[LLY, NVO] Quick Takes on Obesity Coverage Surprise
While likely implying a ~2% revenue tailwind for LLY and NVO, if implemented, we take a cautious view of this morning’s surprise White House announcement that it intends to facilitate broader Medicare / Medicaid coverage of anti-obesity medications (AOMs) as we await greater specifics through a formal proposal, typically posted at the Federal Register. While we suspect this implies CMS recognition of obesity as a chronic disease, as has been advocated by industry, we are dubious that a full notice-and-comment rulemaking can be completed prior to Jan. 20 and suspect that any such efforts are likely to face litigation from Medicare Advantage insurers and Medicaid managed care organizations.
We nevertheless include our quick thoughts below along with some preliminary revenue estimates if this change were to go into effect, though caution that these are based on the limited information that has so far been made available:
- Recall that just last month the Congressional Budget Office (CBO) estimated that AOM coverage in Medicare alone would likely lead to incremental use by 297K beneficiaries in 2026 (or 2% of eligible patients), increasing to 1.6M (14%) by 2034, with total direct federal costs of $35.5 B.
- Using the CBO’s assumptions surrounding the evolution of net manufacturer costs over its 10-year window, including the effects of anticipated government negotiation of NVO’s Wegovy, this would imply incremental revenues of $1.6 B in 2026, increasing to $8.1 B by 2034.
- In contrast, the White House press release suggests that the yet-to-be-disclosed policy will “help an estimated 3.4 M Americans with Medicare…[and] approximately 4 M adult Medicaid enrollees,” though it does not disclose whether these numbers are cumulative, the relevant time period, or whether these patients will merely be eligible for coverage or reflect CMS utilization assumptions.
- Assuming the figures are aggregate, and that they span a similar 10-year budget horizon to the CBO, this would be roughly comparable sales estimates for manufacturers, with $1.3 B in additional sales in 2026 increasing to $6.7 B in 2034, along with budgetary costs of ~$25 B.
- Notably, however, this would also imply use by just ~35% of the Medicare patients assumed within CBO modeling, suggesting the policy may have additional limitations / guardrails. The remainder would be made up of Medicaid patients not contemplated in the CBO analysis.
