Novo Nordisk and Eli Lilly have broken ahead of the pack , locking up their leadership positions in weight loss treatment for several years to come, but the creation of this lucrative market has already attracted rivals that want a piece of the action. With more than two-thirds of U.S. adults having obesity or overweight, there is a huge unmet need that will allow several drugs to be commercially successful. What’s more, as the science around these new medications evolves, the view is that each drug is likely to have its own strengths and weaknesses. Doctors will want to tailor treatment to a patient’s specific needs and comorbidities. “The conversation is switching to obesity as a heterogeneous disease, and as we’re learning more about these drugs and the different mechanisms … we’re getting different effects depending on what the mechanism is,” said Jonathan Wolleben, managing director of biotechnology equity research at JMP Securities, a Citizens Company. The new class of medications use analogs of incretin hormones that are released in the body after eating and affect a person’s metabolism and how satisfied they feel after a meal. The drugs use one or more of these hormones. Novo Nordisk’s Ozempic and Wegovy both have semaglutide, a glucagon-like peptide-1, or GLP-1, receptor agonist. Wegovy was approved as an obesity treatment in June 2021 , but Ozempic, a type 2 diabetes treatment, has been used off-label for weight loss. Lilly’s tirzepatide was approved last year by the Food and Drug Administration as a type 2 diabetes treatment under the brand name Mounjaro. It’s expected to be approved for weight loss by the end of this year. Mounjaro uses GLP-1 and gastric inhibitory polypeptide, or GIP, to help patients lose weight. One size won’t fit all According to Wolleben, Eli Lilly’s tirzepatide provides users with better glycemic control. So he expects that doctors may prefer this drug for patients with both diabetes and obesity. It also has produced a better average weight loss than Wegovy in clinical trials. However, Wolleben said, if a doctor is treating a patient with obesity, who doesn’t have diabetes, but does have fatty liver disease, it’s likely that patient will want a drug that has a glucagon agonist component to it because it will provide a benefit to the liver. Lilly has an experimental drug known as retatrutide that fits that profile. Phase 2 trial data released in late June showed the drug — also called “triple G” for its combination of three incretin hormones — produced an eye-popping average weight loss of 24% at the end of 48 weeks. Even better, many patients were still shedding pounds, which means its results could improve when phase 3 trial data is released. If its studies continue to be successful, the drug could launch in 2027, according to analysts. NVO 1Y mountain Novo Nordisk shares are up about 45% over the past year. Novo also has another incretin drug, CagriSema, which is in phase 3 trials . The company will be exploring its use in other treatment areas such as sleep apnea, another condition that is common among obese patients. Oral medications, which are also in development, also could be part of the treatment mix, according to Wolleben. There is speculation that some of these medications could be easier to manufacture, which could make them cost less than the injectable medications. Currently, Wegovy and Mounjaro can cost more than $1,000 a month. Novo Nordisk is likely to be the first to get an oral medication approved for weight loss, but it could be less effective than some of the injectable treatments. The Danish company plans to seek FDA approval later this year . It’s a high-dose version of its oral semaglutide pill, and it helped people in its clinical trial lose an average of 15% of their body weight. Eli Lilly’s oral drug, orforglipron, has an even better profile . It was more effective, and it’s a once-daily pill without dietary restrictions. But it probably won’t clear regulatory hurdles until 2026, analysts say. As these drugs come to market, Wolleben said, it’s possible oral medications are used for patients who are overweight, but don’t have other comorbidities. They also could be helpful in assisting patients in maintaining weight loss after they’ve used the injectable versions, he said. LLY 1Y mountain Eli Lilly shares are up more than 44% over the past year. “I like the analogy for these drugs of cars and horsepower,” Wolleben said. “It looks like for [retatrutide], it has a lot of horsepower to go really fast. But do you necessarily need to drive that fast? … There seems to be drugs that you can go your 60 miles per hour and get exactly what you need.” Some have highlighted that oral drugs also may be more manageable for patients who can’t handle the idea of giving themselves a one-a-week injection. Still, the biggest upside for the companies could be the ability to serve more patients. Both Lilly and Novo Nordisk have been struggling to keep up with demand since their products launched. While analysts have said developments in both companies’ pipelines could push the stocks forward, Lilly’s stock is trading above its average price target, according to FactSet. Seventy-four percent rate Lilly shares a buy, while 19% say it’s a hold. About 58% of analysts rate Novo a buy or overweight, while 27% say to hold the stock. Smaller players to enter the market Other companies are expected to enter the market in the coming years, and their drugs could have slightly different benefits. For example, Altimmune’s pemvidutide has shown it can reduce LDL levels and liver fat, which could be a win for patients who are obese and have cardiovascular or liver risk factors, according to Wolleben. He rates the stock a market outperform, with a price target of $15. The clinical-stage company’s stock closed Monday at $3.45, which implies the stock could more than quadruple from its current level. “One of the key messages from [the recent] ADA 2023 [conference] has been that combination treatment approaches … are expected to lead to greater efficacy, with a higher proportion of responders and an improved quality of treatment effect based on positive changes in lipids, blood pressure, glycemic control and other outcome parameters,” Morgan