This is not a typical weight-loss story.
After all of the diet, supplement, and workout fads we’ve endured, we’re about to have drugs that are safe and effective. They’re our best hope yet for stemming the obesity epidemic that threatens the lives of 100 million Americans and half a billion people worldwide.
No one has ever seen the kind of weight loss achieved by these new drugs, known as incretins. In scientific studies, they have let people safely shed more than 20% of their weight. Incretins could become the best-selling drugs in pharmaceutical history for their competing developers,
(ticker: NVO) and
If every hefty American got treated at these drugs’ current prices, the annual market for incretins would be a trillion dollars. Insurers can’t afford that, of course, and access to the new drugs is highly restricted. But there’s plenty of room for prices to come down and still reward Novo and Lilly shareholders. The drugs will be widely used if studies can show they prevent diabetes, heart disease, and other costly ills.
Novo Nordisk and Lilly—rivals for a century—originally developed incretins to treat Type 2 diabetes. The drugs also turned out to promote weight loss. When Novo got U.S. approval last year to market the injectable drug semaglutide for obesity, under the brand name Wegovy, demand was so strong that Novo stock rose 50% over the following year, to hit a peak this year near $122 and an earnings multiple some 70% above most of its pharma peers.
Lilly is hot on its heels with tirzepatide, which is also administered via a weekly injection. It enabled people to lose an average of 21% of their weight in a study reported in June. While not yet approved for weight loss, tirzepatide is one reason that Lilly is Wall Street’s favorite drug stock. At its recent price around $300, Lilly trades at 34 times the consensus forward 12-month earnings forecast, or twice the average multiple of its sector.
Investors’ esteem for the stocks has climbed on estimates that annual sales of incretins for diabetes and obesity could top $50 billion or $60 billion by the start of the next decade, split by a duopoly of Lilly and Novo. For perspective, a drug is often considered a blockbuster if it generates $1 billion a year in sales. The
(ABBV) product Humira is currently the world’s top-selling drug, with over $20 billion in annual sales.
The sales will be well deserved, as incretins appear to be the best shot at dealing with the dangerous weight problem of developed nations like the U.S. The percentage of American adults who are obese—or dangerously heavy for their height—has risen from 13% to 43% in the past 60 years. That’s more than 100 million people in just the U.S. The average American male now weighs 200 pounds, up from 166 in 1960. The average female is 171 pounds, up from 140.
There are many ripple effects from that. Obesity increases the risk of diabetes, cardiovascular disease, and cancer, while interfering with sleep, work, and other daily activities. Excess weight may result from factors like the elimination of physical labor and the availability of cheap calories, but stemming the epidemic will require more than diet and exercise.
Taking on the weight of the world could make Novo and Lilly into two of this decade’s best drug stocks. But for all the promise of incretins, investors should temper expectations until a couple of issues get clarified. The first concerns Novo Nordisk, whose foreseeable future is a highly concentrated bet on semaglutide products like Wegovy—without many other sure blockbusters in the pipeline. By contrast, Lilly’s pipeline is a diversified bet on many compounds, with intriguing prospects for treating Alzheimer’s disease, autoimmune disorders, and cancer.
Both companies must surmount a second challenge: getting their potent, but expensive, weight-loss drugs covered by insurers and government programs. Incretins may alleviate obesity, but they don’t cure it. Experience so far with the drugs suggests that patients will need to take them in perpetuity. Healthcare payers aren’t ready to assume that cost.
“Many insurers do not cover anti-obesity medicines,” says Maria Cecilia Asnis, an endocrinologist who runs the medical weight-loss program at Stamford Health in Connecticut. “List price is also a barrier. People are going out of the country to get these medications.”
Patients without coverage can face monthly costs of $1,000 to $1,500 for Novo’s Wegovy, says Asnis, who receives no remuneration from any drug company. Even after the discounts typically negotiated by health plans, Wegovy can cost payers about $10,000 a year. There’s evidence that rescuing people from their weight will save them from diabetes and heart problems, and the associated health costs. But Novo and Lilly must complete clinical trials to prove those benefits and persuade insurers that spending tens of billions on incretins will be offset by preventive savings.
