Step aside, Jillian Michaels. The health world is abuzz over new celebrities with names like Ozempic, Wegovy and Mounjaro. At least, that's what investors in pharmaceutical stocks like Novo Nordisk and Eli Lilly are hoping, as a fervor builds for weight-loss drugs and obesity treatments.
By 2031, $41.5 billion in weight-loss drug money will be up for grabs, up 15-fold from 2021, say market researcher GlobalData and broker Piper Sandler. And as drugmakers parlay established diabetes medicines into weight-loss treatments, some experts predict that number could prove to be much higher. Morningstar, for one, sees the market for weight-loss drugs hitting $60 billion by 2032.
Public demand and the global obesity crisis will drive sales, says Sarah Jones Simmer, chief executive of Found. Found is a telehealth platform focused on weight loss. Drug names like Ozempic, Wegovy and Mounjaro have seeped into the public consciousness in a way few medicines ever have. And Big Pharma is looking to take advantage, which could be a massive boon for pharmaceutical stocks.
In fact, a recent Bank of America survey found more than 55% of participants heard of the new weight-loss drugs via social media. Social mentions of Wegovy, Novo Nordisk's obesity treatment, have increased markedly. The company is relaunching the drug in the U.S. amid a shortage.
"It's a fascinating thing to see a medication like this break through into public consciousness," Simmer told Investor's Business Daily.
She noted "overwhelming demand," including from people who aren't diagnosed with obesity or being overweight. The health care system must navigate a fraught landscape to avoid denying medicine to people who could experience "a life-changing impact."
Weight Loss Drugs: A Riff Off Diabetes Treatment
Still, the market remains a question mark. Treatments for obesity have been dogged by lack of insurance coverage and gastrointestinal side effects. In recent days, a Reuters analysis showed less than one-third of patients given weight-loss drugs between January and December 2021 were still on them a year later. And their health care costs skyrocketed.
Meanwhile, investors in pharmaceutical stocks are asking: Can anyone unseat the undisputed leaders? These aren't new medications.
Semaglutide, the chemical behind Novo Nordisk's biggest diabetes and weight-loss drugs, gained approval as diabetes treatment powerhouse Ozempic in 2012. A diabetes pill called Rybelsus followed in 2019. Two years later, Wegovy joined the mix as the first weight-loss medicine in this drug class.
Last year, Lilly launched tirzepatide as a diabetes treatment under the brand name Mounjaro. Later this year, analysts following pharmaceutical stocks expect Mounjaro to win approval as an obesity treatment.
These drugs target GLP-1, mimicking a gut hormone that controls feelings of satiety and how quickly the stomach empties itself of content. Combined, Novo Nordisk and Eli Lilly sell five drugs in this class. Others exist, but those two companies remain the leaders. And Novo owns the entire market for GLP-1 drugs in obesity treatment right now, but Lilly could soon carve its own share of the market.
Replacing Older Obesity Treatments
The market has seen other drugs geared for weight loss — Contrave, Orlistat, Qsymia and Imcivree. But none have reached the impressive results put up by GLP-1 medications. In final-phase testing, GLP-1 drugs have led to roughly 17% to almost 23% weight loss.
Geoff Meacham, a Bank of America analyst, says this isn't a "zero-sum game." He expects new companies to enter the space.
Likewise, Piper Sandler analysts said in a May report that "this is just the beginning" of a large market. They see ample room for new weight-loss drugs.
But Morningstar says Novo Nordisk and Eli Lilly will maintain their giant lead for some time. A report from the financial services company said Amgen and Pfizer could take a quarter of the market by 2032. But Novo will hold 35% and Lilly will own 40%.
"There is probably a little lag until we see some of these competitors reach the market," Morningstar analyst Karen Andersen told IBD. "We may not see other competitors reach the market until 2025 or 2026."
Pharmaceutical Stocks Tackle A Sizable Market
The market size attracts "a lot of interest," says Bill Coyle, head of biopharma at consulting firm ZS Global.
"I think there's going to be room for lots of innovation, lots of different products," he told IBD. "Will they ever eclipse the first movers — especially if the first movers' (effectiveness) stands up over time and the products get great adoption? I don't know. I definitely believe there's room for many products."
He offers anti-inflammatory medications as proof. At one point, someone could have said nothing would disrupt leaders Remicade, Humira and Enbrel.
"But there's been multiple multibillion-dollar products after them in the same category," he said.
Piper Sandler analysts note numerous biotech and pharmaceuticals stocks in the conversation around weight-loss drugs. Their list includes Pfizer, Amgen, AstraZeneca, Novartis, Viking Therapeutics and Structure Therapeutics.
These companies are working on next-generation approaches that combine a GLP-1 focus with another mechanism, including other targets called GIPR, glucagon receptors and amylin.
Novo, Lilly Focus On New Weight Loss Drugs
But Novo Nordisk and Eli Lilly aren't sitting on their laurels. Lilly has yet to gain approval for its Mounjaro in weight loss, but the company is already working on a next-generation treatment for obesity.
In a recent study, patients without diabetes lost 24.2% of their body weight after taking Lilly's next-gen drug, retatrutide, for 48 weeks.
