How GLP-1 Drugs Like Ozempic Are Boosting Biopharma Stocks

Karen Andersen, biotechnology strategist for Morningstar Research Services, discusses what GLP-1 drugs’ demand means for the biopharma industry’s five-year outlook. And whether the weight-loss drugs pose a threat to snack food stocks.

Why GLP-1 Drugs Are in Demand

Competition Between Novo Nordisk and Eli Lilly

How Expanding the Conditions GLP-1 Drugs Treats Could Influence Insurance Coverage

Are Weight Loss Drugs a Threat to Snack Food Stocks?

Big Pharma’s Looming Patent Cliff

How Medicare Negotiations Impact the Pharmaceutical Industry

What is a Biologic Drug?

Upcoming Innovations in the Pharmaceutical Industry

Which BioPharma Drugs Do We Expect to Contract?

Big Pharma’s Five-Year Outlook

Biopharmaceutical Stock Picks

Read about topics from this episode.

2024 Biopharmaceutical Industry Landscape

Obesity Drugs: Can New Firms Take Market Share From Eli Lilly and Novo Nordisk?

Investment Opportunities in the Biopharma Industry

Obesity Drug Market: The Next Wave of GLP-1 Competition

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Karen Andersen

Ivanna Hampton

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Ivanna Hampton: Welcome to Investing Insights. I’m your host, Ivanna Hampton. Many blockbuster drugs are heading toward a so-called patent cliff. The pricey prescriptions would face competition from cheaper generics. Meanwhile, names like Ozempic and Mounjaro are getting a lot of attention. A recent Biopharmaceutical Industry Landscape from Morningstar researchers points to innovative drugs like those to counter expiring patents. So, what does that look like, and what’s the next advancement to get investors excited? Karen Andersen is a biotechnology strategist for Morningstar Research Services. Here’s our conversation.

Welcome to the podcast, Karen.

Karen Andersen: Yeah. Great, thanks. Great to be here.

Hampton: Well, demand is skyrocketing for Ozempic, Mounjaro, and other GLP-1 drugs. What makes them stand out, and why are they poised as the next big thing?

Andersen: Yeah, so the GLP-1 drugs – actually, they've been around a while. 2005, I believe, was when the first drug was approved for diabetes, and this was a drug from Lilly and another smaller biotech company named Amylin. In the beginning, people were noticing that there was a little bit of weight loss, but it wasn't very significant. They were mostly diabetes drugs. Doctors got more comfortable with them and their safety profile over the years.

And then we kind of had a next generation of products that seemed to show more weight loss. You start to get to Wegovy and Zepbound – 15%, 20% weight loss. That first generation was maybe only 5% weight loss. So we kind of crossed a threshold at some point where it went from a nice level of weight loss to have for someone with diabetes to something that's really having a significant impact on patients that are focused on worrying about obesity.

Hampton: And Novo Nordisk and Eli Lilly – they're the two big names behind these diabetes and weight loss drugs. How's their competition shaping up?

Andersen: Yeah, so it's about – right now, globally, about a $40 billion market for these GLP-1 therapies, and we're estimating that that could grow to more than $200 billion by 2031. So there is a lot of competition seeking to get into this market. Among our covered names, companies like Amgen, Roche, Pfizer, AstraZeneca, they're all vying to have therapies launched probably in that 2027, 2029 timeframe. There are also other names we don't cover, Structure and Viking, that look ripe to be taken out, possibly, by some large-cap pharma names that have exposure to cardiometabolic space, like J&J or Merck. But I wouldn't discount Novo and Lilly in terms of the long-term market share that they could maintain. They have very strong pipelines. So we're assuming they could have about 70% of the market still, even with new competition coming in.

Hampton: Wow, that's impressive. So the companies – they're sponsoring studies to show that the medications could treat other conditions, like sleep apnea or dementia, yet the drugs cost about $1,000 a month. Would employers and insurers be more willing to pay if the meds covered more conditions?

Andersen: Yeah, I think that's a really good point, because I think the more data we see that these drugs are useful for more than just weight loss, I think it just gives more support to insurers being able to pay for this long term. So the initial data Novo has seen – they've seen very strong data in patients with heart conditions, so patients who have had heart attacks in the past, patients with heart failure, patients with kidney disease. Every positive study that comes out I think strengthens the case for payers to cover them – not only for the health benefits, obviously, for the patients, but also because it makes economic sense. You're going to be avoiding – by helping a patient with obesity avoid these problems, you're avoiding a lot of future potential medical expenses as well.

Hampton: And the snack industry – I want to talk about this, because there are stories out there where it seems like the point's being made that these companies can see their sales decline if people stop indulging in junk food. Are weight loss drugs a possible threat to snack food stocks?

Andersen: Yeah, so I have to put on my consumer hat here. I'm a little bit out of my depth when it comes to this. But I would say it's safe to say that patients taking GLP-1 therapies are probably consuming less processed food. I think right now, it's probably a very low single-digit percentage of US adults that are taking GLP-1s overall. So if they're cutting their consumption a little, that's probably not noticeable on an industry-wide processed food level. But we have that going out to maybe 15% or 16% of adults by 2031. By then, I think the industry would need to innovate a bit to continue to serve those individuals best. Whether it's smaller sizes or slightly healthier snack options, I think there's probably a lot of strategizing going on right now.

Hampton: And you've recently written that a lot of blockbuster drugs are heading toward a so-called patent cliff. Can you explain what that means and the potential impact?

