Portfolio Manager, U.S. Equity
Research Analyst, U.S. Equity
Weight loss drugs generated tremendous attention in 2023 and that excitement is still growing. Biotech experts have called glucagon-like peptide-1 drugs (GLP-1s) the story of the decade. Obesity is a debilitating chronic disease affecting roughly one in three Americans.1 Analysts’ forecasts, on average, call for these drugs to generate as much as USD100 billion in revenue by 2030.2
Data from the largest clinical trial of GLP-1s to date (the SELECT trial of nearly 18,000 participants) showed in November 2023 that Wegovy (Novo Nordisk’s GLP-1 for weight loss) reduced heart attacks, strokes and deaths due to cardiovascular disease and drove a 73% reduction in the progression toward diabetes versus the control group. Subjects who took it had a 19% reduction in all causes of mortality vs. the control group.3 These results make the drug class a life-and-death matter and not just “weight loss drugs.”
We are optimistic the drug class’s physiological effectiveness will eventually be borne out across a variety of medical indications—and we’re optimistic about the drug manufacturers’ business prospects, as well.
Here’s how we are thinking about this evolving opportunity as equity investors, and what we’ll be monitoring as GLP-1s’ impact extends in many new directions.
Could demand for surgeries, devices and health care decline?
Ongoing drug trials are seeking to demonstrate, in the next several years, if GLP-1 drugs are effective at treating and/or reducing rates of obstructive sleep apnea, heart failure, NASH (nonalcoholic steatohepatitis) and MASH (metabolic dysfunction-associated steatohepatitis), chronic kidney disease, peripheral arterial disease, joint replacement, osteoarthritis, Alzheimer’s, cancer and all-cause mortality.4 We have already started to see some of these trials report supportive results. These drugs may even be able to treat alcohol addiction.5
News of these trials will keep the drugmakers in the headlines and potentially add to an already vast number of possible patients (Exhibit 1).
An enormous patient pool suffers from conditions that GLP-1 drugs may address
GLP-1 drugs could eventually cut down the number of costly surgeries and procedures. The SELECT clinical trial results found a statistically significant drop among trial subjects taking a GLP-1 in hospitalizations and surgeries considered serious adverse events.
In the population at large, the volume growth of bariatric surgeries has declined recently, even at GLP-1s’ current adoption rate.6 Fewer surgeries and hospitalizations, as well as a significant reduction in diabetes cases, would cut the cost of patient care. That could save insurance companies money and potentially reduce revenues for hospitals and medical device makers.
Yet countervailing forces may be at work. While a segment of patients will likely avoid surgery or a device implantation thanks to the drugs, dampening demand, a stream of new patients (currently too heavy or unhealthy for these procedures) could take the drugs and qualify to enter the surgical pool. We expect diverse effects in the short and medium terms. Oversold companies may potentially present buying opportunities.
Could food and beverage industries take a large hit?
Further derivative impacts lie outside of health care. Early studies of GLP-1s showed patients decreased their food consumption based on reaching satiety and made broader behavioral shifts as they adopted healthier lifestyles. What that could mean, more specifically:
Food: The U.S. packaged food subsector underperformed the S&P 500 by over 800 basis points in the fourth quarter of 2023. Some stocks that were perceived to be potentially at risk from GLP-1s declined far more. We take a more balanced approach in assessing long-term impacts.
We expect that food, beverage and lifestyle-oriented companies should be among the consumer sectors likely to feel a gradual impact. Our view could change in the medium term, however, if a material portion of the U.S. adult population were to start using GLP-1s and reduced their caloric consumption and changed their eating patterns. Areas that could be disproportionately impacted: snacks, confectionery and “super-use” categories such as alcohol that are consumed by a small fraction of consumers.
Restaurants: The impact on restaurants could be more uneven. While surveys showed people taking the drug didn’t want the same foods in the same quantities,7 restaurants have shown themselves able to adapt to consumer trends. Some companies have already pivoted to healthier, fresher menu options. We are monitoring which restaurants will likely emerge as winners, gaining market share by adapting and offering natural ingredients and/or highly customizable menus, while others that fail to shift with changing customer behaviors may lose share.
Alcoholic beverages: Evidence is emerging that GLP-1s can treat alcohol addiction. About 60%–90% of alcohol volumes are consumed by just 20% of the adult population.8 Should the drugs prove effective in trials, and if enough consumers took the drug and maintained compliance to them, change could be meaningful.
What we’ll be watching
Whether or not GLP-1 drugs are widely adopted across the U.S. and internationally, markets can be driven by emotion and hype—which lends itself to active investing, sizing positions appropriately to account for evolving risks and uncertainties. Among the areas we’ll be monitoring:
- Insurance and managed care. By law, Medicare cannot cover weight loss medications. We see tremendous pressure on the government to change this after the SELECT trial’s demonstration that the drugs’ benefits extend to meaningfully reducing cardiovascular disease and deaths. Even without legal changes, the manufacturers are expanding these drugs’ labels to indications that Medicare does cover, such as cardiovascular and renal disease. We are optimistic that reimbursement policies will change but the timing is uncertain. This state of flux will require investors to be nimble.
- The developing science. An important takeaway from the SELECT trial is that the meaningful benefits from GLP-1s were achieved with only a 9% loss of body weight, on average.4 There are GLP-1 drugs commercially available now, and new iterations currently in trials, with even more significant average weight loss.9 We believe more weight loss could translate to potentially better clinical outcomes. More broadly, active managers that are immersed in meeting with the relevant companies, identifying emerging scientific developments and learning from top experts in the field should be well positioned to capitalize on the opportunity as these drug indications evolve. Investors will also be assessing which companies are accelerating with the trends or are being left behind.
As constructive as we are about GLP-1s’ impact on physical health, it is too soon to confidently predict the magnitude of their impact across companies and industries, within and beyond the health care ecosystem. We recognize that this is a time to have strong convictions, but we keep those convictions loosely held. Winners and losers will emerge over the medium to long term, so we are doing the foundational work now, enabling us to be nimble in the future as facts change and circumstances evolve.