During the last 18 months, global equity markets have been abuzz with the term ‘GLP-1’. The ‘miracle drugs’ have affected various industries and the debate between the drugs’ current high cost and longer-term benefit is one which continues to rage on in board rooms and around dining room tables all over the globe. So, what exactly is a GLP-1? And is this money-making opportunity worth all the fuss?
GLP-1 stands for Glucagon Like Peptide-1, a hormone that the human body releases after an individual eats food. The drugs mimic the effects of this hormone, thereby giving an individual the feeling of being full. Initially, the drugs were developed to treat diabetes, and what drug producers noticed in testing with their diabetes patients is that they were losing weight, and a lot of it. It didn’t take long for the drugs to be tested and clinically approved for the treatment of obesity, and suddenly the Western world had a medicinal treatment for its overweight population (it is estimated that more than 40% of the US population is obese). These developments really got the market excited as the pharmaceutical majors who make GLP-1’s had an enormous addressable market to treat and saw their share prices soar as a result. Novo Nordisk, the Danish drugmaker who makes GLP-1 Ozempic, eclipsed luxury goods stalwart LVMH to become Europe’s most valuable company and Eli Lilly, the diabetes leader in the US, soon had a market capitalisation of over half a trillion dollars.
But it isn’t all positive for the drugmakers, who have a major hurdle to overcome if they are to see their share prices extend their already impressive gains. The major obstacle is price, with list prices in the US standing at around $1,000 per month for the GLP-1s produced by Novo Nordisk and Eli Lilly. To address this, pharmaceutical majors need insurers to come to the party. They are trying to force them to do so by proving that a thinner population is a healthier one, and that overall, the drugs will be a net saver for the European and American economies as they will have a healthier and therefore more productive population. Novo Nordisk showed towards the back end of 2023 that their drugs reduce the risk of an overweight individual having a heart attack or stroke and tests are on the way attempting to prove the drug’s efficacy in other disease areas, such as fatty liver disease and sleep apnea. This tussle between insurers and drug producers is one of the key catalysts for Lilly and Novo alike, as if they can make the drugs affordable for end users, it will go a long way towards them achieving their goals and meeting the market’s lofty profitability expectations.
In our view, the hype around GLP-1s certainly is worth all the fuss, and we believe the opportunity that exists for Novo Nordisk and Eli Lilly is compelling, and one we want to be involved in. Laurium Capital holds positions in Novo Nordisk in its global mandates and some of its multi-asset funds. Should you wish to learn more about the companies’ funds, please visit www.lauriumcapital.com.
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