Considering using new weight loss medications? Be prepared for the potential health risks that may arise.

• The demand for obesity drugs is increasing, with companies like Novo Nordisk and Eli Lilly experiencing growth, and new companies entering the market based on strong clinical results, such as Viking Therapeutics.
• To stay ahead of the competition and expand its offerings, WeightWatchers acquired Sequence last summer, while Noom has also adopted a similar strategy.
• The new weight management drugs require a healthy diet and exercise, but the market is not convinced that WW's brand is a reliable solution for weight loss.

The FDA requires that patients be prescribed GLP-1 drugs such as Wegovy and Zepbound only in conjunction with diet and exercise programs, despite the promise associated with these weight loss drugs.

The growing demand for these drugs presents a significant opportunity for the pharmaceutical industry to revitalize its business model, or poses an unprecedented threat due to the increasing recognition of obesity as a chronic disease requiring medical treatment.

Sima Sistani, CEO of WW, made a crucial move by acquiring Sequence (now WeightWatchers Clinic) in March, which helped the company enter the clinicals business.

Despite Wall Street analysts' skepticism about WW's stock chart and its market cap being dwarfed by outstanding debt, they agree that Sistani made the right decision on the right business. Having a link to the weight-loss drug prescription market is crucial. However, will Americans trust the most renowned brand in the legacy weight-loss industry to lead them into its future?

"Alex Fuhrman, an analyst at Craig-Hallum, stated that he has been covering WW for a decade and nothing like this has ever occurred. "It's happening in real time," he added."

Recent results from companies in the nutrition and diet space have been negative, with declines that analysts attribute to multiple factors and business models, but which are linked to the weight-loss drug phenomenon.

"Fuhrman stated that the acquisition was smart because big pharma was targeting weight loss and if they didn't have a clinical aspect, they would have lost relevance as a company."

Despite the initial excitement surrounding the Sequence deal, which propelled WW's shares above $10 by summer, the stock has since lost two-thirds of its value since late August. In the run-up to WW's earnings report, scheduled for release after the close on Wednesday, sentiment has remained mostly negative, although the stock's volatility is due to its debt load. On Tuesday, WW's stock price increased by over 13%.

The most crucial quarterly report for companies in the weight management industry is the one that comes at the end of the year, with management teams offering insights on the post-holidays period, which is traditionally the strongest. Wall Street analysts were bearish, with most of their predictions stemming from an analysis of online data used to estimate recent consumer interest and sales. Typically, WW acquires up to 40% of its customers during the first quarter.

Linda Bolton Weiser, a D.A. Davidson analyst, stated that the web traffic data suddenly became noisy, while the app download data turned negative.

Fuhrman stated that some investors were overly optimistic about the Sequence deal's impact on earnings, expecting a significant increase this year. However, recent data suggests that interest in traditional diet companies has decreased significantly.

The demand curve is not just a WW issue.

Noom, a digital app rival to WW, has entered the clinicals space with the launch of Noom Med in May. According to Noom CEO Geoff Cook, the new class of pharmaceuticals is incredibly powerful and effective, and will greatly benefit many people's health.

Cook stated that serving as a companion program to a percentage of GLP-1 prescriptions in the U.S. and globally presents a "massive opportunity." Although most people are not familiar with GLP-1, they will become aware of it. However, it is crucial not to rely solely on medication and instead promote a holistic approach to health.

Risks of overreliance on obesity drugs

John Batsis, an associate professor and nutrition expert at the University of North Carolina Chapel Hill's school of public health, stated that the risk of using medications and neglecting lifestyle changes could lead to potential malnutrition, loss of muscle mass, and bone density in certain populations.

Batsis stated that he strongly believes that individuals with obesity should follow a lifestyle-based program.

Patients who undergo bariatric surgery and participate in a lifestyle-based program have better outcomes than those who only have the surgery.

"Batsis expressed his suspicion that the same outcome may occur with the new medications, stating that the research on the combination of lifestyle changes and these newer drugs is limited. He emphasized the need for more research to fill the gaps in the science."

Many individuals are opting for significantly cheaper compounded semaglutides, which have the same chemistry as new drugs, due to the high cost of the drugs, ranging from $1,000 to $1,500 per month without discounts or insurance coverage. These compounded semaglutides are often permitted to remain on the market even when brand-name drugs, which have proven medical value, are in short supply.

Bolton Weiser, a member of the demographic, bought compounded online and found it to be a valuable option. She wanted to pay $250 a month, not $1,000, and appreciated the professional guidance she received. Although she didn't need to speak to a clinician to order the compounded supply, she wished she had one for the times she experienced vomiting. Bolton Weiser emphasized the importance of trusting the brand and the expertise of World Wide Brands (WW) in the compounded drug market.

