What will be the biggest selling drug of all-time?

Cocaine is a leading candidate for the largest selling drug of all-time, with around 1,500 tonnes consumed annually at $150/gram giving sales of $225 billion annually. This is far greater than any pharmaceutical medicines, but also not a fair comparison. 

The drug is manufactured and sold at only $3 a gram, then passes through transit, importers, wholesale, distributors and then retail. The manufacturing revenue is more like $5 billion a year. Also, it’s not a monopoly, it’s a full class of drugs. You don’t get a patent, so for any manufacturer, the returns are nothing compared to large pharma. Thankfully, you’re better off using your science degree to cure Alzheimer’s than starting a meth lab.

Let’s turn to pharmaceuticals then. The leading medicine in 2023 is Merck’s cancer drug Keytruda at about $24 billion in revenues, and the leading drug of all time is AbbVie’s arthritis drug Humira, with $230 billion in sales so far. 

The big development in the field, however, is the introduction of new weight-loss drugs, Novo Nordisk's Ozempic and Eli Lilly's Mounjaro. These were originally approved for diabetes, and are re-branded Wegovy and Zepbound for weight-loss approvals, with a higher price and dosage. Will these drugs be the largest of all time? 

A divergence in pharmaceutical history

Keytruda developer Merck is the world’s oldest pharma company, a pharmacy business that shifted to manufacturing and selling alkaloids in 1827. In the US, the Civil War promoted sales of painkillers by Pfizer and then veteran and chemist Colonel Eli Lilly founded his own firm. The first major drug recognisable today was Bayer's Aspirin in 1899. Relevant to the Ozempic story, Insulin was first produced by Eli Lilly and Novo/Nordisk from 1923, 100 years before they would expand into weight-loss together. 

Post World War 2 drug sales grew across the board, but the Thalidomide scandal introduced greater scrutiny and burden of proof for the industry. Major new drugs in this period included the contraceptive pill, Valium by Roche in 1963, ACE inhibitors, paracetamol, and ibuprofen. The first blockbuster, defined as sales over $1bn, was Tagamet, an ulcer medication in 1977, followed by Eli Lilly’s Prozac in 1987 and Merck’s Lovastatin the same year. Lovastatin was superseded by Pfizer’s Lipitor, which held the title of highest selling drug of all time until overtaken by AbbVie’s arthritis drug Humira in 2020. In turn, Merck’s Keytruda is set to overtake Humira within 5 years. This sets the stage for the question of the largest drug by sales ever, Humira, Keytruda, or Ozempic?

How big can the GLP-1s get?

Ozempic is a GLP-1, a Peptide that is Like Glucagon. The last time you heard of peptides may have been the use of anti-obesity peptides by the Essendon Football Club, and rest assured Ozempic has moved forward from there. 

We all have a gut-brain axis, where the gut and brain interact to communicate how much of what food is being processed and what response the body needs to process it. Peptides are released to slow the gut process, make us feel full, and reduce fat gain. These new drugs mimic the GLP-1 system, and Eli Lilly’s Mounjaro also stimulates a second gut incretin function called GIP, which may make it more effective. GLP-1s have been effective in diabetes treatment, and numerous obesity trials over the last 20 years have built up to the success of Ozempic and Mounjaro.

Obesity is a serious disease, particularly in the US. 42% of the US population is obese, costing $173 billion in medical costs each year, and cascading through to heart, liver, and other chronic diseases. This is a potential Ozempic population of around 100 millio adults, of whom 25 millio qualify under diabetes and 75 million under weight loss. Europe has an obesity rate of around 20%, or 60 million adults, and the rest of the world is forecast at 40 million potential patients. This gives 200 million potential Ozempic patients, of whom 50 million are diabetic.

The current net pricing of GLP-1s for the diabetes versions Ozempic and Mounjaro is $3,250 in the US (AUD$1,885 in Australia). Once they rebrand to Wegovy and Zepbound and are prescribed for weight loss, the prices jump to $8,500. Given the drugs are only recently approved in the US, net prices should fall once insurers can negotiate better rebates.

Although there’s a large obese population, US drug access is complicated by insurance coverage, and with a strong correlation between obesity and poverty, most of the population will not get access to GLP-1s. We forecast around 12 million US patients under the diabetes class of drugs and $30 billion in revenues, taking compliance into account, and 10 million patients via weight-loss for a further $35 billion in revenues. Around the same number of patients internationally at lower pricing gives $15 billion more for diabetes and $15 billion more for weight loss. This gets us to $45 billion annually split between Ozempic and Mounjaro and $50 billion for Wegovy and Zepbound, or $95 billion for GLP-1s in total. The split between weight loss and diabetes is unclear: some non-diabetic patients will use Ozempic off-label rather than switching to the more expensive and higher dose Wegovy.

Of course, further trial data may adjust market shares, and new drugs will come to market, including Novo’s GLP/GIP CagriSema and oral GLP-1 drugs from Novo and Lilly, as well as Pfizer. We’re in early days, so all forecasts are made with low confidence of accuracy – we’re really talking the potential for the drugs, can they become the largest drugs of all-time? On the patent side, coverage looks strong through 2031 and then generics will replace the branded drugs quite quickly. Although Ozempic is made from living cells, it’s not classed as a biologic, but a peptide and regulated through the generic pathway.

The GLP-1s are certainly forecast to be among the largest drugs in history, but currently the largest selling single drug is forecast to be Merck’s cancer drug Keytruda with lifetime sales of $360 billion. However, considering that Ozempic and Wegovy are the same compound, the combined semaglutide sales of $390 billion is forecast to be the most lucrative drug of all time. The forecast of larger sales for the Novo franchise against Lilly is largely based on the head-start of first approval, but there’s a solid argument that Eli Lilly will do better if superior head-to-head trial data is consistent.

In terms of valuation, the NPV impact of the drugs are forecast at $200bn to Novo Nordisk and $187 billion to Eli Lilly. Our estimate is that Novo has gained $200 billion in market cap and Eli Lilly $230 billion since the rise of the GLP-1s. 

Eli Lilly gained $30 billion on Alzheimer’s drug donanemab, which adjusts that down to a $200 billion gain. From a valuation perspective, the rise in company value is in line with our forward earnings forecast for the franchises. The valuation here on the two stocks is fine, but the news is largely priced in. The swing factors on the stocks will be whether one company starts to take dominant market share, and whether newer drugs can be developed to extend the value past patent creation. Of course, if newer drugs are developed by competitors, these two stocks would fall.

Conclusion

GLP-1s have the potential to be the largest selling drugs of all-time, but we are in year one of their weight-loss approval, and there are sure to be many twists on the way. Immuno-oncology drugs like Keytruda have a strong head start and will continue to print high sales for years to come. We’ve recently invested in Merck, which has under-performed the market over the last 6 months, offering a strong entry point. If I was to forecast the highest selling drug by 2040, I’d hope that an effective Alzheimer’s drug would take the crown, given the high unmet need. 

What the GLP-1 story really demonstrates is the incredible wealth creation potential in pharmaceuticals. A $200bn market cap bounce would more than double the size of Pfizer, AstraZeneca, Amgen, or Regeneron, who are all developing products to compete in weight-loss. Pharmaceutical stocks are at a big discount to the market, and we think are well positioned to outperform through 2024.