Diversified Exposure to the Weight Loss Drug Market
October 09, 2024
Read Time 6 MIN
Capitalizing on the Success of GLP-1 Weight Loss Drugs
In recent years, the pharmaceutical industry has seen a tremendous surge in the development of weight loss drugs, particularly GLP-1 receptor agonists such as Ozempic and Wegovy. These drugs have revolutionized the treatment of obesity, not only improving the quality of life for millions of people but also driving significant financial growth for the companies that produce them. As a result, pharmaceutical companies like Novo Nordisk and Eli Lilly, both involved in the production and distribution of these revolutionary drugs, have become increasingly attractive to investors. One investment vehicle that offers exposure to this lucrative sector is the VanEck Pharmaceutical ETF (PPH).
Understanding the Popularity of GLP-1 Weight Loss Drugs
What are GLP-1 Receptor Agonists?
GLP-1 (Glucagon-Like Peptide-1) receptor agonists, such as semaglutide (marketed under the brand names Ozempic and Wegovy), have emerged as highly effective treatments for managing Type 2 diabetes and obesity. These drugs work by mimicking the actions of the GLP-1 hormone, which helps regulate blood sugar and reduce appetite, leading to weight loss. Their effectiveness, ease of use (injection-based treatments), and strong clinical data have made them the gold standard for obesity treatment.
Ozempic and Wegovy: Market Leaders
Novo Nordisk’s Ozempic and Wegovy have dominated the market, particularly in the fight against obesity. With obesity rates soaring globally, these drugs offer a solution to a growing public health crisis. Ozempic was initially approved for treating Type 2 diabetes, but it quickly gained off-label popularity for weight loss due to its side effect of substantial weight reduction. Wegovy, also produced by Novo Nordisk, specifically targets weight loss and was approved by the FDA for this purpose.
As public awareness of these drugs continues to grow, the demand is expected to rise sharply. Many experts predict that GLP-1 drugs could eventually become blockbuster products with multi-billion-dollar sales potential.
The Market Opportunity for GLP-1 Drugs
Growing Global Obesity Epidemic
Obesity is a significant global health issue, affecting over 650 million adults worldwide.1 In the U.S. alone, obesity rates have tripled since 1975.2 As obesity increases, so do related chronic conditions such as diabetes, heart disease, and hypertension, creating a massive market for treatments like GLP-1 drugs. Public health initiatives, coupled with greater awareness of the risks associated with obesity, are also driving more patients to seek medical treatment for weight loss.
The Overweight Population Continues to Rise Worldwide
Source: Statista as of 1/30/2024.
Strong Demand and Market Forecasts
GLP-1 receptor agonists like Ozempic, Wegovy, and potentially Tirzepatide are forecasted to see exponential growth in sales over the next decade. Novo Nordisk, for example, reported substantial growth in the sales of Ozempic and Wegovy, and the global market for anti-obesity drugs is expected to reach $50 billion by 2030.3 This potential makes pharmaceutical companies developing these treatments extremely attractive for investors.
GLP-1 Sales Are Predicted to More Than Double By 2029
Source: GlobalData, Drugs Database as of 3/6/2024.
Government Support and Public Health Initiatives
Governments across the world are beginning to recognize obesity as a chronic disease that requires medical treatment, further boosting the market for weight loss drugs. In the U.S., for example, the Biden administration has discussed expanding Medicare coverage to include anti-obesity medications, which would significantly increase the number of eligible patients and drive further demand for GLP-1 drugs.
PPH | VanEck Pharmaceutical ETF
PPH: A Diversified Way to Gain Exposure
The VanEck Pharmaceutical ETF (PPH) is designed to track the performance of the MVIS US Listed Pharmaceutical 25 Index, providing investors with exposure to the largest and most established pharmaceutical companies in the world. Investing in PPH offers diversified exposure to major pharmaceutical companies that are leaders in drug development and commercialization, including companies that produce GLP-1 receptor agonists.
Key Holdings: Exposure to GLP-1 Leaders
One main reason PPH is attractive in the context of the GLP-1 trend is its exposure to the two major pharmaceutical companies driving the weight loss revolution: Novo Nordisk and Eli Lilly.
- Novo Nordisk: As the manufacturer of both Ozempic and Wegovy, Novo Nordisk has emerged as a major player in the obesity drug market. With strong sales growth from these products, Novo Nordisk has posted impressive revenue gains, and it remains well-positioned to continue benefiting from the increasing demand for GLP-1 drugs.
- Eli Lilly: Another key player in the GLP-1 space, Eli Lilly has developed Tirzepatide (marketed as Mounjaro), which is currently being used for Type 2 diabetes but shows great promise as a future weight-loss drug. The company is undergoing clinical trials for weight loss applications, and if approved, it could rival Novo Nordisk’s products and open another substantial revenue stream.
Strong Historical Performance
Source: Morningstar. Past performance is no guarantee of future results.
| Average Annual Total Returns* (%) as of 09/30/2024 | ||||||||
| 1 MO | 3 MO | YTD | 1 YR | 3 YR | 5 YR | 10 YR | LIFE 12/20/11 |
|
| PPH (NAV) | -4.32 | 4.37 | 18.08 | 21.33 | 11.41 | 12.83 | 6.09 | 10.07 |
| PPH (Share Price) | -4.43 | 4.28 | 17.95 | 21.15 | 11.31 | 12.79 | 6.07 | 10.15 |
| MVPPHTR (Index) | -4.34 | 4.31 | 17.84 | 20.94 | 11.03 | 12.46 | 5.91 | 9.90 |
| Performance Differential (NAV - Index) | 0.02 | 0.06 | 0.24 | 0.39 | 0.38 | 0.37 | 0.18 | 0.17 |
*Returns less than one year are not annualized.
