0:00

All right, first episode back. Let's see if I can do

0:02

this sleep deprived. Oh,

0:05

you and me both, man. Ha ha ha. Who

0:09

got the truth? Is

0:12

it you? Is it you? Is it you? Who

0:14

got the truth now? Is

0:17

it you? Is it you? Is it you? Sit

0:19

down. Say it straight. Another

0:21

story on the way. Who

0:23

got the truth? Welcome

0:25

to season 14, episode 1 of Acquired,

0:28

the podcast about great companies and the

0:30

stories and playbooks behind them. I'm Ben

0:32

Gilbert. David Rosenthal. And we

0:35

are your hosts. Today's

0:37

episode is on the company

0:39

behind the sensational diabetes and

0:41

weight loss drugs, Ozempic and

0:43

Wegovi. The company is Novo

0:45

Nordisk. Now, when I first learned

0:47

about Ozempic a few years ago, I thought, of

0:49

course, this is going to be amazing for a lot of people and

0:53

could also completely destroy the market

0:55

for insulin. Those insulin companies better

0:57

watch out. But here is

0:59

the fascinating thing, listeners. Novo

1:01

Nordisk is the company behind

1:03

insulin, or at least one of the

1:05

few big ones. Now, you might

1:07

say, well, that's OK, because they're probably a

1:09

big pharmaceutical company that's very

1:12

diversified with lots of different drugs.

1:14

Nope. No. Novo Nordisk

1:17

is unique in that the vast

1:19

majority of their revenue is concentrated

1:21

in the category of metabolic health.

1:23

They have been the insulin and diabetes company for

1:26

the last 100 years. And

1:29

perhaps even more surprising, this pharma

1:31

giant is unique in that they

1:33

are owned and controlled by a

1:35

nonprofit foundation. The stats

1:37

around weight, diabetes, and its impact on

1:39

our society are staggering. There

1:42

are 38 million Americans with diabetes. That's

1:44

one in 10 people. Globally,

1:46

that number is over 500 million with the

1:48

disease. Diabetes costs the US alone more than

1:50

$327 billion a year. And

1:55

on the other side of things in the weight

1:57

category, around a billion people

1:59

suffer from obesity. worldwide. A

2:01

billion, including 40% of

2:03

the US population. If you expand that from

2:05

obesity to overweight, 75% of

2:09

Americans are technically overweight. It

2:11

is really hard to imagine a

2:13

bigger market to go after, which

2:15

is why Novo Nordisk has become

2:17

Europe's largest company, surpassing even LVMH

2:19

last year, David. Yeah, it's

2:22

wild. I mean, there are no other

2:24

disease and drug categories besides diabetes and

2:26

obesity that this could be possible to

2:28

have a company of this size to

2:31

have a pharma giant. Pretty

2:33

much just focused on this one

2:35

area. Like this is the Hermes

2:37

of the pharma industry. Yeah, so

2:39

why is today in the early 2020s

2:42

the moment in human history for these

2:44

new GLP-1 drugs? The crazy

2:46

thing is, semaglutide, the molecule in

2:48

Ozempic and Wigovi, was pioneered back

2:50

by Novo Nordisk with the first

2:52

trial in 2008 for type 2

2:54

diabetes treatment. And it was built

2:56

on research, started in the early

2:58

90s. But here we are in 2023, almost

3:00

three decades later,

3:02

talking about it as a weight loss drug

3:05

that sort of magically appeared out of nowhere,

3:07

or that's at least the public perception of

3:09

it. Incredibly, the fact that

3:11

GLP-1 drugs could be used to

3:13

reduce food intake was actually

3:16

discovered way back in the mid

3:18

90s, in the first sort of scientific publication

3:20

about it. But only in 2021 did

3:23

we finish the clinical trials that truly

3:25

show how effective it can be. And

3:28

as we'll see, that's just the tip of the iceberg.

3:30

I mean, this company is a hundred years old. The

3:32

history goes way back and

3:34

is way more interesting than I think. Just

3:36

about anybody knows. Yep. Pharmaceuticals

3:39

is without a doubt the most complex

3:41

industry that we have ever studied. So

3:43

to fully understand Novo Nordisk, we need

3:45

to go back to a simpler time

3:48

before the Food and Drug Administration, before

3:50

all this industry consolidation and health care

3:52

oligopolies, before there were treatments for everything

3:54

we take for granted today, antibiotics, vaccines

3:57

for polio, tetanus, measles, mumps, you name

3:59

it. That is where we will start

4:01

our story. If you want

4:03

to know every time an episode drops, you

4:06

can sign up at acquired.fm slash email. These

4:08

will also contain hints at what the next

4:10

episode will be and follow up facts from

4:13

previous episodes when we learn new information. Come

4:15

talk about this episode with us

4:17

after listening at acquired.fm slash Slack.

4:20

If you want more from David and I,

4:22

you should check out our second show, ACQ2,

4:24

where we interview founders, investors, and experts, often

4:27

as follow ups to the topics on these

4:29

episodes. Before we dive in,

4:31

we want to briefly share that our presenting

4:33

sponsor this season, which we are so pumped

4:35

about, is JP Morgan, specifically their incredible payments

4:37

business. Yeah, we'll be talking about them in

4:40

depth later in the episode, but we've known

4:42

JP Morgan for a long time. We

4:44

both personally bank with them as does acquired,

4:47

but we really uncovered the breadth of JP

4:49

Morgan payments as we went deep into our

4:51

industry research for our Visa episode last year.

4:54

Just like how we say here on acquired

4:56

every company has a story, every company's story

4:58

is powered by payments and JP Morgan payments

5:00

turns out to be a part of so

5:02

many of our acquired companies journeys. And it's

5:04

not just the Fortune 500, they're

5:06

also helping companies grow from seed to

5:08

IPO and beyond. Yeah, we're

5:10

pumped to explore payments through all these different

5:13

industries this season through both a technology innovation

5:15

lens, but also a business model innovation lens,

5:17

much more ahead. So with that, this show

5:19

is not investment advice. Dave and I may

5:22

have investments in the companies we discuss and

5:24

the show is for informational and entertainment purposes

5:26

only. David, where are we starting our story?

5:29

Well, we start in 1921, over a hundred years ago

5:34

in Toronto, Canada, with the

5:36

discovery and extraction of

5:38

the pancreatic hormone insulin by a

5:40

laboratory group at the University of

5:42

Toronto Medical School. Insulin,

5:45

of course, as most of you know,

5:47

regulates the absorption of glucose from the

5:49

blood into the body. And

5:51

it's the main anabolic hormone in most,

5:54

if not all animals in the world.

5:57

Insufficient insulin production in the body, of

5:59

course. leads to the

6:01

disease diabetes. So

6:04

this group, if you could call it that, at

6:06

the University of Toronto is comprised

6:08

of the physician Frederick Banting

6:10

and the medical student, his

6:13

assistant, Charles Best, along

6:15

with a chemist and the head

6:17

of the laboratory there and

6:19

assistant medical school dean John

6:21

McLeod. Now there's a

6:24

whole bunch of controversy around who

6:26

actually deserves credit for the discovery

6:29

of insulin. The historical consensus

6:31

at this point now being that

6:33

it really was Banting and Best who did

6:35

all the work. But nonetheless,

6:38

two years later when the

6:41

Nobel Committee awards them the

6:43

1923 Nobel Prize in

6:45

Physiology or Medicine for the discovery

6:47

of insulin, it is Banting and

6:50

McLeod who get the award,

6:53

not Best. This will come back up in a minute.

6:56

Yeah. And to set some context for

6:58

the time period here, 1921, the public

7:00

is not aware of what insulin

7:03

is. The public is however aware of

7:06

what type 1 diabetes is. This is

7:08

the juvenile form of diabetes. Only 5%

7:11

of diabetes sufferers have type 1

7:13

today. But back then, this

7:15

was the dominant form of diabetes.

7:18

And it was families whose kids

7:20

had a death sentence. And

7:22

there was basically nothing that could

7:24

be done. And there were lots

7:26

of rumors of people trying to

7:28

figure out what substances you could

7:30

inject or eat or anything to

7:33

cure this sort of mysterious, horrible

7:35

way to die. And people were

7:37

so convinced in the late teens

7:39

and early 20s that scientists

7:42

were on the verge of a breakthrough

7:44

that the common wisdom was to go

7:46

on a diet of like 2 to

7:48

500 calories a day and starve yourself

7:50

so that you could live long enough,

7:52

even though you had a terrible quality

7:54

of life, you could live the months

7:56

or a couple of years long enough

7:58

when the treatment did arrive. to finally

8:00

get it. I mean, we can't

8:02

overstate how important this was

8:04

and how terrible awful diabetes was.

8:07

I mean, it was truly a

8:09

death sentence. That treatment that you

8:11

were referring to, that was the

8:13

official American and globally

8:15

accepted treatment for diabetes. It was

8:17

literally called the starvation diet, and

8:20

it was just attempt to prolong your life

8:22

as long as possible. But like, you are

8:24

going to die unless a treatment is

8:26

found. So, you know, when we say

8:28

that this group won the Nobel Prize in 1923, this

8:30

isn't just like

8:33

a Nobel Prize. This is one

8:36

of, if not the most important advance

8:38

in like all of modern medicine that

8:40

they're discovering here. I mean, we're just

8:42

not that many decades after snake

8:44

oil salesmen, patent medicine. We talked

8:46

on the Standard Oil episode about

8:49

John D. Rockefeller's father literally

8:51

selling snake oil, and that's just

8:53

barely in the rearview mirror. This is

8:56

one of the earliest breakthroughs in modern

8:58

science. We were still years away from

9:00

antibiotics and certainly decades away from the

9:02

popularization of antibiotics as a treatment. So,

9:05

this was the big breakthrough. All right.

9:08

So, what did Bantec and Best do? So,

9:10

scientists had known, even going back to the

9:13

1800s, that diabetes

9:15

was caused by the misfunctioning of

9:18

some type of hormone that was created

9:20

in the pancreas. But until

9:22

Toronto, nobody had been able to

9:24

actually isolate what that hormone was,

9:26

let alone extract it. And

9:29

to put a finer point on it, Banting and

9:31

Best didn't even know what the hormone was. Even

9:33

when they did figure out what to extract, they

9:35

thought it was sort of this soup of a

9:37

bunch of different chemicals mixed together. They wouldn't figure

9:39

out for years and years and years, oh, this

9:42

is like one very pure specific hormone that we

9:44

are isolating here. So, by

9:46

experimenting with dogs and dog

9:48

pancreases, they're able to extract something

9:51

that comes to be known as insulin

9:54

and not only extract it,

9:56

they then experiment with it

9:58

and inject it into humans.

10:00

human diabetes patients who are

10:02

at severe end-of-life stages. And

10:05

miracle, the human body is

10:08

able to use this extract

10:10

from dog pancreases, and

10:12

these patients have miraculous recoveries.

10:15

Yeah. I spent

10:17

a bunch of time reading this book

10:19

Breakthrough by Cia Cooper and Arthur Ainsburg,

10:21

and they go way into this. Basically,

10:23

this team was the first one to

10:25

figure out you could target the pancreatic

10:27

islets and isolate the extracts in a

10:30

relatively pure form. And pure

10:32

by their standards, not certainly by

10:34

today's standards, but you're right, totally

10:36

crazy extracting from these dogs and

10:38

injecting in humans in extremely limited

10:40

quantities. Once they figured it out, it

10:43

was still hard to then go from there to getting it

10:45

to people because they're like, well, okay, we did this thing

10:47

that kind of worked once from one dog into

10:50

one person. So where

10:52

do we go from here? And importantly,

10:55

this new insulin substance, while

10:57

it is a miracle, it's

10:59

not a cure. Injecting

11:02

patients with it doesn't magically restart

11:04

production of insulin in their own

11:06

pancreases or cure the disease. It

11:09

only works until your body uses it

11:11

all up, which is pretty quickly.

11:14

So these diabetes patients, they finally have

11:16

a new lease on life, but

11:19

it's kind of also just that, a lease. In

11:22

order for them to survive, they need

11:24

to regularly inject an appropriate

11:26

amount of insulin, and by regular

11:28

basis, especially in these early days,

11:30

that's like every couple hours. And

11:33

you can imagine the incredible high wire

11:35

act in the early days where they've

11:38

extracted from literally one dog, they've kind

11:40

of written down the process. Strangely

11:43

enough, somewhere along the way, the process was

11:45

forgotten. Someone else had to replicate it. And

11:47

then they took his notes, combined them with

11:50

the original researchers, and then figured out a

11:52

path forward. I mean, we discovered the process

11:54

for refining insulin enough to put it into

11:56

humans, and then lost it, and then found

11:59

it again. This was the state of

12:01

medical science. And so you have people ringing off

12:03

the hook, newspapers reporting. The breakthrough is here. The

12:05

breakthrough is here. And they've got like, you know,

12:07

single digits or dozens of vials of usable insulin,

12:10

each of which needs to be injected into a

12:12

single patient every few hours in

12:14

Toronto. So there's not enough to go around. The

12:17

path forward is super unclear. And

12:19

this is foreshadowing a little bit, but the era

12:21

that we're in here in 1921, there

12:24

is a firewall between industry

12:26

and medical science. And it

12:28

was perceived to be unethical

12:31

to make money on

12:33

taking your medical breakthroughs and sort of

12:35

turning them into companies. And so there's

12:38

this extreme culture at the University of

12:40

Toronto around we have to protect anyone

12:42

from making too much money off this

12:44

thing. So we got to be really

12:46

careful and potentially even slow down its

12:49

development and be really thoughtful about how we

12:51

distribute it to the world so that nobody takes

12:53

it and makes too much money. Yeah, bad taking

12:55

and besting the cloud aren't going to go, you

12:57

know, today they would go like start a company, you

12:59

know, around this like that's not going to happen back then.

