The Real Investment Story of 2023 Isn't AI

Much ink has been spilled over all things related to OpenAI and artificial intelligence. But another story is equally, if not more so, deserving of investors' attention.

A staggering 70% of Americans are considered either overweight or obese.

That’s roughly 235 million people… and it’s a trend that has accelerated in recent years.

Take a look at the following chart of CDC data, which shows that obesity rates — defined as a body mass index of 30 or more — have exploded from 11% of Americans in the 1960s to an expected 50% by 2030:

Obesity can lead to diabetes, strokes, high blood pressure, and high cholesterol. These folks often also suffer from other physical ailments like sleep apnea, joint pain, arthritis, and infertility.

An expensive disease

The CDC says obesity costs the U.S. health care system almost $175 billion a year, and The Milken Institute think tank estimates it costs an additional $1.2 trillion worth of economic productivity.

No matter how you look at it, this is an expensive disease… And yet, insurers largely refuse to cover Eli Lilly’s (LLY) Mounjaro and Novo Nordisk’s (NVO) Wegovy and Ozempic.

Novo originally gained FDA approval for Ozempic to treat diabetes in late 2017. One of Ozempic’s main ingredients — semaglutide — helps patients manage their blood sugar levels. But one of the side effects is weight loss, which has caused the drug (and others containing semaglutide) to gain mainstream appeal to people looking to lose weight.

These drugs help patients feel full quicker and therefore consume fewer calories. Ozempic in particular became popular in 2021 on an episode of The Dr. Oz Show in a segment called “Could a Diabetes Drug Cure Obesity?”

In October 2022, these drugs gained further attention when Tesla founder Elon Musk admitted the secret to his weight loss was fasting and Wegovy:

And at the Oscars in March of this year, host Jimmy Kimmel quipped:

"Everybody looks great. When I look around this room, I can't help but wonder: Is Ozempic right for me?"

In fact, Ozempic, Wegovy, and Mounjaro have since become so fashionable that they have experienced a supply chain shortage as the drug makers struggle to meet demand. This has been particularly dangerous for people with type 2 diabetes.

Instead of picking up the tab on these weight-loss drugs, the insurance companies continue to shell out billions of dollars a year paying for insulin, CPAP machines, physical therapy, and other medications.

Wouldn’t it be easier to cover the weight-loss drugs and avoid many of these “downstream” costs?

And it’s not like Americans are disinterested in losing weight…

A recent poll from health policy research firm KFF found that almost 60% of respondents said they’re actively trying to shed pounds, and 45% would be interested in a prescription weight-loss drug.

Unfortunately, these medications are unaffordable for many millions of Americans to pay for out of pocket. Ozempic costs more than $800 a month, while Mounjaro and Wegovy cost more than $1,000 for a monthly supply.

That’s why just one in six polled said they would be interested in paying for weight-loss drugs out of pocket if insurance didn’t cover them.

Meanwhile, the Medicare Modernization Act of 2003 prohibits the federal program from covering the cost of these weight-loss drugs.

And while it would seem on the surface to be awfully expensive for Medicare or other insurers to suddenly cover these drugs, that may not be the case.

Employers worry about raising premiums on their workers or paying higher costs to the insurance companies. But this is shortsighted thinking. As Cate Varney, an obesity medicine doctor at the University of Virginia, recently told NPR:

“All they see is the initial upfront cost and not the downstream improvement in the health of their company, both in their employees and their financial health.”

But USC’s Shaeffer Center — an economics and health policy center — says that Medicare alone could save $175 billion over the next decade by making weight-loss drugs available to whoever needed them.

Insurers argue that obesity is a behavioral issue, rather than a disease — similar to a gambling addiction. So for now, fewer than 30% of Americans are able to get their health insurance to pick up the bill.

That means solving this issue would be a massive game-changer.

In tomorrow’s post, I’ll discuss this huge addressable market… why competition is fierce among pharmaceutical giants racing to get their piece of the pie… other major predictions as a result of the burgeoning “Ozempic Economy”… and what companies stand to benefit from — or get crushed by — this emerging megatrend.