The Economics of Obesity Therapy [Ozempic, Wegovy]
Summary
Ozempic and Wegovy are way too expensive to be a scalable Obesity therapy at the US national level. These drugs are 5 to 10 times more expensive than overseas. This is because the US Government is prevented from negotiating drug prices directly with Novo Nordisk, a Danish pharmaceutical company which produces both Ozempic and Wegovy.
Even if Ozempic and Wegovy would be affordable in the US, there is a chronic shortage of semaglutide (the ingredient in Ozempic and Wegovy).
Meanwhile, US obesity rates are among the highest in the World. The adult obesity rate was 37.3% in 2016, and is forecasted to reach close to 60% by 2035.
Given the mentioned drug price and semaglutide supply constraints, it appears unlikely that these drugs will have a material impact on the mentioned rising US obesity rates.
What is obesity?
Obesity is defined as having a body mass index (BMI) of 30 or higher. Overweight is defined as having a BMI of 25 to 29.
The BMI is calculated as a person’s weight in kilograms divided by the square of their height in meters.
The table below discloses the Overweight (BMI 25) and Obese (BMI 30) weight thresholds in pounds for individuals with height ranging from 5 foot to 6'4".
What is the long-term benefit of Obesity therapy?
The benefit of Obesity therapy, using semaglutide, the ingredient in Ozempic and Wegovy, is associated with material weight loss as confirmed by a large clinical trial (paper is accessible at the link below).
https://www.nejm.org/doi/full/10.1056/NEJMoa2032183
Within the trial, the mean change in body weight from baseline to week 68 was −14.9% in the semaglutide group vs −2.4% with placebo. Both groups received nutrition and exercise counseling. Thus, the true incremental benefit of semaglutide is a weight loss of — 12.5%. The placebo group -2.4% weight loss was due to nutrition and exercise.
The above results were replicated in a longer clinical trial over a 2 year period.
Within this 2 year long trial, the mean change in body weight from baseline to week 104 was −15.2% in the semaglutide group vs −2.6% with placebo. Both groups received nutrition and exercise counseling. Thus, the true incremental benefit of semaglutide is a weight loss of — 12.6%. The placebo group -2.6% weight loss was due to nutrition and exercise. These results are very similar to the ones for the 68 week trial.
Semaglutide has to be taken for life…
… Otherwise, patients fairly quickly regain weight back upon interrupting treatment.
The graph above shows that when patients interrupted the treatment at 68 weeks, by week 120 there was only a 5 % difference in weight loss between semaglutide and placebo. You can readily envision that over an additional year, the semaglutide group who had interrupted the therapy would regain their entire weight back.
Constructing Obesity therapy benefit scenarios
The three tables below explore weight-loss benefit for individuals with height ranging from 5' to 6'4" and BMI ranging from 30 to 35.
I contemplate two scenarios.
The first one is associated with a — 15% weight-loss (Table 2) reflecting actual performance of semaglutide in the mentioned clinical trials.
The second one uses a — 20% weight-loss (Table 3). It reflects a weight-loss level that is reachable with new drugs currently being tested.
The tables use a color coding.
- Orange = Obese
- Yellow = Overweight
- White = Healthy weight
Table 1 is the starting point.
Table 2 reflects a -15% weight loss. Individuals with BMI ranging from 30 to 34 move from the Obese category (orange) to the Overweight one (yellow). The individuals starting with a BMI of 35 would still be in the Obese category (BMI 29.75 rounded to the closest integer).
Table 3 reflects a -20% weight loss. Individuals starting with BMI of 31 to 35 move from the Obese to the Overweight category. And, the ones who started with a BMI of 30 move into a healthy weight category with a BMI of 24 (or less).
Rise in US obesity with international comparison
US obesity rates are higher and rising faster than in most other major countries or regions.
The comparison in obesity rates between the US and Asian countries is startling as shown on the left-hand graph above or the left-hand table below.
Even when compared with other non-Asian countries and region (right side), the US obesity rates are still higher and rising faster.
US Obesity Outlook
According to the RTI projections from NCD Risk Factor Collaboration, US obesity rates are expected to continue growing rapidly.
Economic costs of Obesity: The RTI model
RTI model framework
RTI developed a model to figure such economic costs for numerous countries, including the US.
Their derived economic costs include the sum of direct and indirect costs. The diagram below describes the RTI model framework.
RTI model output for the US
See below the output for the mentioned economic costs for the US projected out to 2035.
Notice that RTI actually focuses on the Overweight + Obese population, and not on the Obese population alone. We will shortly review the related implication.