13:02

But all of a sudden the

13:04

world needs a lot of this animal

13:06

insulin and in a supply chain

13:09

that can't go down because once you start

13:11

patients on this, they need it forever. So

13:13

what the University of Toronto

13:16

does do is they license

13:18

production and development rights to

13:20

a large American drug company

13:23

based in Indiana, Eli

13:25

Lilly. And they

13:27

give Eli Lilly a one year

13:29

exclusive development license to try and

13:32

mass produce this substance.

13:35

And again, like you said, this is like a big

13:37

step for the University of Toronto to do this. But

13:40

the need in the world is so great that they're

13:42

willing to work with industry here. You

13:44

literally have presidents and secretaries of state

13:46

trying to call in favors and successfully

13:49

calling in favors to get access to

13:51

the limited vials that the University of

13:53

Toronto has. Yeah. Wasn't Elizabeth Hughes one

13:55

of these famous first patients, the daughter

13:57

of the secretary of state of the

13:59

U.S., right? have been to use. Yeah. Yeah.

14:02

Wow. So it's

14:05

obviously not practical or maybe

14:07

not ethical that's beyond the scope

14:09

of this podcast to use dog

14:11

pancreases for scaling mass production here.

14:14

But it turns out there actually is an

14:17

abundant ready supply of animal pancreases that

14:19

happen to be just sort of lying

14:22

around in the American heartland and just

14:24

about every human food production center in

14:26

the world. And that is cow and

14:29

pig pancreases from, you know,

14:31

all the meat that we eat. Indiana's got a

14:33

lot of cow farmers. And so the

14:35

clever really startup Eli Lilly, I mean,

14:38

the company had been around for a

14:40

while, but this idea of taking on

14:42

real R&D risk was sort of a

14:44

new concept. So they sort of startup

14:46

Eli Lilly is going around hiring salespeople

14:48

to bang down the

14:50

door of slaughterhouses all over Indiana

14:53

and say, Hey, I know your

14:55

waste product includes pancreases. Do

14:57

you think you could ship those to us? We'll

14:59

pay you for those. Yeah. And it's actually not

15:01

an easy sale because those farmers are like, it's

15:03

going to slow down my process if I have

15:06

to figure out how to separate the pancreases. And

15:08

this is already a real tight ship. So there's

15:10

a real entrepreneurial tale of Eli Lilly sort

15:13

of convincing large, large numbers of slaughterhouses to

15:15

do this. The other interesting thing to

15:17

note about the Eli Lilly license, David, which

15:19

I thought was really clever is

15:22

it's a one year exclusive license where there's

15:24

two conditions and the conditions are

15:26

a trade. One, Eli Lilly

15:28

has to report back any advances

15:30

that they make to the University

15:32

of Toronto. It's almost like little

15:35

operation warp speed going on, kind of analogous

15:37

to COVID. As they figure stuff

15:39

out, they have to share it back with

15:41

the University of Toronto to improve the manufacturing

15:43

yields of whoever else will be developing the

15:45

drug. In exchange, the thing

15:47

that Eli Lilly does get to retain

15:49

and protect on their own is a

15:51

brand. Eli Lilly saw it

15:53

really important early to say, hey,

15:55

we want to build a brand around insulin so that

15:58

people know it's coming from us that it's of

16:00

a certain quality. And even when we

16:02

lose our one year exclusive license, and

16:04

even when we stop contributing the manufacturing

16:06

IP back to you, the brand actually

16:08

stays ours. Yeah, we're gonna

16:10

talk a bunch more about Eli Lilly here

16:12

as we go. But this moment, this insulin

16:15

moment, this is what really turbocharges them and

16:17

makes them into one of if not the

16:19

first kind of leading American

16:22

and international pharmaceutical company,

16:24

which it still is to this day still

16:26

bigger than Nova Nordisk. Yep. Although

16:28

not by too much. Well, much more diverse,

16:30

but not too much larger by market cap.

16:33

Okay, so back to this whole Nobel

16:35

Prize thing, which as we said, was

16:37

awarded to Banting and Assistant

16:40

Medical School Dean, John McLeod.

16:43

Now, how did McLeod end

16:45

up being the guy who shares the

16:47

award with Banting and not best? And years later,

16:49

actually, the Nobel Committee would basically admit that they

16:52

messed that up. It turns

16:54

out that the answer to

16:56

that is the key to the

16:58

first chapter of our story today. Because

17:01

the actual nomination, I don't know if you knew

17:03

this, Ben, the actual nomination for

17:06

that prize was put

17:08

forth by a previous Nobel

17:11

Prize winner in physiology or medicine, the

17:14

1920 Nobel Prize winner from

17:17

Copenhagen, Denmark,

17:20

a animal biologist

17:22

named August Crow,

17:25

who also happens to be the

17:27

founder of Nova Nordisk. Is that how

17:29

Nobel Prizes work? A previous winner nominates

17:32

the current nominees or is that just

17:34

like, it certainly helps their case if

17:36

a previous winner? Yeah, I

17:38

do not think it is a requirement, but you know, certainly

17:41

a previous winner and a recent

17:43

previous winner in the same category you would imagine

17:45

carries a lot of weight. So the

17:47

guy who would go on to found Nova Nordisk

17:49

is the one that nominated Banting

17:51

and McLeod for the Nobel Prize before

17:54

starting the company. Yeah. Now, here's

17:56

the wild thing about August Crow,

17:58

founder of Novo Nordisk, the

18:01

world's premier insulin company

18:03

focused on insulin and diabetes for

18:05

100 years now, world's premier GLP1

18:07

company. He's not a physician.

18:09

He's not even a human biologist. Yeah, he

18:12

was an animal biologist, right? Yeah, he was

18:14

an animal biologist. Fun fact

18:16

though, this is maybe my favorite sidebar in

18:18

the episode. He studied

18:21

at the University of Copenhagen.

18:23

His advisor was a guy

18:25

named Christian Bohr, B-O-H-R. That

18:28

name might sound familiar to some people. The descendant

18:30

of Niels Bohr? A father. What? Of

18:33

Niels Bohr. That Niels

18:35

Bohr, father of atomic physics, also

18:37

winner of the Nobel Prize, major

18:39

contributor to the Manhattan Project. So

18:42

yeah, his August's PhD

18:44

advisor was the father of Niels Bohr. Everybody's winning

18:46

Nobel Prizes. There must have been something in the

18:48

water in Copenhagen at that time. Also, that tells

18:51

you how long ago this was, that in my

18:53

head Niels Bohr is someone from a long time

18:55

ago, so it would be a descendant, but actually

18:57

this is his father. Yeah, right, right, right. Okay,

19:00

so back to August Crow. How the hell

19:02

does he end up going to Toronto, getting

19:04

involved in all of this, starting, you know,

19:07

Novo Nordisk? Well,

19:09

in 1920, the same summer

19:11

that he wins the Nobel Prize, his

19:15

wife, Marie Crow, is diagnosed

19:17

with diabetes. And this

19:19

starts weaving together this whole crazy chain

19:21

of events that leads to, well,

19:24

Nordisk. Novo comes a little later. Marie

19:27

herself is actually a pretty

19:29

incredible person. She is

19:31

a physician. So she's the first

19:33

woman in Denmark to earn a

19:36

doctorate in medicine. And Denmark,

19:38

I kind of suspect, has always been pretty

19:40

progressive relative to the US. But even still,

19:42

like we're talking about like the 19 teens,

19:45

a woman to earn a doctorate in medicine

19:47

and then be a practicing physician was obviously

19:50

unique. Yes. So when she's diagnosed

19:52

in 1920, and you know, she

19:55

basically self diagnosis, she knows what's going on, like

19:58

she in August, like she knows exactly what's going on. exactly

20:00

what this means, like she's going to die. This

20:03

is horrible. But given that

20:05

they're both very, very active in the

20:07

scientific and medical community in Europe, they

20:09

are able to get her the best

20:11

care possible. Which at this point

20:13

in time in Denmark is a

20:16

young Copenhagen-based physician named

20:18

Hans Christian Hagedorn, who

20:20

is widely respected as sort of the

20:22

best endocrinologist in town, even though he's

20:24

very young. And he's up

20:27

to date on all the latest workings

20:29

of the starvation diet and how to

20:31

maximize quality of life and prolong life

20:33

as long as possible. Fortunately,

20:36

Marie diagnosis herself very

20:38

early. He puts her on

20:40

a closely monitored starvation diet and

20:42

they stabilize it enough, enough

20:44

after a year or so. Now

20:47

back to August, ordinarily, after

20:50

you win the Nobel Prize, you go

20:52

on a major international lecture tour. And

20:54

of course he's invited all over the

20:56

world, particularly to the elite universities in

20:58

America to come give speeches

21:00

on his Nobel Prize-winning research. But

21:02

because Marie fell ill at

21:04

the same time, he had to delay his

21:06

trip until 1922. So

21:10

in 1922, August and Marie set sail

21:12

for Boston. Which is, by the way,

21:14

amazing that a Type I diabetic has

21:17

made it sort of this far

21:19

in life and is in the

21:21

early 20s doing transatlantic travel. Totally

21:23

amazing. So August

21:25

is gonna give a delayed series of lectures

21:28

here both Harvard and Yale. While

21:30

they're in Boston at Harvard, they

21:33

meet with a guy named Elliot Joslin,

21:35

who he's actually the inventor of the

21:37

starvation diet. He is like the world's

21:40

foremost diabetes physician and researcher at this

21:42

point in time. And

21:44

Elliot tells them about

21:47

what's going on in Toronto. This is

21:49

the world that we're living in back then.

21:52

News of the discovery of insulin hadn't

21:55

really yet reached Europe and certainly

21:57

hadn't reached Denmark at the time.

22:00

point in time. So it was like

22:02

a competitive advantage to be a Nobel

22:04

Prize winner on an international lecture

22:07

circuit because you got better, faster

22:09

information about brand new medical advances.

22:11

Yes. Well, and particularly the competitive

22:14

advantage, like life advantage, like

22:16

they're just concerned about Marie's life at

22:18

this point in time. So,

22:21

Elliot says, you know, I know the

22:23

guy who runs the lab up there,

22:26

John McLeod, let's write

22:28

him a letter and see

22:30

if while you're in America, you can go

22:32

up and see them and see the

22:34

lab, see what's happening and maybe get some of this

22:36

insulin. So August

22:39

and Marie write to McLeod. Marie also

22:41

writes back home to Denmark to Hagedorn

22:43

and tells him about what's going on

22:45

and about this discovery of insulin. She

22:48

suggests in that letter that since Hagedorn

22:50

is kind of the leading diabetes

22:53

physician in Denmark, maybe

22:56

while they're in Toronto, they might be able

22:59

to secure like some rights or ability to

23:01

bring insulin back to Denmark. McLeod

23:03

in Toronto, you know, he gets the letter.

23:05

He's like, of course, come on up. You

23:07

and Marie both come stay in my personal

23:09

home. Sadly, unfortunately, Marie falls

23:12

ill and she can't make the trip

23:14

up to Toronto. So August goes alone,

23:16

but he stays with McLeod. Observes

23:19

the insulin production process, sees

23:21

everything that's happening. They become

23:23

close and friendly.

23:26

Most importantly, McLeod

23:28

takes August to go

23:31

meet with the insulin committee

23:33

and talk about what

23:35

Marie had suggested to Hagedorn of like, hey,

23:37

maybe these are the right people to bring

23:40

insulin to Europe,

23:42

essentially, but at least to Denmark. Now,

23:45

funnily enough, at this particular point

23:48

in time, it

23:50

turns out you actually can't

23:52

patent drugs in Denmark. So

23:54

any blessing or patent licensing from the

23:57

insulin committee to the crows. and

24:00

Hagedorn for Denmark is sort of pointless

24:02

because it's not legally binding in Denmark

24:04

anyway. But the insulin committee says,

24:06

well, you're really the right people to do

24:08

this. How about we give

24:11

you rights for all of Scandinavia, Norway,

24:13

Sweden, Denmark, you have our official blessing

24:15

and any rights that you need. And

24:18

this is pretty similar deal that they

24:20

cut with Eli Lilly. That was for

24:22

North America. They basically gave him the

24:24

same thing for Scandinavia. Yes. So

24:27

August and Marie set sail back for Europe.

