January 31, 2024 • 26 mins
Unlock the transformative power of GLP-1 based obesity drugs with your guides, Clem Miller and Steve Davenport, as we navigate their remarkable impact on healthcare and investment landscapes alike. Prepare to be enlightened on the dual benefits these treatments offer for diabetes and obesity, and the industry titans leading the charge—Novo Nordisk and Eli Lilly. We've dissected the science, sifted through financial forecasts, and even charted the course for potential investors looking to capitalize on this medical revolution.
The conversation doesn't stop at the pharmacy counter; we delve into the complex web of obesity, genetics, and the monumental societal shifts these drugs could instigate. We also unpack the intricate dance between health and financial wellness, offering actionable insights for investing in pharmaceutical stalwarts and rising stars. Tune in and arm yourself with the acumen to navigate both the health advances reshaping our future and the financial opportunities they present.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Clem Miller (00:03):
Welcome everybody to Skeptics Guide to Investing.
I'm Clem Miller and I have hereSteve Davenport and today we're
going to talk about obesitydrugs and how they affect us.
Steve and I will dig into themedia and market response to
these medical developments.
Steve.
Steve Davenprt (00:23):
Well, Clem, there's a lot to capture here
and I think it helps at thebeginning if we start to define
some of the terms.
I think a lot of people arequestioning what does it mean
when they talk about GLP1.
Those letters of the acronymare glucagon, like peptide 1,
(00:48):
and it's a version of the drugsthat these companies have
developed for people withdiabetes.
And glucagon is a signal thebody sends to say that it's full
or satiated and to kind of saywe don't need to eat anymore.
So when we're hungry and thebody needs nutrition or energy,
(01:12):
we have one system, but glucagonis an item in our small
intestines that sends a messagein terms of whether we are full
and we need to stop eating.
There's two main uses for thesedrugs.
I'll call them obesity drugs,but they're really diabetes and
(01:36):
obesity medicine.
One is really to people whohave typed your diabetes, who
really need help in terms of howdo they manage their sugar, and
the other is if a person isgoing to be a potential diabetic
and they need medicine to helpthem try to manage their weight.
(01:58):
So when we look at this,there's really three different
common ways to think aboutobesity.
There's intervention can be theform of lowering your weight
through diet and exercise,through a pharmacological
solution or through surgery.
(02:20):
So we're really talking aboutthat middle one, the
pharmacological solution.
There's two main players.
Everybody talks about NovoNordisk and Lilly from the US.
These two companies controlover 80% of the market for these
(02:41):
drugs.
Right now it's about 4 billion.
They anticipate by 2032 to beupwards of close to 170 billion.
That's why there's so muchexcitement with these drugs the
two main participants.
Novo Nordisk has two drugs, onefor diabetes and one for
(03:04):
obesity.
They are Ozempic and Wegovy.
So Lilly similarly has twodrugs.
One is Mounjaro,m-o-u-n-g-a-a-r-o and Zepbound
for obesity.
So each of those in themarketplace and it's a very
(03:27):
complicated biological elementbut really is about the future
and growth and earnings.
So it's a very exciting storyright now.
And what's going on inhealthcare?
Clem Miller (03:43):
My reaction is that couldn't they come up with
better names for these things?
They're just a little confusingOzempic, wegovy, mounjaro and
Zepbound.
Steve Davenprt (03:55):
Oh, well, maybe that's what you get into.
Clem, you can get into thenaming.
Clem Miller (04:03):
So Steve did all of it.
I mean, this is something that,at least for Nova Nordisk and
Lilly and their stock pricesurges and so on, it all seems
to have come to marketconsciousness in 2023.
But did it really start in 2023, or did it originate much
(04:24):
earlier?
Steve Davenprt (04:26):
Well, what's really interesting is both of
these companies have beeninvolved since the 1920s in the
use of insulin to help withdiabetes.
So these were two of thecompanies that originally came
up with the injectable form ofinsulin to help people manage
their sugar.
Previously, there was a drugfrom Nova Nordisk that had about
(04:47):
a 5% weight reduction resultand at a 5% weight reduction
result, putting up with the sideeffects really wasn't
generating a lot of interest.
These drugs are showing 15% to20% weight reduction.
They're starting to get somereal excitement because 15% to
(05:08):
20% of an individual when youlook at how we define overweight
and obese, I think that peoplerealize, hey, I could go from
being one into another categoryand improve my health outcomes
with a 15 or 20%, but I can'timprove it with just a 5% impact
.
