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A Serious Concern
Weight loss has been for decades a very lucrative market. From diet companies to books describing magic solutions or food supplements supposed to activate the metabolism. Most of these “solutions” are snake oil at best and dangerous at worst. But this did not stop people from trying them anyway.
The growth of this market has been parallel with the increase in obesity worldwide. This concerns up to 650 million people today.
And for affected people, this is not just concerning for aesthetic reasons. Obesity is causing or is correlated to a wide array of incapacitating or deadly conditions, from heart problems to liver damage or diabetes.
A Growing Market
This is already a $15B market, and it was until recently projected to reach $32B by 2030, or a 10.1% CAGR.
But with the recent and very successful launch of Wegovy by Novo Nordisk, new projections expect the market to grow to $50B by 2030.
This is because obesity therapies are moving away from the 2 traditional methods of treating it:
- Behavioral: diet, exercises, etc…
- Surgical: stomach surgeries, liposuction, etc…
Instead, our increasing understanding of human metabolism has led to the development of new classes of drugs. These drugs are doing what the decades of snake oil remedies could not: modifying the patient’s metabolism to modify appetite and fat tissue generation.
This has led some analysts to comment that “Obesity is the “new hypertension,” with the potential to become “the next blockbuster pharma category,”
Top 6 Obesity Stocks
As this is a very hot topic in the pharmaceutical industry, the companies listed here will be by the maturity of products, starting from already commercialized ones, as this will also give an overview of where the market is today and how it could change with the entry of new therapeutic classes down the road.
Novo Nordisk is more known for its diabetes therapies, representing 79% of its current revenues. It is a company we already covered in “Top 5 Blue Chip Pharmaceutical Companies (May 2023)”
A smaller part of its activity is obesity, with just 9% of sales. But an important part is the astonishing growth rate of 84% in 2022. This is entirely based on the launch of Wegovy, an injectable weight-loss medicine. Wegovy mimics a weight-related hormone called GLP-1 (glucagon-like peptide-1).
It had a stellar start, to the point where some manufacturing issues have led to a global drug shortage. The success of Wegovy has boosted Novo Nordisk's sales growth expectation for 2023 from 13-19% to 24-30%, as the production is now high enough to satisfy demand.
In the US, they recruited US rapper Queen Latifah for a campaign about the stigma surrounding obesity treatments. The success is global, notably in China:
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.
When Wegovy disappeared from inventory, the other Novo Nordisk treatment for type 2 diabetes drug Ozempic, using the same molecule, was often used as a substitute. Even Elon Musk referred to Wegovy as a way for him to lose unwanted weight.
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 benefit, making a long-term treatment and cash cow for Novo Nordisk.
It must nevertheless be emphasized that potential side effects are no joke, including 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.
Right on the heels of Novo Nordisk, Eli Lilly has its own potential blockbuster obesity drug, Mounjaro. Its preliminary clinical trial 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). Lilly is another leader in the field of diabetes and insulin, so it is not surprising that they are almost as advanced in this field as Novo Nordisk.
Eli Lilly expects Mounjaro to launch for obesity in Q2 2023 and might be a serious competitor to Wegovy.
Mounjaro was already a very successful type-2 diabetes drug. UBS analysts suspect that with approval 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.
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, it is likely that the obesity market will be split between Novo Nordisk and Eli Lilly, with the ratio of this partition yet to be seen.
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 result 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 valuation 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 reaching the point of commercialization, with a net loss of $84M in 2022 for $185M in cash at the end of 2022. Additional funding will likely be required to finance phase 3 of clinical trials for obesity treatment.
Pfizer has partnered with Japanese Sosei Heptares for 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 protein class 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.
This focus on drug discovery leads to a business model based on payment after successful development and royalties once the drug is commercialized “(ranging from high single digit to mid-teen percentage of the sales).”
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.
The rest of the 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.
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.
5. Amgen Inc.
A giant in biotechnology, Amgen is a company we covered in “5 Best Biotech Stocks To Watch (May 2023)”. It nevertheless got caught lagging behind its competitors, more focused on metabolism and diabetes when it come to 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 should be starting in early 2023.
Because it is only entering phase 2 of clinical trial 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 5-20 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.
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.
Besides obesity treatment, Structure Therapeutics also has candidates in the cardio-pulmonary segment.
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.