24:29

They arrive in Copenhagen, they go tell Hagedorn

24:31

the news. Immediately they all go get to

24:33

work. And by get to work, they

24:36

go buy cow pancreases at

24:38

the local livestock market in

24:40

Copenhagen. This is something, so you read

24:42

more about the Novo Nordis history than I did. Was

24:45

it cows or was it pigs? Because I

24:47

know that Denmark has an abundance of pigs,

24:49

which actually made it pretty well suited to

24:51

be an early insulin manufacturer. Ah,

24:54

interesting. It was both, I think

24:56

pigs may have come later, but certainly it was

24:59

both cows and pigs that Nordisk and then Novo

25:01

were using both of them. They were just basically

25:03

trying to get their hands on any animal pancreases

25:05

that they could. Right, if it's got islets, we

25:07

want it. Yep. So

25:10

using the Toronto method,

25:12

they get a bunch of pancreases. They

25:15

go to August Crow's lab at

25:17

the University of Copenhagen, run

25:20

them through a meat grinder, pour

25:22

hydrochloric acid over them and they extract

25:24

insulin. And then they test

25:26

it on rabbits and mice and they confirm, yeah,

25:30

we've got it. This is insulin. Certainly

25:32

for the first time in Scandinavia, I

25:34

think maybe also for the first

25:36

time in continental Europe, at least

25:39

insulin is extracted here in

25:41

Denmark. So this

25:44

leaves just one obvious problem, just

25:46

like insulin in Toronto. This

25:49

is not gonna scale. Maybe you

25:51

could do this to treat Marie, but they

25:53

want to treat the whole country, the whole region. Right,

25:56

this is like a very real

25:58

problem for insulin. all the way

26:00

up until like the 1980s, which

26:02

is you are scale

26:04

constrained by the number of dead

26:07

animal pancreases you can get your hands on.

26:10

And I found this wild stat, it takes

26:12

8,000 pounds of

26:14

pancreatic glands from 23,500 animals to make

26:16

a single pound of human insulin. Yeah,

26:23

that's wild. To put that in more

26:25

real numbers, that means that even by 1980,

26:27

with all the advances,

26:30

it took 1 million

26:33

animals annually for 30,000 diabetes

26:36

patients. And there are a lot

26:38

more than 30,000 diabetes patients in the world in

26:40

1980. And we'll talk about who

26:43

the pioneers were and how we eventually got

26:45

out of using animals to create insulin in

26:47

the 80s. But that was also

26:49

the moment in time where type

26:51

2 diabetes really took off. Yes, you're

26:53

foreshadowing. It's been a 45 year massive

26:57

issue. But like, we basically

26:59

could not have continued to

27:01

use animal based

27:03

medicine to treat diabetes

27:05

once it really exploded. Then we're going

27:07

to get to this in like two hours. For

27:10

sure. All good. So back

27:12

to the crows and Hagedorn in 1922-23

27:14

in Copenhagen, they

27:17

need to scale production. So

27:20

they go to the Lovins Chemiski

27:23

fabric. And I need to

27:25

like majorly apologize to

27:27

all Danish people out there.

27:29

I talked to some Danish folks

27:32

in research for this episode. And

27:34

thank you very much. And I

27:36

just, I realized in those conversations,

27:38

I need to give up on trying to

27:40

pronounce things correctly. Stick to French. We'll

27:43

stick to French. Yes. But that translates

27:45

to English as the Lion Chemical

27:47

Factory. And it is owned and run by

27:50

another man named August, August

27:52

Kongsted. With a K K O N

27:54

G S T E D. And

27:57

so they partner together. 1923,

28:01

the very same summer

28:03

that the Nobel Committee is debating

28:05

on the award for that year,

28:07

and of course Crowe at this

28:09

point has nominated his buddy McLeod,

28:11

along with Banting. By

28:14

that summer of 1923, the combo

28:16

of the Crows and Hagedorn and

28:18

the Lion Chemical Factory have produced

28:20

enough insulin that they can complete

28:22

trials with eight human patients with

28:25

great success there in Copenhagen.

28:28

And at this point, H.C. Hagedorn, who

28:30

remember was originally Marie's physician to

28:32

help treat her diabetes, he resigns

28:34

his medical post and decides that

28:36

he's going to focus full-time on

28:39

this project. So the

28:41

founders are Hagedorn and August and

28:43

Marie Crowe. And

28:45

Kongstead from the Lion Chemical Factory. These

28:47

are the founders of the project, but

28:49

there's no Novo Nordisk yet. And

28:51

we should say around this time, I

28:53

believe Eli Lilly was further along in

28:55

terms of the volume that they had

28:57

developed. I think they were making hundreds

29:01

of vials a week of usable

29:03

insulin. Absolutely. Eli Lilly had

29:05

insulin on the American market available to

29:07

patients at this point in time. Yep.

29:11

All right, so how does this actually turn into

29:13

Nordisk? But before we do that, with

29:18

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this season. Okay,

32:16

so David, the founding of Nordisk.

32:19

How does it happen? So, the

32:21

Lion Chemical Factory at this point has

32:23

established a new production line for insulin.

32:26

But it's unclear, do they own this

32:28

production line? Is it Crow's,

32:30

is it Hagedorn? Is the

32:32

University of Toronto involved? Crow

32:35

and Hagedorn are sort of consulting on it.

32:37

When Hagedorn makes this decision to

32:40

go full-time, what actually happens is

32:42

he becomes an employee of

32:44

Lion Chemical, which isn't really what

32:47

he wants. August Crow steps back

32:49

and he returns to his other research at

32:51

the University of Copenhagen. But

32:53

once insulin starts rolling off the line

32:55

later that summer, under the

32:58

brand name Insulin Leo, like Lion

33:00

Chemical Factory, they use the brand name.

33:02

And that would continue to be

33:05

Nordisk's insulin brand name for the next

33:07

60 years, I think.

33:09

Wow. Pretty quickly, demand

33:12

is just off the charts. And

33:15

they are, like we talked about, essentially

33:17

the first mover in continental Europe. So

33:19

there's a pretty enormous

33:21

opportunity here. So in

33:23

1924, Crow, Hagedorn, and Kongstad, who

33:27

owns Lion Chemical, they all come to an agreement.

33:30

They're gonna set up a new independent

33:33

and self-owning institution

33:36

to produce and distribute

33:38

this insulin throughout Europe. Yeah,

33:40

what does that mean? Still not

33:42

a company. Because other than Kongstad from

33:45

Lion Chemical, Crow and even

33:47

Hagedorn at this point, they're

33:49

not particularly commercially-minded. No,

33:51

it's a biologist and a physician. Yes.

33:55

So what they do is

33:57

they set it up as an

33:59

operating company. company because that's what they have

34:01

to do to have employees and make sales and

34:03

what not. But this operating

34:05

company is 100% owned

34:08

and controlled by a foundation

34:10

that they also set up. And

34:13

the three of them are going to be board members

34:15

of this foundation and Hagedorn is going to run it

34:18

day to day. This is really

34:20

important to know and really crazy

34:22

how much this impacts in the

34:24

future. This is still the corporate

34:26

structure of the largest company in

34:28

Europe and we're going to get to this

34:30

hours from now in Playbook but this

34:33

governance structure massively

34:35

affects the incentives and the way

34:37

that this company ends up developing

34:40

products going to market with them.

34:42

The future blueprint of the next 100 years is

34:45

laid right here in this corporate structure. And

34:48

foreshadowing, there is a moment much

34:50

later in history where absent

34:52

the control of this foundation, Novo

34:56

Nordisk would have ceased to exist. It

34:58

is only because of this structure that

35:01

Novo Nordisk survived and that

35:03

we have GLP ones and everything we have today. Fascinating.

35:07

By the way, this is not

35:09

that uncommon in Danish companies. Lego,

35:11

same structure. Maersk, the shipping company,

35:13

same structure. Well I

35:16

dug into this a little bit. So yes,

35:18

this is a very common structure in

35:20

Denmark, mostly for tax

35:22

reasons because Denmark has very, very

35:24

high taxes. So this is a

35:26

common generational transfer mechanism and Novo,

35:28

later, we'll talk about Novo in

35:31

a sec, Novo actually has

35:33

this type of structure that you're talking about.

35:36

The Nordisk Foundation is not just

35:38

like a foundation of convenience. It

35:40

really is like a charitable foundation

35:43

with a dual mission. So they give it two

35:45

missions. The first mission is

35:48

to produce insulin and

35:51

sell it at

35:53

cost in Scandinavia,

35:55

in the original kind of territory

35:57

mandate, in order to maximize

35:59

access. success and kind of

36:01

humanitarian public health benefit. Be

36:04

though, export it elsewhere

36:06

in Europe and around the world

36:09

at market prices and use

36:11

the profit from those exports

36:14

to fund further diabetes

36:17

research and development. So

36:20

no profits allowed in

36:22

Scandinavia, profits are allowed

36:24

from export activities, and then all

36:26

of those profits, literally by contract,

36:28

get shipped 100% to the foundation

36:30

to then be

36:34

used for grants and research about

36:37

diabetes and supporting diabetes patients in

36:39

Scandinavia. Fascinating. I did not know

36:41

that. Totally fascinating. And

36:44

more or less, as you said, that is the

36:46

same mission and structure that is still in place

36:48

today. It's obviously changed a little bit. Yeah, there's

36:50

some caveats that I'll get to when we get

36:52

to today. Yes. The Norwegian

36:54

company is now publicly traded, but still

36:56

that foundation controls 77% of the

36:59

voting shares of Novo Nordisk and 28% of

37:02

the economic shares. Yeah. So

37:05

no shareholder activism in this company, or at least

37:07

no one's effective in doing so. Yes.

37:10

So the name that they choose

37:12

for this new institution or really

37:14

dual institution is fittingly

37:17

Nordisk Insulin, which

37:19

Nordisk in Danish means Nordic

37:23

insulin, is the insulin manufacturer for

37:25

the Nordics. Very creative. Very

37:27

creative. So you're listening here, you're

37:30

probably like, okay, that's Nordisk. What's the

37:32

Novo piece of this? Well, it

37:34

turns out that that is quite the story too, because

37:37

among the very first employees

37:39

of the Insulin project, even

37:41

before Nordisk gets created, are

37:43

two brothers, Harald and

37:45

Torvald Peterson. And

37:48

the Petersons, you got to remember the

37:50

time we're in, they're sort of like

37:52

prototypical 19 teens, 19 twenties, kind of

37:54

engineers and tinkerers. They're not

37:57

that far removed from like the Wright brothers and

37:59

Henry. Ford and that kind of stuff

38:01

here. They're like kind of cast from that mold.

38:04

So the older brother, Harold, he

38:07

had been working in August Crow's

38:09

lab, doing all the

38:11

mechanical engineering stuff to carry

38:14

out the experiments. Like you

38:16

need to build devices and

38:18

contraptions and set up experiments.

38:20

And so Harold was in charge of doing that. Once

38:23

the insulin project gets going, Harold

38:26

naturally sort of shifts over and he's

38:28

the one going out and building

38:30

and buying and modifying like the meat grinders

38:32

and figuring out how to pour hydrochloric acid

38:34

over it in the right way and all

38:36

that sort of stuff. When

38:39

Lion Chemical gets involved in their spinning up

38:41

mass production, Harold goes

38:44

to Hagedorn and August

38:46

and Conkstead and says, hey,

38:49

you're setting up an actual production line. I've

38:51

got just the guy to help you set it up

38:54

and run it, my brother Torvald. Because

38:56

not only is Torvald a seasoned

38:58

factory operations manager who's currently running

39:00

a large soy factory, he is

39:03

also trained as a

39:05

pharmacist and studied chemistry. He's like

39:08

the perfectly qualified person to be

39:10

like an early employee of this new operation. Except

39:13

it turns out, there's just one problem.

39:16

Hagedorn thinks he's in charge. And

39:19

Torvald, who's just been hired, thinks, hey, I

39:21

know what I'm doing here. I'm in

39:23

charge. Like Hagedorn, you're this pompous physician. Like

39:26

what do you know about running a factory?

39:29

So this schism happens like in

39:31

the first year of Nordisk's existence?

39:34

Yes. In the first six months

39:37

after Torvald is hired,

39:39

he and Hagedorn, they're constantly fighting.

39:42

One day they get into a huge, huge argument

39:44

and Hagedorn fires him. Six months in. Guess

39:47

we know who's in charge. Yeah. When that

39:49

happens, Harold, the older brother, resigns

39:51

in solidarity. And they're super pissed.

39:53

They go to see Crow and they're

39:56

like, hey, you know, August, I've been working

39:58

for you for a while. we know

40:00

what we're doing here. Why is this

40:02

happening? And Crowe

40:05

sides with Hackadorn. He's like, no, no, he's my

40:07

guy. He's Marie's physician. He's gonna run this thing.

40:10

So they say, well, all right, fine.

40:13

You know, as you know, here

40:15

in Denmark, you can't patent drugs.

