Macro Intelligence: Wegovy, Ozempic and Mounjaro transform obesity treatment and market dynamics

Article by Juliette Saly (ausbiz)

In this week’s edition of IG Macro Intelligence, we take a look at the impact of weight loss drugs on market sentiment.

GLP-1 drugs have been gaining traction amid expectations they could transform the healthcare industry and help reduce obesity.

Novo Nordisk's products and Eli Lilly's market entry

Danish pharmaceutical company Novo Nordisk produces two drugs for diabetes and related weight-loss conditions, Wegovy and Ozempic, which both contain the same active ingredient called semaglutide.

US-based Eli Lilly produces a diabetes drug called Mounjaro, which has also shown effectiveness in tackling obesity. Earlier this month, the US FDA gave Eli Lilly approval to market its tirzepatide medication under a new brand name, Zepbound, specifically targeted towards weight loss.

GLP-1 drug prescription chart

Market impact and the bottom line

The success of drugs like Wegovy and Ozempic have catapulted maker Novo Nordisk into the most valuable public company in Europe, with a total market capitalisation of around US$490 billion.

The success has also been fueled by studies which show the drugs can reduce heart attacks, strokes, and cardiovascular deaths. The American Heart Association reported recently that early results into a Wegovy study showed the likelihood of the above diseases was reduced by 20%, independent of weight loss.

Sales of anti-obesity medications (AOMs) reached $6 billion on an annualised basis in 2023, according to Bloomberg. Goldman Sachs analysts estimate the AOM industry could be worth $100 billion by 2030, just over six years away. Morgan Stanley analysts estimate that 24 million people, or 7% of the U.S. population, will be using the drugs by 2035.

Share price movements and financial outlook

Shares in Eli Lilly and Novo Nordisk have both soared this year, amid the popularity of the drugs. Meanwhile, the makers of Covid vaccines, Pfizer and Moderna, have seen their share prices decline as fewer people get booster shots.

Data from CompaniesMarket Cap show Novo Nordisk is now the 15th most valuable company by market capitalisation in the world. Its market cap has increased by almost 50% in the past 12 months.

Novo Nordisk has also raised its profit guidance three times this year, due to the success of the drugs. Eli Lilly has maintained its market guidance, due to other parts of its business not being amplified by Mounjaro’s success. However, both companies saw 3Q revenues rise by over 40%.

Market cap history of Novo Nordisk chart

Weighing on Aussie stocks

Bloomberg reports most of the GLP-1 drugs sales from both Novo Nordisk and Eli Lilly are coming from the North American market. However, the Australian healthcare sector has also seen a hit.

ResMed Inc daily chart

ResMed's position amidst GLP-1 drug popularity

Shares of sleep apnoea treatment maker ResMed are down sharply from July, as analysts warn a pickup in GLP-1 drug intake will weigh on other industries.

I spoke to the ResMed CEO Mick Farrell recently, who’s confident the company can beat pre-Covid growth levels despite the potential earnings impact from weight-loss drugs.

He forecasts over 1.1 billion patients worldwide will develop sleep apnoea by 2050 even in spite of the adoption of the weight loss drugs, which could reduce the need for treatment of sleep apnoea, often prevalent in overweight people.

“The bottom line is ResMed’s market is huge and largely untapped,” he told ausbiz.

And it seems analysts agree.

Macquarie analysts rate the Aussie listed stock as an outperform, Morgan Stanley has an overweight, while Morgans cites the stock as an add and Citi and Ord Minnett have a buy.

FNArena sentiment chart

Analyst perspectives on long-term trends

David Lane from Ord Minnett told ausbiz recently the drugs require long term use, are expensive and don’t necessarily change one’s long-term habits. “We’ve seen healthy trends come and go,” in the market, Lane said.

Tristan Harrisan at The Motley Fool believes ResMed looks attractive right now due to its lower valuation and “the possibility that the market is being overly optimistic about how much long-term demand there may be for the weight loss drugs and too pessimistic about how much it could impact ResMed.”

Meanwhile, CSL has also seen its share price decline on the back of the GLP-1 craze.

This is due to concerns its newly acquired Vifor business could be exposed as the GLP-1 drugs are also showing positive signs in treating other ailments like kidney disease. Regardless, the “Ozempic effect” is certainly showing up in company results.

CSL daily chart