The world we live in would be markedly different without life sciences inventions and discoveries such as vaccines, antibiotics, and the contraceptive pill, to name just a few. The latest addition to the list is a category of drugs called GLP-1 agonists, which were initially developed as a treatment for diabetes.
In addition to helping people with diabetes control their blood sugar levels, GLP-1s suppress appetite and reduce calorie intake. That makes them well suited to treating obesity and helping to reduce obesity-related healthcare complaints. It’s a market that’s expected to be worth $100 billion by 2030, according to JP Morgan.
Novo Nordisk, the Denmark-based company owned in the Fundsmith Equity Fund for the last seven years, is blazing a trail for GLP-1s and unsurprisingly delivering strong earnings growth and some of the healthiest stock price gains investors have seen, rivalling Big Tech. Its stock price has grown from around $26 in March 2020 to more than $135 at the time of writing.
Its market capitalisation of around $465 billion is larger than Denmark’s GDP. What’s more, the company is credited with almost singlehandedly preventing Denmark’s GDP from slumping into a recession in 2023. Revenues for the year climbed 31% to DKK 232.3 billion ($33 billion), boosted by strong sales of its GLP-1 drugs, Ozempic, and Wegovy.
Eli Lilly, which makes GLP-1 drugs Mounjaro and Zepbound, is Novo Nordisk’s biggest competitor for now. The company has eclipsed Tesla in market capitalisation, with high expectations of a GLP-1 boom as production ramps up—JP Morgan reckons that as many as 30 million people in the US may be using GLP-1s by 2030. More companies are expected to climb in, but there is plenty of growth to be shared.
With an estimated 415 million people worldwide living with diabetes and around one billion classified as obese, GLP-1s will find a massive market in the years to come. Outside of obesity and diabetes, GLP-1s are also being investigated for treating heart disease, lowering stroke risk, kidney disease Parkinsons, Alzheimer’s, depression, arthritis and even addictions like alcoholism. While the drugs remain expensive and hard to obtain, the impact on public health will be immense as they become accessible—and the ramifications across society and for markets could be significant.
Public healthcare systems and health insurers, for example, will need to consider the trade-offs between sponsoring GLP-1s to reduce obesity-related diseases against other spending priorities. Life insurers may see fewer claims for obesity-related deaths but may need to reprice annuity and pension products to account for increased life expectancy.
Many consumer staples companies have already needed to review some of their products to address the healthier preferences of younger consumers. Food & beverage manufacturers and medical companies with products for people with obesity-related complaints (like makers of prosthetics for arthritic people) could all see their businesses further disrupted.
Consumption of processed snacks, soft drinks, alcohol, and high-carb products could decrease sharply in years to come if usage of GLP-1s reaches the levels forecast by JP Morgan and others. Retailers and agribusinesses that focus on healthier eating options may thrive.
The boom in GLP-1s is a testament to market-driven innovation and highlights that growth today is not solely a digital tech and AI story. And like generative AI, GLP-1s could disrupt companies and shape markets outside its own sector. While we are not stock pickers ourselves and don’t try to choose winning sectors (like biotech or Big Tech), we outsource the role of picking successful companies to our third-party active fund managers. As the companies grow in success, they also become more dominant in the passive index funds we track, which means that our clients benefit from these innovations and the companies that use them to fuel their growth.
“We have seen a number of trends and possible disruptions come and go in consumer staples over the years, but never one quite like GLP-1s.”
– Ken Goldman, Lead Equity Research Analyst for the US Food Producers and Food Retailers sectors at JP Morgan.
Global News
- President Joe Biden and former president Donald Trump have made their rematch all but official, with both notching huge Super Tuesday wins; Nikki Haley dropping out of the presidential race; and the US Supreme Court ruling that US states cannot prevent Trump from appearing on presidential ballots. About one-third of Americans believe their investment strategy could change depending on who the next president is, according to recent research from Edward Jones.
- Fed chairman Jerome Powell has indicated that the central bank is getting close to the confidence it needs to start lowering interest rates. He said, while answering questions from the Senate Banking Committee, that the Fed is waiting to become more confident that inflation is moving sustainably at 2%. On Wednesday, the Fed chief said it will likely be appropriate to begin lowering borrowing costs “at some point this year,” but made it clear that officials are not ready yet. Currently, traders see a roughly 69% chance that the Fed will cut rates at its June policy meeting, according to the CME FedWatch Tool.
- Ahead of Powell’s testimony, stocks came under pressure as a trio of tech heavyweights fell, with traders wading through mixed economic data. Apple’s iPhone woes in China deepened while Advanced Micro Devices hit a US roadblock in selling an artificial intelligence chip to the Asian nation. And Tesla extended its rout as China shipments slumped.
- The price of gold rose on Tuesday to settle at $2,141.90 a troy ounce, notching another record high as investors continue to bet the Fed will cut rates in the back half of the year.
- The UK is overhauling its system of preferential tax treatment for wealthy foreigners, creating revenue for the government to spend on British voters at the expense of agitating some of the nation’s richest residents. UK Chancellor of the Exchequer, Jeremy Hunt, said that the “non-domicile” status would be abolished after more than two centuries, with a new tax system based on where people live taking effect from April 2025. Inheritance tax will also move to a residence-based regime, with the details yet to be confirmed.
