Thursday, Nov 16, 2023

How Weight Loss Drugs Will Reshape Healthcare

Rebecca Springer, PhDLead Analyst, Healthcare, PitchBook

HLTH

The development of GLP-1 agonist drugs to treat diabetes and, increasingly, support weight loss represents one of the most significant trends shaping the healthcare industry today. Given the prevalence of obesity in the US and worldwide and the documented link between obesity and other conditions—including cardiovascular disease, the leading cause of death globally, and chronic kidney disease—we believe the effects of this new drug class will extend far beyond the drugmakers themselves. 


In a recent report, PitchBook’s healthcare analyst team outlined predictions for how widespread adoption of weight loss drugs could reshape healthcare, from biopharma and digital health to healthcare services, medtech, and healthcare IT. We also detailed the outlook for payer coverage of weight loss as well as the emerging weight loss drug pipeline, which includes modalities offering efficacy and patient convenience improvements over currently approved GLP-1s. 


Payer coverage

We believe employee pressure will force employers to cover weight loss drugs within the next 2-3 years – initially at great cost. We also believe Congress will eventually pass legislation allowing Medicare to cover weight loss medications, which will require CMS to make adjustments to the Medicare Advantage risk adjustment calculations (which consider obesity rates) to avoid undesirable knock-on effects. Medicaid coverage will be initially constrained by fixed state budgets regardless of clinical efficacy, but will expand as drug prices fall. ACA exchange plans will likely lag in coverage, absent regulatory mandates. Payers will employ prior authorization requirements to concentrate utilization among patients with a higher BMI or weight-related comorbidities.


Employer approaches and care navigation

While Medicare and to a lesser extent Medicaid would realize significant total-cost-of-care savings from a reduction in obesity rates, employers will see less of these savings. The one-two-punch of weight loss drugs and high-cost specialty medications will drive employers to become more active payers via network management, care navigation, and creative benefits design. Employers will also seek out digital health providers that offer integrated lifestyle-based and pharmaceutical treatment for obesity. The employer fertility market provides an interesting parallel: Providers like Carrot tout their ability to significantly reduce IVF utilization by steering employees to less invasive (and less expensive) fertility treatments.


Biotech funding and M&A

VC dollars are already pouring into late-stage startups with promising weight loss drug candidates, and we also expect to see further IPO and M&A activity as big pharma incumbents look to challenge Eli Lilly and Novo Nordisk’s dominance. (Pfizer, Amgen, and Boehringer Ingelheim also appear well positioned.) Carmot Therapeutics, which has two weight loss candidates in phase 2, recently achieved unicorn status following a $150.0 million Series E. Structure Therapeutics recently completed an upsized offering, raising $185.3 million in February 2023, fueled by its own phase 2 GLP-1 small molecule drug, GSBR-1290. There is also activity at the early stage: Novo Nordisk acquired early stage obesity drug developer Embark Biotech for $16.4 million.


We are also watching key players in Southeast Asia, including China’s GMAX Biopharm, Sciwind Biosciences, and Jiangsu Hansoh, along with South Korea’s D&D Pharmatech. AstraZeneca recently acquired Chinese biotech Eccogene’s oral dose GLP-1 for $185 million. For established international entities, strategic partnerships play a pivotal role in reinforcing market presence, facilitated by significant capital investment and localized regulatory advantages. For example, China’s Innovent Biologics is collaborating with Eli Lilly for its phase 3 obesity drug, mazdutide. 


Emerging modalities

Once payer coverage is widespread, the weight loss drug market will quickly saturate. Consequently, investors should focus on startups introducing new IP, especially emerging modalities or new biological insights that offer additional benefits. On the one hand, triple GIP/GLP-1/glucagon receptor agonists – the technology found in Eli Lilly’s Retatrutide – offer superior clinical validation. On the other hand, ease of use matters – especially if patients must remain on the drug for life. Oral therapeutics currently being developed by Eli Lilly, Novo Nordisk, Structure Therapeutics, Viking Therapeutics, and Pfizer have advantages in lower costs and ease of use despite weaker clinical results and daily dosing. They also win on room temperature stability and scalable manufacturing. Another oral administration candidate, Amgen’s AMG-133, must only be taken monthly, but its antibody composition comes with manufacturing and distribution downsides. Far-sighted investors may seek to place bets on cell and gene therapy, which could shift the treatment paradigm toward single-dose cures.


Clinical trials

As the patient pool contracts due to increased adoption of existing treatments, future clinical trials may face challenges in recruitment. Emerging startups, especially those late to the market, may face slower clinical trial enrollments if existing treatments prove sufficiently effective. In the last few years, private equity firms have become increasingly active consolidators of clinical trials sites, and sites with expertise in cardiovascular and metabolic conditions – until recently a tiny sliver of the biopharmaceutical market – will become prize assets commanding high valuations. 


Telemedicine and retail pharmacy

There is a significant opportunity for telehealth companies to focus on weight loss as a primary business model or add weight loss telehealth to existing platforms. Examples include WeightWatchers’ acquisition of VC-backed startup Sequence and new weight loss telehealth programs from digital health unicorns Ro and Noom. B2B telehealth provider SteadyMD is quickly scaling up similar programs for retail weight loss providers to spin up similar programs. Retail pharmacies that have made significant primary care bets, including CVS, Walgreens, and Walmart, should reap rewards because they will be able to provide patients with easy access to both prescribers (primary care) and scripts fulfillment. Costco has also jumped into the fray by partnering with Sesame to offer $29 virtual visits. Although the announcement did not mention weight loss, the cross-selling benefits with Costco’s pharmacy offering are unambiguous. We expect fierce competition among both startups and retailers on both telehealth visit economics and ease of access.


Procedural volumes and cardiovascular care

According to PitchBook research, investors have poured more than $10 billion into cardiovascular digital health and medtech startups since 2020. Over the same time period, private equity firms have begun aggressively buying up independent cardiovascular practices. Health systems also rely on cardiovascular surgeries as a key revenue generator. Given evidence that Novo Nordisk’s Wegovy reduces stroke and heart attack rates by 20% in cardiovascular patients with obesity and overweight – and the promise of even better clinical efficacy in the pipeline – the business model of cardiovascular care will change dramatically, with many providers taking a revenue hit due to decreased procedural volumes. 


Conclusion

PitchBook analysts will be carefully tracking the transformative effects of this new drug class on care delivery, outcomes, and economics as they unfold. For additional insights – ranging from the demand for injectable packaging and sleep apnea machines to patient engagement strategies – download the full report here.


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