The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Aimee Donnellan

LONDON, Feb 5 (Reuters Breakingviews) - Obesity giants are at risk of cannibalising their own cash cow. Eli Lilly LLY.N and Novo Nordisk NOVOb.CO are delivering bumper sales thanks to the success of remedies like Wegovy and Zepbound. But tackling weight loss will also diminish the pool of future diabetes customers.

Obesity and diabetes are going gangbusters for the two companies that are dominating the market. This year, Denmark’s Novo Nordisk and $784 billion U.S. pharma giant Eli Lilly are expected to deliver combined total sales of $14 billion in their weight-loss divisions, according to Visible Alpha estimates. That’s still less than the core diabetes business, which is expected to make $53 billion. Sales of Novo Nordisk’s key diabetes drug, Ozempic, have nearly trebled in the last two years to 2023.

The two therapy areas, however, are closely linked. People who are obese, with a body mass index of over 30, are seven times more likely to develop diabetes, a condition in which the body fails to regulate sugar in the bloodstream. The rapid rise of obesity globally has delivered a steady stream of patients who need drugs like insulin. Novo Nordisk’s blockbuster obesity treatment even derives from the same compound as its core diabetes product.

The risk of one drug hurting another seemed low, given most users of obesity treatments were typically very overweight and sick people. Yet the increasingly widespread use of weight-loss jabs looks set to lead to sharp falls in the number of future diabetics. Semaglutide, the active ingredient in Wegovy, was shown to reduce the risk of an overweight patient developing type 2 diabetes by 60%. Moreover, in September of last year, the Centers for Disease Control and Prevention revealed obesity levels were in decline.

And, while obesity is booming, the market is becoming increasingly competitive. There are at least 40 other drugmakers looking to make rival medications, including AstraZeneca AZN.L and Zealand Pharma ZELA.CO. The patent on semaglutide, the key ingredient in Ozempic and Wegovy, will expire in the U.S. in 2031, leading to cheaper versions becoming widely available. That may make it harder for obesity sales to offset the lost growth that the two drugmakers may suffer in diabetes.

The slimmed-down future does not appear to be factored in by investors. Take Novo Nordisk. The company is worth $393 billion including debt, or around 10 times forward sales. That’s more than double the multiple of peers like Novartis NOVN.S and AstraZeneca. Yet if a business accounting for more than half of its sales slows, Novo Nordisk’s still pumped-up valuation will likely deflate further.

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CONTEXT NEWS

Novo Nordisk on Feb. 5 forecast slower growth for 2025 after sales of its obesity drug Wegovy more than doubled in the final quarter of 2024.

The Danish company said it expects sales growth in local currencies to range between 16% and 24% in 2025, less than the 26% growth seen in 2024. That compares with analysts’ expectations of just under 20%.

Shares in Novo Nordisk were up 3.85% by 1009 GMT on Feb. 5.

(Editing by Neil Unmack and Oliver Taslic)

((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))