We look at whether there's still an opportunity to profit from the boom in drugs like Ozempic and Wegovy.
Weight-loss drugs have become a global phenomenon over the past couple of years – but is it too late for investors to cash in on the trend?
Here we take a look at the anti-obesity medications, highlight the companies behind them, and consider the various ways of getting involved.
Background
Obesity has become a major problem. In 2022, a staggering 2.5 billion adults were overweight, with 890 million classed as obese, according to the World Health Organization.
Its study found that worldwide adult obesity had more than doubled since 1990, while cases of adolescent obesity had quadrupled.
Overweight and obesity result from an imbalance of energy intake (diet) and energy expenditure (physical activity),” it stated.
What is the market potential?
The global economic impact of the problem will reach $4.32 trillion annually by 2035 if prevention and treatment don’t improve, according to the World Obesity Federation.
“At nearly 3% of global GDP, this is on a par with the financial impact of the COVID-19 pandemic in 2020,” it stated.
Unsurprisingly, the international market for anti-obesity medications is currently $6 billion – but it could grow by more than 16 times to $100 billion by 2030, according to Goldman Sachs Research.
What are weight-loss drugs?
The boom in weight-loss drugs followed the discovery that GLP-1 antagonists, used to treat diabetes, also suppressed appetite and reduced calorie intake.
Their success is expected to result in 15 million obese patients in the US being on such medications by the end of the decade, according to Chris Schott, a senior analyst at JP Morgan.
“The newest generations of GLP-1s and combos lead to 15–25+% weight loss on average, well above prior generations of products,” he said.
Who are the main manufacturers?
While several pharmaceutical companies are actively involved in developing anti-obesity treatments, two companies are ahead of the pack: Novo Nordisk and Eli Lilly.
Danish pharma giant Novo Nordisk is behind Ozempic and Wegovy, while US-based Eli Lilly produces Mounjaro.
However, Roche, Amgen and Pfizer are also exploring the area. In fact, Roche recently announced successful early-stage trial results for its experimental obesity treatment.
Share price boom
The booming sales of weight-loss treatments have helped lift the share prices of both Novo Nordisk and Eli Lilly over the past 12 months.
Eli Lilly has enjoyed an 89% rise from $427.31 to $808.45 in the year to May 23, 2004, while Novo Nordisk went up 68% from $80.89 to $135.57. But have they reached a ceiling?
Karen Anderson, equity strategist at Morningstar, believes the two companies will continue dominating the market over the near to mid-term but urged caution.
“We see Novo Nordisk and Eli Lilly as overvalued, as we think the market is moving on momentum and has strayed from any assessment of the fundamental long-term value of these firms,” she said.
Opportunities for investors
Russ Mould, investment director at AJ Bell, said weight-loss drugs “remain a hot topic”, with investors latching on to any positive news in the broader space.
“Big share price gains have already been recorded with weight-loss champions Novo Nordisk and Eli Lilly so investors are keen to find new ways to play the theme,” he said.
According to Morningstar’s Karen Andersen, Amgen looks fairly valued and there’s “strong potential” for its phase two obesity drug program, MariTide.
“We think Pfizer and Roche look undervalued due to pessimism around growth prospects for their broader portfolios, but both have obesity pipelines, and Roche just presented strong phase one data that should allow them to enter phase two this year,” she said.
How to get involved
The most obvious way to invest in this area is by buying shares in the companies involved in producing these weight-loss drugs.
However, even single shares cost hundreds of pounds and there's no guarantee that the price will continue to rise.
Ben Yearsley, investment consultant at Fairview Investing, doesn’t advise buying individual companies due to the stock-specific – and currency – risks involved.
He suggests getting access to this area via an investment fund whose manager will be responsible for choosing a diversified combination of companies.
“You are better off buying a healthcare fund such as the Polar Capital Global Healthcare Trust,” he said. “It has Eli Lilly in its 10 largest holdings.”
Another alternative is the European Opportunities Trust.
“It has held Novo for many years and is currently a 15% weight,” he said. “However, it’s not a specialist healthcare fund so may not necessarily have Novo in the future.”
The information included in this article does not constitute regulated financial advice. You should seek independent, professional financial advice before making any investment decision.