40:18

Oh, that's why this is important. We're just gonna

40:20

go down the street and make

40:22

insulin too. And the legend has it

40:24

that supposedly August looks at

40:27

them and replies, but you're not

40:29

capable of that. To which

40:32

Torvald yells at him, we will

40:34

show you. And they storm out

40:36

of the building and go down the

40:39

street. And they found

40:41

a new insulin company,

40:43

a Novo insulin company

40:45

there in Copenhagen, insulin

40:48

Novo. And that is

40:50

the beginning of Novo. And for the next 65 years,

40:54

these two companies would

40:57

compete in blood sport, head-to-head,

40:59

hated each other, absolutely hated

41:02

each other until they

41:04

finally merged in 1989. Crazy.

41:07

Yep. Now, this is such

41:09

a key part of the Novo story that

41:12

certainly, you know, Crowe, but then Hackadorn

41:14

develops into this amazing scientist as we'll

41:16

talk about the advances that

41:19

Nordisk is able to bring to

41:21

market in the science of insulin

41:23

and diabetes. It's huge, but certainly

41:25

without the like bitter competitive motivation

41:27

from down the street, I

41:29

don't know that they would have moved as

41:32

fast. And you know, Novo ends up building

41:34

its own scientific research capabilities. And like these

41:37

two companies in this unlikely

41:39

small country in Northern Europe

41:42

end up leading maybe the most

41:44

important drug development of the 20th

41:46

century. It's amazing. I mean, it's

41:48

the local and bitter competition.

41:50

It's Ferrari and Lamborghini. It's

41:52

Aldi and Trader Joe's. It's Adidas and

41:55

Puma. You sort of create the seeds

41:57

of competition early and you can really

41:59

infuse that. that into a company's

42:01

DNA for decades. So I

42:03

think it's worth a quick pause here. We've

42:05

already talked about some of this, but

42:08

just to clarify why diabetes and insulin

42:10

is such a interesting market and large

42:12

market potential. You know, one,

42:15

even with just type one at this point in time,

42:17

it's still a very large

42:19

and widespread disease in

42:22

the world. So it's kind of a

42:24

large patient and potential patient market size.

42:27

But two, unlike

42:29

many other diseases and drugs for

42:31

those diseases, you know, it's chronic. You

42:33

don't cure it. So what insulin

42:36

is doing is it is enabling

42:38

these diabetes patients who often are

42:41

diagnosed as children to

42:43

live essentially normal, long

42:45

lives. So you're talking about decades,

42:48

40, 50, 60, 70, 80 years of

42:53

patient lifespan here, where

42:55

they are injecting insulin daily,

42:57

if not, you

42:59

know, in most cases, multiple times daily.

43:01

There's basically nothing other than food that

43:03

you can sell someone for their entire

43:06

life. But for diabetics, insulin

43:08

absolutely has that scenario with a customer. Yep.

43:11

And there's also kind of another

43:14

aspect that makes it particularly interesting

43:16

commercially, which is there's

43:19

also a motivation to constantly

43:21

improve the insulin product.

43:23

It's not like insulin is insulin is

43:25

insulin. There are so many

43:27

new products and improvements, both in the

43:29

drug itself, but also in the delivery

43:31

systems. I mean, this early insulin,

43:34

as we've alluded to a little bit, it

43:36

was barbaric by modern standards. Like,

43:38

yes, it saved lives, but it didn't

43:41

last very long. So you had to

43:43

inject a lot of it

43:45

very frequently. It wasn't super

43:47

clean. There are tons of impurities in it.

43:49

So there's swelling, there's infections.

43:51

There's allergic reactions to all the

43:54

impurities. Totally. It

43:56

wasn't shelf stable in

43:58

liquid injectable form. This

44:00

is wild. I don't know if you knew this, Ben. No. So

44:03

everything we're talking about in these days

44:05

and what Nordisk was originally producing were

44:08

insulin tablets, solid insulin

44:10

tablets. Now until recent

44:12

times, you can't take insulin in tablet form.

44:15

It doesn't get absorbed by the gut. You

44:17

have to inject it. So what patients

44:19

had to do was take these

44:21

solid tablets, dissolve them

44:24

in sterilized, distilled water, measure

44:26

and draw that solution into a syringe

44:29

themselves. Like a glass syringe with a

44:31

big needle. No pens. None of this

44:33

fancy stuff we have today. Yeah, big

44:35

ass needle. And you know,

44:38

so now you've got patients doing this multiple times a

44:40

day, and it's really important

44:42

that they get the right amount of insulin

44:44

for them. This makes it

44:46

really hard. Yep. And there's

44:49

no measurement. I mean, there's no like one

44:51

touch pinprick. We get to see what your

44:53

blood sugar content is right now. We're so

44:55

far from that existing that you are guessing.

44:57

You're throwing darts. Totally. And

44:59

actually, it's kind of a side note to the story,

45:01

but it's Novo in the 1980s that invents

45:04

the insulin pen. Oh,

45:06

I didn't realize that wasn't Nordisk, but Novo.

45:08

Yeah, Novo invented the pen and Nordisk focused

45:10

on pumps. And they were one

45:13

of several companies, but one of the leading companies innovating

45:15

in pumps. I see. We

45:17

should say listeners and David, you know this. This

45:20

is a topic that is super personal to

45:22

me. A huge number of my family members

45:24

are diabetic and actively suffer from the complications

45:26

and actively benefit from all the advancements in

45:28

it. And so this is something I've just

45:31

had present around me my entire life

45:33

with family members, as I'm sure many of you have

45:35

too. I'm quite certain

45:37

that almost everybody listening right now

45:39

either is diabetic themselves or has

45:41

a close family member who is.

45:44

Or is pre-diabetic. When I was

45:46

doing research for this episode, one of the people I talked to, I will

45:48

thank a bunch of folks at the end, but pointed out we're

45:51

all pre-diabetic in some way. And

45:53

It's basically like the idea that look,

45:55

your A1C levels, if you live long

45:58

enough, will eventually enter diabetes territory. Worry,

46:00

especially with the food system today and

46:02

all these foods engineered to leave us

46:04

theory on C. She added all of

46:07

our natural inclinations that we had as

46:09

hunter gatherers and farmers. And you know,

46:11

imagine the Paleo life Long ago. All

46:13

the things that served us evolutionarily to

46:16

stay alive are now the very things

46:18

that are killing us. so everyone's on

46:20

the pass. It just depends how long

46:22

you live. We also went really are

46:25

designed to live this long either Sir

46:27

Ralph Careful with the word design, David

46:29

versus. So.

46:32

When. Novo gets established. This starts

46:34

the competitive race that really leads

46:37

to one hundred years of our

46:39

indie pipeline. The changes? All this

46:41

so. The Peterson Brothers.

46:44

They. Know right off the bat, they

46:46

can't really disco clone what Nordisk is

46:48

doing. I mean, technically legally they ten

46:50

in Denmark, but what physician and what

46:52

patients are gonna buy novo insulin when

46:55

right down the street you've got. Nordisk.

46:57

Which has a Nobel prize

46:59

winning scientists the best diabetes

47:01

endocrinologist sit hit her in

47:04

Denmark running it's and to

47:06

be explicit blessing of Toronto

47:08

in the insulin committee. If.

47:10

Nobody cells the same thing. Like nobody's gonna

47:12

buy that, right? But. They

47:14

do have a pretty significant advantage that

47:17

nor this doesn't have, which as they've

47:19

got their engineering and tinkering skills. So.

47:22

They go to work. And pretty

47:24

quickly. actually they come up

47:26

with self stable liquid insulin.

47:29

So. What I was just talking about about how

47:31

Nordisk priests these tablets. You had to boil them. Never

47:35

comes out with liquid insulin. You don't have to

47:37

do that. Not only

47:39

that, Because the.

47:42

Process. For producing liquid insulin that

47:44

they come up with. Is so

47:46

much more efficient. They. can sell

47:48

it effectively cheaper per don't was

47:50

and what nord sq selling their

47:53

solid form as so they go

47:55

to market never goes to market

47:57

with their novo insulin as insulin

47:59

at half price because it's

48:02

so much more efficient. Now this is

48:04

so antithetical to like the ivory tower

48:06

scientists over at Nordisk. You're marketing insulin

48:08

at half price, and does this liquid

48:10

stuff work, and is this safe and

48:12

all this stuff. The Peterson brothers are

48:14

like, yeah, whatever, you know, we're

48:16

gonna crush you. All right,

48:19

so Novo, scrappy upstart, counterpositioned, and

48:21

competition drives innovation, so they create

48:23

better product. Yes. So

48:26

then Nordisk strikes back with

48:28

a new longer lasting form

48:30

of insulin called protamine

48:32

insulin, or NPH

48:36

as it is patented and come to

48:38

be known around the world, which stands

48:40

for neutral protamine Hagedorn. Really?

48:43

Hagedorn is in the name? Because HC Hagedorn, he

48:45

himself led the research developing this and he

48:47

puts his own name on it. Gotta

48:50

tells you what you need to know about him. This

48:52

is much more stable and needs to

48:54

be injected fewer times per day, which

48:56

is a huge benefit for patients. So

49:00

Nordisk, rather than

49:02

building up production facilities around the

49:04

world, what they decide to do

49:06

is license it back

49:09

to basically any interested pharma company.

49:11

So like Eli Lilly back in

49:13

the States, other companies in continental

49:15

Europe, it's the new widely accepted,

49:18

most advanced treatment for patients.

49:21

Except there's one company that they refuse to license

49:23

it to and that is Novo.

49:26

Amazing. So Novo, undeterred,

49:29

they go and they work around Nordisk's patents

49:31

on this. And again, I'm not sure at

49:34

this point if the laws have changed and

49:36

you can patent drugs in Denmark, but

49:38

it kind of doesn't matter because it's clear, Denmark

49:40

is not a very large country. By

49:43

far the bulk of the market is in exports

49:45

at this point. And certainly in

49:47

other countries you can patent drugs. So

49:50

Novo works around Nordisk's

49:52

patents and they

49:54

come out with an improved version

49:56

of protamine insulin That they

49:58

claim is both better. And doesn't infringe

50:01

on the patents which the farm industry

50:03

has a rich history of figuring out

50:05

exactly how to do this. Because the

50:07

thing about pharma pads, which is interesting,

50:09

is they're fairly narrow. You can patton

50:12

a molecule. I don't think this is

50:14

quite true at the time, but the

50:16

way it's sort of work stays in

50:18

Patna Molecules, which is extremely specific. It's

50:20

different than other industries where it's a

50:22

system in a method for blah blah

50:25

blah and you can be very broad

50:27

with it's So if you can accomplish

50:29

a similar biological. Or chemical reaction in

50:31

the bodies with a different molecule in

50:33

basically anyway then on patent it and

50:36

so there's a rich history and farm

50:38

of doing exactly this. What is slightly

50:40

next to the patent but does basically

50:42

the same thing just. Two. Point:

50:44

Oh, it is still quite scientifically difficult. It's not

50:47

like software here were like yeah, yeah, yeah. I

50:49

write some code and it's like know, you still

50:51

gotta find a molecule that does. What?

50:53

You say it does. He up so.

50:57

This. Leads to a whole

50:59

bunch of lawsuits. It actually

51:01

ends up going to the

51:04

dentist supreme court where Hagger

51:06

Dorn represents Nordisk himself. You.

51:08

Know and the lower courts. They had

51:10

lawyers and I think they lost the

51:13

case in the lower courts and extremists.

51:15

I'm gonna be my own lawyer As

51:17

the Supreme Court. As a Supreme Court.

51:19

Ah yes. Amazing. And they win Nordisk

51:21

as one here. This is like a

51:23

sued scuse blow for novo. You would

51:25

think. But. Then.

51:28

Literally frightened same time. World.

51:31

Where tix starts. And Denmark's

51:33

is invaded by the Nazis

51:35

shortly after they invade Poland.

51:37

and in April Nineteen thirty.

51:40

The. Nazis now occupied him, so

51:42

this sort of like infighting between

51:45

these two Danish drug companies. Much

51:47

less relevant, Much much less relevant.

51:50

But. With is still super alvin.

51:53

Is. How is Europe can

51:55

get influenced in. The

51:57

middle of World War Two and the.

52:00

This is a major, major

52:02

turning point, both for the two companies

52:05

vis-a-vis each other, but also I

52:07

think really what sets Novo

52:10

on the path to becoming

52:12

Europe's dominant producer of insulin,

52:14

and then ultimately the dominant producer of insulin

52:17

in the world. Huh. So

52:19

Novo, not Nordisk, became the globally dominant.

52:21

Really, I did not know that. I

52:24

actually don't know the terms of the 89 merger, so

52:26

I'm excited to listen just like everyone else, David. So

52:30

what happens is Denmark is

52:32

relatively unscathed during World War

52:34

II. It's a small country,

52:36

the Danish army was quite small, and

52:38

so when the invasion happens in April

52:40

1940, there's basically no fighting. Germany just

52:42

takes over the country. There's

52:44

no destruction, which means

52:46

that insulin production continues unabated

52:49

in Denmark. Now

52:51

Nordisk, remember, like I just said,

52:53

once NPH comes out, their

52:56

strategy becomes really like

52:58

we produce domestically, and

53:01

then we make our revenue and our

53:03

profits internationally by

53:06

licensing, not by production. And

53:09

with World War II, most of

53:11

the dollars for their

53:13

licensing revenue is coming from allied countries.

