Latest / Business Strategy Talks with Fexingo: Competitive Advantage, Market Positioning, and Growth Planning / How Novo Holdings Builds a Moat on Early-Stage Biotech
Transcript
- Lucas: So, Luna, when we talk about moats, we usually think of product, brand, or network effects. But there's a quieter kind of moat that's been shaping the biotech world for decades, and it's sitting right under our noses. Luna: You're not about to tell me it's a Danish pharmaceutical foundation, are you? Lucas: Exactly that. Novo Holdings, the investment arm of the Novo Nordisk Foundation, is one of the most powerful, and least understood, investors in life sciences. They manage the assets that fund the foundation, which in turn owns a controlling stake in Novo Nordisk. And that structure gives them a moat that most VC funds can only dream of. Luna: Because they don't have to return money to limited partners every ten years, right? Lucas: Right. Traditional venture funds have a finite life. They raise a fund, invest it over a few years, and then have to return the proceeds, usually within a decade. That forces a certain rhythm of exits, sometimes too early, sometimes at the wrong time. Novo Holdings is what they call an evergreen investor. They don't have a clock ticking. They can hold assets for as long as it makes sense, because the capital is effectively permanent. Luna: So how does that actually play out in their deal-making? Give me a concrete example. Lucas: Take the Catalent acquisition in 2024. Novo Holdings bought Catalent, a contract development and manufacturing organization, for roughly sixteen and a half billion dollars. That's a massive deal, but the strategic logic wasn't about quick returns. It was about securing manufacturing capacity for Novo Nordisk's blockbuster weight-loss drugs, which are in huge demand. A typical private equity firm might have loaded it with debt and looked to flip it. Novo Holdings is holding it as a strategic asset to support the broader Novo ecosystem. Luna: So they're using their balance sheet to solve a supply chain problem, not just to generate financial returns. Lucas: Precisely. And that's the moat. Novo Holdings can make decisions that optimize for the long-term health of the entire Novo universe, not just one fund's internal rate of return. That long-term perspective is a genuine competitive advantage in biotech, where the time from lab to market can be over a decade, and where failure is common. Luna: And they've been doing this for a while, not just recently. I think they've been around since the nineties, right? Lucas: Yes, established in 1990 as the restructuring of the foundation's assets. But their recent performance has been eye-catching. In 2024, their return on investments was around thirty-five percent. They manage over one hundred and sixty billion dollars in assets. That puts them squarely among the world's top biotech investors, yet they rarely make headlines. Luna: And their ownership of Novo Nordisk gives them a stable base. I mean, Novo Nordisk is one of the most valuable companies in Europe, driven by those GLP-1 drugs. Lucas: Exactly. The foundation owns roughly twenty-eight percent of Novo Nordisk's shares, but controls about seventy-seven percent of the voting power. So they have strategic control without needing a majority of the economics. That steady stream of dividends from Novo Nordisk, plus their own investment returns, funds their grants and their mission, which is about improving health and sustainability. Luna: So the money flows in a circle: profits from Novo Nordisk go to the foundation, which gives grants, and also reinvests through Novo Holdings, which seeds new companies, some of which might eventually become the next Novo Nordisk. Lucas: That's the flywheel. And it's a virtuous one, because they can take risks that other investors can't. They can back a startup that might not show returns for fifteen years, because they're not answerable to outside LPs who want their money back. Luna: But don't they still have to generate returns? The foundation has expenses too. Lucas: They do, but their spending rate is disciplined. They aim to spend about three to five percent of their assets annually on grants. Their long-term return target is around seven and a half percent. So as long as they hit that, the principal keeps growing, and the flywheel keeps spinning. Luna: Let's talk about their early-stage strategy. They're not just buying big companies like Catalent. They do a lot of seed and Series A deals, right? Lucas: Yes, they have a dedicated venture capital arm, led by people like Naveed Siddiqui, who runs their biotech investments. They were an early backer of companies like CRISPR Therapeutics and Blueprint Medicines, which went on to have successful IPOs and approved drugs. And they have the patience to wait for that. A typical VC might have to sell their stake in a company after a few years, but Novo Holdings can hold on for as long as they believe in the science. Luna: So they can be a founder's dream: money that doesn't come with a ticking clock. Lucas: Exactly. And that's a huge differentiator when you're competing to get into the best deals. Founders want investors who won't force them to rush clinical trials or exit prematurely. Novo Holdings is that investor. That reputation becomes a self-reinforcing moat. The best scientists want