This year, markets traded the artificial intelligence bubble, sending tech stocks to unsustainable valuations. Although that has not been corrected yet, the markets found another fad with obesity drugs.
Eli Lilly (LLY) and Novo (NVO) are the winners in the GLP-1 agonist space. Now, they are looking at supplying obesity drugs for children as young as six years. Society has an issue when people that young need treatment for obesity. Scientists do not yet know the risk of such injectable drugs for the young population.
Fading Fad
Biotech investors need long-term data to gain insight into the prospects of obesity drugs. The cost of treatment ($12,000 per year) is a secondary concern. The potential side effects are a bigger worry for investors. Furthermore, if the drug does not work for long-term use, patients will look for alternative options. This includes exercise or abandoning the easy way out of losing weight.
As more people take the obesity drug, Eli and Novo will have more data on the average weight loss. If the average weight loss is in the single-digit percentage, expect sales to fall sharply.
The drug sector is unattractive. Covid drugs like Pfizer (PFE) and Moderna (MRNA) are weak stocks this year. LLY and NOVO stock could fall next.
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