An injection pen of Zepbound, Eli Lilly’s weight reduction drug, is displayed in Recent York City, U.S., December 11, 2023.
Brendan Mcdermid | Reuters
For all of the promise related to recent weight reduction drugs equivalent to Novo Nordisk‘s Wegovy and Eli Lilly‘s Zepbound in treating obesity, there is a very big risk printed right on the label on the requirement of the FDA: patients must be prescribed these so-called GLP-1 drugs only together with, not as a substitute for, weight-reduction plan and exercise programs.
The boom in these drugs — with more poised to enter the pharmacy market and the employer-based insurers still within the early days of adding coverage for employees — is just getting began. Does that make it the best opportunity a diminished WeightWatchers has seen in a protracted time to reinvigorate its business model, or an existential threat unlike any it has faced in its history as obesity is treated more like a chronic disease requiring medicine?
When WW CEO Sima Sistani — who was named to the inaugural CNBC Changemakers list on Wednesday — made the acquisition of Sequence, now WeightWatchers Clinic, last March to get the corporate into the clinicals business, she made a move that the corporate needed.
Even Wall Street analysts skeptical of WW’s stock chart and a market cap that is currently dwarfed by outstanding debt roughly five times its valuation — though not coming due for several years yet — agree that Sistani pulled the trigger at the fitting time on the fitting form of business. Having a link to the weight-loss drug prescription market is a must. But will Americans trust probably the most iconic brand within the legacy weight-loss business to guide them into its future?
“I have been covering WW for about ten years and there has never been anything like this,” said Alex Fuhrman, an analyst at Craig-Hallum. “It’s all unfolding in real time.”
A few of the real-time motion has been decidedly negative. Recent results from corporations within the nutrition and weight-reduction plan space have been ugly, from Herbalife to Medifast, declines that analysts say could have multiple cause, and reflect multiple business models, but taken together, can’t be separated from the weight-loss drug phenomenon.
“I feel it was a wise acquisition for them to make,” Fuhrman said in a recent interview. “Big pharma was coming for weight reduction, and in the event that they did not have a clinical angle, they might have run the danger of becoming an irrelevant company.”
The initial excitement related to the Sequence deal, which boosted shares of WW above $10 by the summer, quickly wore off, with the stock losing two-thirds of its value since late August. Within the weeks ahead of WW’s earnings report — the corporate released its latest quarterly numbers and outlook after the close on Wednesday — sentiment had mostly stayed negative, though it is a volatile stock on account of its debt load on any given day.
Obviously, this was crucial quarterly reporting periods of the yr for corporations in the load management sector, with management teams providing commentary on the important thing post-holidays period, seasonally the strongest. The whispers on Wall Street were all bearish, mostly on account of evaluation of online data used to make a best guess at recent consumer interest and sales. In a typical yr, WW acquires as much as 40% of shoppers in the primary quarter.
“The net traffic data got noisy, all of a sudden app download data got negative,” said D.A. Davidson analyst Linda Bolton Weiser in an interview ahead of the earnings.
Fuhrman said some investors got carried away over the summer, with the expectation that the Sequence deal would cause a dramatic inflection higher in earnings as soon as this yr. But from all of the information that has come out recently, “it looks like interest in traditional weight-reduction plan corporations is down pretty significantly,” he said.
The demand curve is not only a WW issue.
Digital app rival Noom, like WW, has entered the clinicals space, launching Noom Med last May. “I’ve said in an all-hands meeting at the corporate that just like the primary iPhone, there was life before and after it. It has a gravity all to itself,” said Noom CEO Geoff Cook. “This is a recent, incredibly powerful and effective class of pharmaceuticals that loads of people will find help improve their health.”
Serving as a companion program to a percentage of the GLP-1 prescriptions to be written within the U.S. and globally is a “massive opportunity,” Cook said. “Most individuals still do not know what GLP-1 is, but they are going to. But we can’t be in an age where we just say ‘give yourself a drug and be done.'”
Risks of overreliance on obesity drugs
The chance is real that providers may use the medications and “ignore lifestyle,” said John Batsis, an associate professor and nutrition expert on the University of North Carolina Chapel Hill’s school of public health. And in certain populations, that may compound the danger amongst patients for potential malnutrition, lack of muscle mass, or bone [density], too, amongst other potential hostile events.
“I’m a firm believer that individuals with obesity should really have a lifestyle-based program,” Batsis said.
Using bariatric surgery for example, the research shows that those patients who undergo the procedure and interact in a lifestyle-based program do higher than people who just have the surgery.
“I believe the identical will occur with these recent medications,” Batsis said. “The research, nonetheless, is scant at best with the mix of lifestyle plus these newer medications. We definitely need more to grasp these gaps within the science.”
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Straight away, given the price of the drugs, from $1,000 to $1,500 a month without discounts or insurance coverage, many individuals are turning to significantly cheaper compounded semaglutides with the identical chemistry as recent drugs, which are sometimes allowed to remain available on the market when brand-name drugs proven to have medical value are in brief supply.
D.A. Davidson’s Bolton Weiser is amongst this demographic. “I purchased compounded online, they’re doing plenty of business. I desired to pay $250 a month, not $1,000,” she said, and she or he added that her initial experience points to the worth of skilled guidance. While she didn’t need to speak to a clinician to order the compounded supply, “I’d fairly have had a clinician for the one or two times I began vomiting,” Bolton Weiser said. “A lot of individuals are very scared in regards to the drugs, and I feel WW is a world expert and so they have probably the most trusted brand.”
“No medication will teach you how one can eat healthier or make sure you get enough protein and fiber. Medication alone can even not show you how to with resistance training to preserve muscle mass,” Dr. Amy Meister, WeightWatchers chief medical officer, told CNBC via email on Monday.
