How Anti-Obesity Drugs Are Innovating the Healthcare Market

On this episode of The Long View, Morningstar’s Damien Conover and Rebecca Springer discuss investing in healthcare in public and private markets, healthcare consumerization, and the impact of anti-obesity drugs.

Here are a few excerpts from Conover and Springer’s conversation with Morningstar’s Christine Benz and Dan Lefkovitz.

Impact of Anti-Obesity Drugs: Who Are the Winners and Losers?

Christine Benz: Damien, we wanted to start by getting your thoughts on anti-obesity drugs, which seem to be the main healthcare topic these days. They’ve been a huge story. Can you talk about the impact of those drugs and also, who you see as the winners and losers in that area?

Damien Conover: This is probably one of the most important innovation themes we’ve seen in healthcare in a long time. Targeting therapies to help people with obesity have been an effort for a long period of time. And it’s really just been a recent innovation where we’ve seen a major step change. Before the step change, we really saw most of the obesity drugs enabling about 5% weight loss. With this next wave of drugs, we’re seeing that weight loss go up to about 20%. So that’s a massive step change in efficacy. And the side effects are manageable.

And so, when we think about this major step change and the high prevalence of obesity, we think this is going to be a very, very large market. In the next decade, we think annual sales from this class of drugs, GLP-1 drugs, will reach close to $175 billion a year. So that’s a huge number, and that’s an annual number. And the winners here we see taking the leadership are really Novo Nordisk and Eli Lilly. These are first to market with these GLP-1s, with these very strong efficacy rates, and we think these two firms will do quite well.

Benz: And then how about the losers, Damien? It seems like if we are able to combat some of these other diseases related to obesity, that there will be fewer drugs to sell in some of those areas, right?

Conover: It’s a great question because a lot of times if you bring down obesity, you don’t have as many other healthcare issues. And there will be some challenges. What we’ve already seen is people need less insulin, for example. So, if you’re able to control your obesity better, a lot of times you can control the need for insulin. So, we’ve seen a delayed progression into needing insulin as some of these GLP-1 drugs have already been used in the diabetes setting. And as they expand into obesity, not only will likely demand for insulin come down a little bit, but there will be other step changes in some of the demands for other treatments as well.

I want to be a little careful about this as well because this will probably lead to a slight delay in some of these other therapeutic areas, but still probably a need for things like hip and knee replacements, things like cardiovascular drugs, things where bringing down the obesity is important and usually delays progression, but there’s still going to be a lot of demand for these other products. So, there will be some minor losers, but for the most part, it will probably be just a slight slowing of demand for a lot of products. And on the insulin side, the big losers here are actually the companies that are making the GLP-1 drugs. So, Lilly and Novo are the biggest insulin makers out there, so they’re going to way offset the lost insulin sales by selling these GLP-1 drugs.

How Is Novo Nordisk’s Culture Contributing to the Breakthrough With Weight-Loss Drugs?

Dan Lefkovitz: Novo Nordisk, which is from Denmark—last time I checked, I think it’s the largest public company in Europe now—seems to have a really unique culture. Can you discuss the extent to which you think that culture contributed to the breakthrough on the weight-loss front?

Conover: It’s pretty interesting. So, Novo’s history is really focused on cardiometabolic diseases, really focused on diabetes, and that was the foundation’s origins, and over the years has continued to develop the next-generation drugs. And one of the drugs it developed for diabetes were these GLP-1 drugs. And interestingly, it was almost a side effect of these GLP-1 drugs that caused this massive weight loss and basically transitioned them into not only being able to treat diabetes, but also treat weight loss. And importantly, over the last couple of decades, the pharmaceutical industry has really pivoted away from cardiometabolic disease. And that largely has to do with pricing pressures. There’s been a lot of pricing pressures there. And really the only firms that stuck around were Novo Nordisk and Eli Lilly. And that’s why they have this first-mover advantage that’s so much stronger than the next generation of drugs coming out. But Novo’s history in focused on diabetes, cardiometabolic, I think really set them up well to be this one of the first-mover advantages in treating obesity.

Implications of Anti-Obesity Drugs for the Broader Healthcare Ecosystem

Benz: Rebecca, you’re tracking the anti-obesity drugs, too. What are the implications that you’re watching for the broader healthcare ecosystem?

Rebecca Springer: We really think that this new obesity drug class is one of the biggest forces shaping healthcare right now. To put it in perspective, we have clinical evidence that GLP-1s can be effective at treating heart disease, diabetes, and early evidence for chronic kidney disease as well. So that’s the number-one, number-eight, and number-nine leading causes of death in the US, which is pretty extraordinary. So, we think that this is really just getting started. One of the questions that my team, looking at the private-market side of things, has been asking is, with the dominance of Lilly and Novo in this space, is there room for early stage biotechs and for venture capital investors to make a play here? And coming out of J.P. Morgan, we’re tracking a couple of different approaches that investors are taking to that.

So, the first one is to develop drugs that actually treat the side effects of GLP-1s. The muscle loss, bone density, facial aesthetics issues are all known side effects, and there are the biotechs working on that. Second approach is to evolve the existing GLP-1 science, so improving dosing or user-friendliness, looking at small molecule drugs that can target the GLP-1 receptor, and those are easier to manufacture crucially, and then entirely new science, so metabolic accelerators or gene therapy for weight loss. So, we do see a lot of opportunity for second- and third-wave therapeutics that are being developed by earlier-stage companies.

A couple of other big impacts that we’re tracking for the healthcare system more broadly. First is answering the question, how are people going to get the prescriptions that they want and need for GLP-1s? There’s a huge consumer-demand push for these drugs. People know about them, and they’re motivated to seek them out. So, we are seeing a lot of the telehealth and e-pharmacy companies pushing into connecting people with doctors virtually in order to fill prescriptions. So, Ro is a key example. Costco just announced the other day that they’re going to be offering with a partner, Sesame, which is a privately held company, $29 telehealth visits, which can then be used to get your GLP-1 prescription and fill it at Costco pharmacy. Amazon Clinic also has a deal with Lilly. So, we’re seeing a lot of movement in that space.

Second big impact is that employers who are often the ones footing the bills for these drugs at this point are really looking carefully at virtual treatment options that are going to wrap lifestyle modifications around the drug itself. And we know that this is really crucial for keeping weight off and for doing so in a healthy way long term. And so, we’re seeing a lot of investment into digital condition management, medication management, and lifestyle programs as well.