Risk management
Novo Nordisk defines risks as ‘events or developments which could reduce our ability to meet our overall objectives’. This includes both financial and non-financial risks that could affect the company throughout its value chain: from discovery and development, through manufacturing, sales and support functions.
Integrated and systematic risk reporting is aligned with other management reporting and occurs on a quarterly basis. Through this process, risk factors and mitigations are identified and factored into the individual units’ business plans. This disciplined inquiry into the context for identified risks and assessment of which objectives may be threatened enables Novo Nordisk to be more attentive to factors that help or hinder long-term value creation. As part of the strategic planning process, Novo Nordisk conducts an annual in-depth identification and evaluation of long-term growth opportunities.
See a description of Novo Nordisk’s approach to risk management.
Below is a description of current key risks to Novo Nordisk’s business and the company’s mitigating actions.
Diabetes care
The market for diabetes care is growing rapidly. It is also becoming increasingly competitive as new products and biosimilar products become available. Competing under such conditions hinges on the ability to offer superior products and to effectively convey the value proposition to customers and healthcare professionals. Delay or failure of key development projects would impair Novo Nordisk’s ability to successfully market current and new products. Causes of delay may include slow recruitment for clinical trials, safety or efficacy concerns, filing delay or insufficient production capacity.
Novo Nordisk seeks to maintain its lead in injectable insulins through continued market penetration of the company’s modern insulins, and to build new platforms with pulmonary insulin and GLP-1, where the compound liraglutide appears to be promising.
Barriers to success include customers’ willingness and ability to pay. Ageing populations in the developed parts of the world have led to increased pressure on healthcare costs, and governments seek to cut prices and do not offer premiums for new, innovative products.
This development threatens to undermine the profitability of bringing improved treatments to market. In contrast, in the developing parts of the world the challenge is to provide access to medicines and to healthcare.
Novo Nordisk has stepped up its efforts to engage payers and policymakers in all parts of the world in understanding the magnitude of the economic implications of inaction on diabetes. These efforts include building an evidence-based argumentation for action and for the health-economic benefits of insulin treatment. The company’s global programmes to offer inclusive diabetes care help alleviate the current diabetes burden while simultaneously building long-term presence in emerging markets and paving the way for commercially viable solutions in the longer term.
Biopharmaceuticals
Given the nature of indications investigated and the limited number of patients for whom treatment is relevant, conducting clinical trials is cumbersome and time-consuming.
At the same time, the risk of failure is great, and even when results are positive there is no guarantee of commercial viability. Still, Novo Nordisk is committed to pursuing treatment options if there is a sufficiently well-founded hypothesis that the compound could benefit patients. As with diabetes care, delay or failure of key development projects would impair Novo Nordisk’s ability to successfully market current and new products.
In the new therapy area, inflammation, success is unlikely to be achieved solely through organic growth, so Novo Nordisk is actively promoting itself as an attractive partner in research and development, and is open to acquisitions that could complement the internal activities.
Facing industry challenges
The pharmaceutical industry is subject to extensive regulation, which aims to ensure patient safety, but also increases costs. The approval process for new products is generally lengthy, expensive and subject to unanticipated delays. Sustaining revenue growth therefore also depends on the timely and successful approval, introduction and marketing of new products, as well as gaining approval for existing products for new indications.
Government-imposed industry price regulations, mandatory reference prices with subsequent payment burdens to patients through higher co-payments, and mandatory substitution of biosimilar drugs adversely affect Novo Nordisk and most of the industry in general.
Protecting patent rights is material to Novo Nordisk’s business. Loss of market exclusivity and the introduction of lower-cost biosimilar products result in significant loss of sales. The therapeutic proteins market is becoming increasingly attractive. Novo Nordisk has a generally low short-term exposure to patent expiration, but, like other branded products, is exposed to competition.
On a path of continued growth
In recent years, Novo Nordisk has grown at a rate that generally outperforms peers in the pharmaceutical industry. The company is building up a global sourcing programme, having made substantial investments in expanding production capacity in the US, Brazil and China. In doing so, Novo Nordisk seeks to grow its presence in strategic markets, spread risks and optimise costs and logistics.
Any failure or breakdown in vital production facilities or with key suppliers could, in addition to potential physical damage or loss of life, affect the supply of products.
Quality is paramount in pharmaceutical production. Quality failures could jeopardise patients’ well-being and would entail major reputational risks as well as risks of costly compensation payments. With an aim to mitigate this Novo Nordisk has a global quality system in place, with audits, improvement plans and management reviews. To achieve its ambitious business objectives Novo Nordisk depends upon the ability to attract and retain skilled people in key positions across the organisation, and particularly in growth markets such as the US and China.
Competition for talent among pharmaceutical and biotechnology companies is intensifying, and, as a result, Novo Nordisk has stepped up its efforts on employer branding. Innovation and high performance depend on people’s engagement at work, leadership development and lifelong learning. These are the key parameters for success addressed by the Novo Nordisk people strategy and monitored through regular facilitations, organisational audits and annual surveys.
Evidence of good governance and full compliance is a precondition for maintaining the licence to operate and innovate. In a competitive environment with increasing public scrutiny and regulation, the risk of legal action due to perceived or actual failure to adhere to marketing practices is ever present. Monitoring adherence to the Novo Nordisk
Way of Management, supported by the company’s business ethics policy and related audits, aims to mitigate such risks.
Legal issues related to intellectual property, product liability claims or business practices are included in the overview of current legal cases.
Financial risks related to currency exposure are described in the Annual Report 2007.
