Key Takeaways
- A proposed pilot programme by the Trump administration to cover weight-loss drugs under Medicare and Medicaid could create significant new revenue for pharmaceutical firms like Novo Nordisk and Eli Lilly.
- The initiative marks a potential policy reversal, addressing the long-standing exclusion of anti-obesity medications from federal reimbursement, which has previously capped market growth.
- While expanded access presents a major opportunity, fiscal realities such as high drug prices (often over $1,000 per month) create risks of strict price negotiations, reimbursement caps, and political scrutiny over federal spending.
- The move is expected to intensify competition between market leaders Novo Nordisk and Eli Lilly, whose valuations and stock performance reflect investor caution balanced with optimism about their respective drug pipelines.
- Success of the pilot hinges on its design and the ability to demonstrate a favourable cost-benefit analysis, with the outcome poised to reshape revenue forecasts and market valuations for the sector.
The announcement of a pilot programme by the Trump administration to extend Medicare and Medicaid coverage to weight-loss drugs signals a potential shift in US healthcare policy, one that could unlock billions in new revenue streams for pharmaceutical giants specialising in obesity treatments. This move, targeting therapies from firms like Novo Nordisk and Eli Lilly, comes amid escalating debates over the affordability and accessibility of GLP-1 receptor agonists, which have transformed the landscape of weight management but strained public health budgets.
Unlocking Access: The Pilot’s Implications for Market Expansion
By piloting coverage under Medicare and Medicaid, the administration appears poised to address a longstanding barrier: the exclusion of anti-obesity medications from federal reimbursement programmes unless tied to comorbidities like diabetes. This initiative, as reported in recent documents from the Centers for Medicare and Medicaid Services, would allow select state Medicaid programmes to test reimbursing drugs such as semaglutide and tirzepatide, potentially covering millions of low-income and elderly Americans. For manufacturers, this represents a gateway to a vastly expanded patient pool—estimates from healthcare analysts suggest that full coverage could add upwards of $10 billion annually to the US market for these therapies, based on current pricing models and obesity prevalence rates exceeding 40% among adults.
Historically, the absence of such coverage has capped growth, with Medicare’s Part D plans largely sidelining weight-loss indications due to statutory restrictions dating back to 2003. The pilot could serve as a proof-of-concept, paving the way for broader adoption if cost-benefit analyses prove favourable. Investors should note that this comes on the heels of prior rejections; for instance, in April 2025, the administration declined a Biden-era proposal for similar expansions, leading to immediate share price dips for key players. Now, with this reversal, the focus shifts to how states might implement caps or prior authorisation requirements to manage fiscal impact, potentially tempering the upside if uptake is throttled.
Fiscal Realities and Pricing Pressures
The pilot’s design will be crucial, as weight-loss drugs carry list prices often exceeding $1,000 per month, raising concerns about ballooning federal expenditures. Drawing from trailing financials, Novo Nordisk reported revenues of approximately $25 billion in its obesity care segment for the fiscal year ending 2024, with Eli Lilly not far behind at around $15 billion from its comparable offerings. A pilot that reimburses at negotiated rates—potentially below current commercial levels—could compress margins, yet the volume gains might offset this. Analyst models from firms like Jefferies project that even partial coverage could boost Novo Nordisk’s US sales by 15-20% over the next two years, assuming the programme scales beyond the initial trial phase.
Comparisons with past quarters underscore the stakes: in the first half of 2025, both companies faced slowing growth amid supply constraints and competitive pressures, with Novo Nordisk’s shares trading down more than 40% from their 52-week high of $139.74 as of 1 August 2025. Eli Lilly, while more resilient, has seen its valuation multiple contract from peaks above 40 times forward earnings. This pilot injects optimism, but execution risks loom—states opting in may demand steep discounts, echoing Trump’s recent letters to drugmakers urging price reductions within 60 days, as detailed in July 2025 communications.
Competitive Dynamics in a Covered Landscape
Under the pilot, Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound stand to benefit most, given their dominance in the GLP-1 class. Yet, this could intensify rivalry, as coverage might accelerate trials of next-generation compounds, including oral formulations that promise greater convenience. Historical data shows Eli Lilly gaining ground; real-world studies from 2023 indicated tirzepatide achieving superior weight loss outcomes compared to semaglutide, contributing to Lilly’s market share erosion of Novo’s position from over 60% in 2023 to around 50% by mid-2025.
Valuation-wise, as of 1 August 2025, Novo Nordisk trades at a forward P/E of 11.57, reflecting investor caution amid revised guidance, while Eli Lilly’s 32.66 multiple suggests stronger confidence in its pipeline. The pilot could realign these metrics—if successful, consensus forecasts from Bloomberg place Novo Nordisk’s 2026 EPS at $4.50, up from current estimates, driven by expanded access. However, sentiment from verified sources like Seeking Alpha highlights concerns: analysts rate Novo as a ‘Hold’ with a 2.6 score, citing potential reimbursement hurdles, whereas Lilly garners a ‘Buy’ at 1.7, buoyed by broader indications.
Sentiment Echoes from the Investment Community
Investor sentiment, as gauged from professional financial accounts on platforms like X, leans cautiously optimistic, with discussions emphasising the pilot’s role in countering recent sales headwinds. Credible voices, including those from hedge funds and biotech analysts, express guarded enthusiasm, labelling it a “game-changer” for addressing obesity epidemics while warning of political backlash over costs. This aligns with broader market reactions; pre-market trading on 1 August 2025 showed Novo Nordisk down roughly 6% to $47.07, possibly reflecting profit-taking amid high volume of over 50 million shares, contrasted with Lilly’s milder 2.6% dip to $740.07.
Risks and Forward Pathways
While the pilot promises to mitigate access inequities, it invites scrutiny over long-term sustainability. Critics, including fiscal hawks, point to projections from the Congressional Budget Office estimating that unrestricted coverage could add $35 billion to Medicare spending by 2030. For investors, this underscores the need to monitor pilot outcomes, expected in select states by late 2025, which could influence full legislative changes.
In expanding upon this policy pivot, the pilot not only revives debates on drug affordability but also positions weight-loss therapies as central to public health strategy. Should it succeed, it may redefine revenue trajectories for incumbents, though pricing concessions remain a wildcard. As the administration navigates these waters, the market’s verdict will hinge on tangible enrolment figures and cost controls, potentially reshaping valuations in the quarters ahead.
Source: Inspired by reports from Reuters and the Washington Post on the Trump administration’s pilot programme, dated 1 August 2025.
References
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