As societies grapple with escalating obesity rates and their associated health risks, the demand for effective weight management solutions has never been more urgent.
Amid this backdrop, a revolutionary advancement is reshaping the landscape: a new class of weight loss drugs developed by pharmaceutical giants. These drugs, which double as treatments for both diabetes and obesity, are not just breakthroughs in medical science — they represent a beacon of hope for millions. Beyond the significant health implications, these innovations open substantial investment opportunities.
This article delves into the pioneering approaches spearheaded by Novo Nordisk and Eli Lilly, exploring how they could herald a new era in managing and potentially reversing obesity trends, while also offering lucrative prospects for savvy investors to capitalise on the expanding market. These drugs, used to treat both diabetes and obesity, include semaglutide (marketed as Ozempic and Wegovy by Novo Nordisk) and tirzepatide (marketed as Mounjaro and Zepbound by Eli Lilly).
The active ingredients in these drugs (semaglutide and tirzepatide) are GLP-1 receptor agonists, which work by mimicking a natural gut hormone called glucagon-like peptide-1 (GLP-1). GLP-1 helps regulate appetite, blood sugar, and insulin levels.
These drugs have been shown to be remarkably effective in helping people lose weight. Clinical trials have shown that overweight or obese patients using semaglutide medications over a few months helped patients lose an average of 10%–15% of their body weight.
Ozempic was initially approved for the treatment of type 2 diabetes, helping to manage blood sugar levels and offering cardiovascular benefits. Following this, Wegovy later received approval for chronic weight management, addressing the growing obesity epidemic. Similarly, Eli Lilly’s tirzepatide drugs were approved for diabetes in 2022 and obesity in 2023, with
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Zepbound recently outpacing Wegovy in new US prescriptions.
It is important to note that these drugs are not a cure-all solution. For the best results, they should be used in conjunction with a healthy diet and exercise plan. If you are considering taking weight loss medication, it is important to consult a healthcare professional to ensure if it’s suitable for you.
Potential market for GLP-1 drugs
The market for GLP-1 receptor agonists in weight loss is poised for substantial growth in the coming years, with a report by JP Morgan estimating as much as US$100 billion ($137 billion) in yearly revenue by 2030. These drugs are set to become a key component in the treatment of obesity and related health conditions. The business case for this drug alone in the US is significant, given how two out of three adults are considered overweight and one out of three adults are considered obese.
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Following strong demand for both approved and off-label use, the prescription of Ozempic had to be restricted to patients with type 2 diabetes, while the firm ramped up manufacturing.
Novo Nordisk is not the only one facing supply issues. Eli Lilly’s Mounjaro and Zepbound are both listed with “limited availability” on the FDA Drug Shortages database, further proving the strong demand for the weight loss drugs.
As the current drugs are administered through self-injection, the race is on for the pharma giants to develop a formulation which can be administered orally, while reducing side effects such as loss of muscle mass and gastrointestinal effects. At the time of writing, Eli Lilly has begun clinical trials for an oral weight loss drug, orforglipron, in India.
The companies behind these drugs
Both Ozempic and Wegovy are developed by Novo Nordisk, a Danish multinational pharmaceutical company. The success of both drugs had a dramatic impact on the business fortunes as well as the stock market performance of Novo Nordisk. At time of writing, Novo Nordisk stock price had risen over 150% over the last two years.
Zepbound and Mounjaro by Eli Lilly have boosted their financials, with the American pharmaceutical company seeing a 26% increase in revenue in 1Q2024. Lilly’s chair and CEO attributed the y-o-y revenue growth to strong sales of the two drugs. Similar to Novo Nordisk, Eli Lilly’s stock price has risen more than 200% over the last two years.
Beyond investing solely in the companies’ stocks, less volatile instruments like unit trusts offer decent exposure to the pharma firms. AllianceBernstein’s AB SICAV I – International Health Care Portfolio fund has an exposure of 8.59% and 8.30% to Eli Lilly and Novo Nordisk respectively, with an annualised 7.79% per annum since inception for the A USD class at time of writing. The BlackRock World Healthscience Fund, a strong contender, has an exposure of 7.41% and 7.16% to Eli Lilly and Novo Nordisk respectively. The performance of the fund since inception in 2001 has also been a respectable annualised 8.50% per annum for the A2 Singapore Hedged Class.
Key considerations when investing in a unit trust for specific exposure
Fund holdings are dynamic: Although your initial intention when investing in a unit trust might be to gain exposure to the aforementioned shares, there is a possibility that the underlying securities in the fund might have shifted by the time you invest, or over your investment period. It is important that you review the investment objective of the fund before investing.
Management fees: Understand the management fees and how they compare to other unit trusts with similar objectives. Lower fees can enhance overall returns over time.
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Concentration risk: Since the investment objectives of both funds are thematic in nature, this could create the risk of having too much invested into a niche area. It is important that investors allocate their portfolio accordingly.
Do your own due diligence before investing in any unit trusts. Consider your investment goals and risk tolerance before making a decision.
Darius Lee is business development manager, investment solutions department at Phillip Securities
