Kieger Healthcare Monthly Commentary

Dancing to the melody of Glucagon-Like Peptide-1 (GLP-1)

In August, rising bond yields, a decelerating Chinese economy and seasonally low volumes sent the markets down across the board. Healthcare was the second-best performing sector (-0.8%).

The readout of Novo Nordisk’s SELECT study (showing improved cardio-vascular outcomes) was the single biggest healthcare event of the month and probably the year. The results may open the door to wide reimbursement for GLP-1 weight-loss drugs. This led to an overreaction with significant price movements amongst many companies as markets just made blanket assumptions of a healthier, thinner world (Huge obesity drug volumes? Less surgeries? Less diabetics? Less sleep apnea?).

First half earnings closed amidst an uncertain global macro-economic environment, with global stocks on track for their worst month in more than a year. On the earnings side, Healthcare mirrored the broad market, with the majority of companies at or above market expectations in terms of numbers. However, this was not always a share price outperformance guarantee as “whisper” expectations were often higher.

Pharma and Biotech were this month’s leaders, while Medtech was by far the worst laggard.

In detail

What is the SELECT study?
The SELECT study followed more than 17’000 patients over 5 years to determine whether the use of weight-loss drug semaglutide improved cardio-vascular outcomes. Patients were overweight or obese with existing cardio-vascular disease. Using the drug decreased the risk of strokes, myocardial infarction (“heart attacks”) or death by 20% (way above market expectations). This news led to large price swings in both directions across the healthcare space. On the one hand, manufacturers of such weight-loss drugs stand to gain from this health improvement. On the other hand, the potential of wide-spread use of weight-loss drugs raises many questions.

What does this mean for obesity drug sale?
Semaglutide, developed and sold by Novo Nordisk, is approved across the world to treat diabetes under the name “Ozempic” and obesity under the name “Wegovy”. Wegovy can lead to weight loss of up to 15% with little side-effects. With more than 150m obese or overweight people in the US alone, the commercial potential is very large. However, reimbursement of drugs by health insurance plans is a key factor. Up to now, most insurance plans have refused to cover Wegovy due to a mix of cultural attititude towards obesity as well as the lack of clear data on the health improvements attributable to these drugs.
The strong results reported by Novo Nordisk are seen as foundational in justifiying reimbursement of these drugs by insurance plans, and therefore unlocking a larger market. Eli Lilly has a similar compound on the market for diabetes, but which is not yet approved for weight-loss. Both companies reacted positively on the SELECT data, adding a combined of market cap 140bn over the month.

What does this mean for the rest of the healthcare sector?
Market movements implied that if weight-loss drugs do become much more commonly used due to better insurance coverage, then this could have second-order effects on companies who stand to lose if the prevalence of obesity decreases. However, leaving costs, adherence and side-effects of these drugs aside, what the market disregarded is that obesity may be one reason, but usually not the sole comorbidity, requiring orthopaedic protheses, diabetes management solutions, heart surgery, obstructive sleep apnea treatments, etc….

Top 5 in August:

• Eli Lilly 22%
• Teva 16%
• Novo Nordisk 15%
• Amgen 12%
• Regeneron 11%

Bottom 5 in August:

• Insulet -31%
• ResMed -28%
• Sysmex -21%
• Dexcom -19%
• Olympus -22%

Chart of the Month: Accelerating healthcare spending growth will require more innovative solutions

Since the 1990s, strong progress has been made in the fight against breast cancer. A study, involving half a million women, found that the most critical period is within 5 years after diagnosis. While in the 90s, 14% of early invasive breast cancer cases led to mortality within this timeframe, for those diagnosed after 2010, the overall risk of succumbing to breast cancer was significantly lower at around 5%. In order to further reduce mortality, investments in innovative diagnostics and treatments, promoting education and increased access to top-notch healthcare for everyone is needed.

Check out our video on this subject here.

Kieger Healthcare Team

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This news article has been issued through Kieger AG and is for distribution only under such circumstances as may be permitted by applicable law. This document is for information purposes only and does not constitute an offer. Past performance is not a reliable indicator of future results. The details and opinions contained in this document are provided by Kieger without any guarantee or warranty and are for the recipient’s personal use only. All information and opinions contained in this document are subject to change without notice. This document may contain statements that constitute “forward looking statements”. A number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. Data source: Statestreet / Factset.