Ozempic and the Rise of GLP-1s
Ozempic and the Rise of GLP-1s
#66: The ripple effects of today's weight loss revolution.
From Hollywood to Wall Street, the talk of the town is the prick that sheds pounds.
GLP-1 (Glucagon-like peptide-1) receptor agonists - such as Ozempic - are a class of medications that have gained significant attention and approval from the U.S. Food and Drug Administration (FDA) for weight loss. Originally developed for the management of type 2 diabetes, these drugs have demonstrated beneficial effects on weight reduction.
GLP-1s receptor agonists regulate insulin, slow digestion, and make you feel full. These drugs cause patients to significantly reduce their caloric intake, not by willpower over hunger, but rather by reducing hunger and curbing cravings.
Given the long-term trend of rising obesity, it’s reasonable to be skeptical of a miracle weight loss drug. But usage of these drugs is increasing dramatically and the results are effective. As GLP-1s grow in popularity, there will be significant implications across the investing landscape, both positive and negative.
I’m not a doctor, nor do I profess to have specialized knowledge of these drugs. Others have provided great detail into the medical background, trial results, efficacy and risks of these drugs1. Instead, this piece relies on several basic assumptions that seem to be widely accepted:
GLP-1s have quickly become the most effective non-surgical treatment for weight loss, with current drugs providing ~15% body weight loss on average. Clinical stage GLP-1s have demonstrated body weight losses up to 26%2.
GLP-1s are not without side effects but have been deemed safe and effective by the FDA since 2005 for diabetes treatment.
Two GLP-1s (Saxenda and Wegovy) have already been approved for weight loss in recent years. Ozempic and Mounjaro are widely prescribed off-label for weight loss, and Mounjaro is likely to receive FDA approval for weight loss near the end of this year.
Several other similar promising drugs are under clinical trials for weight loss and may be FDA approved over the coming years.
Current demand for these drugs has skyrocketed due to public awareness and FDA approvals for weight-loss.
To help visualize the magnitude and timing of the impact of GLP-1’s, think of a stone dropped onto the surface of a lake. The biggest splash happens at the point of impact, and then the waves ripple outward.
Today, the ripple effects are spreading from producers to distributors and competitors. Over time, bystanders may eventually feel the effects. In this week’s post, we analyze each of these categories and some of the key public companies impacted.
Production
The first and most direct impact of the GLP-1 usage is in the pharmaceutical companies that produce the drugs.
Current Drugs: Today, there are two gorillas in the room.
Novo Nordisk (NVO) produces Saxenda (liraglutide) and Wegovy (semagultide) which are FDA approved for weight loss, as well as Ozempic and Rybelsus (semagultide) which is currently approved for Type 2 Diabetes.
Eli Lilly (LLY) produces Trulicity (dulaglutide) and Mounjaro (tirzepatide), currently approved for Type 2 Diabetes. Mounjaro is prescribed off-label for weight loss and will likely receive FDA approval for that application around the end of 2023.
Unsurprisingly, both stocks have performed very well over the past two years, and yet both companies continue to outperform market expectations. After NVO reported results from its SELECT trail that showed semaglutide reduced risk of major cardiac events by 20%, both stocks jumped to new all-time highs, rising 17% and 15% respectively.
Valuations are supported by the limited competition and massive end user demand. These drugs are very expensive today - listed at ~$1,000 per month - and are highly profitable for the producers. Despite the price and limited insurance coverage, demand exceeds production as evidenced by widespread shortages.
The key questions for these companies are how long can demand continue to surprise to the upside and how long can pricing power be maintained. Successful new drugs often can lead to a dramatic rise in pharma stocks based on long-term projections that fizzle due new entrants, side effects, or price competition.