Senate Committee Hearing Examines the High Cost of Pharmaceutical Innovation

This is part 2 of Drug Topics’ coverage of the September 24th Senate Committee on Health, Education, Labor and Pension hearing on semaglutide pricing. Click here to read part 1 of our coverage.

The main headline coming out of Novo Nordisk president and CEO Lars Fruergaard Jørgensen’s recent testimony on Capitol Hill¹ was Jørgensen’s agreement to collaborate with pharmacy benefit managers (PBMs) and the Senate Committee on Health, Education, Labor, and Pensions to reduce the price of the company’s semaglutide products (Ozepmic, Wegovy) in the United States. But over the course of 2 and a half hours of questioning, some committee members also posed crucial questions around the realities of pharmaceutical research and development (R&D).

The Role of Drug Pricing in R&D

“There are a couple of models that one could have for developing new drugs,” said Senator Mitt Romney (R, Utah). One of these models relies on the private sector, where companies like Novo Nordisk “invest massive amounts of money developing new products [and] new innovations, and then if one works, to have a patent allow[ing] you to charge whatever you want, to recoup a return on investment and make a potentially enormous profit,” Romney said. The other model is one in which the government develops drugs, spending its own money and keeping the price low.

Some senators expressed concerns that without financial incentives, research and development efforts would stall. | Image credit: Patrick Bay Damsted - stock.adobe.com

“Sometimes we live in a fantasy land. We want you to invest massive amounts of money, but then we want you to keep the prices low. That’s not real, that’s not reality,” Romney added. “You, under are system, are able to charge whatever you believe the market will bear.”

READ MORE: Ozempic, Other GLP-1 Therapies Caused Major Increase in Medicare Spending

In a lawsuit^2,3 filed on September 29, 2023, against the US Department of Health and Human Services and the Centers for Medicare and Medicaid Services, attorneys for Novo Nordisk alleged that drug pricing provisions contained within the Inflation Reduction Act—signed into law by President Biden on August 16, 2022⁴—would subject the company and its products to “unconstitutional government-imposed price controls.” Specifically, per the complaint, these price controls would have a negative impact on the company’s ability to recover “fair compensation for their investments, and thereby continue innovation, research, and development of novel drug therapies.” (In July 2024, New Jersey District Court Judge Zahid Quraishi ruled against Novo Nordisk,⁵ declaring that the company’s participation in the Medicare and Medicaid are voluntary and referencing similar rulings issued in lawsuits raised by Johnson & Johnson and Bristol Myers Squibb.⁶)

A report published by Senator Bernie Sanders' (I, Vermont) office ahead of Tuesday’s committee hearing⁷ highlighted that since the 2018 launch of Ozempic, the company has spent $44 billion on stock buybacks and dividends—twice as much as the $21 billion spent on R&D.

During his questioning, Ranking Member Senator Bill Cassidy, MD (R, Louisiana) acknowledged the tension that currently exists between “innovation versus the ability to afford”: While another company may be able to produce semaglutide for $5,⁸ “they’re not going to produce the $30 billion worth of research that would find another indication” for the drug, Cassidy said. But, he added, “It is my impression that the United States is paying for this research, and that the other countries are not…. It’s my impression, if you will, that it’s not the Germans paying for the ongoing research.”

Initial proposals for international reference pricing were made by the Trump Administration in 2018,⁹ following the president’s singing of the Patient Right to Know Drug Prices Act.¹⁰ In November 2020, Trump issued 2 rules intended to lower drug prices for Medicare beneficiaries—rules that were “swiftly denounced”¹¹ by a number of organizations; Cassidy acknowledged during his questioning that these international reference pricing proposals were flawed.

“I think it should be fair in who pays for innovation,” Jørgensen said. “I mentioned also before that significant innovation is never launched in Europe. A number of breakthrough therapies only make it to Americans, so Americans benefit from that.”

Like Romney, Senator Roger Marshall, MD (R, Kansas) also touched on the role of R&D vis-à-vis pharmaceutical pricing.

Marshall—a physician who practiced medicine in Great Bend, Kansas, for 25 years—applauded Novo Nordisk for their innovation. “[They] are not the villain in this story; they’re a hero. We should be here celebrating this miracle innovation that’s responding to this [epidemic of diabetes] we have in this country.” But, Marshall added, prescription drug costs are simply too high. “We need to figure out who the villain is, who is the real culprit here. Who’s making the money?”

As with much of the US prescription drug market, the answer is simple: PBMs. Per Jørgensen’s testimony, whatever semaglutide is priced at, Novo Nordisk keeps 24%, while PBMs keep 74%. “So really, the PBMs are making the bank here,” Marshall said, making PBM reform crucial in addressing the semaglutide pricing.

