New Weight-Loss Drugs Can Fatten Drugmakers’ Profits

Now a new class of drugs from

Novo Nordisk

NVO -1.57%

and

Eli Lilly,

LLY -0.91%

originally developed for diabetes, has proven remarkably effective. Novo Nordisk’s Wegovy received Food and Drug Administration approval last year for obesity, while Eli Lilly’s tirzepatide hasn’t been approved for weight loss. The drugs mimic the effects of gut hormones, known as GLP-1s, that work to increase satiety. Tirzepatide, which promotes an additional hormone known as GIP, helped obese people lose as much as 22.5% of their body weight in an Eli Lilly study released in April, approaching the effectiveness of bariatric surgery.

While more results are expected next year, Jeffrey Emmick, Lilly’s vice president of diabetes-product development, says the company is in active conversations with the FDA to assess whether it can submit the drug for approval earlier based on the current data. Unlike some older weight-loss drugs that led to serious cognitive or heart problems, this newer generation doesn’t seem to pose serious safety issues beyond gastrointestinal side effects, says Nadia Ahmad, senior medical director for obesity-product development at Eli Lilly.

“We’re in a much better place in terms of the risk-benefit of these potential therapies,” says Dr. Ahmad.

As these results trickle in, the obesity market looks ripe for the sort of change that swept through the hypertension market in the 1980s, when effective drugs helped convince the medical community that high blood pressure was treatable.

We’re not there yet. Right now, a small fraction of the millions of obese Americans use medications already on the market. Obesity-drug revenues worldwide are set to total only $2.4 billion this year, according to Morgan Stanley—a fraction of therapies for cancer or heart disease. Analyst Terence Flynn and his team predict the market could swell to $54 billion by 2030, with Novo Nordisk and Eli Lilly dominating thanks to their deep pipeline of drugs.

Data for Novo Nordisk’s Wegovy shows patients can lose about 15% of their body weight, but usage has been limited due to supply constraints and because of reimbursement challenges.

Louis Aronne,

who directs the weight center at New York City-based Weill-Cornell Medicine and is a paid scientific board member for Eli Lilly, says these constraints have forced him to rely on older, less effective drugs. Devika Umashanker, another leading expert, says the perception among many insurers is still that weight loss is a vanity project, rather than a legitimate medical treatment, and they therefore shouldn’t cover these drugs.

“People wouldn’t do this if someone was diagnosed with cancer,’’ says Dr. Umashanker, medical director of obesity medicine at Hartford Healthcare Medical Group in Connecticut and a paid consultant for Novo Nordisk. “You’d get their medicines and their surgical intervention covered right away.’’

Even the formal designation of obesity as a disease is fairly recent, with the American Medical Association classifying it as a chronic disease in 2013. The World Health Organization estimates over 1.9 billion adults are overweight, with 650 million obese—defined as a body-mass index greater than 30.

The financial opportunity for obesity drugs is so large in part because the world’s most lucrative drug market is also the world’s most obese advanced economy. About 40% of American adults are obese, compared with an average of 20% across the Organization for Economic Cooperation and Development, according to the latest available ranking. Japan, the OECD’s least-obese country, is at just 3.7% while Italy is at about 10%.

That fact is a double-edged sword, since it reinforces the notion that excess weight should be targeted by changes to lifestyle and diet rather than medical intervention. Many experts still don’t approach obesity as a chronic disease requiring the sort of all-hands-on-deck approach a specialist would deploy for, say, diabetes. A good diet and exercise are, of course, still very effective, but easier said than done. A growing body of scientific evidence suggests that obesity leads to hormonal changes to the body that make it likely for obese people to regain lost weight.

Clinical trials assessing the benefits of the new obesity drugs in reducing heart failure, kidney complications and sleep apnea are under way and could help sway public thinking. Later this year, Novo Nordisk is expected to release interim results from a Wegovy trial on over 17,000 patients that could show whether the drug is effective at reducing the risk of cardiovascular events in overweight and obese patients with prior cardiovascular disease. Morgan Stanley analysts expect the risk to be reduced by 27%, which would be a crucial data point to sway insurers.

Besides the impressive trial results, government-sponsored insurance plans deciding to cover these drugs would be a watershed moment. Morgan Stanley analysts expect Congress to pass a bill in coming years that would expand Medicare and Medicaid coverage of prescription drugs for obesity. Ultimately, says Ben Lytle, a longtime health executive, private insurers will take their cue from Medicare and Medicaid.

The arguments over who or what is to blame for obesity might never be resolved, but there is little doubt that it is a gigantic medical problem and a big, mostly untapped opportunity for the drug industry.

