Novo Nordisk advances oral semaglutide into phase 3, announces $2 billion investment in new production facilities – August 26, 2015

This morning, Novo Nordisk announced its decision to advance oral semaglutide into phase 3 trials. As a reminder, injectable semaglutide is a once-weekly compound for which we’re expecting FDA approval in 2016. The phase 3 PIONEER (cool name) program will consist of seven trials and enroll approximately 8,000 patients with type 2 diabetes (similar to the SUSTAIN phase 3 program for injectable semaglutide). The first study, slated to begin in 1Q16, will evaluate three doses of oral semaglutide (3 mg, 7 mg, and 14 mg) vs. Merck’s DPP-4 inhibitor Januvia (sitagliptin), suggesting that Novo Nordisk intends to position the product as a second-line therapy. The remaining six trials will all be initiated in 2016 and include a CVOT – we believe Novo Nordisk has high hopes that this will be cardioprotective though the company hasn’t explicitly spoken about this at length. A phase 3 go/no-go decision for oral semaglutide was expected this year; the company promised news “as soon as possible” in its 2Q15 update earlier this month. As a reminder, Novo Nordisk announced positive topline phase 2 results for oral semaglutide in February showing dose-dependent A1c reductions of 0.7%-1.9% (baseline was a low 7.9%) with once-daily doses ranging from 2.5 mg to 40 mg, compared to a 1.9% reduction with 1 mg injectable semaglutide (once weekly) and 0.3% with placebo. Both injectable and higher oral semaglutide doses also produced significant ~5.5 kg (~12 lb) placebo-adjusted weight loss. Novo Nordisk had previously stated that the highest 40 mg dose would likely not be carried forward despite the impressive efficacy, presumably due to GI side effects (which were also dose-dependent) and the manufacturing resources that would have been required. Bioavailability presumably remains a key challenge, and the phase 3 trials should help clarify the level of efficacy expected at these lower doses. Overall, we see oral GLP-1 as a very exciting product with significant disruptive potential and are eager to learn more about the implications for other oral type 2 diabetes drugs, future fixed-dose combinations, Intarcia’s ITCA 650, etc. Generally speaking, we’re looking at a new era for GLP-1 therapy in general – the therapy that started as twice daily injections a decade ago has moved to once weekly and is now moving toward a variety of ostensibly far easier applications - implantable, once-monthly injections, oral, more benign side effect profiles, and key basal and possibly SGLT-2 combinations, etc.

In a concurrent announcement, on an equally momentous note, Novo Nordisk revealed plans for a massive 200,000 square foot, 85 acre expansion to its Clayton, North Carolina manufacturing plant, which will be the company’s first production facility for active pharmaceutical ingredients (API) outside of Denmark – it already has facilities in North Carolina for pen manufacturing. The company also announced plans for a new tableting and packaging facility for oral semaglutide and other oral pipeline products in Måløv, Denmark. The stunning $2 billion investment over the next five years (for context, Novo Nordisk’s total R&D spend for 2014 was ~$2.5 billion) will create nearly 700 new jobs in the North Carolina area – management emphasized the plant is a long-term commitment to the local community, the US economy, and the diabetes field. The highlight of the facility will be its production of oral semaglutide, though it will manufacture ingredients for other current and future GLP-1 agonist and insulin products as well though the company would not go into this at any length in our private discussions with them or at the press conference, which was packed with local and regional and state dignitaries and journalists and which focused prominently on the economic impacts rather than on the excitement on the “go/no-go” decision that prompted this major expansion. Presumably, the facility could theoretically eventually be used to produce oral insulin as well – the product is still many years away but could be such a game-changer! In the meantime, the therapeutic index of oral GLP-1 makes it a much easier candidate on which to work and we’re thrilled to hear that Novo Nordisk is moving forward so aggressively on this compound that we think could expand the GLP-1 market significantly and could create much easier diabetes management for patients, their families, and their healthcare teams. See the end of this document for our key questions on the product side (there are many); we’ll be updating our report further at the end of the day to incorporate follow up interviews from today’s press conference in Clayton, NC.

• Novo Nordisk’s decision to locate its first ex-Denmark API manufacturing plant in North Carolina is a huge economic win for the US and specifically for the state. The company expects to create almost 700 new production and engineering jobs in the area, for a total of ~1,400 Novo Nordisk employees ultimately based there – this could obviously become even larger over time depending on how the market develops for oral GLP-1. From our conversation with management, the bidding for the new plant sounded quite competitive – seven US sites were under consideration in the final stages. One of Novo Nordisk’s manufacturing leaders, Gary Lohr, expressed major confidence in the gold-quality standard of the manufacturing facilities to be created – in all, they will be the size of about five football fields! This is about 30-40% of the size of manufacturing facilities in in Måløv, Denmark where all insulin and GLP-1 are current created. Management was very clear from a strategic perspective that the US is the largest GLP-1 market and the US was the obvious global geographic choice for this product to be developed and manufactured.
• In our interview earlier today with Jesper Høiland, head of North America (whose career at the company has been meteoric – a operations and marketing expert, he’s run virtually every international area of Novo Nordisk possible), he was very clear that the US was the clear geographic venue for this product to be developed and manufactured: “The US is the major market for GLP-1 and was the obvious strategic choice.” The company shared that stability was a key factor in the decision-making process – both economic stability (see China’s current economic meltdown) and physical stability (no earthquakes). In addition, he noted that the US is the largest single market for Novo Nordisk’s products and moving costs to the US can create a buffer against currency fluctuations, which can dramatically impact the company’s performance quarter-to-quarter and forces the company to hedge its bets when projecting their future financial position. We also understand that the North Carolina location, in particular, has very pro-business laws and tax incentives – we also note that North Carolina has the lowest overall union membership of any state.
• In terms of scale, management compared the investment in the planned manufacturing plant to other major corporate infrastructure in the area. For example, BMW’s largest production plant is in South Carolina and Novartis’ former cell-based vaccine manufacturing plant is North Carolina (it’s now owned by CSL Limited). For context, the BMW plant was a $2.2 billion investment and now employs nearly 10,000 individuals while the Novartis plant represented a $1 billion investment and employed 550 people.
• Where is Clayton, NC? Located about 20 minutes east of Raleigh, NC, Clayton sits just outside of the famous Research Triangle region bounded by Raleigh, Durham, and Chapel Hill. The town has been home to biomedical companies for about three decades, yet it still retains its older rural character: on the drive to the Novo Nordisk facility, we could see a facility for the Spanish pharmaceutical company Grifols located directly across the street from a field full of crops. It’s in this historical context that biomedical research has been very close to the skilled industry in Clayton, providing the ideal local workforce for Novo Nordisk to train and partner with as it integrates itself into the local community.
  