- China’s annual legislative meeting — the National People’s Congress – aimed high but offered little when it opened this week. Despite their reluctance to spend, China’s top leaders said the economy would grow at an ambitious 5% this year. China’s exports grew much faster than expected in the first two months of 2024, as overseas shipments in US dollar terms rose 7.1% in the January-February period from a year earlier, well above the 1.9% forecast by economists in a Bloomberg survey.
- OpenAI has hit back at a lawsuit filed against it by Elon Musk, using the billionaire’s own emails to show he backed the company’s plans to become a for-profit business and that he insisted it raise “billions” of dollars to be relevant compared with Google. Musk filed the lawsuit last week against OpenAI, CEO Sam Altman, and president Greg Brockman, alleging the startup had strayed from its mission to build responsible AI and that it had become beholden to Microsoft, its largest investor. In the post, OpenAI said that Musk was lashing out after trying and failing to make the company part of Tesla.
- Two Nvidia directors sold about $180 million in shares of the chipmaker in recent days, becoming the latest insiders to cash in as the stock continues to push deeper into record territory. So far this year, the chipmaker alone has accounted for a third of the advance in the S&P 500. Its latest earnings report, which reaffirmed confidence in the AI boom, sent Nvidia’s market value up by $277 billion, the biggest one-day haul for any company ever.
- Novo Nordisk has struck a deal that will allow the Danish drug-maker to respond to surging demand for its weight-loss drug Wegovy and diabetes treatment Ozempic. Novo’s biggest shareholder is buying Catalent, one of the world’s largest drug-manufacturing companies, for $16.5 billion, including debt. In a three-way arrangement, Novo will pay the holder $11 billion to get three of Catalent’s factories acquired in the deal. This comes as makers of everything from snack food to knee implants are calling Novo for advice.
- As at Thursday’s close the S&P 500 was 0.39% up for the week.
Local News
- Unveiling its manifesto last month, the ANC pledged to go ahead with plans to revive an apartheid-era rule compelling pension funds to plough money into certain government-approved investments, assuming it retains power in upcoming elections. The range of prescribed assets would go beyond investing in government bonds to support struggling state-owned firms such as Eskom and Transnet into productive assets as well as investing in different classes of assets that are consistent with industrial output targets.
- The ANC’s highest decision-making body, the National Executive Committee, wants the ANC’s top leaders, headed by President Cyril Ramaphosa, to decide the fate of those accused of corruption when it comes to electoral candidate lists. The deadline for submitting candidate lists to the Independent Electoral Commission (IEC) is today.
- The Financial Mail understands that many of those implicated in the Zondo commission’s state capture report are set to return, barring serious intervention by the party’s top seven leadership, which includes Ramaphosa, Deputy President Paul Mashatile, and chair Gwede Mantashe. According to the Financial Mail’s source, “the lists are 99.9% done, there is unlikely to be massive changes by the officials”. The decision will test Ramaphosa’s determination to recast the ANC as a party that is serious about fighting corruption and restoring trust.
- Jacob Zuma’s MK party is making escalating threats of violence if it does not get its way at the polls. It is not the only party to be accused of intimidation and thuggery this election season. Yet the IEC is silent, states the Daily Maverick. It says that “if ever there was a time for the IEC to step up and lay down the law to the thugs endangering South Africa’s precious democratic process, it is now. There is, quite literally, everything at stake.”
- Because the Multi-Party Charter (MPC) has requested election observers from G7 countries to be present for the 29 May general election, the ANC will reach out to its friends, including Russia, to do the same. The MPC had written to several countries around the world to send observers to ensure that the upcoming election will be free and fair.
- Public enterprises minister Pravin Gordhan, a veteran of the struggle against apartheid, will leave politics, with the national election on May 29 set to mark the end of his time in government. Gordhan, 74, is a prominent figure who has occupied strategic positions in the government since the 1994 transition to democracy. Gordhan will now be focusing on his family and his health.
- South Africa should be able to develop its uranium deposits into fuel for nuclear power, said Mineral Resources and Energy Minister Gwede Mantashe. The minister also reaffirmed plans to add new nuclear power capacity of 2,500MW at a pace and rate the country can afford while speaking at the Africa Energy Indaba on Tuesday. Mantashe spoke out against activists who have opposed government’s plans for gas power, labelling them “anti-development”.
- The economy grew a marginal 0.1% in the fourth quarter, following a 0.2% contraction in the third quarter. This small uptick in the three months to the end of December indicates the country narrowly escaped a technical recession. But structural constraints, together with a high-cost environment, continue to weigh on growth prospects.
- Shoprite is using the latest artificial intelligence technology to help its buyers balance prices and volumes. CEO Pieter Engelbrecht said on Tuesday the retailer had just recently implemented an AI pricing tool and has an enormous amount of data – some 12 petabytes – available on the shopping habits of its customers. This has also aided its financial standing and it has gained market share for the past consecutive 58 months.
- Sasol has lost its appeal in the competition appeal court in a case investigating claims that it engaged in gas price gouging for almost a decade. Egoli Gas, the Industrial Gas Users Association of South Africa, and Spring Lights Gas lodged a complaint with the Competition Commission in 2022 alleging that Sasol engaged in excessive pricing of natural piped gas, in contravention of the Competition Act. This paves the way for the industrial company to be prosecuted.
- At the time of writing the rand was 2.8% stronger against the USD and the ALSI was up 1.2% for the week.
Sources: Dynasty, News24, BusinessLIVE, Daily Maverick, CNN, Bloomberg, Daily Investor, Moneyweb, New York Times, Financial Mail, etc.
