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Research in Action: The obesity moonshot

In this episode, Luyi Guo, a Research Analyst on the Healthcare Sector Team, explains how new weight-loss drugs could become one of the largest and most consequential drug categories in history.

Luyi Guo, Ph.D., CFA

Luyi Guo, Ph.D., CFA

Research Analyst


Matt Peron

Matt Peron

Director of Research | Global Head of Solutions


6 Sep 2023
30 minute listen

Key takeaways:

  • A new class of weight-loss drugs has delivered compelling data, showing the medicines are highly effective at reducing weight and lowering the risk of associated diseases, such as heart disease.
  • Despite uncertainty about reimbursement, these drugs are expected to become a multibillion-dollar market within the decade.
  • While competition is likely to increase, companies at the forefront of today’s weight-loss revolution could build on deep research to maintain their market leadership.

Carolyn Bigda: From Janus Henderson Investors, this is Research in Action. A podcast series that gives investors a behind-the-scenes look at the research and analysis used to shape our understanding of markets and inform investment decisions.

Losing weight is often a challenge, with some people resorting to drastic measures such as surgery to get results. But a new generation of weight-loss drugs has the potential to change all that, allowing people to shed significant pounds via a simple injection or even a pill. The public response has been overwhelming, says Luyi Guo, a Research Analyst on the Healthcare Team who covers the pharmaceutical industry.

Luyi Guo: There has been an attitude shift because the clinical trial shows you, for most people, diet and exercise alone is not enough to let people to lose more than 10% of weight.

Bigda: But who will pay for these pricey medications, and how long can the biopharma companies first to develop the drugs hold on to their market share – and elevated stock valuations?

I’m Carolyn Bigda.

Matt Peron: And I’m Matt Peron, Director of Research.

Bigda: That’s today on Research in Action.

Luyi, welcome to the podcast

Guo: Thank you, a pleasure to be here.

Bigda: Wegovy is the first of this new line of next-generation weight-loss drugs to make it to market. And it has shown the ability to deliver weight loss of 15% or more. Luyi, what makes the drug different from previous weight-loss therapies, and why is everyone so excited about it?

Guo: Yes, correct. So, let’s just first talk a little bit about obesity. Obesity is highly prevalent. It is a chronic disease. Virtually every system in the body is affected by obesity. And major chronic diseases are associated with obesity, such as diabetes, heart disease, and cancer.

So, with the launch of Wegovy – or this product is also called semaglutide 2.4mg, a weekly injection that was launched June 2021 – we have entered a new era of anti-obesity medication. Wegovy is most efficacious and it’s a leading GLP-1 receptor agonist on the market for weight loss.

And like you said, the placebo-adjusted weight loss achieved was 15%. That means you lost 15% more than what you would’ve done with just diet and exercise and what you tried to do on placebo alone. And that is highly significant. Because previously, most anti-obesity drugs can only provide about 5% to 7% weight loss, and the significance of 15% or more weight loss is a step-change. So, you are losing significantly more weight than people could potentially do through diet and exercise alone.

And with the clinical data, there has been a shift because the clinical trial shows you, for most people, diet and exercise alone is not enough to let people to lose more than 10% of weight. That’s just not possible for a lot of people. And we have multiple clinical trials to already prove that. So, there is that attitude change in the healthcare professionals, in the doctors, but also among people who live with obesity, that there is additional help that could be needed.

Bigda: Yes, I saw one headline recently that said obesity is biology, not willpower. And so there seems to be this real shift in the mindset…

Guo: Correct.

Bigda: …about how to treat obesity as a result.

Guo: Yes, and there is mindset shift in the medical community that you should not blame obesity on the people who suffer from it, just like you shouldn’t blame somebody with high blood pressure.

Bigda: So, Luyi, Wegovy is just the first of many drugs that seem to be coming down the pike here to address obesity. It could be actually just the beginning of a weight loss bonanza, is that correct?

Guo: That’s correct. And so, we can call this class of drugs incretins. And so, likely by the end of this year, we will see a drug that’s a dual agonist. So, Wegovy is an agonist just for GLP-1 receptors, but we will likely see another drug that’s a dual agonist for GLP-1 and GIP by the name of tirzepatide to be launched and approved in the U.S. for obesity. And at the highest dose of 15mg, tirzepatide demonstrated about 20% placebo-adjusted weight loss over 72 weeks.

Bigda: And maybe just generally describe how the drugs work because they originated as medications to treat diabetes, correct?

Guo: Yes.

Bigda: And then researchers discovered that there was a benefit also in terms of weight loss?

