Novo Nordisk (Ozempic)

Last year Novo Nordisk, the Danish pharmaceutical company behind Ozempic and Wegovy, overtook LVMH to become Europe’s most valuable company. And the pull for Acquired to finally tackle healthcare (18% of US GDP!) became too strong for us to resist. While we didn’t know much about Novo Nordisk before diving in, our first thought was, “wow, seems like these new diabetes and obesity drugs mean serious trouble for big insulin companies.” And then… we realized that Novo Nordisk IS the big insulin company. And in a story befitting of Steve Jobs and Apple, they’d just disrupted themselves with the drug equivalent of an iPhone moment. Once we dug further, we quickly realized this company has it all: an incredible 100+ year history filled with Nobel Prizes, bitter personal rivalries, board room dramas, a generation-defining silicon valley innovation, lone voices persevering against all odds — and oh yeah, the world’s largest charitable foundation at its helm. Tune in for one incredible story! *Links:* - Chart: US Healthcare Spend by Category: https://www.drugchannels.net/2022/02/still-not-skyrocketing-new-cms-data.html - Chart: US Distribution and Reimbursement System (for pharmaceutical drugs): https://www.drugchannels.net/2019/03/new-2019-economic-report-on-us.html - Chart: Insulin Supply Chain: https://diabetesjournals.org/view-large/figure/3430167/dci180019f3.jpeg - YouTube Talk: What People Get Wrong about the Finances of the Drug Industry: https://www.youtube.com/watch?v=3LGqQJFdoWM - Alex Telford: The pharma industry from Paul Janssen to today: why drugs got harder to develop and what we can do about it: https://atelfo.github.io/2023/12/23/biopharma-from-janssen-to-today.html - Out-of-Pocket Health: Obesity Drugs: https://www.outofpocket.health/p/lets-talk-about-obesity-drugs?fromEmail=true - Out-of-Pocket Health: US Healthcare System Problems: https://www.outofpocket.health/p/all-of-the-main-problems-with-us-healthcare - All episode sources: https://www.acquired.fm/episodes/novo-nordisk-ozempic#sources *Carve Outs:* - Noxgear Tracer 2 running vest: https://www.noxgear.com/tracer2 - Drops of God: https://www.imdb.com/title/tt15282746/ - Wool by Hugh Howey: https://www.amazon.com/Wool-Hugh-Howey/dp/1476733953 - Mere Mortals at San Francisco Ballet: https://www.sfballet.org/productions/mere-mortals/ - Blackberry: https://www.imdb.com/title/tt21867434/ _Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions._

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  All right, first episode back. Let's see if I can do this sleep deprived. You and me both, Ben.

• 0:25Ben Gilbert?

  Welcome to season 14, episode one of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today's episode is on the company behind the sensational diabetes and weight loss drugs, Ozempic and Wegovy. The company is Novo Nordisk. Now, when I first learned about Ozempic a few years ago, I thought, of course, this is going to be amazing for a lot of people and could also completely destroy the market for insulin. Those insulin companies better watch out. But here is the fascinating thing, listeners. Novo Nordisk is the company behind insulin, or at least one of the few big ones. Now, you might say,

• 1:07Ben Gilbert?

  well, that's okay, because they're probably a big pharmaceutical company that's very diversified with lots of different drugs. Nope. No. Novo Nordisk is unique in that the vast majority of their revenue is concentrated in the category of metabolic health. They have been the insulin and diabetes company for the last 100 years. And perhaps even more surprising, this pharma giant is unique in that they are owned and controlled by a nonprofit foundation. The stats around weight, diabetes, and its impact on our society are staggering. There are 38 million Americans with diabetes. That's one in 10 people. Globally, that number is over 500 million with the

• 1:48Ben Gilbert?

  disease. Diabetes costs the US alone more than $327 billion a year. And on the other side of things, in the weight category, around a billion people suffer from obesity worldwide. A billion, including 40% of the US population. If you expand that from obesity to overweight, 75% of Americans are technically overweight. It is really hard to imagine a bigger market to go after, which is why Novo Nordisk has become Europe's largest company, surpassing even LVMH last year, David.

• 2:21David Rosenthal?

  Yeah, it's wild. I mean, there are no other disease and drug categories besides diabetes and obesity that this could be possible to have a company of this size, to have a pharma giant, pretty much just focused on this one area. Like, this is the Hermes of the pharma industry.

• 2:38Ben Gilbert?

  Yeah. So why is today, in the early 2020s, the moment in human history for these new GLP-1 drugs? The crazy thing is, semaglutide, the molecule in Ozempic and Wegovy, was pioneered back by Novo Nordisk with the first trial in 2008 for type 2 diabetes treatment. And it was built on research started in the early 90s. But here we are in 2023, almost three decades later, talking about it as a weight loss drug that sort of magically appeared out of nowhere, or that's at least the public perception of it. Incredibly, the fact that GLP-1 drugs could be used to reduce food intake was actually discovered way back in the mid 90s, in the first sort of scientific publication about it. But only in 2021

• 3:22Ben Gilbert?

  did we finish the clinical trials that truly show how effective it can be.

• 3:27David Rosenthal?

  And as we'll see, that's just the tip of the iceberg. I mean, this company is 100 years old. The history goes way back and is way more interesting than I think just about anybody knows.

• 3:38Ben Gilbert?

  Yep. Pharmaceuticals is without a doubt the most complex industry that we have ever studied. So to fully understand Novo Nordisk, we need to go back to a simpler time before the Food and Drug Administration, before all this industry consolidation and healthcare oligopolies, before there were treatments for everything we take for granted today: antibiotics, vaccines for polio, tetanus, measles, mumps, you name it. That is where we will start our story. If you want to know every time an episode drops, you can sign up at acquired.fm/email. These will also contain hints at what the next episode will be and follow-up facts from previous episodes when we learn new information. Come talk about this episode with us after listening at acquired.fm/slash/Slack. And if you want

• 4:21Ben Gilbert?

  more from David and I, you should check out our second show, ACQ2, where we interview founders, investors, and experts, often as follow-ups to the topics on these episodes. So with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. David, where are we starting our story?

• 4:40David Rosenthal?

  Well, we start in 1921, over 100 years ago, in Toronto, Canada, with the discovery and extraction of the pancreatic hormone insulin by a laboratory group at the University of Toronto Medical School. Insulin, of course, as most of you know, regulates the absorption of glucose from the blood into the body, and it's the main anabolic hormone in most, if not all, animals in the world. Insufficient insulin production in the body, of course, leads to the disease diabetes. So this group, if you could call it that, at the University of Toronto, is comprised of the physician Frederick Banting and the medical student, his assistant, Charles Best,

• 5:25David Rosenthal?

  along with a chemist and the head of the laboratory there, and assistant medical school dean John MacLeod. Now, there's a whole bunch of controversy around who actually deserves credit for the discovery of insulin. The historical consensus at this point now being that it really was Banting and Best who did all the work. But nonetheless, two years later, when the Nobel Committee awards them the 1923 Nobel Prize in Physiology or Medicine for the Discovery of Insulin, it is Banting and MacLeod who get the award, not Best. This will come back up in a minute.

• 6:06Ben Gilbert?

  Yeah. And to set some context for the time period here, 1921, the public is not aware of what insulin is. The public is, however, aware of what type 1 diabetes is. This is the juvenile form of diabetes. Only 5% of diabetes sufferers have type 1 today, but back then, this was the dominant form of diabetes, and it was families whose kids had a death sentence, and there was basically nothing that could be done. And there were lots of rumors of people trying to figure out what substances you could inject or eat or anything to cure this sort of mysterious, horrible way to die. And people were so convinced in-

• 6:50Ben Gilbert?

  The late teens and early twenties that scientists were on the verge of a breakthrough that the common wisdom was to go on a diet of like 200 to 500 calories a day and starve yourself so that you could live long enough, even though you had a terrible quality of life, you could live the months or couple of years long enough when the treatment did arrive to finally get it.

• 7:12David Rosenthal?

  I mean, we can't overstate how important this was and how terrible awful diabetes was. I mean, it was truly a death sentence. That treatment that you were referring to, that was the official American and globally accepted treatment for diabetes. It was literally called the starvation diet. And it was just attempt to prolong your life as long as possible. But like you are going to die unless a treatment is found. So, you know, when we say that this group won the Nobel Prize in 1923, this isn't just like a Nobel Prize. This is one of, if not the most important advance in like all of modern medicine that they're discovering here.

• 7:52Ben Gilbert?

  I mean, we're just not that many decades after snake oil salesmen, patent medicine. We talked on the Standard Oil episode about John D Rockefeller's father literally selling snake oil. And that's just barely in the rearview mirror. This is one of the earliest breakthroughs in modern science. We were still years away from antibiotics and certainly decades away from the popularization of antibiotics as a treatment. So this was the big breakthrough.

• 8:18David Rosenthal?

  Yep. All right. So what did Banting and Best do? So scientists had known, even going back to the 1800s, that diabetes was caused by the misfunctioning of some type of hormone that was created in the pancreas. But until Toronto, nobody had been able to actually isolate what that hormone was, let alone extracted.

• 8:39Ben Gilbert?

  And to put a finer point on it, Banting and Best didn't even know what the hormone was. Even when they did figure out what to extract, they thought it was sort of this soup of a bunch of different chemicals mixed together. They wouldn't figure out for years and years and years, oh, this is like one very pure, specific hormone that we are isolating here.

• 8:56David Rosenthal?

  So by experimenting with dogs and dog pancreases, they're able to extract something that comes to be known as insulin. And not only extract it, they then experiment with it and inject it into human diabetes patients who are at like severe end of life stages. And miracle, like the human body is able to use this extract from dog pancreases. And these patients have like miraculous recoveries.

• 9:27Ben Gilbert?

  Yeah, I spent a bunch of time reading this book, Breakthrough by Thea Cooper and Arthur Ainsberg. And they go way into this. Basically, this team was the first one to figure out you could target the pancreatic islets and isolate the extracts in a relatively pure form. And, you know, pure by their standards, not certainly by today's standards. But you're right, totally crazy extracting from these dogs and injecting in humans in extremely limited quantities. Once they figured it out, it was still hard to then go from there to like getting it to people because they're like, well, okay, we did this thing that kind of worked once from like one dog into one person. So where do we go from here?

• 10:04David Rosenthal?

  And importantly, this new insulin substance, while it is a miracle, it's not a cure. Injecting patients with it doesn't magically like restart production of insulin in their own pancreases or cure the disease. It only works until your body uses it all up, which is pretty quickly. So these diabetes patients, you know, they finally have a new lease on life. But it's kind of also just that, like a lease. In order for them to survive, they need to regularly inject an appropriate amount of insulin, you know, and by regular basis, especially in these early days, that's like every couple hours.

• 10:44Ben Gilbert?

  And you can imagine the incredible high wire act in the early days where they've extracted from literally one dog. They've kind of written down the process. Strangely enough, somewhere along the way, the process was forgotten. Someone else had to replicate it. And then they took his notes, combined them with the original researchers, and then figured out a path forward. I mean, we discovered the process for refining insulin enough to put it into humans and then lost it and then found it again. This was the state of medical science. And so you have people ringing off the hook, newspapers reporting, the breakthrough is here, the breakthrough is here. And they've got like, you know, single digits or dozens of vials of usable insulin, each of which needs to be injected into a single patient. Every few hours in Toronto, so there's not enough to go around. The path forward is super unclear.

• 11:29Ben Gilbert?

  And this is foreshadowing a little bit, but the era that we're in here in 1921, there is a firewall between industry and medical science. And it was perceived to be unethical to make money on taking your medical breakthroughs and sort of turning them into companies. And so there's this extreme culture at the University of Toronto around we have to protect anyone from making too much money off this thing. So we got to be really careful and potentially even slow down its development and be really thoughtful about how we distribute it to the world so that nobody takes it and makes too much money.

• 12:06David Rosenthal?

  Yeah, Bantake and Best and McLeod aren't going to go, you know, today they would go like start a company, you know, around this, like that's not going to happen back then. But all of a sudden, the world needs a lot of this animal insulin and in a supply chain that can't go down because once you start patients on this, they need it forever. So what the University of Toronto does do is they license production and development rights to a large American drug company based in Indiana, Eli Lilly. And they give Eli Lilly a one-year exclusive development license to try and mass produce this substance. And again, like you said, this is like a big step for the University of Toronto to

• 12:50David Rosenthal?

  do this, but the need in the world is so great that they're willing to work with industry here.

• 12:54Ben Gilbert?

  You literally have presidents and secretaries of state trying to call in favors and successfully calling in favors to get access to the limited vials that the University of Toronto has.

• 13:05David Rosenthal?

  Yeah, wasn't Elizabeth Hughes, one of these famous first patients, the daughter of the Secretary of State of the US, right?

• 13:10Ben Gilbert?

  Charles Evans Hughes. Yeah.

• 13:12David Rosenthal?

  Yeah, wild. So it's obviously not practical or maybe not ethical. That's beyond the scope of this podcast to use dog pancreases for scaling mass production here. But it turns out there actually is an abundant ready supply of animal pancreases that happen to be just sort of lying around in the American heartland and just about every human food production center in the world. And that is cow and pig pancreases from, you know, all the meat that we eat.

• 13:43Ben Gilbert?

  Indiana's got a lot of cow farmers. And so the clever, really startup Eli Lilly, I mean, the company had been around for a while, but this idea of taking on real R and D risk was sort of a new concept. So the sort of startup Eli Lilly is going around hiring salespeople to bang down the door of slaughterhouses all over Indiana and say, hey, I know your waste product includes pancreases. Do you think you could ship those to us?

• 14:10David Rosenthal?

  We'll pay you for those. Yeah.

• 14:12Ben Gilbert?

  And it's actually not an easy sale because those farmers are like, it's going to slow down my process if I have to figure out how to separate the pancreases. And this is already a real tight ship. So there's a real entrepreneurial tale of Eli Lilly sort of convincing large, large numbers of slaughterhouses to do this. The other interesting thing to note about the Eli Lilly license, David, which I thought was really clever, is it's a one-year exclusive license where there's two conditions and the conditions are a trade. One, Eli Lilly has to report back any advances that they make to the University of Toronto. It's almost like little Operation Warp Speed going on, kind of analogous to COVID. As they figure stuff out, they have to share it back with the University of Toronto to improve the manufacturing yields of whoever else will be developing the drug.

• 14:57Ben Gilbert?

  In exchange, the thing that Eli Lilly does get to retain and protect on their own is a brand. Eli Lilly saw it really important early to say, hey, we want to build a brand around insulin so that people know it's coming from us, that it's of a certain quality. And even when we lose our one-year exclusive license and even when we stop contributing the manufacturing IP back to you, the brand actually stays ours.

• 15:20David Rosenthal?

  Yeah, we're going to talk a bunch more about Eli Lilly here as we go. But this moment, this insulin moment, this is what really turbocharges them and makes them into one of, if not the first, kind of leading American and international pharmaceutical company, which it still is to this day, still bigger than Novo Nordisk.

• 15:38Ben Gilbert?

  Yep.

• 15:39David Rosenthal?

  Although not by too much.

• 15:40Ben Gilbert?

  Well, much more diverse, but not too much larger by market cap.

• 15:44David Rosenthal?

  Okay, so back to this whole Nobel Prize thing, which, as we said, was awarded to Banting and Assistant Medical School Dean John McLeod. Now, how did McLeod end up being the guy who shares the award with Banting and not best? And years later, actually, the Nobel Committee would basically admit that they messed that up. It turns out that the answer to that is the key to the first chapter of our story today. Because the actual nomination, I don't know if you knew this, Ben, the actual nomination for that prize was put forth by a previous Nobel Prize winner in Physiology or Medicine,

• 16:24David Rosenthal?

  the 1920 Nobel Prize winner from Copenhagen, Denmark, a animal biologist named August Crowe.

• 16:35Ben Gilbert?

  Oh.

• 16:36David Rosenthal?

  Who also happens to be the founder of Novo Nordisk.

• 16:39Ben Gilbert?

  Is that how Nobel Prizes work? A previous winner nominates the current nominees? Or is it just like, it certainly helps their case if a previous winner?

• 16:49David Rosenthal?

  Yeah, I do not think it is a requirement, but you know, certainly a previous winner and a recent previous winner in the same category, you would imagine, carries a lot of weight.

• 16:58Ben Gilbert?

  So the guy who would go on to found Novo Nordisk is the one that nominated Banting and McLeod for the Nobel Prize before starting the company?

• 17:05David Rosenthal?

  Yeah. Now, here's the wild thing about August Crowe, founder of Novo Nordisk, the world's premier insulin company focused on insulin and diabetes for 100 years now, world's premier GLP-1 company. He's not a physician. He's not even a human biologist.

• 17:23Ben Gilbert?

  Yeah, he was an animal biologist, right?

• 17:25David Rosenthal?

  Yeah, he was an animal biologist. Fun fact, though, this is maybe my favorite sidebar in the episode. He studied at the University of Copenhagen. His like advisor was a guy named Christian Bohr, B-O-H-R. That name might sound familiar to some people.

• 17:40Ben Gilbert?

  Descendant of Niels Bohr?

• 17:42David Rosenthal?

  Father of Niels Bohr, that Niels Bohr, father of atomic physics, you know, also winner of the Nobel Prize, major contributor to the Manhattan Project. So yeah, like his August's PhD advisor was the father of Niels Bohr. Everybody's winning Nobel Prizes. There must have been something in the water in Copenhagen at that time.

• 18:02Ben Gilbert?

  Also, that tells you how long ago this was, that in my head, Niels Bohr is like someone from a long time ago. So it would be a descendant, but actually this is his father.

• 18:09David Rosenthal?

  Yeah, right, right, right. Okay. So back to August Crowe. How the hell does he end up going to Toronto, getting involved in all of this, starting, you know, Novo Nordisk? Well, in 1920, the same summer that he wins the Nobel Prize, his wife, Marie Crowe, is diagnosed with diabetes. And this starts weaving together this whole crazy chain of events that leads to, well, Nordisk. Novo comes a little later. Marie herself is actually a pretty incredible person. She is a physician. So she's the first woman in Denmark to earn a doctorate in medicine. And Denmark, I kind of suspect, has always been pretty progressive relative to the US.

• 18:53David Rosenthal?

  But even still, like, we're talking about, like, the 19 teens. A woman to earn a doctorate in medicine and then be a practicing physician was obviously unique.

• 19:02Ben Gilbert?

  Yes.

• 19:02David Rosenthal?

  So when she's diagnosed in 1920, and you know, she basically self diagnoses, she knows what's going on. Like, she and August, like, she knows exactly what this means. Like, she's going to die. This is horrible. But given that they're both very, very active in the scientific and medical community in Europe, they are able to get her the best care possible, which at this point in time in Denmark, is a young Copenhagen-based physician named Hans Christian Hagedorn, who is widely respected as sort of the best endocrinologist in town, even though he's very young. And he's up to date on all the latest workings of the starvation diet and how to maximize quality of life and prolong life as long as possible.

• 19:46David Rosenthal?

  Fortunately, Marie diagnoses herself very early. He puts her on a closely monitored starvation diet and they stabilize it enough, enough after a year or so. Now, back to August. Ordinarily, you know, after you win the Nobel Prize, you go on a major international lecture tour. And of course, he's invited all over the world, particularly to the elite universities in America to come give speeches on his Nobel Prize winning research. But because Marie fell ill at the same time, he had to delay his trip until 1922. So in 1922, August and Marie set sail for Boston.

• 20:24Ben Gilbert?

  Which is, by the way, amazing that a type 1 diabetic has made it sort of this far in life and is in the early 20s doing transatlantic travel.

• 20:34David Rosenthal?

  Totally amazing. So August is going to give a delayed series of lectures here at both Harvard and Yale. While there in Boston at Harvard, they meet with a guy named Elliot Jocelyn, who, he's actually the inventor of the starvation diet. He is like the world's foremost diabetes physician and researcher at this point in time. And Elliot tells them about what's going on in Toronto. This is the world that we're living in back then. News of the discovery of insulin hadn't really yet reached Europe and certainly hadn't reached Denmark at this point in time.

• 21:11Ben Gilbert?

  So it was like a competitive advantage to be a Nobel Prize winner on an international lecture circuit because you got better, faster information about brand new medical advances?

• 21:22David Rosenthal?

  Yes. Well, and particularly, you know, competitive advantage, like life advantage, like they're just concerned about Marie's life at this point in time. So Elliot says, you know, I know the guy who runs the lab up there, John McLeod, let's write him a letter and see if while you're in America, you can go up and see them and see the labs, see what's happening and maybe get some of this insulin. So August and Marie write to McLeod. Marie also writes back home to Denmark to Hagadorn and tells him about what's going on and about this discovery of insulin. She suggests in that letter that since Hagadorn is kind of the leading diabetes physician

• 22:05David Rosenthal?

  in Denmark, maybe while they're in Toronto, they might be able to secure like some rights or ability to bring insulin back to Denmark. McLeod in Toronto, you know, he gets the letter and he's like, of course, come on up. You and Marie, both come, stay in my personal home. Sadly, unfortunately, Marie falls ill and she can't make the trip up to Toronto. So August goes alone, but he stays with McLeod, observes the insulin production process, sees everything that's happening. They become close and friendly. Most importantly, McLeod takes August to go meet with the insulin committee and talk about what Marie had suggested to Hagadorn of like, hey, maybe these are the right people

• 22:50David Rosenthal?

  to bring insulin to Europe, essentially, but at least to Denmark. Now, funnily enough, at this particular point in time, it turns out you actually can't patent drugs in Denmark. So any blessing or patent licensing from the insulin committee to the crows and Hagadorn for Denmark is sort of pointless because it's not legally binding in Denmark anyway. But the insulin committee says, well, you're really the right people to do this. How about we give you rights for all of Scandinavia? Norway, Sweden, Denmark, you have our official blessing and any rights that you need.

• 23:29Ben Gilbert?

  And this is a pretty similar deal that they cut with Eli Lilly. That was for North America and they basically gave him the same thing for Scandinavia.

• 23:37David Rosenthal?

  Yes. So August and Marie set sail back for Europe. They arrive in Copenhagen, they go tell Hagadorn the news. Immediately they all go get to work. And by get to work, they go buy cow pancreases at the local livestock market in Copenhagen.

• 23:52Ben Gilbert?

  This is something, so you read more about the Novo Nordisk history than I did. Was it cows or was it pigs? Because I know that Denmark has an abundance of pigs, which actually made it pretty well suited to be an early insulin manufacturer.

• 24:04David Rosenthal?

  Ah, interesting. It was both. I think pigs may have come later, but certainly it was both cows and pigs that Nordisk and then Novo were using both of them. They were just basically trying to get their hands on any animal pancreases that they could.

• 24:16Ben Gilbert?

  Right. If it's got eyelets, we want it.

• 24:19David Rosenthal?

  Yep. So using the Toronto method, they get a bunch of pancreases. They go to August Crowe's lab at the University of Copenhagen, run them through a meat grinder, pour hydrochloric acid over them, and they extract insulin. And then they test it on rabbits and mice, and they confirm, yeah, we've got it. This is insulin. Certainly for the first time in Scandinavia. I think maybe also for the first time in continental Europe, at least, insulin is extracted here in Denmark.

• 24:53Ben Gilbert?

  Hmm.

• 24:54David Rosenthal?

  So this leaves just one obvious problem, just like insulin in Toronto. This is not going to scale. You know, maybe you could do this to treat Marie, but they want to treat the whole country, the whole region.

• 25:06Ben Gilbert?

  Right. This is like a very real problem for insulin, all the way up until like the 1980s, which is you are scale constrained by the number of dead animal pancreases you can get your hands on. And I found this wild stat. It takes 8,000 pounds of pancreatic glands from 23,500 animals to make a single pound of human insulin.

• 25:34David Rosenthal?

  Yeah, that's wild. To put that in more real numbers, that means that even by 1980, with all the advances, it took 1 million animals annually for 30,000 diabetes patients. And there are a lot more than 30,000 diabetes patients in the world in 1980.

• 25:52Ben Gilbert?

  And we'll talk about who the pioneers were and how we eventually got out of using animals to create insulin in the 80s. But that was also the moment in time where type 2 diabetes really took off.

• 26:03David Rosenthal?

  Yes, you're foreshadowing.

• 26:05Ben Gilbert?

  It's been a 45-year massive issue, but like, we basically could not have continued to use animal-based medicine to treat diabetes once it really exploded.

• 26:18David Rosenthal?

  Ben, we're going to get to this in like two hours.

• 26:19Ben Gilbert?

  Sorry.

