The Billion-Dollar Lag: Why Ozempic's Successor Is Stuck in the Lab. A Microeconomic Look at Externalities, Incentives and Market Failure

 

Chances are, you've scrolled past at least one dramatic celebrity weight-loss story on social media recently. From stars like Oprah to Megan Trainer, everyone's favorite celebrity has seemingly attained their dream bodies overnight. These transformations didn't happen in the gym, but through the wonder drug: Ozempic. Ozempic, the weight-loss drug that has taken the world by storm, is the most well known product in a broader class of drugs known as GLP-1s.

Source: Daily Mail, 2024

 

GLP-1s work by making you fuller longer and curbing your appetite– simple in theory, transformative in practice. For patients, this means weight loss and significantly lower risk of heart attacks and strokes. But the benefits don't stop at the individual. A healthier population means less pressure on the NHS, which currently spends a staggering £98 billion a year dealing with obesity-related illness and lost productivity (Campbell, 2023). Employers benefit too as fewer sick days means more productive workers.

 

So far, so miraculous. But here's the uncomfortable truth: the very company behind Ozempic has no incentive to make it better, cheaper or more accessible. Novo Nordisk, the Danish pharmaceutical giant behind Ozempic, is sitting on one of the most profitable drugs in history. With demand already outstripping supply, why pour billions into researching the next generation of GLP-1s?

 

From a business perspective, the answer is simple: don't bother. The problem isn't greed, it's logic. The benefits of next-generation GLP-1 research, what economists call positive externalities, would flow to patients, the NHS and taxpayers, but Novo Nordisk would foot the entire bill. That's not a gamble any boardroom would take. And so the research stalls, and society pays the price. This is the “billion-dollar lag”.

When Profit and Progress Don't Mix

Source: Indiana University, 2023

 

Imagine you are on the board of directors of Novo Nordisk. Your current drug is a global phenomenon, demand is outstripping supply and the profits are rolling in. Now someone proposes funding the next generation of GLP-1 research, do you say yes?

 

Probably not. The odds of a new drug making it to the market are just ~15% (Schuhmacher, 2025). Furthermore, your patents could expire before the drug is even approved, meaning competitors can copy and sell it freely, leaving you with but a small portion of the returns on your own research. On top of that, even if your drug succeeds, much of the benefit flows to the patient, NHS and taxpayers rather than Novo Nordisk’s own balance sheet. In a gamble like this, you'd pocket the difference too.

This is what economists call the principal-agent problem. Society needs firms to take on research but cannot offer them enough of the reward to make it worthwhile. The result is a level of innovation far below what society actually needs– a market failure, plain and simple.

 

Why the Obvious Fix Isn't So Obvious

So what should governments do? The fix seems obvious. If companies won't take the research risk voluntarily, governments should make it worth their while. The two main tools governments can use to accomplish this are patents, which grant companies a temporary monopoly on a new drug, and direct research subsidies which offset the cost of research upfront.

 

Both options sound reasonable on paper, but they are not free. Patents are paid for by society through higher drug prices during the protected period, while subsidies draw directly from taxpayer funding. This means getting the balance right is not just a technical challenge but a question of how much society is willing to pay for innovation it may never fully control.

 

In a perfect world, governments could calibrate this precisely. Patents would last just long enough to reward innovation without blocking out competition. Subsidies too would cover exactly the risk needed to make research worthwhile- no more, no less. Companies would invest at the pace society needs and everyone would be better off. If only it were that simple…

Source: Authors' own

 

The reality is that pharmaceutical companies know far more about their actual research costs than any government does, that information gap, also known as information asymmetry, is where things unravel. Armed with that knowledge advantage, firms can lobby for subsidies well beyond what is genuinely needed, or push to extend patents far longer than is socially justified. This is why recent court battles over patent expiry such as Novo Nordisk's current case in Brazil, China and Canada are not one-off occurrences (IP fray 2026, Health Tech World 2025). Rather, they are what happens when the referee writes the rulebook.

 

Who Will Push Innovation Forward?

So where does this leave us? The “billion-dollar lag” is not simply a story of slow science or missing technology. It is a story of misaligned incentives. When existing drugs already generate billions in profit, further research looks like an expensive gamble rather than an urgent priority. And because the benefits of that research spill over to patients, the NHS and taxpayers rather than back to the firm, the market will never fix this on its own.

 

But it doesn't have to stay this way. When governments design intervention around the incentive problem rather than simply throwing money at it, the results can be remarkable. Operation Warp Speed, the US government's COVID-19 vaccine programme, promised to buy the vaccines before they even existed, removing the commercial risk that normally paralyses pharmaceutical drug research. The result was multiple approved vaccines in under a year (Gollom, 2020).

 

Applied to GLP-1 research, the same model could promise a market for next-generation drugs before they even exist, giving firms like Novo Nordisk a reason to take the gamble. The blueprint exists. The only question is whether governments will act before the next crisis forces their hand.

Reference List:

Campbell, D. (2023). Cost of people being overweight in UK now £98bn, study finds. The Guardian. [online] 4 Dec. Available at: https://www.theguardian.com/society/2023/dec/04/cost-of-people-being-overweight-in-uk-now-98bn-study-finds (Accessed: 23 April 2026).

Daily Mail (2024) 'Oprah Winfrey admits she DID use weight loss medication', Daily Mail, 13 January. Available at: https://www.dailymail.com/tvshowbiz/article-12860333/Oprah-Winfrey-admits-DID-use-weight-loss-medication.html (Accessed: 23 April 2026).

Gollom, M. (2020). Why Trump’s Operation Warp Speed is credited with helping race for COVID-19 vaccine. [online] CBC. Available at: https://www.cbc.ca/news/health/operation-warp-speed-trump-pfizer-moderna-vaccine-1.5806820 (Accessed: 23 April 2026).

Health Tech World (2025) ‘A key Ozempic patent lapses in Canada: Deliberate or a mistake?’, Health Tech World, 22 September. Available at: https://www.htworld.co.uk/news/a-key-ozepmic-patent-lapses-in-canada-deliberate-or-a-mistake-rg25/ (Accessed: 23 April 2026).

Indiana University (2023) 'Behind the Ozempic headlines', My IU, Available at: https://www.myiu.org/stories/behind-the-ozempic-headlines.html (Accessed: 23 April 2026).

IP fray (2026) ‘China’s top court grants Novo Nordisk win over key Ozempic patent’, ip fray, 5 January. Available at: https://ipfray.com/chinas-top-court-grants-novo-nordisk-win-over-key-ozempic-patent/ (Accessed: 23 April 2026).

Schuhmacher, A., Hinder, M., Brief, E., Gassmann, O. and Hartl, D. (2025) ‘Benchmarking R&D success rates of leading pharmaceutical companies: an empirical analysis of FDA approvals (2006–2022)’, Drug Discovery Today, 30(2), 104291. Available at: https://doi.org/10.1016/j.drudis.2025.104291 (Accessed: 23 April 2026).