Obesity Drug Stocks: Where to Invest Now

The
challenge
is
that
both
stocks
currently
trade
in
overvalued
territory,
according
to
Morningstar
analysts.
Investors
looking
to
put
new
money
to
work
in
companies
developing
products
in
this
potentially
significant
market
must
decide
which
of
the
more
attractively
valued
competitors
are
best
positioned
to
muscle
their
way
in.

And
with
a
new
stream
of
studies
being
published,
like Wegovy’s
longest
clinical
trial
to
date,
comes
increased
tensions
between
the
drugmakers.

“We
think
current
share
prices
do
not
properly
account
for
expected
price
declines
and
competition,
let
alone
the
risk
of
patients
discontinuing
therapy
due
to
tolerability,
cost,
or
long-term
safety
issues,”
says
Karen
Andersen,
healthcare
strategist
at
Morningstar.

Other
Big
Pharma
companies
looking
to
gain
traction
with
their
own
obesity
drugs
include
Roche (ROG),
Pfizer (PFE),
and
Amgen (AMGN).

Key
Obesity
Drug
Stocks
and
Their
12-Month
Performance

•
Novo
Nordisk:
60.6%

•
Eli
Lilly:
78.1%

•
Pfizer:
-17.9%

•
Amgen:
44.7%

•
Roche:
-14.7%

Obesity
Drugs’
Big
Impact
on
Pharma
Stocks

Amid
the
obesity
epidemic
in
the
United
States,
pharmaceutical
companies
have
been
attempting
to
develop
effective
treatments
for
years.
“I
don’t
think
we’ve
ever
seen
this
sort
of
level
of
innovation,”
says Damien
Conover,
director
of
healthcare
research
for
Morningstar.
“Historically,
obesity
has
been
an
area
of
a
lot
of
failed
drug
development.
It’s
always
dangerous
to
say,
‘This
time,
it’s
different.’
But
this
time,
it
really
does
seem
different.”

Andersen
adds:
“So
it
was
a
sort
of
slow
realization
after
the
data,
approval,
shortages
…
and
then
it
took
off.
I
think
we
had
all
been
expecting
less,
given
that
the
launch
of
Novo’s
previous
obesity
drug,
Saxenda,
wasn’t
very
successful
–
albeit
with
about
5%
weight
loss.”

However,
investors
have
now
definitely
taken
note,
changing
the
landscape
of
pharma
stocks.
That
came
in
part
as
Lilly
has
seen
unparalleled
efficacy
in
its
weight-loss
drug
therapy,
and
its
stock
reflects
that
progress
with
its
big
2023
rally.
Meanwhile,
Novo
has
become
the
largest
company
in
Europe
as
measured
by
market
capitalisation.

Obesity
Drug
Market
Potential

Underlying
these
gains
are
expectations
of
massive
growth
for
these
drugs.
Conover
and
Andersen
project
that
the
global
market
for
obesity
drugs
will
be
$120
billion
by
2031
and
most
of
the
market
will
be
relatively
split
between
Novo
and
Lilly.
The
overall
market
for
the
kinds
of
treatments
employed
in
these
medications,
which
are
known
as
GLP-1s
and
are
also
used
to
treat
Type
2
diabetes,
is
seen
as
even
larger,
at
some
$170
billion.

Conover
and
Andersen
forecast
that
over
25%
of
obese
Americans
and
15%
of
overweight
Americans
will
receive
treatment
in
10
years,
and
the
vast
majority
will
receive
branded
GLP-1
therapies.
They
predict
the
bulk
of
those
sales
will
go
to
Novo
and
Lilly.

Obesity
Drug
Stock
Variables

With
new
gates
being
opened
for
these
drugs,
investors
have
multiple
variables
to
consider
when
it
comes
to
stocks
that
can
benefit.

One
of
the
biggest
factors
will
be
pricing,
both
the
prices
manufacturers
can
charge
and
what
end
consumers
pay
after
insurance.
Both
Lilly’s
Zepbound
and
Novo’s
Wegovy
have
a
listed
monthly
price
over
$1,000.
But
this
is
not
necessarily
reflective
of
what
the
typical
consumer
will
be
billed;
the
net
payment could
be
discounted
by
as
much
as
79%.
Such
pricing
could
make
a
big
difference
in
sales.

“It’s
such
a
big
market
that
you
don’t
need
to
change
the
penetration
levels
that
much
and
you
would
have
substantially
different
projections,”
says
Conover.

Meanwhile,
already-intense
competition
is
being
fuelled
by
a
steady
stream
of
studies
of
drug
effectiveness.
The first-of-its-kind
clinical
trial examining
the
long-term
effects
of
Novo’s
Wegovy
found
that
people
on
the
drug
maintain
weight
loss
for
up
to
four
years,
on
top
of
reducing
the
risk
of
heart
disease.
These
findings
could
act
as
a
catalyst
for
insurance
companies
and
governments
to
cover
Wegovy
more
liberally.

