For many people struggling with obesity, new drugs have been “a gift,” as Oprah Winfrey described it when she recently announced that she had “got rid of the embarrassment.” Investors in drugmakers Novo Nordisk and Eli Lilly might use the same term for the returns they received over the past year. US-listed shares of Novo Nordisk, maker of Ozempic and Vegovy, have gained about 52% year to date, while Lilly’s shares have gained 56% over the same period. Lilly’s Zepbound has recently entered the weight loss market, and is off to a strong start. It contains the same active ingredient, tirazepate, as in the Monzaro type 2 diabetes treatment. But what’s next for the weight loss business in 2024? “We’re very optimistic about that market, and we’re in the very early innings,” said Andy Acker, portfolio manager in Janus Henderson’s health care team. The firm has maintained its positions in both stocks over the past decade, and expects there is room for many companies in this category to “build strong, profitable new franchises that can help many patients around the world.” Lilly and Novo currently have the market. According to FactSet, most Wall Street analysts maintain buy ratings on both stocks. Views are somewhat more positive for Lilly, but some analysts have become more cautious as valuations have become richer. Still, with an average price target of $646, Lilly shares could rise 13% from Friday’s close, the data provider said. Both companies are investing heavily to increase manufacturing capacity, as today the supply far falls short of the demand for the drugs. Investors will be eager to see how companies manage to balance that in 2024. Wall Street expects the market for these drugs to exceed $100 billion before the end of the decade. Beyond Ozempic in 2024, investors will want to see many other companies, both large and small, vying to enter the category with their own versions of these drugs. The new drugs mimic incretin hormones found in the gut, such as GLP-1 and GIP, to suppress appetite and regulate insulin secretion. In doing so, the medications help patients lose 15% to 20% or more weight. However, because the medications work as hormone replacements, patients may regain weight if they stop treatment. Next-generation versions may work longer or be taken orally instead of by injection once a week as is the case now. Aker also expects more innovation to come as companies develop drugs to help manage side effects such as loss of lean muscle. Regeneron and Biohaven are two companies from Janus that are working on drugs to help preserve muscle. Aaker said, “How can we lose weight while preserving muscle? How can we get better maintenance therapies that are easier for patients to take?” “These are all unmet medical needs that we are investing in that can help solve huge challenges as we implement these globally,” he said. Buzz is preparing in advance of an expected update from Amgen on its anti-obesity drug, Mari-Tide (formerly AMG 133). The stock received several upgrades from analysts this month, citing this event as a potential catalyst. “The new growth segments are key to the story, as long-term drivers of value (with prospects beyond 2030) and bridges to cross from legacy commercial assets to emerging oncologies, [inflammation and immunology], rare disease, and cardiometabolic/obesity platforms,” RBC Capital analyst Gregory Renza wrote in a research note on Dec. 12 that Amgen would be upgraded to outperform the sector. Renza hopes the updated trial results will show how competitive Amgen’s product is compared to existing ones. treatment. Other companies working on incretin drugs include Pfizer and Structure Therapeutics, both of whose programs have suffered some recent setbacks. AstraZeneca has jumped into the race by licensing the GLP-1 drug in development from Accogene. Beyond Weight Loss One of the most defining events of 2023 in this area was Novo Nordisk’s release of top-line results from its Selection trial in August. This data, with full results published in November, showed that patients benefited from taking semaglutide, the active ingredient in Vegovy and Ozempic, to address obesity. More than cosmetic benefits. This also reduced their risk of heart disease. In the coming years, more will be learned about other health outcomes, which should continue to shape treatment and health insurance coverage. “Overall we see more than 20 relevant trials underway that are set to be studied over the next few years, providing a steady stream of information on the potential wide-ranging health benefits of AOM. [anti-obesity medications]Goldman Sachs analyst Chris Shibutani said in a research note in mid-December. “The results of these studies provide insight into how obesity is contextualized and managed as a disease, and ultimately how widespread its impact is.” These drugs are used and, very