https://www.barrons.com/articles/eli-lilly-next-apple-stock-cheap-obesity-0aeefbcf?mod=past_editions
By
Steven M. Sears
Jan 10, 2024, 1:30 am EST
Eli Lilly and Novo Nordisk may expand into areas that most investors have yet to contemplate, Goldman Sachs says. COURTESY OF ELI LILLY
The 21st century has been defined by so much conflict that it obscures an obvious, and profound, fact.
We have begun an era of muscular technological innovation that could serve to synthesize all previous scientific advances, helping to solve our most difficult challenges. Yet we are so distracted by catastrophes near and far that it is hard to appreciate that technology and science seem to be converging to reshape humanity.
Many companies, including Apple, Amazon.com, Alphabet, Microsoft, Meta Platforms, and Nvidia, are focused on perfecting products that might find hidden solutions and connections in the annals of written knowledge. The opportunity is bigger than artificial intelligence alone.
Pharmaceutical companies such as Moderna, Eli Lilly, and Novo Nordisk are developing potentially miraculous medicines that might cure, or ease, illnesses now accepted as ugly immutable facts of genetics, bad luck, or poor decisions.
Innovation, by definition, is unruly and volatile. It can be hard to fairly value it using traditional financial analysis, which is heavily influenced by historical results. Investors who can manage such uncertainty should consider trading on themes that could be powerful investments, provided the innovations successfully pass through the skeptical gauntlet of regulators, doctors, scientists, and equity and options markets.
Take obesity. Too much body fat causes and exacerbates major illness including cardiovascular disease, diabetes, and even joint diseases. Lilly’s and Novo Nordisk’s emerging weight-loss drugs seem to miraculously lessen the severity of major illnesses, and some that seem unrelated, including Alzheimer’s and even sleep apnea.
Lilly stock has surged 77% in the past year, reflecting those discoveries. The stock is overvalued by traditional metrics—though its performance arguably undervalues the potential benefits of the medicine.
A recent Goldman Sachs study encouraged investors to think of obesity drugs like Amazon and Apple in their earliest days. Those companies first sold books and computers, respectively, but ultimately created powerful product platforms that have intertwined themselves into our lives. Like those companies, Goldman told clients, Lilly and Novo Nordisk may expand into areas that most investors have yet to contemplate.
Over the next five years, the two companies will release the results of more than 20 studies. Goldman estimates that Lilly stock, recently $625, would be worth about $840 in 2028 if half of the known studies are successful—and much more if more tests are positive.
The market for anti-obesity treatments is massive. In the U.S., potential customers exceed 100 million people, according to John Marshall, Goldman’s derivatives strategist, who led the research team that produced the study. Insurance companies are expected to pay for obesity drugs, as the drugs cost less than major surgeries.
Rather than quibbling with financial assumptions, investors are arguably better served using an approach that sophisticated investors often favor when they like an idea and want to temper risk should something derail the investment thesis.
By
Steven M. Sears
Jan 10, 2024, 1:30 am EST
Eli Lilly and Novo Nordisk may expand into areas that most investors have yet to contemplate, Goldman Sachs says. COURTESY OF ELI LILLY
The 21st century has been defined by so much conflict that it obscures an obvious, and profound, fact.
We have begun an era of muscular technological innovation that could serve to synthesize all previous scientific advances, helping to solve our most difficult challenges. Yet we are so distracted by catastrophes near and far that it is hard to appreciate that technology and science seem to be converging to reshape humanity.
Many companies, including Apple, Amazon.com, Alphabet, Microsoft, Meta Platforms, and Nvidia, are focused on perfecting products that might find hidden solutions and connections in the annals of written knowledge. The opportunity is bigger than artificial intelligence alone.
Pharmaceutical companies such as Moderna, Eli Lilly, and Novo Nordisk are developing potentially miraculous medicines that might cure, or ease, illnesses now accepted as ugly immutable facts of genetics, bad luck, or poor decisions.
Innovation, by definition, is unruly and volatile. It can be hard to fairly value it using traditional financial analysis, which is heavily influenced by historical results. Investors who can manage such uncertainty should consider trading on themes that could be powerful investments, provided the innovations successfully pass through the skeptical gauntlet of regulators, doctors, scientists, and equity and options markets.
Take obesity. Too much body fat causes and exacerbates major illness including cardiovascular disease, diabetes, and even joint diseases. Lilly’s and Novo Nordisk’s emerging weight-loss drugs seem to miraculously lessen the severity of major illnesses, and some that seem unrelated, including Alzheimer’s and even sleep apnea.
Lilly stock has surged 77% in the past year, reflecting those discoveries. The stock is overvalued by traditional metrics—though its performance arguably undervalues the potential benefits of the medicine.
A recent Goldman Sachs study encouraged investors to think of obesity drugs like Amazon and Apple in their earliest days. Those companies first sold books and computers, respectively, but ultimately created powerful product platforms that have intertwined themselves into our lives. Like those companies, Goldman told clients, Lilly and Novo Nordisk may expand into areas that most investors have yet to contemplate.
Over the next five years, the two companies will release the results of more than 20 studies. Goldman estimates that Lilly stock, recently $625, would be worth about $840 in 2028 if half of the known studies are successful—and much more if more tests are positive.
The market for anti-obesity treatments is massive. In the U.S., potential customers exceed 100 million people, according to John Marshall, Goldman’s derivatives strategist, who led the research team that produced the study. Insurance companies are expected to pay for obesity drugs, as the drugs cost less than major surgeries.
Rather than quibbling with financial assumptions, investors are arguably better served using an approach that sophisticated investors often favor when they like an idea and want to temper risk should something derail the investment thesis.
