94
95 management to avoid the feeling of Novo taking over Nordisk. Consequently, each functional area was analyzed one by one and compared between the two, and the most competent unit would continue. This way, the reorganization after the merger was completed around September 1989 and resulted in appointment of more managers with a background from Nordisk compared to Novo. This signal was perceived as crucial for building a common corporate identity. Similarly, both companies’
CEO’s continued jointly– however, the CEO of Nordisk had cancer and died 1990.
The merger resulted in managerial optimism – as explained by an executive informant: “By the merger, we suddenly get in new product areas, the palette is much larger, and everybody is excited – now we can join in with the large companies and so on…”
Medical device level
In Nordisk, top management had followed a vision of making medical devices the ‘third business leg, besides two existing pharmaceutical divisions, Diabetes and Biopharmaceuticals (the latter taking care of other diseases than diabetes). Consequently, Medical Systems Division (MSD) was established in 1988. The overall vision was patient-centered homecare, supported by a medical system,
comprising the drug, the delivery system and the monitoring system. See figure IV-5.
Figure IV-5. The Nordisk vision of a medical system, from around 1988. “Monitoring” in diabetes refers to glucose monitoring devices. “Drug delivery” refers to injection and infusion systems: insulin pens and pumps.
As a genuine division, MSD comprised the usual business functions: Marketing, R&D, Production, Quality, Regulatory, Logistics etc. The revenue stream for the business unit was envisioned to come from the sales of insulin pumps as well as utensils/accessories for the pumps (infuser sets etc.), to be supplemented later with revenue from selling monitoring devices and utensils for these. According to an informant, the monitoring devices were seen as the future revenue generator for MSD – injection devices were seen as less important (remember that the insulin pens were usually given away as free
‘samples’ and would therefore not create revenue by themselves).
96 The CEO of Nordisk, assisted by another member of the executive team, played a major role in the establishment of MSD. The activities grew rapidly, and by the merger in 1989, MSD employed 119 persons. “It was a dynamic period, something happened all the time – it was full steam ahead all the way through”, as one informant puts it.
At the merger, Nordisk was recognized by Novo as having the strongest organization for medical devices. Consequently, MSD was continued as the organizational frame of the joined device activities with the status as one of five divisions in the Health Care Group of the merged company (see
organization charts from before and after the merger in respectively figure IV-6a and IV-6b). MSD continued to cover the usual business unit functions.
Figure IV-6a. The MSD organization before the merger in 1989. Biopharm = non-diabetes related.
Figure IV-6b. The Novo Nordisk organization after the merger in 1989, with MSD as a division of Health Care Group.
The time after the merger has been described by informants in the device area as very optimistic and entrepreneurial, opening for a lot of innovation projects. Furthermore, the innovation projects established before the merger were continued. The most significant of these projects was Novo’s development of the prefilled insulin pen, called NovoLet®, which was launched the same year as the merger (1989). NovoLet® changed the business model: the drug and the device until then had been separate parts, of which only the drug generated revenue for Novo Nordisk. With the new NovoLet®, the device could neither be sold nor sampled (given away for free) apart from the insulin – instead, the drug-device system was sold together at a higher price per insulin unit, compared to insulin sold
97 in traditional vials or in cartridges for durable pen systems. The NovoLet® system therefore
introduced a third insulin business paradigm, besides insulin sold in traditional vials and insulin sold in cartridges for durable pen systems (or for pumps). Eli Lilly saw this; they followed with their similar prefilled pen system in 1995.
Because of its simplicity13 (no filling of insulin or shift of insulin cartridge was needed) the new product category was well suited for the broad segment of Type 2 diabetes patients. Hence, the integrated drug-device systems gained success. A 1997 Financial Times report states: “Insulin was the largest single product category [in the total diabetes market in Europe], helped by the success of the more expensive disposable pens, prefilled with insulin, which are rapidly becoming the standard form of insulin therapy in most countries” (Adamczak, 1997, p. 1).
