US-based Eli Lilly and Denmark’s Novo Nordisk dominate the fast-growing global market for weight-loss drugs. The World Health Organisation estimates that 650 million people worldwide are obese, creating a massive potential demand for obesity and type-2 diabetes treatments.
Over the last three years Eli Lilly has returned 265% to investors and Novo has soared 165%, while the US S&P500 has gained 25%.
Some commentators now suggest that new entrants to this highly lucrative market will seize market share and reduce these first movers’ pricing power.
However, while a recent report by GlobalData predicts that 14 other companies will be marketing GLP-1 drugs by 2030, it forecasts that they will only secure around 6% of the total market.
Eli Lilly and Novo Nordisk look set to retain high market share due to their :
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Strong brand awareness and history of safe dispensing
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Strong pipeline of improved weight loss drugs
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Rapid expansion of manufacturing capacity to meet demand growth
Longer track records provide assurance to new patients that any side effects are usually minor, creating a further barrier to new market entrants. Trials show these drugs can also treat conditions such as heart disease, joint pain, and sleep apnea. This can help shift the perception among public health policy makers and the health insurance industry that obesity drugs are “just a cosmetic treatment.”
Fast earnings growth and high margins attracts competition in free market economies. However, the report from GlobalData casts doubts on the ability of new entrants to capture a large slice of the growing market for weight loss treatments over the next few years.
Eli Lilly and Novo Nordisk have been key holdings in the Pengana Axiom International Fund as this market has expanded. The stocks were identified early through tracking pharmacy script data and the growth of the worldwide obese population.
The GlobalData reports underlines Axiom’s conviction that earnings growth is becoming scarcer and more concentrated as disruptive technology rapidly creates massive new global markets.
The Pengana Axiom International Fund provides investors with access to high quality innovative businesses which demonstrate positive change, sustainable earnings growth, and attractive valuation levels.