Guo: Yes, so, those drugs, when they were in the clinical trials for diabetes, there was weight loss. And they were different from some other diabetes drugs that doesn’t lead to weight loss. In fact, we know insulin actually causes some weight gain. And so, they were noted.

And so those incretins are basically peptides, hormones, that release from your gut after you had a meal. And they have many effects throughout the body. But how they work in obesity right now, we think, is severalfold. One is they create a sense of satiety in your brain, and there’s GLP receptors in the brain that we know. And they also slow down the gastric emptying, so you also feel more full. So, there are several ways this mechanism potentially works to help people lose weight. So, generally, people tend to eat less because they feel more full, and they feel more full longer.

Bigda: And the new drugs that are being developed have the potential to deliver even more weight loss because…?

Guo: So, there are multiple incretins.

Bigda: Got it.

Guo: So, different ratios, specific ratios that if you get the different ratios right, impacting the different incretin receptors, that’s where the direction of the travel often is for the research. However, there are other mechanisms of action that people are starting to look at to potentially lead to weight loss but also have more weight loss in the fat mass versus preserving more muscle. There are other mechanisms. But those are all at a relatively early stage. But needless to say, this is a very exciting area, yes.

Peron: Are there any safety signals emerging just yet?

Guo: Ah, that’s a very good question. So, to back off [up], GLP-1s have been on the market for 15 years; so, this class of drugs have been on the market to treat mostly, previously, type-2 diabetic patients for more than 15 years. And so, there is a huge amount of safety data that has been collected on this class of drugs. That gives me a lot of comfort, for one.

And those product labels have fully characterized a lot of those safety that’s on the headline news recently, such as thyroid cancer risk. So, all I can say right now is that, first of all, all those drugs are going to be under scrutiny, for sure. But this is going to be a normal course of business for a lot of those companies, is to follow the pharmacovigilance after they get on the market, number one.

And the prescribing information characterize what they have seen or even suspected from animal models, potential safety signals. And so, with 15 years and more than half a dozen products in this class that’s on the market, there is a reasonable confidence on this class of drugs.

Peron: So, Luyi, you’ve put together the benefits and what so far seem to be small risks of this. You have the unenviable task of putting it all into a financial model and looking at it. Can you give us the contours of your model, how you’re thinking about the market opportunity, how big can this be, how are companies going to capture this value, etc.? Can you take us through that?

Guo: Yes. So, maybe let’s start with one important market that’s an early adopter market, which is the United States. We can say there’s about 110 million people living with obesity in the United States. That’s defining by BMI at or above 30. And then if you include the overweight population – that’s BMI above 27 – that’s an even bigger population, about 140 million.

And worldwide, we are looking at about 760 million people living with obesity. And I remind you, Wegovy is approved for people with obesity or if they are overweight with at least one or more comorbidity, such as diabetes, heart disease. And recently, we’ve also seen the very exciting Wegovy SELECT trial press release that showed that in obese and non-diabetic people with history of heart disease, they can see a 20% risk reduction of cardiovascular events. And this is a very large landmark trial of 17,500 people. And I think the results will get people even more excited about this class of drugs achieving not just weight loss but really seeing the benefit in health outcomes. So, with that in mind, you can think about this drug could potentially be tens of billions of [U.S.] dollars in peak sales.

And I think, as exactly how big they can be, there are several factors to consider. First is penetration for the patient population. Number two is amount of reimbursement that you can achieve for this class, and price eventually. Most likely, as usually the history in the pharmaceutical industry, when you increase your patient volume, the price will come down also. And then another really big variable could be how long patients can stay on those drugs. So that we call duration of therapy.

And then lastly, if you think about outside the United States, right now, it’s still mostly a cash pay market for anti-obesity drugs. But like I said, with the very exciting outcomes data that we just saw, and more to come – many, many more to come [for] this type of drugs – will the governments outside United States and payers start covering some of those anti-obesity drugs? So, all those things are big variables in one’s model.

But needless to say, I think we can be pretty confident that this is going to be one of the largest classes of drugs, in the same category as cholesterol-lowering drugs, as checkpoint inhibitors in oncology, as the anti-TNFs in immunology.

Bigda: That SELECT study that you mentioned that was really big news. And it was big news because it does tie obesity to these other factors. It says that obesity…there is some sort of link, potentially, between obesity and cardiovascular disease and other conditions. Is that the idea?

Guo: Yes. So, people have known that if you lose weight, even in studies in bariatric surgery, when people lose weight, you have a risk reduction in cardiovascular events. So, people know that losing weight has a benefit. But this trial is a large landmark trial. It’s a phase 3. The results are unequivocal of 20% risk reduction; in any cardiovascular outcomes, is very significant. Often, the doctors will tell you they will be excited with 15%…

Bigda: Okay.

