Despite concerns that the popularity of pharmaceutical drug Ozempic is overblown, two fund managers are seeing stock picking opportunities from its success.
Ozempic, which is known as a GLP-1 drug (glucagon-like peptide 1), is a diabetes drug that has been found to lead to weight loss and reducing blood sugar levels by suppressing appetites.
In a quarterly outlook for the Munro Global Growth Fund, the management team said they could see Ozempic producer, Novo Nordisk, seeing its earnings accelerate in the future as well as those of rival US drug company Eli Lilly.
Both stocks were among the fund’s biggest contributors to performance during the September quarter.
Eli Lilly has risen 86 per cent over the year to 12 October and Novo Nordisk has risen 70 per cent, while the S&P 500 has risen 22 per cent over the same period.
“We have maintained our positions in the leading GLP-1 franchises as the growth outlook continues to look attractive here. These drugs have exploded into the public narrative in 2023, and while the companies are at risk of being overhyped, in the medium term we still see a long runway of earnings growth ahead in the category,” it said.
“In our view, Eli Lilly and Novo Nordisk are set to continue to grow their earnings meaningfully over the medium term. We believe that treating obesity should be relatively straightforward, in other words, it should be treated in a manner like high blood pressure or high cholesterol, whereby there is a known treatment that is readily available with a reliable outcome. The obesity market remains one of the largest total addressable markets in pharmaceuticals globally, with very low penetration today.”
Meanwhile, Fidelity portfolio manager Paul Taylor, who manages the Fidelity Australian Equities Fund, said he was exploring opportunities to own pharmaceutical company ResMed, which he doesn’t currently own. This company produces sleep apnea machines that are often used by patients with obesity.
With the newfound popularity of Ozempic now potentially reducing the number of possible customers, this has presented an opportunity for Taylor to buy ResMed at a cheaper price.
ResMed’s share price is down by 34 per cent over the past 12 months versus gains of 6 per cent by the ASX 200.
Taylor said: “The really interesting drug that’s entered the market is known as GLP-1, in particular Ozempic, which started life as Type 2 diabetes drug but is slowly morphing into one for weight loss. There’s a lot of talk of that on TV about how it is helping the broader population lose weight.
“The consequence is people are now looking at Ozempic and saying, ‘If it’s the end of obesity, what does that mean for companies like ResMed which help people with obesity?’.
“On the back of early success [of Ozempic], ResMed sold off and lost about 30 per cent and that was all off the back of the market being concerned about the total addressable market. That provides an interesting opportunity and is being factored into the stock price. We are spending a lot of time looking into whether it presents an attractive long-term opportunity.”
