How to Invest in Weight Loss Drugs A Comprehensive Beginner's Guide

Introduction – How to invest in weight loss drugs

A recent study in the Lancet estimated that 1 billion individuals globally live with obesity[1], a number that is set to nearly double in the next decade. In the United States today 42% of adults are considered obese[2]. Obesity is the root cause of many chronic diseases including cardiovascular disease, the number one killer, but also diabetes, liver and kidney disease. In fact, it is associated with over 200 different co-morbidities. A new generation of breakthrough weight loss drugs, like Ozempic/Wegovy and Mounjaro/Zepbound, is ushering in the biggest pharmaceutical market on the planet potentially worth $500bn by 2030. This unpacks how to invest in weight loss drugs.

How do GLP-1s work for weight loss

The human metabolic system is extremely complex, especially how it regulates the composition of our bodies and how obesity arises in some individuals. Historic attempts to affect weight loss, including restricting calories, have often not worked. The only reliable tool was bariatric surgery – an invasive procedure.

For many years, scientists like Professor Jens Juul Holst, characterized the function of a gut hormone called GLP-1. GLP-1 is an incretin in that it stimulates the production of insulin in beta cells, reducing blood sugar levels. This feature led to attempts to develop drugs that mimic GLP-1 for diabetes. Scientists also found that GLP-1 inhibits gastric emptying and promotes satiety. This showed up in trials where patients lost weight, paving the way for the development of these drugs for obesity as well. Daily injected, Saxenda, a first-generation GLP-1, was the first drug approved for this.

However, to make GLP-1 analogs work well required solving two key challenges – a high enough dose and making the drug last longer in our bodies i.e. a longer half-life. This was achieved by Novo Nordisk with semaglutide, marketed as Ozempic for diabetes and Wegovy for obesity. Following closely behind was Eli Lilly’s tirzepatide (Mounjaro/Zepbound) which combined GLP-1 with another incretin hormone GIP. Both drugs showed a weekly injection led to 10-20% weight loss in clinical trials, a breakthrough.

Understanding the weight loss drug market 

Today there are two next-generation weight loss drugs approved by the FDA – semaglutide (Wegovy) and tirzepatide (Zepbound). These drugs were first approved in diabetes under brand names Ozempic and Mounjaro, respectively. Since the approval of Wegovy for obesity in 2021 the obesity market has grown sevenfold to $24bn in 2023[3]. Current analyst estimates for the market’s potential keep rising. Tema estimates it could reach $500bn by 2030.

The current state of the market is being held back by several forces. First, supply is severely constrained as peptide manufacturing is expensive and requires billions of capital expenditure and years to build certified plants. Second, private and public coverage is being restrained by worries about affordability. Finally, pricing is a very political issue despite the substantial health benefits and third-party cost-effectiveness data.

Seeing the success of Eli Lilly and Novo Nordisk, many other pharmaceutical companies have set their sights on this market. These companies are developing drugs to solve some of the existing challenges with GLP-1 drugs – such as tolerability and the aforementioned supply constraints. Many are turning to acquisitions or in-licensing. Roche for example paid $2.7bn to acquire privately held Carmot Therapeutics while AstraZeneca in-licensed an oral drug from China’s Eccogene for $185m upfront (and $1.8bn of potential milestones).

Why invest in weight loss drugs

Understanding market trends is crucial for those looking into how to invest in weight loss drugs. Anti-obesity medications have the potential to become a $500bn market, the largest pharmaceutical market on the planet. This forecast is driven by how large the obesity market is in terms of affected individuals. By 2035 there will be 2bn obese individuals, and up to 4bn if one includes the overweight, a staggering 46% of the world’s population[2]. Yet today only 1-2% of obese individuals are treated by medications like GLP-1s, a penetration rate that should increase dramatically.

One outstanding feature of the obesity market is the proportion of out-of-pocket spend. In a survey, 5% of Americans said they would pay $1,000 or more per month for these drugs[5]. 50% said they would pay $100 per month. This is unusual for medication and by some estimates could support a $70-$200bn market size alone[6].

Aside from aesthetic benefits, the clinical data portfolio of weight loss drugs is substantial. Data has shown substantial benefits in diabetes, cardiovascular, liver, and kidney disease. This vastly expands the market potential. There is also early evidence and ongoing confirmatory trials that GLP-1 drugs could work in Alzheimer’s and even addiction.

Various investment opportunities for weight loss drugs

There are several options for investors when faced with the question how to invest in weight loss drugs. Investors could try to pick the best weight-loss drug stocks. Alternatively, they could buy an ETF specialized in weight loss like the Tema GLP-1, Obesity & Cardiometabolic ETF (HRTS).

How to invest in weight loss drugs stocks

Some investors might choose to invest in weight loss drugs through buying stocks of individual pharmaceutical companies. The choices here fall broadly into four categories:

• Buy the current duopoly stocks – Novo Nordisk and Eli Lilly.
• Invest in a large pharmaceutical company that has their sights set on the obesity market with drugs in development. Example companies include Amgen, which is developing an anti-body for obesity, or Roche, which recently acquired privately held Carmot entering the space.
• Invest in a small or medium sized emerging biotechnology firms that are running clinical trials of novel approaches. These includes companies like Viking Therapeutics, Zealand Pharma and others. These stocks offer higher risk for potentially higher reward. It is wroth remembering that the failure rate in metabolic drugs from Phase I to approval is 85% i.e. identifying winners is challenging.
• Finally one can look at stocks that benefit from the growth in GLP-1 and weight loss drugs indirectly. This could be manufacturers like West Pharmaceuticals.
  
