Weight loss magic

In 2012, Novo Nordisk, a Danish pharmaceutical giant, developed a medication called semaglutide, designed to help manage type 2 diabetes. This injectable drug, later marketed as Ozempic, was approved by the FDA in 2017. Interestingly, while users reported various side effects, including nausea, some also experienced significant weight loss as an unintended consequence.

Fast forward to today, Novo Nordisk's rebranded version of semaglutide, called Wegovy, was approved by the FDA for chronic weight management, and Ozempic has become something of a Hollywood secret. Celebrities like Jimmy Kimmel have even mentioned it.

Ozempic is technically approved only for diabetes treatment, but prescriptions have skyrocketed. In 2018, there were fewer than 100 US Ozempic prescriptions per week, but by 2020, this number exceeded 100,000. Doctors are increasingly prescribing Ozempic "off-label" for weight loss.

But Ozempic isn't the only diabetes drug experiencing high demand. Mounjaro which is produced by Eli Lilly, has also seen a surge in popularity, because it's touted as the most potent in terms of slimming potential. Eli Lilly is seeking FDA approval for Mounjaro as a weight loss medication by the end of 2023.

The rise in the use of these medications coincides with the growing obesity rates in the United States. According to the CDC, obesity has increased significantly since the 1960s, affecting both men and women. Factors like dietary choices, increased sugar and ultra-processed food consumption, and a sedentary lifestyle are often cited as contributing to this epidemic. Obesity-related costs are substantial, reaching approximately $260 billion annually, leading many to seek a "magic solution."

Social media has played a significant role in amplifying the hype surrounding these drugs, with videos tagged #ozempic alone garnering over 1.2 billion views on TikTok. This surge in popularity has even led to a shortage of these drugs, leaving some diabetic patients without their necessary medication.

While weight loss drugs like Ozempic, Wegovy, and Mounjaro have gained popularity, their high costs (with courses of Mounjaro and Wegovy ranging from $12,000 to $16,000 in the US) limit their accessibility. Interestingly, they are much cheaper here in South Africa.

Despite the buzz, the longevity of these weight loss drugs in the market remains uncertain. Similar to past dieting trends like Atkins, paleo, and keto diets, their popularity may eventually wane. However, it appears that when people stop taking these drugs they put the weight back on. So this probably won't be a passing fad, and the pharmaceutical industry is investing heavily to meet the growing demand.

If you want exposure to these companies in your portfolio, we suggest Eli Lilly. US-based companies trade on higher multiples to their earnings than European ones.