Novo Nordisk (Ozempic)
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Right, first step, ode back. Let's see if I can do this. Sleep deprived.

you, me, but bad. Who got?

Easy, see me down, down.

Welcome two season fourteen episode one of acquired the podcast about great companies and the stories and playbooks behind them. And then gilbert, David, and we are your hosts. Today's episode is on the company behind these sensational diabetes and weight less drugs, OEM ic, and we go v the company is novo nordisk.

Now, when I first learned about us them 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 instance, in those insulin companies. Better watch out.

But here is the fascinating listeners. Novo notice is the company behind insulin or at least one of the few big ones. Now you might say, well, that's OK because they're probably a big pharmaceutical company that you know very diversified with lots of different drugs.

No, no. Novo artist is unique in that the vast majority of their revenue is concentrated in the category of meta lic health. They have been the insulin and diabetic's company for the last one hundred years.

And perhaps even more surprising, this pharma giant is unique in that their owned and controlled by a nonprofit foundation. The stats around weight, diabetes and its impact on our society are staggers. There are thirty eight million americans with diabetes.

That's one intent. People, globe believe that numbers is over five hundred million with the disease. Diabetes cost the U. S. Alone, more than three hundred and twenty seven billion dollars a year.

And on the other side of things, in the weight category, around a billion people suffer from a bested worldwide, a billion, including forty percent of the U. S. population.

If you expand that from obesity to overweight, seventy five percent of americans are technically overweight. IT is really hard to imagine a bigger market to go after, which is why nova notice has become europe pese largest company, surpassing even L V M H. Last year. David.

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 farmer giant pretty much just focused on this. One area like this is the remember of the farmer industry.

yeah. So why is today, in the early twenty twenty years, the moment in human history, for these new G L P. One drugs? The crazy thing is sam glue, tide to the molecule and oceanic, and we go. Vy was pioneer back by novo nordic with the first trial in two thousand and eight for type two diabetes treatment.

And IT was built on research, started in the early nineties, but here we are in twenty twenty three, almost three decades later, talking about IT as a weight loss drug that sort of magically appeared out of nowhere, or that at least public perception of IT. Incredibly, the fact that G, L P one drugs could be used to reduce food intake was actually discovered way back in the mid nineties in the first sort of scientific publication about IT. But only in twenty twenty one did we finish the clinical trials that truly show how effective IT can be.

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

Yep, pharmacy tics s is without a doubt, the most complex industry that we have ever studied. So to fully understand of our notice, we need to go back to a simpler time before the food and drug administration, before all this industry consolidation and health care of legalities, before there were treatments for everything we take for granted today, and a biotics, vaccines for polio. Teti messel.

Mus, you name IT. That is where we will start our story, if you want to know. Every time in episode rops, you can sign up at acquired data m slash 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 epsom with us after listening and acquired dot F M slash slack.

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

Will we start in nineteen twenty one, over one hundred years ago in toronto, canada, with the discovery and extraction of the pancake atic horon insulin by a laboratory group at the university tonto medical school incident, of course, as most of you know, regulates the absorption of glue coast from the blood into the body. And it's the main anibal's cormon in most, if not all, animals in the world.

Insufficient intel in production in the body, of course, leads to the disease, diabetes. So this group, if you could call IT that at the university of tonto, is comprised of the physician frederic commanding and the medical student, his assistant Charles best, along with a chemist and the head of the laboratory there, and assistant medical school dean, john, my cloud. Now there's a whole bun controversy around who actually deserves credit for the discovery of insulin, the historical consensus at this point now being that IT really was banking and best who did all the work, but none the less. Two years later, when the nobel committee awards them the nineteen twenty three nobel prize in physiology or medicine for the discovery of insein IT is banking and my cloud who get the award not best? This will come back up in a minute.

yeah. And to set some context for the time period here, one thousand nine hundred and twenty one, the public is not aware of what insulin is. The public is, however, aware of what type one diabetes is.

This is the juvenile form of only five percent of diabetes suffers, have type one 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 know, you could inject or eat or anything to cure this sort of mysterious, horrible way to die. And people were so convinced in the late teens and early twenty years that scientists were on the verge of a breakthrough, that the common wisdom was to go on a diet of, like two to five hundred is a day, and starve yourself so that you could live long enough, even though you're a terrible quality of life. You could live the months or a couple of years long enough when the treatment did arrive to finally get IT.

I mean, if I can't overstate how important this was and how terrible, awful diabetes was, IT was truly a death sentence. That treatment that you are 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 prolonged your life as long as possible. But like, you are going to die unless a treatment is found. So know when we say that this group won the nobel prize in one thousand hundred and twenty three. 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.

I mean, we're just not that many decades after snake oil salesman patent medicine. We talked on the standard oil epo de about john e rock feller's father luna ly selling snake oil. And that's just barely in the rear view mirror.

This is one of the earliest breakthrough in modern science. We were still years away from antibiotics, and certainly decades away from the popular zone of antibiotics as a treatment. So this was the big .

breakthrough. yep. So what did banana best do? So scientists had known, even going back to the eighteen hundreds, that diabetes was caused by the most functioning of some type of hormone that was created in the pankau. But until toronto, nobody have been able to actually isolate what that hormonal was, let alone extracted.

And to put a finer point on IT batting, and best didn't even know what the hormone was, even when they did figure out what to extract. I thought IT was sort of this soup of a bunch of different chemicals mix 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.

So by experimenting with dogs and dog panky is they are able to extract something that comes to be known as insulin. And not only exact, they then experiment with IT and inject IT into human diabetes. Patients who are at like severe end of live stages and miracle, like the human body is able to use this extract from dog panky asis. And these patients have like maculate recoveries.

Yeah, I spent a lot of time reading this book breakthrough by sea Cooper and Arthur s. Burg, and they go away. Ended this. Basically, this team was the first one to figure out you could target the pancreatic islets and isolate the extract in a relatively pure form.

And you, pure by their standards, not certainly by today's and ards, but you're right, totally crazy, extracting from these dogs and injecting in humans in extremely limited quantities. Once they figured that out, IT was still hard to then go from there to like getting IT to people because they're like, okay, we did this thing that kind of work once from like one dog into one person. So where do we go from here?

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 pancras es 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 at least in order for them to survive, they need to regularly inject an appropriate amount of insulin you know in by regular basis, especially in these early days. That's like every couple hours.

And you can imagine the incredible highway react 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 replicated, and then they took his, combine 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 founded again. This was the state of medical science. And so you have people ring off the hook.

Newspapers reporting, breakthrough is here. The breakthrough is here. And they've got, like, you know, single, digital 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. Ford is super unclear and. This is for shooting a little bit. But the error that were in here in one thousand nine and twenty one, 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 makes to much money.

Yeah, Better invest in the cloud. Aren't onna go you know, today they would go like start a company you know around this that's not onna happen back then. But all the sudden the world needs a lot of this animal insurance.

And in a supply chain that can go down once you start patients on this, they need IT forever. So what the university of toronto does do is the license, production and development rights to a large american drug company based in inDiana. You lied, lilly, and they give ea.

Lily a one year exclusive development license to try and mass produce this substance. But again, like you said, this is like a big step for the university of toronto to do this. But the need in the world is so great that they are willing to work with industry.

Here you literally have presidents and secretaries, ies of state, trying to call in favors and successfully calling favors to get access to the limited vials that the university of tonto has.

Yeah, wasn't eliza th use one of these famous first patients, the daughter of the secretary of state of the U. S. Charles? yeah. Well, so it's obviously not practical or maybe not ethical that's beyond on the scope of this podcast. To use dog panky is for scaling mass production here. But IT turns out there actually is an abundant ready supply of animal pank arises that happened to be just sort of lying around in the american hartledon, just about every human food production center in the world. And that is cow and pig pank erases from, you know.

all the meat that we eat. India has got a lot of cow farmers. And so the clever really started up lilly. I mean, the company had been around for a while, but this idea of taking on real R N D risk was sort of a new concept. So they sort of start up, eli lilly is going around hiring sales people to bang down the door of slaughterhouses all over inDiana and say, hey, I know your waste product includes pank arises do you think you could ship those to us will pay you .

for those yeah and it's actually .

not an easy sale because those farmers are like, it's gonna low down. My process, if I have to figure out how to separate the pancras, is. And this is already a real tight ship.

So there's a real entrepreneurs tale of eli lilly sort of convincing large, large numbers of slighter houses to do this. The other interesting thing to note about the e lilly licence, David, which I thought was really clever, is it's a one year exclusive license where there's two conditions and the conditions are retreat. One, Ellie has to report back any advance that they make to the university of toronto.

It's almost like little Operation warp speed going on, kind of analogous to cove IT. As they figure stuff out, they have to share IT back with the university of tonto to improve the manufacturing yields of whoever else will be developing the drug in exchange. The thing that elli get to retain and protect on their own is a brand eli, eli thought really important early to say, hey, we want to build a brand around insurance 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 I P back to you, the brain and actually stays ours.

yeah, we're going to talk a bunch more about the lady here as we go. But this moment, this incident moment, this is what really turbo charges them and makes them into one of, if not the first kind of leading american and international pharmaceutical company, which is still, is to this, stay still bigger than nova. notice? K yep, although not be too much.

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

Okay, so back to this whole nobel pressing, which, as we said, was awarded to banding and assistant medical school dean john mccloud. Now, how did my cloud end up being the guy who shares the award with planting and not best? And years later, actually, the nobel committee would basically admit that they mess 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, but sexual nomination for that Price was put forth by a previous nobel prize winner in physiology or medicine, the nobel prize winner from carbon hagen, denmark, a animal biologist named August crew, oh, who also happens to be the founder of novel or desk.

Is that how nobel prizes work? A previous winner nominates the current nominees, or is that just like IT certainly helps their case if a previous winner.

I do not think IT is a requirement, but you know, certainly a previous winner in a recent previous winner in the same category, you would imagine care is a lot.

So the guy who would go on to found novo nord sk is the one that nominated banting in the cloud for the nobel prize before are starting the company now.

Now here's the wild thing about August, co founder of noble nordic, the world's premier intel in company, focused on intel in and diabetes for hundred years now. World to premiere. G, L, P, one got, he's not a physician.

He's not even a human biologist. Yeah, he was an animal biologist, right? Yeah, he was an animal ologies. A fun fact though, this is may be my favorite side bar in the episode he studied at the university of copenhagen's. Like advisor was getting Christian board B O H R, that name might sound familiar.

Decent people of the poor father.

News bar that neal's boy, father of atomic physics, you know, also a winner of the nobel prize, major contributor to the manhattan project. So yeah, like his August PHD advisor was the father of neale's bar, everybody's winning nobel Prices is the best something in the water and go in here at that time.

Also, that tells you a how long ago this, what is that? In my head, kells borrow is like someone from a long time ago, so I would be a decedent. But actually this is father.

yes. okay. So back to August crew. How the hell does he end up going to toronto, getting involved in all of this, starting, you know, novo nordisk? Well, in one thousand nine hundred and twenty, the same summer that he wins the nobel prize, his wife, muri pro, is diagnosed with diabetes.

And this starts weaving together this whole crazy chain of events that leads to, well, nord sk novo comes a little later. Murray herself is actually a pretty incredible person. SHE is a physician, so she's the first woman in denmark to earn a doctor.

IT in medicine and denmark, I kind of suspect, has always been pretty progressive relative to the U. S. But even still, if we're talking about like the sixteens, a woman to earn a doctorate in medicine and then be a practicing physician was a obviously unique, yes. So when she's diagnosed in one thousand nine hundred and but basically self diagnose knows what's going on like SHE in August, like he knows exactly what this means like she's going to do. This is horrible.

But given that they are 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 hands Christian, who is widely respected as sort of the best indochina ologies in town, even though he's very Young. And keys up to date on all the latest the workings of the starvation diet and how to maximize quality of life and prolonging life as long as possible. Fortunately, murray diagnosis herself very early.

He puts her on a closely monitor starvation diet, and they stabilize IT, enough enough after a year or so. Now back to August. Ordinary, you, after you win the nobel prize, you go on a major international like torn.

Of course, he invited all over the world, particularly to the elite universities in america, that come give speeches on his nobel Price winning research. But because mary fell ill at the same time, he had to delay his trip until one thousand and twenty two. So in thousand nine hundred and twenty two, August murray said sale for boston.

which is, by the way, amazing that a type one diabetic has made IT sort of this foreign life and is in the early twenties, doing transit antic travel.

Totally amazing. So August is gonna give a delayed series of lectures here, both harvard in yell while they're in boston. At harvard, they meet with a guy named elliot Jason, who he's actually the inventor of the starvation diet.

He is like the world's foremost diabetes physician and researcher at this point 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 insuing hadn't really yet reached europe and certainly hadn't reached denmark at this point time.

So was like a competitive advantage to be a nobel prize. When are on an international actual circuit because you got Better, faster information about brand new medical advances?

yes. Well, and particularly the competitive advantage like life advantage, like they're just concerned about mars life at this point in time. So li says, you know, I know the guy who runs the lab up there, john cloud, let's write him a letter and see if voyer in america, you can go up and see them and see the labs, see what happening, and maybe gets some of this insulin.

So August murray write him a cloud. Murray also writes back home to denmark to head down and tells him about what's going on and about this discovery of incident. SHE suggests in that letter that since gorn is kind of the leading diabetes physician in denmark, maybe while there in toronto, they might be able to secure like some rights or ability to bring insulin back to denmark cloud in toronto.

You know, he gets the letter's like, of course, come out up you and marry both come stay in my personal home. Sadly, unfortunately, mary falls ill and SHE can't make the trip up to toronto. So August goes alone. But he stays with my cloud, observed the instant production process, sees everything that's happening. They become close and friendly.

Most importantly, mccloud takes August to go meet with the insulin committee and talk about what murray had suggest the head or an of like, hey, maybe these are the right people to bring insurance to europe essentially, but at least to denmark now fully enough at this particular pointing time. IT turns out you actually can't patent drugs in denmark. So any blessing or pattern licensing from the ensuing committee to the cross and haggle for denmark is sort of pointless st, 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 scandal via norway, sweden, denmark? You have our official blessing in any rights that you need.

And this is pretty similar deal that they cut with eli. Eli, that was for north america. They basically gave him the same thing for a standard. A.

yes. So I get to muri set sale back for europe. They arrive in copenhagen. They go tell hagger on the news immediately. They all go get to work. And by get to work, they go by cow pank aries at the local livestock market and go in.

This is something that you read more about the novo notice history than I did was IT cows, or was IT pigs. Because I know that denmark has an abundance pigs, which actually made IT pretty well, suit to be an early .

insula manufacturer. A interesting IT was both, I think pigs may have come later, but certainly was both cows and pigs that nordic in the nova were using both of them. They were basically trying to get their hands on any .

animal pack crises that they could.

right? If it's got alot, we want IT. yep. So using the toronto method, they get a bunch of pancreases. They go to August cross lab at the university of carbon gen, run them through A B grinder, poor hydro acid over them and the extract insulin. And then they tested IT on rabbits and mice, and they confirm, yeah, we've got IT.

This is england, certainly for the first time in skin in via, I think maybe also for the first time in continental europe, at least in salin is extracted here in denmark. So this leaves just one obvious problem, just like this one in toronto. This is not get a scale. You know, maybe you could do this to treat muri, but they want to treat the whole country, the whole region.

right? This is like A A very real problem, for instance, in all the way up until, like the ninety eighties, which is you are scale constrained by the number of dead animal pancreases you can get your hands on. And I found this wild start. IT takes eight thousand pounds of pancreatic gLance from twenty three thousand, five hundred animals to make a single pound of human issue. Yeah.

that's well, to put that in more real numbers, that means that even by one thousand nine hundred and eighty, with all the advances, IT took one million animals annually for thirty thousand diabetes patients. And there are a lot more than thirty thousand diabetes patients in the world in .

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

Yes, you're for settling.

