Why Wall Street is chasing Ozempic wannabes

Novo Nordisk obesity drug Ozempic is helping investors reap fortunes. PHOTO: F. MARTIN RAMIN/THE WALL STREET JOURNAL
Novo Nordisk obesity drug Ozempic is helping investors reap fortunes. PHOTO: F. MARTIN RAMIN/THE WALL STREET JOURNAL


Big Pharma can’t seem to get investors hyped on much beyond obesity, so many are jumping in. Most won’t win.

Gilead Sciences, a biotech company focused on treatments for cancer and HIV, isn’t pitching itself as an obesity drug developer. But that hasn’t stopped some Wall Street analysts from trying to do that on its behalf.

Seasoned Jefferies analyst Michael Yee published a market-moving note to investors last week: He dug up recent patents and cross-referenced them with prior data to unearth what looked like the makings of an early-stage metabolic program that could one day become an obesity program. There was even data on monkeys to back that up, which the company will be presenting at the American Diabetes Association conference starting later this week, according to Yee.

Yee’s note sent Gilead shares up 3.6% last Friday, their biggest one-day gain in about a year. But over the next two days, the shares gave it all back, largely thanks to Gilead itself. The company told analysts its program is focused on treatments for the liver, part of its broader investment in NASH (nonalcoholic steatohepatitis), a metabolic disease that is often caused by obesity. The company also has a midstage study evaluating potential combinations with a GLP-1 drug for the treatment of NASH, according to a spokesperson.

Yee noted last week that this doesn’t rule out a focus on “obesity in a NASH metabolic frame." Either way, Gilead’s studies are at a very early stage and the obesity space is going to be very competitive as several pharma and biotech companies jump in. “I do not see Gilead being competitive in obesity with a small molecule," says Evan Seigerman, an analyst at BMO Capital Markets. “I don’t even see Gilead saying they want to be in obesity."

Putting aside the fact that a sell-side analyst’s job is to look for investment ideas, the fact that Gilead got caught up in the obesity hype highlights a broader problem for the healthcare finance world: There just isn’t anything that comes close to the obesity drug market to drum up investor interest.

GLP-1s such as Zepbound and Wegovy have taken the public and Wall Street by storm. Oprah and Elon Musk have tried the drugs, as have many people’s slimmed-down friends and neighbors. Eli Lilly and Novo Nordisk are each galloping toward a $1 trillion market capitalization, an unthinkable feat for a pharma company a few years ago. Besides the artificial-intelligence trade that has lifted tech stocks such as Nvidia, weight loss drugs are probably the next best thing going on in the stock market.

As Jared Holz, a healthcare equity strategist at Mizuho pointed out, the popular Health Care Select Sector exchange-traded fund would be flat instead of up this year, if not for the fact that Lilly makes up 13% of its holdings. “As a broader therapeutic category, there is nothing remotely close to obesity in terms of market value creation or potential," wrote Holz.

The Ozempic-driven fortunes being minted stand in contrast to the rest of the industry’s troubles. Companies such as Bristol-Myers Squibb, Pfizer, Johnson & Johnson and Merck are all facing intense pressure to their growth prospects as patents expire on blockbuster drugs and as the U.S. government seeks to reduce the price of some medications.

Unlike Gilead, plenty of large pharmaceutical companies are making it very clear that they want a piece of the obesity action. Companies including Roche, AstraZeneca, Amgen, Pfizer, and Regeneron Pharmaceuticals are all developing drugs of their own. Even Merck told attendees at a Goldman Sachs conference that the company is eyeing oral opportunities in the weight loss field. But for now, the market is assigning most of the value from the obesity trade to Eli Lilly and Novo because of their manufacturing moat and strong pipeline of follow-on drugs.

Eventually, it stands to reason that the broader pharmaceutical industry will benefit from the demand for obesity drugs, much like the multibillion-dollar industry for cancer therapies generates revenue for most large companies in the industry. After all, there are more than 100 obesity programs in various stages of development, according to Jefferies analyst Roger Song. Surely some small biotech companies with obesity drugs under development will get snapped up by titans such as Merck or Pfizer and eventually make it to market.

But there is a danger in following the obesity hype before there is something substantial to latch on to. Pfizer’s setback with danuglipron, its much-hyped obesity pill, is a good reminder of that. Besides, it is always a good idea to check what the company is saying about its strategy first.

Write to David Wainer at david.wainer@wsj.com

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