For many people struggling with obesity, the new drugs have been a “gift,” as Oprah Winfrey described it when she recently declared that she was “gone with shame.” Investors in drugmakers Novo Nordisk and Eli Lilly might use the same term for their gains over the past year. U.S.-listed shares of Ozempic and Wegovy maker Novo Nordisk are up nearly 52% year-to-date, while Lilly’s is up 56% over the same period. Lilly’s Zepbound recently entered the weight loss market and is off to a strong start. It has the same active ingredient, tircepatide, as its Mounjaro type 2 diabetes treatment. But what lies ahead for the weight loss business in 2024? “We’re very optimistic about this market and we’re very, very early stage,” said Andy Acker, a portfolio manager in Janus Henderson’s healthcare team. The firm has held positions in both stocks over the past decade and expects there is room in the category for more companies to create “strong, profitable new franchises that can help many patients around the world.” Lilly and Novo currently have the market to themselves. Most Wall Street analysts maintain buy ratings on both stocks, according to FactSet. Views are slightly more positive for Lilly, but some analysts have become more cautious as valuations have gotten richer. Still, with an average price target of $646, Lilly shares could rise 13 percent from Friday’s close, the data provider said. Both companies have invested heavily in developing production capacity, as the supply is currently far from the demand for medicines. Investors are anxiously awaiting how companies manage this balance in 2024. Wall Street expects the market for these drugs to grow to more than $100 billion before the end of this decade. Beyond Ozempic In 2024, investors may want to look at several other companies, both large and small, competing to enter the class with their own versions of these drugs. The new drugs mimic incretin hormones found in the gut, such as GLP-1 and GIP, to reduce appetite and regulate insulin secretion. In doing so, the drugs help patients lose 15 to 20 percent or more of their weight. However, since the drugs act as hormone replacement, patients may gain weight if they stop the treatment. Next-generation versions may be longer-acting or taken orally instead of the once-a-week injection that’s common now. Acker also expects more innovation as companies develop drugs to help manage side effects, such as loss of lean muscle mass. Regeneron and Biohaven are two companies owned by Janus that work on muscle preservation drugs. “How do we lose weight while maintaining muscle? How can we get a better maintenance regimen that’s easier for patients to take?” Acker said. “These are all unmet medical needs that we are investing in that can help address major challenges as we deploy them globally,” he said. Buzz has been building ahead of Amgen’s expected update to its obesity drug, mari-tide (formerly AMG 133). The stock received several updates from analysts this month as this event is a potential catalyst. “New growth segments are key to the story as long-term value drivers (views beyond 2030) and as a bridge from legacy commercial assets to emerging oncology, [inflammation and immunology], rare diseases and cardiometabolic/obesity platforms,” RBC Capital analyst Gregory Renza wrote in a research note in which Amgen upgraded the sector’s outperform on Dec. 12. Renza expects the updated test results to show how competitive Amgen’s product is compared to the current one. Other companies working on incretin drugs include Pfizer and Structure Therapeutics , whose programs have recently suffered setbacks. AstraZeneca has jumped into the fray by licensing Eccogene’s GLP-1 drug in development. In addition to weight loss, one of the best 2023 A key event in the space was top results from Novo Nordisk’s Select study, released in August. That information, along with full results released in November showed that taking semaglutide, the active ingredient in Wegovy and Ozempic, to treat obesity gave patients more than a cosmetic benefit. It also lowered their risk of cardiovascular disease. In the coming years, more will be learned about other health effects that should continue to shape treatment and health insurance coverage. “In total, we see more than 20 relevant studies underway that are due to be read over the next few years, providing a steady stream of data on the potential wider health benefits of AOMs. [anti-obesity medications]” said Goldman Sachs analyst Chris Shibutani in a research note in mid-December. “The results of these studies are expected to have a significant impact on how obesity as a disease is contextualized and treated, and ultimately how widely. these drugs are