Wegovy and the Topsy-Turvy World of Weight-Loss Drugs

Eli Lilly and Novo Nordisk have dominated the market for diabetes medicines for a century. They were the first companies to commercialize insulin, and the only companies to have built a business around it, with the scale to consistently develop and sell new therapies. It was a solid, steady business. But Novo Nordisk’s introduction of Ozempic, a type 2 diabetes drug that turned out to be surprisingly effective at treating obesity as well, sparked a craze that has fundamentally altered the competitive landscape for these companies.

Diabetes is a disease whereby the body does not produce adequate amounts of insulin, a hormone that helps turn food into energy and manages blood-sugar levels. For diabetics, insulin is often a life-saving therapy. Lilly started manufacturing insulin in the 1920s, Novo Nordisk in the 1930s. Today they are the two largest providers of insulin. Novo has a 33% market share, Lilly 25%.

The market for diabetes drugs has high barriers to entry. Getting a drug approved by regulators is difficult and expensive. Most trials fail; getting a drug to market can cost US$1-2 billion. And it’s not enough to just create a new, effective treatment. Existing diabetes treatments work quite well. A new drug must be effective and offer something that currently available drugs don’t, whether that’s better efficacy, a new delivery method, or a more convenient dosing schedule.

Lilly and Novo’s competitors fall into two categories. The first are other large pharmaceutical companies. Their strategy tends to be opportunistic rather than focused on the category. If they have a drug in the diabetes market whose patents expire, they pull back and don’t continue to build up their expertise the way Lilly and Novo have. Therefore, large competitors haven’t been very active. In the last 30 years, only Sanofi and Boehringer Ingelheim have entered the market. The second set of competitors are smaller biotech firms that may have a promising drug candidate, but don’t have the resources to see its development through to approval. They can’t afford the costs of late-stage clinical trials, manufacturing, marketing, and sales and so they often end up partnering with or being acquired by larger companies.

In the mid-2000s, both Novo Nordisk and Eli Lilly developed a new class of treatments that mimicked a human hormone called glucagon-like peptide-1, or GLP-1, which regulates blood sugar. These new drugs were not synthetic insulin; instead, they prompted the body to create insulin. They were designed for type 2 diabetics who were not dependent upon insulin (diabetics who are using insulin can’t switch). The goal was to delay the progression to insulin dependence. They also had the advantage of being more convenient to use than earlier therapies, with a less-frequent dosing schedule and also no need for people to check their insulin levels with finger prickers.

With effective drugs, obesity could become as large a market as diabetes, if not larger. And both Lilly and Novo found themselves with drugs that quite possibly could meet that demand.

This new class of drugs had another feature that differentiated them from previous diabetes drugs: they induced weight loss. In a Phase 3 study of the active ingredient in Ozempic, for instance, patients taking the drug lost 10-12% of their body weight after 68 weeks compared to those patients taking a placebo. What this meant is that these drugs could serve both diabetics and people who were overweight. This was significant. The obesity market is smaller than the diabetes market, but only because there’s never really been a truly effective obesity treatment. The demand for such a product would be significant. Obesity rates have tripled since 1975; more than 40% of Americans are considered obese and about 10% are considered severely obese. With effective drugs, obesity could become as large a market as diabetes, if not larger. And both Lilly and Novo found themselves with drugs that quite possibly could meet that demand.

Gaining Weight

The number of overweight Americans has been rising steadily.

National Health and Nutrition Examination Survey, 1999-2019.

Obesity Is Different

These new anti-obesity drugs were far more effective than previous treatments, and because of that Novo worked to expand insurance coverage for the drug in the US and to a lesser extent overseas. Covered patients rose from virtually zero before the GLP-1 drugs hit the market to about 50 million currently. Also, the ones labeled for diabetes treatment already are broadly covered by insurance, and these treatments have also proven effective at combating other ailments. Wegovy’s new label says it’s effective at reducing major heart complications for people who are obese and have already had heart problems. That gives insurers another reason to cover the drug’s use.

The launch in 2021 of Wegovy, which comprises the same ingredient as Ozempic though at a higher dose, was like an explosion. It fundamentally changed the moribund obesity market.

