Where to make fat profits in the fight against obesity

Our changing lifestyles mean obesity is set to reach epidemic proportions - as will related illnesses such as heart disease. So which sectors will be leading the fight against the flab?

Obestity is not simply about being overweight. According to the US Centers for Disease Control and Prevention (CDC) and the United Nations' World Health Organisation (WHO) being overweight is a function of the percentage of body fat in relation to lean body mass, or an individual's Body Mass Index (BMI).

Obesity, a more pernicious condition, is officially defined as an individual having a BMI of 30 or more while being overweight requires a score of between 25 29.

Obesity and weight-related problems are said to be responsible for in excess of 17m deaths each year (WHO estimate) and rising as officials anticipate that the affliction will reach epidemic proportions over the next decade.

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Furthermore, being overweight or obese significantly increases the likelihood of chronic disease which, in turn, puts additional stress on an already over-burdened medical system.

We use official data to examine recent trends in global obesity levels, related health risks and what little officials are currently doing to combat a growing problem.

The obesity crisis goes global

Whilst it may be stereotypical to assume that most US citizens are overweight, the obesity crisis is no longer the preserve of the United States. It has gone global. Demographic trends reveal that those countries with ageing populations are generally seeing increased levels of obesity.

The condition has become particularly acute in those developed and developing economies where populations are becoming richer and more urbanised.

The work / health / life balance is no longer in balance and as time pressures increase populations look for easy answers, including solving the desire for nutrition with more protein and processed food. More stressful / busy lives reduce the time available for essential leisure / fitness activities and increase the likelihood of weight gain.

Of even greater concern is the increased incidence of obesity and weight gain amongst children as fewer numbers participate in regular physical activity, instead opting for the quick fix and comfort eating associated with fatty and processed food and snacks. The latter has already led to a lively and hopefully constructive debate regarding food additives and the advertising of apparently unhealthy products to children.

According to the WHO, by 2015 2.3bn adults will be officially deemed overweight with a further 700m classified as obese. If true that would imply a 45% increase in the number of overweight people and a massive 75% increase in obesity.

The latter is concerning as, by 2015, the number of people assessed as obese expressed as a percentage of those classified as overweight will increase from 25% to 30%.

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WHO Obesity Data20052015
Obesity Ratio25%30%

By country, the incidence of ageing populations in developed countries is adding to the problem. The baby boom generation is coming towards retirement. As populations age, coupled with increasingly sedentary lifestyles, so weight increase becomes more of an issue. Consequently the trend towards weight gain is most noticeable in the United States and in Europe.

But the problem is not unique to the developed economies of Europe and the USA. Any country in which the combination of rising per capita incomes, increased urban populations, coupled with rising consumption of fatty and processed food has seen dietary change result in increased weight issues and higher body mass readings.

The lifestyle change is most pronounced in the developing former Eastern European countries where closer integration with Western Europe has provided a new market for food products aimed at satisfying the aspirations of local populations.

But changing diet is increasingly a global issue. According to the UN's Food and Agriculture Organisation fat consumption is rising sharply in the developing world. Indeed, the combination of impoverished rural populations, coupled with rising dietary problems associated with rising urban populations is creating a profound dietary burden that local governments seem oblivious to, or powerless to prevent.

Inevitably, the demographic issue reveals an even more worrying trend. Increasingly, children are becoming drawn into the obesity trap as they consume unhealthy snacks targeted specifically at their audience while at the same time any former enthusiasm for fitness or sporting endeavour is being substituted for the dubious delights of the PlayStation and the Game Boy.

According to US data, fears that overweight children might turn into overweight adults are close to being realised. The latest statistics indicate that far from shedding "puppy fat" as adolescents mature, around 70% of overweight children now become overweight adults, with the figure rising to 80% if one or more parent is already overweight or obese.

According to the WHO at least 20 million children under the age of five are now classified as overweight and that the International Obesity Task Force (!!) estimates that, globally, 155 million children between the ages of 5 and 17 are now formally classified as overweight, of which somewhere between 30 million and 40 million are clinically obese (2-3% of the world's 5-17 year old population).

By country, child weight issues are most pronounced in Egypt where a staggering 25% of four year olds are overweight while in the Central and South American countries of Mexico, Chile and Peru obesity rates for children between 4 and 17 year old are already in excess of 25%.

How does the world respond?

How the world responds depends very much, in our view, on how the problem is addressed in the United States where weight gain is most acute. According to the US Center for Disease Control (CDC) it is a national objective to cut the incidence of obesity in adults to 15% (from 31.6%) by 2010. Over the past two decades levels of clinical obesity have increased aggressively.

Between 1976 and 1980 14.5% of the population were obese against 32% simply overweight. While the percentage of the population clinically overweight has increased only marginally (to 33%), obesity levels have increased dramatically to the extent that two thirds of the total population is now either overweight or obese.

