A New Blockbuster
The pharmaceutical industry rarely finds a new “blockbuster” class of drugs. For example, statins, used to control cholesterol levels, represented a market larger than $10B in just the USA and $15B globally. Sometimes, it is just a single new molecule that suddenly turns into a money-making machine, like Viagra, with tens of billions of revenues since 1998.
In most cases, this is the result of a few factors coming together:
- An unaddressed or poorly treated health problem.
- A health problem that significantly affects the patient's lifestyle or directly threatens their life.
- A massive market, with tens of millions of people needing treatment.
- A simple enough way of treatment, like an injection or a pill, allows for mass adoption, compared to more complex therapies.
- Requires regular treatments, sometimes for life, guaranteeing regular sales for years once the therapy is started.
- Low risks compared to the health benefits.
Obviously, such products are hard to find, as all the “obvious” solutions have already been found, commercialized, and likely off patents (like most antibiotics today).
Still, fundamental biological research into new concepts can change an entire medical field. And it seems a new type of blockbuster should be added to the list: semaglutide.
The Holy Grail Of Weight Loss Drug
Semaglutide was initially developed as an anti-diabetic medication under the drug brand Ozempic. It was first developed by Novo Nordisk (NVO) in 2012. Semaglutide mimics a weight-related hormone called GLP-1 (glucagon-like peptide-1). If you want more details, you can read a compilation of scientific publications about semaglutide in Science Direct.
More recently, semaglutide was approved and repackaged under the brand Wegovy for a new weight loss application. This is because the drug decreases appetite and slows stomach emptying, so people feel less hungry and eat less. This turned out to be a massive success, with many people looking forward to a drug that was actually efficient at helping them lose weight.
Maybe this is not surprising, with obesity a growing issue affecting 41.9% of adults in the USA. For its promotion, Novo Nordisk recruited US rapper Queen Latifah for a campaign about the stigma that surrounds obesity treatments. Even Elon Musk referred to Wegovy as a way for him to lose unwanted weight.
Wegovy's success is truly global, notably reaching China, where it is used even by people with very little weight to lose:
Young girls crowded into the endocrine and metabolism department of the hospital, regardless of whether they were thin or fat, just to get a dose of semaglutide.
In the doctor's hospital, they only prescribed just over 100 doses of semaglutide in June, but now the number has risen to 1500-2000 doses, which is the average sales volume of semaglutide in most tertiary hospitals in Shanghai. – Baiguan News
Even the CEO of Walmart discussed Wegovy, blaming it for a decrease in grocery shopping, a declaration which offended many who think inflation and the rising cost of living are the cause for struggling consumer spending.
The GLP-1-inspired drug has been a hit, even larger than Novo Nordisk expected. It might also be something that will need to be taken continuously to keep its benefits, making it a long-term treatment and cash cow for Novo Nordisk.
A Financial Tsunami
The overnight success of Wegovy caught Novo Nordisk by surprise, with the company ramping up production regularly and still seeing recurring shortages from a constantly growing demand. It is likely that despite new production facilities, the shortage will persist well into 2024.
The commercial relaunch of Wegovy in January 2023 has been nothing short of spectacular, with sales exploding in a line straight up and only hindered by supply constraints.
The financial consequences are no less massive. By market capitalization, Novo Nordisk became the most valuable European company, exploding ahead of luxury products maker LVMH.
This is to the point that Denmark, where Novo Nordisk is headquartered, felt the need to publish national GDP data excluding the company, something making sense with Novo Nordisk's market cap is now larger than Denmark's GDP, and as the country’s GDP would have shrunk by 0.3% instead of a 1.7% growth without Novo Nordisk success.
So, while diabetes is still the core business of Novo Nordisk, obesity treatments might soon overtake it, with a growth of +124% in Q1 2023. Especially as a lot of the “diabetes” GLP-1 business growth (+50%) is off-prescription use of Ozempic instead of Wegovy due to supply shortages.
The use of Wegovy is also only starting in international markets (IO – International Operation), with approval only getting done now, for example, on the 4th of September 2023 in the UK. Considering how large obesity-related sales already are in North America Operations (NAO), this leaves a lot of space to grow revenues for Novo Nordisk.
This has also made Novo Nordisk raise its outlook for the year 2023, with the sales growth expectation of 27-33% in August 2023 now at 32-38% in October 2023, and the growth of operating earning profits at 40-46%.
The company is also investigating what other applications or improvements could be approved for semaglutide in its R&D pipeline.
- Once a day, semaglutide pills.