53:16

Well, Germany just took over Denmark. So

53:18

all of that revenue, all of those

53:20

profits go to zero overnight.

53:24

And Nordisk, for the duration of the war, basically

53:27

just gets put into hibernation mode.

53:30

They're still producing a little bit

53:32

to help supply Denmark, but there's

53:34

really nothing going on there. They

53:36

basically cannot address the market of

53:38

any allied countries anymore. Yeah. Wow.

53:41

Novo is the complete opposite story. They

53:44

had been scaling production all throughout

53:46

Scandinavia, all throughout Europe. And

53:49

when Germany takes over Denmark,

53:52

insulin novo is now, you know,

53:54

the ethics of this are really

53:56

complicated. Because it's Danish owned, which is

53:59

Nazi occupied. at the time.

54:01

Yeah, they are now essentially

54:03

the official Nazi sanctioned insulin

54:06

provider for all of

54:08

Nazi occupied Europe. So

54:10

the German government basically directs

54:13

NOVO to massively

54:15

expand production and supply insulin, you

54:17

know, not only to Germany, but

54:20

France to Poland and Australia to

54:22

all everywhere in continental Europe, basically.

54:25

So just to make sure I have it right, it sounds like

54:28

Nordisk is only making a small supply for

54:30

Denmark. NOVO is supplying

54:32

all of Nazi occupied

54:34

Europe. And the allied countries no longer have

54:36

access to anything NOVO or Nordisk makes. And

54:38

so they're relying on their own suppliers like

54:41

Eli Lilly. Yes. Now,

54:43

they're fine, they can get insulin, no problem,

54:45

because Nordisk has licensed all the

54:47

technology and production to them. They just

54:50

keep doing that. The only

54:52

problem is for Nordisk that Nordisk can

54:54

no longer get the payments from them,

54:56

because obviously, you know, transfer payments from

54:58

allied countries are now blocked. Right. Fascinating.

55:01

Totally fascinating. So again, we said

55:03

the ethics of this are quite complicated. There

55:06

is no doubt that NOVO's

55:08

fortunes massively changed and

55:10

expanded by the German occupation and

55:13

the Nazis during the war. On

55:16

the other hand, literally the Nazis

55:18

ordered them to expand production

55:21

and provide insulin for

55:23

Europe. And like if they

55:26

hadn't done it, all the diabetics in Europe would

55:28

have died. Oh, it's unquestionably a

55:30

good thing. Again, I'm learning about this from the

55:32

first time from you. But like, an evil person

55:34

commanding me to make more life saving drugs and

55:36

distribute it to more people is fine. It's the

55:39

other things they can do to do that are

55:41

not fine. Right, right. I

55:43

definitely agree. It is important to note

55:45

though, after the war, the Danish state

55:48

did require both NOVO and

55:50

the Peterson brothers personally, to

55:53

repay most of the

55:55

profits that they made during the war

55:57

back to the Danish state. Fascinating. Again,

56:00

like the ethics are complicated here. Very,

56:02

yeah, wow. So regardless,

56:05

after the war, Novo emerges

56:07

as now both a

56:09

scaled pharmaceutical company generally,

56:12

and the largest producer of insulin in Europe. And

56:15

as part of that now, they

56:17

have the resources to really build

56:19

up their own scientific and R&D

56:21

divisions and

56:23

become a real powerhouse to rival

56:26

what Nordisk was before the war.

56:29

Shortly after the war

56:31

ends, they develop a new product

56:33

called Lenten insulin, L-E-N-P-E, which

56:36

is slower acting insulin,

56:39

which means it's thus longer lasting. And

56:41

this can now be used for

56:44

diabetics as a basal or background

56:46

insulin. So they'll still

56:48

take fast acting insulin around meals

56:50

to help process blood sugar from

56:52

meals. But a

56:55

normal human pancreas is also producing insulin

56:57

24 seven throughout the day. This

57:00

now is a new background insulin

57:02

that diabetics can take to help

57:04

stabilize when you're sleeping or

57:06

not eating. So this is a pretty

57:09

big breakthrough. And what you're seeing here

57:11

is Novo and Nordisk having decades of

57:13

experience researching mechanisms to

57:16

slow the absorption or

57:19

lengthen the effects of

57:21

their drugs in the human

57:23

body and really developing this

57:26

incredible competency around how

57:28

do we sort of finely tune how

57:30

we want injections to react in your

57:32

body over a long period of time

57:35

in a very complex environment. You've got the

57:37

human immune system wanting to react to anything

57:39

forming you put into it. You've just got

57:41

a lot of systems that you sort of

57:43

have to make sure that you're interacting well

57:45

with to achieve something simple, like we'll make

57:47

it dissolve slower. And I know that's not

57:50

technically right, but that is kind of the

57:52

blunt way to think about it. Yeah, hopefully

57:54

it's obvious, but like this isn't quite

57:56

like software. It's like, oh, just you add some new

57:58

code and you ship a new feature. No,

58:00

this is very complicated stuff and you

58:03

got to make sure that the side

58:05

effects are not going to kill people.

58:08

So this is really the first major

58:11

scientific advance that comes out of

58:13

NOVO. And Eli

58:15

Lilly licenses this lenta insulin from

58:17

NOVO and kind of rebrands it.

58:20

It makes it part of their

58:22

flagship insulin offerings in the US.

58:24

They were doing this with NPH

58:26

insulin before the war from Nordisk

58:28

and now it's kind of NOVO

58:30

that's taking up this mantle. This

58:33

will come back up later in the episode. But

58:35

Eli Lilly, although insulin was

58:38

and still is a huge part of the

58:40

business, what they basically decided

58:42

is to be a kind of

58:44

technology follower and license from all

58:46

the innovation coming out of NOVO

58:48

and Nordisk, license that into their

58:50

sales and distribution channels in the

58:52

US. I'm really curious if

58:54

the Eli Lilly folks would agree with that

58:56

characterization. You read that great history of

58:59

NOVO Nordisk book and I'm sure that's the way it paints it

59:01

but at some point we should dig into Eli Lilly a little

59:03

more and see if that's how they think about it too. Yeah,

59:06

well, that is going to change in a big way

59:08

in the 1980s. But during

59:10

this post-war period, at least that's

59:12

how Kurt Jacobson's book makes it sound and

59:14

we got to give Kurt a big shout

59:16

out and he wrote this great history of

59:18

NOVO Nordisk that just came out last year

59:21

for the company's 100th anniversary.

59:24

Unfortunately you can't buy it in America. So

59:27

I emailed him a couple months ago and

59:29

I said, Kurt, is there any way we could buy a

59:32

copy of your book? And very, very

59:34

graciously he just sent it to us.

59:36

So very, very kind. Thank you, Kurt. Yep.

59:39

So this is basically the

59:42

way things stay for the post-war era up

59:44

until the 1980s. So

59:48

NOVO follows up lentin insulin in

59:50

the 1970s with MC insulin or

59:52

non-immunogen monocomponent insulin, which is the

59:55

first 100% pure zero

59:58

antibody potential. insulin,

1:00:01

that also becomes the kind of

1:00:03

new widely accepted best product

1:00:05

in the market internationally. So

1:00:08

this is the general state of play after the

1:00:10

war. Novo is now

1:00:13

a scaled pharmaceutical company. Nordisk

1:00:17

is mostly in rough shape.

1:00:19

Its production capacity has gone

1:00:21

down to basically zero, minimal

1:00:23

at this point in time.

1:00:26

They have resumed the licensing

1:00:28

business and eventually they do

1:00:30

get back payments from all

1:00:33

the allied countries that they were owed during

1:00:35

the war. So they're

1:00:37

not insolvent or anything, but they're

1:00:39

the much, much smaller company. Now,

1:00:43

Novo, interestingly, they're

1:00:46

now a large pharmaceutical company. They want to

1:00:48

add a second leg of the stool, a

1:00:50

new business line. So they

1:00:52

get into the enzymes business. This

1:00:55

is like laundry detergent

1:00:57

enzymes and other industrial

1:00:59

uses. They add

1:01:01

that on alongside the insulin

1:01:04

and diabetes business. And

1:01:07

that's all well and good to be a diversified

1:01:10

industrial conglomerate, except

1:01:13

the enzyme business is

1:01:15

both capital intensive and

1:01:17

not that profitable. Those don't mix

1:01:19

well. Yeah, those don't tend to mix well. Now,

1:01:21

it's still a viable business. It actually stays part

1:01:24

of Novo and then Novo Nordisk all the way

1:01:26

until the year 2000 when it

1:01:28

gets spun out. Oh, is this Novozymes?

1:01:31

This is Novozymes, yes. It is

1:01:33

still majority controlled by Novo Holdings,

1:01:35

which is the holding company of

1:01:38

the Novo Nordisk Foundation. Interesting.

1:01:40

So just like Novo Nordisk is

1:01:42

majority controlled by the Foundation's holding

1:01:45

company, Novozymes still is also. Novozymes

1:01:47

as well. When

1:01:50

we get to the 1970s, right

1:01:52

as MC insulin is coming online

1:01:54

and Novo needs to undertake a

1:01:56

huge amount of capex to redo

1:01:59

its production. production lines and expand

1:02:01

them around the world. The

1:02:04

enzyme market crashes. And

1:02:06

so this enzyme business

1:02:08

that they tried to add as

1:02:10

like a diversification and hedge to

1:02:12

the company and expansion, all of

1:02:15

a sudden it's bleeding cash and

1:02:17

they don't have enough capital resources to

1:02:19

do the CapEx upgrades that they need

1:02:21

for the main business in insulin. Oh,

1:02:25

interesting. If only they

1:02:27

had a cash rich partner without

1:02:29

a lot of CapEx needs. Goodness,

1:02:31

if only there were such a

1:02:34

natural partner right

1:02:36

down the street that it

1:02:38

might make sense maybe they could merge

1:02:41

with. So here we are in

1:02:44

the early 1970s, Novo

1:02:47

approaches the old bitter rival

1:02:49

Nordisk and here's the

1:02:51

situation, this is a perfect marriage,

1:02:54

let's get the band back together, everybody's

1:02:57

basically dead at this point from the

1:02:59

original days, let's let bygones be bygones.

1:03:02

And Nordisk, they've just gone through

1:03:05

a pretty rocky succession period after

1:03:07

Haggadorn retired. They're now on their

1:03:10

third CEO in seven years and

1:03:13

the new CEO, Henry Brenham, he

1:03:15

isn't from the pharma industry at all, he's

1:03:17

not a scientist, he was previously the head

1:03:19

of a lumber company. So

1:03:22

this merger makes perfect sense, huh?

1:03:25

But they don't merge for another decade and

1:03:27

a half, so what went wrong? It's not

1:03:30

what happens. So instead, contrary

1:03:32

to all sort of what you would

1:03:35

think on paper, the

1:03:37

new CEO Brenham actually

1:03:40

turns out to be like an amazing

1:03:42

leader and CEO. The lumber guy. For

1:03:44

Nordisk, the lumber guy. He

1:03:47

is like the wartime CEO for Nordisk.

1:03:50

He rejects Novo's overtures to

1:03:52

merge and then he

1:03:54

goes and convinces the board, both

1:03:56

of the operating company Nordisk and the

1:03:58

foundation. that this

1:04:01

new MC insulin generation,

1:04:03

which remember, Novo innovated,

1:04:05

that this actually represents a

1:04:08

golden opportunity for Nordisk to get

1:04:11

back in the game. Because

1:04:13

it's going to be a complete reset

1:04:15

of all the insulins on the market,

1:04:18

whether they're fast acting or long lasting

1:04:20

insulins, they're all going to move over

1:04:22

to this MC highly

1:04:24

purified method and type of

1:04:26

insulin. But Novo

1:04:29

is in this spot where they're

1:04:32

going to be delayed for several years

1:04:35

in making the transition in their actual factories because

1:04:37

they don't have the capex. So it's like they're

1:04:39

coming to us hat in hand. Why don't we

1:04:41

just put the pedal down now that we realize

1:04:43

we have the advantage and press. So

1:04:46

Brenham convinces the board that

1:04:48

rather than merging, they should

1:04:51

use their capital reserves to

1:04:53

rebuild up Nordisk's own

1:04:55

production capacity. Go

1:04:58

hire a global sales force. Brenham,

1:05:01

he's really ambitious. He says, we're

1:05:04

going to go enter America

1:05:06

directly as this forgotten Nordisk

1:05:09

company. So he goes and

1:05:11

hires a global sales force

1:05:14

because he knows Eli Lilly is going

1:05:17

to have the same dynamics as Novo. Everything's

1:05:19

going to have to shift over to MC

1:05:23

and Eli Lilly is this big,

1:05:25

large, diversified giant. They're not going

1:05:27

to move as fast as he

1:05:29

thinks Nordisk can. And

1:05:32

even though it's unrealistic that Nordisk is going

1:05:34

to overtake Eli Lilly in America, if they

1:05:37

can get even a small percentage of

1:05:39

the American market, that's huge. Nordisk is

1:05:42

a small company and America

1:05:44

is by far the largest market for

1:05:46

diabetes in the world. Well, and you

1:05:48

got to remember too, in the 70s,

1:05:51

there was still kind of a

1:05:53

functioning healthcare market. There wasn't massive

1:05:55

consolidation yet. And so every level

1:05:57

was super fragmented. Manufacturers were fragmented.

