Novo Nordisk, the Danish diabetes treatments specialist, has set itself ambitious targets – both in cutting its environmental footprint and doing itself out of a job
No-one could accuse Novo Nordisk of lacking ambition. The Danish drug company has a quest to “defeat diabetes”. As the world’s largest maker of insulin, with 53 per cent of the global market, it helps treat many of the estimated 250 million people affected by the disease worldwide.
Diabetes kills about 3.8 million people a year, according to the International Diabetes Federation. The patient and advocacy group predicts that diabetes will affect 380 million people by 2025. So Novo Nordisk will struggle to achieve its goal of defeating the disease any time soon. In the meantime, 130 million new patients needing insulin within the next two decades is good news for the company’s core business.
Most fresh cases of diabetes will come in poor countries where governments lack either the awareness or the resources to develop diabetes-treatment programmes, says Novo Nordisk executive vice-president and chief of staff Lise Kingo. She told Ethical Corporation that the company was creating demand for diabetes treatment by raising awareness of the disease among governments and helping them implement diabetes care programmes.
“It’s going to be a big social challenge,” Kingo says. “It’s going to be people in the weaker economies that will be mostly hit by this disease.”
The IDF estimates that 70 per cent of diabetes cases are in the developing world. Most new cases are in Asia and are of type 2 diabetes, the variant of the disease linked to lifestyle factors such as obesity.
As governments and campaigners focus on infectious diseases such as HIV/Aids, malaria and tuberculosis, diabetes and what Kingo calls “chronic diseases” have been overlooked. There has been a “misprioritisation” in global health policy. “In 20 years’ time, 60 per cent of deaths will be due to chronic diseases like diabetes, cancer and heart disease,” says Kingo.
IDF’s president, Professor Martin Silink, shares Kingo’s concerns. He says: “Rather than being a disease of affluence, diabetes is actually a disease more associated with poverty. Even in developed countries, the highest prevalence of diabetes is in the lowest socio-economic groups.”
Less than 10 per cent of people with diabetes receive adequate care, Silink says. He wants to see a new fund, modelled on the UN Global Fund for HIV/Aids, malaria and tuberculosis, set up to raise money for diabetes care.
Lobby hard
The need to redress the perceived imbalance in national health policies explains why Novo Nordisk, along with other drug companies, in 2006 backed the successful Unite for Diabetes campaign for a United Nations resolution on diabetes. In December 2006, UN members resolved to “develop national policies for the prevention, treatment and care of diabetes” and mark 14 November annually as World Diabetes Day.
Kingo is proud of the resolution, but observes: “It’s not going to do anything unless someone implements it.” Governments in the developing world have about 70 per cent of diabetes cases but account for less than 20 per cent of the $232 billion currently spent on preventing and treating diabetes, the IDF says.
Kingo says Novo Nordisk is working with governments and patient groups to put the resolution into effect, arguing that it will cost countries less to invest in screening and prevention campaigns now than to treat patients who develop type 2 diabetes later. In Denmark, in April, the company hosted a “diabetes parliament” for politicians and doctors to discuss how the country could improve care and better fund prevention, screening and awareness campaigns. The company is holding another parliament in Moscow later this year.
To help poor countries access diabetes treatment, Novo Nordisk has since 2001 had an affordable pricing scheme that offers insulin to the world’s 50 poorest countries at 20 per cent of the world market price – the affordable insulin costs $5,800 per million units. Thirty-six of the 50 countries have taken advantage of the discounted drugs.
Kingo says the company intervenes in poor countries to tell health ministers that they should test people for diabetes, then treat them. The company offers to train doctors and nurses to do this and sells the governments its treatments. Many countries in the world do not yet register people who die from diabetes, she says. All populations in the world have people with type 1 diabetes – in which the body does not produce enough insulin – which account for 10 per cent of diabetes cases.
Another way for Novo Nordisk to improve access to treatment is through the World Diabetes Foundation, a non-profit group the company set up in 2001. This year the company’s shareholders approved a plan to give €119 million to the foundation over the next ten years. Novo Nordisk’s chief executive sits on the WDF board. The foundation funds improvements in diabetes treatment in poor countries and has 97 current projects.
Capacity building
For every euro Novo Nordisk donates, the foundation attracts two more from other sources – usually other foundations but not rival companies, says Kingo.
