Morningstar - Q3 2023 - 19

Obesity Drugs Poised
for Growth
AMERICAS
United States
Demand for obesity drug therapies is surging.
New medicines with efficacy rivaling bariatric
surgery, with only minor tolerability issues,
have replaced older drugs that had significant
cardiovascular side effects and mediocre efficacy.
The 2021 approval of Wegovy, the GLP-1
agonist from Novo Nordisk NVO, has led to a surge
in demand for active ingredient semaglutide
in various forms, including the firm's diabetes
drug Ozempic. Mounjaro, a GLP-1/GIP
co-agonist already approved for diabetes from
Eli Lilly LLY, is poised to generate even
stronger weight-loss results and launch as
an obesity treatment.
We think Novo and Lilly will continue to lead
the obesity market over the next 10 years,
with incremental innovation that will support
their wide economic moats. We also expect
new therapies to launch in 2026 and beyond from
other companies, including Amgen AMGN
and Pfizer PFE, that could grow to roughly one
fourth of the market by 2032.
We expect the average global price of GLP-1
therapy for obesity to rise to roughly
$5,400 a year as Novo's and Lilly's obesity
treatments launch, then gradually
decline beginning in 2025 as competing
therapies launch, falling to roughly
$2,800 by 2032. By 2032, 21 million patients
globally could be taking GLP-1-based
therapy for obesity, creating potential for
a $60 billion market.
Semaglutide in various dosages has been
on the market for several years, and we think
significant side effects are unlikely.
However, newer therapies like Mounjaro or
other combination regimens could present side
effects once approved and used in larger
populations, creating a risk of legal expenses
that is factored into our forecasts.
The valuations for leaders Novo and Lilly
remain rich, with investors assuming the same
significant demand and volume growth that
we forecast but leaving little room for new
entrants. As more companies enter the market, we
expect affordability to improve, increasing
demand and pushing the market further toward
our estimated market of roughly $60 billion
by 2032, across all companies.
We see several catalysts. The obesity market had
been growing steadily as demand for Novo
Nordisk's older GLP-1 therapy Saxenda increased,
but the approval of semaglutide-based
Wegovy marked the beginning of a new level
of efficacy in obesity that was sufficient to
spark strong demand. While Novo has struggled
with supply constraints, sales of Wegovy
have taken off in 2023, and Lilly's GLP-1/GIP
combination therapy Mounjaro for obesity is likely
to launch around the end of 2023.
Efficacy and convenience have risen to a level
that is drawing in significant numbers of
obesity patients. The GLP-1 pathway is central to
both drugs and has already made this class
a key part of diabetes management.
Mounjaro looks slightly more effective than
Wegovy, perhaps because of the inclusion
of the GIP pathway in its mechanism of action.
However, Wegovy's first-to-market status-
even with significant supply disruptions
that delayed a full launch-should help Novo
Nordisk maintain a similar market share. Beyond
Wegovy and Mounjaro, Novo Nordisk and
Eli Lilly have strong drug pipelines that seek to
achieve even greater weight loss and
potentially more convenient oral dosing instead
of injections.
We think obesity drugs from other players
could begin to launch as early as 2026, ranging
from potential me-too efficacy to new
combined mechanisms of action. Pfizer and Amgen
stand out as the two big biopharma companies
hoping to enter the market behind Novo
and Lilly. Pfizer is moving forward with oral GLP-1
drug danuglipron following a successful review of
phase 2 data, which should allow for phase 3
development to begin in 2024.
Amgen's compound has the potential for more
differentiation than Pfizer's orals, as its
drug is a combination of GLP-1 agonism and GIP
antagonism. The long-acting nature (Amgen
is testing monthly and even quarterly dosing)
and potential leading efficacy could make
this a competitive drug. Phase 2 trials are ongoing,
with data expected in 2024 and a launch not
possible until at least 2026.
Karen Andersen, CFA, is a strategist for Morningstar
Research Services LLC.
Damien Conover, CFA, is director of healthcare equity
research for Morningstar Research Services LLC.
Four on Top These companies stand to dominate the obesity market.
Company/Ticker
Estimated Obesity
Eli Lilly LLY
Novo Nordisk NVO
Amgen AMGN
Pfizer PFE
Source: Morningstar Direct. Data as of June 30, 2023.
Market Share 2032 (%)
40
36
4
3
Economic
Moat
Wide
Wide
Wide
Wide
Price $
468.98
161.83
222.02
36.68
Fair Value
Estimate $
Morningstar
Rating
368.00 QQ
130.00 QQ
268.00 QQQQ
48.00 QQQQ
morningstar.com/products/magazine
19
https://www.morningstar.com/stocks/xnys/nvo/quote https://www.morningstar.com/stocks/xnys/lly/quote https://www.morningstar.com/authors/643/karen-andersen https://www.morningstar.com/stocks/xnas/amgn/quote https://www.morningstar.com/stocks/xnys/pfe/quote https://www.morningstar.com/authors/757/damien-conover http://www.morningstar.com/products/magazine
Morningstar - Q3 2023

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