Lara Castleton: Hello, and thank you for joining this episode of Global Perspectives, a Janus Henderson podcast created to share insights from our investment professionals and the implications they have for investors. I’m your host for the day, Lara Castleton.

In our 2025 Market GPS outlook, we identified healthcare as a potential standout for diversification. As volatility weighs on many of last year’s top performers, healthcare has emerged as the best-performing sector in the S&P [500 Index] to start the year.

While there are several reasons we like the space, today, we’re going to take a deep dive into a specific theme that’s taken the healthcare world by storm: GLP-1 drugs. To do this, I’m pleased to be joined by one of the smartest people I know, [a] Ph.D. with extensive experience not only in the medical field but also as a portfolio manager and research analyst. Dan Lyons, welcome. Thank you for being here.

Dan Lyons: Thanks for having me.

Castleton: So, let’s start first, just, GLP-1 drugs have obviously taken the biopharma industry by storm. What’s really driven their massive adoption by both doctors and patients?

Lyons: It’s interesting. If you go back, these are a class of drugs that have been around for, for a long time. In fact, when I was just starting my career, in the mid-2000s, the first versions of these drugs were approved.

But what’s changed in the meantime? One, the format or the types of delivery has improved dramatically, such that now you can get a once-a-week injection that can be much better, better tolerated. And further, companies have really just in the past years explored their utility in terms of weight loss, pushing higher, higher doses that allow the achievement of greater levels of weight loss. That’s really been the trigger for broader adoption in terms of use as an anti-obesity drug.

But it’s important also to remember that these drugs started off as diabetes medicines, and they’re still incredibly useful there. And they’re also penetrating further into that really large market, as well. And as we know, there’s a lot of overlap between the diabetes and obesity markets, so, they kind of grow in tandem.

Castleton: And what is the sales, I mean, just, can you quantify really the sales picture for these drugs as of late, especially compared to some of the other drug categories out there?

Lyons: Yeah, you’re right to highlight the explosive growth we’ve seen in this category. And closing out 2024, broad GLP-1 industry sales for the two market leaders, Eli Lilly and Novo Nordisk, were more than $50 billion in sales, growing at around 45% year over year in 2024. So, the market is already very large. And within those numbers, it’s also important to note that obesity remains a smaller percentage of the sales. Today, it’s probably about a quarter of the industry sales. But it’s very rapidly growing as the drugs further penetrate both into the obesity market and also the diabetes market. And just zooming in on the U.S. market alone, the estimates are that roughly one-third of the population is obese in the United States. And there’s more than 100 million potential candidates for these medicines on the obesity side. And that creates a really large market potential that, as of today, is at a very low-level penetration, 10% or less with this category of drugs.

Castleton: Okay, so super interesting. This has been around obviously for a long time, really, for treating diabetes, but the weight loss was more of a recent innovation within the drugs. And so, that’s driven a lot of the uptick from patients and doctors as of late. But still the minority, it sounds like.

Lyons:  Yeah, still the minority, and I should have mentioned, also, one of the key catalysts for further adoption and actually broader reimbursement for this category of drugs: You know, going back to the mid-2000s, when we looked at obesity medicines, typically they would deliver maybe mid-single-digit levels of weight loss, almost so little you wouldn’t even notice. And, as a result, payers didn’t really even cover most of the anti-obesity medicines.

As we moved into the incretin, or GLP-1 category, a key catalyst has been additional data really highlighting the magnitude of weight loss with these drugs is so significant that you’re able to drive really important health benefits. And Novo Nordisk kind of catalyzed the recognition of this with their cardiovascular outcome study, where they actually showed cardiovascular outcomes benefits from weight loss on these drugs. And then the industry has subsequently followed up with multiple studies that highlight the other ancillary benefits of weight loss with GLP-1 drugs, you know, whether it be a reduction in sleep apnea, knee pain from osteoarthritis, or progression to Type 2 diabetes. In all these areas, this class of medicines has shown tremendous benefits. And you know, that’s caused payers to wake up and say, well, we have to cover these drugs. Employers want to offer this as a benefit because people want access to these health benefits. And it’s really that broadening of reimbursement that’s helping to drive adoption, as well.

Castleton: That makes sense, and we’ve heard about the excitement within these drugs from you and your team for quite a while. So, it does seem like there’s tremendous benefits for patients.

I do want to recognize that there are some risks and talk about those, though, potentially maybe what happens with patients when they go off the drugs or if they’re not used properly. How do you think about their risks associated with these, as well?

