UnitedhealthCare Group and Novo Nordisk investors have been shocked at the 42.3% and 26.5% share price implosion in 2025.
Headline issues at UnitedHealth revolve around a trial of a murdered key executive at the insurance division, most recently the unceremonious departure of the CEO for the entire company and further indications that the US Department of Justice may be investigating the company for criminal, rather than civil, Medicare fraud. All of this is unseemly and unsettling, but ultimately, resolvable through payment of fines and through the installation of an executive with deep management expertise in health insurance actuary and health delivery.
Headline issues at Novo Nordisk are almost too time consuming to enumerate, ranging from a decade long lack of productive capacity, from an underwhelming next generation pipeline, from a current generation array of products that have been assessed as being only 2/3 as effective as Eli Lilly products, from pricing decisions that raise the ire of their single most important market (USA), from a scientific challenge in taking large molecule products and creating an effective oral medication without having to resort to encapsulation products (the encapsulation producing GI side effects separate from the medication itself), and finally, from executive choices to enter foreign markets whereby NVO was required to provide access to the underlying scientific formulations on their products, in exchange for patent protection that is too short to offset competitive risk. Novo Nordisk executives, to a great extent, enabled the coming wave of foreign generic producers to advance their development efforts, by years, through these IP deals.
The hasty departure of the former CEO of UnitedHealth, whose bona fides were developed at a UK pharmaceutical firm, imply, in hindsight, that a colossal mistake was made in the UNH board of directors pick.
There are absolutely no similarities between UK and the American health care systems. UK operates a nationalized, not-for profit health care delivery service (NHS) featuring a minimalist system of choice and mandated care. To this cultural differential, burned into the mindset of every UK resident since birth (for profit healthcare is bad, government delivery of service is good), the former CEO, more than simply being British, was also a former CEO of an unremarkable, for-profit, UK headquartered pharmaceutical company that vended drugs, TO health insurers, for the highest price possible. Taking this skillset and layering it on top of the culture clash was about as terrible a fit as could be envisioned.
Prior to assuming the top job, Witty worked in Optum, a UNH division growing primarily via acquisition and not the primary earnings machine for UnitedHealth. What Witty brought to the table was, evidently, not the expertise required to grow out and operate an efficient, for profit, health care insurer. In fact, during Witty’s 8+ year position at Glaxo, (2008-2016), that company produced a total return for shareholders of -9% and the company was less profitable when he left, than when he took over.
Given the absolutely dismal equity performance GSK shareholders suffered through during the time Witty headed GSK, reporting the worst performance among large cap pharma in its peer group, and the strong criticism levelled against Witty by analysts for a lack of emphasis upon the core profit drivers of GSK, it seems abundantly clear why he left England to pursue other opportunities.
He landed in America, because it is highly likely nobody in the private sector of Europe would have him, certainly not with a position of suitable importance for a UK knight. But, Boards of Directors occasionally get fooled by persons who SAY the right things to get the job. How Witty obtained ANY post at UnitedHealth remains somewhat a mystery. Headhunters do love a British accent, imbuing the speaker with an immediate, perceived, 10+ point IQ bump over other candidates. The fact that Witty was also a university chancellor, a globetrotter engrossed with causes such as improving not-for-profit health in developing nations, and a knighted British executive to boot, should have represented a warning sign of incompatibility. The resume practically screams “ESG.”
Are university chancellors the slightest bit interested in for-profit businesses or do they consider publicly traded companies to be a blight, useful only as a piggy bank to fund various societal causes? Are US subordinates and colleagues impressed with a knighthood, or will most chafe at being lorded over by a foreigner? Will US politicians cower to a foreign born, foreign trained, foreign failure (based upon former publicly traded share price return and corporate profit outcomes), atop the single largest health insurance company, in the United states? To me, a review of the pedigree does not attest to success, it strongly implies “failing up” to the very highest strata in corporate America. I much prefer a meritocracy, where rewards come from DOING the right things on the job.
The expulsion of the Novo Nordisk CEO, after almost a decade of serial underperformance and failing to protect a monopoly that Novo Nordisk created, should come as no surprise, except evidently, to him.
