We see a significant market for highly effective weight loss drugs that appear destined to transform the medical treatment of obesity.
In recent years, both public and private market investors in life sciences have been keenly focused on determining which opportunities have been overhyped—in other words, overpriced or simply unrealistic—and which may live up to or even exceed expectations.
Obesity drugs have emerged at the epicenter of this conversation.
In the summer of 2021, Novo Nordisk launched injectable weight loss drug Wegovy, a higher dosage version of its five-year-old medication Ozempic (or semaglutide). The Danish company originally marketed semaglutide, a synthetic, lab-engineered hormone, to control high blood sugar and treat Type 2 diabetes. It wasn’t until patients reported significant and rapid weight loss that Novo Nordisk began to consider using semaglutide as a potential treatment for obesity—and Wegovy was born.
Now, after a slew of positive weight loss trial data and U.S. Food and Drug Administration (FDA) approvals, Novo Nordisk’s new drugs are gaining a huge popular following—and generating incredible demand (Exhibit 1). Pharmacies are struggling to keep shelves stocked, and patients are scrambling to find supplies. Wegovy even caught the attention of billionaire entrepreneur Elon Musk, who tweeted about using it for weight loss. But we see these drugs as far more than a social media phenomenon; we believe they hold the potential to transform the medical treatment of obesity for decades to come.
Far-reaching treatment implications—and investment potential
The scale of this health care challenge is significant: Obesity is a debilitating chronic disease that currently affects one in three Americans, according to the National Institutes of Health. Globally, it impacts more than 1 billion individuals, of whom 650 million are adults and 350 million are children and teens.1
Unfortunately for sufferers, obesity is also linked to approximately one-third to one-half of all new diabetes diagnoses in the U.S. each year and is highly correlated to heart disease, which is the No. 1 cause of death in the country.2 Existing treatments, such as lifestyle coaching, dieting and gastric bypass surgery, may have short-term benefits, but unfortunately have limited long-term efficacy.
These staggering statistics come at a real economic cost. In 2016, research study results indicated that the chronic diseases and comorbidities attributed to being overweight cost the U.S. economy nearly USD 2 trillion annually, or more than 9% of GDP.3 Researchers expect this figure to double through this decade.4
Given the potential magnitude of effective weight loss drugs’ impact on society, we believe semaglutide is merely an opening chapter in new drug development; many biotech experts are describing this space as the story of the decade. In fact, by some estimates, the burgeoning industry may produce as much as USD 100 billion in revenue annually by the end of the decade (Exhibit 2).
Understanding the mechanism at work
So how does the active ingredient in Ozempic and Wegovy work? Once in the body, semaglutide mimics a natural hormone called glucagon-like peptide-1 (GLP-1), which sends a signal to the pancreas to produce more insulin and triggers a decrease in the brain’s awareness of hunger.5 Semaglutide has also been shown to lower blood sugar and slow digestion, so a feeling of fullness lingers for longer.
The medical results have been impressive. In a clinical trial involving nearly 200 patients who were obese or overweight, semaglutide resulted in weight loss of 10%–18% in just a few months.6
Researchers noted some side effects however: Semaglutide reduced fat, but it also led to a loss of healthy lean muscle mass. In studies of the drug’s efficacy and tolerability, some patients experienced mild to moderate gastrointestinal effects, which prompted their doctors to recommend restrictions on food and drink. The formulation of the drug requires specific refrigeration and handling, and administration via self-injection.
Moreover, as with any new treatment, insurance reimbursement policies have yet to be established. Semaglutide, whether prescribed as Ozempic or Wegovy, is costly, running as high as USD 1,500 for a month’s supply.
Looking ahead: the next-generation anti-obesity drugs
Novo Nordisk may have been the first to market with a highly effective treatment for obesity, but it is not the only company focused on developing new weight loss therapeutics. In 2022, U.S. pharmaceutical giant Eli Lilly released an FDA-approved treatment for diabetes, Mounjaro (tirzepatide), that also triggers weight loss (although it is not specifically approved to treat obesity).
The race is on now to find equally effective drugs that can be administered orally with fewer side effects. The latest news comes from Eli Lilly, which is developing a compound called orforglipron that is showing considerable promise in clinical trials as a weight loss therapeutic in a once-a-day pill form.7
Importantly, with such a large unmet need for a chronic disease, the weight loss drug market is unlikely to evolve into a pure winner-takes-all competition; no single drug is likely to dominate market share. There is room for more than one solution, and with significant revenue at stake, big pharmaceutical companies may become increasingly acquisitive in this space over the next decade.
Investment implications
We expect to see powerful fundamental drivers propel value creation in the obesity drug market and more broadly, in life sciences as a whole. The combination of commercial research innovation, faster drug reviews and sustained market growth will continue to drive investment opportunities in the months and years ahead.
What’s more, biotech valuations have been cut nearly in half, presenting investors with a rare, more cost-effective entry point in this space.