Late last year, Danish pharmaceutical company Novo Nordisk became Europe’s most valuable company, at least for a short period of time.
Well-known in the business world but not a household name, Novo Nordisk has traditionally not been considered a major player in the pharmaceutical industry, much less a giant of the European stock market. It was.
But having discovered the holy grail of all drugs, it has rocketed to the top of the league table, valued at $428bn (£342bn). It’s something that millions of people want and need, not just in the Western world, but around the world.
The drug, called Wegovy, was designed to treat diabetes, but was found to almost certainly cause weight loss as a side effect. Like Viagra, which was supposed to treat high blood pressure but had an unrealized but popular side effect, Wegoby is his 2020s must-have.
Goldman Sachs research predicts the anti-obesity drug market to be worth around $6 billion this year, and it’s opening its doors. However, it could grow more than 16 times to $100 billion by 2030.
It sounds too good to be true, but what are the long-term prospects and consequences for drug companies that have found a surefire winner? Is it really the Midas touch or a poisoned holy grail? ?
First of all, discovering a drug that suddenly dominates the market is only the beginning of the process. They have to make it, sell it, and negotiate prices with numerous medical companies and the National Health Service.
Some healthcare organizations, such as the UK’s NHS, are large enough to be able to force costs down, which can reduce profitability for even the most popular medicines.
Wegovy is currently available on the NHS for weight management in certain situations.
Claire Machin is Executive Director of International Policy and UK Competitiveness at ABPI, the UK’s leading body for pharmaceutical companies.
She told me that the UK would not only use the value-for-money standard set 20 years ago to force drug price reductions, but that the NHS would negotiate even lower prices and then if the NHS exceeded the price said it would seek more cash rebates from businesses. Budget for that medicine.
“The UK therefore spends relatively little on medicines compared to similar countries, spending around 9% of its total health budget on medicines, compared to around 14% in Australia, around 15% in France and around 15% in Germany. It’s about 17%.”
There were also operational issues, and Novo Nordisk struggled to meet the huge demand for Wegovy in 2022. The company’s stock price fell in December 2023 due to concerns about whether it could again produce the drug in sufficient quantities and at a high enough quality to satisfy industry regulators.
The company confirmed that it ran out of 1.7mg doses of Wegovy during December in the United States. This incident occurred despite the fact that the production line was running “24 hours a day, 365 days a year.”
However, it is expected that shipments will resume sometime this month.
Then there’s the very obvious fact that Wegovy’s head start was just that: a head start.
Other companies have already released drugs with similar effects. These companies will work day and night to improve their drugs, sell them more effectively, sell them cheaper, and out-maneuver Novo Nordisk at every opportunity. After all, a potential market of $100 billion a year is at stake.
In November, American pharmaceutical giant Eli Lilly received approval for its weight loss drug Munjaro in the UK. Other alternative drugs include drugs such as Saxenda, Orlistat, and Ksimia, and the battle to dominate the weight loss drug market is well underway.
Of course, Novo Nordisk is protected from direct competition by pharmaceutical patents, which typically last 20 years. Anyone can then enter the market and manufacture their own generic version of that drug.
More technology for your business
Pharmaceutical patents mean companies have to make a profit while the economy is good. Once everyone can copy them, the good days are completely over.
“I think 90% of drug spending in the UK is on generic medicines, and I’m sure it’s the same in the US…so you [the original inventor] Market share may be maintained, but prices will fall,” said Graham Cookson, chief executive of the Bureau of Health Economics, the world’s oldest health economics research organization.
And the big drug discoverer has one final problem. It will make you stand out from the crowd, but if you are a small business, it will make you vulnerable. It’s really a waste if it’s too popular.
Big pharma has very deep pockets, and if they can’t find the best drug in their large and expensive drug development programs, the easy solution is to buy companies that have it. Thing.
But Novo Nordisk has one last card up its sleeve: Most of its shares are owned by a Danish foundation, making it virtually immune to the takeover offer.