to work with them, which gives them access to the best deals, which generates better returns, which strengthens their position. Luna: What about their approach to company building? I've heard they're more hands-on than some. Lucas: They do take board seats and provide strategic guidance, but they also give management a lot of autonomy. They're not micromanagers. They set ambitious goals, but they understand science doesn't always follow a timeline. That's a rare combination: rigorous oversight with patient flexibility. Luna: And they've been expanding beyond purely pharma, into bioindustrial and environmental tech, right? Lucas: They have. They invest in companies working on sustainable agriculture, alternative proteins, and even carbon capture — areas that align with the foundation's broader mission. That mission-driven approach means they can invest in areas that might seem less commercially attractive in the short term, but which are strategically important for the long term. Luna: That mission focus also helps them attract talent. People want to work for an investor that's trying to do good, not just make money. Lucas: Absolutely. And that mission orientation is a moat in itself, especially when you're competing for talent against Wall Street firms that are purely about the upside. But let's not romanticize it entirely. They have had failures. Not every bet pays off, and in biotech, the failure rate is high. Luna: What's their track record like overall? I've seen that their biotech portfolio has been one of the top performers in the industry. Lucas: Yeah, they've had some notable successes. Their IPO exits have generated billions in returns. But they're also very willing to hold onto companies for a long time. They don't have to sell on a schedule. That ability to hold gives them a different kind of leverage in negotiations, too. They can be a long-term strategic partner, not just a financial sponsor. Luna: So what can a regular business learn from their model? I'm thinking of companies outside health care. Lucas: That's a great question. The core lesson is about the power of patient capital. If you can structure your financing so that you're not forced to make short-term decisions, you can make better strategic choices. That might mean having a family office, a foundation, or even a loyal shareholder base. Consider how companies like Berkshire Hathaway benefit from long-term shareholders who don't demand quarterly earnings growth. That's a similar moat. Luna: But not every company can restructure themselves as a foundation-owned entity. Lucas: Right, but you can still build some of that patience. For example, many family-owned businesses have a similar advantage. They can invest in R&D or brand building without worrying about quarterly results. The key is to avoid taking on investors or debt that forces you to optimize for the short term. Luna: It also helps if you have a clear mission, like the foundation does. That mission guides their investments and keeps them focused. Lucas: Exactly. And that mission isn't just about doing good — it's also a filter. It helps them say no to deals that don't fit, which actually speeds up their decision-making. They can move quickly when the right opportunity comes along because they've already defined their lane. Luna: Speaking of moving quickly, what's next for Novo Holdings? Are they going to keep scaling up? Lucas: They've been growing their team and their global presence, with offices in Copenhagen, London, Boston, and San Francisco. And they're likely to continue making big strategic moves, like the Catalent acquisition, to secure the supply chain for Novo Nordisk's drugs. But they're also planting seeds for the next generation of therapies — things like gene editing, cell therapy, and beyond. Luna: It's almost like they're playing a game of chess while everyone else is playing checkers. Lucas: That's a fair analogy. And it's a good reminder that moats aren't just about product features or brand loyalty. Sometimes the deepest moat is your capital structure and your time horizon. If you can outlast your competitors, you can outthink them too. Luna: And that's a lesson that applies way beyond biotech, which is why we keep coming back to these stories. Lucas: Absolutely. And before we wrap up, I want to mention something that makes this podcast possible. We keep these episodes free and ad-free, and that's thanks to listeners who support us on buy me a coffee dot com slash fexingo. Even a couple of dollars a month genuinely helps keep the lights on and the conversations rolling. Luna: Yeah, if these strategy deep-dives have given you an edge at work or in your own business, that support is what lets us keep doing them. Lucas: So, back to Novo Holdings — the takeaway is that patient capital is a competitive weapon. In a world obsessed with speed and quarterly results, being willing to think in decades is a real advantage. Luna: And for founders or investors listening, it might be worth asking: how can I build more patience into my own capital structure? Lucas: That's the question, isn't it? Whether you're a startup, a family business, or a global investment giant, the structure of your capital can be your greatest moat or your biggest constraint. Novo Holdings shows us what's possible when you get it right. Luna: Until next time, keep thinking long term.