1:06:00

insurance companies were smaller, little doctor's

1:06:02

offices existed everywhere, neighborhood pharmacies were

1:06:04

there. And so entering

1:06:07

the American market, you didn't necessarily

1:06:09

need huge scale to do it.

1:06:11

And the other thing to note

1:06:13

is it wasn't yet the heyday

1:06:15

of drugs like of pharma, there

1:06:17

weren't that many drugs that

1:06:19

people had high demand for it wasn't like today

1:06:22

where you know, everywhere you look, there's some amazing

1:06:24

drug that could save your life, depending on what

1:06:26

conditions you have that are on TV commercials, the

1:06:29

federal government with and we'll get into this

1:06:32

later, but Medicare Part D wasn't even a

1:06:34

thing yet. Drugs were not plentiful enough and

1:06:37

good enough yet for the

1:06:39

government to cover them as an

1:06:41

insurance benefit for people over 65.

1:06:44

That's the era we're in. Where if

1:06:46

Nordisk wants to enter the American market,

1:06:48

they kind of can without too many

1:06:50

barriers. Yeah, this is the right window.

1:06:53

So I don't know

1:06:55

how Brenham convinced both

1:06:57

boards to do this, but he

1:06:59

does. And like, by God,

1:07:02

he's right. It works. So

1:07:04

for the entire decade of the

1:07:06

1970s, Nordisk sales grow

1:07:10

at 30% compounded

1:07:12

annually, which is

1:07:15

amazing. Wow. Now they're still small.

1:07:17

So by 1980, Nordisk

1:07:20

is still only about one tenth

1:07:23

the size of Novo overall. But

1:07:26

they're a third the size of

1:07:28

Novo's insulin business. And

1:07:30

they've moved from being this licensing company

1:07:32

to now an actual production company with

1:07:35

capacity all around the world. So this

1:07:37

is a huge win

1:07:39

from like, basically, they were going to

1:07:41

be taken over for cash by their old

1:07:43

rivals. And now they're back in the game.

1:07:47

So Novo in response, they need to

1:07:49

do something to get capital. They actually

1:07:51

do a small IPO on the Copenhagen

1:07:54

Stock Exchange in 1974 to raise

1:07:56

the capital they need for the transition to MC

1:07:58

insulin. So by the

1:08:00

time we get to 1980, and

1:08:03

just to set some scale here, Novo's

1:08:05

annual global insulin sales, this is

1:08:08

Novo, they're still much larger. They're

1:08:11

about $100 million annually, and

1:08:13

Nordisk are about 30 million annually. That

1:08:16

makes them the number two and number

1:08:18

four producers in the world by market

1:08:20

share behind Eli Lilly in America, who's

1:08:22

first with about 160 million in sales.

1:08:27

By the way, these numbers are staggeringly small.

1:08:29

These are like series C startup. And

1:08:32

this is exactly my point. So you

1:08:34

might be wondering like, wait a minute,

1:08:37

if you add all that up, the whole

1:08:39

global insulin market is about half a billion

1:08:41

dollars here in 1980. And that's not

1:08:45

exactly tiny. And like you were saying, you know,

1:08:49

the drug markets themselves weren't that huge

1:08:51

back in this era. But what

1:08:53

is the path from here to Novo Nordisk

1:08:55

today being the 15th largest company in the

1:08:58

world? Like what gives what happened? Yeah,

1:09:00

just look at pictures of people in the 70s and

1:09:02

look at pictures of people today. Yes.

1:09:04

The answer is one,

1:09:07

what you just said, we all got fat

1:09:10

and the diabetes market and specifically

1:09:12

type two diabetes exploded. But

1:09:15

two, and this is gonna

1:09:17

be such a fun story to tell here

1:09:19

on acquired because it's a huge part of

1:09:22

Silicon Valley history that we've never touched. Yes,

1:09:24

Genentech. Two, Genentech

1:09:26

happened. Oh, yes. Which

1:09:30

totally revolutionized everything

1:09:32

launched the biotech

1:09:34

market made drug development and

1:09:36

production vastly more scalable. And

1:09:39

it all happened right

1:09:41

here in San Francisco, venture

1:09:43

backed by Kleiner Perkins. And

1:09:46

it changed everything. Former Kleiner Perkins

1:09:48

employee. Yeah, was a co founder

1:09:50

of the company. But before we

1:09:52

talk about that, yes, now is the

1:09:54

perfect time to introduce one of

1:09:57

our other new acquired partners for season 14

1:09:59

and in incredible company that we have gotten

1:10:01

to know well over the last couple of

1:10:03

years, ServiceNow. ServiceNow

1:10:06

as many of you know is the

1:10:08

cloud-based platform that automates and manages workflows

1:10:10

across the whole enterprise, making everything about

1:10:12

the way a company or organization works

1:10:15

actually work better for 85% of the Fortune 500. It

1:10:20

has also been one of the absolute

1:10:22

best performing technology companies over recent years.

1:10:25

Yeah, I mean ServiceNow has outperformed almost

1:10:27

every enterprise software company over the past

1:10:29

five years, including Microsoft. But

1:10:32

what you may not know is ServiceNow

1:10:34

is also an incredible Silicon Valley startup

1:10:36

story that ranks right up there with

1:10:38

Google, Facebook, Nvidia, Genentech as one of

1:10:40

the best venture investments of all time.

1:10:42

Funnily enough, the ServiceNow campus is actually

1:10:44

right next door to the Nvidia campus

1:10:46

in Santa Clara. Yeah, we waved

1:10:48

high when we were there to hang out with Jensen. So

1:10:51

ServiceNow was started in 2003 by Fred

1:10:53

Luddy. And

1:10:56

Fred, kind of like August Crow starting

1:10:58

Nordisk, was already the equivalent of a

1:11:00

Nobel Prize-winning software developer and founder. He

1:11:02

dropped out of college in 1970. Yeah,

1:11:06

this is like Nolan Bushnell Atari

1:11:08

era Silicon Valley. Totally. And he

1:11:10

started programming and ultimately built a

1:11:13

$4 billion company as CTO. He

1:11:15

really was part of that original technical crew

1:11:17

like Woz and others that formed the backbone

1:11:20

of Silicon Valley. But all

1:11:22

the way back when he first started in the industry at

1:11:24

age 17, Fred wrote a simple little

1:11:27

program for an order clerk named

1:11:29

Phyllis. Now this was

1:11:31

when he was working at a company

1:11:33

that fulfilled building materials orders. And

1:11:36

Phyllis spent all day just typing

1:11:38

up the orders on these forms. So

1:11:40

one night as a favor, Fred wrote a program

1:11:42

that automated it. 80%

1:11:44

of each form got filled in automatically. Phyllis

1:11:47

comes in the next morning. Fred shows

1:11:50

it to her and she breaks down

1:11:52

crying. He took this

1:11:54

incredibly soul crushing mind numbing task

1:11:56

that she hated and made

1:11:58

it 80% easier. 80%

1:12:00

faster and 100% less fall crashing. So

1:12:04

fast forward to 2004, software

1:12:06

as a service is just becoming a thing.

1:12:08

And Fred is like, whoa, we now have

1:12:11

a delivery mechanism that can take what I

1:12:13

did for Phyllis back in 72 and

1:12:16

scale it infinitely. Now, how many

1:12:18

Phyllises are there in the world? Well, it

1:12:20

turns out it's hard to remember because

1:12:22

service now changed this forever. Every single

1:12:24

company back then was filled with people

1:12:26

just like Phyllis who spent hours every

1:12:28

day on repetitive tasks that software can

1:12:30

handle 80% of. So

1:12:33

Fred started service now and took that

1:12:35

same simple automation concept and brought it

1:12:37

to IT, brought to customer service, HR,

1:12:39

ops, risk, kind of like AI is

1:12:42

doing now and service now is a

1:12:44

part of that. They freed up knowledge

1:12:46

workers to go create, more

1:12:48

knowledge across the whole enterprise rather

1:12:51

than more forms and more individual

1:12:53

point solutions. And like Novo Nordisk,

1:12:55

it turned out that singularly focusing

1:12:58

on eliminating suffering from just one

1:13:00

pervasive worldwide disease, in

1:13:02

this case, not diabetes, but repetitive manual office

1:13:04

work, that was a path to becoming a

1:13:07

$100 billion plus

1:13:09

fortune 500 company. It's

1:13:11

an incredible story. So if you wanna

1:13:13

learn more about service now and connect

1:13:15

with the team, go on over to

1:13:17

servicenow.com/acquired. And when you get in touch,

1:13:19

just tell them that Ben and David

1:13:22

sent you. Yep. Okay,

1:13:24

so David, the 80s are here. For

1:13:27

some reason in the early 80s, the

1:13:29

world starts becoming more overweight. Addictive

1:13:32

foods being the cause of this.

1:13:34

Yes, more metabolically unhealthy. Correct.

1:13:37

And just to put some numbers on that, the

1:13:39

number of type two diabetes patients

1:13:42

quadruples from 1980 to 2016. Yeah,

1:13:47

and population growth was a lot

1:13:49

slower than that. So Definitely the

1:13:51

share of the population is massively

1:13:53

expanding. And At this point in

1:13:55

time, we are still using pigs

1:13:57

and cows to harvest pancreases. And

1:14:00

their eyelids and their extracts

1:14:02

in order to make insulin.

1:14:04

Even with this incredibly refined

1:14:06

process until genentech, Yes,

1:14:08

And specifically what that meant Using

1:14:11

animals to make insulin was the

1:14:13

type two was not treated with

1:14:15

insulin and actually until the needle

1:14:17

point in time. Type to

1:14:20

use to be called quote

1:14:22

Non insulin dependent diabetes. Because.

1:14:24

You didn't treat it with insulin because there wasn't

1:14:27

enough insulin. There weren't enough animal. pancreas is in

1:14:29

the world. To do it up

1:14:31

I had no idea and a wasn't

1:14:33

necessarily that insulin didn't help type to.

1:14:35

I mean. Lots. And lots

1:14:37

of type two diabetics these days use

1:14:40

insulin. It was that. There just wasn't

1:14:42

enough of it. Wow. And

1:14:44

men. In Nineteen Eighty. Two.

1:14:47

Men Tech and Eli Lilly as

1:14:49

their partner. Changed. Everything.

1:14:52

With. Recombinant Dna. And

1:14:55

genetic engineering of drugs

1:14:57

and. I suspect many

1:14:59

people don't know. I sort of vaguely

1:15:02

new this before researching the episode. But.

1:15:05

The first drugs. To.

1:15:07

Date: Genetically engineered. And.

1:15:10

That started this whole revolution. Was.

1:15:12

Insulin? Absolutely. It was the sounding

1:15:15

first application of the idea that

1:15:17

Genentech had of commercializing recombinant dna.

1:15:19

The first implementation was insolence and

1:15:21

to just penal little bit of

1:15:23

a picture of why the so

1:15:26

amazing. It's not just that we

1:15:28

now had a way to not

1:15:30

rely on ammo increases, it's that

1:15:32

for the first time we actually

1:15:34

had semen insulin. It is insulin

1:15:36

that is chemically identical to the

1:15:39

insulin that naturally is produced by

1:15:41

your body rather than injecting. Something

1:15:43

slightly different from a pig or cow.

1:15:45

Yes, Because he couldn't really

1:15:48

extract human insulin from. You.

1:15:50

Know humans before this points

1:15:52

and people saw it. That.

1:15:55

Human Insulin. Would.

1:15:57

be a lot better to used

1:15:59

an animal It

1:16:01

turns out that that's debatable.

1:16:04

Yeah, it's interesting that this ended up being

1:16:06

more of a manufacturing and scale advantage than

1:16:08

an efficacy advantage. Yes. But

1:16:10

at the time, nobody really knew that.

1:16:13

So in 1980, which

1:16:17

is when Genentech and Eli Lilly

1:16:19

announced their partnership together that

1:16:21

Eli Lilly is going to be the

1:16:24

go-to-market partner for Genentech's

1:16:26

new recombinant DNA, go-engineering

1:16:29

revolution, and they're going to make human insulin.

1:16:32

They announced that in 1980. People

1:16:35

go nuts, and

1:16:38

it triggers this race for human insulin.