(05:28):
In 2021, the FDA approved thissemi-glutide as a solution for
obesity.
So previously they had beendeveloping these drugs for
diabetes and when it gotapproved in 2021 for the
additional risk of obesity, thatreally was an exciting
(05:51):
development for the people atLilly and Nova Nordisk.
So I think that when you'rethinking about how companies
react and how much interestthere is, it's about following
the money and when they had thediabetes as one solution that
they were building these for,and then you can double that
(06:12):
with the obesity.
That really makes these drugshave a much more compelling case
.
Currently, the cost is about$7,000 per year for these.
We expect by 2030 that theircosts will go down to about
$3,000.
So right now there's havingtrouble producing these and the
(06:34):
amounts they need to.
Like Viagra, these drugs have ahistory of tremendous growth
and opportunities, but then theyworry about when they go off
patent.
They're going to go away asthey're very easy to replicate.
Viagra is a very simplecompound.
(06:55):
These are much more complicatedcompounds, so it's going to be
much harder to people to profiton the generics because they're
going to be much harder toproduce.
Clem Miller (07:11):
So, Steve, how do we invest in this space?
Do we invest in Nova Nordiskand Lilly?
How do we invest here?
Steve Davenprt (07:22):
Here are the main competitors on their main
point.
Lilly has Zepb ound, which, asI'm going to put it as number
one, but it's really 1A and 1Bbetween it and Nova Nordisk.
They have a slightly higherweight loss and slightly less
side effects.
Nova Nordisk has more time inthe market and is currently the
(07:42):
largest company in Europe, sopeople are pretty excited.
One thing to consider there'sabout 70% of the population
that's considered overweight orobese in the US.
That number is 50% in Europe.
So when I gave you thosenumbers of 170 billion that
(08:04):
assumed an 11% of theaddressable market in the US and
6% in Europe and when you thinkabout that 170 billion we think
that 11 and 6 is going to bethe ultimate percentage used I
think that number could be muchhigher.
So I think that this theexcitement that you have had I
(08:27):
thought originally when Istarted, before I started
researching this topic, that itwasn't worth all of the, that
this was another AI or SPAC orstock issue, but it really isn't
.
There is a potential here for alot of impact.
The other companies that are inthis space that are doing things
(08:47):
that haven't yet kind ofdeveloped the size and breadth
that Nova and Lilly .
Pfizer's testing a brand whichshould be taken in a pill form
versus the other two are bothinjectables and their studies
are going to be finished by theend of 2024.
Amgen is testing a version of aonce a month injection versus a
(09:09):
once weekly.
And then Roche has recentlybought a company called Carmot,
which has several drug trialsnow, and so they're not
developing on their own, they'rebuying the technology, but
there is a feeling that thoseKarma drugs could be competitive
in this space.
So competition is fierce.
(09:31):
Everybody's looking for thatgoal at the end of the rainbow
and these all, all thesecompanies have resources and
partnerships and they're goingto be competitive and I think
that's good for the consumer.
Clem Miller (09:47):
I would agree.
You think right now these areinvestable.
Steve Davenprt (09:52):
Yes, I think there is investment
opportunities, but I think, likeeverything else, it needs to be
analyzed and understood.
So, literally, it was up 60%and 23%.
Currently trades as a two-starstock, which is slightly
overvalued.
On Morningstar, that's about131% of fair value, so its PE is
(10:15):
about 50 times earnings.
The typical stock I don't thinkis that high.
Novo Nordisk was up 50% and 23,.
Again a two-star stock becauseit's overvalued about 129% of
fair value and it's at 30 timesPE.
Pfizer is still a three-starstock and there is uncertainty
(10:39):
about how this trial is going toget resolved and ultimately you
have to take some risk if youwant to get returns.
So here you're talking abouttrial risk, but you're only
paying about 18 times earnings.
Amgen is a four-star stock,meaning that it's undervalued,
it's about 60% of fair value andit's trading around 14 times.
(11:03):
Roche is a four-star stock,also undervalued, also around
the 60% of fair value, and it'sabout 12 times.
So, like most things, clem,it's not that clear and not that
easy, but I think there'sopportunities if you want to
take one of those bottom threeand I think there's less
(11:27):
uncertainty in terms of thething that I think is most
interesting about this space isit's changed.
These two companies and thesecompanies have lots of other
drugs, lots of other things inthe pipeline, but now everybody
is talking about Lilian Novoonly on obesity and diabetes.
Clem Miller (11:50):
Yeah, so I like buying individual stocks and I
like buying leaders.
