it's more based on some fundamental beliefs. So I'm a collector of impressions. I sense things. And then I try to write down some core beliefs about what do we really believe in. And most of my decisions are based on some really fundamental core beliefs about the future. And then, of course, I have many people working

who do more of the, say, detailed planning, and then you test some of these core beliefs up against the detailed plans, and a conclusion is created. That's so interesting. What do you think is the one key to being a good censor? Being curious, being, avoid getting to conclusions too quickly. So people tell me that it's difficult to give me negative feedback

because I react, my body language starts reacting. So I actually share with people that I really appreciate feedback also when it goes against what I typically believe in, but give me some time to digest it because I take it, you know, I just mentioned that this is like my farm. This is my, this is who I am.

So something that's negative around New Nordic, you know, it hits me. So it's really important for me that I'm not judgmental, that I'm really curious, that I'm not judgmental, that I'm really curious, that I'm really open. So I get all the impressions, also those that maybe go against what we are doing right now. If you become too stubborn, too fixed on your past decisions, so to say, you are starting to narrow the option space and you start getting blinded and say one bad decision might be followed by another one. So it's really being curious, really being slightly paranoid

and use your own doubts to fuel curiosity and get to know more. And of course, it's harder to be in doubt than to be firm. Because when you're firm, life becomes easier. But there is a risk that you are heading in the wrong direction. So I spend a lot of time speculating and being in doubt. And that leads to asking questions, being curious. And the ambiguity, I I think is important. But then of course you also need to come to act and make a choice.

So my team also knows that when a certain time has passed, I become very fixed on what we have to do and it's very difficult to persuade me to do something else. So really curious until that decisive moment where everybody understands, okay, now I crossed the line and now it's in motion and there's no way back. Which can also be a bit dangerous at times,

but it's important from reflection to decision. We have thousands of young people listening in. What would be your advice to young people today my advice would be to uh think non-linear around your career because uh we are working in ways today that is much more demanding compared to when I joined the workforce. Most people are within one meter of their cell phone all the time. So this always on is a really big threat for our cognitive capacity. Many young people have also more holistic career aspirations or say life aspirations you want to have you know a family life you want to you know raise a family you want to contribute in different ways so when i joined the company and if you look at my career it has been

relatively linear i had one one opportunity to actually leave No Noise for two months between two jobs when I moved back from Japan to Denmark. I took a two-month break with my family and traveled. I think we need to find ways to have nonlinear careers and take career breaks and do different things throughout our career to stay creative and not end up being in this hamster wheel you alluded to before because we're going to burn out our brains if people work with intensity like we work today.

And sometimes maybe also shifting to another role in a different function, take a step down in your career and get to learn a new area. So take breaks, travel, learn new things. Yeah. So society is changing a lot. And I think as a company, we need to also create the opportunities for young people to both do fantastic achievements in a company, but also find ways that you can actually take a break,

recharge, explore something else, and then actually come back with new impressions, new energy, new perspectives on the world. Well, that's a wonderful place to end. You are a very, very impressive CEO and running a most incredible company. So a big thanks for being on and big thanks for making the world a better place.

Thank you, Nikolaj, for the opportunity to have a good discussion here today. And thank you also to what you do, because I think you're also trying to define stewardship. And it's also important to have shareholders who actually have, say, a broad agenda, actually have, say, a broad agenda because ESG is being debated these times and it's important that shareholders also step in and articulate, I think, the holistic ownership agenda. So thanks for doing that. Thank you.

Thank you. Wow, that was really, really nice. Thank you.