Getting fit and losing weight may be at the top of people’s new year resolutions - and it is already a theme that many investors are digesting.
The global market for anti-obesity is already worth around $6 billion annually and companies focusing on weight-loss drugs were among the top performers and most purchased stocks in 2023.
Analysis from share trading platform eToro shows an increasing number of investors added Danish firm Novo-Nordisk, manufacturer of the weight loss drug Wegovy, and Eli Lilly & Co, which supplies diabetes and weight loss medication tirzepatide, to their portfolios during 2023.
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The share price of Novo-Nordisk, a major European pharmaceutical company and big player in the diabetes and weight-loss space, rose around 54% over the past year and there was a 13% jump in eToro investors purchasing the stock.
Its rival, Eli Lilly, is up around 45% and was purchased by 13% more users on eToro during 2023.
“UK investors clearly feel that the obesity drug train has a long way to go, with eToro users continuing to flock to the industry’s two biggest names during the fourth quarter,” says Sam North, eToro market analyst.
Healthcare is a big investment theme and the market for anti-obesity medications is expected to reach $100 billion by 2030, according to Goldman Sachs research.
Investing in these stocks through a broker or investment platform is one route to gaining exposure to healthcare and weight loss as a theme, but there are other methods.
How to make gains from weight loss
Tackling obesity costs the NHS around £6.5 billion a year, rising to $147 billion in the US, making it a key area for healthcare companies to tackle.
Sheena Berry, equity research analyst at Quilter Cheviot, said Novo Nordisk and Eli Lilly significantly outperformed in 2023, with the two companies expected to maintain an obesity market duopoly in 2024.
“Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro and Zepbound drugs act on the brain to reduce hunger and make a person feel full sooner,” adds Berry.
“Whilst the percentage of weight loss from the drugs is impressive, they aren’t necessarily the magic bullet that much of the coverage has made them out to be. The drugs result in muscle loss as well as fat loss and when patients curtail treatment, there is an element of weight gain.”
The perceived success of these drugs has sparked a flurry of activity from competitors to develop others aimed at obesity and its side effects, although these are at a much earlier stage of development.
Roche announced the acquisition of Camot Therapeutics in December 2023, providing it with a pipeline of assets to help weight loss, while AstraZeneca announced in November that it had entered into an agreement with Eccogene for treatment of obesity, type 2 diabetes and other cardiometabolic conditions.
Amgen is also conducting clinical trials in the space and is expected to report early-stage data of its obesity pill in the first half of 2024.
Berry says the obesity market opportunity remains significant but it will take time to determine if the drugs in early clinical development prove successful and if valuations are sustainable.
“As such, Novo Nordisk and Eli Lilly have somewhat stolen a march on the competition and the coming year is unlikely to shift that needle,” she adds.
“However, this does not mean opportunities do not exist within the others and they remain good businesses for investors.
"AstraZeneca and Roche are both large pharmaceutical companies with strong, diversified pipelines of drugs targeting other health issues, such as oncology. As a result, obesity is not a core focus and given the early nature, readouts in other therapeutic areas will be more likely to drive good performance in the nearer term.”.
This is a niche area though and there are risks of drugs failing or not getting approval, which could hit company performance.
Ben Yearsley, investment director at Fairview Investing, suggests sticking to a healthcare fund or investment trust focusing on this area as it provides investors with broader and more diversified exposure.
For example, Novo-Nordisk is the largest holding in the European Opportunities Trust, run by Alexander Darwall, while the Polar Healthcare Trust has Eli Lilly at the top of its portfolio.
“For most investors sticking to a healthcare fund or trust is the best option,” says Yearsley.
“I’d steer clear of single drug early stage biotech companies as although rewards are potentially huge if a new drug works, what if it doesn’t?”
The Alliance Bernstein International Healthcare Fund also has exposure to weight loss and diabetes medication, known as GLP1s. It holds Novo Nordisk and similar companies.
“The team recognises the impact that these drugs have on patients is real and extremely beneficial with regards to weight loss as well as reduction in heart conditions," says Carly Moorhouse, fund research analyst at Quilter Cheviot.
"However, they also recognise that there is a lot of hype around these medications and uncertainty as to whether you see the full benefits today or in 10 years when the drugs become generic as cost and availability is still an issue.
“That being said, where the fund holds companies with exposure to GLP1s, these companies will also have strong existing product lines, as the team focuses more on the individual businesses, as opposed to purely on the science, avoiding companies whose share price is contingent on a binary outcome.”