  • “We’re very active corporate citizens,” Mr. Gary Lohr (who will run the Clayton facility) told us in an interview. For instance, he noted that several Novo Nordisk employees sit on the board of the local community college, while he sits on the board of the workforce development center, which has been instrumental in the company’s efforts to get the most out of Clayton. Working with Grifols and other local partners, Novo Nordisk has also built a Research and Training Zone similar to that found in the nearby massive Research Triangle Park complex.
  • Clayton town manager Mr. Steve Biggs detailed what he called a “symbiotic relationship” between companies like Novo Nordisk and the town of Clayton. “If you look at what we have here in terms of a biopharmaceutical cluster, we think what we have to offer here that’s special is a built-in workforce. It’s a part of the culture here. You have whole families that are employed in this industry and that understand the value of getting an education to specialize in the kinds of technologies and services that are involved in biopharmaceuticals, and that they know they will get a job once they get that training.” He also noted that workers at facilities like Novo Nordisk’s can more easily live locally than those working at the Research Triangle Park, which can frequently entail lengthy commutes. It’s those kinds of little but swiftly accumulating value adds that seem to speak to what Novo Nordisk and Clayton alike have to gain from specializing in each other’s business.
• Novo Nordisk’s press conference – hosted at its existing Clayton, NC facility – focused on the quality of life improvements this expansion will bring. Several Raleigh-area news affiliates and dozens of local and state-level officials and dignitaries, including North Carolina governor Mr. Pat McCrory, were in attendance. Novo Nordisk’s investment in Clayton, and in North Carolina more generally, means big things for regional development, and local and state officials alike touted this as validation of the state’s reputation as arguably the leading center for biomedical research in the United States.
  
  • Governor McCrory also spoke of Novo Nordisk’s efforts to raise patients’ quality of life: “Novo Nordisk is just an innovative company, and they’re dealing with a health situation that is one of the most difficult situations we’re dealing with in this country, from an individual standpoint and from a government spending standpoint. If we don’t get a hold of dealing with diabetes, we’re in trouble. We’re going to help prevent it, and we’re going to help deal with it, and deal with it in a way in which the people with this situation can have a quality of life that’s second to none. And that’s what’s so innovative about some of the products that are being designed right here, and in Princeton, New Jersey, and overseas in Denmark.”
• Mr. Tony Braswell, the chairman of the Johnston County Board of Commissioners, offered an inspiring reminder that the political, economic, and medical interests in the expansion of the Novo Nordisk facility are fundamentally intertwined. He noted that his interest in Novo Nordisk went beyond matters of simple business: “I have in my pocket here a product called Novolog. I happen to be one of those millions with diabetes. I use this product, and it’s a life-saver. And do you know what one of the greatest things is? That these life-saving products that are giving quality of life to diabetes patients are made right here, in North Carolina. And that is so great, and makes us so proud to be a part of it.”
• The news thus far has largely focused on manufacturing rather than on questions about the “no go/go” decision that moves oral GLP-1 (semaglutide) to phase 3. We look forward to learning more about the scientific side of the announcement in future Novo Nordisk updates.

Close Concerns Questions

• Regulatory
  
  • What level of efficacy is expected with the doses advanced into phase 3 based on phase 2 results?
  • What is the design of the phase 3 trials? Will there be a head-to-head trial vs. an SGLT-2 inhibitor? Vs. a sulfonylurea? As an add-on to insulin?
  • Is everyone in the trials on background metformin?
  • What are the main red flags to watch out for in phase 3 based on the phase 2 results?
  • What is the timeline for completion of phase 3 and regulatory submissions? What will the type 2 diabetes drug landscape look like by the time this comes to market?
  • Is the goal to position oral semaglutide as a second-line therapy?
  • Does this plant signify a primary focus on the US market for oral semaglutide?
• Product
  
  • What is the estimated market opportunity for oral semaglutide?
  • How does Novo Nordisk plan to price oral semaglutide? What pricing would be necessary to recoup manufacturing costs?What would the implications of a successful oral GLP-1 agonist be for other oral type 2 diabetes drugs? For Intarcia’s ITCA 650?
  • Could there be potential for future oral GLP-1 agonist/insulin combinations? GLP-1 agonist/SGLT-2 inhibitor combinations?
  • Are there plans to develop oral semaglutide for obesity? Prediabetes? Type 1 diabetes?
  • What other projects could and/or will this plant be used for? Oral insulin?
• Market / Economic
  • How many patients will Novo Nordisk be able to support with these facilities?
• How do the size and investment in these facilities compare to Victoza?
• What are the total cost savings associated with building one of the plants in the US rather than locating both in Denmark?

-- by Helen Gao, Emily Regier, Adam Brown, and Kelly Close