Investing in shrinking waistlines might not have the wow factor of other market obsessions. But a new class of weight-loss drugs that help people shed pounds without dieting or doing cardio looks like a game-changer. These next-generation pharmaceuticals enable obese and overweight people to lose 15% to 20% of their body weight.
“This could be the biggest opportunity that we’ve ever seen in the pharma industry,” says Andy Acker, portfolio manager at Janus Henderson Investors.
No doubt, weight-loss drugs are trending. Traders are comparing U.S. weight-loss drug innovator Eli Lilly to artificial intelligence chip frontrunner Nvidia. Denmark’s Novo Nordisk, thanks to its first-mover advantage in obesity drugs, is now Europe’s largest company by market value ($572 billion). TV ads pitching Novo’s first-to-market weight-loss drug Wegovy and Lilly’s challenger Zepbound are filling the airwaves.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
And the drugs’ impact could reach far beyond their target users. The success of these appetite-suppressing drugs and resulting health benefits for millions of people could create headwinds for shares of snack makers and packaged-food firms, as well as medical device makers that specialize in knee replacements, insulin pumps and sleep apnea machines. Although stocks in some of these areas have wobbled recently, a growing number of analysts say the long-term risks to other market sectors from weight-loss drugs are overblown.
You may have heard of GLP-1 (glucagon-like peptide 1), Wall Street’s new buzzword. GLP-1s are the pharmaceutical equivalent of a successful crash diet. They are hormones responsible for the “incretin effect” that makes you feel more full and eat less. Currently, it’s a two-horse race between Novo and Lilly, the only players with GLP-1 drugs approved by the Food and Drug Administration to treat obesity in the U.S. (In 2005, the FDA approved this type of drug to fight type 2 diabetes but didn’t okay its use for weight loss until 2021.)
In this story, we’ll highlight the future prospects of the Big Two and offer up a few more picks of worthy competitors whose shares could rise if they deliver the next breakthrough. “This is an arms race,” says Joshua Riegelhaupt, assistant portfolio manager of Baron Health Care Fund.
High stakes, significant risks
The market opportunity is massive, as the use of weight-loss drugs to fight obesity is massively under-penetrated. More than four in 10 (42%) Americans are obese, according to the Centers for Disease Control and Prevention. But only 4 million Americans were using GLP-1 obesity drugs last year, or just 1% of the U.S. population, according to BofA Global Research. Usage is set to skyrocket.
About 15 million obese U.S. patients (or nearly 5% of the population) will be on GLP-1 weight-loss prescriptions by the end of the decade, analysts at J.P. Morgan estimate. That projected jump in penetration is why the market for obesity drugs, which last year hit $6 billion, “could grow by more than 16 times, to $100 billion, by 2030,” according to an analysis by Goldman Sachs.
Investors should note that the current crop of weight-loss drugs aren’t perfect. There’s no guarantee that lofty growth projections for use of the drugs will be met. Drug safety is another risk. Side effects include nausea, diarrhea and stomach pain, and pounds tend to return when patients stop taking these drugs.
First-to-market treatments Wegovy and Zepbound are administered by injection, which isn’t as easy for patients as ingesting a pill. Other headwinds include manufacturing constraints; cost (many people pay $1,000 or more out-of-pocket each month); and lack of coverage by health insurers, which makes weight-loss drugs cost-prohibitive and pressures sales.
Drug makers are working to improve existing formulations. That’s why investors are laser-focused on drug trial results, especially next-generation oral offerings. “What you want to look for is whether the drugs in the pipeline have better efficacy,” says Mike Perrone, a biotech analyst at investment firm Baird. “Do they have lower side effects? Are they making it easier for the patients to take the medicine?”
Pfizer, for example, suffered a setback late last year when it stopped working on its twice-a-day oral drug due to bad side effects. Pfizer is moving forward with a once-a-day pill, but we think investors should hold off on the stock for now. We’ve also passed on companies with next-wave obesity drugs in very early stages of development or ones deemed farther away from market, such as Roche’s CT-996, also orally administered, and Zealand Pharma’s Dapiglutide.
Valuations are another headache. Thanks to the success of Mounjaro (prescribed to diabetics to control blood sugar and weight) and excitement since the December launch of Zepbound (prescribed for weight loss), shares in Eli Lilly are up 99% over the past 12 months and trade at 63 times expected earnings. Novo has gained 55% and trades at a price-earnings ratio of 39. For context, the S&P 500 index gained 23% and has a P/E of 20.
