Using appropriate strategic models, critically diagnose and analyse the external environment facing Novo Nordisk in the development of its Strategy.

EDINBURGH BUSINESS SCHOOL

H11SD DEVELOPING AND EXECUTING STRATEGY

FINAL ONLINE ASSESSMENT

December Examination and Assessment Diet 2024-2025 Duration: 24 Hours

This assessment consists of three questions.

Each question is worth 100 marks.

There is no choice in the selection of questions to be answered.

The total word limit for this paper is 4500 words, which you may divide as you see fit among the questions.

Attached: A copy of the pre-released material is provided at the end of the question paper (see Appendix 1).

Your submission:     Please ensure that your submission is a Word based document, i.e. doc or docx. Pdf and dotx submissions are not acceptable and will not be marked.

Ethical Commitment: By submitting answers to this paper, I declare that the work I have submitted for the assessment is entirely my own. I have not taken the ideas, writings or inventions of another person and used these as if they were my own. My submission is expressed in my own words. Any uses made within this work of the ideas, writings or inventions of others, or of any existing sources of information (books, journals, websites, generative artificial intelligence, etc.) are properly acknowledged and listed in the references and/or acknowledgements section.

I understand that infringing this statement would represent an academic misconduct offence subject to disciplinary action according to the University Regulations and Policy regarding Academic Misconduct, with possible significant consequences for degree progression and final degree outcome.

QUESTIONS

The exam contains three questions, each marked out of 100. You must answer all three questions in light of the scenario provided below and the reading and research you have done. In all questions, you may decide to focus on a particular aspect of strategy in detail or look at multiple aspects concurrently. Whichever approach you choose, ensure that you justify your answer using appropriate tools, frameworks and evidence.

Scenario

Novo Nordisk

Novo Nordisk is a leading global healthcare company, founded in 1923 and headquartered in Denmark. The company is known for its innovation and leadership in discovering and developing treatments for serious chronic diseases, such as diabetes and obesity. Its main product is the drug semaglutide, used to treat diabetes under the brand names Ozempic and Rybelsus and obesity under the brand name Wegovy. These ‘blockbuster’ drugs have driven the growth of the company over the past decade. However, the company now faces long term challenges driven not simply to deal with the increased competition for this segment of the market but also rising regulatory and supply chain problems that can all act as a retardant upon its long term growth.

Question 1

Using appropriate strategic models, critically diagnose and analyse the external environment facing Novo Nordisk in the development of its Strategy. (Total 100 marks)

Question 2

Critically assess – using the relevant strategic frameworks – how Novo Nordisk internal resources is shaping the development of its Strategy. (Total 100 marks)

Question 3

Set out a strategy for Novo Nordisk considering the scenario presented above, in terms of their strategic intent, the strategic options available and how they might be executed. In your conclusion, please indicate whether your proposed strategy aligns with the innovation strategy for managing its ‘blockbuster’ drugs. (Total 100 marks) 

TOTAL 300 MARKS

END OF PAPER

APPENDIX 1

Developing and Executing Strategy December 2024 Novo Nordisk – Can A Strategy be Too Successful?

Novo Nordisk is a Danish multinational pharmaceutical company, founded in 1923 and headquartered in Bagsværd, Denmark. The company operates through two main segments: Diabetes and Obesity Care, and Rare Disease. The Diabetes and Obesity care segment covers insulin, GLP-1 and related delivery systems, oral antidiabetic products (OAD), obesity, and other serious chronic diseases. Novo Nordisk has production facilities in nine countries and affiliates or offices in five countries.

At its core, Novo Nordisk’s strategy is the defeat of diabetes and other serious chronic diseases. To this end, the core components of its strategy (as of 2024) are as follows:

1. Strengthen Diabetes Leadership: Novo Nordisk aims to strengthen its leadership in the diabetes market by offering innovative medicines and driving patient outcomes. They aim at a global value market share of more than a third.
2. Strengthen Obesity Leadership and Double Current Sales: The company is working to strengthen its leadership in the obesity market and aims to double its current sales.
3. Secure a Sustained Growth Outlook for Rare Disease: Novo Nordisk is working to secure a sustained growth outlook for rare diseases.
4. Establish Presence in Other Serious Chronic Diseases: The company is working to establish a presence in other serious chronic diseases, focusing on cardiovascular disease, non-alcoholic steatohepatitis, and chronic kidney disease.

