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Novo Nordisk walks tightrope on moral mission

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At the Centre for Diabetes in Copenhagen, a cooking class with a difference is under way. Everyone chopping and mixing under the watchful eye of nutritionist Line Fransen Moth is living with type-two diabetes.

Helping to prepare a meal of fish, root vegetables and naan bread, Jan Schnohr, a 69-year-old retired electrical engineer, joked that he does not know how the group will “survive” a lower-meat diet, but said the centre’s staff have given him valuable insights into how to manage his condition.

The free sessions are not the fruits of the famously beneficent Scandinavian welfare state, however. They are part of Cities Changing Diabetes, a global programme to limit the scourge of a disease that affects more than 420m people worldwide, in which Novo Nordisk, the world’s biggest insulin maker, has been a driving force alongside academic, clinical and government partners.

On the face of it, the kitchen scene presents a paradox. The better people with diabetes such as Mr Schnohr can manage their condition, or even overcome it altogether through a healthier lifestyle, the less demand for Novo Nordisk’s signature products.

But the company has spent almost a century straddling the sensitive line between making money for its shareholders and fulfilling the mission of its founders, who first ordained in 1924 that any profits should be used for scientific and humanitarian purposes.

That mission was formalised for a new generation in 1989 when the Novo Nordisk Foundation was established. It owns all the company’s A shares, and controls 76.2 per cent of the votes, granting it an ironclad majority at annual general meetings, and distributes funds to support scientific, humanitarian and social causes.

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Lars Fruergaard Jorgensen, who is only the fifth chief executive in the company’s history — and just the third not born into the founding family — sums up the blend of altruism and commercial imperative that animates the approach.

Without action to stem the rise in diabetes cases, and the resulting drain on global health budgets, the sustainability of Novo Nordisk would be in question because there would be little money left to pay for innovative drugs.

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By reducing the number who develop the condition, and creating new treatments that are “really efficacious and differentiated” for those who do, “we can probably take market share, so sell even more. So it’s meaningful, but it’s also good business,” he said.

Yet the challenge in presenting a philanthropic face has rarely been sharper than it is now.

The entire pharma industry is facing international opprobrium over the cost of its medicines — and insulin makers such as Novo are among the most reviled, especially in the US where stories of uninsured people dying because they were unable to afford life-saving medicine have led to it and other insulin makers being branded as price gougers.

Lars Fruergaard J¿rgensen, President and chief executive officer, Novo Nordisk.
Lars Fruergaard Jørgensen, chief executive of Novo Nordisk: ‘You can say for those who do not have insurance we are actually their healthcare system” © Ida Guldbaek Arentsen

“That’s a significant challenge for me, because it’s where you can say reality hits the spirit of the company,” Mr Jorgensen acknowledged. He gets “a lot of pressure from my shareholders that our pricing is going down in the US, and then I meet patients who are really frustrated because they pay more and more”.

The company’s response to what he casts as the failure of the US health system has been to go further even than it has done in the developing world — in one of the world’s richest nations — by offering free insulin to an expanded range of lower income Americans.

“You can say for those who do not have insurance we are actually their healthcare system,” he added.

Asked how he has made the case for this substantial expenditure to his board and shareholders at a time when the company’s US insulin franchise is struggling, he insisted the only difficulty lay in working out how to ensure insulin reached the neediest, not in securing approval to do it.

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For the most part, Novo Nordisk’s story over the decades has been one of sustained profits and a rising share price. Over the past 25 years it has outperformed the global pharma sector in total shareholder return more than sixfold, according to FT calculations, by over 70 per cent in the past decade, but only by 1 per cent in the past five years.

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The company hit a significant bump in the road in 2016, which served to test the durability of its “profits with a purpose” approach. Shares tumbled 15 per cent in a day after it halved its long-term financial targets, warning of the impact of pricing pressures in the US, and it was forced to make 1,000 staff redundant. 

Susanne Stormer, vice president, Corporate Sustainability.
Susanne Stormer, Novo Nordisk’s vice-president of corporate sustainability © Ida Guldbaek Arentsen

By the end of 2018 the company had shed a further 1,300, many of whom were helped to find new jobs, after it restructured its R&D operation. Despite the setbacks, “we did not change our course on what we do to be a sustainable business, not by one centimetre”, said Susanne Stormer, vice-president of corporate sustainability.

For Novo Nordisk’s staff, its social mission carries a strong appeal but does not outweigh a more traditional preoccupation with their terms of employment.

Soren Bjorn Friis, a 33-year veteran of the company who is vice-chair of the company’s joint workers’ council, said: “Novo Nordisk has always paid very well.” Its maternity package is also the best in Denmark, offering a year’s paid leave for new mothers.

The Company of the Future

This article is part of an FT series exploring the difficult trade-offs companies must make between purpose and profit to survive in an uncertain future.

Part one
The limits of the pursuit of profit

Part two
Royal Dutch Shell searches for a purpose beyond oil

Part three
Social impact

Part four
Governance

Part five
Long-termism

Follow the series at ft.com/future-company

On joining all are inducted into the “Novo Nordisk Way”, a document setting out the company’s values. “When they read the NN Way, especially the words . . . ‘respect’, they like it; respect for colleagues, respect for patients, they like it a lot. But day-to-day, how much they are thinking about it, that’s another [matter] because it’s work, work, work,” he added.

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Mr Jorgensen earns a significantly smaller multiple of his average worker’s salary than his counterparts in US companies, but the chief executive acknowledged that, in a Danish context, his salary of DKr41.3m, or about £5m, is still “huge”.

The company must simultaneously meet the concerns of Danish shareholders, for whom his remuneration “sticks out”, while reassuring US investors worried that Novo’s management is being underpaid in international terms, he said. The board is now surveying shareholders to gauge their views “because executive pay is a big issue, big topic,” he added.

Asked more broadly if he still regards the interests of shareholders as paramount in the way he runs the company, or whether other stakeholders are equally important, he paused briefly before noting that the company’s shareholder structure is “a bit special” because of the foundation’s majority ownership with its clear humanitarian focus.

Cooking class at Center for diabetes.
Novo Nordisk is a driving force behind Cities Changing Diabetes, a global programme to limit the disease that affects more than 420m people worldwide © Ida Guldbaek Arentsen

More and more, however, shareholders themselves “are tuned into what does it mean to be a sustainable company, that there are more stakeholders than just those who get the dividends,” he said.

Given the tightly regulated environment in which pharma companies operate, and the role of governments in buying their products, the benefits of being seen as a net contributor to society can go beyond immediate commercial return. They encompass more subtle issues of reputation and wider approval within society which some argue can have an equally potent impact on long-term performance.

If his company can be seen as part of the solution to preventing diabetes and tackling obesity, through initiatives such as the Centre for Diabetes, “then we can demonstrate that that’s actually a ‘value add’ to society. But if you’re only seen as selling expensive medicines, then you’re seen as the problem,” added Mr Jorgensen.

Via Financial Times

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