Anti-obesity medication sales have increased ten-fold to around $30bn in just the last four years.
The introduction of hormone-based medicines, which primarily mimic a naturally occurring chemical messenger known as GLP-1, has transformed the landscape.
Tackling obesity can potentially help reduce the socio-economic burden of multiple diseases like heart disease and even Alzheimer's.
As a long-term therapy, there’s also the potential for years of recurring revenue for drug makers, and plenty of room for further growth.
In the US alone, around 40% of adults are considered clinically obese, with only 6% of the population taking GLP-1s. This and the continued international roll-out of GLP-1s provide some comfort for forecasts that the market will exceed $100bn by 2030.
Right now, the market is dominated by just two players.
But such mouth-watering market dynamics are bound to attract competition, and the research pipeline is becoming quite crowded.
We think the market is big enough to absorb the competition, but it’s becoming a more challenging space to navigate.
Just how high expectations are running was recently demonstrated when Novo Nordisk, one of the architects of the current boom, saw its CEO ousted just a few weeks after the company downgraded its guidance.
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What challenges does the weight-loss drug industry face?
One of the key challenges for this class of medicine in recent years has been keeping up with demand.
Shortages in the US have been overcome for now, and, unregulated alternatives have now been banned. But given their lower price point, there’s no guarantee all of that revenue will transfer over to the manufacturers of the licensed medicines.
In the ongoing race to win market share, the market leaders have also been offering significant discounts to US patients who aren’t covered by insurance.
Donald Trump’s intention to bring US drug pricing in line with other countries could be another headwind, although the final implications are far from clear.
On a similar note, the potential for the industry to face higher tariffs on exports also remains on the table, with the risk weighted towards producers outside of the US.
What’s next for weight-loss drug stocks?
While the market leaders are well placed to drive further research and development breakthroughs in the space, there’s a very busy pipeline with many other names looking to grab a piece of the pie.
There are at least 100 experimental and clinical development programs in the pipeline for obesity and related conditions.
We’ve reviewed some of the key clinical trials being conducted over the next 18 months. Novo and Lilly each have over 10 weight-loss trials in the pipeline for new and existing drugs. There are others in the race too but it could be a long way to go before new product approvals are in sight.
While there’s no guarantee any of these will come to market, positive data from the emerging competition has the potential to damage investor sentiment towards the dominant names and also raise the profile of companies that have yet to bring a product to market.
We’ll also be closely watching the clinical results of companies that already have market-authorised products. Progress or disappointments regarding oral formulations, safer treatments, approvals for different disease areas, and next-generation therapies could all move the dial.
Who’s currently leading the pack?
The Danish company, Novo Nordisk was early to market with GLP-1 therapies for obesity with its once weekly injection of Semaglutide, branded as Wegovy for obesity and Ozempic for diabetes.
Its growth rates have been impressive, but they’ve been slowing largely due to the entry of a rival.
Combined with some disappointments in the clinic, this has weighed heavily on the valuation and cost the CEO his job.
Novo Nordisk’s European origins could also place it at a disadvantage should the US bring in tariffs on pharmaceuticals.
While the weakness in the valuation could present an opportunity to invest in one of the market leaders, the new and as yet unannounced captain has their work cut out to restore investor confidence.
Sales growth will be one focus but also delivery of the clinical pipeline, which as with all drug development, comes with a significant risk of failure.
US-based Eli Lilly has now taken pole position in terms of market share, and growth this year is expected to outpace its Danish rival again.
Its GLP-1 has now been validated as the more effective product, and it also compares favourably on price.
Looking beyond GLP-1s, the company’s seen some notable successes in other types of medicine. These positives have earned its valuation a premium rating, which means there’s little scope for disappointment.
Given the rapid pace of development within the industry, it’s going to have to work hard to maintain its leading position.
How’s the competition looking?
There are several big pharma names trying to break into this market with new products. But there are still a lot of hoops to jump through before these can earn a place on pharmacy shelves.
With that in mind, it makes sense to evaluate the investment potential of these companies based on their broader business strategies and performance in markets where they’re already established.
With growing competition, some companies are choosing not to plough huge sums directly into the development of obesity treatments. But given their growing usage, that does open up the potential for complementary research in conditions like fibrosis.
There are also a number of smaller listed companies in the race who haven’t yet generated any revenue. But these come with a higher level of risk. We prefer to focus on companies with a more established track record of clinical and commercial success.
What else investors need to consider – environmental, social and governance risks
There are ethical considerations investors might want to take into account.
While these treatments were developed to address serious medical conditions, like type 2 diabetes, they’re increasingly being used for aesthetic reasons outside of their approved use-case.
As appearance-related demand goes up, so do availability and affordability risks as supply chains are squeezed.
Manufacturers that pile investment into marketing these off-label products could be exposed to regulatory scrutiny and legal implications.
Users must also continuously use these drugs for them to work, positioning them more as a long-term treatment than a preventative solution. User-dependency heightens concerns around how long people will be able to afford them for.
But it also poses sustainability risks.
One forecast suggests the growth in single-use autoinjectors could equate to 35,000 tonnes of waste by 2030.
Side effects from long-term usage are also somewhat unknown.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
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