Investors bet on obesity drugs before without much success. Why this next wave could be different

Published Sat, Apr 2 20229:10 AM EDTUpdated Wed, Apr 13 20228:52 AM EDT

Christina Cheddar Berk @in/christina-cheddar-berk-b864404/

It's been nearly a decade since the American Medical Association declared obesity a disease , but treating it has been complicated and muddled by the lingering perception that the condition is more about lifestyle and appearance than biology. New obesity therapies are drawing a clearer line between mechanisms in the body and the difficulty some have losing weight — demonstrating hurdles no amount of willpower can overcome. The treatments are making greater amounts of weight loss possible, offering patients hope and investors a potential opportunity. "We believe the debate around the size of the obesity opportunity is now transitioning to a commercial rather than medical one given the unequivocal (in our view) clinical data supporting the emerging wave of therapies led by Wegovy," said Deutsche Bank analyst Emmanuel Papadakis, in a recent research note. "The extent to which healthcare systems recognise obesity as a medical rather than lifestyle condition remains variable, but it is clearly changing. ... Payers are now increasingly amenable to utilising medical obesity therapies." To be sure, obesity treatments have had a checkered past. Some early treatments proved to be either too toxic or not super effective. But newer therapies are achieving greater weight loss, and the ones in the pipeline could bring patient outcomes closer to those achieved by bariatric surgery. This could make for a more compelling case for health insurers, especially given rising rates of obesity and the comorbidities — and costs — that often accompany the chronic condition. The excitement has centered on incretin hormones like glucagon-like peptide-1, or GLP-1, receptor agonists, which were initially used to treat diabetes. Novo Nordisk's semaglutide — which is branded Wegovy as weight-loss treatment and Ozempic for diabetes treatment — is in this group. Wegovy is very effective in making patients feel full, and has helped patients achieve and sustain an average weight loss of 15% for 68 weeks in late-stage testing. $8 billion drug? GLP-1 works by prompting the pancreas to produce insulin and lower blood sugar, but it also travels to the brain, binding with receptors on neurons in the hypothalamus and suppressing appetite. Meanwhile, it also reduces the amount of glucagon secretion in the liver and it slows gastric emptying in the gut. The 15% weight loss is far above other weight loss medications. For example, Saxenda, an earlier obesity treatment from Novo, was shown to help patients lose 5% of their body weight on average. In an investor presentation in early March, Novo said 75% of patients in the U.S. who are taking Wegovy, a once a week injection, were new to anti-obesity medications. This demonstrates the potential power it could have in expanding the category. Although Novo has been plagued by shortages since Wegovy's launch, the therapy helped the company grow its obesity care sales by 55% last year. And the company has already doubled an earlier forecast it issued for obesity drug sales, saying it expects to reach 25 billion Danish krone ($3.71 billion) by 2025. As for the Wegovy shortages, Novo has said the situation will be resolved by the second half of this year. The company also is making plans to boost manufacturing capacity by 2023. On average, analysts anticipate that Wegovy sales will reach $8.8 billion by 2030, according to Geoff Meacham, an analyst of Bank of America Securities. While Deutsche Bank's Papadakis upgraded Novo shares to buy last month, he warned the stock could have a bumpy ride as new obesity treatments come to market. Novo's stock closed at $112.91 on the New York Stock Exchange on Friday and is flat so far this year. Lilly could set a new benchmark Any day now Eli Lilly could release data from its Surmount-1 study, which examined the use of tirzepatide to treat obesity. The treatment combines two incretins, glucose-dependent insulinotropic polypeptide, or GIP, and GLP-1. Like Wegovy, tirzepatide was first studied as a diabetes treatment. Analysts expect it will be approved by the Food and Drug Administration for this use later this year. But the weight loss study data, expected in the second quarter, is highly anticipated, and could give Eli Lilly shares a boost. Based on the information from the earlier diabetes trials, patients in the Surmount-1 study are expected to show significant amounts of weight loss — possibly more than 20% from the patient's base weight. Lilly declined to comment for this story. BofA's Meacham said he expects the study results to spark new interest in Lilly's stock, and the obesity category. In mid-March, Meacham raised his price target for Lilly shares to $315 from $300, saying the market wasn't fully appreciating Lilly's opportunity with obesity treatment. At that time, the stock was trading at about $276, but shares closed Friday at $292.67, which implies further upside of nearly 8%. Meacham estimates that tirzepatide's use for type II diabetes is a more than $7.5 billion revenue opportunity at its peak, but he puts revenue from its use in obesity at more than $6 billion by 2030, which is double consensus forecasts. "Investors like to view these as a zero-sum game," Meacham said, in an interview, "but that's never been the right approach." He expects there is room for both drugs to do well given the addressable population. More