1:16:41

And Novo gets swept up

1:16:43

in it. They're like, oh, no, Eli Lilly,

1:16:45

they're going to come back into the research

1:16:47

game. They're going to innovate in product. We

1:16:50

had the chance to work with Genentech. Genentech

1:16:52

had actually approached them about being a partner

1:16:55

in Europe. Novo had turned them down because

1:16:57

they didn't think the science was ready yet,

1:16:59

and they were wrong. So they're

1:17:01

like, shoot, we got to scramble. They

1:17:04

find a team of

1:17:06

Japanese researchers who have

1:17:09

shown that you can actually chemically

1:17:11

modify a pig insulin to

1:17:13

make it chemically identical to human insulin.

1:17:15

What? Really? Yeah,

1:17:17

you can't make this stuff up. So Novo's like, great.

1:17:20

We're going to race to market. We're going to

1:17:22

beat Eli Lilly with human insulin. It's

1:17:24

not going to be genetically engineered. We're

1:17:27

just going to take our pig insulin and modify

1:17:30

it. It turns out to be a huge

1:17:32

boondoggle. It works, but it's

1:17:34

not any better than pig insulin.

1:17:37

So it's a big flop for Novo. Which

1:17:39

the timing lines up to really be a nail

1:17:41

in the coffin for them. I mean, if this

1:17:43

is right after everything you just

1:17:45

described with Nordisk scaling up production and

1:17:48

compounding at 30 percent per year and

1:17:50

massively growing share, this is not

1:17:53

a good use of Novo's precious dollars right

1:17:55

now. Well, it's

1:17:57

funny you say that. When

1:18:00

the Genentech and Eli Lilly

1:18:03

announcement happened in 1980,

1:18:05

I mean, truly, this

1:18:07

was a bombshell. It's hard to remember

1:18:09

now. I mean, we weren't even alive.

1:18:11

But this was one

1:18:14

of, if not the most important announcement

1:18:16

to come out of Silicon Valley ever,

1:18:18

still to this day. Investors

1:18:21

went nuts. Anything

1:18:23

that even you could squint and look

1:18:26

like a biotech was suddenly the

1:18:28

hottest thing in the world. So

1:18:30

Genentech goes public in the fall

1:18:32

of 1980. This is well before

1:18:34

Humulin, the product that they create

1:18:36

with Eli Lilly, comes on the

1:18:39

market. They go

1:18:41

public, and it is, I believe,

1:18:43

the largest venture backed IPO ever

1:18:46

at that time, until it's

1:18:49

eclipsed two months later when Apple goes public.

1:18:53

But investors are just mad

1:18:56

for biotech companies. So when

1:18:58

Novo announces that they're going

1:19:00

to be first to market with human insulin,

1:19:03

and like, yeah, just ignore that it's

1:19:05

actually pig insulin that we're modifying. They

1:19:08

use the hype on the back of

1:19:10

that to do a US

1:19:12

IPO with Goldman Sachs and raise $100

1:19:15

million. When your

1:19:17

currency is expensive, sell it. Right?

1:19:20

There are a number of analogies that we could

1:19:22

make from the past few years that I'll refrain

1:19:24

from here. So as you

1:19:26

say, is this a nail in the coffin for Novo?

1:19:28

You know, I mean, it's not good

1:19:30

for the underlying business. Nordisk,

1:19:32

meanwhile, remember, they're in the midst

1:19:35

of this aggressive expansion plan and

1:19:37

scaling based on MC insulin. They're

1:19:40

like, you know, I don't

1:19:43

know that human insulin in and of itself

1:19:46

is all that much more effective.

1:19:49

We're going to take a wait and see

1:19:51

approach. We are going

1:19:53

to invest in building up our

1:19:55

recombinant DNA and genetic engineering capabilities

1:19:58

because it's clear the whole. industry

1:20:00

is moving this way for production reasons,

1:20:02

if nothing else. And Novo is

1:20:04

doing this too in the background. But

1:20:07

Nordisk, we're not going to get caught

1:20:09

up in the specifically human insulin hype.

1:20:11

And this really works out for them. So in 1984, Nordisk passes

1:20:14

the German

1:20:17

company Höst to become the number three

1:20:19

global player in insulin. Höst, I think

1:20:21

that's how you say it. Today is

1:20:23

part of Sanofi, the large international

1:20:26

pharma conglomerate. And they're the only other

1:20:28

player left besides Novo and Eli Lilly.

1:20:30

Sanofi today, yeah, the three of those companies

1:20:33

are essentially the entire insulin market. Yep.

1:20:36

So 1984, Nordisk passes them. On

1:20:39

the back of that, they do their

1:20:42

own share listing on the Copenhagen

1:20:44

Stock Exchange. So they changed the

1:20:46

structure of the operating company. And

1:20:49

still the foundation controls the majority of the votes.

1:20:52

But for the first time, outside

1:20:54

investors can hold shares in the operating

1:20:56

company of Nordisk. And by the end

1:20:58

of the 1980s, Nordisk is now

1:21:00

up to 20% global

1:21:03

market share in

1:21:05

insulin. And that's really

1:21:07

all come at the expense of Novo, which

1:21:09

is down to 30% global

1:21:11

market share. Whoa, so they're close to

1:21:14

matching them. Yeah, they're pretty close. And

1:21:16

this brings us finally to

1:21:19

the summer of 1988, when merger discussions

1:21:22

begin for real between these

1:21:24

two companies. Now on

1:21:26

much more equal footing than the

1:21:29

last time. Interesting. And this time,

1:21:32

there actually is a really compelling reason

1:21:34

for both of them to merge and

1:21:36

combine scale, which wasn't true before when

1:21:38

it was really just like, hey, Novo

1:21:40

had a problem and needed cash. Now,

1:21:43

with genetic engineering and the way the

1:21:46

whole industry is headed, scale

1:21:48

is becoming much more

1:21:51

important. It takes huge

1:21:53

capex to do this stuff. And

1:21:56

scale becomes important for R&D, scale

1:21:58

becomes important for trial. and

1:22:00

approval, scale becomes important for

1:22:02

negotiating with actually getting

1:22:04

the product sold. Scale

1:22:07

becomes important for everything in healthcare, starting

1:22:09

around this time, the late

1:22:11

80s, early 90s, and obviously went nuts

1:22:13

till today. And a big part of

1:22:15

it is the production and

1:22:17

infrastructure side of things. But

1:22:20

the other part is the go-to-market. pharma

1:22:23

kind of almost becomes like the enterprise

1:22:25

software industry. At the end of the day,

1:22:28

there only are a few companies at

1:22:30

scale that have the infrastructure and

1:22:33

the go-to-market to operate.

1:22:35

And yes, you can build

1:22:37

a big company on top of or

1:22:40

underneath Microsoft or Oracle or Amazon or

1:22:42

Salesforce or Google, but they're

1:22:44

the ones with the infrastructure. They're the ones

1:22:46

with the channels. Yeah, it's an interesting analogy. I

1:22:48

hadn't thought of it that way. Yeah,

1:22:50

this is a good place to try to understand

1:22:53

the pharma value chain as it exists today. I

1:22:55

think first off, we should say you basically can't.

1:22:58

I'm actually not sure there's a human who can hold all

1:23:00

of it in their head. And

1:23:02

we won't promise to make this comprehensive. But it

1:23:05

is worth knowing a few key concepts and the

1:23:07

players involved. And I should

1:23:09

say this whole thing only applies to the

1:23:11

US market, which many of you listening in

1:23:13

other places will be laughing and saying, like,

1:23:15

why is this so complicated? But yes, this

1:23:17

is how the US market functions. So

1:23:20

I wrote a sentence, David, that I thought would be a

1:23:22

fun way to break it down. And

1:23:24

that simple sentence is a patient

1:23:28

buys a drug. But

1:23:30

really, actually, that's not how it's like a butterfly

1:23:32

flap. A person doesn't

1:23:34

merely buy a drug. So

1:23:36

let's actually name all the parties,

1:23:38

starting with the manufacturer. A

1:23:41

manufacturer like Novo Nordisk develops a

1:23:43

drug. They sell it

1:23:45

to distributors like McKesson or Cardinal

1:23:47

Health, who then sell the drug

1:23:49

to pharmacies like CVS

1:23:51

or your local neighborhood store. The

1:23:54

pharmacy then charges a price at the

1:23:56

window to a customer. So so far,

1:23:58

there's nothing different about. how this is

1:24:00

working from any retail supply chain, but

1:24:02

here's where it gets weird. In

1:24:05

healthcare, when a consumer goes up to

1:24:07

the pharmacy window, they typically don't pay

1:24:09

their own money for the

1:24:11

price that the pharmacy actually puts on the

1:24:14

register. Their insurance company does. Well,

1:24:17

the insurance company doesn't want to pay

1:24:19

whatever price the pharma manufacturer picked for

1:24:21

their drug, and they have

1:24:23

huge scale to throw around, so they go

1:24:25

negotiate with the pharma manufacturer to try to

1:24:28

get some kind of discounted rate. But

1:24:31

rather than do that themselves, insurance

1:24:33

companies outsource that task to a

1:24:35

new type of company called a

1:24:37

Pharmacy Benefits Manager, or a PBM.

1:24:40

The PBM negotiates with the pharma company

1:24:42

for a discount, often in the form

1:24:44

of a rebate, that the pharma

1:24:46

company pays back to the PBM. They

1:24:48

then take that discount, they keep some of it

1:24:50

for themselves, and then they pass some of it

1:24:53

back to the insurance company, who can then choose

1:24:55

to share it with the employer in

1:24:57

some way. And

1:24:59

as you can imagine, when there are this

1:25:01

many middlemen in a transaction... Yeah, so that's

1:25:03

what, four middlemen? The

1:25:05

PBM, the insurance company, the distributor,

1:25:08

and for some reason, employers are

1:25:10

involved. So we're talking about a

1:25:12

six-sided market. Well,

1:25:15

I don't think it's a sided market. There's

1:25:17

two good diagrams that I found in the research that

1:25:20

we'll put on the acquired Twitter

1:25:22

account and the threads account to get access

1:25:24

to these visuals, that I think are pretty

1:25:26

good illustrations of the way the dollars flow

1:25:28

and the way the product flows. But you

1:25:31

can imagine when there are this many middlemen

1:25:33

in a transaction, it's really hard to have

1:25:35

a functioning market. To actually

1:25:37

interpret demand signals and have them

1:25:39

clearly flow all the way upstream,

1:25:41

and for the end consumer to

1:25:43

really be treated as the customer

1:25:45

versus just a statistic in a

1:25:47

large aggregated basket, we've sort of

1:25:50

lost the plot in being able to actually have a

1:25:52

functioning free market. But anyways, I want to do a

1:25:54

little dive into each of the parties to understand what

1:25:56

they do. do

1:26:00

all the R&D and they do all

1:26:02

the production. They also own

1:26:04

the responsibility of the clinical

1:26:06

trial. So they work with partners to do

1:26:09

this but proving that the drug is safe

1:26:11

and efficacious is up to them. There's

1:26:13

the distributor wholesaler that does exactly what

1:26:16

you think they do. They buy all

1:26:18

the drugs from all the pharma manufacturers.

1:26:20

They warehouse and distribute them. They actually do take risk.

1:26:23

When I say they buy, they actually do buy them

1:26:25

and hold them and they end

1:26:27

up distributing them to the pharmacies.

1:26:29

Pharmacies do exactly what you think

1:26:31

they do. Those companies have gotten

1:26:33

merged into PBMs in some

1:26:36

cases and so it's you know thinking of

1:26:38

CVS as just CVS is not really right

1:26:40

anymore. It's CVS Caremark so they're sort of

1:26:42

with a PBM. There's the Walgreens Boots Alliance

1:26:44

which is the way they named it is

1:26:47

sort of all you need to know. So

1:26:49

the way to think about pharmacies is that there

1:26:52

are a few big ones and that

1:26:54

is kind of what matters even though

1:26:56

there are many people interested in keeping

1:26:58

a thriving independent set of pharmacies out

1:27:00

there. Then there's the

1:27:02

PBM. So why is does

1:27:04

the PBM exist? The Pharmacy Benefits Manager.

1:27:06

That's a good question. Yeah.

1:27:09

Well in the old days there are

1:27:11

lots of drug companies and lots of

1:27:13

insurance carriers and so it would be

1:27:16

nice if every little insurance company or

1:27:18

every employer didn't have to go negotiate

1:27:20

directly with every drug company to get

1:27:22

all the best prices. So PBMs provided

1:27:24

value by doing that on everyone's behalf.

1:27:26

PBMs created what's called a formulary which

1:27:29

is basically a big ledger,

1:27:31

a big list of drugs and the

1:27:33

prices. And obviously today that is

1:27:35

less necessary because there's

1:27:37

less fragmentation given all the mergers that

1:27:40

have happened but the PBMs still establish

1:27:42

themselves as a key sort

1:27:44

of immovable piece of this puzzle.

1:27:46

So are they sort of like

1:27:48

agents? Is that the

1:27:50

right way to think about them? Agent

1:27:53

implies that the principle

1:27:55

can sort of make a decision to

1:27:57

go elsewhere. You're not going elsewhere.