Like obesity and diabetes, a significant number of Americans are impacted by Alzheimer disease each year, representing a significant burden on the US economy. According to data from 2022, the 6 million Americans living with Alzheimer disease cost the US economy an estimated $321 billion, in addition to an estimated $271 billion in unpaid caregiving—with the total cost estimated to reach nearly $1 trillion each year by 2050.¹² Pharmaceutical companies reinvesting profits into R&D for conditions like Alzheimer disease are therefore crucial for lowering the overall health care expenditure.

“If we thwart the innovation that this type of company does, it tells people to stop researching drugs that are going to solve Alzheimer’s,” Marshall said.

In his written testimony,¹³ Jørgensen pointed out that Novo Nordisk is “the single largest private funder of diabetes research and education in the world,” spending $4.2 billion on diabetes and research R&D in 2023—a figured that amounted to “50% more than the diabetes and obesity R&D budget of the entire National Institutes of Health.” During the hearing, Jørgensen added that this year, Novo Nordisk expects to spend approximately 14% of revenue on R&D. Continued R&D for semaglutide has already benefitted the company—and the country—in a significant way: Outside of the obesity indication granted to semaglutide by the FDA in June 2021,¹⁴ Wegovy is the first weight loss medication to receive an FDA nod to prevent life-threatening cardiovascular events in adults with overweight or obesity.¹⁵ Additional research efforts are evaluating the role of semaglutide in kidney disease,¹⁶ cognitive disorders, substance use disorders, psychosis, depression,¹⁷ nonalcoholic steatohepatitis, and neurodegenerative diseases including Parkinson disease and Alzheimer disease.¹⁸

Romney took a different approach, pointing out that the vilification of the pharmaceutical industry is a paradox: “There are a number of folks who would like you to invest a lot, but then limit what you can get back—and then somehow ascribe malevolent intent if you charge a high price,” he said. “That’s the system we have. And I very greatly appreciate the innovations that have been made by the industry.”

READ MORE: Insurance Coverage is Lagging in a Golden Age of Obesity Treatment

Jørgensen further explained that there are opportunities to use innovation to drive down health care costs in the US that do not exist in Europe; when comparing the 2 entities, there is a “general openness for that…in the US market, which is not always the case in Europe. That comes with a cost, but it also leads to significant benefits for individual Americans, for the health care system, and saved costs for these chronic diseases.”

What’s Next for Semaglutide Pricing?

Ultimately, what became clear over the course of the 2 and a half hour hearing is that the problems that need to be solved are, as Jørgensen pointed out, complex, requiring wider conversations with multiple stakeholders, including other pharmaceutical manufacturers, health insurance companies, and PBMs.

Sanders and Cassidy each took different approaches to their closing remarks. For his part, Sanders acknowledged the complexity of the system, both in health care itself and in the prescription drug space. But the point, he said, is that “Factoring in all of the rebates that PBMs receive, the net price of Ozepmic is still nearly $600, over 9 times as much as it costs in Germany. The estimated net price of Wegovy is over $800, nearly 4 and a half times as much as it costs in Denmark. [As] Senator Romney and others said, how is that so? Why is it so much less expensive in Europe?

“In the United States of America, we are the only major country on Earth that has not negotiated prices, so you can charge us any price that you want," Sanders continued. "Other drug companies can charge us any price they want…and that’s what you do, understandably. You charge us far more than other countries because they negotiate and regulate prices.”

As a physician, Cassidy closed by focusing on patients and individuals with insurance who come to find that due to the intricate, opaque system that governs prescription drug benefits, their high-deductible health care plan doesn’t cover lifesaving drugs like semaglutide. “Those who are trying to do the right thing by their family, by their own health… [They] are the ones who have no allowance made for them in these negotiations between pharma and PBMs.”

Those concerns are separate from the discussion around the need for profits to drive innovation in the pharmaceutical industry. “I’m all about that innovation,” Cassidy said, “but I’m all about that family. As you go forward…that is something I think would relieve tensions between policy makers, companies such as yours, and PBMs, if more consideration were given to them.”

READ MORE: Obesity Management Resource Center

References

1. Media advisory: Sanders to lead HELP Committee hearing on outrageous Ozempic and Wegovy prices with Novo Nordisk CEO. News release. US Senate Committee on Health, Education, Labor, and Pensions. September 20, 2024. Accessed September 25, 2024. https://www.help.senate.gov/chair/newsroom/press/media-advisory-sanders-to-lead-help-committee-hearing-on-outrageous-ozempic-and-wegovy-prices-with-novo-nordisk-ceo

2. Novo Nordisk files lawsuit to protect patient access challenging the Inflation Reduction Act’s drug pricing scheme as unconstitutional and the Centers for Medicare and Medicaid Services’ actions as unlawful. Company statement. Novo Nordisk. September 29, 2023. Accessed September 25, 2024. https://www.novonordisk-us.com/media/news-archive/news-details.html?id=166323