It's been a forty five years, massive issue, but like we basically could not have continued to use animal based medicine to treat dibs. Once IT really exploded.

they are going to get to this like two hours 多。 good. So back to the cross and head, aron, in nineteen twenty two, twenty three and they need to scale production so they go to the levens chemic fabric. And I need to like majorly apologize to .

all ah dating .

people there. I talked to some finish folks and research for the office and thank you very much. And I just I realize in those conversations, I need to give up on trying tip for now out things correctly stick to rench was like to french, yes, but that translates english as the lion chemical factory.

And IT is owned and run by another man named August August contest with K, K O N G S T E D. And so they partner together. And by the summer of one thousand nine hundred and twenty three, the very same summer that the nobel committee is debating on the award for that year.

And of course, co at this point, has nominated his buddy, my cloud, along with planting by that summer of thousand and twenty three, the combo of the cross and head orn and the line chemical factory have produced enough insuing that they can complete trials with eight human patients with great success. They're in carbon hagen. And at this point, H.

C. Hagan, who remember was originally mary's physician to help treat her diabetes. He resigns his medical post and decides that he's gonna focus full time on this project.

So the founders are in hagan and August demery .

crew and consent from the line chemico factory. These the founder product, but there's no nowhere or desk yet.

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, oh you like hundreds of vials a week of usable insulin.

absolutely. E, I really had insulin on the american market available to patients at this point time.

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Yep, so learn how you can put A I agents to work for your people by clicking the link in the shower notes or going to service now, dcom ash, A I dash agents. okay. So David, the founding of nordic, how does this happen?

So the line chemical factory at this point has established a new production line for instant, but it's unclear do they own this production line. The closed as header is the university of toronto involved grow and hagon n are sort of consulting on IT. When hagon makes this decision to go full time, what actually happens is he becomes an employee of line chemical.

What isn't really what he wants. August crow steps back, and he returns to his other research of the university of copenhagen. But once inside in starts rolling off the line later that summer under the brand name insuing leo, like you know, line chemical factory, they use the brand and that would continue to be northesk insulin brand name for the next sixty years.

I think, wow, pretty quickly, demand is just off the charts and they are like we talked about essentially the first mover in continent, europe. So there's a pretty enormous opportunity here. So in one thousand nine hundred and twenty four co head and constant who once line chemical, they all come to an agreement. They're gonna set up a new independent and self owning institution to produce and distribute this insulin throughout europe.

Yeah, what does that mean?

Still not a company because other than constant from line chemical co and even hagger n at this point, they're not particularly commercially minded.

No, it's a biologist and a physician. yes.

So what they do is they set this up as an Operating company because that's what they have to do to have employees and mix sales. But not. But this Operating company is one hundred percent owned and controlled by a foundation that they also set up. And the three of them are gonna board members of this foundation. And head orn is gonna run IT day to day.

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 government 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 hundred years is laid right .

here in this corporate structure and force shadowing. There is a moment much later in history where, absent the control of this foundation, novo notice would have cease to exist. IT is only because of this structure that nov. Notice survived, and that we have G, L, P. Once in everything we have today.

fascinating. By the way. This is not that uncommon in danish companies. Lego, same structure. Marsk, the shipping company, same structure.

Well, I ducked 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 like generational transfer mechanism.

And novo later will talk about novo in a sec. Novo actually has this type of structure that you're talking about. The nordic foundation is not just like a foundation of convenience. IT really is like a charity foundation with a dual mission. So they give you two missions.

The first mission is to produce insuing and sell IT a at cost in scandinavia in the original kind of territory Mandate, in order in a maximize access and kind of humAnitary and public health benefit, be though exported 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 one hundred percent to the foundation to then be used for you to grants and research about diabetes and supporting abeles patients. Ince, fascinating. I not know that totally different. And you know more or less, as you said, that is the same mission in structure that is still in place today. It's obviously changed a little bit.

Yeah, there are some coffee ads that i'll get to and we get to today.

Yes, the Operating company is now publicly traded, but still that foundation controls seventy seven percent of the voting shares of nova nordic and twenty eight percent of the economic shares.

yeah. So no shareholder activists in this company or at least no one effective in doing so.

yes. So the name that they choose for this new institution, or a really cool institution, is fittingly nordic insein, which northesk in finish means north in lin is the instant manufactured for the nor dex.

Very creative, creative.

So um know I like, okay, that's norsk. What's the novo piece of this? Well, IT turns out that is quite the story too because among the very first employees of the instant project, even before notice gets created, are two brothers herd and torvald Peterson and the Petersons.

Got to remember, the time worn there is sort of like prototypical nineteen teens, nineteen thousand engineers and tankers. We're not that far removed from like the right brothers and Henry ford and that kind of stuff here. They're like kind of cast from that mold.

So the older brother herold, he had been working in August cross lab, doing all the mechanical engineering stuff to Carry out the experiments. Like, you know, you need to build devices and contraptions, set up experiments. And so held was in charge of doing that.

Once the insulin project gets going held naturally sort of shift over and he's the one going out in building and buying and modifying like the meat grinder and figuring out how to pour hydra are acid over IT in the right way and all that sort of stuff when line chemical gets involved in the spending up mass production herd goes to and August and constantly, hey, you're setting up an actual production line. I've got just a guide to help you set IT up and run IT my brother torvill because not only is torvill a seasoned factory Operations manager who's currently running a large soy factory, he is also trained as a pharmacist and study chemistry. He's like the perfectly qualified person to be like an early employee of this new Operation except that turns out there's just one problem. Hagnon 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 heck and you this pup as physician, like what do you know about running a factory?

So this schism happens like in the first year of notice existence.

Yes, in the first six months after tour val is hired, he inhabited on, they're constantly fighting. One day they going to do a huge document and heg fires six months. Guess we know who's in charge.

yeah. When that happens, herold dollar brother resigns in solidarity and their superpests, they go to see co. And they are like, hey, you know, August, i've been working for you for a while like clearly we know what we're doing here.

Why is this happening? And cro sides with hack. And he's like, no, no, he's my guy. He's mary's physician. He's gna run this thing.

So they say, well, are you fine? You know, as you know, here in denmark, you can't patton drugs. H that's .

why this is important.

Where is going to 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 to which tour world yells at him, we will show you. And they stormed out of the building and go down the street, and they found a new inside in company, a novo insulin company.

They're in gobin hagen insulin novel. And that is the beginning of novel. And for the next sixty five years, these two companies would compete in blood sport, head ahead, hated each other, absolutely hated each other, until they finally emerged in one thousand nine hundred and eighty nine.

Crazy you. Now, this is such a key part of the novo story that certainly, you know, crow, but then hagon develops into this amazing scientists will talk about the advances the nordic is able to bring to market in the science of insulin. Diabetes is huge, but certainly without the like, bitter competitive motivation from down the street.

I don't know that they won't 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 tony century.

It's amazing. I mean, it's the local and bitter competition. It's furori and leveraging its O D and trader joes. It's edita and puma. You sort of create the seeds of competition early and you can really infuse that to accompanied DNA for decades.

So I think it's worth quick pause. Here we are. You talk about some of this, but just to clarify why diabetes and intel and is such a 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 large patient and potential patient market size. But two, unlike many other diseases and drugs for those diseases, you know what chronic you don't care 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. You're talking about decades forty, fifty, sixty, seventy, eighty years of patient lifespan here where they are injecting insulin daily if not, no, in most cases, multiple times daily.

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 the customer.

yeah. And there's also kind of another aspect that makes IT particularly interesting commercially, which is there is also a motivation to constantly improve the instant product. It's not like insulin inlay is inclined.

There are so many new products and improvements both in the drug itself but also in the delivery systems. I mean, this early insulin is we've eluded to a little bit IT was barberry 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. Tons of impurities in its others, swelling.

There's infections, pya alert c.

Reactions to all the impurities totally IT wasn't self stable in liquid injectable form. This is wild. I don't, if you know that spend. no. So everything we're talking about in these days and what nordic was originally producing, where insulin tablets, solid insulin tablets, now until recent times you can take insulin in tablet form, IT doesn't get absorb by the gut. You have to inject IT. So what patients had to do was take these salad tablets, dissolve them in sterilized boiled water, measure and draw that solution into a strange themselves.

like a glass of with a big needed no face stuff as needle.

And, you know, so now you get patients doing this multiple times a day, and it's really important that they get right amount of insulin for them. This makes IT really hard.

Yeah and there's no measurement. I mean, there's no like one touch pinprick. We get to see what your blood trigger content is right now. We're so far from that existing that you are guessing your .

throne darts totally and actually is kind of a side note to the story. But it's novo, in the ninety eighties that invents the insulin pen. I didn't realized that wasn't notice. But novo, yeah, novo invented the pen and dest focus on pus. And they were one of several companies, but one of leading companies innovating in pumps.

I see, we should say, listeners. And David, you know, this is a topic that is super personal to me, but a huge number of my family members are diabetic and actively suffered from the complications and actively benefit from all the advancements in IT. 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 to.

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

who or is pre diabetic. When I was doing a research for this episode, one of the people I talk to I will think of until folks at the end, but pointed out we're all prediabetic in some way and hit basically like the idea that, look, your a one sea levels, if you live long enough, we will eventually enter diabetes territory, especially with the food system today.

And all these foods engineered to leave us very associated all of our natural inclinations that we had as hunter gathers and farmers and know, imagine the palio life long ago. All the things that serve us evolutionary to stay alive are now the very things that are killing us. So everyone's on the path that just depends how long you live.

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

So well, careful what the word design, David.

So when novo gets establish, this starts the competitive race that really leads to one hundred years of R N D pipeline that changes on this. So the Peterson brothers, they know right off the bad, they can't really just go clone. What notice is doing, I mean, technically, legally they can in denmark.

But what physician and what patients are gonna novo insulin when right down the street you've notice, which has a nobel prize winning scientist, the best diabetes and the Carole gist, no, in denmark running IT, and the explicit blessing of toronto in the insulin committee, if nova just sells the same thing like nobody y's gna buy that, right? But they do have a pretty significant advantage that notice doesn't have, which is they've got their engineering and tangerine skills. So they got to work.

And pretty quickly, actually, they come up with shelf stable liquid insulin. So what I was just talking about, about how notice produce these tablettes, you had to boil them. Novo comes out with liquid insult. You don't have to do that. Not only that, because the process for producing liquid incident that they come up with is so much more efficient, they can sell IT effectively cheaper per dose than what notice is selling their third form as s so they go to market. Nova goes to market with their novo insulin as insulin at half Price because it's so much more efficient.

Now this is so antha themal to like the ivery tower scientists over at nordic k, your marketing insulin at half Price IT, does this liquid stuff work? And is this safe at all? This stuff the Peter and brothers are like, yeah whatever you know, working in across .

you um are right? So novo, scrappy, upstart, counter positioned and petion drives innovation .

so they create Better product. yes. So then nordic, straight back, with a new, longer lasting form of incident called proteome in instant, or N P H, as IT is patented and come to be known around the world, which stands for neutral proto mine hagon.

Really, hagon is in the .

name because hc. Hagadorn, he himself let the research develop this, and he puts his own name on IT. Gotto 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 nordic, rather than building up production facilities around the world, what they decide to do is license IT back to basically any interested farming company. So I, lily, back in the state.

Other companies in container europe is the new, widely accepted most advanced treatment for patients, except there's one company that they refused to license to and that is novo amazing. So novo understand they go and they work around northesk patents on this. You know, again, i'm not sure at this point if the laws have changed and you can patent drugs.

And denmark. But IT kind of doesn't matter because it's clear a denmark is not a very large country by far. The bulk of the market is in exports at this point. And certainly another country is you can pattern drugs. So novo works around nor dex patterns, and they come out with an improved version of protein in insulin that they claim is both Better and doesn't in france on the patents.

which the farming industry has a rich history of figuring out exactly how to do this. Because the thing about farmer pants, which is interesting, is they are fairly narrow. You can patent a molecule.

I don't think this is quite true at the time, but the way that sort of works today as you patent a molecule which is extremely specific, it's different than other industries, is where it's a system and a method for blaw blaw blaw. You can be very brought with IT. So if you can accomplish a similar biological or chemical reaction in the body with a different molecule in basically, anyway, then unpainted. And so there is a rich history in farma of doing exactly this. What is slightly next to the pattern but does basically the same thing.

Yes, to your point though, IT is still quite scientifically difficult. It's not like software here really like, yeah, yeah, yeah I write some code and it's like, no, no, you still gotto find a molecule that does what you say that does yeah. So this leads to a whole bunch w suits.

IT actually ends up going to the daish supreme court where hag represents notice himself in the lower courts. They had lawyers, and I think they lost the case in the lower courts. And hack excursion this, i'm going to be my own lawyer at .

the supreme court.

at the supreme court. wow. Yeah, amazing. And they win nor discuss one here. This is like a huge, huge blow for no vote, I think.

But then literally, right at the same time, world war two starts and denmark is invaded by the notes shortly after they invade poland, and in April one thousand forty, then that he is now occupy them. mark. So this sort of like infighting between these two dinosaur companies, much less levant, much less relevant. But what is still super relevant is, how is europe going to get insulin in the middle of world war two? And this is a major, major turning point, both for the two companies with of each other, but also, I think, really what sets novo on the path to becoming europe's dominant producer of insulin, then ultimately the dominant producer insulin in the world.

huh? So novo, not notice, became the globally dominant, really. I did not know that. I actually don't know the terms of the eighty nine merger. So i'm excited to listen just like everyone else.

Well, so what happens is denmark is relatively unscaled during world bar two, a small country. The dash army was quite small. And so when the invading happens in April nineteen, and there's basically no fighting, germany just takes over the country.

I M. There's no distraction, which means that instant production continues undebated in denmark. Now notice, remember, like I just said, once N, P, H 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 two, you know, most of the dollars for their licensing revenue was coming from ali countries. Well, germany just took over denmark. So all of that revenue, all of those profits go to zero overnight. And nordic for the duration of the war basically just gets put into hybrid nation mode. They're still producing a little bit to help supply danmark, but there's really nothing going on there.

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

Yeah, wow, novo is the complete opposite story. They had been scaling production all throughout canada via all throughout year of. And when germany takes over denmark, instant novo is now, you know, the ethics of this are really complicated .

because it's danish owned, which is not the occupied at the time yeah.

they are now essentially the official nazi sanctioned instant provider for all of not the occupy ed europe. So the german government basically direct novo to massively expand production, supply and suit, no, not only to germany, but france, to pull in to australia all everywhere in our eype, basically.

So just to make sure I have right, IT sounds like nordic is only making a small supply for denmark. Novo is supplying all of naughty occupied europe and the aled countries no longer have access to anything novo or notice k makes. And so they are relying on their own suppliers like he, like illy.

Yes, now they're fine. They can get in lino problem because nor dish because license stall the technology and production to them. They just keep doing that. The only problem is for notice that notest can no longer get the payments from them because obviously, transfer payments from ali countries .

are now blocked. right? fascinating.

Totally fascinating. So again, we said the ethics of this are quite complicated. There is no doubt that novos fortunes massively changed and expanded by the german occupation and the notes 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 euro would have died. 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 distributed to more people is fine. The other things they can be added .

to do that are not fine, right? right? I definitely agree. IT is important to note though, after the war, the dis did require both novo and the Peterson brothers personally to repay most of the profits that they made during the war. Back to the dinner state.

fascinating.

I think like the ethics are complicated here.

Very yeah wow.

So regardless after the war, nova emerges is now both scaled pharmacology 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 N D divisions and become a real powerhouse to arrival what nordic was before the war.

Shortly after the warrants, they develop a new product called the lentil insuing L E N T, which is slower acting incident, which means it's the longer lasting. And this can now be used for diabetics as a basel or background insulin. So they'll still take fast acting insulin around meals to help process blood sugar for meals.

But a Normal human packer's is also producing incident twenty four seven throughout the day. This now is a new background insulin the diabetics can take to help stabilize when you're sleeping or not eating. So this is a pretty big break through.

