A recent report from the Centers for Disease Control and Prevention (CDC) at the end of 2023 highlights alarming trends in obesity rates in the United States. According to CDC population data from 2022, 22 states have an adult obesity prevalence of 35% or higher, an increase from 19 states in 2021.1
Additionally, the 2020 National Health and Nutrition Examination Survey indicated that the percentage of people in the U.S. considered obese had risen to over 40%.2 Of those, the percentage regarded as severely obese had risen to 9.2%.3 Beyond the U.S., obesity figures continue to rise, with almost a quarter of the global population predicted to be obese by 2035.4
These startling figures have severe implications for public health, with obese individuals at increased risk of heart disease, stroke, type 2 diabetes, and certain types of cancer. These are among the leading causes of preventable, premature death, leading many medical practitioners to call the rise in obesity a global health crisis.
Tackling this issue has become a key priority, and various weight loss drugs are now being developed to help tackle the problem. As a result, the market for effective weight loss drugs is significant and growing, creating opportunities for investors. Understanding this opportunity, its potential, and associated risks is essential for would-be investors in this market.
In this guide, we’ll explore the growing market for weight loss drugs, key products, and how investors can capitalize on the predicted global growth trends.
How Do GLP-1s Work for Weight Loss?
Obesity is a complex disease rooted in the body's intricate hormonal and metabolic systems. A dynamic network of hormones and neurotransmitters influences appetite, satiety (feeling full), fat storage, and energy expenditure. When these delicate systems become imbalanced due to genetics, environmental factors, or other underlying medical conditions, weight gain and obesity can occur. Imbalances create powerful appetite-driven urges that can be extremely difficult, if not impossible, to resist.
Traditionally, weight loss approaches focused on calorie restriction and increased physical activity. However, these strategies often fail to offer sustainable solutions, as the body's powerful biological mechanisms fight to regain lost weight. New weight loss drugs target the underlying hormonal and metabolic dysregulation, helping to curb hunger, increase metabolism, modify how the body processes fat, and reduce the strong drive to overeat. The active ingredient in these drugs is a naturally occurring hormone called GLP-1 that is released to the gut and brain in response to food. Tackling this drive to eat and re-regulating the metabolism is key to healthy weight loss.
GLP-1 helps regulate blood sugar by stimulating insulin-producing cells in the pancreas when blood sugar is elevated. Synthetic GLP-1 has been used for over a decade as a treatment for Type 2 diabetes, but medical developments have increased the efficacy of GLP-1-based drugs, making them a realistic treatment for obesity.
After receiving FDA approval for use, these GLP-1 (glucagon-like peptide 1)- based drugs have been described as game changers in the fight against obesity. Pharmaceutical companies such as Novo Nordisk are now investing significantly in production capacity.
Studies have shown that new weight loss drugs such as Ozempic and Wegovy can reduce body weight by 10% to 20%.5 They have also been shown to help patients avoid processed foods and snacks, with anecdotal data also suggesting reduced consumption of alcohol, drugs, and tobacco. This is due to GLP-1 weakening the brain’s association between stimulus and feelings of pleasure.
The Investment Opportunity for Weight Loss Drugs
Research forecasts that the GLP-1 market will exceed $130 billion by 2030, driven equally by diabetes and obesity usage. Total GLP-1 users in the U.S. may number 30 million by 2030 — or around 9% of the overall population.6
Currently, GLP-1 weight loss drugs are in their relative infancy, with less than 1% of the U.S. population currently taking them. With over 40% of the U.S. population classified as clinically obese, the potential for significant growth is clear.
The growing market for effective weight loss drugs is significant and expanding, creating opportunities for investors. Understanding this opportunity, its potential, and associated risks is essential for would-be investors in this market.
Novo Nordisk launched its injectable weight loss drug Wegovy in the summer of 2021. This is a higher dosage version of its older medication, Ozempic, or Semaglutide, which was initially developed to control high blood sugar and treat Type 2 diabetes. Patients using the drug reported significant weight loss, leading Novo Nordisk to consider using Semaglutide as a potential treatment for obesity and the development of Wegovy.
Positive trial data led to approval for use as an obesity treatment by the U.S. Food and Drug Administration (FDA), with the drug quickly being in demand following media coverage of its potential. With obesity becoming a global problem, the potential for market growth is considerable.
Increased Company Valuations
Soaring sales of Ozempic and Wegovy have led to solid growth in Novo Nordisk's share price. With a market cap of over $500 billion, the Danish pharmaceutical giant is now Europe’s most valuable company.
Potential Acquisitions & Partnerships
The rapid growth of the weight loss drug market is likely to create numerous investment opportunities through acquisitions and partnerships. As larger pharmaceutical companies seek to expand their portfolios and leverage new technologies, they may acquire smaller companies working on new drugs.
For investors, this creates multiple pathways to capitalize on the market’s growth. Acquisitions of smaller firms by larger companies can result in significant stock price increases for the acquired companies and enhance the market position of the acquiring companies, offering substantial return opportunities.
