The companies that already have obesity drugs can’t keep up with the demand for their treatments, and the demand for the drugs is only likely to become more intense. That’s because over 42% of the U.S. population was obese as of 2020, while the pervasive publicity around these drugs will make them more popular, and the social and political pressure for insurers to cover the treatments will become more intense. This has led to the rise of biotech stocks to buy.
More specifically on the last point, most private and government insurance plans currently don’t cover obesity drugs, but CNBC reports that most insurers will be forced to do so “if a patient’s provider prescribes them to treat or prevent cardiovascular conditions, which can be exacerbated by diabetes and obesity.”
So most obesity drugs will likely at some point be covered through the latter “back door” approach, making the overall market for these treatments quite lucrative. With that in mind, here are three biotech stocks to watch ahead of potential obesity drug approvals.
Eli Lilly (LLY)
Eli Lilly’s (NYSE:LLY) Mounjaro has been approved as a treatment for diabetes and is expected to be approved for use against obesity by the end of 2023.
In trials, Mounjaro reduced patients’ weight by a mean amount of “26% or more.” Moreover, in fall 2022, the Food and Drug Administration gave Mounjaro a “fast-track” designation, indicating that the agency is indeed likely to approve the medication. This is a significant and not-so-common development in the industry, thus making it one of those biotech stocks to watch.
The demand for Mounjaro is already off the charts, as it generated $1 billion of revenue last quarter for LLY, and Eli Lilly has been unable to keep up with the demand for the drug. However, the firm is building two additional factories in Indiana to help it overcome the latter issue.
Novo Nordisk (NVO)
Novo Nordisk’s (NYSE:NVO) Wegovy has already been approved as a weight loss treatment, as it got the nod from the FDA in 2021.
But by the end of 2023, Novo expects to seek approval of the drug as a treatment for cardiovascular issues in both the U.S. and the EU. The company is able to take that step because the drug was shown to have cut “the risk of major cardiovascular events such as heart attacks or strokes by 20%, compared with a placebo.”
As I mentioned in the introduction to this column, once these obesity drugs are approved as treatments for cardiovascular issues, they will probably be covered by many insurers. Novo Nordisk looks poised to reach that plateau first, definitely making it one of the most important biotech stocks to watch.
Similarly, NVO is conducting “phase 3 trials” of oral versions of Wegovy and looks poised to be the first to offer an oral version of one of the new weight-loss drugs. Achieving that milestone would also leave it very well-positioned to greatly boost its market share going forward.
Amgen (AMGN)
Amgen (NASDAQ:AMGN) is meaningfully trailing the other two names in this column, but the company’s obesity treatment did generate competitive weight loss of 14.5% “after 12 weeks of treatment.”
The company’s drug is undergoing Phase 2 trials that are slated to be completed next year, and the drug could be launched in 2026. In most other indications, I’d say that drug makers who came in a distant third place would not generate much revenue from their treatments.
But the obesity sector could be an exception to that rule, given the huge amount of demand that’s developing for obesity treatments. And, as I noted in the introduction, the demand for obesity drugs looks poised to rapidly jump going forward. This makes it one of those biotech stocks to buy.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.