And what you're seen here is novo. And notice having decades of experience researching mechanisms to slow the absorption or length in the effects of their drugs in the human body, and really developing this incredible competency around how do we are finally tune how we want injections to react in your body over a long period of time in A A very complex environment.

And you've got the human immune system wanting to react anything form you put into IT. You ve just got a lot of systems that you sort to have to make sure that you're interacting well with to achieve something simple like we'll make IT dissolve slower. And I know that's not technically right, but that is of one way to think about IT.

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.

No, this is very complicated stuff, and you ve 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 I lilly licenses this land to insulin from novo and kind of rebrand IT.

IT makes a part of flagship insurance offerings in the U. S. They were doing this with N P H. Instant before the war from northeast. Can now, you know it's kind of novo that's taking up this mental, you know, this will come back up later in the episode.

But E I, lily, although insulin wasn't 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 nordisk. K, license that into their sales and distribution channels in the U. S. I'm really .

curious if the E I li folks would agree with that characterization. I know you read that great history of noo va. Or desk book, and i'm sure that the way that paints IT, but at some point we should dig in to a little, a little more. And cy, if that's how they think about IT do yes.

well, that is going to change in a big way in the one thousand and eighties. But during this postwar period at least that's how um court ABS book makes IT a big shout out and he wrote this great history of came out last year for the companies hundred three anniversary. Unfortunately, you can't buy IT in america.

So I email email them a couple months ago I said here is there anyway, we could buy a copy of your book and very, very graciously he to send to to us. So, uh, very, very kind backy card. yep. So this is basically the way things stay for the postwar area.

Up until the nineteen, nova follows up lentil insuing in the one thousand nine seventies with MC insuing or non immune monto component insuing, which is the first one hundred percent p zero antibody potential insulin that also becomes the kind of new, widely accepted best product in the market internationally. So this is the general data play after the world. Novo is now a scaled pharmaceutical company.

Nord is mostly in rough shape. O of production capacity has gone down the basically zero minimal at this point in time. They have resumed the licensing business and eventually they do get back payments from ali countries that they were owed during the war.

So you know, they're not like in solder anything, but there are a much, much smaller company. No, novo, interestingly, they're now a large pharmacy ticals company. They want to add a second leg of the store, a new business line, so they get into the enzyme em's business.

This is like laundry detergent enzymes, another industrial uses. They add that on a long side, the insulin and diabetes business. And you know, that's all well and good to be a diversify, you know, industrial clam.

Except the henzy's business is both capital intentions and not that profitable. Those don't mix well. Yeah, those don't tend to mix well. Now it's still a viable business that actually stays part of novo. And then novo notice all the way until the year two thousand when IT gets spun out.

oh, is this novoye? This is novozymes.

Yes, IT is still a majority controlled by novo holding, which is the holding company of the novo dex foundation.

interesting. So just like novo nordisk is majority controlled by the foundation holding company. Nove zn still is .

also no versions as well. But when we get to the one thousand and seventies, right as MC insuing is coming online and novo needs to undertake a huge amount capex to radio its production lines and expand them around the world, the enzyme market crashes. And so this enzi business that they try to add as like a diversification and head to the company and expansion all of a sun bleeding cash, and they don't have enough capital resources to do the capex upgrades. 对， need for the main business in ish.

Interesting, if only they had a cash rich partner without a lot of capex needs.

Goodness, if only there were such a natural partner right down the street that, you know, that might make sense, maybe they could merge with. So here we are. In the early thousand nine hundred seventies, novo approaches the old bitter rival.

And here's the situation, you know, this is a perfect marriage. Let's get the band fact together. You know, everybody y's basically dead at this point from the original days.

Let's let bygones be bygones and northesk. They've just gone through a pretty rocky succession period after hagon retired. They're now on their third CEO in seven years.

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

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

is 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 the y he is like the war time C E O for nordic. He rejects novos overtures to merge, and then he goes in, convinces the board, both of the Operating company artist and the foundation that this new MC insulin generation, which remember novo innovated, that this actually represents a golden opportunity for nord sk to get back in the game because it's gonna be a complete reset of all the influence on the market, whether they're fast acting or long lasting insurance. They're all gonna move over to this MC highly praised a method in type of insurance, but novos in the 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.

So it's like they are coming to us hat in hand. What do we just put the pedal down now that we realize we have the advantage .

and press so branham convinces the board that rather than merging, they should use their capital reserves to rebuild up nordic own production capacity, go higher, a global sales force band. He's really ambitious. He says we're going to go enter amErica directly as this like forgotten, you know, nordic company.

So he goes and hires a global sales force because he knows eli lilly is gonna a have the same dynamics as novo. Like everything's going to have to shift over to M C N L. I will is this be a big, large, diversified giant? They're not gonna move as fast as he thinks nordic can. And even though it's unrealistic that nordic is gonna overtake eli lilly in america, if they can get even a small percent of the american market, that's huge. The notice is a small company and amErica is by far at the largest market for diabetes in the world.

all well. And he gotto remember two, in the seventies, there was still kind of a functioning health care market. There wasn't massive consolidation yet.

And so every level was super fragmented. Manufacturers were fragmented. Insurance companies were smaller. Little doctor's officers existed everywhere. Neighbor od pharmacy is where there. And so entering the american market, you don't necessarily need huge scale to do IT.

And the other of thing to note is IT wasn't yet the hay day of drugs like a farma there worth 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 what conditions you have that are on T, V. commercials.

The federal government with, and will get into this later. But medicare party wasn't even a thing yet. Drugs were not plant ful enough and good enough yet for the government to cover them as an insurance benefit for people over sixty five. That's the era we're in, where if northeast wants to enter the american market, they kind of can without too many barriers.

Yeah, this is the right window. So I don't know how brenham convinced both boards to do this, but he does. And like, but I got, he's right.

IT works. So for the entire decade of the one thousand nine hundred and seventy, nordic sales grow at thirty percent compounded annually, which is amazing. wow. Now they're still small.

So by nineteen and eighty, nordic is still only about one tenth the size of novo overall, but there a third the size of novos insuing 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 gonna taken over for cat by their old rivals.

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 cuban hack stock exchange in one thousand ninety four to raise the capital they need for the transition to M C isoline.

So by the time we get to one thousand eighty, and just to set some scale here, nova's annual global insurance sales, this is novo. They're still much larger. They're about a hundred million dollars annually, and nordic s are about thirty million annually. That makes them the number two and number four producers in the world by market share. Eli lily in america, who's first were about one hundred and sixty million in sales.

By the way, these numbers are staggering small. These are like serious sea start up.

And this is exactly my point. So you might be wondering, like wait a minute, if you add all that up, the whole global insurance market is about half a billion dollars here in one thousand nine hundred eighty, 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? Notice today being the fifteen, four largest company in the world? Like what gives what happened?

Yeah, just look at pictures of people in the seventies and look .

at pictures of people today. Yes, the answer is one you just said, we all got fat and the diabetes market, and specifically type two diabetes exploded. But too. And this is, give me such a fun story to tell here on acquire because it's a huge part of silicon valley .

that we've never touched. Yes.

genetech to genetech .

happened. Oh, yes.

which totally revolutionized everything, launched the biotech market, may drug development and production vastly more scalable. And IT all happened right here in seventh eco venture backed by clients, perkins and IT changed everything. Former client perkins employee yeah, was a cow family of the company.

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Yep, so if you want cutting edge cyber security solutions backed by a twenty four seventeen of experts who motor or investigate and respond to threats with precision, head on over to huntress dot com slash acquired or click the link in the show notes are huge. Thanks to huntress. Okay, so David, the eighties are here. For some reason. In the early eighties, the world starts becoming more overweight, addictive foods being the cause of this.

just more media ticals unhealthy. correct. And just to put some numbers on the the number of type two diabetes patients to rubles from one thousand and eighty to twenty sixteen.

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 genetech.

yes. And specifically, what they meant using animals to make install was that type two was not treated with issues. And actually until this time, type two used to be called, to quote, non instant dependent diabetes because you didn't treat IT with inlay. Because there wasn't enough insurance, there were not enough animal panic rises in the world to do IT.

I had no idea, and I .

wasn't necessarily. That incident didn't help type too. I mean, lots and lots of type two diabetics these days use insulin IT. Was that there just wasn't enough of IT. wow.

And then in one thousand nine hundred eighty, genetech, andy lili, has their partner changed everything with recombined, DNA and genetic engineering of drugs? And I suspect many people don't know this. I sort of vegan knew this before researching the episode. But the first drug that they genetically engineered, and that started this whole revolution, was insulin.

absolutely. IT was the founding first application of the idea that genetech had of commercializing recommend da. 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 increases. It's that for the first time, we actually had human insuing. IT is insuing that is chemically identical to the issue that. Naturally is produce by your body, rather than injecting something slightly different and all .

from a pigg cow. Yes, because he couldn't really extract human intil in from, you know, humans before this point. And people thought that human would be a lot Better to use the animal insuing IT. Turns out that that's debated yeah is interesting .

that they ended up being more of a manufacturing in scale advantage than an efficient y advantage.

yes. But at the time, nobody really knew that. So in nineteen eighty, which is when genentech and eli lily announced their partnership together, that eli lilly is gonna the go to market partner for gene tex new recommended DNA bio engineering revolution and they're onna make human insulin.

They announced that that in one thousand nine hundred and eighty people go nuts and IT trigger this race for human and novo gets swept up in at a oh no E I Willy. They're onna come back into their research game. They're to innovate in products we had the chance to work with the antec and anti 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 are like, shoot, we got a scramble. They find a team of japanese researchers who have shown that you can actually chemically modify a pig in lin to make a chemically identical to human island.

You can make this stuff up. So deva is like, great. We're going to race to market. We're gona beat elli with human insulin. It's not going to be a genetically engineered. We're just going to take our page in soil and modified IT turns out to be a huge boon dogg gl you know IT works, but it's not any Better than pig insulin. So it's a big flop for novo.

which the timing lines up to really be an l in the coffin for that. I mean, if this is right, after everything you just described with notice, scaling up production and compounding at thirty percent per year and massively growing share like this is not a good use of novos precious dollars right now.

Well, it's funny you say that. So when the genetech and a lili announcement happened in one thousand nine hundred eighty, I mean, truly, this was a bomb shell IT harder remembered. I mean, we were 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 hardest thing in the world.

So genetech goes public in the fall of one thousand nine hundred eighty. This is well before humala. You know, the product that they create with the really comes on the market.

They go public. And IT is, I believe, the largest venture back IPO ever at that time until it's clipsed two months later when apple goes public. But investors are just mad for biotech companies. So when novo announced is that they're gonna be first to market with human insuing and like yeah just ignore that it's actually pig insulin that were modifying. They use the hype on the back of that to do A U S I P O with goldman sax and raise one hundred million dollars when .

your currencies expensive sell IT.

right? There are a number of analogies that we can make from the past few years that i'll refrain from here. So as he says, this a nail in the coffin n for a novo, you know I mean, it's not good for the underlying business.

Nordic, meanwhile, remember, they are in the midst of disagree sive expansion plan and scaling based on MC in they 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 a approach. We are going to invest in building up our recombined, DNA and genetic engineering capabilities because it's clear the whole industry is moving this way for production reasons, if nothing else.

And novo is doing this two in the background, but nor is like we're not going na get caught up in the specifically human insulin hype. And this really works out for i'm so in one thousand eighty four, nordic passes the german company hushed to become the number three global player in insulin. How should I think that tell you say today is part of sino hy, the large international pharma c in glamorous and they're the only other player left besides novo in ei .

ili ah synovate today? Yeah the three of those companies are essentially the entire insulin .

market yeah so one thousand nine hundred eighty four nordic passes them on the back of that. They do their own share listing on the copenhagen stock exchange. So they change the structure of the Operating company and still the foundation controlled the majority of the votes. But for the first time, outside investors can hold chairs in the Operating company of northesk. And by the end of the one thousand and eighty nine test is now up to twenty percent global market share in itself in and that's really all come at the expensive of novo, which is down to thirty percent global market chair wow.

So they're close to matching.

Yeah, they are pretty close. And this brings us finally to the summer of one thousand and eighty eight when merger discussions begin for real between these two companies, now on much more equal footing than the last time. interesting.

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 I was really just like 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.

And scale becomes important for R N 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 health care starting around this time. The lady is early nineties and obviously went nuts till today.

And a big part of IT is the production and you know infrastructure side of things. But the other part is to go to market pharma. China almost becomes like the enterprise software industry.

You like at the end of the day, there only are a few companies at scale that have the infrastructure and they go to market to Operate. And like, yes, you can build a big company on top of underneath microsoft, oracle or amazon or sales force or google, but they are the ones with the infrastructure. They are the ones with the channels.

That's an interesting analogy. I hadn't thought of IT that way. yeah. This is a good place to try to understand the farm of value chain as IT exists.

I think first off, we should say you basically can't i've 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 in the players involved. And I should say this whole thing only applies to the U. S.

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 U. S.

Market functions. So I wrote a sentence, David, that I thought that would be a fun way to break IT down. And that simple sentence is a patient buys a drug. But really.

actually that's not. It's a Better fly.

A person doesn't merely buy a drug. So let's actually name all the parties, starting with the manufacturing. A manufacturer like novo nord sk develops a drug.

They sell IT to distributors like meat san or cardinal health, who then sell the drug to pharmacies like C V S or your local neighbor od 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 get weird in health care. 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 well.

The insurance company doesn't want to pay whatever Price the farmer manufacturer picked for their drug, and they have huge scale, a thrown round. So they go negotiate with the former manufactured 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 P B M.

The P, B M negotiates with the farm a company for a discount, often in the form of a rebate that the farmer company pays back to the P. B. M. They then take that discount, they keep some of IT for themselves, and that they pass some of IT back to the insurance company, who can then choose to share IT with the employer in some way. And as you can imagine, when there are this many middle men in a transaction.

So that's what .

four middle, the P, B, M, the insurance company, the distributor and for some reasons and employers are involved.

So we're talking about a excited market.

I don't think it's a sided market. There is two good diagrams that i'd found in the research that will put on the acquired twitter account on the threads account to kind of get access to these visuals that I think are pretty good illustrations of the way the dollars flow in the way the product flows.

But you can imagine when there are this many middle man 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 anyway, I wanted do a little dive into each of the parties to understand what they do.

The drug manufacturer, like nothern artists, do all the R, N. 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 efficient is up to them.

There is the distribution whole sailor that does exactly what you think they do. They buy all the drugs from all the farm of manufacturers, the 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 emerged into p bms in some cases.

And so it's you know thinking of cvs as just cvs is not really write anymore, it's cvs caremark. So the sort of with A P B, M, there is the wall Greens boots alliance, which is the way they named that is sort of 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 P, B, M. So why is does the P B M exist? The pharmacy benefits manager.

That's a good quest. 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 didn't have to go negotiate directly with every drug company to get all the best Prices. So p. Bms provided value by doing that on everyone's behalf.

p. Bms created what's called a formula, which is basically a big ledger, big list of drugs and the Prices. And obviously, today, that is less necessary because there's less fragmentation given all the merger's that have happened. But the p bms still establish themselves as a key sort of immovable peace of this puzzle.

So 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 and elsewhere.

uh, the p bms are the ones actually setting the Prices.

Well, that's the key question. So maybe a little more context on p bms. And then let's try to answer your question, David.

So one, their huge p bms manage pharmacy benefits for two hundred and sixty six million americans. And that numbers all that's us of twenty sixteen. So think about basically all americans get their prescription drugs through A P.

bm. Despite there are used to being hundreds of p bm. There's now fewer than thirty and there's essentially three that cover about eighty percent of the market.

And those are express the scripts, cbs care mark and option arx, which is actually owned by united health group. So interesting to know that, can mark that p. Bm is corporately bundled with C, V, S, A pharmacy, but opto R, X, CoOperative bungled with an insurance provider.

