Weighing the Benefits
Would a Patent Buyout for Ozempic Slim Healthcare Expenditures?
The new semaglutide-based drugs (Ozempic, Wegovy) are all the rage these days and for good reason. Studies show the drugs (originally created to treat type 2 diabetes) are astonishingly effective at producing weight losses of 10%-20% in as little as 6 months, significantly more than alternative treatments that often come in around 5%.
This has immense implications for treatment of obesity, one of the main drivers of America’s poor health outcomes and bloated health expenditures. But the price of $300 to $1,300 per month charged by Novo Nordisk, the Danish pharmaceutical company with a monopoly on semaglutide products in the U.S., puts the product out of reach for many patients and has insurance companies and employers scrambling to decide whether it’s worth covering, even though it only costs about $35 to produce.
It’s a textbook case of the tradeoffs inherent to pharmaceuticals and our patent system: Through research, innovation and the lure of monopoly profits, Novo Nordisk has produced what might truly be a miracle drug, but until generics can enter the market in 2031, the prices necessary to generate those monopoly profits puts it out of reach for the majority of the consumers who would benefit from it. If only there was a better way.
Enter economist Michael Kremer and the idea of a patent buyout. In a 1998 paper, he proposes a model that could work something like this: Governments can offer to purchase the patent at their estimated private value, as determined through auctions, plus a markup, and then simply put it in the public domain. Producers would enter and quickly bring prices to the cost of production.
It’s not clear whether a patent buyout would lower overall or government health expenditures, because it would be expensive. What is clear is that by purchasing the patent for one of the semaglutide products and placing it in the public domain, governments can make the drug affordable to a wider population without compromising the incentives for pharmaceutical innovation. It's a win-win solution that could transform the landscape of healthcare, making groundbreaking treatments accessible to all. In the case of Ozempic, it's an opportunity to not only address obesity but also to reevaluate how we approach pharmaceutical innovation for the greater good of society.
For more, check out:
Weight Loss Drug Prices by Kofi Ampaabeng
America’s Poor Health Outcomes are Driven by Behaviors – Not Coverage or Access to Care by Liam Sigaud
Two big reasons to doubt that this would lower overall expenditures. First, if widespread use of Ozempic reduces obesity-related expenditures, it will likely lead to longer lifespans—and the illnesses of old age would likely cost more than the savings from Ozempic. (There’s a dark policy joke that says if you want to reduce HC spending, persuade everyone to begin smoking cigarettes at age 10. Far fewer will long long enough to rack up the expenses associated with old age.) Second, even if Ozempic’s cost benefits more than offset the resulting extra old-age spending, it’s likely that the freed-up funds would be diverted to other HC expenses—including new, innovative services whose development could be financed out of the Ozempic-related cuts. … Good article, Markus. I’m working on a piece on these two effects right now.
That’s a very interesting concept and I appreciate your bringing it to Substack!