Obesity is a global epidemic with 14% of the global adult population defined as obese (Body Mass Index BMI >30) while another 26% are overweight (BMI>25). As wealth increases, so do waistlines. This has been a topic of intense coverage over recent weeks following the results of a wide-ranging clinical trial from Denmark-based Novo Nordisk (NVO US), which showed that Semaglutide treatments used to treat type 2 diabetes had a significant impact on meaningful adverse cardiovascular events (MACE), essentially by suppressing appetite and prompting weight loss. We know the impact this has had on obstructive sleep apnea company ResMed (RMD), given the linkage between obesity and sleep disorders, but at this stage, there remains a lot of ‘unknowns’ and conjecture around how these drugs called GLP-1’s will change the global trend in obesity, and by extension, the companies that are involved on either side of the obesity ledger.
Firstly, the trend in obesity is unsustainable, and the cost to global health systems will be immense. There is a need to tackle this trend, and clearly the results of the recent trial could be a game changer – fewer obese people in the world is a good thing. There are some clear winners here, with most focus being on the curator of the trial, Novo Nordisk, which has drugs such as Wegovy, Ozempic and Rybelsus, essentially different formulations of the same active drug (semaglutide), while Ely Lily has Miunjaro, a very similar diabetes treatment. This is all big news and positive for these stocks. However, we caution how far they have run despite the many unknowns that remain.
- We have a preference in the space for LLY, given their wider portfolio of medicines, however, we think the elastic band has stretched too far on the upside, which implies that ResMed has gone too far on the downside. Markets have a tendency to push things to the extreme both up and down, and we think this is an example of that.
