As Novo Nordisk implements a change strategy to expands its focus from diabetes to other chronic conditions like obesity, it is betting on its ‘market-fit’ approach to countries like India to shore up slowing growth in mature markets.
Five years short of its centenary, Danish Novo Nordisk, source of nearly half of the world’s insulin, is re-inventing itself. In his letter in the 2017 annual report, outgoing Chairman of the Board of Directors Göran Ando acknowledged the market realities of a highly competive US market and pricing pressures, but held out hope, that “under Lars Fruergaard Jørgensen’s leadership, Novo Nordisk has started a change process that will make the company more competitive in the new business reality.“
A key part of this change process has been an updated R&D strategy implemented in 2017, with the company looking beyond diabetes, into other serious chronic disease areas, like obesity and cardiovascular disease to start with.
This change strategy is supported by hard facts. According to statistics from the eighth edition of the IDF Diabetes Atlas dated 2017, of the over 425 million people living with diabetes globally, only 13 per cent are being treated with insulin. Of this 13 per cent, the company estimates that only six per cent are on Novo Nordisk insulin.
However, obesity is an even bigger challenge than diabetes, with an estimated 650 million obesity patients of which only 11 million are on anti-obesity medication. Yet, obesity is still not taken as seriously as it should be.
Novo Nordisk sees this neglect of obesity as an opportunity to widen its therapeutic focus areas and by extension, its patient pools. Reviewing his first year at the helm as CEO in the 2017 annual report, Jørgensen’s vision of where he’d like to take the company reflects this widending focus. Besides solidifying Novo Nordisk’s position as the world’s leading diabetes care company, his vision includes being the world’s leading company in the medical treatment of obesity, and among the leading companies in haemophilia.
The company clocked total net sales of DKK 111,696 million last year, with the diabetes care focus area bagging the largest share (81 per cent) with a growth of three per cent. No surprises that while the obesity segment was just two per cent of net sales, it had a 60 per cent growth, while haemophilia stayed steady at 9 per cent, and growth disorders degrew by 24 per cent to end up with a six per cent share of Novo Nordisk’s 2017 total net sales.
Novo Nordisk’s market composition and share in diabetes care across regions
The growth of three per cent in diabetes care clearly shows that maintaining pole position in the diabetes market can only get more challenging. As Novo Nordisk is only too aware. At a press meet held at the company’s headquarters in May, Jørgensen explained that US sales in the previous year were impacted not just due to the pricing policies of the US government as it seeks to reduce healthcare costs, but also due to other factors like the presence of 2-5 competitors in the long acting insulin market, a domain where Novo Nordisk has been market leader for decades as well as channel consolidation and increased negotiation power of pharmacy benefit managers
But midst the gloom, there is a silver lining, however slight it may be. As more competitors enter Novo Nordisk’s previous stronghold of long acting insulin, the company is now focussing on the next generation of molecules: GLP-1 analogies, like liraglutide and semaglutide. Sales growth in 2017 was primarily driven by Tresiba (insulin degludec, a once-daily new-generation insulin), Victoza (an analog of human GLP-1 liraglutide, positioned as an injectable to improve blood sugar in adults with type 2 diabetes) and Saxenda (a higher dose of liraglutide, the ‘first and only FDA-approved weight-loss medicine in a pen that helps you lose weight and keep it off’, as per the product website).
These products are expected to continue to be major growth drivers in the coming years together with Ozempic, the company’s once-weekly, injectable GLP-1 treatment for adults with type 2 diabetes launched earlier this year. The GLP-1 segment’s value share of the total diabetes care market has increased to 11.8 per cent compared with 9.7 per cent a year back, as per the 2017 annual report.
With pricing pressure in the US, the Danish company’s largest market, expected to continue, the company also rejigged its marketing operations in 2016, appointing Maziar Mike Doustdar as head of an expanded International Operations area.