At this stage of the race, investors have options ranging from the two early leaders to established drug companies playing catch-up and smaller rivals hustling to develop their own best-in-class weight-loss drugs. Read on for more details. Prices and returns are through April 30, unless otherwise noted.
Eli Lilly (LLY)
There’s an advantage to getting out of the gate fast in a largely untapped market of this size, especially for companies with established pedigrees and manufacturing prowess like Lilly (LLY), says Lee Brown, global sector lead for health care at financial research firm Third Bridge. “Leadership entrenches success,” he says.
As of mid March, Zepbound’s share of the GLP-1 weight-loss market in the U.S. was already 44%, according to Truist Securities, while the U.S. market share of Novo’s Wegovy had shrunk to 56%, down from 86% three months earlier.
Zepbound rang up $175.8 million in sales in the final seven weeks of 2023. And sales tripled to $517.4 million in the first quarter of 2024. Together, sales of Zepbound and Mounjaro in the first quarter accounted for 26% of Lilly’s $8.8 billion in revenues. BofA analyst Geoff Meacham, whose 12-month price target of $1,000 per share for Lilly is the highest on Wall Street (implying a 28% gain), says annual sales of its GLP-1 drugs could top $60 billion by 2030. That’s nearly double Lilly’s 2023 company-wide sales of $34.1 billion.
Lilly can cement its dominant position by bringing its oral weight-loss drug, Orforglipron, to the market before rivals launch their versions. It is now in its final Phase III trial, with results expected next year. BofA expects approval in 2026 and sees sales from Lilly’s full suite of obesity drugs growing from $1.5 billion in 2026 to $32 billion in 2035.
Given the stock’s high valuation, investors might benefit from buying on dips. “Some of the good news is priced in, but I think there’s a long way to go,” says Neal Kaufman, lead manager of Baron Health Care Fund, which counts Lilly as its top holding.
Novo Nordisk (NVO)
Being first to market doesn’t mean you’ll stay on top, but it does set you up for long-term success. Novo’s (NVO) popular GLP-1 diabetes drug Ozempic, which many people take to lose weight, has been on pharmacy shelves since 2017.
Its weight-loss-focused cousin Wegovy was cleared for use by the FDA in 2021. And as GLP-1 drugs branch out into other medical uses, such as reducing cardiovascular and stroke risk, minimizing kidney disease, or easing symptoms of sleep apnea, leaders like Novo will continue to benefit, says Janus Henderson’s Acker, whose Global Life Sciences Fund counts Lilly and Novo among its top three holdings. In March, the FDA approved Wegovy as the first therapy to help people both manage their weight and reduce the risk of a heart attack. “These drugs are in their infancy, and their benefits go beyond just weight loss,” says Acker.
Novo has oral weight-loss pills in its pipeline, such as Rybelsus (already approved to treat type 2 diabetes) and Amycretin, that it’s working to bring to market. “The next leg of competition [is all about] the search for ‘Wegovy in a pill,’ ” said Sachin Jain, an analyst at BofA, which rates the stock a “buy.”
In 2023, according to Novo, more than 40 million people were benefiting from both its obesity and diabetes treatments. To boost production of Wegovy in the U.S., the company acquired three manufacturing sites in New Jersey earlier this year. Keeping up with demand is key, as sales aren’t expected to slow.
Last year, sales of Wegovy to treat obesity totaled $4.5 billion, according to Third Bridge. This year, Wall Street analysts expect Wegovy revenue to nearly double, to $8.8 billion. Novo increased overall sales at a 31% clip last year and sees revenue climbing another 18% to 26% this year. The stock is also a member of the Kiplinger ESG 20, our picks of companies with solid business fundamentals and environmental, social or corporate governance strengths.
Amgen (AMGN)
The biotech giant has a promising experimental obesity drug in its pipeline. MariTide, or AMG 133, first unveiled in late 2022, is now in Phase II trials. Amgen (AMGN) said its plans for a Phase III trial remains on track.
And analysts say it could prove to be a better mousetrap than Wegovy or Zepbound. Early study results show Amgen’s injectable drug can reduce body weight by up to 15%, can keep the pounds off longer and has an acceptable safety profile. One way it separates itself from the competition is that it may need to be taken once a month (or even less frequently).
