Introduction
Weight loss drugs have taken the pharmaceutical industry by storm and have extraordinary potential to impact the economy in ways investors should be familiar with. Since 2005, big pharma has sought to mass-produce drugs to aid with weight-loss as America’s population has become anything but skinnier. By addressing the global obesity epidemic, these medications will send ripples through various sectors of our economy and change the purchasing habits of consumers using these drugs.
How influential these drugs will ultimately become has yet to be seen as we’re still in the early innings of this weight-loss ball game, but growth projections and recent surges in stock prices of key players in the market (e.g., Novo Nordisk, Eli Lilly) suggest this will be a massive undertaking for the pharmaceutical and healthcare sectors, insurers, and consumer discretionary brands.
Overview of Weight Loss Medications
The term GLP-1 receptor agonists is a mouthful, but we can think of it as being all-encompassing of the major weight-loss medications being currently prescribed. In terms of major players in the market, Eli Lilly produces Mounjaro and Zepbound, and Novo Nordisk produces Ozempic and Wegovy. The main difference between these medications is that Mounjaro and Ozempic are FDA-approved to treat type 2 diabetes, while Zepbound and Wegovy are indicated for weight loss. Several other firms are developing a wide range of similar drugs for both indications.
What’s made these drugs so powerful and so effective is that the GLP-1 receptor agonists contain semaglutide. This ingredient mimics the effects of the GLP-1 hormone, which is involved in appetite regulation. Instead of opting for that second donut, people instead feel full and reduce their overall food intake throughout the day. Recent studies have shown Mounjaro and Zepbound to be more effective as they can target an additional receptor called GIP along with GLP-1 receptors, while Ozempic and Wegovy only target the GLP-1 receptors.
Beyond weight loss, these drugs improve blood sugar control and can have cardiovascular benefits as well. Apart from common side effects, mainly relating to gastrointestinal issues, the cost of these medications is a prominent concern for users as out-of-pocket expenses can approach $1,000, if not more, per month.
Still life of Wegovy an injectable prescription weight loss medicine that has helped people with … [+] obesity. It should be used with a weight loss plan and physical activity. (Photo by: Michael Siluk/UCG/Universal Images Group via Getty Images)
Market Potential
The global obesity epidemic has created a substantial market for effective weight loss solutions. According to a 2022 study by the World Health Organization, more than 1 billion people in the world are living with obesity. If we zoom in on the United States, a CDC study from July 2024 suggests that 39.6% of American adults are classified as obese, 31.6% as overweight, and 7.7% as severely obese. It’s astounding when you add up those figures and see that is 78.9% of American adults. The increasing prevalence of obesity-related conditions such as diabetes, cardiovascular diseases, and certain cancers further amplifies the demand for weight management drugs, as weight loss is typically the first step to managing comorbidities.
Ultimately, the growth in global spending on obesity medications will depend on how long patients stay on the drug and whether the drugs are used to treat other diseases as well. Market analysts predict significant growth in the weight loss drug market with BMO Capital Markets forecasting annual sales for these drugs to reach $150 billion by 2033, according to a recent Reuters article.
As is typically the case following tremendous product growth, the question of a price war arises. Big pharma is facing the challenge of whether current unmet medical needs and consumer demand will be enough to delay competitive price cuts. For now, demand significantly outstrips supply. The population that needs GLP drugs is enormous, and prescribers are increasingly looking to introduce off-label access to these medications. Off-label use occurs when the medication is prescribed for a treatment not specifically approved by the FDA, while on-label use refers to prescribing it for the specific indication of which it is FDA-approved. This distinction is critical as a rise in off-label prescriptions could decrease the availability of weight-loss medications for those who need them most.
It is worth noting that there are efforts under way to both increase the production of these drugs and to bring new alternatives to market. As both of those efforts gain steam, investors will need to see higher prescribing volume and more efficient manufacturing processes to maintain confidence in the earnings of market leaders.
Healthcare and Insurers Adapting to Increasing Demand
Top of mind for the healthcare industry is the potential for a reduction in costs related to managing chronic diseases. Treating patients suffering from cardiovascular diseases and certain cancers is extremely costly, both from a provider and patient perspective. A lighter population means fewer medical interventions and reduced hospital admissions which could impact top line revenues and bottom-line earnings for hospitals and various clinical services down the road.
