Betting big on anti-obesity drugs: a golden opportunity for investorsBetting big on anti-obesity drugs: a golden opportunity for investors

The fight against obesity is entering a promising new phase with GLP-1 drugs like Wegovy and Saxenda, transforming the weight-loss landscape. As the number of obese individuals continues to increase worldwide, these drugs not only offer hope to millions but also present a burgeoning investment opportunity.

Worldwide adult obesity has more than doubled since 1990. Hovering above 40 per cent, the US had one of the world’s highest national share of people with a body mass index (BMI) value above 30 in 2022. Three decades ago, it was slightly under 20 per cent. Worryingly, there are no signs that the prevalence of the health condition will abate in the foreseeable future. Beyond the US shores, the number of obese individuals worldwide is expected to further rise from 980 million to nearly 2 billion from 2022 to 2035. This reflects an increase of 14 per cent of the world’s population to almost 25 per cent during the same period.

Revolution in treatment: GLP-1 drugs

Originally developed for diabetes, GLP-1 drugs are now on the frontline of the obesity battle. Not only do they promise to help individuals with their weight loss, but they may also reduce risks of associated diseases like diabetes and stroke. The popularity of the therapies is also driven by a flurry of activity on social media platforms, with users documenting their transformative weight-loss experiences using GLP-1.

Demand is further supported by the establishment of affordable insurance coverage in the US, where over 70 per cent of the population is overweight or obese. Research is also currently assessing the blockbuster drugs’ potential in reducing inflammation in other vital organs. Leading the market are Eli Lilly and Novo Nordisk, whose drugs like Wegovy, Saxenda, and the newly launched Zepbound, have shown impressive results.

While most US adults have reportedly heard at least ‘a little’ about this new class of GLP-1 drugs, very few of the surveyed had admitted to currently taking a prescription drug for weight loss. As a recent survey conducted by US non-profit organisation Kaiser Family Foundation has revealed, only four per cent admittedly took a prescription drug to lose weight at the time of the survey (H2 2023). Furthermore, one in ten reported that they had previously taken prescription drugs for weight loss but were not using them anymore for a variety of reasons.

The reasons may include the natural plateauing of the body at a certain weight, leading some people to believe that the drugs are no longer effective, uncomfortable side effects experienced by some users (e.g. diarrhoea and nausea), or shortage of the drugs. Given that about nine in 10 US adults (87 per cent) claimed that they have never taken any prescription weight-loss drugs, there may still be further market penetration in the US.

Investment landscape and market dynamics

The economic potential of anti-obesity drugs is enormous, with the market expected to reach US$100 billion by 2030. Against the backdrop of a global prevalence of nearly one billion obese patients, some of whom may require treatment, the current demand far outstrips supply. This has the consequence of leading to shortages and an increase in black-market sales. For instance, worries have surfaced among some medical doctors that a few of their patients (or people who may not have the medical need) may simply switch physicians or resort to dangerous sources for black-market products to satisfy their needs. This mismatch presents a clear signal to investors about the urgency and profitability of expanding production capabilities.

As far as the causes of obesity are concerned, some studies have shown that there are at least 15 genes that may cause obesity, which explains the expanding waistline experienced by some individuals. Other factors include the lack of physical activity, unhealthy eating behaviours, not getting enough good-quality sleep, elevated stress levels, some drugs (e.g. antidepressants or insulin), and the presence of existing illnesses like Cushing’s disease, hypothyroidism, and Prader-Willi syndrome.

For example, a study that weighed and compared portions from 11 eateries in Philadelphia and Paris has revealed that the average size of food portions in the American city is four times larger than that in the French one. Therefore, it is not surprising that a 2024 survey carried out by Pew Research Center has revealed that 57 per cent of the surveyed US adults (over 10,000) have identified diet as the key factor affecting a person’s weight by ‘a great deal’ in comparison with 29 per cent who cited ‘quite a bit’.

Deep dive into financials and future projections

Eli Lilly and Novo Nordisk have already invested heavily, planning capital expenditures of approximately US$30 billion by 2026 to expand their manufacturing capacity. However, the global demand suggests that even these massive investments may not fully meet the needs, pointing to high returns for early investors. The stock performance of these companies has reflected this growth potential, with significant gains since the introduction of these drugs.

Investor's corner: weighing risks and rewards

While the outlook is promising, investors should consider potential risks. Regulatory changes, market saturation, and the development of new treatments could all impact future returns. Additionally, the ethical and health implications of widespread use of these drugs could invite stricter regulations.

Role of smaller players and new entrants

While large pharmaceutical companies like Eli Lilly and Novo Nordisk currently dominate the global obesity market, there is room for other companies to innovate and capture niche markets, potentially offering lucrative returns for investors willing to count on these emerging players.

Conclusion

As the battle against obesity intensifies, the economic implications are profound. Investors looking for the next big thing in healthcare might find it in anti-obesity drugs, which not only promise to improve millions of lives but also offer substantial economic returns. With strategic investment, the financial rewards could be as substantial as the health benefits.

Granted, there are holistic approaches that could help individuals to keep their weight in check, including adhering to a well-balanced diet, adopting regular exercise, and managing stress and anxiety levels. But the fact of the matter is that some patients may need initial help to change their situation and develop the self-discipline and willpower that are key to longer-term healthy living. For this reason, weight-loss drugs like Wegovy and others have gained traction among those seeking to manage their health better.

As the 2024 survey by PEW Research Center has divulged, as many as 65 per cent of US adults – particularly among women and older individuals – are of the opinion that willpower alone is not enough to reduce weight. In other words, the boom in popularity of Wegovy and other weight-loss drugs in combination with lifestyle changes offers a potential turning point in the fight against this mounting health threat and economic burden.

After all, overweight or obese people face a higher risk of developing health conditions, such as coronary heart disease, hypertension, sleep apnoea, strokes, and type 2 diabetes.

For these reasons, the prospects for the weight-loss market remain bright, not least because valuations remain compelling.

Dr. Damien Ng is the Next Generation Research Analyst at Julius Baer.

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