Obesity Drug Stocks: Time to Buy?

Demand for obesity drug therapies is surging. New medicines with efficacy rivaling bariatric surgery, with only minor tolerability issues, have replaced older drugs weighed down by significant cardiovascular side effects and mediocre efficacy. The approval of Wegovy, Novo Nordisk’s NVO GLP-1 agonist, in 2021 has led to a surge in demand for active ingredient semaglutide in various forms, including diabetes drug Ozempic. Mounjaro, Eli Lilly’s LLY approved diabetes drug, is poised to generate even stronger weight-loss results and launch as an obesity treatment around the end of 2023. We think Novo and Lilly will continue to lead the obesity market over the next 10 years, with incremental innovation in this rapidly expanding market that will support their wide economic moats. We expect new therapies launching in 2026 and beyond from companies including Amgen AMGN and Pfizer PFE could grow to roughly one fourth of the market by 2032.

We expect the average global price of GLP-1 therapy for obesity to rise to roughly $5,400 a year as Novo’s and Lilly’s obesity treatments launch, then gradually decline beginning in 2025 as competing therapies launch, falling to roughly $2,800 by 2032. We expect 21 million individuals globally could be taking GLP-1-based therapy for obesity by 2032, creating potential for a $60 billion market. Semaglutide in various dosages has been on the market for several years, and we think significant side effects are unlikely. However, newer therapies like Mounjaro or other combination regimens could present side effects once approved and used in larger populations, creating a risk of legal expenses that is factored into our forecasts.

We See a Path to $60 Billion in Global Obesity Sales

We think the valuations for leaders Novo and Lilly remain rich, with investors assuming the same significant demand and volume growth that we forecast but leaving little room for new entrants. As more companies enter the market, we expect affordability to improve, increasing demand and pushing the market further toward our theoretical potential market of roughly $60 billion by 2032, across all companies. We think new competitors, including Pfizer and Amgen, could gain roughly one fourth of the global market in 10 years.

We see several catalysts that will lead to this $60 billion potential market, starting with the already available data for new obesity drugs Wegovy and Mounjaro and followed by additional data from cardiovascular studies and potential competitors.

GLP-1 Therapies Move Beyond Diabetes, Led by Obesity Launches

The obesity market had been growing steadily as demand for Novo Nordisk’s older GLP-1 therapy Saxenda increased, but the approval of semaglutide-based Wegovy marked the beginning of a new level of efficacy in obesity that was sufficient to spark strong demand. While Novo has struggled with supply constraints, sales of Wegovy are beginning to take off in 2023, and Lilly’s GLP-1/GIP combination therapy Mounjaro, already approved in diabetes, is likely to launch in obesity late this year or early in 2024.

Demand for GLP-1 therapies in diabetes has already created a roughly $20 billion global market, following years of double-digit demand growth as physicians and patients become more comfortable with the long-term safety of these medicines and as benefits beyond blood sugar control become more apparent with newer therapies.

GLP-1 market growth has generally been split between two once-weekly diabetes injectables, Novo’s Ozempic and Lilly’s Trulicity, although the Wegovy launch has led to accelerating growth in the obesity market.

We expect GLP-1-based sales in diabetes and obesity at Novo Nordisk, Eli Lilly, Pfizer, and Amgen to surpass $90 billion by 2030, before Novo’s U.S. patent for semaglutide expires in 2032. If clinical development proceeds smoothly for Amgen’s and Pfizer’s midstage obesity drug candidates, we would expect them to gain a more significant share of the market.

Wegovy Leads the Obesity Market, but Competition Is Increasing

With the launch of longer-acting GLP-1 Wegovy in 2021 and the pending launch of GLP-1/GIP co-agonist Mounjaro, efficacy and convenience have risen to a level that is drawing in significant numbers of obesity patients. The GLP-1 pathway is central to both drugs and has already made this class a key part of diabetes management (the active ingredient in Wegovy—semaglutide—is the same as in diabetes medicines Ozempic and Rybelsus). Mounjaro looks slightly more effective than Wegovy, perhaps because of the inclusion of the GIP pathway in its mechanism of action. However, Wegovy’s first-to-market status—even with significant supply disruptions that delayed a full launch—should help Novo Nordisk maintain a similar market share.

Beyond Wegovy and Mounjaro, Novo Nordisk and Eli Lilly have strong drug pipelines that seek to achieve even greater weight loss and potentially more convenient oral dosing instead of injections.

Novo’s obesity pipeline is focused on maximizing semaglutide’s potential as a single agent and also combining the drug with amylin analogs, another class of appetite-suppression drugs. Phase 3 data for a high-dose oral version of semaglutide in May demonstrated efficacy similar to Wegovy, and Novo plans to file for approval in 2023. However, we think the most critical program for Novo’s long-term growth potential is cagrisema, which combines semaglutide with amylin analog cagrilintide.

At Eli Lilly, development is focused on further cementing Mounjaro’s benefit in obesity, including a head-to-head study against Wegovy with data expected by early 2025 (although we expect data for a high-dose version of Wegovy to be available by this time, potentially making this comparison obsolete). Beyond Mounjaro, Lilly has two key strategies: defending against Novo’s potential for a high-dose oral semaglutide launch in obesity with its own oral GLP-1, orforglipron (in phase 3), and testing a new injectable GLP-1/glucagon/GIP tri-agonist called retatrutide (also entering phase 3 this year).

We think obesity drugs from other players could begin to launch as early as 2026, ranging from potential me-too efficacy to new combined mechanisms of action. Pfizer and Amgen stand out as the two big biopharma companies hoping to enter the market behind Novo and Lilly. Pfizer is still deciding between two oral GLP-1 therapies, both of which should have phase 2 data in late 2023 or early 2024, allowing phase 3 development for one program to begin by the end of 2024.

We think Amgen’s compound has the potential for more differentiation than Pfizer’s orals, as its drug is a combination of GLP-1 agonism and GIP antagonism. The long-acting nature (Amgen is testing monthly and even quarterly dosing) and potential leading efficacy could make this a competitive drug, although phase 2 trials are still ongoing, with data expected in 2024 and a launch not possible until at least 2026.

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