Motley Fool Hidden Gems Investing - The State of Weight-Loss Drugs

Episode Date: March 1, 2025

$150 billion. That’s how much some experts estimate weight-loss drugs could bring in in sales within the next five years. Motley Fool analyst Karl Thiel joins Ricky Mulvey to check in on the GLP-1 landscape. They also discuss: - How weight-loss drugs actually work, and how big-name prescriptions differ from each other. - What investors need to know about Ozempic and Mounjarno’s patent cliffs. - The scenarios in which Novo Nordisk and Eli Lilly are actually undervalued. Companies discussed: LLY, NOVO, HIMS, PFE, RHHBY, VKTX, GPCR, ISRG Host: Ricky Mulvey Guest: Karl Thiel Producer: Mary Long Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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There is this number that keeps getting thrown around, and that is that this is going to be a $150 billion annual market. Now, I feel that it's one of those numbers that's become kind of thoughtless and is not really getting reexamined. A lot of assumptions go into that about how widely these are covered by insurance, about how long people end up staying on some of these drugs, and a number of other factors. If you assume that Lilly and Novo Nordisk continue to dominate the market and you assume it really does go to $150 billion, well, you know, Lilly starts to grow into that valuation and they start to look pretty reasonable just a few years out. I'm Mary Long, and that's Motley Fool analyst Carl Thiel.

Weight loss drugs like Ozempic and Manjaro have dominated the news cycle for the past couple of years now. But other GLP-1 drugs have been on the market for the past two decades. Still, the more recent growth of these drugs has a lot of investors very optimistic. And there are other opportunities in this market beyond injections that are currently under development. My colleague, Ricky Mulvey, caught up with Carl to check in on the state of weight loss drugs and the science behind them. They also discuss the material differences between key versions of different weight loss drugs, concerns about side effects and the role of telehealth in prescribing GLP-1s, plus how retail investors ought to approach this still growing space. one of the great societal shifts of the past decade and i would say into the next decade is the introduction of weight loss drugs they've driven sales growth for big pharma companies

including novo nordisk and eli lilly for example this past year the sales of obesity care products for Novo rose by more than 50%, and Eli Lilly's Manjaro rose by 60%. Right now, an estimated 1 in 20 American adults are on weight loss drugs. Carl, as we get started, that's the number salad, but what do you make of all of these results and the exploding popularity of GLP-1 drugs? It's remarkable, but there's kind of a lot of subtlety behind those numbers that you just talked about, and I'm sure we'll get further into it. But one, right off the bat, is that you mentioned one in 20 people being on these drugs. About one in eight people have tried them, and that already tells you something really important there, because a lot of people have

tried them and are no longer on them. These are not perfect drugs, and I think there's a lot of push to make improvements on them. At the same time, you could argue that a lot more people should be on them than already are. I mean, given the state of the obesity epidemic just in this country and the knock-on health effects of that, never mind people with actual diabetes, which is who these drugs were originally designed for. So speaking of the design of the drug, how did GLP-1 drugs actually work? So GLP-1, it's a natural hormone that everybody makes in their own body. It's released from the small intestine. When you eat, it binds to receptors in the pancreas, and it stimulates insulin production. It's just part of the natural process of appetite

and satiety. It slows gastric emptying. It signals the hypothalamus to suppress hunger, which is all great. So you're making your own free GLP-1. The thing is, human GLP-1 has a half-life of one or two minutes, and that's the problem. So the GLP-1 drugs that people take have a half-life on the order more of like five to seven days it's stimulating the same receptor it's doing the same thing that your natural glp-1 does but it acts much much longer as an interesting little side point the structure of the glp-1 drugs was was originally inspired by the venom of the gila monster and the reason i think that there was some interest in that is that the Gila monster only eats five to 10 times a year. So it makes its own version of GLP-1,

which is quite a bit different. It has a much longer half-life. And that was kind of the structure that inspired some of the current drugs. When you look at the big drugs, Ozempic, Wegovi, Manjaro, are there material differences in how these work or are they all kind of offering the same thing? There are some material differences. Ozempic and Wegovi are both semaglutide. They both have the same active ingredient in them. Monjaro and Zepbound, the two Lilly drugs, also have the same active ingredient. That one is terzepatide. But those two drugs differ. Both of them offer a GLP-1 agonist, so something that mimics basically GLP-1. But the Lilly drugs, Monjaro and Zepbound, also have a second hormone agonist in it called

