Elnora H. and William B. Quarton Professor of Business Administration and Economics, Coe College, Iowa
Weight-Loss Revolution, 9/4/2023
The more I look at GLP-1 drugs, the more I hate myself for failing to spot this investment opportunity earlier. But it's not too late because weight-loss drugs are at the early stage of changing our lives.
Eli Lilly’s Mounjaro and Novo Nordisk’s Ozempic and Wegovy are drugs that not only help diabetic patients but also show the effectiveness of reducing weight. Mounjaro can reduce weight as much as bariatric surgery. It is not invasive like surgery and requires no determination like diet or exercise. The obesity problem and its associated health issues in the U.S. can soon be dealt with by these super drugs. GLP-1 drugs are now even said to help with cardiovascular problems.
Human beings secrete molecules similar to GLP-1 drugs. They are said to regulate our appetite. GLP-1 drugs function just like these molecules. People who have cravings for sugar, or food in general, know how hard it is to fight the urge to eat. They are accused of being weak-willed. Why don’t you eat less? Why don’t you exercise more? Obesity is Exhibit A of your mental weakness. But GLP-1 has significantly changed that outlook.
A large-scale weight loss in the population has consequences for many businesses. For one, the sugary drinks market will take a big hit. So will the industries that focus on diet control and workouts. But I think the biggest impact will be on the healthcare industry. We can start to see some huge savings on obesity-related health problems.
The beauty of investing in LLY or NVO is that the drugs must be taken continuously to control the weight. They can keep selling the expensive drugs until their patents expire. My guess is that with such savings, health insurance companies will negotiate with LLY and NVO to lower the price for coverage. It is going to be a win-win-win situation. Lilly and Novo Nordisk get to sell more drugs than now, albeit at a lower price. But volume will more than make up for the price cut. Health insurance plans will see big savings in obesity-related illnesses, despite a high upfront payment for the drugs. People get to live a healthier life with the drugs.
The question for investors is whether it is still a good time to enter LLY or NVO.
NVO’s Ozempic is growing at a 70% YoY clip, while Wegovy quadrupled its sales from 2021 to 2022. I also look at Lilly’s Mounjaro. Quarter-over-Quarter, it grows at a 70% rate! Lilly’s 70+ P/E and $500B+ market cap are completely justified.
The growth rate can easily be maintained in the next few years. I really don’t see why the stock prices for LLY and NVO would fail to continue to rise. It is the Nvidia of the biotech world. Just like AI, the Weight-Loss Revolution has just begun.
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