- Once a week, semaglutide treatment.
- Once-a-week injections in combination with another drug (amylin analog cagrilintide).
- Treatment for liver disease NASH (Non-Alcoholic SteatoHepatitis).
- Once-a-week treatment of type-2 diabetes, in combination with another drug (insulin icodec).
A trial to investigate the effect on kidney disease progression has recently been halted.
The rest of the R&D pipeline also contains potential treatments for diabetes, NASH, cardiovascular diseases, and rare diseases.
The company has also already started to deploy aggressively its extra cash in 2023, with the acquisition of metabolic disease company Inversago Pharma for $1.075B, of hypertension drug ocedurenone from KBP Biosciences for $1.3B, a research partnership worth up to $335M with gene editing Life Edit Therapeutics, and another partnership worth up to $650M for bioprinted organs with Aspect Biosystems.
In the ultra-competitive world of pharmaceuticals, such a success is guaranteed to catch the attention of all the other pharmaceutical companies.
The potential of GLP-1-targeting drugs was seized first by Novo Nordisk, but right on its heels is Eli Lilly, the other major diabetes drug manufacturer.
Eli Lilly has its own potential blockbuster obesity drug, Mounjaro (using the molecule Tirzepatide). Its preliminary clinical trials had similar and maybe superior results to Wegovy, an average reduction of nearly 16% of test patients’ body weight. The weight loss can even be up to 22% for patients without diabetes.
Mounjaro is targeting not only GLP-1 (like Wegovy) but also GIP (glucose-dependent insulinotropic polypeptide), which might (or might not) create a stronger weight-loss drug.
Eli Lilly expects Mounjaro to launch for obesity soon, with the molecule already under regulatory review and might become a serious competitor to Wegovy. Mounjaro was already a very successful type-2 diabetes drug. UBS analysts suspect that if approved for obesity treatment, Mounjaro could become the first drug to sell for more than $25B in just one year.
The Mounjaro studies are ongoing, with new results expected in mid-2023, 2025, and 2027, testing different effects on specific subsections of the population in order to get a wider range of approved applications.
The company is also researching other obesity treatments and is in phase 3 of clinical trials of orforglipron, phase 2 of retatrutide, also acting on GLP-1 receptors, and phase 1 of Amylin Agonist Long Acting, DACRA QW II, and Mazdutide.
Eli Lilly is a more diversified company than Novo Nordisk, with notably a pipeline on Alzheimer's, Parkinson's, cancer, immunology, etc.
For the foreseeable future, the GLP-1 obesity market will likely be split between Novo Nordisk and Eli Lilly, with the ratio of this partition yet to be seen.
2. Amgen Inc.
A giant in biotechnology, Amgen is a company we covered in “5 Best Biotech Stocks To Watch (May 2023)”. Nevertheless, it got caught lagging behind its competitors, focusing more on metabolism and diabetes regarding potential obesity treatments.
It has a program, AMG 133, targeting both GLP-1 and GIPR (Gastric Inhibitory Polypeptide Receptor). According to pre-clinical data, the combination of both effects might be stronger than each separately.
AMG 133’s unique advantage would be a long half-life, with a dosage every 4 weeks instead of the required weekly treatment of Wegovy. Phase 1 results arrived in December 2022, showing a weight loss of 14.5% of body weight. Phase 2 was still enrolling patients in August 2023.
Because it is only entering phase 2 of clinical trials and because the company focuses on a wide array of therapies, AMG 133 is less central to the investment thesis for Amgen. Still, a potential 20 billion dollar blockbuster drug could seriously boost the company's bottom line. So, with Wegovy showing the market is larger than expected, this is something investors in Amgen will want to keep an eye on.
Altimmune is performing phase 2 of clinical trials for its obesity-treating drug pemvidutide. The molecule is acting on GLP-1, but also Glucagon, giving hopes that it could also help liver functions and mimic the effect of exercise in addition to the hunger-reduction effect of GLP-1.
The company has ongoing clinical trials for obesity, with the results from phase 2 for obesity expected in Q4 2023. Pemvidutide is also investigated for NASH (Non-alcoholic steatohepatitis), the most severe form of nonalcoholic fatty liver disease.
The company's other product, in phase 1, is the immunotherapeutic for chronic hepatitis B infections. This condition affects 300 million people worldwide, of which 15 million are in the EU + USA and 87 million in China.
The company's products are at an earlier stage than Novo Nordisk's or Eli Lilly's. It also has a market cap of around 1000x smaller. So if its obesity treatment can reach the patients and snatch even a portion of the predicted $50B obesity markets, this could greatly boost the company's value.
