By Clemens Bomsdorf and John D. Stoll
COPENHAGEN--Flush with cash and holding a dominant position in
the growing diabetes market, Novo Nordisk A/S has been on the
lookout for potential takeover targets but sees little strategic
reason to jump into the deal-making wave sweeping the global
pharmaceuticals sector.
Instead, the Danish drug maker is turning its immediate
attention to further beefing up its research and development staff.
It announced this month a plan to expand its R&D staff in
Denmark by 3,000 over the next eight years as part of a wider
hiring plan aimed at increasing head count by 6,000, or 15%, by
2022 to keep pace with strengthening demand for insulin
products.
Novo Nordisk Chief Operating Officer Kare Schultz said in an
interview the company does have small licensing deals on the
agenda, but it currently has no plans to abandon a 25-year strategy
of avoiding megadeals.
"We have looked a lot [for possible takeover targets]," Mr.
Schultz said. "Of course, we could merge with another company given
our high value, but we do not see any strategic reason to do
so."
The strategy comes during a bumper year for pharmaceutical
deals. There have been 14 announced mergers and acquisitions valued
at more than $1 billion in 2014, compared with 10 over the course
of 2013, according to S&P Capital IQ.
Drugs giants have been signing deals to narrow their focus: in a
series of asset swaps worth more than $25 billion, GlaxoSmithKline
PLC sold its cancer drugs to Novartis AG in April, in return for
acquiring vaccines and consumer health products. Merck & Co.
sold its consumer health business to Bayer AG for $14.2 billion in
May, and several players are looking to shed portfolios of older,
off-patent medicines.
Meanwhile, a blockbuster $120 billion tie-up between Pfizer Inc.
and AstraZeneca PLC was rejected by the latter's board last month.
And major drugs companies remain willing to buy up smaller
companies that could help them find new treatments.
For Novo Nordisk, staying the course has been supported by the
company's board and its biggest owner, the Novo Nordisk Foundation
(which exercises influence through the Novo A/S holding company),
according to people familiar with the matter. Directors have
consistently encouraged management to stay focused on a core
strategy of dominating an insulin market fueled by higher diabetes
rates in emerging markets.
About 80% of revenue comes from diabetes care products.
Under its current plan, Novo Nordisk returns positive cash flow
to shareholders, paying high dividends and launching a string of
share repurchases. The Novo Nordisk Foundation holds 74% of the
voting rights and 25.5% of the share capital. The foundation could
waive its controlling interest to pave the way for a merger if that
deal was considered necessary to strengthen the company.
Novo Nordisk, with a market capitalizaton of 664 billion Danish
kroner ($120 billion), is the largest company by market value in
the Nordic region. Mr. Schultz said the company's organic growth
rate, often hitting 10% annually, could be dented by an
acquisition. He also suspects the company's dominant position may
limit Novo Nordisk's ability to get proposed deals past antitrust
regulators.
Created by a merger of two Danish companies in 1989, the company
has in the years since not participated in a deal valued at $1
billion or more. The company currently has several licensing
partnerships worldwide, many focused on research, and a handful of
product partnerships.
"We don't see any significant synergies coming from going with a
company in another area," Mr. Schultz said, referring to the plan
to remain committed to partnerships and solo research in
diabetes.
Novo Nordisk has relied on gains by its Victoza drug to help
sustain sales following the rejection of a new insulin product,
Tresiba, by U.S. regulators last year. The company has said it
expects to potentially launch Tresiba in the critical U.S. market
before rival products. A study presented at the American Diabetes
Association meeting in San Francisco over the weekend showed
Victoza given in a high doses helps weight loss, and the launch of
Victoza as an obesity treatment is planned.
But pricing pressure in diabetes drugs has ramped up in the
U.S., leading Novo to cut its 2014 sales guidance in May. Pharmacy
benefit manager Express Scripts excluded Victoza and two Novo
insulin products from its recommended prescribing list in January,
meaning patients must pay full retail price for them.
Meanwhile, the diabetes field is also becoming more competitive,
with rivals including GlaxoSmithKline, Eli Lilly and Company and
AstraZeneca all lining up or launching new treatments.
Hester Plumridge contributed to this article.
Write to Clemens Bomsdorf at clemens.bomsdorf@wsj.com and John
D. Stoll at john.stoll@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires