19 July 2024
In the last two years obesity drugs have captivated both the medical community and investors’ attention as their ability to reliably reduce patient’s weight has translated into soaring profits for the leading manufacturers Novo Nordisk and Eli Lilly.
Source: Bloomberg; 01/01/2021 – 05/06/2024. Share prices and index rebased to Jan 2021.
Obesity’s place as the upstream cause of many other serious medical conditions is already well appreciated by medical professionals but a lack of effective tools means the field is desperate for a solution.
While there have been attempts over the years to develop weight loss medication, the latest drug solution, GLP-1s1 therapies, is based on more sophisticated science than previous drugs and the way they work in the human body is far more elegant.
Since the launch of the first GLP-1 in 2005, various products have been introduced with drug improvements reaching a tipping point with semaglutide, designed, manufactured, and launched by Novo Nordisk under the brand names Ozempic in 2017 (for diabetes) and Wegovy in 2021 (for obesity).
Studies of Wegovy in non-diabetic obese patients showed patients taking semaglutide lost 12% more weight than a placebo over a 68-week period2. This sparked a level of demand for Wegovy that Novo Nordisk has struggled to meet ever since launch. Even after Wegovy was joined on the market by Eli Lilly’s Mounjaro, the appetite for these drugs has been so high that pharmacies have been selling out.
Secondary benefits
Studies have examined the effect of weight loss on other related medical conditions such as heart problems and sleep apnoea, the results of which have been promising3. Some of these studies were powerful enough that valuations of medical companies selling devices or technologies used to treat those issues, plummeted. The implication was that the massive demand for obesity drugs was going to materially alter the growth outlook for those businesses. However, the reality has been more nuanced.
Sleep apnoea specialist, ResMed, has seen no real reduction in the use of their devices by patients who are using GLP-1s. Instead, users who are also taking GLP-1s are following their prescribed therapies more rigorously. More patients are entering the top of the sleep apnoea diagnosis funnel, faster than GLP-1s can pull patients from the treatment pool. Patients taking GLP-1s feel empowered to take control of their health, for instance there has been a subtle acceleration in the sales of continuous glucose monitors, such as those produced by Abbott.
Orthopaedic surgeons have expressly stated that they believe obesity medications are likely to result in an increase in the number of knee replacements, not a reduction due to decreased wear and tear. Surgeons are frequently reluctant to operate on a patient where they are immobile and unable to rehab their surgery appropriately. GLP-1s give those patients a chance to lose enough weight to receive the replacements they need.
Considerations
While we are very optimistic about the outlook for obesity therapies, we have some reservations about whether they will turn out to be the miracle cure that some people believe. There seem to be two major issues that mean obesity medications will not be sufficient on their own.
The first issue is that long-term management of obesity requires patients take the drug for life. Results show that patients quickly regain weight after ceasing therapy. Chronic treatment of obesity would be incredibly expensive, and if that results in patients cycling on and off the drugs, periodic weight loss might not generate the same health benefits.
The second issue is that the side effects are unpleasant and up to one in five patients are not able to tolerate the drug.
Those drawbacks mean that while obesity drugs will be an important part of the medical profession’s approach to dealing with obesity, they can only be one tool of many.
What does this mean for investors?
Clearly the advent of this new category of drugs is exciting. They could help save many lives and help save healthcare systems around the world billions through avoided treatments. Those drugs may also be remarkably profitable for the companies that have developed them for as long as their patents last. All of this adds up to very good news for both patients and investors.