The world economy and public health may be revolutionized by the newest weight-loss methods
Is it time to make an investment?
Do the pharmaceutical and biotech companies that make weight-loss medications merit a look when evaluating the best stocks, funds, and trusts to invest in?
According to Todd Gagne's Substack page Wildfire Labs, "Software engineer Lisa Chen established a new weight-loss drug in 2021." She had stopped purchasing a daily muffin six months later. She then gave up her late-night takeaway habit and canceled her beer-of-the-month subscription. She spent 85% less on alcohol, 40% less on groceries, and 60% less on Amazon impulsive purchases by 2023. According to Gagne, "Our economy is built on impulses." "What happens when those impulses are regulated by a weekly injection".
This is the exact question that food and beverage companies are already asking themselves in reaction to the "Ozempic earthquake." Coca-Cola has reassured investors that its low- and zero-calorie products make up two-thirds of its portfolio. It is not all bad news, though. In the battle for market share, healthcare companies are spending enormous sums of money. Given the magnitude of the opportunity, it is understandable.
By 2050, over half of people over 25 will be overweight or obese globally, according to The Lancet. It is not only a health crisis but also an economic one, as diseases linked to obesity are occupying hospital beds and preventing people from working. The stakes are high and the market is huge. Additionally, a lot more work needs to be done before sales can reach their maximum potential.
Pharmaceutical intelligence firm Evaluate Pharma estimates that the combined sales of the two most popular weight-loss medications, Wegovy and Zepbound, were less than £5 billion in 2023. This is only a small portion of the £130 billion that Evaluate projects the market will be worth by 2030.
Though they may seem like a recent discovery, these medications have been in use for a while. In the 1980s, glucagon-like peptide-1 (GLP-1), the hormone they contain, was identified. Since the middle of the 2000s, type-2 diabetes has been managed with its ability to lower blood glucose levels. Ozempic, a GLP-1 diabetes drug, is now well-known.
Wegovy, a higher-dose form of Ozempic, was approved for use as a weight-loss drug by Danish pharmaceutical behemoth Novo Nordisk in June 2021. As investors considered the long-term financial ramifications, the share price nearly quadrupled between then and its record peak in June 2024. Novo was briefly the most valuable company in Europe as a result of the surge.
In 2023, Novos' US rival Eli Lilly created Zepbound, a competing medication that also caused its value to skyrocket. Since then, Novos' stock has dropped back, and Lilly has taken the lead for reasons we will discuss.
To blame for the rise in weight-loss medications.
Because the market is still about the same size, many new medications only replace or improve upon existing ones, which limits their potential for growth. However, these therapies are distinct because there has never been a successful obesity treatment. Ailsa Craig, manager of the International Biotechnology Trust, states that "every now and then, you get a genuinely interesting innovation." After that, "you are generating sales that weren't there before."
Given how effective these medications are, it's easy to understand the excitement surrounding them. Patients receiving GLP-1 injections report a 15%20% annual weight loss with comparatively mild side effects. Prior weight-loss medications only achieved 510%, and their adverse effects were much more concerning. Fen-phen was one medication that was removed from distribution due to its association with heart valve issues and pulmonary hypertension.
It is hard to forecast the market's precise size. Because these medications are costly, a lot will depend on whether private insurers and public health systems are prepared to cover the cost. While some patients are able to pay for themselves, others cannot. It will cost you £6,000 annually in the US, for instance. As prices begin to decline, uptake ought to rise, but supply constraints are also posing problems.
The market's size will also be influenced by how extensively these medications can be used to treat other ailments. Their efficacy in lowering cardiovascular risks is already established. In 2023, a Novo Nordisk clinical trial revealed that obese patients taking GLP-1s had a 20% lower risk of heart attacks and strokes.
In other areas, too, connections are beginning to appear. Although more research is required, the medications may alleviate the symptoms of addiction, anxiety, and depression, lower the risk of kidney failure in diabetics, and slow the shrinkage of the brain in Alzheimer's patients. "Ozempic pregnancies" have even been reported by some obese individuals who previously battled infertility.
"The remarkable weight loss of the current offerings is not the reason for our long-term enthusiasm for this class of drugs, but rather the positive impact on other metabolic diseases, both in terms of symptom relief and event prevention," says Trevor Polischuk, manager of the Worldwide Healthcare Trust.
Benefits to the heart, liver, kidneys, sleep apnea, and even arthritis pain are included in this. And that's only for today. Super medicines could be created with more innovation. Polischuk believes that "hundreds of millions" of patients could benefit from these medications. We are only beginning this phenomenon, he claims.
The competition for market share.
Eli Lilly and Novo Nordisk are the clear market leaders as of right now. Lilly has a more varied development pipeline and a more effective approved medication than the other company. According to head-to-head data, Zepbound has a 20 percent weight loss average after 72 weeks, while Wegovys only achieves a 14 percent reduction. The theme still has a ways to go, and several competing businesses are vying for market share.
"Even though the current medications are highly efficient, they are not flawless," Craig asserts. Thus, it is possible that the drugs being used now will not be the ones used in the future. After a year, more than half of patients discontinue their current treatments, frequently due to adverse effects like vomiting. Patients must continue to lose weight in order to benefit their cardiovascular systems.