Appointing an economist, with no scientific background, to run a science based pharma firm was a bureaucratic decision based, in my view, upon a corporate arrogance, a culture of research superiority over all other players in the space. Who the BOD at Novo chose to head the firm, in 2017, was a CEO whose useful skill is in setting pricing at the highest possible levels in any market. One does not require a PHD in economics to charge what the market will bear with a monopoly, a toll booth attendant is equally adept at opening a window and taking posted payment. Evidently, to the utter surprise of the CEO economist, he believed that working at a private company was equivalent to tenured, unaccountable, employment at a European university.
The corporate damage wrought on shareholders of UNH and Novo Nordisk, by the actions, or lack of, from their CEOs, have some common characteristics.
1. Both UnitedHealth and Novo Nordisk generate the overwhelming amount of income and profits from selling their goods/services to the US healthcare markets. Yet, Novo Nordisk and UnitedHealth chose non-US Chief Executive Officers to run their companies and to vend their wares, primarily or almost exclusively, for American populace. It seems clear, to me at least, that neither CEO knew the first thing about important differentiations in the American market they intended to serve, vs the markets they formerly were acquainted.
2. Neither UnitedHealth nor Novo Nordisk hired a CEO with actual, direct, formal training, specific to the business that they competed in. Both had formal training in economics, but neither were scientists or actuaries. Maybe that works in new industries undergoing explosive growth. It does not work in established industries. The departing CEO of Novo Nordisk did work at Novo before, in communications. The now MIA, former CEO of UnitedHealth did work at UnitedHealth prior to being handed the job. His position was at Optum, not the massive insurance division that accounts for roughly 60% of the corporate profit and almost 100% of the public facing, regulatory, hassle.
3. UnitedHealth and Novo Nordisk operate in heavily regulated sectors, with considerable public scrutiny and constant media attention. If one cannot communicate effectively to the varying interests in heavily regulated markets, one should not be a CEO. A CEO needs to be a world class communicator, should they lack world class training in the highly specific business they oversee.
Upon the republican administration victory, American and foreign CEO’s from all industries traveled to meet President Trump. The former CEO of Novo Nordisk recently acknowledged that he did not even as much as talk to the president by phone, post election. That represents more than a slight, it is a discourtesy with potential blowback for shareholders. In contrast, the CEO of Eli Lilly has practically camped out at Mar a Lago and is routinely seen at White House events. Who, may we surmise, presently has the “lobby” advantage with the President?
4. Both UnitedHealth and Novo Nordisk took the American market that they operate in for granted, that business is static, that all they needed to do was show up and abnormally high revenues and profits would follow.
UnitedHealth and Novo Nordisk are presently damaged goods. I suspect one of the two will be fine in the nearer term.
Stated issues ahead for UnitedHealth are the ongoing losses, indicated by the new CEO, on the massive government payor business. This is due to be reset in 2026 under the fee schedule. Maybe things get better at that time. Potential, unstated, issues with UnitedHealth may be that of earnings smoothing and massive possible write-downs on bad acquisitions. The market has reduced the value of the equity about $200 billion, which implies hefty fines as well as an institutional view that what UnitedHealth holds on the balance sheet as an asset (physicians networks, hospice care and primary care clinics), with generous amortization schedules to boost profits, are actually just expenses in need of reclassification. Should that prove to be the case, then earnings have been overstated, for perhaps almost a decade back, meaning the balance sheet and income statements are no longer to be relied upon. This is the forever business risk involved with roll-ups and at the heart of UnitedHealth, it operates a roll-up.
The former and current CEO of UnitedHealth, Stephen Hemsley, ran UNH from 2006-2017. He took over at a tumultuous time in his first go around, a period when UnitedHealth was reeling from a stock option scandal involving backdating of executive options. Hemsley mollified Wall Street and was provided with some time to build out Optum, the PBM, and non-insurance service delivery division into a colossus that generates almost as much profit as did the health insurance operation. He was a serial acquirer, but did so at a time of relatively modest takeover premiums, of fair valuations, a little ahead of trend.
Post Hemsley retirement in 2017, UnitedHealth has had, not one, but two, relatively short term hires to oversee the entire corporation. One lasted 3.5 years and the most recent, roughly 4.1 years. Acquisitions continued throughout the past 8 years, with two separate CEO’s, at a rather dizzying rate. The market is assigning a chargeback, that most of those 8+ years of deals may have been bad ones, with heavy overpayment, of no or few synergies, and of higher expense runs.
The return of Hemsley to the top of the ticket should normally be considered a good thing.
