The Financial Skinny On Ozempic, Steve Jobs - The Opera, GameStonk CEO Change, And More...

StreetSmarts Morning Note

Sep 29, 2023

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
-George Soros
“Anyone who lives within their means suffers from a lack of imagination.”
-Oscar Wilde

The Skinny on Ozempic

The Business of Weight Loss

It’s weird to think of drugs as being ‘famous’ but with celebrity backing and a sea of young influencers on TikTok praising the drug, Ozempic is now the Madonna of prescriptions. In this article I’m going to do a bit of a deep-dive on the drug, including:

What are current and estimated sales of the drug
What is it and how was it developed
What is the current and growing ~~popularity~~ usage
What is the value of the broader market for weight loss drugs
What the impact has been on its owner, Novo Nordisk

What Do Sales For Ozempic Look Like?

Novo Nordisk - the company that owns Ozempic - made $11.3 billion in sales in 2022 from Ozempic and the other semaglutide products it controls (Rybelsus and Wegovy). While that may seem enormous, the broker consensus estimates are much more impressive, with the Street seeing revenues for the semaglutide franchise reaching a whopping $31.6 billion by 2025 - an increase of ~180% in just three years. Bear in mind, however, that some of the Ozempic usage is for the diabetes treatment space, and not necessarily weight-loss.

What Is Ozempic?

Semaglutide is technically the name of drug but it is sold to clients under the brand names Ozempic and Wegovy in the form of pre-filled auto injector ‘pens’. The two products are identical but aimed at different clients: Ozempic for diabetes and Wegovy for weight-loss. However, since Ozempic was first approved (way back in 2014) as a diabetes drug, it is still the most commonly referenced product (and often still prescribed instead of Wegovy). More recently, an oral tablet form of the drug was approved as Rybelsus.

GLP-1s - Ozempic wasn’t the first and isn’t the only GLP-1 on the market. It’s not even the biggest. While Trulicity sells more, it doesn’t get the same headlines as this alternative is sold almost strictly in the un-TikTok friendly Type 2 Diabetes space (finger prinks and blood glucose monitors aren’t sexy). Ozempic, as with other GLP-1s, initially sought approval by the Food and Drug Administration (FDA) to improve glycemic control in adults with type 2 diabetes.

How Popular Is It?

Extremely. Medical practice company Tebra ran a survey on the drug and found that 15% of Americans have taken the drug, while 47% of respondents know someone who has. Described by the media as ‘Hollywood’s worst kept secret’, everyone from Elon Musk to Sharon Osbourne have taken the drug.

"Everybody looks great," remarked host Jimmy Kimmel at the Oscars,
"When I look around this room, I can't help but wonder: Is Ozempic right for me?"

Internationally, the drug hasn’t penetrated into the weight-loss market as well as the US, where it recently became the most heavily prescribed ‘diabetes’ drug. I use quotes there because Ozempic has received some backlash due to over-eager or loose doctors prescribing the drug to patients who wouldn’t normally be given it: think of the appearance-conscious-but-generally-in-good-health individual pushing for a prescription and getting it for ‘early on-set diabetes’ when they’re in no way close to meeting that criteria.

Scaling up: Ozempic's become the most in-demand diabetes drug in the US

What Are Ozempic Alternatives?

First mover advantage in the drug game is quite sticky, but there are other drug makers trying to penetrate the market:

Trulicity (dulaglutide): Trulicity is the 800lb gorilla in the Type 2 Diabetes space and enjoyed its first mover advantage for GLP-1s. The Eli Lilly drug is now starting to be prescribed for weight loss and, as a similar GLP-1 to Ozempic, is believed to be roughly as effective.

Mounjaro (tirzepatide): Eli Lilly’s next-gen drug to Trulicity was recently approved in May 2022. Despite being very new, Mounjaro's sales jumped 72.3% to $979.7 million in the Q2 vs. Q1, easily topping analysts' estimates of $743 million. The impact of Mounjaro can be seen in the recent drop in Trulicity sales as the Eli Lilly sales force pushed doctors to opt for swapping prescriptions. Mounjaro is believed to be potentially better for weight loss than Ozempic as it activates both the GLP-1 and GIP receptors, leading to improved blood-sugar control.