I've got significantpercentages of my own portfolio
in both Lily and Nova Nordisk.
I've avoided Pfizer because,frankly, they're actually
(12:12):
retreating in the wake of havinghad some very good earnings
with respect to the COVID drugs.
So I like digging intoindividual names, but prices at
consideration.
You mentioned that Lily andNova Nordisk have high prices.
That doesn't particularlybother me, and the reason it
(12:34):
doesn't is because I look at PEon an overall portfolio basis,
and so I've got much cheaperstocks in my portfolio than Lily
and Nova, and so I feel like Ican afford to pay for them,
especially with their growth,which is reflected in their peg
ratios.
(12:54):
So, steve, what do you say tothat?
Steve Davenprt (12:59):
I think that you are not a typical investor Clem
and I think that the averageperson on the street and who
might be in a position wherethey're trying to think about
I'm on this, I'm using Wefgovy,or I'm on this and I'm using
Zepbound and I find it'stremendous and they might want
to own the stock.
(13:20):
I think that they need to buyit in the right proportion and
they need to think about its PEin terms of what's their time
frame.
If they're thinking they'regoing to get another 50% this
year, I'm not sure that's thecase because of all the other
things the company has and allthe other drugs having less of a
multiple, and this does rightnow.
(13:41):
But you know, what do you thinkabout them compared to the
average health care sector?
Would you want to buy thespider instead of buying the
individual names here?
Clem Miller (13:53):
No, and of course by spider you mean the health
care ETF.
No, I you know I don't.
I don't buy sectors, becausewithin a sector you can have a
variety of companies, both badand good.
You know the spec, the sectorETFs they're weighed most
(14:14):
heavily to those companies thatare already big and that's not
necessarily a good thing.
You know is is.
You know, in semiconductors, isIntel better than some of the
others?
No, it's not.
And you know is, is Johnson andJohnson, you know, better than
some of the others in the healthcare sector.
(14:36):
Is United Health, which is alsoin the health care sector, is
that better than some of theothers?
I would say no, and so I don'tinvest in in the sector ETFs
because you know size is notnecessarily the best and that's
how easy to understand what itmight be hard for a person to
choose and it might be a no,it's a solution.
Steve Davenprt (15:00):
I'm not saying it's the optimal solution, but
yeah, I can see where somebodycould say I can't.
I can't tell which blue tide isa better blue tide.
So I mean, it's like a lot ofknowledge that goes into
selecting an individual stockand I I just I wonder sometimes
(15:20):
whether health as an industry,no just like technology as an
industry you you know that we'regonna have more health issues
as we see the aging in Americaor other countries.
Clem Miller (15:32):
So I?
If?
If somebody were to say to me Ican only invest in sector ETFs,
then definitely health care andtechnology and Communications
Would be at the top of my list,followed by what about
industrials?
No, I don't think I wouldn't.
(15:54):
I'm Not a fan of the carbon.
Well, no, it's not just that,it's just I like to have
sustainable Growth in myportfolio, and when you're
talking about energy andmaterials, you're subject to,
you know, you're exposed to thevagaries of commodity prices and
I don't want my portfolioexposed to the vagaries of
(16:17):
commodity prices.
I want, you know, I want nice,stable growers, preferably
Inexpensive yeah.
Steve Davenprt (16:26):
So these drugs are also great, yeah, garnering
interests because of theireffect on other parts of the
body.
So there's been a study thatsays they reduce health, heart
health In incidents by 20%.
They also help with addiction,because when the signal says
(16:47):
you're satiator, you're full oryou're satisfied, people are
finding that they lower the Urgefor cigarettes and alcohol.
There's also some studiesshowing that it helps with
Alzheimer's.
So I think, just like you know,a hair product ended up having
some impact on blood flow, thatin by agro, and I think there's
(17:12):
a lot of things that could comeout of this.
And it's a very exciting spaceto think that you could be
taking something for Obesity.
And it's also helping with yourheart, yeah, not only reducing
your weight, but also Loweringthe incidence of an event.
Clem Miller (17:28):
So you know, I like these thoughts about, you know,
sort of unexpected benefits,which sort of leads to another
Concept, which is what aboutother areas, other drug
solutions and other areas thatthese are related to?
Steve Davenprt (17:43):
Select.
I think the Interesting thingabout these drugs is we're
starting to be awareSelf-control may not be the
reason for people's healthissues.
Right, there are biologicalelements of our DNA which can
make the signals in our bodieshurt our best efforts.
