Seven Novo Nordisk board members have resigned. The new board headed by former Novo Nordisk CEO Lars Rebien Sørensen will align behind the new CEO’s massive restructuring plan.
Novo Nordisk is undergoing yet another leadership change as its main shareholder, the Novo Nordisk Foundation, calls for more aggressive changes to revive the fortunes of the Danish pharma. Board chair Helge Lund, plus six other members of the board, will step down as former CEO Lars Rebien Sørensen prepares to take the top seat in addition to holding the same role at the foundation.
“With Mike Doustdar as new CEO, the transformation plans being implemented and the board with a proposed composition of new members, I’m convinced that Novo Nordisk has a strong leadership that is fully committed to succeed,” Sørensen, who was CEO of Novo Nordisk from 2000 to 2016, said on a Tuesday conference call.
With Sørensen taking over, Novo Nordisk will now come under greater control of the foundation, a philanthropic organization that owns Novo Holdings, which manages the foundation’s investment activities and owns a controlling stake in Novo Nordisk and Novonesis. While Sørensen intends to stay in the chair role for two to three years, he told investors on Tuesday that the foundation does not wish to be this involved for the long term: “This is not at all a procedure and process and governance that we want for the future.”
Novo Nordisk will hold an Extraordinary General Meeting in November to solidify the board elections, according to the Tuesday announcement. The company had been set to hold a regular annual general meeting and election of board members next year.
One analyst referred to the foundation’s intervention as “a bit of a coup.”
“I would not prefer [to] have it coined as a coup,” Sørensen responded.
The new board will align behind new CEO Maziar Mike Doustdar, who has been underseeing a massive restructuring across the pharma company that has claimed thousands of jobs and entire research divisions.
Sørensen stressed that there is no disagreement on the company’s strategy, ambition and execution since Doustdar took over. However, he said, “we needed a fresh set of eyes, new energy to support management on this very important process.”
Novo Nordisk’s shares have declined 36% year to date, according to BMO Capital Markets. The stock fell another 1.4% to $54.94 on Tuesday around noon following the board change announcement.
“Looking forward, while investors may welcome a board refresh as a sign that underperformance and misalignment are being addressed, we will continue to follow the Novo story closely for signs of real change at the company,” BMO wrote in a note to investors on Tuesday.
Specifically, the analysts would like to see the company “redouble efforts” to fight compounders that have been eating into the U.S. market as well as diversify beyond the semaglutide franchise and re-establish dominance in incretin clinical development.
A Matter of Urgency
Novo Nordisk’s board in May announced the surprise ouster of Lars Fruergaard Jørgensen as CEO, which shocked analysts but did signal major changes ahead. Now, the company has revealed that the foundation was pushing for even more major changes to right the ship, as the company’s blockbuster semaglutide weight loss and diabetes franchise has begun to stumble in recent quarters.
“The foundation was critical of the speed and scope at which the prior board had moved in this rapidly changing and hotly competitive obesity metabolic market, and felt it was too slow to recognize changes in the U.S. market and ultimately ceding ground to its key competitor in the space Eli Lilly,” BMO wrote.
Novo Nordisk fell behind amid rising competitive pressure from Eli Lilly, compounding pharmacy copycats and a clinical pipeline that continually brought mixed results.
Sørensen said the committee would be particularly looking for new members with consumer experience as GLP-1s become a more consumer-driven marketplace.
During second quarter earnings after Fruergaard Jørgensen’s exit was announced, the board and foundation declared that they were aligned on Novo Nordisk’s future. But Sørensen clarified on today’s call that the alignment only extended to “the candidates” at the time. But divisions grew as the company board wanted a slower transition to a complete board overhaul, whereas the foundation wanted swift action.
“It was impossible to reach an agreement between the views of the current board and the foundation board,” Sørensen said. “The foundation wanted a faster and more comprehensive renewal of the board, whereas as stated in the announcement, the current board wanted a more slow process with addition of separate new competencies. So simply, a matter of urgency and a matter of scope in board renewal that we couldn’t agree on.”
Sørensen also said that the foundation was displeased with the board’s slow reaction as Novo Nordisk’s fortunes began to shift.
“The board was perhaps too slow in recognizing the significance of the market changes in the United States and thereby also prompting management to take the necessary actions to adjust the base of the company towards the future business environment,” he said.
They also disagreed initially on replacing Fruergaard Jørgensen. But once they did decide to replace the CEO, Sørensen said they arrived at the correct decision with the appointment of Doustdar.
Responding to a question of why the changes are being made now, Sørensen said it’s simply a matter of the course to correct the misalignment. The board has now resigned and must be replaced.
“The fact that we could not agree on the scope of change has led the board to resign and call for an extraordinary meeting. So it was not of our wish,” he said. “You could appreciate perhaps that we could have loved to have had longer time to prepare ourselves.”