However, the markets took, very unkindly, the abruptness of the departure of Witty, and the media disappearance of the same. Hemsley has also been relatively quiet, but his one public investment media scrum refuted what was hoped to be a short-term profit hiccup in Q1 2025. He indicated that health claim increases had spread throughout more of the health insurance division, leading him to declare that the health insurance operation would not return to profitability until 2026, when Medicare/Medicaid rates are to be raised. That indication was taken very badly, because if the entire health insurance division is presently a money loser, the current dividend may barely have coverage. Forget about a dividend hike this year and pray it even holds.
I assessed Hemsley to be a competent CEO during his first go around atop UNH.
He was, first and foremost, an actuary who understood that a health insurance company is required to deliver health care services for a lower price than premiums are received. Hemsley understood that the buildout of Optum only made sense via actually accretive acquisitions, rather than purchases made to ensure revenue growth. His successors, I believe, did not.
Helmsley likely has some unwinding of excesses to work through within the UnitedHealth umbrella. What the markets do not understand, as yet, is the magnitude, the scale, of the unwind. With hundreds of billions in equity having been removed from the UNH market cap since the start of 2025 by institutional investors, informed money is telegraphing, for those willing to look at the big picture, that many of the purchases made at the corporate level in the past half decade are probably nothing but empty bags of hot air; supposed “investments” in medical staff, in hospice, in primary care centers, from an accounting standpoint, are actually real expenses in need of reclassification. Reclassification will not increase profit, it will reduce profit. Goodwill and intangibles on the books at UNH exceed $129 billion, and that assumes no reclassification of other assets.
Novo Nordisk faces different challenges.
Corporate belief in the invincibility of their product line is much harder to change than simply a CEO replacement. This is very clearly a firing, with no replacement CEO as yet to run Novo Nordisk. The pipeline looks to be at least 5 years behind the newly crowned #1 player in the weight loss space and that #1 player has a deep pipeline.
Novo Nordisk faces a patent cliff starting in 2026 outside of the United States, with key markets such as Canada, China and India going off-patent for semaglutide. These regions, represent about 20% of global revenues. Ominously, the off-patent markets feature large, highly capable and globally minded generic producers. Some generic producers, such as Sandoz, have already declared their ability to profitably offer generic semaglutide for as little as 2% of the current US list price in these foreign markets. That kills the potential for branded semaglutide sales in far more than 75% of the countries on the planet and reduces patent protection to a relatively few number countries. 2026 could experience the beginning of a commoditization of semaglutide throughout much of the world.
Differing from the last unhappy period in 2016, where Novo Nordisk had failed to capitalize on market best products, ceded that advantage to a competitor, only to have a superior offering awaiting FDA approval, Novo Nordisk has no scientific edge in their late stage pipeline and may not even have the scientists on staff to develop a breakthrough. Almost in an act of desperation, a flurry of R&D deals, some licensing, some compound purchases. have been announced in early 2025. All speak to a lack of an internally, science driven, pipeline breakthrough in the wings. In my view, Novo Nordisk bet the farm on a large molecule product, one that does not readily or cheaply convert to an oral formulation capable of competing, at all, with the coming iteration of oral meds, under stockpile and soon to be offered by Eli Lilly.
The Gnostic Portfolio holds a position in UnitedHealth Group and Novo Nordisk.
I am taking my lumps, in line with others, in the marketplace on these two equities. I do hold a view at present that things will get better with one, after a house-cleaning. With another, things could still get worse. The market shoots first, asks questions later and is intolerant of uncertainty.
There are risks to the long thesis for both companies. Hemsley needs more than just time to be brought up to speed on the internal issues at UnitedHealth; he needs people within the system who will report the facts on the ground without obfuscation and fear of reprisal.
Yet, Hemsley made a direct equity purchase in UNH of $25.5 million, within one week of assuming the CEO position. He was also granted 602,773 options on UNH, exercisable at $308 US, per the new employment contract and that was the first year grant. Should he be able reverse the decline, stabilize the company and restore the share price to former glories, Hemsley stands to make about $200+ million (cash salary and option values combined) on the gig. If this workout takes longer, more options and salary will be involved. Hemsley did not want the job, but his former success at UNH provides undeniable appeal to return, for a time. Spending, ultimately, a billion or so in total compensation to possibly restore hundred of billions in market cap is a fair trade. Granted, had the right CEO been running things from the start, none of this would happened. The entire debacle was avoidable/preventable, yet here we are.