Researchers first took notice of incretins 35 years ago, when they found that a hormone called glucagon-like peptide-1, or GLP-1, was released in the gut after food intake. GLP-1 boosts insulin levels and reduces appetite, but its natural form lasts just minutes in the blood. The pharmaceutical industry sought longer-lasting products that mimic GLP-1’s effects as injectable treatments for Type 2 diabetes.
(AZN) launched the first in 2005. Its sales were overtaken by Novo’s Victoza in 2010 and Lilly’s Trulicity in 2014.
Diabetes patients taking the GLP-1 drugs lost weight. Novo started testing the compound in Victoza among people who weren’t diabetic but suffered from obesity, or who were overweight and had a weight-related condition like high blood pressure. Doctors define obesity by a height-to-weight ratio known as the body-mass index, in which a BMI of 30 or more is considered obese. For a 5-foot-10-inch person, that would be about 210 pounds.
After showing that the drug helped patients lose 5% to 8% of their weight, Novo got U.S. Food and Drug Administration approval in 2014 to market the first incretin for weight loss, under the brand name Saxenda. Like all approvals since, the FDA indicated that the pen-injection should be used as part of a program of diet and exercise.
Incretin drugs kept getting better.
In 2017, Novo introduced Ozempic, a once-weekly injectable treatment for diabetes, based on the GLP-1 variant semaglutide. While normalizing glucose levels in diabetes patients, Ozempic also enabled them to lose more weight than any approved GLP-1. As part of the body’s complex regulation of food metabolism, there are GLP-1 receptors in many organs, including the brain. Semaglutide was better than other GLP-1s at reaching brain receptors to temper food cravings.
Lisa Robillard certainly noticed when she took part in a weight-loss study among people who were heavy but not diabetic. Robillard went on her first diet when she was 10. That’s when her grandmother took the grade-schooler to a Weight Watchers meeting. Nothing helped. Through work, marriage, and motherhood, Robillard was able to control many things, but not her weight. By the time she turned 50, climbing stairs left her winded. She says she feared she wouldn’t live to see her son grow up.
She was contemplating weight-loss surgery in 2018 when an internet search turned up an experimental drug trial for Novo’s semaglutide. Robillard started once-weekly injections, and within the first couple of months it was clear she hadn’t gotten the placebo.
“I wasn’t craving sugar or thinking about food,” she recalls. “I was leaving food on my plate, and my brain was saying, ‘You’re full. Stop eating.’ ” Over the course of the trial, Robillard lost 56 pounds. The 1,300 people who got Novo’s drug in the study lost an average of 17% of their body weight, with improvements in their blood pressure, cholesterol, and inflammation levels. No serious safety issues arose.
Novo got U.S. approval to market semaglutide as a weight-loss drug in June 2021, branded as Wegovy. Prescriptions quickly shot past 10,000 a week, then 20,000. Then, in December, the company announced that problems at its outside manufacturer were crimping supplies. While fixing production, Novo pulled back its marketing of Wegovy. It expects to resolve the problems by the end of this year.
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As its answer to semaglutide, Lilly developed a compound called tirzepatide that targets GLP-1 receptors, but also boosts another nutrient-stimulated hormone known as GIP. In a head-to-head trial against semaglutide among patients with Type 2 diabetes, Lilly reported that its “twincretin” drug controlled glucose better than Novo’s drug—and caused patients to lose much more weight.
One of those patients was Mary Bruehl, an Oklahoma lawyer who had developed diabetes, hip problems, and fatty-liver disease after many years of carrying too much weight. Over the course of the study, her glucose levels normalized and she lost a remarkable amount of weight—dropping from more than 200 pounds to near 130.
Bruehl’s time on tirzepatide coincided with the Covid pandemic office closures. She says that when she returned to the office, slimmed down, people treated her so differently that it actually made her angry. She sought counseling to deal with this unexpected result of her weight loss.
Eli Lilly’s head of diabetes product development, Jeffrey Emmick, says the company began a parallel development track for just obesity as soon as the company saw diabetes patients averaging better than 20% weight loss. “That exceeded our expectations,” he says.
