Every so often a drug or other medical innovation comes along that fundamentally changes the course of public health.
Vaccinations that have virtually eliminated polio, smallpox, and hepatitis are among them. As are antibiotics and birth control.
We can now add a breakthrough in the effectiveness of a class of medicines designed to treat diabetes. They have become the most talked about drug developments in recent memory because of their extraordinary impact on obesity. This has launched them into the mainstream as a quick and easy way to lose weight.
The drugs area taken as weekly injectables and work by stimulating a neural response that sends a message to your brain that you are no longer hungry. They also stimulate insulin production, which slows digestion and makes you feel fuller, longer. People eat less and lose weight. By losing weight they reduce stress on their heart and other organs.
Celebrity endorsements for the off-label weight loss version of the drugs have spread the word. Elon Musk tweeted that he’d lost 40 pounds taking a weekly injection of Wegovy, the trade name of the drug marketed to diabetics by Danish pharmaceutical company Novo Nordisk A/S (NYSE: NVO).
A version of the same drug called Ozempic, which is sold for weight loss, is also a social media hot button. At this year’s Academy Awards, host Jimmy Kimmel made a joke about Ozempic TV ads: “When I look around at this room I can’t help but wonder: Is Ozempic right for me?”
New benefits of these drugs continue to emerge. Last week, Novo Nordisk said it will halt a trial studying Ozempic’s effectiveness to treat kidney failure in diabetes patients almost a year ahead of schedule. Why? It was clear from the results of an interim analysis that the treatment would succeed.
The attraction is that without ever getting off the couch and heading out to the gym, patients shed up to 15% of their body weight in about a year. This has implications for overall health and wellness. And because of the potential global size of the weight loss market, it has big implications for investors.
About 60% of Novo Nordisk’s sales come from this category of drugs. CEO Lars Fruergaard Jorgensen told CNN that demand is so high it could take years before it can produce enough of the drugs to satisfy the requests for them. “We are just scratching the surface, so to say,” he said, adding that 100 million Americans struggle with obesity.
In early September, Novo Nordisk became Europe’s most valuable publicly listed company. Its shares are up 44% year-to-date with a recent stock market value of US$437 billion. That exceeds Denmark’s entire gross domestic product. The price run-up was so great that Novo Nordisk shares split two-for-one in September. They closed recently at $97.52. (Figures in US dollars unless otherwise indicated.)
Novo Nordisk is expanding sales into the UK even though it can’t meet demand in its current markets. The move is seen as an attempt to head off rival Eli Lilly & Co. (NYSE: LLY) which has a competing drug that may be better than Ozempic. Why the UK? Nearly one in three adult Britons is obese, the highest level in Europe, according to the Organization for Economic Co-operation and Development (OECD).
Eli Lilly’s trade name for their drug is Mounjaro. It was approved in the US in 2022 for treatment of Type 2 diabetes and is expected to be approved as a weight-loss drug by year-end. It is approved for use in Canada, but not yet available. Studies have shown that Mounjaro induces more weight loss than with Wegovy.
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%. As a result of these developments, Lilly’s shares have jumped 62% year-to-date to a recent price of $592.
Mounjaro generated $980 million in revenue in Lilly’s latest quarter, with 93% of that coming from the US. It was a strong contributor to Lilly’s 28% rise in overall quarterly revenue to $8.3 billion. Earnings per share increased 86% to $1.95.
So far, the drugs have proved safe, but patients must continue taking them to keep the weight off. The intense nausea that comes with the injections eases over time, but other side effects include ongoing gastrointestinal upset. A good primer on the pros and cons of Ozempic vs Mounjaro can be found at the web site of non-profit Drugwatch.com.
In the US, the drugs are expensive, costing between $1,000 and $1,500 a month. In Canada, they cost about C$250 a month, with provincial approvals and drug plan coverage varying. In Ontario, OHIP covers Ozempic, but not Mounjaro and Wegovy. Both companies pay a modest dividend. Lilly’s $4.52 annual payment yields 0.77% at current prices and Novo Nordisk’s $2.06 payment yields 0.65%.
For investors, on one hand, the potential is huge and the drugs are in the early stage of adoption. But while Novo Nordisk and Lilly have big leads with strong marketing and distribution channels, today’s leaders may not be tomorrow’s winners. High expectations have been built into share prices. Lilly’s trailing price to earnings ratio is 74 and Novo Nordisk’s is 46. Competition will only intensify.
This article appeared in the Internet Wealth Builder on Oct. 16, 2023. For information on how to reprint this article please view this page.
Adam Mayers 
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