MW Why the investor craze for Ozempic and rival weight-loss drugs may resume next year

By Louis Goss

Novo Nordisk's efforts to increase the supply of its existing weight-loss drugs and launch a new class of even more powerful ones could see GLP-1 drugs return to the spotlight in 2025, Barclays analysts say.

The two dominant players in the space have seen less investor enthusiasm this year.

Novo Nordisk's $(NVO)$ (DK:NOVO.B) U.S.-listed shares, up 2% on Monday, have only gained 5% this year, after annualized returns of 32% over the last five years, according to FactSet data.

Eli Lilly's stock $(LLY)$, up 36% this year, has seen annualized returns of 47% over the last five years.

In a note, Barclays analysts led by Emily Field, explained that investor interest in GLP-1 drugs has waned in 2024 due to restricted supplies of Novo Nordisk's Wegovy and Ozempic medicine.

Investors' focus could, however, shift back onto the possible market impacts of GLP-1 agonists in 2025, particularly as a result of a major expansion of current supplies after Novo Nordisk was given a green light to complete its takeover of New Jersey drug manufacturer Catalent, Barclays' analysts said.

The Federal Trade Commission's approval of Novo Nordisk's $16.5 billion acquisition of Catalent over the weekend has paved the way for completion of the takeover that will give the Danish firm access to three additional manufacturing facilities.

Barclays' analysts said Novo Nordisk's acquisition is likely to "significantly expand" the Danish drugmaker's production capacity, in what would let it meet current demand for GLP-1 agonists and increase its own revenue.

At the same time, the completion of Novo Nordisk's REDEFINE-1 study could potentially result in the launch of an entirely new generation of weight-loss drugs that are even more powerful than current drugs like Zepbound, Ozempic, or Wegovy.

A positive result in the Phase III trial of Novo Nordisk's experimental CagriSema drug would give the Danish company a competitive edge over Zepbound manufacturer Eli Lilly and help protect its revenue after its patent on semalgutide expires in 2032, the analysts said.

Another catalyst could be whether Robert F. Kennedy Jr. gets confirmed to be health and human services secretary, and whether if he does, he tries to limit GLP-1 usage.

In the second half of the year, another study is due that tests semaglutide versus Alzheimer's disease.

What's good for the drugmakers may be bad for alcoholic beverages. "Whilst the direct correlation between consumption of GLP drugs and recreational alcohol consumption hasn't been measured (to our knowledge), it is reasonable to suggest that there could be a negative impact," they say, pointing out Molson Coors $(TAP)$, Constellation Brands $(STZ)$ and Brown-Forman $(BF.B)$ as companies with high exposure to the U.S. alcohol market.

But it could be good news for Walmart $(WMT)$- whose pharmacies sell the drug - as it estimates an incremental $1 billion per quarter sales boost.

The firm says Danone's (FR:BN) portfolio as the best placed to profit from a rise in GLP-1 consumption, given it's skewed toward the health-conscious consumer.

-Louis Goss

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December 16, 2024 10:18 ET (15:18 GMT)

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