Are weight-loss drugs like gym memberships? The answer is worth billions
Summary
An analyst thinks he has cracked the code on why highflying Eli Lilly missed two quarters of Wall Street projections.
If obesity is a chronic disease, like kidney or heart conditions, demand for GLP-1 drugs shouldn’t ebb and flow with the seasons. But the weight-loss market is far from typical.
After analyzing data going back to 2016, one analyst thinks he has identified a seasonal pattern in demand for drugs such as Eli Lilly’s Zepbound and Novo Nordisk’s Wegovy: The drugs have stellar growth in initial sign-ups in the first half of the year followed by slower gains in the second half.
This pattern resembles the cyclical nature of gym memberships rather than the steady trajectory of most pharmaceutical markets, and for good reason: At the start of the year, people often make resolutions to lose weight, exercise or start new diets. It stands to reason that some of these resolutions might also lead to increased demand for weight-loss prescriptions such as GLP-1 drugs.
If the logic is even half-right, it could help explain Eli Lilly’s back-to-back misses that have confounded Wall Street.
After starting off the first half of last year strong, Eli Lilly in October reported lower-than-expected third-quarter sales for its blockbuster weight-loss and diabetes drugs, sending its stock tumbling. Then, earlier this month, the company released a fourth-quarter and full-year 2024 outlook that again fell short of analysts’ estimates. While the company says it isn’t worried about quarterly fluctuations and sees demand as being strong, it sent some on Wall Street into a tizzy.
But Umer Raffat, an analyst at Evercore ISI, thinks the market, and perhaps the company itself, might be overlooking the seasonal aspect of GLP-1 demand. He sifted through new patient start data and noticed that much of the slowdown in the second half of last year had to do with fewer people starting on the drugs.
To confirm that it wasn’t a one-off, he looked back on eight years of data for new patient starts on all GLP-1 drugs and found that the trend tended to repeat itself. For the last several years, growth in new patient starts has slowed in the second half of the year, with one notable exception in the second half of 2022, when Eli Lilly’s Mounjaro first launched.
This insight has significant implications for Eli Lilly, whose stock has been under pressure following two consecutive earnings misses. The company, which has been at the forefront of the rapidly growing GLP-1 drug market, has left investors puzzled as to why its growth hasn’t met Wall Street’s lofty expectations. After the recent quarterly performances, analysts have wondered whether the company has a handle on the market dynamics for its fastest-growing products.
If the recent misses were even partly because of the seasonality of GLP-1 demand, that could be good news for Lilly investors. This could set Eli Lilly, which will discuss its 2025 guidance during its earnings conference call next week, up for a strong rebound in the first half of this year. Using his seasonality approach, Raffat estimates sales of Mounjaro and Zepbound could hit $25 billion in 2025, pushing the company’s total revenue to $62 billion, just above its $58 billion-to-$61 billion guidance range.
Seasonality is likely only part of the story, though. Unlike joining a gym, where a few clicks can secure a membership, obtaining drugs such as Wegovy or Ozempic is more complicated. Insurance deductibles, coverage restrictions and out-of-pocket costs can all play a significant role in patient access.
“January is definitely a time when patients come in with new goals—many set over the holidays," said Dr. Disha Narang, director of obesity medicine at Endeavor Health System. “But things like employer pushback might also be playing a role in reduced use of these drugs."
The leading obesity drugs have list prices of more than $1,000 a month, so covering them can lead to a massive increase in employers’ healthcare budgets and premiums. Only about half of large employers cover anti-obesity medications, and coverage is even spottier among smaller employers. Without coverage, patients have to sometimes pay full list price, limiting uptake.
Either way, Eli Lilly may want to temper its expectations if it does indeed have a blowout first half this year. The company got itself into trouble in the second quarter of last year, raising its 2024 revenue guidance by $3 billion only to later fall short of its expectations. Had the company never increased its outlook, it wouldn’t have missed its projections.
GLP-1 usage might be seasonal. That is something drug companies, and their investors, should start baking into their models.
Write to David Wainer at david.wainer@wsj.com
