Obesity Drugs: The “Most Compelling Story in the Healthcare Sector” – Wells Fargo

Analysts from Wells Fargo have highlighted weight-loss medications, particularly those produced by Denmark’s Novo Nordisk and the US-based Eli Lilly, as a major development in the healthcare sector. The GLP-1 class of drugs features market-leading products such as Novo’s Ozempic and Wegovy, along with Eli Lilly’s Mounjaro and Zepbound.

These GLP-1 treatments are designed to assist diabetes patients by promoting insulin release and regulating blood sugar levels. Additionally, they can influence brain activity to curb hunger and slow stomach emptying, potentially resulting in weight loss.

Since the introduction of their GLP-1 medications, both companies have seen unprecedented profits, with some analysts projecting global sales for these drugs could reach approximately $150 billion by the early 2030s.

As demand continues to surge, Novo and Eli Lilly have faced challenges in meeting this influx. In response to the shortage, US regulators have permitted various companies, including telehealth providers, to create compounded versions of these brand-name drugs. Notably, shares of WeightWatchers saw a significant increase after the company announced plans to offer a compounded version of Wegovy.

In the US, around 74% of adults are classified as either overweight or obese, with 42% of that population struggling with obesity, according to Wells Fargo’s analysis based on data from the Centers for Disease Control and Prevention.

Looking ahead, the analysts anticipate rapid growth in the weight-loss drug market and emphasize that cost-benefit considerations will become increasingly crucial. They pointed out that costs for Medicare enrollees tend to be significantly higher for those with obesity compared to those without, potentially strengthening the case for these medications and supporting their future usage.

Furthermore, recent clinical studies suggest that GLP-1 drugs may also provide beneficial effects for other health concerns, such as cardiovascular risk, sleep apnea, and dementia, which could further amplify demand.

In their assessment, the analysts maintained a “neutral” outlook on the healthcare sector overall while expressing a favorable perspective on specific sub-sectors, including healthcare equipment and supplies, life sciences tools and services, and managed healthcare.