Great post! I’ve done some research on this issue, so here are a few thoughts. I put relevant links at the bottom of the post to support my specific claims.
First, the low volume for semaglutide that you are observing is at least partially due to supply shortages. The drug has been in serious shortage for a while. Novo Nordisk also sells Saxenda (liraglutide) for weight loss. Over the last 2 quarters, Saxenda sales are up 59%, while Wegovy sales are down 18%. Saxenda is priced similarly, and Wegovy is a better product. So I suspect a lot of the Saxenda spending would be going towards Wegovy in the absence of the semaglutide supply shortage.
Second, spending on Wegovy might not fully capture use of semaglutide for weight loss, because some people might be taking Ozempic primarily for weight loss benefits. Ozempic sales are huge, and it is a top-20 spending drug in Medicare. After the clinical trial was published showing sustained weight loss benefits from semaglutide, Ozempic sales growth accelerated (though sales were already growing fast). Even though Ozempic is approved for the diabetes indication, it makes sense that people would take it for weight loss, because (1) there is a big overlap between the obese and diabetic population and (2) Ozempic is more likely to be covered by insurance.
Third, your estimates of the costs are somewhat exaggerated, because the drug manufacturer pays significant discounts to insurers. These discounts do not reduce cost-sharing, but they do reduce premiums. When thinking about the social cost of the drug, it's more accurate to think about the price net of discounts, as opposed to the list price. The Morgan Stanley report that you cited reports roughly a 30% typical discount from the list price.
Fourth, this is nitpicky, but when you say "almost 10% of all US drug spending," you are dividing a 2030 spending projection by what U.S. prescription drug spending was in ~2020. The Medicare actuaries project U.S. prescription drug spending in 2030 to be closer to 600 million, not 300 million. That's still a massive projection for spending in the obesity class. If you believe the Morgan Stanley projection, spending on the obesity class as a share of national health spending will be comparable to peak spending on the Hepatitis C drugs. The financial impact of the Hepatitis C drugs was a huge story. But this would be even bigger, because the Hepatitis C drugs were a cure, such that the spending surge was short-lived. Conversely, the obesity drugs are chronic medications, and we should probably expect volume to continue to increase post-2030.
Fifth, a remarkable thing about semaglutide that may have been under-emphasized in your post is the extent to which the weight loss benefits are being sustained. People who successfully lose weight tend to have a very difficult time keeping the weight off. To my knowledge, before semaglutide, the only intervention that had been demonstrated to sustain a >10% weight loss benefit for more than 1-year was bariatric surgery. So far, clinical trails are showing sustained weight loss benefits from semaglutide for at least 2-years.
Sixth, this post focuses on GLP-1 agonists, which makes sense, because those drugs are starting to have an impact today. But the Morgan Stanley report also notes that amylin analogue cagrilintide may be approved for weight loss as soon as 2025. This drug has a completely different mechanism than semaglutide, but likely offers similar weight loss benefits. The crazy thing is that the weight loss benefits stack. So Novo Nordisk hopes to sell Cagrisema, which combines amylin analogue cagrilintide with semaglutide, and hopes to offer a ~30% average weight loss. This is roughly double what semaglutide offers, and is getting closer to bariatric surgery efficacy.
Seventh, if Medicare decides to cover Wegovy, it would be relatively affordable for Medicare beneficiaries. Starting in 2025, out-of-pocket costs for prescription drugs will be capped at $2,000 for Medicare beneficiaries. And most Medicare enrollees with a 30+ BMI are probably already spending a lot on drugs. So at the end of the day, the marginal cost might be $100 per month or even less. And if you are near-poverty, you get cost-sharing subsidies, so the cost is only about $10 per month. Of course, this all depends on Congress changing the law such that Medicare can cover obesity drugs. Currently, there is a statutory exclusion that can only be changed through Congressional action.
That’s all I have for now. Here are some citations for various claims I made in this comment.
Great post! I’ve done some research on this issue, so here are a few thoughts. I put relevant links at the bottom of the post to support my specific claims.
First, the low volume for semaglutide that you are observing is at least partially due to supply shortages. The drug has been in serious shortage for a while. Novo Nordisk also sells Saxenda (liraglutide) for weight loss. Over the last 2 quarters, Saxenda sales are up 59%, while Wegovy sales are down 18%. Saxenda is priced similarly, and Wegovy is a better product. So I suspect a lot of the Saxenda spending would be going towards Wegovy in the absence of the semaglutide supply shortage.