A reduction in obesity may also mean profit declines for pharmaceutical companies producing insulin and statins – both of which are used to help those suffering from diabetes and high cholesterol levels. As much as Mounjaro is a boon for Eli Lilly, there are some companies who will suffer mightily from a drop in demand for their products.
Cost savings will also trickle down to health insurers, but only after they identify whether and how to cover these drugs. A reduction in obesity-related claims could be substantial in the long-run after overcoming a spike in short-term costs from covering these medications. There’s still a disconnect when determining whether patients are using the medication for type 2 diabetes or weight loss. The latter are currently not being covered by insurance even if the health impacts are significant. That will probably change over time as more supply comes online and the long term cost benefits for insurers become clearer, but for now the weight loss is largely a cost born by the consumer.
On the other hand, we see the life insurance industry benefiting greatly from GLP-1s if the drugs end up leading to longer lifespans. Remember that almost 80% of Americans are considered obese or overweight – this is a massive opportunity for life insurers to earn more income off premiums they charge and defer insurance payouts.
Miami Beach, Florida, convenience store junk food potato chips snack food display. (Photo by: … [+] Jeffrey Greenberg/Universal Images Group via Getty Images)
Healthier Spending Habits and Second Order Effects
We believe consumers using weight loss medications will in turn recreate their spending habits. This offers a unique opportunity within the food & beverage industry for companies like Nestle, Conagra Brands, and Mondelez to capitalize on new cravings. Low-calorie, protein-rich foods will help people on weight-loss drugs maintain energy and avoid losing muscle. Although sales of junk food snacks may take a nosedive, the additional revenue derived from healthier, more costly foods may offset the decline. Watch for food manufacturers trying to create a new association with GLP-1 medications and their snacks, effectively creating a new customer subset.
This pivot into a healthier lifestyle isn’t limited to traditional snack companies either. Even the big alcohol companies like Diageo are looking for ways to augment their portfolios and appeal to a population that’s more health conscious. Guiness, a brand of Diageo’s, recently invested nearly $27 million in a new Dublin facility to manufacture an alcohol free version of its’ well known stout. The firm predicts that zero-alcohol beverages will make up 10% of Guinness’ trademark sales in Ireland soon.
Finally, it’s worth noting that several recent studies show GLP-1s may help reduce cravings more broadly. The impact of the drug may not just be limited to food and may expand into cravings for alcohol, nicotine, or even opioids. If these studies end up being accurate and are replicable across patient populations, it could end up driving an even bigger flow towards things like non-alcoholic beverages and better health across the board.
Are Treatments Permanent Or Just A Fad?
It is yet unknown if GLP-1s will be a permanent fixture in people’s lives or if they will just be a first step for people seeking weight loss and a healthier lifestyle. A recent article in Reuters highlighted the fact that most Wegovy patients ended up off the drug after 2 years of use as the side effects and routine proved to be too demanding of their time and effort. For the drug manufacturers, that’s a big deal. Two years is a long time and a lot of pharma revenue, but it’s not a lifetime revenue stream. For now the prescription timeline isn’t a big deal because there are more people that want the drug – when one patient rolls off, a new patient can be onboarded. However, as supply increases, the duration of the treatment becomes more meaningful.
Furthermore, there’s not a lot of data yet as to what the impact of ceasing the medication will be on consumer spending. Will people go back to their bad habits, or will the newer, healthier consumer prevail?
History suggests that weight loss regimens are fads and they don’t usually stick, but with a new medication just one prescription away, that might change!
Regardless of whether or not the impacts of GLP-1 induced weight loss are permanent for everyone, the impact is significant across sectors. These drugs are poised to reshape profit growth and spending habits across multiple sectors. For investors, it’s both an opportunity and a new set of risks to gauge. A broad range of companies from insurers like United Healthcare to staples brands like Nestle to the manufacturers of the drugs like Eli Lilly and Novo Nordisk are facing a rapidly changing landscape and every company needs to adapt and seize their chances to grow. This is definitely a space to watch!
