Groundbreaking new anti-obesity drugs are poised to revolutionize the healthcare industry, giving way to tremendous opportunities for investors.
Introduction
At its best, the pharmaceutical industry invents novel drugs that change people’s lives. A new class of drugs called glucagon-like peptide-1 (GLP-1) agonists may do just that for the 42% of American adults suffering from obesity — a condition for which, until now, medical treatments have been largely unsuccessful. This article explores the potential for these new medications to reshape how we treat obesity and its many related conditions. Widespread adoption of GLP-1s will significantly affect our healthcare system and create winners and losers in other industries.
Thinner, Faster
Ozempic and Wegovy have dominated headlines of late, and for good reason. Demand has outstripped supply to such a degree that Novo Nordisk, the Danish pharmaceutical company that manufactures the drugs, has temporarily restricted the supply of starter doses as it races to expand capacity to meet this surge in demand.
Ozempic and Wegovy are different brand names for the same drug, semaglutide, which was initially developed for diabetes treatment in 2017. In trials, Novo Nordisk found that Ozempic not only controlled blood sugar in diabetic patients but also produced significant weight loss. This discovery led the company to develop semaglutide under the brand name Wegovy as a standalone weight-loss therapy. Novo Nordisk received FDA approval for Wegovy and began marketing it to non-diabetic obese patients in 2021.
Obesity Drug Market Expected to Grow Swiftly and Steadily
Source: Morgan Stanley
The clinical effectiveness of Wegovy is remarkable. Across a number of trials, Novo Nordisk showed that roughly 75% of those receiving the drug lost more than 10% of their body weight, while more than 30% of patients shed over 20%. On average, patients on Wegovy lost 17% of their starting body weight, compared to a 2% reduction on a placebo.
Novo Nordisk is one of two leading innovators in the field of GLP-1s for anti-obesity alongside Eli Lilly, a U.S. pharmaceutical firm. Eli Lilly’s rival drug, tirzepatide, is only approved for diabetes and marketed as Mounjaro. We expect the U.S. FDA will soon approve tirzepatide for treating obesity, where its weight loss benefits are highly comparable to Wegovy.
Once the FDA approves Lilly’s tirzepatide, U.S. patients with obesity will, for the first time, have two highly effective agents to achieve weight loss. This is a game-changer for treating obesity, affecting 100 million Americans and over 760 million people globally.
The size of the prize is enormous. GLP1s have the potential to help hundreds of millions of patients around the world, potentially making this one of the largest classes of medicines in history. Morgan Stanley estimates that the global revenue potential for anti-obesity medication could reach nearly $80 billion by 2030, with Novo Nordisk and Eli Lilly capturing most of those sales.
Why Stop with Weight?
A recent finding shows that the benefits do not stop with weight loss. Patients with obesity are at much higher risk of developing complications such as hypertension, chronic kidney disease, and heart failure. Almost 90% of the people with obesity or overweight in the U.S. have a weight-related comorbidity. Can GLP-1s help these patients achieve lower body weights, reduce comorbidity risks, and extend their lifespans?
Novo Nordisk’s landmark SELECT trial shows that they can. Semaglutide slashed the risk of major adverse cardiovascular events, such as heart attack and stroke, by 20% in obese patients with prior cardiovascular disease. The study was the largest one the company has ever conducted, enrolling more than 17,500 patients across 41 countries. Evidence like this should be highly compelling to patients, doctors, and healthcare systems weighing the benefits of GLP-1s.
A Paradigm Shift: Obesity as a Medical Disease
The stunning success of GLP-1 drugs has ignited widespread discussion about how healthcare systems should approach the obesity epidemic. By addressing the interconnectedness of obesity, diabetes, and cardiovascular health, GLP-1s are challenging the long-held belief that obesity is solely a consequence of unhealthy lifestyle choices. Instead, the narrative is now evolving to reconsider obesity as a medical condition similar to other chronic diseases and to embrace medication-based solutions that target hormonal regulation. This represents a paradigm shift in how healthcare systems treat obesity.
It is also important to acknowledge that although we may be witnessing a transformational shift in obesity management, the cost of these medications remains a substantial hurdle. Without insurance coverage, the list price of taking Wegovy is approximately $1,300 per month. The net price after rebates will be substantially lower as insurers and payors negotiate discounted pricing. For many patients with commercial insurance, out-of-pocket expenses will be minimal.
But the costs to the healthcare systems will be significant, at least initially. To successfully lose weight, the drug must be taken continually over months, possibly a lifetime for some individuals. This is where Novo Nordisk’s SELECT trial, mentioned above, provides critical evidence. Focusing only on the drugs’ costs misses the potential benefits to healthcare systems of reduced mortality and morbidity. We believe this analysis will increasingly favor GLP-1s as payors factor in the substantial benefits of reduced incidence of heart attack, stroke, diabetes, NASH, and other comorbidities that strain healthcare systems enormously.
According to a health policy study performed by the University of Southern California (USC), illustrated below, if Medicare were to provide coverage for new obesity treatments, it would generate $175 billion to $245 billion in cost reductions for Medicare within the first decade alone.
Medicare Cost Savings and Social Value Gains Are Immense
Source: USC Health Policy White Paper
The study also revealed that the positive effects extend beyond Medicare cost savings. If all eligible Americans were treated, the prevalence of obesity would fall by over 50% after the first decade. Society could reap as much as $100 billion per year in social benefits, or $1 trillion in a decade, due to reduced healthcare spending and increased quality of life from diminished disability and pain.
We have not considered a final factor that may encourage even greater GLP-1 adoption over the long run: falling prices. Over time, as manufacturers like Novo Nordisk and Eli Lilly achieve greater production scale and governments and insurers push for lower prices, we expect net prices to fall dramatically. In the long run, a weekly GLP-1 injection could be cheaper than your daily coffee fix.
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