Second, spending on Wegovy might not fully capture use of semaglutide for weight loss, because some people might be taking Ozempic primarily for weight loss benefits. Ozempic sales are huge, and it is a top-20 spending drug in Medicare. After the clinical trial was published showing sustained weight loss benefits from semaglutide, Ozempic sales growth accelerated (though sales were already growing fast). Even though Ozempic is approved for the diabetes indication, it makes sense that people would take it for weight loss, because (1) there is a big overlap between the obese and diabetic population and (2) Ozempic is more likely to be covered by insurance.
Third, your estimates of the costs are somewhat exaggerated, because the drug manufacturer pays significant discounts to insurers. These discounts do not reduce cost-sharing, but they do reduce premiums. When thinking about the social cost of the drug, it's more accurate to think about the price net of discounts, as opposed to the list price. The Morgan Stanley report that you cited reports roughly a 30% typical discount from the list price.
Fourth, this is nitpicky, but when you say "almost 10% of all US drug spending," you are dividing a 2030 spending projection by what U.S. prescription drug spending was in ~2020. The Medicare actuaries project U.S. prescription drug spending in 2030 to be closer to 600 million, not 300 million. That's still a massive projection for spending in the obesity class. If you believe the Morgan Stanley projection, spending on the obesity class as a share of national health spending will be comparable to peak spending on the Hepatitis C drugs. The financial impact of the Hepatitis C drugs was a huge story. But this would be even bigger, because the Hepatitis C drugs were a cure, such that the spending surge was short-lived. Conversely, the obesity drugs are chronic medications, and we should probably expect volume to continue to increase post-2030.
Fifth, a remarkable thing about semaglutide that may have been under-emphasized in your post is the extent to which the weight loss benefits are being sustained. People who successfully lose weight tend to have a very difficult time keeping the weight off. To my knowledge, before semaglutide, the only intervention that had been demonstrated to sustain a >10% weight loss benefit for more than 1-year was bariatric surgery. So far, clinical trails are showing sustained weight loss benefits from semaglutide for at least 2-years.
Sixth, this post focuses on GLP-1 agonists, which makes sense, because those drugs are starting to have an impact today. But the Morgan Stanley report also notes that amylin analogue cagrilintide may be approved for weight loss as soon as 2025. This drug has a completely different mechanism than semaglutide, but likely offers similar weight loss benefits. The crazy thing is that the weight loss benefits stack. So Novo Nordisk hopes to sell Cagrisema, which combines amylin analogue cagrilintide with semaglutide, and hopes to offer a ~30% average weight loss. This is roughly double what semaglutide offers, and is getting closer to bariatric surgery efficacy.
Seventh, if Medicare decides to cover Wegovy, it would be relatively affordable for Medicare beneficiaries. Starting in 2025, out-of-pocket costs for prescription drugs will be capped at $2,000 for Medicare beneficiaries. And most Medicare enrollees with a 30+ BMI are probably already spending a lot on drugs. So at the end of the day, the marginal cost might be $100 per month or even less. And if you are near-poverty, you get cost-sharing subsidies, so the cost is only about $10 per month. Of course, this all depends on Congress changing the law such that Medicare can cover obesity drugs. Currently, there is a statutory exclusion that can only be changed through Congressional action.
That’s all I have for now. Here are some citations for various claims I made in this comment.
Semaglutide is currently in shortage.
https://www.ashp.org/drug-shortages/current-shortages/drug-shortage-detail.aspx?id=813&loginreturnUrl=SSOCheckOnly
Recent sales growth for Saxenda has been much faster than Wegovy.
https://www.novonordisk.com/content/dam/nncorp/global/en/investors/pdfs/financial-results/2022/Q3-2022-financial-workbook.xlsx
Ozempic was a top-20 drug in Medicare for 2020.
https://data.cms.gov/summary-statistics-on-use-and-payments/medicare-medicaid-spending-by-drug/medicare-part-d-spending-by-drug/data
For these obesity medications, manufacturers pay a 30% discount to insurers off the list price.
https://khn.org/wp-content/uploads/sites/2/2022/09/Morgan-Stanley_Unlocking-the-Obesity-Challenge.pdf
Prescription drug spending in the US in 2030 will be closer to 600 million than 300 million.
https://www.cms.gov/files/zip/nhe-historical-and-projections-data.zip
Context on the financial impact of Hepatitis C.
https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2015.1194
The benefits of semaglutide are being sustained for two years.
https://www.nature.com/articles/s41591-022-02026-4
The Medicare out-of-pocket cap will be $2,000 in 2025.
https://www.kff.org/medicare/issue-brief/how-will-the-prescription-drug-provisions-in-the-inflation-reduction-act-affect-medicare-beneficiaries/
Background on cost-sharing subsidies for low-income Medicare enrollees.
https://www.cms.gov/files/document/lis-memo.pdf#page=3