Interestingly, even when insurance won’t cover an obesity treatment directly, there are ways around that. Novo’s Ozempic and Lilly’s Mounjaro (both for diabetes) can be used in place of Wegovy and Zepbound (both for obesity), respectively, given that they are essentially the same drug. A doctor and patient can submit proper paperwork, even if exaggerated, to get Ozempic and Mounjaro approved by the insurance company (or Medicare/Medicaid) off-label for obesity. On the basis of price, it’s a bit of a trade down for the manufacturers. Ozempic is about 25% cheaper in the US than Wegovy on a list price basis and about half the price on a net price basis. This is likely similar for Lilly’s products. But even at lower prices it can be a benefit to the companies. Zepbound and Wegovy are less broadly covered by insurance than Mounjaro and Ozempic, so fudging the insurance claims for patients without obesity coverage still results in a sale.

A Challenging Opportunity

There is a widespread expectation that in the coming years the obesity market will become as big as, or bigger than, the diabetes market. Today diabetes is a US$74 billion market while obesity is an US$8 billion market, but the latter is growing faster. Sales of obesity treatments have grown 72% a year for the last four years and are projected to grow 26% a year for the next five years. The biggest chunk of that is coming from the US, the largest market for both diabetes and obesity treatments. Sales of diabetes treatments, by contrast, have risen 12% a year for the last four years and are projected to grow only 4% a year for the next five years.

The forecast that the obesity market will continue to see rapid growth is unchallenged, but it may already be at a fen-phen level. Today there are about 110 million obese adults, 2.4 times as many as in the 1990s. Annualized prescriptions for obesity medication are at about 22 million today —more than three times the 6.6 million fen-phen prescriptions from the 1990s. It’s not clear that the market can engineer not only another fen-phen craze but build one substantially larger. Yet that is what most outsiders are predicting, expecting the obesity market to see sales hit US$75-100 billion by 2030. Those estimates would mean the market would grow at a 37-43% annual rate, uninterrupted, for seven years. That is a tall order. Still, the opportunity for GLP-1 drugs could extend beyond obesity. They have shown potential to address a range of maladies, sleep apnea for instance, and be a substitute for other kinds of treatments, like bariatric surgery (we wrote about this in September). As we mentioned, Wegovy’s label indicates it is effective at reducing some heart conditions arising from obesity.

JP Morgan Pharmaceuticals weekly TRx update, sourced from IQVIA.

However, the dominance that Eli Lilly and Novo Nordisk built up in diabetes may not translate into obesity. For one thing, their success in opening the obesity market with GLP-1 drugs has invited a rush of competitors. There are currently 54 potential anti-obesity drugs in development. Twenty seven are in Phase 1 testing, the initial level of testing a drug on volunteers, 20 are in Phase 2, and six are in Phase 3 (including two from Lilly and one from Novo), the last stage before a company would seek regulatory approval. It seems likely that at least some of them will eventually make it to market.

Competition will be an issue, too. There are about 1.8 million prescriptions written for obesity on a monthly basis; about 960,000 are for Wegovy and Zepbound combined, and the balance are for phentermine, according to IQVIA. As a generic drug, phentermine is an option for patients who can’t get their insurance company to cover Wegovy or Zepbound. It also is much cheaper, about US$5-15 per prescription compared to Wegovy at around US$900 per prescription. There will be other competitors as well. At last check, there were nine filers for generic versions of Ozempic/Wegovy. And of course, there is always the least costly alternative: diet and exercise.

Developing newer drugs that can command higher pricing will be a key challenge for Novo and Lilly. Novo Nordisk is banking on an improved version of a GLP-1 it calls Cagrisema, expected to launch in 2026 and cost $8,000 a year. Lilly launched Zepbound in November 2023 and it got off to a strong start, capturing 12% share of total obesity prescriptions (TRx) in the US as of Jan. 19, 2024, taking share from phentermine generics, Saxenda, and Wegovy. However, since then its market share has comprised about 15-20%, showing that prescription volume has not grown substantially.

A Reshaped Market