Obesity drugs

Commentary: Weight loss and diabetes drugs

27 Apr 2023

It is no secret, the U.S. has an obesity issue. Today, about two of every three U.S. adults are considered overweight or obese i.e. have a Body Mass Index (BMI) of 25 or higher. One in three is obese with BMI over 30. In fact, the U.S. is both the most obese country and the largest market for obesity drugs. Globally, the World Health Organization estimates that 1.9 billion adults or 39% are overweight/obese compared to 70% in the U.S. With regards to obesity alone, that number is 650 million or 13% of adults globally versus about 42% in the US. 

Looking at historical trends from the National Institute Of Health (NIH), obesity in children between 2 to 5 has doubled over the past three decades. And for kids over 6, obesity has tripled. In the late 1990s, 31% of U.S. adults were obese compared to 42% today. Excess body fat causes type 2 diabetes. This uptrend means millions face an increased risk of type 2 diabetes and other health issues. Today, 1 in 10 Americans, or over 37 million have diabetes with 90%+ of them diagnosed with type 2 diabetes. Common diabetes treatments include lifestyle changes such as diet or exercise, as well as insulin therapy. Lifestyle changes have proven to be difficult, despite diabetes being the 8th leading cause of death in the US.

Recent federal and state regulatory developments that cap insulin prices suggest that big pharmaceutical companies might be forced to attack obesity directly, rather than developing drugs to treat diseases that arise from obesity. In this piece, we provide some background on why we think this space bears watching as one of the largest industries undergoes a drastic shift.

Insulin wars

Many diabetic patients in the US rely on insulin therapy to control blood sugar levels; creating a multi-billion industry for glucose monitoring and insulin. The high demand drove price gorging that saw insulin costs increase by 600% on average over the last 20 years. For example, a vial of Sanofi’s Lantus insulin rose from $35 in 2001 to $292 in 2022. With many unable to afford insulin without insurance, several U.S. states moved to cap costs. With the passage of the Inflation Reduction Act in 2022, the Biden administration added further caps by mandating that Medicare patients should pay no more than $35 a month for an insulin prescription starting in 2023. Consequently, three leading insulin makers Sanofi, Novo Nordisk, and Eli Lilly - with a combined 90% market share, all announced price cuts in early 2023 by as much as 70 to 78%.

Fence at the top of the cliff, not a hospital down in the valley! 

For decades, big pharma focused on building hospitals at the bottom of the cliff (by tackling diabetes) instead of fencing the cliff (by addressing the root cause, obesity itself). Frankly the former was easier for several reasons: (a) lifestyle changes are difficult as we saw with the COVID-19 pandemic, (b) other factors such as the prevalence of high-fructose corn syrup in the US food industry since the 1980s made obesity so entrenched (c) insurance providers who ultimately foot the bill, saw obesity as a lifestyle issue. Today, this might be changing especially as less money can be made from diabetes versus selling obesity drugs. 

There are very few FDA-approved medications for obesity and weight management. The oldest approved drug, Orlistat which works by decreasing digestion and absorption of fat, has been on the market since 1999 as a prescription drug (under the Xenical brand) and later over-the-counter (as Alli) in 2007. Since then 1999, four more drugs were approved that help regulate appetite, and the most hyped today are the GLP-1 or glucagon-like peptide 1 drugs. Clinical trials have shown that taking GLP-1 drugs once a week helped people lose significant weight by up to 22% in months even those without diabetes! More importantly, continued use of the drugs was needed for sustained weight loss. In other words, continued cash flows for big pharma are expected with the wider adoption of these drugs. Wegovy by Novo Nordisk was approved by the U.S. FDA in 2021 for weight loss and in the EU in Jan 2022. At a cost of over $1,300 per month, these drugs aren’t cheap. Ozempic also by Novo was also approved for diabetic patients in late 2017. Eli Lilly’s Mounjaro for diabetic patients was approved in May 2022 in the US and later that year in the EU. 

The demand had been so strong that there was a shortage in the US recently due to supply chain constraints. Given strong demand tailwinds driving projected annual sales of $50 to $100 billion, or multiple that of insulin, these drugs are expected to be the best-selling of all time and drive windfalls for Eli Lily and Novo Nordisk. We believe that lifestyle changes are hard. It is much easier to eat the cake and take a shot later than to hit the gym for months. With efficacy all but proven, the next frontier will be on tackling cost challenges i.e. whether insurance companies will cover these drugs and for how many.

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