Health stocks head for worst year in decades over obesity drugs

BLOOMBERG

Healthcare stocks are heading for their worst annual performance relative to the broader market in almost 25 years as a new class of weight-loss drugs looks set to reorder the market for a host of existing profitable treatments.
The group — which includes the likes of Pfizer Inc and CVS Health Corp — is one of the worst performers in 2023, lagging behind the S&P 500 by 18 percentage points. Medical-device makers have been particularly hard hit as speculation mounts that the mania for weight-loss injections, like Ozempic and Wegovy, will improve overall health for millions of Americans. Diabetes-device maker Insulet Corp and Dexcom Inc have each lost roughly one-third of their value so far this quarter. In contrast, Eli Lilly & Co, which is developing its Mounjaro diabetes medicine for obesity, is up roughly 18% in the quarter, while Wegovy and Ozempic’s owner, Novo Nordisk A/S, has rallied 17% in Copenhagen trading.
“While weight loss medications are still somewhat small in dollars given recent drug approvals and supply constraints, existential risks of this growing class have decimated market values across many medical device categories,” Mizuho Securities Managing Director Jared Holz wrote in a note to clients. Despite management teams struggling to convince Wall Street that their fears are overblown, “investors have not been moved.”
Other forces are also working against the sector with prescription pricing concerns hitting drug manufacturers as the government starts the process of negotiations to make them cheaper while recent regulatory scrutiny on merger activity puts a damper on deal-making. The obsession with all things artificial-intelligence related has been another pain point.
“The incredible returns across tech and other growth industry groups has contributed to the weakness,” Holz said. “Investors feel they can make money elsewhere.”
Meanwhile, a maker of devices for sleep apnea — a condition often-tied to excess weight — ResMed, is trading at a three-year low on Thursday. The stock has fallen more than 30% this year.
“With uptake still in the very early innings and likely more applicable to vanity than true clinical obesity, selling of certain single stocks has been and continues to be extreme,” Holz said.
Meanwhile, BMO Capital Markets analysts, led by Evan David Seigerman, forecast the market for weight-loss drugs will reach $100 billion in worldwide revenue by 2035.