- Novo Nordisk's ownership structure has created a health investment behemoth
- Recent buyouts and funding show the direction of travel in biotech
Until recently, Novo Nordisk (DN:NOVO.B) was known for its portfolio of diabetes treatments, which included the blood sugar control aid Ozempic. But everything changed in 2021 when regulators approved a high-dose version of the GLP-1 drug for the treatment of obesity.
The subsequent urge in demand for weight-loss drugs means Novo Nordisk is now Europe’s most valuable company, worth $400bn (£331bn) – higher than Denmark's gross domestic product (GDP). This meteoric rise has benefited the company’s investors, and none more so than its controlling shareholder, Novo Holdings.
The holding company exists for the purpose of generating wealth for the Novo Nordisk Foundation. This arrangement is a somewhat knotty one: the foundation owns 100 per cent of the holding company, which itself owns shares in Novo Nordisk corresponding to approximately 28 per cent of its total equity and 77 per cent of its total voting rights. With its dividends, the foundation pumps money into ventures such as an antiviral production line aimed at cutting development times for a vaccine or treatment for use in the next global pandemic.
Novo Holdings has gained even more importance thanks to Novo Nordisk's stellar year. At the end of 2022, the holding company had stakes in 161 companies and €108bn (£94bn) in total assets, including its stake in the drug giant. That is giving it more power to invest in – and acquire – pharmaceutical businesses, as well as other assets.
Life science investments make up 54 per cent of Novo Holdings’ portfolio, with the remainder allocated to capital investments, a category that includes real assets such as infrastructure, as well as stocks and bonds.
Invest like Novo
Novo Holdings doesn’t invest in organisations that compete with Novo Nordisk in the fields of diabetes and obesity, nor does it seem to have an interest in the more staid corners of the pharmaceutical world. Recent investments show it’s keen to address future health challenges, such as antimicrobial resistance, and capitalise on breakthroughs in gene therapy.
In September, the company completed the $462mn acquisition of Nasdaq-listed Paratek Pharmaceuticals, the maker of Nuzyra, a next-generation antibiotic designed to treat pneumonia. Only weeks before, it also announced it had also contributed to the series A funding of Bactolife, a company developing proteins designed to strengthen the gut microbiome and thereby reduce the global need for antibiotics.
The company also co-led an early financing round for US start-up iECURE, which hopes to use novel gene editing techniques to treat rare paediatric liver diseases, at the end of last year. It has subsequently invested in a California company that is developing gene therapies for patients with blinding diseases. Some observers might wonder why the investment arm of Novo Nordisk – which has made its fortune treating two of the most prevalent public health issues of our time – is now seemingly preoccupied with rare diseases.
The answer is likely to come down to pricing power. Individuals, insurance companies and health systems are likely to be willing to pay a premium for medicines that are known to be highly effective, or even curative. Gene therapies are currently among the most expensive drugs in the world on a per-dose basis. But because many of them help to address diseases with few effective treatments, they’re also likely to enjoy a smoother regulatory review process, and make it to market faster.
Novo also appears to be hanging onto its 10 per cent stake in Oxford Biomedica (OXB) despite the latter's recent share price woes,. Best known as AstraZeneca’s Covid vaccine manufacturing partner, the company is hoping to double its revenue by 2026, and cement itself as a leading player in gene and cell therapies. To this end, it launched a US outpost that specialises in manufacturing adeno-associated virus (AAV) drugs last year.
These treatments use a modified virus as a method of delivering therapeutic genetic material into living tissue. Elsewhere, Novo Holdings has made a bet on China, participating in a $290mn August funding round for Sangon Biotech, a provider of life science research tools. A senior partner at Novo called the deal “another important milestone in the development of our regional ambitions for Asia”.
Given last year’s biotech bear market – and the global inflationary spiral – it’s little surprise that Novo Holdings’ portfolio generated a negative return of -6 per cent overall. The value of its life science investments fell by 6.3 per cent, while its capital holdings were down 5.6 per cent. However, the 10-year average return for life sciences was 13 per cent (versus 9 per cent for its capital investments).
This suggests that the company may have something of a knack for picking winners – especially given that the MSCI World Health Care Index has delivered a 10.6 per cent return in the past decade.
Novo describes its investment strategy as “return driven and long term” – and its life science portfolio certainly reflects an interest in the future of medicine. When you’ve already developed one of the most transformative drugs of our time, it can only pay to start looking for the next big thing.