  

Though this is a viable investment strategy individual equities operating in this space carry a unique confluence of biological, clinical, regulatory, commercial and funding risks. To make informed decisions on how to invest in weight loss drugs, it is important to consider the potential risks and rewards associated with the biotech industry.

How to invest in weight loss drugs ETFs

For the majority of investors one potentially simpler way to invest in weight loss drugs is through a weight loss focused exchange traded fund (ETF). Buying a weight loss ETF means at once buying a diversified portfolio of stocks purely exposed to GLP-1 and obesity. This includes both established players but also smaller emerging biotechnology firms, that might make attractive acquisition targets.

The Tema GLP-1, Obesity & Cardiometabolic ETF (HRTS) is an actively managed ETF that gives investors a simple and effective way to gain exposure to companies leading the fight against obesity. The fund is also exposed to cardiometabolic disease more broadly providing a wider vector of growth and innovation.

HRTS is actively managed by Dr David Song MD PhD CFA, a fund manager with over 25 years of industry and investing experience, and his team. HRTS also benefits from a scientific advisory board that includes the pioneer of GLP-1 Professor Jens Juul Holst.

Important factors to consider when investing in weight loss drugs ETFs & stocks

Estimates of the size of the weight loss drug market keep rising, with Goldman Sachs recently upgrading their forecast from $100bn to $130bn[7]. However, investing in this market requires careful consideration of the risks and challenges:

• It is possible that the market potential won’t be as great as expected. Areas of risk include affordability as coverage of these drugs means payment upfront with health and other social benefits accruing over decades. Tighter and reduced coverage could mean slower growth.
• The stock market is prone to bouts of exuberance and one could argue the combined market cap of Novo Nordisk and Eli Lilly already reflects rosy estimates of the obesity market. Valuation is a very important consideration when buying stocks and forms part of HRTS’s four key pillars of stock selection.
• It is important that the ETF or stock seeks pure exposure to the growth of the weight loss drug market in order to benefit from potential growth.
• Such a dynamic corner of the stock market exposes investors to the confluence of unique risks. We believe that these require expertise, experience and a consistent risk management process to navigate.

The future of weight loss drugs market

Wegovy and Zepbound have set a high bar, showing 10-20% weight loss and a whole host of clinical benefits. Most important of these was Novo Nordisk demonstrating in a 17,000 patient five year clinical trial that Wegovy reduced the risk of major cardiovascular events (MACE) by 20%. These types of data and the difficulty to manufacture a peptide like GLP-1, raise the barriers to entry for the duopolist market leaders.

Despite this biotech markets are highly dynamic and evolving rapidly, especially as so many players are attracted by the large prize. Investing in weight loss drugs requires understanding where the puck is going. The future of weight loss drugs will focus on addressing some of the major issues with GLP-1s.

• Supply and oral drugs – the difficulty of manufacturing GLP-1s could be addressed by a company demonstrating efficacy, and more importantly, safety of an oral non-peptide GLP-1. Many are trying including Eli Lilly (together with Chugai), Viking, Roche and others.
• Tolerability – though safe and taken by millions of people, GLP-1s still leave more to be desired from tolerability with troublesome gastrointestinal side effects. Several competitors, including the duopoly leader Novo Nordisk, are working on amylin, another incretin hormone, that could be more tolerable.
• Efficacy – many companies, such as Eli Lilly or Zealand Pharma, are working on improving efficacy in terms of percentage weight loss or focussing on specific sub-niches, like liver diseases.
• Muscle loss – GLP-1s are known to drop weight which does include muscle. Several companies, like Regeneron, are working on muscle-sparing (or even gaining) drugs to pair up with GLP-1s. This could lead to the ultimate aesthetic market.
  

Source: Tema. For a full list of current holdings, please visit www.temaetfs.com/hrts

Why invest in Tema GLP-1 & weight loss ETF

The weight loss drug market could potentially crest $500bn in size. Yet navigating this highly dynamic segment of the market, while being purely exposed to this growth is difficult.

Tema GLP-1, Obesity & Cardiometabolic ETF (HRTS) is the first ETF in the world focused on this exciting area of healthcare. HRTS is managed by an experienced portfolio management team and is supported by a scientific board, that includes a GLP-1 pioneer. The team conducts deep and comprehensive research in an effort to identify those companies that deliver breakthrough solutions at attractive valuations.

The HRTS portfolio aims to be broadly exposed to breakthrough innovation and to balance risk profiles. The performance of companies within the fund benefits from the clinical and commercial success of obesity drugs, which is an uncorrelated source of return in the market.

Conclusion

Obesity affects 1 billion people around the world. GLP-1 drugs are a breakthrough ushering in a potential $500bn market as the health benefits of these drugs are proven out. The space is dynamic and highly innovative making it difficult to navigate for investors. High failure rates mean picking the best weight loss drug stocks is a challenging way for non-experts. A simple and effective strategy to invest in weight loss drugs is a weight loss ETF, such as the Tema GLP-1, Obesity and Cardiometabolic ETF (HRTS). It provides a diversified portfolio managed by an experienced team supported by a scientific board that includes a GLP-1 pioneer.