Novo Tries To Catch Up With Lilly By Slashing 11% Of Workforce

Novo Nordisk A/S is slashing its workforce by 11% and pledging to move faster to catch up with Eli Lilly & Co. in the obesity market. That may mean making the company more like its US rival.

Novo’s new “performance culture,” as the recently installed Chief Executive Officer Maziar Mike Doustdar put it, will probably mean a focus on return to office for workers, faster decision-making and slashing support staff and middle management, analysts said Wednesday. The shift is a stark contrast to his predecessor’s rapid hiring and statements about ensuring employees aren’t too stressed and being responsible about the impact of the company’s decisions.

Investors welcomed the change, even though the Danish company’s update included slashing its profit forecast. The announcement is “a clear step in the right direction,” Evan Seigerman, a BMO Capital Markets Corp. analyst, wrote in a note. “We need to see follow-through and ultimately results.”

Novo’s shares rose as much as 4.4% on Wednesday. The stock has plunged almost 60% in the last 12 months as the company has grappled with disappointments from experimental drugs and competition from Lilly as well as cheaper compounded copies of its weight-loss and diabetes shots.

The majority of the staff cuts will be in back-office jobs and among support staff, according to BMO. Seigerman cited a conversation with Novo as indicating that a goal is to cut “middle layers” of workers that added to complexity in the organization.

The last time Novo implemented large-scale layoffs, in September 2016, the company let go only about 2.4% of its workforce, about 1,000 employees in all. At the time, Novo was facing price pressure for its insulin, the cornerstone of its portfolio before the wild success of its drugs Ozempic and Wegovy transformed the company and pioneered a new way of treating obesity.

By contrast, Lilly, faced with the same market forces a year later, laid off 8.5% of its workforce. Last year, it took 1,835 Novo employees to generate each $1 billion of revenue, while Lilly made the same amount with just 1,044 workers.

Novo employees have anticipated job cuts since Doustdar took charge last month and called for more discipline and prudence around spending. The company’s fortunes started to shift last year when an experimental shot, CagriSema, fell short of the weight loss Novo had promised in a clinical trial. Novo is now pinning some of its growth hopes on a pill version of Wegovy.

The company is planning an investor event on Sept. 17 to lay out a road map for its research and development.

Inside Denmark, Novo has been known for its perks. Among them was a company-funded public bus line for factory workers in Hillerod, a project the drugmaker has said it won’t renew after this year. Every summer the company throws a staff party with performances by Danish pop stars. Its serene corporate retreat center in the former home of company founder Hans Christian Hagedorn has a team of chefs creating gourmet meals with locally sourced ingredients.

Doustdar has signaled a shift toward the US, Novo’s biggest market. His first trip as CEO was to the US, and in a LinkedIn post, he emphasized the time he spent as a child in Ohio. It was there that he “learned the value of hard work and entrepreneurial spirit,” he wrote.

More than half the people set to lose their jobs — 5,000 of the 9,000 targeted for cuts — are in Denmark, where the jobless rate is currently at 2.9%, among the lowest in Europe.

Jobless Rate

“If all those fired went straight into unemployment, joblessness would rise by about 0.2 percentage points,” said Las Olsen, chief economist at Danske Bank A/S. “That’s the worst-case scenario. In reality, many should be able to find new positions, as firms are still reporting shortages of workers.”

Still, the job cuts could also deliver a psychological blow to Danish households that could ripple through the economy, Olsen said.

“People who fear losing their jobs will likely hold back on spending,” Olsen said. “The already very low consumer confidence could easily take another dip on news like this. That, in turn, can hit the economy and the labor market indirectly.”

And for investors, the important thing will be how Doustdar reinvests the money saved and when those benefits hit sales, UBS analyst Matthew Weston wrote in a note. “We expect that investors will remain somewhat skeptical,” he wrote, “until the growth plan is outlined.”