The skinny on investing in the weight-loss drug market

“In my entire life, I never dreamed that we would be talking about medicines that are providing hope for people like me who have struggled for years with being overweight or with obesity,” famous TV host Oprah Winfrey told People magazine two and a half years after Novo Nordisk’s weight-loss drug Wegovy hit the market. Currently, Wegovy and Zepbound, made by U.S.-based Eli Lilly, account for 95% of the obesity market. In the upcoming years, however, they may face over a dozen new competitors. Which companies should investors keep an eye on in the space?

How the revolution began

At the core of modern weight-loss drugs are synthetic analogs of glucagon-like peptide-1 (GLP-1), such as the active ingredients semaglutide and liraglutide. Meanwhile, other drugs feature glucose-dependent insulinotropic peptide receptors (GIP receptors). Both regulate blood sugar levels by stimulating the release of insulin, but GLP-1 also signals satiety and slows gastric emptying, while GIP promotes energy storage.

Initially, GLP-1 drugs were developed to fight diabetes. The first such registered drug was Byetta from Amylin Pharmaceuticals, which hit the market almost 20 years ago. It was soon discovered that its use led to weight loss.

The drawback was that Byetta needed to be taken twice a day, prompting pharmaceutical companies to develop drugs that could be taken less frequently.

In 2010, Novo Nordisk, having researched a long-acting GLP-1 drug, registered its daily injection VictozaVictoza, with the U.S. Food and Drug Administration (FDA). 

The real breakthrough came in the summer of 2021, when the FDA approved Wegovy for weight loss. Its active ingredient is semaglutide, the same compound in Ozempic, a drug that had been approved four years earlier to treat type 2 diabetes. This meant these drugs could now be administered just once a week.

In 2022, Tesla and SpaceX CEO Elon Musk admitted to taking Wegovy when responding on Twitter (now X) to a question about how he stayed “fit, ripped, and healthy.” Over three years—from 2021 to 2023—Wegovy net sales ballooned nearly 2,200% to DKK31.3 billion (around $4.6 billion). Denmark’s Novo Nordisk thus became Europe’s most valuable company, soon eclipsing the entire Danish economy. The FT named Novo Nordisk CEO Lars Jørgensen its person of the year in 2023, recognizing the company’s obesity treatments for having a “profound impact on healthcare, society, and our relationship with food.”

Hot on its track, Eli Lilly less than a year ago registered its Zepbound drug, based on tirzepatide, which acts on both GLP-1 and GIP receptors.

The growth of the weight-loss drug market, particularly GLP-1 agonists, is rightly considered a “silent revolution,” says Boris Tolkachev, an analyst at Freedom Finance Global. He compares it to the meteoric rise from the late 1980s of statins, which became a standard treatment for millions of heart disease and atherosclerosis patients. In terms of their impact on popular culture and consumer expectations, today’s weight loss drugs rival Viagra, Tolkachev adds. 

Growing competition

According to the World Health Organization, one in eight people worldwide suffers from obesity, which increases the risk of cardiovascular disease, diabetes, and cancer. Nevertheless, there were no effective therapies for the condition for decades. Various treatments were tried, from amphetamines to cannabinoid receptor antagonists, but all were eventually banned due to severe side effects.

Novo Nordisk notes that the weight-loss drug segment “remains extremely dynamic.” The GLP-1/GIP market is “one of the fastest growing… in the history of the pharmaceutical industry,” echoes Lexaria Bioscience, a company trying to turn Novo Nordisk and Eli Lilly injections into pills using its patented dehydration technology. 

As obesity drugs have the potential to improve public health and reduce long-term healthcare costs, players are piling into the market. 

Currently, semaglutide and tirzepatide account for 95% of the market, but this duopoly will not last forever, predicts Freedom Finance’s Tolkachev. Myriad pharmaceutical companies, both big and small, are showing interest in the segment.

According to Morningstar, 16 new obesity drugs could come onto the market within the next five years, backed by pharmaceutical giants like Roche, Amgen, Pfizer, and AstraZeneca, as well as smaller firms like Boehringer Ingelheim. These new drugs could capture a third of the market by 2031, which is projected to reach $200 billion by then.

Small-cap competitors

Senior analyst Luke Lango from InvestorPlace, a stock market news site, has highlighted five promising small-cap companies competing for a piece of the multibillion-dollar obesity market. He recommends treating them as a single investment and putting equal amounts of money in each.

