Weight loss drugs: Scaling up

0:00Patrick Coffey:Hi and welcome back to the Barclays Brief podcast. It's Patrick here. We have a really interesting episode coming up for you today, which we recorded last week. But before we begin, the focus right now is naturally on events in the Middle East. Clients of Barclays should head to Barclays Live to find out our latest insights across all asset classes. And our research analysts will be updating views as the situation evolves. So do head there to stay up to date with our thinking. but for now let's turn back to the episode we recorded last week focusing on the rapid rise of weight loss drugs and what it means for markets.

0:38Patrick Coffey:Welcome back to the Barclays Brief podcast. Now this might sound dramatic but weight loss drugs could end up being even more economically significant than statins were in the 90s. They're changing how we think about obesity, prevention and long-term health care costs and in the process they're driving billions of dollars in market cap. So from household names like Azempek, Rogovi, Manjaro and Zetbound, the debate is no longer whether these drugs work, it's how far their impact reaches. Because obesity doesn't just affect health outcomes, it shapes productivity, quality of life and the economic burden across societies.

1:20Patrick Coffey:And the reason we're talking about this today is that we're approaching a major inflection point in the weight loss drug boom. The arrival of oral obesity drugs alongside the injectable drugs that are already on the market is going to have a big impact on the sector. And I'm really happy to be joined by my long-term colleague, Emily Field, our US pharma analyst and an expert on obesity therapeutics. Emily, great to see you again. Thanks for joining the podcast and nice to be here in London with you.

1:50Emily Field:Thanks for having me. It's great to be back in London. Spent eight years here with Barclays, but the call came to go back home to the US for a new challenge covering the US mega cap pharma names. And we just initiated last week. So seeing clients here and it's great to be back in the conversation.

2:08Patrick Coffey:Great. Well, before we get into it, a few stats that stood out for me, at least, from your recent big initiation on the US mega cap names. Firstly, the global prevalence of obesity is expected to rise from 14 % of the global population in 2020 to 24 % by 2035. Now, if we include the overweight population, that number more than doubles to around 4 billion people worldwide. And in the US alone, roughly 43 % of adults were living with obesity in 2022. So that's the backdrop for this conversation. Tell us, what's the state of play in the obesity drugs market right now? Yeah.

2:47Emily Field:Well, I mean, one example of sort of where we're at today is for Zetbound and Munjaro for this year, the two Eli Lilly drugs, even though they're the same drug, one for diabetes, one for obesity, we're projecting over$50 billion in sales. So that's just kind of what's already there. And that's not including the new pill that they're going to be launching this year. Novo Nordisk has just launched their pill, and then they're still very much in the market with Ozempic and Wigovi. So a very, very big market in terms of this class of drugs across diabetes and obesity. A few years ago, we put out a report thinking that just in obesity alone, it could be a$100 billion market by 2030.

3:30Emily Field:At this point, I see no reason to take that down. But there's still a lot of unanswered questions in terms of when we might get to those sorts of numbers and what the path may be both in terms of US share and also ex-US share.

3:46Patrick Coffey:Okay, well, let's try and answer some of those questions today. And let's start with this big shift that we're seeing in terms of all weight loss drugs. They seem to be described as a game changer. But as I look at it, my first question is, do they cannibalize the injectable weight loss drugs market? Or do they expand the total addressable market by bringing in new patients hypothera kind of needle-free option?

4:08Emily Field:Yeah, we've really been thinking the latter just because, you know, if you're a patient, the drugs all available today before these orals are a once-a-week jab. It's a very, very small needle. So if you're sort of able to get past that initial period, which causes some people some GI upset, it's once a week, not that big of a deal. So we're thinking that people on the drugs today that are happy are probably just going to stay there because once-a-week jab, easier to remember than taking a pill once a day. So we've really been thinking that this will open up the market to new patients who may be needle phobic.