That
competition
is
part
of
the
reason
Conover
and
Andersen
expect
a
substantial
pricing
decline
over
time.
They
estimate
companies
are
currently
charging
an
average
of
$7,000
for
obesity
drugs,
but
that
will
likely
decline
to
under
$3,000
by
2031.

“Competition
and
efforts
to
expand
commercial
–
private
payer
–
reimbursement
contracts
tend
to
lead
to
lower
prices
at
bigger
volumes,”
Andersen
says.

Although
many
unforeseen
corners
could
lie
ahead,
one
thing
is
clear:
Lilly
and
Novo
revolutionized
the
weight-loss
landscape
through
years
of
continual
therapy
improvements.
“They
had
been
on
this
steady
path
until
they
got
to
the
point
where
this
obesity
data
came
out,”
Andersen
explains.
“It
had
somehow
broken
through
this
barrier
for
prior
obesity
drugs,
since
their
efficacy
was
undeniable,
and
it
really
turned
a
corner.”

Which
Obesity
Drug
Stocks
Should
You
Buy
Now?

“Novo
and
Lilly
are
kind
of
doing
their
own
thing
in
the
stock
market,
and
really
in
innovation,”
says
Conover.
“They
are
bringing
out
some
of
the
most
powerful
new
drugs
for
sales
generation,
in
our
estimation.”

Andersen
says,
“I
think
we’re
at
a
point
in
this
market
where
it’s
accepted
that
Novo
and
Lilly
are
both
strong
players
and
poised
to
benefit
incredibly.
I
think
it
would
be
tough
to
really
take
down
either,
unless
there
was
some
drastic
reduction
in
supply
or
a
massive
safety
issue
that
we
somehow
didn’t
see
until
now.”

However,
for
investors,
there
are
valuations
to
consider.
Lilly
is
currently
trading
at
a
price/fair
value
ratio
of
1.45,
meaning
it
is
45%
overvalued
compared
with
Conover’s
fair
value
estimate
of
$540.
Meanwhile,
Novo
has
a
price/fair
value
ratio
of
1.55,
based
on
Andersen’s
fair
value
estimate
of
$86.

We
expect
Lilly
to
partly
elevate
capacity
constraints
for
Mounjaro
and
Zepbound
in
the
second
half
of
the
year,”
Conover
says.
“Lilly
expects
to
increase
the
drugs’
production
by
50%
by
the
end
of
the
year.
With
demand
outstripping
supply,
we
expect
Lilly
to
sell
what
it
can
produce.”

Pfizer
has
been
considered
a
significant
contender,
but
recently
it
provided
lower-than-expected
2024
guidance,
which
brought
its
Morningstar
fair
value
estimate
for
the
company’s
stock
from
$47
to
$42
per
share.
The
company’s
2024
projection
“included
covid-19
product
guidance
of
$8
billion,
which
was
$5
billion
lower
than
our
expectation,”
Conover
says.

However,
Pfizer’s
diverse
line
of
drugs
and
vaccine
provide
for
a
steady
cash
flow,
and
the
market
is
still
significantly
undervaluing
its
stock
price,
with
the
last
closing
price
being
$28.50.

Another
aspirant
is
Amgen.
“They
are
committed
to
entering
the
obesity
market—either
with
the
lead
candidate
(similar
to
Lilly’s
Zepbound,
it
is
targeting
GLP-1
and
GIP
hormones)
or
additional
drugs
that
are
in
phase
1
and
preclinical
studies,”
says
Andersen.
“We
expect
phase
2
data
from
the
lead
AMG133
program
in
the
second
half
of
2024.
The
key
selling
point
so
far,
based
on
phase
1
data,
could
be
that
it
requires
less
frequent
administration—it
could
be
administered
monthly,
instead
of
the
weekly
Zepbound—and
may
lead
to
longer
maintenance
of
weight
loss
after
stopping
therapy.”

In
addition,
Andersen
says
Amgen’s
offering
has
showed
“compelling”
speed
of
weight
loss.
“It
will
be
interesting
to
see
longer-term
data
to
see
the
final
plateau
of
weight
loss.”
She
adds
that,
given
the
minimal
data
so
far
from
the
company,
“Amgen
is
sort
of
a
wild
card,
as
it
could
either
be
best-in-class
or
encounter
issues
with
tolerability
or
safety
that
make
it
less
compelling.”

In
the
first
quarter,
Amgen’s
sales
grew
22%,
raising
its
fair
value
estimate
to
$317.
Amgen’s
stock
is
also
undervalued,
currently
trading
at
$314.54.

Then
there
is
Roche,
which
in
2023
entered
the
fray
with
the
acquisition
of
private
biotechnology
company
Carmot,
which
has
three
clinical-stage
obesity
drugs
in
the
works.
“Investors
might
be
better
served
by
taking
a
less
focused
approach
toward
investing
in
obesity
stocks
and
consider
a
firm
like
Roche,
where
we
like
the
overall
portfolio
and
investors
get
some
exposure
to
new
obesity
drug
development,”
Conover
says.

Here’s
a
look
at
Morningstar’s
take
on
key
obesity
drug
developers
and
their
stocks:

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