Recently, Eli Lilly (LLY) and Novo Nordisk (NVO) reached agreements with the U.S. government to implement significant price cuts for their GLP-1 weight-loss drugs. Goldman Sachs analysis suggests this is essentially a strategic “volume-for-value” trade. Although the price reduction exceeded expectations, this move, for the first time, opens the door to the Medicare channel for these two pharmaceutical giants. The immense potential for volume growth is expected to significantly offset the immediate pricing pressure.
According to the agreement, starting in 2026, Medicare and Medicaid patients will be able to access GLP-1 drugs like Lilly’s Zepbound and Novo Nordisk’s Wegovy at a list price of $245 per month, with out-of-pocket costs for Medicare patients as low as $50. Goldman Sachs points out that while this price is lower than their previous forecast, it is far better than the potentially lower prices market participants had feared from Inflation Reduction Act (IRA) negotiations. This outcome removes some uncertainty and sets a new pricing benchmark for the market. Furthermore, the agreement also covers Lilly and Novo Nordisk’s upcoming oral weight-loss drugs, paving the way for future products.
The deeper strategy behind the price cuts is to exchange them for unprecedented market volume. Previously, coverage for obesity under Medicare was uncertain. Now, this channel is fully opened. It is estimated that the Medicare channel alone covers approximately 30 million obese patients; adding Medicaid brings the total potential patient pool to 40 million. Goldman Sachs believes the substantial volume growth will effectively counterbalance the revenue impact from price declines, and therefore maintains its forecast for the global anti-obesity drug market to reach approximately $95 billion by 2030. Simultaneously, lower patient out-of-pocket costs are expected to improve treatment adherence and create a more stable pricing environment.
Although the agreement solidifies the duopoly of Lilly and Novo Nordisk, their respective situations in this deal are not identical. Goldman Sachs explicitly views Lilly as being in a more favorable position. This assessment is based on Lilly’s Zepbound holding a market share advantage in both reimbursed and cash-pay channels, allowing it to benefit more from volume growth. More importantly, Lilly’s oral drug, orforglipron, is expected to launch earlier, potentially in Q1 2026, due to receiving a “priority review voucher,” which could bring significant incremental revenue.
In contrast, Novo Nordisk faces more direct challenges. The company has already projected that the new pricing will have a “low-single-digit” negative impact on revenue in 2026, adding to other previously announced headwinds. These factors include financial drag in 2025, competition from generics in international markets, and potential changes in state-level Medicaid coverage. Looking further ahead, Novo Nordisk also needs to contend with potential additional price pressure from the IRA price negotiations in 2027, and its core product semaglutide might face a price disadvantage compared to Lilly’s tirzepatide.
In summary, the price reduction agreements between Lilly, Novo Nordisk, and the U.S. government represent a strategic choice to trade short-term profits for long-term market scale. It formally integrates the vast, government-paid patient population into their commercial landscape, laying the foundation for the continued expansion of the overall market. However, against this backdrop of shared benefit, the competitive dynamics between the two companies have subtly shifted. With its market position and product pipeline timing, Lilly appears to have secured a more advantageous starting position in this new phase of competition.
