What You Need To Know
The recent study on Eli Lilly's (NYSE: LLY) weight-loss drug Zepbound reveals significant findings about its long-term effectiveness. Patients using Zepbound experienced notable weight loss, but this benefit reversed almost completely after they ceased treatment. This study, detailed in JAMA, highlights a key challenge in weight management using pharmaceuticals.
Participants without diabetes who stopped Zepbound after eight months and switched to a placebo regained about 14% of their weight within a year. In contrast, those who continued with Zepbound saw an additional weight reduction of 5.5% over the same period. This stark difference underscores the drug's impact but also its dependence on continued use for sustained results.
Lilly's Zepbound, also known as tirzepatide, targets the GLP-1 hormone, which influences the feeling of fullness. This mechanism is shared by other drugs in its class, including Novo Nordisk's Wegovy and Ozempic. However, a Novo Nordisk official noted that stopping such treatments typically leads to weight regain within five years.
Lilly had previously released some trial details indicating the need for prolonged therapy with GLP-1 drugs. Analysts are waiting for more data to understand the long-term effects of continuous treatment, especially given concerns about a potential decrease in drug efficacy over time.
Overall, the study shows that while Zepbound effectively reduces weight (up to 25.3% over 88 weeks), its discontinuation leads to significant weight regain, raising questions about the long-term management of obesity with pharmaceutical interventions.
Why This Is Important for Retail Investors
Impact on Eli Lilly's Stock Value: The findings from the study on Zepbound's effectiveness and the subsequent weight regain upon discontinuation could influence investor sentiment towards Eli Lilly. Such medical studies can significantly impact a company's stock performance, as they directly relate to the product's market viability and long-term sales potential. Retail investors need to understand how this news might affect Eli Lilly's financial health and LLY stock value.
Market Confidence in Pharmaceutical Innovations: This development provides insights into the broader pharmaceutical industry, particularly regarding the efficacy and sustainability of weight loss drugs. Retail investors often look at industry trends to gauge where to allocate their investments. The long-term effectiveness of such drugs can influence the market's confidence in pharmaceutical companies, potentially affecting investment decisions in this sector.
Long-term Investment Strategy: Understanding the nuances of pharmaceutical products like Zepbound helps retail investors in making informed long-term investment decisions. If a product shows limitations in its long-term efficacy, it might suggest a need for ongoing research and development, impacting future revenue streams and investment strategies.
Regulatory Implications and Market Access: The study's findings could lead to regulatory challenges or changes in market access for Zepbound, affecting Eli Lilly's business strategy and financial performance. Investors must be aware of potential regulatory shifts that can influence a company's market position and profitability.
Risk Management and Diversification: For retail investors, knowledge about specific products and their market implications is crucial for risk management. Understanding the potential risks associated with investing in a company like Eli Lilly, whose product may face market challenges, allows investors to better diversify their portfolios and mitigate risk. This is especially important in the volatile pharmaceutical sector, where product success can significantly sway a company's fortunes.
How Can You Use This Information?
Given the evolving dynamics of the obesity drug market, characterized by increasing demand and competition, several investment strategies can be considered:
Value Investing
Established pharmaceutical firms like Eli Lilly, which are expanding into the obesity treatment market, could be solid value investments. These companies often have robust R&D capabilities, existing market presence, and the financial resilience to weather regulatory changes and market fluctuations. Value investors might look for companies with strong fundamentals, undervalued stocks, or those paying steady dividends.
LLY Stock is up 60% YTD and may not be considered undervalued at this time.
Value investing searches for undervalued companies that trade for less than their intrinsic values, with the expectation that they will eventually be recognized by the market.
Growth Investing
Emerging biotech companies developing innovative obesity treatments represent potential growth investments. These firms might be working on next-generation drugs with fewer side effects or enhanced effectiveness. While riskier due to their unproven nature, they offer significant growth potential if their products achieve market success. Investors should look for companies with promising pipelines, strong intellectual property portfolios, and strategic partnerships.
Several emerging US-listed biotech companies are developing innovative obesity treatments, reflecting the increasing competition in this market. Some notable ones include Amgen, Inc. (NASDAQ: AMGN), Roche Holdings (OTC: RHHBY), Poolbeg Pharma (LSE: POLB), Rhythm Pharma (NASDAQ: RYTM), and Reviva Pharma Holdings (NASDAQ: RVPH).
There are also several in the private sector, including Raziel Therapeutics, Aphaia Pharma, and Rivus Pharma.
