The Leaders of the Weight-Loss-Drug Race Win Again
A report from Dave Lashmet... Big moves in the weight-loss-drug race... $50 billion in new market cap in a single day... Weight loss in a bottle... How the sausage is made... What's next in the obesity fight...
Today, we're pleased to bring you a special report from our friend Dave Lashmet...
Regular Digest readers may recall that Dave, editor of the Stansberry Venture Technology newsletter, most recently wrote to you directly in June when he detailed the escalating tensions between China and the U.S. in the Taiwan Strait.
He analyzed the impact of a brewing war in Taiwan on various semiconductor companies... tech and other industries in general... and which businesses were most likely to survive a potential war in Taiwan.
This is a story Dave, one of the first employees of Stansberry Research, has been ahead of for years. He has recommended stocks related to this theme in Venture Technology, which focuses on little-known small-cap companies that are working on potentially the next world-changing drug or other technology.
Speaking of that, you can find one of Dave's picks each day at the bottom of the Digest e-mail in the Stansberry Research Hall of Fame...
Dave recommended chipmaker Nvidia (NVDA) back in 2016 when it was trading for less than $50 per share. Subscribers who followed his advice on Nvidia – which included returns of about 108%, 777%, and then 1,466% on partial positions – could have booked an average weighted gain of more than 600%.
But there's much, much more to his work than that big winner...
Since launching his Venture Technology service in 2014, Dave has recommended more than 30 stocks that have doubled or more. And returns aside, he's one of the smartest and most prescient market analysts I (Corey McLaughlin) have ever met.
You may remember Dave being one of the few voices warning in February 2020 about what the emerging coronavirus was and how large of a threat it entailed for the global economy.
Today, Dave returns to another big theme he has been tracking for the past several years: the obesity epidemic in America. Specifically, he has his eye on the companies developing drugs designed to help people lose weight... separating mere wishful thinking from the treatments that hold real and lucrative promise.
As Dave explains, two companies he is very familiar with and has previously written about in the Digest enjoyed massive jumps in their stock prices yesterday. He got in touch with me last night and said, "Hey, that's something!" I agreed.
Shares of Novo Nordisk (NVO), which Dave "gave away" as a free pick during a 2020 presentation, jumped 17% yesterday alone... and Eli Lilly (LLY), which Dave wrote about in a June 2022 essay, soared about 15% too. Today, he shares all the details about why...
Big companies make big moves all the time – for better or worse. But here, it's clearly better...
Yesterday, Novo Nordisk reported that its injectable weight-loss drug Wegovy reduced the risks of heart attacks or strokes by 20%. In response, Novo added $50 billion to its market cap in a single day.
Was the move justified? I think so. Mr. Market is sometimes more flight-of-fancy than a value investor... In this case, he is both...
Wegovy is a blockbuster weight-loss drug that already has Food and Drug Administration ("FDA") approval... And the world can't get enough of it.
You've probably heard the stories of Hollywood starlets taking Wegovy (or Novo Nordisk's other brand name for the same drug, Ozempic). Eli Lilly is developing a rival drug called Mounjaro – we'll get to that momentarily.
Novo gets 85% gross margins and 45% net margins on Wegovy sales.
Without getting too much into the weeds, for a $50 billion bump in market cap at those margins, I would expect $12 billion in additional annual revenue and/or $5 billion in earnings before interest and taxes. As I'll explain, that's entirely reasonable here.
Behind the headlines is the big picture...
Two in five American adults are obese. That's 110 million Americans, plus 240 million more folks in Europe. Add Japan, South Korea, and Australia, and the number rises to something like 400 million people.
That's the global obesity epidemic, which has slowly been growing for the last 40 years. Add sugar, cut exercise – like riding your bike to work – and you get obese. Add caramel syrup, you'll get fatter faster.
Until three years ago, it was a social taboo to even discuss drugs that may be able to help people lose weight... though we were. But lower-dose Ozempic triggered minor weight loss, and higher-dose Wegovy (again, it's the same drug: semaglutide) triggered massive weight loss.
I (Dave Lashmet) went to the American Diabetes Association meetings last June to see the weight-loss results from Eli Lilly's Mounjaro, too. At a higher dose, it was slightly better than Wegovy. But they are nearly identical.
So now severe obesity is treatable... And given supply limitations, ideally only very large, really sick people would be eligible for these drugs. That expectation is what set Novo Nordisk's market cap – until yesterday.
Here's what changed...
Novo Nordisk's SELECT trial reported on 17,000 heart patients taking Wegovy or a matched placebo, for 30 to 60 months. This was a double-blind trial: Neither the doctors nor patients knew who got the drug.
This trial started in 2018 and finished this June, and it had an uphill battle: COVID-19. You see, the COVID virus overwhelmingly preyed on older, overweight heart patients – exactly like this trial included.
Despite this limitation, Novo's Wegovy reduced their risk of heart attack, stroke, or death from a heart condition by 20%. It's likely because folks on the drug lost weight, which significantly lowered their risk.
That's not a guess – we see this level of heart-attack protection after stomach-banding surgery, which brings weight loss. But surgery is expensive and traumatic, and it risks the patient getting hospital infections.
Wegovy is like stomach-banding surgery without the surgery. It's weight loss in a bottle.
For investors, what changed is how the drug is sold...
For now, Wegovy prescriptions come mostly from specialty weight-loss clinics or diabetes specialists. These findings about its broader medical value could lead to heart doctors and general practitioners prescribing the drug as well.