It has been too long thatpeople believed being overweight
(18:03):
was a choice, when in a lot ofcases it's the genes we're born
with.
We don't have a choice of that.
So when I think of medication, Ithink this could lead to many
areas where we nudge people.
It doesn't solve the problem oftheir weight, but it puts them
in a position where they havemore control and they might
perform better in terms of, onceI get to a certain size and I
(18:26):
see I'm at that size and I enjoybeing at that size I take up
some of the other elements thatwill make me stay there.
So I think it's similar to theidea of a nudge.
We talked about 401ks.
When we sign people up for them, they don't tend to cancel.
Maybe this is there's a wholebunch of efforts around
(18:50):
cigarettes, alcohol, otherthings that if we can nudge
people in the right way, I meanit could really transform how
our Medicare and other nationalprograms affect our health.
So I think it really has a hugepotential.
Clem Miller (19:08):
So I guess what you're saying is that there
could be major benefits in termsof improving behavioral
outcomes, basically socialoutcomes as well, but it's going
to require probably some publicpolicy help as well, which
leads me to sort of the nextlogical question is how does
(19:30):
insurance cover all this?
Steve Davenprt (19:33):
Well, that's a great point.
I don't think we can really puta value on some of those
factors right.
When you look at a person'sdeveloping diabetes at 60 or 70
versus developing at 40, theimpact in the community is very
hard to say.
We've got a large percentage ofpopulation not getting
(19:57):
healthcare.
So if they're not in the systemand yet they're going to be
served by the hospitals in thearea, how do we get at those
people when the expense of thisdrug is so high?
So I think that it's reallygoing to need us to look at
these things and reallycalculate the results, and there
(20:21):
just hasn't been enoughanalysis done.
What happens after the drugstops?
People then do tend to putweight back on, but they don't
tend to go 100% back.
So it does jumpstart people toa better place and they keep the
weight off.
But I think that when you lookat the impacts on the health of
(20:42):
your heart blood pressure andcancer incidences they're all
aided by a better body massindex, so BMI.
So I think that as a country,if we could improve our BMI, I
can't imagine how that wouldripple through the system and
impact Medicare and Medicaid.
(21:03):
So I think there is excitementand I think it will continue and
the competition is.
What I think is interesting isthat everybody is in trying to
make up a solution and whetherit's oral or whether it's
monthly or whatever it is,people are working very hard for
(21:23):
solutions that could reallyimpact the health of our whole
country.
So I'm excited about it.
Clem Miller (21:31):
So here's a question from our mailbag, which
I think you've alreadypartially answered Do you think
the obesity drug excitement is afad, or is it the future?
Steve Davenprt (21:42):
I believe it is the future.
I think that it's a combinationof a lot of things.
We mapped the human genomeseveral years ago and now we're
starting to apply AI and bettercomputing power to this human
genome problem and looking atthe different areas of our DNA
(22:03):
that get impacted.
I think that's going to lead tomore discoveries and more
success for health solutions.
And this is not the end.
It's the beginning and, in myopinion, I see a lot more here
than I see in the AI space, justin terms of real lives impacted
(22:26):
right away.
Clem Miller (22:29):
Well, something like health requires a lot of
data analysis, and that's whatAI is for right Data analysis.
It's not just working trying toanalyze big data so that you
can draw some conclusions.
That's what it's all about, andso I think there's an enormous
(22:52):
intersection between AI andhealthcare.
Steve Davenprt (22:57):
Sure.
So if I want to summarize, I'dsay your health matters for your
financial wellness.
Both your physical and yourmental health directly impact
how you can earn money, how youfeel about money and how you get
results going forward.
(23:17):
So I would say, you know.
First, understand how thismight affect your health.
Second, look at what yourinsurance will cover and talk to
your doctor about whether thisis something that you should
think about.
I think investments should befor the long term.
So, on weakness, I would thinkabout some of the leaders, the
(23:42):
lily or the nobo, or own both.
And then, in a secondary level,I think about whether some of
the companies that are indevelopment but are at much
better multiples could also, youknow, transform into a good
holding for you, like a Roche,like a Pfizer, like an Amgen.
(24:04):
Do you have anything else toadd, glenn?
Clem Miller (24:06):
No, I think we've covered this in great detail and
I hope we, you know we helpedeverybody understand a bit more
about this, about these twocompanies and about the whole
weight loss drug industry, I'msure.
Steve Davenprt (24:24):
I want to add in the future.
Clem Miller (24:27):
What is a GLP?
Let me look back.
No Glucotide.
Steve Davenprt (24:38):
Glucogon like peptide.
