There isn’t much stopping a new class of obesity-diabetes drugs from becoming one of the pharmaceutical industry’s biggest blockbusters. Doctors are excited about the potential health benefits, social media hype is relentless, and weight loss can be dramatic.
However, one major question remains about this drug class, known as GLP-1s: What do insurers, who ultimately foot the bill, think about this new revolution in obesity treatment? If this class of drugs truly exceeds $100 billion in annual sales, as many analysts predict, insurers (and, eventually, employers and the government) will be on the hook.
On Friday, UnitedHealth Group Chief Executive Officer Andrew Witty fired the first salvo, signaling a tough stance on both pricing and who gets to take these drugs. While GLP-1s are expected to gain traction as a diabetes treatment, it is unclear who will be covered for the treatment of obesity. There is no doubt that the drugs have captured the national imagination in a way that few others have, such as Viagra or Adderall. With so many overweight Americans, there will be plenty of demand. That means insurers will have to make difficult decisions about who gets to take drugs like Ozempic and Mounjaro, which are expected to be approved by the Food and Drug Administration for obesity this year.
“We need to be very clear about which patients truly benefit from these medicines and make sure we fully understand how they’re going to use those medicines,” Mr. Witty said during a conference call with Wall Street analysts following the company’s earnings release. “So I think there’s a lot more to learn as these things progress through their final stages.”
To put it bluntly, Mr. Witty appears to have meant that UnitedHealth will not foot the bill for every American looking to lose a few pounds in order to look good in a swimsuit at the beach this summer. As explained by Lisa Gill, the JPMorgan analyst who asked the GLP-1 question during the call, these are expensive drugs, so medical necessity will be scrutinized.
“If you have a very high BMI and you’re obese, you’re probably going to be in a place where there’s a higher probability you might have heart disease, and these drugs could help you,” she says. “However, they’re not going to start giving the thumbs up to every doctor who writes a prescription for drugs that cost $6,000 per month.”
Looking ahead to this year, UnitedHealth executives didn’t seem too concerned about the impact of these drugs on their financial results, noting that pharmaceutical spending accounts for 20% of total spending and that any single drug accounts for as little as 1% of total expenses. Not every insurer is so casual. During an investor day conference in late March, Elevance, formerly known as Anthem, chief financial officer John Gallina spooked investors by suggesting that diabetes and weight-loss drugs were running “a bit hotter than we had expected.” That remark briefly impacted stock prices across the entire insurance industry. Following the event, Jefferies analyst
David Windley wrote that strong results from Novo Nordisk and Eli Lilly will likely put pressure on Elevance shares.
According to Ms. Gill of JPMorgan, vertically integrated insurers that also own large pharmacy-benefit managers (the middlemen negotiating drug prices) may fare well because higher volume for these drugs drives up PBM profits via rebates. This should protect UnitedHealth from a significant negative impact, but Elevance, which owns a smaller PBM, is less secure.
Last week, Novo Nordisk backed up Mr. Gallina’s comments about high demand. Novo, which will report its full quarterly results in May, raised its full-year guidance in a pre-announcement on Thursday, owing primarily to strong sales of Wegovy, a GLP-1.
A key study from Novo Nordisk that could have a big impact on how insurers decide to provide coverage for this new class of drugs could be just as important as current prescription trends. The late-stage Select study will look into whether Novo Nordisk’s Ozempic can reduce cardiovascular risks in overweight patients. Proving that obesity drugs not only help people lose weight but also reduce mortality will be critical to gaining broader support from insurers.
Popular buzz alone is insufficient for drugs to achieve true blockbuster status. Insurance companies must also participate.