GIP, which stands for either glucose-dependent insulinotropic polypeptide or gastric inhibitory polypeptide, depending on who you're talking to. And one of the exciting things about these drugs is they don't just help with weight loss. There's some preliminary examples that folks with addictions may be able to use GLP-1 drugs to curb those addictions. Are you seeing strong evidence for that or is it anecdotal at this point? What other impacts are you noticing? They are actually being studied in clinical trials for some of this. So things like alcohol addiction or even drug addiction, the approvals haven't come through. So I guess, you know, you can't say that all the evidence is in, but I would say it is more than strongly anecdotal that there is an impact here. And it kind of makes sense. I mean, these drugs are actually sometimes called anhedonics. They basically are, to some extent, taking away some of your interest in food. And in your brain, that kind of interest with indulgence, you know, plays out in other ways as well. So the idea that there is an addiction role here is not entirely surprising. Those are sort of the side beneficial cases, but the side effects also have some people worried.

And I've seen criticisms from some health influencers that really these GLP-1 drugs should be reserved for extreme cases. Some of these side effects could include gastrointestinal issues, mood changes, insomnia. And there's a concern about them being prescribed increasingly to children rather than just going all out on the diet and exercise route. Now that these drugs are increasingly popular, are the concerns about the widespread negative side effects playing out as these are prescribed to millions of people. You used the word extreme when you were talking about side effects, and that's kind of a loaded term, and it's pretty interesting. What you will see over and over again in the clinical trials

is that the companies will talk about mild to moderate side effects and side effects that resolve over time, things like that. And so from a clinical standpoint, most of the gastrointestinal side effects, which are probably the most common ones, certainly the most common ones, are not extreme. But they can be for some people. And moreover, what counts as extreme to a clinician is not the same as what necessarily counts as extreme to an individual taking these drugs. You find that over 50%, by most measures, of people stop taking these drugs within a year. And by two years, it's 75%, 80% of people aren't taking them anymore. Now, unfortunately, a lot of the studies that are coming up with those numbers aren't necessarily breaking down

why people are going off the drugs. Certainly, insurance and financial factors are playing into a lot of that. But that's not the only reason. Side effects are a significant issue for having patients adhere to these drug regimens. And if they don't, you're going to see the benefits of them go away. So that's an area where I think there's a lot of room for improvement. But more specifically on the issue of children. I think that's certainly a question that hasn't been answered yet. I think a lot of doctors are hesitant to do that. But the idea of what is extreme and what isn't is something that I think plays out in a number of issues. I should, maybe serious side effects would have been a better way of putting it. I'm trying to

get you excited, Carl, as we talk about the opposition and the people in favor of these drugs, but you didn't want to take the bait there. I get it. One of the more recent developments is that the FDA has announced the end of a shortage of semaglutide products. This impacts the compounding pharmacies in a way, but what does this headline mean for especially the big pharma companies like Eli Lilly and Novo Nordisk? So compounding pharmacies have been around forever, but it's not something that a lot of people had even, I think, heard of until the last couple of years. What it means is maybe not exactly what meets the eye. A lot of people have maybe heard of the company Hims and Hers.

It's a publicly traded company that has, you know, had quite a meteoric rise of its stock. So it's gotten a lot of people interested. They just announced that they were going to stop selling the approved doses of semaglutide. And they've already, I believe, stopped with terzepatide. And the stock came crashing down. That should have come as no surprise to anybody who was paying attention. it was inevitable that FDA was going to announce the end of the shortage of semaglutide products. However, the reason that compounding pharmacies exist is to provide people with drugs who cannot

use the normally manufactured versions. And so what HIMS and HERS is going to do, and what other compounding pharmacies will probably continue to do, is provide the drug anyway, but to people whose doctors say they can't take the approved doses or they're allergic to some other ingredient propylene glycol or something like that in the in the manufactured drugs and so they need their own custom version of it so while hims and hers is certainly forecasting a decline in their sales of glp-1 drugs they're not expecting it to go to zero so what you're saying is that hims and hers the online pharmacies can still sell this drug i mean And is there a version of this where they totally can't sell compounded GLP-1 drugs?