Instead of the tip of the iceberg, it's the iceberg. There's no rationing of this drug for just severely obese patients. Instead, Wegovy can be used as a general treatment for heart conditions. That's a huge, known market...
For example, nearly 200 million people globally take daily cholesterol-lowering drugs to reduce their heart risks – including 150 million people who take statins. Even with generics, it's a $20 billion market.
The goal of all these cholesterol-lowering drugs is to save us from the effects of a diet rich in animal fat. This fat builds up in our veins, and if it ever breaks up to float free, it triggers heart attacks or strokes.
Likewise, the World Health Organization reports that 200 million people control their blood pressure through medication. And it just so happens, the No. 1 cause of high blood pressure is obesity.
It's because you only have one pump: your heart. This vital organ moves water, food, and oxygen around your body. And if you gain weight, the only way to serve the extra tissue is for the pump to work harder.
How the 'sausage' is made...
Granted, we don't expect Wegovy or Mounjaro to replace all 200 million statins or cholesterol medicines... not least because Wegovy and Mounjaro are protein drugs, which are far harder to make.
First, you need a "bioreactor" – basically a living pool of cells that can make a protein – and then you must put sugars on the drug correctly. From there, you need to purify the drug and bottle it for shipment.
So it's a lot more complicated than a pure chemical process that spits out a thousand pills like M&M's. Fortunately, there are bioreactors available for hire, especially given the global falloff in demand for COVID vaccines.
Moving forward, we expect both Novo Nordisk and Eli Lilly to capture as much of this capacity as they can. Both firms are also building factories themselves. Yet they are years away from meeting demand.
Already, Eli Lilly has raised its guidance by $2 billion based on demand for Mounjaro – which has reached nearly $1 billion in quarterly sales. Novo Nordisk had $5 billion in sales on its rival drugs last quarter.
Novo Nordisk reports its new quarterly statement tomorrow...
What you should expect is higher revenues, higher margins, and even more emphasis on manufacturing capacity. Plus one more thing...
Besides Wegovy and Ozempic, Novo Nordisk has a third version of this same drug. It's called Rybelsus, and it's a once-daily pill. Its other drugs in this class – plus Lilly's Mounjaro – are weekly injectables.
Back in May, Novo Nordisk reported that a new higher dose of Rybelsus – at 50 milligrams – triggered 10% weight loss in 70% of people who took this pill versus only 12% of the control group. So this pill works.
That means this pill should also reduce heart attacks and strokes. It's the same drug, just in a different form: a pill, instead of a weekly injection under the skin. Which one would you rather take?
In an ideal world, this is the real blockbuster. Yet as a practical matter, we should point out, the recommended dose of Wegovy is 2.4 milligrams per week – while Rybelsus' trial dosage came to 50 milligrams per day.
Even though Novo Nordisk expects to offer Rybelsus only in smaller doses, it can still serve far more patients with injectable vials than by producing this medication in pill form. And since the drugs are priced the same, Novo would much rather make Wegovy.
There's one other idea to consider for investors... The ultimate weight-loss winner might be a small molecule drug that can be manufactured in huge volumes, like a statin drug is – not a protein – that reduces your weight and also cuts your heart-attack risk. The race for this rare prize is currently being led by Eli Lilly.
This experimental drug – currently named "orforglipron" – is not ready for sales, though. This pill is only through mid-stage human clinical trials, and even if it proves to be safe and effective on a larger scale, it's five years from the market. Until then, the safest course is Novo Nordisk... followed by Eli Lilly's existing Mounjaro.
That's today's medical news for investors, as I see it...
This is life-saving medicine with a $12 billion annual revenue bump, as all these new weight-loss drugs go mainstream.
That's why the market was excited yesterday, amid a mostly otherwise down day, and that's why Novo Nordisk gained $50 billion in market cap.
My Venture Technology subscribers are now sitting on a 145% gain in Novo shares since my initial recommendation back in June 2020 (even factoring in the shares that we already sold back at 100%). And I will certainly keep everyone updated on the developments in the weight-loss-drug race moving ahead.
If you're interested in joining us and learning more about how we go about investing in these companies, get started with a subscription to Venture Technology today...
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New 52-week highs (as of 8/8/23): Berkshire Hathaway (BRK-B), Dice Therapeutics (DICE), Fortive (FTV), Gambling.com (GAMB), ICON (ICLR), Ingersoll Rand (IR), Eli Lilly (LLY), Novo Nordisk (NVO), Procter & Gamble (PG), Parker-Hannifin (PH), PulteGroup (PHM), Phillips 66 (PSX), SLB (SLB), Walmart (WMT), and West Pharmaceutical Services (WST).
In today's mailbag, feedback on yesterday's Digest about bank downgrades and the next credit crisis... Do you have a comment or question? Send your notes to feedback@stansberryresearch.com.
"Corey, well said. I have been 'nervous' about credit liabilities too, and Moody's did exactly what you would expect a high-class Credit Agency before they so rudely lower the boom on Yellen's Treasury sales (like Fitch), which inevitably will squeeze CRE et al, as new banking rules force accumulating more Treasuries and therefore reduce capital available for loans." – Stansberry Alliance member Bill B.
Good investing,
Dave Lashmet with Corey McLaughlin
Seattle, Washington and Baltimore, Maryland
August 9, 2023