Novo says new U.S. plant may be best bet to offset the FX bite

Novo CEO Lars Rebien Sørensen

Novo Nordisk ($NVO), like all European pharma companies, has had to negotiate a volatile foreign exchange environment as the dollar has risen in value. It has forecast that currency hedging losses will leave it with an $850 million net loss for the year. But CEO Lars Rebien Sørensen thinks he may have landed on a new way to traverse that rough terrain: Build a plant in the U.S.

The Danish drugmaker has other kinds of plants in the U.S.--filling, packing and devices--but it produces all of the active pharmaceutical ingredients for its insulin products in Denmark, Bloomberg reports. In fact, the company claims its plant in Kalundborg, Denmark, makes half the insulin used by diabetics around the world. Sørensen tells Bloomberg replicating that expertise overseas would be a big leap for Novo but that may be worth taking in anticipation of getting approval for a new game-changing insulin candidate.

In July, Novo announced promising results from its first Phase IIIa trial of a new oral version of its once-a-week injectable semaglutide. The GLP-1 acts as an analog of the hormone GLP-1 to promote the body's natural production of insulin, spurring weight loss and relieving the symptoms of Type 2 diabetes. Novo is betting billions of dollars on the drug, in anticipation of more billions in return. Assuming approval of the oral version, Novo expects most of the sales would be in the U.S.

"There are good arguments for globalizing our manufacturing, but it's a big step for us, because we do not have active insulin and GLP-1 competencies in the U.S. or elsewhere," Sørensen told the news service. Also pressing on Novo, he said, is that there is a certain level of expectation from regulators and payers that the drugmaker would have manufacturing in the U.S.

A final decision has not been made and the CEO says Novo has not ruled out a new plant in Europe. Sørensen needs to make up his mind soon, however, because Novo will have to get manufacturing specs approved by regulators, and it will take about 5 years to get a plant up and running.

And there are those pressing currency considerations. The company this month reported that its net profit swung to a loss of 3.3 billion Danish kroner ($493 million) because of a loss on foreign exchange hedging. It said that investors can expect that to nearly double to a net financial loss of $850 million for the year.

"If we globalize our manufacturing system," Sørensen told Bloomberg, "it creates a natural hedge in that we get a more comparable cost picture to our currency picture."

- read the Bloomberg story

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