According to the Rand Corporation a new category has been created measuring those defined as morbidly (severely) obese. The Corporation measures those with a body mass index in excess of 30 (obese). It has discovered that the number of people with a BMI in excess of 30 increased by 25% between 2000 and 2005 while those with a BMI in excess of 40 increased by 50% over the same period and those with a BMI in excess of 50 increased by a massive 75%.

Unsurprisingly, in view of the growing problem in poor and developing countries referred to above, the region of the United States with the greatest percentage of obesity is that comprising the southern states of Louisiana, Mississippi and West Virginia.

As population numbers continue to swell so does the incidence of weight-related disease. Incidence of hypertension, heart disease, Type 2 diabetes and sleep apnea are all increasing and it is estimated that by 2015, if unchecked, the direct cost of obesity in the US alone could hit $700m or $2,129 per head of population.

Furthermore, the CDC estimates that the indirect cost of weight gain could be even greater with a possible 300,000 deaths per year relating indirectly to obesity. The Center has noted that people diagnosed as obese have a 50% - 100% greater likelihood of premature death, a higher incidence of heart disease, higher blood pressure, increased incidence of diabetes, increased risk of arthritis and increased incidence of breast cancer amongst post-menopausal women.

The cost of obesity

The cost of obesity is hard to measure as inevitably calculations have to include both direct and indirect costs. According to the US National Health Accounts the cost associated with being overweight and obese totalled c9% of total medical expenditure in 1998 (or $78.5bn), around half of which was paid for by Medicaid and Medicare and a third privately.

According to the Rand Corporation, if unchecked, obesity could account for as much as 20% of total US healthcare costs by 2020. Given the expected cost increase it is clear that the authorities are making the fight against obesity a high priority.

At present the campaign is focusing on raising awareness, however, in due course budgeting decisions are inevitably going to have to be taken with regard to the creation of a healthier life style.

In essence this will revolve around the most effective resource allocation in relation to improved diet, exercise and weight loss but may also include the advancement of healthier eating, the pharmaceutical sector and surgery.

With regard to diet, exercise and weight loss, the CDC estimates that by losing as little as 5% - 15% of total body weight can dramatically reduce the incidence of those diseases listed above and heart disease in particular. Simultaneously, we expect to see significantly greater emphasis on healthy eating and the encouragement of consumption of fresh products.

The role of the pharmas

The Pharmaceuticals (and Biotechnology) sectors are likely to benefit as the spotlight turns to products aimed specifically at countering weight gain. We accept that the development of pharmaceutical products to reduce incidence of weight gain, particularly when that weight gain may be dietary or even culturally related is a morally complex argument, however, in those instances where obesity is either glandular or hereditary the drug companies do have a role to play.

Obesity is not regarded as a therapeutic area in its own right yet, however, as the problem increases and resource is switched towards combating weight gain we would expect to see resources reallocated towards this potential growth area.

Inevitably, we expect the pharmaceutical industry to address the opportunity in typical fashion with smaller more-enterprising companies developing the products through early stage clinical trials following which the larger operators acquire the business to bolster pressurised top lines.

In the UK only one company, Alizyme (AZM), has a recognised obesity product, although there are around twenty five established second tier pharmaceutical companies in the US already exploring the area's potential.

The surgical response

If a pharmaceutical response raises moral questions, the surgical response probably raises more. The use of surgery to address weight gain is entirely invasive and what would normally be considered a last resort has now become an enormous growth industry.

According to the American Society for Bariatric Surgery, 177,600 procedurerelated operations were undertaken in the US in one year (2006) alone, while the CDC confirms that the number of stomach stapling or stomach bypass operations increased from 13,000 in 1998 to 200,000 in 2006.

Of even greater concern is the fact that surgery has become the alternative of choice for the young as well. Between 2000 and 2003 the number of children having obesity-related surgery in the US tripled and should, this year, have topped 1,000 for the first time.


Incidences of weight gain and obesity are increasing around the world and according to the WHO there could be 2.3bn overweight adults of whom more than 700m could be clinically obese. The incidence of obesity as a proportion of those measured overweight with reference to body mass indexing is expected to rise sharply over the next decade.

The healthcare industry is experiencing increased costs associated with higher incidences of weight gain and obesity and tackling the problem is likely to rise up the political agenda over the next decade as costs rise and infrastructure struggles to meet increased demand.

We expect to see greater emphasis placed on improved diet and healthier lifestyles but would also expect to see the pharmaceutical industry and medical service providers rise to the challenge too.

Ageing demographic profiles and increasingly urban lifestyles have exacerbated a growing problem but the increasing incidence of weight gain and obesity among children is particularly concerning.

We regard the battle against obesity as an interesting strategic opportunity for very long-term investors.

By Jeremy Batstone-Carr, Director of Private Client Research at Charles Stanley