How to Invest in Weight Loss Drug Stocks
While the market potential for weight loss drugs is evident, knowing how best to capitalize on that potential as an investor can be challenging. For most ordinary investors, investing in weight loss drug companies will involve purchasing individual stocks or a specialist weight loss ETF.
Weight Loss Stocks
Many investors may choose to invest in weight loss stocks of individual pharmaceutical companies developing weight loss drugs. Many of these companies are already significant players, attracting ordinary retail investors. Companies such as Novo Nordisk, Eli Lilly, and Pfizer have highly valued stocks that feature heavily in pension fund portfolios worldwide. Smaller companies with significant growth potential may be more challenging to identify, given the high failure rate for new drugs.
Investing in smaller, innovative biotech and pharmaceutical companies can be more volatile but potentially more rewarding if they succeed in bringing new obesity drugs to market.
Anyone considering how to buy weight loss stocks in individual companies should conduct thorough research. This should include an assessment of the strengths and potential of the company’s R&D pipeline, early-stage trials, and potential for success. Approval of drugs for use can lead to significant stock price increases, as too can collaborations with pharmaceutical companies or acquisitions.
Weight Loss ETFs
For most ordinary investors, one potential way to invest in the growth of the market for weight loss drugs is via a specialist weight loss Exchange Traded Fund (ETF). Investing in a weight loss ETF allows investors to hold a diversified portfolio of stocks from a range of companies involved in the sale and development of GLP-1-based obesity treatments. This diversification spreads risk, reducing the impact of poor performance from individual companies.
OZEM is an actively managed exchange-traded fund that effectively invests in companies developing pharmaceutical drugs to support weight loss and battle obesity.
The fund is managed by our investment professionals who conduct detailed research into the weight loss market to inform investment decisions. The Roundhill OZEM GLP-1 & Weight Loss ETF is an accessible way for ordinary investors to get exposure to the high growth potential of the anti-obesity drug market.
What are the Risks around Weight Loss Drugs?
Many well-informed commentators are convinced of the significant growth potential of the weight loss drug market. Still, as with any investment, it’s important to consider some of the potential risks. These might include:
Long Term Impact
The long-term side effects of new weight loss drugs are still largely unknown. Potential adverse side effects over time could impact the usability or medical viability of the drugs. While ongoing research and development aim to minimize these risks, the small risk of unknown variables impacting market demand should be considered.
Should issues from long-term impacts arise, regulatory bodies like the FDA may need to reevaluate and possibly withdraw their approval, affecting both drug availability and the stock valuations of the companies producing them.
Regulatory & Approval Risks
Navigating the regulatory environment is a challenge in developing weight loss drugs. Drugs can fail at any phase of clinical trials due to various factors. When this happens, it may have an outsized impact on stock prices. This level of uncertainty can introduce volatility to investments in this sector.
Reimbursement Challenges
Uncertainties about the long-term impacts of weight loss drugs can complicate liability insurance, increasing the financial risk for companies. These challenges might lead to substantial legal costs and influence overall company performance, potentially resulting in market volatility.
Consumer Confidence
While there has been initial enthusiasm from consumers, with many pharmacists struggling to keep up with demand, any potential safety concerns could undermine public confidence in the medication and potentially affect long-term sales.
The Future of Weight Loss Drugs
Weight loss drugs are still in their commercial infancy. This means immense potential for market growth as they transform the landscape of obesity treatment. With rising global obesity rates and a growing understanding of the biology of weight regulation, the weight loss drug market looks set to expand significantly. These advancements could herald the beginning of a new era of obesity management, providing real hope for effective and accessible obesity treatment.
A Dynamic Market
GLP-1 receptor agonists have demonstrated impressive efficacy in reducing body weight, with clinical trials showing an average weight loss of 10-20% in patients.7 FDA approval has sparked significant interest and investment in the weight loss drug market. Companies recognize that the early proven efficacy of these drugs has important implications for market potential and are investing heavily in research and development.
As smaller companies continue to drive innovation, their potential for acquisitions by larger pharmaceutical companies is expected to accelerate, reinforcing the dynamic nature of the market and enhancing capabilities across the industry.
Innovation
Rapid innovation in the sector supports the development of novel therapies that could prove even more effective and have fewer side effects. One area of research is dual agonists that target both GLP-1 and glucagon receptors that have the potential to provide enhanced metabolic benefits and more significant weight reduction.
Oral Drug Advancements
Previously, a significant barrier to the widespread adoption of weight loss drugs has been the need for injections. Over recent years, however, significant advances in oral drugs for weight loss have made the treatments more accessible. This shift towards oral medications is expected to make effective weight loss treatments available to a broader population.
Potential Application Beyond Weight Loss
There is some therapeutic potential for GLP-1 receptor agonists beyond weight loss, with early research showing promising implications for treating various metabolic and cardiovascular conditions. Because they target multiple pathways involved in metabolism, GLP-1 agonists could become multi-functional therapies that provide comprehensive health benefits. The success of weight loss drugs could drive innovation in related fields such as metabolic health and appetite regulation, as well as treating obesity-related complications.
