Here's a multibillion-dollar idea: A weight-loss shot. At least that's what investors in pharmaceutical stocks like Novo Nordisk, Eli Lilly, Amgen and Pfizer are hoping. They want to see companies parlay their diabetes drugs into obesity treatments with long-term benefits for patients struggling to lose weight.
Danish pharma giant Novo now has two injections for weight loss, including one that launched last year. Novo fashioned both from diabetes treatments. And just this month Lilly unveiled encouraging news about morphing a diabetes treatment into an obesity drug.
The companies didn't set out looking for obesity treatments. Instead, they hoped to improve on their bread-and-butter diabetes drugs. Now, they hope the medications they developed for diabetes can actually treat a cascade of issues associated with excess weight — from heart failure and heightened lipids to nonalcoholic steatohepatitis and even Alzheimer's disease.
Their other goals are equally lofty: Change the conversation around obesity and secure insurance reimbursement for treating what had been considered an aesthetic condition.
"People are really starting to think about diabetes more holistically," Jason Brett, Novo's executive director of medical affairs for obesity, told Investor's Business Daily. "It's part of a cardio-metabolic continuum. We've really seen an evolution in the therapeutic approach to diabetes where it's evolved from a singular focus on glycemic control alone to a more holistic approach in addressing cardiovascular risk reduction."
The shift could bring huge riches for NVO stock and LLY stock as the companies invest in diabetes-turned-obesity treatments. Further, the market for obesity treatments, according to several market researchers, could be around $25 billion to $27 billion in 2027-28, with NVO stock and LLY stock leading the way.
A Paradigm Shift For Pharmaceutical Stocks
The diabetes paradigm shift began in 2008. At that time, the Food and Drug Administration required makers of diabetes drugs to assess whether their meds reduced or exacerbated the likelihood of heart attack, stroke or other cardiovascular conditions, says Jeffrey Emmick, Lilly's vice president of product development.
"We had this evolution that marched us into the cardiovascular field," he told IBD.
Since then, the biggest battle in diabetes treatments rages between NVO stock and LLY stock — the de facto godfathers of the diabetes space. The battle centers on their glucagon-like peptide-1 receptor agonists.
Glucagon-like peptide 1, or GLP-1, is a gut hormone released in response to food. It reduces appetite and releases insulin. Meanwhile, the drugs attempt to activate the receptor in control of that hormone.
Of the eight GLP-1 diabetes treatments on the market, Novo and Lilly sell a combined five. Others come from similarly giant pharmaceutical stocks, AstraZeneca and Sanofi.
Novo's and Lilly's drugs include three that are already approved — or soon could be — for weight loss.
Both NVO stock and LLY stock have climbed on recent news in diabetes and obesity treatments.
Approval Timeline For Diabetes Drugs
Novo Nordisk sells liraglutide and semaglutide in diabetes as Victoza and Ozempic, both injections, and Rybelsus, which is a pill. These drugs also sell with different doses as weight-loss treatments called Saxenda and Wegovy.
Victoza won approval in 2010 to treat diabetes and in 2017 to lower the risk of cardiovascular events in type 2 diabetics. Its Ozempic won the same approvals in 2017 and 2020. Rybelsus won approval for diabetes in 2019.
In weight loss, Novo's Saxenda and Wegovy gained approvals in 2014 and 2021, respectively.
A similar drug from Eli Lilly, Trulicity, gained approval as a diabetes treatment in 2014. Six years later, the Food and Drug Administration granted Trulicity approval to reduce the risk of cardiovascular events.
Its newest diabetes treatment, Mounjaro, gained approval in May. Then on June 4, Lilly unveiled encouraging test results for tirzepatide, the molecule behind Mounjaro, in weight-related diseases. FDA approval to treat obesity is expected in 2024.
Comparing Weight-Loss Drugs
Lilly's tirzepatide is the first in its next-generation class to gain approval. Unlike Lilly's own Trulicity and Novo's Ozempic, Rybelsus and Victoza, Mounjaro targets both GLP-1 and another hormone called glucagon-dependent insulinotropic polypeptide, or GIP, to treat diabetes and, potentially, obesity.
Early studies didn't pan out for targeting GIP alone, says Lilly's Emmick. But the combination work paid off in recent testing. First, the drug binds to GLP-1 to lower glucose levels. That allows the GIP benefit to kick in — decreasing appetite and increasing energy expenditure.
Amgen hopes to follow Lilly with a next-generation approach to GLP-1. Lilly's tirzepatide targets GLP-1 and the other hormone, GIP. Amgen is using a similar mechanism, but it's skipping the line in diabetes and going straight to obesity treatment.
"We don't think of treating obesity and treating diabetes as separate things," Saptarsi Haldar, Amgen's vice president of research for cardio-metabolic disorders, told IBD. "Yes, just treating blood glucose is one thing, but we're actually going after untreated residual risk of cardiovascular disease."
Meanwhile, in recent testing, Lilly examined tirzepatide in adults with obesity or those overweight with at least one related condition, but not diabetes. After 72 weeks, patients lost 16%-22.5% of their body weight, depending on the dosage. That translated to 35-52 pounds.
Shares of LLY stock surged on the news.
In comparison, Novo Nordisk tested Wegovy for 68 weeks as a weight-loss drug. Patients who took it as prescribed lost almost 17% of their body weight, or about 10 to 20 pounds, NVO stock analyst Umer Raffat of Evercore ISI said in a February report to clients.