So this vertical and integration happening here too.

yes. So if you want to, to be a little bit cynical, but you can say they have really become kind of the gatekeeper for consumers getting access to drugs since a doctor is not onna prescribe a drug. If only two of the three big p, bms have IT on a negotiated agreement there.

So each P, B, M individually has control, or almost like a veto. If A P B M says we're not gna work with that drug, or that drug doctors aren't know, keep a big list in their head of what insurance companies work with, what p bms that have what drugs. So as a forma company, you can not need all three big p bms to come to some terms with you to be on their formula and handle the reimbursement for your drug.

So one other way you kind of think about IT is A P B M is sort 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. Um so you talk about Prices. A major mechanism for the way that these Prices are negotiated and set is the rebate mechanism that the p vm negotiate. So manufacturers usually have to pay the P, B, M A rebate, which lowers the net Price of the drug even though the list Price says the same. So there's a sticker Price, but then there is a rebate that know once the P, B M pays the sticker Price, actually the drug manufacturer.

how does any of this gip pass the D O J?

Great question. So initially, the rebates worked welfare drug manufacturers, since there were a lot of p bms, and they could negotiate. But now that there are three big p bms, the form of manufacturer have essentially lost all their leverage in most cases, i'll say in most cases, and we should come back later to water the exceptions.

So repeats are extremely high. Eli lilly has publicly claimed that the cost of these discounts and rebates accounted for seventy five percent of the sticker Price of insulin. If you're get to rebate on seventy five percent of the total Price, the sticker Price is not the Price. Wow.

wait. So who gets the rebates? Is that the p bms themselves or the consumers?

Well, P, B, M say that they've tend to pass most of the rebate along to the health care plan.

Um yeah, consumers are far away from any of this.

And the health care plan says they share IT in some fashion with the employer in some part of their agreement to be the health care 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 talk to described rebates as a game of .

hide the sausage go.

But yes, you're right, David. Nowhere in there did I say, oh, the patient gets the you can see how demand signals from patient and actual sort of clearing Prices of a patient of what they are willing to pay for drug. All that signal just gets lost in all of this middle mania. wow. So that is the current state of what happens when many people or most people go and fill up prescription.

So bringing IT back to when the novo notice emerge finally happens. This is the background on the go to market side, at least in the U. S. 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 one thousand nine hundred and eighty nine, the novo nordeck commerce is finally announced, and it's a dull 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. And I had to dig G A bit to figure out the exact economic splits.

I believe that the final ratio was sixty two percent novo and thirty eight percent northesk. So novo is still the kind of larger majority institution here. But this is a far cry from when discussions first started ten years ago in nordic was this little later.

Hey, we're buying you for cash essentially. no. Now it's like, this is really a sixty, forty emerging y crazy.

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

company yeah wild. And they drove each other to create all of this innovation over the years. So the new combined company has roughly a billion dollars in insulin revenue and fifty percent, five zero percent global market chair with e lilly, just behind a forty five percent and hit five percent.

That kind of tells you right there how much the market has grown just during the decade of the nineteen eighties. You know that puts the total market size at roughly around two billion for insuing. Ten years ago, the total market size was five hundred million.

wow. yeah. Well, the n time and other businesses within novo, they stay with the company for now. They would get span out later in the year two thousand, and that contributes another roughly half a billion in revenue, but with lower margins.

As we talked about the novo CEO and Henry random from the northeast side, they've remain as co CEO for the next couple years and branham notes that they are still a dwarf compared to the increasingly consolidated farmers market out there. But we are, quote, a specialized dwarf that will probably create a certain ferer on the global stage. And what the referencing here is, as we are talking about, this is the era when just huge farm emergence start happening.

So glaxo o and welcome merge. Around this time astro ic emerged. Around this time snoope buys horse. These are all multi, multi billion dollar, tens of billions of dollar transactions that makes nova and notice look kind of like small potatoes at the time. And actually, wall street in the investment community believes that this is really just the first step that this is novo.

And notice, can you know the leading intel in business in the world sort of preparing itself for a further merger sale into one of these new diversified global farmer, congal's? And actually, this is crazy to think about in retrospect, but novo nord, sk, management agrees with that. That's actually their plan, like there's no rush here, but they think that they do need to merging into a larger organization.

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 merging. And what they didn't realize this was that the market that they were on top of would actually, sadly, be a tail when that gets them to scale without merging with anyone else.

Yes, but exactly all throughout the decade of the ninety nine years and into the two thousands, managment is in constant merger sale negotiations with one of these big pharma giants, another. And kind of likely none of them come to provision.

And in the meantime, without anyone, including them, really noticing, the combined company just keeps compounding on these tail winds of the expansion of the insurance market and instant treatment of typed to diabetics and all the supplies that's unleashed by genetic engineering. So revenue and profit compound gently twenty percent, sometimes twenty percent plus annually for like fifteen years there. They're firing on all cylinder.

In the year two thousand, they sign a huge deal with walmart. They land the supply agreement with the V A. Hospital system for the first time, the veterans affairs hospital system in the U.

S, which is enormous. And so by the end of two thousand, three annual revenue for the company is now over four billion dollars. And that's pretty much just on insurance alone.

Remember, theyve spun out nova zines. All the subscale farma businesses that novo had are all gone. And that's when management finally decides to sell the company.

So in two thousand four.

they have a deal on the table to combine with the swiss company's surono. 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.

which is the only shareholder that matters.

There's never been a conflict between the foundation board and the management board, like everybody's always been a line here.

But this is like the whole sea street of meta deciding to sell the company to apple. And then they just have to go get soccer burgs approval to do IT. It's literally .

that scenario. yes. And there's a clause in the foundations 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 eyes, like we have just been talking about, there's so much consolidation happening in the industry. Like, of course, this is unnecessary precondition given everything going on that we need to get to a large scale. And so that's why we have, after ten plus years, finally found the right deal. So they go to the foundation board expecting that everybody he's onna see the light and just degree here. And the foundation board is like, yeah, I mean, I hear what you're saying, but have you looked at our revenue and growth over the last fifteen 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 manage events like, yes, isn't this what we've been working to? Why did we spend off the end time 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?

My rubberstamp feeling like that does not working right now.

Yeah, yeah. My daughter loves to say when something doesn't go away these stage, he says not working. Foundation importance like not working. So what ensues? Management comes in. They present in two board meetings, first in August two thousand four, ign a second one in september, where they get to do over, and they failed 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 to .

fascinating analogue e 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 absolutely one hundred percent chance. If this ownership structure were not in place, we would not be doing this episode today.

And I don't exactly know the guilt terms were, but basically in public company. And if anybody comes to you and offers you twenty five to thirty percent higher than your chairs are currently trading, congratulations they get to on your company. And that didn't happen.

That didn't happen here, which turns out to be unbeknown to pretty much anyone at the time. And i'm sure not even the foundation board, a very president decision, because there is a small group of researchers within novartis LED by a woman named latin beer nuts who is working on a pretty incredible project that is showing a lot of promise. And that would be G L P. One agonist drugs.

That is a math full, David.

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 nova notice has on the market, which would be olympic and weg v .

or red elsa, which just got off the a preval .

pretty recently.

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Yeah, fanta is the perfect example of the quote that we talk about all the time here and acquired jeff basis, this idea that the company should only focus on what actually makes your beer taste Better. I E spend your time and resources only on what's actually going to move the needle for your product and your customers and outsource everything else that doesn't. Every company needs compliance and trust with their vendors and customers. IT plays a major role enabling revenue because customers and partners demand IT. But yet IT add zero flavor to your actual product.

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And thanks to friend of the show, Christina anta CEO, all acquired listeners get a thousand dollars of free credit veta come slash acquired. So David, luke gon like peptide made one recept agg ones. What is IT and where IT to come from?

Well, IT really is the story of lot of beer. And you SHE started at novo in one thousand nine hundred eighty nine, the same year the merger happened right out of undergrad as a scientist actually in the enzyme division, which I didn't realize until U. M. In article, uh, last night.

I think about this, yeah, remarkably, there is this paper, I guess, is the paper called inventing lr glue tide, a glucagon like peptide, one analogue for the treatment of diabetes and obesity. There was published twenty nineteen, but IT is a first person account, bilateral, the entire journey and her career, and how all the research went down and where IT came from that is published in as from meos, gy 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 the story and sort of got to write how we all went down .

yeah super cool. Will link to IT in the sources yeah. So eventually, after a couple years, SHE switches from the end time 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 two diabetes right around the same time. Or all, anti diabetic 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 two diabetics, the kind of lake, the first line of defense for tech two diabetes before you progress to insulin treatments. And novo doesn't have a drug in this category despite being like the insulin leader, novo and novartis never had a viable oral anti diabetic.

So part of this group that's looking for new candidates. So in the early to the mid nineties, lot to starrs digging into the academic research and there's new work coming out that in type two patients, a big part of the mechanism that messes with actual instant production is a hormone called glucagon like peptide one or G L P one, ben, as you are talking about. And the thought is that if you could somehow get more G L P one into these patients bodies, you could stabilize their insulin production in the street.

The disease seems pretty strait forward. You could imagine that you could now just use the same recombined DNA techniques to genetically engineer more G L P one, just like you engineer human insuing. No big deal.

Seems pretty strait forward. In fact, wanted to just go eats some G L P one, just get IT in your body however you want. And i'm sure it'll .

work out right now. Except the problem is G L P one only stays active in your body for about five minutes before your body completely meta lizer IT breaks IT down. So in uh Normal healthy person, you're just producing G L P one all the time.

And it's regulating your insulin cat, a infective diabetes that gets disrupted. You can just put more regular human G L P one in the body or it's gona 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 research community pretty much abandoned as a drug candidate. But lot 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 you still pursuing this path? And then finally, a few years later, in the mid nineties, 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 going to to shut down this whole program. And remember, this is even like novo dic, world class most focused on peer play diabetes research company in the world. And even they are like, yeah, we're almost ready to abandon this whole thing.

crazy. What year is this? Uh.

this is like ninety five, ninety sex.

And she's been doing research on this sense. Like ninety one, I think, is when her in the team started cranked away on G L P one research inside noble around.

So a few years with nothing to show for IT. yeah. So he keeps twisting the G L P one molecule. And again, you can do this with recombined DNA. You can to do at any molecule.

So eventually he develops A G L P, one analogue analog being similar type molecule called little glue tide, that includes a fatty acid grafted onto the molecule that helps prevent the body from breaking IT down. And this is the big breakthrough. You clear glue tide ends up having a half life in the human body of thirteen hours compared, you know, like a half life of two and five minutes for straight up. G, L, P, one up that satisfies management, automated.

The mechanism by which IT does. This is totally fascinating. So you mention that the fatty acid gets attached to the G L P one. To create this G L P one 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 fat assets then make IT. So the G L P one combined to another protein, which I believe is pronounced argument, which is this really large protein that is very common in the bloodstream. And so IT protects the G L P, one molecule from the degradation by enzymes, and that protects them from being sort of quickly cleared in the kidney, because that sort of bound molecule is now too complex, too large to be filtered. So that kind of makes IT like a big truck bounded down a small highway in that the molecule is protected yeah.

And I think that's how SHE paces IT too, when he describes IT as protecting the molecule.

Yeah, the fati assets sort of a well IT makes IT big and sticks stuff.

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

Okay, so, uh, thirteen hour half life, you know, this lir glue tide can become basically a once a day drug instead of in every five minutes drug.

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 kind of ninety seven years time frame. But you know novus 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 that many faces of human trials, and set up a nap brings us to two thousand five, when the world's first G L, P, one analog drug finally comes to market for the treatment of time to diabetes. Of course, i'm talking about the world famous, well known by eta.

from eli lilly, not a novo drug, not from batters, work and developed in a completely parallel.

not empty, not victus, not wake of you, something completely different. This might be the most random occurrence that we've ever had on acquired.

David, if I called you and said, ship me a lizard, this is important. Would you do .

IT a knowing this context, I would actually say, yes, an actual lizard. Is that where you're going? Yes, yes. Okay, great. So during this time, in parallel to lots of work at novo, two american researchers in the va hospital system, the veterans affairs hospital system, government employees, government employees, somehow discovered that a hormone contained in the Venus of the gila monster lizard, literally, the lizard called the gila monster, which has poisonous vum, one of the hormones in its vinum, also was A G L P one analogue, acted similarly to G L P one in the body and didn't break down within five minutes.

David, go get that poisonous lizard, Venus, take all the poison out and inject IT in to 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 is was a good idea. But like that, IT worked. So one thousand ninety five, Daniel drucker had a lizard shipped from utah to his lab, and he started experimenting with the deadly eventime. David, aside from the research done at the V A, do you know where Daniel drako was a researcher?

Well, I know one of the scientists at the V A was a good name, john y, and I believe he was at the V. A hospital in the blocks.

I'll give you a hint. Daniel darker was not a researcher at the V. A. He was at a university who Daniel darker, and I believe still to this day, was a researcher at the university of toronto.

Oh, amazing. yeah. IT comes full circle, and he owns .

the domain. Glucagon up, tom, to a stable sem ex trr .

credibility.

I love IT. yeah. So IT seems best I can tell that there were sort of parallel research efforts being done on the early G, L, P. one. And so a place to find G, L P one in the world to eventually turn IT into a product.

the naturally occurring G L P one. And log. Yes, as opposed to the engineer, they are really tired.

IT actually does become a drug candidate. They license IT to U. I lily.

I lily develops IT into biota and biota hits the market in two thousand five. It's f approved IT works. It's not poisonous. IT doesn't tell people and IT is the world's first G L P one analog to come to market.

But like IT is effective, but it's not like overwhelmingly more effective than traditional anti diabetic orals like that forming and the lake and more importantly, the half life is not as good as clear glue tide. So bata requires two injections per day, which you know, if you're a type two diabetic and you're not yet at insulin treatments, you like, well, I could stick with oral anti diabetic. It's like map for men. I could go try this new thing, but that's gonna be two injections per day. Do I really want to do that version stic with oral and then transition to instant injections when I need that?

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

Big, big behavior change totally.

And it's important to remember what these G L P one agonis 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.

what? Yes, correct.

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

Yes, so that's two thousand and five. So then in two thousand and seven, lotte and nova note ler glue tide G L P one agonist enters face three human clinical trials.

yep. And for those who have heard these phrases before, face one, face two, face three, and never knew what they meet, face three is the really big, really expensive one. And i'm a quote, alex telford, who wrote this really amazing long blog post, sort of explaining how the clinical trial process works and why drug development is got so expensive.

And all that willing to in the show notes, is one of the my primary sources, he says, typically face one trials focused on safety in finding an appropriate dose, often in healthy volunteers. Face two on establishing preliminary evidence of efficacy in patients. Face three 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, twenty nine percent of all R N D for a drug is spent right here. So phase one is nine percent, face two twelve percent. Face three is twenty nine percent, with the rest of IT sort of coming from that early basic research, drug discovery, preclinical studies.

And you a little bit later with the a review. But like almost a third of the entire spend of the whole rng pipes for a drug is here. So big freak and deal to go through a face three trial.

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

to a great question. Thanks, alex. We have the data in front of us. So here's the probability that a preclinical study even makes IT to the phases that sixty nine percent.

So you're little over two thirds once you enter a preclinical al study to graduate to phase one, two and but in phase one, two and three, about half them get weeded out each time. So fifty two percent make IT through phase one, thirty six percent three phase two, and only sixty two percent three phase three. And once you get in the regulatory review, then there is a ninety percent chance that you get approved. But each one of these gates filters out about half of the drug events. But I guess if you .

look at the like kind of lifetime risk approval for a drug, by the time you make IT to face through your pretty part.

