AI’s dominance in the previous year, the healthcare sector is gaining prominence. Often perceived as dull and defensive, healthcare is undergoing a transformation with breakthroughs in obesity drugs, Alzheimer’s treatment, and personalized medicine, presenting enticing opportunities for investors.
Obesity drugs lead the charge
Danish multinational Novo Nordisk is at the forefront of developments, introducing Wegovy for obesity and Ozempic for diabetes. These drugs, replicating the naturally occurring hormone GLP-1, induce a sense of fullness, reducing food intake. Eli Lilly’s Zepbound, combining GLP-1 with ‘GIP,’ further contributes to the obesity treatment landscape.
These drugs not only address obesity, a significant issue affecting 42% of Americans, but also offer potential solutions for diabetes and other related health problems. Investors are quick to seize the opportunity, reflected in Novo Nordisk’s 51% share price increase and Eli Lilly’s 84% surge over the past year.
Managing high demand and market dynamics
Healthcare systems are grappling with the challenge of meeting the rising demand for these groundbreaking drugs. Both Novo Nordisk and Eli Lilly predict a demand surpassing supply in 2024. Reports of sold-out diabetes versions and illegal trading indicate the urgency and awareness among patients. Health authorities are prioritizing health outcomes and addressing health inequalities associated with obesity-related illnesses.
The impact extends to healthcare providers involved in bariatric surgery and devices, witnessing struggling share prices. Assumptions about a decline in demand for cardiovascular treatments and pressure on fast-food companies like Coca-Cola and McDonald’s are also affecting market dynamics.
Skepticism amidst market trends
While share prices may have shifted significantly, some experts express skepticism. Peter Hughes of Redwheel Life Changing Treatments Strategy questions the market’s belief that other companies will lose out due to improved obesity treatment. He emphasizes the diverse needs of patients, suggesting that various solutions can coexist in this expansive market.
Analyst Gareth Blades notes that providing these drugs to every obese American would cost around $1 trillion. Health insurers are pushing back, prompting innovative approaches like Eli Lilly’s telehealth service to facilitate drug access. Despite these efforts, addressing obesity remains a complex, ongoing challenge.
Diverse drug approaches in the pipeline
The industry is witnessing the emergence of a second wave of obesity drugs focusing on developing pills with fewer side effects. Pfizer’s once-a-day obesity pill Danuglipron and AstraZeneca’s substantial investment in licensing a diabetes and weight loss pill from China’s Eccogene exemplify this ongoing trend. Roche’s acquisition of obesity-drug developer Carmot Therapeutics solidifies its stake in the sector.
Obesity is not the sole focus of breakthroughs in healthcare. Developments in Alzheimer’s drugs, such as the recent approval of lecanemab in the US and Japan, along with the expected release of donanemab, mark significant strides. The industry is experiencing a fertile period, with Woody Stileman highlighting the increased modalities approved by the US FDA in recent years.
Innovation beyond modalities
Woody Stileman emphasizes a potential golden age of innovation, highlighting advancements in mRNA technology and cancer treatment. Moderna, leveraging mRNA technology for Covid vaccines, is expanding its reach to develop treatments for cancer, flu, Zika, and HIV. Immunocore, specializing in T-cell receptor-based cancer treatments, offers an alternative to traditional chemotherapy.
Macroeconomic factors and future outlook
The healthcare sector’s potential is further buoyed by macroeconomic factors. A weaker economic outlook may drive a short-term increase in healthcare demand, especially in the US, where patients perceive a higher risk of losing employer-funded health care benefits. Healthcare stock valuations align with long-term averages, and expectations of healthcare growth outpacing the broader equity market make it an attractive prospect.
The healthcare sector is experiencing a transformative phase in 2024, marked by breakthroughs in obesity drugs, Alzheimer’s treatment, and technological innovations. Investors are recognizing the sector’s potential for growth and innovation, making it a key area to watch in the coming year.
