Danish pharmaceutical giant Novo Nordisk was questioned for pricing two of its pharmaceutical products too high!

On Tuesday, $Novo-Nordisk A/S (NVO.US)$ executives are being questioned by the Senate for the high prices of the weight loss drug Wegovy and the diabetes treatment drug Ozempic.

Senate committee chairman Bernie Sanders believes that Novo Nordisk charges American patients far more than patients in other countries. In response, Novo Nordisk argued that this is because they have to pay high rebates to Pharmacy Benefit Managers (PBMs) in the USA.

Criticism was made about the high pricing.

Yesterday, Novo Nordisk CEO Lars Fruergaard Jørgensen participated in a hearing held by the US Senate Committee, chaired by Senator Bernie Sanders from Vermont.

During the session, Jørgensen underwent over two hours of questioning, being asked to address the issue of the higher selling prices of the two drugs in the USA compared to other countries.

The committee found that Ozempic is priced at $969 per 4-week dosage in the USA, whereas it is sold for $155 in Canada, $122 in Denmark, and $59 in Germany. Similarly, Wegovy is priced at $1349 in the USA, but only $186 in Denmark, $140 in Germany, and $92 in the United Kingdom.

Senator Sanders also accused Jorgensen of treating the USA as a "money tree", charging high prices for pharmaceuticals to Americans.

In response, Jorgensen explained that Novo Nordisk repaid about 75% of its pharmaceutical sales in the form of rebates, discounts, and fees, resulting in a much lower net price (profit earned from pharmaceuticals after deducting rebates and discounts) than the list price. Since Ozempic was launched in the USA, its net price has dropped by 40%, and Wegovy has also seen a similar decrease.

He also pointed out that it's the USA's medical care system that causes such a huge price gap.

Jorgensen stated: "Pharmacy Benefit Managers (PBMs) as third-party intermediaries between pharmaceutical companies, insurance companies, pharmacies, and hospitals typically determine which drugs are reimbursable and at what price."

He believes that the reason for these high prices is that Novo Nordisk must pay rebates to PBMs to ensure drug reimbursement. The more expensive the drug, the higher the rebate. Jorgensen claims that for every dollar Novo Nordisk earns, it provides 74 cents to PBMs and insurance companies.

Larry Levitt, Executive Vice President for Health Policy at the non-profit organization KFF, also stated that drug pricing involves an "arms race", where the higher the drug manufacturers' pricing, the more rebates PBMs receive, leading to even higher prices.

However, Sanders mentioned that the three major PBMs have agreed that if Novo Nordisk significantly lowers the list price, they will not restrict coverage and asked Jorgensen if he would collaborate with PBMs.

The executive expressed his willingness to negotiate but remains skeptical. "If it can work to make patients access cheaper medications," he said.

In addition, other senators believe that Novo Nordisk should not be excessively criticized. Republican Roger Marshall of Kansas said PBMs should be the focus. He said, "Novo Nordisk is not the villain in this story. They are heroes. We should celebrate this miraculous innovation here."

Furthermore, Republican Congressman Bill Cassidy of Louisiana stated, "We still need to maintain profit incentives to encourage pharmaceutical companies to invest in innovation and develop drugs that can have a positive impact on societal disease burdens. That's the contradiction."

Rapid Rise of Giants

Since its inception in 1923, Novo Nordisk has been focusing on the research and production of insulin, gradually becoming one of the world's largest insulin manufacturers. Its star product Semaglutide, approved by the FDA in June 2021, quickly became a popular drug worldwide.

It is reported that both Ozempic and Wegovy contain Semaglutide, but they differ in purpose, formulation, and dosage. Ozempic is mainly used for diabetes management, while Wegovy is approved for chronic weight management.

Driven by strong demand for the above-mentioned drugs, Novo Nordisk's revenue and sales continued to soar. In the first half of 2024, the company's revenue was 133.4 billion Danish Kroner (approximately 19.5 billion USD), a 24% year-on-year increase; net income was 45.5 billion Danish Kroner (approximately 6.65 billion USD), a 16% year-on-year increase.

Jørgen says the company is pleased with the sales growth in the first half of 2024, allowing the company to raise full-year expectations, driven by increased demand for the company's GLP-1 (Glucagon-Like Peptide-1) drugs.

Meanwhile, Novo Nordisk's market cap has also significantly increased in recent years. On January 31 this year, Novo Nordisk's market cap exceeded the $500 billion mark for the first time, becoming the second European company to reach the $500 billion market cap milestone after LVMH Group. As of today, the company's market cap is close to $560 billion.

On June 25th this year, Novo Nordisk announced that Semaglutide was approved for long-term weight management in China. Institutions believe that the potential of the weight loss drug market in China is huge. Nomura predicts that the GLP-1 pharmaceutical market in China may grow at a rate of 23% per year, exceeding the global average growth rate.

Editor/Rocky