importantly, reimbursed.” Beyond pharma stocks, there could be volatility with each data release. In 2023, enthusiasm for weight loss drugs has taken a hit in a number of unexpected ways. Shook up the markets. Since obesity and overweight are so common, many investors began theorizing about how these life-changing drugs could shake up society. The result was unexpected turmoil in some sectors. Featured Beginning with the study data, investors sold off restaurant, food and beverage stocks, expecting that these companies would lose some of their best customers. Stocks of all types of medical devices fell. As speculation grew that people might not want to undergo bariatric surgery when they could take medication instead, or that they would not need to have their knees and hips replaced once they got thin. PODD YTD Shares of Mountain Insulate have fallen year over year. The list kept getting longer. For some time it seemed that hardly any sector of the economy would survive. One day, there was speculation that airlines would save fuel as they would carry lighter passengers. Another day, packaging stocks would be sold on the belief that a decline in sales of tortilla chips, ice cream and cookies would be a blow to the companies that make boxes and bags of these products. Wall Street analysts rushed to calm investors, saying if these changes occurred, they would not happen overnight. Since November, some of the worst-hit stocks have pared their losses, and some of the worst names are joining lists of stocks to buy in 2024. For example, Leerink Partners analyst Mike Kratky names diabetes device makers Insulet and Dexcom as two stocks. Among his top three choices in 2024. (The third was Verisel, which works in sports medicine and burn care.) “We see significant valuation dislocations in medtech following the sharp GLP-1-driven selloff in 3Q23,” Kratky said in a research note last week. DXCM YTD Mountain Dexcom Shares Up YoY Kratky remains cautious about stocks that are exposed to “headline risk” associated with obesity drugs, but sees opportunity for names that will have “upcoming catalysts that will lead to so-called GLPs.” -1 can remove overhang.” Insulate shares have declined about 27% in 2023, falling to $125.82 in October. However, Kratky is hopeful that Insulate’s data will help support the use of insulin pumps, even as more patients move to GLP-1 drugs. He has a $270 price target on the stock, which implies an upside of 25%. Dexcom has returned to a nearly 8% gain this year. But shares traded as low as $74.75 in October. Leerink sees the stock rising to $144, or 17% above Friday’s close. The affected companies have also been very vocal on how they plan to co-exist with these weight loss products. For example, food companies such as Nestlé have discussed how they could develop protein bars and drinks for those taking incretin medications. The ‘Oprah Effect’ The new year will bring more education about obesity as a chronic disease, more discussion about how these drugs work, and hopefully more realistic expectations about their benefits. Several reports in 2023 revealed how much obesity and overweight are misunderstood, even among those who experience it themselves. Speaking on a panel published on Oprah’s Daily in September, Winfrey criticized weight-loss drugs and said she needed to lose weight on her own, saying that taking drugs was “the easy way out.” WW YTD Mountain WW shares are up 143% in 2023. “I have to do it the hard way. I have to keep climbing mountains. I have to keep suffering, I have to do this because otherwise I’ve somehow betrayed myself,” she said at the time. As she has in the past Winfrey’s comments swayed the markets. Winfrey is an investor and sits on the board of Weight Watchers’ parent company WW International, which runs its traditional weight management program as well as Sequence, a telehealth platform that offers its Helps users obtain weight-loss drugs. After Winfrey’s September comments, the stock declined. But WW shares rose 25% last week. The action came after People magazine published an interview with Winfrey. in which she said she was using the weight-loss drug as a “maintenance tool.” With those gains, WW shares are up 144% year to date, though in recent years The stock has fallen sharply. According to FactSet, if the gains continue in the last week of 2023, it will be the first positive year for the stock since 2017. In the People cover story, Winfrey said: “The fact that there is a medically approved prescription for managing weight and staying healthy in my lifetime feels like relief, like redemption, like a gift, and back then. Ridiculed for having nothing to hide and once again doing so. I am completely fed up of embarrassing other people and especially myself.” — CNBC’s Michael Bloom contributed reporting.
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