Analysts say market forces will drive down the cost of obesity drugs

Novo Nordisk's CEO is scheduled to appear before a Senate committee on Tuesday to be questioned about the high costs of Ozempic and Wegovy, common drugs used to treat diabetes and obesity.

However, health economists say it is unlikely that pressure from Congress will be the driving force behind a price reduction.

Sen. Bernie Sanders, I-Vt., chairman of the Senate Health, Education, Labor and Pensions Committee, has established himself as a consistent critic of drug companies during his time as chairman of the committee. He initially threatened to subpoena Novo Nordisk President Doug Langa to testify before the committee. The company eventually agreed to send CEO Lars Fruergaard Jørgensen to answer questions about pricing.

Sanders has repeatedly pushed back against a seemingly simple question: Why does Novo Nordisk charge such high prices in the United States, but much less in countries like Canada and Germany?

This week, Jørgensen is likely to tell the committee that the matter is a little more complicated. In a statement to CQ Roll Call on Friday, a Novo Nordisk spokesperson touted steps the company has taken to make Ozempic and Wegovy, both GLP-1, more affordable.

Novo currently sells Ozempic, the version for treating diabetes, for $968.52 per month. The company sells Wegovy, for treating obesity, for $1,349.02 per month, according to its website. For comparison, Ozempic has a list price of $59 per month in Germany, $122 per month in Denmark and $155 per month in Canada, according to the global drug pricing and market access database NAVLIN.

The spokesman said more than 80 percent of insured Americans pay $25 or less per month for Ozempic.

“Unfortunately, too often, even when we lower our prices, patients in the U.S. do not benefit from the savings – that is a problem,” the spokesperson said. “We know it is frustrating that each country has its own healthcare system, but isolated and limited comparisons ignore this fundamental fact. What remains constant is the undeniable value and cost savings that Novo Nordisk medicines bring to patients, healthcare systems and society.”

But Sanders' long-running battle with the pharmaceutical industry goes beyond the prices of individual drugs.

“The pharmaceutical industry's business model is unsustainable, neither from a humanitarian nor a financial perspective,” Sanders said Tuesday at a roundtable with drug pricing experts.

market forces

Health economists and industry observers say a reduction in drug prices is inevitable, but it will not necessarily be up to Congress to make it happen.

At the roundtable, Sanders revealed that he had spoken to generic drug manufacturers who told him they could make a version of Ozempic that could be sold for $100 a month.

Brian Reid, chief executive of healthcare consultancy Reid Strategic, said that may be true, but Sanders is missing the point. He said almost all brand-name drugs could be sold as generics at that price, but that would leave no room for innovation.

“In fact, it is not government intervention that will drive prices down to $100, but competition,” he wrote in a newsletter on Wednesday. “Within five years, 16 new anti-obesity drugs could be on the market. Prices only go in one direction.”

Lindsay Allen, a health economist at Northwestern University, said that while the hearing could lead to renewed calls from lawmakers for price controls, the market is already moving toward lower costs. She pointed to Eli Lilly's direct-to-consumer platform LillyDirect, launched last month, where the company will sell its obesity drug Zepbound for $399 a month.

“The most effective lever in the short term will be the market dynamics that are playing out among competitors,” she said.

Allen said Novo is charging such a high price in the United States because consumers are largely willing to pay that price.

“This is the simplest example of supply and demand,” she said. “We already can't keep up with the supply of GLP-1s; so many people are buying them that there are shortages.”

One solution to reduce costs, she said, is for the Centers for Medicare and Medicaid Services to add these drugs to the list of drugs whose prices they will negotiate as part of the 2022 budget reconciliation bill. She said it is likely that these drugs would be included in the negotiations later.

“So far, no one has really put pressure on manufacturers or the federal government to use these mechanisms in relation to GLP-1,” she said.

She said she expects lawmakers to ask targeted questions during the hearing to get Jorgensen to justify the high drug prices.

“I hope that the hearing will also address the fact that these drugs actually cost very little to produce,” she said.

Melissa Barber, a health economist at Yale University, said during Sanders' roundtable on Tuesday that her research showed that companies could produce GLP-1 for as little as $5 a month. She reached that conclusion by examining the cost of the active pharmaceutical ingredient, the cost of the injection device, overhead, taxes and markups.

“Novo Nordisk and Eli Lilly will be in good shape,” said Barber. “I still expect them to have the highest profits of any pharmaceutical company in the world, even if prices were reduced to [$50 to $100].”

It has been an uphill battle to get Medicare to broadly cover obesity drugs.

Lawmakers have tried to achieve coverage through a bill called the Treat and Reduce Obesity Act, sponsored by Representatives Brad Wenstrup (Republican of Ohio) and Raul Ruiz (D-California). A shortened version of the bill passed the House Budget Committee earlier this year. Under the amended version, Medicare could cover the drugs for people with related conditions whose insurance previously covered the drugs.

Allen said Medicare's coverage of the drugs could also depend on how much the drugs save Medicare on other obesity-related health care costs, such as cardiovascular problems.

“If CMS were paying the prices they are paying now for the patients they have to pay, it would be cheaper for CMS to just buy Novo Nordisk than to pay the price we are paying for just the next two years,” Barber said.