Rybelsus (semaglutide): As mentioned, this is the same compound as Ozempic (semaglutide) except it comes in pill form (no more scary needles!)

Saxenda (liraglutide): Same compound as Victoza (a GLP-1 for Type 2 Diabetes), just rebranded to be for weight loss. It is also approved for children as young as 12 suffering from chronic obesity. Tagline idea: ‘It’s Ozempic for kids!’

How Big Is The Market For Weight-Loss Drugs?

Again, it’s hard to say as a lot of the current sales are hidden inside the Type-2 Diabetes market, but some estimates put the market for weight-loss drugs at $100 billion by 2035. For context, Comirnaty - the Pfizer/BioNTech COVID vaccine - raked in $59 billion in 2022. The next highest selling drugs, Humira (autoimmune disorders like Crohn’s and rheumatoid arthritis) and Keytruda (various cancers including lung) made $21 billion. So yeah, it’s a huge market.

In the future, GLP-1s will likely still play a big factor, but more combination drugs, like the aforementioned Mounjaro (GLP-1 and GIP targeting), are my guess as the way the industry goes (context: I was a healthcare equities analyst for the better part of a decade, so I cannot be trusted here).

The way it looks right now is that really the only thing holding back unstoppable growth in this industry is the cost. The health insurers pay little or nothing towards the cost for Ozempic or competitor treatments (at least when classified as for weight-loss and not Diabetes. Wink wink). For example, in the Tebra survey mentioned earlier, 70% of respondents said they couldn’t afford to take Ozempic. Currently, an Ozempic prescription in the US costs around $950 a year.

What Has Been The Impact On Ozempic’s Owner, Novo Nordisk?

Novo Nordisk has been a behemoth since as long as I can remember, but its rise over the last few years has been nothing short of incredible. In 2019, when Ozempic sales were a modest $1.9 billion, Novo was a top ten global pharma company and, along with Eli Lilly, the two were the undisputed leaders in the growing market for diabetes drugs (Novo claims to have had 32.7% of the Diabetes market in 2022, up from 29% in 2019).

Since then, Novo has moved on to become the third largest pharmaceutical company in the word, falling short only of Eli Lilly and Johnson & Johnson.

And while the share price has seen significant growth, the increase to the Street’s target price has more than surpassed it. As of writing this, Novo’s target price sits at $192, and the Wall Street target price still exceed this (note that I’m using the US listed Depository Receipts here instead of the Danish listing).

Opinion: The impact that Ozempic has had on the growing weight-loss market from something I never once looked at as an analyst as the driving force behind the world’s third largest pharmaceutical company has been amazing. If analysts are correct and Ozempic triples over the next three years, this stock could even de-throne its arch nemesis Eli Lilly (the other big diabetes player) to become the king of pharma.
I might just sharpen my pencil and have a deeper look. Maybe you should too.

TLDR: Exercise is stupid. Take pills.

Speed Round

Steve Jobs, The Opera - You heard that right. Apparently it debuted at the Santa Fe Opera way back in 2017, but I hadn’t heard about it then. A new and improved one just opened up in San Francisco for run in September and October. Here’s a link to one of the ‘songs’. It’s…not my particular brand of scotch, as they say. You can also listen to the soundtrack on Spotify with track titles named after some of his quirky catchphrases, like ‘And One More Thing’ and ‘It’s Like Totally Simple’.

Car Insurance is soaring - Rising vehicle prices aren’t the only concern for drivers, as insurance costs have increased the most in 50 years on a 12-month basis. Apparently, it’s not all about gouging the customer either; vehicle accidents have been trending up since COVID, leaving insurers stuck to pay for replacements which, due to higher automobile costs, have cut into profitability. While car prices have cooled off and the accident trend has abated somewhat, insurers don’t seem inclined to pass that on to the consumer yet. Barron’s Article.

GameStonk Gets New CEO - Perfectly timed with the launch of the new movie, Dumb Money (about the whole GameStop short-squeeze hullabaloo back in 2021), the company’s largest shareholder (12% of shares) will be taking over the reigns as CEO. Ryan Cohen became something of an r/WallStreetBets legend back in 2021 for going big into the name, and his appointment to the board was one of the catalysts for the short squeeze to take place when he joined in January 2021.

