Novo Nordisk A/S NVO is under mounting political pressure over the high U.S. prices of its blockbuster weight-loss drugs, Ozempic and Wegovy, as the race for the White House heats up. The pricing disparity between the U.S. and other international markets has drawn sharp criticism from lawmakers, putting the company in the political spotlight.
Ozempic, for example, costs around $969 per month in the U.S., while the same drug is available for as low as $71 in France. Wegovy, another Novo Nordisk drug, is priced at $1,349 in the U.S., versus only $92 in the U.K.
CEO Testifies Before Congress: A Focus On PBMs
On Tuesday, Novo Nordisk’s CEO, Lars Fruergaard Jorgensen, testified before U.S. lawmakers, addressing the significant price gap between the U.S. and international markets.
Jorgensen attributed much of the pricing issue to pharmacy benefit managers (PBMs)—the middlemen between pharmaceutical companies and insurers.
In an exclusive interview with Benzinga on Tuesday, Mauritz Pot, founder and CEO of Tema ETFs, which actively manages the Tema GLP-1, Obesity & Cardiometabolic ETF HRTS, offered his perspective on what this political showdown means for Novo Nordisk shareholders and the broader healthcare landscape.
According to Pot, Novo Nordisk's primary defense is that even if they reduce list prices, there's no guarantee that these savings will be passed on to the end consumer.
"The U.S. payment system is structured in such a way that even if manufacturers like Novo Nordisk cut their list prices, it won't necessarily result in lower costs for patients. The real issue is with the middlemen and with how much margin they are extracting," Pot said.
PBMs: The Real Bottleneck For Consumers
PBMs have a significant influence over the U.S. pharmaceutical pricing structure, as Pot explained.
While lowering list prices could help, PBMs may reduce insurance coverage in response, allowing them to maintain their own profit margins. This means patients could still be left with high out-of-pocket costs, even if manufacturers like Novo Nordisk cut prices.
Limited Impact on Novo Nordisk’s Bottom Line
From an investor’s perspective, Pot believes that pricing cuts alone are unlikely to significantly hurt Novo Nordisk's revenue or profitability from the U.S. market.
He highlighted that while list prices are high, the actual price paid by insurers and patients is often much lower, meaning Novo's U.S. revenues may remain relatively stable, even if political pressure to reduce prices continues.
The demand for Novo Nordisk's weight-loss drugs remains incredibly strong. Pot explained that even with potential price cuts, the demand for GLP-1 drugs like Ozempic and Wegovy far outpaces supply. This is unlikely to change in the short term, creating a robust growth opportunity for Novo Nordisk.
"Even if the price halves, there’s still going to be a massive opportunity here," Pot said.
Bipartisan Push for Lower Drug Prices
With the 2024 U.S. presidential election looming, drug pricing has become a hot-button political issue. Both major parties—Republicans and Democrats—agree on the need to reduce prescription drug prices, although they differ on the best mechanisms to achieve this. Regardless of the approach, the push for more affordable drugs is bipartisan.
"Price is being politicized in an election year very clearly," Pot said.
Post-Election M&A Activity on the Horizon
Looking ahead, Pot anticipates a significant increase in M&A activity in the pharmaceutical sector, particularly among companies in the weight-loss and obesity treatment space.
Smaller biotech firms developing innovative treatments could become attractive acquisition targets, especially after the election.
“We're likely to see a ramp-up in M&A activity in the sector post-election, regardless of who wins,” Pot stated.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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