Novo Nordisk A/S demoted President Kaare Schultz, 15 months after putting him in line to become the next chief executive officer, prompting him to walk out after 26 years at the world’s largest insulin maker.
Schultz, 53, “made no secret of looking forward to assuming my position,” CEO Lars Rebien Sorensen, who will stay in his post until his contract ends in 2019, said during a conference call with reporters. A reorganization of the management team eliminated Schultz’s role as chief operating officer and he didn’t want a less important job, he said.
The board’s unexpected decision, made at a meeting yesterday, leaves Novo Nordisk without a clear successor to Rebien Sorensen, 60. Schultz had been considered heir-apparent after he was made president in January 2014, and the speculation intensified when the CEO said in a December interview that the board was seeking his successor.
“Something clearly went wrong with the planned succession,” Jerome Forneris, who helps manage $8.5 billion at Banque Martin Maurel in Marseille, France, and is tracking Novo shares to buy them, said in a phone interview. “Schultz didn’t convince them. They need a replacement now and it won’t be easy. Succession problems are never good.”
Makers of diabetes treatments have been under pressure in recent months, as payers of prescription bills in the U.S., the world’s biggest insulin market, seek to wring discounts from drugmakers. Rival Sanofi fired its CEO last year after he shocked investors with a worse-than-expected sales forecast for diabetes medicines. Sanofi and Eli Lilly & Co. also are introducing new therapies, adding to competition.
“This was not the time to make a CEO change,” Chairman Goeran Ando said in a telephone interview. “The business conditions have changed and will continue to change, the conditions in the U.S. are more challenging and changing quite fast and Novo Nordisk is launching a number of new medicines.”
The board discussed succession planning for about six months, before making the decision to retain Rebien Sorensen, Ando said. Schultz didn’t respond to an e-mail and voicemail seeking comment and wasn’t available for an interview, according to a Novo representative.
“The current CEO has been very successful, so the fact that he’s staying on is a positive, but now there’s less visibility on succession planning, and this is less positive,” Philippe Lanone, an analyst at Natixis Securities in Paris, said in a telephone interview.
The failed handover also raises the question of why the board was seeking a replacement for Rebien Soerensen before the end of his contract, Forneris said.
Under a non-compete agreement, Schultz won’t be able to work for a few companies that are “very direct” competitors, Ando said. Bagsvaerd, Denmark-based Novo, which is Scandinavia’s biggest company, declined to provide additional details about the tenure of the agreement.
“From my understanding of the board deliberations, they wanted to have more candidates that had significant commercial experience,” Chief Financial Officer Jesper Brandgaard said in an interview. “It had to do with the board looking at succession and what opportunities they had, they wanted to look at more candidates than just one.”
Schultz, who joined Novo Nordisk in 1989 and was appointed executive vice president and chief of staff in November 2000, was promoted to chief operating officer in 2002.
“Losing any senior executive is not good,” said Sam Fazeli, an analyst with Bloomberg Intelligence. “But I doubt this is going to materially impact Novo’s growth.”
The company will probably pick a new leader from among its own managers, Ando said. “When the board feels the time is right to change CEO, we will have a number of good, internal candidates to choose from,” he said.
Novo shares climbed 1.5 percent to 378.70 kroner at the close of trading in Copenhagen. As of yesterday, the stock had returned 56 percent over the past year including reinvested dividends, giving the Danish drugmaker a market value of 986 billion kroner ($147 billion). The Bloomberg Europe Pharmaceutical Index returned 34 percent in the period.
Novo also promoted some executives. Jakob Riis, who was the executive vice president responsible for marketing, medical affairs and stakeholder engagement, takes on additional management responsibilities in areas including China and Japan, Novo said.
The moves came as Novo raised its operating profit forecast for 2015 following an initial public offering of its information-technology services unit NNIT in Copenhagen, and posted first-quarter net income that beat analysts’ estimates.
Operating profit in local currencies may climb by about 17 percent this year, and sales growth on the same basis will probably be 7 percent to 9 percent, the company said in a statement on Thursday.
Net income for the first quarter rose 53 percent to 9.88 billion kroner, Novo said. That beat the 9.27 billion-kroner average estimate of analysts surveyed by Bloomberg. The profit was boosted by a one-time gain of 2.4 billion kroner as Novo divested a 74.5 percent stake in NNIT during its March IPO.