I checked and his 13D filing shows him building around a 10% stake by Q4 2020 around the $4 - $7 range, so he’s still up quite a bit since then (the stock did a 4:1 split so the current price is effectively $67 from his perspective). But geez, what a ride.

Ford & GM push for EV subsidies (and Chinese Tech) - The leadership of each firm is in the process of petitioning the US government for amendments to the current subsidy rules, which they claim are necessary for American companies to invest in EV technology and production, and not be left behind in the electric car arms race. Buyers of EVs in the States currently receive a $7,500 tax credit but rules coming into effect next year will annul the credit if the battery components are from a “foreign entity of concern.” This is effectively a measure aimed at reducing American reliance on Chinese batteries and materials.

Ford and GM plan to use licensed Chinese battery technology in newly proposed factories, claiming that it will allow them to build their own expertise, and is fundamental to their being competitive in the future EV space. Can’t be a fun time to go hat-in-hand to Washington after Biden was just at the UAW picket line a few days ago. WSJ Article.

China Evergrande CEO in Custody - I mean, they are calling it ‘mandatory measures’ but he’s being held at a facility in Beijing. The Founder and CEO of the beleaguered property giant, Hui Ka Yan, is suspected of financial crimes. Whether he’s guilty or not, the PRC doesn’t seem to react well to corporate failure (or outspokenness in the case of the ‘semi-disappeared’ Jack Ma) as both the Chairman and CEO of debt ridden HNA Group were put in custody in 2021, and the former Chairman of Anbang is doing an 18 year sentence as well. WSJ Article. For more on the China property market and why it matters to global output, revisit my newsletter from earlier this week.

Man, this post reminded me of how much I miss Jack Ma. Disappeared but never forgotten…

US Senate Passes Dress Code - I mean, it doesn’t name names but it’s like in elementary school when the teacher makes a statement directed towards everyone, like ‘ok kids, remember we don’t drink the liquid paper’ and everyone looks at that one kid. CNN Article.

Grab Bag

Trivia:

Elon changing the name of Twitter to X got a lot of flack from users and the media but sometimes a name change is good. For example, Accenture got really lucky with its name change back in 2001. What was it called before?

Active Alliance Associates
McDougal, McDonald, McLane & Co.
Arthur Anderson
Atlantic Distributors Inc.

Since we’re playing the name game: I’m not sure it’s a record, but one infamous CEO had two companies he helmed change their names after his fall from grace - presumably to distance themselves from him. Who is that CEO?

Martin Shkreli (known for being ‘Pharma Bro’)
Stan O’Neil (mostly known for running Merrill Lynch)
Bob Nardelli (mostly known for running HomeDepot)
Gerald Levin (mostly known for AOL)

(answers at bottom)

Joke Of The Day:

Blessed are the young, for they shall inherit the national debt.

– Herbert Hoover

Fun Facts:

Facebook’s color scheme is blue because apparently Zuckerberg suffers from red-green color blindness.

The retina scan technology of your Apple device is manufactured by Samsung.

Market Update

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Trivia Answers:

Anderson Consulting. After a years-long spat with its brother company, Arthur Anderson Accounting, the company was spun out on its own. Arbitration forced them to change their name, which they weren’t too keen to do. Shortly afterward, Arthur Anderson Accounting was found criminally liable for helping one of its biggest clients, Enron, commit fraud and for shredding documents. AA Accounting was soon disgraced and bankrupt; Accenture - with its fancy new name - walked away hands clean.
Martin Shkreli. Pharma bro is renowned for his sickening Tweets and for jacking up the price of antiparasitic drug Daraprim, primarily used by AIDS patients, by 5,455% (from US$13.50 to $750 per pill). His company at the time was Turing Pharma, which he founded, and has since gone on to rename itself Vyera Pharmaceuticals. His first pharma was Retrophin, which now goes by Travere Therapeutics.
I actually owned some Retrophin shares for a few weeks way back in 2014 at the fund I was working at (and they did quite well). We dumped them after I noticed on Twitter that he was promoting his booth at a health care conference by saying stuff like ‘come to our booth, we’ve got the hottest b*tches’ and more inane drivel. I was doing ESG investing before it was trendy.