Of the two operational units, North America Operations and International Operations, the former is facing headwinds and thus there are sustained efforts to ‘market fit’ the company’s strategy for the latter. What this means is that each country market will follow a portfolio, market access and sales strategy tweaked for the local realities and needs of each individual country.
There are early signs that this strategy is paying off, as the 2017 annual report shows that while sales growth was flat in the North America operations, it was driven by International Operations, with the main growth contributors being AAMEO (Africa, Asia, Middle East and Oceania), Europe, China and Latin America. In value terms, while North America might equal the International Operations, bets are on the latter to be the future growth engine, at least as far as volumes go. Again, numbers support this asumption: the company estimates that of the 7.6 billion people in the world, 95 per cent of them live in the 190 countries that make up the expanded International Operations area.
Tailored for India
As per data from prescription sales tracking agency AIOCD AWACS, Novo Nordisk ranked 25th in the Indian pharma market this May, with Mixtard as the leading brand clocking sales worth Rs 46 crores. Novo Nordisk’s India specific market strategy is centred around patient affordability. As Mazair Mike Doustdar, Executive Vice President, International Operations, Novo Nordisk, points out, “India is the only country in the world where all of Novo Nordisk’s products are available. From human insulins, to the products in between to the company’s flagship products, and the newest latest most innovative insulins, which are multiple times more expensive than the human insulins.”
The company has a manufacturing collaboration with Ahmedabad-based Torrent for insulin. As Doustdar puts it, “India is one of the very few places in the world where 40 unit insulin vials are used. In the rest of the world, even if they (patients) are on vials, they are on 100 unit vials. The reason for the 40 unit insulin vial is patient affordability. As most patients in India pay out-of-pocket for medical expenses, the 40 IU vial allows them to stock up on their insulin needs from the pharmacy corner/ chemist and meet their insulin requirements for the next few days, rather than the 100 unit vials which would last for longer but would mean a higher purchase value.”
As Doustdar emphasises, “The price is extremely affordable even for those with less means. We have found this to be a sustainable model for Novo Nordisk and Novo Nordisk operations in India. Many companies have long abandoned human insulin, (because) margins are much smaller, and if you really want to maximise profitability then you should sell the more expensive things.”
According to him, the company felt that the Indian pandemic of diabetes could not have been solved with just the expensive products. But couldn’t the company reduce prices on its more expensive medicines as well? “Reducing the price of the flagship products all the way down to human insulin, would mean that we can operate for a few days and then have to pack and move on. Our model would be very different. The value that is driven from the flagship products is what fuels the innovation of the future that India is in hunger off and in need off,” is his reasoning.
Thus “the Novo Nordisk market strategy for India is to bring the entire portfolio, segmenting society, physicians and patients and then making them all available. This has been our way of addressing the affordability problem”, summarises Doustdar.
Going beyond medicine
But Doustdar points out a sad reality that price no matter what it is, even if it’s one dollar, is too much. “There are portions of society, that live well below the poverty line and we need to do something very different for them.” Doustdar claims that this is where the Novo Nordisk patient outreach programme, the Changing Diabetes in Children (CDiC) programme.
Given the growing challenge of diabetes in India, Novo Nordisk India set up the Novo Nordisk Education Foundation (NNEF) in 1997 as a non-profit organisation with the purpose of increasing awareness and education on diabetes and other healthcare issues. The NNEF rolled out the Changing Diabetes Barometer programme, in Public Private Partnership (PPP) with seven state governments (Madhya Pradesh, Bihar, Goa, Puducherry, Andhra Pradesh and Orissa) and has reached out to more than 700,000 people for diabetes awareness. CDiC covers 16,700 children spread over 13 countries globally. The ambition is to reach over 20,000 children by 2020. In India, over 4,000 children are part of CDiC.
He relates how in most cases, the fathers of children on this progamme do not earn more than a dollar a day so most of these children would not have been able to afford insulin on their own. As he puts it,“Without our help and support, they (the children) would die. So we give them free insulin until they are either 18 or get a job or earlier, and (thus) give them a life that they would not otherwise have. All of these CSR activities in India are a very large part of our DNA in operating in India, in addition to making our drugs available.”