• Viking Therapeutics is testing its VK2735 molecule in both injection and pill form. The company, founded in 2012, has yet to turn a profit. In February, it reported that VK2735 weekly injections in phase II clinical trials showed statistically significant weight loss compared to placebo. On the same day, Viking stock surged 121%. Phase III trials are expected to begin next year. The company is also exploring monthly dosing, while currently approved drugs must be administered weekly. Trials of the VK2735 tablets are at an earlier stage, with phase II trials yet to commence.

In September, JPMorgan initiated coverage of the company, assigning a “buy” rating with a target price of $80 per share. On Thursday, October 17, the stock closed at $64.61 per share. JPMorgan believes that Viking’s weight-loss tablets could capture about 10% of the market after their expected launch in 2030.

• Zealand Pharma A/S from Denmark is studying three weight-loss drugs. One is in phase III clinical trials (results are expected by the end of 2025), and two are phase II. This makes it a safer but less promising bet, says InvestorPlace’s Lango.

• Structure Therapeutics is developing an oral weight-loss drug. Its lead candidate is in phase II clinical trials, with results expected by the end of 2025, while phase III data is expected by 2027, Lango reports. The oral medication is considered the second-most advanced in the market, making the company an attractive acquisition target for a firm aiming to compete with Novo Nordisk, he concludes.

• Altimmune is completing phase II trials of its drug pemvidutide and plans to begin phase III trials soon. The average weight loss in the 48-week study of its drug was reported at 15.6%—to compare, new tirzepatide drugs show a 20-25% reduction in weight. Still, pemvidutide’s results are higher than those of first-generation semaglutide drugs (10-15%).

• Terns Pharmaceuticals has an obesity drug in phase I clinical trials, but, according to Lango, it has the most diversified portfolio: it is experimenting with three separate mechanisms to treat obesity, two of which are not GLP-1. This means that these drugs might work for patients on whom GLP-1 treatments prove ineffective.

Where the market is headed

The race to get in on this promising market will drive investment into more effective and safer drugs within already established classes, as well as the search for new therapeutic targets, says Tolkachev.

He believes the sector is evolving in three main directions. First, there is the development of drugs that act on multiple targets to maximize clinical effectiveness. Eli Lilly’s experimental drug retatrutide, for example, targets three hormones: GLP-1, glucagon, and GIP.

Second, companies are working on oral drugs. Switching from injections to pills will undoubtedly increase convenience for patients and adherence to treatment, says Tolkachev. Pfizer’s danuglipron and Terns Pharmaceuticals’ TERN-601 are potential alternatives to blockbuster injections. The Freedom Finance analyst cautions, however, that safety during long-term use and the speed at which meaningful weight-loss results can be achieved will remain top concerns. Although semaglutide tablets were approved for type 2 diabetes in 2019, their timeline for treating obesity remains unclear.

Third, companies are exploring new pharmacological targets and the potential for combining them with GLP-1 agonists. For instance, Wave Life Sciences and Arrowhead Pharmaceuticals are studying small interfering RNA therapies that suppress the INHBE gene, believed to positively correlate with insulin resistance and body mass index. Another example is the development of selective inhibitors of peripheral cannabinoid receptors, such as nimacimab from Skye Bioscience and monlunabant from Novo Nordisk. Cannabinoid receptors play a major role in the body’s signaling system, including metabolic regulation.

For investors

Tolkachev advises investors looking at the weight-loss drug market to keep two things in mind.

First, candidate molecules that show promising results in early-stage research do not always maintain their efficacy in later trials. With the market on tenterhooks waiting for any news on obesity treatments, it is important to avoid impulsive decisions to buy or sell sector stocks.

Second, he suggests looking at companies that are developing drugs to minimize the side effects of GLP-1 agonist therapies. A notable example is ScholarRock, which is testing apitegromab for spinal muscular atrophy. In May, the company announced the start of phase II trials to assess apitegromab’s potential for preventing muscle loss—one of the most critical side effects of GLP-1 drugs.

Overall, the list of indications for GLP-1/GIP drugs is growing. For example, the FDA has approved Wegovy to reduce the risk of cardiovascular death, heart attack, and stroke. Meta-analysis of 12 studies showed that GLP-1 drugs have a positive effect on kidney and cardiovascular health in people with type 2 diabetes. Novo Nordisk is also researching the effects of semaglutide on patients with Alzheimer’s disease.