Medicare Achieves 71% Discount on Novo's Ozempic and Wegovy

Medicare Achieves 71% Discount on Novo's Ozempic and Wegovy

The U.S. government announced it has negotiated a significant 71% discount on the list price of Novo Nordisk A/S's widely used drugs Ozempic and Wegovy for Medicare patients. Medicare is the federal health insurance program catering to the elderly. While Medicare plans already receive rebates and discounts on drug companies' list prices, these agreements are not typically disclosed by the government. The newly announced rates, stemming from a recent law, will become effective in 2027. Other notable medications, such as Pfizer Inc.'s breast cancer drug Ibrance, will experience a 50% price reduction compared to its 2024 list price, according to the Centers for Medicaid and Medicare Services. The new prices did not have much impact on stock prices. Shares of Pfizer and Novo's American Depositary Receipts experienced minimal change in after-hours trading. BMO analyst Evan Seigerman stated that the government's new prices were not unexpected. He noted that "Ozempic at $274 is close to where we assume the broader net price to be," referring to the price negotiated between the drugmaker and health plans. However, Novo expressed "serious concerns about the Inflation Reduction Act's impact on patients and remain opposed to government price setting," according to a spokesperson following the release of the prices. Amid concerns regarding healthcare costs and the lack of local manufacturing in the U.S., the agreement is part of intricate drug pricing negotiations the White House is imposing on the pharmaceutical industry. These negotiations aim to lower the costs government programs pay for medications.

Impact on Other Medications

The latest round of Medicare price cuts impacts 15 drugs, including Xtandi, a prostate cancer drug from Pfizer and Astellas Pharma Inc., slated to receive a 48% discount off its 2024 list price. GSK Plc's asthma drug Trelegy Ellipta is set for a 73% price reduction. The reductions from list prices span from 38% to 85%. The new prices are projected to result in $12 billion in savings compared to Medicare's spending on these drugs in the previous year. Approximately 5.3 million individuals with Medicare prescription drug plans utilized these medications in 2024, according to the agency. These cuts are distinct from voluntary agreements between drugmakers and the administration to reduce costs for the Medicaid program, introduce new medicines at prices comparable to those in peer countries, and offer discounts on treatments sold directly to patients.

Novo's Response and Market Strategy

Novo has encountered challenges across the board, with its obesity and diabetes drugs in the spotlight. Its top-selling medications were selected for negotiation in Medicare, the largest drug purchaser in the U.S. This situation led to a ceremony alongside Eli Lilly & Co. with the administration. However, there is positive news for Novo. Earlier in November, officials announced that Medicare would cover Wegovy at $245 per month as part of a drug pricing pilot, significantly expanding eligibility. Patients with obesity and specific chronic conditions will now have insurance coverage for the medication. Health tracking apps like Shotlee can help monitor the effectiveness of the treatment and manage related health data. Novo appears to be adopting price cuts as a strategy to expand its market share. The company recently announced it would offer Ozempic and Wegovy directly to consumers for $349 per month for ongoing use, undercutting Lilly's price. Additionally, it partnered with CVS Health Corp.'s drug-benefits unit to enhance Wegovy's availability, impacting Lilly's Zepbound.

Industry Reaction and Future Outlook

Novo has faced criticism from both Democrats and Republicans for charging higher prices in the U.S. compared to other countries. Following the selection of Ozempic and Wegovy for negotiation, a spokesperson reiterated the company's opposition to government "price setting" and expressed "significant concerns about how the law is being implemented by this administration." The company has also initiated legal action against the federal government concerning the Medicare drug price negotiation program, asserting its unconstitutionality. It argued that Ozempic and Wegovy should be regarded as separate drugs, not combined, due to their shared active ingredient. An appeals court upheld a lower court's decision affirming the program's constitutionality in October. Lilly, a competitor in the GLP-1 space for obesity and diabetes treatments, has newer drugs unlikely to be eligible for negotiation until at least 2029. In its announcement, the administration highlighted savings from the negotiation process established by the Inflation Reduction Act, enacted in 2022. The drug industry trade group has criticized the process. "Government price setting for medicines is the wrong policy," stated Alex Schriver, spokesperson for the Pharmaceutical Research and Manufacturers of America. The 15 medications targeted this year constitute the second round of review, with new prices scheduled to take effect in 2027. Previously, individual insurance plans negotiated their own price agreements. Medicare officials now negotiate on behalf of the entire program, ensuring minimum discounts based on a drug's time on the market. Research from several universities indicated that the first round of negotiations resulted in estimated discounts ranging from 8% to 42% off Medicare's prior prices for the 10 selected drugs.