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Top of mind –
Exploring the investment potential of GLP-1 medications: A game-changer in healthcare?
Our dedicated investment research team has undertaken an in-depth exploration of the potential of GLP-1 medications.
The companies featured in this article are to exemplify several thematic transitions occurring in this sector presently. It is important to note that they are not intended as investment recommendations. While Arbuthnot Latham does not directly include these stocks in our main portfolios, there may be indirect ownership through funds acquired on behalf of our clients.
As global health concerns, particularly obesity and diabetes, continue to increase, GLP-1 medications have emerged as a promising solution, displaying efficacy not only in diabetes treatment but also in the weight loss market. Goldman Sachs is projecting the weight loss market to reach a staggering $100 billion by 2030, with giants like Eli Lilly and Novo Nordisk dominating.
Amidst the promising results, our team aims to guide investors' portfolios through the complexities, providing insights into potential risks, market expectations, and the economic impact of GLP-1 medications. Our research emphasises the need for cautious optimism as speculation around these products has spread quickly and the extreme valuations of Novo Nordisk and Eli Lilly reflect this. We continue to monitor the GLP-1 market with a particular focus on the insurance coverage, signs of improvement in supply chains, and market penetration.
The evolution of GLP-1 medication
GLP-1 medications have a long history and were first approved two decades ago for Type 2 diabetes treatment. These medications mimic the action of the GLP-1 hormone, by regulating sugar levels, slowing digestion, and suppressing appetite. Notably, their ability to affect areas of the brain that increase satiety led to significant weight loss results. Moreover, trials of these medications exhibited promising outcomes in reducing the risk of diabetic complications and combating cardiovascular diseases, strokes, and related conditions. A recent trial has shown the benefits of Novo Nordisk’s medication on cardiovascular risks and the FDA approved a label expansion for its medications for reducing cardiovascular diseases. Despite transient side effects, such as nausea, the overall benefits of GLP-1 medications outweigh the associated risks.
Cost Effectiveness of GLP-1 medications
Diabetes and obesity are global health issues, and the World Health Organisation (WHO) has estimated that the diabetic and obese population could increase to over half of the global population by 2035. Annual obesity related medical costs globally are expected to increase to $4.32 trillion (3% of global GDP), which is similar in economic impact to the COVID-19 pandemic.
The Johns Hopkins University estimates that a 40-year-old man who moves from obese to overweight could lead to average lifetime savings of $18,000 in direct medical costs and regained productivity. If GLP-1 medications are successful in treating obesity and diabetes on a global scale, the economic and health benefits will be tremendous.
Market potential and dominant players
The growing weight loss market presents a lucrative investment opportunity, projected to reach $100 billion by 2030 according to Goldman Sachs. Leading pharmaceutical companies such as Eli Lilly and Novo Nordisk dominate this space with flagship GLP-1 medications Ozempic, Wegovy, Mounjaro, and Zepbound. The spectacular success of Ozempic and Wegovy made Novo Nordisk the biggest European company by market capitalisation, with a market value of around $480 billion in 2023.
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Competitive landscape and regulatory hurdles
While competitors like Amgen, Pfizer, and AstraZeneca battle for market share, Eli Lilly and Novo Nordisk maintain a stronghold due to the long and complicated Food and Drug Association (FDA) approval process and established distribution networks. Regulatory hurdles and supply chain constraints pose challenges to new entrants, solidifying the dominance of Novo Nordisk and Eli Lilly in the GLP-1 arena.
Disruption Across Industries
Beyond healthcare, GLP-1 medications could disrupt industries like food and beverages. Reports indicate a decline in consumption of calorie-dense products among GLP-1 users, prompting companies to innovate and adapt to healthier, less calorie dense consumer preferences. While these shifts pose challenges, they also present opportunities for market diversification and innovation.
“GLP-1 medications offer a promising future for Global Healthcare, with their proven efficacy in tackling obesity and diabetes. Companies at the forefront of these GLP-1 treatments could present a great opportunity for investors to participate in this exciting healthcare innovation.” – Nefeli Neophytou, Investment Research Analyst.
Challenges and Uncertainties
Despite promising prospects, challenges loom on the horizon. High production costs, shortages in supply, and limited insurance coverage hinder widespread adoption of GLP-1 medications. Additionally, the long-term implications of these medications are still to be observed, as well as the willingness for users to stay on the medications for a lifetime. We continue to closely monitor any data that can affect market penetration.
Conclusion: Thriving amid uncertainties
GLP-1 medications represent a paradigm shift in healthcare, offering effective solutions for obesity and diabetes management. While the investment potential is substantial, careful assessment of market dynamics and regulatory landscapes is essential. As developments unfold, investors must remain vigilant to navigate the dynamic landscape of GLP-1 investments, which are potentially set to reshape the healthcare industry and beyond.
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Author -
Nefeli Neophytou
Investment Research Analyst
Nefeli Neophytou is an Investment Research Analyst at Arbuthnot Latham, with a background in supporting the Distribution team. She transitioned to join our research team in March 2024, where she focuses on US and European markets.
Nefeli holds a BSc in Mathematics from University College London and an MSc in Financial Engineering and Risk Management from Imperial College London.
In her free time, she enjoys cooking, reading, and spending time with friends.
DISCLAIMER
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