Stanley analyst Mark Purcell wrote in a recent research note. Zealand Pharma has an amylin analogue that could be very competitive Purcell said. The company is still working on dosing, but early results show it may be better for patients who find GLP-1 medications make them persistently nauseous. Purcell also called out Boehringer Ingelheim’s work on survodutide , a triple agonist like retatrutide, and oral small-molecule drugs from Shandong Suncadia Medicine, which will report early trial data in the first quarter of 2024. Structure Therapeutics will share data from its phase 1b multiple ascending dose trial and phase 2a proof-of-concept trial at the end of this year for GSBR-1290 , a small-molecule drug, according to Purcell. Also in the mix are Sciwind Biosciences, Fujian Shengdi Pharmaceutical and Neuraly. On Friday, Mizuho Securities analyst Graig Suvannavejh reiterated his buy on Terns Pharmaceuticals , saying although its obesity treatment, TERN-601 , is still a preclinical asset, he is positive on the company’s chances in obesity in the wake of a recent investor meeting. He also believes a recent selloff in the stock was due to all the positive news around Lilly at the American Diabetes Association conference. “Recall that ‘601 remains an early-stage asset that we do not factor into our model, and thereby, we treat it as future upside potential to our model and estimates,” Suvannavejh said. He has a $16 price target on the stock, which implies more than 90% upside from current levels. In addition to ‘601, Terns is also working on generations of medications that rely on “potent, structurally distinct scaffolds as a way to increase potency, providing more flexibility in the clinic,” he said. Meanwhile, Viking Therapeutics is in the midst of a phase 1 trial for an oral dual agonist, and should share data from that study in the second half of this year. Roth MKM analyst Dylan Dupuis reiterated his buy rating on the stock as Viking shares also fell after Lilly’s news last week. He said he expects there remains an opportunity for other drugs because of the adverse effects some patients have seen at the higher dosage of retatrutide, which included elevated rates of cardiac arrhythmia. Dupuis has a $32 price target on Viking, which reflects his sum-of-the-parts analysis and implies shares of the clinical stage company could more than double from current levels. Big pharma’s laggards To be sure, not all of these compounds will be successful and the results will play out over time. For example, Pfizer was working on an oral treatment for diabetes and obesity, lotiglipron, but it has ended its studies after patients saw higher levels of liver enzymes . Now it’s turned its attention to danuglipron , a pill that would need to be taken twice a day, which will make it more challenging for patients. The experimental drug should head for phase 3 trials by the end of this year. The stumble on lotiglipron was a blow for Pfizer, which is badly in need of some new blockbuster drugs as medicines in its portfolio begin to lose patent protection. On Thursday, Credit Suisse analyst Trung Huynh downgraded the pharmaceutical stock to neutral from outperform, and cut his price target by $7 to $40, citing the company’s weakened pipeline. Pfizer’s stock is down more than 28% since the start of the year. PFE YTD mountain Pfizer shares are down more than 28%. AstraZeneca dropped its experimental GLP-1/glucagon dual agonist, cotadutide, earlier this year. It’s continuing to test other candidates in the space. Purcell said the new mechanisms and novel approaches in the industry’s obesity pipeline are likely to catch the attention of large-cap biopharma companies, particularly those with established footholds in cardio-metabolic disease. If these companies are unable to enter the lucrative market with their own products, they will look to acquisitions. According to Purcell, the targets could include not only Altimmune, Zealand Pharma, Viking and Structure, but also other players such as vTv Therapeutics , Hengrui and Rani Therapeutics , among others. However, these companies will likely have to show more positive clinical data before that occurs. Closing the coverage gap Meanwhile, access to drugs remains an issue for some patients. By law, anyone insured by Medicare will not be able to receive coverage for weight loss medications, and two-thirds of U.S. states don’t cover obesity drugs for those issued by Medicaid. Commercial insurance companies are increasingly allowing their members to use the drugs, but significant coverage gaps remain. Read more in CNBC Pro’s Quarterly Investment Guide Recession worries are likely to carry over into the second half of 2023 Wall Street analysts reveal their top ideas for the second half, including this red-hot solar name The AI-powered rally to start the year could broaden out in the third quarter A challenging macro backdrop could dampen bitcoin’s upside in the third quarter A.I. enthusiasm drove up stocks this year. Here’s how investors can catch the next opportunity The drug companies have been arguing that treating obesity will lower health care costs over the long term. Patients with obesity and overweight are often being treated for conditions such as high blood pressure, sleep apnea, diabetes and liver disease. Goldman Sachs analyst Chris Shibutani said the next big catalyst in the space will be Novo Nordisk’s mid-summer readout from its phase 3 Select trial that is aimed at demonstrating how Wegovy lowers the chance of cardiovascular events in patients with overweight and obesity. “We believe base case expectations are for a positive result with relative risk reduction ranging from ~12% to 18%,” Shibutani said. “With the trial designed to deliver a result at the upper end of this range, Novo management voiced confidence during our conference. [Key opinion leaders], and (increasingly in our view) investor expectations, however, have been more cautious.” According to Shibutani, a result at the lower end would be less persuasive to health insurance companies. “Given broad obesity-fueled investor enthusiasm and associated momentum, we sense that downside risk for LLY shares in such a scenario… would potentially be relatively limited in scope,” he said.
