Pile the pounds ON your fund not your waist

Innovation that could profoundly change society has been a driving force behind stock prices in 2023.

The breakthrough of generative AI (artificial intelligence) is behind the jump in the shares of semiconductor giant Nvidia.

Similarly, Danish pharmaceutical group Novo Nordisk has been boosted by the transformative impact of its diabetes and obesity drugs Ozempic and Wegovy.

Eli Lilly, the American giant behind Mounjaro, is also benefiting from the high expectations that the obesity war can be won.

This diabetes treatment, which is now also prescribed for weight loss, has been called ‘the King Kong of pricks’.

But it’s Novo Nordisk’s Wegovy injectables that have helped two big animals of the jungle – Boris Johnson and Elon Musk – shed pounds, although not necessarily permanently.

Is it too late to bet on the outcome of this healthcare revolution? Or is the disruption just beginning?

Novo Nordisk’s €334 billion (£293 billion) capitalization could be almost the same as Denmark’s gross domestic product.

But the possibility that its treatments could also reduce the incidence of heart attacks and strokes is behind predictions that the shares could go even higher.

Analysts believe demand will be insatiable, fueled in part by social media, as Morgan Stanley analyst Mark Purcell explains. Instagram is chock full of images of people attributing their buffed bodies to Wegovy.

Albert Bourla, chief executive of US pharmaceutical giant Pfizer, says there could be a global market for diabetes and obesity drugs worth $90 billion by 2030.

At last month’s Obesity Week convention in Dallas, Texas, it was rumored that Mounjaro alone could be worth $50 billion a year.

Part of the excitement comes from other potential applications of these GLP-1 (glucagon-like peptide) drugs, with Alzheimer’s disease and substance abuse among the conditions mentioned. In 2022, GLP-1 was a $2.1 billion category.

Pfizer is now entering the field. That includes AstraZeneca, Britain’s biggest pharmaceutical name, which has struck a deal with Chinese group Eccogene for an experimental pill that may have fewer side effects than rival injectables. These companies will likely be joined by others, given the potential customer base. About 750 million adults worldwide are obese, while another 1.3 billion are overweight.

America should be the most profitable area, as Wegovy costs around $1,350 per month there, compared to £199-£299 per month online in Britain.

Hearing Wegovy and the rest described as miracle drugs may raise your suspicions that unforeseen problems may arise that could refute these claims. Big Pharma is no stranger to scandals. But you’ve already bet money on this new gold rush if you invest in funds like BlackRock Greater Europe, Fidelity European and Fundsmith, which own Novo Nordisk. While Baillie Gifford Health Innovation owns Pfizer.

GLP-1 drugs can also impact other stocks in your portfolio.

Analysts say clothing manufacturers could get a boost as slimmed-down customers need new outfits, while airlines will save fuel if passengers are lighter. But food company restaurants may be struggling. Morgan Stanley predicts that calorie consumption in the US could fall by 7 percent. Healthcare equipment sales could also decline.

But Dani Saurymper of Pacific Asset Management, manager of the Pacific Longevity and Social Change Fund, claims this is speculation, saying: ‘We do not believe the world’s obesity epidemic has been solved. Although obese patients will try GLP-1 medications, discontinuation rates can be as high as 50-70 percent within the first 12 to 24 months. Once patients stop therapy, there is a significant risk of regaining the weight.”

He also questions the predicted decline in healthcare equipment, arguing that bariatric surgery, hip and knee replacements and heart valve replacements will continue. Pacific Longevity and Social Change holds Eli Lilly. Saurymper says sales and profits from its diabetes and obesity drugs could potentially be double those of its peers.

Wall Street might think the only way forward is for Eli Lilly and Novo Nordisk.

But while I want to support innovation, I will also be wary. I’ll look for weakness in shares of Novo Nordisk, which is up 69 percent this year, and Eli Lilly, which is up 62 percent. Pfizer may have room for improvement. Shares are at their lowest level since March 2020, thanks to lower sales of the Covid vaccines.

AstraZeneca may also present an opportunity: its shares are down 13 percent.

But again, Ben Ritchie, manager of the Dunedin Income Growth Trust, urges caution, pointing out that the group’s weight loss project is “unlikely to make a material contribution to the company’s profits or value in the foreseeable future .

The key for the company – which we have confidence in – remains realizing its promising and successful cancer therapies.”

Health can bring prosperity, but my strategy in investing in the sector is to avoid damage to well-being caused by sleepless nights.