Healthcare Obesity therapies: Broader impact on healthcare sector

Obesity contributes to many medical conditions, and many medical treatments have been at least partially driven by growing obesity rates. Below we provide an initial overview of the potential impact, acknowledging that the eventual GLP-1 impact is subject to multiple factors, most of which are not clear at this point in time. Overall, we see relatively modest impact on the broader healthcare ecosystem over the medium term, with the potential for longer-term disruption in certain end-markets, especially once the cost of GLP-1 therapies declines and access broadens over the long term.

Cardiac devices (including stents, interventional cardiac devices, valve replacements): To the extent that SELECT’s 20% relative risk reduction results in an absolute cardiac risk reduction of 1.5–2%, we see only a modest impact on the long-term demand for cardiac procedures. Importantly, only a portion of cardiac conditions are closely linked to obesity. Moreover, real-world risk reduction may not match the risk reduction shown in the carefully monitored and curated clinical trial population seen in the SELECT trial.

Orthopedic procedures (hip, knee, ankle, spine surgeries): Arthritis and joint deterioration are tied to obesity. A reduction in obesity prevalence could reduce the incidence of arthritis and the need for joint replacement surgery. However, weight loss can also lead to increased physical activity, which could then drive increased need for joint replacement. We view the likely impact on orthopedic procedures as mixed and neutral in the medium term, with a possible decline in demand among younger patients over time but continued strong demand among older patients.

Diabetes (continuous glucose monitoring, insulin pumps): CGM and insulin pumps have seen significant growth, as their end-markets have expanded from Type 1 diabetes (T1D, not driven by weight or lifestyle factors) to insulin-using Type 2 diabetes (T2D, driven by metabolic factors, including body mass). To the extent that GLP-1 drugs greatly reduce the incidence of obesity, rates of T2D would decline over time. T1D would not be impacted by reduced obesity rates. We see the medium-term impact of GLP-1 drugs as benign for CGM and insulin pumps, as both still have significant underpenetrated markets globally with T1D patients within the insulin-dependent T2D market. Also, the reimbursement environment for CGM and insulin pumps is favorable, which should support continued uptake. Longer term, if GLP-1 drugs truly reduce the incidence of T2D, CGM and insulin pumps would have a smaller addressable end-market, although significant demand would remain from insulin-using T1D and T2D patients.

Robotic surgery: Bariatric surgery is one of the current treatments for morbid obesity. Robotic surgery machines are often used for bariatric surgery. Growth in GLP-1 usage could diminish demand for bariatric surgery and modestly impact the usage of robotic surgery. However, we see the overall penetration opportunity for robotic surgery as broad and quite early, well beyond bariatric surgery, and thus would not view a reduction in bariatric surgery as a meaningful headwind to overall robotic surgery growth.

Obstructive sleep apnea: The near- and medium-term market for OSA devices, such as CPAP, could benefit from GLP-1 therapies, as more patients would seek treatment of obesity, many of whom would also be diagnosed with OSA, and likely receive treatment for OSA near term before they experience GLP-1-related weight loss. Longer term, dramatically reduced obesity rates would potentially reduce OSA rates and demand for OSA treatment, but at this point that scenario is distant and hypothetical.

Managed care/health insurance: We see minimal impact from GLP-1 therapy. MCOs generally price their products annually and would increase price for greater GLP-1 use, preserving their earnings power. Longer term, if GLP-1 usage reduced demand from medical procedures, MCOs would have to share the cost savings with their customers, with negligible positive impact on earnings. Ultimately, if society experienced a significant overall improvement in health, the value of health insurance would be lower, which could negatively impact MCO earnings. But we view that scenario as particularly theoretical over the very long term, outside of current investment time horizons.

Stepping back from individual end-markets, we note that US health expenditures are projected to grow to just under USD 7tr by 2030. Consensus total GLP-1 obesity revenues are approximately USD 70bn by 2030. If we assume even higher US GLP-1 sales of USD 100bn in 2030, and assume that the remaining US healthcare ecosystem would essentially offset that GLP-1 spend through reductions in broader medical procedures and payments, then the broader healthcare market would effectively fund a 1.4% annual cost offset. Within the broad context of the US healthcare market, we view a 1.4%headwind as manageable. We note that while the cost offset would likely be spread broadly across the healthcare sector, it could fall on some end-markets more heavily than others. Nonetheless, based on what we see today and how we think the GLP-1 market will develop, we do not see significant disruption to the major healthcare end-markets.

Nearer term over the next few years, while GLP-1 drugs are patent-protected and relatively high-priced, we think uptake will be somewhat gated by cost, reimbursement, and duration of therapy, all of which will also limit the broader impact of GLP-1 drugs. Nonetheless, we think the sheer size of the obesity market will make GLP-1 drugs one of the largest pharmaceutical categories the market has seen.

Main contributor - Eric Potoker

Original report - Obesity therapies Broader impact on healthcare sector, 10 August 2023.