Biden's Obesity Drug Initiative Boosts Eli Lilly and Novo Nordisk

President Joe Biden's proposal to expand coverage of weight-loss drugs under Medicare and Medicaid has sparked a surge in shares of pharmaceutical giants Eli Lilly and Novo Nordisk. The move, aimed at combating obesity by making drugs like Ozempic and Mounjaro more accessible, could significantly expand the market for these medications. The Centers for Medicare and Medicaid Services estimates that the change would raise costs for government healthcare programs by $24.8 billion for Medicare and $14.8 billion for Medicaid over a decade. However, the White House expects the rule to reduce costs of the drugs, which can run over $1,000 for a month's supply, by up to 95%. In response to the news, Eli Lilly shares rose close to 6% and Novo Nordisk's U.S.-listed shares climbed 2%.

The proposed rule change, announced on November 26, 2024, recommends the inclusion of drugs like Ozempic and Mounjaro under Medicare and Medicaid, making them more accessible to millions of new patients. This change could make the popular drugs available to millions of new patients across the U.S. starting in 2026. The CMS's decision reflects a growing consensus that obesity is a chronic health condition, and addressing it can help mitigate the health risks it presents. The White House expects the rule to reduce costs of the drugs, which can run over $1,000 for a month's supply, by up to 95%.

Investors have reacted positively to the news, with shares of Eli Lilly and Novo Nordisk surging on the announcement. This move signals a shift in government policy towards addressing obesity, which affects over 42% of Americans, and offers an opportunity for investors to consider the potential of these companies in the growing obesity treatment market. The rule's impact on drug pricing and long-term costs may vary, depending on how effectively various factors balance each other out. Despite the potential challenges, the expanded coverage and potentially lower drug costs could contribute to the companies' profitability by attracting more patients and reducing out-of-pocket expenses.