than 40% of U.S. adults have obesity, according to the Centers for Disease Control and Prevention , and the prevalence is expected to rise in the future. As a complex, multifactorial and chronic disease, obesity puts people at greater risk for other conditions such as diabetes, cardiovascular disease and sleep apnea, to name a few. Obesity also can worsen other conditions, as many learned during the pandemic. Aside from age, obesity was one of the biggest risk factors for severe Covid-19. Hurdles to treatment But access to treatment has several significant hurdles including cost and access to doctors who see obesity as more than a lifestyle condition. The list price for a 28-day supply of Wegovy is $1,349.02. But Novo said that eligible patients with commercial insurance can use an offer that can bring costs down to as little as $25 for the same amount. According to Novo, 70% of commercial insurance formularies, or an insurer's official list of covered medicines, include Wegovy. But employer health plans must opt-in to those lists. As a result, the company estimates about 20 million people have coverage for it. For those with commercial insurance that doesn't cover Wegovy, or those paying cash, Novo said it has another discount program that could bring the cost down to $850 for a 28-day supply. Notably, Medicare doesn't cover any anti-obesity medications, but it will pay for bariatric surgery and some types of behavioral therapy. Advocates for people with obesity have been trying to change this rule in an attempt to win broader coverage through the Treat and Reduce Obesity Act . The bill is now in its tenth year of being introduced to Congress but there has been little action in getting it passed. "The bias and stigma is so pervasive, it really impedes the ability to get action on policy," said Chris Gallagher, a lobbyist at Potomac Currents, which has worked to secure coverage for bariatric surgery and other obesity treatments. However, Gallagher said he thinks recent guidance from the Office of Personnel Management to health insurance carriers who administer the federal employee health benefit plans was very strongly worded, and could be helpful in gaining greater access to treatment. In a letter to carriers on Feb. 17, and in the agency's follow-up technical guidance on March 16, OPM said carriers were not allowed to exclude anti-obesity medications from coverage. Since 2014, OPM has encouraged carriers to cover obesity treatments, but the newer guidance is a possible game changer that could encourage public and private health plans to offer more comprehensive coverage, Gallagher said. Meanwhile, the Institute for Clinical and Economic Review will be doing an assessment of the clinical efficacy of the main obesity treatments on the market, which is due out in September. Meacham expects this report will bring more exposure to the available treatments. ICER will be looking at Wegovy as well as other commonly prescribed treatments like Vivus' Qsymia, which is a combination of phentermine (an appetite suppressant) and topiramate (which is typically used as a seizure medication), and Currax Pharmaceuticals' Contrave, which combines naltrexone (which is usually given to block the effects of opioids or alcohol) and bupropion (an antidepressant). The medications are necessary because bariatric surgery is viewed as a last resort, and it's not practical to use surgery as a primary treatment option for those in need. In a research note, Deutsche Bank's Papadakis said the American Society for Metabolic and Bariatric Surgery estimates that 256,000 procedures were performed in the U.S. in 2019 at an estimated cost of between $17,000 and $26,000 each. That puts bariatric surgery's market value at $4.4 billion to $6.7 billion, and demonstrates why having less invasive pharmaceutical agents is so desirable. In the coming years, current treatments could be joined by other GLP-1 drugs. Pfizer , for example, has an oral GLP-1 receptor agonist in early-stage development, which could be a welcome option for patients. An oral medication may be less expensive and easier to administer than Wegovy, which uses injector pens that must be kept refrigerated. Amgen is working on a dual GLP-1 receptor agonist and GIPR antagonist, and Boehringer Ingelheim is developing a dual GLP-1/glucagon agonist. But even if these treatments are successful, commercialization remains several years out. Novo also has another drug in its pipeline, CagriSema, which combines the GLP-1 analog semaglutide with a synthetic analogue of human amylin, a naturally occurring hormone made in pancreatic beta cells. Data from the company's 68-week trial isn't expected until 2024, but it is expected to produce an even greater weight loss than Wegovy or tirzepatide. The medications also work best when they are used as part of a structured program overseen by a physician, and typically including nutrition, exercise and behavior modifications. Although the number of board-certified obesity doctors has continued to rise in recent years, many patients do not seek out treatment. "We know that only 10% of people with obesity in the U.S. seek help for their weight from a medical professional," a Novo spokeswoman said in an email.

Josephine Flood | CNBC

New obesity therapies are drawing a clearer line between mechanisms in the body and the difficulty some have losing weight — demonstrating hurdles no amount of willpower can overcome. The treatments are making greater amounts of weight loss possible, offering patients hope and investors a potential opportunity.