4:43Emily Field:And then also certain ex-US markets, pills could be very big market openers because they may not have the storage. These have to be stored in a refrigerated environment. And they can be produced at scale, particularly the lily pill. So we really think that this will be a market opener.

5:03Patrick Coffey:Tell me about the lily pill. When's that planned to be launched?

5:05Emily Field:Yeah, so Novo launched their pill right at the beginning of January. And it's only been a couple of months, but they've been able to have a very, very strong launch, even with all of the storms going on in the U.S., which has created some volatility in the prescription data. But it looks phenomenal so far. Eli Lilly's pill is set to launch in the second quarter. And so how those two compete in pills when they've competing against each other in injectables for a very, very long time will be the most important driver of both of those stocks this year.

5:36Patrick Coffey:Yeah. So that's going to be a big, big thing to focus on. The other thing is pricing because pricing dynamics are changing across the whole of this market. So the question I have is, do these lower costs of these drugs, and some of them are very expensive each month. Does that shuffle share between the brands or does it actually bring in new patients into the treatment, which would again expand the total population?

6:00Emily Field:Yeah, that's a great question because there is so much about this market that has sort of flipped everything that us as formal analysts have traditionally thought on its head. Because normally when you're going to the doctor to get a medicine, it's because you're sick. You don't necessarily want the medicine. So this being a consumer-driven market is very, very different, and we have not seen that elsewhere. One interesting point is that when Lilly actually launched ZepBound, which is their obesity formulation in the U.S., they announced a$500-ish discounted price available to consumers. And I thought, hmm, that's a little weird because we know that the list price, at least at the time of Wagovi, which was the market incumbent, is$1 ,300.

6:45Emily Field:What we tend to see in pharma markets is that there is a list price, and that's not what actual insurance companies or consumers pay just because it's a very, very complicated system. However, we've not really seen, oh, this is the direct-to-consumer price from these drugs before. And Lilly really started doing that in a big way when these drugs were both in shortage. They take a lot of plastic. They have to put them in a vial. They're hard to make. Demand was through the roof. So Lilly just said, hey, we know people want this drug. We're going to put it in a little vial, send a syringe, and a patient can come order it from our Lilly Direct website.

7:20Emily Field:To your point, for people to be able to afford that every month, something like$500 is still really a lot of money. So pricing had already been coming down. And then, yes, there was this big agreement with the Trump administration, with both companies in the fourth quarter of last year that announced a big price reset. And actually right now, the Novo pill for the starting dose is under$200 a month. And so they are becoming more affordable as consumer products. I think people are still expecting that those prices will come down over time, but they're thinking that that's probably going to be offset by greater volume.

7:57Patrick Coffey:Yeah, so they're becoming more affordable. And the companies like Lillia are adapting by offering these direct-to-consumer platforms. I think it's worth remembering that in a recent survey, we saw that 61 % of those surveys said they took the drugs to treat a chronic condition like diabetes or heart disease. And 38 % said they took the drugs just solely to lose weight. So given that backdrop, tell me about the competitive dynamic outside of Novo, outside of Lilly. Because presumably other competitors are going to come into this market and shift the dynamics even further.

8:29Emily Field:Yeah, so right now we really think of it in terms of this diabetes and obesity market as a duopoly between Novo Nordisk and Eli Lilly. However, because it's just such a big market in terms of number of patients, it certainly makes sense for a lot of other companies to want to be active here. And some of the other companies that could probably launch by the end of the decade include Amgen. They have a drug that actually could be administered potentially once monthly, maybe even once quarterly. Roche has a number of different drugs. They also have a combination with a company called Zealand Pharma that they could also enter the market by 2030.

9:06Emily Field:And then AstraZeneca is another one that has made a lot of investments and just announced moving forward their portfolio when they reported results. And then the last one, of course, is Pfizer. Pfizer had a very heated bidding war over a biotechnology obesity company called MetSara. It was actually them versus Novo Nordisk. Pfizer ended up winning. So this could go from a two-player market to, you know, four, five, six, seven-player market by the end of the decade.