utilized and, most importantly, reimbursed.” Beyond Drug Stocks There can be volatility with every release of information. In 2023, the glut of diet pills shook the market in many unexpected ways. With obesity and overweight so common, many investors began to wonder how these life-changing drugs could beginning to spread through society. The result was an unexpected upheaval in some sectors. Since the Select survey data, investors sold shares in restaurant, food and beverage stocks, expecting these companies to lose some of their best customers. All kinds of medical equipment stocks took a beating as speculation increased that, that people don’t want to go for bariatric surgery when they could take a drug instead, or not have to replace their knees and lose their hips PODD YTD mountain Insulet shares to date The list of affected sectors grew long. For a while it seemed that hardly any part of the economy would escape. There was speculation the other day that airlines would save fuel by carrying lighter passengers. For another day, packaging stocks are selling off on the belief that falling sales of tortilla chips, ice cream and cookies would be a blow to companies that make boxes and bags of those products. Wall Street analysts rushed to reassure investors, saying these changes would not happen overnight, if at all. Since November, some of the worst-hit stocks have cut their losses, and some of the battered names are ending up on 2024 buy lists. Leerink Partners analyst Mike Kratky, for example, named diabetes device makers Insulet and Dexcom as two of his top three picks for 2024. (The third was Vericel , which works in sports medicine and burn care.) “We see significant valuation headwinds remaining in MedTech after the steep GLP-1 selloff in the third quarter of 2023,” Kratky said in a research note last week. DXCM YTD Mountain Dexcom Stock Year to Date Kratky remains wary of stocks exposed to “headline risk” related to obesity drugs, but sees opportunity for names with “future catalysts that could reverse the observed GLP-1 overshoot.” Shares of Insulet have lost nearly 27% in 2023, after falling to $125.82 in October. However, Kratky expects Insulet’s data to help support the use of insulin pumps even as more patients switch to GLP-1 drugs. He has a $270 price target on the stock, implying a 25% upside going forward. Dexcom is up nearly 8 percent this year. But in October, shares traded as low as $74.75. Leerink sees the stock rising as high as $144, or 17% above Friday’s close. The companies involved have also been very vocal about how they plan to go hand in hand with these weight loss products. For example, food companies such as Nestle have discussed how they could develop protein bars and drinks for people taking incretin drugs. “The Oprah Effect” The new year also brings more education about obesity as a chronic disease, more discussion about how these drugs work, and hopefully more realistic expectations about their benefits. Many reports in 2023 showed how obesity and overweight are misunderstood, even among those who experience it themselves. Speaking at a panel on Oprah Daily in September, Winfrey criticized weight-loss drugs, saying she had to lose the pounds herself, adding that taking the drug was an “easy way to get off.” WW YTD mountain WW shares are up 143% in 2023. “I’ve got to do it the hard way. I’ve got to keep climbing mountains. I’ve got to keep suffering, I’ve got to do it because otherwise I’m kind of letting myself down,” he said at the time. As in the past, Winfrey’s comments changed the market. Winfrey is an investor and serves on the board of Weight Watchers’ parent company, WW International, which operates the traditional weight management program as well as the Sequence telehealth platform, which helps users obtain weight-loss medications. After Winfrey’s comments in September, the stock took a hit. But WW shares rose 25 percent last week. The action comes after People magazine published an interview with Winfrey in which she said she uses weight-loss drugs as a “maintenance tool.” Those gains have sent WW shares up 144 percent year-to-date, even though the stock has fallen sharply in recent years. If gains hold through the final week of 2023, it will be the first positive year for the stock since 2017, according to FactSet. In a People magazine cover story, Winfrey said, “Having a medically approved prescription for weight control and staying healthy in my lifetime feels like a relief, a redemption, a gift, and not something to hide behind and have again. I’m completely exhausted by other people, and especially myself of shame.” – CNBC’s Michael Bloom contributed reporting.
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