By Sithembile Bopela
Weight loss gets bigger
Over the last few years, weight loss management has become a major focus for pharmaceutical groups and indeed a major investment theme thanks to the success of blockbuster drugs like Novo Nordisks' (NOVN US) Ozempic and Eli Lilly's (LLY US) Mounjaro. Initially formulated for the treatment of type II diabetes (T2D) in the early 2000s, these GLP-1 medications have since taken on new life as their evident weight loss side effects made them increasingly attractive to non-diabetic consumers looking to slim down their waistlines. Recent clinical trial readouts have been both a boon and a bust for the major players in this market as the race to lead the expansive weight loss market heats up.
What are GLP-1s?
Glucagon-like peptide 1 (GLP-1) receptor agonists are highly skilled messenger hormones that occur naturally in the body to help keep blood sugar balanced. They reduce glucagon secretion from the pancreas, instead triggering the release of insulin— which helps unlock the body's muscle and fat cells to promote energy production and storage, respectively. GLP-1s also lower the liver's release of stored glucose into the bloodstream, thereby helping to lower blood glucose levels. This makes these drugs particularly supportive for patients with type II diabetes, where the body doesn't produce enough insulin or respond effectively thereto.
The duopoly
Novo Nordisk (semaglutide) and Eli Lilly's (tirzepitide) success with GLP-1s has positioned the companies as clear leaders in this high-growth sector, creating a duopoly within the weight-loss drug market. For reference, the anti-obesity drug market reached a milestone $30 billion in 2024, up ten-fold from 2020. Wegovy and Mounjaro contributed ~50%, excluding the off-label use of their respective T2D-indicated brands.
First mover advantage drove the duopolistic market structure as both companies have deep roots in the diabetes care industry, having developed keen expertise and innovation through multi-year research and development (R&D) efforts. Due to the complexity and costs of manufacturing these biological drugs, the significant expertise and infrastructure of these companies has established a barrier to entry for new players. According to Deloitte's pharmaceutical innovation report (2024), pharmaceutical companies spent between 14% and 50% of revenue on drug development in 2024, with the average cost of developing a drug increasing to $2.23 billion (FY23 $2.1 billion) — the GDP of East African island nation, Seychelles.
Novo and Lilly spent ~$7 billion and $11 billion on R&D in FY24, respectively, while maintaining sector-leading margins.
A new horizon to pursue
Currently, existing GLP-1s on the market are administered through injections, which for most of the past two years since these drugs were approved by the FDA, have faced significant supply challenges. Manufacturing these injectable biologics is complex, time consuming and costly, making it challenging to quickly scale up supply to meet surging demand. Ensuring timely and efficient distribution of these temperature-sensitive medications also adds another layer of complexity to the supply chain. Another reason for developing oral pill versions of the drugs is to open them up to a broader market - those that cannot afford the high-priced injections, or to trypanophobics.
A mixed serving of clinical readouts
The efficacy advantage, as well as the strong brand recognition, of these key drugs has driven strong physician and patient adoption, further solidifying their dominance. Both companies have invested heavily in robust clinical trial programmes that have generated compelling data. However, recent clinical readouts have shown divergent success, following lower-than-expected weight loss results from Novo's next-generation pipeline drug CagriSema. Results showed an up to ~23% weight loss, at the maximum high dosage, which slightly lagged the efficacy rate of Lilly's pipeline drug Retatrutide— although this treatment is expected to reach the market later.
The addressable market remains substantial
The GLP-1 industry is expected to be worth >$150 billion by the early 2030s, with oral GLP-1s accounting for ~$50 billion of that. While the journey there will likely be choppy, the broader weight-loss drug market remains underpinned by its unique demand and supply dynamics including the risk attached to, and indeed prevalence of, obesity. Globally, obesity rates are increasing rapidly with projections indicating 51% or >4 billion people will be either overweight or obese by 2035, if current trends persist (World Obesity Federation, 2023). This constitutes a massive unmet medical need, which, coupled with growing public awareness of the health risks associated with obesity and the trending desire to be "Ozempic-skinny", presents an ample addressable market.
The current addressable market for obesity medication therefore has visible scope for solid growth, particularly in the US, which has among the highest global obesity rates but where penetration rates in adults is still moderate at ~13%. Compound this with the additional use cases set to come in the next few years and expansion into more geographies, and the potential for medium-term growth expectations remains well-founded.
Food for thought: Temper tariffs
On 2 April 2025, the Trump administration announced a scourge of tariffs on various goods imported into the US, with regions such as China catching the brunt of the burn. Pharmaceutical products have since been caught in the firing line of next potential targets. In response to the looming tariffs, several global pharma giants including Eli Lilly, Novartis, Johnson and Johnson, as well as Roche, have committed heavy budgets of up to $55 billion to bolster their US manufacturing facilities within the decade. Other companies like AstraZeneca have also announced a $3.5 billion R&D and US manufacturing expansion as soon as 2026.
While the president has since opened the door to more lenient levies, uncertainty remains as any deals are yet to be struck (at the time of writing). Still, this reinvestment offers a dual function of not only meeting the US administration's goal of reshoring manufacturing capabilities within domestic borders, but also ensuring the supply of key drugs and treatments across the value chain.
Valuation considerations
The weight loss drug market is in a dynamic and rapidly evolving phase, fuelled by an urgent need to address the obesity crisis as well as the substantial commercial potential of effective therapies. As such, we remain positive on the growth prospects of both Novo Nordisk and Eli Lilly.
The valuation of both companies has unwound meaningfully over the last year, despite robust growth prospects over the medium term. Novo has notably underperformed Lilly following recent readouts and the latter's lower exposure to US tariffs and as such is trading on less demanding PE multiple.