LLY stock analyst Vamil Divan of Mizuho Securities says Lilly's tirzepatide has set a new bar for weight-loss drugs.
"Tirzepatide's weight loss is so impressive," he told IBD. "There's a much broader opportunity beyond just people with diabetes. It has transformed how we think about the class and diabetes as a pillar with metabolic conditions."
He has a buy rating on LLY stock.
New Entrants In The Diabetes, Obesity Space
Pfizer and Amgen also hope to enter the GLP-1 market. Pfizer is testing GLP-1 pills for diabetes, a tricky proposition. Novo's Rybelsus remains the only oral drug in its class on the market. Patients must take it under strict conditions or it won't absorb properly.
Lee Brown, an NVO stock analyst with research firm Third Bridge, says Wall Street expectations for Rybelsus are roughly $22.5 billion in 2024 sales compared with nearly $71 billion for Ozempic.
"I think this is just reflective of a market that's growing," he told IBD. "There's real interest in GLP-1s as a way to control type 2 diabetes, but also as a way to lose weight."
Will Pharmaceutical Stocks Vie For Space?
When it comes to obesity meds, there's plenty of room for multiple players. Divan estimates 67% of the U.S. population is overweight with a related condition or has obesity. He also forecasts north of $14 billion in 2030 sales for Mounjaro, assuming it gains approval in obesity treatment.
"I think both companies (NVO stock and LLY stock) can do very well given the opportunity in front of them," he said. "But I think tirzepatide will have a bigger impact out of this class. Tirzepatide is well-positioned as the most effective."
"Even the company with less share will still have a very large product on their hands," he said.
Pricing will be key, however, says Evercore's Raffat. Both obesity treatments from Novo — Saxenda and Wegovy — go for a wholesale acquisition cost of $1,349 per month. That stands as the price before discounts and rebates. Mounjaro costs $974 a month, Raffat said. The remaining GLP-1 drugs go for under $900 a month in diabetes treatment.
"So, should Lilly have priced (Mounjaro) for obesity? Or diabetes?" he asked in a recent report.
Can Pharma Stocks Change The Obesity Dynamic?
A better understanding of the causes of obesity will also help drive the need for multiple treatment options, Novo Nordisk's Brett says. He adds that similar to statins in cholesterol treatment, an option that works for one patient might not work for all.
Despite the bullish numbers for Wegovy, just 2% of patients with obesity are treated with medicine. Some receive bariatric surgery. But both Wegovy and tirzepatide outperformed the 10% weight loss that patients typically experience with surgical interventions.
"There's huge room for helping patients and treating them in a more appropriate manner to improve their health," Brett said.
But it's not enough to treat obesity. These companies hope to change the health care system's understanding of obesity and related diseases.
Obesity isn't a matter of willpower, says Brett. But that's often how the insurance world views it. For that reason, getting insurance coverage for obesity treatments can be an uphill battle. Lilly's Emmick says it's time to have a conversation "about what obesity is and what it is not."
Not An Overeating Disorder
"First and foremost, obesity is a disease," Emmick said. "It's a metabolic dysregulation. We talk about a change in set point. It's like a thermostat. The set point is different in those that are overweight or have obesity. And, for them, diet and exercise alone is not all that effective.
"We need to move away from this thought that it's an overeating disorder."
SVB Securities analyst David Risinger expects pharmaceutical stocks Lilly and Novo to drive a new conversation around the treatment of obesity and obesity-related diseases.
Meanwhile, Lilly is running a series of tirzepatide tests called Surmount in heart failure, obesity, cardiovascular outcomes and nonalcoholic steatohepatitis, or NASH. Novo is examining semaglutide — the medicine behind Ozempic/Rybelsus and Wegovy — in cardiovascular outcomes, NASH and Alzheimer's.
Another entrant in obesity treatment could spur broader insurance reimbursement, Risinger said in a recent report.
New Views On Obesity
Lilly will have the results of three new tirzepatide studies in 2023 and its cardiovascular outcomes data in 2024. Novo also will have interim results from a 17,500-person test of Wegovy in cardiovascular outcomes in the third quarter. It's the biggest study the nearly 100-year-old company has ever run.
"We expect tirzepatide's compelling Surmount clinical (studies) program and Novo's forthcoming cardiovascular outcomes (study) results to drive broader payer/employer coverage of both drugs for obesity in the coming years," Risinger said.
Also, Risinger has an outperform rating on pharmaceutical stock Lilly.
Novo estimates 80% of insurers cover Wegovy. But only 40% of employer plans will reimburse for Wegovy treatment due to the costs, Risinger said in his report.
"Employers historically hesitated to cover obesity drugs because they view them as aesthetic agents which did not yield meaningful health benefits," he said. Novo's cardiovascular outcomes test "should succeed this fall and facilitate much broader payer/employer coverage."
Third Bridge's Brown also predicts a changing conversation around obesity. Some of this, he adds, will come thanks to the efforts of pharmaceutical stocks.
"There's a real argument to be made that meaningful weight loss and a reduction in BMI (body mass index) translates to real health benefits," he said. "Everyone buys into the fact that the obesity epidemic is creating a huge drain on health care systems. It would be hard to argue that reversing this trend wouldn't save us a lot of dollars."
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
