Novo Taps Veteran as CEO to Tackle Unprecedented CompetitionBy
Joergensen joined Danish drugmaker as economist 25 years ago
Novo under pressure from rival drugs in its largest market
The man appointed to succeed Lars Rebien Soerensen as Novo Nordisk A/S’s chief executive officer says to expect continuity, but a challenging diabetes market may force him to diverge from Soerensen’s time-tested path.
Lars Fruergaard Joergensen is inheriting a tough assignment: steer the world’s largest insulin maker through intensifying pricing pressure in its biggest market, tackling what the 93-year-old Danish drugmaker has called unprecedented levels of competition.
Joergensen, who joined Novo Nordisk 25 years ago as an economist, will take the reins at the start of next year at a time when cheaper copycat medicines are forcing the company to cut prices or lose ground to rivals. Last month, Novo acknowledged having lost a “sizable” contract for its top-selling insulin NovoLog.
The new chief, 49, said in a phone interview that the company is interested potentially in adding early-stage diabetes assets or biopharmaceutical products.
“The dynamics in the U.S. market are changing and that will have to change something within Novo Nordisk,” said Kim Nielsen, a Copenhagen-based portfolio manager at Carnegie Asset Management, which owns shares of Novo. “It’s maybe a good thing that the new CEO isn’t waiting to get into the seat because this change is taking place now.”
A look at Novo’s stock price captures the shift: It’s soared more than ninefold during Soerensen’s 16 years at the helm, even as he shunned mergers and ignored calls for diversification. Concern about the increasing competition has caused Novo to lose almost a quarter of its value this year, making it the second-worst performer in the Bloomberg Europe Pharmaceutical Index.
The Bagsvaerd, Denmark-based company, which controls almost half of the global market for insulins, last month trimmed its sales and profit forecasts for the year, citing the loss of the NovoLog contract.
Chosen by Harvard Business Review as the world’s best-performing CEO last year, Soerensen joins Gilead Sciences Inc.’s John Martin and Eli Lilly & Co.’s John Lechleiter in yielding the reins to a company veteran. GlaxoSmithKline Plc’s Andrew Witty also plans to step down, pointing to a broader shakeup in the ranks of leaders in the industry.
Unlike other drugmakers that have diversified, Novo has bet that diabetes treatments, which account for almost 80 percent of its sales, will become an even bigger part of its business as the number of people suffering from the condition surges. Joergensen told reporters not to expect significant change when he takes over at Novo, which traces its roots back to two small Danish companies founded in 1923 and 1925.
One possibility for Novo is moving into orphan diseases, according to Nick Turner, an analyst at Mirabaud Securities in London. Rare medical conditions can deliver high profits because they are often lifelong and drugmakers get financial incentives to develop treatments.
“The big question, I suppose, would be do they enter some other area of therapeutics -- when they’ve tried to do that in the past, they haven’t been successful,” Turner said.
Novo said it won’t pursue large-scale mergers and acquisitions, yet it will consider opportunities to complement its own research. In introducing the new CEO on Thursday, Novo referred to Joergensen as a manager who can be “a change agent” if necessary.
“It will be technical changes, rather than massive or strategic changes,’’ Joergensen said in the interview. “We have been operating in a growth environment for quite some years, and now we have a bit more headwind and that’s a good opportunity for us to revisit how we operate.’’
Novo is relying on the insulin Tresiba and diabetes medicine Victoza to boost sales even as U.S. insurers and payers demand lower prices. Victoza was shunned by pharmacy-benefits manager Express Scripts Holding Co. last month for at least the second year in a row.
“If I were the incoming CEO, I’d say let’s focus on our strengths,” said Michael Kunst, a Munich-based partner with the consulting firm Bain & Co. “I would argue that it’s very important that you keep maintaining focus on your business where you have a leadership position and don’t get rattled by short-term challenges.”
The new CEO, who isn’t well known outside Novo, is regarded internally as a bright manager who will carry on the company’s culture, the investor Nielsen said. While Novo doesn’t have a “broken model that needs to be fixed,” and has the right strategy, it will still need to deal with a shifting market, he said.
“It’s a concern when market conditions change, and in the U.S. it has changed for good I think, or at least for a long time,” Nielsen said. “They have to adapt. Novo is very good at adapting.”
Joergensen said at an early age his father entrusted him with taking care of the family farm and gave him a lot of responsibility, a “defining” experience that will help him face the latest challenge. “I trust I can do this even though it’s the first time for me,” he said.
— With assistance by Kristen Hallam