While it is clear that Nvidia (NVDA) has consumed a significant, though not inordinate, amount of attention recently, there is another stock with a similar symbol that has been a stellar performer with a potentially life-changing product. That would be Novo Nordisk (NVO, NOVO.B), which had a competitive hiccup today when Viking Therapeutics (VKTX) reported a positive Phase 2 trial for its own obesity drug.
Although Novo is domiciled in Denmark (the local symbol is NOVO.B), its ADRs (NVO on the NYSE) have a higher average daily volume than the ordinary shares. That is a testament to the level of interest and enthusiasm for the stock and its key products – the diabetes and weight loss drugs Ozempic and Wegovy — on a global scale. Another testament to that enthusiasm is the fact that NVO has roughly doubled in the past year and a half.
2-Year Chart NOVO.B (daily candles, right scale in DKK), NVO (blue line)
Source: Interactive Brokers
Over that time period, Eli Lilly (LLY), maker of the competing Mounjaro and Zepbound, has had a similar, even more spectacular rise. That stock also dipped today on the VKTX news:
2-Year Chart LLY (daily candles, right scale), NVO (blue line)
Source: Interactive Brokers
As a result of the stock’s appreciation, LLY surpassed TSLA’s market capitalization in January, and NVO is not far behind. In an article from that time, I commented:
“Markets tend to favor big broad trends and certainly one of those trends at one point was electric vehicles and all things Tesla,” said Steve Sosnick, chief strategist at Interactive Brokers. “Right now, the trends that are really gripping investors are artificial intelligence and GLP1 weight loss drugs.”
Considering that we have discussed artificial intelligence quite frequently, if not ad nauseum, it is appropriate that we devote some time to GLP excitement.
During the run-ups in both NVO and LLY, there has been a series of news reports analyzing the potential effects of the new GLP1 drugs on both consumer goods companies and health insurers. Because these drugs suppress appetites, the former set of concerns relates to whether the widespread adoption of GLP1s will depress demand for a caloric foods and beverages. In theory, these could be a major negative for anyone who makes or sells processed foods. But the second concern, the one regarding its effect on health insurance companies, mitigates the effect of the former. These drugs are very costly, at least in the US. The high demand is forcing insurers to decide whether the potential long-term benefits of reducing obesity and controlling diabetes justify the high monthly costs of the drugs. For now, many are loath to cover the costs, particularly when the customer is only moderately overweight or if their diabetes can be controlled with cheaper medications.
The benefit to these companies is that there is no shortage of well-heeled consumers who are willing to pay for the drugs, nonetheless. Vanity is a powerful motivator. A doctor friend commented to me that a high percentage of the members of a club that we belong to have inquired about these drugs, and that many willingly hundreds of dollars out of pocket to manage their weight. A weekly injection is certainly easier to manage than a diet and exercise regimen, and NVO and LLY are reaping the rewards.
That is why we have only seen a modest dip today in NVO and LLY despite the potential emergence of a new competitor in VKTX. The news is certainly encouraging for the smaller biotech company, with its stock doubling today, but it is not necessarily discouraging for the drug giants – at least in the short-term. For starters, the VKTX drug still needs further approvals from the FDA before it can come to market. Secondly, at least for now, demand for these drugs is outpacing supply, so a new entrant could simply expand the marketplace in the long run.
Although it is not obvious from the upward trajectories in the two-year charts above, a shorter-term chart shows that a pause may be occurring. We might be seeing a bit of a topping pattern at play. Note the two candles highlighted below. They show the NVO opening lower but seeing sufficient “buy-the-dip” activity to close most of the opening downward gaps. There is clearly demand for the shares from traders, but it is possible that longer-term investors may be taking a bit of a breather. It is likely premature to be outright bearish on either NVO or LLY – the long-term upside trends are still too powerful – but a bit of short-term caution may be warranted in the ”other NV stock.”
NVO, 3-Month Daily Candles
Source: Interactive Brokers
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Hello David, IBKR’s Debit card is being discontinued. Please accept our apologies.
As far as depressing demand for caloric foods and beverages, inflation may have a bigger effect.
Due to the increase in the cost and smaller portions (“shrinkflation”) of frozen foods which have levels of saturated fat and sodium that are extremely unhealthy, I am seeing shoppers at my local supermarket walking away from them unless they are on sale. Beverages are staying on the shelves too. Coke, Pepsi, and other popular soft drinks are more than double the price of just a few years ago, and people are only buying them when a discount comes along. Many other foods are double what they were just several years ago, and consumers are finally making adjustments in their spending habits. Inflation is making people healthier!