By Ben Kluftinger, senior investment analyst at WHEB Asset Management
While obesity was widely dismissed as a “lifestyle choice” in the past, many health organisations are now acknowledging that it should be considered an illness.
The World Health Organisation (WHO) now states that “in most cases obesity is a multifactorial disease due to obesogenic environments, psycho-social factors and genetic variants”.
This formal recognition of obesity as an illness should propel the development and rollout of drugs to combat it, opening opportunities for the weight loss industry.
Obesity is an epidemic – and it matters
The WHO declared obesity an epidemic in 1997 with very limited effect, and the numbers have only got worse since. In fact, they are accelerating.
In 1990, 25% of adults were overweight and 8% obese globally. By 2022, these numbers increased to 43% overweight and 16% obese.
Obesity is a threat to health because it affects the whole body and increases the incidence of a wide range of medical complications such as strokes, cataracts, coronary artery disease, pancreatitis and diabetes. In total, there are more than 200 comorbidities associated with obesity.
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Apart from the devastating impact on health and life expectancy, there is also a huge economic impact on the wider health system. A study from 2022 estimated that the negative impact on global GDP in 2019 amounted to 2.2%.
Unsurprisingly, the highest cost was in the high-income countries costing as much as $1110 per capita per annum. This cost is likely to rise further.
The ‘iPhone moment’ of weight loss
Weight-reducing drugs have a long and chequered history going back as far as the 1940s. More often than not, the side effects were substantially worse than the rather limited reduction in weight loss achieved, which was in the high single digits percent of body weight at best.
But in early March, Novo Nordisk held its Capital Markets Day focusing on its new wonder drug, Wegovy. As the CEO interviewed a former obesity trial participant – who was almost unable to move without being completely out of breath and suffered from heart failure – we heard how she lost 30kg of body weight, which gave back her mobility and essentially saved her life.
What we are observing now is nothing short of a revolutionary moment comparable in impact to the launch of the iPhone in 2007.
Since launching in 2021, Wegovy has established itself as a major disruptor, with users achieving an average weight loss of 15% and 32% of STEP-1 trialist’s shedding over 20% of their bodyweight. This is a level that is approaching the benefits of rather invasive bariatric surgery results.
Wegovy is a drug based on a specific GLP-1 (Glucagon-like peptide) called semaglutide. It is a gut-derived peptide hormone that stimulates the secretion of insulin while sending satiety signals to the brain. According to some experts, it is unlikely that a better one can be found.
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Its stunning results have created a frenzy which sometimes borders on the outlandish. For example, we have received broker research exploring the impacts on sectors as disparate as the food packaging sector (people eating less food) to the airline industry (fewer obese passengers).
More rationally, the demand surge for Wegovy has caught everybody by surprise, including Novo Nordisk, which quickly ran short of supply.
One factor was the ‘out-of-pocket’ interest. This represents the patients who are not able to claim for the cost of the medicine on their insurance policies and makes up nearly 80% of the total demand for the drug in Denmark and other European countries where it had been launched.
A key additional benefit of semaglutide is a lowering of inflammation which increases its potency in tackling many of the obesity-related comorbidities more efficiently than just by lowering the bodyweight.
It has already shown a 20% reduction in major adverse cardiovascular events in the SELECT trial and numerous other indications are currently in trials tackling other cardiovascular diseases, metabolic dysfunction-associated steatohepatitis, rare endocrine disorders, Alzheimer’s diseases, and others.
The dawn of a new megatrend
Like the first generation of the iPhone, this is just the beginning of the obesity treatment revolution.
Novo Nordisk’s competitor Eli Lilly recently launched a compound drug Zepbound, which has shown to produce even higher weight loss in the SURMOUNT trials.
And Novo Nordisk already has its own follow-up drug Cagrisema in clinical phase three, which has so far produced results ahead of Wegovy and Zepbound. So does Eli Lilly with retatrutide, also still in clinical trials.
Company and consensus expectations are that the obesity drug market is going to grow in the high double-digit percent annually for the foreseeable future, reaching a total market size north of $100bn by 2030, with most of that shared between Novo Nordisk and Eli Lilly.
Any potential competition is up against some serious players. Novo Nordisk has spent $6bn expanding its Wegovy active pharmaceutical ingredient facility in Danish Kalunborg by 170,000m to reach a total size of 1.6million – this corresponds to half the size of the City of London.
So, is this the beginning of the end of the obesity epidemic? It is still way too early to tell, but for the first time in the history of obesity treatment, doctors and patients are actively seeking a drug that can turbo-charge the journey towards weight loss. As megatrends go, this one could be set to boom.
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