Transcript: Novo Nordisk, Eli Lilly and the GLP-1 economy

This is an audio transcript of the Unhedged podcast episode: ‘Novo Nordisk, Eli Lilly and the GLP-1 economy’

Katie Martin
While we’ve got you listeners, we are very excited to be nominated for a Signal award for our podcast. So if this is your favourite finance pod, check out the link in the show notes and vote for us online.

Robert Armstrong
This year the Signal, next year the Nobel. (Laughter)

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Eli Lilly and Novo Nordisk are already the biggest drug companies by market capitalisation that have ever drug companied, and there is reason to think they may be getting even bigger. And the reason, as many listeners may know, is the GLP-1 weight-loss drugs. A class of drugs that some analysts believe could grow to be $100bn.

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What’s your view on this? Could grow to be . . . 

Oliver Barnes
It sounds like Dr Evil in Austin Powers. 100bn!

Robert Armstrong
Some analysts believe this class of drugs could eventually be worth upwards of $100bn a year.

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This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from Unhedged world headquarters in beautiful New York City. I am joined today by my partner in crime on the Unhedged newsletter, Aiden Reiter.

Aiden Reiter
Pleasant tidings.

Robert Armstrong
And also, and more importantly, by the FT’s pharmaceuticals correspondent Oliver “Bad News” Barnes.

Oliver Barnes
Thank you for having me, Rob.

Robert Armstrong
You know why I call you “Bad News” Barnes?

Oliver Barnes
Why?

Robert Armstrong
There was a quite famous basketball player in the early ’80s called Marvin Barnes. Marvin “Bad News” Barnes.

Oliver Barnes
I’ve seen Marvin “Bad News”, yeah.

Robert Armstrong
And the most famous anecdote about Marvin Barnes is he was gonna take a team flight going from east to west that was such that the plane actually landed in the new timezone before it took off. And Barnes refused to board the plane on the grounds that he wasn’t gonna get on any goddamned time machine. (Laughter) And he rented a car and drove instead. So that is by the by nothing.

Oliver, I’m gonna start with you. Do the GLP-1 drugs live up to the hype? Are they gonna be as transformative as we are told?

Oliver Barnes
I’m of the opinion they do. Clearly, there is a kind of hype bubble around them in a way there is around AI. But what you have with AI is a tonne of companies just trying to raise money and slapping an AI sticker on the side. What you have with weight-loss drugs are a kind of transformative treatment that goes to the source of treating obesity, which a billion people worldwide have, 100mn people have in America. And being obese is not good for your health. There’s a tonne of cascading effects. It has effects on your heart, stroke risk, cancer . . . 

Robert Armstrong
And so on. All very expensive.

Oliver Barnes
And also they kill you. (Yes) And the argument is, you know, as these drugmakers tweak, perfect, improve these treatments and then also convince health insurers in the US and health systems, you know, single-payer health systems in Europe of like the merits of this, of how they can make cost savings as well as just, you know, making people look thinner and hotter, that these drugs will be rolled out on a very, very wide scale.

Robert Armstrong
What scale have these been rolled out so far? Aiden, do we have some numbers around this?

Aiden Reiter
I believe in the US there are 15.5mn people who are on these. Is that right, Oliver?

Oliver Barnes
I think it’s a little bit unknown. Like there’s a lot of people who’ve been on them and then come off them. ’Cause they do also have side effects, as with a lot of drugs. They have downsides. You know, you get nauseous and stuff like that. But let’s assume there’s a large number of people are on them, many of whom . . . 

Aiden Reiter
There could be more people who could be on them.

Oliver Barnes
Exactly. Many of whom were on the Upper East Side of Manhattan (Laughter) and maybe don’t need them for medical reasons. But then also, many of whom are in, you know, places . . .

Robert Armstrong
And many take them for diabetes, too. 

Oliver Barnes
Exactly. That’s what they were originally for. 

Robert Armstrong
Yeah, indeed. 

Aiden Reiter
There’s two market leaders right now. Do you think that these market leaders can deliver on what Wall Street and what everybody expects? 

