GLP-1 weight-loss drugs, like Ozempic and Wegovy, offer significant health benefits but spark controversy due to their high prices. With rising obesity rates and potential healthcare costs exceeding $1 trillion annually, balancing affordability and innovation is crucial for governments and the pharmaceutical industry alike.
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By Tyler Cowen
GLP-1 weight-loss drugs alleviate obesity as well as provide other health benefits. ___STEADY_PAYWALL___ Yet they are also the focus of controversy, with the chief executive of Novo Nordisk, the maker of Ozempic and Wegovy, scheduled to testify today before Congress. The title of the hearing leaves little to the imagination: “Why Is Novo Nordisk Charging Americans with Diabetes and Obesity Outrageously High Prices for Ozempic and Wegovy?”
One answer is that high prices for valuable drugs encourage future innovation. Novo Nordisk is now Europe’s most valuable company, and its sales stopped Denmark from falling into recession last year. Novo’s experience may be exceptional, but it is nevertheless a strong incentive for other companies to develop blockbuster drugs, and for governments not to put price controls on them.
Sales of Novo Nordisk’s obesity drugs are about to surpass what the company spent on R&D over the last 30 years, but that does not diminish the import of high prices. The company had to endure long waits for most of that revenue, and still needs to spend $30 billion to expand manufacturing facilities. Furthermore, GLP-1 medicines could be the biggest blockbuster drugs of all time, and it may be hard for pharmaceutical companies to succeed to a comparable degree with drugs for other conditions.
At the same time, governments have a strong incentive to make valuable drugs accessible and affordable to the public.
Even when insurance coverage is present, it’s important in the long run to keep it affordable, so price does not cease to matter. Sometimes the relevant insurance is public, as with Medicare and Medicaid, but the aging of America has put these systems under increasing strain.
It is estimated that about 40% of Americans are obese. If the government paid for those drugs for everyone who might benefit from them, it could cost more than $1 trillion annually, almost as much as the US spends on Medicare each year. Whatever the long-run benefits might be, the government would still have to come up with the money.
So what is the best way to think about the price of Ozempic? Here is a good rule of thumb: The government should enforce lower prices when the prospects for future drugs appear bleak, because they have been on the market for a while or the particular field is stagnant. Conversely, it should allow higher prices in times of innovative ferment, where the potential for advances is very real.
Consider that there is now a working anti-malaria vaccine, progress against cancer through immunology treatments, and a good chance of a new mRNA vaccine against HIV-AIDS. Those are truly some of the world’s most fearful maladies, and real progress is being made. Obesity may well be America’s No. 1 public health problem. Many US companies are also unleashing computational biology and AI against disease, with uncertain results but great potential.
In short, now is a moment when additional R&D expenditures in the biomedical industry could yield especially high returns for society.
It is not all good news. The system of clinical trials remains costly and confusing. Developing a new drug can cost as much as $4.5 billion, according to some studies. And most new “wonder drugs,” no matter how good the advance hype, do not work out, so the financial returns on the successful ones have to be correspondingly high. Two economists have estimated that a 1% reduction in revenue from new drugs induces a 1.5% reduction in R&D spending.
Besides, it’s not just about earning back R&D expenditures. Drug companies also need revenue cushions so they can spend future decades developing new drugs.
As for consumer prices for the current obesity drugs, they are not as high as is often reported, once the various ways to get a discount are taken into account. Despite reports that the drugs cost $1,000 per month, the reality is more favorable. Even putting aside insurance coverage, readily available discounts can cut that price in half. Eli Lilly & Co. recently introduced online sales of Zepbound vials for $399 a month.
Lurking in the background are “compounded” versions of these drugs, which are pharmacy-produced copies, permitted by law when there is a shortage of the core drugs. These compounds do not undergo the same inspection processes as the brand names, and their safety and efficacy has been questioned. But they are easy to get and relatively cheap. This is an example of competition, however imperfect and in need of oversight, lowering prices — and in a less clumsy manner than a government price control.
Resentment of the high price of “miracle drugs” is widespread, and in some ways understandable. Would it be too much to ask for a little gratitude that these medicines exist at all?
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