Weight loss drugs pose risk to pharma, report finds

Recent research suggests that the pharmaceutical sector is at risk of a “bubble effect” due to surging demand for weight loss and diabetes drugs, leading to increased profitability.

This demand for drugs like Wegovy and Zepbound has driven research and development returns to their highest level in years. However, a report published by Deloitte indicates that this profitability may be masking underlying pressure within the sector.

Pharmaceutical R&D returns for the top 20 pharma companies globally have improved for a third consecutive year, reaching 7%, primarily driven by high-forecast assets such as GLP-1s.

The report reveals that obesity treatments have surpassed oncology as the largest contributor to late-stage pipeline value for the first time in 16 years, increasing companies’ exposure to therapeutic-area-specific shocks.

“It is a bubble, because so much is concentrated,” said Hanno Ronte, Life Sciences and Healthcare Partner at Deloitte, during an interview with CNBC’s “Squawk Box Europe.”

Obesity and diabetes drugs now represent about 38% of all projected commercial inflows from the late-stage pipeline by 2025.

The significant impact of these drugs is overshadowing a weaker environment for the rest of the industry. Excluding GLP-1/GIP assets from the analysis results in a drop in the industry’s return rate to 2.9% from 3.8% in 2024.

Obesity assets now represent approximately 25% of total forecast sales from the late-stage pipeline, while oncology’s share has decreased to 20%. This marks a significant rise for the obesity sector, which only contributed 1% of projected value in 2022.

While the growth is positive, it has led to a concentration of risk. Only 54 mega-blockbuster indications, representing 9% of the late-stage cohort, are projected to generate around 70% of total risk-adjusted peak sales.

Deloitte emphasizes the high degree of concentration in blockbuster drugs, creating a high-stakes environment where a small number of assets can significantly impact overall returns on investment. This concentration increases competition and sensitivity to shocks in specific therapeutic areas.

Ronte mentioned, “we are reaching a point where vanity and health have collided, creating a transformative market for patients, health systems, and everyone involved.”

Scientists are still exploring the full benefits of GLP-1s, with potential impacts on brain health and inflammation being subjects of ongoing research.

Last year, Novo Nordisk’s clinical trial studying the effect of semaglutide on Alzheimer’s disease progression showed promising results in impacting certain disease-linked proteins and inflammation biomarkers.

GLP-1s have also shown potential benefits for patients dealing with addiction.

Ronte added, “The question is, do you double down on the current market trend or look for the next scientific breakthrough?”