Novo Nordisk's results last week showed demand for its flagship anti-obesity drugs is very robust.
Indeed, it exceeds supply, and sales of it and its rival product from Eli Lilly are expected to top $15bn (£12.2bn) this year. Both companies are struggling to meet demand – surely the precursor of a very strong investment opportunity.
That Danish Novo Nordisk’s stock market value is now bigger than Denmark’s GDP is worrying.
We’ve seen this before, when Finland’s Nokia became so dominant it was generating 25 per cent of Finland’s corporation tax receipts. When iPhones gobbled up Nokia’s market in the 2000s, the Finnish economy struggled to grow for a decade.
It's worrying because when companies grow this much and this fast, expectations are always exaggerated. Professional investors, even if they are doubtful of the hype, face powerful peer pressure to join in – so they aren’t outliers from the rest of their peers.
The scene is then set for disappointment: disappointment for investment returns if the sky-high financial predictions aren’t fulfilled; for the healthcare industry, because the expected positive health benefit cannot be achieved in real life; and for other drug and healthcare research, which struggles to get the attention and capital they need.
But what’s behind all this?
There’s a real problem here, westerners are too fat and the rest of the world is catching up. Novo Nordisk (and soon US-based Eli Lilly) has effective drug solutions that suppresses appetite via the GLP-1 hormone system.
Obesity increases the risk of medical conditions like cardiovascular disease, diabetes, cancers, osteoarthritis, liver disease, kidney disease, sleep apnoea, and depression.
Estimates of the direct medical costs of obesity in the US alone are $173bn per year, and the cost to the economy to be more than $1tn. Increased obesity is arguably the main driver of the emerging difference between lifespan and years of life lived in good health.
So, with one in three people in western markets being overweight or obese, it is no surprise investors are excited about the revenue potential of an effective anti-obesity drug.
So what’s not to like?
This is very unlikely to remain a two-horse race. These drugs cost $1,000 per month – a lot for a 'forever' drug that patients have to keep injecting themselves with, or their weight will return.
There are newer drugs in development for obesity that work on the appetite hormones. They will take market share from Novo and Eli Lilly. We know how this works, sooner or later, this will become all about price.
The Novo and Eli Lilly obesity drugs suppress appetite by targeting the GLP-1 hormone system. GLP-1 is the stomach’s signal to the brain to tell you that you are full, as opposed to feeling hungry. If you don’t feel hungry, you eat less and lose weight.