The investment is paying off in Tanzania, where Novo Nordisk has funded 20 new diabetes-only clinics. Funds came directly from the company’s shareholders and employees, and indirectly through the foundation. But supporting state-of-the-art facilities in poor countries brings its own dilemmas, Kingo says, as patients with one disease receive better care than patients with another, depending on who has funded their treatment.
Kingo recalls opening one of the clinics two years ago at a hospital in Zanzibar – “the worst hospital I have ever seen”. Its doctors had a monthly budget of $500 that could not buy enough soap for handwashing. She says: “When you visit a hospital like this you realise [that] people need to develop diabetes here to go to the nice area of the hospital.” But she argues that it would be even worse for patients if there were no diabetes clinic, adding that no government has ever asked the company to support non-diabetes healthcare.
Working with governments in emerging markets has helped Novo Nordisk establish market share, Kingo says. In China, for example, the company has worked with the government for more than eight years, training doctors and nurses on diabetes. China is set to be one of Novo Nordisk’s top ten markets in a decade’s time, she says.
Strong foundations
The capacity-building work that Novo Nordisk does in emerging markets shows that the company is taking a long-term view of its business. For Kingo, the dual share structure of Novo Nordisk is a vital ingredient in allowing the company to plan for the future.
Novo Nordisk is controlled by the Novo Nordisk Foundation, a non-profit group that owns 27 per cent of the total share capital but has 70 per cent of the votes in the company. The foundation owns Novo Nordisk through Novo AS, an unlisted Danish company. Its “A” shares are not publicly quoted and have ten times more votes than the “B” shares on offer to retail investors. B shares are quoted on the Copenhagen, London and New York stock exchanges. This dual share structure effectively protects Novo Nordisk from a merger or takeover.
Kingo says of this arrangement: “It gives us peace. It gives us the opportunity to work with a long-term perspective, which is hugely important.” Every year the Novo Nordisk board must show the foundation how it is living up to the company’s values, as set out in “the charter”. Duties include making sure that all company products and practices are “economically viable, environmentally sound and socially fair”. The clear line of accountability from management to a majority shareholder that is explicitly committed to responsible business means Novo Nordisk knows exactly to what standards it must operate, says Kingo.
The Novo Nordisk Foundation’s purpose is to make contributions to “scientific, humanitarian and social progress”. The foundation board is composed of doctors, academics, business people and employee representatives. “It is not what you would call a professional board. And that’s a good thing. It is people who have a commitment to Novo Nordisk,” says Kingo.
Industrial foundations are relatively common among Denmark’s biggest companies. Other high-profile foundation-owned Danish companies include Carlsberg and AP Møller-Mærsk. These companies do not underperform their peers, says Steen Thomsen, director of the Center for Corporate Governance at Copenhagen Business School. Foundation-owned firms perform well despite not having the same profit incentive as listed companies that are under pressure to satisfy investors with a return, he says.
Thomsen says: “It is a little bit of a paradox. It is not clear that foundations are always an impediment to the functioning of a company. Sometimes they can be an advantage.” Outside of Denmark, Thomsen points to Bosch in Germany and many of Sweden’s leading companies as examples of successful, foundation-owned businesses.
Future planning
The long-term vision of Novo Nordisk, which Kingo says would be harder to achieve without the dual share structure, can be seen in the company’s ambitious plans for an absolute cut in its greenhouse gas emissions by 10 per cent by 2014, from a 2004 base. It will do this by buying electricity from renewable sources.
Novo Nordisk emitted 7,000 more tonnes of carbon dioxide in 2007 than in 2006 – 236,000 tonnes, up from 229,000 tonnes – or an absolute rise of 3 per cent. The increase is because of the company’s expansion. The company has cut growth in its emissions, at a time when the business is expanding, through energy-efficiency measures that saved 12,000 tonnes of CO2 between 2005 and 2007.
To have any chance of meeting the total emissions target of 192,000 tonnes of CO2 a year by 2014, the company needs a more radical approach.
So Novo Nordisk has partnered with Dong Energy, the Danish utility, to build an offshore wind farm in the North Sea. Renewable energy from the wind farm will power the company’s Danish insulin factories, which account for almost 90 per cent of the company’s total emissions. Novo Nordisk has committed to buy energy from Dong for 20 years once the wind farm is running. Kingo, who helped negotiate the deal, explains: “Finding the same language between two companies, finding a model that both of us liked – where Novo Nordisk didn’t have to pay 500 million Danish kroner ($100 million) to set up the wind park – was really hard.”
