WeightWatchers shares soared Tuesday after the company said it was getting into the prescription drug weight loss business with the acquisition of Sequence.
Sequence, a telehealth operator, says that its specialists can prescribe medications under brand names including Ozempic, Wegovy and Trulicity.
Shares of WW International Inc. jumped more than 31% in morning trading.
WeightWatchers offers subscribers meal plans with the goal of losing excess weight. With the acquisition of Sequence, the company is tapping into a red-hot market for prescription drugs that address obesity, and broadening what it offers to customers.
“It is our responsibility, as the trusted leader in weight management, to support those interested in exploring if medications are right for them,” said CEO Sima Sistani said in a prepared statement late Monday.
Ozempic, also known as semaglutide, works by stimulating the body’s own insulin production and reducing appetite. While it is prescribed for diabetes, Ozempic can also help people lose weight. The weight loss side effect of Ozempic has recently caused the drug to go viral on social media, with some people now seeking prescriptions from their doctors for that off-label use.
Ozempic manufacturer Novo Nordisk says that it's not a weight loss drug. It's used to improve blood sugar in adults with type 2 diabetes, along with diet and exercise, but can also help patients lose some weight.
Novo Nordisk says some serious side effects of Ozempic include possible thyroid tumors, including cancer; pancreatitis; kidney problems and gallbladder problems. The most common side effects are nausea, vomiting, diarrhea, stomach pain and constipation.
If it's not treated, obesity can lead to lifelong health problems, including high blood pressure, diabetes and depression.
Obesity prevalence rose from 30.5% from the 1999-2000 period to 41.9% for 2017 through March 2020, according to the Centers for Disease Control and Prevention. The prevalence of severe obesity surged from 4.7% to 9.2% for the same periods.
The estimated annual medical cost of obesity in the U.S. was almost $173 billion in 2019 dollars, according to the CDC. Annual medical costs for adults who had obesity were $1,861 higher than medical costs for people with healthy weight.
"This deal brings access to prescription drug solutions for weight loss to WW’s historical focus on behavior modification model," wrote UBS analyst Michael Lasser. "This is a significant change in the business. While the deal could bring considerable upside, it also carries sizable risks."
Lasser said that WW's business has been disrupted over the last several years and is now trying to take big steps to course correct. “We think it will take time to see if this action really produces a change in the company's fortunes,” he said.
WW International, based in New York, will pay $106 million for Sequence, which served about 24,000 members across the U.S. as of February, with annual revenue of about $25 million.
The acquisition is expected to close in the fiscal second quarter.