Weight loss drugs market bigger than ever

It is commonly accepted that obesity is a global problem of epidemic proportions, affecting both developed and developing countries. In the U.S. alone, at present an estimated 40% of adults meet the medical criteria for being obese, which is having a body mass index (BMI) >30. That translates into >100M people in the U.S., a market size that is almost incomprehensible, as it is many times larger than other diseases that are themselves large markets (take, for example, Alzheimer’s disease, which has a U.S. prevalence of ~5M patients). Weight loss drugs have been around for a long time, but they’ve had either marginal efficacy or worrisome safety issues or both. However, all of this changed with the introduction of the GLP1 class of drugs. The very first GLP1 was approved in 2005 but only for diabetes. Subsequent GLP1s were more potent and led to better blood sugar control, and it was also shown they could lead to very modest levels of weight loss. And the very latest round of GLP1s have seen even greater potency – both better blood sugar control and weight loss. It was also realized that they could be used in a “pure” obese population, meaning patients without co-existing diabetes, as weight loss agents with no adverse impacts on normal blood sugar levels. On the newest agents, some obese patients can lose as much as 30% of their body weight, and many have described the drugs as life altering. This is why GLP1s have gone viral.

There are two companies that effectively “own” the category. The rapid rise in sales of their products has insurers worried, not because these drugs are “expensive” on a per-patient basis per se (with discounts, current net prices are around $6K/yr), but simply because so many patients qualify for them. Wegovy was approved in June 2021 and Zepbound in November 2023, and already in 2024 sales of these two products topped $13B, +180% y/y. The overall obesity category is likely to surpass $100B in annual sales by the mid-2030s, per our calculations. Accordingly, a host of other biopharmaceutical companies, both large and small, now want in on the action. Several are now on the cusp of starting the final stages of testing required for regulatory approval (i.e., phase 3 trials).  

The first of this next wave of products by late-entrant companies is not likely to launch until 2028, and from there the category is destined to get much more crowded. Should the two market-leading incumbent companies be worried? Probably not, unless these newer products can show some form of clinical differentiation, meaning better weight loss or better tolerability. By the time they launch, Wegovy and Zepbound will have had a 5-to-7-year lead-time advantage. As such, they will have built up brand equity with patients, and prescribers will have deep familiarity with their efficacy and side effect profiles. Further, at least in the U.S. (likely to be the largest commercial market because of more favorable pricing), commercial payers will likely “favor” these established brands, from a formulary perspective, because of the large associated rebate streams that flow back to them from their manufacturers, a system that often makes it hard for later products to compete effectively. This doesn’t mean that late-entrant products won’t generate at least some sales, but it suggests those revenue streams will likely be much smaller by comparison.

This is not an easy question to answer. At the moment, there are several large biopharmaceutical companies who have legacy footprints in the cardiometabolic space, yet they are not in obesity. Many will likely feel the need to participate, and they should, in our view. However, the cost of entry is not small: running a comprehensive set of clinical trials will likely surpass $1B in R&D spend, and there are other factors such as manufacturing-related capital expenditures to consider. Companies newly entering the space know this but will likely proceed anyway, partly pinning their hopes on the possibility that GLP1s are just the starting point. They’ll hope that, over the years, other “orthogonal” drug classes will arise, making the playing field more level. Yet here, too, incumbent companies may have the advantage. This is because they are already piling the cash flow they are getting from their current, rapidly growing GLP1s back into R&D in the hunt for “the next big thing” in managing obesity.