Clem Miller (24:41):
You know, it doesn't really matter what it's
called.
What matters is what it doesand that you can make money from
it.
Steve Davenprt (24:48):
Correct, but I think that if you want to be at
the cocktail party and soundsophisticated, you could say I
really like the new GLP drugs.
People will think wow, thatClem.
I thought he was an investmentguy.
He sounds like a bio guy.
All right, everybody, Thank you, Thank you.
Welcome everybody to Skeptics Guide to Investing.
I'm Clem Miller and I have hereSteve Davenport and today we're
going to talk about obesitydrugs and how they affect us.
Steve and I will dig into themedia and market response to
these medical developments.
Steve.
Steve Davenprt (00:23):
Well, Clem, there's a lot to capture here
and I think it helps at thebeginning if we start to define
some of the terms.
I think a lot of people arequestioning what does it mean
when they talk about GLP1.
Those letters of the acronymare glucagon, like peptide 1,
(00:48):
and it's a version of the drugsthat these companies have
developed for people withdiabetes.
And glucagon is a signal thebody sends to say that it's full
or satiated and to kind of saywe don't need to eat anymore.
So when we're hungry and thebody needs nutrition or energy,
(01:12):
we have one system, but glucagonis an item in our small
intestines that sends a messagein terms of whether we are full
and we need to stop eating.
There's two main uses for thesedrugs.
I'll call them obesity drugs,but they're really diabetes and
(01:36):
obesity medicine.
One is really to people whohave typed your diabetes, who
really need help in terms of howdo they manage their sugar, and
the other is if a person isgoing to be a potential diabetic
and they need medicine to helpthem try to manage their weight.
(01:58):
So when we look at this,there's really three different
common ways to think aboutobesity.
There's intervention can be theform of lowering your weight
through diet and exercise,through a pharmacological
solution or through surgery.
(02:20):
So we're really talking aboutthat middle one, the
pharmacological solution.
There's two main players.
Everybody talks about NovoNordisk and Lilly from the US.
These two companies controlover 80% of the market for these
(02:41):
drugs.
Right now it's about 4 billion.
They anticipate by 2032 to beupwards of close to 170 billion.
That's why there's so muchexcitement with these drugs the
two main participants.
Novo Nordisk has two drugs, onefor diabetes and one for
(03:04):
obesity.
They are Ozempic and Wegovy.
So Lilly similarly has twodrugs.
One is Mounjaro,m-o-u-n-g-a-a-r-o and Zepbound
for obesity.
So each of those in themarketplace and it's a very
(03:27):
complicated biological elementbut really is about the future
and growth and earnings.
So it's a very exciting storyright now.
And what's going on inhealthcare?
Clem Miller (03:43):
My reaction is that couldn't they come up with
better names for these things?
They're just a little confusingOzempic, wegovy, mounjaro and
Zepbound.
Steve Davenprt (03:55):
Oh, well, maybe that's what you get into.
Clem, you can get into thenaming.
Clem Miller (04:03):
So Steve did all of it.
I mean, this is something that,at least for Nova Nordisk and
Lilly and their stock pricesurges and so on, it all seems
to have come to marketconsciousness in 2023.
But did it really start in 2023, or did it originate much
(04:24):
earlier?
Steve Davenprt (04:26):
Well, what's really interesting is both of
these companies have beeninvolved since the 1920s in the
use of insulin to help withdiabetes.
So these were two of thecompanies that originally came
up with the injectable form ofinsulin to help people manage
their sugar.
Previously, there was a drugfrom Nova Nordisk that had about
(04:47):
a 5% weight reduction resultand at a 5% weight reduction
result, putting up with the sideeffects really wasn't
generating a lot of interest.
These drugs are showing 15% to20% weight reduction.
They're starting to get somereal excitement because 15% to
(05:08):
20% of an individual when youlook at how we define overweight
and obese, I think that peoplerealize, hey, I could go from
being one into another categoryand improve my health outcomes
with a 15 or 20%, but I can'timprove it with just a 5% impact
.
(05:28):
In 2021, the FDA approved thissemi-glutide as a solution for
obesity.
So previously they had beendeveloping these drugs for
diabetes and when it gotapproved in 2021 for the
additional risk of obesity, thatreally was an exciting
(05:51):
development for the people atLilly and Nova Nordisk.
So I think that when you'rethinking about how companies
react and how much interestthere is, it's about following
the money and when they had thediabetes as one solution that
they were building these for,and then you can double that
(06:12):
with the obesity.
