Weight sits at the nexus of health and social status. Obesity is the leading cause of preventable death in the world. Americans spend the equivalent of our Social Security budget ($300 billion) every year treating it and comorbidities like diabetes.
Weight is also the most visible marker of class and status since it records our diet and exercise habits. It influences how strangers treat us. What we are paid. Who we can date. We treat weight as a proxy for discipline. Our culture, medical system, and government designates obesity as a lifestyle choice. And by extension a moral failing.
Americans may be preoccupied with health, but are obsessed with our appearances. We spend enormous time, money, and effort to manage our weight. Women’s magazines exhort a different fad diet or juice cleanse. Influencers hawk their custom fitness programs on Instagram. YouTube videos dissect the different surgical procedures celebrities may have had.
Weight management remains a stubborn and enormous problem in spite of our best efforts. 44% of Americans are obese and 79% report dissatisfaction with how their body looks. It inflicts an untold physical and psychological toll on our well-being. A new drug class promises to liberate us from this ancient pain.
Approximately 500k Americans are on GLP-1 drugs like Ozempic and Wegovy as of 2024. What could drive half a million people to inject a substance into their body that is still undergoing Phase 3 trials? Does it work? How does it work? Is it safe? What does the future hold for this drug and the human condition?
Product Market Fit
The holy grail of any tech start-up is something called product market fit. In short, PMF indicates that you are making something people want. Early stage founders and product managers obsess over this since it is the biggest determinant of survival. Most product management literature focuses on digital products due to the growth of the tech industry. However, we can also evaluate physical and pharmaceutical products.
Do GLP-1 drugs have product market fit?
Supply shortages are a strong indicator of PMF since it implies an enormous demand. Anecdotally, patients are having trouble having their prescriptions filled. Semaglutide and Tirzepatide are listed as shortages on the FDA website. Some patients are opting to source these drugs from gray-market compounding pharmacies. Others have used crypto to source it from “research chemical” websites. Even Facebook Marketplace and Craigslist even list these items illegally (at considerable markups).
Products being repurposing or abusing a product is another indicator for PMF. Semaglutide was originally approved for treating Type 2 diabetes but used off-label for obesity when its appetite suppressing effects were discovered. Poison control calls for semaglutide are also up by 1500%.
PMF also breaks systems in strange ways. Many tech industry war stories focus on scaling digital infrastructure to meet user demand. The GLP-1 story seems to have far grander repercussions. The Danish Central bank is imposing currency controls to suppress the Danish Kroner due to the enormous number of dollar-denominated sales from America. Eli Lilly and Novo Nordisk have unveiled plans for plants worth billions of dollars. Novo announced plans to acquire Catalent for $16B mostly for its manufacturing capacity.
Finally, great products generate an enormous amount of word of mouth. Products like ChatGPT or Instagram or Google did not need to advertise because they were independently noteworthy. Awareness and thus usage spreads virally. We see a similar pattern playing out with GLP-1 drugs.
The media New York Times, New York Magazine, the Guardian, among others have featured the drug. Investor updates and conference calls are now littered with GLP-1 mentions. Discussion of it has exploded on TikTok.
Do we have product market fit? The answer is unequivocally yes.
Early Adopters
Technology adoption is commonly described with the Roger’s Bell Curve. This model describes adoption as a social diffusion process. Originally conceived in 1956, this framework applies to products like fashion and cloud technology.
The total addressable market for these drugs are the 141 million Americans who are diabetic or obese. In percentage terms, .1% of Americans are using these drugs out of a potential market of 44%. The adopters of GLP-1 agonists are still firmly within the innovators camp. What could drive half a million to inject a new drug into their body every week? What kind of people use “unproven” technology?
The psychosocial characteristics of early adopters are the intelligent, brave, wealthy, or desperate. I can’t think of a better example of this than Elon Musk who started taking semaglutide after an unflattering photograph spread on social media of while yachting in Greece.
Anecdotal GLP-1 usage has skyrocketed among celebrities, a classic early adopter archetype. When the topic came up at a Brooklyn gathering I attended, about a fifth raised their hands. Users included an artist, software engineer, and a former Army infantryman. My personal acquaintances who have taken it include an entrepreneur and high-ranking civil servant.