Read: Roche Steps Up in Obesity Fight with Carmot Takeover
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
Momentum Investing
Investors can capitalize on short-term market movements driven by the release of clinical trial results, regulatory approvals, or partnerships. For instance, positive study results or FDA approvals can lead to a surge in a company's stock price. Momentum investors should stay informed about the latest developments in the obesity drug market and be ready to act quickly on news and trends.
Momentum investing rides the wave of existing market trends by buying assets that have shown an upward price trend and selling those in a downtrend.
Diversification
Given the uncertainties and the evolving nature of the obesity drug market, diversifying investments across different segments of the healthcare sector can be a prudent approach. This can include pharmaceutical companies, biotech firms, healthcare service providers, and even technology companies involved in health and wellness platforms.
Diversification spreads investments across various assets to reduce risk and volatility in a portfolio.
International Market Exposure
Considering the global nature of the obesity crisis, looking at pharmaceutical and biotech companies in different regions could provide growth opportunities. Markets outside the U.S., such as Europe and Asia, have their own set of players in the obesity drug market, offering a different risk-reward profile. For instance, LG Chem Life Sciences.
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Obesity Drug Market Outlook
The current landscape of the obesity drug market, highlighted by the significant demand for weight loss solutions amidst the ongoing obesity crisis, presents a complex scenario for pharmaceutical companies like Eli Lilly, its growing number of competitors, and consumers.
Growing Market Demand: The escalating obesity crisis has fueled demand for effective weight loss drugs. Obesity is not just a weight issue but a serious health concern, linked to numerous additional problems like heart disease, diabetes, and certain types of cancer. The demand for pharmaceutical solutions is driven by the need for effective, manageable treatments for this growing health issue.
Weighing Benefits Against Side Effects: Many patients and healthcare providers may view the potential side effects of weight loss drugs as relatively minor compared to the health risks of obesity. This perspective can lead to a higher acceptance rate of such medications, even if they require long-term usage. However, it's crucial to consider that the long-term impact of these drugs on overall health is still a subject of ongoing research.
Continuous Usage and Sales Implications: For Eli Lilly, the requirement for ongoing use of Zepbound translates to sustained sales. However, this model might not be as appealing to users, particularly if the treatment needs to be lifelong. Continuous medication can lead to 'treatment fatigue' and concerns about long-term side effects. Moreover, the financial burden of such treatments, especially if not covered by insurance or Medicaid for lifetime use, can be a significant deterrent for patients.
Insurance and Medicaid Coverage Challenges: The issue of insurance and Medicaid covering these drugs is pivotal. If these drugs are not covered, or if coverage does not extend to lifetime use, it could significantly limit patient access, thereby affecting the market penetration of these drugs. This factor could influence the sales projections and market strategy of pharmaceutical companies.
Early Stage of Market Development: The market for obesity drugs, including Zepbound, is still in its early stages. The long-term effects, market acceptance, regulatory changes, and competition dynamics are yet to fully unfold. There's potential for significant shifts in market strategy, regulatory policies, and consumer preferences, which could dramatically alter the current trajectory of the market.
While there is a clear demand for effective obesity treatments, the market faces challenges in balancing the efficacy, side effects, and long-term usage implications of these drugs. The financial aspect, both for the users in terms of affordability and for companies like Eli Lilly in terms of sales and market strategy, plays a critical role in shaping the future of this market.
As more data emerges and the market evolves, strategies and perceptions are likely to shift, offering new opportunities and challenges in the obesity drug market.
Read What Others Are Saying
Bloomberg: Weight-Loss Stock Winners This Year Risk Being Losers in 2024
Reuters: Weight loss from Lilly's Zepbound reversed after stopping treatment, study
CNBC: Patients regain weight after stopping Eli Lilly's Zepbound, study says
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Popular ETFs
Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. For investors seeking exposure to the obesity drug market without picking individual stocks, healthcare-focused ETFs and mutual funds can be a good option. These funds can provide diversified exposure to a range of companies in the healthcare sector, including those involved in obesity treatment.
Some popular ETFs include the following:
Large-Caps: Vanguard Mega Cap ETF (MGC)
Mid-Caps: Vanguard Mid-Cap ETF (VO)
Small-Caps: Vanguard Small-Cap ETF (VB)
Growth: iShares Core S&P U.S. Growth ETF (IUSG)
Value: iShares Core S&P US Value ETF (IUSV)
Emerging Markets: Vanguard FTSE Emerging Markets ETF (VWO)
Developed Markets: Vanguard FTSE Developed Markets ETF (VEA)
Obesity and Heart Disease: Tema Cardiovascular and Metabolic ETF (HRTS)