Novo is testing a high dose of semaglutide as a pill. It's also combining semaglutide in an injection with a drug that targets the hormone amylin.
Amylin delays stomach emptying and decreases blood sugar. That drug, cagrisema, led to 16% weight loss over 32 weeks.
Both pharmaceutical stocks have high ratings now, according to IBD Digital. Lilly's Relative Strength Rating is 92 out of a best-possible 99. This means shares rank in the top 8% of all stocks in terms of 12-month performance. Novo stock has an RS Rating of 87.
Improvements In Obesity Treatment
Weight-loss drugs have plenty of room to improve, which is why even leaders Novo Nordisk and Lilly are working to replace their own products in the market.
The current suite of GLP-1-focused drugs can cause gastrointestinal side effects like diarrhea and nausea. For that reason, doctors must slowly increase patients' dosage to get them to the ideal level. Further, the weight loss is generally tied to a decrease in lean muscle mass. As a result, when patients stop taking their obesity treatments, they often regain the weight. And some patients don't respond to treatment.
Lilly is working on the muscle loss component with the just-announced acquisition of privately held Versanis Bio. Versanis believes its drug, bimagrumab, can increase fat loss while maintaining muscle mass when used in conjunction with GLP-1 drugs like Mounjaro.
Despite the side effects, the drugs remain in high demand. Bank of America's Meacham says 70% of patients in a recent survey haven't been limited by the side effects.
Dr. Rekha Kumar, Found's chief medical officer, says people bothered by side effects and "using these meds for vanity probably shouldn't be on the medicine anyway." She says there's been inappropriate use of the drugs in people who aren't diagnosed with obesity or being overweight.
Marie Fischer-Sabatie, an analyst with Moody's Investors Service, notes the label for Mounjaro includes a black box warning for the risk of thyroid cancer.
"There is also a higher risk of misuse of these drugs, with people without obesity taking the drug to lose weight," she said in a November report. "While this use would be off-label, it could still create some reputational issues for pharmaceutical companies commercializing these drugs."
Next-Generation Weight Loss Drugs
The next generation of weight-loss drugs could involve oral medications or less frequent injections.
Meacham, of Bank of America, says injectable drugs will be the clear winner due to onerous requirements for food and water intake timed with oral pills. But Moody's analyst Fischer-Sabatie says oral drugs will add to the broader audience for weight loss drugs, rather than draw from the injectables market.
"I hear a lot of complaints from my patients about how frustrating Wegovy's injectable dosing schedule can be," Ambari Nutrition Chief Executive Dr. Kevin Huffman said in an email. Ambari sells packaged meals for weight loss. "This leads me to believe that if an oral alternative were available with a much simpler dosing schedule, its uptake and popularity would surge upon its release."
But oral weight-loss drugs present their own challenges for pharmaceutical stocks.
Novo sells Rybelsus, an oral version of semaglutide, for patients with type 2 diabetes. Patients must take the pill with specific timing in regards to food and liquid consumption to ensure proper absorption. For that reason, Rybelsus' uptake hasn't been as strong as analysts hoped.
And Pfizer recently dropped a once-daily pill for diabetes and weight loss that caused elevated liver enzymes. Instead, Pfizer is moving ahead with a twice-daily pill. Analysts say this presents Pfizer with a huge commercial challenge. Pfizer says it's working on a new formula for a once-daily pill.
New Injectable Weight Loss Drugs Could Be Key
Novo Nordisk is working on a high-dose version of oral semaglutide, which it says could be even more effective in treating type 2 diabetes and obesity.
Coyle, the ZS analyst, says oral medications could democratize weight-loss drugs, opening up the class in areas where it's hard to store injectables. They could also help patients afraid of injecting themselves.
"This is a huge category," he said. "I see room for a lot of these different opportunities."
But new injectables could require less frequent shots or have higher effectiveness.
Novo's Wegovy and Lilly's Mounjaro use peptides in their molecular structure. Peptide-based drugs have a short half-life — they don't linger long in the body. But Amgen linked its peptides to an antibody, so the drug can stay in the body longer. A single shot of Amgen's AMG 133 led to 7.2% weight loss over three months. With monthly shots, patients lost 14.5% of their body weight, at the highest dose.
Insurance Coverage For Obesity Treatment
But some analysts following pharmaceutical stocks say obesity treatments will only broadly make their mark if they receive insurance coverage. Almost half of people surveyed by Bank of America said they would pay at most $100 each month in cash to receive GLP-1 drugs for weight loss.
Coyle, of ZS, on the other hand, thinks people will continue paying cash for weight-loss drugs.
"I think we'll see people pay out of pocket," he said. "If you think about all the other things people spend money on to lose weight — diets, meal programs, gym memberships, apps — it's reasonable to believe there will be a robust willingness to pay if they can't get insurance coverage."
Bank of America's Meacham says it's a matter of "when, not if," insurance companies cover obesity treatments. To do so, they will have to make a cost vs. benefit analysis. There's a significant short-term cost to putting everyone eligible on weight-loss drugs, Coyle says. But there's also a long-term benefit.
