Who Really Funds Our Drugs?

US government funding is crucial for drug development. In a 2023 study, Ledley and his colleagues found that the NIH contributed $187 billion to scientific research that led to all but two of the 356 drugs approved in the United States between 2010 and 2019. This money mainly went toward basic science — foundational research that underpins drug discovery by identifying a key biological target, such as a protein or gene, that may be linked to a disease.

It took decades for scientists to discover and untangle the GLP-1 hormone, eventually leading to the development and approval of Ozempic and the subsequent weight-loss drug Wegovy, both of which are made by Novo Nordisk. Eli Lilly, a US-based pharmaceutical company, also used GLP-1 research to develop the diabetes drug Mounjaro and the weight-loss therapy Zepbound.

“Without enough basic science, it’s impossible to develop a drug,” said Ledley. According to Ledley’s research, the pharmaceutical industry has saved an estimated nearly $760 million in essential Ozempic research thanks to federal grants.

Following the approval of GLP-1 drugs, the NIH also supported research into their clinical application, which includes everything from scientific review articles to guidance documents that teach providers how to use the drug safely and effectively.

Think of this additional research as forming “the knowledge base that your physician would have at their disposal if you walked into an office tomorrow and talked about using Ozempic,” Ledley said.

The publicly funded research into these clinical applications is a bit harder to pin down than the basic science. Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology, says that Ledley’s $6 billion figure still may not capture the full picture.

“I’m just guessing you can probably cut that number in half or double it, depending on how generous you want to be with attributing various NIH decisions,” Gruber said.

Today an estimated one in eight American adults have taken Ozempic or another GLP-1 drug, which have been shown to improve health outcomes and reduce the economic burden on the health care system. According to a report by the American Diabetes Association, the total estimated cost of diagnosed diabetes in the United States in 2022 was $413 billion. Economists project that Medicare and Medicaid spending on obesity and obesity-related diseases will total $4.1 trillion from 2024 to 2033.

Regardless of taxpayers’ significant contribution, Novo Nordisk’s list price for Ozempic is nearly $1,000 per month in the United States, compared to just $147 in Canada, $103 in Germany, $93 in the United Kingdom, and $83 in France. Wegovy is listed in this country for more than $1,300 per month, compared to $186 in Denmark, $137 in Germany, and $92 in the UK. Currently, fewer than one in five employer-sponsored health plans cover GLP-1 drugs for weight loss, meaning many patients prescribed Wegovy are left to foot the entire bill.

At a 2023 Senate hearing on diabetes, Kasia Lipska, an endocrinologist and associate professor of medicine at Yale School of Medicine, said that while these drugs help people lose weight and reduce the risk of complications related to diabetes and obesity, “the price tags for these new medications are simply outrageous.”

The high cost is limiting the drugs’ potential benefits, said Alissa Chen, who researches obesity treatment and medication costs at Yale School of Medicine.

“The high cost of GLP-1s means that despite how impactful and beneficial these medications are for patients with diabetes and obesity, many patients cannot access them,” said Chen. Because insurance rarely covers GLP-1 drugs to treat obesity, “I have some patients that decide to pay out of pocket for them, but it’s in the end not sustainable at a payment of over $1,000 per month and they often discontinue them due to the high cost.”

Determining how much GLP-1 drugs should cost is complicated. In 2022, the Institute for Clinical and Economic Review, a group that analyzes the clinical and economic value of new medical treatments, found that the annual price of Wegovy — more than $13,000 — was significantly higher than it should be based on the overall health benefits patients receive from the treatment. They suggested that Novo Nordisk should charge $7,500 to $9,800 per year for the drug, with the top price representing the amount “at which a health system can reward innovation and better health for patients without doing more harm than good.”

Drug pricing negotiations that reflect the value of a drug to society are a practical way to assess economic value, Gruber said. “We as a society should say this is what the drug is worth.”

The Wider Costs

Right now, the high costs of GLP-1 drugs are being felt by everyone, not just patients taking the drugs.

This year, private health plan costs are expected to rise by 8 percent — the highest increase in fifteen years apart from 2021, during the global COVID-19 pandemic — thanks in part to the rising cost of prescription medications. GLP-1 drugs are “a major driver of higher prescription drug costs,” according to recent reports by the benefits consulting firm Segal.