So of the sixty nine percent that even make IT into clinical development, you've got thirty six percent left at graduating fees, one, then thirteen percent left graduating fees to then all the way at the end, eight percent graduating at the face. So IT gets pretty winter down over that course. But to your point, it's a big deal to enter face three because IT shows that you are one of the thirteen percent we've .

made IT this far. Yeah good. okay. So as there in trials and novo knew this, but it's starting to get confirms that one, their glue tide is gona be more effective than biota. Two, more important, it's only gonna to be injected once per day because the half life is longer.

And three is also now starting to be observed and confirmed in these human trials, something that later had noticed all the way back in the animal trial face, that rats who were injected with very large amounts of liar glue tide would stop eating, and IT seemed to have an effect on appetite. And if these rats had very large amounts of that, they would literally starve themselves to death and refuse to eat. Then this effect is persisting in humans here in the face three trials.

which wasn't a guarantee. E there's lots of red 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 I 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 lr glue tide that they were planning to sort of makely approved those. It's not like you are seeing this crazy dramatic weight laws. IT was just like, oh, that's interesting. You also eat a little bit less when you're on this liver glue tide drug.

but then the less it's a pretty interesting thread to pull on, especially because many other anti diabetic drugs up into this point that actually caused patients to gain way, right.

which of course compounds the problem.

right? So later, and her are in d team, they push nova artist to consider also pursuing a parallel F D A approval and commercialization path for the same molecule, little glue tide as a weight management drug. Based on this evidence that they are seeing in the trials.

which in F, D, A speak as an indication you're trying to get to approve for a second indication. Yeah.

now this was truly an out there idea. There is a huge, huge stigma. Yes, around weight loss drugs, enormous. Yes.

the stigma is real, but there is also an interesting product efficacy thing here. So vox dog company 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 reflects 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 intervention, such as barrier ric surgery, which is stomachs stapling, effectively the gold standard, and 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 just tell people, change your lifestyle.

Most people literally can't. There's too many things working against IT, including their own biology. Additionally, this is pretty interesting. Researchers thought I was actually impossible to create a weight loss drug that was both safe and effective.

Yeah, you talking about fan. Fan.

yes. I mean, the dates way back even before. fan. Fan to the effect means in the seventies people taken speed because that's like the accepted weight less drug. yeah.

Fan, fan was a combination of a drug with speed. One of the fans is speed you.

And so in the nineties I was at .

heart attacks. Yeah, I was major .

heart damage. yeah. So that scared the crap out of the F, D, A, out of companies that are pursuing .

weight loss drugs. This was a disaster. A kind was like a grass roots thing that built up.

And the two fans were independently approve for several use cases. And physician got the idea to combine them. And since both drugs were approved, big farmers was like, oh, wow, wait, lost drug, miracle drug.

Let's commercialize this. And so they pushed the F, D. A to rush the process, which they did, thinking again, both of these drugs are approved, and IT turned out that when used in concert to cause major heart damage. So I think something like six million americans took this thing, and like a large portion of them ended up with major cardiovascular issues.

awful. I mean, that was the worst from there was like seven, eight, eight over four decades of these, either dangerous or just completely and an effective weight loss drugs. So most pharma companies completely steered clear of the black hole budget item .

that was weight loss research and development back to begin of the pilot of sales stigma around this stuff totally.

And to illustrate this numerically, the annual obesity drug sales were only seven hundred and forty four million dollars. Up until twenty twenty, the market for weight cost drugs, you know, was just tiny because basically nothing worked, and everyone was scared of IT. That seven hundred and forty four million included the commercial sale of clear glue tide for a weight loss, which had, you know, already been on sale for six years.

So why is everyone freaking out about hose empt now? Like does that feel like basically nothing worked before IT was true? Nothing worked before in a safe way. So there are in sort of this like magic number around if you can actually safely enable someone to lose ten percent of their body weight or more, then there is a market. But otherwise, IT basically rounds to zero because people don't think it's worth the trouble in either .

of the companies. Yeah like you need the appropriate amount of activation energy for the reaction to catalist? exactly.

And just did you do put a really close to home even finer point on the stigma as recently as two thousand five? Two thousand five, like same year biotic came out. Nova, notice s own official position on the obesity category, as articulated by the then CEO law.

Sarenne was, quote, O, B, C 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 notice in that area.

Now imagine a lot and her team trying to get the company to release a lior glue tide for weight loss when that is the company is official position, right? You're like, look, i'm looking at these humans who are reading less.

right. So you know what's going on here and why is a lot of pushing for this? You know, she's a great scientist, well respected.

You know, at this point she's made her career on the development of lyrique tied in G, L, P, one against all lads just for diabetes. Why is he pushing this? This is a very, very different situation. Then what happened with the fine?

totally? We still don't know the super long term effects of up, but we certainly know that months after taking this thing, large population of people .

are not having a heart attacks. Yes, and laa knows this too, obviously, because the lute I D like the drug. The same drug, the same thing, has now been through twelve plus years of super rigorous trials, starting with the animals, now with humans, international approval processes. You know, there were issues along the way like there are with any drug do.

The twenty ten trial was nine thousand patients across thirty two countries. This is a big, expensive, almost two year trial.

Yeah she's like, yeah I mean, we're pretty sure here this is about a as any drug possibly could be and at least in the medium the short term molecule, this is not a cause for a 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 two thousand and seven, so only two years after the C. E, O made that statement, novo enters a slightly higher dose version of lear glue tide into human trials for weight loss. And why do minds change quickly on this like the commercial opportunity here, if you can get approved, if you can get IT to work, if it's safe, is unlike anything else the farming industry has ever seen, like if you could really crack this market.

So at this time, back here in the mid two thousands, already, about a third of the U. S. Population is medical obese, you know, to find as a body mass index, over thirty two thirds are medals over way.

The world health organization estimates the five hundred million people worldwide are obese, you know, so that a total addressing market here of flight, one hundred million people, just of medical obese people in the U. S. Alone, half a billion plus, probably more like a billion worldwide. There are no other drugs and diseases that affect this many people, not even .

diabetes you.

and just like diabetes IT. Turns out that in most cases, obesity also is a rony disease. So yes, you have this huge time of people, but it's also people that are going to be taking the drug probably for the rest of their lives.

which is just like a statue or know there is a lot of treatments for creative 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 habitat to secure or something like that. IT really is a for Better, for worse, a durable ongoing recurring revenue stream.

This is annual recurring revenue here. yeah. So in early twenty ten, novo gets final approval for victoza, which is the marketing name for the diabetes version of liver glue tide.

So five years after, by victo s finally officially hitting the market in the U. S. 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 over take biota as the leading G L P one drug on the market for dia's.

IT massively expands the market. So year one in the first year that is on the market, victoza does roughly three hundred million dollars in sales. The next year, the first full year is on the market in twenty eleven. IT does over a billion dollars in sales just in that year. So there's this concept in the farmer industry of a quite a blockbuster drug, and these are drugs that achieve a billion dollars in the annual revenue.

It's sort of like the tech a district calling at a unicorn with of a billion valuation exact.

It's the pharma version of uniform.

And these are like liberal huma ad of air. 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 their drugs you've .

heard of yeah and victoza hits IT you know its first full stand alone year on the market, which is super fast. So what's going on here, obviously is that people are not using victo s just fr diabetes. I mean, people are using other diabetes, but people are also using this for weight loss.

And you might be asking yourself, how does that work if the F, D. A has only approved IT for diabetes? What's gone on there? Well, IT is actually at the doctors direction. If they want to prescribed an offer able use.

So if a doctor doesn't ough independent research or reads a study, or technically, I don't think the drug companies can provide any marketing materials or sway the doctor is in any way so that information can come from the drug manufacturer. But should the doctor believe that this drug would be good for their patient, even if the patient doesn't have the F, D, A approved illness, right? I guess whatever the indication .

is a section indication.

yes, the doctor can prescribe, be IT for an awful liable use.

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 in being like, hey, I heard that this victoza thing can help me lose weight. What do I got to do to make you prescribe IT for me?

I saw an add that said, ask your doctor if CTO is right for you. So I am asking you if .

it's right for me.

We should say everything in health care has A A fire of sometimes, and everything I just said is true sometimes. It's not always true that the doctor has complete control to pressure I off label, but I think it's a reason way to think about IT you. But David, it's not that effective. You can lose way taking victoza, but it's not necessarily a life changing thing.

right? So at the end of twenty thirteen, novo submitted sex anda, the official weight loss version of the guide to the F D A N E U, for approval. And it's a slightly higher those version and expectations are at a all time high for this VS market cap has already been running.

IT now passes a hundred billion dollars on the anticipation of sex and this performance. And it's not that big a hit. It's a hit and has good sales. To be fair, I think a large amount of early adopter G L P one weight loss market was already just using victus. So clearly, a lot of the victa revenue was actually sex, a revenue that was pulled forward, so to speak. But but like you're saying, the big issue is that even with the slightly higher dose of their glue tide, IT yields long term on average across populations about in eight percent B, M, I reduction, you know, which is meaningful, but is not that meaningful in research.

This is crazy. I heard over and over again, physicians and other people in the industry echo this kind of magical ten percent weight loss reduction number, where there was always this belief in the industry that have something could reliably help you lose ten percent or more than a sort of tips. And six, and I just didn't get there. You so .

regardless, the next year twenty fifteen is a record year. Total company revenues for nova, notice sixteen billion dollars, which is incredible for a peer play diabetes and now diabetes and relatives obesity company but the stock flat lines yeah and write around the same time you've .

got the insulin pricing scandal where amErica is waking up to the idea that incident 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 sanoh e it's no than or this can it's like lilly, everyone's insuing has gotten more expensive and they come under fire in the public guy. And so this sort of sander not being the black busters drug that, you know, expectations had dropped IT up to be plus this increasing pressure around insulin.

And I think A C E O change. yeah. Well, the C E O change, I think, was a result of this. So what you're leading up to is in twenty sixteen, the stock takes up forty percent hit, which is wild. You know, today, the begin of twenty twenty four, this is a half a truly dollar company. And a few years ago, I was a well less one hundred billion dollar market of company.

yeah. But there was a really dangerous as narrative that these G, L, P ones are gonna be as crazy as everyone, at least one in the no. thinks. And also they are only franchise of insulin is suddenly under fire.

So in september twenty, twenty sixteen, the dc E, O large sorana resigns. Current C E, O large york anson takes over. Amazing, so wonderful.

Ly danish side bar, this is a wild. So right now, today, as we record this nova notice is the fifteen th largest company in the world by market cap. And when I was doing research for this episode, I of course, google large yordan.

When I did the results that google gave me. Results one, three, six were for the university of kentucky swimming coach, who is also named Laura york. Talk about to the rater, who am sure is a great and story to n but IT wasn't until number seven when I actually got the CEO of novo artist.

That is how like, under appreciated, this company is crazy. Anyway, right around the same time, novo begins face three trials with their new next generation, improved G L P one analog semicon tide, which I think is pronounced semi. We've also heard some egg type. We did an obscene amount of research on this and don't have. So if you know.

get down to us, the most repeatable source we could find seem to say sema glue tide. Yes, which makes sense. You know, coming out of lia glue tide, and I believe there's a do a glue tide. So where rollit .

was semco tide acquired, F, T, mm, disagree. And summer blue tide has several benefits over liar glue tide. 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 to. And much more important for the near term, IT is twice as effectively as they are glue tide for a weight loss. So we're talking fifteen percent plus long term B, M, I reduction, which is well beyond that. As you are saying, the ten percent .

magical threshold IT moves from the domain of irrelevancy to the domain of, is this a miracle drug in the press?

And there's some more um benefits, potential benefits that will talk about in a little bit here. But this compound, this G L P one agonist some of tide is of course asymptomatic can be all the same thing. All semi tied assembly is the diabetes marketing product, and vega is the weight loss marketing product. yep.

So a few words on how would affect weight. The natural G, L, P. One produced in your gut travels to your brain.

This is a hormone that moves through out your body, much like many other hormone. Es and IT triggers a response to tell your brain, hey, m satiated. IT tells you that you've had enough, that you feel full.

And I can cause you to stop thinking about your hunger. And if you're someone that's constantly fixated on food and restraining yourself from adduce ging IT can quit 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 ful, you literally are now false, since the food takes longer to move through your digestive system. And David, you mention that fifteen percent weight loss, 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 growth. Like the side effects naturally include things like naja of omitting constipation, things like that.

But these reports of side effects are pretty widespread. I'd listen to bunch of things, one of which was a tiger call with a professor of cardiology, that that about one 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 that one. 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 did digest .

food and it's moving slower.

right? I wouldn't want food either yeah, the thing that's really fascinating to me about some a glue tide as a weight loss drug is that you can just sit around eating pizza, ice cream and lose weight. The laws of thermal dynamics in the universe still apply.

Your body will always retain the difference between 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 way. You know, IT sort of solves the debate that had been going on for decades of, is a behavioral problem or is that a medical problem? 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.

right? So twenty eighteen olympic finally hit the market for diabetes. And then in twenty twenty one, what if he gets approved for weight loss? OEM ic does over a billion dollars in revenue in two thousand nineteen, its first year on the market.

It's clear it's going to be a huge and it's like even more than that. This is like even more than victoza back in the day. IT is a billion dollars in revenue, but like it's massively supply. And straight until I could done a lot more, these drugs, still assumption, wake me, could do a lot more revenue than they are doing right now, 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 massive vely outpace our supply, and we will be here on learnings calls over and over over again, telling you that no matter every factories we build, we are supply and straight still.

yes. So at this point, you know, it's funny thing for most people that are discovering novo notes. Now I include I don't know anything about this company until few years ago.

thirty two years after a lot of her team started this research.

right? If anything, we think of this company is like, oh, it's the G, L, P. One company.

It's the weight loss company. And like, no, for one hundred years that was the diabetes of the insulin company. But it's clear at this point now, no, this is now A G, L, P. One company.

And that grew naturally out of the diabetes and the insulin research and lot of work and sort of in this organic fashion that is so different than the rest of the farmer industry. But the net result of this now is that, yes, until in is still a large business within, never notice. But IT is A G L P one company.

So when where can we finally launches in the us. In twenty twenty one, as the official F, D, A sanctioned weight loss of virgin of seven, three dead, IT gets the same number of prescriptions written for IT by doctors in the first slightly over one month than sex and ahead in its entire drugger lifetime. People were already, I miss using authentic c for a weight loss before this. So like OEM ic, supply was fully exhausted. And then now we can be supply fully exhaust well in .

february of twenty twenty one after the clinical trial finishes on summer glue tide for weight loss or for we go you to hit the market of the us. A near time runs a story and just calls in a game changer. They say, for the first time, a drug has been shown to be so effective against obesity. Patients may dodge many of its worst consequences, including diabetes. So like with the biggest mega one you could possibly point at people, they're being told this thing freen works and it's a miracle drug.

yeah. And we'll talk a lot more about prosing tons and all of of that and everything around that in a minute here, an analysis. But just wrap up the story, the companies is marked basically goes vertical in twenty twenty, right before all this hitters of empirical ing online, the market cap had climbed back up above one hundred billion.

Summer twenty twenty one hits two hundred and fifty billion. By the end of twenty twenty two, IT hits three hundred billion, which mind you, is against a market and mro backdrop of massively rising interest rates and stocks and equities being down across the board. Like novel notice is up during this period.

And then this past summer, in twenty twenty IT passes four hundred billion market cap and IT is currently floating with the half a trillion dollar mark. Revenue goes from twenty billion and twenty nine to twenty five in twenty twenty one, thirty billion and twenty twenty two and in twenty twenty three so far in the first three quarters that they're reported, IT is up another thirty percent year on year. Of course, with then, as you said, years worth of supply constraint demand pipeline. Yep.

that is pretty crazy, David. You mention that is the G, L, P one company already and that sort of transition hearties occurred. You're totally right.

Looking at the numbers, fifty one percent of their revenue comes from diabetes focus G L P one drugs in an additional eighteen percent from obesity related G L P ones. So sixty nine percent of revenue comes from summer blue tide or liver glue tide. I mean, it's crazy that happened in a decade.