Robert Armstrong
Yeah. So that’s the coulda thing. So I’m looking at the stock prices . . . 

Aiden Reiter
God, I miss this. 

Robert Armstrong
Eli Lilly, which is not the company we talk about the most in terms of these drugs . . . Either we talk more about Novo Nordisk . . . 

Oliver Barnes
And in fact, the FT ennobled Novo Nordisk’s CEO as Person of the Year last year. 

Robert Armstrong
Ah, indeed. So Eli Lilly, up about 750 per cent over five years; Novo Nordisk, 360 per cent. It’s been an awesome run for these companies. Eli Lilly is an $850bn company now; could be the first trillion-dollar drug company. 

Aiden Reiter
And its forward price/earnings ratio has been, at least for most of the past six months, higher than Nvidia, which is the stock that everybody goes crazy about. It’s higher than Nvidia. 

Oliver Barnes
But again, it’s not a bubble, no. These two companies have been going like head to head for literally a century. Novo used to be Novo and Nordisk. At one point during the war, one of the companies went to work with the Nazis and the other one didn’t. But nonetheless, basically they’ve been going back and forth over who has the best insulin products for diabetics. 

Robert Armstrong
Yeah, they were insulin companies, both of them, right?

Oliver Barnes
For literally a century, right? And they are kind of rivals. And naturally, what grew out of insulin, because you’re looking at like cardiometabolic disease and the kind of functions in the body that affect insulin and diabetes, was how might these, the secondary ramification of some of these treatments be weight loss? And they started to observe both these companies in the past few decades, you know, kind of R&D people locked away in some random back room at Lilly and at Novo. Hold on. There’s another ancillary effect of these diabetes drugs that they’re also, you know, reducing people’s weight. And weirdly, they stumbled across these things that were . . . The first approval was in the mid-2000s for a kind of unknown Eli Lilly GLP-1. 

Robert Armstrong
I remember. I’d just like to throw my favourite piece of trivia: was that the compound was originally found in the venom of the Gila monster. Right.

Oliver Barnes
Exactly. 

Aiden Reiter
The what?  

Oliver Barnes
The Gila monster. It’s a strain of lizard in the desert. 

Robert Armstrong
It’s a big lizard. I think maybe it’s in the south. 

Oliver Barnes
I assumed it was skinny. (Laughter)

Robert Armstrong
It’s a very lean, handsome lizard that lives in the southwestern United States. 

Oliver Barnes
Yeah. So the (inaudible) was approved for a while, but they weren’t very good. They burn up in the body. That didn’t last long. You had to inject yourself like six times a day. The big moment that shifted everything, that changed everything was Ozempic getting approved, I believe, in 2017 for diabetes. And then once it’s approved for diabetes, obviously you’ve got a load of doctors, including maybe some of those doctors on the Upper East Side, who can start prescribing it off-label for weight loss as well. 

Robert Armstrong
This is something that’s important about the American medical system: is that once you’ve got a drug, it’s approved. It’s totally the doctors’ discretion who they give it to. You can, doctors have the, you know, license to use these things off-label? So we get this stuff. It’s really working. We have a zillion people taking them. What are the potential repercussions? Let’s start with the non-financial repercussions. How does this kind of change the world? 

Oliver Barnes
Aiden. 

Aiden Reiter
Yeah, I mean, you know, a lot of our colleagues in the FT have written up about how it changes the approach to fitness, right? Brooke Masters had this great column about gyms are gonna be all muscle-gaining as opposed to fat-losing. 

Robert Armstrong
And it may end a company. It may end WeightWatchers. 

Aiden Reiter
End WeightWatchers. It, you know, it’s affecting how Americans buy groceries theoretically, right? Walmart is talking about this cost. 

Robert Armstrong
Yeah. There was this comment a year or two ago where a Walmart exec speaking at a conference said we are seeing changes in the average basket of goods in our grocery operations in the United States, that there’s slightly less volume, slightly less calorically dense foods in there, etc. Now, retail executives had been known to say just about anything to justify a slightly soft quarter or performance, that is, so we can’t take . . . We have to take these things as we take our food: with a grain of salt. 