• 26:21David Rosenthal?

  All good. So back to the Crows and Hagadorn in 1922, 23 in Copenhagen. They need to scale production. So they go to the Lovens Chemiski fabric. And I need to like majorly apologize to all.

• 26:39Ben Gilbert?

  Yeah, your Danish is amazing.

• 26:40David Rosenthal?

  Danish people out there. It is. I talked to some Danish folks in research for this episode and thank you very much. And I just, I realized in those conversations, I need to give up on trying to pronounce things correctly.

• 26:52Ben Gilbert?

  Stick to French.

• 26:53David Rosenthal?

  Oh, we'll stick to French, yes. But that translates to English as the Lion Chemical Factory. And it is owned and run by another man named August, August Kongstedt with a K, K O N G S T E D. And so they partner together. And by the summer of 1923, the very same summer that the Nobel Committee is debating on the award for that year. And of course, Crow at this point has nominated his buddy MacLeod, along with Banting. By that summer of 1923, the combo of the Crows and Hagadorn and the Lion Chemical Factory have produced enough insulin that they can complete trials with eight human patients with great success there in Copenhagen.

• 27:38David Rosenthal?

  And at this point, H C Hagadorn, who remember was originally Marie's physician to help treat her diabetes. He resigns his medical post and decides that he's going to focus full time on this project.

• 27:51Ben Gilbert?

  So the founders are Hagadorn and August and Marie Crow.

• 27:55David Rosenthal?

  And Kongstedt from the Lion Chemical Factory. These are the founders of the project, but there's no Novo Nordisk yet.

• 28:02Ben Gilbert?

  And we should say around this time, I believe Eli Lilly was further along in terms of the volume that they had developed. I think they were making.

• 28:10David Rosenthal?

  Oh, yeah.

• 28:11Ben Gilbert?

  Like hundreds of vials a week of usable insulin.

• 28:14David Rosenthal?

  Absolutely. Eli Lilly had insulin on the American market available to patients at this point in time.

• 28:20Ben Gilbert?

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• 28:40David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 29:01Ben Gilbert?

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• 29:23David Rosenthal?

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• 29:41Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you. Okay, so David, the founding of Nordisk. How does it happen?

• 30:14David Rosenthal?

  So, the Lion Chemical Factory at this point has established a new production line for insulin. But it's unclear, do they own this production line? Did the crows, does Hagadorn, is the University of Toronto involved? Crowe and Hagadorn are sort of consulting on it. When Hagadorn makes this decision to go full time, what actually happens is he becomes an employee of Lion Chemical, which isn't really what he wants. August Crowe steps back and he returns to his other research at the University of Copenhagen. But once insulin starts rolling off the line later that summer, under the brand name Insulin Leo, like Lion Chemical Factory, they use the brand name.

• 30:56David Rosenthal?

  And that would continue to be Nordisk's insulin brand name for the next 60 years, I think.

• 31:02Ben Gilbert?

  Wow.

• 31:03David Rosenthal?

  Pretty quickly, demand is just off the charts. And they are, like we talked about, essentially the first mover in continental Europe. So there's a pretty enormous opportunity here. So in 1924, Crowe, Hagadorn and Kongstedt, who owns Lion Chemical, they all come to an agreement. They're going to set up a new, independent and self-owning institution to produce and distribute this insulin throughout Europe.

• 31:33Ben Gilbert?

  Yeah, what does that mean?

• 31:35David Rosenthal?

  Still not a company. Because other than Kongstedt from Lion Chemical, Crowe and even Hagadorn at this point, they're not particularly commercially minded.

• 31:44Ben Gilbert?

  No, it's a biologist and a physician.

• 31:47David Rosenthal?

  Yes. So what they do is they set it up as an operating company, because that's what they have to do to have employees and make sales and whatnot. But this operating company is 100% owned and controlled by a foundation that they also set up. And the three of them are going to be board members of this foundation and Hagadorn is going to run it day to day.

• 32:12Ben Gilbert?

  This is really important to know and really crazy how much this impacts in the future. This is still the corporate structure of the largest company in Europe. And we're going to get to this hours from now in playbook. But this governance structure massively affects the incentives and the way that this company ends up developing products going to market with them. The future blueprint of the next 100 years is laid right here in this corporate structure.

• 32:40David Rosenthal?

  And foreshadowing, there is a moment much later in history where, absent the control of this foundation,

• 32:49David Rosenthal?

  Novo Nordisk would have ceased to exist. It is only because of this structure that Novo Nordisk survived and that we have GLP-1s and everything we have today.

• 32:59Ben Gilbert?

  Fascinating. By the way, this is not that uncommon in Danish companies. Lego, same structure. Maersk, the shipping company, same structure.

• 33:08David Rosenthal?

  Well, I dug into this a little bit. So, yes, this is a very common structure in Denmark, mostly for tax reasons, because Denmark has very, very high taxes. So this is a common generational transfer mechanism. And Novo, later, we'll talk about Novo in a sec. Novo actually has this type of structure that you're talking about. The Nordisk Foundation is not just a foundation of convenience. It really is a charitable foundation with a dual mission. So they give it two missions. The first mission is to produce insulin and sell it, A, at cost in Scandinavia, in the

• 33:49David Rosenthal?

  original territory mandate, in order to maximize access and humanitarian and public health benefit. B, though, export it elsewhere in Europe and around the world at market prices and use the profit from those exports to fund further diabetes research and development. So, no profits allowed in Scandinavia. Profits are allowed from export activities. And then all of those profits, literally by contract, get shipped 100% to the foundation to then be used for grants and research about diabetes and supporting diabetes patients in Scandinavia.

• 34:34Ben Gilbert?

  Fascinating. I did not know that.

• 34:36David Rosenthal?

  Totally fascinating. And more or less, as you said, that is the same mission and structure that is still in place today. It's obviously changed a little bit.

• 34:43Ben Gilbert?

  Yeah, there's some caveats that I'll get to when we get to today.

• 34:46David Rosenthal?

  Yes. The operating company is now publicly traded, but still that foundation controls 77% of the voting shares of Novo Nordisk and 28% of the economic shares.

• 34:57Ben Gilbert?

  Yeah. So, no shareholder activism in this company, or at least no one's effective in doing so.

• 35:02David Rosenthal?

  Yes. So, the name that they choose for this new institution, or really dual institution, is, fittingly, Nordisk Insulin.

• 35:13David Rosenthal?

  Which Nordisk in Danish means Nordic insulin is the insulin manufacturer for the Nordics. Very creative. Very creative. So you're listening here, you're probably like, okay, that's Nordisk. What's the Novo piece of this? Well, it turns out that that is quite the story, too. Because among the very first employees of the insulin project, even before Nordisk gets created, are two brothers, Harold and Torvald Peterson. And the Petersons, you've got to remember the time we're in, they're sort of like prototypical 19 teens, 1920s kind of engineers and tinkerers. We're not that far removed from like the Wright brothers and Henry Ford and that kind of stuff here. They're like kind of cast from that mold.

• 35:57David Rosenthal?

  So the older brother, Harold, he had been working in August Crowe's lab, doing all the mechanical engineering stuff to carry out the experiments. Like, you know, you need to build devices and contraptions and set up experiments. And so Harold was in charge of doing that. Once the insulin project gets going, Harold naturally sort of shifts over and he's the one going out and building and buying and modifying like the meat grinders and figuring out how to pour hydrochloric acid over it in the right way and all that sort of stuff. When Lion Chemical gets involved and they're spinning up mass production, Harold goes to Hagadorn and August and Congstead and says, hey,

• 36:42David Rosenthal?

  you're setting up a national production line. I've got just the guy to help you set it up and run it. My brother, Torvald. Because not only is Torvald a seasoned factory operations manager who's currently running a large soy factory, he is also trained as a pharmacist and studied chemistry. He's like the perfectly qualified person to be like a, you know, early employee of this new operation. Except it turns out there's just one problem. Hagadorn thinks he's in charge and Torvald, who's just been hired, thinks, hey, I know what I'm doing here. I'm in charge. Like Hagadorn, you're this pompous physician. Like, what do you know about running a factory?

• 37:22Ben Gilbert?

  So this schism happens like in the first year of Nordisk's existence?

• 37:27David Rosenthal?

  Yes. In the first six months after Torvald is hired, he and Hagadorn, they're constantly fighting. One day they get into a huge, huge argument and Hagadorn fires him. Six months in.

• 37:40Ben Gilbert?

  Guess we know who's in charge.

• 37:42David Rosenthal?

  Yeah. When that happens, Harold, the older brother, resigns in solidarity and they're super pissed. They go to see Crowe and they're like, hey, August, I've been working for you for a while. Like, clearly we know what we're doing here. Why is this happening? And Crowe sides with Hagadorn. He's like, no, no, he's my guy. He was Marie's physician. He's gonna run this thing. So they say, well, all right, fine. You know, as you know, here in Denmark, you can't patent drugs.

• 38:11Ben Gilbert?

  Oh, that's why this is important.

• 38:13David Rosenthal?

  We're just gonna go down the street and make insulin too. And the legend has it that supposedly August looks at them and replies, but you're not capable of that.

• 38:25David Rosenthal?

  To which Torvald yells at him, we will show you. And they storm out of the building and go down the street. And they found a new insulin company, a Novo

• 38:39David Rosenthal?

  insulin company there in Copenhagen, Insulin Novo. And that is the beginning of Novo. And for the next 65 years, these two companies would compete in blood sport, head to head, hated each other, absolutely hated each other, until they finally merged in 1989.

• 39:00Ben Gilbert?

  Crazy.

• 39:01David Rosenthal?

  Yep. Now, this is such a key part of the Novo story that certainly, you know, Crowe, but then Hagadorn develops into this amazing scientist, as we'll talk about, the advances that Nordisk is able to bring to market in the science of insulin and diabetes is huge. But certainly without the like bitter competitive motivation from down the street, I don't know that they would have moved as fast. And, you know, Novo ends up building its own scientific research capabilities and like, These two companies in this unlikely small country in Northern Europe end up leading maybe the most important drug development of the 20th century.

• 39:40Ben Gilbert?

  It's amazing. I mean, it's the local and bitter competition. It's Ferrari and Lamborghini. It's Aldi and Trader Joe's. It's Adidas and Puma. You sort of create the seeds of competition early and you can really infuse that into a company's DNA for decades.

• 39:56David Rosenthal?

  So I think it's worth a quick pause here. We've already talked about some of this, but just to clarify why diabetes and insulin is such an interesting market and large market potential. You know, one, even with just type one at this point in time, it's still a very large and widespread disease in the world. So it's kind of a large patient and potential patient market size. But two, unlike many other diseases and drugs for those diseases, you know, it's chronic. You don't cure it. So what insulin is doing is it is enabling these diabetes patients who often are diagnosed as children to live essentially normal, long lives.

• 40:40David Rosenthal?

  So you're talking about decades, 40, 50, 60, 70, 80 years of patient lifespan here, where they are injecting insulin daily, if not, you know, in most cases, multiple times daily.

• 40:55Ben Gilbert?

  There's basically nothing other than food that you can sell someone for their entire life. But for diabetics, insulin absolutely has that scenario with a customer.

• 41:04David Rosenthal?

  Yep. And there's also kind of another aspect that makes it particularly interesting commercially, which is there's also a motivation to constantly improve the insulin product. It's not like insulin is insulin is insulin. There are so many new products and improvements, both in the drug itself, but also in the delivery systems. I mean, this early insulin, as we've alluded to a little bit, it was barbaric by modern standards. Like, yes, it saved the lives, but it didn't last very long. So you had to inject a lot of it very frequently. It wasn't super clean. There are tons of impurities in it. So there's swelling, there's infections.

• 41:45Ben Gilbert?

  There's allergic reactions to all the impurities.

• 41:48David Rosenthal?

  Totally. It wasn't shelf-stable in liquid injectable form. This is wild. I don't know if you knew this, Ben.

• 41:55Ben Gilbert?

  No.

• 41:55David Rosenthal?

  So everything we're talking about in these days and what Nordisk was originally producing were insulin tablets, solid insulin tablets. Now, until recent times, you can't take insulin in tablet form. It doesn't get absorbed by the gut. You have to inject it. So what patients had to do was take these solid tablets, dissolve them in sterilized boiled water, measure and draw that solution into a syringe themselves.

• 42:24Ben Gilbert?

  Like a glass syringe with a big needle, no pens, none of this fancy stuff we have today.

• 42:28David Rosenthal?

  Yeah, big ass needle. And, you know, so now you've got patients doing this multiple times a day. And it's really important that they get the right amount of insulin for them. This makes it really hard.

• 42:41Ben Gilbert?

  Yep. And there's no measurement. I mean, there's no like one-touch pin prick. We get to see what your blood sugar content is right now. We're so far from that existing that you are guessing. You're throwing darts.

• 42:51David Rosenthal?

  Totally. And actually, it's kind of a side note to the story, but it's Novo in the 1980s that invents the insulin pen.

• 42:59Ben Gilbert?

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

• 43:01David Rosenthal?

  Yeah, Novo invented the pen and Nordisk focused on pumps. And they were one of several companies, but one of the leading companies innovating in pumps.

• 43:10Ben Gilbert?

  I see. We should say, listeners, and David, you know this, this is a topic that is super personal to me. A huge number of my family members are diabetic and actively suffer from the complications and actively benefit from all the advancements in it. And so this is something I've just had present around me my entire life with family members, as I'm sure many of you have too.

• 43:29David Rosenthal?

  I'm quite certain that almost everybody listening right now either is diabetic themselves or has a close family member who is.

• 43:37Ben Gilbert?

  Or is prediabetic. When I was doing research for this episode, one of the people I talked to, and we'll thank a bunch of folks at the end, but pointed out, we're all prediabetic in some way. And it's basically like the idea that, look, your A1C levels, if you live long enough, will eventually enter diabetes territory, especially with the food system today and all these foods engineered to leave us very unsatiated, all of our natural inclinations that we had as hunter-gatherers and farmers and, you know, imagine the paleo life long ago, all the things that served us evolutionarily to stay alive are now the very things that are killing us. So everyone's on the path. It just depends how long you live.

• 44:16David Rosenthal?

  We also weren't really designed to, you know, live this long either. So.

• 44:20Ben Gilbert?

  Well, careful with the word "designed," David.

• 44:22David Rosenthal?

  Well.

• 44:25David Rosenthal?

  So when Novo gets established, this starts the competitive race that really leads to 100 years of R and D pipeline that changes all this. So the Peterson brothers, they know right off the bat, they can't really just go clone what Nordisk is doing. I mean, technically, legally, they can in Denmark, but what physician and what patients are going to buy Novo insulin when right down the street, you've got Nordisk, which has a Nobel Prize winning scientist, the best diabetes endocrinologist in Denmark running it, and the explicit blessing of Toronto and the insulin committee. If Novo just sells the same thing, like, nobody's going to buy that.

• 45:06Ben Gilbert?

  Right.

• 45:07David Rosenthal?

  But they do have a pretty significant advantage that Nordisk doesn't have, which is they've got their engineering and tinkering skills. So they go to work, and pretty quickly, actually, they come up with shelf-stable liquid insulin. So what I was just talking about, about how Nordisk produced these tablets, you had to boil them, Novo comes out with liquid insulin. You don't have to do that. Not only that, because the process for producing liquid insulin that they come up with is so much more efficient, they can sell it effectively cheaper per dose than what Nordisk is selling their solid form as. So they go to market, Novo goes to market

• 45:50David Rosenthal?

  with their Novo insulin as insulin at half price because it's so much more efficient. Now, this is so antithetical to like the ivory tower scientists over at Nordisk. You're marketing insulin at half price. Does this liquid stuff work? And is this safe? And all this stuff, the Peterson brothers are like, yeah, whatever, you know, we're going to crush you.

• 46:11Ben Gilbert?

  All right. So Novo, scrappy upstart, counter positioned, and competition drives innovation. So they create better product.

• 46:18David Rosenthal?

  Yes. So then Nordisk strikes back with a new, longer lasting form of insulin called protamine insulin, or NPH, as it is patented and come to be known around the world, which stands for neutral protamine hagedorn.

• 46:35Ben Gilbert?

  Really? Hagedorn is in the name?

• 46:37David Rosenthal?

  Because H.C. Hagedorn, he himself led the research developing this, and he puts his own name on it. Kind of tells you what you need to know about him. This is much more stable and needs to be injected fewer times per day, which is a huge benefit for patients. So Nordisk, rather than building up production facilities around the world, what they decide to do is license it back to basically any interested pharma company. So like Eli Lilly back in the States, other companies in continental Europe. It's the new widely accepted, most advanced treatment for patients. Except there's one company that they refuse to license it to, and that is Novo.

• 47:20Ben Gilbert?

  Amazing.

• 47:21David Rosenthal?

  So Novo, undeterred, they go and they work around Nordisk's patents on this. And again, I'm not sure at this point if the laws have changed and you can patent drugs in Denmark, but it kind of doesn't matter because it's clear, Denmark is not a very large country. By far, the bulk of the market is in exports at this point. And certainly in other countries, you can patent drugs. So Novo works around Nordisque's patents and they come out with an improved version of protamine insulin that they claim is both better and doesn't infringe on the patents.

• 47:56Ben Gilbert?

  Which the pharma industry has a rich history of figuring out exactly how to do this, because the thing about pharma patents, which is interesting, is they're fairly narrow. You can patent a molecule. I don't think this is quite true at the time, but the way it sort of works today is you can patent a molecule, which is extremely specific. It's different than other industries where it's a system and a method for blah, blah, blah, and you can be very broad with it. So if you can accomplish a similar biological or chemical reaction in the body with a different molecule in basically any way, then unpatented. And so there's a rich history in pharma of doing exactly this. What is slightly next to the patent, but does basically the same thing?

• 48:36David Rosenthal?

  Yes. To your point, though, it is still quite scientifically difficult. It's not like software here, where like, yeah, yeah, yeah, I write some code. And it's like, no, no, you still got to find a molecule that does what you say it does.

• 48:48Ben Gilbert?

  Yep.

• 48:49David Rosenthal?

  So this leads to a whole bunch of lawsuits. It actually ends up going to the Danish Supreme Court, where Hagadorn represents Nordisque himself. You know, in the lower courts, they had lawyers, and I think they lost the case in the lower courts. And Hagadorn's like, screw this, I'm going to be my own lawyer.

• 49:09Ben Gilbert?

  At the Supreme Court.

• 49:10David Rosenthal?

  At the Supreme Court.

• 49:11Ben Gilbert?

  Wow.

• 49:12David Rosenthal?

  Yeah. Amazing. And they win. Nordisque has won here. This is like a huge, huge blow for Novo, you would think. But then, literally right at the same time, World War II starts and Denmark is invaded by the Nazis shortly after they invade Poland. And in April 1940, the Nazis now occupy Denmark. So this sort of like infighting between these two Danish drug companies.

• 49:41Ben Gilbert?

  Much less relevant.

• 49:42David Rosenthal?

  Much, much less relevant. But what is still super relevant is how is Europe going to get insulin in the middle of World War II? And this is a major, major turning point, both for the two companies vis a vis each other, but also I think really what sets Novo on the path to becoming Europe's dominant producer of insulin, and then ultimately the dominant producer of insulin in the world.

• 50:12Ben Gilbert?

  Huh. So Novo, not Nordisk, became the globally dominant. Really? I did not know that. I actually don't know the terms of the 89 merger. So I'm excited to listen, just like everyone else, David.

• 50:22David Rosenthal?

  Well, so what happens is Denmark is relatively unscathed during World War II. You know, it's a small country. The Danish army was quite small. And so when the invasion happens in April 1940, there's basically no fighting. Germany just takes over the country. I mean, there's no destruction, which means that insulin production continues unabated in Denmark. Now Nordisk, remember, like I just said, once NPH comes out, their strategy becomes really like, we produce domestically, and then we make our revenue and our profits internationally by licensing, not by production. And with World War II, you know, most of

• 51:05David Rosenthal?

  the dollars for their licensing revenue is coming from allied countries. Well, Germany just took over Denmark. So all of that revenue, all of those profits go to zero overnight. And Nordisk, for the duration of the war, basically just gets put into hibernation mode. They're still producing a little bit to help supply Denmark, but there's really nothing going on there.

• 51:29Ben Gilbert?

  They basically cannot address the market of any allied countries anymore.

• 51:33David Rosenthal?

  Yeah.

• 51:33Ben Gilbert?

  Wow.

• 51:34David Rosenthal?

  Novo is the complete opposite story. They had been scaling production all throughout Scandinavia, all throughout Europe. And when Germany takes over Denmark,

• 51:45David Rosenthal?

  Insulin Novo is now, you know, the ethics of this are really complicated.

• 51:50Ben Gilbert?

  Because it's Danish owned, which is Nazi occupied at the time.

• 51:54David Rosenthal?

  Yeah, they are now essentially the official Nazi sanctioned insulin provider for all of Nazi occupied Europe. So the German government basically directs Novo to massively expand production and supply insulin, you know, not only to Germany, but to France, to Poland, to Austria, to all, everywhere in continental Europe, basically.

• 52:18Ben Gilbert?

  So just to make sure I have it right, it sounds like Nordisk is only making a small supply for Denmark. Novo is supplying all of Nazi occupied Europe. And the allied countries no longer have access to anything Novo or Nordisk makes. And so they're relying on their own suppliers like Eli Lilly.

• 52:35David Rosenthal?

  Yes. Now, they're fine. They can get insulin no problem because Nordisk has licensed all the technology and production to them. They just keep doing that. The only problem is for Nordisk that Nordisk can no longer get the payments from them. Because obviously, you know, transfer payments from allied countries are now blocked.

• 52:53Ben Gilbert?

  Right. Fascinating.

• 52:55David Rosenthal?

  Totally fascinating. So again, we said the ethics of this are quite complicated. There is no doubt that Novo's fortunes massively changed and expanded by the German occupation and the Nazis during the war. On the other hand, literally the Nazis ordered them to expand production and provide insulin for Europe. And like, if they hadn't done it, all the diabetics in Europe would have died.

• 53:22Ben Gilbert?

  Oh, it's unquestionably a good thing. Again, I'm learning about this from the first time from you. But like, an evil person commanding me to make more life-saving drugs and distribute it to more people is fine. It's the other things they commanded you to do that are not fine.

• 53:35David Rosenthal?

  Right, right. I definitely agree. It is important to note, though, after the war, the Danish state did require both Novo and the Peterson brothers personally to repay most of the profits that they made during the war back to the Danish state.

• 53:52Ben Gilbert?

  Fascinating.

• 53:53David Rosenthal?

  Again, like, the ethics are complicated here.

• 53:55Ben Gilbert?

  Very. Yeah. Wow.

• 53:57David Rosenthal?

  So regardless, after the war, Novo emerges as now both a scaled pharmaceutical company generally, and the largest producer of insulin in Europe. And as part of that, now, they have the resources to really build up their own scientific and R and D divisions, and become a real powerhouse to rival what Nordisk was before the war. Shortly after the war ends, they develop a new product called Lenti Insulin, L E N T E, which is slower acting insulin, which means it's thus longer lasting. And this can now be

• 54:35David Rosenthal?

  used for diabetics as a basal or background insulin. So they'll still take fast acting insulin around meals to help process blood sugar from meals. But a normal human pancreas is also producing insulin 24/7 throughout the day. This now is a new background insulin that diabetics can take to help stabilize when you're sleeping or not eating. So this is a pretty big breakthrough.

• 55:02Ben Gilbert?

  And what you're seeing here is Novo and Nordisk having decades of experience researching mechanisms to slow the absorption or lengthen the effects of their drugs in the human body, and really developing this incredible competency around how do we sort of finely tune how we want injections to react in your body over a long period of time in a very complex environment. You know, you've got the human immune system wanting to react to anything form you put into it. You've just got a lot of systems that you sort of have to make sure that you're interacting well with to achieve something simple, like, well, make it dissolve slower. And I know that's not technically right, but that is kind of the blunt way to think about it.

• 55:47David Rosenthal?

  Yeah, hopefully it's obvious, but like, this isn't quite like software. It's like, oh, just you add some new code and you ship a new feature. It's like, no, this is very complicated stuff, and you got to make sure that the side effects are not going to kill people. So this is really the first major scientific advance that comes out of Novo. And Eli Lilly licenses this lentil insulin from Novo and kind of rebrands it. It makes it part of their flagship insulin offerings in the US. They were doing this with NPH insulin before the war from Nordisk. And now, you know, it's kind of Novo that's taking up this mantle. You know, this will come back up later in the episode.

• 56:28David Rosenthal?

