Measuring the impact of anti-obesity drugs

With an estimated one in eight Americans having taken weight loss drugs such as Ozempic in the past two years, their widespread use could bring considerable economic benefits and reshape the medical, food and leisure industries.

These are the findings of a survey of Pictet investment managers and analysts that oversee more than USD10.5 billion of assets across our health, biotech, consumer and nutrition equity portfolios.¹

Assessing the pipeline of new anti-obesity drugs, our investment professionals find that the next generation of treatments can improve on the current crop in three main ways, potentially boosting the size of the addressable market.

To begin with, there’s the promise of fewer – and less severe – side effects.

A drawback common to all the current GLP-1 medications is that users often experience long bouts of nausea, vomiting and gastrointestinal discomfort. While these side effects can dissipate over time, many patients end up not being able to tolerate the treatment at all.

This has prompted a group of pharmaceutical and biotech firms to focus on developing new anti-obesity drugs with an emphasis on increased tolerability.

Another potential improvement newer drugs could deliver is the type of weight loss patients experience. Many current anti-obesity medications cause both fat and muscle loss, which can lead to other health complications. In response, drug developers are now looking at treatments that can reduce weight without degrading muscle. And there are various ways to do this by adapting existing medications.

Lastly, the new crop of anti-obesity drugs could pave the way for more personalised weight loss treatments. One of the many difficulties in tackling obesity is that the condition is often accompanied by other medical problems, or comorbidities, such as hypertension, osteoarthritis or diabetes. In the future, we may see different combinations of treatments tailored to patients’ specific comorbidities being made available.

By our reckoning, there are dozens of such hybrid products undergoing early stage clinical trials. All in all, these potential improvements suggest patients could see a permanent 25 per cent reduction in their weight. This translates into a bigger commercial opportunity. Better-performing treatments with fewer side effects could push the market for weight loss drugs to USD75 billion within three years and USD100 billion by 2030.

The broader economic implications would be significant too. One in four adults in the developed world is currently obese and if present trends continue, obesity could end up costing the global economy up to USD4 trillion in lost output every year, or 3 per cent of GDP by 2035.

Yet GLP-1 drugs’ potential extends beyond treating obesity.

Research shows that patients using anti-obesity drugs suffer fewer cardiovascular problems such as strokes and heart attacks, even when weight reduction is not rapid or significant. The drugs have been found to have anti-inflammatory properties and also appear to have a positive effect on certain types of cancer, particularly those of the digestive system.

Another positive side effect reported by patients using GLP-1 agonists is reduced craving and addictive behaviour as these drugs, in addition to appetite control, have also been found to affect the brain circuits that regulate addiction.

What is more, there is growing evidence suggesting GLP-1 agonists can also treat Alzheimer’s. Novo Nordisk, the maker of Ozempic, is soon expected to release data from phase III clinical studies of GLP-1 on cognitive decline.

For all this promise, though, it isn’t clear yet whether GLP-1's apparent capacity to treat other serious illnesses will spell the end for many of the medical products and procedures we use today to treat heart conditions, cancer and brain diseases.

Indeed, the impact of anti-obesity drugs on the healthcare industry as a whole is difficult to assess as opposing effects may be at work.

For example, in orthopaedics there are anecdotal reports claiming that demand for specialist orthopaedic equipment is declining. As people lose weight, strain on their joints decreases and, at the margin, they need fewer knee replacements.

On the other hand, as severely obese people lose weight, they become better candidates for surgery, potentially increasing demand for knee replacements and the like. At the same time, if anti-obesity drugs end up increasing life expectancy by reducing the incidence of diabetes, kidney disease and coronary diseases, then people will probably need other medical interventions as they get older.

Insurers and state healthcare providers will have to weigh the high cost of GLP-1 drugs, and the fact that they need to be taken indefinitely – evidence suggests people revert to their old eating habits and weight once they stop taking the drug – against their undeniable benefits.

Easier to see, though, is how the success of anti-obesity drugs is being felt – albeit very gradually – among the food retailing and leisure industries.

Take food first.

Anti-obesity drugs work by suppressing a patient’s appetite. So the more they become part of everyday life, the greater the likelihood of a slump in sales of certain foods and beverages. Calorie intake will, on average, drop for a large portion of the developed world’s population.

In our view, unhealthy products such as soft drinks, processed foods, alcohol and confectionary – all of which are major revenue generators for some of the world’s largest food retailers – are especially vulnerable to a drop-off in demand. While it is too early to draw definitive conclusions given the lack of hard data, we cannot rule out the possibility of a radical change in consumer attitudes towards – and consumption of – unhealthy food.

Traditional weight loss products and services will also be adversely affected. While some may be able to position themselves as complements to anti-obesity drugs, GLP-1s represent an existential threat to businesses operating in this industry.

Conversely, some specialist businesses operating in the food supply chain could reap significant commercial rewards if anti-obesity treatments become widespread – particularly manufacturers of healthier foods.

Investment managers within Pictet Asset Management’s Nutrition strategy believe that firms that manufacture vitamins and dietary supplements will be among the major beneficiaries.

This is because even if a person’s calorie intake falls by some 20 per cent to 30 per cent – which is what tends to happen when users take anti-obesity medication – their fundamental nutritional requirements do not change.

In other words, as obese patients lose weight and reduce food consumption, dietary supplements, vitamins and functional foods – which are used by as many as one in three people in the rich world – can be expected to become a bigger part of their daily intake. Anecdotal evidence from food producers within our investment universe supports this thesis, while a recent survey of GLP-1 users showed that more than one third of respondents began taking food supplements such as probiotics and vitamins at the same time.

The leisure industry might also witness a GLP-1 growth boost. While the adoption of healthier lifestyles has been gathering momentum for some time, demand for products and services within the wellness economy could rise even faster as the clinically obese population shrinks. This includes segments such as sportswear and sports nutrition as well as wearable health and fitness devices.