3. Novo Nordisk Inc., Novo Nordisk Pharma, Inc. v Xavier Becerra, et al, 3:23-cv-20814 (NJ District Court 2023).

4. Fact sheet: One year in, President Biden’s Inflation Reduction Act is driving historic climate action and investing in America to create good paying jobs and reduce costs. News release. The White House. August 16, 2023. Accessed September 25, 2024. https://www.whitehouse.gov/briefing-room/statements-releases/2023/08/16/fact-sheet-one-year-in-president-bidens-inflation-reduction-act-is-driving-historic-climate-action-and-investing-in-america-to-create-good-paying-jobs-and-reduce-costs/

5. Becker Z. Another IRA lawsuit bites the dust with ruling on Novo Nordisk case; company pledges to appeal. Fierce Pharma. August 1, 2024. Accessed September 25, 2024. https://www.fiercepharma.com/pharma/another-ira-lawsuit-bites-dust-novo-nordisk-rejection-new-jersey-court-company-pledges

6. Dunleavy K. Bristol Myers, Johnson & Johnson plot appeal after US judge dismisses IRA lawsuits. Fierce Pharma. April 30, 2024. Accessed September 25, 2024. https://www.fiercepharma.com/pharma/us-judge-dismisses-ira-lawsuits-bristol-myers-squibb-and-johnson-johnson-both-twill-appeal

7. US Senate Health, Education, Labor, and Pensions Committee. Majority Staff Report. Novo Nordisk’s untenable drug pricing strategy in America: greed, greed, greed. September 24, 2024. Accessed September 25, 2024. https://www.sanders.senate.gov/wp-content/uploads/9.23.2024-Novo-Nordisk-Untenable-Strategy-final.pdf

8. Barber MJ, Gotham D, Bygrave H, Cepuch C. Estimated sustainable cost-based prices for diabetes medicines. JAMA Netw Open. 2024;7(3):e243474. doi:10/1001/jamanetworkopen.2024.3437

9. Joszt L. Trump proposes allowing Medicare to base drug prices on what other countries pay. American Journal of Managed Care. October 25, 2018. Accessed September 25, 2024. https://www.ajmc.com/view/trump-proposes-allowing-medicare-to-base-drug-prices-on-what-other-countries-pay

10. DiGrande S. House joins Senate in passing Patient Right to Know Drug Prices Act. The Center for Biosimilars. October 6, 2018. Accessed September 25, 2024. https://www.centerforbiosimilars.com/view/house-joins-senate-in-passing-patient-right-to-know-drug-prices-act

11. Inserro A. Trump targets drug prices with 2 orders using international pricing, ending rebates. American Journal of Managed Care. November 20, 2020. Accessed September 25, 2024. https://www.ajmc.com/view/trump-targets-drug-prices-with-2-orders

12. The economic costs of Alzhiemer’s disease. Joint Economic Committee. July 6, 2022. Accessed September 25, 2024. https://www.jec.senate.gov/public/index.cfm/democrats/2022/7/the-economic-costs-of-alzheimer-s-disease

13. Hearing Before the Senate Committee on health, Education, Labor, and Pensions, 118th Cong (2023-2025) (testimony of Lars Fruergaard Jørgensen, president and CEO, Novo Nordisk). Accessed September 25, 2024. https://www.help.senate.gov/imo/media/doc/fa475d00-dca5-9b2c-4565-e5bdc272566d/2024-09-24%20Lars%20Fruergaard%20J%C3%B8rgensen%20Written%20Testimony.pdf

14. FDA approves new drug treatment for chronic weight management, first since 2014. News release. FDA. June 4, 2021. Accessed September 25, 2024. https://www.fda.gov/news-events/press-announcements/fda-approves-new-drug-treatment-chronic-weight-management-first-2014

15. FDA approves first treatment to reduce risk of serious heart problems specifically in adults with obesity or overweight. News release. FDA. March 8, 2024. Accessed September 25, 2024. https://www.fda.gov/news-events/press-announcements/fda-approves-first-treatment-reduce-risk-serious-heart-problems-specifically-adults-obesity-or

16. Perkovic V, Tuttle KR, Rossing P, et al. Effects of semaglutide on chronic kidney disease in patients with type 2 diabetes. N Engl J Med. 2024;391:109-121. doi:10.1056/NJEMoa2403347

17. De Giorgi R, Koychev I, Adler AI, et al. 12-month neurological and psychiatric outcomes of semaglutide use for type 2 diabetes: a propensity-score matched cohort study. EClinicalMedicine. 2024;74:102726. doi:10.1016/j.eclinm.2024.102726

18. Mahapatra MK, Karuppasamy M, Sahoo BM. Therapeutic potential of semaglutide, a newer GLP-1 receptor agonist, in abating obesity, non-alcoholic steatohepatitis and neurodegenerative diseases: a narrative review. Pharm Res. 2022;39(6):1233-1248. doi:10.1007/s11095-022-03302-1