That really makes these drugshave a much more compelling case
.
Currently, the cost is about$7,000 per year for these.
We expect by 2030 that theircosts will go down to about
$3,000.
So right now there's havingtrouble producing these and the
(06:34):
amounts they need to.
Like Viagra, these drugs have ahistory of tremendous growth
and opportunities, but then theyworry about when they go off
patent.
They're going to go away asthey're very easy to replicate.
Viagra is a very simplecompound.
(06:55):
These are much more complicatedcompounds, so it's going to be
much harder to people to profiton the generics because they're
going to be much harder toproduce.
Clem Miller (07:11):
So, Steve, how do we invest in this space?
Do we invest in Nova Nordiskand Lilly?
How do we invest here?
Steve Davenprt (07:22):
Here are the main competitors on their main
point.
Lilly has Zepb ound, which, asI'm going to put it as number
one, but it's really 1A and 1Bbetween it and Nova Nordisk.
They have a slightly higherweight loss and slightly less
side effects.
Nova Nordisk has more time inthe market and is currently the
(07:42):
largest company in Europe, sopeople are pretty excited.
One thing to consider there'sabout 70% of the population
that's considered overweight orobese in the US.
That number is 50% in Europe.
So when I gave you thosenumbers of 170 billion that
(08:04):
assumed an 11% of theaddressable market in the US and
6% in Europe and when you thinkabout that 170 billion we think
that 11 and 6 is going to bethe ultimate percentage used I
think that number could be muchhigher.
So I think that this theexcitement that you have had I
(08:27):
thought originally when Istarted, before I started
researching this topic, that itwasn't worth all of the, that
this was another AI or SPAC orstock issue, but it really isn't
.
There is a potential here for alot of impact.
The other companies that are inthis space that are doing things
(08:47):
that haven't yet kind ofdeveloped the size and breadth
that Nova and Lilly .
Pfizer's testing a brand whichshould be taken in a pill form
versus the other two are bothinjectables and their studies
are going to be finished by theend of 2024.
Amgen is testing a version of aonce a month injection versus a
(09:09):
once weekly.
And then Roche has recentlybought a company called Carmot,
which has several drug trialsnow, and so they're not
developing on their own, they'rebuying the technology, but
there is a feeling that thoseKarma drugs could be competitive
in this space.
So competition is fierce.
(09:31):
Everybody's looking for thatgoal at the end of the rainbow
and these all, all thesecompanies have resources and
partnerships and they're goingto be competitive and I think
that's good for the consumer.
Clem Miller (09:47):
I would agree.
You think right now these areinvestable.
Steve Davenprt (09:52):
Yes, I think there is investment
opportunities, but I think, likeeverything else, it needs to be
analyzed and understood.
So, literally, it was up 60%and 23%.
Currently trades as a two-starstock, which is slightly
overvalued.
On Morningstar, that's about131% of fair value, so its PE is
(10:15):
about 50 times earnings.
The typical stock I don't thinkis that high.
Novo Nordisk was up 50% and 23,.
Again a two-star stock becauseit's overvalued about 129% of
fair value and it's at 30 timesPE.
Pfizer is still a three-starstock and there is uncertainty
(10:39):
about how this trial is going toget resolved and ultimately you
have to take some risk if youwant to get returns.
So here you're talking abouttrial risk, but you're only
paying about 18 times earnings.
Amgen is a four-star stock,meaning that it's undervalued,
it's about 60% of fair value andit's trading around 14 times.
(11:03):
Roche is a four-star stock,also undervalued, also around
the 60% of fair value, and it'sabout 12 times.
So, like most things, clem,it's not that clear and not that
easy, but I think there'sopportunities if you want to
take one of those bottom threeand I think there's less
(11:27):
uncertainty in terms of thething that I think is most
interesting about this space isit's changed.
These two companies and thesecompanies have lots of other
drugs, lots of other things inthe pipeline, but now everybody
is talking about Lilian Novoonly on obesity and diabetes.
Clem Miller (11:50):
Yeah, so I like buying individual stocks and I
like buying leaders.
I've got significantpercentages of my own portfolio
in both Lily and Nova Nordisk.
I've avoided Pfizer because,frankly, they're actually
(12:12):
retreating in the wake of havinghad some very good earnings
with respect to the COVID drugs.
So I like digging intoindividual names, but prices at
consideration.
You mentioned that Lily andNova Nordisk have high prices.