Yeah, totally. Well.

inland land has become, to your point, is still a part of the business of smaller share. The business again, this is a revenue, not of profits, but twenty two percent of their revenue today comes from insulin. That leaves about nine percent from the other efforts that they're putting energy into rare diseases.

So seems like hemophilia, they continue to be a ridiculously concentrated company. They make about ten billion dollars a year in that income. So they're also a very, very profitable company among the most profitable and all of pharma, the fifty five thousand employees.

So it's a huge international company at this point, and I wanted talk briefly about margins. Later, we will talk about why margins are actually not the most interesting measure to look at, but it's worth knowing them because we talk about that on every other episode. Gross margins are Better than software.

They run about eighty four percent. Lilly is also a very high margin company, running about eighty percent. For context, microsoft has a gross margin of seventy percent, and google is fifty six percent.

How is google's growth margin? Fifty six percent? They must be stuffy. Lot of other revenue besides. So into the top line.

I assume all the billions pay apple comes out of cost of good sold, all the traffic acquisition costs.

probably structural club 要。

So at eighty four percent growth margins, you should know there are ten 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're sort of thread and needle that if you were pitched a blank canvas, you would say like what it's impossible you need to make a trade desk where if you're going to be so narrow ly focused on just wanted two conditions and really one singular in a related condition of meta lic disorders. Either you can't have all the revenue or you can be so ludicrous ly profitable. And turns out the thing that they picked.

they can be both, yes, and also IT gets Better. So because sam glue tide has such a long half life relative even to early tide, I mean, it's a once weekly injection and solid. The half life in your body is days at in there for a long time.

Remember natural human G L, P, one, your body process is that in like five minutes. So having G L P ones active in your body for so long, it's reaching other tissues in your body that Normally G L P once wouldn't. And indications are showing that that is beneficial for those organs.

So currently novo has clinical trials going for sam glue dide like same drug same to help the ones use case in treating cardiovascular lar disease, in treating alzheimer's, in treating kidney disease, many others. Again, this is also like a molecule that through F, D, A processes and u processes, has been deemed safe enough to be on the market for the accepted use cases. Is same drug now is showing evidence that I can also attack these other major disease areas. This is the gift that keeps on giving.

Here could be, everything is really early, but I really might earn the title of miracle drug.

They really might now not a scientist that all this is just might not looking at this, but yes, could be a miracle drug for humanity and certainly already is a miracle drug and forms like, no doubt .

about that. 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 G L. P. Ones today. So the first thing I know is sticker Price.

The Price of oceanic to treat diabetes is north of thousand dollars, and we go away for weight loss is north of thirteen hundred dollars per month before insurance. And this is in the U. S.

So expensive, right? That's a lot of money. In canada, of course, of epic is hundred and forty seven dollars a month.

In the U. K. It's ninety three dollars a month. So everything that i'm about to talk about is a uniquely american problem, much like most problems in our health care system.

So how do these drugs get paid for in the U. S? Well, that depends rich people 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 around hollywood. Let's segment that away for a moment. I will.

okay. Outside of that, well, first, let's talk about private insures. You might have coverage by your companies insurance.

And this is a good place to talk about the two most pernicious ous issues in the entire U. S. Health care system that are deeply in our twined. One percent of aligned into is time horizon. So the average american in the private sector holds a job for three point seven years.

That means that on where you go with this.

insurance companies are going to turn you every three point seven 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 three point seven 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, they're thinking exactly the right thing, which David, you are. They acknowledged. But if I lose weight today, i'll benefit in the long run.

But will my insurance company lower their cost in some way? I mean, if I obese, i'll almost certainly have complications later that i'll cost hundreds of thousands or millions of dollars once those become acute conditions. But those costs won't be realized .

by your current insurance.

exactly. The insures are not really holding the bag for this class, you know, these chronic conditions. This is the crux of the incentive problem in our health care 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. They're invested in your health for your plan life with them.

exactly. So what is the exception? The exception is if your career is the U.

S. government. So let's talk about medicare. And medicaid is a whole different discussion that involves states and unbelievably fragmented.

So we just not actually talk about IT right now, but lets talk about medicare. So medicare is through the U. S.

Federal government. IT is a health insurance for people who are over sixty five. Basically, the U. S. Federal government funds that plan with taxpayer dollars and saw a while back, which was actually not that long ago, just like twenty years ago, medicare did not cover prescription drugs at all.

Medicare part d was passed into law in two thousand and three and took effect in two thousand and six. IT allowed medicare to cover drugs, not just hospital and doctor of its, which was part a and part b. So today, part d interestingly enough, is legally prohibited from paying for a 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 and reduced in twenty thirteen that basically has never been passed to try to .

get through resting. I do know if this was a result of the fan fan debacle o .

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

I could see the argument of like why is the whole tag pair base covering you know people who should just be exercising more yeah even though like it's definitely been proven that that is not the case. It's not therefore ault totally.

The wall street journal has a great quote. The scientific foundation for treating obesity as a disease rather than a lifestyle problem was solidified in the mid one thousand nine hundred nineties when researchers discovered that fat release proteins that act as hunger and fullness signals to the brain. This system is out of balancing 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 are 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 a line interest for us to stay healthy ourselves and uncle sam. And for us, it's actually quite hard to look out for a long term interest because the feedback group is too long. So like I go out and drink even though and I have a hanging over the next morning and that's only a twelve hour feedback loop, like lots of times you make long term bad decisions.

So the question is canonico sam, fix that problem in some way. Well, IT is far too early to say whether these recent G, L, P ones 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 an investing early to keep all of our health care bills down later in life. yeah. 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 aspic. We'll have to see where the study is 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 R Y positive for medicare to do this if everyone's gonna need replacements and hyp replacements and diabetes treatment and amputations and cardiovascular interventions.

right? That is kind of the cracks of the uh broader society or debate and issue here is obesity leads to such a huge amount of commodity ties and disease and health problems and issues. And you that's even to talk 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. Two, say those expenses later.

That's the question here, right? So lasting to say here, payers are scared and rightly scared of how much that will cost them in the short term if they do start covering these drugs. Forty percent, as we keeps saying of the population today as obese and the list Price of these drugs is over twelve thousand dollars 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 ruling 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.

Yp, which might be good time to talk about E I ili and other companies out there that are also bringing G, L P one drugs to market.

Yes, please tell me .

about to iodide. yes. So obviously other big farming companies have not just been completely ignore ing this incredible development slash cash, cash that has emerged in nov. Northeast land E I really now has A G L P one diabetes approved treatment on the market under the diabetes brandname majo. That seems to be as if not more effective as sema tide in terms of weight loss when used for obesity.

And to cip, tize is basically the same. It's A G L P one recept agonist, but IT is also a gip which 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 issue as well.

So that showing great promise, IT was approved in the U. S. For diabetes treatment in may twenty twenty two and approval just am recently in november twenty twenty three for official F, D, A sanction weight loss use case under the marketing named zp bound.

So look for that in twenty twenty four. What this really shows though, between you like really in novo and other companies that are almost certainly to get into the G L P. One business.

I think this is gonna a be like insulin all over again where this is going to be a series of product improvement and companies will drive innovation and increase supply. I mean, the demand is so huge out there that monja u can be a huge hit or baking weg be will continue to be huge hits. Other companies getting into the game will be huge hits.

Nova has next generation G L P one drugs in the pipeline themselves. Kg sama is the big one that they're currently working on that they think will be as good, if not Better than what eli lily has with thibet de. 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 farming development around these compounds, just like played out with inside and over the last century.

yes. And IT really also just goes to show like IT was time multiple of researchers arrived at similar ideas can currently, which we see over and over again in the world, uber and left is sort of our modern canonical example, tell our 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 in a place where multiple parties could develop similar thing side by side. And so now there is certainly a catch up race among other pharmaceutical companies who weren't to doing this, to now try to get into attention. Y, if they can compete totally.

Other things to know about these G L P one drugs today for diabetes. I tried to basically figure out from asking around what people actually paying for this. Like what are most people actually paying? Because list Prices of drugs, as we discussed earlier.

is stupid, at least in the us. yes.

So there are a lot of reports of people paying somewhere in neighborhood of three hundred dollars a month after insurance as the actual cost. And to collaborate that a different way to arrive at that number, one person told me that IT is common for most employers to put between a twenty to fifty percent copy on these drugs. So at one thousand dollars, you know, that's two to five hundred dollars.

So on the one hand, is still very expensive, three to four thousand dollars 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. There's a lot 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 for insurance, lot of people still can't actually afford the drugs. The last thing I want to say on the current state of G, L, P ones is that not a hearing is a bigger issue with these drugs than many other drugs that have come before IT. There are some research that points out that as many as sixty eight percent 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 effects that a doctor is not sort of like staying on top of with you. So you just get fed up in your this time off. But a lot of employers and insurance companies are sort of waving their arms around and say, why recovering this expensive thing, when people don't even stay on IT, all the benefit goes away. When they get off of, or at least know ninety percent of the benefit goes away and your weight yos back up. So there are some very real things to figure out he had, making sure that you can prescribes these G, L, P ones in a way that come with enough handholding, 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 interest.

I am found that about non in hearing .

yeah they came up in a bunch of teek is calls they rust in some hedged fun investor trying to dig in the building a model of not a hearing into their dcf. Well, before we are going to 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 twenty two percent of a revenue in nobels business.

And you big three companies, sinophil and lili 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 reason.

So if you would have asked any of these companies ten years ago, how durable is this revenue stream and how durable are the profits from the revenue stream? They probably won't told you that it's prety durable because we have things like delivery, ten mechanisms that we keep improving over time, that our proprietary, that give us surprising power, that we keep revising the formulation. So we keep getting the ability to patent new things is a difficult to manufacturer r 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 he's not just going to walk in here and figure IT out, and that was a pretty widely held you.

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 over pricing that we talked about in twenty twenty one. U.

S. Officials alleged that novo nordisk increased Prices more than six hundred percent between two thousand and one and two and ninety in lock step with competitors to the detriment of diabetics. Now novel, of course, denied this, and they pointed out that the net Prices had actually decrease since twenty seventeen.

So very convenient that they just talked about the last two years of that eighteen year accusation. So my read into that is, yeah, Prices were really rising. And yeah, we all thought we had a lot of pressing 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 inside in for a profit has basically completely fAllen apart. So you've got regulation that came in after the public outside. So there's real Price caps on what you can sell for now.

Biosimilars also came in. Biosimilars are effectively what people called generic, but for the category of drugs that involve life cells rather than mixing chemicals together. So traditional drugs have generics, and biologists have biosimilars bio.

Similar incident became a thing. And so a lot of the profits just got completely arborist away. And G, L, P ones are here. So those are reducing demand for insulin to those three things in the last, like five years or so, created this complete perfect storm for insurance to be a super unattractive business.

interesting. Obviously, as we've shown throughout this story, is not like novo desk planned IT that way. However, this is really did a great benefit, right? Because of all the instant manufacturer I think I get was first to market with tlp ones.

Nova really created the true G, L, P. One market, and we're the ones to really benefit from these early years. While the competitors are catch up in many ways.

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

it's like the headphone jack.

right, was a courageous or did they see the writing on the wall that eventually we're not going to make any money from incident. 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.

Yeah I sorely didn't find anything in my researches that suggests there was .

anything medical instance. Yeah, it's interesting to think about the fact that these companies thought that biosimilars weren't just walking and eat their lunch and arbitral the profits away over time. The market for insuing became sufficiently large that they just had a target on their back.

The prize became worth and as we talked about in the NVIDIA a episode, motes are only sufficient if the castle is sufficiently lame to invade. Otherwise the castle becomes Better. You need a bigger mode.

In one hundred ninety nine, I think that was ill. Lilly sold seven hundred million dollars of inside in amErica nineteen ninety nine. By twenty seventeen, just two of their products sold two point six billion dollars .

in amErica in products seven hundred million .

to two point six billion. It's just an illustration of how large and how interesting that revenue stream became for other people to go after do all right, should begin to power. We're kind of there anyway. We're kind of in analysis land here.

Yeah, let's talk power and h for folks who are new, new to the show. This is barbed from my great friend hamilton helmet and his modern book seven powers, where he talks about the means by which a company can achieve persistent differential positive returns for to their competitors in an industry yeah .

or put another way, how to be more profitable than their closest competitor and do so sustainably. So the seven powers are counter positioning, 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 former industry. And so the one that has a blinking red light around IT is cornered resource.

This is a patent driven industry.

Yes, the novel is has the pattern on some glue tide until twenty thirty two. And this is an industry where when you have the pattern and you are able to make an end of one drug, and we're not quite seeing an end of one drug here, but it's an end of two drug, you get the profits. And Frankly, the crazy thing is when you look at somebody, the analysis, the profits of Operate within two years of your pattern going away.

Now that was from the previous era before biologics. So now the things are harder to copy because the molecules themselves are more complex and they require growing living tissue. More engineering. Yes, that would fall more under process power and freely scale economies because that requires more capital. But right now, like historically, farmer is a patent driven corner resource industry.

Yep, I think how this G L, P, one kind of super cycle is gonna play out if IT continues. And was interesting about the insulin history in the analogue e 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 leg, yes, the summer glue type pattern will expire in twenty thirty two.

But if kaga sema, they're new kind of next generation G L P one product shows the promise that they think it'll have, then that'll be a new pattern cycle starting then. And then we'll develop the next generation. And i'll play out again, just like insulin. But yes, absolutely corner resource first.

Yes, the patterns 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 prescribed the old thing.

And so when you introduce a new novel form of a pen, often times doctors will say, well, that's the thing we need to be prescribing now. And so there is 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 farmer that are are going to get mad at me for that character zone. But in addition, depending molecules, delivery mechanisms also provide defensive.

Yep, p yep.

One question I had is there might be like contractual things that entrench relationships to, like when you get really big and this would be a scale economy, are there contractual relationships with formularies that sort of entry you and make IT so that even if someone else comes out with something similar to treat any given condition and your pattern isn't defending you because it's a different molecule, well, sorry, you've locked up a distribution channel with the P. B, M. And getting on the formula in such a way that like good luck .

anyone else yeah I think that falls in the scale economies ah which for sure also apply here yeah I think really on three sides on the R N D and research side because that is incredibly capital intense .

of two point three billion dollars of drug 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 just do to walks into these markets.

right? And the gigantic amount of R N D, they literally has two point three billion dollars 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 out run the fixed cost of R N D.

Yep, I think we can say there's no network economics here are pretty safe fully. And I think we can probably also say there's no branding, although oxe mph c has become such a buzz d oh.

I think there actually is Normal leader isn't but that's one of the break out things about olympic is there actually is brand power. The first time I heard about majora was eighteen months after I heard about olympic. And I was like, that must be some kind of knock off know is my first time studying farma.

I was like, oh, it's probably something crappy that's trying to ride the same wave, but isn't actually the breakthrough molecule. And like the study show, monja helps you lose more weight and has a very similar mechanism, plus another mechanism that together work. But like most people know, know that most people know. I read on the cover in the new york times that oepa is a breakthrough, and I heard about IT at the Oscars .

because a joke was made on stage.

I think, for the first time, and that happened a little bit before. But for the biggest time in a while, oepa has actual brand power. Yeah I mean.

there's like thailand all it's Better but like yeah, it's entering that category. I 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 majo about we gov.

I was like that a crap knock off. I did a cursy amount of research. I was like, holy crap.

It's the same drug from the .

same company like litter the thing later.

often in the it's technically a higher dosage, but you can get many different dosage levels of either drug.

right? And not only that, he is the one that is supposed to be for weight loss. But your right OEM pic has become this brand name.

Yeah and I know where oz or the others, all sorts of i've been reading the oepa about for a while to first.

I bet you found some fun stuff in there. Totally sweating costs are a thing.

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 sitters in hydro or for biologies for fifteen years. I think this the attack and like, no, i'm not trying anything else that works. Why would I try anything else you and .