This past April, Lilly reported the first of its weight-loss trials for tirzepatide. Patients on the highest dose averaged a 21% weight loss, after 72 weeks. The drug got FDA approval as a diabetes treatment in May, under the brand Mounjaro. Lilly had planned to apply for a weight-loss indication around late 2023, after more weight-loss studies. But on its latest earnings call, executives said they would talk to the FDA about whether an earlier submission might be considered, combining data from the diabetes trials with the just-reported obesity study.
Stamford Health’s Dr. Asnis says that her medical weight-loss practice has developed a long wait list as word of the new drugs gets out. She treated no more than 30 patients for weight loss in 2019. This year, she expects more than 1,000. Before incretins, weight-loss drugs could cause heart problems and weren’t terribly effective anyway. “The advantage of these medications,” Asnis says of the incretins, “is that they are not only cardiac safe. They are cardiac beneficial.”
That doesn’t mean the Novo and Lilly drugs lack side effects. Many patients experience nausea or diarrhea as dosage rises. Asnis says those problems taper off, or can be managed with anti-nausea medications. Only a handful of the thousands she has treated have stopped taking incretins because of side effects. A more common reason for patients to discontinue the drugs, she says, is the lack of insurance coverage. Every prescription requires prior authorization. For some patients, she has had to write essays.
To persuade insurers and public officials to pay for obesity treatment, both Novo and Lilly are carrying out studies to show that treating weight prevents other ills like sleep apnea, diabetes, and stroke. “Our job is to generate broader data that will allow the decision makers to make the right decision,” says Novo’s head of development, Martin Holst Lange. “Can we show weight loss is associated with improvements in outcomes and decreased healthcare consumption?”
Novo is well along in a study of 17,500 overweight people to see if treatment with Wegovy reduces the rate of heart attacks, strokes, or sudden cardiac death. Lilly will be recruiting for similar studies. “If a person walks into a doctor’s office and has five or six things going on—four may directly relate to obesity,” says Lilly’s medical director for obesity, Dr. Nadia Ahmad. “But the approach of the healthcare system and the payment system is to treat the complications. We’re saying treat obesity first.”
Patients and the healthcare system will certainly benefit as Novo and Lilly continue to play leapfrog with product innovations. Novo launched a once-daily tablet form of semaglutide for diabetes, as Rybelsus, in 2019 and has oral incretins in Phase 1 testing for obesity. It has an injectable combination called CagriSema beginning Phase 3 trials this year that it thinks will outperform Lilly’s tirzepatide.
Lilly, meanwhile, has a triple-incretin candidate nicknamed GGG in Phase 2 trials, as well as an oral incretin.
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Wall Street is optimistic about the incretins. At the start of June, J.P. Morgan’s Richard Vosser upgraded his rating on Novo stock from Neutral to Overweight, after doubling his sales forecast for the company’s incretin products. He thinks that Wegovy and CagriSema will outsell rival Lilly products and add up to $27 billion of the $40 billion total revenue he predicts for Novo in 2030. He says that Novo’s $100 stock could hit $127 next year.
One who disagrees is UBS’ Michael Leuchten. A few weeks after Vosser’s upgrade, Leuchten dropped his rating on Novo from Neutral to Sell. He thinks that Lilly’s incretins will outperform and outsell Novo’s, leaving less upside in the latter’s sales than its premium-priced stock requires.
He agrees that Novo sales of incretins will rise—but it alarms him that the company could be getting nearly 60% of its sales from semaglutide-based products in a few years. To escape that much concentration, Leuchten thinks Novo will have to spend more on research.
Lilly could get the greater part of the diabetes and weight-loss markets for these products, and still not have the incretins rise above 40% of its total revenue, according to UBS analyst Colin Bristow. Incretins could bring in about $22 billion of the $52 billion that Bristow projects for Lilly in 2030. He believes that Lilly’s incretins will remain best in class, but sees that reflected in Lilly’s stock price and rates the shares Neutral.
As both Lilly and Novo bring improved drugs to market, investors will have many opportunities to decide whether the UBS analysts are being too cautious. And as the health and social costs of obesity spread and are counted, the incretin market may prove bigger than anyone expects.
Write to Bill Alpert at firstname.lastname@example.org
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