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Big Pharma's Billion-Dollar Weight Loss Drug Market

October 16, 2023

Read Time 6 MIN

The market for weight loss drugs, projected to hit $77 billion by 2030, signals a convergence of lucrative investment opportunities and critical healthcare solutions for the global obesity crisis.

The introduction of weight management and obesity-targeting drugs has induced excitement from Wall Street to Main Street. This enthusiasm is rooted in the pressing global health concern of obesity and its associated conditions, such as cardiovascular diseases, diabetes, and certain cancers. Weight management drugs represent a promising avenue for addressing this multifaceted health crisis. Additionally, these drugs offer the potential for more effective and sustainable weight loss solutions than conventional weight mitigation methods.

In this blog, we discuss the market opportunity these drugs bring, how VanEck’s Pharmaceutical ETF (NYSE: PPH) stood above its peers in providing exposure to these developments, and how the portfolio is positioned for the next major advancement in the pharmaceutical sector.

Weight-Loss Drugs Present a Lucrative Market Opportunity

Weight loss drugs have garnered attention due to their efficiency in addressing major health conditions and improved outcomes for individuals simply seeking to lose weight. In addition to solving some of the world’s largest health concerns, these medications have created a new market and revenue stream for the pharmaceutical companies that manufacture them.

Morgan Stanley Research estimates that the market for obesity drugs will reach $77 billion by 2030.1 The FDA shows roughly 70% of American adults are obese or overweight.2 Globally, 750 million people are living with obesity, which causes 5% of deaths, according to the WHO.3 These staggering statistics largely contribute to the incredible projections released by Morgan Stanley, as illustrated below.

Morgan Stanley Expects the Market for Obesity Drugs to Reach $77 Billion by 2030

Market for Obesity Drugs to Reach $77 Billion by 2030

Source: Morgan Stanley Research. Data as of 9/6/2023.

The Danish company Novo Nordisk was the first major pharmaceutical company to receive FDA approval for their weight-loss drug, Wegovy. Novo Nordisk also developed Ozempic to address diabetes, but it is also being used for weight management. The American firm Eli Lily released Mounjaro, which is currently approved for treating diabetes but is also being used to manage weight. As positive news broke on the efficacy of these drugs, both companies’ stock soared.

NVO and LLY Up 2.7X and 3.7X Respectfully, Outperforming the S&P

NVO and LLY Outperforming the S and P

Source: FactSet. Data as of 9/30/2023. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Performance may be lower or higher than the performance data quoted.

PPH’s Diversification Has Enhanced the Portfolio

The VanEck Pharmaceutical ETF is the only ETF in its peer group that offers investors access to global, U.S.-listed companies that derive at least 50% of their revenues from pharmaceutical products and services. The fund’s international exposure has significantly contributed to the ETF’s outperformance. Year-to-date, the S&P 1500 Health Care Index is down 4.33%. Over the same period, the VanEck Pharmaceutical ETF is up +4.02%.

When broken down by country, the U.S.-domiciled companies in the portfolio contributed -0.90% to the returns of the fund, and the companies domiciled in the United Kingdom, Denmark, Switzerland, France, Japan, and Israel had positive returns individually and collectively contributed +4.89% to the ETF. This breakdown is illustrated below.

Foreign Pharmaceutical Companies Drive Positive Returns YTD

Foreign Pharmaceutical Companies Drive Positive Returns YTD

Source: FactSet. Data as of 9/30/2023. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Performance may be lower or higher than the performance data quoted.

When analyzing the fund against competitors in the space, it’s evident that including international companies has positively contributed to returns. Over the past 3 years, PPH has boasted a higher annual return, sharpe ratio, up-capture ratio, and alpha than the other ETFs highlighted below, which offer exposure to the pharmaceutical sector.

3-Year Return Metrics

  Return Sharpe Ratio Up Capture Ratio Down Capture Ratio Alpha
PPH 10.73 0.64 70.19 55.41 3.81
Competitor Pharma ETF A 5.27 0.29 50.77 51.04 -0.61
Competitor Pharma ETF B 4.49 0.24 56.02 62.13 -1.52
S&P 500 -1.78 -0.17 42.52 71.42 -7.73

Source: Morningstar. Data as of 9/30/2023. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Performance may be lower or higher than the performance data quoted.

PPH Continues to be Well Positioned

The VanEck Pharmaceutical ETF (PPH) exhibits a distinct advantage in its investment strategy due to its robust international exposure. This characteristic positions PPH favorably within the context of a diversified portfolio. The fund's international holdings grant investors access to a broader spectrum of global markets and economies, thereby potentially mitigating risks associated with regional economic fluctuations or geopolitical events that may disproportionately affect domestic investments.

Furthermore, the fund’s international exposure enables it to proactively capture emerging drug discoveries and medical advancements originating beyond the United States. This international orientation is a potent catalyst for capitalizing on global innovation in the pharmaceutical and healthcare sectors. Thus, PPH's international diversification allows investors to access a broader and more dynamic landscape of medical innovation, potentially enhancing the fund's long-term performance and resilience in the rapidly evolving healthcare industry.

  1 Mo 3 Mo YTD 1 Yr 3 Yr 5 Yr 10 Yr Since Inception
PPH NAV -2.52 1.77 4.02 21.14 10.72 6.31 7.24 9.17
PPH Mkt Price -2.49 1.90 4.11 21.22 10.69 6.33 7.26 9.26
S&P 1500 Health Care Index -3.23 -3.19 -4.33 7.38 7.95 7.65 11.69 13.79
S&P 500 -4.77 -3.27 13.07 21.62 10.16 9.92 11.92 9.92

Source: VanEck, Morningstar. Data as of 9/30/2023.

PPH’s Gross Expense Ratio is 0.35%, and its Total Expense Ratio is 0.36%. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to pay the offering costs until at least February 1, 2024. “Other Expenses” have been restated to reflect current fees.

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.

An investor cannot invest directly in an index. The table presents past performance which is no guarantee of future results and which may be lower or higher than current performance. Returns reflect temporary contractual fee waivers and/or expense reimbursements. Had the ETF incurred all expenses and fees, investment returns would have been reduced. Investment returns and ETF share values will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. ETF returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV.

The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Van Eck Associates Corporation. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, Inc., and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit https://www.spglobal.com/spdji/en/. S&P® is a registered trademark of S&P Global and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein.

The S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sector; as an Index, it is unmanaged and is not a security in which investments can be made.

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IMPORTANT DISCLOSURES

Sources

1 Weight Loss Drugs Boost Obesity Market Value | Morgan Stanley

2 FDA Approves New Drug Treatment for Chronic Weight Management, First Since 2014 | FDA

3 Weight Loss Drugs Boost Obesity Market Value | Morgan Stanley

Eli Lily is 8.07 of PPH net assets as of 10/10/23.

Novo Nordisk A/S is 5.90 of PPH net assets as of 10/10/23.

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 Fund.

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.

IMPORTANT DISCLOSURES

Sources

1 Weight Loss Drugs Boost Obesity Market Value | Morgan Stanley

2 FDA Approves New Drug Treatment for Chronic Weight Management, First Since 2014 | FDA

3 Weight Loss Drugs Boost Obesity Market Value | Morgan Stanley

Eli Lily is 8.07 of PPH net assets as of 10/10/23.

Novo Nordisk A/S is 5.90 of PPH net assets as of 10/10/23.

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 Fund.

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.