The biggest development in healthcare in 2023 was the exploding popularity of a new class of weight loss drugs – GLP-1 – with the potential to slow down, stop, or even reverse an increasingly critical obesity crisis.
The growth potential for these products could be huge. Globally, an estimated one billion people are obese . In the U.S. alone, 42.5% of adults are classified as obese . Some experts believe that, at the current rate, by 2030, the percentage of obese adults in the U.S. could reach 50% .
Given this vast patient population, weight loss drugs potentially could be the largest drug class in the history of healthcare, representing a $150 billion opportunity just in the U.S..
Since the first GLP-1 drug was approved to treat diabetes in 2005, there have been several generations, each more convenient and more effective in controlling blood sugar. When first launched, doctors reserved these drugs for hard-to-treat cases. But with growing familiarity and newer versions, doctors are increasingly prescribing GLP-1s earlier in a patient’s course of diabetes. By 2018, we estimate roughly 4% of Type-2 diabetics in the U.S. were on a GLP-1 .
Earlier generations of GLP-1 drugs had only a limited impact on weight loss. Over time, scientists realized these drugs had important appetite regulating effects on the brain and refined them to be more effective. The newest generation – Novo Nordisk A/S’s Ozempic and Eli Lilly and Company’s Mounjaro – cause significant weight loss and have driven an acceleration in adoption by diabetics. We estimate that at the end of 2023, nearly five million patients, or roughly 15% of Type-2 diabetics, were on GLP-1 drugs, a 50% increase from just the year before4.
Given the impressive weight loss the newest GLP-1 drugs produced in diabetics, scientists studied them in non-diabetic obese patients, where they drove even greater weight loss — around 15% to 20% of a patient’s starting weight. Ozempic, rebranded as Wegovy, and Mounjaro, rebranded as Zepbound, were approved in the U.S. specifically for obesity in 2021 and 2023, respectively.
Evidence is accumulating that using GLP-1 drugs to treat obesity can help save lives. In a clinical trial, Wegovy reduced an obese person’s risk of heart attack, stroke, or death by 20%. In the same patient population, the risk of death fell by 19%, heart attacks by 28%, and hospitalization due to heart failure by 18%.
It is still the very early innings of using GLP-1s to treat obesity. We estimate that at the end of 2023, one million people in the U.S. were on GLP-1 drugs for weight loss (and not for diabetes), which represents only 1% of the eligible population.
A huge market opportunity
However, we estimate more than half of the U.S. adult population, or 137 million people, are in fact eligible for GLP-1s per the FDA-approved label.
Although it can take decades to reach peak penetration for some medications, we think obesity treatments will scale more rapidly because obesity is not asymptomatic, patients are eager to get treatment, and awareness is high.
Net pricing of these drugs may also come down over time as access grows, as has been the case with previous mass market primary care drugs. We would not be surprised to see net pricing in the $3,000/year range in the future.
This would create a $100 billion to $150 billion/year opportunity in the U.S. alone, assuming that, in 10 to 15 years, 60% of diabetics and 30% of other eligible obese patients are paying $2,000 to $3,000/year for a GLP-1. The global market offers even more opportunity.
What’s next?
Given this potential, competitors of Novo Nordisk and Eli Lilly are scrambling to get into the space. There are currently more than 50 weight loss drugs in development. In the meantime, both Eli Lilly and Novo Nordisk have next-generation versions in Phase 3 trials that drive even greater weight loss and further generations in earlier stages of development.
Incumbency and first-to-market status will matter unless a new drug is meaningfully better. However, there is room for multiple players to win, although the market will remain a duopoly between Eli Lilly and Novo Nordisk at least until 2027 or 2028. Other businesses – most obviously pick-and-shovel companies that manufacture products for injectable medicines – will benefit as well. There will also be some losers, with GLP-1s potentially having a negative impact on other types of treatments related to obesity. The most direct impact will be on bariatric surgeries.
Overall, however, the opportunities for investors are significant and, over time, we expect this space could represent the largest growth opportunity in the history of healthcare.
The author is Neal Kaufman, portfolio manager of the Baron Health Care Fund
