Can Smaller Companies Compete in the GLP-1 Market?

The world’s largest pharmaceutical companies dominate the world of GLP-1 drugs, which help millions of people fight diabetes and obesity. However, we also see the potential for mid- and small-cap companies to prosper.

Industry leaders Novo Nordisk and Eli Lilly have a tremendous head start in production, distribution and marketing, and it shows.

Eli Lilly’s revenues grew by 32% year over year in 2024 as Zepbound^® and Mounjaro^® drove volume growth.¹ Novo Nordisk, the maker of Ozempic^® and Wegovy^®, reported 26% higher operating profit last year as its obesity and diabetes treatments experienced double-digit growth.²

Even so, smaller companies may be able to create new and better medications more efficiently, allowing them to carve out their shares of the market.

This is a rapidly evolving field, and even leading companies have grappled with constraints in production capacity and insurers’ willingness to cover prescription costs. Over the long term, we still expect to see a healthy demand for these solutions, which could benefit mid- and small-cap stocks.

Innovation as a Strength for Mid- and Small-Cap Pharma

Smaller companies lack the resources of large-cap pharma companies, but they may not need them to produce valuable new solutions. Viking Therapeutics, for example, invented a weight-loss medication with a relatively small team compared to the largest players.

Viking is developing both oral and injectable formulations of that drug, VK2735.³ This is significant because most GLP-type treatments are available only in injectable form. An exception is Novo Nordisk’s Rybelsus^®, which comes as a tablet for treating diabetes.

Patients tend to prefer oral medications to injections, and injectables tend to be costly. Therefore, a weight-loss pill could have a competitive advantage over injectables. Furthermore, if pills are cheaper, insurers could choose to cover the costs, thereby increasing the potential market.

Though smaller firms like Viking are working to bring a weight loss pill to market, the competition from large pharmaceutical companies could be fierce. Lilly’s orforglipron GLP-1 pill is in regulatory review.⁴ Other companies, including AstraZeneca and Pfizer, are also working on oral GLP-1s.⁵

The convenience of taking a pill comes with a notable drawback: Pills are less potent than injectables. While injections deliver medicine directly into the patient’s bloodstream, a pill’s medicine is absorbed through the digestive system, which can be slower and less effective.

Developing More Effective GLP-1 Medications

Mid- and small-cap companies could also distinguish themselves by being first to market with more efficacious drugs. In the diabetes and weight-loss drug market, smaller companies are in the mix when it comes to getting new treatments through the development and approval process.

GLP-1 is short for glucagon-like peptide 1, and drugs like Wegovy and Ozempic belong to a group of chemicals known as agonists. Agonists are designed to mimic natural hormones and interact with a specific type of molecule in the human body, a cell receptor.⁶

When agonists and cell receptors meet, a chemical reaction kicks off. In this case, GLP-1s spark insulin production, suppress appetite and reduce caloric intake.

The next generation of these medications aims to offer higher efficacy by targeting two different cell receptors. These drugs are sometimes called dual agonists or “doubles.” Viking’s VK2735 is a double that targets GLP-1 and glucose-dependent insulinotropic polypeptide (GIP) receptors, as are Mounjaro and Zepbound.

One potential growth area is the development of triple receptor agonists, known as tri-agonists. Lilly is developing one called retatrutide, as is Kailera Therapeutics, a younger firm.⁷

Small-Cap Pharma vs. Big Pharma in GLP-1 Market

Even if they develop useful innovations, mid- and small-cap pharmaceutical companies could fail to capture market share.

Lilly and Novo Nordisk hold a substantial edge because their products have first-mover advantages. Even a mid-cap that introduces an objectively better-performing drug could face difficulty competing against established brand names.

While there have been shortages of GLP-1s, Lilly and Novo Nordisk have also built up production and distribution capacity, achieving economies of scale. Unless smaller companies are acquired or find bigger partners, they may struggle with the cost of making their medicines and getting them to users.

As the GLP-1 space matures, smaller companies may struggle to establish a competitive edge. More players have entered the field, meaning more challengers vying for market share. A mid-cap could devise a superior drug, but it might not be long before another company announces an even better treatment.

If innovations don’t translate to a competitive advantage, investors may avoid putting up the capital that mid- and small-cap pharma companies require to compete.

Production and Patent Challenges in GLP-1 Market

Larger trends in GLP-1s and similar drugs could present challenges for companies of all sizes.

If consumer demand accelerates, production constraints might lead to shortages of these medications. Under Food and Drug Administration (FDA) rules, officially recognized shortages allow compounding pharmacies to legally make their own versions of these medications, regardless of patent protections. Compounders have been allowed to produce copies for the past few years, though the FDA recently declared the shortage over.⁸

Eventually, the current crop of GLP-1 medications will hit the so-called “patent cliff.” Their owners will lose the exclusive right to produce them and encounter new competition from generics. Therefore, pharma companies must continually invest resources in their R&D pipeline to stay relevant.

Customers may also begin to strike harder bargains with the makers of GLP-1 drugs. Ozempic and Wegovy have joined a list of medications subject to price negotiations for Medicare Part D, which could put more pressure on revenues. In its annual report, Lilly said that industry consolidation could give health plans, pharmacy benefit managers and other players more power to negotiate discounts.⁹

Meeting the Growing Demand for GLP-1 Medications

Despite these issues, we see the potential for long-term, durable demand for GLP-1s and similar medications, even if there are zig-zags along the way. Goldman Sachs estimates that the global market will grow to $100 billion by 2030.¹⁰

If production issues persist and insurers limit their coverage, the industry could endure a short-term “winter” sometime in the next few years.

However, these treatments could reduce the prevalence of chronic conditions related to obesity and diabetes, such as cardiovascular and kidney disease. Insurers may view weight-loss drugs as a compelling preventive measure due to the high cost of treating these illnesses. Demand might also increase if government plans like Medicare expand coverage of these medications.

Despite the potential for problems in the short term, we believe these drugs represent a massive market with opportunities for mid- and small-cap companies.