Weight loss drugs power Novo Nordisk, Eli Lilly and Amgen shares

Novo Nordisk, Eli Lilly and Amgen are all looking to develop drugs to solve the worldwide obesity problem. Novo Nordisk, currently leading the race, has encountered unexpectedly high demand for its Wegovy drug, with manufacturing facilities unable to cope. This has opened the door for competitors Eli Lilly and Amgen to capture a greater market share.

- Considerable opportunities lie ahead for pharmaceutical companies tackling the global obesity issue.

- Eli Lilly and Novo Nordisk launch weight loss drugs, with Amgen continuing to trial its own.

- Novo Nordisk faces manufacturing challenges as demand for its weight loss drug exceeds expectations.

Pharmaceutical companies Novo Nordisk [NVO], Eli Lilly [LLY] and Amgen [AMGN] have all seen their share prices perform well over the last few months, with all three companies embracing the development of drugs that tackle weight loss.

Eli Lily has seen the strongest share price performance, having risen 32.4% since the beginning of the year to the market close on 28 November. This is considerably better than the 16.8% decline seen from the S&P 500 so far in 2022. The company saw its share price drop a couple of weeks ago after a fake Twitter account falsely announced that the company was making insulin free. However, the shares have since recovered.

Novo Nordisk and Amgen shares have also sat in the green this year, growing a respective 8.2% and 25.6%. Both companies are targeting the rapidly growing obesity drug sector to drive growth over the next few years. Novo Nordisk currently sells Wegovy, which produces an average 15% weight loss for patients and has been endorsed by the likes of Elon Musk. Amgen, on the other hand, has announced positive results from a phase 1 trial of its new obesity drug AMG 133, with patients also losing up to 15% of their weight during the trial.

The sector is forecast to see strong growth over the next few years and other companies are looking to get their foot in the door. Analysis carried out by Morgan Stanley predicts obesity drug sales will top $50bn by 2030, with over half of these sales originating from inside the US.

Revenue grows year-on-year for Novo Nordisk and Eli Lilly

Novo Nordisk announced a strong set of third-quarter results at the beginning of November. Operating profits rose 28% year-on-year for the first nine months of the year, with robust obesity care sales contributing to the performance. Obesity care sales grew by 91% thanks to the strong performance of the company’s Wegovy drug.

Eli Lilly saw revenue rise by 2% in the third quarter of the year, which was driven by the growth of key products. The group was granted fast-track approval for its Mounjaro drug which helps to treat type 2 diabetes and obesity. Sales for the drug have been strong so far, with the group bringing in $97.3m in US revenues and $86m from Japan.

Unexpected demand causing an issue for Novo Nordisk

Initial concerns over a stigma surrounding weight loss medication led Novo Nordisk to run large advertising campaigns to push Wegovy, its weight loss drug. However, the company has been hit with unexpectedly high demand. This, combined with manufacturing constraints, has led to large shortages of the drug — which Novo Nordisk also sells as a type 2 diabetes medication under the brand Ozempic.

The pharma firm has temporarily stopped its marketing campaigns and is reconsidering its current manufacturing strategy. While the drug shortage causes an immediate challenge for the company, the strong uptake of a weight loss drug highlights how rapidly the sector could be set to grow. The shortage in drugs being provided by Novo Nordisk will likely open the door for Eli Lilly and Amgen, which are both developing similar treatments to capture their share of this growing market.

Fund in focus: VanEck Pharmaceutical ETF

The VanEck Pharmaceutical ETF [PPH] offers a large exposure to Eli Lilly and Novo Nordisk shares, which make up a respective 5.9% and 5.3% of the total net assets. The fund has sat flat for the year, with other large holdings’ struggles offsetting the strong performance of Eli Lilly and Novo Nordisk shares this year. The fund’s largest holding is Johnson & Johnson [JNJ] which makes up nearly 9% of net fund assets and has experienced a share price rise of 3.7% in the year to date.

The Invesco Dynamic Pharmaceuticals ETF [PJP] also offers exposure to Eli Lilly, with the shares being the fund’s fourth-largest holding and making up 6.2% of the total fund. The ETF also offers exposure to Amgen shares, which make up 6.3% of the total fund and is its third-largest holding. Performance has been slightly weaker than the VanEck Pharmaceutical ETF, with the fund dropping 3.8% since the beginning of the year.