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The latest weight-loss drugs including Ozempic, Wegovy, Mounjaro, and Zepbound have list prices ranging from $900 to $1,500 for a one-month supply.
David Ricks, the CEO of Mounjaro and Zepbound maker Eli Lilly, explained why these medications are so expensive on the "In Good Company with Nicolai Tangen" podcast this week.
Developing a new drug costs about $3 billion, takes around 15 years, and has a high chance of failing, Ricks said.
The huge costs, long timeframes, and slim probability of success means "the return on that risk needs to be substantial," said the boss of America's 10th-largest company that's worth nearly $830 billion. The stock has risen 17% in the past year, and more than 500% since 2019.
Once a drug is approved and being used by millions, there will often be calls for cost-plus pricing, Ricks said. But without the prospect of large profits, "no one would have undertaken the risks to invent it."
By the time their latest wonder drug is approved and hits the market, pharma companies only have about 10 to 12 years to cash in before their patent expires and rivals can produce cheaper generics, Ricks said.
Drug pricing reflects the limited timeframe they have to recoup their investment, earn sufficient profits to satisfy shareholders, and offset the cost of their many failed medications.
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When a drug patent expires, other drugmakers quickly roll out generics at a fraction of the price, stopping the inventor from earning monopoly profits but making the medication accessible to almost anyone who needs it.
"One of the great gifts of our industry is that everything we invent goes to zero for us and goes to infinity for society because generic drugs are such a great deal," Ricks said.
Ricks pointed to Prozac, which Eli Lilly introduced in the late 1980s. The antidepressant is sold around the world and "virtually free" as it costs only four or five cents a day in major markets, he said. He called it a "tremendous gift to society," and said his company deserves more credit for those long-term benefits while their drugs are under patent.
When a new medication reduces costs for entire healthcare systems, its creators deserve a share of the savings, Ricks said.
He highlighted research suggesting the new generation of weight-loss drugs reduces worker absences, results in fewer hip and knee replacements, and can help with conditions ranging from alcoholism and depression to schizophrenia.
Their effectiveness in fighting conditions such as heart disease, liver disease, and diabetes could eat into 40% of the total healthcare costs of developed countries, Ricks said.
Eli Lilly aims to "capture some, not all, of the direct and indirect value we create," he added.
Pharma companies could price their drugs based on what the market can bear, but Ricks said that would be unwise.
There could be "desperate people who need a medication to survive," meaning "you can get into price points that are really exorbitant and maybe make a short-term return, but you'll probably be either legislated or sued out of business if you pursue that forever," he said.
Ricks said his team consults with healthcare systems and weighs financial, scientific, and customer perspectives to ensure its prices reflect the value of its drugs without being exploitative and inviting legal or regulatory backlash.
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Big Pharma will hunt for more acquisitions in 2025 as industry giants face patent expiration for some of their best-selling drugs, according to a top M&A banker.
Merck's cancer drug Keytruda, the top-selling medication in the world, will lose patent exclusivity at the end of 2028.
Eliquis, made by Pfizer and Bristol-Myers Squibb to treat and prevent blood clots, will lose its exclusivity earlier that same year. The two drugs raked in $25 billion and $12 billion, respectively, for their manufacturers in 2023.
When patents expire, pharma company revenue can take a hit as rivals create similar offerings to take market share. Developing brand new drugs is a long, expensive, and risky process, so acquisitions of other companies with new medications in their pipelines offer a potentially faster way to generate new revenue.
This is partly why Chris Roop, head of M&A for the Americas at Jefferies, is expecting biopharma M&A to pick up in 2025.
"The gaps to fill are significant when you think about replacing drugs that achieve peak sales north of $20 billion or $30 billion drug before patent exclusivity expires," Roop told Business Insider in a recent interview.
Large, successful pharmaceutical companies can become victims of their own successes when patents run out on blockbuster treatments, he added.
AbbVie's popular arthritis drug Humira saw its patent exclusivity expire in 2023. In the third quarter of 2024, with patients increasingly turning to similar drugs or other prescriptions, AbbVie saw its revenue from global sales of Humira fall 37% from the previous year's quarter.
To make up for looming revenue gaps, Roop said Big Pharma will increasingly turn to M&A next year, buying smaller biotechs developing drugs in major markets such as obesity and oncology.
Obesity is positioned to be biopharma's hottest market in 2025, Roop predicted.
2024's biggest pharma acquisition was in obesity. Novo Nordisk's controlling shareholder Novo Holdings closed a deal in December to buy development and manufacturing company Catalent for $16.5 billion. The deal gives Novo Nordisk more manufacturing power for its obesity drugs Ozempic and Wegovy.
Novo Nordisk and Eli Lilly, which makes Mounjaro and Zepbound, have a significant headstart in the exploding field of GLP-1 weight-loss treatments. Originally created to treat diabetes, injectable GLP-1 medications have surged in popularity. In May, the Kaiser Family Foundation reported that one in eight US adults had tried a GLP-1 drug.
Many other pharma companies want a piece of that pie, Roop said.
"Obesity is going to be a $100 billion to $150 billion market, so even if you come up with a third or fourth entrant in that market and only achieve 2% to 4% share, you still have a multibillion-dollar drug on your hands," he explained.
Beyond obesity, Roop sees immunology and inflammation drugs as big targets for biopharma M&A next year. That market saw a few large deals in 2024, including Vertex Pharmaceuticals' $4.9 billion purchase of Alpine Immune Sciences, which has a drug in development that targets Berger's disease, an autoimmune kidney condition.
Jefferies
Roop expects oncology to remain a focus area for Big Pharma next year.
He said pharmaceutical companies are especially interested in precision oncology M&A, including drugs targeting more specific cancers and even new methods of personalizing cancer treatment.
AstraZeneca made a precision oncology acquisition in March with its $2.4 billion purchase of Fusion Pharmaceuticals, which is developing a radiopharmaceutical drug, which uses radioactive isotopes to treat midstage prostate cancer.
Finally, Roop said Big Pharma will continue looking to buy companies with cardiovascular drugs in their pipelines. Heart disease and related conditions remain the leading cause of death. The global market for cardiovascular drugs was valued at about $150 billion in 2024, according to Precedence Research.
Novo Nordisk bought Cardior Pharmaceuticals in March in a deal worth up to $1.1 billion to strengthen its cardiovascular drug pipeline.
Roop said both private and public biopharma companies could be acquisition targets next year.
"A lot of what we're doing is trying to find that equilibrium to fund these companies to a point in time where pharma will say — on that data with that amount of patients and with a drug profile like this — I'm willing to take the risk, buy it from that point, and take it forward into late-stage development," he said.
"There are a lot of private and public companies that are in that lane today. We probably have more privates today with advanced data than we did three or four years ago," he added.
Roop said many of these private biopharma companies with advanced data are also well-positioned to potentially go public as the IPO window reopens.
