Shedding Pounds and Boosting Deals: How Weight Loss Drugs Are Shaping M&A Trends in Pharma

The “Ozempic effect” has dominated headlines over the past year, impacting both healthcare and celebrity circles. Beyond these spheres, it is poised to play a significant role in fuelling a surge in M&A trends in 2024 due to enhanced investor enthusiasm in GLP-1 drugs for diabetes and weight loss. Moreso companies that develop effective weight-loss treatments could quickly become an acquisition target for larger drug manufacturers that want to expand their portfolios.

In light of this, what are GLP-1 drugs, who is producing them and why are they so important ? GLP-1 drugs, or glucagon-like peptide-1 receptor agonists, are a class of medications used primarily in the management of type 2 diabetes. They can effectively control blood sugar and have a secondary effect of increasing weight loss. There are numerous pharmaceutical companies who produce them but two have been dominating the market: Novo Nordisk and Eli Lily the manufacturers, respectively, behind Ozempic and Mounjaro.  The prevalence and need for GLP-1 drugs stems from the fact that according to a report from The World Obesity Atlas, “nearly 4 billion people will be considered obese or overweight by 2035” (Lobstein et al, 2023). In the wake of such an alarming statistic and the fact that per a Deloitte report the market for GLP-1 drugs could reach up to $100 billion within a decade (Van Antwerp et al, 2023), it is of no surprise that pharmaceutical companies are pressed to bring these products to the market and capitalise on their growing popularity.

In response to this demand, pharmaceutical companies are investing heavily in the development and acquisition of GLP-1 assets. For instance, Roche's acquisition of Carmot Therapeutics for $2.7 billion highlights the strategic importance of securing promising GLP-1 candidates to compete with established market leaders, such as Novo Nordisk (Tague, 2024). This trend is expected to drive further mergers and acquisitions within the biotech sector, as large-cap pharmaceutical firms seek to expand their portfolios. There are also investment opportunities that can be leveraged from the network behind GLP-1 drugs namely supply-chain businesses. Corporations such as McKesson (MCK) and Cencora (COR), who distribute GLP-1 drugs, can enhance the attractiveness of pharmaceutical companies involved in the production of GLP-1 drugs. Potential acquirers may therefore view investments in McKesson as a strategic move to bolster their supply chain capabilities and optimise distribution efficiencies, thereby supporting growth and market expansion

The broader healthcare industry is also witnessing a surge in mergers and acquisitions, spearheaded by robust investor interest and substantial cash reserves held by pharmaceutical companies. PwC's Annual Global CEO survey indicates that 54% of healthcare industry CEOs plan to pursue acquisitions in the coming years, reflecting a strategic shift towards consolidating innovative therapies and technologies. With pharma companies sitting on an estimated $171 billion in cash reserves, it is expected that M&A dealmaking will heat up into 2024” (Tague, 2024).

Looking ahead, the successful commercialisation and market penetration of GLP-1 drugs will not only enhance patient outcomes but also drive strategic growth opportunities for pharmaceutical giants. The prevalence of strong investor interest in these products will continue to amass funding for biotech firms developing GLP-1 drugs, raising their valuations and making them attractive M&A targets. By leveraging M&A activities to acquire biotech firms with promising GLP-1 candidates, companies aim to strengthen their competitive position and capitalise on the rising demand for effective diabetes and weight management solutions.