- Success could be priced in
- Potential applications in brain diseases
The battle for dominance in the weight-loss market may not be won by the most effective or best-tolerated drugs – but by those that earn widespread insurance coverage. With out-of-pocket costs typically in excess of $1,000 a month, and many corporate health schemes unwilling to pay out to treat obesity, buzzy GLP-1 medicines could remain out of reach for many.
This is precisely why manufacturers Eli Lilly (US:LLY) and Novo Nordisk (DKK:NOVO B) are working to have their drugs approved in multiple indications, meaning that regulators endorse them in the treatment of other diseases.
Novo crossed an important threshold last month when the US Food and Drug Administration (FDA) approved Wegovy, its GLP-1 treatment, to reduce heart attack and stroke risk in adults with cardiovascular disease. Medicare, the federal health insurance programme for people over 65, subsequently said it would cover the drug for this purpose. This means Wegovy will be subsidised for the more than 50mn Americans enrolled on Medicare Part D plans – provided it’s prescribed to prevent cardiac complications.
Not to be outdone, Eli Lilly is currently testing its own GLP-1 formula as a remedy for sleep apnea, the stop-start breathing disorder. The company reported last week that the drug reduced the frequency of irregular breathing episodes by up to 63 per cent in two late-stage clinical trials. Patients enrolled in the studies also had obesity and lost an average of almost 20 per cent of their body weight in 52 weeks on the drug. The company’s shares saw a 2 per cent uptick on the morning of the data’s release – and are up 28 per cent so far this year.
Lilly also released positive results from an earlier-stage study of its GLP-1 in patients with fatty liver disease in February. “We think these indication expansions should be able to increase access for Lilly’s GLP-1s, and potentially open a back door for [Medicare] coverage where currently stand-alone anti-obesity medicines are not reimbursed,” said UBS analysts. It’s thought that the approval of the Centers for Medicare & Medicaid Services (CMS), the US federal agency that administers Medicare, would put pressure on private insurers to start subsidising GLP-1s as well.
The fate of the weight-loss drugmakers is inextricably linked with the take-up of the treatments in the US. Goldman Sachs estimates that the global market for GLP-1s could reach $100bn by 2030 – with $85bn of these sales to patients in the US. JP Morgan analysts think sales will exceed $100bn by 2030, growing at a compound annual rate of 53 per cent. Senior analyst Chris Schott expects this market "to largely be a duopoly", dominated by Lilly and Novo, with later entrants only picking up modest shares.
Goldman’s estimate is predicated upon 90 per cent coverage of GLP-1s by employer-administered insurance schemes. Its analysts report that almost 50 per cent of commercially-insured patients currently have access to the medicines through their employers, who have chosen to subsidise the medicines. The projected increase in the next few years will come as the companies provide further proof of the drugs’ broader healthcare benefits.
“We assume that continued addition of indications will sustain category leadership for the current incumbents for at least five years,” added the UBS analysts. Put another way: Novo and Lilly are likely to preserve their GLP duopoly in the medium term – so long as they can keep proving that the drugs are public health panaceas. Both groups, along with a number of their big pharma rivals, are in the very early stages of testing the drugs out against neurodegenerative diseases. Novo started evaluating Wegovy in Alzheimer’s patients in 2021, and data from this study is expected some time next year.
Meanwhile, it was reported this month that Parkinson’s patients who took Sanofi’s (FR:SAN) GLP-1 candidate lixisenatide saw no worsening of their motor symptoms in a year-long trial. The question for healthcare investors is whether the market already views these medicines as miracles – and has priced their manufacturers as such. This argument could certainly be levelled against Lilly and Novo, which are priced at 52 times and 36 times forward earnings, respectively. With such high investor expectations, share prices will be vulnerable to any perceived setbacks.