Bariatric surgery runs about $15,000-$25,000 in the U.S. It can lead to loss of up to 30% of a patient's body weight, Moody's Fischer-Sabatie said. In comparison, Wegovy costs $1,349 monthly before insurance kicks in. Mounjaro's cost in diabetes treatment is $1,087. For a year's worth of treatment, that comes out to $16,188 and $13,044, respectively. And weight-loss drugs aren't permanent solutions.
"Cost efficiency will eventually depend on the length of weight-loss drug treatment," she said. "Bariatric surgery is a one-off treatment, whereas weight-loss drugs have to be taken over a period of time, which can range from months to potentially indefinitely."
A Troublesome Law For Pharmaceutical Stocks
One problem for pharmaceutical stocks is the 2006 Medicare Prescription Drug, Improvement and Modernization Act, which prohibited Medicare from covering the cost of treatments for obesity, according to researchers from the University of Southern California's Leonard D. Schaeffer Center for Health Policy and Economics.
In an April report, they estimated the cumulative social benefit of Medicare coverage for obesity treatments over the next decade would reach almost $1 trillion. That's in costs saved due to obesity-related medicines and treatments. Yet federal law constrains access to less than 1% of eligible patients, they said.
"The status quo — Medicare's denial of coverage for weight-loss drugs — is a vestige of the days when obesity was considered a lifestyle choice, rather than a serious health concern, and Medicare's associated prohibition on coverage for drugs that were considered cosmetic," the researchers wrote.
In a bid to expand coverage for weight-loss drugs, companies are working to prove lower weight can have an impact on related diseases like diabetes, cardiovascular outcomes, fatty liver disease, obstructive sleep apnea and some neurodegenerative conditions.
Investors in biotech and pharmaceutical stocks are watching these efforts closely.
Morningstar's Andersen says Novo Nordisk is studying the impact of Wegovy in reducing cardiovascular outcomes like heart attacks and strokes.
"If they can actually get proof that by, yes, using Wegovy and losing weight, patients are having fewer heart attacks and strokes, that's something that I think very clearly makes the case this is not a cosmetic issue, this is a health issue," she said. "That should help boost coverage with private payers and also help (make) the case for Medicare covering obesity treatments as well."
But Simmer, the Found CEO, says insurers should put some steps in place before patients can begin taking a GLP-1 drug.
Weight Loss Drugs Are Costly
Many employers can't afford to have half — or more — of their workforce taking a drug that carries a price tag of $13,000-$16,000 a year in perpetuity. That's a real possibility too. The Centers for Disease Control and Prevention estimates half of U.S. adults will be diagnosed with obesity by 2030. Four years ago, researchers at the Harvard T.H. Chan School of Public Health made a similar prediction.
"If we're going to truly tackle this problem, we can't just put everybody on the most expensive, newest medicine first," Simmer said.
Patients also need to receive help making behavioral modifications, says Dr. Shantanu Gaur, chief executive of Allurion. Allurion makes an inflatable balloon that sits in the stomach for four months to help treat obesity. The balloon is in testing in the U.S. Allurion plans to join medical and pharmaceutical stocks in the U.S. in July, trading with the ticker ALUR after closing a special purpose acquisition deal with Compute Health Acquisition Corp.
Allurion also has an artificial intelligence-based program coupled with a coaching platform to help patients make behavioral changes. After a year, patients in Allurion's studies have kept off 95% of the weight they lost in the first four months.
Gaur says this behavioral change method should be coupled with weight-loss drugs.
"GLP-1 is a hormone that has very potent effects on someone's underlying biology and physiology," he told IBD. "And if it's not accompanied by any sort of behavior change program, or change to the patient's lifestyle or change to their habits, as soon as the drug is discontinued the patient will (regress) almost immediately."
Pharmaceutical Stocks Eye Huge Revenue
However you slice it, the market for obesity treatments will be huge — and investors in pharmaceutical stocks are watching.
Bank of America's Meacham estimates Lilly's Mounjaro will log $22 billion in 2030 sales as a diabetes treatment. He says it will see $19 billion as a weight-loss drug. Across seven potential uses — type 2 diabetes, obesity, chronic kidney disease, obstructive sleep apnea, nonalcoholic steatohepatitis, early diabetes and heart failure — Lilly's drug could be a powerhouse. He estimates it could bring in $100 billion in 2033 sales.
Fischer-Sabatie believes Novo Nordisk will retain the near-term lead. She expects Wegovy to generate $8 billion in 2025 sales, double her $4 billion projection for Mounjaro.
Room For Competition
Many experts say Novo and Lilly will retain their market leadership for some time. But that doesn't mean there isn't room for new competitors to find their own niches.
David Reese, Amgen's executive vice president of research and development, notes obesity is a complex disease. A medication that works for one patient might not work for another. Amgen has two weight loss drugs in its pipeline, including its leading asset, AMG 133.
There are hundreds of millions of patients with obesity globally, he said on the company's first-quarter earnings conference call.
"This is a disorder that's rooted in human evolution and now is a function of our environment," he said. "And so our development program for both 133 and for the molecules that will follow behind really intends to capitalize on the fact that there's a very large volume of patients."
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
