By Darius McDermott, managing director of FundCalibre
Health and money are two of the most common New Year resolutions. In 2024, there is a way to combine them by investing in healthcare companies developing anti-obesity drugs.
With its 100-year history, Danish drugmaker Novo Nordisk is hardly an overnight success. But the soaring demand for two of its newest weight-loss products – Ozempic and Wegovy – has catapulted the pharmaceutical company into a league of its own.
From the start of 2020 to the end of 2022, prescription volumes for GLP-1 medications in the US increased 300% according to a report by Trilliant Health, with healthcare providers writing more than nine million prescriptions for Ozempic, Wegovy and similar anti-obesity drugs during the past three months of 2022 alone.
Evidence of this explosion in demand is clear in Novo Nordisk’s share price, with early investors reaping serious rewards. Shares in Novo Nordisk were trading at around $23 a piece five years ago – by the start of 2023 (when Ozempic and Wegovy really started gaining widespread fame), that jumped to $69 per share. By the end of 2023, Novo Nordisk shares jumped further to $103.
Demand for its products is leaving Nordisk running to catch up. James Hanford, manager of the Comgest Growth Europe ex UK fund, said: “Demand for GLP-1s is significantly above Novo’s ability to supply currently.”
His fund has a 30.2% allocation to healthcare, with 7.2% in Novo Nordisk – a stock he saw the potential in early and has held for a number of years.
“In our view, a primary theme in healthcare for 2024 will be the continued roll-out of Novo Nordisk’s GLP-1 drug class as the company continues to build out its supply chain to cater for the high demand for this class of medicines,” he added.
GLP-1s may be effective in fighting obesity, but the main excitement comes its ability to also have a positive impact on its morbidities and related illnesses, such as diabetes,liver and kidney disease, sleep apnoea and Alzheimer’s.
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James Douglas, manager of the Polar Capital Healthcare Trust, called GLP-1s “one of the biopharmaceutical industry’s most significant advances in recent times” due to its multi-effects.
“The impact GLP-1s are having on weight loss is hugely impressive, but there is just as much excitement with some of the secondary benefits of the drug class,” he said.
“So not only does the drug help patients lose weight, but it also reduces their risk of further serious cardiovascular events, such as myocardial infarction (heart attacks) and strokes.”
The success of GLP-1 treatments is also leading to further advances across other companies working in this emerging area. Luca Emo, co-manager of the European Opportunity Trust, has invested 35.3% of his fund in healthcare and 12.8% in Novo Nordisk, but he already has his eye on Eli Lilly’s newer tirzepatide (Mounjaro and Zepbound) peptide, which comprises 39 amino acids, versus Ozempic and Wegovy’s 31.
“This greater complexity of the newer drug has resulted in a change in manufacturing technique,” Emo said. “While semaglutide is manufactured through recombinant technology – based on living cells – tirzepatide is manufactured through chemical synthesis.
“The advantage of chemical synthesis is that it enables the creation of more complex molecules with greater stability and the scope for faster production at scale.”
Emo pointed out that companies such as Bachem, the Swiss-listed producer of APIs (active pharmaceutical ingredients) and CDMO (contract development and manufacturing organisation), sees tirzepatide as representative of a broader shift towards more complex peptides and to chemical synthesis, while Novo’s next generation diabetes and obesity drug CagriSema combines cagrilintide with the existing semaglutide molecule.
“Unlike the existing semaglutide molecule, we expect the cagrilintide component to be manufactured via chemical synthesis reflecting the increased complexity,” Emo explained.
He anticipates that Bachem will start production at a new manufacturing facility in 2024 and ramp-up its production of its peptide manufacture, based on some significant contract wins.
For much of 2023, the healthcare sector suffered as Covid-19 retreated, with some companies’ revenues declining sharply. Over the next few years, pharmaceutical giants are facing the loss of hundreds of millions of dollars as patents expire, meaning prices on blockbuster drugs can come under huge pressure.
Obesity and diabetes treatments are therefore seen as the next revenue wave for pharma, so investors won’t want to miss out.
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