Andersen: Yeah, so a patent cliff – so in general, every drug has patent protection. It's 20 years from the time that the company might file for that protection. A lot of that time is eaten up by running the clinical trials, so it may not get to market until 10 years into that protection and only have 10 years of protection left. So a patent cliff – typically what happens is when that patent runs out, a generic or a biosimilar manufacturer is able to launch a drug at a much cheaper price and quickly erodes sales of the drug. So that often creates – if it's a big enough drug, it can create kind of a big hole in the sales of a company. That's when a firm might come in and supplement with acquisitions to try to quickly fill that hole or work on pushing forward their pipeline to introduce new drugs.

Hampton: Medicare recently negotiated lower prices for 10 brand-name drugs, and it will continue those talks for several years. How is the pharmaceutical industry reacting to that?

Andersen: Yeah, so the Medicare negotiation – that was, I'd say, the biggest part for biopharma of the Inflation Reduction Act. And that's something where we had predicted that that could have maybe a 4% impact on US sales for these bigger biopharma firms over the years – just that Medicare negotiation portion alone.

I think that it's a manageable hit. I think that these companies, though – it is something that they're taking into account with their strategy. For example, biologic medicines are protected longer, so those might be ones that companies might want to emphasize more in their pipelines. I think that drug companies are also more likely to price their drugs higher to start if they know that there's a chance that Medicare is going to be negotiating the price down in the long run.

Hampton: Can you give us an example of what a biologic drug is?

Andersen: Yeah, so it's not one that's made in a chemistry lab. It's one that's made using living cells, so usually something like a protein or an enzyme or an antibody. It's a much larger, more complex molecule, and usually something that has to be injected instead of taken as a pill.

Hampton: Thank you for the explanation.

Andersen: Yeah, sure.

Hampton: So it seems constant innovation is key to this, Karen. Can you name some advancements that are on the horizon right now?

Andersen: Yeah, one of the big ones – we were just talking about obesity. One of the big ones would be coming up with a small molecule – a pill form of an obesity drug. We have very good injectables now that are taken weekly, but I think having a pill that's much easier to manufacture could end up with a drug that's priced lower and just much simpler for patients to take. So that could be a big innovation, and that's something that a lot of products are in phase two, phase three development right now in that category.

One other area I would say is mRNA. I know we're all familiar with companies like Moderna and the COVID vaccines. I think an innovation that's coming there is using mRNA as a cancer treatment. Right now, Moderna, for example, is trying to decide when to file for approval for their mRNA cancer treatment for melanoma. They've had very, very strong data that looks better than some very effective drugs out there like Merck's Keytruda. So that's encouraging, and I think it's a sign that that technology could be used in other forms of cancer, too.

Hampton: Which areas do you expect to contract?

Andersen: Well, actually, speaking of Merck's Keytruda, that's a market that really developed in the 2010s, a lot of – they call them checkpoint inhibitors, this class of really innovative cancer therapies that work for a lot of different forms of cancer. A lot of them are going off patent by the end of the 2020s. So that's an area. Even though the drug companies are trying to come up with new formulations, new combinations, I still think that area is going to be under pressure.

It's similar with multiple sclerosis. Actually, there are so many good drugs out there. A lot of the market has already been penetrated with these newer products. So when they lose patent protection, it might be harder for the market to continue to grow.

Hampton: Talk about your outlook for big pharma over the next five years.

Andersen: Yeah, so we put out – in April, we put out a biopharma industry landscape. So for our 18 biggest biopharma names, we've talked about – over the next five years, about a 5.2% average top-line growth rate. That's pretty much on track from where they've been over the past few years. And I'd say it's probably stronger volume growth, a little bit of pricing pressure mixed into that.

When it comes to what the drug companies are focusing on, still oncology and immunology really have dominated. I think what's changing over the next five years, though – of course, obesity. I think obesity is starting to be a huge driver for, in particular, a couple of specific companies. And that's going to be big enough that it's affecting the overall industry-wide growth rate as well.

Hampton: Where do you see opportunities for investors?

Andersen: Yeah, there are a few names in the biopharma space that I'd highlight. Roche, for example, is a name. It's been under pressure because of some foreign exchange headwinds, some pressure from their COVID diagnostics, of course, not selling as well now that the pandemic's not exactly at its height anymore. But they have a very strong foundation of innovative products already on the market and a very strong pipeline, including a couple of obesity products that they're hoping to get to market by the end of the 2020s, and a diagnostics arm that is one of the biggest diagnostics companies in the world and continuing to grow ahead of the market. So Roche I would highlight.

I would also highlight the mRNA companies. As I mentioned, it's not just about COVID vaccines. They have a COVID/flu combo probably launching next year, cancer programs, rare disease programs. There's a lot behind that.

And then Pfizer is another name we would highlight. Pfizer's definitely hit some hard times since the peak of the pandemic with the COVID vaccine. I think there's a lot of innovation going on, particularly with Seagen, a company that they acquired. That's more of an oncology company. And I also think just on a valuation perspective, the yield right now is approaching 6%, so that's another way that investors will get additional return beyond its growth.

Hampton: Well, thank you so much for coming to the table, Karen, and sharing your insights today.

Andersen: Yeah, sure. Great to be here.

Hampton: That wraps up this week’s episode. Thanks for listening and making this show part of your day. The Investing Insights team asks that you give our podcast five stars to help others find the work we’re producing for you. Thanks to Senior Video Producer Jake VanKersen and Associate Multimedia Editor Jessica Bebel. I’m Ivanna Hampton, lead multimedia editor at Morningstar. Take care.