Weight-loss drugs take the world by
A trend is sweeping the world: the "weight-loss injection". Elon Musk has admitted to losing weight with the help of Ozempic, and Kim Kardashian is also rumoured to have done so. The hashtag Ozempic is trending on TikTok, a social media platform. The medication, which is initially meant for diabtes patients is now also often used off-label for weight-loss. For many people the prospect of quickly losing weight with the help of the drugs is tempting even if they don't fall into the main target group for the medication.
By Sebastian Hofbeck, Analyst for the Healthcare sector at DJE Kapital AG
What’s clear is that he hype surrounding the "weight loss injection" is enormous. So much that, companies can no longer keep up with the production of the diabetes and obesity drugs. And this also impacts the stock market.
How do GLP-1s work?
The active ingredient in the drugs used for weight-loss is a semaglutide, which is a GLP-1 receptor agonist. Only Wegovy from Novo Nordisk (in Europe and the USA) and Zepbound from Eli Lilly (only in the USA) are currently authorised for the treatment of obesity. Both drugs are injected under the skin once a week by the patient using a pre-filled syringe. Wegovy costs around €328 per month in Germany, while the list price in the USA is $1,350 per month, although the list price is very rarely paid in the USA. Both drugs are officially approved for adults with a body mass index (BMI) of 30 or more (for a man of average height (1.79m) this corresponds to a body weight of at least 96kg), and for adults with at least one weight-related concomitant disease with a BMI of 27 or more. Like Ozempic, which is approved for the treatment of type 2 diabetes, Wegovy contains the active ingredient semaglutide. Like the body's own GLP-1 hormone found in the intestine, it increases the amount of insulin released in the pancreas. Insulin promotes the absorption of glucose from the blood, which helps to control blood sugar levels. The active ingredient also acts in the brain. This activates neuronal areas that are responsible for regulating appetite.
In the studies conducted to date, both drugs have shown significant weight reduction rates (15 to 22 per cent after 68 to 72 weeks). However, further studies have also shown that weight regain occurs after discontinuation of the drug. This suggests that the drug must be taken permanently to achieve the desired effect.
Another much-discussed issue with GLP-1 drugs is the side effects. The European Medicines Agency (EMA) lists headaches, nausea, vomiting, diarrhoea, constipation and abdominal pain as very common side effects. Other serious side effects such as inflammation of the pancreas or gallbladder as well as gallstones can occur in isolated cases. In addition, there are repeated media reports of suicidal thoughts among users. This is currently being investigated by the EMA.
Obesity: a disease of "epidemic proportions"
More than 650 million people worldwide now live with obesity (BMI ≥ 30). According to the WHO, obesity has reached "epidemic proportions". It is estimated that more than one billion people will suffer from obesity by the end of the decade. Contrary to popular belief, obesity is not a result of a lack of self-restraint. According to Prof John Wass of Oxford University, appetite and satiety are hereditary and 70 per cent of body weight is genetic, which is why it makes sense to treat obesity as a chronic, intermittent disease.
According to estimates by the World Obesity Atlas 2023, the economic impact of obesity in 2020, which includes indirect effects as well as direct medical costs, amounted to almost two trillion US dollars, which corresponds to around 2.4 per cent of global gross domestic product. By 2035, they expect these costs to rise to over four trillion US dollars (around three per cent of global GDP in 2035). This illustrates the incredible potential for drugs in the field of diabetes and obesity. Analysts from various investment banks estimate the size of the market will be almost USD 100 billion by 2030 - others put the figure even higher.
The impact of weight-loss drugs is far reaching
Obese patients often also suffer from concomitant diseases, including depression, Alzheimer's, sleep apnoea, heart failure or chronic kidney failure. Both Eli Lilly and Novo Nordisk are conducting research about the effectiveness of their drugs against some of these diseases. Recently, Novo Nordisk has shown promising results for the use of their drug against cardiovascular disease (SELECT study) and chronic renal failure (FLOW study). These positive results increase the scope of application of the drugs and the addressable market for the companies, which has led to corresponding share price reactions.
On the other hand, the share prices of potential GLP-1 losers fell sharply. One example of this is a provider of tissue glucose monitoring, which fell by nine per cent on the day the positive SELECT study was published, as the market anticipated that fewer of these devices would be needed in future. Overall, the company lost 40 per cent of its market capitalisation within a few weeks. Some dialysis operators suffered a similar fate. They lost almost 17 per cent on the day the FLOW study was published, as investors assumed that there would be fewer dialysis patients in the future. While these share price movements are understandable against the background that the share price reflects the expectation of a company's future business development, the swings also appear exaggerated. After all, the true effect on this group of drugs is not yet clear for both the tissue glucose measurement provider and the dialysis operators.
One dialysis operator, for example, says that it will take more than a decade to see the impact of GLP-1 drugs on patient volumes play out.
Investors and analysts are also speculating about the impact of GLP-1 drugs on other sectors. One of the affected sectors could be Food & Beverage. According to Walmart CEO John Furner, there have already been changes in customer behaviour. He said people who take GLP-1s are buying fewer items and, above all, fewer high-calorie foods. Furthermore, analysts expect a positive effect on the clothing industry, as people who lose weight through GLP-1s will buy new clothes. Moreover, analysts see a negative effect on the gambling industry. In other words, this group of pharmaceuticals has really captured public imagination. Some companies are even offering "weight loss injections" as the latest corporate benefit for their employees.
Is it a bubble?
There are hardly any investors without shares of Eli Lilly and Novo Nordisk in their portfolio. Analysts continue to raise their estimates to justify ever higher price targets. The GLP-1 winner "basket", in which investment banks group together potential winners of the GLP-1 trend, has clearly outperformed the GLP-1 loser "basket" in recent months. Overall, price gains in the healthcare sector in recent years have mainly come from these stocks, making Eli Lilly the largest pharmaceutical company in the world and Novo Nordisk the largest European company by market capitalisation.
Nevertheless, the two companies are also facing challenges. One of the biggest is being able to meet the enormous demand. In addition, questions remain as to how long patients will continue the therapy and who will cover the costs. One of the largest health insurance companies in the USA pointed out in its last quarterly report that the costs of GLP-1 treatments are already too high. It is therefore conceivable that only patients with proven additional benefits, such as cardiovascular diseases, will be covered. In addition, more and more competition is entering the market. Other pharmaceutical companies such as AstraZeneca are researching to develop their own drugs for this field. It is therefore important for Eli Lilly and Novo Nordisk to start researching the next generation now. If these studies do not show the desired effect, this would be very negative for the companies. However, the greatest risk comes from so-called black swans, i.e. unforeseen events. If one of the numerous studies were to reveal serious risks or side effects, for example, this would be fatal for shares.
The megatrend in everyone’s portfolio
It’s expected that the diabetes and obesity megatrend will only really pick up speed now. Eli Lilly and Novo Nordisk are positioned for this, but their share prices already reflect this. The majority of market participants think and write favourable about these companies, but this also means that small things can cause major share price movements. Historically, major setbacks have often been good entry opportunities.