Why Looks Could Kill: An ESG Perspective on GLP-1 Medications for Cosmetic Weight Loss and Diabetes

Key Insights:

• Off-label use of GLP-1 medications for cosmetic weight loss purposes poses several ESG-related issues to patients and risks for companies marketing them.

• Manufacturers of GLP-1 medications may face regulatory scrutiny and legal implications if their products are found to be promoted or marketed for off-label use, underscoring significant concerns for these companies.
  

• Off-label use of GLP-1 medications for cosmetic weight loss has led to shortages – detrimentally affecting type 2 diabetes patients who rely on these medications for their health management.

• With estimates suggesting that more than 80 weight-loss treatments are under development as of July 2024, investors must consider the changing landscape and navigate the complex ESG challenges that this new market poses.

Due to glucagon-like peptide 1 receptor agonists (GLP-1 medications) proven efficacy for weight loss, the global demand for these treatments has soared in recent years. While the heightened demand offers promising prospects for biopharmaceutical companies, it also introduces an array of environmental, social, and corporate governance (ESG) challenges in a dynamic and evolving environment.

GLP-1 medications are a class of drugs that reduce blood sugar and energy intake by activating the GLP-1 receptors, mimicking the hormones that are released in the stomach after eating.¹ These medications were originally developed to manage blood sugar levels in people with type 2 diabetes (T2D), being brought to market more than 15 years ago.² However, given their ability to effectively help people lose weight, in the past few years the off-label demand for these medications for cosmetic weight loss has soared.

All That Glitters Is Not Gold: ESG Issues and Risks Concerning GLP-1 Medications

Off-label use of GLP-1 medications for cosmetic weight loss purposes poses several ESG-related issues to patients and risks for companies marketing them. Notable ESG issues to consider, as captured by Morningstar Sustainalytics’ ESG Risk Rating, include product governance, covering potential safety risks for patients, as well as access to basic services, covering accessibility and affordability issues – exposing companies that manufacture and market such drugs to potential legal, regulatory and compliance risks.⁸

Unveiling Off-Label Promotion, Utilization and Chronic Use

Recent research suggests that off-label prescriptions for GLP-1 medications for patients without diabetes increased from 6% in 2018 to 27% in 2022, and have likely further increased throughout 2023 and 2024, given their growing popularity.⁹ At the same time, spending on advertisements for these medications increased by 50% in 2023 compared with 2022. Estimates suggest that a total of USD 809 million was spent to promote Mounjaro, Ozempic, Rybelsus and Wegovy through 2023.¹⁰

Manufacturers of GLP-1 medications may face regulatory scrutiny and legal implications if their products are found to be promoted or marketed for off-label use, underscoring significant concerns for these companies. This may include regulatory scrutiny of their promotional activities or legal action from consumers, triggering lengthy legal proceedings and operational disruptions, which poses significant financial burdens for companies.

When drugs are taken chronically, as in the case of cosmetic weight loss and management, the likelihood of negative side effects, such as gastrointestinal issues, including nausea, vomiting and diarrhea, are heightened compared with when the medications are taken sporadically. Such prolonged use of the drug can increase exposure to its side effects. People living with chronic, life-threatening conditions, including T2D, are more likely to tolerate adverse side effects from their medications, as the absence of treatment may lead to exacerbated health effects or death.

People using the medications off label for cosmetic weight loss and management may be less tolerant of the side effects, as the benefits of the medications may not outweigh the adverse side effects. As such, these patients might be more likely to litigate over adverse or unanticipated side effects. GLP-1 medication manufacturers may therefore face increased liability risks, with the ones selling the drugs in the U.S. more exposed to liability litigation due to the litigious nature of the U.S. market.¹¹

Supply Constraints and Affordability Concerns

The off-label use of GLP-1 medications for weight loss also poses several risks related to availability and affordability for T2D patients, hindering their access to the treatments. Notably, off-label use of GLP-1 medications indicated for T2D for cosmetic weight loss has led to constrained availability and substantial shortages – detrimentally affecting T2D patients who rely on these medications for their health management, forcing them to either seek alternative treatments, ration treatments or wait to access the treatments they require.¹²

This constrained availability is an issue of particular concern, as interruptions in medication supply can exacerbate health conditions and increase the risk of complications. Shortages of GLP-1 medications indicated for diabetes have been recorded globally. In January 2024, National Health Service of England issued a National Patient Safety Alert to address supply issues with GLP-1 medications, underscoring the severity of the issue. As of July 2024, Ozempic and Victoza are listed on the European Medicines Agency’s drug shortages list,¹³ and Ozempic, Victoza and Mounjaro are listed on the U.S. Food and Drug Administration’s drug shortages list.¹⁴

Another factor potentially hindering access to GLP-1 medications is the price tag. As more patients seek weight-loss treatments, companies may adjust prices to capitalize on the heightened demand. Recent reports of pricing in the U.S. suggest that GLP-1 medications cost around USD 1,000 to 1,200 per month. However, a recent study estimates that a one-month supply of Novo Nordisk’s Ozempic and Wegovy each cost approximately USD 5 dollars to manufacture.¹⁵ Excessive and unjustified drug prices expose pharmaceutical companies to regulatory scrutiny and reputational damage, where companies are likely to suffer material financial impacts. Such risks have become heightened for companies operating in the U.S., following increased scrutiny of drug pricing and affordability, as evidenced by the implementation of the Inflation Reduction Act in 2022 and associated measures to curb pharmaceutical price gouging.

Shedding Light on ESG Issues and Risks Connected to GLP-1 Drugs

Analysts predict that the market for weight-loss treatments will reach USD 100 billion by 2030, up from USD 6 billion as of FY2023, a 16-fold increase.¹⁶ With other bio-pharmaceutical companies seeking to enter the market, where estimates suggest that more than 80 weight-loss treatments are under development as of July 2024,¹⁷ investors must consider the changing landscape and navigate the complex ESG challenges that this new market poses.

Sustainalytics’ ESG Risk Rating offers assessments and insights into a company’s exposure to financially material ESG risks, along with insight into their strategies for managing and alleviating these risks. Specifically for companies manufacturing and/or entering the market of GLP-1 drugs, relevant ESG issues to look out for are product governance, which captures risks from off-label marketing practices, and access to basic services, which captures risks related to the affordability and accessibility of drugs. These ESG issues may be able to provide a perspective on a company’s preparedness (based on policies and management programs in place) at mitigating these risks, potentially helping shed light on this complex and intricate ESG web.

References

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