The Lex Newsletter: Living in an Ozempic world

Dear reader,

It isn’t often that a company pays good money to criticise customers for buying its product. But that is what Eli Lilly did this week.

The US pharmaceutical company — whose shares are up 130 per cent over the past year and is now a top-10 S&P 500 stock — chose the week of the Oscars to launch an advert called “Big Night”. 

“Some people have been using medicine never meant for them — for the smaller dress or tux, for a big night, for vanity,” it said, over shots of a sequinned gown. “People whose health is affected by obesity are the reason we work on these medications. It matters who gets them,” the ad continued. 

The US pharma group was, perhaps, just trying to get ahead of the inevitable attention that weight-loss medicines would receive amid the Oscars glitz. 

The awards ceremony prompted a rash of “the winner is . . . Ozempic” takes, referring to the diabetes and obesity medicine produced by Eli Lilly’s rival in the category, Novo Nordisk. The usual fashion police critiques of Hollywood stars walking the red carpet were supplemented by supposedly expert takes on which dramatically transformed figures might be down to the weight-loss injectables produced by the two companies. 

Lex has been watching the development of this market closely. Both companies’ fortunes have been transformed by the success of their GLP-1 diabetes drugs in treating obesity: in Novo’s case, Ozempic is marketed as Wegovy for obesity; at Lilly, Mounjaro goes under the name Zepbound. 

Shares in the two companies have soared; after years of trading at a mid-to-late teens forward price/earnings ratio, Novo now commands 32 times and Lilly almost 42 times, on FactSet figures.

That reflects the extraordinary growth of GLP-1 medicines overall, and for treating obesity specifically. Total prescriptions for obesity are growing at 97 per cent on a four-week rolling basis, say Citigroup analysts. 

For Novo, which likes to point out that there are 800mn obese people globally of which it is treating 1mn, Wegovy and its less efficacious predecessor product Saxenda now account for almost a fifth of its sales compared with 4 per cent in 2020. Novo’s shares hit a new record this month after it revealed early-stage results for an experimental weight-loss pill that appeared to offer better results than Wegovy. It expects China to approve Wegovy for sale later this year, a huge potential market that Lex plans to look at soon.

There is some irony in this frenzy for a company that spent years labouring to convince medical practitioners and the market that obesity was a disease worth treating, that a medicine could produce good results and that doctors would ever prescribe it. Those efforts contributed to chief executive Lars Fruergaard Jørgensen being named the FT’s Person of the Year in 2023.

For years, the argument was that overweight people didn’t need obesity drugs because diet and exercise worked.

Now, with demand soaring and supply from the manufacturers constrained, Eli Lilly at least seems concerned about a potential backlash against these medicines being snapped up by those who really, really don’t need them. 

The companies haven’t been promoting these weight-loss medicines for fear of stoking further demand they can’t at present meet. Now, they may even be starting to do the opposite.

Further reading

The Ankler: How Ozempic ate awards season — March 2024

Lex: Obesity drug challengers will struggle to break into plus-sized market — January 2024

Lex: Eli Lilly’s heavyweight status looks set to last — January 2024

FT Person of the Year: Lars Fruergaard Jørgensen — December 2023

This week in Lex

• The UK government this week yielded to the forces of reality and admitted that Britain will have to build new gas power stations to help meet demand in the next decade when weather-dependent renewables are not generating. The solution is more storage, including so-called water batteries. Read more here. 

• What actually happens when a company reaches an agreement with an activist investor agitating for change, and is it in the interests of all shareholders? Lex looked at one cosy-looking deal struck between Elliott Management and US tower operator Crown Castle. Read the details here. 

• The US has had its latest bank panic and emergency rescue in the form of New York Community Bancorp. Lex this week considered the lender in Europe that looks most under pressure from mounting real estate losses: Deutsche Pfandbriefbank. Find out more here.

Things I’ve enjoyed this week

Regular readers will know that I like a sports documentary (and as an aside, Netflix’s Full Swing manages to make compelling TV about an incredibly boring game by focusing on the corrosive effect of Saudi money on the sport). 

In Quarterback, yet another Netflix sports doc, Kirk Cousins comes across as the earnest, dweeby workhorse against the flashier talents of others such as Patrick Mahomes. This WSJ story looks at how Cousins has used the system to his advantage to become one of the highest-paid players in NFL history: 

“The reason Cousins has become so fabulously wealthy isn’t because he’s one of the premier players at the game’s most important position. It’s because he isn’t.”

Have a great weekend,

Helen Thomas
Head of Lex