1:28:00

The PBMs are the ones actually

1:28:02

setting the prices. Well, that's the

1:28:04

key question. So maybe a little

1:28:06

more context on PBMs, and then let's try

1:28:09

to answer your question, David. So one, they're

1:28:11

huge. PBMs manage pharmacy benefits for 266 million

1:28:13

Americans, and

1:28:15

that number's old, that's as of 2016. So

1:28:17

think about like basically all Americans

1:28:19

get their prescription drugs through a

1:28:21

PBM. Despite their use to

1:28:23

being hundreds of PBMs, there's now fewer than 30,

1:28:26

and there's essentially three that cover about 80%

1:28:29

of the market, and those are Express Scripts, CVS

1:28:32

Caremark, and OptumRx, which is actually

1:28:34

owned by United Health Group. So

1:28:36

interesting to know that Caremark, that

1:28:38

PBM is corporately bundled

1:28:40

with CVS, a pharmacy, but

1:28:42

OptumRx corporately bundled with

1:28:44

an insurance provider. So there's vertical

1:28:46

integration happening here, too. Yes. So

1:28:49

if you want to be a little bit cynical

1:28:51

about it, you can say they've really become kind

1:28:53

of the gatekeeper for consumers getting access to drugs,

1:28:55

since a doctor's not gonna prescribe a drug if

1:28:58

only two of the three big PBMs have

1:29:00

it on a negotiated agreement there.

1:29:03

So each PBM individually has

1:29:05

control, or almost like a veto. If a

1:29:07

PBM says, well, we're not gonna work with

1:29:10

that drug or that drug manufacturer, doctors aren't

1:29:12

gonna keep a big list in their head

1:29:14

of what insurance companies work

1:29:16

with, what PBMs that have what drugs.

1:29:18

So as a pharma company, you kind

1:29:20

of need all three big PBMs to

1:29:23

come to some terms with you to be on their

1:29:25

formulary and handle the reimbursement for your drug. So

1:29:28

one other way you can kind of think about it

1:29:30

is a PBM is sort of like a health insurance

1:29:32

company, but they just do it

1:29:34

for the pharmaceutical benefit and not all the

1:29:36

other stuff that the health insurance companies do.

1:29:40

So you talked about prices. A

1:29:42

major mechanism for the way that

1:29:44

these prices are negotiated and set

1:29:47

is the rebate mechanism that the

1:29:49

PBM negotiates. So manufacturers usually

1:29:52

have to pay the PBM a rebate,

1:29:55

which lowers the net price of the

1:29:57

drug, even though the list

1:29:59

price stays. the same. So

1:30:01

there's a sticker price, but then there's

1:30:03

a rebate that, you know, once the

1:30:06

PBM pays the sticker price, actually

1:30:08

the drug manufacturer... How does any of

1:30:10

this get past the DOJ? Great

1:30:13

question. So initially, the rebates worked well

1:30:15

for drug manufacturers since there were a

1:30:18

lot of PBMs and they could negotiate.

1:30:20

But now that there are three big

1:30:22

PBMs, the pharma manufacturers have essentially lost

1:30:24

all their leverage in most cases.

1:30:26

I'll say in most cases, and we should come back

1:30:28

later to what are the exceptions. So

1:30:30

rebates are extremely high. Eli Lilly

1:30:32

has publicly claimed that the cost

1:30:35

of these discounts and rebates accounted

1:30:37

for 75% of

1:30:39

the sticker price of insulin. If

1:30:42

you're getting a rebate on 75% of

1:30:44

the total price, the sticker price

1:30:46

is not the price. Wow. Wait,

1:30:49

so who gets the rebates? Is it

1:30:51

the PBMs themselves or the consumers? Well,

1:30:54

PBMs say that they tend to

1:30:56

pass most of the rebate along to the

1:30:58

healthcare plan. Yeah,

1:31:00

consumers are far away from any of

1:31:03

this. And the healthcare plan

1:31:05

says they share it in some

1:31:07

fashion with the employer in some

1:31:09

part of their agreement to be

1:31:11

the healthcare provider, the insurance provider

1:31:13

for the employer. But this

1:31:16

is a quagmire of a debate that is out of

1:31:18

scope for this episode. And my favorite

1:31:20

quote from one source that we talked

1:31:22

to described rebates as a game of

1:31:24

hide the sausage. Oh, gosh. Wow. But

1:31:28

yes, you're right, David, nowhere in there did I say,

1:31:30

oh, the patient gets the

1:31:32

rebate. You can see how demand

1:31:34

signals from patient and actual sort

1:31:36

of clearing prices of a

1:31:38

patient of what they're willing to pay for a

1:31:40

drug, all that signal just gets lost in

1:31:43

all of this middleman mania. Wow.

1:31:47

So that is the current state

1:31:49

of what happens when

1:31:52

many people or most people go

1:31:55

and fill a prescription. So

1:31:58

bringing it back. to when

1:32:01

the Novo Nordisk merger finally

1:32:03

happens. This is

1:32:05

the background on the go-to-market side,

1:32:08

at least in the US. And

1:32:10

then there's also the background

1:32:13

on the infrastructure side, thanks

1:32:15

to genetic engineering, where scale

1:32:17

now really matters. And

1:32:20

both companies are now on much more of an

1:32:22

even footing. So in January,

1:32:25

1989, the Novo Nordisk merger is

1:32:29

finally announced. And it's

1:32:31

a dual merger of both

1:32:34

the operating companies and their

1:32:36

respective foundations. So the

1:32:38

two foundations merged into one, and

1:32:40

the two operating companies merged into one as

1:32:43

well. And I had

1:32:45

to dig a bit to figure out the exact economic splits.

1:32:47

I believe that the final ratio

1:32:49

was 62% Novo and 38% Nordisk. So

1:32:53

Novo was still the kind of

1:32:55

larger majority institution here, but this is

1:32:57

a far cry from when discussions first

1:32:59

started 10 years ago, and Nordisk was

1:33:01

this little, you know, hey,

1:33:04

we're buying you for cash, essentially. No, now it's

1:33:06

like this is really a 60-40 merger. It's

1:33:09

crazy. The two guys that split off and

1:33:11

went to be cowboys and start their own

1:33:13

little competitor, even though they

1:33:15

didn't have the license, ended up creating the bigger

1:33:17

company. Yeah, wild. As you know,

1:33:19

the company is a big company. Yeah,

1:33:21

wild. And they drove each other

1:33:24

to create all of this innovation over the

1:33:26

years. So the new combined company

1:33:28

has roughly a billion dollars in

1:33:30

insulin revenue and 50%, 5, 0%

1:33:32

global market share, with

1:33:36

Eli Lilly just behind at 45% and Hosch said 5%. That

1:33:42

kind of tells you right there how much

1:33:44

the market has grown just during

1:33:46

the decade of the 1980s. You

1:33:48

know, that puts the total market size at

1:33:51

roughly around 2 billion for insulin. 10

1:33:53

years ago, the total market size was 500 million. Wow.

1:33:57

Yeah, wow. The enzyme.

1:34:00

and other businesses within Novo, they

1:34:02

stay with the company for now.

1:34:05

They would get spun out later in the year 2000. And

1:34:08

that contributes another roughly half a billion

1:34:10

in revenue, but with lower margins as

1:34:12

we talked about. The Novo

1:34:14

CEO and Henry Brenham from the

1:34:16

Nordisk side, they remain as co-CEOs

1:34:18

for the next couple years. And

1:34:21

Brenham notes that they are

1:34:24

still a dwarf compared to the

1:34:26

increasingly consolidated pharma market out there.

1:34:29

But we are, quote, a specialized

1:34:31

dwarf that will probably create a

1:34:33

certain furor on the global stage.

1:34:37

And what they're referencing here is, as

1:34:39

we were talking about, this

1:34:41

is the era when just huge

1:34:43

firm mergers start happening. So

1:34:45

Glaxo and Welcome merge around

1:34:48

this time. Astra and

1:34:50

Zeneca merge around this time. Sanofi

1:34:52

buys Horsh. These are all multi,

1:34:55

multi-billion dollar, tens of billions of

1:34:58

dollar transactions that

1:35:00

makes Novo and Nordisk look kind

1:35:02

of like small potatoes at the time.

1:35:04

And actually, Wall Street and the

1:35:06

investment community believes that this

1:35:09

is really just the first step. That

1:35:11

this is Novo and Nordisk

1:35:13

and the leading insulin business in

1:35:15

the world sort of preparing itself

1:35:18

for a further merger or sale into

1:35:20

one of these new, diversified

1:35:23

global pharma conglomerates.

1:35:27

And actually, this is crazy to

1:35:29

think about in retrospect, but Novo

1:35:32

Nordisk management agrees with that.

1:35:35

That's actually their plan. There's

1:35:38

no rush here, but they think

1:35:41

that they do need to merge into

1:35:43

a larger organization. So they think the

1:35:45

writing is on the wall where we

1:35:48

need scale in order to function in

1:35:50

this changing marketplace. And so we're gonna

1:35:52

merge in and what they didn't realize

1:35:54

was that the market that

1:35:56

they were on top of would actually sadly.

1:36:00

be a tailwind that gets them to scale

1:36:02

without merging with anyone else. Yes.

1:36:05

Basically, all throughout the decade of

1:36:07

the 1990s and into the 2000s, management is in constant

1:36:12

merger or sale negotiations with one of

1:36:14

these big pharma giants or another. And

1:36:18

kind of luckily, none

1:36:20

of them come to fruition. And

1:36:23

in the meantime, without anyone

1:36:25

including them really noticing,

1:36:27

the combined company just keeps

1:36:30

compounding on these tailwinds of

1:36:32

the expansion of the insulin

1:36:34

market and insulin treatment

1:36:37

of type 2 diabetics and

1:36:39

all the supply that's unleashed by genetic engineering.

1:36:42

So revenue and profit compound, again,

1:36:44

at like 20%, sometimes 20% plus annually

1:36:46

for like

1:36:49

15 years there, they're firing on

1:36:52

all cylinders. In the year

1:36:54

2000, they sign a huge deal with Walmart. They

1:36:57

land a supply agreement with the VA hospital

1:36:59

system for the first time, the Veterans Affairs

1:37:01

Hospital System in the US, which is enormous.

1:37:05

And so by the end of 2003, annual

1:37:08

revenue for the company is now over

1:37:10

$4 billion. And that's

1:37:12

pretty much just on insulin alone.

1:37:14

Remember, they've spun out Novozymes, all

1:37:17

the subscale pharma businesses that Novo had

1:37:19

are all gone. And

1:37:22

that's when management finally decides to

1:37:24

sell the company. So

1:37:28

in 2004, they have a deal on

1:37:31

the table to combine with the Swiss

1:37:33

company, Serono. Management

1:37:35

is bought in, they've got the operating company board

1:37:37

bought in, they're ready to do it. They

1:37:40

just need to go get approval from

1:37:42

the foundation board, which is the only

1:37:44

shareholder that matters. There's

1:37:47

never been a conflict between the foundation board

1:37:49

and the management board. Everybody's

1:37:52

always been aligned here. This

1:37:54

is like the whole c-suite of

1:37:56

Meta deciding to sell the company

1:37:59

to Apple. And then they

1:38:01

just have to go get Zuckerberg's approval

1:38:03

to do it. It's literally that scenario.

1:38:05

Yes. And there's a clause

1:38:08

in the foundation's agreement with the company that

1:38:11

there must be a quote, convincing

1:38:13

business argument from the company's board

1:38:15

of directors to the

1:38:17

foundation board of directors that any

1:38:20

merger or sale is a necessary

1:38:22

precondition for the business to

1:38:24

maintain and expand its position as

1:38:26

a competitive business at the international level. Now

1:38:30

in management size, like we've just been

1:38:32

talking about, there's so much consolidation happening

1:38:34

in the industry. Like, of course it

1:38:36

is a necessary precondition given everything going

1:38:38

on that we need to get to

1:38:41

a larger scale. And so that's why we have after

1:38:43

10 plus years finally found the

1:38:45

right deal. So they go

1:38:48

to the foundation board expecting that everybody's

1:38:50

gonna see the light and just agree here. And

1:38:53

the foundation board is like, yeah,

1:38:55

I mean, I hear what you're saying, but

1:38:59

have you looked at our revenue and profit growth

1:39:01

over the last 15 years? Are

1:39:04

you really telling me that we need

1:39:06

to do this in order

1:39:08

to maintain and expand our position as

1:39:10

a competitive business? Are you really, really

1:39:12

telling me that? And management's

1:39:15

like, yes, isn't

1:39:17

this what we've been working to? Why did we spin

1:39:19

off the enzyme business? Why did we do all this

1:39:21

if we weren't just preparing for a sale? And

1:39:24

the foundation board is like,

1:39:26

how about you come in and present to

1:39:28

us with your financial advisors? My

1:39:31

rubber stamps feeling like it's not working right

1:39:33

now. I'm not sure. Yeah, yeah. My

1:39:37

daughter loves to say when something doesn't go away

1:39:39

these days, she says, not working. Foundation

1:39:41