Nobody could have predicted the vogue for GLP-1 drugs to promote weight loss. In the US alone, the number of patients starting GLP-1 treatments for nondiabetic purposes has increased by 700% since 2019, highlighting the popularity of these drugs beyond their original aim of treating Type 2 diabetes.
Yet the soaring enthusiasm for so-called glucagon-like peptide-1 receptor agonists, first approved in 2005, overshadows an array of risks related to their off-label use. These include important environmental, social, and governance risks that investors must evaluate carefully since the environment is rapidly evolving. We talk about them below, but examples include:
- Off-label marketing risk
- Safety
- Affordability
We’ll also show how to screen through the GLP-1 drug companies. When combining insights from Morningstar Sustainalytics ESG Risk Ratings and Morningstar Equity Research (depicted in Exhibit 1), we find that Pfizer PFE and Roche RHHBY stand out as potential top choices for investors among current and potential future market entrants.
GLP-1 Drugs: Demand Surges in a Long-Established Market
The market for GLP-1 drugs is projected to exceed $200 billion in annual sales by 2031, according to Morningstar Equity Research. Current market leaders include Novo Nordisk NVO and Eli Lilly LLY with treatments such as Ozempic, Wegovy, Mounjaro, and Zepbound addressing both diabetes and obesity.
Still, Novo Nordisk and Eli Lilly are unlikely to have the obesity space to themselves for long. According to Morningstar Equity Research, several other players, including Pfizer, Roche, Amgen AMGN, AstraZeneca AZN, Zealand Pharma ZLDPF, Structure Therapeutics GPCR, and Altimmune ALT, are expected to join the GLP-1 space, with multiple drug launches expected between 2027 and 2032.
Among the key players set to enter the GLP-1 space, Pfizer has two products in phase 1 trials, whereas Roche has four products in the pipeline, with two products in phase 2 trials. Both companies could launch their first GLP-1 products as early as 2028, potentially making them strong competitors to current market leaders, Novo Nordisk and Eli Lilly.
All That Glitters Is Not Gold: Issues and Risks Around GLP-1 Medications
The effectiveness of GLP-1 medications in promoting weight loss has led to a surge in off-label demand, particularly for cosmetic weight-loss purposes. This off-label use introduces several ESG-related issues, both for patients and the companies marketing these drugs. An ESG approach allows more in-depth research into risks that aren’t captured by traditional financial analysis.
Off-Label Marketing Risk
Manufacturers of GLP-1 medications may face regulatory scrutiny and legal risks if they promote their products for off-label use or disseminate inaccurate and misleading information. That raises substantial concerns for these companies and their investors. Such practices could trigger investigations into their promotional activities or legal action from consumers, sparking lengthy legal proceedings and operational disruptions. All these could pose significant financial burdens on the companies involved.
Safety Concerns and Liability Issues for GLP-1 Drugs
GLP-1 medications, like all other pharmaceuticals, carry safety challenges, including the risk of adverse side effects. Chronic use of any medication can increase the likelihood of adverse side effects due to prolonged exposure. While patients living with chronic life-threatening conditions, such as Type 2 diabetes, may accept these risks, people using GLP-1 drugs for less life-threatening and severe purposes may be less forgiving if the side effects outweigh the perceived benefits.
Consequently, people using GLP-1 medications for weight loss may litigate more readily over unanticipated or adverse side effects. This exposes manufacturers to potentially heightened liability risks, particularly in the US, where a litigious culture increases the risk and financial impact of legal challenges.
Access, Affordability, and Pricing Risks for GLP-1 Medications
Perceived excessive and unjustified price increases, as well as regional cost disparities, have sparked public debate and criticism over companies’ pricing strategies for their GLP-1 medications. That creates significant regulatory risks for companies. For instance, at the start of 2024, the US list prices of Ozempic (Novo Nordisk) and Mounjaro (Eli Lilly) increased by 3.5% and 4.5%, respectively, bringing their monthly cost to $979 and $1,069.
These price hikes are part of a broader conversation surrounding the cost disparities between the US and other regions. A congressional hearing in September 2024 raised concerns over the stark price differences between the US and the European Union for similar medications. For example, Ozempic is priced at approximately $1,000 per month in the US, versus around €89 in Germany.
Pricing is intensifying public debate and scrutiny surrounding these medications. That’s likely to grow. Morningstar Equity Research predicts that Novo Nordisk’s Wegovy will be subject to Medicare price negotiations (as part of the Inflation Reduction Act) starting in 2027.
How to Screen GLP-1 Drug Manufacturers
Which current and future GLP-1 manufacturers may be best positioned to navigate these risks? One helpful tool is Morningstar Sustainalytics’ ESG Risk Rating, which offers valuable insights into companies’ exposure to material ESG issues and evaluates their strategies to address such risks. By combining this information with Morningstar Equity Research’s fair value estimate, which compares a company’s current market price to its estimated intrinsic value, investors can identify opportunities that align with both financial and ESG objectives.
As for companies entering the GLP-1 space, investors should look at the material ESG issues of Product Governance, which assesses how companies ensure the safety and quality of their products as well as market their products according to their label, and Access to Basic Services, which focuses on how companies make their products accessible and affordable.
Notes: Altimmune, Inc., Viking Therapeutics, Structure Therapeutics Inc., and Zealand Pharma A/S are assigned Morningstar Quantitative Moat Ratings, with all companies rated ★★★. For the ESG Risk Rating, Altimmune, Inc., Viking Therapeutics, and Zealand Pharma A/S hold Morningstar Sustainalytics Core Ratings, with scores of 37.1, 26.5, and 26.7, respectively. Structure Therapeutics Inc. is not currently rated by Sustainalytics. Source: Morningstar Direct & Morningstar Sustainalytics, Ordered by star rating
Combining insights from the ESG Risk Rating and Morningstar Equity Research, we find that Pfizer and Roche stand out as potential top choices among the companies either currently in the GLP-1 space or those poised to enter.
Both are rated 5 stars by Morningstar Equity Research and show strong management of key ESG issues, namely Product Governance and Access to Basic Services. These strengths position them well to navigate the complexities of the GLP-1 space while addressing associated ESG risks.
Meanwhile, current market leaders Novo Nordisk and Eli Lilly appear to present higher levels of unmanaged ESG risks. Novo Nordisk displays average management of Product Governance risks, and both companies showcase average management of Access to Basic Services. Further, both firms are trading at less attractive 3-star and 2-star valuation levels compared with Pfizer and Roche, given potential headwinds such as insurance difficulties, pricing pressures, and new competition.
Nevertheless, Pfizer’s and Roche’s success within the GLP-1 space will depend on many factors, including the outcomes of clinical trials, advancements in drug pipelines, demonstrated efficacy and safety of their candidates, and effective strategies for commercialization and market access.
GLP-1 Drugmakers: Looking Into the Future
As the GLP-1 market matures, ESG risks could decline. Here’s why. Beginning in 2027, GLP-1 prices could fall 10%-15% a year on average, mirroring trends observed in other drugs, according to Morningstar Equity Research These price declines reflect heightened competition and regulatory pressures. In turn, these stresses might address concerns about access and affordability. Similarly, enhanced safety profiles, such as potentially improved gastrointestinal tolerability, for the next generation of GLP-1 drugs could lessen patient liability risks.
Such developments will require investors to further navigate the current and future landscapes of ESG risks for GLP-1 medications.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