That doesn't particularlybother me, and the reason it
(12:34):
doesn't is because I look at PEon an overall portfolio basis,
and so I've got much cheaperstocks in my portfolio than Lily
and Nova, and so I feel like Ican afford to pay for them,
especially with their growth,which is reflected in their peg
ratios.
(12:54):
So, steve, what do you say tothat?
Steve Davenprt (12:59):
I think that you are not a typical investor Clem
and I think that the averageperson on the street and who
might be in a position wherethey're trying to think about
I'm on this, I'm using Wefgovy,or I'm on this and I'm using
Zepbound and I find it'stremendous and they might want
to own the stock.
(13:20):
I think that they need to buyit in the right proportion and
they need to think about its PEin terms of what's their time
frame.
If they're thinking they'regoing to get another 50% this
year, I'm not sure that's thecase because of all the other
things the company has and allthe other drugs having less of a
multiple, and this does rightnow.
(13:41):
But you know, what do you thinkabout them compared to the
average health care sector?
Would you want to buy thespider instead of buying the
individual names here?
Clem Miller (13:53):
No, and of course by spider you mean the health
care ETF.
No, I you know I don't.
I don't buy sectors, becausewithin a sector you can have a
variety of companies, both badand good.
You know the spec, the sectorETFs they're weighed most
(14:14):
heavily to those companies thatare already big and that's not
necessarily a good thing.
You know is is.
You know, in semiconductors, isIntel better than some of the
others?
No, it's not.
And you know is, is Johnson andJohnson, you know, better than
some of the others in the healthcare sector.
(14:36):
Is United Health, which is alsoin the health care sector, is
that better than some of theothers?
I would say no, and so I don'tinvest in in the sector ETFs
because you know size is notnecessarily the best and that's
how easy to understand what itmight be hard for a person to
choose and it might be a no,it's a solution.
Steve Davenprt (15:00):
I'm not saying it's the optimal solution, but
yeah, I can see where somebodycould say I can't.
I can't tell which blue tide isa better blue tide.
So I mean, it's like a lot ofknowledge that goes into
selecting an individual stockand I I just I wonder sometimes
(15:20):
whether health as an industry,no just like technology as an
industry you you know that we'regonna have more health issues
as we see the aging in Americaor other countries.
Clem Miller (15:32):
So I?
If?
If somebody were to say to me Ican only invest in sector ETFs,
then definitely health care andtechnology and Communications
Would be at the top of my list,followed by what about
industrials?
No, I don't think I wouldn't.
(15:54):
I'm Not a fan of the carbon.
Well, no, it's not just that,it's just I like to have
sustainable Growth in myportfolio, and when you're
talking about energy andmaterials, you're subject to,
you know, you're exposed to thevagaries of commodity prices and
I don't want my portfolioexposed to the vagaries of
(16:17):
commodity prices.
I want, you know, I want nice,stable growers, preferably
Inexpensive yeah.
Steve Davenprt (16:26):
So these drugs are also great, yeah, garnering
interests because of theireffect on other parts of the
body.
So there's been a study thatsays they reduce health, heart
health In incidents by 20%.
They also help with addiction,because when the signal says
(16:47):
you're satiator, you're full oryou're satisfied, people are
finding that they lower the Urgefor cigarettes and alcohol.
There's also some studiesshowing that it helps with
Alzheimer's.
So I think, just like you know,a hair product ended up having
some impact on blood flow, thatin by agro, and I think there's
(17:12):
a lot of things that could comeout of this.
And it's a very exciting spaceto think that you could be
taking something for Obesity.
And it's also helping with yourheart, yeah, not only reducing
your weight, but also Loweringthe incidence of an event.
Clem Miller (17:28):
So you know, I like these thoughts about, you know,
sort of unexpected benefits,which sort of leads to another
Concept, which is what aboutother areas, other drug
solutions and other areas thatthese are related to?
Steve Davenprt (17:43):
Select.
I think the Interesting thingabout these drugs is we're
starting to be awareSelf-control may not be the
reason for people's healthissues.
Right, there are biologicalelements of our DNA which can
make the signals in our bodieshurt our best efforts.
It has been too long thatpeople believed being overweight
(18:03):
was a choice, when in a lot ofcases it's the genes we're born
with.
We don't have a choice of that.
So when I think of medication, Ithink this could lead to many
areas where we nudge people.
It doesn't solve the problem oftheir weight, but it puts them
in a position where they havemore control and they might
perform better in terms of, onceI get to a certain size and I
(18:26):
see I'm at that size and I enjoybeing at that size I take up
some of the other elements thatwill make me stay there.