Oliver Barnes
I know it begins very high up at a fashion company, a well-known fashion brand who says they already have started to observe like different demand patterns for different sizes. And they attribute that again to weight loss. But one can never take a company at its word when it comes to that stuff because it could just be writing off other big problems. 

Aiden Reiter
And also there’s the cultural things, right? American culture is obsessed with being skinny and you have this, you know, route for people to get skinny. You know, it’s gonna change how we talk about this behaviour.

Oliver Barnes
I do think, though, that they are gonna have a very dramatic effect on society, not least because clearly, as we discussed earlier, weight is a problem and there’s lots of you know, we didn’t . . . Type 1 diabetes was a thing when Novo and Lilly were competing 100 years ago. Type 2 diabetes was and it’s a function of our society, of food and the food that we eat and it’s bad. 

Robert Armstrong
And just to be clear for our listeners, type 1 and type 2 diabetes are different. Type 1 is often genetic. Type 2 usually results from other cardiometabolic problems. 

Oliver Barnes
And type 2 is a function of the kind of society we have and the food we have and, you know, how unhealthy much of it is. And obesity is a function of that, too. And there’s lots of disease stemming from that. And I think that’s a convincing case for these drugs. But then also, there’s lots of other intriguing things. They have effect on inflammation. They could be put to work in autoimmune diseases. People anecdotally report reducing smoking, reducing drinking, effects on anxiety and depression. 

Robert Armstrong
It seems to have effects on the appetite system in general and I wanna . . .  

Oliver Barnes
The gut brain. 

Robert Armstrong
Yeah, yeah. Let’s talk a little bit about price. How much do these things cost, you know, roughly? You know, I know . . . 

Oliver Barnes
Quite a lot. So I believe Novo Nordisk’s compounds, which are Ozempic and Wegovy, cost around $1,350 a month wholesale price. And then Lilly’s is just below $1,000. So they’re quite expensive. 

Aiden Reiter
Yeah. And we’re, you know, you could say they’re really cheap if, you know, if you’re gonna solve all your problems and/or look great on the beach. You know, that might be worth it to some people. 

Robert Armstrong
Or certain insurance companies, more to the point. If you’re gonna save money on treating people for other chronic diseases, maybe this is, on a net basis, not very much for an insurance company to pay. 

Oliver Barnes
Exactly. And one has to take into account in the US there are rebates on those list prices, right? So that is actually not the kind of true reflection of the price that is being paid by the employer, for instance, for their employee who they’re covering it for. When you look at the coverage they’re almost universally covered for diabetes. For obesity, the companies are still having to kind of sell the merits of these drugs. So you have some employers who are covering them at certain kind of like BMI cut-offs. And then the big beast, Medicare, the state fund, state-backed healthcare system in the US for the elderly, covers the obesity drugs for other indications. So, for instance, Novo has had an approval for Wegovy, its weight-loss drug, to treat heart disease and cardiovascular conditions. So then for people can get that through Medicare if they have those conditions and then they also benefit from the weight loss, if you see what I mean. 

Aiden Reiter
We should probably note here that just this week the Congressional Budget Office looked at this and they did, you know, an analysis of what is gonna be the cost savings for the system. And they concluded that the price that is currently being charged for these medications does not make up for the benefits, right? So it’s too expensive for the benefits the Medicare (inaudible) a population of the US is going to receive going forward. And there is a 2027 price negotiation on Medicare for these things. 

Oliver Barnes
For Ozempic. 

Aiden Reiter
For Ozempic. So quickly as the other ones as well? 

Oliver Barnes
For semaglutide, the compound underlying Ozempic. So it would basically mean that Novo is taking a haircut in terms of the amount of money it makes from Medicare. 

Robert Armstrong
How long did it take you to learn to pronounce the word semaglutide? 

Oliver Barnes
There is a degree of controversy within the space, which is . . .  

Robert Armstrong
Well, first of all, you don’t say controversy. (Aiden laughs) This is America and you say controversy. 

