Plumping up profits
Companies of all sizes are rushing to market products aimed at an increasingly obese population
Amanda Campbell, a registered nurse in Hudson, Fla., knows how humiliating it can be for obese patients to struggle with skimpy hospital gowns or to stand in a doctor's waiting room because the chairs are too snug to sit on. Before stomach-reducing surgery in August 2002, Campbell lugged 265 pounds on her 5-foot, 8-inch frame. Now 130 pounds lighter and a trim size 6, the 46-year-old director of Regional Medical Center Bayonet Point's bariatric, or obesity-treatment, program is an empathetic advocate for oversize patients. "Please get some [larger] patient gowns, get some extra-large blood pressure cuffs, get some scales that can weigh these patients," she urges her healthcare colleagues.
For years, obese Americans have endured second-class treatment at the hands of a one-size-fits-all healthcare system. Severely overweight people sometimes postponed needed care simply to avoid the embarrassment of being weighed. With scales topping out at 300 or 350 pounds, "You had to take a patient down to the loading dock," explains Sandy Wise, senior director for medical services at Novation, a hospital supply services company in Irving, Texas. The heavy-duty scales hospitals use for weighing shipments doubled as patient scales. They got the job done, but in a way that made patients feel like cargo.
Medical crisis. Today, about 127 million American adults and more than 9 million children and teens are considered overweight or obese. The ranks of the "morbidly obese" --people weighing 100 pounds or more over their ideal weight--quadrupled between 1986 and 2000, from 1 in 200 adults to 1 in 50, according to a Rand Corp. study.
While that presents the country with a profound medical crisis--excess weight is associated with increased risk for heart disease, diabetes, cancer, and other chronic conditions--for some businesses, it is a marketing opportunity as they develop products aimed at the obese. "There's no disease state in existence that represents such a large market," says Edward Bernstein, executive director of the North American Association for the Study of Obesity.
Spending on obesity-related medical costs in the United States reached an estimated $75 billion in 2003, of which taxpayers paid about half through Medicare and Medicaid. Private employers are absorbing roughly $13 billion a year in costs due to obesity, including medical claims, absenteeism, and the expense of replacing workers who become disabled. Meanwhile, medical equipment companies are rushing to fill the void with supersized products, including generously proportioned blood-pressure cuffs, long-tooled surgical instruments (for slicing through thicker amounts of tissue), wider, more durable commodes, and, yes, sturdier scales that yield accurate readings for people weighing hundreds of pounds. Drug and device makers are tackling obesity, too, but in a different way. Instead of accommodating the nation's expanding girth, they're developing products to help whittle people's waistlines. "I think we'll see both trends continuing," says Morgan Downey, executive director and CEO of the American Obesity Association. "It's just a reflection of where our population is at this point and how we come to grips with it."
Extra large. Suppliers of everything from gowns and gloves to walkers and waiting room furnishings are beefing up their offerings. Medline Industries, the nation's largest privately held manufacturer and distributor of medical supplies, has four new bariatric products in the works, including a wheelchair that can take a beating, even under the weight of a 600-pound occupant. Medline has seen a brisk uptick in sales. Three years ago, its obesity product line rang up $50,000 a month, says Travis Winegarner, a senior product manager at the Mundelein, Ill., company. "Now we're seeing half a million a month, and that's just in 2 1/2, three years," he says.
Increasingly, hospitals realize they need bigger beds, wheelchairs, gowns, and blood-pressure cuffs, even if they don't run a bariatric program. Gadgets that minimize the strain of lifting and transferring obese patients, a major cause of back injuries among healthcare workers, also are becoming necessary. According to a 2003 Novation survey, 80 percent of hospitals saw more severely obese patients in the past year than ever before. They say it's costing them an added $3,500 to $500,000 annually.
Among the fastest-growing markets is that for stomach-reducing surgery. The number of procedures has jumped nearly sevenfold, from 20,500 in 1996 to 140,640 in 2004, the American Society for Bariatric Surgery estimates. That has led to a booming market for special devices, such as Inamed Corp.'s LAP-BAND. It's a silicon ring that surgeons implant to create a smaller stomach. Worldwide sales of Inamed's obesity reduction products rose 37 percent in the third quarter of 2004 from the same period in 2003, to $22.2 million. The company expects annual sales of the product line to grow more than 30 percent in 2004. Overall sales of bariatric surgical devices are expected to exceed $732 million by 2013, up from $145.2 million in 2004, according to MedMarket Diligence LLC, a provider of medical technology information. "In the short run, devices are crude, but they get the job done," says MedMarket President Patrick Driscoll.
