Weight-loss drugs have been around since the 1930s but the newest generation of drugs for weight management are much better and safer. Those benefits were not generally cognized until recently. Glucagon-like peptide-1 (GLP-1) receptor agonists were developed for diabetes. The positive effect on weight was noticed by doctors, but it took until 2021 for semaglutide to be approved for use in weight-loss.
Tirzepatide came out in 2022. The frenzy of patients trying to get GLP-1 drugs, like Ozempic and Mounjaro, quickly resulted in a shortage. Suppliers could not keep up with demand. When a drug is in a shortage situation, compounding pharmacies are allowed to produce copies of the drug. Compounding became rampant. Doctors advertised weight-loss as an area of their practice and sourced the drugs from compounders pharmacies. Telemedicine firms boosted their market capitalizations based largely on the ability of patients to access GLP-1 drugs far cheaper than the price of name brand drugs. When the U.S. Food and Drug Administration (FDA) announced the shortage was over, compounding pharmacies were slow to stop. The telemedicine firm, Hims & Hers decided to take a risk and did not stop until the Trump Administration threatened to prosecute it for federal crimes. The drugmaker Novo Nordisk is also suing Hims & Hers for patent infringement.
The days of cheap weight-loss drugs are far from over, however. The Wall Street Journal claims the cat is out of the bag. While rampant compounding may be stopped, the drug industry is forever changed, saying:
An aggressive FDA crackdown may finally rein in mass GLP-1 compounding, but history suggests this is only a bridge to a different kind of disruption.
Drug companies sell most of their medicines through a web of middlemen—wholesalers, pharmacy-benefit managers, and insurers—that use inflated list prices and rebate schemes.
That system is being challenged, and the direct-to-consumer model for weight-loss drugs offers a glimpse of what could come next.
Prices for GLP-1 drugs have fallen precipitously in the last two years, from $1,350 a month for Wegovy to $199 in many cases. Compounding pharmacies and aggressive weight-loss advertisements undoubtedly had an effect. Several years ago, drugmakers’ strategy to boost demand was clinical studies showing numerous health benefits. Their primary goal was to force health plans to cover the drugs. In the meantime, the makers of semaglutide and tirzepatide discovered that consumers are willing to pay for a weight-loss shortcut if prices are not too outrageous. Moreover, there are far more consumers out there who are overweight but not clinically obese. Consumers who are merely overweight would never qualify for prescription coverage for weight loss. Thus, it makes sense to sell directly to this population for cash prices not controlled by drug middleman, such as pharmacy benefit managers (PBMs).
PBMs have consolidated in recent years until the three biggest control about 80% of the drug market. With that much market power they can demand low prices. Conversely, PBMs also discovered their market power could command large rebates, the size of which required higher prices. By marketing directly to patients drugmakers can offer prices lower than consumers would otherwise encounter. Another trick of PBMs is steering patients to high rebate drugs and charging copays higher than the actual cost of generic prescriptions. It is often literally cheaper to pay cash than use your drug plan when filling a generic prescription. More from WSJ:
Much more disruption is yet to come to healthcare, both from governments and businesses. As Reitano puts it, GLP-1s reveal what happens when the patient is also the customer.
Weight-loss drugs are a special case in that people who do not qualify for drug coverage are willing to pay out of pocket. It should not have taken recent experiences with Wegovy and Mounjaro to illustrate the effect consumers paying cash have on drug prices. One must look no further than over the counter (OTC) drugs. After an OTC drug loses patent protection and is switched OTC, the price falls by 95% within a couple of years. About 88% of the prescription drugs Americans take are generic drugs. Perhaps the day will come when patients routinely pay for generic drugs out of pocket. That would lower prices substantially and put even more pressure on the makers of name brand drugs to reign in their prices.
Read more at WSJ: How Ozempic Brought a Napster Moment to Big Pharma