Weight loss drugs Ozempic, Wegovy may be right for investors

Breakthroughs in the effectiveness of a class of medicines designed to treat diabetes have become the most talked about drug developments in recent memory, mainly because of their extraordinary impact on obesity.

The drugs work by stimulating a neural response that sends a message that you are no longer hungry. They also stimulate insulin production which lowers the risk of hypoglycemia in Type-2 diabetics. The extra insulin slows digestion which makes people feel fuller, longer. They eat less and lose weight.

For investors, the excitement is as much about the easy weight loss as how these medications help diabetics. Without ever hopping on a treadmill, patients shed up to 15 per cent of their body weight in about a year with implications for overall health and wellness.

Celebrity endorsements have put the drug trade names at the top of trending social media searches. Elon Musk tweeted that he’d lost 40 pounds taking a weekly injection of Wegovy which Danish drugmaker Novo Nordisk (NYSE: NVO) markets for weight loss. Musk said it was his secret weapon for looking “fit, ripped, and healthy.”

At this year’s Academy Awards, host Jimmy Kimmel opened his monologue with a riff on Ozempic TV ads. Ozempic is a similar Novo Nordisk drug approved for diabetes, though often used off-label for weight loss.

“When I look around at this room, I can’t help but wonder: Is Ozempic right for me?” he joked. 

But the market potential is no joke. The US. National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) estimates that nearly one in three American adults (30.7%) are overweight and two in five (42.4%) are obese.

“Are these drugs really a big deal?” asks Paul MacDonald, Chief Investment Officer at Harvest Portfolios Group Ltd. in Oakville Ont. “Unequivocally, yes. A very big deal.  The systemic cost of obesity is huge, including such things as heart disease. So the benefit of finding a way to reduce it is massive.”

Jeff Elliott, lead Global Equity Portfolio Manager for Healthcare at BMO Global Asset Management in Toronto, notes there’s a straight line between losing weight and better health outcomes. The ability for such a large number of people to do that leads to an opportunity for investors.

“There are many people who want to lose weight the easy way,” says Mr. Elliott, a Ph.D. in molecular biology and biochemistry.  “So the commercial draw on this is huge.”

Eli Lilly & Co. (NYSE: LLY) and Novo Nordisk are the leaders, both of whom market once-weekly injectables with similar weight-loss characteristics. Investors have rewarded both. Eli Lilly’s stock is up 27 per cent year-to-date July 7 and Novo Nordisk by 17 per cent.

Eli Lilly’s stock is up 46% this year, including a double-digit percentage surge on Tuesday to a record high after announcing strong quarterly results and raising annual forecasts, thanks in part to demand for its Mounjaro weight loss drug. Novo Nordisk shares are up 40% this year after surging Tuesday on news that a large study of Wegovy showed a clear cardiovascular benefit.

Lilly’s weight loss drug, marketed as Mounjaro is approved for use in Canada, but is not yet available.  A recent Lilly trial of a new molecule called retatrutide which acts on three receptors, is even more promising. It increased weight loss in one year to 24 per cent.

Pfizer Inc. (NYSE:PFE) is as an illustration of the risks involved in chasing the potential of these sorts of developments. CEO Albert Bourla told analysts recently that an obesity pill could one day be a US $10-billion-a-year product for Pfizer. He estimated the overall market for these drugs could hit US $90 billion globally by 2030.

But Pfizer’s shares sold off sharply in late June when it abandoned a once-a-day obesity pill because of concerns about liver safety. It continues to develop a twice-daily pill with a different formulation. The stock is down 30 per cent year-to-date. Amgen Inc. (NDQ:AMGN ) sees promise in an experimental weight loss drug, but it is in the early trial stages.

Harvest Portfolios and BMO GAM are placing bets on these drugs. Mr. MacDonald manages the Harvest Healthcare Leaders Income ETF, (TSX: HHL) which holds Eli Lilly,  Pfizer and Amgen. BMO GAM recently launched the BMO Global Health Care ETF (NEO:BGHC) which holds Eli Lilly and Novo Nordisk. Mr. Elliott leads a team managing the fund.

The drugs have proved safe, but patients must continue taking them to keep the weight off.  The first hurdle is overcoming the intense nausea that comes with the injections. Mr. Elliott says this eases over time, but other side effects include ongoing gastrointestinal upset.

They are also expensive, costing between US $1,000 and $1,500 a month in the US. They are cheaper here, costing about $250 a month with provincial approvals and drug plan coverage varying. In Ontario, OHIP covers Ozempic, but not Mounjaro and Wegovy.  

An unknown is what US insurers will do. They may pay for diabetic use, but not recreational weight loss. The sense is that coverage will grow because employees want the drugs and in a tight labour market employers see it as a perk.  

So what should investors do?

“If you look at the stocks, clearly the market believes that Novo Nordisk and Lilly are the ones to look at,” says Mr. Elliott. “They have the market and best pipelines.”

He notes that high expectations have been built into share prices and competition will only intensify. The ultimate winners have yet to be decided.

“In drug development, things have potential until they don’t,” he says. “Things can look good in  Phase 1 and may not make it out of Phase 3.”

Both analysts see a basket of stocks as the best way to capture the theme.

 “My take is always diversity,” Mr. MacDonald says. “Maybe Amgen’s science works really well. Maybe Pfizer’s oral dose is a game changer because it’s easier to make and distribute. A diversified basket helps reduce some of that sensitivity around how the science unfolds.”

This article appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on Aug. 2, 2023. For reprint information please view this page.