NovoLet® was established as a joint venture between Novo and a Danish plastic manufacturer, Pharmaplast. The plastic components were produced by Pharmaplast, and the first part of the assembly process was carried out by the joint venture company, Diabetes Care Products, at Pharmaplast’s site. Thereafter, the products were handed over to Novo, who took care of the final assembly of the drug container (the insulin cartridge).
Novo Nordisk then took the strategic move to acquire the joint venture company, Diabetes Care Products, from the partner Pharmaplast. The decision was driven by management recognition of the future importance of this integrated product. As a key informant states: “Marketing saw it as pure packaging. But if you look at it, then we actually make more money on the plastic then on the insulin.
Damn it, if we sold all our insulin in vials, we would have no business. What makes the difference? - That we fill it in cartridges and put them into devices. That’s our business. That’s why I’ve fought for making devices part of Novo Nordisk’s core business; both in development and production wise”. Following this logic, Diabetes Care Products was acquired in 1990 after initiative from the MSD top. The
manufacturing of prefilled pen systems was integrated into MSD, in parallel to the existing manufacturing of durable pen systems.
Since both Novo and Nordisk had their durable insulin pen systems, it was natural to initiate a common development project for a Novo Nordisk insulin pen. The result was NovoPen® 3, launched in 1992. The brand name of NovoPen® was kept, because it had the widest market acceptance, almost as a generic name for the product category. Technically, NovoPen® 3 was a compromise between principles of the pen systems from both companies. After solving some initial technical problems, NovoPen® 3 became robust and gained market acceptance as the most sold durable
13 ”NovoLet” is Danish for NovoEasy
98 insulin pen for more than 15 years. In 2010, it was still sold; but it was being phased out in favor of NovoPen® 4 country by country.
Concluding on the evolution of innovation strategy 1988-1992
Although driven by top management, the establishment of medical devices with Medicals Systems Division can be interpreted as an autonomous strategic initiative for two reasons:
1. The idea implied a complementary business model (revenue stream from devices instead as only from the two drug areas). Hence, devices were internally labeled ‘the third business leg’.
2. The vision of homecare opened for entering new product-markets, such as glucose monitoring products, which represented a distinct market served by a separate industry.
The aim of MSD was to make a revenue stream of its own based on medical devices, also by selling devices to other companies; devices were to become the core asset of this new business unit.
Thereby, the device innovation strategy differed from the established strategy. On the other hand, the medical device business was perceived one ‘business leg’ in a diversified corporation; medical
devices were not envisioned to substitute the drug business. The device organization should
continue also to support the two pharmaceutical drug divisions with insulin pens etc. for their drugs;
so from the drug divisions’ point of view, MSD was seen as a supplier of complementary assets for their drug business.
Consequently, the move into medical devices could be seen as an induced strategic initiative,
extending the current drug strategy. However, following the explicit definition by Burgelman (2002), the MSD initiative explored new product-market environments, for example insulin pumps and glucose monitoring products, and in conclusion must be defined as an autonomous strategic initiative.
If we apply the model of strategic learning (figure I-1), then the entrepreneurial management
approach within MSD surely led to trial-and-error learning. A typical example is the learning from the collaboration with Pharmaplast in the joint venture company Diabetes Care Products, which ended with Novo Nordisk taking over the joint venture. However, the entrepreneurial experiments did not alter the vision of patient-centered homecare; only substantiated it. The overall strategic direction was envisioned by Nordisk’ top management team from the outset in 1988 (or probably already in 1987). Consequently, the innovation strategy must be characterized as theory-driven rather than experience-driven. The strategic learning cycle of MSD is modeled in figure IV-7. The vision of homecare led to the exploration of medical devices as a new business, with diverse product innovation experiments. The results were mixed: the pump business was successful, but the
monitoring projects never succeeded (only one product was launched; and had to be recalled, due to malfunction). Only in one case, medical devices were sold to another company.
99 Figure IV-7. The strategic learning cycle of MSD, 1988-92.
MSD 1988-92
3rd business leg.
Vision of homecare via medical systems
Exploration
& innovation Mixed
experiences
Search of growth / new
business via devices
100