  But Eli Lilly, although insulin was and still is a huge part of the business, what they basically decided is to be a kind of technology follower and license from all the innovation coming out of Novo and Nordisk, license that into their sales and distribution channels in the US.

• 56:47Ben Gilbert?

  I'm really curious if the Eli Lilly folks would agree with that characterization. I know you read that great history of Novo Nordisk book, and I'm sure that's the way it paints it. But at some point, we should dig into Eli Lilly a little more and see if that's how they think about it, too.

• 56:59David Rosenthal?

  Yeah, well, that is going to change in a big way in the 1980s. But during this post-war period, at least that's how Kurt Jacobson's book makes it sound. And we got to give Kurt a big shout out. And he wrote this great history of Novo Nordisk that just came out last year for the company's 100th anniversary. Unfortunately, you can't buy it in America. So I emailed him a couple of months ago and I said, Kurt, is there any way we could buy a copy of your book? And very, very graciously, he just sent it to us. So very, very kind. Thank you, Kurt.

• 57:31Ben Gilbert?

  Yep.

• 57:32David Rosenthal?

  So this is basically the way things stay for the post-war era up until the 1980s. Novo follows up lentil insulin in the 1970s with MC insulin or non-immunogen monocomponent insulin, which is the first 100% pure, zero antibody potential insulin. That also becomes the kind of new widely accepted best product in the market internationally.

• 58:01David Rosenthal?

  So this is the general state of play after the war. Novo is now a scaled pharmaceutical company. Nordisk is mostly in rough shape. You know, if production capacity has gone down to basically zero, you know, minimal at this point in time. They have resumed the licensing business and eventually they do get back payments from all the allied countries that they were owed during the war. So, you know, they're not like insolvent or anything, but they're the much, much smaller company. Now, Novo, interestingly, they're now a large pharmaceutical company. They want to add a second leg of the stool, a new business line.

• 58:45David Rosenthal?

  So they get into the enzymes business. This is like laundry detergent enzymes and other industrial uses. They add that on alongside the insulin and diabetes business. And, you know, that's all well and good to be a diversified, you know, industrial conglomerate, except the enzyme business is both capital intensive and not that profitable.

• 59:12Ben Gilbert?

  Those don't mix well.

• 59:13David Rosenthal?

  Yeah, those don't tend to mix well. Now, it's still a viable business. It actually stays part of Novo and then Novo Nordisk all the way until the year 2000, when it gets spun out.

• 59:23Ben Gilbert?

  Oh, is this Novozymes?

• 59:25David Rosenthal?

  This is Novozymes, yes. It is still a majority controlled by Novo Holdings, which is the holding company of the Novo Nordisk Foundation.

• 59:33Ben Gilbert?

  Interesting. So just like Novo Nordisk is majority controlled by the foundation's holding company, Novozymes still is also.

• 59:40David Rosenthal?

  Novozymes as well. But when we get to the 1970s, right as MC insulin is coming online and Novo needs to undertake a huge amount of CapEx to redo its production lines and expand them around the world. The enzyme market crashes. And so this enzyme business that they tried to add as like a diversification and hedge to the company and expansion, all of a sudden it's bleeding cash and they don't have enough capital resources to do the capex upgrades that they need for the main business in insulin.

• 1:00:17Ben Gilbert?

  Oh, interesting. If only they had a cash rich partner without a lot of capex needs.

• 1:00:24David Rosenthal?

  Goodness, if only there were such a natural partner right down the street that, you know, it might make sense, maybe they could merge with. So here we are in the early 1970s. Novo approaches the old bitter rival, Nordisk. And here's the situation, you know, this is a perfect marriage. Let's get the band back together, you know, everybody's basically dead at this point from the original days. Let's let bygones be bygones. And Nordisk, they've just gone through a pretty rocky succession period after Hagadorn retired. They're now on their third CEO in seven years.

• 1:01:06David Rosenthal?

  And the new CEO, Henry Brenham, he isn't from the pharma industry at all. He's not a scientist. He was previously the head of a lumber company. So this merger makes perfect sense.

• 1:01:18Ben Gilbert?

  Huh. But they don't merge for another decade and a half. So what went wrong?

• 1:01:22David Rosenthal?

  It's not what happens. So instead, contrary to all sort of what you would think on paper, the new CEO Brenham actually turns out to be like an amazing leader and CEO.

• 1:01:37Ben Gilbert?

  The lumber guy.

• 1:01:38David Rosenthal?

  For Nordisk, the lumber guy.

• 1:01:39Ben Gilbert?

  Huh.

• 1:01:40David Rosenthal?

  He is like the wartime CEO for Nordisk. He rejects Novo's overtures to merge. And then he goes and convinces the board, both of the operating company Nordisk and the foundation, that this new MC insulin generation, which remember Novo innovated, that this actually represents a golden opportunity for Nordisk to get back in the game.

• 1:02:06David Rosenthal?

  Because it's going to be a complete reset of all the insulins on the market, whether they're fast acting or long lasting insulins, they're all going to move over to this MC highly purified method and type of insulin. But Novo's in this spot where they're going to be delayed for several years in making the transition in their actual factories because they don't have the CapEx.

• 1:02:32Ben Gilbert?

  So it's like they're coming to us hat in hand, why don't we just put the pedal down now that we realize we have the advantage and press?

• 1:02:39David Rosenthal?

  So Brenham convinces the board that rather than merging, they should use their capital reserves to rebuild up Nordisk's own production capacity. Go hire a global sales force. Brenham's, he's really ambitious. He says, we're going to go enter America directly as this like forgotten, you know, Nordisk company. So he goes and hires a global sales force because he knows Eli Lilly is going to have the same dynamics as Novo. Like everything's going to have to shift over to MC and Eli Lilly's this, you know, big, large diversified giant. They're not going to move as fast as he thinks Nordisk can.

• 1:03:25David Rosenthal?

  And even though it's unrealistic that Nordisk is going to overtake Eli Lilly in America, if they can get even a small percentage of the American market, that's huge. Nordisk is a small company and America is by far the largest market for diabetes in the world.

• 1:03:41Ben Gilbert?

  Well, and you got to remember too, in the seventies, there was still kind of a functioning healthcare market. There wasn't massive consolidation yet. And so every level was super fragmented. Manufacturers were fragmented. Insurance companies were smaller. Little doctors offices existed everywhere. Neighborhood pharmacies were there. And so entering the American market, you didn't necessarily need huge scale to do it. And the other thing to note is it wasn't yet the heyday of drugs, like of pharma. There weren't that many drugs that people had high demand for. It wasn't like today where, you know, everywhere you look, there's some amazing drug that could save your life, depending on what conditions you have that are on TV commercials. The federal government with, and we'll get into this later, but Medicare Part D

• 1:04:26Ben Gilbert?

  wasn't even a thing yet. Drugs were not plentiful enough and good enough yet for the government to cover them as an insurance benefit for people over 65. That's the era we're in where if Nordisk wants to enter the American market, they kind of can without too many barriers.

• 1:04:45David Rosenthal?

  Yeah, this is the right window. So I don't know how Brenham convinced both boards to do this, but he does. And like, by God, he's right. It works. So for the entire decade of the 1970s, Nordisk's sales grow at 30% compounded annually, which is amazing.

• 1:05:08Ben Gilbert?

  Wow.

• 1:05:09David Rosenthal?

  Now they're still small. So by 1980, Nordisk is still only about 1/10 the size of Novo overall, but they're 1/3 the size of Novo's insulin business. And they've moved from being this licensing company to now an actual production company with capacity all around the world. So this is a huge win from like, basically, they were going to be taken over for cash by their old rivals. And now they're back in the game. So Novo, in response, they need to do something to get capital. They actually do a small IPO on the Copenhagen Stock Exchange in 1974 to raise the capital they need for the transition to MC Insulin.

• 1:05:53David Rosenthal?

  So by the time we get to 1980, and just to set some scale here, Novo's annual global insulin sales, this is Novo, they're still much larger. They're about $100 million annually and Nordisk's are about 30 million annually. That makes them the number two and number four producers in the world by market share behind Eli Lilly in America, who's first with about 160 million in sales.

• 1:06:21Ben Gilbert?

  By the way, these numbers are staggeringly small. These are like Series C startup.

• 1:06:25David Rosenthal?

  And this is exactly my point. So you might be wondering like, wait a minute. If you add all that up, the whole global insulin market is about half a billion dollars here in 1980. And that's not exactly tiny. And like you were saying, You know, the drug markets themselves weren't that huge back in this era. But what is the path from here to Novo Nordisk today being the 15th largest company in the world? Like, what gives? What happened?

• 1:06:53Ben Gilbert?

  Yeah, just look at pictures of people in the 70s and look at pictures of people today.

• 1:06:57David Rosenthal?

  Yes, the answer is, one, what you just said. We all got fat and the diabetes market and specifically type 2 diabetes exploded. But two, and this is going to be such a fun story to tell here on Acquired because it's a huge part of Silicon Valley history that we've never touched.

• 1:07:16Ben Gilbert?

  Yes, Genentech.

• 1:07:18David Rosenthal?

  Two, Genentech happened.

• 1:07:21Ben Gilbert?

  Oh, yes.

• 1:07:22David Rosenthal?

  Which totally revolutionized everything, launched the biotech market, made drug development and production vastly more scalable. And it all happened right here in San Francisco, venture backed by Kleiner Perkins. And it changed everything.

• 1:07:40Ben Gilbert?

  Former Kleiner Perkins employee.

• 1:07:42David Rosenthal?

  Yeah, was a co-founder of the company.

• 1:07:45Ben Gilbert?

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• 1:07:59David Rosenthal?

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• 1:08:13Ben Gilbert?

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• 1:08:23David Rosenthal?

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• 1:08:40Ben Gilbert?

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• 1:08:57David Rosenthal?

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• 1:09:13Ben Gilbert?

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• 1:09:22David Rosenthal?

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• 1:09:33Ben Gilbert?

  Okay, so David, the 80s are here. For some reason, in the early 80s, the world starts becoming more overweight, addictive foods being the cause of this.

• 1:09:43David Rosenthal?

  Yes, more metabolically unhealthy.

• 1:09:46Ben Gilbert?

  Correct.

• 1:09:47David Rosenthal?

  And just to put some numbers on that, the number of type 2 diabetes patients quadruples from 1980 to 2016.

• 1:09:56Ben Gilbert?

  Yeah, and population growth was a lot slower than that. So definitely the share of the population is massively expanding. And at this point in time, we are still using pigs and cows to harvest pancreases and their islets and their extracts in order to make insulin, even with this incredibly refined process, until Genentech.

• 1:10:18David Rosenthal?

  Yes, and specifically what that meant using animals to make insulin was that type 2 was not treated with insulin. And actually, until this point in time, type 2 used to be called, quote, "non-insulin-dependent diabetes", because you didn't treat it with insulin, because there wasn't enough insulin, there weren't enough animal pancreases in the world to do it.

• 1:10:40Ben Gilbert?

  Oh, I had no idea.

• 1:10:42David Rosenthal?

  And it wasn't necessarily that insulin didn't help type 2. I mean, lots and lots of type 2 diabetics these days use insulin. It was that there just wasn't enough of it.

• 1:10:53Ben Gilbert?

  Wow.

• 1:10:54David Rosenthal?

  And then in 1980, Genentech and Eli Lilly, as their partner, changed everything with recombinant DNA and genetic engineering of drugs. And I suspect many people don't know this. I sort of vaguely knew this before researching the episode, but the first drug that they genetically engineered and that started this whole revolution was insulin.

• 1:11:23Ben Gilbert?

  Absolutely. It was the founding first application of the idea that Genentech had of commercializing recombinant DNA. The first implementation was insulin. And to just paint a little bit of a picture of why this is so amazing, it's not just that we now had a way to not rely on animal pancreases. It's that for the first time, we actually had human insulin. It is insulin that is chemically identical to the insulin that naturally is produced by your body, rather than injecting something slightly different, you know, from a pig or cow.

• 1:11:55David Rosenthal?

  Yes, because you couldn't really extract human insulin from, you know, humans before this point. And people thought that human insulin would be a lot better to use than animal insulin. It turns out that that's debatable.

• 1:12:13Ben Gilbert?

  Yeah, it's interesting that this ended up being more of a manufacturing and scale advantage than an efficacy advantage.

• 1:12:19David Rosenthal?

  Yes, but at the time, nobody really knew that. So in 1980, which is when Genentech and Eli Lilly announced their partnership together, that Eli Lilly is going to be the go-to-market partner for Genentech's new recombinant DNA bioengineering revolution, and they're going to make human insulin. They announced that in 1980. People go nuts and it triggers this race for human insulin.

• 1:12:50David Rosenthal?

  And Novo gets swept up in it. They're like, oh no, Eli Lilly, they're going to come back into the research game. They're going to innovate in product. We had the chance to work with Genentech. Genentech had actually approached them about being a partner in Europe. Novo had turned them down because they didn't think the science was ready yet and they were wrong. So they're like, shoot, we got to scramble. They find a team of Japanese researchers who have shown that you can actually chemically modify pig insulin to make it chemically identical to human insulin.

• 1:13:24Ben Gilbert?

  What? Really?

• 1:13:25David Rosenthal?

  Yeah, you can't make this stuff up. So Novo is like, great, we're going to race to market. We're going to beat Eli Lilly with human insulin. It's not going to be genetically engineered. We're just going to take our pig insulin and modify it. It turns out to be a huge boondoggle. You know, it works, but it's not any better than pig insulin. So it's a big flop for Novo.

• 1:13:48Ben Gilbert?

  Which the timing lines up to really be a nail in the coffin for them. I mean, if this is right after everything you just described with Nordisk scaling up production and compounding at 30% per year and massively growing share, like this is not a good use of Novo's precious dollars right now.

• 1:14:06David Rosenthal?

  Well, it's funny you say that. So when the Genentech and Eli Lilly announcement happened in 1980, I mean, truly, this was a bombshell. It's hard to remember now. I mean, we weren't even alive, but this was one of, if not the most important announcement to come out of Silicon Valley ever, still to this day. Investors went nuts. Anything that even you could squint and look like a biotech was suddenly the hottest thing in the world. So Genentech goes public in the fall of 1980. This is well before Humulin, you know, the product that they create with Eli

• 1:14:48David Rosenthal?

  Lilly comes on the market. They go public and it is, I believe, the largest venture backed IPO ever at that time, until it's eclipsed two months later when Apple goes public.

• 1:15:03David Rosenthal?

  But investors are just mad for biotech companies. So when Novo announces that they're going to be first to market with human insulin. And like, yeah, yeah, just ignore that. It's actually pig insulin that we're modifying. They use the hype on the back of that to do a US IPO with Goldman Sachs and raise $100 million.

• 1:15:26Ben Gilbert?

  When your currency is expensive, sell it.

• 1:15:29David Rosenthal?

  Right? There are a number of analogies that we could make from the past few years that I'll refrain from here. So as you say, is this a nail in the coffin for Novo? You know, I mean, it's not good for the underlying business. Nordisk, meanwhile, remember they're in the midst of this aggressive expansion plan and scaling based on MC insulin. They're like, you know, I don't know that human insulin in and of itself is all that much more effective. We're going to take a wait and see approach. We are going to invest in building up our recombinant DNA and genetic engineering capabilities, because it's clear the whole industry is moving this way for production reasons, if nothing else.

• 1:16:13David Rosenthal?

  And Novo is doing this too in the background. But Nordisk, like, we're not going to get caught up in the specifically human insulin hype. And this really works out for them. So in 1984, Nordisk passes the German company Hohst to become the number three global player in insulin. Hohst, I think that's how you say it today, is part of Sanofi, the large international pharma conglomerate. And they're the only other player left besides Novo and Eli Lilly.

• 1:16:40Ben Gilbert?

  Yeah, Sanofi today, yeah, the three of those companies are essentially the entire insulin market.

• 1:16:44David Rosenthal?

  Yep. So 1984, Nordisk passes them. On the back of that, they do their own share listing on the Copenhagen Stock Exchange. So they changed the structure of the operating company. And still the foundation controls the majority of the votes. But for the first time, outside investors can hold shares in the operating company of Nordisk. And by the end of the 1980s, Nordisk is now up to 20% global market share in insulin. And that's really all come at the expense of Novo, which is down to 30% global market share.

• 1:17:22Ben Gilbert?

  Whoa, so they're close to matching them.

• 1:17:24David Rosenthal?

  Yeah, they're pretty close. And this brings us finally to the summer of 1988.

• 1:17:31David Rosenthal?

  When merger discussions begin for real between these two companies now on much more equal footing than the last time.

• 1:17:39Ben Gilbert?

  Interesting.

• 1:17:40David Rosenthal?

  And this time, there actually is a really compelling reason for both of them to merge and combine scale, which wasn't true before when it was really just like, hey, Novo had a problem and needed cash. Now with genetic engineering and the way the whole industry is headed, scale is becoming much more important. It takes huge CapEx to do this stuff.

• 1:18:05Ben Gilbert?

  And scale becomes important for R and D. Scale becomes important for trials and approval. Scale becomes important for negotiating with actually getting the product sold. Scale becomes important for everything in healthcare, starting around this time, the late 80s, early 90s, and obviously went nuts till today.

• 1:18:24David Rosenthal?

  And a big part of it is the production and infrastructure side of things. But the other part is the go to market. Pharma kind of almost becomes like the enterprise software industry. Like, at the end of the day, there only are a few companies at scale that have the infrastructure and the go to market to operate in like, yes, you can build a big company on top of or underneath Microsoft or Oracle or Amazon or Salesforce or Google, but they're the ones with the infrastructure, they're the ones with the channels.

• 1:18:57Ben Gilbert?

  Yeah, it's an interesting analogy. I hadn't thought of it that way. Yeah, this is a good place to try to understand the pharma value chain as it exists today. I think first off, we should say you basically can't. I'm actually not sure there's a human who can hold all of it in their head. And we won't promise to make this comprehensive, but it is worth knowing a few key concepts and the players involved. And I should say, this whole thing only applies to the US market, which many of you listening in other places will be laughing and saying like, why is this so complicated? But yes, this is how the US market functions. So I wrote a sentence, David, that I thought would be a fun way to break it down. And that simple sentence is, a patient buys a drug.

• 1:19:39Ben Gilbert?

  But really, actually, that's not how it works.

• 1:19:41David Rosenthal?

  It's like a butterfly flaps its wings.

• 1:19:43Ben Gilbert?

  A person doesn't merely buy a drug. So let's actually name all the parties, starting with the manufacturer. A manufacturer like Novo Nordisk develops a drug. They sell it to distributors like McKesson or Cardinal Health, who then sell the drug to pharmacies like CVS or your local neighborhood store. The pharmacy then charges a price at the window to a customer. So so far, there's nothing different about how this is working from any retail supply chain. But here's where it gets weird. In healthcare, when a consumer goes up to the pharmacy window, they typically don't pay their own money for the price that the pharmacy actually puts on the register. Their insurance company does.

• 1:20:26Ben Gilbert?

  Well, the insurance company doesn't want to pay whatever price the pharma manufacturer picked for their drug. And they have huge scale to throw around, so they go negotiate with the pharma manufacturer to try to get some kind of discounted rate. But rather than do that themselves, insurance companies outsource that task to a new type of company called a pharmacy benefits manager, or a PBM. The PBM negotiates with the pharma company for a discount, often in the form of a rebate that the pharma company pays back to the PBM. They then take that discount. They keep some of it for themselves and then they pass some of it back to the insurance company, who can then choose to share it with the employer in some way.

• 1:21:07Ben Gilbert?

  And as you can imagine, when there are this many middlemen in a transaction.

• 1:21:12David Rosenthal?

  Yeah, so that's what, four middlemen, Sarah?

• 1:21:15Ben Gilbert?

  The PBM, the insurance company, the distributor, and for some reason, employers are involved.

• 1:21:20David Rosenthal?

  So we're talking about a six-sided market.

• 1:21:24Ben Gilbert?

  Well, I don't think it's a sided market. There's two good diagrams that I found in the research that we'll put on the acquired Twitter account and the Threads account to kind of get access to these visuals that I think are pretty good illustrations of the way the dollars flow and the way the product flows. But you can imagine when there are this many middlemen in a transaction, it's really hard to have a functioning market. To actually interpret demand signals and have them clearly flow all the way upstream and for the end consumer to really be treated as the customer versus just like a statistic in a large aggregated basket, we've sort of lost the plot in being able to actually have a functioning free market. But anyways, I want to do a little dive into each of the

• 1:22:05Ben Gilbert?

  parties to understand what they do. The drug manufacturers, like Novo Nordisk, do all the R and D and they do all the production. They also own the responsibility of the clinical trial. So they work with partners to do this, but proving that the drug is safe and efficacious is up to them. There's the distributor wholesaler that does exactly what you think they do. They buy all the drugs from all the pharma manufacturers. They warehouse and distribute them. They actually do take risk. When I say they buy, they actually do buy them and hold them and they end up distributing them to the pharmacies. Pharmacies do exactly what you think they do. Those companies have gotten merged into PBMs in some cases. And so it's,

• 1:22:46Ben Gilbert?

  you know, thinking of CVS as just CVS is not really right anymore. It's CVS Caremark. So they're sort of with a PBM. There's the Walgreens Boots Alliance, which is the way they named it is sort of all you need to know. So the way to think about pharmacies is that there are a few big ones and that is kind of what matters, even though there are many people interested in keeping a thriving, independent set of pharmacies out there. Then there's the PBM. So why does the PBM exist? The Pharmacy Benefits Manager? That's a good question. Yeah. Well, in the old days, there are lots of drug companies and lots of insurance carriers. And so it would be nice if every little insurance company or every employer

• 1:23:27Ben Gilbert?

  didn't have to go negotiate directly with every drug company to get all the best prices. So PBMs provided value by doing that on everyone's behalf. PBMs created what's called a formulary, which is basically a big ledger, a big list of drugs and the prices. And obviously today, that is less necessary because there's less fragmentation, given all the mergers that have happened. But the PBMs still establish themselves as a key sort of immovable piece of this puzzle. So are they sort of like agents? Is that the right way to think about them? Agent implies that the principal can sort of make a decision to go elsewhere. You're not going elsewhere.

• 1:24:09David Rosenthal?

  Ah, the PBMs are the ones actually setting the prices.

• 1:24:13Ben Gilbert?

  Well, that's the key question. So maybe a little more context on PBMs and then let's try to answer your question, David. So, one, they're huge. PBMs manage pharmacy benefits for 266 million Americans, and that number's old. That's as of 2016. So think about like basically all Americans get their prescription drugs through a PBM. Despite there used to be hundreds of PBMs, there's now fewer than 30, and there's essentially three that cover about 80% of the market, and those are Express Scripps, CVS Caremark, and OptumRx, which is actually owned by United Health Group. So, interesting to know that Caremark, that PBM, is corporately bundled with CVS, a pharmacy, but OptumRx, corporately bundled with an insurance provider.

• 1:24:55David Rosenthal?

  So there's vertical integration happening here, too.

• 1:24:57Ben Gilbert?

  Yes. So if you want to be a little bit cynical about it, you could say they've really become kind of the gatekeeper for consumers getting access to drugs, since a doctor's not going to prescribe a drug if only two of the three big PBMs have it on a negotiated agreement there. So each PBM individually has control, or almost like a veto. If a PBM says, "Well, we're not going to work with that drug or that drug manufacturer," doctors aren't going to keep a big list in their head of what insurance companies work with what PBMs that have what drugs. So, as a pharma company, you kind of need all three big PBMs to come to some terms with you, to be on their formulary and handle the reimbursement for your drug. So, one other way you can kind of think about it is, a PBM is sort

• 1:25:41Ben Gilbert?

  of like a health insurance company, but they just do it for the pharmaceutical benefit and not all the other stuff that the health insurance companies do. So, you talked about prices. A major mechanism for the way that these prices are negotiated and set is the rebate mechanism that the PBM negotiates. So manufacturers...

• 1:26:01Ben Gilbert?

  Usually have to pay the PBM a rebate, which lowers the net price of the drug, even though the list price stays the same. So there's a sticker price, but then there's a rebate that, you know, once the PBM pays the sticker price, actually, the drug manufacturer.

• 1:26:19David Rosenthal?

  How does any of this get past the DOJ?

• 1:26:23Ben Gilbert?

  Great question. So initially, the rebates worked well for drug manufacturers, since there were a lot of PBMs and they could negotiate. But now that there are three big PBMs, the pharma manufacturers have essentially lost all their leverage in most cases. I'll say in most cases, and we should come back later to what are the exceptions. So rebates are extremely high. Eli Lilly has publicly claimed that the cost of these discounts and rebates accounted for 75% of the sticker price of insulin. If you're getting a rebate on 75% of the total price, the sticker price is not the price.

