Insurance providers becoming stricter on GLP-1 drugs: Expert

Novo Nordisk’s (NVO) parent company Novo Holdings has announced the acquisition of pharmaceutical fill-finish company Catalent (CTLT). With increasing use cases for GLP-1 weight loss drugs — including type 2 diabetes treatment — could this enhance supply capabilities?

Meghan Fitzgerald, Grey Ghost Advisors PE Investor and Columbia University Healthcare Policy Professor, joins Yahoo Finance Live to discuss the healthcare sector and demand for weight loss drugs overall. Fitzgerald sees this move as a positive one, stating: “What we’re having is not a demand problem, we’re having a supply problem on the product side."

"For some patients or most, it's about $1,000 a month or $12,000 a year," Fitzgerald explains on the persistent costs for these drugs, adding: Insurance providers with “a heavy book in Medicare Advantage on the payer side” has more risk and exposure, especially for the near-term in 2024.

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Editor's note: This article was written by Eyek Ntekim

Video Transcript

- Novo Nordisk's Parent company. Novo Holdings will buy Catalent for $16.5 billion. Catalent is known as a Fill Finish company. So that means filling in packaging, syringes and injection pens. It will help Novo Nordisk meet demand for weight-loss drugs Ozempic and Wegovy. Let's bring in Meghan Fitzgerald, Grey Ghost Advisors private equity investor and Columbia University Healthcare policy Professor.

Meghan, good to talk to you today. Let's talk about this deal here. I mean, how bullish is that for GLP-1. We've already talked about the momentum there. Is this just a sign of more deals to come?

MEGHAN FITZGERALD: Yeah. I think what you're talking about is a drug class that could potentially be $100 billion. Recent estimates are putting it at $200 billion. So what we're having here is not a demand problem. We're having a supply problem on the product side. So I think it's a great deal by Novo Holdings to think about vertically integrating, so they can have more line of sight and more intimacy in something that has been pretty painful. And that is not being able to meet the supply that patients need in the market.

- And Meghan, I have to ask you about pricing for some of these GLP-1s. How that's being navigated, given that it is quite cost prohibitive at the moment for your average person and you have some employees also trying to offer this as well.

MEGHAN FITZGERALD: Yeah. I mean, for some patients or most it's about $1,000 a month or $12,000 a year and some patients have access to coupons. Some patients truly have diabetes and payers have really been, I think, a little bit more generous to reimburse diabetes but not so much obesity. There were nine states that put it on their Medicaid preferred list and now recently North Carolina got a $100 million bill last year. It was 10% of the budget.

So they've removed it. The Mayo Clinic has now capped out a $20,000 lifetime reimbursement for the products. So the pricing is definitely prohibitive for many patients. But there's still 1% to 5% of the population that is willing to pay the cash and pay $12,000 a year to have access to these medicines. So right now, I think we're seeing a market on the reimbursement side that is largely in flux and unfolding.

But right now, it's the folks that can afford it that are really continuing to drive the market and keep the pricing where it is.

- And Meghan, let's talk healthcare broadly here in terms of the headwinds we're seeing within this space. Higher costs, certainly something that we've heard on these earnings calls. Already Medicare Advantage, one of those big drivers of the costs. How much visibility do we have in terms of how much that has already been reflected here? And when you look at the names across the board, who's the most exposed?

MEGHAN FITZGERALD: I think anyone with a heavy book and Medicare Advantage on the payer side has more risk and exposure, especially for the near term in 2024. You have pent up demand from patients from COVID and Medicare Advantage is a very rich and positive program for a senior if they have it. So you're seeing an increased demand in expensive medical care. That is really hitting some of the payers.

And we saw recently with Cigna, they had less exposure to Medicare Advantage. So they navigated this a little bit better. So I think we're still seeing headwinds in terms of inflation, labor shortages, provider margin pressure, and like I just said those with Medicare Advantage seem to have been hit a little bit harder. And that's going to take a little bit of time to work its way through the system.