LLY, NVO Stock Up as Biden Proposes Medicare Cover for Obesity Drugs

Core Viewpoint - The proposal by President Biden to have Medicare and Medicaid cover obesity treatments could significantly expand access to Eli Lilly's and Novo Nordisk's obesity drugs, Zepbound and Wegovy, potentially increasing their market share and profitability [1][5]. Company Performance - Eli Lilly's stock rose by 4.6% on Tuesday, while Novo Nordisk's stock increased by 1.5%. Year-to-date, Lilly's stock has increased by 35.4%, and Novo Nordisk has gained 2.6%, compared to a 6.3% increase for the industry [2]. Current Market Situation - Currently, Medicare does not cover obesity drugs like Zepbound/Mounjaro and Wegovy/Ozempic, which are expensive, costing up to $1,000 for a month's supply. This limits access primarily to wealthier individuals [3][4]. - The proposed coverage would only apply to individuals with a body mass index (BMI) of 30 or higher [4]. Potential Market Expansion - If the proposal is approved, approximately 3.4 million Medicare patients and around 4 million Medicaid patients could become eligible for obesity drugs, potentially increasing the companies' customer base significantly [5]. - The Biden administration believes that covering these drugs could reduce out-of-pocket costs for patients and help mitigate obesity-related health issues, potentially saving billions in healthcare costs for the government [6]. Industry Outlook - The obesity market in the United States is projected to reach $130 billion by 2030, with both Lilly and Novo Nordisk expanding their obesity drug pipelines to maintain market leadership [8]. - The entry of new competitors may lead to a decrease in the costs of Zepbound and Wegovy [9]. Company Rankings - Both Eli Lilly and Novo Nordisk currently hold a Zacks Rank of 3 (Hold) [10].