UPDATED: U.S. payer pressures force Novo Nordisk to cut loose 1,000 staffers

Novo Nordisk, pressured by U.S. payers and stepped-up competition in its signature diabetes market, will lay off 1,000 people worldwide to cut costs and sharpen its focus on “truly innovative” new products.

The cuts will come in R&D, as the Danish drugmaker steers away from the “me-too” products payers are increasingly reluctant to cover. They’ll hit the headquarters in Bagsvaerd, near Copenhagen. And they’ll affect the company’s commercial operations worldwide.

It’s a major retrenchment for Novo, which has generally been free of mass job cuts other global drugmakers have made over the past decade, but it comes at a time of unprecedented pricing pressure in the U.S., its largest market. Payers have been playing hardball in diabetes, demanding hefty discounts in exchange for exclusive formulary spots. New preferred drug lists released just last month show that Novo has lost some of those fights to rivals from Eli Lilly and Sanofi.

Formulary exclusions and mandatory discounts have pulled in the reins on Novo’s industry-beating growth, and last quarter, the company surprised analysts by cutting its sales and earnings guidance for the year to the lower end of its range. The layoffs, which amount to about 2% of its worldwide workforce of 42,000, won’t affect that guidance, the company said in a statement.

As the breadth of Novo's layoff plan shows, payer pressure is having more far-reaching effects than simple cost-cutting. Cuts in R&D show that Novo now recognizes that slight improvements--such as dosing convenience--aren’t enough to win coverage for new products, and will be scrapping pipeline drugs accordingly.

“The next line of products have to have an even greater height of innovation, which means those that do not have that height of innovation will have to be culled,’’ CEO Lars Rebien Sørensen told Bloomberg TV Thursday. “Otherwise, it’s going to be difficult for us to get reimbursement for our drugs. Me-too or me-better drugs will not be good enough in the future and hence we need to prioritize.”

In another sign of changing times at Novo, Sørensen, the company's longtime CEO, said earlier this month that he would step down before his contract ends, ceding his place to incoming chief Lars Fruergaard Jorgensen, who's currently the company's EVP and head of corporate development.

When Jorgensen takes over in January, he'll have to contend with a basal insulin market roiled by a biosimilar version of Sanofi's long-dominant Lantus, which is set to make a debut in December. It couldn't come at a worse time for Novo, which had been relying on its new longer-acting product, Tresiba, to gin up growth.

In fact, Novo's older Levemir and Tresiba had together been gaining share from Lantus in recent quarters, despite some formulary exclusions. But now, Tresiba has been barred from at least one major formulary--UnitedHealth's--in favor of that biosim, Basaglar, made by Boehringer Ingelheim and Eli Lilly.

The GLP-1 field is a brighter spot. Though Novo's long-dominant Victoza has lost share to Eli Lilly's Trulicity, this category of injectable drugs has been growing enough to keep both drugs' sales on the rise--and Victoza could be due for a boost, thanks to new outcomes data showing that it cut cardiovascular risks by 13%, the first GLP-1 drug to do so. Meanwhile, a weekly version of Victoza, semaglutide, is moving toward the market, and it, too, posted impressive CV data at a recent diabetes meeting. That drug cut overall cardiovascular risks by 23%, and chopped the risk of stroke by 39%.

These are powerful numbers that could help Novo solidify its GLP-1 dominance. The company now plans a longer and larger trial to rack up further evidence; with 3,300 patients, SUSTAIN 6 involved just two years of treatment and was designed to prove safety rather than benefits.

And then there's an oral version of semaglutide, which is a big focus at Novo now. R&D chief Mads Krogsgaard Thomsen recently told Bloomberg that the company's "holy grail' project--oral insulin--is taking a back seat for now to an oral version of semaglutide, which is much easier to put into pill form than insulin is. Oral semaglutide recently moved into Phase III testing, while Novo expects to file for FDA approval of the injectable version this year.

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Editor's note: This story was updated with additional information on Novo's pipeline, formulary exclusions and the diabetes market.