(Bloomberg) -- For investors, there's a whole lot more to the boom in demand for weight-loss drugs than the rising stock prices of Novo Nordisk A/S and Eli Lilly & Co.
While Ozempic maker Novo has surged into pole position as Europe's biggest company by market value, the question on the minds of many fund managers is what other stocks and sectors stand to benefit. And just as importantly, who is likely to lose.
Potential winners include the likes of syringe maker Gerresheimer AG and drug distributor McKesson Corp., while takeaway outlets and beermakers may struggle amid changing eating habits. Meanwhile, weight-loss treatments could lead to a healthier population overall, spurring demand for exercise equipment from Peloton Interactive Inc. and food ingredients from Novozymes A/S.
“Weight-loss treatments change the landscape in health care because of the switch towards more preventive measures,” said Henk Grootveld, head of trends investing at Lombard Odier Investment Managers. “Besides the health-care space it could also have huge consequences on consumer and lifestyle trends given these treatments reduce appetite.”Here are some of the stocks and sectors that are likely to see the biggest impact:
Novo Nordisk became Europe’s most valuable company this month thanks to the success of its Wegovy and Ozempic injectable drugs, a class of medicines known as GLP-1s. Shares in Eli Lilly are up 57% this year in anticipation of an expected US approval to use its Mounjaro diabetes medicine to treat obesity. Berenberg estimates the global obesity market could be worth $85 billion by 2030, with Novo’s and Lilly’s products driving growth this decade.
Analysts see more optimism ahead. JPMorgan Chase & Co. boosted its price target on the Danish drugmaker’s shares this month and increased estimates for Lilly given the company’s higher obesity sales potential.
Meanwhile, other companies are developing potential treatments, such as Zealand Pharma A/S and closely held Boehringer Ingelheim GmbH which are moving to a late-stage study of their experimental drug. Zealand, whose shares are up 48% this year, is a “key player” in the “next wave of obesity therapeutics” and has the potential to be acquired, said Lucy Codrington, an analyst at Jefferies International Ltd.
Some drugmakers are further behind. Pfizer Inc. this year halted development of an experimental pill, though it’s continuing to test another drug that outperformed a placebo in a study. Viking Therapeutics Inc. has started a mid-stage trial, while Gilead Sciences Inc. is looking into a treatment with Novo for nonalcoholic steatohepatitis, a liver disease that is linked to obesity. Ailsa Craig, co-manager of the International Biotechnology Trust Plc, is keeping an eye on Amgen Inc., which is developing a therapy that involves less frequent injections than Lilly’s drug. Results from a mid-stage study are expected next year.
Novo is making more medicine than ever before as it struggles to keep up with demand, which is good news for suppliers including Catalent Inc. which fills Wegovy pens with the clear liquid. The drugmaker has also brought on Thermo Fisher Scientific Inc. to help keep up with demand, according to Reuters. Novo Chief Executive Officer Lars Fruergaard Jorgensen told Bloomberg TV this month that it has a policy of not talking about the names of the companies it works with.
Meanwhile, Gerresheimer has said it plans to expand capacity for making syringe systems, auto injectors and pens to take advantage of the opportunity from GLP-1s. Shares in the German company are up 65% this year and analysts see the stock rising almost 30% more, according to the average price target compiled by Bloomberg.
Drug distributors such as McKesson also will benefit, said Dan Lyons, a fund manager at Janus Henderson Investors. Both McKesson and Cencora Inc. raised their full-year guidance last month, with high volumes of weight-loss drugs boosting sales.
Medical Device Makers
The excitement around obesity treatments has hurt shares of device makers treating sleep apnea such as ResMed Inc. and Inspire Medical Systems Inc. The stocks have been trending lower since August, when a study showed Novo’s Wegovy reduced the risk of heart attacks and strokes, prompting investors to wonder which other health conditions might see less demand for therapies.
