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Why Ozempic, other ‘revolutionary’ weight-loss drugs are so expensive

by Index Investing News
July 9, 2023
in Financial
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Lots of celebrities and prominent businesspeople—including Amy Schumer, Elon Musk, and Chelsea Handler—look slimmer this year, and one buzzy new drug is responsible.

Ozempic, the drug that generated a celebrity craze and made shedding pounds easier than ever, is designed to treat diabetes but has the fashionable side effect of transforming its takers’ cravings for food. It’s also inspiring a new and expanding class of similar medications—but they will only be available to the elite who can pay out of pocket for the time being.

Created to treat diabetes, Ozempic is often prescribed off-label for weight loss because it allows patients to lose up to a quarter of their body weight and helps combat the long-term health risks of obesity, including heart and renal disease. But antidiabetic drugs like Ozempic and Mounjaro are not covered for obesity—federal and most employee-sponsored health insurances cover it for treating diabetes only. Only Wegovy (the same drug as Ozempic in a different dosage) is currently FDA approved for obesity, and that costs about $1,000 a month.

So the question is: why? Why are new weight-loss drugs so inaccessible despite their potential to benefit tens of millions of Americans?

Novopoly

In 2012, the Danish healthcare giant Novo Nordisk originally developed the antidiabetic drug semaglutide, which is the active substance in the company’s medications Ozempic and Wegovy. As Novo Nordisk holds a patent on semaglutide, it has essentially been able to charge what the market supports, or what it wants, according to the nonprofit Institute for Clinical and Economic Review (ICER). A fair price for the drugs, relative to their health benefit, would be about 44% to 57% cheaper than what they are currently sold for, the ICER estimated in 2022. 

The thing is, the structure of pharmaceutical patents incentivize Novo Nordisk to make as much money as they can as quickly as possible—the semaglutide monopoly will lapse in 2032, when it can be manufactured generically. “[Novo Nordisk] has a monopoly for a very short period of time, or something close to a monopoly,” Daniel Touchette, co-author of the ICER report, said. “They have a very short time to recoup as much profit or money as they can … so they’re going to charge as much as they can.” 

Also, since the clinical trials to create semaglutide cost hundreds of millions, Novo Nordisk has to price highly to recoup the cost and turn a profit for shareholders, added Touchette, who is director of the University of Illinois Chicago’s pharmacoeconomic center.

The company’s window of huge profitability is likely short, as they already hear the footsteps of competitors such as Eli Lilly and Amgen close behind them. But even when those competitors enter the market, it still isn’t likely that the low-income people who are most heavily affected by obesity will be able to access the drugs for several years.

“Novo Nordisk believes the most effective way for the millions of Americans who need anti-obesity medicines to be able to access and afford them is to ensure these medicines are covered by government and commercial insurance plans,” Novo Nordisk wrote in a statement to Fortune.

Leaping on the bandwagon

Pharmaceutical companies are flocking to the market to create their own weight-loss injections and pills. Touchette calls these “me too” drugs, referring to companies wanting to get in on exploding demand for Novo Nordisk’s semaglutide products. “Me too” drugs are different molecules that have the same effect on the body as existing formulations. 

A slew of developments in the new generation of weight-loss drugs were presented at the annual American Diabetes Association conference from June 23 to 26, including weight loss pills (Ozempic and Mounjaro are injectables) and an experimental compound by Lilly called retatrutide, which is more potent than anything that’s been released. These products may spell the end of Novo-supremacy in the weight-loss market, or even make the fading star obsolete in comparative efficacy. 

New drugs being developed may have health benefits in areas besides weight loss, Michael Manolakis, vice president of pharmacy consulting at Aon, says. They could prove to have positive cardiovascular and anti-inflammatory effects as well, he explains.

“These are revolutionary drugs,” Manolakis tells Fortune. “We’re experiencing something here that is very, very different, very exciting from a healthcare perspective, and very expensive.”

While still very expensive to purchase, the new weight-loss drugs in the pipeline are much cheaper to create than Ozempic and Wegovy, because competitor companies don’t carry the burden of being the innovator in the market. In creating semaglutide, Novo Nordisk had to go through many rounds of costly trials to prove that their molecule was safe and effective. But when other companies bring similar drugs to market, their process will be accelerated because they are not the originators of the drug category and thus require fewer trials. 

Eli Lilly’s retatrutide and tirzepatide (active substance in Mounjaro) will likely hit the market next year, but that won’t lower prices in the short term, according to Tracy Spencer, national pharmacy practice leader at Aon.

“They are different agents and they act differently in different mechanisms,” Spencer said. “Right now you’re looking at self injectables versus oral products. Moving forward, I don’t believe that it’s going to drive the price point down anytime soon.”

Lilly told Fortune that it is “continuing to focus on making our affordability solutions available” for insured adults who already have coverage for Mounjaro.

Unsure-ance

If the price of new weight-loss drugs won’t deflate anytime soon, most people can only access the treatments through health insurance. As of 2022, about 28,000 patients per year was the “max or likely threshold that insurance would cover overall” for new weight-loss medications in the U.S., Touchette says. That’s only 0.1% of the 142 million obese or overweight eligible population (staggered across five years). 

Right now, Medicare will not cover any weight-loss drugs, and neither will most employee sponsored insurances. Still, Aon has seen a 165% quarter over quarter Q1 increase in weight-loss therapy costs in employer health plans, and the total spent for Wegovy in February 2023 was greater than all of Q4 2022. Besides being expensive, some of employers’ reticence in covering these drugs is that they have to be used in perpetuity to maintain weight loss, and that a large portion of the American population (40%) is considered obese. Considering these factors, new weight-loss drugs have the potential to be the most expensive that insurers cover.

Employer plan sponsors are aware of the spike in demand for weight-loss medications and are currently deliberating over whether the benefits of covering these drugs for weight loss would be worth the cost, Spencer says.

“Employer plan sponsors are contemplating their options, where this is not simply a cost avoidance situation for them,” she says. “The conversations that they’re having are to make sure that the investment they are making will have the long term impact that they’re hoping for.”

Plan sponsors have to consider that covering weight-loss drugs could be reflected in premiums across the entire employee population—but those costs could eventually be balanced out if the drugs let people ultimately avoid severe health problems, Spencer adds. 

While there is no set timeline on employer insurance making a decision on such coverage, federal coverage for weight-loss treatment may be happening soon, according to Touchette. His team at University of Illinois Chicago has met with legislators and the Centers for Medicare & Medicaid Services about opening up some coverage for the medications, which is now illegal.

It won’t be universal, he said, but will likely target specific groups immediately such as people with prediabetes and severe obesity. Legalization of any Medicare weight-loss coverage would be a big step for accessibility and affordability of the drugs.

Federal coverage of semaglutide and its progeny for weight loss could be an integral step in lowering prices across the drug category, according to Kibum Kim, professor of pharmacy systems, outcomes, and policy at University of Illinois Chicago.

“If Medicare starts to cover the drug under their coverage via the IRA [Inflation Reduction Act], then it would be the trigger to lower the price and get coverage for the larger population.”



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