The GLP-1 Gold Rush: Assessing the Financial Implications of Expanded Medicaid and Medicare Coverage for Eli Lilly and Novo Nordisk

The U.S. healthcare landscape is on the cusp of a seismic shift as policymakers and pharmaceutical giants grapple with the explosive demand for GLP-1 receptor agonist (GLP-1RA) drugs. These injectable medications, initially developed for diabetes, have emerged as groundbreaking tools for weight management, with Eli Lilly and Novo Nordisk positioned at the forefront of a market projected to reach $113 billion and $84 billion in sales by 2030, respectively. However, the future of their dominance hinges on the uncertain calculus of Medicaid and Medicare coverage expansions—and the financial and operational challenges that come with them.

The Policy Pendulum: Coverage Expansions and Regulatory Hurdles

As of 2025, Medicare remains a critical barrier for GLP-1RA adoption in the weight-loss space. The program excludes coverage for obesity treatment, focusing instead on diabetes and cardiovascular risk reduction. Medicaid, meanwhile, operates under a patchwork of state-level policies, with 15 states offering coverage for GLP-1 drugs. The Trump administration's proposed five-year pilot program—set to launch in 2026—could bridge this gap by allowing Medicaid and Medicare Part D plans to voluntarily cover GLP-1RAs for “weight management” under specific conditions, including diet and exercise coaching.

This policy shift, if finalized, would unlock access for millions of beneficiaries. A 2025 economic evaluation estimates that 3 million Medicare patients could gain access to GLP-1RAs over the next decade, with total drug costs reaching $65.9 billion. For Eli Lilly and Novo Nordisk, this represents a monumental opportunity: their flagship drugs, Zepbound (tirzepatide) and Wegovy (semaglutide), already dominate the market. However, the financial sustainability of such expansions remains contentious.

Market Dynamics: Scale, Supply Chains, and Competitive Edge

Eli Lilly's aggressive expansion into the GLP-1 space has already outpaced Novo Nordisk. In Q1 2025, Zepbound contributed $2.3 billion in revenue, while Mounjaro added $3.8 billion, giving Lilly a 44% year-over-year revenue surge. Novo Nordisk, though still a powerhouse, reported a 19% increase to $11.8 billion, with Wegovy's sales dipping to $2.6 billion due to supply shortages and competition from compounding pharmacies.

Both companies are investing heavily in production capacity to meet demand. Lilly's $5.3 billion Indiana plant and Novo's $4.1 billion North Carolina facility are critical to scaling supply, but challenges persist. Novo's Wegovy shortages, which lingered into late 2024, highlighted vulnerabilities in its supply chain, while Lilly's Zepbound has demonstrated superior weight loss outcomes (21% vs. Wegovy's 15%), giving it a distinct competitive edge.

Cost Containment and Policy Pressures

The Inflation Reduction Act (IRA) has introduced a double-edged sword for both firms. While it mandates Medicare price negotiations for GLP-1 drugs starting in 2027, reducing per-unit profitability, it also signals a federal willingness to absorb some of the financial burden. The CBO estimates that expanding Medicare coverage for weight loss could cost $35.5 billion from 2026 to 2034—a figure that could balloon to $266.5 billion over 30 years without cost-effective interventions.

For Eli Lilly and Novo Nordisk, the stakes are clear: maintain market leadership while navigating pricing pressures. Lilly's pipeline, including an oral GLP-1 drug (orforglipron) projected to generate $12.7 billion by 2030, offers a potential solution. Novo, meanwhile, must contend with a shrinking market share and the need to innovate beyond Wegovy.

Investment Implications: Weighing Growth Against Risk

The proposed Medicaid/Medicare pilot program could catalyze a surge in demand for GLP-1RAs, but investors must remain vigilant. Key risks include:
1. Price Erosion: IRA negotiations and state Medicaid rebates may compress margins.
2. Supply Chain Strains: Both firms face pressure to meet demand without compromising quality.
3. Clinical Uncertainties: Long-term efficacy and weight regain post-treatment remain unresolved.

Despite these challenges, the market fundamentals are robust. Obesity rates in the U.S. are expected to rise, and GLP-1RAs are increasingly viewed as a cornerstone of chronic weight management. For Eli Lilly, the path to $113 billion in 2030 revenue appears more certain than for Novo Nordisk, which must address supply constraints and product differentiation.

Conclusion: A High-Stakes Bet on Health and Wealth

The expansion of Medicaid and Medicare coverage for GLP-1 drugs represents a transformative opportunity for Eli Lilly and Novo Nordisk. Yet, the financial viability of this expansion depends on a delicate balance between policy, pricing, and production. Investors should monitor the 2026 pilot program's implementation and the companies' ability to innovate beyond injectables. For now, the GLP-1 gold rush is on—but the miners must tread carefully.