Investors are constantly on the lookout for the next big opportunity, right now, however, the fervor surrounding obesity drugs is capturing Wall Street’s attention. The meteoric rise of GLP-1 drugs, such as Ozempic and Wegovy has investors scrambling to identify companies poised to replicate their success. Notably, Gilead Sciences, a biotech giant known for its treatments for cancer and HIV, has found itself thrust into the obesity spotlight despite not actively promoting itself as a player in this space.
Jefferies analyst Michael Yee recently stirred the market with a note suggesting Gilead might have an early-stage metabolic program that could evolve into an obesity treatment. This revelation, bolstered by data from monkey studies, saw Gilead’s shares surge 3.6% last Friday, marking their most significant one-day gain in nearly a year. However, this spike was short-lived as the company clarified its focus remains on treatments for nonalcoholic steatohepatitis (NASH), a liver disease often linked to obesity.
“I do not see Gilead being competitive in obesity with a small molecule,” stated Evan Seigerman, an analyst at BMO Capital Markets. “I don’t even see Gilead saying they want to be in obesity.”
The allure of the obesity drug market is undeniable. GLP-1 drugs have captivated both the public and investors, with notable figures like Oprah and Elon Musk reportedly using them. Companies like Eli Lilly and Novo Nordisk are nearing a $1 trillion market capitalization, a milestone previously unimaginable for pharmaceutical companies. Jared Holz, a healthcare equity strategist at Mizuho, emphasized, “As a broader therapeutic category, there is nothing remotely close to obesity in terms of market value creation or potential.”
The stakes are high. With over 100 obesity programs in various development stages, analysts believe smaller biotech firms with promising drugs will likely be acquired by industry titans such as Merck or Pfizer. Despite this optimism, caution remains paramount. Pfizer’s recent setback with its obesity pill, danuglipron, serves as a stark reminder of the pitfalls in prematurely chasing the obesity hype.
While the obesity drug market represents a lucrative frontier, discerning investors must navigate the hype with a critical eye. The excitement surrounding Gilead’s potential foray into obesity is part of a broader trend of speculative investments driven by market fervor rather than solid strategic intent; conceptually, the behavior is just down-stream of meme-stock investing.