Lyons: Thinking about the safety of this class of drugs overall, and here I draw a great comfort from the fact that this class of drugs has been on the market for a long time. So, there’s a very large safety database that global regulators like the FDA [Food and Drug Administration] are paying close attention to, and when you’re using a really broad population like this, they’re always tracking for rare safety events. And the encouraging thing is we’re not seeing significant risk coming up from the category. So, as a starting point, that’s important.

But you bring up a really good point. When you go off of these medicines, if you’ve lost substantial amounts of weight, in many cases, patients will regain that weight. And in some cases, you could regain more of that as fat rather than a mix of fat and muscle, which is lost sort of naturally during the weight-loss process.

And so, one thing to think about is, ideally patients will stay on these drugs more chronically, but for patients that cycle on and off of therapies, there is some risk that you might end up with some loss of lean muscle. And as a result of that, the industry is looking at therapies that could help to save your muscle while you’re undergoing weight loss. So, that’s an area of a lot of focus and many development programs along those lines. But I think that’s something to think about when you go on and off these therapies.

Castleton: You mentioned already the two big names in the GLP-1 industry – so, Eli Lilly, Novo Nordisk – they dominate this class of drugs at the moment. They have both seen some volatility in the past six months, or so. What do you think’s really driving that downside volatility for those stocks at the moment?

Lyons: There have been some subtle adjustments in terms of the near-term guidance for the growth of the category. As a result of that, into the back half of last year, there was some volatility in the stocks. Also, you know, some high-profile clinical trial results read out. For example, for Novo Nordisk, they had their drug CagriSema, which is kind of their next-generation obesity drug, read out and actually produced impressive levels of weight loss, but it didn’t meet the bar that they had externally set. So, it was viewed as a slight disappointment and that led to some volatility in the share price.

And you know, when we step back and look at the underlying growth of this category and the potential going forward and the fact that we’re really just getting started in building this really large market, those are the things that give us conviction on the growth ahead for these companies. And sometimes, near-term volatility can create buying opportunities in markets like this.

Castleton: Okay, so, [you] very much still like the trend, this has very much got a lot of room to go. Those two companies being so massive, there are potentially new entrants coming into the category, is that true? How do you think about those? Do they even stand a chance?

Lyons: When you think about Novo and Lilly as the leaders in this large market, they have substantial advantages. The first being a tremendous amount of capital has been spent already to build out the manufacturing capacity so that they’re ready to supply this market, and they’re still building. It takes a lot to keep up on a global basis with the needs of a market of this size, with so many people impacted. So, they have a head start on supplying the market. They also are continuing to innovate. You know, I mentioned Novo’s CagriSema program. Eli Lilly has a next-generation obesity program, retatrutide, as well. And this is all in the injectable area. So, the companies are continuing to innovate.

But to your good question, does that mean they’re going to dominate forever? We expect that they will retain dominant share in this market over time, but this is going to, in our view, be well over a $150 billion market over time. And in such a large market, there are many opportunities for other players to come in.

A few examples would be, Amgen is a company that’s developing what could be a once-monthly format for weight loss. Another company Metsera, a recent IPO [initial public offering], has a similar once-monthly weight-loss program. And these, again, are all injectable therapies. So, there could be other entrants and other players that could have smaller share but still meaningful for these companies.

The last thing I would highlight, to really reach the broad population of patients with obesity around the world, ultimately may need oral therapy options. And here, we’re going to find out actually this year, Eli Lilly has a phase 3, or late-stage development program, for their drug orforglipron, which is a small molecule version of these therapies, which has produced promising results so far in early stage development. And then there are several other companies behind Eli Lilly working on oral therapies, which we think are going to be an important part of this market to expand it out to a broader population and to increase capacity.

Castleton: So, you’ve touched on this already a little bit with the low penetration of these drugs in terms of weight loss, how maybe new therapeutics and innovation within the space can bring this drug more global. But I do wonder, what’s your key thesis behind the growth of sales within GLP-1s in the future?

Lyons: I think it’s a combination of all the things that you just brought up. Continuing broadening of reimbursement. So, access, we think, is going to continue to improve. More employers will realize that they need to provide these benefits; more insurers; and maybe even eventually, there’ll be efforts for Medicare to cover these drugs. So, access is important.

Supply is the other variable. I think Eli Lilly recently has been announcing a substantial amount of capital they’re investing for future supply. Both companies have put a ton of capital in the ground and have ambitious plans to continue to expand that. So, on the injectable side, continuing to build out supply.

