At the end of last year, Novo Nordisk, a Danish pharmaceutical firm, temporarily became the most prized company in Europe.
Although not well-known to the general public, Novo Nordisk is highly regarded in business circles. Previously considered a minor player in the pharmaceutical industry, few could have predicted that the company would rise to the top of the European stock market.
It rocketed to the pinnacle of the league table and was valued at $428bn (£342bn) because it had achieved something remarkable: finding the much-coveted Holy Grail of drugs. This medication is highly sought after by millions of people in the West as well as other parts of the world.
Named Wegovy, its primary purpose was to treat diabetes; however, it was discovered that an unforeseen bonus was its capacity to virtually assure weight loss. Much like Viagra, which was intended to address high blood pressure but also possessed unexpected yet welcomed side effects, Wegovy is the drug of the decade.
Research conducted by Goldman Sachs predicts the anti-obesity drugs market to be valued at approximately $6bn in the current year. By 2030, that value is expected to experience an increase of at least sixteen times to an estimated $100bn.
It almost appears too good to be real, yet what are the future scenarios and implications for a pharmaceutical company that finds a certain-fire success? Is it really a blessing or more of a dangerous gift?
To begin with, when a drug suddenly gains a large share of the market, that's just the beginning of the whole process. One must create, advertise, and negotiate the price with various health care businesses and national healthcare programs.
The size of entities such as the NHS in the UK is so great that they can bring down the price and therefore the profitability of even the most successful drugs.
Currently, the NHS offers Wegovy for managing weight in certain situations.
Claire Machin is the executive director for international policy and UK competitiveness for the ABPI, which serves as a representative for pharmaceutical companies in the UK.
She informed me that the UK not only mandates prices for drugs in accordance with a value-for-money norm established two decades ago, but then the NHS will negotiate even lower prices, leading to a requirement of cash reimbursements from businesses when the NHS surpasses its medicines budget.
Given that, the UK shells out less on medications than other nations, allotting approximately 9% of its overall healthcare expenditure towards medicines as opposed to Australia's 14%, France's 15%, and Germany's 17%.
Operational issues have caused Novo Nordisk to struggle with meeting surging demands for Wegovy in 2022. Consequently, December 2023 saw a plunge in the company’s shares due to apprehensions of its inability to make enough of the medication and ensure it meets regulatory standards.
The company acknowledges that in the US, its inventory of 1.7mg dose of Wegovy was depleted during December, despite having operated its manufacturing lines at peak capacity by running them around the clock.
However, the company anticipates being able to resume distribution this month.
It is evident that Wegovy has only begun their journey, with just a head start.
There exists other drugs from different businesses that provide similar effects. These firms will be actively striving to perfect their drugs, promote them in a more effective way, sell them for less cost, and to become more competitive with Novo Nordisk on each instance. Ultimately, $100bn of annual income may be at risk.
In November, the US pharmaceutical company Eli Lilly was given the go-ahead for its weight-loss medication Mounjaro in the UK. There are other medications on the market, such as Saxenda, Orlistat, and Qsymia, and the race is now on for top spot in the weight-loss drug market.
Novo Nordisk is safeguarded from direct rivalry, thanks to its drug patents, which have a typical duration of 20 years. After this period has elapsed, anyone can enter the market and create their own generic version of the drug. is being used than ever before.
Businesses are utilizing more technology than ever before.
Pharmaceutical patents allow companies to capitalize on their products during a limited period of time. Once the patents are expired, the market is then open to competition and the companies’ monopoly ends.
Graham Cookson, chief executive of the Office of Health Economics, which is the oldest health economics research organisation in the world, commented that he believes 90% of the pharmaceutical expenditure in the UK (presumably the same as it is in the US) is for generics, therefore original inventors are likely to keep their market share but at a lower price.
In the case of a giant new successful drug, there is one last issue: becoming too prominent. This could be a problem for smaller or mid-sized companies, as this would make them more susceptible. To be too much in the spotlight is not a profitable position.
Pharmaceutical corporations have considerable financial strength, and if their cost-intensive drug research endeavors have not been successful at uncovering the top drugs, there is an obvious resolution: acquire the firm that has.
Novo Nordisk has a final protective measure, since most of its shares are held by a Danish Foundation, making it nearly impossible to be taken over.
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