9:31Patrick Coffey:So there's so much going on in this market. It's as innovative as I think I've ever seen the healthcare sector. And it's turning into a much more of a kind of consumerization sector rather than, again, a healthcare sector in traditional formats. What are the signposts then that investors should be watching over the next, say, six to 12 months to know who's going to be winning this massive race?

9:52Emily Field:Yeah, that's a great question. And I think certainly the next major data point that investors are looking for is this lily pill because Novo has this pill market on their own right now, and they've been doing phenomenally well. Although another thing that as these companies report results, we don't really get great prescription data outside of the U.S. And one thing that all of the companies have said, you know, even people not in the market, people like a Pfizer, like a Roche, like an Amgen, have said that they expect that the ex-U.S. market will probably remain cash pay. And so we're not going to get good prescription data outside of the U.S.

10:28Emily Field:that we, you know, us pharma investors can track every week and put into our models. It's really going to come down to when the companies report quarterly results. So I think how big do these drugs get X U.S., where it really is probably at least 80, 90 percent cash pay, will be a great indicator of just how willing consumers are to pay for these drugs with their own money.

10:52Patrick Coffey:Interesting. So over the next 12 months, we've got that Lilly launch, we've got the competitors thinking about changing, and we've got the growth in the ex-US that will come into numbers as well in the quarterly earnings. Lastly, while I've got you, you know, loads of other sectors have been impacted by these weight loss drugs. I know you're not a food analyst. I know you're not a beverages analyst. But some of these companies and sectors are having to really innovate and change what they're producing for consumers because of the increase in weight loss drugs. What should we be thinking about over the next sort of 12, 24 months about how their drugs could impact other sectors and other products?

11:34Emily Field:From our side as pharma analysts, you know, when different companies and other sectors mention impact from GLP-1 drugs, we get calls from food analysts. And over the last couple of years, that seemed to have ebbed and flowed. You know, how much consumer investors care? There's been some written about, oh, maybe this will be a benefit for the airlines because people will weigh less, love to spend less on jet fuel. I spoke to a tech analyst trying to indicate or figure out what impact this could have on DoorDash and Deliveroo. Are people going to be ordering different things? So there's still so many things to learn.

12:10Emily Field:However, you know, the pharma companies, they measure stuff like weight loss, cardiovascular effects, effects on cholesterol. So we're not going to have a lot of hard answers and hard data to really give to consumer analysts, I don't think, anytime soon. However, one of the things that we've heard anecdotally since these drugs have become more widespread in usage is that they have had impacts in terms of people's alcohol consumption, compulsive behaviors like compulsive gambling and shopping. That hasn't been investigated in rigorous clinical trials such that those could be approved by a regulator.

12:48Emily Field:However, Lilly does look like they're changing that. They have a drug that has just entered phase three called Bernapetide. It is a different formulation of the same components that are in Munjaro and ZepBound. And this is in phase three for alcohol use disorder specifically. And actually, what could be very interesting is just like obesity was really a market without a medicine, in a lot of ways, some of these categories of addiction are markets without a super effective medicine. So the neurological effects of these drugs, I think, will be very interesting to watch over the coming years.

13:27Patrick Coffey:Thanks, Emily. Brilliant to have you on. Thank you. I think if I was trying to summarize a pretty complicated market in three simple digestible takeaways. Firstly, oral obesity drugs are a big unlock. Not necessarily because they'll take share from the injectables market, but because they could lower friction and bring in new patients into treatment. Secondly, pricing is compressing. And that matters because it can expand the treated population. So again, it should help the market grow rapidly. And finally, the competitive edge isn't just the pipeline and modality. It's now the commercial infrastructure.

14:07Patrick Coffey:Again, if the companies can get this right, this should help grow the addressable market. So that's it for this week. to read more from Emily and our global healthcare analysts, clients can head to Barclays Live. Thanks for listening to the Barclays Brief. Do hit subscribe and we will see you again next week.