Driving through West Virginia, and I've seldom been thinner

Driving through West Virginia

And I've seldom been thinner

With that chip on my shoulder

And this past year I got so much older

-- Caamp, “By and By” (2019)

Wegovy and Ozempic

The weight loss drug Wegovy, sold by Novo Nordisk, was first approved for the treatment of obesity in June 2021. Its sister drug Ozempic, a lower-dose version approved for the treatment of type 2 diabetes, has been on the market since 2017 and is often used by those seeking to lose weight as an off-label alternative to Wegovy[1].

Demand for Wegovy and Ozempic has skyrocketed in recent months. An endorsement by none other than Elon Musk certainly helped: the billionaire attributed a 20-pound weight loss to intermittent fasting and Wegovy[2].

But how do these drugs work, exactly? Wegovy and Ozempic are both once weekly injections. Scientifically, they are GLP-1 receptor agonists. Simply put, these drugs activate a hormone produced in the gut that helps regulate blood sugar levels. Other drugs targeting GLP-1 to help patients with type 2 diabetes have been around since 2005. It was only more recently that Novo Nordisk and others rigorously investigated whether the same mechanism could be used to help obese individuals, without type 2 diabetes, lose weight.

The transformational potential of Wegovy was further solidified in August, when Novo Nordisk announced the results of the Phase III SELECT trial. This trial showed a 20% reduction in the risk of serious heart problems amongst patients taking Wegovy. Patients lost 9.4% of their body weight on average as well[3].

As of fall 2023, the UK is rationing Ozempic to prioritize diabetic patients[4]. Germany is considering export restrictions to ensure its citizens can access enough supply[5]. Shortages are expected to continue well into 2024. Novo Nordisk can’t make Wegovy or Ozempic fast enough to keep up with rising demand.

Analysts now believe the market for obesity drugs – Wegovy/Ozempic currently has the most market share but alternatives like Eli Lilly’s Zepbound/Mounjaro are ramping up – will exceed $100 bn a year in a decade[6].

Wegovy is rapidly acquiring meme-caliber hype as a societal game changer. One sell-side analyst suggested the disruptive potential of Wegovy is best compared to that of the iPhone, and therefore Novo Nordisk may be the new Apple[7]. Another investigated second-order effects and estimated that United Airlines alone could save $80 million a year in fuel costs due to Wegovy – provided the average passenger becomes 10 pounds lighter[8].

Lastly, how did investors fare? The Novo Nordisk ADR has appreciated 53% during 2023 YTD, increasing its market capitalization by over $160 bn.

Novo Nordisk ADR Price Graph, 2022 – 2023 YTD

Source: Bloomberg and Project X. As of November 20, 2023.

While we are not quite ready to claim Wegovy is the new iPhone, its societal impact, and value creation for investors, are both clearly quite substantial.

[1] Wegovy and Ozempic are both semaglutide injections. The key differences are the dosage and how that dosage changes over time. [2] Source: https://www.insider.com/elon-musk-weight-loss-drug-wegovy-semaglutide-fit-ripped-healthy-2022-10. [3] Source: https://www.cnn.com/2023/11/11/health/wegovy-cardiovascular-events/index.html. [4] Source: https://www.reuters.com/business/healthcare-pharmaceuticals/uk-online-pharmacy-rightangled-still-selling-diabetes-drug-ozempic-despite-govt-2023-10-20/ [5] Source: https://www.reuters.com/business/healthcare-pharmaceuticals/german-drug-regulator-considering-export-ban-ozempic-2023-11-15/. [6] Source: Barclays, April 20,2023. [7] Source: Barclays, April 20,2023. [8] Source: https://www.businessinsider.com/ozempic-wegovy-weight-loss-drugs-airlines-fuel-costs-savings-2023-10.