Doustdar also refers to the work done by the World Diabetes Foundation (WDF), which was founded by the company in 2002. From 2002 to 2017, the WDF provided $138 million in funding to 535 projects in 116 countries. For every dollar spent, WDF raises approximately 2 dollars in cash or as in-kind donations from other sources. In India, over the last five years, WDF has supported multiple projects in the states of Maharashtra, Kerala, Madhya Pradesh, Tripura, West Bengal, Uttar Pradesh, Nagaland, Assam, Rajasthan, Manipur, Sikkim, Tamil Nadu, Delhi, Gujarat, Bihar, Jharkhand, Meghalaya, Puducherry, and Punjab, among others.
R&D reinforced
Novo Nordisk has nine R&D centres (four in Denmark, two in the US, one each in in China, UK and India).In 2017, Novo Nordisk’s R&D costs amounted to DKK 14 billion (equal to 1.8 billion Euro), representing 12.5 per cent of sales. This was spread across five strategic priority areas: diabetes, obesity, haemophilia, growth disorders, and other serious chronic diseases. R&D employs approximately more than 5,600 people in seven areas.
According to Mads Krogsgaard Thomsen, Executive Vice President and Chief Science Officer, Novo Nordisk, “We expect it (R&D costs) will increase somewhat, because we have picked all the low hanging fruits and of course as we move into new areas, the risk of failure will probably increase. So we may need to have more projects.” He is philosophical about this saying, “Pharma R&D scientists better like failure. Because the failure rate is so high.”
At the heart of Novo Nordisk’s change strategy is the expanded focus from diabetes to obesity and other associated conditions, which are relatively not as well researched. As Thomsen puts it, “Obesity research is almost at the same level of maturity as type 2 diabetes was two decades ago, when type 2 diabetes was referred to as ‘non insulin dependent diabetes‘ and was not given as much importance (as type 1 diabetes).”
According to him, Novo Nordisk’s R&D productivity measured (against) other companies has been quite high in terms of how much they’ve used compared to how many products they’ve put out to the patients. (See figure: Novo Nordisk’s R&D pipeline across therapeutic areas)
Supporting this argument, Lotte Bjerre Knudsen, Scientific Vice President, Novo Nordisk gives the example of liraglutide. She relates how it was first made in 1997 and got on the market in 2009. In her opinion, 12 years from discovery to market is actually not that much above (industry) average.
“It takes long to document safety and efficacy for a chronic disease like diabetes,” she reasons. “We did face some delays early on, as we had to learn to produce liraglutide. And also, we got the dose wrong in the early clinical trials so we had to do another Phase 2 trial. We also struggled a little bit as one of the study animals (mice) had cancer in the thyroid. It turned out probably not to be relevant to humans but we spent a few years extra on that. I think what always kept it interesting, is that there are all these many effects at the same time and everything was manageable. It kind of became my baby and I fought hard for it. But I always had the support of Mads (Thomsen) who always made sure that we got the resources to support the research.”
The Novo Nordisk research pipeline has some big milestones expected in the next two years. As Thomsen puts it, “The Holy Grail for us is to convert our biologics medicines into tablets.” Patients would much prefer a pill to an injection, and this would automatically increase adherence as well.
On the obesity front, as obesity is the main driver of type 2 diabetes, the company will seek to maximise weight loss in humans by targeting several mechanisms. Thomsen indicated that semaglutide would be the anchor drug when developing new anti-obesity medicines
Thus Novo Nordisk finds itself looking at a future where its flagship product, insulin, may cease to be its calling card. The company grew out of the love of the founder Nobel Laureate August Krogh for Marie wife who also happened to be a type 2 diabetic. Built on the premise that safe and affordable insulin should be available for all diabetics, can the company expand this philosophy to other disease conditions, at price points that are sustainable, for both patients as well as its balance sheet?
(The author was part of a press meet organised by the company)
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