Oliver Barnes
Controversy. There is a debate as to whether it’s semaglutide or . . . What is it, semaglutide? I don’t know. There’s some debate about exactly how it’s pronounced. And I’ve gone on the semaglutide side. Whatever the other side is. 

Robert Armstrong
OK, fine. (overlapping speech)

Aiden Reiter
Let’s go back to the companies a little bit. So these are relatively expensive. Insurance is covering some, not all of it. And, you know, there’s this question of whether or not the cost savings are worth it for Medicare and some of the big buyers. You recently wrote a Big Read on can Eli Lilly be a $1tn company? You know, pharmaceuticals are often subject to boom and bust cycles for a number of reasons. What do you think, right? Do you think that they’re going to surge ahead? Is there too much competition? Like is this a market bubble in the sense that the market is not really thinking about who else might be coming in? 

Robert Armstrong
Yeah. I mean, I always think back to the case, the sort of ‘90s equivalent of this was the statin drugs — Lipitor, Crestor, etc — and it ended up that every drug company had one of these drugs and there was a fiercely competitive market. Is something similar possibly gonna happen with semaglutide-based drugs, GLP 1 drugs? 

Oliver Barnes
Semaglutide. So I think there’s a few things weighing on how this pans out over the next few years in the shorter term, and then there’s the longer-term cost of competition. Shorter term is, can Eli Lilly and Novo Nordisk get this approved in loads of different indications? Can they convince payers and insurers and health systems of the merits of covering this? That will have an effect on how the hockey stick of demand, how much of a hockey stick it looks like, right? 

Then there’s also the manufacturing element of it. These are both biologics. They are complex drugs to manufacture. The raw ingredients, the active pharmaceutical ingredients are complex. More difficult and more constrained for both companies is the fill-finish process, the actual process of putting them in the injector pens — and Novo Nordisk and Lilly are throwing money at this. I mean, Lilly has spent $24bn on it since 2020. 

Robert Armstrong
So I should mention there’s a lot of history of this in the drug industry, both where you say complex molecules, which is always explained as you know, a simple molecule is like a chemical. You can see a chemical map of it. These biologics, it’s like a soup. It’s like grandma’s chicken noodle soup. And it has a special recipe and it’s cooked up in a cauldron. And, you know, it’s not necessarily easy to reproduce. So companies that specialise in this kind of drug like Amgen, you know, with all its drugs, has been able, even when the drugs go off patent, to keep a significant amount of the market because nobody knows the exact special sauce. 

Oliver Barnes
Exactly. Then I think longer term, and I speak to a lot of the big shareholders in these companies because they’re all kind of wondering, have we called the top yet? When are we calling the top? The kind of longer-term question or medium-term question is can Lilly and Novo sustain this duopoly they have over the weight-loss drug market? 

And there’s lots of other weight-loss drugs coming through doing lots of slightly different stuff. So there’s some which are just for the muscle wastage that you experience and improve that. There’s some that are like monthly injectables. There’s some that are pills. And all of them have different plays and some seem more effective than Lilly and Novo’s. All of them have different plays and stuff like that. 

My theory though on it is when you look at what we’re talking about, that kind of centuries-long expertise in this area and the depth of Lilly and Novo’s pipeline. Lilly, for instance, has 11 experimental treatments in weight loss in kind of early-stage to late-stage trials. I think they sustain a large share over this. And you mentioned Lipitor just then. Lipitor is the example everyone talks about in the industry. Pfizer were fourth to market and they ended up with the biggest drug. 

Robert Armstrong
Yeah, they were doing $13bn a year of that drug at the peak. 

Oliver Barnes
I would argue that Lilly’s compound Zepbound/Mounjaro is probably already the Lipitor and maybe their weight loss pill is too. 

Aiden Reiter
It seems from your reporting and from the numbers on Wall Street that people think Eli Lilly is going to already pull ahead, right? So looking at Wall Street’s estimates going forward, it looks like the revenues for Novo Nordisk from these two drugs are gonna start declining starting in 2028. So Novo Nordisk there, Ozempic patent goes off patent. 