I suspect most people won’t readily volunteer that they are taking it. Our culture places a premium on natural solutions. We want to feel like we overcame things by our own merit and will power. But people have social media and friends. High profile users and anecdotal accounts carry enormous weight even in the face of establishment skepticism. Monkey see, monkey do, especially if the demonstrating monkey is higher status or a close friend.
What will move GLP-1 drugs from an early adopter phenomenon into a more broadly deployed drug?
The opinion of the medical establishment is the key driver here. Doctors are conservative by nature. Do no harm. An acquaintance informally surveyed endocrinologists at a medical conference. He found most of them to be skeptical. Medical establishment opinion shifting will also precede insurers and government purchases for these drugs. The next several years will be a data campaign to prove their efficacy, safety, and cost effectiveness.
A Brief History of Dieting
Diet and exercise are the classic recommendations. It is without a doubt very safe. Properly applied it can be effective individually. Unfortunately, this intervention does not appear to work at a societal level. Our biology and culture are not yet adapted to the modern environment of unlimited calories, engineered addiction, and time scarcity.
The Banting Diet was the world’s first low carb diet. It was first proposed by its namesake, an English undertaker. It has been reinvented with modern variations such as Atkins and keto.
Administering thyroid hormone grew in popularity during the 1920s and 30s. The treatment is modestly effective but runs the risk of inducing hyperthyroidism. One study found that 51% of patients lost weight with a median of 8.4 pounds lost.
DNP was introduced in 1933. DNP causes mitochondria to produce heat rather than ATP. An overdose can cause fatal hyperthermia. Bodybuilders still use it today to prepare for competitions. While demonstrably effective, the toxicity is high enough that it sometimes used as a method of suicide.
For a time, amphetamines were prescribed under the brandname Obetrol for weight loss. Potentially addictive, the drug was phased out and repurposed for ADHD treatment. Bodybuilders still use ECA stack (ephedra, caffeine, aspirin). Rainbow pills which combined drugs were restricted after a series of after a series of deaths in the late 60s.
Fenphen was marketed in the early 90s as a combination of fenfluramine/phentermine. The cocktail was moderately effective with an 18.5 pound loss but was withdrawn in 1997. 30% of patients developed abnormal echocardiograms and 3% would later develop heart complications. The drug’s mechanism increased systemic serotonin which resulted in abnormal heart valve growth. The resulting legal liabilities would force the acquisition of developer Wyeth by Pfizer.
Despite being a non-pharmaceutical invention, this list would be incomplete without mentioning bariatric surgery. While there are different devices and techniques, this intervention seeks to directly alter the stomach structure to promote satiety. It is very effective with a 30-50% weight loss. While generally safe, this surgery requires patient rest and has a high risk of complication from surgical scarring.
GLP-1 Mechanism
The GLP-1 signaling pathway was identified by Serbian chemist Svetlana Mojsov while working at Massachusetts General Hospital and demonstrated that it produced insulin.
GLP-1 appears to fulfill a variety of functions throughout the body. GLP-1 is secreted by the small intestine and its most prominent function is the regulation of gastric emptying rate and insulin release. Additionally, GLP-1 also crosses the blood brain barrier and affects different brain systems involved with satiety and reward.
GLP-1 is secreted and absorbed by multiple organs in the body. The different mechanisms at work are still being studied.
GLP-1 rapidly degrades in the body and has a half-life of two minutes. GLP-1 agonists drugs were developed to target the GLP-1 receptor, promoting the release of GLP-1.
The first GLP-1 agonists like exenatide had relatively short half-lives (2.4h) while later iterations have longer half-lives. For example, semaglutide has a half-life of around 7 days. This longer half-life improves drug efficacy and reduces the number of injections required.
Safety and efficacy are the two most important factors for any drug. The two market leaders, semaglutide (Novo Nordisk) and tirzepatide (Eli Lilly) handily beat previous drugs on these two factors. In trials, users lost 14.9% and 20% of their weights respectively. While less effective than bariatric surgery, injectable GLP-1s are far less invasive.