Why the Roundhill GLP-1 & Weight Loss ETF (OZEM)?
The scale of the global obesity crisis and its broader health implications provide a powerful catalyst for growth in the weight loss drug market. While nothing is guaranteed, the potential for weight loss drugs to become a significant tool in addressing this crisis is clear.
Identifying the companies likely to prosper and advance in this dynamic, emerging marketplace can be difficult. Picking individual stocks is challenging for most ordinary investors, with significant potential for loss.
Choosing to invest in a weight loss drug ETF such as the Roundhill GLP-1 & Weight Loss ETF instead provides managed exposure to some of the most significant players in the field, as well as promising smaller companies leading research and innovation.
We believe that FDA approval and the inevitable rise in global obesity present an attractive growth profile for the weight loss drugs sector and its investment opportunity potential.
Some of the companies mentioned in this blog are holdings of the Roundhill GLP-1 & Weight Loss ETF portfolio. For a full list of fund holdings visit the fund page.
Footnotes
1. Centers for Disease Control and Prevention. (2023). Obesity trends in the United States.
2. Centers for Disease Control and Prevention. (2020). National Health and Nutrition Examination Survey.
3. Ibid
4. World Obesity Federation. (2023). Global obesity forecast.
5. Harvard Health Publishing. (2023). Understanding new weight-loss drugs.
6. J.P. Morgan Research. (2023). The increase in appetite for obesity drugs, Global Sachs Research. Obesity Market Model,
7. Journal of Clinical Endocrinology & Metabolism. (2022). Slow and Steady Wins the Race: 25 Years Developing the GLP-1 Receptor as an Effective Target for Weight Loss.
Investors should consider the investment objectives, risk, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about Roundhill ETFs please call 1-855-561-5728 or visit the website at www.roundhillinvestments.com/etf/OZEM. Read the prospectus or summary prospectus carefully before investing.
Health Care Companies Risk. Health care companies, such as companies providing medical and healthcare goods and services, companies engaged in manufacturing medical equipment, supplies and pharmaceuticals, as well as operating health care facilities and the provision of managed health care, may be affected by government regulations and government health care programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many health care companies are heavily dependent on patent protection, and the expiration of a company’s patent may adversely affect that company’s profitability. Health care companies are also subject to competitive forces that may result in price discounting, may be thinly capitalized and susceptible to product obsolescence.
Pharmaceutical Companies Risk. The Fund may have significant exposure to pharmaceutical companies in connection with its investments in GLP-1 & Weight Loss Companies. Pharmaceuticals companies may be affected by industry competition, dependency on a limited number of products, obsolescence of products, government approvals and regulations, loss or impairment of intellectual property rights and litigation regarding product liability. Pharmaceutical are subject to competitive forces that may make it difficult to raise prices of their products and may result in price discounting. The profitability of some pharmaceuticals companies may be dependent on a relatively limited number of products. The research and development costs required to bring a new product to market are substantial with no guarantee that the product will ever become profitable. Many new products are subject to gaining the approval of the U.S. Food and Drug Administration (“FDA”), which can be long and costly. Many pharmaceutical companies are heavily dependent on patents and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies. Pharmaceuticals companies may also be subject to extensive litigation based on product liability and similar claims.
Biotechnology Companies Risk. The Fund may have significant exposure to biotechnology companies in connection with its investments in GLP-1 & Weight Loss Companies. Biotechnology companies invest heavily in research and development which may not necessarily lead to commercially successful products. Biotechnology companies are subject to increased governmental regulation which may delay or inhibit the release of new products. The effects of high development costs and increased regulation may be exacerbated by a company’s inability to raise prices to cover costs because of managed care pressure or price controls. Many biotechnology companies are dependent upon their ability to use and enforce intellectual property rights and patents. Any impairment of such rights may have adverse financial consequences. Biotechnology stocks, especially those issued by smaller, less-seasoned companies, tend to be more volatile than the overall market. Biotechnology companies can also be significantly affected by technological change and obsolescence, product liability lawsuits and consequential high insurance costs.
Concentration Risk. The Fund is concentrated in the industry or group of industries comprising the health care sector. The Fund may be susceptible to an increased risk of loss, including losses due to adverse events that affect the Fund’s investments more than the market as a whole, to the extent that the Fund’s investments are concentrated in the securities and/or other assets of a particular issuer or issuers, country, group of countries, region, market, industry, group of industries, sector, market segment or asset class.
New Fund Risk. The Fund is a recently organized investment company with a limited operating history. As a result, prospective investors have a limited track record or history on which to base their investment decision.
Roundhill Financial Inc. serves as the investment advisor. The Funds are distributed by Foreside Fund Services, LLC which is not affiliated with Roundhill Financial Inc., U.S. Bank, or any of their affiliates.
