Industry insiders often have perspectives that are invaluable for investors to learn. In that vein, AstraZeneca‘s (AZN 0.75%) CEO, Pascal Soriot, recently made some interesting remarks during the company’s second-quarter earnings call with analysts.
Soriot’s view has major implications for how investors should approach stocks like AstraZeneca, as well as weight loss drug leaders like Novo Nordisk and Eli Lilly — not to mention biotechs aiming to enter the space, like Viking Therapeutics, Structure Therapeutics, and Zealand Pharma.
So let’s examine what he had to say, and what it implies about how to invest in this space.
One big market, two big segments
Right now, much of the buzz surrounding the market for anti-obesity medicines is based on the idea that taking certain drugs can help those suffering from obesity to shed enough pounds to reach a healthy weight. Then, by virtue of eliminating or sharply mitigating one of their biggest risks for developing comorbidities like type 2 diabetes or heart disease, those people can go on to live healthier lives, most typically after stopping further treatment.
Though it’s technically possible for patients to continue receiving treatment with the market’s most popular weight loss drugs after their weight is under control, in practice the side effects of treatment lead to high cessation rates.
Under this model, the burden of maintaining a healthy weight falls entirely on the patient’s lifestyle, in the form of their nutrition and physical activity. But even when maintaining a good diet and getting enough exercise, living with a metabolic disorder can be an uphill battle. And unfortunately that’s likely why many of the patients treated with Novo Nordisk’s Wegovy or Eli Lilly’s Zepbound appear to regain much of their lost weight after stopping treatment.
AstraZeneca’s CEO sees this problem as an opportunity, saying that “there are really two markets, in our view.” Rather than envisioning the market for weight loss medicines as a monolith, he draws a distinction between two types of drugs. One set is used to temporarily treat people who meet the clinical criteria for obesity, enabling them to lose enough weight to be healthy. The other consists of drugs suited for longer-term weight maintenance.
The more powerful candidates, which are typically less comfortable to use, are only the first step in the process; they could eventually be made up of combinations of proven drugs to ensure high efficacy. Once patients are on a less intense but more tolerable daily maintenance therapy, they could continue to take that and reap the benefits of stable weight over the long run.
Soriot’s perspective implies that products like Eli Lilly’s Zepbound and Novo Nordisk’s Wegovy might not actually have the largest market share once there’s an ecosystem of other drugs in play, which could be as soon as two or three years from now.
Maintenance therapies, which are most likely to be once-daily pills rather than once-weekly injections like current interventions, should see the largest sales, as patients won’t be quitting treatment at the first opportunity. And to make that segment even more appealing for drug developers, it will probably be possible to market it to people who are only somewhat overweight (rather than clinically obese), as a carefully calibrated weight loss solution.
AstraZeneca’s research and development (R&D) pipeline will include different medicines to target these different market segments. At least so far, this strategy is unique among the companies pursuing weight loss medicines, though it’s clear that the company is still in the early days of this approach. It only has one candidate in phase 1 clinical trials, and nothing else that’s been disclosed.
So don’t buy this stock if you want exposure to the growth of weight loss medicines over the next couple years, as the company won’t have anything on the market for a while.
Don’t forget the smaller niches
Soriot’s analysis of the market also points to another key issue. Treating the conditions that tend to occur alongside excessive weight is going to be a highly profitable approach.
In that department, AstraZeneca has far better positioning, as it has a slew of mid- and late-stage programs for therapies addressing cardiovascular disease, heart failure, hypertension, and liver diseases. In the future, it could combine these programs with its anti-obesity medicines, or its weight maintenance medicines, creating a very efficient solution for large populations of patients.
Until then, take the CEO’s comments as just one perspective about how the market for weight loss drugs could develop from here. If you’re willing to bet on prescient management, consider his diagnosis a point in favor of buying AstraZeneca stock. Just be aware that the grand vision will take years to play out, and it’ll require a lot of successes in clinical trials that haven’t even begun yet.