As with any drug, there are side effects. The most common are nausea, diarrhea, and constipation . A full list can be found here. The most serious risks are gastroparesis, kidney damage, and pancreatitis. Animal models have also developed thyroid cancer. Further side effects may emerge as the drug continues to be deployed but tradeoffs still appear extremely compelling.
GLP-1s appear to treat a broad spectrum of diseases in a manner reminiscent of antibiotics. Some effects on diabetes and obesity are as follows. During the SUSTAIN 3 trial for semaglutide, 63% of patients were able to achieve acceptable blood sugar levels. The SELECT trial demonstrated a 14.9% mean weight loss.
GLP-1s appear to have a cardioprotective effect. The SELECT trial also demonstrated a 20% reduction in heart attacks Recently, the FLOW trial which evaluates semaglutide for kidney disease was halted a year early due to strong signals of efficacy. Novo’s press release blandly states that a “prespecified number of endpoints” had been reached. A more macabre way of phrasing it is that enough of those on the placebo had succumbed to kidney disease or death, while enough of those on the drug managed to survive.
Trials are also being undertaken to evaluate its efficacy in liver diseases and addiction. Current trials are underway for Eli Lilly’s tirzepatide which are expected to exhibit similar results.
A Duopoly (for now)
One common objection is the lack of moat, that other pharmaceutical companies will immediately develop a similar product and erode margins. Drugs are probably the hardest product to bring to market due to the enormous technical, regulatory, and marketing challenges.
Drug development faces a mortality rate similar to venture backed startups. It typically takes a decade of time and costs several billion dollars. Only 13% of drug candidates make it to Phase 3 trials. Simply proving medical efficacy isn’t enough. Insurers are often reluctant to underwrite the high cost of new treatments especially against legacy treatments.
The first GLP-1 agonist brought to market was exenatide (brand name Byetta) in 2005 from AstraZeneca for diabetes. It was derived from the saliva of the Gila monster reptile. It was effective for diabetes but had a very modest effect on weight. Liraglutide (Victoza) from Novo was approved in 2010. At this time, GLP-1 drugs appetite suppression effects were known in animal models but became clear in human subjects as well.
Novo Nordisk began developing an agonist with a longer half-life which resulted in the approval of semaglutide for diabetes in 2017. Zealand and Sanofi tried to bring Lixisenatide to market but failed to win FDA approval in 2016. Albiglutide was withdrawn by GSK in 2017.
While there is a large pipeline of candidates, the high failure rate of drug development means that GLP-1s will be a duopoly for the foreseeable future, perhaps until patent expiry. The patent for Ozempic is expected to expire in 2032 while tirzepatide is expected to expire in 2036.
Novo and Eli are world’s dominant insulin producers. They have managed to retain pricing power by iterating on their insulin products in order to retain patent protection. Something similar will have to occur with GLP-1 agonists.
Business outlook
Can Novo and Eli Lilly continue to beat earnings expectations, even in the face of already high expectations? Novo and Lilly now possess several powerful levers. They can increase supply, raise prices, or expand demand generation. This is the great privilege granted to companies whose products people really want.
This is a drug class that deals with the largest modern health problem. It solves some part of the human condition. Another question to ask is what percentage of the population will end up using it? How will it be funded? What happens if governments decide to fund it as public good the same way HIV drugs or the COVID vaccine? Even if it fails to when insurer support, private demand would still count for a sizable fraction of the population.
The worst case scenario would be the emergence of unacceptable side effects but is mitigated by relatively wide deployment of drugs.
In the next decade, human biology and drug development will probably not change drastically. Change of regulation is paced by political processes.
Disclosures:
This article is not medical or financial advice. If you are considering any investments please do your own diligence. Consult your doctor if you are considering any medical treatment.
I own $NVO, $LLY, $VKTX and make future transactions with some of the companies mentioned here.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6095132/ (Weight loss history) https://www.drugdiscoverytrends.com/glp-1-drug-market-trends/ (GLP-1 Market) https://www.nejm.org/doi/full/10.1056/NEJMoa2206038? (Tirzepatide weightloss) https://www.nejm.org/doi/full/10.1056/NEJMoa2032183 (Semaglutide weightloss)