Obesity drugs have proved to be a disruptor on a scale matched by few other pharmaceutical innovations. Their emergence, along with a change in the way that obesity and related illnesses are regarded and treated, has put the new class of drugs on a blockbuster path with no signs of letting up.
In light of this surging demand, Morgan Stanley Research has re-evaluated the global market for obesity drugs and is now expecting it to reach $105 billion in 2030, up from an earlier forecast of $77 billion—and as high as $144 billion. Sales of branded obesity drugs were $6 billion in 2023.
“The obesity drug market is being driven by two key factors. The first is supply. Drugmakers have to keep pace with demand,” says Mark Purcell, head of Morgan Stanley's European Pharmaceuticals team, adding that leading drugmakers are expected to spend more than $50 billion to shore up supply chains through 2028 to meet the opportunity to treat a wider range of illnesses.
“Second, demand for these medicines could be turbocharged if there’s broadening evidence that these drugs improve outcomes in the hundreds of obesity-related ailments.”
Analysts expect a significant increase in the number of people taking these drugs. In the U.S., for example, it could include 9% of the population by 2035—a fivefold increase over today. Investors will want to watch how this staggering change could affect sectors including medical technology, insurance, food and drink, sportswear, and fitness equipment and services.
'Tip of the Iceberg'
Obesity drugs are likely to have a ripple effect in the healthcare sector far beyond weight management. Obesity is responsible for more than half of diabetes cases and can be linked to more than 200 other chronic diseases, including hypertension, heart failure and kidney disease, as well as complications such as sleep apnea, osteoarthritis and possibly Alzheimer's disease.
And it appears that obesity drugs may have an impact in treating not just obesity but preventing the associated diseases: Results from a recent landmark trial called SELECT, which enrolled individuals who were either overweight or obese, found that taking one of the leading obesity medicines provided a 73% reduction in the risk of developing diabetes and a 20% drop in the risk of heart attacks, strokes and cardiovascular deaths.
Expanding these drugs beyond weight management will require additional clinical trials supported by insurance reimbursement to help mitigate costs. But their impact on the healthcare sector could stretch even beyond obesity-related illnesses. “The SELECT trial represents just the tip of the iceberg when it comes to these medicines’ potential to expand into new opportunities,” says Purcell. "Obesity cuts life expectancy by as much as 10 years, depending on age. If the widespread use of weight-loss drugs has a meaningful impact on longevity, there are a variety of ways that they could disrupt healthcare.”
Consider, for example, that while obese people generally spend as much as $3,000 more per year on health care than the general population, it doesn't necessarily mean that lower obesity rates reduce healthcare spending. In fact, if formerly obese people increase their life expectancy, it may actually increase spending, since older adults spend as much as three times more on healthcare than their younger counterparts.
This skew means that Medicare and Medicare Advantage could benefit in the long term as reimbursements increase, though in the short term federal health insurance programs for those 65 and older could face significant costs; expanded coverage requires Congressional approval. Commercial payers, whose members are younger and healthier, are also unlikely to see near-term benefits from the rise of obesity drugs as conditions stemming from obesity are most likely to arise in older adults.
“Amid this realignment, the medical technology sector is expected to offer opportunity for investors, especially makers of cardiovascular devices, such as replacement heart valves that may see demand growth accelerate along with longevity,” says Patrick Wood, Morgan Stanley’s medical technology analyst. “The outlook for the kidney dialysis sector is less clearcut: Reducing obesity levels may mean there are fewer patients requiring dialysis, but increasing longevity could have a paradoxical effect of extending dialysis time for those patients that still require the treatment.”
There are open questions regarding the market for orthopedic devices as well. On one hand, evidence points to a decline in knee replacement procedures among nonobese patients, for example. On the other hand, the risk of fall-related injuries requiring orthopedic surgery increases with age, and increased longevity could lead to a rise in procedures.
Food for Thought
Weight-loss drugs are expected to have a growing impact across food, beverage and consumer goods sectors as people eat less and make healthier choices. Because these drugs work by decreasing appetite, the resulting reduction in calorie intake is affecting not only the amount, but also the types of food patients eat.
“Behavioral shifts among a group that already consumes a disproportionate share of food and beverages are expected to have an effect on the food and drink industry,” says Morgan Stanley’s tobacco and packaged food analyst Pamela Kaufman. “In Morgan Stanley Research surveys, people taking weight-loss drugs were found to eat less food in general, while half slashed their consumption of sugary drinks, alcohol, confections and salty snacks, and nearly a quarter stopped drinking alcohol completely.”
The packaged food sector, which is already facing lower growth, could adapt to the shifts in consumer preferences and behavior by raising prices, offering "better for you" or weight-management products, or catering to changing trends with vegan or low-sugar options. Some companies are already tweaking their offerings, using smaller package sizes or downsized versions of existing products, Kaufman notes.
Investors should monitor three other key themes across food-related sectors, with an eye on the companies that are nimble in adapting to shifting trends.
On the surface, restaurants, especially chains that sell food perceived as unhealthy, potentially face a longer-term risk. Roughly three-quarters of survey respondents said they had cut back on eating at fast food and pizza restaurants and while some chains already offer healthier options, those focused on pizza or fried chicken have less scope to be flexible. However, analysts expect many chains will learn to adapt to changing consumer preferences.
- While analysts estimate consumption of soft drinks, alcohol and salty snacks will fall by as much as 4% through 2035, a few elements should offset the decline: an increase in offerings with less or zero sugar or alcohol; smaller packages; and the slower uptake of obesity drugs outside the U.S., especially in emerging markets.
- The expected modest drop in spending at food retailers should have a limited near-term impact, but the effect could become more pronounced in the long term as the use of weight-loss drugs expands and patients consume fewer calories at home. For retailers that include pharmacies, sales of the drugs should help offset lower spending on groceries.
Investors can also look for opportunities in the fitness industry: The proportion of survey respondents who said they exercised weekly doubled once they started taking the drugs. Gym membership increased too, with the majority having joined in the last 12 months—roughly corresponding to the length of time they had been on the drugs. The industry is well-positioned to benefit as the uptake of weight-loss drugs accelerates. This lifestyle change should also benefit sportswear and athleisure brands and retailers, as spending on their products goes hand-in-hand with an increase in exercise and gym membership.
For full insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full report, “Obesity Medication: Ripple Effects,” (April 14, 2024).”