Guo: …or even a low-teens-percent risk reduction. So, 20% is highly significant. And it just proves in a controlled study that versus placebo, losing weight, Wegovy had that effect.

Bigda: So, do you think studies like that could help move the reimbursement needle; so, get more health systems in the U.S. and even outside of the U.S. to help pay for this medication?

Guo: Yes. So, in the United States right now, we know the reimbursement for Wegovy is about 45 million people, meaning they are covered by their insurance plans. And those 45 million, it breaks down about two-thirds are covered under a commercial plan. But in those commercial plans, they are covered because their employers have to opt in. So, right now, we know about 50% of the employers opt in. So, that’s one gatekeeper for the coverage.

Another one-third of those 45 million, roughly, is already covered through the state Medicaid plan. A big chunk that’s being left behind is older Americans in Medicare. By law, current law, Medicare does not cover weight-loss drugs. And so, that will take a change of legislation to have the Medicare population covered for obesity medication.

Peron: But would your expectation be that given the SELECT trial – the cardiovascular outcomes trial – that perhaps there would be a pathway to reimbursement on that benefit alone?

Guo: Yes. That’s a really good question. You would think, logically, that will be the case. But I think nobody should predict how long legislative action will take. So, I am cautiously optimistic that this type of data will increase the bipartisan support that it already has. However, we are yet to see that move through Congress.

Peron: These drugs just launched in Germany. What does that uptake look like so far?

Guo: Wegovy just got launched on the end of July in Germany. And this is the third European market but the first major European market Wegovy was launched. The first was in Denmark and Norway. This is in a cash-pay market right now in Germany. And I think it’s still very early days, but there is a lot of excitement on this product by patients.

And also, in some European markets, what I expect, especially in the single-payer European markets such as the United Kingdom, the government might be more willing to reimburse for maybe a smaller group of patients. So, we know that UK is planning on a pilot program for Wegovy later this year as well. But the point is, is you have supply issues. That’s why they are not even launching outside the U.S. They can’t even supply the United States.

Peron: Luyi, you mentioned that supply has been constrained. Is that a near-term issue, or do you expect that to resolve over time?

Guo: Yes. I think companies are working furiously to increase supply for the GLP, the incretin market. And we have experienced supply shortages around the world for this GLP-1 class for the last several years, in fact. Let me just give you a context. In the most recent quarter in the United States, the GLP-1 class, which is still mostly selling in the type 2 diabetes space, grew more than 60% year over year, and there is incredible demand from patients. And if you think about worldwide for the type-2 diabetes patient population, the GLP penetration is still less than 10%. Less than 10%.

B ut the companies are working very hard to expand their manufacturing, and we are going to see the manufacturing improving throughout the next year. And I think we will see a much better manufacturing picture and supply picture by the end of 2024, and we should still keep improving beyond that, into 2025 and beyond.

Bigda: So, I think another challenge that we’ve seen so far with these drugs is that in order to keep the weight off, patients have to keep taking these medications, which right now come in the form of an injection and can be pretty costly. And so, is that a limiting factor right now on the potential growth for these medicines?

Guo: Yes. So, what you talk about is basically two factors. One is how long can patients keep adhering on those medications? It is still relatively early days in the launch that we don’t really have dependable data to show how long people can stay on Wegovy, for example. We don’t have a good data source yet. However, what I can say to you is, in general, patients are not very good at staying on medication. So, let’s just take the example of diabetes. For all diabetes medication, the average people are able to stay on it is roughly only one year.

Bigda: Really? That is surprising to me.

Guo: That is the data. So, now, I have heard some GLP-1s, for example, Ozempic – which is the same molecule, semaglutide, as Wegovy, but Ozempic is the brand that’s sold for type-2 diabetes at different dose range – that persistent rate has been much higher than one year because it is a highly efficacious GLP-1.

Bigda: Okay.

Guo: So, there’s variations on it. That’s why we will have to see where that settles down, how long patients can be kept on it. But you are correct. Once patients are off those products, the weight tends to come back, at least part of the weight they lost comes back, and the weight regain can be relatively quick. So, companies have been saying those products should be really a chronic treatment for obesity, and the data has proven so, so far.

Peron: And do you expect the duration could potentially extend once it’s oral versus an injection?

Guo: Ah, a very good question. So, currently, it’s a once-weekly injection. And obviously, there will be certain segments of patients who will prefer orals. And right now, the orals that we can potentially see are once-daily pills. I don’t think, necessarily, once-daily pills/orals will make them better in adherence than a weekly injection. But I think it’s more going to be depending on personal preference on different patients.

