A key characteristic of a disruptive tech theme is that its disruptive capability transcends its own industry. A perfect example of this is what is going on in the market for diabetes drugs and devices. A new class of GLP-1 type 2 diabetes drugs are disrupting the diabetes management market. However, they also have far-reaching investment implications for other market segments such as medical devices, fitness, and even food.
One of the magical attributes of glucagon-like peptide 1 agonists is that they not only improve blood sugar control but also promote weight loss. Diabetes drugs in the GLP-1 agonists class are generally taken by injection daily or weekly. This includes Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro. The drugs mimic the action of the GLP-1 hormone and stimulate the body to produce more insulin. The extra insulin helps lower blood sugar levels.
Lowering Blood Sugar
Lower blood sugar levels are helpful for controlling type-2 diabetes. Still, the off-label use of these drugs is that they are helping people lose weight. Doctors are not exactly sure why this is the case. With that said, the drugs curb hunger, making people feel full faster and longer, so they eat less. Unfortunately, these drugs are also accompanied by some nasty side effects like nausea and dehydration.
Overlooking these side effects, in a recent study funded by Eli Lilly at the University of Pennsylvania on the diabetes drug Mounjaro, it helped people with obesity lose at least a quarter of their body weight, or about 60 lbs. on average when combined with intensive diet and exercise. Another study released in August found that the use of these drugs cut the risk of cardiac events by 20%.
Given these types of results, it is no wonder that the drugs, which can carry a retail price tag of $900 and are not covered for this off-label use, are in shortage, creating a situation where patients with type 2 diabetes are having difficulty filling their prescriptions.
The anticipated impact of GLP-1 drugs has already negatively impacted the stock prices of certain companies involved in diabetes management, like DexCom; Abbott Labs, which manufactures continuous glucose monitors for diabetic patients; and Insulet, which makes insulin pumps. But it has even affected surgical stocks like Intuitive Surgical, a leader in bariatric surgery, which noted a slowdown in growth last quarter, potentially due to the increased use of GLP-1 drugs instead of surgery.
Intuitive Surgical’s chief medical officer thinks., “In the short term, we will see patients who are considering or are in the pipeline for bariatric surgery going to try the drugs. However, given compliance issues, costs, and side effects, we expect many of them will not stay on the drugs for longer than a year or two. At that time, they will consider bariatric surgery.”
Investors are trying to “digest” the potential investment impact of these drugs on their portfolios. How is this thematic disruption playing out in ETF land?
Drugs Not Devices
Pharmaceutical ETFs are one way to get exposure to this trend. The (PPH ) has Eli Lilly & Co and Novo Nordisk as its current top two holdings. It still trails the overall market. However, it is up only 2% YTD. It has certainly fared better than the (IHI), which has declined 11.8% YTD thanks in part to large weights in companies such as Abbott Labs and Medtronic, which are facing competition from the rise of diabetes drugs.
Health and fitness stocks could also be negatively impacted by this trend, with perhaps the exception of Weight Watchers’ parent company, WWI International, which has jumped on the weight loss drug bandwagon with its “new obesity drug on-ramp solution.” The verdict is still out on ETFs like (BFIT ), as exercise and fitness holds benefit beyond weight loss, such as improved mental health and well-being.
Investors can get targeted exposure to Denmark’s largest company, Novo Nordisk, through the (EDEN ), which has a 26% weight in the stock. However, the ETF’s YTD results have been muted overall, up only 2.3%.
The (AGNG ) also sees Eli Lilly and Novo Nordisk among its top holdings. However, that exposure appears to be offset by the ETF’s other medical device exposure.
More Drugs on the Way
Besides the current batch of weight loss drugs, there are likely more on the way. The global anti-obesity drug market is projected to grow from $4.5 billion in 2023 to $22.9 billion by 2030, according to Fortune Business Insights, generating a compound annual growth rate of 26.1%. Morgan Stanley’s predictions for the Rx market for obesity drugs are even higher! They have upped their estimates to $77 billion by 2030.
It is the early days of the Weight Loss Revolution. However, it is already apparent that the implications will be technologically disruptive and far-reaching. This portends that investors will look for ways to monetize this theme.
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