This focused strategy has proved very successful for the business where the 10 year return has been 527% (compared to 182% for the S&P 500 over the same period). This reflects its high profitability with profits increasing 45% and revenue by around 35% in 2023. Most of the growth occurred from its weight loss drugs, Wegovy and Ozempic, which accounted for 55% of the company’s 2023 revenue. Sales of Wegovy swelled from $876m in 2022 to $4.5bn in 2023 on the back of 2021 research that linked its usage to a sharp reduction in body mass. This success was built upon a long- standing core competence in diabetes and weight loss but also a very complementary positive market for its products where the usage has extended through the growing pressure on health care systems created by the rising tide of obesity globally. Globally it is estimated that there are nearly 900 million obese people. The market for its drug is still far from saturation point. Indeed by 2030, the market size is estimated to be somewhere in the region of $100 billion.

As is common within the pharmaceutical sector, Novo Nordisk’s value chain is part of a larger value system in the pharmaceutical industry that includes both upstream and downstream components.

• Upstream Components: These include research and development, product supply, and quality control. Novo Nordisk is known for its strong focus on research and development, which is crucial for the discovery and development of innovative treatments for serious chronic diseases. The company also emphasizes operational efficiency across the value chain to enable investments in future growth assets.
• Downstream Components: These involve marketing and sales, distribution, and after-sales service. This is based upon an extensive global network of production facilities (notably in the US) and sales offices.

Despite this high growth and success, there are several strategic challenges that the firm faces. Many of these are driven by the success of the business and its inability to cope with the demand for its products. The first of these is that the company was subject to a ‘demand shock’ where the success of its products caught the company by surprise with the result that it was not able to scale up production easily and led to delays in the roll out of the product in Europe.

The demand shock created problems in manufacture with a shortage of semaglutide (the active agent) and the administering ‘skinny pens’ and it having to find new manufacturers quickly. Moreover, the success of the product and the underserved market segments has attracted new rivals (such as Eli Lilly, Sanofi, and Johnson & Johnson) who are rapidly developing rival products. Indeed, it is estimated that (in 2024) up to one hundred similar rival products are being developed. This is a major problem for Novo Nordisk which is widely accepted as being the least diversified of the big pharmaceutical businesses.

However, the reputational damage caused by the fact that lifestyle users (spurred by social media and other drivers) gained access to the drug more easily than the prescribed users could be long lasting. There is also the problem that if its drugs can be used as weight loss treatments then it faces the problem over who should take it especially if the symptoms return after usage ceases and who should pay for the treatment. There is already push back from numerous health care systems over the cost of the drug. Indeed, there is a fear that the cost of these drugs could bankrupt national health care systems due to the size of the problem and the cost of the drug; it is estimated to be as much as a $1 trillion for the US alone. This highlights price pressures that the firm is under from regulators. This will directly impede market growth as the price of these products is beyond the reach of the mass market. There could also be a push back from society and regulators over using its products as preventative rather than corrective purposes and whether obesity should be treated as a condition or as a result of lifestyle and dietary issues/choices. Nonetheless the cost to healthcare systems to limiting obesity would be substantial. For the firm, the competitive advantage lies in understanding obesity and its causes better than its rivals.

The immediate response of the business was to seek to market its ‘blockbuster’ drugs across wider market segments not simply diabetes sufferers but also as a medication for weight loss, heart disease, reducing alcohol intake, alcoholic liver diseases and other related illness. This though is short term as other rival drugs will likely have the same usage extension. However, the company does hope that this will give it a first mover advantage. The firm has plenty of time as the patent on Wegovy does not expire until 2032 and there are no new products imminent. Nonetheless the date has focused minds on the business to innovate rapidly to cope with the upcoming issues.