Ensuring that a patient gets a high protein weight-reduction plan, including using protein tracking tools, and fascinating in the fitting muscle-building exercises and resistance training to preserve lean muscle mass, are each vital to reduce the danger that the drug causes the bodily damage that Batsis outlined. There’s also the unknowns related to how long to remain on these drugs, and how one can moderate dosages, with early studies showing that weight gain can return when patients go off the medication.
“When you hit the goal weight, you may have to figure it out,” Bolton Weiser said. “I lost 10 kilos and I would like to lose 15, after which what do I do?”
With obesity to be treated as a chronic disease, the query going forward, in response to Batsis, is this: “Can we reduce the dose, can the dosing regimen change, and/or can we engage in lifestyle modifications to keep up a level of weight reduction? We do not know what that ‘sweet spot’ is just yet.”
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‘Perpetually meds’
“There’ll all the time be a substantial cohort that is not okay with a without end med,” Cook said, but he added that the information on how long it takes for patients to succeed in peak weight reduction using the drugs before behavioral modifications must be prioritized stays preliminary — though he did say Noom has data from a one-year study it did with a pharmaceutical company (not published or peer reviewed yet) which did show greater weight reduction and greater adherence to weight management when behavioral modification was included in this system.
WeightWatchers is currently investigating what characteristics may predict if an individual could “de-escalate” off medications. Meister cited a recent study published by Epic Healthcare’s research department on over 20,000 patients who took a GLP-1 and lost no less than 5 kilos, after which discontinued treatment. They found that around two-thirds of the patients kept their weight off after 18 months, however the study didn’t take a look at the presence or absence of lifestyle changes.
Batsis said the excellent news is that there is already 4 years of information from the principal drug trials. But he added, “Will we know long-term effects? Not only yet. However it’s like every other medication we prescribed that comes onto the market. It is a matter of weighing risks/advantages. There are major risks in individuals with obesity by way of their medical issues. So clinicians have to work rigorously and closely with their patients to find out and balance a few of these unknowns.”
That means a substantial revenue opportunity for corporations including WW and Noom in the event that they can capture a large piece of the market connecting patients with clinicians and serving as the load management bridge in between.
“Insurers have signaled, and there is belief amongst doctors, that it can be a step therapy approach,”
Bolton Weiser said, referring to the conditions that insurers can require before approving a prescription. “There is no way insurers can cover these drugs economically. They may require some kind of behavior modification after which offer reimbursements.”
The brand new psychology of weight reduction
A monthly clinical subscription is price roughly 4 times the core WW digital subscription in revenue per user, and relative to how much the drugs cost versus a $100 monthly subscription, there is a compelling incentive for the industry to steer people to WW, or an identical competitor, as a condition for prescription approval.
“In theory, it is a recent growth area, but do people really think they need these programs when on the drugs? That continues to be to be seen,” Fuhrman said. “The recommendation of the medical community is people must be very mindful of what they’re eating and ensuring they’re getting protein and exercise when taking these drugs. Do people do those things? The jury is still out.”
Each WW and Noom, amongst others, are aggressively looking for to grow their business-to-business sales as insurance carriers and employer-sponsored plans take a look at adding coverage and requiring adoption of a behavioral modification plan for a prescription.
“The psychology of weight reduction is completely different on GLP-1 drugs,” Cook said. “The mindset is not as vital. You’re going to drop pounds. You need not consider it, however the trick is to eat the fitting things and exercise and we have designed an entire curriculum around that. We’ll ramp you up after which this system adapts as you go off med.”
It’s still early days, and there is still the core business to contemplate, which has provided the vast majority of revenue up to now. If the clinicals business for WW and Noom is a tailwind, it’s still much smaller than the dimensions of the headwind they face within the legacy market. “With the expansion of GLP-1, it can grow nicely over the subsequent few years, but when 90% is shrinking and only 10% growing, then it’s hard to point out sustainable growth,” Fuhrman said of WW.
Bolton Weiser agrees with that time. “It doesn’t matter if it’s 100% growth in the subsequent three years. It won’t turn out to be greater than the core business and the core business has to grow. It could possibly’t be a melting ice cube.”
She has a more bullish view of WW, noting it has barely done any promoting for the GLP-1 business given the drug shortages. “They are usually not going to do it unsuitable. They’re in it for the long run. They don’t need to link up with a compounder,” she said.
In the identical way Lilly or every other drug company sells to doctors in offices, the insurers and doctors have to recommend to patients weight management programs. “No. 1 in weight reduction is WW. Sima [Sistani] is attempting to figure it out for the long-term, given the market share advantage,” Bolton Weiser said.
But on Wednesday, when WW’s latest results hit, the corporate subscriber numbers could have seemed a little bit light. It ended Q4 with 3.8 million subscribers, including 67,000 for clinical subscriptions, but its guidance for the complete yr 2024 was total subscriber growth within the range of three.8 million to 4.0 million, including between 140,000 and 160,000 subscribers to WeightWatchers Clinic.
Issued alongside the outcomes, there was a message from one other trusted brand that will have helped sink WW stock much more at a time when it needs a vote of confidence. It was not consumers walking away en masse from traditional weight management programs. It was the departure of an icon as related to weight challenges as WW itself, and as trusted as a brand gets with the American public.
Oprah Winfrey — who had joined the corporate program, acquired a big stake and in addition turn out to be a board member in 2015 — announced she was leaving the manager position in May and donating her shares to the National Museum of African American History and Culture. Shares were down by as much as 25% in trading after the news.
Winfrey said in an announcement she is going to proceed to advise and collaborate with WeightWatchers and CEO Sima Sistani in “elevating the conversation around recognizing obesity as a chronic condition, working to scale back stigma, and advocating for health equity.”