Pill for Obesity Has Wall Street Salivating
Obesity treatments are currently limited to injections, but pills could expand the market and lower costs
The Ozempic craze has captured the national imagination, along with that of Wall Street.
The financial potential for drugs that lead to significant weight loss isn’t hard to grasp. If even a small portion of the 40% of Americans who are obese get on these medications, the companies that offer them could be looking at massive blockbusters.
But to target the millions of potential patients, manufacturers need to offer more than just weight-loss data. Things like price, convenience and access are also important. For now, Novo Nordisk’s NVO -0.59%decrease; red down pointing triangle Ozempic and its sister drug, Wegovy, as well as Eli Lilly’s LLY 0.25%increase; green up pointing triangle Mounjaro (which is approved for diabetes but not yet for obesity) are expensive—costing over $10,000 a year—and are only available as injections.
An effective pill could change things by making it easier for doctors to prescribe the medications and for patients to adhere to them. A simpler manufacturing process could also eventually bring the price tag down, though that won’t happen quickly.
In a mid-stage study, the highest dose of an Eli Lilly experimental pill, orforglipron, led to 14.7% weight loss at week 36, according to data published in the New England Journal of Medicine on Friday.
Last month, Novo Nordisk, which makes the medication semaglutide under the brand names Ozempic and Wegovy, said that a pill form of that drug helped adults in a trial lose an average 15.1% of their body weight over 68 weeks in a late-stage study.
The results were comparable to once-weekly Wegovy injections.
Novo now expects to file for regulatory approval in the U.S. and Europe this year, though the launch could take time as the company ramps up its manufacturing capacity and deals with shortages of Ozempic and Wegovy. Meanwhile, Pfizer PFE -1.11%decrease; red down pointing triangle is testing two oral drugs and has said it would move whichever of the two looks the most promising into late-stage studies.
Disha Narang, director of Obesity Medicine at Northwestern Medicine Lake Forest Hospital, says that having an oral agent that is just as effective would be a big deal for some patients who, for whatever reason, are more hesitant to use injectables.
Both the injections and the pills are part of a class of drugs called glucagon-like peptide-1 agonists, which essentially mimic a hormone in the gut, GLP-1, that tells your brain that you are full. The mechanism was initially approved for treating diabetes, but pharma companies are seeking to broaden their use for weight loss.
Novo and Lilly have been conducting long-term studies to test whether the drugs can ultimately reduce other health risks associated with obesity such as sleep apnea, heart failure and kidney disease.
Shares of Eli Lilly and Novo have each more than doubled in the past three years and the two companies are now the top two largest pure-play pharmaceutical companies in the world.
Eli Lilly, the only pure-play drug company whose market capitalization exceeds $400 billion, now trades at 44 times forward earnings. That compares with a multiple of 15 for the NYSE Arca Pharmaceutical Index.
Partly driving these sky-high valuations is a bet that annual revenues from these drugs could eventually exceed $100 billion. Some analysts project Lilly’s Mounjaro alone could reach over $50 billion in annual sales for diabetes and obesity.
The studies for the oral drugs have generated further excitement on Wall Street, where investors see the development as paving the way for broader adoption of obesity treatments at lower cost.
Currently, obesity injections are mainly the realm of endocrinologists and obesity specialists. A daily pill could make it easier for primary-care physicians to prescribe them more widely.
“Oral treatments are going to equip the industry with the ability to approach a broader healthcare population,” says Chris Shibutani, a pharmaceuticals analyst at Goldman Sachs.
Importantly, Shibutani explains that it isn’t just about weight loss. Other factors such as price, convenience and side effects will be at play, meaning there will be room for more than just one or two drugs.
“Not every patient will have the same goal when it comes to the magnitude of weight loss,” he says. “It’s like when you go to buy a car, the amount of horsepower may be important, but not everyone needs to get from zero to 60 at the same speed.”
Pills could also bring the list price down while preserving manufacturers’ margins, explains Will Sevush, a healthcare strategist at Jefferies. Sevush notes that Lilly’s orforglipron is a small molecule while Novo’s oral formulation of semaglutide is an oral peptide, which has fasting restrictions and requires a large amount of active pharmaceutical ingredients to manufacture. Small molecule pills like orforglipron could be as much as 70% cheaper than injectables while still generating similar profits, he says.
Some analysts like Shibutani and Sevush say the treatment of obesity could eventually involve a combination of orals and injections. At first, they posit, patients will be inducted with higher-efficacy injections that bring patients’ weight down significantly. Once the weight comes off, doctors can then move patients on to a maintenance phase, where easier-to-take pills might make more sense, even if they produce less weight loss.
Obesity specialists insist that America’s obesity problem won’t go away until the country has a real reckoning with its unhealthy eating habits. Medications, whether in pill or injection form, could help, but lifestyle changes are needed too.
But that won’t stop pharmaceutical companies and their investors from cashing in on the weight-loss craze in the meantime. The rollout of oral versions of the drugs will only intensify Wall Street’s appetite.