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

way yeah that's one of the worst things about IT. I will also throw in network economies.

Oh, I had said I thought there was none, but I want to .

hear your case for IT. Well, so I think most of time in farm mother is none, but with olympic. So I think there's two ways in which G, L, P ones use for weight loss resemble consumer tech products.

One is a tight feedback loop. When I started taking liberal, 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 noticed, 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 zinger 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 those epic. The second one is what I think is a network economy.

You kind of become a walking billboard. Yes, there is a little bit of taboo around sort of saying i'm taking olympic, but people know you lost weight. IT has almost like a share ball. Olympic can go viral in a different way than than most farmer describes going viral.

I totally agree with you. I would push back a little bit in the classification. I don't think this is actually in 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 olympic year by literally become a walking bill board. That is a obvious word of mouth marketing.

I guess the only one would be like a the taboo thing if i'm taking those epic on i'm ashamed of exam the first person, if a million more people started taking IT, then IT is actually Better for me.

right? If you on musk tweet that he's taking.

we go we yeah .

but again, it's the same thing.

right? Not to mention rebels' s that's the new oral one. They have figured out how to make summer glue tide 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 thirty minutes afterwards, but you don't like needles.

I believe IT is also not quite as effective as the injectable version. Uh, but still IT is an amazing feeds of engineering that they created an oral version of.

And this is the kind of stuff that no notice 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 G, L, P is I can't get absorb in to your bloodstream by you putting IT in your mouth and then hit going into your stomach, and, you know, hitting the harsh environment stomach. So like figuring out how to make something going from your stomach into your bloodstream for a sustained period of time.

right? Protect the molecule enough.

right? That is sort of the novel magic.

Yeah 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.

Yeah and counter position basically always exist in the takeoff phase and never exists later. I think we keep kind of finding that pattern over and over again is in comments don't really counter position and start ups counter position yeah. I think in the world of health care, there is a ton of power for basically any company that we would study because the returns over, over, over gun keep going to these incoming that keep getting bigger.

And I know biotech investing and startups as a thing. And there will be new disruptions on the horizon, crisper and gene and self thera and things like that. But the last thirty years, at least of health care has consisted of returns to scale, which would indicate lots of power yeah.

And it'll be interesting to explore healthcare broadly and specifically biotech more on the show, my sa 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? Yeah.

that's right. Or are they do a deal as some kind of distribution deal, but a lot of economics of that deal eating up by the big former company as the distributor, which really they're not the distributor the p bm handles making sure that the reimbursement ments or they also doctors will prescribed them and the whole seller, distributors handle physically moving the drugs. But when you do a good distribution deal as a biotech company with a farmer, it's because the farmer has the relationship with those two other parties to ensure that you actually can be available at prod scale.

And really, this model all started going back to genetic. And I, lily genetech, ended up getting acquired by rose. But IT was that partnership of Ellie being the gold, a market for genetech in insuing that started this whole, you know, start a big farm, a partnership.

Yep, all right. Playbook, playbook.

Let's do IT.

So the first one that we've had a few times, but is just worth putting a fine point on, is concentration. The focus of this company is unbelievable. Eighty five percent of their revenue is dedicated to meta lic disorders.

They are the second largest market, cap farma, second only to eli lilly. It's crazy there is that focused, but they have an ability to be that large by market. Cap IT is worth knowing. They aren't in the top ten pharma companies by revenue. In fact.

there are twenty. If wow, I didn't realized they were that low.

yeah, no, it's a multiples thing. Part of the reason why their 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 we've had the huge success that we've had with how focus they have stayed.

You know, it's funny. I was taking the same thing as my main playbook. Take away from this one.

IT reminds me of our security capital episodes a few years ago and COO kind of historical classic montreal, the down valentine's s 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 companies we've covered here. But this is such a peer play example of that, like one disease, one drug area for one hundred years and now a second drug area that came out of the first. Ja, well.

but for sixty years, IT wasn't actually that interesting of a market that's a crazy thing. Like one nine hundred and thousand and eighty IT was typo on diabetes, which, again, absolutely incredible for the world that they took children who had a death sense that gave them life, and they got to live basically a full life. But was type one diabetes actually this colossal, mega interesting market? No.

not at all. Yeah, something changed to absolutely. You're totally right.

Would a charly monger 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 gonna 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 novartis 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.

Totally right. 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 IT was like kind of too close to him and thinking, you know, industry wisdom we need emerge. Consolidation is happening and they really no there's this incredible wave that we are writing here. Let's keep compounding.

You should share the state on the size, the entire oh yes.

So um I hadn't camp believe we have to talk about this yet. Novo holdings, which is the vehicle by which the foundation holds their stakes in notes and nova ms, their sort of assets under management and does the enduring of the foundation, is worth a hundred and twenty billion dollars, which makes IT the single largest charitable foundation in the world. Over two x larger than the gates foundation, which is number two, unbelievable.

And through novo holdings, IT is actually now become one of the largest and most active life sciences and biotech investors in the world. Two, they hold venture stakes in eighty plus other companies that's on top of giving out lots and lots of grants to life sciences around the world and fulfilling the foundations mission. I mean, it's just a while we're bearing this so deep in the officer of village. This is the largest chair will foundation in the world. That's wild.

Now it's interesting that IT qualifies as that because, yes, that is totally true. On the other hand, one hundred and twenty billion dollars is pretty easily just a little bit larger than a quarter of nova notice market cap. And so like the vast majority of one hundred and twenty billion is their ownership of nova nordic.

So it's not like, oh my god, they spat off one hundred and twenty billion dollars in that they're investing elsewhere. no. So if you know jeff bezos decided to put his what does he have like nine percent of amazon decided to put that into a foundation and call a charitable. Suddenly that would be the most charitable funder .

you know up there? Yes, correct.

But the point stands.

it's still pretty cool.

yeah. Well, we're on the topic of the foundation before we keep going in playback. 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 humAnitary arian causes. So what is stability mean? I suppose IT means like ensure the longevity and duration of novo nordisk k as a company. But it's interesting when your stated mission is stability and this humAnitarian cause that is a by product, you could end up being this incredible market leader, innovator, super high growth company too yeah and .

on the point of mission.

novo notist casas, a stated mission that is not just about supplying treatment, it's about eradicating diabetes. And so there was a twenty fourteen paper that came out that suggested a real care for diabetes using stem cells, things that of harvard. And at the time, the nervo notice chief medical officer replied, we feel a responsibility for trying to prevent or eradicating ate diabetes.

And if that means the dissolution of novo notis k, that would be fine. I am 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 that means that the revenue would go to zero? Isn't that at odds with the idea of stability of novartis?

That quote was from twenty fourteen.

Did you say? Yeah so previous administration.

so to speak, and three G, L, P ones 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 is based on obesity alone. But from talking the folks from the outside, my senses, I think that is as true as I can be in a corporation.

Yep, that I also found a stat that in the last six years, four and a half billion dollars of grants have been distributed. So I was a little tie and cheek about, like, well jees most of that the otherness of nova ticks. But like that is a lot of outflows to research. And I think importantly, that research often supports what nobody notice the corporation wants to go do. And so it's nice to have a close relationship with researchers.

Yes, there is a cycle here.

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

certain ly IT is a unique structure in the corporate world and one that has had a huge impact on the companies is eh yeah okay.

Well, we are in corporate structure. Land align 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 is just no.

I didn't look at this at all. yeah.

So they are sort of forced to think on a different time horizon. Then if your compensation came primarily in the form of stock options and you wanted dip, 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 data betes medicine is really mission driven.

There's a what they call their remember, ation policy, which requires all board directors to hold stock. You know you're not getting IT as your company, but you're required to hold IT, which I think is kind of a similar idea. What works your health way has of, hey, we should have sticks, not carts and in birks's case, there's no D O insurance for board members.

You actually have to own the liability of the company's actions yourself to be on the boards. They take IT seriously. But in novice case it's, hey, you don't get the carrot of big piles of free equity in our company .

yeah you go stock 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.

Yep, I inspect is probably both. I do think the anish culture plays into this too. here. IT is a much, much more socialist country in america. Actually, watching interviews with, lot of he talks about this.

Sometimes she's asked about IT like, oh, he didn't you get rich? Basically invented G, L, P, one. She's like, no, i've never asked for a raise. E, in my life, i'm a socialist, but look at what we've done for the world.

Yeah, it's pretty crazy. Now the question is, does that thinking lead to the G, L, P. One breakthrough? Other farmer companies certainly didn't make these investments in these decisions on these time horizons. And so there's a reasonable narrative that he was actually novo notice s focus and their time horizon that LED to the decade s long work to actually bear fruit. I mean, sema glue tide isn't out of nowhere.

IT was built on all the work that in delivery glue tides since the early nineties, and incorporate that all the clever ideas they had previously developing longer, acting insults and things like that. There is a reasonable narrative of, is there a long time rise and and their focus, their ability to learn from doing the same thing. Well, in iterating, over a hundred years, that actually LED them to find this break .

through when others didn't. 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. Create if you do that is not like you will create something, create you still got ta get lucky and also be doing the right things in the right areas. But if you're gone to build something really, really big gotta have that long term focus mindset.

yes. okay. There are a few unexplored areas that I think you're interesting to know about health care as a whole and about nova.

Notice that I wanted talk about here in playbook. One of them is a shift that novo has done here to broad populations with relatively inexpensive drugs verses other pharma company ies. And I know you're going to be allergic to the idea that I just told you a thousand downers 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 farmer, over the last couple decades shifted away from these mass population drugs to specialty 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 view as like three hundred people in these super rare or phin 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 uh, a thousand dollars as a month. It's understandable why the other farma 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, the week point to his stats, which was to three collector. Al, I don't know, thirty years ago is really when that was kind of the thing. HIV and hepsa, our examples we can point to. But again, it's been a while.

Those are small markets compared to obesity.

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. It's not like we're discovering an antibiotic or a cure for polio every other year these days.

In fact, the alzheimer researchers have really been trying, but the trials have just been disappointing. And so we had this great hay day thirty years ago of small molecule drugs that you could manufacturer relatively easily by mixing chemicals. But after those patents inspired and these could be manufactured by other companies as generics and sold everyone for cheap, we really haven't discovered something like that sense.

So that's why the shift has really gone. And of course, we've new technology to do IT too, but really shifted to biologic the complex proteins that are, you know, harder to manufacturer r. 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 health care, you compound every problem.

Different type of got about.

Yes, the way that F, D, A 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.

Um another factor pushing to rare diseases a hundred percent .

going back to the piece that alex wrote, he references this idea of the Better than the beetles problem like what if I was a requirement to be releasing A A new pop song in the market that he was Better than hate dude, or Better than here comes the sun. You'd have no innovation like of course not right, right? So the rule both makes sense.

And you understand why once we hit some minimum level of treatability for something you're like, cheese is the juice is really worth the squeak there anymore, right? No, you go work on something that you're actually likely to get approved for and make your billions of dollars of R N D. worthy.

And here, years and years of clinical trials, 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 one thousand hundred and fifty three, IT cost forty million dollars for an approval. And that's an inflation adJusting figure today. IT average two point five billion.

Wow, wow, wow, wow. 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.

right? Wow, it's just just where is you look at almost every other market out there. If it's like a big market, there's in same capitalist incentives to go make a Better mouse trap for IT.

right at super true. So this leads into this another player theme. Farma is the most classic example of the venture business. Its 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, all my god, fig must spent four years writing code before they ship to product. Four years.

four years.

That's not there is no MVP in sama u tide like let's put a couple billion to work and then i'll check in a couple decades later and see if we've changed the world and obviously there our stage gates along the way. And 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 dassie of pharmacy ticals are what matters for the profits. So if you look at the pipeline of a hundred drugs that enter clinical development, ten actually make IT to market, and one provides, get this half the profits.

One drug, a grab. wow. The initial part of what you just said drives with our math earlier that ten percent make IT to market. I mean, that's a power law right there.

right? Ten percent of the ones that make IT to market provide fifty percent of the profits. Most drugs are also crazy. Dad, even after they are approved, do not earn back their R N D costs.

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

It's exactly right. yeah. You need to actually be able to pull risk or have some differentiated way vers all your other competitors of being more likely to create a hit.

okay. no. K.

yeah, you will not be a successful farming company without blockbusters. And even then, black busters might not be enough. Wow, nuts.

All right. So now we're in the like health care 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 is a lot of stuff to dive into here and i'll still never understand at all, but it's fun learning.

So I think everybody is aware in some sense that for every dollar that we are investing into the health care system, we're getting less and less incremental utility out. People complain all the time that as a percentage GDP, which by the way, is something like seven and eighteen percent, which is not the right, our health care system costs us seventeen and eighteen percent of GDP that goes up every year and the quality of care goes down or life expectancy IT goes down. So everyone sort of like heard some variation of this problem before.

On the surface, things appeared .

to be broken. Yeah, the seventeen point three percent of GDP that health care cost us. You should just know as a baseline that in one nine hundred sixty, that was five percent 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 diminished and is now enormous. So you should expect a lot of your health care system giving what a cost. 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 like a tragedy.

Commons, everyone throws their arms up and says, well, time ago, do the best I can and, you know, make sure i'm okay because I really don't know like who to point to and be like this system is set up for this reason. I mean, you can blame okapi. You can blame regulatory capture.

You can blame too many middle to 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 gonna require more money to to go eat out, more rewards.

People always make fun of farma with this thing they call a rooms law, which is more s law backwards. And the ideas like farma for every next generation gets more expensive. But like semiconductors also require huge of R N D.

And just because we're getting that speed up every eighteen months, have you looked at E, U, V? 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 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 loading fruit. So I have a little bit push back on the health care getting works. And if we're getting less out of IT, the thing that isn't good is that the average life expectancies have actually declined in amErica at the last few years despite the fact that we're spending more money.

So it's not just that our marginal dollars are earning us less is that we're put more money and life expectancy is actually decreasing. And unfortunately, it's kind of outside the health systems 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 cutting sixty years off of people's eyes when they are Young, which will massively affect the data? One other thought on this though. So from eighteen fifty one word, we got this huge increases in life expectancy every decade.

If you look at these charts, it's astonia. You're like, wow, there's like a miracle drug every year or there's a miracle process or there's people who are washing their hands or there's indoor bathrooms or whatever. IT is life. Expect aceves getting way Better. 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 that we got in a biotics and insular and all this, if you spend money to help a seventy five year old live to eighty, IT has a much different effect on the data, then helping a ten year old live to be seventy five. And once you compound that with the low hanging fruit, of course, it's can be really expensive to figure out how to make that seventy five year old lived to a especially there is a big fragmentation .

of disease yeah it's also exponentially harder to get that five extra years of life because you're facing twenty different mobilize out there.

right? We rarely are getting the silver bullets like we did with antibiotics. It's gonna two point three billion dollars over here to cure this form of milano ma.

And it's going to be two point three billion dollars over there to cure this form of pancre atic cancer. It's just going, I think, just gna keep getting more expensive to cure the more fragmented small population things. I think there's a reasonable question I like, what do we do about that as a society? Now that's on the benefit side.

There might be some massive cost production side, like you could imagine, some technology comes along that makes struck development wei cheaper or makes us able to like massively collapse the time and dollars spent in a clinical trial by using A I or something. Or there might be ways to collapse cost ten a hundred acts somewhere in the health care system. But the current state of affairs is not very free marketing.

So it's harder to imagine that happening versus all the ecosystem is the way that happens in tech. Yeah a couple of other ers, just like fun things that I heard from people during research, which I think you're 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 health care 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 in a biotics that you take, you look at the chart of life expectancy, the people that design that system and solve the acute infectious disease problems should just hang up a big mission accomplished banner. IT worked. IT was amazing.

We made IT to the moon.

Human quality of life is just unbelievably high, and there is very little in common today on the list of things that will kill you versus one thousand hundred and fifty is completely different set of things. So the next frontier than is chronic illnesses. And they catch up with us later in life.