The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.
PPH Total Expense Ratio: 0.36%
PPH has historically performed well, thanks to its focus on stable, profitable pharmaceutical companies. The pharmaceutical industry, in general, is known for its resilience, as demand for medications tends to be steady even during economic downturns. This defensive quality makes PPH an appealing option for investors looking for long-term growth with relatively low volatility.
Other Growth Drivers Beyond GLP-1 Drugs
One of the key benefits of investing in PPH is the diversification it offers. While individual stocks can be volatile, especially in the pharmaceutical sector, PPH reduces risk by providing exposure to a broad basket of pharmaceutical companies. This allows investors to gain exposure to GLP-1 drug producers while mitigating the risks associated with holding single stocks.
Additionally, while GLP-1 drugs are a key growth driver, PPH’s holdings are diversified across a wide range of pharmaceutical companies involved in different therapeutic areas, including oncology, cardiovascular diseases, and immunology. This diversified exposure helps ensure that even if one drug class faces challenges, the ETF’s overall performance remains unimpacted.
Outlook: Why Now is a Good Time to Invest in PPH
Increasing Sales and Pipeline Expansions
The success of Ozempic, Wegovy, and other GLP-1 drugs is just the beginning. Both Novo Nordisk and Eli Lilly are investing heavily in expanding their pipelines, with new formulations, indications, and next-generation drugs in development. As these products come to market, they will further boost the growth prospects of the companies held within PPH.
Positive Investor Sentiment
Investor interest in the pharmaceutical sector has increased in recent years, especially as new blockbuster drugs are brought to market. With obesity treatments like GLP-1 drugs at the forefront of innovation, companies like Novo Nordisk and Eli Lilly are viewed as strong long-term growth opportunities. This positive sentiment is reflected in the stock prices of these companies, which have surged as sales of their weight loss drugs have taken off.
Hedge Against Economic Uncertainty
In an uncertain economic environment, pharmaceutical companies tend to be resilient due to the inelastic demand for medications. With inflation concerns and market volatility, PPH offers a defensive play, providing stability and growth in an industry that historically performs well during economic downturns.
The rise of GLP-1 receptor agonists like Ozempic and Wegovy has reshaped the obesity treatment landscape, and the companies behind these drugs are experiencing unprecedented growth. As obesity rates continue to climb and more patients seek medical solutions for weight loss, the demand for these drugs will only increase. Novo Nordisk and Eli Lilly, both key players in this space, stand to benefit immensely.
PPH offers a diversified, lower-risk way to invest in the pharmaceutical sector, particularly in companies that are leading the charge in weight loss drug innovation. With the potential for continued strong sales, new product developments, and the increasing global focus on obesity treatment, PPH is well-positioned to deliver solid returns for long-term investors.
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IMPORTANT DISCLOSURES
1 World Health Organization (WHO).
2 Novo Nordisk’s and Global Market Insights.
3 Morgan Stanley Research.
Sources
Eli Lilly & Co is 13.04% of PPH net assets as of 10/2/2024.
Novo Nordisk A/S is 8.25% of PPH net assets as of 10/2/2024.
Definitions
S&P 500 Index: is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
S&P Composite 1500 Health Care Index: Comprises those companies included in the S&P Composite 1500 that are classified as members of the GICS® Health Care sector.
This is not an offer to buy or sell or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in the pharmaceutical industry, equity securities, depositary receipts, special risk considerations of investing in European and United Kingdom issuers, foreign securities, foreign currency, small- and medium-capitalization companies, issuer-specific changes, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and industry concentration risks, all of which may adversely affect the Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small- and medium-capitalization companies may be subject to elevated risks.
MVIS US Listed Pharmaceutical 25 Index is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Securities Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Pharmaceutical ETF is not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in the und.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
IMPORTANT DISCLOSURES
1 World Health Organization (WHO).
2 Novo Nordisk’s and Global Market Insights.
3 Morgan Stanley Research.
Sources
Eli Lilly & Co is 13.04% of PPH net assets as of 10/2/2024.
Novo Nordisk A/S is 8.25% of PPH net assets as of 10/2/2024.
Definitions
S&P 500 Index: is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
S&P Composite 1500 Health Care Index: Comprises those companies included in the S&P Composite 1500 that are classified as members of the GICS® Health Care sector.
This is not an offer to buy or sell or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.
An investment in the Fund may be subject to risks which include, among others, risks related to investing in the pharmaceutical industry, equity securities, depositary receipts, special risk considerations of investing in European and United Kingdom issuers, foreign securities, foreign currency, small- and medium-capitalization companies, issuer-specific changes, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified, and industry concentration risks, all of which may adversely affect the Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small- and medium-capitalization companies may be subject to elevated risks.
MVIS US Listed Pharmaceutical 25 Index is the exclusive property of MarketVector Indexes GmbH (a wholly owned subsidiary of Van Eck Securities Corporation), which has contracted with Solactive AG to maintain and calculate the Index. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards MarketVector Indexes GmbH, Solactive AG has no obligation to point out errors in the Index to third parties. The VanEck Pharmaceutical ETF is not sponsored, endorsed, sold or promoted by MarketVector Indexes GmbH and MarketVector Indexes GmbH makes no representation regarding the advisability of investing in the und.
An investor cannot invest directly in an index. Returns reflect past performance and do not guarantee future results. Results reflect the reinvestment of dividends and capital gains, if any. Certain indices may take into account withholding taxes. Index returns do not represent Fund returns. The Index does not charge management fees or brokerage expenses, nor does the Index lend securities, and no revenues from securities lending were added to the performance shown.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.