A top-performing equity fund with years-long investments in the insulin makers behind the recent weight-loss stock frenzy is betting the rally has further to run.
(Bloomberg) — A top-performing equity fund with years-long investments in the insulin makers behind the recent weight-loss stock frenzy is betting the rally has further to run.
Novo Nordisk A/S and Eli Lilly & Co. are among top holdings in the A$1.3 billion ($839 million) Capital Group New Perspective Fund, which is beating 94% of peers this year, according to data compiled by Bloomberg. While the fund first invested in the two companies long before this year’s fervor for obesity treatments, it sees a longer-term opportunity in the development of such drugs.
For pharmaceutical firms, the weight-loss trend could offer “one of the largest growth runways in the industry’s history,” said Matt Reynolds, investment director for Capital Group Investment Management Ltd. in Sydney.
Novo has jumped 38% this year amid a boom in demand for its Wegovy and Ozempic injectable drugs. Meanwhile, Eli Lilly shot up 57% in anticipation of an expected US approval to use its Mounjaro diabetes medicine to treat obesity. Since their ascent, fund managers haven been seeking out other stocks could benefit.
Read: A Stock Investor’s Guide to Navigating Weight Loss Opportunities
The fund, up 22% this year, also owns shares of Thermo Fisher Scientific Inc. The stock may gain from the rush for obesity medications as a large number of pharma companies outsource drug testing and manufacturing to the life sciences firm, Reynolds said. Reuters reported last month that Novo hired Thermo Fisher to help produce Wegovy. Its stock has retreated 7.6% this year.
Still, some have questioned how long the buzz surrounding the treatments will last. Competition is intensifying as more drugmakers race to develop products, while supply bottlenecks have hampered Novo’s ability to meet demand. High costs and limited insurance coverage have kept the drugs out of reach for many potential patients.
Read: The Weight-Loss Drug Frenzy Is Outrunning the Company Behind It
Novo and Lilly also trade at significant premiums to peers. Their 12-month forward price-to-earnings ratios are at least double that of the Bloomberg World Pharmaceuticals Index, a 64-member gauge of global drugmakers.
Novo’s status as one of the world’s largest insulin manufacturers prompted the fund to buy shares in the company back in 2003. The fund has held Lilly’s stock since 2021 for similar reasons.
Recent forecast upgrades from the two companies are a sign that the weight-loss euphoria isn’t over-hyped, according to Reynolds. Lilly last month raised its 2023 outlook on strength from Mounjaro and other drugs, while Novo boosted its profit and sales guidance for the year on demand for Wegovy and another related diabetes medicines.
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