There's a lot of gray area here, and there's a lot of legal back and forth. But generally speaking, compound pharmacies are going to be allowed to continue selling the drug if they're offering something that the manufacturer doesn't offer. And that is because you need to be able to serve patients. And honestly, there is actually probably an argument to be made that in some cases, people need to really fine-tune their doses of these drugs that the given manufactured doses aren't necessarily the exact right fit for everybody. And some people do need to fine-tune doses in between what the manufacturers are offering. So it could continue to be a significant

business. One of the things I worry about with these online pharmacies, and this came from a conversation I had with Johan Hari last year, he's the author of Magic Pill, which described sort of the development and his journey with these weight loss drugs. And he talked about the effects of these drugs on folks with eating disorders. And this is what he had to say about it. Quote, these drugs are probably saving my life. If you take these drugs and you had a BMI higher than 27, it lowers your risk of a heart attack by 20%. Staggering. And that's just one of the many health benefits of reducing or reversing obesity. Equally, there are people with eating disorders who will be killed by these drugs. I'm really worried if we don't regulate

these drugs. I can explain how. We will have an opioid-like death toll of young girls, end quote. Do you think he's right, or do you think this fear is overblown? Eating disorders are something that have impacted people in my life. It's something I know a fair bit about, and I have also thought about this. So I definitely take this really, really seriously. At the same time, what he's saying is not without some anecdotal evidence behind it, but it's also basically speculation. There is almost zero real data at this point on this. I imagine there will be over time, but right now that data just pretty much doesn't exist. In fact, these drugs are being looked at in almost the opposite way. So for things like

treating binge eating disorder or bulimia. So I do think it's a concern. I absolutely do. And you certainly hope that when these drugs are prescribed, I mean, there's a reason that you have to go through a prescriber. Somebody should be making an evaluation about whether it's appropriate. I think a lot of telehealth complicates that picture. And so that might be something that does emerge as a problem over time. But right now, we just don't really have the evidence of what's going on. Yeah, I think the concern is, you know, if you're not going to a doctor that's seeing the physical changes, or you're able to lie about your weight, there will be ways to game the system that could potentially hurt people with that addiction.

But I understand what you're saying with the other types of addictions and disorders that it could help. Well, and I mean, on top of that, it's not, I mean, even seeing somebody, somebody can start to suffer from sort of an anorexic type eating disorder while still being overweight. So it's not, it is very complicated. And unfortunately, real awareness with treating eating disorders is still fairly uncommon. It's something that a lot of doctors are not especially good at. So if a problem emerges with this, I wouldn't be totally shocked by it.

Right now, we just don't have the numbers behind it. Let's get to the patent protection because when drug makers make a blockbuster drug, they only have a certain amount of time to capitalize on it before generics can be made off of it. And the patents for Ozempic are set to expire in 2032 in the US. Manjaro is 2036. When you look at these patent cliffs, how does that impact Novo Nordisk and Eli Lilly, and what should their investors keep in mind? Well, so generally speaking, when a drug goes off patent and generic competition comes in, the sales of the original branded drug plummet extremely rapidly on the order of 80 or 90%.

What's going to happen here depends on a lot of things. To some extent, you're already seeing that these drugs, I should point out, are not the first GLP-1 drugs to hit the market. In fact, the first one to hit the market was a drug called exenatide, and it was approved in 2004 or 2005. So these have been around for 20 years. That first drug, it was not nearly as potent or as effective as the current generation, but it recently went generic. Also, so did another GLP-1 compound called Liguratide, which is sold as under the brand names Victoza and Saxenda. The Victoza version, the version that's used for diabetes, also recently went generic. So you could see some impact there.

And in fact, we've talked about HIMS and HERS. That's one of their strategies is to try to push people towards Liguratide instead of semaglutide. But it's been interesting to watch pricing of these drugs. Generally speaking, drug makers price very aggressively. They tend to increase prices over time. That's happened a tiny bit, just by a couple of percent for these brands like Ozempic and Monjaro. But in fact, Lilly in particular has been pretty aggressive about its pricing strategy,

and they've actually dropped some prices and offered some different dosing options. And the concern really, it's not even so much about generics. It's really about, I think, addressing people who don't have insurance and who are just paying out of pocket and also compounding. So they've started to offer instead of just the auto injector pens, they've offered the drugs and vials at reduced prices. So it's interesting to see that strategy going forward where they really know they're addressing a big out-of-pocket population. 2032 is still a pretty long way away. And so what's really going to matter is if there are substantially better drugs around by then, in which case it may not matter so

much that these go off patent. And substantially better, right now, a lot of companies are trying to push for drugs that result in even more weight loss. But I think you see from the amount of discontinuation, it's really, I think, adverse events that are going to define what makes these drugs better for a lot of people, if you really find that they are easier to take for long, long periods of time. Well, one of the ways that the drug makers are trying to innovate is by introducing more weight loss pills. We've been talking about injections so far, but Eli Lilly right now has $550 million worth of quote unquote pre-launch inventory for its weight loss pill that it's hoping to bring to market. What are you seeing in the preliminary results for that? Do

