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Obesity management set for a shakeout

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Dec 1, 2023
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Illustration: Tiffany Herring/Axios

As GLP-1s boom, the stage is set for a shakeout, investors and executives tell Axios.

Driving the news: This year has seen a cadre of early-stage weight management startups snag investor dollars to address the $1 billion-plus market.

Why it matters: These investments have crowded the competitive field and now companies will seek to scale within the space, the investors and execs say.

The big picture: The rise of GLP-1 weight loss drugs, like Ozempic and Wegovy, could revolutionize a health care sector that receives around one-quarter of all VC dollars, Axios' Dan Primack reported.

What they're saying: "There should be multiple winners, considering that 70% of America is overweight or is obese — but there is no way the number of companies that currently exist can last," says Sarah Jones Simmer, CEO of weight management coaching service Found.

  • "In Q1-Q3 2023, we saw funding go primarily to early-stage digital health startups with specialized obesity care offerings," says Sari Kaganoff, GM of consulting at Rock Health.
  • Kaganoff says the startups have similar capabilities, so the challenge is to win new customers and users.
  • "We'll probably see more enterprises buying startups than startup consolidation (like Weight Watchers' acquisition of Sequence) to acquire new capabilities."

Driving the dollars

A primary driver of the number of startups, well, starting up? Employers and payors are recognizing the need for weight management programs, says Kaya Ventures managing partner Madeline Darcy.

  • That tailwind — alongside a cultural shift of people viewing obesity from seeing it as a "sin of one's lifestyle choices" to viewing it as a chronic condition — is driving Kaya's interest in the sector, Darcy says.

"With the high demand for GLP-1s and an influx of companies, the demand for new medications has driven a line of sight for potential revenue for founders," says Alfie CEO Alexander Singh.

  • Alfie, which uses AI-powered clinical decision support to treat weight loss, raised $2.1 million of seed funding in June.

Reality check: While demand for weight management is growing, insurers and employers are still being cautious around spending, Darcy says.

  • "A large need doesn't necessarily translate to a speedy [go-to-market] for startups," she says.
  • "We're seeing this acutely in the pull-back of coverage for GLP-1 medications," Darcy adds.
  • A Found-sponsored survey reported that 96% of employers surveyed acknowledged the need for weight management — but just 26% said they planned to offer benefits.

Yes, but: "I'm confident we'll see that number grow as more employers reconcile demand and cost to plan for 2024," says Found's Jones Simmer.

  • Coverage has been reduced thus far in part due to employers facing unprecedented spikes in medical spending they hadn't budgeted for, she says.

The big picture: It costs more than $10,000 annually for insurers to cover GLP-1s, which are in short supply at the moment.

  • Data from Found's state of weight care report showed an overall decline in coverage for GLP-1s in 2023—only 31% of insurance plans covered GLP-1s for weight loss in June, down from 64% six months earlier.
  • Doctors are simultaneously being inundated with prescription requests from patients who may not be eligible.
  • "Health care is not a setting that supports growth at all costs, we need to maintain a high bar for prescribing," Darcy says.

Meanwhile, obesity costs the U.S. health care system nearly $173 billion a year, per the CDC.

  • For GLP-1s, "price is a temporary issue," says Jones Simmer. "As soon as newer competitors come out, pricing will come down."
  • Last month, the FDA approved Eli Lilly's tirzepatide for weight loss, broadening the competitive market that was primarily dominated by Novo Nordisk.

State of play

Startups that don't primarily focus on GLP-1 prescription are well-positioned, according to Darcy.

  • Darcy cites Found, which raised $100 million in Series B capital at a $600 million valuation back in 2021 and has a focus on lifestyle, as one example.
  • Clinical nutrition startups like Culina, with "the ability to scale through partnering with primary care and specialty care, like cardiovascular care are getting strong traction with payers," Darcy says.

Additionally, metabolic monitoring startup Levels, which offers biofeedback on how food impacts health, raised its $7 million Series A extension in January, following a $38 million fundraise in 2022.

  • Legacy weight loss players have also made moves, with Weight Watchers, acquiring weight management telehealth platform Sequence for $132 million in March, and Noom offering expanded access to GLP-1s.

Be smart: Not all VC-backed players are success stories.

  • Weight management platform Calibrate — formerly backed by heavy hitters like Tiger Global Management, Founders Fund and Optum Ventures — hit roadblocks with getting members access to GLP-1s, forcing the company to issue millions in refunds, Business Insider reported.
  • The company recently sold to PE firm Madryn Asset Management and raised $29 million as part of a restructuring last month.
  • "The consumer model is really struggling," says Alfie's Singh. "We will likely see [companies make] harder pushes to B2B to stay alive and provide care to patients."

By the numbers, early innings edition

Data: Rock Health; Chart: Axios Visuals

Venture capital deal volume and value in 2023 in obesity management stood at nine deals with $67 million invested.

  • That's compared with $574 million over 19 deals in 2022 and $2.2 billion over 33 deals in 2021.

Yes, but: The robust numbers for the two years prior may be attributable to the mega-rounds players like Ro and Noom raised before entering obesity management, Rock Health's Kaganoff says.

  • Ro, which launched its weight loss program this year, raised a whopping $500 million Series D in 2021, followed by another $150 million raise in 2022. The company was valued at $7 billion as of last year.
  • Meanwhile, Noom — which launched the obesity-focused product Noom Med this year — raised a $540 million Series F from Silver Lake in 2021, putting its pre-money valuation at $3.7 billion.

The bottom line: "We expect that the market of specifically obesity-focused startups is still early (hence the smaller rounds)," says Kaganoff. "And these companies will raise money to scale their solutions in the coming years."

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