As shown on the graph above, premature death accounts for half or more of the economic costs.
RTI model exaggerates Obesity economic costs
The RTI model exaggerates Obesity economic costs for several reasons:
- In contradiction with their own model framework where RTI stated they focused solely on Obesity, when figuring out economic costs they now also include the Overweight. This is an enormous difference. A Harvard study leveraging figures from an older paper (2010) estimated that in the US, there were at the time 33% overweight and 36% obese individuals (https://www.hsph.harvard.edu/obesity-prevention-source/obesity-rates-worldwide/). Thus, including Overweight just about doubles the target population vs focusing on Obese alone;
- Premature Death. RTI captures the human capital loss, but it ignores the lower health care costs due to fewer older individuals with costly chronic diseases. Given that Premature Death accounts for half or more of total cost within the RTI model, the mentioned omission has a huge impact. Let’s say an obese individual dies prematurely at 60 years old vs. an another individual who was obese but is now not obese but goes on to live to 90 years old and requires 30 years of intensive treatment for chronic diseases. Clearly, the 90 year old will cost a heck of a lot more than the 60 year old one;
- When they scaled the total cost as a % of GDP in 2020, they used a real GDP figure using 2017 dollars instead of a nominal GDP figure. In 2020, this brings the total cost down from 3.5% to 3.3% of GDP.
When you factor all exaggerations, it probably brings down the total Obesity economic cost in 2020 down from 3.5% to closer to 1% of GDP.
Given the above, the RTI model output is not representative of the potential opportunistic benefits of Obesity therapies (in terms of economic cost savings).
Obesity Economics model
The objective of this model is to estimate the cost of scaling up Wegovy therapy to treat obesity in the US. I used Wegovy because it is the one long-term weight-loss injection drug approved by the FDA. Ozempic is approved instead for treating type 2 diabetes. I gather it can also be used for weight-loss off-label.
Model input
My model has 5 inputs including GDP, population, healthcare expenditure as % of GDP, the yearly cost of the Wegovy drug, and the % of the population treated.
The model has only one single dynamic variable that we can sensitize: % population treated (yellow).
Model output
The model generates three outputs shown within the table below.
In this scenario, this Obesity therapy yearly cost is $1.6 trillion or 5.8% of GDP, and 34.2% of overall health care expenditures. These numbers show how economically unfeasible this weight loss therapy is.
Scenarios
Back in 2016 already 37.3% of the US adult population was obese. This obesity rate is expected to reach close to 60% by 2035 (see earlier graph). Also, children’s obesity rates are not far behind and rising rapidly.
Given the above scenarios ranging from 10% to 50% of the US population being treated for weight-loss is reasonable. The resulting cost of this weight-loss therapy at the national level is astronomical.
As reviewed, attempting to scale nationally the Wegovy weight-loss therapy would turn out to be truly unaffordable. Just treating only 20% of the population would exceed the cost of Medicare ($1.1 trillion vs $0.9 trillion for Medicare).
Additionally, the cost of Wegovy therapy at the national level is a high multiple of the estimated Obesity economic costs of around 1% of GDP (as reviewed earlier).
Economic cost of Ozempic vs Wegovy
If instead of using Wegovy, I had used Ozempic, every output figure would be 30.6% lower (Ozempic costs $11,232 a year instead of over $16,188 for Wegovy). So if we treat 50% of the population with Ozempic it would cost “only” $1.9 trillion instead of $2.7 trillion with Wegovy. In either cases, these weight-loss therapies are economically unfeasible and not scalable at the national level.
Ozempic and Wegovy are a ton more expensive in the US
The table below shows that Ozempic is 5 to 11 times more expensive in the US than overseas. And, Wegovy is over 4 times more expensive than overseas.
By far the main reason why US prices are higher is that the Government is not allowed to negotiate weight-loss therapy drug prices with the supplier. Both Ozempic and Wegovy are owned by Novo Nordisk, a Danish pharmaceutical company.
That the US Government is not allowed to negotiate drug prices with US companies is corrupt rent-seeking profit for US Big Pharma. And, that it is not able to negotiate such drug prices with foreign companies is just plain stupid.
Semaglutide supply constraint
Currently, there is a shortage of semaglutide. Meanwhile, only a small portion of the US population is being treated with this drug. We may never be able to treat anywhere near 30% of the population using semaglutide even if the mentioned drug would become affordable.
Notice that supply scarcity (semaglutide) vs the prospect of lower product price (Ozempic, Wegovy) is a genuine contradiction. That is especially the case if the US Government continues to prevent Medicare to negotiate drug prices directly with Novo Nordisk.