• 1:26:57David Rosenthal?

  Wow. Wait, so who gets the rebates? Is it the PBMs themselves or the consumers?

• 1:27:03Ben Gilbert?

  Well, PBMs say that they tend to pass most of the rebate along to the healthcare plan.

• 1:27:10David Rosenthal?

  Yeah, consumers are far away from any of this.

• 1:27:13Ben Gilbert?

  And the healthcare plan says they share it in some fashion with the employer in some part of their agreement to be the healthcare provider, the insurance provider for the employer. But this is a quagmire of a debate that is out of scope for this episode. And my favorite quote from one source that we talked to described rebates as a game of hide the sausage.

• 1:27:36David Rosenthal?

  Gosh, wow.

• 1:27:37Ben Gilbert?

  But yes, you're right, David. Nowhere in there did I say, oh, the patient gets the rebate. You can see how demand signals from patient and actual sort of clearing prices of a patient and what they're willing to pay for a drug, all that signal just gets lost in all of this middleman mania.

• 1:27:55David Rosenthal?

  Wow.

• 1:27:56Ben Gilbert?

  So that is the current state of what happens when many people or most people go and fill a prescription.

• 1:28:07David Rosenthal?

  So bringing it back to when the Novo Nordisk merger finally happens, this is the background on the go to market side, at least in the US. And then there's also the background on the infrastructure side, thanks to genetic engineering, where like, scale now really matters. And both companies are now on much more of an even footing. So in January 1989, the Novo Nordisk merger is finally announced. And it's a dual merger of both the operating companies and their respective foundations. So the two foundations merged into one and the two operating companies merged into one as well.

• 1:28:53David Rosenthal?

  And I had to dig a bit to figure out the exact economic splits. I believe that the final ratio was 62% Novo and 38% Nordisk. So Novo is still the kind of larger majority institution here, but this is a far cry from when discussions first started 10 years ago and Nordisk was this little, you know, hey, we're buying you for cash, essentially. No, now it's like, this is really a 60-40 merger.

• 1:29:22Ben Gilbert?

  It's crazy. The two guys that split off and went to be cowboys and start their own little competitor, even though they didn't have the license, ended up creating the bigger company.

• 1:29:30David Rosenthal?

  Yeah, wild. And they drove each other to create all of this innovation over the years. So the new combined company has roughly $1 billion in insulin revenue and 50%, 5-0%, global market share with Eli Lilly just behind at 45% and Hosh at 5%. That kind of tells you right there how much the market has grown just during the decade of the 1980s. You know, that puts the total market size at roughly around $2 billion for insulin. 10 years ago, the total market size was 500 million.

• 1:30:06Ben Gilbert?

  Wow.

• 1:30:07David Rosenthal?

  Yeah. Wow. The enzyme and other businesses within Novo, they stay with the company for now. They would get spun out later in the year 2000 and that contributes another roughly half a billion in revenue, but with lower margins, as we talked about. The Novo CEO and Henry Brenham from the Nordisk side, they remain as co-CEOs for the next couple of years. And Brenham notes that they are still a dwarf compared to the increasingly consolidated pharma market out there. But we are, quote, "a specialized dwarf that will probably create a certain furor on the global stage."

• 1:30:46David Rosenthal?

  And what they're referencing here is, as we were talking about, this is the era when just huge pharma mergers start happening. So Glaxo and Welcome merge around this time, Astra and Zeneca merge around this time, Sanofi buys Horsch. You know, these are all multi-multi-billion dollar, tens of billions of dollar transactions. That makes Novo and Nordisk look kind of like small potatoes at the time. And actually, Wall Street and the investment community believes that this is really just the first step. That this is Novo and Nordisk and, you know, the leading insulin business in the world sort of preparing itself

• 1:31:28David Rosenthal?

  for a further merger or sale into one of these new diversified global pharma conglomerates. And actually, this is crazy to think about in retrospect, but Novo Nordisk management agrees with that. That's actually their plan. Like, there's no rush here, but they think that they do need to merge into a larger organization.

• 1:31:55Ben Gilbert?

  So they think the writing is on the wall where we need scale in order to function in this changing marketplace. And so we're going to merge in. And what they didn't realize was that the market that they were on top of would actually sadly be a tailwind that gets them to scale without merging with anyone else.

• 1:32:14David Rosenthal?

  Yes. Basically, all throughout the decade of the 1990s and into the 2000s, management is in constant merger or sale negotiations with one of these big pharma giants or another. And Kind of luckily, none of them come to fruition. And in the meantime, without anyone, including them, really noticing, the combined company just keeps compounding on these tailwinds of the expansion of the insulin market and insulin treatment of type 2 diabetics and all the supply that's unleashed by genetic engineering. So revenue and profit compound again at like 20%, sometimes 20% plus annually

• 1:32:58David Rosenthal?

  for like 15 years there. They're firing on all cylinders. In the year 2000, they sign a huge deal with Walmart. They land a supply agreement with the VA hospital system for the first time, the Veterans Affairs Hospital System in the US, which is enormous. And so by the end of 2003, annual revenue for the company is now over $4 billion. And that's pretty much just on insulin alone. Remember, they've spun out Novozymes. All the subscale pharma businesses that Novo had are all gone. And that's when management finally decides to sell the company.

• 1:33:36Ben Gilbert?

  Ba na na.

• 1:33:37David Rosenthal?

  Ba na na. So in 2004, they have a deal on the table to combine with the Swiss company, Sirono. Management is bought in. They've got the operating company board bought in. They're ready to do it. They just need to go get approval from the foundation board.

• 1:33:53Ben Gilbert?

  Which is the only shareholder that matters.

• 1:33:55David Rosenthal?

  But there's never been a conflict between the foundation board and the management board. Like, everybody's always been aligned here.

• 1:34:03Ben Gilbert?

  But this is like the whole C-suite of Meta deciding to sell the company to Apple. And then they just have to go get Zuckerberg's approval to do it. It's literally that scenario.

• 1:34:15David Rosenthal?

  Yes. And there's a clause in the foundation's agreement with the company that there must be a, quote, "convincing business argument" from the company's board of directors to the foundation board of directors, that any merger or sale is a necessary precondition for the business to maintain and expand its position as a competitive business at the international level. Now in management's eyes, like we've just been talking about, there's so much consolidation happening in the industry. Like, of course, it is a necessary precondition, given everything going on, that we need to get to a larger scale. And so that's why we have, after 10-plus years, finally found the right deal. So they go to the foundation board, expecting that

• 1:34:59David Rosenthal?

  everybody's gonna see the light and just agree here. And the foundation board is like, "Yeah, I mean, I hear what you're saying, but have you looked at our revenue and profit growth over the last 15 years? Are you really telling me that we need to do this in order to maintain and expand our position as a competitive business? Are you really, really telling me that?" And management's like, "Yes. Isn't this what we've been working to? Why did we spin off the enzyme business? Why did we do all this if we weren't just preparing for a sale?" And the foundation board is like, "Uh, how about you come in and present to us with your financial advisors?"

• 1:35:40Ben Gilbert?

  My rubber stamp's feeling like it's not working right now. I'm not sure.

• 1:35:43David Rosenthal?

  Yeah. Oh, my daughter loves to say when something doesn't go her way these days, she says, "Not working." Foundation board is like, "Not working."

• 1:35:55David Rosenthal?

  So what ensues, management comes in, they present in two board meetings, first in August 2004, and then a second one in September, where they get a do-over, and they fail to convince the foundation board. So they block the merger. This is like the opposite of what happened at OpenAI, where like, the foundation here is saying like, "No, you must continue as an independent commercial entity."

• 1:36:21Ben Gilbert?

  It's a fascinating analog. And this is, I think, one thing that makes this company really, really unique. But for having foundation control with a very specific charter and mission, this company gets rolled up.

• 1:36:34David Rosenthal?

  Absolutely. 100% chance, if this ownership structure were not in place, we would not be doing this episode today.

• 1:36:41Ben Gilbert?

  And I don't exactly know what the deal terms were, but basically, in public company land, if anybody comes to you and offers you 25 to 30% higher than your shares are currently trading, congratulations, they get to own your company. And that didn't happen.

• 1:36:55David Rosenthal?

  That didn't happen here. Which turns out to be, unbeknownst to pretty much anyone at the time, and I'm sure not even the foundation board, a very prescient decision.

• 1:37:07David Rosenthal?

  Because there is a small group of researchers within Novo Nordisk, led by a woman named Lata Bieranudsen, who is working on a pretty incredible project that is showing a lot of promise. And that would be GLP-1 agonist drugs.

• 1:37:30Ben Gilbert?

  That is a mouthful, David.

• 1:37:32David Rosenthal?

  That it is, but I'm pretty sure many of you know what that term means. Or even if you don't, you've probably heard the marketing names for the current class of those drugs that Novo Nordisk has on the market, which would be Ozempic and Wegovy.

• 1:37:48Ben Gilbert?

  Or ribelsis, which just got FDA approval pretty recently.

• 1:37:52David Rosenthal?

  Yes, indeed.

• 1:37:53Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Legora, the agentic operating system that is redefining how the world's best legal teams work.

• 1:38:06David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 1:38:23Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 1:38:38David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 1:39:02Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 1:39:21David Rosenthal?

  And Ligora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Ligora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Ligora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 1:39:51Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at ligora.com/acquired and just tell them that Ben and David sent you. So David, glucagon-like peptide 1 receptor agonist. What is it and where did it come from?

• 1:40:25David Rosenthal?

  Well, it really is the story of Lata Bieranudson. She started at Novo in 1989, the same year the merger happened, right out of undergrad as a scientist, actually in the enzyme division, which I didn't realize until you sent me an article last night, I think, about this.

• 1:40:44Ben Gilbert?

  Yeah, remarkably, there is this paper, I guess it's a paper, called Inventing Lyroglutide: A Glucogen-Like Peptide 1 Analog for the Treatment of Diabetes and Obesity, that was published in 2019, but it is a first-person account by Lata of the entire journey and her career and how all the research went down and where it came from, that is published in ACS Pharmacology and Translational Science, publicly available to everyone. Like, she has just told the story and it's very academic scientifically written, but it's super cool that she's the hero of this story and sort of got to write how it all went down.

• 1:41:20David Rosenthal?

  Yeah, super cool. We'll link to it in the sources.

• 1:41:22Ben Gilbert?

  Yep.

• 1:41:24David Rosenthal?

  So eventually, after a couple of years, she switches from the enzyme division to the diabetes business. And specifically, remember, this is not long after the genetic engineering revolution has happened. She gets put on the team that is screening new potential compounds that they could create for treatment of type 2 diabetes. Right around this same time, oral antidiabetic medications are becoming a big thing in the market. So these are drugs like metformin, if you've ever heard of that, that's the most commonly used one for type 2 diabetics. They're kind of like the first line of defense for type 2 diabetes before you progress to insulin treatments.

• 1:42:06David Rosenthal?

  And Novo doesn't have a drug in this category. Despite being like the insulin leader, Novo and Novo Nordisk never had a viable oral antidiabetic. So LATA is part of this group that's looking for new candidates. So in the early to mid 90s, LATA starts digging into the academic research and there's new work coming out that in type 2 patients, a big part of the mechanism that messes with actual insulin production is a hormone called glucagon-like peptide 1 or GLP-1, as you were talking about. And the thought is that if you could somehow get more GLP-1 into these patients' bodies,

• 1:42:50David Rosenthal?

  you could stabilize their insulin production and thus treat the disease. Seems pretty straightforward. You could imagine that you could now just use the same recombinant DNA techniques to genetically engineer more GLP-1, just like you engineer human insulin, no big deal.

• 1:43:07Ben Gilbert?

  Seems pretty straightforward. In fact, why don't you just go eat some GLP-1? Just get it into your body however you want and I'm sure it'll work out.

• 1:43:15David Rosenthal?

  Right, no big deal. Except, the problem is GLP-1 only stays active in your body for about five minutes before your body completely metabolizes it and breaks it down. So in a normal, healthy person, you're just producing GLP-1 all the time and it's regulating your insulin production, et cetera. In type 2 diabetes, that gets disrupted. You can't just put more regular human GLP-1 in the body, or it's going to go away immediately. So a whole lot of people across the industry kind of bang their heads against the wall. Nobody can figure out how to make this work. And the industry and the academic

• 1:43:55David Rosenthal?

  research community pretty much abandons it as a drug candidate. But Lata is like, if we could make it work, this would really, really help people and be a great drug. So she faces a lot of pressure inside the company, outside the company. Why are you still hanging on to this? Why are you still pursuing this path? And then finally, a few years later, in the mid 90s, management actually gives her an ultimatum. And they're like, you either need to crack this and get an actual drug candidate in the pipeline within a year, or we're going to shut down this whole program. And remember, this is even like Novo Nordisk,

• 1:44:34David Rosenthal?

  the world-class, most focused on pure play diabetes research company in the world. And even they are like, yeah, we're almost ready to abandon this whole thing.

• 1:44:46Ben Gilbert?

  Crazy. What year is this?

• 1:44:48David Rosenthal?

  This is like 95, 96.

• 1:44:51Ben Gilbert?

  All right. And she's been doing research on this since like 91, I think, is when her and the team started cranking away on GLP-1 research inside Novo.

• 1:45:01David Rosenthal?

  Around that. So a few years with nothing to show for it.

• 1:45:04Ben Gilbert?

  Yep.

• 1:45:05David Rosenthal?

  So she keeps tweaking the GLP-1 molecule. And again, you can do this with recombinant DNA. You can tweak any molecule. So eventually, she develops a GLP-1 analog, analog being, you know, similar type molecule called lyroglutide, that includes a fatty acid grafted onto the molecule that helps prevent the body from breaking it down. And this is the big breakthrough. Lyroglutide ends up having a half-life in the human body of 13 hours compared to, you know, like a half-life of two and a half minutes for straight up GLP-1.

• 1:45:42Ben Gilbert?

  That'll help.

• 1:45:43David Rosenthal?

  Yeah. That satisfies management's ultimatum.

• 1:45:46Ben Gilbert?

  The mechanism by which it does this is totally fascinating. So you mentioned that the fatty acid gets attached to the GLP-1 to create this GLP-1 analog. The way it basically works is it has to bind in a very specific location such that the receptor is not blocked, but it is sort of grafted onto that molecule so they can travel together. The fatty acids then make it so the GLP-1 can bind to another protein, which I believe is pronounced albumin, which is this really large protein that is very common in the bloodstream. And so it protects the GLP-1 molecule from the degradation by enzymes and it protects it from being sort of quickly cleared in the kidney because that sort of bound molecule

• 1:46:30Ben Gilbert?

  is now too complex, too large to be filtered. So it kind of makes it like a big truck bouncing down a small highway in that the molecule is protected.

• 1:46:39David Rosenthal?

  Yeah, and I think that's how she phrases it too, when she describes it as protecting the molecule.

• 1:46:45Ben Gilbert?

  Yep, the fatty acid sort of, well, it makes it big and stick to stuff.

• 1:46:50David Rosenthal?

  Sometimes it's good to have a layer of fat around you.

• 1:46:53Ben Gilbert?

  Okay, so 13-hour half-life, you know, this liraglutide can become basically a once-a-day drug instead of an every-five-minutes drug?

• 1:47:03David Rosenthal?

  Yeah, well, I mean, eventually. But now here's the thing with this stuff. To get a whole new class of drugs to market takes a really long time. So this is a big breakthrough in kind of 97-ish timeframe, but you know, Novo's like, great, we're going to invest in this, this is promising. We'll see in a decade if we can get this to market. So they start the clinical trial path, first with animal trials for several years, then many phases of human trials, et cetera. And that brings us to 2005, when the world's first GLP-1 analog drug finally comes to market for the treatment of type 2 diabetes.

• 1:47:47David Rosenthal?

  Of course, I'm talking about the world famous, well-known Baeta from Eli Lilly.

• 1:47:53Ben Gilbert?

  Ba-dah. Not a Novo drug, not from Latta's work, and developed in a completely parallel way.

• 1:48:02David Rosenthal?

  Not Ozempic, not Victoza, not Wegovy, something completely different. This might be the most random occurrence that we've ever had on acquired.

• 1:48:13Ben Gilbert?

  David, if I called you and said, "Ship me a lizard, this is important," would you do it?

• 1:48:19David Rosenthal?

  Knowing this context, I would actually say yes. An actual lizard.

• 1:48:23Ben Gilbert?

  Is that where you're going?

• 1:48:24David Rosenthal?

  Yes.

• 1:48:24Ben Gilbert?

  Yes. Okay, great.

• 1:48:26David Rosenthal?

  So during this time, in parallel to Latta's work at Novo, two American researchers in the VA hospital system, the Veterans Affairs Hospital system.

• 1:48:37Ben Gilbert?

  Government employees.

• 1:48:38David Rosenthal?

  Government employees somehow discovered that a hormone contained in the venom of the Gila monster lizard, literally the lizard, call it the Gila monster, which has poisonous venom. One of the hormones in its venom also was a GLP-1 analog, acted similarly to GLP-1 in the body, and didn't break down within five minutes.

• 1:49:06Ben Gilbert?

  David, go get that poisonous lizard venom. Take all the poison out and inject it into me, please. That's what I'm asking you to do. Let's see if that works. I just, I have no idea how this got proposed and why people thought this was a good idea, but like, incredible that it worked.

• 1:49:20David Rosenthal?

  Incredible.

• 1:49:21Ben Gilbert?

  So in 1995, Daniel Drucker had a lizard shipped from Utah to his lab, and he started experimenting with the deadly venom. David, aside from the research done at the VA, do you know where Daniel Drucker was a researcher?

• 1:49:37David Rosenthal?

  Ooh. Well, I know one of the scientists at the VA was a guy named John Eng, and I believe he was at the VA Hospital in the Bronx.

• 1:49:46Ben Gilbert?

  I'll give you a hint. Daniel Drucker was not a researcher at the VA. He was at a university.

• 1:49:52David Rosenthal?

  Ooh.

• 1:49:53Ben Gilbert?

  Daniel Drucker, and I believe still to this day, was a researcher at the University of Toronto.

• 1:50:00David Rosenthal?

  Oh, amazing.

• 1:50:02Ben Gilbert?

  Yep.

• 1:50:03David Rosenthal?

  It comes full circle.

• 1:50:04Ben Gilbert?

  And he owns the domain glucagon.com to establish some extra credibility.

• 1:50:09David Rosenthal?

  I love it.

• 1:50:11Ben Gilbert?

  Yeah, so it seems best I can tell that there were sort of parallel research efforts being done on the early GLP-1 and sort of place to find GLP-1 in the world to eventually turn it into a product.

• 1:50:24David Rosenthal?

  The naturally occurring GLP-1 analog.

• 1:50:27Ben Gilbert?

  Yes.

• 1:50:28David Rosenthal?

  As opposed to the engineered liraglutide. It actually does become a drug candidate. They license it to Eli Lilly. Eli Lilly develops it into Bieta and Bieta hits the market in 2005. It's FDA approved and it works. It's not poisonous. It doesn't kill people and it is the world's first GLP-1 analog to come to market. But like it is effective, but it's not like overwhelmingly more effective than traditional anti-diabetic orals like metformin and the like. And more importantly, the half-life is not as good as liraglutide.

• 1:51:08David Rosenthal?

  So Bieta requires two injections per day, which, you know, if you're a type 2 diabetic and you're not yet at insulin treatments, you're like, well, I could stick with oral anti-diabetics like metformin. I could go try this new thing, but that's going to be two injections per day. Do I really want to do that versus stick with orals and then transition to insulin injections when I need it?

• 1:51:33Ben Gilbert?

  I can barely remember to take my multivitamin orally once a day. Asking anybody to do something, especially invasive, twice a day is a big behavior change.

• 1:51:41David Rosenthal?

  Big, big behavior change, totally.

• 1:51:43Ben Gilbert?

  And it's important to remember what these GLP-1 agonists are actually doing. It's just generally raising the baseline of your body's own ability to secrete insulin. It's sort of making you behave more like a person without diabetes than you otherwise would.

• 1:52:01David Rosenthal?

  Yes, correct.

• 1:52:02Ben Gilbert?

  But many people still would need insulin on top, depending how far along the spectrum you are.

• 1:52:07David Rosenthal?

  Yes. So that's 2005. So then in 2007, Lata and Novo Nordisk's lyroglutide GLP-1 agonist enters Phase 3 human clinical trials.

• 1:52:20Ben Gilbert?

  Yep. And for those who have heard these phrases before, Phase 1, Phase 2, Phase 3, and never knew what they meant, Phase 3 is the really big, really expensive one. And I'm going to quote Alex Telford, who wrote this really amazing, long blog post, sort of explaining how the clinical trial process works and why drug development has gotten so expensive and all that. We'll link to it in the show notes. It's one of my primary sources. He says, "Typically, Phase 1 trials focus on safety and finding an appropriate dose, often in healthy volunteers. Phase 2, on establishing preliminary evidence of efficacy in patients. Phase 3, on confirming efficacy in a larger sample of patients and collecting robust safety data." And it is worth pointing out, when I say the expensive one,

• 1:53:02Ben Gilbert?

  29% of all R and D for a drug is spent right here. So Phase 1 is 9%, Phase 2 is 12%, Phase 3 is 29%, with the rest of it sort of coming from that early, basic research, drug discovery, preclinical studies, and the, you know, little bit later with the regulatory review. But like, almost a third of the entire spend of the whole R and D pipeline for a drug is here. So, big freaking deal to go through a Phase 3 trial.

• 1:53:29David Rosenthal?

  And my understanding is that most drugs never make it to Phase 3. And if you make it to Phase 3, that's like, very promising. It's not automatic that you're going to get approved and it's going to work, but it's promising.

• 1:53:41Ben Gilbert?

  It's a great question. Thanks to Alex, we have the data right in front of us. So here's the probability that a preclinical study even makes it to the phases. That's 69%. So you're a little over 2/3, once you enter a preclinical study, to graduate to Phase 1, 2, and 3. But in Phase 1, 2, and 3, about half of them get weeded out each time. So 52% make it through Phase 1, 36% through Phase 2, and only 62% through Phase 3. And once you get into regulatory review, then there's a 90% chance that you get approved, but each one of these gates filters out about half of the drugs that enter.

• 1:54:14David Rosenthal?

  But I guess if you look at the like, kind of lifetime risk of approval for a drug, by the time you make it to Phase 3, you're pretty far.

• 1:54:20Ben Gilbert?

  So of the 69% that even make it into clinical development, you've got 36% left graduating Phase 1, then 13% left graduating Phase 2.

• 1:54:33Ben Gilbert?

  Then all the way at the end, 8% graduating out of Phase 3. So it gets pretty winnowed down over that course. But to your point, it's a big deal to enter Phase 3 because it shows that you are one of the 13% that have made it this far.

• 1:54:46David Rosenthal?

  Yep. Cool. Okay. So as they're in trials, and Novo knew this, but it's starting to get confirmed that one, liraglutide is going to be more effective than Bieta. Two, more importantly, it's only going to need to be injected once per day because the half-life is longer. And three, it's also now starting to be observed and confirmed in these human trials, something that Lada had noticed all the way back in the animal trial phase, that rats who were injected with very large amounts of liraglutide would stop eating. And it seemed to have an effect on appetite.

• 1:55:29David Rosenthal?

  And if these rats had very large amounts of it, they would literally starve themselves to death and refuse to eat. And this effect is persisting in humans here in the Phase 3 trials.

• 1:55:41Ben Gilbert?

  Which wasn't a guarantee because there's lots of rat behaviors that then don't replicate in human trials. And so while they were not specifically studying it in this trial, they were studying the effects on type 2 diabetes, the early reports of this might be replicating in humans was promising and surprising, but it wasn't happening to huge degrees. Like with the dosage of liraglutide that they were planning to sort of make the approved dose, it's not like you were seeing this crazy dramatic weight loss. It was just like, oh, that's interesting. You also eat a little bit less when you're on this liraglutide drug.

• 1:56:15David Rosenthal?

  But nonetheless, it's a pretty interesting thread to pull on, especially because many other anti-diabetic drugs up until this point had actually caused patients to gain weight.

• 1:56:25Ben Gilbert?

  Right. Which of course compounds the problem.

• 1:56:28David Rosenthal?

  Right. So Lada and her R and D team, they pushed Novo Nordisk to consider also pursuing a parallel FDA approval and commercialization path for the same molecule, liraglutide, as a weight management drug based on this evidence that they're seeing in the trials.

