December 4, 2023

Wall Street’s enthusiasm for trimming fat has taken on new meaning as more companies jump into a growing market for weight-loss drugs — and receive a boost to their stock prices as a result.

Buzzy medications like Ozempic and Wegovy have grown in popularity, with high-profile names like billionaire Elon Musk counting themselves among users. While the benefits versus the side effects for such drugs are up for debate, there is significant demand for them: In a recent note to clients, Goldman Sachs analyst Jason English said investors have told him the overall opportunity in prescription weight loss could be close to $100 billion.

Teladoc Health (TDOC) became the latest healthcare company to expand into prescription weight-loss options on Tuesday. The virtual-care company’s health programs now include weight-loss and diabetes management drugs, “when clinically appropriate,” Teladoc wrote in a press release that sent shares of the beaten-down pandemic darling up double-digits.

The news came less than a week after WeightWatchers’ parent company WW International (WW), which long prided itself on helping customers lose weight through traditional means like physical activity and healthy eating, announced the acquisition of Sequence for $132 million. Sequence is a platform that connects patients with doctors who can prescribe weight-loss drugs like Ozempic and Wegovy.

“Given the advancements in chronic weight management medications, entering into clinical interventions, for those who medically-qualify, is a natural next step for WeightWatchers,” WeightWatchers CEO Sima Sistani said in a press release.

WeightWatchers stock has more than doubled since the announcement on April 10. The public markets have rewarded the companies manufacturing weight loss drugs as well.

Novo Nordisk (NVO), the maker of Ozempic and Wegovy, has seen its stock rise more than 25% this year. The company said last week that it was raising its full-year sales outlook, noting higher sales expectations for both drugs.

NVO may face more competition from Eli Lilly (LLY), which is rolling out its own drug to combat diabetes and obesity, Mounjaro. The drug was approved for patients with Type 2 diabetes, but hasn’t been cleared for obesity use yet. Still, Eli Lilly has already touted the drug’s weight-loss capabilities.

“Patients who’ve used Mounjaro, what they like and what they realize once they start using it, is that it really does reduce the appetite, and they enjoy the benefits of reducing appetite,” Mike Mason, president of Lilly Diabetes, told investors on the company’s most recent earnings call. “It helps them lose weight and stop being as consumed as much during the day about eating.”

A selection of injector pens for the Wegovy weight loss drug are shown in this photo illustration in Chicago, Illinois, U.S., March 31, 2023.  REUTERS/Jim Vondruska/Illustration

A selection of injector pens for the Wegovy weight loss drug are shown in this photo illustration in Chicago, Illinois, U.S., March 31, 2023. REUTERS/Jim Vondruska/Illustration

The prescription weight loss market is relatively new. The US Food and Drug Administration approved Wegovy for weight management in June 2021, marking the first drug approval in the category since 2014. (The FDA approved Ozempic for Type 2 diabetes treatment in 2017, but some doctors prescribe it off-label for weight loss.)

Goldman Sachs said in its 2023 outlook for global healthcare that prescriptions for Wegovy and Ozempic have surged over the past two years. Ozempic’s U.S. prescriptions grew from roughly 500,000 in April 2021, to more than 2 million earlier this year.

Goldman said it expects obesity drug sales to hit roughly $30 billion annually by 2032.

Growth comes with risks

Billionaires like Elon Musk have put added attention on weight loss drugs as prescriptions have skyrocketed. Dr. Scott Kahan, a director at the National Center for Weight and Wellness, which works directly with patients to address obesity and other diseases, believes the public interest in prescription weight loss is two-pronged.

On one hand, companies like Teladoc and WeightWatchers offering new ways to care for obese patients fills a gap in the industry. Many obese patients have struggled to find proper care in close proximity to their homes for years, according to Dr. Kahan, who has consulted for Lilly and Novo Nordisk.

“Getting medications to people in need that haven’t had them, that is a positive,” Dr. Kahan told Yahoo Finance. “But if a whole lot of people are trying to get on these medications to lose five pounds to look good in a bathing suit, if they’re using it for cosmetic weight loss rather than legitimate obesity treatment, that creates a real individual risk.”

That risk includes side effects. Wegovy, for instance, says common ones are nausea, stomach pain and headaches.

There’s also the possibility that weight-loss drugs could come to be viewed as a “magic pill,” Dr. Kahan said. That could mean that people ignore standard health practices to combat obesity such as exercise and a healthy diet.

Josh is a reporter for Yahoo Finance.

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