Pharma Giants Eye Obesity Treatments

The U.S. Food and Drug Administration (FDA) last month designated Eli Lilly's (LLY) weight-loss drug, Tirzepatide, for fast-track approval. Already endorsed to treat type-2 diabetes, the drug, with the brand name Mounjaro, will likely hit the market next year with additional approval to treat obesity.

It's a market with enormous potential, analysts say.

An estimated 650 million people -- one out of every 12 people in the world -- live with obesity. The World Health Organization estimates it's responsible for 5% of all global deaths, and it can lead to or worsen a variety of ailments, ranging from kidney disease and arthritis to vision impairment.

Global pharmaceutical firms have identified the need to combat the problem. Morgan Stanley projects the current $1.2 billion annual market for obesity drugs could exceed $8 billion in three years and $50 billion by 2030.

"We believe the treatment of obesity is on the cusp of moving into mainstream primary care management and that the obesity market is where the treatment of high blood pressure was in the mid-to-late 1980s," a recent Morgan Stanley report stated, noting the market for blood pressure medicine reached $30 billion annually by 2000.

Burgeoning Demand for Still-Emerging Products

Obesity wasn't classified as a chronic disease by the American Medical Association until 2013 and the European Commission only listed it as such last year. But if last year's release by Novo Nordisk (NVO) of its weight loss drug Wegovy is any indication, strong demand for obesity treatments may not take long to emerge.

Despite the drug's list price of $1,349 per month (less for patients whose insurance covers it), Novo Nordisk recently halted marketing of Wegovy amid what it calls "unprecedented product demand." The company temporarily can't manufacture enough, particularly as it navigates supply constraints, to keep up with requests from doctors, pharmacies, and patients.

Only about 10% of obese people receive actively-managed care for it. Morgan Stanley expects that to rise 25% by 2035, with the proportion rising to two-thirds for severely obese patients. Of the overall number of people now treated for obesity, 40% receive an anti-obesity drug, which the firm forecasts will rise to 55% by 2035.

That means about 26 million people worldwide take anti-obesity drugs now. Even assuming conservatively that world's number of chronically obese remains unchanged, the forecast would equate to 89 million people taking anti-obesity drugs by the middle of the next decade -- a three-and-a-half fold increase.

Encouraging Outcomes -- With Two Firms Dominating

So far, the FDA has approved five drugs to treat obesity and promote the weight loss. Clinical trials have shown Wegovy has helped patients sustain weight loss of 15% for 18 months, and patients in the trial for Eli Lilly's Mounjaro achieved a 21% drop in body weight over the same time period.

NovoNordisk and Eli Lilly aren't the only drug companies attempting to tap the young market. However, the two have what Morgan Stanley deems a duopoly on anti-obesity drugs, with a dozen currently in clinical development between the two. It projects the two firms likely will evenly split 75-80% of global anti-obesity drug revenue by 2030, even though it doesn't project Mounjaro to begin producing meaningful sales until 2024.

Investors have noticed. The SPDR S&P Pharmaceuticals ETF (XPH), which tracks an index of industry stocks, has fallen 8% this year, significantly less than the market overall. But shares of Novo Nordisk have gained 3%, with Eli Lilly's shares surging 32% -- 9% since Mounjaro received fast-track status Oct. 6.

More clarity on the market for anti-obesity treatments could come as soon as the end of the year. A trial, called SELECT, on Novo Nordisk's Wegovy began this fall. It aims to demonstrate the drug could help prevent heart attacks and strokes in obese patients by lowering blood pressure, promoting weight loss, and reducing lipid levels.

In addition, a bill introduced in Congress in early 2021, the Treat and Reduce Obesity Act, has gained bipartisan support. In the U.S., obesity affects an estimated 29% of adults ages 65 and older, and the bill would expand Medicare coverage to include obesity screening and treatment.