As for Novo, I view the growth thesis as being over. The company will have to spend time, as best as can be arranged, with managing a potentially significant prescription decline in 2026 when the patent cliff begins. To this, one must model a likelihood of constant pricing declines on US prescriptions while newer gen meds, offered by a key competitor, hit the market with a bang.
Regulatory and political risk is rising to defend the US economy against foreign profiteering. American politicians have increasingly indicated an intolerance for foreign companies pricing their medications considerably (magnitudes in the hundreds of percent) over pricing levels set in other nations. Any economist worth their salt understands the problem that a company faces when marketing an inferior offering, at a premium price, against more effective products offered by competitors. With inaction, or too late a reaction, rather than with anticipation and forward planning, I consider the former CEO of Novo Nordisk to have botched things very badly indeed.
The as-yet-to-be-selected CEO has no cards to play for the short term, save on pricing reductions to protect market share, and that hurts profits. That is a truly bad hand for a new CEO and while the markets might not see it, what is required is more than just a new CEO. An entire change in corporate culture, in my assessment, is required, to excel in the diabetes/weight loss space.
For the better part of this century, Novo always had an edge over peers on the science, while failing, relatively, on the production front. What remains when the science becomes second rate, possibly obsolete, in the next several years? There could soon be a surplus of productive capacity at Novo, most of it built or paid for at the peak of the product cycle, without a next generation product capable of generating enough scrips to justify those expenditures. That is not a recipe for stable or rising margins.
My investment policy and practice is to not average down, which removes the risk of piling on losses, to intolerable sums, during declines.
Too, this current reduction in the price of shares of UnitedHealth Group and Novo Nordisk have been more than offset by gains in other investments within the portfolio. Such a natural, holistic, rebalancing of capital has reduced the percentage of the account invested in UNH and Novo Nordisk, relative to the overall value of the portfolio, to an amount that permits me to sleep at night.
I have noted, many times in the past, that the average intern could likely perform about as well for shareholders as the average CEO, when put in charge of the average company, because if nothing else, an intern is willing to learn, will take instruction, will complete tasks and will put in the time to succeed.
But there is more to these CEO change announcements than the headlines report. There is also the environment. Any CEO candidate, or present CEO, that considers the US market to be taken for granted, or that is contemptuous of the American population, perceiving it to be ripe for fleecing, should view the recent, almost simultaneous sackings, as an awakening, rather than a series of one-offs.
Public and private companies alike that generate, or intend to generate, the bulk of their profits through the selling of their products to the USA should strongly consider having an actual US CEO atop the company. An American “head of domestic operations”, far down the decision tree of a foreign multinational will, almost certainly, prove to be insufficient in the coming years to maintain the visage of domestic status, given the “America First” populism movement afoot.
The American government is steadfastly pushing forth a policy of foreign direct investment in the USA to maintain access.
So too, one can envision that in order to maintain a seat at the table, with products or services, an American will also need to sit in the CEO position, for any company to have political cover. Corporate interests need to be aligned with national interests. Once again, such a policy fully aligns with global practice. How many foreign CEOS sit atop important Chinese, Japanese or Indian firms? Nationally important businesses typically are run by nationals rather than foreign “soldiers of fortune”, who parachute in for a time, pad their resume, leave damage in their wake and then proceed to the next adventure.
Just as America is embarking upon a global practice of tariffs and of protectionism, why not protect the most profitable US companies against risks from foreign naivete or legitimate disrespect? If globalism is truly dead, should the corporate executive office be immune to this new reality? And if we subscribe to the notion of a meritocracy, as do I, then does a relative lack of knowledge, of respect, for the intricacies, customs, politics and economy of the United States not represent a disqualifier, for any CEO position?
Now, I await Hemsley to sift through the mess left behind.
Within any portfolio, there is inevitably one or two equities annually that produce a negative surprise, typically resultant from a lack of competence atop the ticket. To Witty, I say, “good riddance”; his direction has now impaired the capital aspirations of investors and stakeholders of two separate companies, not once, but twice, within the span of a decade. As with people, a corporate “injury” can occur quickly. Healing and physical therapy, to restore that full range of former motion, takes more time. Hopefully this will be the very last ESG hire foisted upon UnitedHealth shareholders.
And that is the weather.
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