A Senate report from last May also found that if half of all Medicare and Medicaid patients with obesity took Wegovy and other GLP-1 weight-loss drugs, it could cost the federal health care system $166 billion per year — nearly as much as what Medicare and Medicaid spent on all retail prescription drugs in 2022.

Such financial strain could be further exacerbated by the fact that Republican representatives recently passed a budget blueprint that slashes an estimated $800 billion in funding for Medicaid, the nation’s public health program for low-income Americans that covers more than seventy-two million people.

The costs of these drugs are reverberating throughout the larger economy. New York City’s largest electricity provider, Con Edison, recently announced they would be requesting a rate hike to cover the company’s rising expenses. They cited a 12 percent increase in employee benefit costs “primarily due to rapidly rising costs and utilization of GLP prescription drugs.”

In 1989, the NIH imposed pricing constraints on drugs that were made as part of a “cooperative research and development agreement” between the federal government and private pharmaceutical manufacturers. This policy was implemented in response to the cost of the AIDS drug azidothymidine, which was developed with the help of federal scientists and, in 1987, had a price tag of $8,000 per year.

Just six years later, in the face of industry pushback, the NIH revoked the policy, citing that it drove “industry away from potentially beneficial scientific collaborations with [public health service] scientists.”

In the Senate, Sanders tried in 1995 and 2000 to pass legislation reinstating the policy, but both efforts failed. He took up the torch again in 2023, arguing the government should reinstate fair pricing requirements as part of government investment agreements with pharmaceutical manufacturers to ensure that taxpayers receive a greater return on their investments.

The Future of the GLP-1 Market

As drug manufacturers report incredible profits from their taxpayer-supported weight-loss drugs, other companies are getting in on the action by using a regulatory loophole that allows them to sell “compounded” versions of GLP-1 weight-loss drugs that are not approved by the FDA.

Compounded drugs are essentially copies of FDA-approved drugs that are custom-made for patients with specific requirements, such as a particular dose or liquid medication. These custom medications don’t require FDA approval, as it would be unrealistic for the agency to review each drug that is designed to meet the needs of an individual patient.

Compounded drugs are also allowed during drug shortages, which is what happened to both Eli Lilly’s and Novo Nordisk’s products because of high demand. Critics say the rise of compounded drugs could be unsafe for consumers due to unverified businesses, unapproved ingredients, and incorrect doses. The FDA noted similar concerns with unapproved GLP-1 drugs for weight loss, stating that side effects like vomiting and diarrhea may arise from erroneous drug dosages.

But these concerns haven’t stopped companies from promoting compounded GLP-1 products.

Last year, the direct-to-consumer telehealth company Hims & Hers started selling compounded GLP-1 weight-loss medications that the executives say has helped the company reach almost $1.5 billion in overall revenue. During the Super Bowl, the company spent millions on advertising the drugs, leading to a 650 percent spike in web traffic — along with scrutiny from lawmakers because the commercials omitted required safety and side effect information.

A number of other health companies including Noom, Ro, 23andMe, and WeightWatchers also offer compounded GLP-1 medications. According to new research, almost half of online pharmacies selling these compounded GLP-1 drugs are not reporting the drugs’ potentially harmful effects.

As of this February, all GLP-1 drug shortages have been resolved, meaning the production of GLP-1 compounded drugs is no longer permitted under current FDA regulations. Whether this secondary market will be completely shut down, however, remains to be seen. The FDA does not plan to take action against compounding manufacturers for 60 to 90 days, and Trump’s pick to run the agency, Makary, is chief medical officer at a telehealth company that offers a compounded GLP-1 medication.

In January, prior to Trump’s inauguration, officials selected Ozempic and Wegovy to be two of the fifteen drugs subject to 2025 Medicare price negotiations — part of the 2022 Inflation Reduction Act that requires the government to negotiate lower prices with pharmaceutical companies for certain drugs covered under Medicare. Advocates hope that price negotiations for weight-loss drugs will continue, ensuring Americans can access crucial treatments they’ve already invested in.

“The public deserves a return on investment,” Ledley said. “Government is the first investor in innovation, and there’s no reason the public should not get a return commensurate with what private investors deserve.”