Cardiovascular and metabolic diseases are a vast chronic burden on patients and society and the leading cause of death globally[1]. However, recent scientific innovations have marked a turning point in the tackling of their root causes. This blog explores this burgeoning theme and what the launch of the first of its kind Tema GLP-1, Obesity & Cardiometabolic ETF (HRTS) means for investors.
For a list of current fund holdings, please visit the fund web page at temaetfs.com/hrts. All investments involve risks, including possible loss of principal. For a more complete discussion of the potential investment risks to the topics discussed below see the disclosure section at the end of the document.
Cardiovascular and metabolic is a term that captures three inter-related conditions – obesity, diabetes, and cardiovascular disease. Diabetes, a chronic condition in which the body does not produce or has an impaired response to insulin, a hormone that regulates blood sugar, affects almost half a billion adults globally[4]. Having diabetes doubles a patient’s risk of cardiovascular disease, which is the leading cause of death in the world today[5].
Obesity, defined by CDC as “a common, serious, and costly chronic disease of adults and children”, is a key underlying condition of both. Nearly 80% of patients that have some form of coronary heart disease (CHD) are obese or overweight[6]. Obesity prevalence has been increasing at a dramatic pace and today 42% of US adults are classified as obese.[7]
The biopharmaceutical industry is in the early innings of bringing breakthrough medications to obesity, which could ultimately revolutionize the treatment of many overweight patients with comorbid conditions like diabetes, heart disease, and other chronic diseases. In addition, insights into human genetics, as well as tools like gene editing and gene therapy, have spurred a new generation of therapeutics in cardiovascular disease. At the same time, innovation in medical devices, such as continuous glucose monitoring (CGM) sensors and interventional devices in structural heart disease, continues to be robust.
Leading the wave of obesity innovation are the GLP-1 agents, which are primarily injectable peptides that have shown significant weight loss in overweight patients with or without diabetes. The mechanism of weight loss of such agents involves increasing satiety, decreasing appetite, delaying gastric emptying, and increasing energy consumption and fat burning.[8]
Leading the revolution are Novo Nordisk and Eli Lilly. Both Novo’s Wegovy and Ozempic share the same active ingredient, semaglutide. Wegovy is approved for the treatment of obesity, while Ozempic is approved for Type II diabetes. Eli Lilly’s Mounjaro (active ingredient: tirzepatide), which is approved for Type II diabetes, is on the cusp of receiving approval for obesity as well. Semaglutide and tirzepatide have shown double-digit percentage weight loss well over one year period in randomized clinical trials.
In August 2023, Novo Nordisk announced positive cardiovascular outcomes data of Wegovy for the treatment of overweight and obese non-diabetic patients who had prior heart attack, stroke, and/or peripheral artery disease. This randomized study of 17,000+ patients – also known as the SELECT trial - demonstrated a 20% improvement in cardiovascular outcomes[9]. The details of the study will be released at an upcoming medical conference (American Heart Association) in November. If there are significant improvements in mortality, as well as cardiometabolic parameters like cholesterol and blood pressure, the implications on chronic care management, even prevention of heart disease, are transformational. The detailed AHA dataset, as well as numerous approaches in obesity therapeutics, could provide significant catalysts for investors for years to come, in our opinion.
A second area of innovation in metabolic and cardiovascular disorders, involves insights from human genetics combined with tools to manipulate the genome, including CRISPR gene editing and silencing of gene expression.
Back in 2021, Intellia Therapeutics released the first clinical results of a CRISPR gene editing approach in patients with an uncommon form of heart failure called TTR cardiomyopathy (transthyretin amyloid cardiomyopathy). The results demonstrated significant blockade of a protein called TTR through editing out the TTR gene. Since then, there have been multiple efforts underway - applying these gene medicines in both common heart diseases and rare genetic cardiovascular conditions.
A third area of enormous progress is ongoing innovation in medical device approaches in metabolic and cardiovascular disease. One example is the area of continuous glucose monitoring. Sensors, which have become more consumer friendly and discreet in their form factor, have empowered diabetes patients by providing actionable, accurate real-time insights into their blood sugar levels. These innovations have the promise of improving diabetes outcomes and lowering healthcare costs.
A second example is work done by companies like Edwards Lifesciences and Medtronic in structural heart disease. The introduction of minimally invasive methods to replace aortic valves has transformed the field of interventional cardiology. These and other companies are looking to introduce devices in less invasive approaches to mitral valve replacement, an area whose market size could be potentially much larger than that of transcatheter aortic valve replacement, which itself is expected to be a $10 billion market by 2028[10].
The breakthrough in obesity therapeutics leads us to believe that there could be significant growth given the large patient pool and currently low penetration rates. IQIVIA estimates the anti-obesity drug market could be between $15bn to $100bn by 2030[11]. We believe this range speaks not only to the enormous potential but also the wide dispersion of forecasts, an opportunity for investors.
Given that there are over 100 million US citizens with obesity[12], even assuming some discount in current prices, our estimates suggest the total addressable market in the US alone could be well over $100 billion. While there are reasons why such a number might not be achieved - including reimbursement, potential for rates of discontinuation, and likely formation of a generic or low-cost market – overweight patients with comorbid conditions, as well as populations outside the US, could benefit from a therapy. It is no surprise to see a huge rise in search interest for Ozempic around the world.
In the context of metabolics more generally, it is worth remembering that cardiovascular disease is the leading cause of death globally. This explains in part why that market is forecast by the World Economic Forum/Harvard School of Public Health to crest $1 Tn in the next two years.
As a result of the unmet need and the revolution in obesity treatments the landscape has exploded with new drugs, diagnostics and medical devices. This has created an ever-expanding investable ecosystem for metabolic and cardiovascular disease.
Navigating this universe requires focus and considerable expertise.
Investors might ask whether investing in a broader healthcare index might be a better alternative.
We believe the cardiovascular and metabolic segment is attractive compared to a general healthcare index:
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 manager, David Song MD, PhD, CFA, who has over 25 years of healthcare industry and investing experience.
The HRTS portfolio aims to be broadly exposed to breakthrough innovation and to balance risk profiles – with a mixture of emerging biotechnology firms, growing firms with inflecting revenues and more established companies.
The ETF has a acute focus on valuation and understanding risk-reward of the ever-expanding cardiovascular and metabolic investment opportunity set.
The biotech sector[16], a key part of the HRTS ETF, has had a difficult past two years registering the worst downcycle in decades.
In our analysis, almost 29% of small biotech firms are trading at market caps below the net cash on their balance sheets i.e., negative enterprise value[17]. Although some of these firms require cash resources to deliver their R&D programs, this is a stark reading of how far valuations have come down.
In the next five years, large pharmaceutical firms must find a way to replace an expected $350 Bn of revenue at risk from patent expiry[18]. One approach is to acquire smaller innovative biotechnology firms especially in the highly prospective metabolics space. In our calculations big pharma today is sitting on $838 Bn of “dry powder” to acquire these firms, representing 74% of the entire market cap of the S&P biotechnology index[19].
The metabolic space has featured some bellwether M&A already, and this is likely to continue:
There are several risks for investors to consider:
We believe the fight against the metabolic epidemic is having its watershed moment, creating a new pool of investment opportunities on compelling valuations, requiring expertise and diligent risk management to navigate.