Robert Armstrong
Main US patent. 

Aiden Reiter
Yeah, their main US patent goes off in 2032, but they lose China in 2026. 

Oliver Barnes
That’s very important. China is very important. 

Aiden Reiter
So you can see these trafficked generics coming across affecting both of them. 

Oliver Barnes
And there’s pricing. So all my sell-side analyst guys keep on talking to me. So they basically in their models have all baked in different price reductions over time both because, as you discussed, Ozempic and semaglutide are up for Medicare negotiation next year and therefore that will have an effect on the price cut. That may cascade across the system and have effects on Lilly’s drugs. And then also as competition enters the market — and at the moment we’re kind of estimating that the first competitor to get in there might be Roche or AstraZeneca in late 2028 or something like that — when competition enters the market the obvious thing, if you’re someone looking to play as the third, fourth player in weight loss, you can be like, I’m offering the cheap weight-loss drug. And then you have an effect on the wider market. 

Aiden Reiter
And you mentioned orals before. There’s a tonne of companies piling into orals. So do you think that’s where these things can shake up for the two companies? 

Oliver Barnes
Novo has a biologic, one of these complex soup versions of a pill, which is basically an oral version of semaglutide, right? It does not have a small molecule. And Novo in fact has never made small molecules. So it would be, if it was to push into that area, it would be completely like new territory for it. Lilly has a small-molecule pill called orforglipron. I’ve got another. Rob, can you try and pronounce that? 

Robert Armstrong
I loved that character in The Lord of the Rings. (Aiden and Oliver laugh)

Oliver Barnes
Yeah. Which one was he again? (Robert laughs) Orforglipron the Grey. But yes, orforglipron, which is an amusing side note about making business development decisions in pharma. And there’s someone who’s probably just like pulling their hair out about this.

Through its sister company Chugai, a Japanese pharmaceutical company, Roche had an option for orforglipron, to pay upfront less than $50mn a few years ago to own the rights to it. And that drug is probably gonna be making like upwards of $10bn a year at its peak.

And I think it’s maybe the most important side of where this all goes next. Because once you have a small-molecule pill, it can be way more easily manufactured. You don’t have to fill these complex pens. And also, there’s tonnes of manufacturing capacity for small molecules outside of the US. You know, there’s lots of obese people in Mexico, there’s lots of obese people in India and they will want these drugs. And as one analyst put it to me, orforglipron has the opportunity to blanket the world. And one could argue that is still a bull case for Lilly. As a very well-known investment banker said to me just the other day, everyone’s got Lilly envy.

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Robert Armstrong
On that happy note, we will be back with Long and Short.

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This is Long and Short. It’s that portion of the show where we go long things we like and we go short things we don’t like. “Bad News” Barnes, you have a long or short for us? 

Oliver Barnes
I’ve got a short. 

Robert Armstrong
Tell me. 

Oliver Barnes
Running clubs. (Aiden laughs) I go down the West Side Highway and I see all these people running and I hate them. And I’m a runner myself, so yeah. 

Robert Armstrong
You’re a runner yourself? All right. 

Aiden Reiter
So you’re only into pharmaceutical weight loss not (inaudible). (Laughter)

Robert Armstrong
OK. I’ve got a short too. My short is inflation. We had the inflation report this morning. Core inflation was like a tick higher than people expected. Doesn’t matter. Inflation’s dead. It’s over. We can all go home.

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Aiden Reiter
That is, unless, you know, conflict in the Middle East, should rockets oil prices. 

Robert Armstrong
OK, Mr Negative. (Aiden laughs) Listeners, we’ll be back in your feed next week. And until then, stay sharp. 

Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.

FT premium subscribers can get the Unhedged newsletter for free, a 30-day free trial is available to everyone else. Just go to ft.com/unhedgedoffer.

I’m Rob Armstrong. Thanks for listening.

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Oliver Barnes
By the way, I’ve just remembered. It’s semaglutide and “sema-glutide”. Those are the two different ways it’s pronounced.

Robert Armstrong
OK, we’ll get that in later.