Three reasons why the 'miraculous' weight-loss drugs are back on my radar screen; Rebound Capital's GLP-1 basket; Big news from Novo Nordisk today sends shares plummeting; My view on Eli Lilly remains the same
Longtime readers will recall that in recent years, I've written numerous times about what I call the "miraculous" weight-loss drugs.
And they're once again on my radar screen for three reasons, which I'll outline today...
1) Last week, writer Derek Thompson posted a provocative and insightful article on his Substack, asking whether everyone should be taking these drugs in light of the numerous studies showing astonishing benefits across the board: If GLP-1 Drugs Are Good For Everything, Should We All Be on Them? Excerpt:
Several years ago, scientists took a close look at GLP-1 drugs, such as Ozempic, and learned that they were good at helping people lose weight. Then they took an even closer look and learned the drugs are also good at just about everything else.
GLP-1s – technically known as glucagon like peptide 1 receptor agonists – seem to curb alcohol, cocaine, and tobacco use among addicts. They prevent strokes, heart attacks, chronic kidney disease, sleep apnea, and Parkinson's disease. They're associated with a lower risk of several cancers, including pancreatic cancer and multiple myeloma. Arthritic patients on the drugs experienced relief from knee pain that was "on par with opioid drugs." A small study found that they reduce migraine headaches by 50 percent. And emerging research suggests they might even slow the rate of memory loss among people diagnosed with Alzheimer's.
Thompson covers the long history of these drugs and explores how they work, using two clever analogies:
Vaccines do one job well. They're like a key designed perfectly to open one lock. GLP-1 drugs, however, seem more like a lanyard that holds your house keys, your car keys, your friend's backup keys, your CVS rewards card, your work fob, and a mini Swiss army knife that has little tools on it that you've never actually figured out how to use. They do a zillion different things, and, like some of the tiny blades on that Swiss army knife, it's not entirely clear how some of these things actually work...
Imagine a pinball machine. When you launch a ball, it pings around the board's targets and bumpers and pockets, racking up points as it flies around. The human body is a machine with many welcoming targets for GLP-1. The drugs dock with receptors in our gut, near our heart, in our immune system, and in our brain. We seem to have discovered in the bowels of some of nature's strangest creatures a molecule that scores points throughout the mammalian body by moderating the activity of all sorts of systems. The end result is a broad-based reduction in inflammation, a calmed central nervous system, and a reduction in craving that gives people the ability to ignore unwanted cravings and focus on what they want to pay attention to.
He concludes that not everyone should be on these drugs right now due to the risks and side effects:
While I'm excited about the future of these drugs' development, the side effect profile isn't worth the risk for otherwise healthy patients. The anti-inflammation and cognitive benefits of the drugs still come with weight-loss effects that many Americans shouldn't accept.
I agree with Thompson... However, I would point out that only 26.4% of Americans are "otherwise healthy," given that 73.6% are overweight or obese, according to the National Center for Health Statistics. In other words, I think nearly three-quarters of our population would benefit from taking these drugs.
So, what does this mean for investors? Here, the answer isn't so clear... As Thompson notes:
You wouldn't know it from the most cheerleading business coverage of GLP-1s, but the drugs' revenue growth has actually come in below market expectations in the last few years. Google search volumes for the drugs in the U.S. have flattened in the last few months. One major problem is adherence. A majority of people prescribed GLP-1 drugs stop using it within the first year. Maybe it's the side effects. Maybe they miss drinking and don't appreciate the nausea. Maybe they can't afford the drugs. Maybe they stop after they hit their target weight. Maybe people just don't like injectables.
2) Rebound Capital, a Substack conducting deep research on beaten-down stocks, recently posted a more bullish case for GLP-1 drugs. The chart below from the post shows the explosive growth in revenue, totaling $71 billion from 2018 to 2024:
And Goldman Sachs' analysts expect sales to reach $120 billion annually by 2035 – here's a chart shared in the Rebound Capital post:
For its investment thesis, Rebound Capital recommends a basket of stocks heavily weighted toward the current market leaders, Novo Nordisk (NVO) and Eli Lilly (LLY):
I don't think it makes sense to clutter up your portfolio with the 10 smaller positions, so we'll focus on the top two – which brings me to the third reason weight-loss drugs are back on my radar...
3) In some big news today, Novo Nordisk announced it was cutting guidance for the year and replacing its CEO, which sent shares plummeting, as this Wall Street Journal article notes: Novo Nordisk Shares Plummet as Competition Weighs on Sales. Excerpt:
Shares in Novo Nordisk plunged after the company lost its lead in the booming market for weight-loss drugs, opening the door to competitors such as Eli Lilly and pharmacies making knockoff versions of Novo's drugs.
Company shares plunged as much as 30%, at one point wiping out almost $93 billion of Novo Nordisk's market cap, after the Danish drugmaker said headwinds for its blockbuster drugs Ozempic and Wegovy would cut its sales growth for the year, the latest in a series of challenges facing the once-highflying company. The company underplanned manufacturing capacity and has trailed Lilly in certain marketing and research efforts.
Novo now expects full-year 2025 sales growth of 8% to 14%, down from a prior forecast range of 13% to 21%. The company also said its operating profit growth would be lower than its previous forecast. It is the second time this year the company has lowered its financial forecast.
Given that the company grew sales by 18% in the first half of the year, guidance for 8% to 14% for the full year means growth will be negligible in the second half of the year. And such a wide range means Novo has very little visibility into what sales will be. No wonder the stock is down so much...
This remains a highly profitable, cash-gushing company, but the competitive headwinds it faces are, if anything, likely to intensify, so I would want to see what the new CEO's plans are.
Meanwhile, subscribers to our flagship Stansberry's Investment Advisory newsletter should be familiar with Novo... My colleagues Alan Gula and Dave Lashmet recommended buying the stock in December 2019.
If you're an Investment Advisory subscriber, you can read the full write-up here... and you'll be the first to know if we change our advice on the stock. (Subscribers can also see the entire portfolio of existing open recommendations and current advice here.)
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4) As for Eli Lilly, the stock was down around 6% this morning in sympathy, roughly the same price as when I last wrote about it in my June 5 e-mail. My view on the stock hasn't changed since then, when I concluded:
Lilly is trading at about 35 times this year's expected earnings and 25.8 times, 20.9 times, and 18 times the subsequent three years' earnings estimates, respectively.
Those are much more reasonable multiples. But some key things need to go right – primarily the demand for weight-loss drugs continuing to explode, Lilly maintaining its leadership position (which appears likely, as it plans to launch a pill form of tirzepatide), and the company executing superbly.
I think all these things are likely to happen and thus Lilly will be a long-term winner – both the company and the stock. So if you're fortunate enough to own it, hold on!
If my team and I at Stansberry's Investment Advisory decide that Lilly looks compelling enough to add to the model portfolio, our subscribers will be the first to know – as always. Again, if you aren't a subscriber already, find out how to become one right here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.