DUBLIN, April 14 (Reuters Breakingviews) – At Novo Nordisk (NOVOb.CO)opens a new tab At the company’s annual general meeting in Copenhagen last month, CEO Maziar Mike Doustdar was keen to focus on the positives. The Danish drugmaker’s new weight loss drug Wegovy has gotten off to a record start, with more than 600,000 prescriptions issued in just two months. Dusdahl also managed to bring its rescue solution to market ahead of larger rival Eli Lilly (LLY.N).opens a new tab The oral version claims that it has regained some ground in a fierce competition that has recently largely favored American groups.
However, unanswered questions remain about the new generation of obesity drugs. It’s unclear how long customers will continue to use treatments when household finances tighten, as they haven’t experienced a serious downturn in consumption since their popularity exploded in recent years. At the very least, the deteriorating economic situation after the Iran war will intensify the already painful price competition for drug companies.
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Eli Lilly and Novo Nordisk are giants in the so-called GLP-1 world, which includes both diabetes and weight-loss drugs. The company is on track to generate more than $100 billion in revenue this year from these two categories of treatments alone, according to analyst forecasts compiled by Visible Alpha. According to the same estimates, Eli Lilly and Novo Nordisk are expected to launch new forms of treatment beyond classic injectables like Wigovy and Zepbound, a figure expected to reach $116 billion by 2030. One focus is its oral drug portfolio, which Novo’s bosses touted last month.
But to maintain demand, customers need to keep forking out. This is an unfamiliar problem in the pharmaceutical industry, where the buyers are often doctors and hospitals, and the funding ultimately comes from insurance companies and health services. But weight loss drugs have also become a retail phenomenon, with customers increasingly paying “out of pocket.” Prices can be high. Breakingviews calculates that out-of-pocket costs for monthly prescriptions can consume nearly a fifth of average gross income in the US and around 10% in the UK.
As a result, demand could take a hit if unemployment spikes or consumer spending falls. That scenario may be just around the corner. Rising oil prices put pressure on household budgets, making them less likely to spend money on other goods and services. Goldman Sachs analysts lowered their forecast for U.S. consumption growth to 1.2% from prewar 2%, citing year-on-year comparisons for the fourth quarter of 2026. And the economy was already weakening. In February, before the Gulf War, the United States cut 92,000 jobs and the unemployment rate rose to 4.4%. This may be the first real stress test for weight loss drugs. The GLP-1 movement was still young in 2022, when energy prices and interest rates also rose, and U.S. consumers had unusually large savings to draw down as a result of pandemic-era lockdowns and stimulus checks.
The central question is where weight-loss drugs fit on a household’s list of priorities. Are these things like broadband contracts, mortgage payments, and medically necessary treatments that customers tend to keep paying for even in a recession? Or are they more like discretionary luxuries and branded groceries, which are usually at a disadvantage?opens a new tab What about when things get tough? Put another way, will GLP-1 users appreciate their new, slimmer figure and continue to pay for it, even if it means cutting back on other expenses?
From a pharmaceutical company’s perspective, the optimistic view is that customers of over-the-counter weight loss drugs are, on average, relatively affluent. However, there is evidence that cost is already a major challenge for patients and users of GLP-1 drugs. The most common reasons for discontinuing treatment are side effects and financial barriers. More than half of people taking GLP-1 drugs stop taking them within a year. Data shows that abandonment rates skyrocket when out-of-pocket costs exceed $500.opens a new tab.
Patients will also find it increasingly easier to switch to cheaper alternatives. Instead of splurging over $1,000opens a new tab After a one-month prescription for Eli Lilly’s Zepbound, you can switch to a new pill that provides similar weight loss benefits and costs less than $149.opens a new tab One month. Meanwhile, Novo Nordisk is cutting monthly prescription costs in a bid to regain market share. But there is also a riskier option: continuing to buy counterfeit injectable drugs from online pharmacies. Prices may be less than $130opens a new tab Since it lasts for a month, many patients try their luck or even look for dangerous and unregulated versions on the internet.
GLP-1 manufacturers also have long-term problems. Eli Lilly and Novo Nordisk spend billions of dollars on research and development to improve their current products. In Novo’s case, this is in part to avoid a dramatic loss in revenue when the key ingredients in Ozempic and Wigoby go off patent in the U.S. in 2031. When a drug’s patent protection expires, its price typically falls by about 80%. At that point, the manufacturer will need five times as many patients to earn the same revenue as before. Applying these numbers to GLP-1 drugs means that approximately 75 million Americans would need to take GLP-1 drugs to maintain income stability, or more than half.opens a new tab Of the U.S. population age 45 and older. That seems incredible: at the end of last year, only 12%opens a new tab of Americans reported taking the drug.
Pharmaceutical companies have not changed their public funding targets amid the Iran conflict. But investors may be ahead of the curve. Eli Lilly’s stock price fell 11% from the day before the first Gulf strike to last Friday, compared with a 7% drop for pharmaceutical stocks in the S&P 500 index. From a shareholder perspective, it doesn’t really matter whether cash-strapped users stop taking GLP-1 or simply find a cheaper alternative. The important thing in both cases is that growth is slow.
The valuations of Eli Lilly and Novo Nordisk have fallen in recent months. Eli Lilly’s stock currently trades at just 26 times trailing 12-month earnings, down from a peak of about 60 times 2024. Meanwhile, Novo Nordisk’s share price is trading at a multiple of just 11 times, down from its 2024 peak of 38 times. These declines are mainly due to intense competition between the two companies and the prospect that other pharmaceutical giants like AstraZeneca will benefit. (AZN.L)opens a new tabPfizer (PFE.N)opens a new tab and Roche (ROPC.S)opens a new tab There will soon be a market invasion. A short-term hit to consumer spending will only make the problem worse.
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Edited by Liam Proud. Produced by: Shrabani Chakraborty
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Aimee joined Breakingviews in 2017 and writes about pharmaceuticals, consumer goods groups, retail, and insurance. She is also the co-host of the Breakingviews podcast The Viewsroom. Based in Ireland, she previously worked for the Sunday Times as a banking correspondent for three years. Previously, he was a senior reporter covering fixed income markets at IFR, a financial trade publication published by Thomson Reuters. She holds a degree in English and History from the National University of Ireland, Galway and a degree in Journalism from the London School of Journalism.
