(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Aimee Donnellan
DUBLIN, April 14 (Reuters Breakingviews) - At Novo Nordisk’s (NOVOb.CO) annual shareholder meeting in Copenhagen last month, CEO Maziar Mike Doustdar was keen to focus on the positives. The Danish drugmaker’s new Wegovy weight-loss pill is off to a record start, with more than 600,000 prescriptions issued in just two months. Doustdar also managed to get the company’s remedy to market before larger rival Eli Lilly’s (LLY.N) oral version, claiming back some ground in a heated rivalry that has largely favoured the American group of late.
Yet there’s an unanswered question hanging over the new generation of obesity drugs. They haven’t lived through a serious slowdown in consumer spending since exploding in popularity in recent years, meaning it’s not clear to what extent customers will stick with the treatments when household budgets get tight. At the very least, tougher economic times after the Iran war would intensify an already painful price war for the drugmakers.
Eli Lilly and Novo Nordisk are the titans of the so-called GLP-1 world, which includes both diabetes and weight-loss drugs. They’re on track to generate over $100 billion in revenue this year from treatments in those two categories alone, per analysts’ forecasts gathered by Visible Alpha. That number will hit $116 billion by 2030, according to the same estimate, as Eli Lilly and Novo Nordisk are expected to launch new forms of the treatments beyond the classic injectable drugs like Wegovy and Zepbound. One key focus is the range of oral pills, which Novo’s boss trumpeted last month.
Yet sustaining demand requires that customers keep forking out. It’s an unfamiliar problem in the pharmaceutical world, where the buyers are often doctors or hospitals, with the money ultimately provided by insurance companies or health services. Weight-loss drugs, however, have also become a retail phenomenon, with customers increasingly paying “out of pocket”. The prices can be steep. Out-of-pocket costs for a monthly prescription can consume nearly a fifth of the average gross income in the U.S. and around 10% in the UK, according to Breakingviews calculations. The upshot is that demand could conceivably face a hit if unemployment spikes or consumer spending dips. That scenario may now be on the horizon. Rising oil prices will dent household budgets, making them less likely to splash out on other goods and services. Goldman Sachs analysts have slashed their forecast for U.S. consumption growth to 1.2% from 2% before the war, referring to the fourth quarter of 2026 compared with a year earlier. And the economy was already weakening. In February, before the Gulf conflict, the U.S. shed 92,000 jobs and unemployment rose to 4.4%. It might be the first real stress test for weight-loss drugs. Back in 2022, when energy prices and interest also rose, the GLP-1 movement was still young, and U.S. consumers had unusually large pent-up savings to draw on as a result of pandemic-era lockdowns and stimulus. The central question is where weight-loss drugs sit on the list of household priorities: are they like broadband contracts, mortgage payments and medically necessary treatments, which customers tend to keep paying in a recession? Or are they more like discretionary luxuries or brand-name groceries, which usually suffer when times get tough? Put another way: do GLP-1 users prize their new, slimmer figures enough to keep paying up, even if that means cutting spending elsewhere? The optimistic view, from the perspective of the drugmakers, is that over-the-counter weight-loss customers are relatively affluent on average. Yet there’s evidence that cost is already a big challenge for patients and users of GLP-1 drugs. Side effects and financial barriers are the most common reasons for discontinuation of treatment. Over half of people who take GLP-1 medications are no longer taking them within a year. Data shows abandonment rises sharply once out-of-pocket costs exceed $500. Patients will find it increasingly easy to trade down to cheaper alternatives, too. Instead of splurging over $1,000 a month on a prescription for Eli Lilly’s Zepbound they could switch to the cheaper new pill forms, which have similar weight-loss outcomes and can cost as little as $149 a month. Meanwhile, Novo Nordisk has been slashing the cost of its monthly prescriptions in a bid to win back market share. But there’s also the riskier option of continuing to buy injectable copycat drugs from online pharmacies. Prices can be less than $130 a month, prompting many patients to try their luck or even seek out dangerous and often unregulated versions on the internet. The GLP-1 makers have longer-term problems, too. Eli Lilly and Novo Nordisk are spending billions of dollars on research and development, trying to improve their current offerings. In Novo’s case, this is partly to avert a dramatic loss of revenue once the key ingredient in Ozempic and Wegovy comes off patent in the U.S. in 2031. When a drug’s patent protection expires, its price typically drops by around 80%. At that point, a manufacturer would need five times as many patients to earn the same revenue as before. Apply those numbers to GLP-1 drugs, and the implication is that roughly 75 million Americans would have to take them to keep revenue steady, which is more than half of the U.S. population aged 45 or over. That seems implausible: late last year, only 12% of Americans reported that they were taking the medication.
The drugmakers have not changed their public financial targets amid the conflict in Iran. But investors may be ahead of the issue: Eli Lilly’s shares dropped 11% between the day before the first Gulf strikes and last Friday, which compares with a 7% fall for pharmaceutical stocks in the S&amp;P 500 Index. From a shareholder’s perspective, it doesn’t matter so much whether cash-strapped users stop taking GLP-1s or simply find cheaper alternatives. The takeaway in either case is slower growth.
The valuations of both Eli Lilly and Novo Nordisk have been declining in recent months. Eli Lilly now trades at just 26 times its expected 12-month forward earnings, down from a peak of nearly 60 times in 2024. Meanwhile, Novo Nordisk is only trading at a multiple of 11, down from a peak of 38 times in 2024. These declines are largely due to the red-hot competition between the two companies and the prospect that other pharmaceutical giants like AstraZeneca (AZN.L) , Pfizer (PFE.N) and Roche (ROPC.S) will soon gatecrash the market. A near-term hit to consumer spending only compounds the problem. Follow Aimee Donnellan on LinkedIn.
Revenue is growing quickly in the diabetes and weight loss market
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Price wars have already hit GLP-1 makers’ valuations
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(Editing by Liam Proud; Production by Shrabani Chakraborty)

BREAKINGVIEWS-Weight loss drugs face first economic stress test