ever. The pharmaceutical giant is maximizing the diabetes treatment’s gain by using a golden ticket to speed its U.S. approval for use in a possibly bigger market, obesity. Cutting just several months off the approval process could yield $30 billion in additional value. The success doesn't, however, speak to the effectiveness of the government program used to get there.
Almost two decades ago, some Duke University economists noticed pharmaceutical companies avoided developing drugs to cure tropical diseases because the market is small, but the cost and uncertainty of producing them is high. If authorities motivated them with a voucher that allowed them to get to market faster, and the vouchers were transferable, it would incentivize more research and development.
Quicker turnarounds can be worth a lot. Consider a drug that peaks at $1.5 billion in annual revenue. The total gain in present value of product sales from shaving several months off approval time might be $600 million,. About half derives from money arriving sooner, and the rest from additional sales before patent expiration.
Lilly’s peak sales for treating obesity might be about 10 times as high, Jefferies analysts estimate. If the example above is right, that might mean the present value of a faster approval of Mounjaro is $6 billion for Lilly. At the industry multiple of 5 times revenue, that would pad its $535 billion market value by $30 billion. If sales disappoint, or if regulators ultimately say no, it could be worth less.
This disparity between the price of the voucher and the potential value for the buyer is in many ways unique to Mounjaro. It could be a highly effective obesity treatment, the industry’s white whale. Most approved drugs have far more modest sales potential, so a voucher is worth far less.
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