“The key selling point so far is the longer dosing interval,” says Morningstar analyst Damien Conover. That gives AMG 133 an edge over existing obesity drugs and those in the pipeline that are taken daily or weekly and require patients to keep taking the meds to keep the weight off.
If AMG 133 makes it to market, it could provide a sizable boost to Amgen’s annual revenue growth, which is now in the mid-single-digit percentage range. “A successful obesity drug could move growth into double-digit territory,” says Morningstar analyst Karen Andersen. Amgen shares offer investors a cheaper way to play the weight-loss trend, with a bargain P/E of under 15.
Viking Therapeutics (VKTX)
Investors with a high tolerance for risk might explore stock in this small biotech company, which has a market value of less than $9 billion. Viking (VKTX) made headlines in February when its stock rose 121% in a single day after Phase II results of the company’s experimental weight-loss drug VK2735 exceeded investor expectations.
Analyst Andy Hsieh, at investment firm William Blair, believes the development-stage biotech’s promising drug could deliver better results than Lilly’s Zepbound. Viking, Hsieh hinted, might also be a prime takeover target (which could further boost the stock’s upside potential). “Ultimately, we believe the value of VK2735 will be maximized in the hands of a big pharma,” Hsieh said. Viking also has an oral version of VK2735 in early trials.
All 11 analysts who cover Viking, which has yet to turn a profit, rate it “buy” or “outperform.” Analysts at Oppenheimer, who have a price target of $138 on the stock for the next 12 to 18 months (the highest estimate on Wall Street), say VK2735 has best-in-class potential and an 80% probability of success as a commercial drug.
The firm forecasts that annual global sales of VK2735 will reach $11.7 billion in 2040. Oppenheimer analysts say shares, despite a 328% gain so far this year, have more room to run.
Structure Therapeutics (GPCR)
Another dark horse in the race to bring an oral weight-loss drug to market is Structure Therapeutics (GPCR), which has a market value of less than $2 billion. Neal Kaufman, of Baron Health, initiated a small position in the stock in late 2023.
He was intrigued by the potential of the company’s obesity drug GSBR-1290, which patients can take orally once a day. “It’s still in its early phase of development, but there is reason to think it can be successful,” says Kaufman. “It has the potential to be among the leaders in the category.”
Getting an oral drug approved, Kaufman said, is the gateway to growth, noting that oral drugs are also cheaper and easier to manufacture than injectables. Baron ranks Structure second behind Lilly in the race to get a weight-loss pill to market. Structure is also a takeover target if GSBR-1290’s trial results continue to impress.
“It’s probably more of a question of when, not if,” said Kaufman. All eight Wall Street analysts who cover the stock rate it a “buy.” If their median price target of $83 is right, the speculative stock could double from here.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
-
UnitedHealth Stock Falls as Lawmakers Eye Insurers, PBMsUnitedHealth stock is continuing to fall Thursday after the introduction of bipartisan legislation targeting PBMs and healthcare giants. Here's what to know.
-
Here's How Collectibles Are TaxedCollectibles Gains on collectibles can be subject to a higher rate than for most other investments.
-
Why Adobe Stock Is Down After Its Earnings BeatAdobe stock is lower Thursday despite the tech giant beating expectations for its fiscal 2024 fourth quarter. Here's what you need to know.
-
Three Possible Tax Impacts for Retirees Under TrumpHow might a second Trump term affect your tax bill in retirement — or the inheritance tax bill for your heirs? This pro has three predictions.
-
What to Know About Leverage and Bitcoin's Meteoric RiseLeverage in the financial world can lead to astonishing success or a crushing collapse. How are investors using leverage to invest in bitcoin?
-
How Do You Know When It's Time to Change Financial Advisers?Sometimes a breakup is for the best. Here's how to handle 'the talk' and make the switch to a new professional who's a better fit for you.
-
Stock Market Today: Tech Stocks Rally as CPI Supports Lower RatesAn inline inflation report sealed the deal for a December rate cut and sent the tech sector soaring.
-
CPI Report Casts Doubt on Rate Cuts in 2025: What the Experts Are Saying About InflationCPI November Consumer Price Index data sealed the deal for a December rate cut, but the outlook for next year is less certain.
-
The Best Utility Stocks to BuyUtility stocks are defensive plays for investors, offering stability and reliable dividends. Here, we look at how you can find the best ones to buy.
-
What to Learn from Corporate Insiders' TradesWhen corporate insiders buy or sell, it can offer clues on whether you should do the same.