you think these could replace the injections? Okay, I'm going to nerd out on you a little bit here just because it's it's really interesting what they're doing or for glupron which is the drug that they are hoarding 550 million dollars from even though they don't have the phase three results on it yet that is what's called a small molecule drug it is a pill but it is a non-peptide agonist that is really interesting because this exact kind of drug does not exist in the commercial market yet in any form for any disease to my knowledge. All these drugs are what are called peptide drugs. They're short proteins. And the reason that they don't work very well as pills is because if you swallow a protein, your body breaks it down. It can't really handle the acid

environment of the stomach. It doesn't go through the stomach wall into the bloodstream very well. There's lots of reasons that it's really hard to make a peptide work as a pill. Now, some companies have done it. You can do all kinds of things to a pill form of a peptide to make it work. And in fact, there is a Novo Nordisk version of semaglutide called ribelsis that does exactly this, but it doesn't work all that well and it has a lot of side effects. And so a number of people are working on pills for weight loss, but they mean really different things by them.

So it makes a big difference whether you mean I'm taking a peptide and making it work as a pill or I am just making a small molecule drug that is not a peptide. And that is the case with this drug or for glupron. It is a non-peptide agonist. They're not the only ones that are working on this. There are some others, but if it works, it's really important because those drugs are much easier to manufacture. You can do things like make $550 million worth of it and store it away because it has a nice long shelf life and should, you know, work much better in terms of absorption and other things that you want out of a pill. On the other hand, we haven't yet seen the final data on them. The way they're working, they have to be fairly, as small molecules go,

they're actually rather complex and they have to really bind into a big sort of flexible pocket on a receptor, a class of receptor called the G protein coupled receptor. So it's complicated. there's a chance that they could have higher rates of, say, off-target effects, which could mean higher side effects. So that's the kind of thing you're really going to have to look for in the phase three study. Obviously, Lilly feels very confident about this. Investors are also feeling pretty confident about Eli Lilly. I'm a shareholder, but I'm a little concerned. It trades at 75 times earnings. Hims and hers, which we've talked about, is more than 100 times earnings. The online pharmacy is around six-ish times sales. It's

a younger growing company. What are the scenarios you think that these stocks are a bargain in retrospect? What are the examples maybe where the market is right about these price tags? So Lilly had about $16.5 billion of sales in 2024 of Monjaro and Zepbound combined. And I think they're looking at something like $28 billion in 2025. I think estimates are kind of running around there. There is this number that keeps getting thrown around, and that is that this is going to be a $150 billion annual market. Now, I feel that it's one of those numbers that's become kind of thoughtless and is not really getting re-examined. A lot of assumptions go into that about how widely these are covered by insurance, about how long people end up staying

on some of these drugs, and a number of other factors. If you assume that Lilly and Novo Nordisk continue to dominate the market and you assume it really does go to 150 billion dollars well you know lily starts to grow into that valuation and they start to look pretty reasonable just a few years out and i will say that i you know i i do think lily is pretty clearly the best positioned company in this space right now there's no reason to think that lily and novo won't have the lion's share of the market over the next few years and probably lily in a somewhat better position than Novo. So if that all plays out and it really does ramp like this, then, you know, that price could look reasonable. Now, there's a lot of uncertainty about this because it's so competitive. There are

so many people gunning to do this. The drugs themselves are questionable in how long people keep using them. There's a whole lot of moving parts that could change the picture. So, you know, we're going to have to see how it shapes up. So there is a version where there's some irrational exuberance going on, which is something that I have noticed in myself as well when I've looked at these companies. This is something that I'm intensely optimistic about, and I'm not the only person in the market that feels that way. How do you think retail investors should approach this trend? Is there a best of the bunch, a basket approach, take the distributors but not the drug makers, short candy companies? What should we be doing here? Yeah, I think a basket approach

in this case if you're if you're interested and it kind of makes some sense because i think it's really if you're going to pick one company pick lily or novo nordisk and and honestly i like novo nordisk a little bit better just because even though i don't think they're quite as well positioned they are a heck of a lot cheaper and i think people are a little pessimistic about them versus being extremely optimistic about lily right now so in other words if things don't go perfectly i think it's going to hurt novo a lot less that it's going to hurt lily and if things go really well, I think they both benefit. But I also think if you're interested in some companies that could be huge home run winners from here, yeah, maybe consider taking a basket approach because things