• 1:56:51Ben Gilbert?

  Which in FDA speak is an indication. You're trying to get it approved for a second indication.

• 1:56:56David Rosenthal?

  Yeah. Now, this was truly an out there idea. There is a huge, huge stigma.

• 1:57:04Ben Gilbert?

  Yes.

• 1:57:04David Rosenthal?

  Around weight loss drugs. Enormous.

• 1:57:07Ben Gilbert?

  Yes. The stigma is real, but there's also an interesting product efficacy thing here. So vox.com put it really well. They said, not only do weight loss medications have a dangerous history, but there is also a persistent bias and stigma against the disease that now afflicts nearly half of Americans. Obesity is still widely viewed as a personal responsibility problem despite scientific evidence to the contrary. And history has shown that the most effective medical interventions, such as bariatric surgery, which is stomach stapling, effectively the gold standard in treating obesity, often go unused in favor of diet and exercise, which for many don't work. And like, this is proven over and over and over and over again. You can't just tell people, change your lifestyle. Most people literally can't. There's too many things working against it, including their own biology.

• 1:57:52Ben Gilbert?

  Additionally, this is pretty interesting. Researchers thought it was actually impossible to create a weight loss drug that was both safe and effective.

• 1:58:02David Rosenthal?

  Yeah. You talking about Fen-Phen?

• 1:58:05Ben Gilbert?

  Yes. I mean, it dates way back, even before Fen-Phen, to the amphetamines in the 70s. People are taking speed because that's like the accepted weight loss drug.

• 1:58:14David Rosenthal?

  Yeah. Fen-Phen was a combination of a drug with speed. One of the Fens is speed, I believe.

• 1:58:20Ben Gilbert?

  And so in the 90s, was it heart attacks?

• 1:58:22David Rosenthal?

  Yeah, it was major heart damage.

• 1:58:25Ben Gilbert?

  Yeah. So that scared the crap out of the FDA, out of companies that are pursuing weight loss drugs.

• 1:58:31David Rosenthal?

  Yeah, this was a disaster. It kind of was like a grassroots thing that built up. And the two Fens were independently approved for separate use cases. And a physician got the idea to combine them. And since both drugs were approved, Big Pharma was like, oh, wow, weight loss drug, miracle drug, let's commercialize this. And so they pushed the FDA to rush the process, which they did, thinking, again, both of these drugs are approved. And it turned out that when used in concert, it caused major heart damage. So I think something like 6 million Americans took this thing and like a large portion of them ended up with major cardiovascular issues.

• 1:59:13Ben Gilbert?

  It's awful. I mean, that was the worst one, but there was like seven or eight over four decades of these either dangerous or just completely ineffective weight loss drugs. So most pharma companies completely steered clear of the black hole budget item that was weight loss research and development.

• 1:59:28David Rosenthal?

  It's kind of going back to the beginning of the episode and Rockefeller's dad and the snake oil salesman. Like this is the stigma around this stuff.

• 1:59:35Ben Gilbert?

  Totally. And to illustrate this numerically, the annual obesity drug sales were only $744 million up until 2020. The market for weight loss drugs, you know, was just tiny because basically nothing worked and everyone was scared of it. That 744 million included the commercial sale of liraglutide for weight loss, which had, you know, already been on sale for six years. So why is everyone freaking out about Ozempic now? Like, does it feel like basically nothing worked before? It was true. Nothing worked before in a safe way. So there is sort of this like magic number around if you can actually safely enable someone to lose 10% of their body weight or more, then there's a market. But

• 2:00:20Ben Gilbert?

  otherwise, it basically rounds to zero because people just don't think it's worth the trouble and neither do the companies.

• 2:00:24David Rosenthal?

  Yeah. It's like you need the appropriate amount of activation energy for the reaction to catalyze.

• 2:00:30Ben Gilbert?

  Exactly.

• 2:00:30David Rosenthal?

  And just to, you know, put a really close to home, even finer point on this stigma, as recently as 2005, 2005, like same year Bieta came out, Novo Nordisk's own official position on the obesity category, as articulated by the then CEO Lars Sorensen, was, quote, "Obesity is primarily a social and cultural problem. It should be solved by means of a radical restructuring of society. There is no business for Novo Nordisk in that area."

• 2:01:03Ben Gilbert?

  Now imagine your Lata and her team trying to get the company to release a liraglutide for weight loss when that is the company's official position.

• 2:01:11David Rosenthal?

  Right.

• 2:01:12Ben Gilbert?

  You're like, look, I'm looking at these humans who are eating less.

• 2:01:16David Rosenthal?

  Right. So what's going on here and why is Lada pushing for this? She's a great scientist, well-respected. And at this point, she's made her career on the development of lyroglutide and GLP-1 against all odds, just for diabetes. Why is she pushing this? This is a very, very different situation than what happened with Fen-Phen.

• 2:01:38Ben Gilbert?

  Totally. We still don't know the super-long-term effects of it, but we certainly know that months after taking this thing, large populations of people are not having heart attacks.

• 2:01:46David Rosenthal?

  Yes. And Lada knows this too, obviously, because lyroglutide, like the drug, the same drug, the same thing, has now been through 12-plus years of super rigorous trials, starting with animals, now with humans, international approval processes. You know, there were issues along the way, like there are with any drug.

• 2:02:07Ben Gilbert?

  Dude, the 2010 trial was 9,000 patients across 32 countries. This is a big, expensive, almost two-year trial.

• 2:02:16David Rosenthal?

  Yep. She's like, yeah, I mean, we're pretty sure here, this is about as safe as any drug possibly could be. And at least in the medium to short term, like, this is not a cause for worry in terms of safety. It's just that all that testing and everything was done for a different use case, but it's the same drug. So she eventually convinces the company to push forward with this. And in 2007, so only two years after the CEO made that statement, Novo enters a slightly higher-dose version of lyroglutide into human trials for weight loss. And why do minds change quickly on this? Like, the commercial opportunity here,

• 2:02:59David Rosenthal?

  if you can get approved, if you can get it to work, if it's safe, is unlike anything else the pharma industry has ever seen. Like, if you could really crack this market. So at this time, back here in the mid-2000s, already about a third of the US population is medically obese, defined as a body mass index over 30. Two-thirds are medically overweight. The World Health Organization estimates that 500 million people worldwide are obese. So that's a total addressable market here of like 100 million people just of medically obese people in the US alone. Half a billion plus, probably more like a billion worldwide.

• 2:03:45David Rosenthal?

  There are no other drugs and diseases that affect this many people, not even diabetes.

• 2:03:50Ben Gilbert?

  Yep.

• 2:03:51David Rosenthal?

  And just like diabetes, it turns out that in most cases, obesity also is a chronic disease. So yes, you have this huge TAM of people, but it's also people that are then going to be taking the drug probably for the rest of their lives.

• 2:04:07Ben Gilbert?

  Which is just like a statin or, you know, there's a lot of treatments for chronic diseases that we give people that are drugs that you have to take for the rest of your life. Yeah, you're right. It's like totally different than making a vaccine or making a, you know, hepatitis C cure or something like that. It really is a, for better or for worse, a durable, ongoing, recurring revenue stream.

• 2:04:28David Rosenthal?

  This is annual recurring revenue here. Yeah. So in early 2010, Novo gets final approval for Victoza, which is the marketing name for the diabetes version of liraglutide. So five years after Bieta, Victoza is finally officially hitting the market in the US. And remember, this is just FDA approved for diabetes. But of course, everybody knows about these trials going on for weight loss and the ability to lose weight. It hits the market and it is a enormous hit. It doesn't just overtake Bieta as the leading GLP-1 drug on the market for diabetes. It massively expands the market. So year one, in the first year that it's

• 2:05:12David Rosenthal?

  on the market, Victoza does roughly $300 million in sales. The next year, the first full year it's on the market in 2011, it does over a billion dollars in sales just in that year. So there's this concept in the pharma industry of a quote unquote blockbuster drug. And these are drugs that achieve a billion dollars in annual revenue.

• 2:05:32Ben Gilbert?

  Sort of like the tech industry calling it a unicorn, with you have a billion dollar valuation.

• 2:05:37David Rosenthal?

  Exactly. It's the pharma version of a unicorn.

• 2:05:41Ben Gilbert?

  And these are like Lipitor, Humira, Ativer. There's a bunch of examples, but that really are a huge breakthrough, address a large enough population. There's a bunch of ways to sort of slice it, but usually they're drugs you've heard of.

• 2:05:54David Rosenthal?

  Yeah. And Victoza hits it in, you know, its first full standalone year on the market, which is super fast. So what's going on here, obviously, is that people are not using Victoza just for diabetes. I mean, people are using it for diabetes, but people are also using this for weight loss.

• 2:06:13Ben Gilbert?

  And you might be asking yourself, how does that work? If the FDA has only approved it for diabetes, what's going on there? Well, it is actually at the doctor's discretion if they want to prescribe an off-label use. So if a doctor does enough independent research or reads a study, or technically, I don't think the drug companies can provide any marketing materials or sway the doctors in any way. So that information can't come from the drug manufacturer. But should the doctor believe that this drug would be good for their patient, even though their patient doesn't have the FDA-approved illness, or I guess, whatever the indication is.

• 2:06:48David Rosenthal?

  The FDA sanctioned indication.

• 2:06:50Ben Gilbert?

  Yes, the doctor can prescribe it for an off-label use.

• 2:06:53David Rosenthal?

  Right. And that's not illegal. And let's be honest here, like, some of this is doctors, but a lot of this is patients going to doctors and being like, hey, I heard that this Victoza thing could help me lose weight. What do I got to do to make you prescribe it for me?

• 2:07:07Ben Gilbert?

  I saw an ad that said, ask your doctor if Victoza is right for you. So I'm asking you if it's right for me.

• 2:07:13David Rosenthal?

  Yeah.

• 2:07:15Ben Gilbert?

  We should say, everything in healthcare has a modifier of sometimes, and everything I just said is true sometimes. It's not always true that the doctor has complete control to prescribe off-label, but I think it's a reasonable way to think about it.

• 2:07:31David Rosenthal?

  Yeah.

• 2:07:32Ben Gilbert?

  But David, it's not that effective. You can lose weight taking Victoza, but it's not necessarily a life-changing thing.

• 2:07:41David Rosenthal?

  Right. So at the end of 2013, Novo submits Saxenda, the official weight loss version of Liraglutide to the FDA and EU for approval. And it's a slightly higher-dose version, and expectations are at a all-time high for this. Novo's market cap has already been running. It now passes $100 billion on the anticipation of Saxenda's performance.

• 2:08:06David Rosenthal?

  And it's not that big a hit. It's a hit. It has good sales. And to be fair, I think a large amount of the early adopter GLP-1 weight loss market was already just using Victoza. So clearly, a lot of the Victoza revenue was actually Saxenda revenue that was pulled forward, so to speak. But Ben, like you're saying, the big issue is that even with the slightly higher dose of liraglutide, it yields long-term on average across populations about an 8% BMI reduction, you know, which is meaningful, but it's not that meaningful.

• 2:08:45Ben Gilbert?

  In research, it is crazy. I heard over and over again physicians and other people in the industry echo this kind of magical 10% weight loss reduction number where there was always this belief in the industry that if something could reliably help you lose 10% or more, then it sort of tips. And Saxenda just didn't get there.

• 2:09:03David Rosenthal?

  Yep. So regardless, the next year, 2015 is a record year. Total company revenues for Novo Nordisk hit $16 billion, which is incredible for a pure play diabetes and now diabetes and relatedly obesity pharma company. But the stock flatlines.

• 2:09:23Ben Gilbert?

  Yeah. And right around the same time, you've got the insulin pricing scandal where America is waking up to the idea that insulin is getting more and more expensive and it's becoming more and more essential for a huge population of people. And this is across the whole industry. It's Sanofi, it's Novo Nordisk, and it's Eli Lilly. Everyone's insulin has gotten more expensive and they come under fire in the public eye. And so the sort of Saxenda not being the blockbuster drug that, you know, expectations had trumpeted it up to be, plus this increasing pressure around insulin and I think a CEO change.

• 2:09:54David Rosenthal?

  Yeah. Well, the CEO change, I think, was a result of this. So what you're leading up to is in 2016, the stock takes a 40% hit. Which is wild. You know, today, at the beginning of 2024, this is a half a trillion dollar company. And a few years ago, it was a well less than $100 billion market cap company.

• 2:10:13Ben Gilbert?

  Yep. But there was that really dangerous narrative that these GLP-1s aren't going to be as crazy as everyone, at least everyone in the know thinks. And also, their only franchise of insulin is suddenly under fire.

• 2:10:27David Rosenthal?

  Yeah. So in September 2016, the then CEO Lars Sorensen resigns, current CEO Lars Jorgensen takes over.

• 2:10:36Ben Gilbert?

  Amazing. So wonderfully Danish.

• 2:10:38David Rosenthal?

  Sidebar, this is wild. So right now, today, as we record this, Novo Nordisk is the 15th largest company in the world by market cap. And when I was doing research for this episode, I of course Googled Lars Jorgensen. When I did, the results that Google gave me, results one through six were for the University of Kentucky swimming coach, who is also named Lars Jorgensen.

• 2:11:02Ben Gilbert?

  Talk about below the radar.

• 2:11:03David Rosenthal?

  Who I'm sure is a great and storied, you know, NCAA swimming coach. But it wasn't until number seven, when I actually got the CEO of Novo Nordisk. That is how like, underappreciated this company is.

• 2:11:17Ben Gilbert?

  Crazy.

• 2:11:18David Rosenthal?

  Anyway, right around this same time, Novo begins Phase 3 trials with their new next generation improved GLP-1 analog, semaglutide, which I think is pronounced semaglutide. We've also heard semaglutide. We did an obscene amount of research on this and don't have a good answer. So if you know, get in touch with us.

• 2:11:42Ben Gilbert?

  The most reputable source we could find seemed to say semaglutide.

• 2:11:46David Rosenthal?

  Yes.

• 2:11:46Ben Gilbert?

  Which makes sense, you know, coming out of liraglutide, and I believe there's a duaglutide. So we're rolling with semaglutide.

• 2:11:53David Rosenthal?

  [email protected] if you disagree.

• 2:11:58David Rosenthal?

  And semaglutide has several benefits over liraglutide. One, it is much, much longer lasting in the body. So it only needs to be injected once per week instead of once per day. Massive benefit just on patient convenience there with the half-life being so much longer. Two, and much more important for the near term, it is twice as effective as liraglutide for weight loss. So we're talking 15% plus long-term BMI reduction, which is well beyond, Ben, as you were saying, the 10% magical threshold.

• 2:12:40Ben Gilbert?

  Yep. It moves from the domain of irrelevancy to the domain of, is this a miracle drug in the press?

• 2:12:48David Rosenthal?

  And there's some more benefits, potential benefits that we'll talk about in a little bit here, but this compound, this GLP-1 agonist, semaglutide, is of course Ozempic and Wegovy. All the same thing, all semaglutide. Ozempic is the diabetes marketing product and Wegovy is the weight loss marketing product.

• 2:13:12Ben Gilbert?

  Yep. So a few words on how it affects weight. The natural GLP-1 produced in your gut travels to your brain. This is a hormone that moves throughout your body, much like many other hormones, and it triggers a response to tell your brain, hey, I'm satiated. It tells you that you've had enough, that you feel full, and it can cause you to stop thinking about your hunger. And if you're someone that's constantly fixated on food and restraining yourself from indulging, it can quiet that impulse, or at least reports are that that is sort of what people feel. It can also slow digestion. So not only does your brain think you're full, you literally are now full since the food takes longer to move through your digestive system. And David, you mentioned that 15% weight loss.

• 2:13:55Ben Gilbert?

  They're still studying exactly why it works, but it's believed to be that it's sort of these two mechanisms working in action together. And as you can imagine, food taking longer to move through your system kind of can make you feel gross, like the side effects naturally include things like nausea, vomiting, constipation, things like that. But these reports of side effects are pretty widespread. I listened to a bunch of things, one of which was a Tegus call with a professor of cardiology that cited about one out of six patients have side effects that are so severe that they discontinue the drug. So it's sort of this, we don't exactly know why it works. We have studied it a bunch, so we know that it works, but you can sort of imagine why the side effects might be linked to the idea that if you're eating, you know, really calorie dense food, really fatty food, hard to digest food.

• 2:14:41David Rosenthal?

  And it's moving slower.

• 2:14:42Ben Gilbert?

  Right. I wouldn't want food either.

• 2:14:44David Rosenthal?

  Yeah.

• 2:14:45Ben Gilbert?

  The thing that's really fascinating to me about semaglutide as a weight loss drug is that you can't just sit around eating pizza and ice cream and lose weight. The laws of thermodynamics in the universe still apply. Your body will always retain the difference between the digestible calories that you eat and the calories that you burn. But the reports from those who are taking it, it's really more like you just don't want to eat large quantities. You don't want to eat really calorie dense food and it sort of just changes your habits without you trying, or at least you having to try as hard as you did in other attempts to lose weight. You know, it sort of solves the debate that had been going on for decades of is it a behavioral problem or is it a medical problem?

• 2:15:28Ben Gilbert?

  Well, if you're taking medicine that changes the way that your body chemistry works, but also literally causes you to naturally change your behavior, it really actually addresses both concerns.

• 2:15:39David Rosenthal?

  Right. So 2018, Ozempic finally hits the market for diabetes. And then in 2021, Wegovy gets approved for weight loss. Ozempic does over a billion dollars in revenue in 2019, its first year on the market. It's clear it's going to be a huge hit. And it's like even more than that. This is like even more than Victoza back in the day. It does a billion dollars in revenue, but like it's massively supply constrained. Like it could have done a lot more. These drugs still, Ozempic and Wegovy, could do a lot more revenue than they are doing right now.

• 2:16:14Ben Gilbert?

  Which by the way, on earnings calls, the company says, yeah, that's going to be true for a long time. The demand for this drug will continue to massively outpace our supply. And we will be here on earnings calls over and over and over again, telling you that no matter how many factories we build, we are supply constrained still.

• 2:16:30David Rosenthal?

  Yes. So at this point, you know, it's funny. I think for most people that are discovering Novo Nordisk now, us included, I didn't know anything about this company until a few years ago.

• 2:16:39Ben Gilbert?

  32 years after Lada and her team started this research.

• 2:16:43David Rosenthal?

  Right. If anything, we think of this company as like, oh, it's the GLP-1 company. It's the weight loss drug company. And like, no, for a hundred years, it was the diabetes and the insulin company. But it's clear at this point now that no, this is now a GLP-1 company. And that grew naturally out of the diabetes and the insulin research and Lada's work. And sort of in this organic fashion that is so different than the rest of the pharma industry. But the net result of this now is that yes, insulin is still a large business within Novo Nordisk, but it is a GLP-1 company.

• 2:17:23David Rosenthal?

  So when Wegovy finally launches in the U.S. in 2021 as the official FDA sanctioned weight loss version of semaglutide, it gets the same number of prescriptions written for it by doctors in the first slightly over one month than Saxenda had in its entire drug lifetime. People were already quote unquote, misusing Ozempic for weight loss before this. So like Ozempic's supply was fully exhausted. And then now Wegovy supply fully exhausted.

• 2:18:00Ben Gilbert?

  Well, in February of 2021, after the clinical trial finishes on semaglutide for weight loss, so for Wegovy to hit the market in the US, the New York Times runs a story and just calls it a game changer. They say for the first time, a drug has been shown to be so effective against obesity that patients may dodge many of its worst consequences, including diabetes. So like with the biggest megaphone you could possibly point at people, they're being told this thing freaking works and it's a miracle drug.

• 2:18:27David Rosenthal?

  Yeah. And we'll talk a lot more about pros and cons and all of that and everything around that in a minute here in analysis. But just to wrap up the story, the company's market cap basically goes vertical. In 2020, right before all this hit and as Ozempic was coming online, the market cap had climbed back up above 100 billion. Summer 2021, it hits 250 billion. By the end of 2022, it hits 300 billion, which, mind you, is against a market and macro backdrop of massively rising interest rates and stocks and equities being down across the board. Like Novo Nordisk is up during this period. And then this past

• 2:19:08David Rosenthal?

  summer in 2023, it passes 400 billion market cap and it is currently flirting with the half a trillion dollar mark. Revenue goes from 20 billion in 2019 to 25 in 2021, 30 billion in 2022. And in 2023, so far in the first three quarters that they've reported, it is up another 30% year on year, of course, with, Ben, as you said, years worth of supply constraint, demand pipeline.

• 2:19:37Ben Gilbert?

  Yep. It is pretty crazy. David, you mentioned it is the GLP-1 company already and that sort of transition has already occurred. You're totally right. Looking at the numbers, 51% of their revenue comes from diabetes focused GLP-1 drugs and an additional 18% from obesity related GLP-1. So 69% of their revenue comes from semaglutide or liraglutide. I mean, it's crazy. That happened in a decade.

• 2:20:05David Rosenthal?

  Yeah. Totally wild.

• 2:20:07Ben Gilbert?

  Insulin has become, to your point, it's still a part of the business, a smaller share of the business. Again, this is of revenue, not of profits, but 22% of their revenue today comes from insulin. That leaves about 9% from the other efforts that they're putting energy into, rare diseases, so things like hemophilia. They continue to be a ridiculously concentrated company. They make about $10 billion a year in net income. So they're also a very, very profitable company, among the most profitable in all of pharma, the 55,000 employees. So it's a huge international company at this point. And I want to talk briefly about margins. Later, we will talk about why margins are actually not the most

• 2:20:49Ben Gilbert?

  interesting measure to look at, but it's worth knowing them because we talk about them on every other episode. Gross margins are better than software. They run about 84%. Lilly is also a very high margin company, running about 80%. For context, Microsoft has a gross margin of 70% and Google is 56%.

• 2:21:09David Rosenthal?

  How is Google's gross margin 56%? They must be stuffing a lot of other revenue besides search into the top line.

• 2:21:16Ben Gilbert?

  I assume all the billions they pay Apple comes out of cost of goods sold, all the traffic acquisition costs.

• 2:21:22David Rosenthal?

  Probably also for their infrastructure and for Google Cloud.

• 2:21:25Ben Gilbert?

  Yep. So at 84% gross margins, you should know they're 10 percentage points higher than your average successful big pharma company. They're concentrated in terms of what they actually focus on, but they're enormous and more profitable than everybody else. So they've sort of threaded a needle that if you were pitched a blank canvas, you would say like, well, it's impossible. You need to make a trade off somewhere. If you're going to be so narrowly focused on just one or two conditions and really one singular interrelated condition of metabolic disorders, either you can't have all the revenue or you can't be so ludicrously profitable. And turns out, the thing that they picked, they can be both.

• 2:22:03David Rosenthal?

  Yes. And also, it gets better. So because semaglutide has such a long half-life relative even to leirilutide, I mean, it's a once weekly injection. So like, you know, the half-life in your body is days. It's staying in there for a long time. Remember, natural human GLP-1, your body processes that in like five minutes. So having GLP-1s active in your body for so long, it's reaching other tissues in your body that normally GLP-1s wouldn't. And indications are showing that that is beneficial for those organs.

• 2:22:45David Rosenthal?

  So currently, Novo has clinical trials going for semaglutide, like same drug, same GLP-1s, use case in treating cardiovascular disease, in treating Alzheimer's, in treating kidney disease, many others. Again, this is all for like a molecule that through FDA processes and EU processes has been deemed safe enough to be on the market for the accepted use cases. Same drug now is showing evidence that it can also attack these other major disease areas. This is the gift that keeps on giving here.

• 2:23:21Ben Gilbert?

  Could be. Everything is really early, but it really might earn the title of miracle drug.

• 2:23:27David Rosenthal?

  It really might. Now, not a scientist at all. This is just my thought looking at this. But yes, could be a miracle drug for humanity and certainly already is a miracle drug for Novo Nordisk in terms of financial performance. Like, no doubt about that one.

• 2:23:44Ben Gilbert?

  No doubt about that.

• 2:23:46David Rosenthal?

  All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

• 2:23:53Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 2:24:03David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 2:24:24Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags and product analytics into one unified system so teams can ship safely, test rigorously and directly link what they changed to how users actually behaved.

• 2:24:36David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 2:24:47Ben Gilbert?

