More than a billion people are all too familiar with how difficult it is to shed extra weight and keep it off.1 However, until recently, progress in addressing obesity on a large scale produced lackluster results, and public health officials have been increasingly concerned as obesity has grown into a global health crisis.
That’s why the approval and release of weight loss medication in recent years has been such good news. It not only offers hope to those who have been diagnosed with obesity and struggle with controlling their weight, it also helps address a major health crisis facing the world. Concurrently, as the health care and pharmaceutical companies allocate resources and meet the demand for these drugs, it creates an opportunity for investors.
Let’s take a look at the scale of the obesity epidemic, the encouraging results observed in recent clinical studies from new medicines, and how that translates into an investment opportunity.
More than 1 billion people worldwide, amounting to one-eight of the global population, are living with obesity, a figure that has more than doubled since 1990.1 Tragically, at least 2.8 million people are dying each year as a result.2
In the U.S., 43% of adults are now overweight.1 The condition was once thought to largely be a problem in high income countries, but it is now widespread in low- and middle-income countries as well.
It’s also an expensive crisis. The World Obesity Atlas estimates that the total costs attached to obesity – both health care and productivity related – will exceed $4 trillion worldwide by 2035, or about 3.6% of global GDP.3 Data shows that annual health-related spending and out-of-pocket costs are significantly higher for individuals diagnosed with the disease.
If not addressed, based on current trends, over half of the global population will be overweight or obese by 2035, compared to 38% in 2020.3 It could become one of the world’s most prevalent health crises.
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The good news is that in recent years, a new class of drugs, known as glucagon-like peptide 1 receptor agonists drugs (GLP-1s), have proven effective in achieving weight loss. They accomplish this by essentially reducing appetite by stimulating receptors in the gastrointestinal tract and brain to promote insulin synthesis, which helps regulate metabolism and blood glucose levels. The outcome is a reduced sensation of hunger, leading to a decrease in food consumption. Encouragingly, GLP-1 drugs have been in use for over a decade as they were initially used to treat diabetes and the effect on weight loss was a secondary observation. |
10% to 20% Body Weight Reduction |
The drugs are proving to be a significant leap forwards in tackling obesity. Studies have shown that they may reduce consumption of food by 50%, resulting in a reduction in body weight by 10% to 20%.4 This is a significant breakthrough, particularly relative to past attempts in the weight loss drug arena.
Notably, GLP-1’s also seem to cause patients to avoid more processed foods and snacks. In addition, patients have reported a reduction in consumption of alcohol, drugs, and tobacco, as GLP-1 drugs can weaken the brain’s association between stimulus and feelings associated with pleasure.
This may only be the beginning of significant advances in the treatment of obesity and related diseases. There are even indications that the next generation of obesity medicines may deliver even better results.5
Reducing the risk of heart attacks, strokes, and cardiovascular deaths by over 20% |
There’s more good news. The new weight management treatments have implications not just for obesity but for related illnesses as well. These drugs may have broader applications in reducing morbidity rates. For example, a recent landmark obesity study has shown that weight-management medicines are able to reduce the risk of heart attacks, strokes, and cardiovascular deaths by approximately 20%.6 Researchers are also seeing notable health benefits from the drugs in illnesses related to obesity, including diabetes, sleep apnea and even certain types of cancer. This is all good news for public health. |
Not surprisingly, investors are watching these developments with keen interest. There is fierce competition among the firms manufacturing the GLP-1 medicines, and the performance of many of these companies’ stocks have soared in recent months. It is often difficult to pick individual stock winners and losers when a new technology appears, and the current market leaders are positioned well, however, a number of competitors have the potential to disrupt those positions. Those competitors have programs in the approval pipeline with novel mechanisms and potential for superior efficiency, safety, and patient convenience. Therefore, investors interested in investing in companies at the forefront of this medical breakthrough may want to consider a diversified basket of relevant companies.
In addition to drug manufacturers, other beneficiaries of increased adoption of GLP-1 drugs include biotech companies, contract development manufacturing organizations, and drug suppliers and distributors.
The market for these medicines is already massive and continues to grow. Analysts estimate sales of obesity medicines just to treat diabetes will exceed $56 billion in 2030. Recently, the global market for anti-obesity medications (AOMs) reached $6 billion on an annualized basis. Remarkably, by 2030, it could grow by more than 16 times to $130 billion.5
It is worth noting that today less than 1% of the U.S. population is on GLP-1 drugs for weight loss, while approximately 30% of the U.S. population is clinically obese. This suggests the potential for enormous growth just in the U.S. in the years ahead – experts conservatively estimate that approximately 10% of the U.S. population may be on the drug come 2034 – and researchers expect similar growth around the globe.4
Due to surging demand and notable health benefits, it is anticipated that insurance and Medicare coverage will increase substantially. Impressively, predictions suggest that insurance coverage could nearly double in 2024.7
Investing in companies that develop exciting new medicines like GLP-1 weight loss treatments are a good example of thematic investing -- capturing opportunities presented by technological innovations like the development of new medicines that could transform society and the global economy. The effort to combat obesity and related diseases will take years if not longer, but we believe it offers enormous potential for long-term investors.
Definition:
CAGR is the compound annual growth rate.
1https://www.who.int/news/item/01-03-2024-one-in-eight-people-are-now-living-with-obesity
2https://www.who.int/news-room/facts-in-pictures/detail/6-facts-on-obesity
3 https://data.worldobesity.org/publications/WOF-Obesity-Atlas-V5.pdf
4 https://www.morganstanley.com/im/en-us/individual-investor/insights/articles/glp1-the-weight-of-speculation.html
5 Why the anti-obesity drug market could grow to $100 billion by 2030 (goldmansachs.com) | Goldman Sachs raises obesity drug market estimate to $130B (seekingalpha.com)
6 Medscape: https://www.medscape.com/viewarticle/995270?form=fpf 0
7 https://www.reuters.com/business/healthcare-pharmaceuticals/us-employers-covering-weight-loss-drugs-could-nearly-double-2024-survey-2023-10-09/
Health care companies are subject to extensive government regulation and their profitability can be significantly affected by restrictions on government reimbursement for medical expenses, rising costs and pricing pressure. Health care and pharmaceutical companies are heavily dependent on obtaining and defending patents, which may be time consuming and costly, and the expiration of patents may also adversely affect the profitability of the companies. These companies are also subject to extensive litigation based on product liability and similar claims. In addition, their products can become obsolete due to industry innovation, changes in technologies, competition or other market developments.