Ozempic and its sister drug Wegovy are two names you may have heard floating around lately. The medications are part of a drug class known as glucagon-like peptide-1 (GLP-1) agonists, originally prescribed for the treatment of type-two diabetes.

GLP-1s exploded in popularity after users discovered one of the side effects was dramatic weight loss. While the clinical research is still preliminary, studies have shown patients lose on average 15-20% of their body mass.

Demand has since soared, as diabetic and non-diabetic patients scramble to get their hands on what some are describing as a panacea for obesity. Supply remains limited, prompting the Therapeutics Goods Administration to request doctors stop prescribing new patients.

Pharmacy aisles aren’t the only place of mania. Share prices of what are typically stable and reliable companies have gyrated wildly as investors calculate the implications for the future of healthcare, fast food and even air travel.

Here we provide an overview of the new drugs and deduce what, if any, impact they will likely have.

Setting the Scene

Across the globe, attempts to control obesity through exercise, diet and other medical treatments have so far proved relatively futile. Australia's obesity rate, like many other developed countries, has increased every year for over 40 years.

It’s well established that obesity significantly increases the likelihood of heart disease, stroke and some cancers. It prevents people from living fulfilling lives, reduces productivity and costs the community an estimated $11.8 billion per year.

The possibility of shifting the over 1 billion people who are currently obese around the world to more healthy weight ranges is why GLP-1s are being dubbed a potential wonder drug.

GLP-1 Basics

GLP-1s are one of the many hormones that regulate blood sugar levels. When GLP-1 receptors detect food, the hormone is released and encourages insulin production to reduce consumption and maintain healthy glucose (sugar) levels. The hormone also slows the emptying of the stomach and tells the brain the body is full thereby reducing appetite.

Some bodies do not produce sufficient GLP-1 hormones resulting in unhealthy blood sugar levels. Commonly this is diagnosed as type 2 diabetes, and if left untreated increases the likelihood or worsens obesity.

To counter this, a class of drugs called GLP-1 agonists were developed. When blood sugar levels rise after eating, these drugs stimulate the GLP-1 hormones and regulate blood sugar levels.

The two primary developers of GLP-1 agonists are Novo Nordisk and Eli Lilly. Both companies already have drugs that are approved for type 2 diabetes, respectively called Ozempic and Mounjaro. Both have now successfully had these drugs approved for weight loss, under the brand names Wegovy and Zepbound.

Weight Loss Wonder

While GLP-1 agonists have been approved by regulators and used by diabetes patients for some time, research has shown that the drugs can also promote weight loss and reduce the risk of other comorbidities. For example, a Wegovy trial found the drug would decrease the risk of major cardiovascular events by 20%.

· Eli Lilly: 14.7% average weight reduction, 36-week trial, oral GLP-1

· Novo Nordisk: 17.4% average weight loss, 68-week trial, oral GLP-1

· Novo Nordisk: 14.9% average weight loss, 68-week trial, Wegovy

Importantly, this isn’t a license to eat whenever or whatever you want. The drugs work by suppressing appetites and therefore the patient consumes less food and therefore fewer calories. It also should be noted that the weight is regained once patients stop taking the medication.

Existing GLP-1 medications are injected, which is somewhat of a turnoff for patients. Both companies are in the process of developing and trialling an oral pill.

The Bad Side Effects

While the data so far shows a positive side effect of GLP-1s is inducing weight loss, there are several less pleasant side effects. The most common adverse reaction is gastrointestinal (nausea, diarrhoea, vomiting), mostly mild-moderate in severity and most prevalent during the dose escalation period.

The number of patients who discontinued treatment due to side effects was 6.8% for those who took Wegovy compared to 3.2% for the placebo. There is also potential for more serious side effects, which is covered extensively in this 19-minute 60 Minutes episode.

Pay Up

Another obstacle to GLP-1 adoption is cost. Commonly cited is the US$1,000 list price for monthly Wegovy injections in the USA. However, this likely overstates the true cost. Companies will have agreements with insurers and governments to supply the drug in large quantities at a discounted rate. Moreover, prices in the US are unregulated. Across the border in Canada, Ozempic can be purchased for $300 per month because Canada caps prices.

Ozempic is already registered on the government-subsidised pharmaceutical benefits scheme (PBS). Patients with type 2 diabetes can access the drug for as little as $30 per month. People wanting to use GLP-1s for weight loss can expect to pay $130-$300 per month in Australia, although the aforementioned shortages have led to higher prices recently.

Lead Time

Another important consideration is the lead time for GLP-1s to materially reduce the externalities of obesity, such. A 65-year-old male who has spent the majority of his life obese will still have a higher risk of mortality after dropping 15% of his body weight. This means the overall benefits of GLP-1s likely won’t be felt for many years and the (hopefully) second-order effects such as lower chronic disease will take time to eventuate.

Will This Impact ResMed or CSL?

Two Australian companies have borne the brunt of the GLP-1 frenzy. The share price of sleep apnoea device maker ResMed has fallen 20% since June, while blue-chip CSL has decreased 12%.

It’s easy to see why ResMed has been caught up in the GLP-1 tailspin. Obesity is one of the leading causes of sleep apnea. The simple logic goes if there are fewer obese people then there is less demand for CPAP machines and treatment. However, this conclusion misses a couple of important nuances.

Firstly, many other factors contribute to sleep apnea craniofacial features and gender. Secondly, sleep apnea is widely undiagnosed globally. ResMed has captured around 2.5% of the patients. Even if GLP-1s cut the market in half, ResMed would still have just 5% of the patient pie.

A GLP-1 study conducted by Novo Nordisk had to be halted early because of its efficacy in treating kidney disease. Understandably, investors are concerned this could impact CSL’s recently acquired dialysis division which now represents about 15% of company revenue. GLP-1s could reduce the need for dialysis, but the market has already moved to reflect that potential. With a large drug pipeline of its own, any impact of GLP-1s should be overcome by growth within existing and new treatments.

Circling Back

To answer the initial question, there is a very real chance that GLP-1’s are the cure for obesity. Early results show clear efficacy, and should only improve in the months and years ahead as clinical research is published, products are approved and new entrants emerge.

The key will be convincing insurers and governments that GLP-1 medications are more cost-effective and have better patient outcomes, which should increase accessibility and lower out-of-pocket costs.

The most immediate impact will not be on established well-run healthcare companies, but likely on food vendors such as fast food chains (McDonalds) and fast-moving consumer goods (Coca-Cola). Over time, healthcare companies may be impacted, but CSL and ResMed remain well-positioned should GLP-1s achieve widespread adoption.

Novo Nordisk and Eli Lilly are the clear market leaders at this stage. The ultimate winners however are the millions of people that struggle with obesity who now have the potential to live longer and healthier lives.

Disclaimer: ResMed and CSL are current holdings in LPW Portfolios.

Will GLP-1s Cure Obesity?