  Well, this is a very good place. I've got a couple of broad topic areas that I want to hit here. Let's start with the general state of affairs of GLP-1s today. So the first thing to know is sticker price. The price of Ozempic to treat diabetes is north of $1,000 and Wegovy for weight loss is north of $1,300 per month before insurance, and this is in the US. So expensive, right? That's a lot of money. In Canada, of course, Ozempic is $147 a month. In the UK, it's $93 a month. So everything that I'm about to talk about is a uniquely American problem, much like most problems in our healthcare system. So how do these drugs get paid for in the US? Well, that depends. Rich people

• 2:25:32Ben Gilbert?

  just out of pocket if they don't have coverage. We've seen all the headlines about it being rampant in wealthy New York neighborhoods or around Hollywood, but let's segment that away for a moment and say, well, okay, outside of that. Well, first, let's talk about private insurers. You might have coverage by your company's insurance. And this is a good place to talk about the two most pernicious issues in the entire US healthcare system that are deeply intertwined. One, incentive alignment, and two is time horizon. So the average American in the private sector holds a job for 3.7 years. That means that on average-

• 2:26:08David Rosenthal?

  I see where you're going with this.

• 2:26:10Ben Gilbert?

  Insurance companies are going to churn you every 3.7 years or sooner if your company changes the insurance plan. So their incentive is to cover you only in two categories of things. One, things that pay themselves back in less than 3.7 years. Or two, things that have such an overwhelming demand from employees that their employers think that they absolutely have to cover them to stay competitive. Now, you're sitting there thinking exactly the right thing, which, David, you already acknowledged. But if I lose weight today, I'll benefit in the long run. But will my insurance company lower their costs in some way? I mean, if I'm obese, I'll almost certainly have complications later that'll cost hundreds of thousands

• 2:26:53Ben Gilbert?

  or millions of dollars, once those become acute conditions. But those costs won't be realized by your current insurance or your current employer.

• 2:27:03David Rosenthal?

  Oh, man. So if I'm an insurer, I'm like, great, I'm going to offload all that onto Medicare.

• 2:27:08Ben Gilbert?

  Exactly. The insurers are not really holding the bag for this class, you know, these chronic conditions. This is the crux of the incentive problem in our healthcare system. There is just a mismatch in time horizon. You are invested in your own health for your whole life, but your insurance carrier is not.

• 2:27:26David Rosenthal?

  They're invested in your health for your planned life with them.

• 2:27:31Ben Gilbert?

  Exactly. So what is the exception? The exception is if your carrier is the US government. So let's talk about Medicare. And Medicaid is a whole different discussion that involves states and is unbelievably fragmented, so we'll just not actually talk about it right now. But let's talk about Medicare. So Medicare is through the US federal government. It is a health insurance for people who are over 65, basically. The US federal government funds that plan with taxpayer dollars. And so a while back, which was actually not that long ago, just like 20 years ago, Medicare did not cover prescription drugs at all. Medicare Part D was passed into law in 2003 and took effect in 2006. It allowed Medicare to cover drugs, not just hospital and doctor visits,

• 2:28:15Ben Gilbert?

  which was Part A and Part B. So today, Part D, interestingly enough, is legally prohibited from paying for weight loss, and it is specifically called out that it is legally prohibited. There have been efforts to change this, but there was a bill introduced in 2013 that basically has never been passed to try to get through.

• 2:28:34David Rosenthal?

  Interesting. Do you know if this was a result of the Fen-Phen debacle?

• 2:28:38Ben Gilbert?

  That's part of it, but I think a lot of it is really just this stigma of like, well, you really should be taking care of that yourself. You really should be making lifestyle changes.

• 2:28:47David Rosenthal?

  Yeah, I could see the argument of like, why is the whole taxpayer base covering, you know, people who should just be exercising more?

• 2:28:53Ben Gilbert?

  Yeah.

• 2:28:54David Rosenthal?

  Even though like, it's definitely been proven that that is not the case. It's not their fault.

• 2:28:59Ben Gilbert?

  Totally. The Wall Street Journal has this great quote, "The scientific foundation for treating obesity as a disease rather than a lifestyle problem was solidified in the mid 1990s when researchers discovered that fat tissues release proteins that act as hunger and fullness signals to the brain. This system is out of balance in people with obesity, making it more difficult for them to lose weight. And for those who do lose weight, there are biological mechanisms making it hard to keep it off." So what is so interesting about Medicare is that We will all end up on it one day when we retire and we get off of our private insurance. So it does mean the government is left holding the bag with our health for the long term. So there are really two parties with aligned interests for us to stay healthy. Ourselves and Uncle Sam.

• 2:29:41Ben Gilbert?

  And for us, it's actually quite hard to look out for long-term interests because the feedback loop is too long. So like, I go out and drink even though I'm going to have a hangover the next morning and that's only a 12-hour feedback loop. Like, lots of times you make long-term bad decisions. So the question is, can Uncle Sam fix that problem in some way? Well, it is far too early to say whether these recent GLP-1s are actually miracle drugs that massively reduce the complications later in life. And David, you mentioned there's research being done to figure out it might reduce heart attacks meaningfully and strokes and liver and kidney disease. But if all of these things turn out to be the case, the American taxpayer has a huge benefit in investing early to keep all of our healthcare bills down later in life.

• 2:30:25David Rosenthal?

  Yep.

• 2:30:26Ben Gilbert?

  So I don't have a specific proposal. I'm not saying the government should pay for every single person in the country to be on Ozempic. We'll have to see where the studies kind of net out on the benefits of these long-term things. And taking the sort of moral thing aside of like, does everyone deserve a miracle drug if it exists, even if there is no economics around it? It might just be ROI positive for Medicare to do this. If everyone's going to need knee replacements and hip replacements and diabetes treatment and amputations and cardiovascular interventions.

• 2:31:00David Rosenthal?

  Right. That is kind of the crux of the broader societal debate and issue here is obesity leads to such a huge amount of comorbidities and disease and health problems and issues. And, you know, that's even just talking about the medical system, let alone everything outside of the medical system that it leads to. And Is it worth a certain amount of both risk in terms of the drugs and cost and tax on society to save those expenses later? That's the question here.

• 2:31:32Ben Gilbert?

  Right. So last thing to say here, payers are scared and rightly scared of how much it will cost them in the short term if they do start covering these drugs. Forty percent, as we keep saying of the population today, is obese and the list price of these drugs is over $12,000 per person per year. So insurance companies, employers, Medicare, they literally don't have the budget right now to fund all the demand for these drugs. So even if we had all the supply, so there's a lot of intentional slow rolling and campaigning to try to get people to look at other interventions first before these drugs, given how colossally expensive it would be right away.

• 2:32:12David Rosenthal?

  Yep. Which might be a good time to talk about Eli Lilly and other companies out there that are also bringing GLP-1 drugs to market.

• 2:32:20Ben Gilbert?

  Yes, please tell me about terzipatide.

• 2:32:24David Rosenthal?

  Yeah, so obviously, other big pharma companies have not just been completely ignoring this incredible development slash cash gusher that has emerged in Novo Nordisk land. Eli Lilly now has a GLP-1 diabetes-approved treatment on the market under the diabetes brand name Monjaro that seems to be as if not more effective as semaglutide in terms of weight loss when used for obesity.

• 2:32:54Ben Gilbert?

  And terzipatide is basically the same. It's a GLP-1 receptor agonist, but it is also a GIP, which they're basically bundling two hormones together that act in concert to be certainly a little bit more effective on weight loss from the early trial data, but also potentially more effective on helping your body produce insulin as well.

• 2:33:13David Rosenthal?

  So that's showing great promise. It was approved in the US for diabetes treatment in May 2022, and approval just came recently in November 2023 for official FDA-sanctioned weight loss use case under the marketing name ZEP Bound, so look for that in 2024.

• 2:33:32David Rosenthal?

  What this really shows, though, between Eli Lilly and Novo and other companies that are almost certainly going to get into the GLP-1 business, I think this is going to be like insulin all over again, where there's just going to be a series of product improvements, and companies will drive innovation and increase supply. I mean, the demand is so huge out there that Mondial can be a huge hit, Ozempic and Wegovy will continue to be huge hits, other companies getting into the game will be huge hits. Novo has next-generation GLP-1 drugs in the pipeline themselves. Cagrasema is the big one that they're currently working on, that they think will be as good, if not better, than what Eli Lilly has with

• 2:34:15David Rosenthal?

  terzipatide. So I think we're basically just assuming that everything continues to be proven safe in the long run. We're kicking off a new super cycle here in pharma development around these compounds, just like played out with insulin over the last century.

• 2:34:31Ben Gilbert?

  Yep. And it really also just goes to show like it was time. Multiple researchers arrived at similar ideas concurrently, which we see over and over again in the world. Uber and Lyft is sort of our modern canonical example. Cellular connectivity plus GPS plus iPhone sort of made it possible to do something for the first time. Multiple parties were arriving at the same time to do that. And I think science had sort of just arrived at a place where multiple parties could develop similar things side by side. And so now there's certainly a catch-up race among other pharmaceutical companies who weren't doing this to now try to get into it and see if they can compete.

• 2:35:07David Rosenthal?

  Totally.

• 2:35:08Ben Gilbert?

  Other things to know about these GLP-1 drugs today. For diabetes, I tried to basically figure out from asking around, what are people actually paying for this? Like, what are most people actually paying? Because list prices of drugs, as we discussed earlier, is stupid.

• 2:35:25David Rosenthal?

  At least in the US, yeah.

• 2:35:26Ben Gilbert?

  Yes. So there are a lot of reports of people paying somewhere in the neighborhood of $300 a month after insurance as their actual cost. And to corroborate that, a different way to arrive at that number. One person told me that it is common for most employers to put between a 20% to 50% copay on these drugs. So at $1,000, you know, that's $200 to $500. So on the one hand, it's still very expensive, $3,000 to $4,000 out of pocket per year. That's probably like my entire out of pocket healthcare spend in an expensive year. You know, that's a big price tag. But on the other hand, if that's the thing that changes your life, that could be seen as an easy choice. Now, it's easy for us sitting here to say something like that because there's a lot

• 2:36:10Ben Gilbert?

  of people that don't have that kind of cash to spend on something that could potentially change their life. So there's definitely a meaningful access problem, not just the supply constraint on the manufacturing side, but even at a highly subsidized rate from insurance, a lot of people still can't actually afford the drugs. The last thing I want to say on the current state of GLP-1s is that not adherence is a bigger issue with these drugs than many other drugs that have come before it. There's some research that points out that as many as 68% of people roll off it after a year. And part of this is related to price or changing insurance that doesn't cover it, or that it's hard to find since they're still supply constrained, or maybe there are side

• 2:36:53Ben Gilbert?

  effects that a doctor is not sort of like staying on top of with you. So you just get fed up and you're like, screw this, I'm off. But a lot of employers and insurance companies are sort of waving their arms around and saying, why are we covering this expensive thing when people don't even stay on it and all the benefit goes away when they get off of it? Or at least, you know, 90% of the benefit goes away and your weight yo-yo's back up. So there's some very real things to figure out in making sure that you can prescribe these GLP-1s in a way that come with enough handholding to help you understand and manage the side effects and make all the behavioral lifestyle changes that you sort of need to, to make them be effective and sustainable.

• 2:37:29David Rosenthal?

  Interesting. I hadn't found that about non-adherence.

• 2:37:31Ben Gilbert?

  Yeah, it came up in a bunch of TEGUS calls. There must have been some hedge fund investor trying to dig into building a model of non-adherence into their DCF. Well, before we go into analysis, there is a little bit of catching up to do on the insulin market because we kind of left it as, hey, it's still 22% of revenue in Novo's business and, you know, big three companies, Sanofi and Eli Lilly and Novo really compete here and they've iterated to become great products over time. Well, one thing that we didn't talk about is the complete destruction of how attractive it is to operate an insulin business. And this is super recent. So if you would have asked any of these companies

• 2:38:15Ben Gilbert?

  10 years ago, how durable is this revenue stream and how durable are the profits from the revenue stream? They probably would have told you that it's pretty durable because we have things like delivery pen mechanisms that we keep improving over time that are proprietary, that give us some pricing power, that we keep revising the formulations. So we keep getting the ability to patent new things. It's kind of difficult to manufacture because it is developed from living cells. So we're not just pouring chemicals into a vat. We do have to do some complex work to produce the insulin. So somebody's not just going to waltz in here and figure it out. And that was a pretty widely held view. And one of the reasons why I think these companies thought they had so much pricing power, which they got in trouble for. So one thing that happened was a big controversy

• 2:39:00Ben Gilbert?

  over pricing that we talked about. In 2021, US officials alleged that Novo Nordisk increased prices more than 600% between 2001 and 2019 in lockstep with competitors to the detriment of diabetics. Now, Novo, of course, denied this and they pointed out that the net prices had actually decreased since 2017. So very convenient that they just talked about the last two years of that 18-year accusation. So my read into that is, yeah, prices were really rising and yeah, we all thought we had a lot of pricing power and we don't want to dig too much into it. Now, if you look at the last five years, and especially the last two, the opportunity to sell insulin for a profit has basically completely fallen apart.

• 2:39:42Ben Gilbert?

  So you've got regulation that came in after the public outcry. So there's real price caps on what you can sell insulin for now. Biosimilars also came in. Biosimilars are effectively what people call generics, but for the category of drugs that involve live cells rather than mixing chemicals together. So traditional drugs have generics and biologics have biosimilars. Biosimilar insulin became a thing. And so a lot of the profits just got completely arbitrage away. And GLP-1s are here, so those are reducing demand for insulin, too. Those three things in the last like five years or so, created this complete perfect storm for insulin to be a super unattractive business.

• 2:40:23David Rosenthal?

  Interesting. Obviously, as we've shown throughout this story, it's not like Novo Nordisk planned it that way. However, this is really did a great benefit, right? Because of all the insulin manufacturers, I mean, I guess Eli Lilly was first to market with GLP-1s, but Novo really created the true GLP-1 market and were the ones to really benefit from these early years while the competitors are catching up.

• 2:40:48Ben Gilbert?

  In many ways, they disrupted it just in time. In some ways, you could say, wow, it's so courageous of them to come in and disrupt themselves. But on the other hand-

• 2:40:57David Rosenthal?

  It's like the headphone jack.

• 2:40:59Ben Gilbert?

  Right. Was it courageous? Or did they see the writing on the wall that eventually we're not going to make any money from insulin? And so it's time to really start putting our foot on the gas on this thing where we could have bigger market differentiated profitability. I kind of think it was a happy accident that the timing worked out, but there are different ways to look at it.

• 2:41:17David Rosenthal?

  Yeah. I certainly didn't find anything in my research that suggests it was anything but a coincidence.

• 2:41:23Ben Gilbert?

  Yeah. It's interesting to think about the fact that these companies thought that biosimilars weren't just going to waltz in and eat their lunch and arbitrage all the profits away. Over time, the market for insulin became sufficiently large that they just had a target on their back. The prize became worth it. As we talked about in the Nvidia episode, moats are only sufficient if the castle is sufficiently lame to invade. Otherwise, the castle becomes better. You need a bigger moat. In 1999, I think it was, Eli Lilly sold $700 million of insulin in America. 1999. By 2017, just two of their products sold $2.6 billion in America.

• 2:42:05David Rosenthal?

  Yeah, two of their insulin products.

• 2:42:07Ben Gilbert?

  Yeah. 700 million to 2.6 billion. It's just an illustration of how large and how interesting that revenue stream became for other people to go after.

• 2:42:17David Rosenthal?

  Totally.

• 2:42:18Ben Gilbert?

  All right. Should we get into power? We're kind of there, anyway. We're kind of in analysis land here.

• 2:42:23David Rosenthal?

  Yeah, let's talk power. And for folks who are new to the show, this is borrowed from our great friend, Hamilton Helmer, in his wonderful book, Seven Powers, where he talks about the means by which a company can achieve persistent differential positive returns versus their competitors in an industry.

• 2:42:40Ben Gilbert?

  Yeah, or put another way, how to be more profitable than their closest competitor and do so sustainably. So the seven powers are counterpositioning, scale economies, switching costs, network economies, process power, branding, and cornered resource. So the first thing I want to say is, we are in the pharma industry, and so the one that has a blinking red light around it is cornered resource.

• 2:43:09David Rosenthal?

  Yes, this is a patent-driven industry.

• 2:43:13Ben Gilbert?

  Yes. Novo Nordisk has the patent on some aglutide until 2032. And this is an industry where when you have the patent and you are able to make an N of one drug, and you know, we're not quite seeing an N of one drug here, but it's an N of two drug, you get the profits. And frankly, the crazy thing is, when you look at some of the analysis... The profits evaporate within two years of your patent going away. Now, that was from the previous era before biologics. So now that things are harder to copy because the molecules themselves are more complex and they require growing living tissue.

• 2:43:52David Rosenthal?

  More engineering.

• 2:43:53Ben Gilbert?

  Yeah, that would fall more under process power and frankly, scale economies because it requires more capital. But right now, like historically, pharma is a patent-driven, cornered resource industry.

• 2:44:05David Rosenthal?

  Yep. I think how this GLP-1 kind of super cycle is going to play out if it continues. And what's interesting about the insulin history and the analog to that, it's looking like it's going to be like this ever stacking waves of patentable innovation and product innovation happening here. So like, yes, the semaglutide patent will expire in 2032. But if CAGRASEMA, their new kind of next generation GLP-1 product, shows the promise that they think it'll have, then that'll be a new patent cycle starting then. And then they'll develop the next generation and it'll play out again, just like insulin. But yes, absolutely cornered resource, for sure.

• 2:44:51Ben Gilbert?

  Yep. The patents aren't just on the molecules. They also patent delivery mechanisms. And so they keep changing delivery mechanisms. You basically have the scenario where doctors don't really want to prescribe the old thing. And so when you introduce a new novel form of a pen, oftentimes doctors will say, well, that's the thing we need to be prescribing now. And so there's like a brand that gets built around the most current thing that's patented, even if it's not that much better than the old thing. And, you know, there's a lot of people in pharma that are going to get mad at me for that characterization. But in addition to patenting molecules, delivery mechanisms also provide defensibility.

• 2:45:28David Rosenthal?

  Yep, yep, yep.

• 2:45:30Ben Gilbert?

  One question I had was, There might be like contractual things that entrench relationships too. Like when you get really big, and this would be a scale economy. Are there contractual relationships with formularies that sort of entrench you? And make it so that even if someone else comes out with something similar to treat any given condition and your patent isn't defending you because it's a different molecule. Well, sorry, you've locked up a distribution channel with the PBM and getting on the formulary in such a way that like, good luck to anyone else.

• 2:46:05David Rosenthal?

  Yeah, I think that falls into scale economies.

• 2:46:07Ben Gilbert?

  Yeah.

• 2:46:07David Rosenthal?

  Which for sure also apply here.

• 2:46:09Ben Gilbert?

  Yep.

• 2:46:10David Rosenthal?

  I think really on three sides, on the R and D and research side, because that is incredibly capital intensive.

• 2:46:16Ben Gilbert?

  $2.3 billion a drug.

• 2:46:18David Rosenthal?

  Yep. The production side, as we've talked about for much of the episode. And then also here on the go to market side, you can't just, you know, waltz into these markets.

• 2:46:28Ben Gilbert?

  Right. And the gigantic amount of R and D, it literally is $2.3 billion to bring a drug to market on average. You need to make a lot of profit dollars on any given drug to benefit. You don't necessarily need scale of patients, but you do need scale of dollars in order to outrun the fixed costs of R and D.

• 2:46:45David Rosenthal?

  Yep. I think we can say there's no network economies here pretty safely. And I think we can probably also say there's no branding, although Ozempic has become such a buzzword.

• 2:46:58Ben Gilbert?

  Oh, I think there actually is. Normally there isn't, but that's one of the breakout things about Ozempic is there actually is brand power. The first time I heard about Manjaro was 18 months after I'd heard about Ozempic. And I was like, oh, it must be some kind of knockoff. You know, it's my first time studying pharma. I was like, oh, it's probably something crappy that's trying to ride this same wave, but isn't actually the breakthrough molecule. And like, the studies show Manjaro helps you lose more weight and has a very similar mechanism, plus another mechanism that together work. But like, most people don't know that. Most people know, I read on the cover of the New York Times that Ozempic is a breakthrough. And I heard about it at the Oscars because a joke was made on stage.

• 2:47:39David Rosenthal?

  Jiffy Kimmel was talking about it. Yeah.

• 2:47:41Ben Gilbert?

  Yes. I think for the first time, and it's happened a little bit before, but for the biggest time in a while, Ozempic has actual brand power.

• 2:47:49David Rosenthal?

  Yeah. I mean, there's like. Tylenol, et cetera. But like, yeah, it's entering that category. An admission on that front, too. When we very first started talking about potentially doing this episode a number of months ago, I thought the same thing you did about Majaro, about Wegovy. I was like, oh, that must be a crappy knockoff. I did a cursory amount of research and I was like, holy crap, it's the same drug from the same company. Like, I'm an idiot.

• 2:48:14Ben Gilbert?

  It's like literally the same thing.

• 2:48:16David Rosenthal?

  It's literally the same thing.

• 2:48:17Ben Gilbert?

  Often in the same doses. It's technically a higher dosage, but you can get many different dosage levels of either drug.

• 2:48:24David Rosenthal?

  Right. And not only that, it is the one that is supposed to be for weight loss. But you're right, Ozempic has become this brand name.

• 2:48:31Ben Gilbert?

  Yep. Vitamin O or Oz or, yeah, there's all sorts of, I've been reading the Ozempic subreddit for a while to prep for this episode.

• 2:48:39David Rosenthal?

  I bet you found some fun stuff in there.

• 2:48:41Ben Gilbert?

  Totally.

• 2:48:42David Rosenthal?

  Switching costs are a thing.

• 2:48:45Ben Gilbert?

  Switching costs with any drug are a big thing because once you find something that works for you, you never change. Like I've been on citrazine hydrochloride for my allergies for 15 years. I think it's Zyrtec. And like, no, I'm not trying anything else. It works. Why would I try something else?

• 2:48:59David Rosenthal?

  Yep. And especially in this case where in the vast majority of patients, it does seem that if you stop treatment, you will regain the weight.

• 2:49:08Ben Gilbert?

  Yeah, that's one of the worst things about it. I will also throw in network economies.

• 2:49:14David Rosenthal?

  Oh, I had said I thought there was none, but I want to hear your case for it.

• 2:49:18Ben Gilbert?

  Well, so I think most of the time in pharma, there's none. But with Ozempic, so I think there's two ways in which GLP-1s used for weight loss resemble consumer tech products.

• 2:49:33Ben Gilbert?

  One is a tight feedback loop. When I start taking Lipitor, I don't like physically notice anything about myself, despite the fact that something that is potentially very dangerous to me has become less dangerous with cholesterol. When I lose weight, I immediately notice, like if I lose, what, six pounds in the first month, there is a super tight feedback loop there. And so in the same way that Zynga created these feedback loops for mobile gaming and that sort of psychology has been used in all tech consumer products now to create these gratification loops, that totally exists with Ozempic. The second one is what I think is a network economy. You kind of become a walking billboard.

• 2:50:11David Rosenthal?

  Hmm. Yeah.

• 2:50:12Ben Gilbert?

  There's a little bit of taboo around sort of saying, I'm taking Ozempic. But people know you lost weight. It has almost like a shareable. Ozempic can go viral in a different way than most pharma describes going viral.

• 2:50:29David Rosenthal?

  I totally agree with you. I would push back a little bit in the classification. I don't think this is actually a network economy. I think this is just incredible word of mouth marketing because I don't think other people actually get a benefit from you taking Ozempic.

• 2:50:43Ben Gilbert?

  Yeah.

• 2:50:43David Rosenthal?

  But I mean, literally you become a walking billboard. Like it is a obvious word of mouth marketing.

• 2:50:49Ben Gilbert?

  I guess the only one would be like the taboo thing. If I'm taking Ozempic and I'm ashamed of it because I'm the first person, if a million more people start taking it, then it is actually better for me.

• 2:50:58David Rosenthal?

  Right. If Elon Musk tweets that he's taking it.

• 2:51:00Ben Gilbert?

  We go V.

• 2:51:01David Rosenthal?

  Yeah. But again, it's the same thing.

• 2:51:04Ben Gilbert?

  Right. Not to mention ribelsis, that's the new oral one. They have figured out how to make semaglutide a once a day pill. If you prefer taking that to a once a week injection. It's a little bit weird because you have to take it on an empty stomach and then not eat for 30 minutes afterwards. But if you don't like needles.

• 2:51:20David Rosenthal?

  I believe it is also not quite as effective as the injectable version.

• 2:51:24Ben Gilbert?

  Huh.

• 2:51:24David Rosenthal?

  But still, it is an amazing feat of engineering that they created an oral version of this.