According to Dr. Amy Meister, WeightWatchers chief medical officer, medication cannot guarantee a healthy diet or sufficient protein and fiber intake, and it will not aid in resistance training to maintain muscle mass.

To minimize the risk of bodily damage caused by the drug, it is crucial to maintain a high protein diet, track protein intake, engage in muscle-building exercises and resistance training to preserve lean muscle mass. Additionally, it is important to consider the duration of treatment and dosage adjustments, as early studies suggest that weight gain may return when patients discontinue the medication.

"When you reach your target weight, you must determine the next steps," Bolton Weiser stated. "I have lost 10 pounds and aim to lose an additional 15, but then what?"

What is the best approach to treating obesity as a chronic disease? According to Batsis, the question going forward is whether we can adjust the dosage, change the dosing regimen, or make lifestyle modifications to maintain weight loss. We have not yet determined the optimal balance between these factors.

'Forever meds'

Cook acknowledged that there will always be a significant group that is not satisfied with taking medication for weight loss indefinitely. However, he emphasized that the data on how long it takes for patients to achieve peak weight loss using these drugs before making behavioral changes is still preliminary. Despite this, Cook noted that Noom has data from a one-year study it conducted with a pharmaceutical company, which showed greater weight loss and higher adherence to weight management when behavioral modifications were included in the program.

WeightWatchers is currently investigating the characteristics that may predict if a person can "de-escalate" off medications. Meister cited a recent study published by Epic Healthcare's research department on over 20,000 patients who took a GLP-1 and lost at least 5 pounds, and then discontinued treatment. The study found that around two-thirds of the patients kept their weight off after 18 months, but it did not examine the presence or absence of lifestyle changes.

Batsis stated that the good news is that there is already four years of data from the main drug trials. However, he emphasized that we do not yet know the long-term effects. He explained that it is like any other medication that comes onto the market and that clinicians need to carefully weigh the risks and benefits. There are significant risks associated with obesity in terms of medical issues, so clinicians must work closely with their patients to balance these unknowns.

If WW and Noom can capture a significant portion of the market by connecting patients with clinicians and serving as a bridge for weight management, it presents a considerable revenue opportunity for these companies.

"According to Bolton Weiser, insurers are signaling that they will adopt a step therapy approach for certain conditions, which means requiring patients to try a less expensive medication before approving a prescription for a more expensive one. Doctors believe this approach is necessary because insurers cannot cover these drugs economically and will require some form of behavior modification before offering reimbursements."

The new psychology of weight loss

A monthly clinical subscription generates four times the revenue of a core WW digital subscription per user, making it a more attractive option for patients compared to the high cost of drugs. Additionally, there is a strong incentive for the industry to recommend WW or a competitor as a condition for prescription approval due to the lower cost of the service.

"While it's a new growth area in theory, the effectiveness of these programs for individuals on drugs is uncertain. The medical community advises caution when consuming these drugs, emphasizing the importance of a balanced diet and regular exercise. However, it remains to be seen whether people adhere to these recommendations."

Both WW and Noom are actively working to expand their business-to-business sales as insurance carriers and employer-sponsored plans consider incorporating coverage and mandating the use of a behavioral modification plan for prescriptions.

"GLP-1 drugs have a different psychology of weight loss, according to Cook. The mindset is not as crucial, as the program is designed to make you lose weight by eating the right things and exercising. The curriculum is tailored to help you achieve your goals, and it will adapt as you progress off the medication."

Although the clinicals business for WW and Noom is a positive factor, it is still much smaller compared to the challenges they face in the legacy market. According to Fuhrman, the expansion of GLP-1 will contribute to growth, but if 90% of the market is shrinking and only 10% is growing, it will be difficult to demonstrate sustainable growth.

Bolton Weiser concurs with the notion that, regardless of achieving 100% growth in the next three years, the new business cannot surpass the size of the core business. The core business must continue to expand, and the new business cannot be allowed to dissolve like a melting ice cube.

She believes that WW has a more optimistic outlook on the GLP-1 business, as they have not invested heavily in advertising despite the drug shortages. She stated, 'They are not going to make a mistake. They are committed to the long-term. They don't want to partner with a compounder.'

Weight management programs are recommended to patients by insurers and doctors, just as Lilly and other drug companies sell to doctors in offices. According to Bolton Weiser, WW is the number one choice for weight loss, and Sima [Sistani] is trying to determine the long-term effectiveness of the program.

On Wednesday, the company must demonstrate new core member growth, or they must provide good explanations if the results do not meet expectations.