Shedding the Pounds

Weight loss drugs have been the ‘holy grail’ for the pharmaceutical industry for many years.

The cost to the NHS and healthcare services from diabetes and obesity is in the order of £20 billion a year.

GLP-1 agonists are a class of medications developed to treat type 2 diabetes. These are injectable drugs that mimic a hormone that lowers blood sugar and promotes weight loss. Given increasing obesity amongst the world’s population, GLP-1 weight loss drugs are likely to be very big business. Research provider GlobalData estimates that the global demand for GLP-1s could grow from under $40bn in 2023 to more than $140bn by 2030.

Patient treatment for weight loss comes at a cost, but could this be about to change?

Novo Nordisk’s two main weight loss drugs are Ozempic and Wegovy, which are brand names for semaglutide. However, some of Novo Nordisk’s semaglutide patents will begin to expire in the UK this year and across Asia, Africa, and the Americas from 2026 and from 2030 in the US.

Not surprisingly, India’s copycat pharmaceutical companies are set to roll out generic weight-loss drugs, with a launch in the UK expected within weeks. Indian producer Biocon is the first to win UK authorisation to offer a generic version of Novo Nordisk’s Saxenda weight-loss brand. Biocon’s chief executive said he expects the generic version of Saxenda to be approved by the EU this year and by the US in 2025. Indian generic manufacturers believe there is huge demand for weight-loss drugs at the right price.

Meanwhile, shortages of Wegovy and Ozempic have been reported due to a boom in demand from the private market, driven by celebrities endorsing their use of the ‘skinny jab.’ Could Hollywood’s worst kept slimming treatment save the NHS and UK economy?

Health Secretary Wes Streeting seems to think so. Unemployed people living with obesity could be given weight-loss drugs to help them get back to work. This would help improve UK productivity and help the NHS, where obesity health issues are estimated to cost £6.5bn a year.

Since the pandemic, some 2.8million people are unable to work because of ill health. Many may also have weight problems, but the most common primary factors are mental health and musculoskeletal conditions. Weight loss drugs may help some, but may therefore be only one part of the answer to getting them back into work. In addition, 200 doctors have written to Wes Streeting highlighting how the stretched NHS obesity treatment services are already facing unprecedented demand from patients wanting these drugs.

It appears it will take more than weight loss drugs to improve UK productivity.

What have we been watching?

A cautious mood for risk assets amid a pivotal couple of weeks with the US presidential election and UK budget. In addition, there was a flurry of US third quarter earnings and comments from some members of the Federal Reserve (Fed) signalling a slower pace of US interest rate cuts.  Given the geopolitical risk, it was not surprising to see gold hit a record high while the US 10-year Treasury yield climbed to 4.28%. The IMF trimmed its 2025 global economic growth forecast to 3.2% due to the risks from events in the Middle East and potential Trump trade tariffs. Meanwhile, a raft of ‘flash’ PMI business activity indicators saw Japan move back into contraction and the woes across Europe continuing.      

Government debt was once again in focus as the IMF pointed out that global public debt is forecast to exceed $100trillion! UK Chancellor Rachel Reeves used the IMF meeting to confirm she would move the goal posts by shifting to a broader measure of net debt that would free up considerably more headroom to borrow. The UK 10-year gilt yield moved above 4.3%. To put this in context, the spread between German 10-year bund yields and 10-year UK gilt yields is almost 2% – the widest it has been since August 2023.

China continued to flex its muscles by undertaking a live-firing exercise from its territory closest to Taiwan.

Israel carried out the expected retaliatory strikes on Iran but avoided nuclear and oil facilities and instead attacked military targets. Iran appeared to soften its rhetoric following the attack.

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In the UK, the government’s plans to grow the economy are already being put to the test. Angela Rayner’s plans to upgrade workers’ rights will cost businesses up to £5bn a year to implement, according to the government’s own analysis.  Meanwhile, government borrowing rose last month to £16.6bn, marking the third-highest September since records began in 1993, albeit market expectations had been even higher. Ahead of the budget, Rachel Reeves confirmed that the government intends to shift the focus to a broader measure of net debt that would allow considerably more room to borrow to fund investment. This could release as much as £50bn in funding. To what extent this changes the near-term fiscal picture depends on how much of this extra headroom the government intends to use. This in turn may be influenced by how markets digest the change in borrowing rules. Meanwhile, the ‘flash’ October PMI business activity indicator showed both manufacturing and services weaker than expected with a reading of 50.3 and 51.8, perhaps due to the uncertainty created by the long wait for the budget?

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In Europe, the ‘flash’ October PMI business activity indicators for manufacturing and services remained in contraction with a composite (manufacturing and services) reading of 47.3 for France and 48.4 for Germany, albeit the service sector remains in expansion in the latter country.

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The US presidential election race remains wide open. However, the latest polling is showing Donald Trump very marginally ahead in several swing states, and the US 10-year Treasury yield hit 4.28%. The main concern for markets should Trump win would be his intention to impose 10% global trade tariffs, with even higher rates against China. This would be a serious headwind for economic growth in US trading partners. For the US, trade tensions and weaker US import growth would lift the US dollar, but bond yields would rise further and the Federal Reserve might stop interest rate cuts earlier than otherwise. In the meantime, ‘flash’ October PMI business activity indicators were slightly better than expected, with manufacturing at 47.8 and services at 55.3.

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Japan’s ‘flash’ October PMI business activity indicator showed the composite (manufacturing and services) reading move back into contraction at 49.4. The Japanese Yen hit a 3-month low after Japanese PM Shigeru Ishiba faced the prospect of minority rule after his gamble of calling a snap election backfired.     

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Brent oil ended the week around $76. However, Israel’s attack on non-oil targets in Iran over the weekend, together with the start of talks in Qatar to broker a temporary ceasefire in Gaza helped calm market nerves.

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Finally, the world has become a much more dangerous place. As if to underscore the point, Switzerland, famed for its neutrality, has announced it has signed up to the European Sky Shield Initiative (ESSI). This is seeking to build a unified air and missile defence system across Europe. ESSI was initiated by Germany following Russia’s invasion of Ukraine. Switzerland is the fifteenth member of Sky Shield.

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Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.