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The Disruptive Strategist: The rise of GLP-1 weight loss drugs

GLP-1 weight loss drugs are transforming the healthcare scene. Some analysts are predicting that the anti-obesity market may become the largest pharmaceutical market in history, while on the other hand, share prices of medical device companies, particularly those specialising in diabetes and obesity management, are beginning to feel the pressure.

GLP-1 weight loss drugs are transforming the healthcare scene. Some analysts are predicting that the anti-obesity market may become the largest pharmaceutical market in history, while on the other hand, share prices of medical device companies, particularly those specialising in diabetes and obesity management, are beginning to feel the pressure. GAM Investments’ Kevin Kruczynski considers the considerable impact of GLP-1 drugs on the healthcare sector.

30 November 2023

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Glucagon-like peptide-1 (GLP-1) drugs are transforming the healthcare scene. These drugs, such as Ozempic and Wegovy (brand names for Semaglutide), are being hailed as game-changers in the treatment of diabetes and obesity. They function by mimicking the action of the body’s natural GLP-1 hormone, suppressing appetites, contributing to weight loss and better management of blood sugar levels. The results have been astounding, with trial results showing patients losing between 15% to 26% of body weight within 18 months, depending on drug and dose. We believe the significant market opportunity for weight loss drugs, with over 650 million obese adults worldwide, has made GLP-1 drugs extremely attractive and profitable; given this backdrop some analysts are predicting that the anti-obesity market may become the largest pharmaceutical market in history.

GLP-1 mechanism of action when blood sugar levels increase

GLP-1 mechanism of action when blood sugar levels increase 

The pivotal STEP 1 trial showed greater than 16% weight loss

The pivotal STEP 1 trial showed greater than 16% weight loss 
Source: Novo Nordisk

Unsurprisingly the rise of GLP-1 drugs has had a ripple effect, extending beyond pharmaceutical companies to touch other industries such as food retail, consumer packaged goods, restaurants and medical devices. Traditional weight loss companies like Jenny Craig have felt the tremors, with some closing their weight loss centres due to the popularity of these drugs. Others have adapted and incorporated these drugs into their weight loss programmes. Retailers with pharmacies such as Walmart and Kroger initially reported increased foot traffic from GLP-1 prescriptions, but more recently Walmart reported lower average basket size and calories purchased. On the flip side, the pharmaceutical companies that focus on this area will be obvious beneficiaries; it should also be a boon for the health insurance industry as the population gets healthier over the long term. One prediction took things a step further and suggested one of the less obvious beneficiaries could be airlines given the potential for fuel savings if the average passenger was a few kilograms lighter.

The share prices of medical device companies, particularly those specialising in diabetes and obesity management, are beginning to feel the pressure. However, it is not all doom and gloom. While GLP-1 drugs are indeed impactful, they are not without their setbacks. Side effects, cost concerns and patient persistence issues can still make medical devices a more appealing option for some. This underscores the necessity of maintaining a diverse range of treatment options for optimal patient outcomes. In the diabetes market, for instance, continuous glucose monitoring (CGM) and insulin pumps are not expected to be overwhelmed by the new drugs due to concerns over patient access, complications and patient falloff. Dexcom recently pointed out that it is seeing CGM device use increase in type 2 diabetes patients who are using GLP-1 drugs. Similarly, in the weight loss segment, bariatric surgeries continue to provide more sustainable clinical outcomes compared to the drugs. Despite the promising potential of GLP-1 drugs, they are not expected to replace medical devices entirely. The future will most likely see a coexistence of GLP-1 drugs and medical devices, each playing an integral role in patient care.

GLP-1 drugs are indeed transformative, but they are not without their challenges. As they continue to disrupt the medical landscape, a balanced approach that includes both pharmaceuticals and medical devices will be crucial for sustainable patient outcomes.

Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.

This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.

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