Bigda: And so, as a result, are the biopharma companies taking any actions to modify the research or the drugs to make it more likely that patients would be willing to stick with it?

Guo: So, there’s a lot of different angles of additional research after the first two major launches that we are talking about here. First, we talked about an oral format that could be more convenient for some patients, or there’s a lot of research on can you get even more weight loss than what we are currently seeing. So, then you’re getting to, say, 25% or more weight loss. You’re getting to the range of bariatric surgery.

Thirdly, you can think about extending your injection period. So, when you lose the amount of weight you desired, if you can have a less frequent injection, that could be very desirable as a maintenance treatment. So, there’s multiple angles that companies will keep innovating in this space and because there is a lot of excitement and need for this space.

Bigda: So, it sounds like we could be still in the very early stages of this innovation cycle.

Peron: It seems to me, just listening to Luyi talk about the landscape here, we’re at the beginning of a Cambrian explosion of different…

Bigda: Yes.

Peron: …weight-loss treatments that are coming in different methods of action as well as different delivery, etc.

Okay, Luyi, do you want to talk about the competitive landscape and how the market is actually evolving?

Guo: Right now, there’s two major players in the incretin market. And it is my assessment that I think they will continue to be market leaders for years to come. However, I do expect other competitions to come in. But those two market leaders have very long-term research in this space. They have a pipeline behind the current products that we are talking about that’s already launched or close to launch. Therefore, I think they are likely to continue to be market leaders into the next decade.

Bigda: Do you think obesity is going to divert attention away from other areas of drug research, like oncology, which has dominated for years and years now?

Guo: That’s a good question. That’s a really good question. I think the general rule of thumb in the biopharmaceutical industry is that people do want to diversify in their R&D investment. So, just because one area is catching a lot of attention doesn’t mean other parts of the therapeutic areas are not being invested.

There are lots of investments in the immunology space currently. Of course, we know oncology has always been a big area of focus. There’s also a lot of investment in newer modalities, such as cell therapy, gene therapy, also the oligonucleotide-directed drugs, including the mRNA vaccines, RNA treatments. So, what I see is every company have certain focus and competency in certain therapeutic areas. And it’s been usually a good strategy to stick with what you are good at and invest where your key therapeutic area is.

Bigda: I think that leads nicely into my final question for you, which is, are you surprised at all that it was these large biopharma companies that have been leading the charge in these new anti-obesity medications versus the smaller-cap and mid-cap biotechs that so often are making medical breakthroughs these days?

Guo: No, actually. This goes back to a company can gain competence through many years of cumulative internal research. And in GLP, in incretins, the companies who are leading the charge, they have dozens of years of research behind their back. And those clinical trials require billions of dollars of investment, and like I said, thousands of tens of thousands-patient clinical trials, and which is where the large-cap pharma companies are good at.

Bigda: Well, Luyi, thank you so much today for joining us. We look forward to seeing where this therapeutic area goes next.

Next time, we’ll be joined by Josh Cummings, a Research Analyst who heads the Consumer Sector Research Team, to talk about the state of the all-important consumer in the U.S., China and other regions. We hope you’ll join.

Until then, I’m Carolyn Bigda.

Peron: And I’m Matt Peron.

Bigda: You’ve been listening to Research in Action.

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  • Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • The Fund is focused towards particular industries or investment themes and may be heavily impacted by factors such as changes in government regulation, increased price competition, technological advancements and other adverse events.
  • The Fund may use derivatives to help achieve its investment objective. This can result in leverage (higher levels of debt), which can magnify an investment outcome. Gains or losses to the Fund may therefore be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund holds assets in currencies other than the base currency of the Fund, or you invest in a share/unit class of a different currency to the Fund (unless hedged, i.e. mitigated by taking an offsetting position in a related security), the value of your investment may be impacted by changes in exchange rates.
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Luyi Guo, Ph.D., CFA

Luyi Guo, Ph.D., CFA

Research Analyst


Matt Peron

Matt Peron

Director of Research | Global Head of Solutions


6 Sep 2023
30 minute listen

Key takeaways:

  • A new class of weight-loss drugs has delivered compelling data, showing the medicines are highly effective at reducing weight and lowering the risk of associated diseases, such as heart disease.
  • Despite uncertainty about reimbursement, these drugs are expected to become a multibillion-dollar market within the decade.
  • While competition is likely to increase, companies at the forefront of today’s weight-loss revolution could build on deep research to maintain their market leadership.