The Merriam-Webster dictionary defines the idiom “to live off the fat of the land” this way: “to live very well by enjoying the best things that are available without having to work hard to get those things.”
Investors can do this literally and sit back and watch their money grow, without doing much work, by investing into the best companies that are producing drugs to combat obesity.
There are two pharmaceutical powerhouses leading the way in this sector. Let me show you why I am so bullish on these stocks.
Blockbuster Trial Results
The companies in question are Denmark’s Novo Nordisk (NVO) and Eli Lilly (LLY). On August 8, Novo Nordisk announced that its best-selling obesity drug, Wegovy, cuts the risk of heart attacks and strokes. This is according to the findings of a late-stage trial, which sent shares in the company and its main rival, Eli Lilly, to record highs.
The study’s preliminary results found that patients who took Wegovy had a 20% lower chance of suffering a cardiovascular event than those who received a placebo. The full results of the trial will be presented at a conference later in 2023.
Novo Nordisk said the Wegovy trial, which enrolled 17,604 adults aged 45 or older, had achieved its primary objective by showing a statistically significant reduction in major cardiac events for patients who received 2.4 milligrams of the drug semaglutide (the main ingredient in Wegovy), compared with those who took the placebo.
Most researchers had assumed that Wegovy would automatically improve patients’ hearts as they lost weight. However, Nordisk can now point out that, until now, there had been no approved weight management drug that also reduced the risk of heart attack and stroke. These trial results will indeed pressure both health systems and private health insurers to cover this new class of weight-loss drugs, called GLP-1 agonists, that were developed by Nordisk and Lilly.
Nordisk expects to file for regulatory sign-off to expand Wegovy’s approved uses, showing that it can reduce cardiac risks, in the U.S. and the EU later this year.
Here in the U.S., a number of health insurers have been reluctant to cover weight-loss drugs for two reasons. The first is their high cost—the list price of Wegovy is around $1,350 a month. The second reason is the sheer number of people who qualify to take the drug: obesity affects about 40% of the population.
Expanding insurance coverage for Wegovy, as well as Lilly’s diabetes drug, Mounjaro (expected to be approved to treat weight loss this autumn) could unlock a more than $150 billion-per-year obesity market by the start of the next decade.
These two pharmaceutical companies will turn into massive money-making machines!
No wonder, then, that Nordisk’s shares surged more than 17% after publication of the study, while Lilly shares jumped 15%, to a record high of $527.50.
Lilly was also boosted by publication of its financial results, which showed sales of Mounjaro hit $980 million in the second quarter, making it the company’s second-biggest drug. Mounjaro’s skyward sales trajectory is likely a key reason why Lilly raised its full-year annual sales forecast by $2.2 billion, to the range of $33.4 billion to $33.9 billion.
Living Off the Fat of the Land
Thanks to their weight-loss drugs, the future for both Novo Nordisk and Eli Lilly looks very bright. This landmark trial demonstrated that this type of drug has the potential to change how obesity is treated, as well as perhaps cardiovascular diseases.
Another example of this ongoing change is Lilly’s weight-loss drug retatrutide, which mid-stage studies showed had helped reduce bad cholesterol (LDL) by 20%.
Over the past year, Lilly’s shares have increased by 73%, enabling the company to surpass Johnson & Johnson (JNJ) as the world’s most valuable drugmaker by market capitalization.
Nordisk, behind its Wegovy and Ozempic weight loss treatments, has vaulted into the number three spot after its shares climbed 81% over the past year.
I firmly believe that drugs that simultaneously tackle obesity, diabetes, and heart disease will be a win-win for public health as well as the bottom line of both Lilly and Nordisk and their shareholders.
Both stocks are a strong buy on any weakness: Lilly is currently trading at $520 per share and Nordisk is trading at $185 a share.
