“Down 15kg… with fasting… and Wegovy”
– Elon Musk
Coincidence.
That is how a life changing drug has been developed, known as “incretins”. A medication, originally developed to treat Type 2 diabetes, that has shown remarkable weight loss effects. It let people safely shed more than 20% of their weight.
Even Adele, Elon Musk or Kim Kardashian are using it.
When it comes to manipulating human metabolism, we have been entering completely new territory for the past few years. And just this week we have received new results on these “incretins” that show the strongest outcomes of any treatment to date – published by Eli Lilly, a major US pharmaceutical company.
Besides Eli Lilly, the other dominant company in this field is Novo Nordisk, the Danish market leader in insulin for diabetes. The most famous weight loss miracle drug available on the market today, Wegovy, is their creation. They currently share a duopoly, as they are the only two companies that already have a drug to combat the obesity epidemic.
Only two companies in a huge untapped market? As far as investable companies go, that sounds like music to my ears.
The biggest market in the world
Diets. Supplements. Workout Fads. We endured it all. Now we are about to have drugs that seem to be safe and very effective for weight loss. The benefits far outweigh side effects such as nausea or diarrhea. They represent our best chance to date of stopping the obesity epidemic.
In the last 60 years, the proportion of obese or dangerously overweight adults in the US alone has increased from 13% to 43%. That is more than 100 million people in just the US. Worldwide this number is above 500 million people. That is 6% of the world’s population.
Chart 1: US obese adults, ages 20-74
Obesity increases the risk of diabetes, cardiovascular disease and cancer, while interfering with sleep, work and other daily activities. So, their drugs could be used to nip many diseases in the bud.
How can one properly assess such future market potential?
47x.
Experts estimate that it would be 47 times bigger than the world’s current best-selling drug, AbbVie’s arthritis medication “Humira”. The obesity market could be “a trillion” in size. For number geeks, it looks like this:
USD 1’000’000’000’000
For comparison, the best selling drug “Humira” generates per year:
USD 21’200’000’000 (2.12% from above)
Impressive, because arthritis is the most common inflammatory disease that primarily affects the joints.
No one has ever experienced the kind of weight loss that these brand-new drugs can bring about. The lofty hopes are reflected in the companies’ stock market valuations.
Meanwhile, Lilly is the 15th and Novo the 27th largest company in the world.
Chart 2: Eli Lilly (LLY) & Novo Nordisk (NOVO_B) vs. the broad US market (S&P 500)
Source: TradingView
You may be wondering why there is a difference in the development of the two lately?
First, the market has already anticipated a slight lead in the efficacy of Eli Lilly’s obesity medication, and second, they also have a very promising Alzheimer’s division.
The latter is a very prominent theme that is touched upon heavily in our summer reading, “Outlive by Dr. Attia.”
Every great story has a villain
Of course, there is a catch for both the user and the investor.
For the end user, one monthly dose costs CHF 1,200. As soon as you stop, you will most likely experience a yo-yo effect and quickly gain weight again. The drug only tricks your body into thinking that you are no longer hungry. It does not change your habits. And the high demand for the weight-loss medicine is causing supply shortages for diabetics who really need it. This raises the moral discussion of who gets access to the miracle medication first. Of course, this is not a question…
For the investor, the big hopes are reflected in a rich valuation that leaves little room for disappointment.
Arvy’s takeaway: Another milestone in the fight against adiposity was reached this week. As both Lilly and Novo bring more advanced drugs to market, investors will have many opportunities to decide whether market participants are too optimistic or too cautious. And as the health and social costs of obesity spread and are counted, the incretin market may prove larger than anyone expects.
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