• 2:51:29Ben Gilbert?

  And this is the kind of stuff that Novo Nordisk is so good at. It's all these decades of researching, how do we make this stuff break down differently in the body? Because the issue with the GLPs is it can't get absorbed into your bloodstream by you putting it in your mouth and then it going into your stomach. And, you know, it's hitting the harsh environment of your stomach. So like figuring out how to make something go from your stomach into your bloodstream for a sustained period of time.

• 2:51:54David Rosenthal?

  Right. Protect the molecule enough.

• 2:51:56Ben Gilbert?

  Right. That is sort of the Novo magic.

• 2:51:58David Rosenthal?

  Yep. Wow. There's a lot of power here. I think the only one we haven't talked about yet is counter positioning. Which is interesting, you know, maybe you can make an argument at the beginning there was because this could disrupt the insulin market, but I don't really think so.

• 2:52:14Ben Gilbert?

  Yeah. And counter positioning basically always exists in the takeoff phase and never exists later. I think that we keep kind of finding that pattern over and over again is incumbents don't really counter position startups counter position.

• 2:52:26David Rosenthal?

  Yep.

• 2:52:27Ben Gilbert?

  Yeah, I think in the world of healthcare, there is a ton of power for basically any company that we would study because the returns over and over and over again, keep going to these incumbents that keep getting bigger. And I know biotech investing and startups is a thing and there will be new disruptions on the horizon, CRISPR and gene and cell therapies and things like that. But the last 30 years at least of healthcare has consisted of returns to scale, which would indicate lots of power.

• 2:52:59David Rosenthal?

  Yep. And it'll be interesting to explore healthcare broadly and specifically biotech more on the show. My sort of arms length understanding of the industry is that where startups primarily are doing drug discovery and then they get acquired by the big companies for go to market.

• 2:53:18Ben Gilbert?

  Yep, that's right. Or they do a deal, some kind of distribution deal, but a lot of the economics of that deal are eaten up by the big pharma company as the distributor, which really they're not the distributor. The PBM handles making sure that the reimbursements are there. So doctors will prescribe them and the wholesaler distributors handle physically moving the drugs. But when you do a quote unquote, distribution deal as a biotech company with a pharma, it's because the pharma has the relationship with those two other parties to ensure that you actually can be available at broad scale.

• 2:53:49David Rosenthal?

  And really this model all started going back to Genentech and Eli Lilly and Genentech ended up getting acquired by Roche, but it was that partnership of Eli Lilly being the go to market for Genentech in insulin that started this whole startup, big pharma partnership.

• 2:54:06Ben Gilbert?

  Yep. All right. Playbook?

• 2:54:08David Rosenthal?

  Playbook. Let's do it.

• 2:54:10Ben Gilbert?

  So the first one that we've hit a few times, but is just worth putting a fine point on is concentration. The focus of this company is unbelievable. 85% of their revenue is dedicated to metabolic disorders. They are the second largest market cap pharma, second only to Eli Lilly. It's crazy. They're that focused, but they have an ability to be that large by market cap. It is worth knowing they aren't in the top 10 pharma companies by revenue. In fact, they're 20th.

• 2:54:39David Rosenthal?

  Wow, I didn't realize they were that low.

• 2:54:41Ben Gilbert?

  Yeah, no, it's a multiples thing. Part of the reason why they're Europe's biggest company is people are very optimistic about their future and about their ability to be profitable in the future, not just make a lot of revenue. But it continues to blow my mind that they have had the huge success that they have had with how focused they have stayed.

• 2:54:59David Rosenthal?

  You know, it's funny. I was thinking the same thing is my main playbook takeaway from this one. It reminds me of our Sequoia Capital episodes a few years ago and Sequoia's kind of historical classic mantra and the Don Valentine ethos of target big markets, find a big market, target it, and then like stay focused on it for decades and decades and decades. And that's the story of a lot of companies we've covered here, but this is such a pure play example of that, like one disease, one drug area for 100 years, and now a second drug area that came out of that first drug area.

• 2:55:32Ben Gilbert?

  Well, but for 60 years, it wasn't actually that interesting of a market. That's the crazy thing. Like 1920 to 1980, it was type 1 diabetes, which again, absolutely incredible for the world that they took children who had a death sentence, then gave them life and they got to live basically a full life. But was type 1 diabetes actually this colossal mega interesting market? No, not at all.

• 2:55:56David Rosenthal?

  Yeah, something changed. Yeah, absolutely. You're totally right.

• 2:55:59Ben Gilbert?

  What did Charlie Munger tell us? He said, "There aren't many times in a lifetime where you know you're right and you know you really have an investment that's going to work. You may even find it five years after you bought it. Your own understanding gets better." And I think that's basically what happened with the Novo Nordisk Foundation. They realized, oh my God, this isn't just a service we're doing for the world. This is one of the most important markets in the world.

• 2:56:24David Rosenthal?

  Totally right. And it's so funny. I mean, obviously, we weren't in the room as these conversations were happening, but from reading the history, it feels like they understood it more than management at the time. Management was like, kind of too close to it and thinking, you know, industry wisdom, we need to merge consolidation is happening. And they were like, no, there's this incredible wave that we are riding here. Let's keep compounding.

• 2:56:48Ben Gilbert?

  You should share the stat on the size of the endowment.

• 2:56:52David Rosenthal?

  Oh, yes. So I kind of can't believe we haven't talked about this yet. Novo Holdings, which is the vehicle by which the foundation holds their stakes in Novo Nordisk and Novozymes, their sort of assets under management and thus the endowment of the foundation is worth $120 billion, which makes it the single largest charitable foundation in the world, over 2X larger than the Gates Foundation, which is number two.

• 2:57:27Ben Gilbert?

  Unbelievable.

• 2:57:28David Rosenthal?

  Just unbelievable. And through Novo Holdings, it has actually now become one of the largest and most active life sciences and biotech investors in the world, too. They hold venture stakes in 80-plus other companies. That's on top of giving out lots and lots of grants to life sciences around the world and fulfilling the foundation's mission. I mean, it's just wild. We're burying this so deep in the episode, but like, this is the largest charitable foundation in the world. That's wild.

• 2:58:00Ben Gilbert?

  Now, it's interesting that it qualifies as that because yes, that is totally true. On the other hand, $120 billion is pretty neatly just a little bit larger than a quarter of Novo Nordisk's market cap. And so like, the vast majority of that $120 billion is their ownership of Novo Nordisk. So it's not like, oh my God, they spat off $120 billion in cash that they're investing elsewhere. No. So if, you know, Jeff Bezos decided to put his, what does he have, like 9% of Amazon, decided to put that into a foundation and call it charitable suddenly, that would be the most charitable foundation or, you know, up there.

• 2:58:33David Rosenthal?

  Yes, correct.

• 2:58:35Ben Gilbert?

  But the point stands.

• 2:58:36David Rosenthal?

  It's still pretty cool.

• 2:58:38Ben Gilbert?

  Yeah. While we're on the topic of the foundation, before we keep going in playbook, it is worth pointing out that there are formally defined objectives of the foundation, and those objectives do not include growth. So it's kind of amazing that they have grown the way that they have. The dual mission now is stability and supporting scientific and humanitarian causes. So what does stability mean? I suppose it means like ensure the longevity and duration of Novo Nordisk as a company. But it's interesting when your stated mission is stability and this humanitarian cause that is a byproduct, you could end up being this incredible market leader, innovator,

• 2:59:22Ben Gilbert?

  super high-growth company, too.

• 2:59:24David Rosenthal?

  Yeah.

• 2:59:25Ben Gilbert?

  And on the point of mission, Novo Nordisk has a stated mission that is not just about supplying treatment, it's about eradicating diabetes. And so there was a 2014 paper that came out that suggested a real cure for diabetes using stem cells. I think it was out of Harvard. And at the time, the Novo Nordisk chief medical officer replied, "We feel a responsibility for trying to prevent or eradicate diabetes. And if that means the dissolution of Novo Nordisk, that would be fine." I'm having such a hard time wrapping my mind around like, is that actually true? Is all of the behavior of the executives actually in service of curing diabetes, even if it means that their revenue would go to zero? Isn't that at odds with the idea of stability of Novo Nordisk?

• 3:00:08David Rosenthal?

  That quote was from 2014, did you say?

• 3:00:11Ben Gilbert?

  Yeah, so previous administration, so to speak.

• 3:00:13David Rosenthal?

  And pre-GLP once becoming really huge. It's very easy for them to say that now because they could eradicate diabetes now and still be Europe's largest company just based on obesity alone. But from talking to folks from the outside, my sense is I think that is as true as it can be in a corporation.

• 3:00:31Ben Gilbert?

  Yep. I also found a stat that in the last six years, $4.5 billion of grants have been distributed. So I was a little tongue in cheek about like, well, geez, most of that is their ownership of Novo Nordisk. But like, that is a lot of outflows to research. And I think importantly, that research often supports what Novo Nordisk, the corporation, wants to go do. And so it's nice to have a close relationship with researchers.

• 3:00:55David Rosenthal?

  Yes, there is a cycle here.

• 3:00:57Ben Gilbert?

  Yes, which rolls up to the mission of stability. But yeah, they deserve to be applauded for the reinvestment.

• 3:01:04David Rosenthal?

  Certainly, it is a unique structure in the corporate world and one that has had a huge impact on the company's history.

• 3:01:12Ben Gilbert?

  Yep. Okay, while we are in corporate structure land, alignment of incentives is pretty interesting among management. I don't know if you looked into this at all, but their executives are not meaningfully incentivized by stock price performance.

• 3:01:26David Rosenthal?

  Hmm, interesting. No, I didn't look at this at all.

• 3:01:28Ben Gilbert?

  Yeah. So they are sort of forced to think on a different time horizon than if your compensation came primarily in the form of stock options and you wanted to, you know, make the stock go up in a three to five year window. So executives and board members are not given stock options as a part of their compensation. And when you talk with folks in the industry, the employees reportedly have lower compensation than their counterparts at other companies. And I couldn't figure out if that was like a Danish versus American thing, or if they intentionally try to repel the idea of mercenary employees and attract missionaries. But it would seem that their excellence in pioneering diabetes medicine

• 3:02:09Ben Gilbert?

  is really mission driven. There's a, what they call their remuneration policy, which requires all board directors to hold stock. You know, you're not getting it as your comp, but you're required to hold it, which I think is kind of a similar idea to what Berkshire Hathaway has of, hey, we should have sticks, not carrots. And in Berkshire's case, there's no DNO insurance for board members. You actually have to own the liability of the company's actions yourself to be on the board. So they take it seriously. But in Novo's case, it's, hey, you don't get the carrot of big piles of free equity in our company.

• 3:02:42David Rosenthal?

  Yeah, you gotta go buy the stock.

• 3:02:44Ben Gilbert?

  Yeah, you have to actually be aligned with the owners. So you get the fruit of the appreciation or the punishment if it doesn't do well.

• 3:02:51David Rosenthal?

  Yep. I suspect it's probably both. I do think Danish culture plays into this, too. It is a much, much more socialist country than America. And actually, watching interviews with Lotta, she talks about this. And sometimes she's asked about it of like, oh, hey, didn't you get rich on basically inventing GLP-1? And she's like, no, I've never asked for a raise in my life. I'm a socialist. But look at what we've done for the world.

• 3:03:16Ben Gilbert?

  Yeah, it's pretty crazy. Now, the question is, does that thinking lead to the GLP-1 breakthrough? Other pharma companies certainly didn't make these investments and these decisions on these time horizons. And so there's a reasonable narrative that it was actually Novo Nordisk's focus and their time horizon that led to the decades-long work to actually bear fruit. I mean, semaglutide isn't out of nowhere. It was built on all the work that went into liraglutide since the early 90s and incorporated all the clever ideas they had previously developing longer-acting insulins and things like that. There is a reasonable narrative of it's their long time horizon and their focus, their ability to learn from doing the same thing well and iterating over 100 years that actually led them to find this breakthrough when others didn't.

• 3:04:02David Rosenthal?

  Yep. The key point is long-term focus. And if you can do that, as we've shown time and time again on this show, you can create something great. If you do that, it's not like you will create something great. You still got to get lucky and also be doing the right things in the right areas. But if you're going to build something really, really big, you got to have that long-term focused mindset.

• 3:04:24Ben Gilbert?

  Yep. Okay, there are a few unexplored areas that I think are interesting to know about healthcare as a whole and about Novo Nordisk that I want to talk about here in playbook. One of them is a shift that Novo has done here to broad populations with relatively inexpensive drugs. Versus other pharma companies. And I know you're going to be allergic to the idea that I just told you a thousand dollars is an inexpensive drug. But the crazy thing here isn't just that the revenue and the focus is so concentrated. It's concentrated in an area that other companies shied away from. Pharma over the last couple of decades shifted away from these mass population drugs to specialty

• 3:05:04Ben Gilbert?

  drugs, and these are often to treat specific forms of cancer or rare childhood diseases with super narrow populations and huge price tags. And to put numbers around that, we're talking like total market size of a couple hundred thousand people or fewer, as few as like 300 people in these super rare orphan diseases. Occasionally, these diseases are so rare and the treatment is so, you know, life changing or life giving that the treatment, like one dose of the pill or one infusion of the therapy or whatever it is, can be measured literally in the millions of dollars. So it gets far more extreme than a thousand dollars a month.

• 3:05:46Ben Gilbert?

  It's understandable why the other pharma companies went there for a few reasons. And this is a little bit of a walk through history, but it's been a while since we saw a breakthrough in a mass market drug. Really, the last one that we can point to is statins, which was to treat cholesterol. I don't know, 30 years ago is really when that was kind of the thing. HIV and Hep C are examples we can point to, but again, it's been a while.

• 3:06:10David Rosenthal?

  Those are small markets compared to obesity.

• 3:06:13Ben Gilbert?

  Well, compared to obesity, but they still qualify as large population. When you're treating millions of people with something, well, A, you can have a different pricing structure, like you can have much cheaper drugs. But B, like you can just affect a huge swath of the population. You know, it's not like we're discovering an antibiotic or a cure for polio every other year these days. In fact, the Alzheimer's researchers have really been trying, but the trials have just been disappointing. And so we had this great heyday 30 years ago of small molecule drugs that you could manufacture relatively easily by mixing chemicals. But after those patents expired, and these could be manufactured by other companies as generics and sold to everyone for cheap, we really haven't discovered something like that since.

• 3:06:57Ben Gilbert?

  So that's why the shift has really gone. And of course, we have new technology to do it too, but really shifted to biologics, the complex proteins that are, you know, harder to manufacture. And I think a way to summarize that is a lot of the low hanging fruit has been picked. Compounding this problem, just because this is healthcare and you compound every problem.

• 3:07:17David Rosenthal?

  Different type of compounding.

• 3:07:18Ben Gilbert?

  Yes. The way that FDA approval works is that you get a label for a drug if you can prove with the right degree of statistical significance that the benefits outweigh the risks and that you are better than current alternatives by some measurable amount. So, conditions with existing alternatives are harder to get approval for.

• 3:07:39David Rosenthal?

  Hmm. Another factor pushing to rare diseases.

• 3:07:43Ben Gilbert?

  A hundred percent. Going back to the piece that Alex wrote, he references this idea of the better than the Beatles problem. Like, what if it was a requirement to be releasing a new pop song in the market that it was better than Hey Jude, or better than Here Comes the Sun? You'd have no innovation. Like, of course not.

• 3:07:59David Rosenthal?

  Right, right.

• 3:08:00Ben Gilbert?

  So, the rule both makes sense and you understand why, once we hit some minimum level of treatability for something, you're like, geez, is the juice really worth the squeeze there anymore?

• 3:08:11David Rosenthal?

  Right.

• 3:08:12Ben Gilbert?

  No, you go work on something that you're actually likely to get approved for and make your billions of dollars of R and D worth it. And your years and years of clinical trials and recruiting all the people for the study. And, by the way, these studies have just gotten so insanely expensive to run. And, you know, it's not just the studies that cost money, but if you just look at the cost to bring a drug to market in 1953, it cost $40 million for an approval. And that's an inflation-adjusted figure. Today, it averages 2.5 billion.

• 3:08:42David Rosenthal?

  Wow. Wow, wow, wow.

• 3:08:44Ben Gilbert?

  I don't know, it's easy to be kind of like disillusioned with, why would I go after something, large population, if there's already something else that treats a large population good enough?

• 3:08:54David Rosenthal?

  Right. Wow. That's interesting. Whereas you look at almost every other market out there, if it's like a big market, there's insane capitalist incentives to go make a better mousetrap for it.

• 3:09:05Ben Gilbert?

  Right. That's super true. So, this leads into this, another playbook theme.

• 3:09:11Ben Gilbert?

  Pharma is the most classic example of the venture business. It's super high risk. It's super high return if it works and the winners need to subsidize all the failures. And in fact, it's even more sort of severe than typical venture capital because a lot of the research can take over a decade of investing before the winners bear any fruit at all. So everyone was like, oh my God, FIGMA spent four years writing code before they shipped a product, like four years.

• 3:09:41David Rosenthal?

  Oh, four years. That's nothing. Yeah.

• 3:09:43Ben Gilbert?

  There's no MVP in semaglutide. Like, let's put a couple billion to work and then we'll check in a couple decades later and see if we've changed the world. And obviously there are stage gates along the way, but you know, it's adding a zero or two to the venture business, to be honest. I think that the most illustrative stats on this are that the top decile of pharmaceuticals are what matters for the profits. So if you look at the pipeline of 100 drugs that enter clinical development, 10 actually make it to market and one provides, get this, half the profits. One drug.

• 3:10:17David Rosenthal?

  Oh crap. Wow. The initial part of what you just said jives with our math earlier, that 10% make it to market. I mean, that's a power law right there.

• 3:10:25Ben Gilbert?

  Right. 10% of the ones that make it to market provide 50% of the profits. Most drugs, this is also a crazy stat, even after they are approved, do not earn back their R and D costs.

• 3:10:36David Rosenthal?

  I mean, this is another dynamic showing why the market forces led to consolidation in this industry. Like you just need to be so large and have the capital resources to pool all the risk of these drug pipelines.

• 3:10:51Ben Gilbert?

  That's exactly right. Yeah, you need to actually be able to pool risk or have some differentiated way versus all your other competitors of being more likely to create a hit.

• 3:11:00David Rosenthal?

  AKA Novodis.

• 3:11:02Ben Gilbert?

  Yeah. You will not be a successful pharma company without blockbusters and even then, blockbusters might not be enough.

• 3:11:10David Rosenthal?

  Wow.

• 3:11:11Ben Gilbert?

  It's nuts. All right, so now we're into like healthcare as a whole land, so I have some commentary on this. I'm very excited about this. I think this is going to be a new chapter of acquired because there's a lot of stuff to dive into here and we'll still never understand it all, but it's fun learning. So I think everybody is aware in some sense that for every dollar that we're investing into the healthcare system, we're getting less and less incremental utility out. People complain all the time that as a percentage of GDP, which by the way is something like 17, 18%, which is nuts, right? Our healthcare system costs us 17, 18% of GDP. That goes up every year and the quality of care goes down or life expectancy

• 3:11:53Ben Gilbert?

  goes down. So everyone sort of like heard some variation of this problem before.

• 3:11:58David Rosenthal?

  On the surface, things appear to be broken.

• 3:12:00Ben Gilbert?

  Yeah. The 17.3% of GDP that healthcare costs us, you should just know as a baseline that in 1960, that was 5% of GDP. This isn't like gone up a little bit. This is like, you know, one of the biggest line items for the entire country used to be fairly de minimis and is now enormous. So you should expect a lot of your healthcare system, given what it costs. On the one hand, this is really bad and like there's a zillion people to blame for it. So it's hard to blame one individual or one company. And so it's a little bit of like a tragedy at commons where everyone throws their arms up and says, well, I'm gonna go do the best I can and, you know, make sure I'm okay. Because I really don't

• 3:12:41Ben Gilbert?

  know like who to point to and be like, this system is effed up for this reason. I mean, you could blame oligopoly, you can blame regulatory capture, you can blame too many middlemen, too high of hurdles to get new drugs in the market. But on the other hand, like you would sort of expect this. I mean, a lot of the low hanging fruit is picked, so it seems like it's going to require more money to go eke out more rewards. People always make fun of pharma with this thing they call Arum's Law, which is Moore's Law backwards.

• 3:13:13Ben Gilbert?

  And the idea is like pharma for every next generation gets more expensive. But like semiconductors also require huge amounts of R and D. And just because we're getting that speed up every 18 months. Have you looked at EUV? It's an order of magnitude more expensive every generation to be able to make processors like that. So I think that's a little bit of a false equivalence. I totally understand why, especially in heavy industry, it should be more expensive to get marginal benefit out. Once you have already picked the low hanging fruit. So I have a little bit of pushback on the healthcare is getting more expensive. We're getting less out of it. The thing that isn't good is that the average life expectancies have actually declined in America the last few years.

• 3:13:58Ben Gilbert?

  Despite the fact that we're spending more money. So it's not just that our marginal dollars are earning us less. It's that we're putting more money in and life expectancy is actually decreasing. And unfortunately, it's kind of outside the health system's control. It's a lot of like mental health related stuff, overdosing on drugs. A lot of things impacting the length of life are, you know, cutting 60 years off of people's lives when they're young, which obviously will massively affect the data. One other thought on this, though, is so from 1850 onward, we got these huge increases in life expectancy every decade. If you look at these charts, it's astonishing. You're like, wow, there's like a miracle drug every year, or there's a miracle process, or there's people are washing their hands, or there's indoor bathrooms, or whatever it is, life expectancy is getting way better.

• 3:14:42Ben Gilbert?

  We were like curing infectious diseases that killed kids all the time. But once we got those mostly covered, at least for the sort of big, large population ones, and we got antibiotics and insulin and all this. If you spend money to help a 75 year old live to 80, it has a much different effect on the data than helping a 10 year old live to be 75. And once you compound that with the low hanging fruit, of course, it's going to be really expensive to figure out how to make that 75 year old live to be 80, especially if there's a big fragmentation of disease.

• 3:15:14David Rosenthal?

  Yeah, it's also exponentially harder to get that five extra years of life because you're facing. 20 different morbidities out there.

• 3:15:23Ben Gilbert?

  Right. We rarely are getting the silver bullets like we did with antibiotics. It's going to be $2.3 billion over here to cure this form of melanoma, and it's going to be $2.3 billion over there to cure this form of pancreatic cancer. It's just going to, I think, just going to keep getting more expensive to cure the more fragmented, small population things. I think there's a reasonable question of like, what do we do about that as a society? Now, that's on the benefit side. There might be some massive cost reduction side. Like, you could imagine some technology comes along that makes drug development way cheaper, or makes us able to massively collapse the time and dollars spent in a clinical trial by using AI or something.

• 3:16:03Ben Gilbert?

  Or there might be ways to collapse costs 10 or 100x somewhere in the healthcare system. But the current state of affairs is not very free market-y. So it's harder to imagine that happening versus other ecosystems the way it happens in tech.

• 3:16:17David Rosenthal?

  Yeah.

• 3:16:18Ben Gilbert?

  A couple of other just like fun things that I heard from people during research, which I think are just like interesting problems to think about. The health system that was created over the last century was really designed to treat acute and infectious diseases. If you think about our healthcare system as it exists today, hospitals where you go in when you're sick, doctors that you see when you're sick, surgeries you have when you have an issue, pills that you take when you have an infectious disease, antibiotics that you take. You look at the chart of life expectancy, the people that designed that system and solved the acute infectious disease problems should just hang up a big "Mission Accomplished" banner. It worked. It was amazing.

• 3:16:55David Rosenthal?

  Right. We made it to the moon.

• 3:16:57Ben Gilbert?

  Human quality of life is just unbelievably high, and there's very little in common today on the list of things that will kill you versus 1850. It's a completely different set of things. So the next frontier then is chronic illnesses, and they catch up with us later in life, and they're basically undetectable for like the first 50 years, or the first 30 years. I mean, obesity leading to diabetes, or cardiovascular health leading to heart attacks and strokes. These are very different things to treat and require a very different way of thinking, of regulating, of paying for. You don't want to wait until people are sick to treat it because then it's too late. And so in many ways, this entire old system that we created that consumes 18% of our GDP may actually not make sense in this new world

• 3:17:41Ben Gilbert?

  of treating the things that are more likely to kill us now, which is chronic illnesses.

• 3:17:45David Rosenthal?

  Right.

• 3:17:47Ben Gilbert?

  I don't really know what to do with that. I think it's a pretty interesting.

• 3:17:49David Rosenthal?

