(Bloomberg) -- Ozempic and Wegovy are making so much money for Novo Nordisk A/S that their cumulative sales will soon surpass the drugmaker’s entire research budget for the past three decades, undercutting a key argument for their unusually high prices.
The pair of medicines for diabetes and obesity have sold nearly $50 billion as of the second quarter and are on track to make $65 billion by the end of this year, according to a Bloomberg News analysis of regulatory filings and analyst estimates. After adjusting for inflation, that would eclipse the $68 billion that Novo will have spent on all research and development since the mid-1990s, when the company started ramping up work on this class of drugs.
Novo Chief Executive Officer Lars Fruergaard Jorgensen is set to be grilled about the drugs’ prices on Tuesday at a hearing led by Vermont Senator Bernie Sanders. The Danish company is facing increasing pressure to make its medicines more affordable as demand skyrockets for use in weight loss, and inconsistent insurance coverage forces many patients to pay out of pocket.
The pharma industry has long argued that it needs big windfalls from successful drugs to offset the cost of many experimental treatments that fail during testing. Bloomberg’s findings suggest that this argument is running out of steam for Novo’s popular shots.
Novo disputes this claim. The company says it has spent more than $10 billion developing Ozempic and similar drugs over three decades, and that its investment in obesity medicines only became profitable in the last two years. Novo has also committed more than $30 billion to expand its manufacturing capacity since the beginning of last year.
Ozempic was approved in the US in late 2017 for diabetes, but its powerful effect on weight loss led to significant off-label use. Wegovy, the same medicine in a slightly higher dose, was approved in 2021 to treat obesity. It has a list price of $1,349.02 a month.
Sanders said last week that Ozempic could be profitably produced for less than $100 a month, based on his conversations with generic-drug manufacturers, far less than Ozempic’s $968.52 list price. One study suggested the drug could even be made for less than $5 a month.
It’s rare for drugs targeting a wide patient population to charge such high list prices. Pfizer Inc.’s cholesterol pill Lipitor, for years the best-selling drug in the world, cost around $150 a month shortly before it lost patent protection in 2011, the equivalent of about $215 in today’s dollars, according to price data from 3 Axis Advisors.
But Novo’s drugs — along with similar medicines made by Eli Lilly & Co. — have the potential to transform the treatment of obesity and prevent numerous related complications. More than 40% of US adults have obesity, but only a tiny portion of them are taking the medicines, in part due to insurance restrictions and cost.
US government spending on Ozempic and similar drugs for Medicare patients has surged in recent years, according to the health policy organization KFF. A Novo executive said last week that Ozempic will “very likely” be one of the drugs targeted for price cuts in the next round of Medicare negotiations.
In a letter to Sanders in May, Novo said it only retains about 60% of the list price of the two drugs after rebates and fees paid to middlemen in the US drug supply chain, and that it expects these behind-the-scenes discounts to grow. The net price of Ozempic has declined by 40% since its launch in the US and Wegovy is following a similar trajectory, the company says.
For its analysis, Bloomberg looked at company-reported net sales of Ozempic and Wegovy as well as six other drugs that have already gone through price negotiations as part of the Inflation Reduction Act. Bloomberg compared the sales to companywide inflation-adjusted research spending for these manufacturers over the five calendar years ending in the year their medicines were approved. None of the other six drugs recouped research spending faster than Ozempic; many still haven’t recouped the cost.
Novo’s research spending has been lower than many large pharma companies. In the last five years, Novo invested an annual average of 13% of its sales on R&D, compared with about 25% at Lilly, its biggest competitor in the weight-loss market. Novo says it more than doubled R&D spending from 2020 to 2023, as the company ran large clinical trials and added experimental programs across more types of diseases.
Novo is different from most other drug companies due to the fact that it is controlled by a massive foundation, the Novo Nordisk Foundation. Up to 30% of the company’s US profits go to the foundation, which is heavily involved in funding basic diabetes and obesity research in Denmark.
The foundation essentially funds an “extended research development department” for Novo, Christoph Houman Ellersgaard, an associate professor at the Copenhagen Business School, said in an interview earlier this year. It supports research and startups that may benefit the company one day down the road, he said.
--With assistance from Madison Muller, Naomi Kresge and Sanne Wass.
©2024 Bloomberg L.P.
