Big Pharma’s Billion-Dollar Weight Loss Drug Market

Written by: Dylan Desai

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

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

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

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.

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