  You did so much more of this side of the research than I did. Did you get a sense in talking to people like that transition is happening or no?

• 3:17:58Ben Gilbert?

  Well, it's so hard in healthcare because there's so many buzzwords. Like, there's a thing called value-based care, which in a sense, it makes sense. It's like, we shouldn't have to pay for every little intervention someone does. We should pay for them helping me cure the thing. You don't pay for the interventions, pay for the outcome. And so then that forces the right sort of thinking all the way up the value chain of how can we deliver a quality of service in the cheapest way possible to achieve the same outcome, which is like how free markets work, right? But in healthcare, the way everything gets billed is on a cost basis, which we've talked a lot about cost-plus pricing and the dangers of that on the show. So, I mean, to the extent that the value-based care stuff helps, no, I didn't hear any solutions.

• 3:18:39David Rosenthal?

  All right. Well, listeners, if you get inspired.

• 3:18:43Ben Gilbert?

  I did hear one credible pushback against why is healthcare getting so expensive as a fraction of GDP? We use a lot more healthcare. People just have a lot more life bettering interventions, be it from doctors, from pills, from facilities, than we did a long time ago. And so, like, I don't know, I had two surgeries a few years ago, one of which was an ACL surgery and like a whole bunch of PT. And in 1980, would I have had those? Maybe the PT, probably a worse surgery because the procedures were worse back then. In 1950, would I have had an ACL surgery at all? No, I'd probably just limp around the rest of my life. There really is just actually a lot more care delivered now than there used to be.

• 3:19:25David Rosenthal?

  Oh, man. I mean, even like, gosh, this is so close to home. I mean, for me and Jenny and my family, I've talked about this on the show before, but Jenny and I both have genetic cancer predisposition mutations. So, you know, the amount of screening that we get, and then for family planning with, you know, having our daughter and other children in the future, the amount that we have used the medical system as very healthy 30-somethings throughout our life would not have been imaginable a few decades ago. So, like, yes, I totally buy that.

• 3:19:55Ben Gilbert?

  All right, we're kind of drifting into value creation, value capture here because we're making sort of societal judgments around, you know, are the economics worth it? Do you want to formally enter that section of the show?

• 3:20:06David Rosenthal?

  Let's do it. Maybe to start, you know, on this segment of the show, we talk about for a given company, how much value do they create in the world versus how much they capture? And let's start narrowly with Novo Nordisk itself. What do we think? Like, value creation versus value capture? Undeniable that over the 100-plus year history of this company, it has created incredible value for diabetics and now for a much broader population than just diabetics. So the creation amount is large. It is also undeniable that it's a half trillion dollar market cap company on, call it 30 to 40 billion dollars of revenue, highly, highly profitable revenue, that they have also captured a lot of value.

• 3:20:52Ben Gilbert?

  Well, a lot of people talk about, does the pharma sector overearn? This is sort of the way people talk about this. And on other episodes that we've done, there's far less of a value judgment. We're kind of like, yeah, companies should go be as profitable as they can be. My God, Visa makes so much money. And like, that's a little bit tongue in cheek. But in healthcare, it's sort of different because there's an expectation that you sort of start from a place of public good. And then when healthcare companies earn too much money, you sort of look at it and you're like, ooh, I don't know if I like that. Which is so interesting, right? It's a very different starting place than I think a lot of people tend to look at businesses. But one thing that is true is that these businesses require a tremendous amount of investment. And so just merely

• 3:21:36Ben Gilbert?

  looking at their margins is stupid. I alluded to that earlier, but like, of course they have high gross margins. For the things that they actually end up selling, rather than killing, they should.

• 3:21:47David Rosenthal?

  Right. That's not taking into account all of the research that they did over the past

• 3:21:52Ben Gilbert?

  All the research, because those are below the line costs, and all the failures, because they never sell those drugs. So you basically have to say, well, all the margin dollars they earn from the winners, both have to cover all the fixed costs R and D of that drug, but they also have to cover all the failures of every other drug. So when you actually look at their return on invested capital numbers, the ROIC, they are not through the roof. They're like 13% industry-wide, but hold for Novo for a second. It's totally in line with other industries like trucking, broadcasting, electronics, when you sort of look at the federal data on it. I mean, the fact that on the blockbuster drugs, the companies earn a ton of money is not the whole picture. The picture really is like, as an industry, are they over-earning? No, they kind of used to until like 2000,

• 3:22:38Ben Gilbert?

  but nowadays, the ROIC numbers are just actually not that interesting. And in fact, some would argue that as pharma gets less and less efficient, capitalists should just not allocate their dollars there, because there's literally not enough incentive in the profit dollars that you get to earn from your drug after it's patented for many years. Like, should you actually index the pharma sector? Probably not. I mean, it's a little better than other sectors, but not necessarily enough to take the sector risk of putting all your dollars there.

• 3:23:06David Rosenthal?

  Well, you're making me feel better about my career choices here to work in tech.

• 3:23:11Ben Gilbert?

  Now, Novo Nordisk, on the other hand, massively outperforms their peers. And it's just been this really interesting trend where ROIC for pharma as an industry over the last 50 years has declined, but the variance between companies has increased. And so Novo far outperforms the median pharma company in terms of return on invested capital, but there's companies that way underperform too. And it's interesting that the good companies are getting better and the bad companies are getting worse, while the whole industry declines in its ability to produce a return.

• 3:23:44David Rosenthal?

  Yeah, so interesting. I mean, I'm tempted to say from this whole episode that the moral of the story here is focus and long-term focus. But I feel like we need to uncover this industry more and hear from folks in it. If that were always true, why are there not more Novos out there?

• 3:23:58Ben Gilbert?

  Right. It may also be play compounding games in big markets. I mean, it's very clear, even if not intentionally, that a lot of Novo's historical work led to them understanding something important better than anybody else. And I think they might have lucked into how important it became, but play compounding games.

• 3:24:17David Rosenthal?

  Yep.

• 3:24:18Ben Gilbert?

  It's pretty interesting. I mean, pharma as a whole of the medical pie only occupies about 13% of revenue. I really would have thought with all the hate toward Big Pharma that it would be higher.

• 3:24:31David Rosenthal?

  13% of revenue in the healthcare industry?

• 3:24:33Ben Gilbert?

  Yeah.

• 3:24:34David Rosenthal?

  Yeah. So that means 87% of healthcare revenue is not going to pharma.

• 3:24:39Ben Gilbert?

  Right. If you could trade never having drugs again or never having doctors again, which one would you pick?

• 3:24:45David Rosenthal?

  Wow, that's a good question. I hadn't thought about that.

• 3:24:48Ben Gilbert?

  It's of course kind of a farcical.

• 3:24:50David Rosenthal?

  Right. It's totally farcical. You know, I think about my scenario and Jenny and my scenario, like it's both together for sure.

• 3:24:57Ben Gilbert?

  Yeah, of course it is. But do you think drugs only provide 13% of the value to all of healthcare?

• 3:25:04David Rosenthal?

  No, certainly not.

• 3:25:05Ben Gilbert?

  It's crazy.

• 3:25:06David Rosenthal?

  Definitely more than that.

• 3:25:07Ben Gilbert?

  Especially incrementally. If the investments we're making going forward in improving humans and their quality of life, some amount of it comes from amazing new surgeries, some amount of it comes from amazing new medical devices, but some amount of it does not come from new administrative billing practices or...

• 3:25:26David Rosenthal?

  The four metal men in the middle of the equation.

• 3:25:28Ben Gilbert?

  Right. The improved ability to move a drug from place A to place B and come up with yet another clever way to build out the formulary so it moves money from this pocket to that pocket. Hospitals, if you back out the drugs they prescribe, hospitals are 28% of the revenue in all of healthcare, which is large, but hospitals provide a crap ton of value. Professional services like doctors' offices are 26%. They also provide a lot of value. Do both of them provide together four times as much value as the breakthrough drugs do? I mean, freaking health insurance, the administrative costs of health insurance are 8%.

• 3:26:08David Rosenthal?

  Of a very, very, very large number. Yeah.

• 3:26:10Ben Gilbert?

  Right.

• 3:26:11David Rosenthal?

  Yeah. I mean, that's like the administrative costs of health insurance are within spitting distance of pharma.

• 3:26:18Ben Gilbert?

  And pharma, I will say, like, who is taking any risk in this whole ecosystem? It's only pharma.

• 3:26:25David Rosenthal?

  Yep.

• 3:26:26Ben Gilbert?

  Who's taking risk to innovate and make anything better? Every other bet that a hospital makes or that an insurance company makes is just probably going to pay off. This is actually pretty interesting. If you look at the net income of a pharma company, and let's just take the biggest one, or a very large one, Pfizer, super spiky. Even though they're diversified, up, down, up, down, up, down. Some years, they make very little profit. Some years, they make a lot of profit. That is what you should expect from someone who is taking risk, trying to innovate. Sometimes they succeed, sometimes they don't. You look at an insurance company, and by the way, let's define insurance company. Insurance company is someone that, in the good years, collects money, and then in the bad years, they have a big loss. And hopefully, they

• 3:27:09Ben Gilbert?

  collected enough money such that they can still make some profit after covering the losses. Like a hurricane hits, the insurance company has a bad year. Does that ever happen? If you look at the net income of the big insurers, no.

• 3:27:23David Rosenthal?

  Yeah, this is no surprise here, but like, health insurance in the US is not insurance, it's access.

• 3:27:28Ben Gilbert?

  It's 100% right. So we just had the single greatest healthcare crisis in the last several decades with COVID. And what happened to the profits of the big health insurers? They stayed flat or grew. So, I mean, we aren't here unacquired to demonize people for making money or for being capitalists, but I do think we should call a spade a spade. The health insurance companies are not actually insurance. They're not actually holding the bag as the funder of last resort when calamity hits. It's the government. So really, it's the taxpayers. The big insurance companies and the PBMs make good profits in the good times, but the taxpayer funds the bad kinds. I would be kinder here to the middlemen of the industry if I thought they were innovating and taking risk the way that the drug companies

• 3:28:09Ben Gilbert?

  are, but the incredible consolidation that's happened among insurers and PBMs and, I mean, frankly, even the hospitals and pharmacies too. Like, there's either local monopolies in the hospital case, or kind of a three-race oligopoly in every other part of the value chain that really is just obfuscated and insulated profits.

• 3:28:29David Rosenthal?

  So what you're telling me is that pharma are the guys in the arena. They're out there trying things.

• 3:28:34Ben Gilbert?

  Exactly. No matter what value judgments you want to place on them or anyone else. And there are years where pharma way out earns and frankly, Novo Nordisk has way out earned many of their peers many years in a row. And it's like a very fine question to ask of like, does any healthcare company deserve to have such phenomenal returns on invested capital like Novo Nordisk does? But there are many players in the ecosystem for whom it is obvious to me that they should not be as large and not be as profitable as they are.

• 3:29:02David Rosenthal?

  I got no arguments here. All right, team Novo.

• 3:29:05Ben Gilbert?

  Yes, and frankly, team pharma, at least relative to its reputation. I think there are many players in the healthcare industry that have a fine reputation and they probably deserve a fine reputation. But it's weird to me what a terrible reputation pharma has when they're the ones innovating and trying to massively affect the trajectory of humans.

• 3:29:26David Rosenthal?

  Yep. And I think that's why, you know, a lot of scientists, including I think Lata and many, if not most, folks at Novo Nordisk, I think that's why they work there.

• 3:29:35Ben Gilbert?

  Yep. All right. So finally, to wrap this section, listeners, this is all very, very complicated. Every time I was tempted to say, well, XYZ party or XYZ mechanism is stupid, which I probably did too much on this episode, I discovered a very rational argument for why that thing exists and why it isn't all that bad, which is a little bit maddening to research and also explains how the system in America ended up the way that it did today.

• 3:29:59David Rosenthal?

  Yep.

• 3:30:00Ben Gilbert?

  To close value creation, value capture, there is sort of an interesting thing that everyone should just noodle on and try to square the circle. People feel like drugs cost too much and they don't understand how much they're going to cost and they're upset because they can't get drugs that they want. They think they're being extorted in some way. This is patients generally. Shareholders in pharma companies feel like they're actually not making that much money. If you look at the whole industry, their return on invested capital is maybe slightly better, but pretty much on par with other industries. So square that circle. It's pretty weird. All right, bear bull, David, and we can be reasonably quick in this since I think we've hit a lot of these points along the way.

• 3:30:41David Rosenthal?

  Yeah, I mean, to me, for Novo Nordisk specifically, I think it's pretty simple. Are GLP-1s the next super cycle? If yes, that is the bull case.

• 3:30:52Ben Gilbert?

  Right, even if Lilly's Manjaro and Zepbound are like, I think they're like 30% cheaper, they might be better, but they can both make a ton of them and all of them will get pulled off the shelves right away.

• 3:31:03David Rosenthal?

  There is room for everybody here. And the barriers to entry from everything we talked about to competing in this area are very, very high. So like, there will be a number of competitors, including Eli Lilly, but there will be plenty of demand and profits for everyone. That's the bull case. And the bear case is, for any variety of reasons, be it health risk, or lack of efficacy, or, you know, whatever, long-term, this just doesn't play out. Or it doesn't play out on the same multi-decade-long timeline that insulin did.

• 3:31:38Ben Gilbert?

  Yep. I think that is exactly the right way to put it. For some numbers, which I think are interesting, and just sort of to illustrate, if semaglutide becomes truly a mega blockbuster, an example of this is Humira by AbbVie, that generated $200 billion in lifetime sales since Humira was approved for 11 different indications across this whole spectrum of inflammatory and autoimmune disorders. So it turns out you actually don't need a deep pipeline if you have a drug that you can be profitable on, where there's not a lot of competitors for it, your patent actually gives you a good amount of room, you build a brand around it, you get approved for a

• 3:32:21Ben Gilbert?

  ton of indications that all have large populations. I mean, there is such a blockbuster that for a decade, it doesn't matter how deep your pipeline is, or how diverse it is, you just win. And like, there's a chance that with semaglutide and tirzepatide, both Lilly and Novo Nordisk have that for the next decade.

• 3:32:41David Rosenthal?

  Yep. And decade plus with further innovations and iterations that are going to come.

• 3:32:45Ben Gilbert?

  Yeah. Eli Lilly has this one in the pipeline called Retatrutride that is a triple agonist that adds yet another hormone to the mix. So I think assuming that Novo stays sort of neck and neck with Eli Lilly, as they both keep coming out with better and better versions, that this could be the next Humira or potentially much bigger than Humira. And I think the defensibility is an open question for how many years, but at least the next decade.

• 3:33:10David Rosenthal?

  Yep.

• 3:33:11Ben Gilbert?

  One other downside that I think you didn't point to specifically, but you sort of meant in saying there's some unknown downside to this. There are some early studies that are showing that you lose more lean muscle mass when you're on a GLP-1 than if you were just doing diet and exercise. When you're losing weight normally, you lose like 25% lean muscle and these early studies are showing it's something like 40%. So that would be a bear cases that we learn a couple of years from now, like, oh man, this is actually way worse for some set of people that could lose weight through diet and exercise. But if you're obese, it's still probably better to lose weight, even if a disproportionate amount of it is lean muscle mass. But I think there's sort of this open

• 3:33:54Ben Gilbert?

  question of like, is there a boogeyman in the closet like that? Or is that a significant enough boogeyman to really change things?

• 3:34:00David Rosenthal?

  Yep. It's probably also worth mentioning quickly here before we wrap. You know, one potential boogeyman that is out there, people have talked about is suicidal thoughts. As best as we can tell from the research, it seems like that's not a major risk with these drugs. Based on the broad population studies, you know, certainly that's what Novo Nordisk says. Regulators have not indicated that that is an actual issue, but that narrative is out there. And we don't want to go through the episode and not mention it. That could be one of these boogeymen for these drugs.

• 3:34:29Ben Gilbert?

  Yep. All right. Well, as much as I don't like leaving it there, I think we have beat this horse and we should do something fun like carve outs.

• 3:34:35David Rosenthal?

  Yes. Carve outs. Let's do it. For new folks to acquire it, and since it's the top of a new season here, we do this for fun at the end of every episode.

• 3:34:44Ben Gilbert?

  Yep. So I have two.

• 3:34:46David Rosenthal?

  Oh, great. I do, too.

• 3:34:47Ben Gilbert?

  One is something that my wife got me as a Christmas present, which is the Knox Gear Tracer 2. And this is, I think, a Columbus, Ohio company. It is a running vest and some lights that are rechargeable with USB C and waterproof. And so it's super lightweight. It fits really well.

• 3:35:07David Rosenthal?

  Perfect for Seattle.

• 3:35:08Ben Gilbert?

  I know. I wear it on all my winter runs when I'm out walking the baby now.

• 3:35:11David Rosenthal?

  Oh, you sent me a photo and you were all lit up. And I was like, wow, Ben has really invested in some gear.

• 3:35:17Ben Gilbert?

  It's pretty hard to hit you when you're this lit up. It also has a optional light you can buy that clicks into the front. That's basically like a headlight, but you wear sort of on your chest. You don't really feel it when you're running with it, but you do light up the whole road in front of you. So when you live in a place like I do, that is dark from 3:30 PM to 8:30 AM, it's a great way to get outside and be seen.

• 3:35:37David Rosenthal?

  Nice. I bet we will have a lot of folks in Denmark that are interested in that.

• 3:35:42Ben Gilbert?

  Yes. To our Danish friends and our Swedish friends at Spotify, I highly recommend this product.

• 3:35:47David Rosenthal?

  Yeah. Nice. All right, that's one.

• 3:35:50Ben Gilbert?

  All right. Two is a recommendation from friend of the show, Ian McCormick. He texted me and said, I listened to the holiday special. I have a show recommendation for you. Go watch Drops of God on Apple TV Plus. I'm three episodes into it and it is awesome. It is like thrilling. It's a little bit unapproachable if you don't like subtitles, because it takes place in France and Japan. And so parts of it are in French, parts of it are in Japanese, and parts of it are in English. And so you have to read subtitles for the majority of it. But it is a beautiful story about wine and family and love.

• 3:36:30Ben Gilbert?

  And it's got some very unexpected twists and turns and drama to it. So I highly recommend it.

• 3:36:36David Rosenthal?

  Ooh, fun. Sounds like Apple TV's got some good shows these days.

• 3:36:40Ben Gilbert?

  I've been liking it. Yeah.

• 3:36:41David Rosenthal?

  Nice. Well, I have to give you a big thank you because over the last couple of weeks, since your recommendation, I have read the book Wool, which is the first in the series that is the Silo series on Apple TV Plus, because I'm more of a book guy than a TV guy. And it is awesome. Book is so good. A new addition to my favorite sci fi books and sci fi series.

• 3:37:03Ben Gilbert?

  It's funny. I've been holding off on reading the book because I don't want to spoil the show too much, but I hear it actually deviates pretty significantly from the show.

• 3:37:08David Rosenthal?

  Hmm. I wouldn't be surprised by that, having not read the book. I'm excited to dive into the rest of the series. Okay, my carve outs, I've got two. The first one is a fun, timely, in-person carve out. It's a guest carve out from my wife Jenny. San Francisco Ballet, where she works, is premiering a new work at the beginning of the season this year. January 26th, here in San Francisco, is the premiere, a new ballet called Mere Mortals. And this is pretty cool. She was like, you gotta talk about this on acquired. It is about AI, and it is a Pandora's Box analogy for AI. Super cool. The music is composed by

• 3:37:51David Rosenthal?

  the British DJ Floating Points. So it's like, super modern ballet, choreography from a great up and coming choreographer. And SFB is gonna do after-parties in the Opera House afterwards. Should be like, a super cool event. So Jenny and I will be there. I think we'll be there on opening night, January 26th, and it runs through February 1st.

• 3:38:11Ben Gilbert?

  For listeners, Dave and Jenny lived in Seattle, and Jenny was involved in the ballet up here. And I went to an event held, you know, where the ballet performs. And it's immensely cool to be in there with the performers and at the place where they perform and in a party setting. Like, I highly recommend it for any of the before or after stuff, too.

• 3:38:29David Rosenthal?

  Yeah. Ballet is such a cool art form, because of all the classical art forms, it's the most young and modern. You know, like, these dancers are athletes. They're like NFL level athletes at what they do. And, you know, they're young. And so there is this, like, new life in it, relative to, I think, a lot of other classical art forms. So, anyway, I love it. And obviously, it is Jenny's whole life and career. That's one. Two, on some holiday travel flights, I think-

• 3:38:55David Rosenthal?

  Recommended by an acquired listener, actually. I watched the BlackBerry movie. Have you seen this yet?

• 3:39:01Ben Gilbert?

  No, but I can't believe it's Dennis from Always Sunny.

• 3:39:03David Rosenthal?

  I know. It's so good. It's really, really well done. I just watched it because I was on the flight and it was on the entertainment system. And I was like, yeah, sure, whatever. I'll give this a try. Like, I don't know, Rim, BlackBerry.

• 3:39:13Ben Gilbert?

  Yeah.

• 3:39:14David Rosenthal?

  But it's really, really well done. I really enjoyed it. It's hilarious. It's also like a good business story. You know, it's a good example of a, we get asked all the time of like, oh, can you guys cover like a failed company or, you know, a cautionary tale? And it's hard to do on acquired because a lot of these companies are still going and Rim is still going. But BlackBerry is a good one because you're like, it's super obvious that they failed. There's no argument about that one.

• 3:39:40Ben Gilbert?

  Although, did you just see the add-on keyboard you can get for your iPhone?

• 3:39:44David Rosenthal?

  Oh, no.

• 3:39:44Ben Gilbert?

  Someone debuted a physical keyboard. So for you diehards out there who were crackberry heads.

• 3:39:48David Rosenthal?

  You missed the clicks.

• 3:39:49Ben Gilbert?

  You missed the clicks. I think it's actually called clicks, maybe.

• 3:39:53David Rosenthal?

  Oh, nice.

• 3:39:54Ben Gilbert?

  With that, we have a bunch of people to thank who massively contributed to this episode. It's been fun doing more and more of this recently, so I think we'll keep doing it too. A huge thank you to the PillPack founders, TJ Parker and Elliot Cohen, for being so generous with their time and having conversations.

• 3:40:09David Rosenthal?

  Yeah, PillPack, super cool company. They got acquired by Amazon a few years back, right? For over a billion dollars?

• 3:40:15Ben Gilbert?

  Something like that. And became Amazon Pharmacy, which I actually know some people that use and rave about it. Also, thank you to the founder of Cover My Meds and, and Health, Matt Skantland. The founder of Blink Health, Jeff Chaken. The CEO of JP Morgan's healthcare arm, Morgan Health. His name is Dan Mendelson. Had an awesome conversation with him and the other folks I mentioned to kind of bounce some ideas around that we were thinking about is what are the main points that we really need to hit in this episode? Good friend of the show, Kate Karames, who spent her career at various pharma companies. And finally, thanks also to some of my favorite reading materials to prep for this. Out of Pocket, the newsletter from Nikhil Krishnan, very approachable, fun way to read about the healthcare industry.

• 3:40:58Ben Gilbert?

  A shareholder letter from Tom Williams, who's a friend of the show and a portfolio manager at Fidelity.

• 3:41:04David Rosenthal?

  Yeah, Tom is great.

• 3:41:05Ben Gilbert?

  Some blog posts from the Drug Channels Institute that were publicly available that I thought were great, some very helpful DMs with Ashwin Varma, who pointed me to a lot of the great information about the profitability, or frankly, lack thereof, are the returns on invested capital for pharma industry. He's actually a med school student and former Lux Capital associate, so he's got a foot in both the capitalist and the medical camps. And a truly incredible long-form read on GitHub by Alex Telford. I think that helped frame my understanding of how we got here in drug development better than really anything else I read. So thanks, Alex, for that, too. Sign up for notifications of when new episodes drop, acquired.fm/email. You can also get

• 3:41:49Ben Gilbert?

  our follow-ups and the corrections and teasers at what the next episode will be. ACQ2, you should go check it out. It is where we do follow-up interviews when we have topics we're more interested in. Perhaps we'll do that for healthcare or just CEOs or investors that we want to talk to. Look in any podcast player. After you finish this episode, come discuss it with us at acquired.fm/Slack. And if you want any of that sweet acquired merch, go to acquired.fm/store. In fact, I am wearing the t-shirt now, so.

• 3:42:21David Rosenthal?

  Ooh.

• 3:42:22Ben Gilbert?

  Yeah, check it out. With that, listeners, we'll see you next time.

• 3:42:25David Rosenthal?

  We'll see you next time.