To create treatments that shift more weight with fewer side effects, the industry is rushing. This may entail mixing GLP-1s with additional substances like amylin, another hormone involved in blood sugar regulation. A more convenient option to injections would be weight-loss pills, which are being produced in a rush by companies. Additionally, pills might be simpler to produce and ship around the world, which would help ease market constraints.
Robert Cyran on Breakingviews suggests that Eli Lilly's "promising new tablet" or forglipron may be the next battleground for the pharmaceutical industry. Trial results, which were released on April 17, indicated that during a 40-week trial period, patients taking 36 milligrams of orforglipron lost 8% of their body weight. It might not make a difference that pills usually cause less noticeable weight loss than injections.
"Injectable drugs typically need to be refrigerated, which is a hassle for users, and some people are afraid of needles." Thus, making effective tablets available should encourage more patients to try the treatment and to continue with it.
High stakes.
If the pill is approved, Lilly claims it could start selling it as early as 2026. Since the trial results were released, investors have reacted favorably, increasing the company's market value by £100 billion. This emphasizes the stakes in the competition to create drugs of the future. The benefits could be substantial for those who can quickly create efficient treatments.
Research firms Morningstar and Pitchbook predict that by the beginning of the next decade, companies other than Novo and Lilly will account for a third of the market. AstraZeneca, Amgen, Pfizer, Roche, and private firms like Boehringer Ingelheim all want a piece. Viking and Structure, two smaller acquisition targets, are also in the running.
Nearly all of the biggest pharmaceutical companies are trying to launch a medication for weight loss, frequently by acquiring applicants from the biotech industry. Market share should increase for companies that are successful in creating the most potent next-generation medications. However, there are dangers. Due to the high expectations, disappointing trial results may cause significant value fluctuations.
The share price of Novos plummeted last year after CagriSema, the company's next-generation amylin candidate, underperformed in phase-three testing, the last stage of clinical trials. After 68 weeks, it lost 23% of its body weight, which was less than the 25% predicted. Convincing investors that the medication could significantly outperform Zepbound from Eli Lilly wasn't enough.
There is fierce competition in the market as well. According to Bellevue Healthcare Trust manager Paul Major, there are "scores of molecules" in clinical trials, making the number of next-generation candidates "huge." The price of GLP-1 medications will eventually become the deciding factor.
However, declining prices may also lead to a larger market. Only if patients also have another condition, like cardiovascular disease, will the US government health insurance programs Medicare and Medicaid cover the cost of the medications. They are simply too costly. Although self-funding allows patients who are not covered by their insurance to save 50% of what the insurers pay, it still costs roughly £6,000 annually.
Karen Andersen, Morningstar's sector director, notes, "I believe insurers recognize that there is a very strong case for helping patients lose weight in terms of lowering long-term healthcare costs." "As costs decline, more insurersincluding government insurersmay be willing to provide coverage.
Investment strategies for weight-loss medications.
Based on head-to-head data, Eli Lilly (NYSE: LLY) boasts the most effective licensed drug and is currently leading the market. Nevertheless, investors will have to determine whether they are prepared to pay for it. The forward price/earnings (p/e) ratio for Lilly's shares is nearly 40. In the meantime, Novo Nordisk (Copenhagen: Novo-B) appears to be significantly less expensive than it was a year ago due to recent declines in share prices. It has a forward p/e ratio of 15.
Lilly is more attractive than Novo, in Polischuk's opinion. Comprising approximately 11% of the portfolio, it is the largest position the Worldwide Healthcare Trust (LSE: WWH) has ever experienced. However, earlier this year, the trust sold off Novo due to a "lack of upward inflection in US prescription trends for both Wegovy and Ozempic."
Some of the companies fighting for a piece of the next-generation market might also be of interest to investors. For instance, a recent agreement between Roche (Zurich: ROG) and Zealand Pharma, a Danish biotech company, exposed the latter to an amylin candidate. A few medications were in the middle stages of development even before this agreement. Roches' stock, according to Morningstar, is currently cheap. Andersen states, "I believe they are a fairly strong candidate for being a bigger competitor once you get to the 2029 time frame."
Among the top ten holdings of the Polar Capital Global Healthcare Trust (LSE: PCGH) are market leaders Novo and Lilly, as well as Roche. Along with its stake in market leader Lilly, the Worldwide Healthcare Trust is also exposed to next-generation brands through AstraZeneca and Pfizer.
The biotech industry, which is extremely risky but has the potential to be very profitable, also seems intriguing and might benefit from some varied exposure. There is a lot of innovation in this field. "In the pharmaceutical industry, biotech companies are often the source of innovation for therapeutic drugs, and in recent years, big pharma has been acquiring these companies," Craig explains. R&D from large pharmaceutical companies produced 70% of the newly approved medications ten years ago. In contrast, 70% of newly approved medications last year came from biotech companies.
Viking and Structure, two publicly traded biotech firms, have been identified as possible acquisition targets. In the unlisted sector, comparable actions might be observed. Diversified exposure through a fund or trust is a prudent approach, considering the high risk profile of some of these businesses. Next-generation businesses receive about 10% of the International Biotechnology Trust (LSE: IBT).
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