Weight-loss drugs: long-term risks could blunt investors’ appetite for remedies

Skinny jabs make chunky profits. Fat-busting injections make investors gush like Hollywood celebs. The discovery of effective, long-term drugs for obesity — a condition that afflicts one in eight adults worldwide — could create one of the industry’s largest markets. Research this week suggested obese patients cost Britain’s NHS twice as much as healthy ones.

Sales could reach $100bn globally within 10 years, says Barclays. It reckons most of the gains will be made by the two frontrunners, Denmark’s Novo Nordisk and Eli Lilly of the US. Over the next three years, Novo Nordisk’s earnings are set to grow at a compound rate of 25 per cent. That justifies price-to-forward earnings multiple of 32 times, a 60 per cent premium to the sector.

Even those trailing behind the leaders eye big sales. Pfizer talks of making $10bn annually by 2030. Yet the drugs’ high costs might be a limiting factor. A US cost watchdog last year suggested the annual price of semaglutide (Novo Nordisk’s Wegovy) might need to be cut to between $7,500 and $9,700, roughly half its wholesale cost.

Lifting the Medicare ban in the US on obesity drugs — the subject of heavy lobbying — would prove costly. The cost of treating a tenth of obese over-60s could be almost a fifth of its prescription drug benefit.

Insurers are watching closely. In a recent earnings call, UnitedHealth Group of the US called for clarity about benefits. Much depends on the results of a Novo Nordisk trial, expected in August. Semaglutide needs to reduce substantially heart attack and stroke risks for purse strings to loosen.

Patients may require the drugs indefinitely, an attraction for investors. But that increases the likelihood of side effects and the chances of the drugs’ misuse. Eating disorder charities fear that the drugs may exacerbate problems for some.

That risk alone would not bring litigation. Opioid litigants won big payouts by laying bare unethical business practices. But manufacturers racing to build a huge new market must tread with care.