Novo Nordisk may not be a large polluter, but Kingo says the company’s investors, which include three of Denmark’s biggest pension funds, support the company’s efforts to cut CO2 emissions. She says they understand the risks to the company of failing to adapt to global warming.
But “hardcore” investment analysts are sceptical of some aspects of the company’s non-financial reporting, such as how the company manages social and environmental risks in its supply chain and its policy on animal testing, Kingo admits. For four years running, Novo Nordisk has combined financial and non-financial information in a single triple bottom line report to shareholders.
Yet Novo Nordisk should not be too worried about being able to please investors, as they stand to gain immensely from the company’s response to the world’s diabetes pandemic. More important for the company’s managers is to meet rising demand for diabetes treatment in a way that fulfils the mission of the Novo Nordisk Foundation. The company’s work to defeat diabetes has, in many ways, only just begun.
Novo Nordisk – in numbers
€5.6 billion – total sales in 2007;
€4.1 billion – sales of diabetes products;
€1.5 billion – sales of biopharmaceuticals, in the areas of hormone replacement and growth hormone therapies, and haemostasis management (treating haemophilia patients).
Novo Nordisk’s insulin market share
Novo Nordisk is the insulin market leader in the four main markets identified by the company. Overall, Novo Nordisk has 53 per cent of the world market in insulin.
· Europe: 57 per cent
· North America: 43 per cent
· Japan & Oceania: 73 per cent
· International operations: 59 per cent
Novo Nordisk’s main competitors in diabetes care are Eli Lilly and Sanofi-Aventis.
Diabetes – the key facts
· Diabetes affects 246 million people worldwide and is expected to affect 380 million by 2025.
· In 2007, the five countries with the largest numbers of people with diabetes were India (40.9 million), China (39.8 million), the US (19.2 million), Russia (9.6 million) and Germany (7.4 million).
· In 2007, the five countries with the highest diabetes prevalence in the adult population were Nauru (30.7 per cent), United Arab Emirates (19.5 per cent), Saudi Arabia (16.7 per cent), Bahrain (15.2 per cent) and Kuwait (14.4 per cent).
· By 2025, the largest increases in diabetes prevalence will take place in developing countries.
· Each year a further seven million people develop diabetes.
· Each year 3.8 million deaths are attributable to diabetes. An even greater number dies from cardiovascular disease made worse by diabetes-related lipid disorders and hypertension.
· Every ten seconds a person dies from diabetes-related causes.
· Every ten seconds two people develop diabetes.
· Diabetes is the fourth leading cause of global death by disease.
· At least half of all people with diabetes are unaware of their condition. In some countries this figure may be 80 per cent.
· Up to 80 per cent of type 2 diabetes is preventable by adopting a healthy diet and increasing physical activity.
· People with type 2 diabetes are more than twice as likely to have a heart attack or stroke as people who do not have diabetes. Indeed, people with type 2 diabetes are as likely to suffer a heart attack as people without diabetes who have already had a heart attack.
Sources:
Diabetes Atlas, third edition, International Diabetes Federation, 2007.
Diabetes and Cardiovascular Disease: Time to Act, International Diabetes Federation, 2001.
World Health Organisation Diabetes Unit – www.who.int/diabetes
Rise in diabetes
Building on industrial foundations
Denmark’s industrial foundations were set up in 1920s and 1930s as a way of avoiding conflicts in family-owned firms when control of the business passed from father to son, says Copenhagen Business School corporate governance professor Steen Thomsen. By putting their assets into a foundation, wealthy industrialists could keep greedy offspring at bay, he says. Having done this, it was a logical step to transfer ownership of the family firm to the foundation too.
But Denmark’s foundation-owned companies are changing. Carlsberg, the brewer that pioneered this form of ownership more than 80 years ago, is relaxing its foundation’s grip on the company to finance the $7.8 billion takeover with Heineken of Scottish & Newcastle. The Carlsberg foundation’s share is now about a third of the Danish company.
Novo Nordisk has permission from the Danish government to ask the foundation to increase the share capital of the company, through a rights issue, should it need to finance an acquisition like Carlsberg’s. But Thomsen suspects Novo Nordisk would not exercise this option, unless it was presented with “the deal of the century”. He says the company’s managers would prefer to maintain the current ownership structure, saying: “They really like the way they do business. They are very much a values-driven company.”