December 4, 2023

Eli Lilly’s weight loss drug, tirzepatide, showed substantial potential in a large Phase 3 study, the results of which were reported on Thursday, April 28th.

Tirzepatide combines a GIP (glucose-dependent insulinotropic polypeptide) receptor and GLP-1 (glucagon-like peptide-1) receptor agonist in a single novel molecule. The drug is administered once-weekly by sub-cutaneous injection.

The investigational compound is the first such medicine to deliver more than 20% weight loss on average, compared to placebo, in a Phase 3 study. The average weight reductions rose as the dosage amount of the active ingredient increased.

The overall safety and tolerability profile of tirzepatide was similar to other incretin-based therapies that have been approved for the treatment of obesity. This said, reported side effects were considerable, especially as dosage levels increased. The most common adverse events were nausea (~30%), diarrhea (~20%), constipation (~15%) and vomiting (~10%).

If tirzepatide gets approved, it could become a blockbuster drug. However, this isn’t a sure thing. It will have to overcome pricing and reimbursement obstacles, which have plagued obesity treatments for decades.

Also, the drug would be in direct competition with Novo Nordisk’s Wegovy (semaglutide). In June of last year, the Food and Drug Administration (FDA) approved Novo Nordisk’s obesity drug Wegovy, a GLP-1 receptor agonist, which is also administered once-weekly through subcutaneous injection. Wegovy is a higher-dose version of the diabetes drug Ozempic.

At the time, Wegovy became the most effective weight loss drug on the market, as it helps patients lose an average of about 15% of their body weight, almost double the rates demonstrated by previous prescription products.

Wegovy represented a turning point in the pharmacologic treatment of obesity. In the past, obesity drugs suffered from a negative adverse event profile and relatively poor efficacy. Accordingly, weight loss drugs historically had trouble gaining traction. Not only did they not find many takers, they also tended to have extreme difficulty obtaining insurance coverage. For example, Medicare excludes coverage of all drugs prescribed for obesity. And, unlike the vast majority of other outpatient pharmaceuticals, weight loss drugs are not a mandatory benefit in the Medicaid program. Additionally, when covered by Medicaid plans, obesity drugs are often subject to heavy usage of prior authorization coupled with step edits. Finally, commercial payer coverage of weight loss drugs has been extraordinarily variable.

With Wegovy, insurers have apparently changed their tune, at least to some degree. Except for Medicare, which still prohibits obesity drug coverage, a large number of commercial and Medicaid payers are covering Wegovy, albeit with a lot of variability. A comparatively favorable effectiveness profile has probably helped the product’s fortunes with some payers.

In 2021, Novo Nordisk achieved approximately $1.2 billion from sales of Wegovy and its older weight loss treatment Saxenda (liraglutide). The company hasn’t provided a precise breakdown of the revenue figures. But, it stands to reason that at present Wegovy is outselling Saxenda. Indeed, according to Novo Nordisk, the number of doctors prescribing Wegovy recently eclipsed Saxenda.

Demand for Wegovy has in fact been outstripping supply, which reinforces the notion that reimbursement has been less of an issue than with previous obesity drugs. Perhaps a bigger hurdle for Wegovy has been quality of manufacturing issues, as this has hampered supply. Once this is resolved Novo Nordisk hopes to be on its way to hitting its 2025 sales target for all of its obesity treatments of $3.7 billion, most of which would be represented by Wegovy.

Tirzepatide is poised to compete directly with Wegovy. Its effectiveness appears to be even better than Wegovy. The relevant question for payers then becomes tirzepatide’s net price (after rebates). Obviously, at this stage we don’t know what tirzepatide would sell for if approved. Supposing tirzepatide were to have an equal net price this would give it greater cost-effectiveness than Wegovy. On the other hand, in the eyes of payers a higher net price would have to be justified by proportionately greater benefit. How much of a price premium payers would be willing to spend is anyone’s guess.

Further complicating matters for all obesity drugs, regardless of effectiveness, is the fact that payers can be shortsighted with respect to their assessment of costs and effectiveness. In some ways, this reflects churn. Every year, approximately 25% of the U.S. population switches health plans. This implies that many payers don’t necessarily adopt a long-term view on the cost-effectiveness of drugs.

Ideally, all payers would take a longer term perspective. With so much churn, that’s not likely. Furthermore, some payers continue to lump obesity drugs together with lifestyle medications. It’s hard to dislodge this myopic view.

The benefits of weight loss go beyond a reduction in fat. Correspondingly, weight loss can lead to lower prevalence of diabetes, fewer heart attacks and strokes, and less joint pain.

Combined with diet and exercise, the new generation of obesity drugs can certainly contribute to weight loss. The question remains, will payers across the board – and especially in the public sector; Medicare and Medicaid – pay enough attention to consistently provide them with favorable coverage?


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