Novo Nordisk A/S, the pharmaceutical giant behind blockbuster weight-loss drugs Ozempic and Wegovy, is facing growing political pressure over the high prices of its medications in the United States. The stark contrast between U.S. prices and those in other international markets has drawn sharp criticism from lawmakers, thrusting Novo Nordisk into the political spotlight. For instance, Ozempic costs around $969 per month in the U.S., while the same drug can be purchased for as little as $71 in France. Similarly, Wegovy, another Novo Nordisk drug, carries a hefty price tag of $1,349 in the U.S., compared to just $92 in the UK.
In a recent congressional testimony, Lars Fruergaard Jorgensen, CEO of Novo Nordisk, attributed the significant price gap to pharmacy benefit managers (PBMs). These middlemen act as intermediaries between pharmaceutical companies and insurers, wielding considerable influence over the U.S. pharmaceutical pricing structure. Jorgensen argues that even if Novo Nordisk were to reduce list prices, there’s no guarantee that these savings would be passed on to consumers due to the complex payment system.
Mauritz Pot, founder and CEO of Tema ETFs, further elaborated on this issue. He pointed out that PBMs might respond to lower list prices by reducing insurance coverage, effectively maintaining their profit margins while leaving patients with high out-of-pocket costs. “The real issue is with the middlemen and with how much margin they are extracting,” Pot stated.
From an investor’s perspective, Pot believes that price cuts alone are unlikely to significantly impact Novo Nordisk’s revenue or profitability in the U.S. market. While list prices are high, the actual price paid by insurers and patients is often considerably lower. This suggests that Novo Nordisk’s U.S. revenues might remain relatively stable, even if political pressure to reduce prices intensifies.
Despite the pricing controversy, the demand for Novo Nordisk’s weight-loss drugs remains exceptionally strong. Pot emphasized that even with potential price reductions, the demand for GLP-1 drugs like Ozempic and Wegovy far surpasses supply. This creates a robust growth opportunity for Novo Nordisk in the short term. “Even if the price halves, there’s still going to be a massive opportunity here,” Pot stated.
With the 2024 U.S. presidential election approaching, drug pricing has become a highly contentious political issue. Both major parties, Republicans and Democrats, agree on the need to lower prescription drug prices, but they differ on the best mechanisms to achieve this. Regardless of the approach, the push for more affordable drugs enjoys bipartisan support. “Price is being politicized in an election year very clearly,” Pot said.
Looking ahead, Pot anticipates a surge in merger and acquisition activity in the pharmaceutical sector, especially in the weight-loss and obesity treatment space. Smaller biotech firms developing innovative treatments could become attractive acquisition targets for larger companies, particularly following the election. “We’re likely to see a ramp-up in M&A activity in the sector post-election, regardless of who wins,” Pot stated.
The political spotlight on Novo Nordisk’s pricing practices highlights the complexities of the U.S. pharmaceutical market. While pressure to lower prices is mounting, the company’s strong demand and potential for growth in the weight-loss sector suggest that the current situation is unlikely to significantly hinder its success in the long run. The political climate, however, is likely to fuel M&A activity in the weight-loss sector, creating an exciting landscape for the future.