In the long run, medical experts believe the biggest opportunity lies in developing drugs that attack obesity at its source, by changing the way the body works, or reducing a person's desire to eat. With nearly two dozen compounds under development, drugmakers are racing for the next weight-loss miracle. So far, few drugs have made it to late-stage testing. Nastech Pharmaceutical's experimental nasal spray for curbing appetite is among the early pipeline products. Its recent pact with Merck to codevelop and commercialize the drug netted $5 million in cash for the tiny Bothell, Wash., company and could be worth up to $341 million more if its product clears federal regulatory hurdles and meets specified sales targets.
Among late-stage drugs, the one that's getting all the buzz is rimonabant, a pill that curbs weight gain and also helps smokers kick the habit. It's the first in a new class of medications that work by blocking receptors in the brain that control appetite and other cravings. If long-term safety data hold up, analysts say the drug, to be marketed under the brand name Acomplia, could be a blockbuster worth more than $1 billion in annual sales for Sanofi-Aventis, Europe's No. 1 drugmaker.
Jasjeet Mohain, a healthcare analyst with Datamonitor in London, projects a quadruple jump in sales of drugs to treat obesity, from $526 million in June 2003 to $2.5 billion by 2012. Other analysts forecast more-aggressive long-term growth. MedMarket anticipates sales of prescription obesity treatments of more than $3.7 billion by 2012 and $4.7 billion by 2013.
Venturing forth. Even fledgling companies are jumping into the fray, attracting near-record amounts of investment capital. In the first three quarters of 2004, 35 venture capital firms committed $85.3 million to 10 companies that are addressing obesity in some way, says the National Venture Capital Association. That represents the largest number of obesity-focused companies to receive venture backing in a single year. Total dollars at stake could well eclipse a 1997 record, when investors risked $91.6 million on companies with obesity products. Just three years ago, "nobody in their right mind would have invested in obesity," says Michael Powell, a managing director at Sofinnova Ventures in San Francisco. Lately, though, the narrow view that obesity is the consequence of willful overindulgence has given way to the realization that it is a disease, like any other, Powell says. "The world has kind of woken up to the fact that this is something that is treatable."
Further giving weight to the obesity market was the decision in July that Medicare would consider covering obesity treatments on a case-by-case basis. Medicare already covers gastric bypass, but the move could eliminate the need for patients to demonstrate that they suffer from other conditions, such as diabetes or heart disease, to qualify for the surgery. And while Medicare excluded antiobesity medications from the outpatient prescription drug benefit that takes effect in 2006, the approval of new weight-loss medicines could force federal officials to reconsider.
Private insurers have taken a mixed approach to paying for obesity treatments. A number of insurers, such as Blue Cross and Blue Shield of Florida, have decided to drop coverage of bariatric surgery, citing cost and safety concerns. But North Carolina's Blue Cross and Blue Shield plan, a rare exception, is adding an obesity program in April that includes bariatric surgery. Large employers are trying to decide what to do. "It's a topic of hot, hot discussion and concern," says LuAnn Heinen, director of the Institute on the Costs and Health Effects of Obesity, a project of the National Business Group on Health.
As for drugs, neither Meridia nor Xenical, the top antiobesity agents now on the market, has lived up to initial hype, and health plan coverage remains limited. Sales of each drug have declined steadily since 2001, according to IMS Health, a pharmaceutical information company. But the prospect of new antiobesity treatments creates a new coverage dilemma: If payers foot the bill, they might save money in the long run; on the other hand, they don't want to be saddled with drug costs for every person with an extra 10 pounds to lose.
But the lure of a blockbuster drug is hard to resist. "Clearly, if you can come up with something that treats obesity and doesn't have a lot of side effects, patients are going to beat a path to your door," says Scott Henry, a pharmaceutical analyst with Oppenheimer & Co. in Boston. And the investing public is likely to be standing in line right alongside.
This story appears in the December 20, 2004 print edition of U.S. News & World Report.