And they're basically undetectable for like the first fifty years. For the first thirty years, I mean, obesity leading to diabetes or cardiovascular lar 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 c because that is too late. And so in many ways, this entire old system that we created that consumes eighteen percent of our GDP may actually not make sense in this new world of treating the things that are more likely to kill us now, which is chronic illnesses. I don't really know to do with that. I think it's pretty interesting.

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

Well, it's so hard in health care because they're so many buz words like there's a thing called value based care, which in a sense that 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 of 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 health care, the way everything it's build is on a cost spaces, 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 the solutions right.

Well, listening is if you get inspired.

I did hear one credible push back against why is health care getting so expensive as a fraction of GDP? We use a lot more health care. People just have a lot more life battering interventions be at from doctors, from pills, from facilities then we did in a long time ago.

And so like, I don't know, I had two surgeries a few years ago, one of which was an A C L. surgery. And like a whole bunch of P.

T. And in one thousand and eighty, what I ve had, those maybe the P. T, probably a worst surgery because the procedures were worth back then in nineteen nine hundred and fifty.

What I ve had A C L surgery at all. No, I pride to limp er around the rest of my life. There really is just actually a lot more care delivered now than there used to be.

I mean, even got this is cirl to home. I, me and Jenny and my family, i've talked about this on the show before, but Jenny, 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 thirty something throughout our life would not have been imaginable a few decades ago. So like, yes, I totally buy that alright.

We're kind of drifting in the value creation, value capture here because we're making sort of societal judgements around or the economic worth IT. Do you want to formally enter that section of the show?

Let's do IT maybe to start, you know, on this sign of the show, we talk about her given company, how much value do they create the world versus how much they capture. And let's start nearly with novo. Notice itself, what do we think like value creation versus value capture? Undeniable that over one hundred plus year history of this company, IT, is created incredible value for diabetics, and now for a much broader population than just diabetic.

So the creation amount is large. IT is also undeniable, that is, a half trillion dollar market cap company on the thirty to forty billion dollars of revenue, highly, highly profitable revenue. They have also captured a lot of value.

Well, a lot of people talk about does the pharma sector over earn? This is sort of the way people talk about this. And on other episodes that we've done, there is far less of a value judgment. We're kind of like, yeah company should go be as profitability that can be, my god, this make so much money and like at a little bit tony and cheek. But in health care is sort of different because there is an expectation you sort of start from a place of public good.

And then when health care companies earn too much money, you sort of look at and you're like, woo, I know if I like that, which is so interesting, right? It's a very different starting place that 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 looking at their margins is stupid. I related 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.

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

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 fix cost R N 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, R I C, they are not through the roof.

They're like thirteen percent industry wide, but hold for novo for a second. It's totally in line with other industries like king broadcasting electronics. When you sort of look at the federal data on IT, I mean, the fact that on the block buster 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 use to until like two thousand. But nowadays, the R, Y, C numbers are just actually not that interesting.

And in fact, some would argue that as farmer is lesson less efficient, capitalists should just not allocate their dollars there because there is literally not enough incentive in the profit dollars that you get to earn from your drug after its patted for many years. Like should you actually index the pharma sector? Probably not mean it's a little Better than other sectors, but not necessarily enough to take the sector risk of putting other dollars there.

Well, you making me feel Better about my career choice, this here or contact .

now novo notice, on the other hand, massively outperforming their peers and has has been really interesting trend where R O I C for farma as an industry over the last fifty years has declined, but the variance between companies has increased. And so nova far outperforms the median farma company in terms of return on an investigation ital. But there's company that weight under perform 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.

Yeah ah so interesting. I mean, i'm tempted to say from this whole episode deck the moral the story here is focus on long term focus. But I feel like we need to uncover this industry more in here from folks in IT. If that we're always true, why they're not .

more novels out there, right? IT may also be play compounding games in big markets. I meis very clear, even if not intentionally, that a lot of novels, historical work, LED to them, understanding something important Better than anybody else. And I think they might have looked in how important IT became, but play compounding games.

Yep.

it's pretty interesting. I mean, farmer as a whole of the medical pie only occupies about thirteen percent of revenue. I really would have thought with all the hate toward big pharma that that would be higher.

Thirteen percent of revenue in the healthcare are industry. yeah. So that means eighty seven percent of health care revenue is not going to farma.

right? If you could trade, never having drugs again or never having doctors again.

which one would you pick? Wow, that's a good question. I had not thought about that.

It's of course, kind of a farcical le right.

It's totally article. You know think about my scenario, jan. My scenario. It's both together for sure. Yeah.

of course IT is. But do you think drugs only provide thirteen percent of the value to all of health care is crazy, especially of the investments were making going forward in improving humans and their quality of life. Some amount of IT comes from amazing new surgeries. Some of out of IT comes from amazing medical devices, but some kind of IT does not come from new administration of building .

practices or the demand in .

the build right. The improved ability to move uh drug from place a to place b and come up with yet another clever way to build out the formula. So IT moves money from this pocket to that pocket hospitals.

If you back out the drugs they prescribed, hospitals are twenty eight percent of. The revenue in all of health care, which is large, but hospitals provide a crap ton value. Professional services like doctors officers are twenty six percent.

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, freking health insurance, the administrative cost of health insurance are eight .

percent of a very, very, very large number, right? yeah. I mean that that is like the administrative cost of health insurance are within spitting distance .

of farma and farma. I will say, like who is taking any risk in this whole ecosystem? It's only farmer, yes, who's taking a risk to innovate and make anything Better. Every other bet that a hospital makes or that an insurance company is probably gna pay off. This is actually pretty sting.

If you look at the net income of a farma company, unless to take the biggest one or A A very large one, Fisher, super spiky, even though the 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 succeeded. Sometimes they don't. You look at an insurance company, and by the way, let's to find 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 collected enough money such that they can still make some profit after covering the losses like a hurricane. Its the insurance company has a bad year. Does that ever happen? If you look at the net income of the big insures? No.

yeah, this is no surprise here. But like health insurance in the U. S. Is not insurance. It's access one hundred percent.

right? So we just had the single greatest health care crisis in the last several decades with code. And what happened to the profits of the big health insures they stayed at or grew.

So I mean, we aren't here on acquire to demonize people for making money for being capitalism. But I do think we should call a speed 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 is really, it's the taxpayers. The big insurance companies in the p bms make good profits in the good times, but the taxpayer funds the bad kinds.

I would be kinder here to the little bit of the industry if I thought they were innovating and taking risk the way that the drug companies are. But the incredible consolidation that happened among insures and p bms. And I mean, Frankly, even the hospitals and pharmacies too, like there's there there are local monopoly in the hospital case or kind of a three race oligos in every other part of the value chain. That really is just obvious ted and insulated profits.

So what you tell me me is that farma are the guys in the area. A they are out there try and things exactly .

no matter what value judgments you want to place on them or anyone else. And there are years where form a way out. And and Frankly, novartis has weigh out earned many of their peers many years in a row. And it's like a very fine question to ask, like, does any health care company deserve to have such phenomenal returns on invested capital like novo nordisk? But there are many players in the ecosystem for human is obvious to me that they should not be as large and not be as profitable as they are.

I got no arguments here, right? Team novo.

yes. And Frankly, team farmer, at least relative to its reputation, I think there are many players in the health query industry that have a fine reputation and they apply deserve a fine reputation. But it's weird to be on a terrible reputation farmer has when there are the ones innovating and trying to massively affect the trajectory of humans up.

And I think that's why you know a lot of scientists, including I think, lot and many of the most folks in north and northesk and that gets why they work there .

yeah are it's so finally, to wrap this section, listeners, this is all very, very complicated. Every time I was tempted to say, well, X Y Z party or X Y Z Y 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 I did today.

Now, 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 are 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 farmer 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, bar boll vid, and we can be reasonably quick in this sense. I think we've had a lot of these .

points along the way. Yeah to me where you for novo notes specifically, I think it's pretty simple. R G, L, P ones the next super cycle, if yes, that is the book case.

right? Even if lilies, majora and that bound are like, I think they're like, thirty three percent 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.

There is room for everybody here and the barriers to entry for everything we talk about to competing in this area are very, very high. So like there will be a number of competitors, including eli, eli, but there will be plenty of demand and profits for everyone that the both case and the bare cases for any variety of reasons be at uh health risk or lack of f acy or you whatever long term this just doesn't play out or doesn't play out on the same multi decade long timeline that insulted yeah 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 sema glue tide becomes truly a mega block bussi, an example of this is huma, by a vy that generated two hundred billion dollars in lifetime sales since huma was approved for eleven different indications across this whole spectrum of inflation and atomium 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 is not a lot of competitors for IT. Your pet actually gives you a good amount of room. You build a brand around IT, you get approved for a ton of indications that all have large populations. I mean, there is such a blockbusters that for a decade, IT doesn't matter how deeper your pipeline is or how diverse IT is, you just win. And like there's a chance that with some of glue tide and teriparatide, both lilly and novo ortis k have that for the next decade, yep, a decade .

plus with further innovations and iterations that are GTA.

Lily has this one in the pipeline called retch retried. That is a triple agonis that adds yet another hormones to the mix. So I think assuming that novo stays sort of necked neck with eli lilly as they both came coming out with Better and Better versions, that this could be the next huma or potentially much bigger than huma.

And I think the defensive city is open question for how many years, but at least the next decade. You one other downside that I think you can point you specifically, but you sort of meant in saying there is 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 G L P.

one. Then if you were just doing diet and exercise, when you are losing weight Normal, you lose like twenty five percent lean muscle. And these early studies are showing as something like forty percent.

So that would be a bare cases that we learn a couple years from relic. 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. E, even if a disproportion amount of IT is lean muscle mass, but I think there are sort of this open question of like is there a boogie and the cause that or is that a significant enough buggy man to really change things?

Yeah, it's probably ly also worth mentioning quickly here before we rap one potential buggy man that is out there people have talked about is suicidal thoughts as best as we can tell from the research. That seems like that's not a major risk with these drugs based on the broad population studies. Certainly, that's what novo notice says. Regulators have not indicated that, that is an actual issue, but that narrative is out there, and we don't want to go to the episode not mention that that could be one of these buggy men for these drugs.

Yep, all right. Well, as much as I don't like leaving IT there, I think we have beat this worse, and we should do something .

fun like carvels. Yes, garrets, let's do IT for a new folks to acquire and sense the top of a new season here. We do this for fun at the end of every episode.

Yep, so I have two.

Oh, great.

I do two. One is, uh, something that my wife got me as a Christmas present, which is the noxious tracer too. And this is, I think, a columbus, ohio company.

IT is a running vest and some lights that are rechargeable with U. S, B, C. And waterproof. And so a super light weight IT, literally, well, perfect for seattle. I know I wear red on all my winter runs when i'm out walk in the baby.

Now you me a photo, you are all set up and I like, wow, then is really invest in some gear.

It's pretty hard to hit you when you're this little up. IT also has a optional light. You can buy that clicks into the front that specially like a headlight, but you wear sort of on your chest. You not really feel that when you're running with IT, but you do light up the whole road in front. So when you live in a place like I do that is dark, from three thirty P M to thirty A M is a great way to get outside and be seen.

nice. I bet we will have a lot of folks in denmark that are interested in that. Yes, to our danish .

friends and our swedish friends as spotify, I highly recommend this product.

Yeah, nice. Hi.

that's one or right? Two is a recommendation from friend of the show, ian. He text me and said, I listen 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, cool, thrilling.

It's a little bit unapprovable 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, in parts of IT or in english.

And so you've to read subtitles for the majority of IT. But IT is a beautiful story about wine and family and love and it's got some very unexpected twists and turns and drama to IT. So I .

highly recommended. Um fun sounds like apple TV got some good these well, I have give you big thank you because over the last couple weeks since here recommendation, I have read the book wall, which is the first in the series, that silo series on apple T V plus, because i'm more a book guy than A T V guy. And IT is awesome. Book is so good. A new addition to my favorite size I box and size I series.

It's funny, I i've been holding off and reading the book because I don't want to spoil the show too much, but I hear I actually deviates .

pretty significantly from the show. I wouldn't be surprised by that. Having now read the book, i'm excited to a dive into the rest of the series.

Okay, my carvels i've got to the first one is a fun, timely in person carve out its, I guess, carve out from my wife, Jenny. Separate cisco bali, where SHE works, is premising a new work at the beginning of the season this year, january twenty six. Here in the from cisco is the premier new valley called mere models.

And this is pretty course like you've gotto talk about this unrequired. IT is about ai and IT is a um pandora box analytica. I super cool.

The music is composed by the british D J floating points so it's like super modern valley choreography from uh great open cubin choreographer and S P gonna do after parties in the Operations afterwards should be like a super call vent. So Jenny, i'll be there. I think we'll there on nobody night, the twenty six. And that runs through february first for listeners.

David, Jenny lived in seattle and jennie was involved in the valley appear. And I went to an event held, you know, where the valley performs. And it's immensely cool to be in there with the performers and at the place where they perform at in a party setting, like I highly recommended .

fernea before after stuff to, is such a cool. And because of all the classic most and these dancers are athletes, they are like nfl level athletes. So what they do, and you know, they are Young.

And so there is this like new life in IT relative, do I think a lot of other classical farm shop, and I love IT, obviously, is Jenny whole life and career. That's one two on some holiday traveler flakes, I think recommended by an acquired listener. Actually, I watch the blackberry movie. Have you seen this yet?

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

Oh, no, it's so good. It's really, really well, I just watched because I was the thing that was on the entertainment system when I was like, yeah so whatever I give this a try like I don't know rim blackberry yeah but it's really, really well done. I really enjoyed IT.

It's hilarious. It's also like a good business story. You is a good example of a we get asked all the time of like how can you guys cover like a failed company? You know, a cautionary tale and it's hard to do and acquired because a lot of these companies are still going and rimm is still going. But black very is a good one because you know like it's super obvious that they failed. There's no argument about that one .

although did you just see the ad on keyboard you can get for your iphone? Oh, someone take you to physical keyboard. It's so for you die hearts out there who were cracker heads and I think it's actually called .

clicks maybe oh.

nice with that. We have a bunch of people to think who massively contributed to this episode. It's been fun doing more and more of this recently.

So I think we will keep doing that to a huge thank you to the pillow pack founders, T. J. Parker and elliot coin for being so generous with their time and having conversations yeah pill pack.

super good company that got acquired by amazon a few years back, right for over a billion dollars.

some like that, and became amazon pharmacy, which actually know some people that use and rave about IT. Also, thank you to the founder of cover my mads and and health mats cantons, the founder of blink health jeff chicken, the C E O of J P Morgan health care ARM Morgan health name is dan mental son had an awesome conversation with him and the other folks I mentioned to kind of bound some ideas around that. We were thinking about us.

What are the main points that we really need to hit in this episode? Good friend of the show, kate koreans, who spent her career at various farma companies. And finally, thanks also to some of my favorite reading materials to prep for this out of pocket. The news letter from nicko Christian very approached fun way to read about the health care industry. A shareholder letter from tom Williams, who's a friend of the show and a portfolio manager at fielding .

the time is great.

Some blog posts from the drug channels institute that were publicly available that I thought we're great. Some very helpful dms with ashwin varma, who pointed me to a lot of the great information about the profitability or Frankly, lack there of the returns on invested capital for former industry.

He's actually amid school student and former lux capital associated 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.

Thanks for notifications of when new episodes drop, acquire data, FM, slash email. You can also get our followers and the corrections and teasers at what the next episode will be. A C, Q two. You should go check that out.

IT is where we do follow up interviews when we have topics were more interested in perhaps to do that for health care or just ceos or investors that we want to talk to. Look in any podcast player after you finish this episode, come discussed with us that acquired dot m slash slack. And if you want to that sweet acquired merch, go to acquired df m slash store. In fact, I am wearing the t shirt now. So yeah, come up with our listener's.

I'll see next time the truth, easy you visit you busy you who got to.