The pharmaceutical industry is at risk of a “bubble effect” as demand for weight loss and diabetes drugs soars and profitability soars, new research suggests.
Demand for the likes of Wegovy and Zepbound has pushed research and development revenues to their highest level in years, but a report released by Deloitte on Monday suggests this masks pressures facing other sectors.
Drug R&D revenue for the world’s top 20 pharmaceutical companies improved to 7% for the third consecutive year, thanks almost entirely to a small number of highly predictive assets such as glucagon-like peptide receptor agonists (GLP-1).
The report reveals that for the first time in 16 years, the largest contributor to late-stage pipeline value has moved beyond oncology to obesity treatment.
According to Deloitte, this increases companies’ exposure to therapy-specific shocks.
“It’s a bubble because there’s so much concentration,” Deloitte Hanno Ronte, a life sciences and healthcare partner, told CNBC’s “Squawk Box Europe.”
Drugs targeting obesity and diabetes are currently estimated to account for 38% of the total projected commercial inflow from late-stage pipelines in 2025.
The impact is significant and masks a weak environment for the rest of the industry. When GLP-1/GIP assets are removed from the analysis, the industry return drops to just 2.9%, down from 3.8% in 2024.
Obesity-related assets currently account for approximately 25% of total projected late-stage pipeline sales, while oncology’s share has declined to 20%. This represents a staggering increase in the obese sector, which in 2022 was only 1% of the predicted value.
While the boom has fueled headline growth, it has also led to a significant concentration of risk. Deloitte found that just 54 blockbuster indications, representing just 9% of the late-stage cohort, are expected to generate approximately 70% of total risk-adjusted peak sales.
concentration risk
Deloitte says over-reliance on blockbuster drugs is nothing new, but concentration is the problem. The “big four” accounting firms have created a high-stakes environment where they can increase overall investment returns with fewer assets, but have become more competitive and sensitive to shocks in specific therapeutic areas, he said.
“From a patient perspective, bubbles aren’t going to burst and drugs aren’t going away, but we’re getting to the point here with GLP-1 where vanity and health have collided and actually created a market that’s truly transformative for patients, health systems and everyone,” Ronte said.
Scientists are still fully understanding the benefits of GLP-1. Novo Nordisk’s GLP-1 is approved to reduce cardiovascular risk and treat patients with liver and kidney disease, while Eli Lilly’s GLP-1/GIP combo is approved to treat sleep apnea in obese people.
However, many question marks remain, particularly the drug’s potential effects on brain health and inflammation.
Last year, Novo announced the results of a multi-year clinical trial investigating the effectiveness of semaglutide (the active ingredient in Novo’s blockbuster diabetes and weight loss drugs Ozempic and Wigovy) in slowing the progression of Alzheimer’s disease. Although the trial did not show a significant delay in disease progression, it did show an effect on Alzheimer’s disease-related proteins and systemic inflammatory biomarkers in patients.
GLP-1 has also been shown to help patients suffering from addiction.
“It’s just hope. We’re still riding that wave. That’s why people are investing in it,” Ronte said. “Of course, when you’re riding a wave and you have to share it with a lot of people… there’s not a lot of space to surf.”
“The question is, do we just strengthen it even more, which is the bubble? Or do we actually say, ‘We’re trying to find the next wave of science?'”