Now a new class of drugs from

Novo Nordisk

NVO -1.57%

and

Eli Lilly,

LLY -0.91%

originally developed for diabetes, has proven remarkably effective. Novo Nordisk’s Wegovy received Food and Drug Administration approval last year for obesity, while Eli Lilly’s tirzepatide hasn’t been approved for weight loss. The drugs mimic the effects of gut hormones, known as GLP-1s, that work to increase satiety. Tirzepatide, which promotes an additional hormone known as GIP, helped obese people lose as much as 22.5% of their body weight in an Eli Lilly study released in April, approaching the effectiveness of bariatric surgery.

While more results are expected next year, Jeffrey Emmick, Lilly’s vice president of diabetes-product development, says the company is in active conversations with the FDA to assess whether it can submit the drug for approval earlier based on the current data. Unlike some older weight-loss drugs that led to serious cognitive or heart problems, this newer generation doesn’t seem to pose serious safety issues beyond gastrointestinal side effects, says Nadia Ahmad, senior medical director for obesity-product development at Eli Lilly.

“We’re in a much better place in terms of the risk-benefit of these potential therapies,” says Dr. Ahmad.

As these results trickle in, the obesity market looks ripe for the sort of change that swept through the hypertension market in the 1980s, when effective drugs helped convince the medical community that high blood pressure was treatable.

We’re not there yet. Right now, a small fraction of the millions of obese Americans use medications already on the market. Obesity-drug revenues worldwide are set to total only $2.4 billion this year, according to Morgan Stanley—a fraction of therapies for cancer or heart disease. Analyst Terence Flynn and his team predict the market could swell to $54 billion by 2030, with Novo Nordisk and Eli Lilly dominating thanks to their deep pipeline of drugs.

Data for Novo Nordisk’s Wegovy shows patients can lose about 15% of their body weight, but usage has been limited due to supply constraints and because of reimbursement challenges.

Louis Aronne,

who directs the weight center at New York City-based Weill-Cornell Medicine and is a paid scientific board member for Eli Lilly, says these constraints have forced him to rely on older, less effective drugs. Devika Umashanker, another leading expert, says the perception among many insurers is still that weight loss is a vanity project, rather than a legitimate medical treatment, and they therefore shouldn’t cover these drugs.

“People wouldn’t do this if someone was diagnosed with cancer,’’ says Dr. Umashanker, medical director of obesity medicine at Hartford Healthcare Medical Group in Connecticut and a paid consultant for Novo Nordisk. “You’d get their medicines and their surgical intervention covered right away.’’

Even the formal designation of obesity as a disease is fairly recent, with the American Medical Association classifying it as a chronic disease in 2013. The World Health Organization estimates over 1.9 billion adults are overweight, with 650 million obese—defined as a body-mass index greater than 30.

The financial opportunity for obesity drugs is so large in part because the world’s most lucrative drug market is also the world’s most obese advanced economy. About 40% of American adults are obese, compared with an average of 20% across the Organization for Economic Cooperation and Development, according to the latest available ranking. Japan, the OECD’s least-obese country, is at just 3.7% while Italy is at about 10%.

That fact is a double-edged sword, since it reinforces the notion that excess weight should be targeted by changes to lifestyle and diet rather than medical intervention. Many experts still don’t approach obesity as a chronic disease requiring the sort of all-hands-on-deck approach a specialist would deploy for, say, diabetes. A good diet and exercise are, of course, still very effective, but easier said than done. A growing body of scientific evidence suggests that obesity leads to hormonal changes to the body that make it likely for obese people to regain lost weight.

Clinical trials assessing the benefits of the new obesity drugs in reducing heart failure, kidney complications and sleep apnea are under way and could help sway public thinking. Later this year, Novo Nordisk is expected to release interim results from a Wegovy trial on over 17,000 patients that could show whether the drug is effective at reducing the risk of cardiovascular events in overweight and obese patients with prior cardiovascular disease. Morgan Stanley analysts expect the risk to be reduced by 27%, which would be a crucial data point to sway insurers.

Besides the impressive trial results, government-sponsored insurance plans deciding to cover these drugs would be a watershed moment. Morgan Stanley analysts expect Congress to pass a bill in coming years that would expand Medicare and Medicaid coverage of prescription drugs for obesity. Ultimately, says Ben Lytle, a longtime health executive, private insurers will take their cue from Medicare and Medicaid.

The arguments over who or what is to blame for obesity might never be resolved, but there is little doubt that it is a gigantic medical problem and a big, mostly untapped opportunity for the drug industry.