The pharmaceutical sector is at risk of a “bubble effect” as demand for weight loss and diabetes drugs boosts profitability, new research suggests.
Demand from companies like Wegovi and Zepbound has pushed research and development returns to their highest levels in years, but a report published by Deloitte on Monday shows it is creating pressure ahead of the rest of the sector.
Pharmaceutical R&D returns for the world’s top 20 pharma companies improved for the third consecutive year to 7%, thanks to around a handful of highly anticipated assets such as glucagon-like peptide receptor agonists or GLP-1s.
The report found that, for the first time in 16 years, obesity treatment has overtaken oncology as the largest contributor to late-stage pipeline value.
According to Deloitte, this increases companies’ exposure to therapeutic-area-specific shocks.
“It’s a bubble, because so much is concentrated in it,” Hanno Ronte, life sciences and healthcare partner at Deloitte, told CNBC’s “Squawk Box Europe.”
Medicines targeting obesity and diabetes now account for an estimated 38% of all projected commercial flow from the late-stage pipeline by 2025.
This impact is so significant that it masks a weak environment for the rest of the industry. If GLP-1/GIP properties are excluded from the analysis, the industry’s rate of return drops to just 2.9%, down from 3.8% in 2024.
Obesity assets now represent approximately 25% of the late-stage pipeline’s total estimated sales, while oncology’s share has fallen to 20%. This represents a surprising increase for the obesity sector, which until recently contributed only 1% of the projected value by 2022.
While the bullishness is driving headline growth, it has also led to a significant concentration of risk. Deloitte found that only 54 mega-blockbuster signals, representing only 9% of the late-stage group, are projected to generate approximately 70% of total risk-adjusted peak sales.
danger of concentration
Over-reliance on blockbuster drugs is nothing new, but Deloitte says the degree of concentration is. The “Big Four” of accountancy said this creates a high-stakes environment where a smaller number of assets can increase overall returns on investment, but with greater competition and sensitivity to shocks in those specific therapeutic areas.
“From a patient perspective, the bubble won’t burst, and the drugs won’t disappear, but we are reaching a point here where, for GLP-1, where vanity and health have collided and really created a market that was really transformative for patients, for health systems, and for everybody,” Ronte said.
Scientists are still discovering the full benefits of GLP-1s. While Novo Nordisk’s GLP-1 is approved to reduce cardiovascular risks and treat patients with liver and kidney disease, Eli Lilly’s GLP-1/GIP combo is approved to treat sleep apnea in people with obesity.
But many question marks remain, not least over the efficacy of the drugs Effects on brain health and inflammation.
Last year, Novo published the results of a years-long clinical trial studying the effect of semaglutide – the active ingredient in Novo’s blockbuster diabetes and weight-loss drugs Ozempic and Vegovy – on slowing the progression of Alzheimer’s disease. The trial failed to show a significant delay in disease progression, but did show effects on patients’ Alzheimer’s disease-associated proteins as well as systemic inflammation biomarkers.
GLP-1 has also been found to be helpful in helping patients suffering from Addiction.
“That’s really the hope. We’re still riding that wave and that’s why people are investing in it,” Ronte said. “Of course, when you ride a wave, and you have to share it with a lot of people… you don’t have as much room to surf.”
“The question is do you just doubt that – that’s the bubble – or do you really say ‘We’re going to try and find the next scientific wave’?”
