By David Wainer

Companies don't generally cut prices out of generosity.

For most of Big Pharma, drug discounts have largely been about damage control. After months of tariff threats and talk of tougher pricing rules that weighed on their shares, several chief executives have made their way to the White House to announce drug-pricing deals in exchange for regulatory relief.

For Eli Lilly's David Ricks and Novo Nordisk's Mike Doustdar, who paid their own visit to the White House last week, the calculus is different. The deal they struck didn't just broker a truce. It bought the promise of market growth. In exchange for trimming prices on drugs like Wegovy and Zepbound, they secured expanded Medicare coverage for obesity, opening the door to millions of new patients.

By trading price for volume, they are also building a moat: Newcomers won't be able to charge the sky-high launch prices that defined the early GLP-1 boom. It is now a scale game. For drugmakers including Pfizer -- fresh off its bruising fight with Novo Nordisk over obesity-drug upstart Metsera -- that means potentially joining a market defined by thinner margins and enormous manufacturing costs upfront.

The crux of the White House deal announced Thursday centers on Medicare. While the details -- like most President Trump drug agreements -- remain murky, the big picture is clear: The companies offer discounts to the net price of their drugs, and in return the administration extends coverage under a government program for seniors. Similar terms could apply to Medicaid, though coverage will depend on decisions made at the state level. For context, Medicare and Medicaid together cover more than 130 million people, roughly 50 million of whom could theoretically fall into the category of having obesity or excess weight.

At first glance, the discount looks steep. Eli Lilly and Novo Nordisk will make their GLP-1 drugs available under Medicare for about $245 a month, with patients paying a $50 copay starting as early as April 2026. That is a sharp drop from list prices that not long ago topped $1,000 a month. In reality, the net price, which reflects what pharma companies take home after rebates and discounts to pharmacy-benefit managers and others, is much lower. Leerink Partners analyst David Risinger says the effective price is only about 20% to 35% below what Medicare currently pays for Mounjaro, which is prescribed for diabetes.

In exchange, the companies could roughly double their pool of covered patients, moving beyond Americans who currently buy the drugs out of pocket or through generous private insurance. In other words, the obesity market is shifting from the Upper East Side, where the drugs are wildly popular, to Main Street America. Bernstein estimates that the Medicare deal opens up a market of about 30 million people, which represents an opportunity of about $27 billion in annual sales.

Trump hailed the deal as a major win while Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services, claimed that Americans could lose billions of pounds by the midterm elections. But the dirty little secret is that, Trump deal or not, Lilly and Novo Nordisk knew that expanding to the masses would mean trading some price for volume. Drugmakers routinely model the price point that maximizes overall profit rather than margin per prescription, and both companies likely see this deal as pushing forward the inevitable.

The timing is favorable, too. Both Novo Nordisk and Lilly are preparing to launch oral versions of their drugs, and the Trump administration is granting both companies special "priority review" vouchers through the Food and Drug Administration. Those are intended to speed up the agency's decision process. As part of the deal, the lowest dose of Lilly's pill is expected to be sold directly to the consumer at $149 a month.

The deal also has competitive ripple effects. It pressures future entrants such as Pfizer, Roche and Amgen. By lowering the price floor, Lilly and Novo Nordisk make it much harder for rivals -- who must spend billions to build manufacturing capacity -- to compete profitably.

Lower prices could also squeeze the compounders that make knockoff GLP-1s. More than a million people buy compounded versions through telehealth companies such as Hims & Hers Health at lower prices. These alternatives are unlikely to disappear, but falling prices for the branded drugs will make copycats less appealing to consumers hunting for savings.

Less clear is the impact on the commercial market, where insurers negotiate prices on behalf of employers. Outside government programs, both companies have committed as part of the deal to selling their injectable drugs directly to consumers for about $350 a month. They say this won't affect employer-sponsored insurance prices, though some spillover is likely. Pharmacy-benefit managers will now have a clear anchor price to point to when negotiating prices.

Falling prices are rarely good news for sellers -- but when they come with millions of new patients and a bigger moat against competitors, the pain is worth it.

Write to David Wainer at david.wainer@wsj.com

(END) Dow Jones Newswires

November 11, 2025 05:30 ET (10:30 GMT)

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