So I think it's similar to theidea of a nudge.
We talked about 401ks.
When we sign people up for them, they don't tend to cancel.
Maybe this is there's a wholebunch of efforts around
(18:50):
cigarettes, alcohol, otherthings that if we can nudge
people in the right way, I meanit could really transform how
our Medicare and other nationalprograms affect our health.
So I think it really has a hugepotential.
Clem Miller (19:08):
So I guess what you're saying is that there
could be major benefits in termsof improving behavioral
outcomes, basically socialoutcomes as well, but it's going
to require probably some publicpolicy help as well, which
leads me to sort of the nextlogical question is how does
(19:30):
insurance cover all this?
Steve Davenprt (19:33):
Well, that's a great point.
I don't think we can really puta value on some of those
factors right.
When you look at a person'sdeveloping diabetes at 60 or 70
versus developing at 40, theimpact in the community is very
hard to say.
We've got a large percentage ofpopulation not getting
(19:57):
healthcare.
So if they're not in the systemand yet they're going to be
served by the hospitals in thearea, how do we get at those
people when the expense of thisdrug is so high?
So I think that it's reallygoing to need us to look at
these things and reallycalculate the results, and there
(20:21):
just hasn't been enoughanalysis done.
What happens after the drugstops?
People then do tend to putweight back on, but they don't
tend to go 100% back.
So it does jumpstart people toa better place and they keep the
weight off.
But I think that when you lookat the impacts on the health of
(20:42):
your heart blood pressure andcancer incidences they're all
aided by a better body massindex, so BMI.
So I think that as a country,if we could improve our BMI, I
can't imagine how that wouldripple through the system and
impact Medicare and Medicaid.
(21:03):
So I think there is excitementand I think it will continue and
the competition is.
What I think is interesting isthat everybody is in trying to
make up a solution and whetherit's oral or whether it's
monthly or whatever it is,people are working very hard for
(21:23):
solutions that could reallyimpact the health of our whole
country.
So I'm excited about it.
Clem Miller (21:31):
So here's a question from our mailbag, which
I think you've alreadypartially answered Do you think
the obesity drug excitement is afad, or is it the future?
Steve Davenprt (21:42):
I believe it is the future.
I think that it's a combinationof a lot of things.
We mapped the human genomeseveral years ago and now we're
starting to apply AI and bettercomputing power to this human
genome problem and looking atthe different areas of our DNA
(22:03):
that get impacted.
I think that's going to lead tomore discoveries and more
success for health solutions.
And this is not the end.
It's the beginning and, in myopinion, I see a lot more here
than I see in the AI space, justin terms of real lives impacted
(22:26):
right away.
Clem Miller (22:29):
Well, something like health requires a lot of
data analysis, and that's whatAI is for right Data analysis.
It's not just working trying toanalyze big data so that you
can draw some conclusions.
That's what it's all about, andso I think there's an enormous
(22:52):
intersection between AI andhealthcare.
Steve Davenprt (22:57):
Sure.
So if I want to summarize, I'dsay your health matters for your
financial wellness.
Both your physical and yourmental health directly impact
how you can earn money, how youfeel about money and how you get
results going forward.
(23:17):
So I would say, you know.
First, understand how thismight affect your health.
Second, look at what yourinsurance will cover and talk to
your doctor about whether thisis something that you should
think about.
I think investments should befor the long term.
So, on weakness, I would thinkabout some of the leaders, the
(23:42):
lily or the nobo, or own both.
And then, in a secondary level,I think about whether some of
the companies that are indevelopment but are at much
better multiples could also, youknow, transform into a good
holding for you, like a Roche,like a Pfizer, like an Amgen.
(24:04):
Do you have anything else toadd, glenn?
Clem Miller (24:06):
No, I think we've covered this in great detail and
I hope we, you know we helpedeverybody understand a bit more
about this, about these twocompanies and about the whole
weight loss drug industry, I'msure.
Steve Davenprt (24:24):
I want to add in the future.
Clem Miller (24:27):
What is a GLP?
Let me look back.
No Glucotide.
Steve Davenprt (24:38):
Glucogon like peptide.
Clem Miller (24:41):
You know, it doesn't really matter what it's
called.
What matters is what it doesand that you can make money from
it.
Steve Davenprt (24:48):
Correct, but I think that if you want to be at
the cocktail party and soundsophisticated, you could say I
really like the new GLP drugs.
People will think wow, thatClem.
I thought he was an investmentguy.
He sounds like a bio guy.
All right, everybody, Thank you, Thank you.
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