Semaglutide: Artificial Shortage Is Novo Nordisk’s Business Model

In early February, drug company Novo Nordisk sued telehealth company Hims & Hers.

The complaint: Hims & Hers sells GLP-1 drugs at lower prices than Novo Nordisk. That’s the simple version.

The legalese version is that because semaglutide (the drug behind the Novo Nordisk’s “Wegovy” brand name) was removed from the US Food and Drug Administration’s “Drug Shortage List” more than a year ago, “compounding pharmacies” like Hims & Hers no longer operate under a Very Special Important Legal Dispensation to produce it without the permission of Novo Nordisk, which has a Very Special Important Government-Granted Monopoly, aka a patent, on the substance.

“This is a complete sham, and it has been a sham since the shortage ended,” Novo Nordisk attorney John Kuckelman tells CNBC.  “The fact is that their medicines are untested, and they’re putting patients at risk.”

That last part is a startling claim from an attorney about his own client’s product (the difference between semaglutide from Hims & Hers and semaglutide from Novo Nordisk is the name on the label), but I’m more interested in the “shortage” claim.

Novo Nordisk recently introduced Wegovy in pill form, at a price of about $150 a month. Hims & Hers had planned to offer the same chemical compound, without Wegovy branding, for about $50 a month.

The whole POINT of Novo Nordisk’s attempt to enforce its patent is to CREATE a shortage of semaglutide in pill form.

Why? Money. The patent, if enforceable, allows Novo Nordisk to charge customers AT LEAST three times as much for its pill as the market says it can  be sold profitably for. Hims & Hers wouldn’t offer it for $50 if it expected to lose money doing so.

In the theoretical economic environment of “perfect competition,” prices settle at, or infinitesimally above, the cost of production, because the seller who doesn’t offer the lowest possible price won’t move much product.

“Perfect competition” is indeed hypothetical. A million variables affect a million things. If my pencil factory is further from the store than yours, you won’t have to spend as much on shipping. If I make a better pencil commercial than you do, more people will convince themselves my pencils are better than yours. And so on, and so forth.

But even absent “perfect competition,” most people wouldn’t voluntarily pay three times as much for the same thing from Novo Nordisk as they’d pay for it from Hims & Hers.

So, what is the purpose of patents?

According to the US Constitution, it’s to “promote the progress of science and useful arts” by giving inventors the “exclusive right” to their inventions for some set period of time.

But that’s just another way of saying the purpose is to create artificial shortages so that inventors don’t have to compete with others who may copy their inventions — or even independently invent similar things.

Novo Nordisk has already reaped the benefits of being first to market and promote semaglutide, and has fared well in competition with other GLP-1 products from other inventors/manufacturers. Apparently doing well in competition isn’t enough, though — it wants the government to remove its competitors from the market.

Given the hype around semaglutide and other GLP-1s — it seems we’re being led to believe that they cure, prevent, or minimize the effects of pretty much every negative human condition, physical and mental — I’d say they make a pretty good test case against the fiction of “intellectual property.”

While I’m skeptical for the wildest claims about the benefits of GLP-1s, they’re clearly beneficial to enough people, in enough ways, that we should ask why governments are handing out price-gouging opportunities, in the form of monopolies, on them.

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