Shares of Zimmer Biomet Holdings Inc., which makes knee and hip implants for patients with osteoarthritis, are down 12% since the start of August. Obesity is a contributing factor to osteoarthritis, so a reduction in obesity could mean fewer people need implants. Still, CEO Ivan Tornos said this month that GLP-1s will benefit implant sales in the short term: Many patients who are too obese to go through implant surgery will be able to get the procedure if their body mass index improves.
Another area that has been hit is diabetes device makers including Insulet Corp. and Tandem Diabetes Care Inc., on the assumption that patients taking obesity drugs would have less need for insulin pumps. But continuous glucose monitoring devices such as those made by Dexcom Inc. and Abbott Laboratories could benefit, given weight loss drugs tend to be prescribed with a lifestyle change program and the devices help measure that change, according to Lombard Odier’s Grootveld. Although Dexcom has been a “victim,” the medical-technology firm should perhaps be “in the survivors’ camp,” he said. Dexcom recently told investors that more people on insulin were using a continuous glucose monitoring device after starting GLP-1 therapy than beforehand. In comments to Bloomberg News, an Abbott spokesperson said it’s “very possible” that weight loss drugs could further expand usage of such devices.
WW International Inc., better known as WeightWatchers, has been integrating with Abbott’s Freestyle Libre system to better monitor blood glucose levels in diabetic clients. WW shares soared earlier this year after the company bought telehealth obesity-drug provider Sequence.
Meanwhile, shares of companies involved with bariatric surgery — procedures to help people lose weight when diet and exercise don’t work — have been trending lower since July. That’s when surgical-robot maker Intuitive Surgical Inc. said patient interest in weight-loss drugs was hurting demand for the operation. Teleflex Inc., which makes the Titan stomach stapler, suggested that GLP-1 treatments had led to decreased demand. Medtronic Plc also noted that the therapies were having a “little bit of impact” on bariatric surgery, which was a small part of its business. Equipment provider Conmed Corp. estimated that about 2% of its instruments were used in bariatric procedures.
Novo’s drugs for diabetes and weight loss share the same active ingredient called semaglutide. They work by suppressing the appetite as well as slowing the movement of food through the digestive tract, and common side effects include nausea, vomiting and uncontrollable diarrhea. As such, over-the-counter medicines and supplements may see a boost as patients look to alleviate the side effects, according to Barclays Plc analysts. Haleon Plc generates about one-fifth of its sales from digestive health and other remedies, while Reckitt Benckiser Group Plc’s probiotics product provides digestive support.
The Barclays analysts see Haleon as being best placed to benefit among European consumer health peers, while French cosmetics company L’Oreal SA could benefit from consumers trying to hide their so-called “Ozempic face,” which is the hollowing of the face and sagging skin caused by losing weight quickly.
To help keep the weight off, lifestyle changes could become more commonplace after patients start taking the drug. “Fitness trackers, fitness apparel and fitness centers could become more attractive to patients,” said Gregoire Biollaz, senior investment manager at Pictet Asset Management.
Food and Drink
Weight-loss drugs are also having an impact on the way that people consume food. A research survey conducted by Morgan Stanley found that patients tended to cut back on the number of meals and snacking occasions while taking weight loss drugs, and also consumed less alcohol and carbonated drinks. Meanwhile, the majority of the 300 survey participants visited fast-food and pizza restaurants less frequently since they started taking the drugs.
There’s a growing industry for alternative ingredients that lessen the need for sugar and help keep insulin levels more stable, according to Pictet Asset Management. The firm highlighted Danish ingredients manufacturer Novozymes, which has developed enzymes to make milk products naturally sweeter. Chr. Hansen Holding A/S and Givaudan SA also make ingredients for food producers.
Since obesity is linked to the development of other conditions including diabetes, sleep apnea and heart failure, the impact of the weight-loss drugs may only grow if future studies show the medicines reduce the risk of those diseases.
“The real value here is the medical benefits this treatment will offer,” said John Bowler, a fund manager at Schroders Plc. “The next 12-36 months are going to be really critical in just gauging that medical benefit.”
--With assistance from Jonas Ekblom.
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