Obesity is increasingly commonplace. The food environment has become more ‘obesogenic’, with energy-dense foods cheap, widely available and intensely marketed, while fresh and unprocessed foods are more expensive and harder to access. Modern lifestyles make exercise more difficult. At the same time, governments have been reluctant to tackle the problem in any meaningful way. On current trends, more than half the world will be overweight or obese by 2035.
Obesity comes with a price tag. The NHS estimates that the UK’s weight problem costs almost £100bn a year, with obesity contributing to diabetes, heart disease and arthritis, alongside a whole host of other health conditions. However, initiatives to tackle obesity have been piecemeal and ineffective, with the generic advice of ‘eat less, move more’ failing to make a dent in the problem.
A drugs revolution?
Against this backdrop, the launch of a new generation of drugs to tackle this apparently intractable problem has been welcome. Novo Nordisk currently dominates the market with the brands Ozempic and Wegovy. Ozempic is an established diabetes treatment that can result in weight loss, while Wegovy is a new weight-management medication for obesity. They work by mimicking a hormone produced in the gut, called GLP-1, which regulates blood sugar and signals to the brain when a person is full. These drugs require a prescription from a doctor and are administered by injection, typically once a week.
The GLP-1 active ingredient in both drugs is a semaglutide. In clinical trials, this has demonstrated significant weight loss of 17-18% and notable improvements in heart and kidney function. Overweight or obese patients taking the drug show a 20% reduction in strokes and heart attacks. The drugs have been given celebrity endorsement from personalities such as Boris Johnson, Elon Musk and Sharon Osborne.
Soaring demand means that suppliers are struggling to keep up and, so far, availability has been largely restricted to the US and European countries where the obesity problem is most acute. But Morgan Stanley believes the global obesity market could grow to $77bn by 2030, from just $2.4bn in 2022, as these breakthrough treatments are made available to a global audience.
It is unlikely to remain a one-horse race. At the moment, the main rival to Novo Nordisk is Eli-Lilly’s Zepbound (US) or Tirzepatide (UK) – a rebranded diabetes drug. However, Pfizer has an experimental once-a-day obesity pill called Danuglipron due to be released in the first half of 2024, while AstraZeneca is paying up to $2 billion to license a diabetes and weight-loss pill from China’s Eccogene. The experimental drug is only at the start of multi-stage clinical trials, but early testing suggests it could reduce side effects such as nausea, diarrhoea, vomiting, and abdominal pain. Roche recently agreed to buy obesity-drug developer Carmot Therapeutics for up to $3.1 billion, which gives it a stake in the obesity race as well.
This second wave of drugs aim for similar weight loss results, but with fewer side effects, a lower price point and to come in pill form rather than as injectable treatments. Pills are generally easier and cheaper to manufacture and will be more convenient for users. The hope is that in the not-so-distant future there will be an obesity drug accessible to a much-broader pool of users around the world, including those in low and middle-income countries.
Stock market implications
The impact of these wonder drugs is already being felt in financial markets. It has not only brought about significant gains for the companies that make them – Novo Nordisk saw its share price rise over 50% in 2023 - but also a corresponding decline in companies seen to be contributing to the obesity crisis, including food manufacturers. At the margins, there has also been some impact on the share prices for companies operating in areas such as wearable devices for diabetes and heart valve replacements.
Certainly, people on the new generation drugs appear to eat more fruit and vegetables and weight-loss management foods and less obesity-inducing baked goods, sugary drinks, alcohol, and salty snacks. JP Morgan found that people on weight-loss drugs purchase 8% less food for at-home consumption. It estimates that food intake could decrease by 3% in North America by 2030.
This has weighed on the share prices of groups such as PepsiCo, McDonald’s, Hershey and Heineken. Investors have also been nervous about the potential for regulatory action further in the future. However, investors need to be careful of drawing easy conclusions. Many of these companies also manufacture healthy alternatives, which tend to be higher margin. Diageo, for example, has been launching alcohol-free versions of its most-popular drinks including Guinness beer, Captain Morgan Spiced Gold rum, and both Tanqueray and Gordon’s gin.
It seems likely that many consumer staples groups will find ways to adjust ahead of any regulatory change. Some have started to pivot already. KitKat maker Nestle, for example, is now developing ‘companion products’ to help weight-loss drug users ensure they get enough nutrition and to minimise the loss of lean muscle mass. With this in mind, relative share price declines may not reflect the reality for many of these companies.
The weight loss drugs are a disruptive new development in healthcare. It comes at a time when there are significant breakthroughs across the sector, including treatment for intractable conditions such as Alzheimer’s. Genome sequencing and mRNA technology are allowing more personalised healthcare, and allowing new treatments in areas such as immunology and cancer. The healthcare sector may have an exciting year ahead.
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