The Funnel Thesis - How loss of Semaglutide exclusivity can be turned into Novo's advantage
Some investors are increasingly concerned that the loss of Semaglutide exclusivity is going to lead to commoditisation of the GLP-1 market and a race to the bottom. Which is a concern i also share, however here is an alternative counter thesis.
With Semaglutide **loss of exclusivity (LOE)** in Canada and Brazil we are seeing early signs of how Novo are defending themselves in **early generic markets** and possibly setting the playbook on how to turn this into their advantage.
For disclosure i'm a substantial investor in Novo. I believe there is a large discrepancy between intrinsic value and share price at present. Naturally in times of such pessimistic stock sentiment you would be unhinged to not have some doubts. However i remain optimistic and have been trying to do some thought experiments on how this LOE is going to play out. I wanted to propose my thesis for how Novo may play the LOE in the medium and longterm. I welcome respectful rebuttals and would be interested in other views.
Over the short to medium term, lets say present day to approx 2035, i see signs of what i call ***The Funnel Thesis.*** Then over the longer timeframe i see the potential of Novo transitioning to its endgame of a ***Portfolio Ecosystem Subscription Model***.
# The Funnel Thesis
In early generic markets such as Canada and Brazil, novo has been implementing defensive tactics using **Secondary Brands** of Semaglutide. These are bio-identical to Semaglutide in Ozempic/Wegovy but are authorised generics sold under alternative trade names at lower prices. For example, *Plosbrio* & *Poviztra* in Canada, *Extensior* & *Poviztra* in Brazil. The idea being to **siphon money away from local 3rd party generic companies** without destroying the premium brand value of Wegovy/Ozempic. Novo's secondary brand strategy is acting as a **price floor** by offering their own cheap alternatives, forcing local generics to compete on razor thin margins.
Generics have multiple barriers to entry; biosimilar regulatory hurdles, API manufacturing, sterile fill and finish, auto injector manufacturing and complex cold chain logistics. One of the key bottlenecks isn't API manufacturing but is rather the auto injector manufacturing. These barriers to entry and associated costs for generic companies will temper price drops and make such markets less attractive.
The real world case study of Brazil's local generic Semaglutide commercialisation and Novo's defensive secondary brands, resulted in increased sales for both organisations, primarily by attracting new GLP-1 users at lower price points, expanding the market share of Semaglutide, rather than cannibalising it. The **expanded pie phenomenon**, **secondary brand capture**, **free marketing** and **zero cost customer acquisition** (from local generic companies promoting semaglutide/educating patients) led to net positives for Novonordisk, resulting in Semaglutide recapturing market share from Eli Lilly in Brazil.
The real value in increasing the ***Semaglutide cohort base*** is from the potential for it to lead to **funnelling** of these patients to **Novo's premium and next generation product ecosystem.** Self determination/patient escalation, healthcare mediation and business/platform intermediaries are all possible sources of the funnelling.
The advantage Novo has over Lilly is that many of its products are Semaglutide based and therefore **interchangable without friction. Transitioning from subcut Sema to subcut Sema HD, oral Sema, Cagrisema or Icosema** for example has significantly lower friction both pharmacologically and with respect to patient psychology. Once trust and brand familiarisation has been established, whether it be through Novos secondary generics or local sema generics the funnel regardless leads directly to Novos premium products.
For example if a patient wants to transition from **subcutaneous** Sema formulation to an **oral** formulation they are more likely to pick oral Semaglutide over Eli Lilly's Foundayo. Naturally you would pick oral Semaglutide due to the ease of transition (in addition to the other reasons; that its the most efficacious oral obesity medication, has no drug-drug interactions with oral contraceptives/statins, has cardiovascular disease risk reduction benefits and treats fatty liver disease).
Other examples of reasons for escalation to premium Novo products include weight plateaus and needing higher weight loss profiles, or being diagnosed with pathologies requiring multi indication therapeutics for clinical synergistic targeting (obesity/t2dm plus heart disease/ckd/oa/fatty liver disease/sleep apnoea/alcohol misuse/etc).
By holding onto the "value tier" with authorised generics, Novo still generates massive revenue on sheer volume while next generation drugs deliver the premium, increasing profit margins that drive EPS growth.
# Portfolio Ecosystem Subscription Model
From 2030-2031 global loss of subcutaneous Semaglutide would have reached fruition. Looking further out in 10-20 yrs the next generation weight loss medications (e.g Cagrisema/among others) would also eventually lose exclusivity. With time i see Novo potentially transitioning to a ***Portfolio Ecosystem Subscription Model***.
The thesis i have is that Novo's ecosystem of metabolic health medications with clinical synergies will be transitioned to a portfolio that patients or payors can access through a subscription model. Giving access to the entire ecosystem of appropriate therapies/formulations/profiles to the individual. The concept of a "**Metabolic Operating System**" - where patients or providers/payors subscribe to a comprehensive platform with a portfolio of therapies, digital tracking and clinical navigation.
Is this the endgame?
The strategic genius of shifting from a product to a platform model is as follows; With the eventuality of **global LOE**, generics will be selling molecules as a cheap commodity. If Novo is only selling a molecule it will lose. However if Novo transitions to a subscription ecosystem it means they are selling a lifetime platform. In a subscription model the exact chemical formula a patient takes on any given day matters less than the overall metabolic outcome. **Dynamic Triaging**; Metabolic health is non linear. A patient might need a high dose dual/triple agonist to lose 25% of their body weight, then transition to a low dose pill for maintenance, and temporarily switch back to an injectable if they experience weight regain or early signs of MASH/fatty liver. **The Moat**; This model allows providers/patients to seamlessly switch dose/therapy/formulation based on changing needs and clinical synergies, whereas generics can only rely on a single therapy. There will be no need to seek out new suppliers or renegotiate insurance coverage. Ironically the tech sector with Microsoft's Windows stickability, Apple's product ecosystem interconnectivity and Adobes comprehensive subscription platform are examples with lessons for both Novo and Eli Lilly.
Subscription economics could work both in a **B2B** and **DTC** level. The ***B2B value based subscription (Employer/Payer level)*** would mean that rather than an insurance provider paying a substantial sum for a single drug, Novonordisk charges a capitated **"per member, per month" (PMPM)** subscription fee for the entire portfolio. Whereas, the **DTC subscription** means patients pay a monthly fee to become a "Novo member". This fee for example could cover access to an integrated platform of healthapps, behavioural coaching, nutrition advice, access to telehealth doctors and generic/base tier semaglutide. If the biometric data flags a premium next generation product is needed the platform seamlessly handles the insurance prior authorisation to upgrade their physical medication tier.
My **Funnel Theory** for the short-medium timeframe and **Portfolio Subscription Model** for the longer time frame/end game are strategies, that in my view, would be how Novo would not only survive the **incoming generic apocalypse** but transition from a drug manufacturer to a **high margin healthcare platform**.