are just changing so quickly that it's really, really hard to look forward five, six years and say exactly how it's going to work out. I think there are a number of interesting companies out there that are playing in this space. But a less risky way to do it, say, would be to add in some other large pharma companies that have other things going for them. Like Pfizer, for instance, I talked a little bit ago about non-peptide agonists and lilies or 4-glupron that they're working on. Well, Pfizer is also working on one called the new glupron. It's had some clinical questions along the way, so I'm not completely confident in it, but it's also certainly something that Pfizer is pushing forward on very aggressively. That could certainly end up being a

player. And Pfizer is otherwise looking fairly cheap right now. It's a reasonable investment and a good dividend. Arosh is another company that's very active in this space and could end up being a player and, again, has a lot more going for it. So you're not putting all your eggs in one basket. Outside of the big pharma companies, Lilly, Novo Nordisk, Pfizer, what are some of the companies we should be looking at? What's the competitive landscape looking like for these GLP-1 drugs? Yeah, so there are smaller players gunning for a role in this too. I mean, certainly one that gets a fair bit of attention is a company called Viking Therapeutics. They have a drug that's quite similar to Monjaro in that it works on the same mechanisms. It's GLP-1 plus GIP, just like

Monjaro. They are working on both an oral version of it and an injected version of it. Moving into The phase three should be very, very soon with the injectable version. So they could be out in the not-too-distant future with a version of that. One of the attractive things about them is that they, particularly with the oral version, looked like it had a very favorable side effect profile. It might actually be much easier for people to take. And so they maybe have an ecosystem in which you could start on their injectable and move to their oral for long-term maintenance.

That's an interesting company. There's another company called Structure Therapeutics that is also working on a non-peptide small molecule, but there are other ones coming along all the time. Lily has partnered with a company called Lykna, which I think is in Hong Kong. They're looking at other things that you can do with these drugs. For instance, when people tend to lose a lot of weight, they also tend to lose a lot of muscle mass. So that's another area that you can look at is can you preserve muscle mass while people

are losing weight? that's something i know lily is looking at with this company further down the road there was another company called mitsara that is looking at really extended dosing so there's a lot of players in this space and as we zoom out are there any you know surprising knock on economic effects that you're you're seeing i remember i think it was last year one of the airlines said that maybe it'll help them with fuel efficiency as more americans lose weight and they're carrying less weight on their passenger airplanes that seemed like a little bit of a bank shot But are there any economic effects that you've noticed from these drugs becoming more popular?

I think it's a little bit hard right now to see it on a population-wide basis. It's probably happening, but I don't know that you're going to see it quite yet. As you zoom in, you will see that if you look at households where you know people are specifically on these GLP-1 drugs, they are buying less food. And you've seen companies like General Mills and ConAgra are actually launching new product lines that are basically aimed at GLP-1 users. So it'll be smaller portions of products with boosted fiber and protein content for them, specifically to kind of address the needs of GLP-1 users. You've seen it in a few specific areas. Intuitive Surgical, for instance, is a company that makes a robotic surgical instrument. they've said that you know bariatric surgeries for instance have dropped quite significantly

they're seeing less of that because people are opting to go on these drugs rather than get bariatric surgery so you know areas like that i think over time will you start to see cardiovascular health increase in the country i mean it would make sense given given the impact of the drugs that data is going to take a while to show up yeah one of the most interesting effects to me is how these big food companies are reacting because a lot of the people who take these drugs become more interested in whole unprocessed foods. And the response has to include large manufactured ultra-processed foods. And we'll see. I'm skeptical about the uptake from GLP-1 users for some of these offerings from the big food companies, but we'll see. Carl, as we wrap up,

as we look to the year ahead, are there any key weight loss trials that you're keeping an eye on that our listeners should keep on their radar. Yeah. Another really important one for Lilly is a drug called ritatratide, sometimes known as triple G. And again, another thing that companies are doing as they try to improve on these drugs is find different mechanisms. So Lilly has a drug that not only targets GLP-1 and GIP like Manjaro, but also targets glucagon. That's the triple G. So that's going to read out later this year. And what we've seen so far is that it appears to be even more potent than Monjaro. We mentioned Orforaglipron. That's going to have results late in the second quarter and then some other phase three results later in the year. And then another important one is Novo Nordisk's amacretin. That is their oral drug, which we will see enter phase three this year.

We're probably not going to actually see results this year, but that is kind of their bet to have a follow-on to semaglutide. And again, it's something that looked very promising in phase two, but we'll have to see how it plays out, especially as we see more side effect information come out. Carl Thiel, appreciate you being here. Thank you for your time and your insight. Thanks. As always, people on the program may have interests in the stocks we talk about and

The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally recommend to friends like you. For Ricky Mulvey and Carl Thiel, I'm Mary Long. Thanks for listening. We'll see you on Monday.