Having passed the phase 1 trials (toxicity evaluation essentially), shown up to 10% of body weight losses, and seen the success of other GLP-1-based drugs, this looked promising.
Financial capacity will be crucial to reach the point of commercialization, with a net loss of $84M in 2022 for $160M in cash in Q2 2023. Additional funding will likely be required to finance phase 3 of clinical trials for obesity treatment.
4. Sosei Heptares / Pfizer
Pfizer has partnered with Japanese Sosei Heptares for lotiglipron (PF-07081532), its GLP-1 agonist, in phase 2 of clinical trials. While Pfizer could be a way to invest in that drug, it is such a large company that a more direct investment strategy would be Sosei stock instead.
Sosei relies on a computer-based drug discovery process centered on GPCRs (G-protein coupled receptors), a class of proteins targeted by drugs representing 27% of the global pharmaceutical market. The segment still has a lot of therapeutic potential, with 56% of the 400 GPCR proteins in the human body still “undrugged” in any way.
Would Pfizer GLP-1 drug be successful and reach $1B-$10B in sales? In a few years, this could represent royalties worth 10-100% of Sosei's current market capitalization.
Pfizer is also working on another GLP-1 drug, danuglipron, with encouraging phase 2 clinical trial results.
The rest of Sosei Heptares’s pipeline should also be valuable, with partnerships with Genentech, AbbVie, GSK, Lilly, Neurocrine, Allergan, Teva, and Astra Zeneca. It also has in-house 3 drugs in pre-clinical development for solid tumors, schizophrenia and psychosis, and inflammatory bowel disease.
Investors in Sosei will want to keep a close eye on Pfizer clinical trials in phase 2. The company is profitable, even if barely, as in 2022, it spent $7.4B in R&D and had revenues of $15.5B.
Source: Sosei Heptares
This financial stability might make Sosei a safer proposition than Altimmune for a high payout in case of drug development success, even if likely a less large growth compared to current market capitalization as well.
Only publicly listed in a very recent IPO in February 2023, Structure Therapeutics is working on a phase 1b trial for a GLP-1 drug and a pre-clinical for a GLP-1 + GIPR drug. Phase 2a studies are expected in the second half of 2023. The company is based in Shanghai and San Francisco.
This seems to be a very science-driven company and team. The company is focused like Sosei on GPCRs, using structure analysis and AI + machine learning (ML) to find new drug candidates.
Source: Structure Therapeutics
Besides obesity treatment, Structure Therapeutics also has candidates in the cardio-pulmonary segment.
Source: Structure Therapeutics
The $185.3 million IPO brought cash to a total of $249M in February 2023, giving some breathing room to the company. Net losses for 2022 were $51M.
In October 2023, the company's share price almost doubled thanks to positive results from its clinical trial on its GLP-1 drug.
No Side Effects?
No really powerful drug is fully safe. By definition, the intended therapeutic effect almost always comes with unwanted side effects.
With Wegovy, it must be emphasized that potential side effects are no joke, including stomach paralysis, thyroid cancer, pancreas inflammation, kidney problems, and gallstones. So it is highly recommended to get medical advice first and use it only for severe obesity, and NOT for small weight losses like the young Chinese girls mentioned above.
These issues are related to the whole metabolism, so competitors' products will likely carry the same risks. This is something investors will want to keep in mind. But for now, the FDA and other regulatory authorities worldwide are considering that the health benefits of weight loss outweigh the potential risks of side effects.
An Anti-Addiction Drug?
In recent months, news about Wegovy's revolutionary effect on weight loss has dominated the headlines. But another potential effect is publicly discussed, even if there is no clinical trial data to back it.
This is about the potential effect of semaglutide to reduce ALL addictions, and not just food/obesity/over-eating. Semaglutide seems to reduce addictive behaviors toward multiple substances like alcohol in studies on rats and mice. Small preliminary human trials are ongoing for addiction to opioids, alcohol, and tobacco.
This would also match anecdotal data from Wegovy consumers who reported a reduction in nail-biting, impulse shopping, binge eating, alcohol consumption, or smoking.
Even if true, such an application will likely take years to be approved by the FDA and require dedicated clinical trials that have not even started.
Nevertheless, this is something investors will want to keep an eye on. Considering how Ozempic has been prescribed by doctors for weight loss without FDA approval, it is likely to boost consumer demand and off-label prescriptions, whether the effect on addictions is officially confirmed and approved or not.