I guess the last element to kind of sustain growth would be, you know, potential oral therapies and other innovation. You know, we talked about new mechanisms that are being explored that could drive even greater levels of weight loss and also new mechanisms that might help you retain or build muscle, something we’d all appreciate while there’s weight loss going on, and to provide better overall health outcomes. So, all those things together I think are going to be key drivers of growth for the category.

Castleton: What risk do you see to that thesis?

Lyons: The main risks, I guess, would be, as you brought up earlier, if in a broad population, you see rare side effects or concerns around maybe patients going on and off therapy, things like that. I think we already have a good sense – it’s been in millions of people – of those types of risks. But that’s one thing to track.

The other aspect would be maybe there’s additional pricing pressure that is brought to bear. That’s something to watch. We already expect that the pricing of these drugs will continue to come down over time, but I think that’s another element.

Castleton: It kind of reminds me of the massive trend of obviously AI within the technology sector. This does seem to be one of the big innovators within the healthcare sector. What other opportunities do you expect to see within the therapeutics realm, currently, that maybe investors aren’t understanding or [that] don’t have the attention?

Lyons: That’s a great question, and over the course of the past couple years, healthcare has at various points been divided into GLP-1, or incretin, winners like Eli Lilly, Novo Nordisk; and losers – you know, companies where their businesses might face risks because all of a sudden a population of people might have lower amounts of obesity and some chronic health problems related to that could go down over time. And we think those concerns have often been overstated for some categories because, unfortunately, some of the other conditions that are highly prevalent in the U.S. remain a very substantial problem even with a subset of people getting treatment for obesity.

One example would be fatty liver disease, which is now called MASH. This affects millions of people in the United States who basically have a buildup of fat in their liver and it’s causing their livers to eventually fail; to scar over and ultimately need liver transplant. So, we were invested in companies that are innovating in that area, providing therapies that can help get rid of the fat in the liver. And in one case, a portfolio company’s actually shown you can reduce the scarring in really severely impacted patients, something that the field thought was actually impossible.

These are companies that have been hurt at various points because people said, well, GLP-1s also kind of help this condition, and, indeed, Novo Nordisk might get approved in this indication next year, but it’s not a cure. And there’s still a huge need for additional therapies, and we’re investing in some of the companies that are are looking to provide that.

So, that’s just one of many examples of opportunities for innovation within healthcare. And there’s so many other health conditions that are really prevalent, where there’s major unmet needs. And that’s exactly what we’re trying to invest in, in our portfolios.

Castleton: You’ve been living this for a very long time, almost 25, let’s say almost 30 years. So, just, I guess, to finally end here, what is the innovation that you’ve seen over your 30-year career? How does that make you feel about the healthcare sector and your outlook of it going forward?

Lyons: When I was starting in the industry, actually that was around 2000, when we had the Human Genome Project completed. And at that time, many people thought, well, we’ll have a solution for most of healthcare problems, you know, wrapped up in a couple years. This should be easy; well, now we know a lot more targets. It’s actually proven to take a lot more work – as is often the case – and research to really find what are the good targets, what are the diseases where we can really help with new innovation. So, there’s been a tremendous increase in the understanding of what are the right targets.

And the second thing that I think has really accelerated just in the last 10 years, the range of modalities or options that companies have and tools in their toolbox to go after different drug targets has expanded tremendously. Things that a couple years ago sounded crazy or maybe not even realistic – such as cell therapies, where you can basically take out your own cells, your immune cells, and retrain them to fight cancer – we’re now doing that at scale to help cancer patients. Gene therapies that are helping kids with Duchenne muscle dystrophy…those are just a few of many different drug modalities that are now available. They’re actually allowing the industry to better go after all the targets that they have. And that’s led to this tremendous ramp in innovation that we’ve seen as investment opportunities and, most importantly, ways to help patients with major unmet needs.

And that’s really what we’re trying to invest behind. What gets me up in the morning and, after 25 years, gets me even more excited to go forward is the fact that that continues to accelerate. And I think that that’s going to be important investment opportunities for the future for our funds here.

Castleton: Well, awesome, Dan. It’s always been a pleasure speaking with you. Thank you for walking through all the innovation behind the GLP-1 drugs, their potential growth, and how you think this trend will play out for the future, as well as all the other innovative things that are happening within healthcare.

And to our listeners, thank you. We hope you found this deep-dive interesting and came away with renewed conviction behind the opportunity healthcare can provide for you. For more insights from Janus Henderson, you can download other episodes of Global Perspectives wherever you get your podcasts or visit janushenderson.com.

I’ve been your host for the day, Lara Castleton. Thanks, see you next time.

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