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SIMON BROWN: I’m chatting now with Ross Yammin from Laurium Capital. Ross, I appreciate the early morning. I want to get to the likes of Novo Nordisk and Eli Lilly. But first, GLP-1 is something which this time last year I’d never heard of. I’m trying to think when I did first hear of it. I think towards the end of last year it was mentioned, and I still wasn’t quite sure. What is GLP-1?
ROSS YAMMIN: Good morning Simon. it is a bit of an early morning across here in London, but all the better for being on your show. So thank you so much for having me.
Yesterday, Novo Nordisk, which is now Europe’s most valuable company, hosted their capital markets day. I suppose, typical for the company, it was a very polished event. It released a few pieces of quite exciting news, which got the shares moving just shy of 9% on the day.
But maybe before I get to the highlights there, we can chat GLP-1s, and remind the portion of your audience maybe not familiar with them what they are and [give] a brief description of the opportunity which lies ahead of these companies.
I think if I were to show somebody in your audience the charts of these stocks over the last couple of years, and I had to ask them to guess which one they thought [was involved], they’d probably be guessing it was one of the Magnificent Seven names.
So maybe a little bit of context. These two [pharmaceutical] companies have been competing against one another for going on a hundred years. Historically their focus was on the treatment of diabetes and specifically helping their diabetic populations with their incident management. Now, in the last sort of decade, they have continued to innovate and have created a new class of drugs which are glucagon-like peptide receptor agonists. I promise that’s the last very complicated term I’ll use this morning.
The drugs are more commonly known as GLP-1s, or abbreviated to be known as GLP-1s. These are drugs that are injected weekly. What they do is they mimic the hormones that are released by the human body after somebody eats food.
So what does this do? It helps the body manage its sugar and its insulin levels, and very importantly – for what I’ll get onto in a second – they also act as a very, very effective appetite suppressant.
The drugs were initially created to treat diabetes. As we stand today, the majority of the revenue that the two companies make still comes from the treatment of diabetes. But sort of in testing among their diabetic populations what both Novo and Lilly realised is that their patients were losing weight and they were losing a lot of it. Depending on which sort of trial or which sub-population you had a look at, people were losing up to 20-21% of their body weight once they started taking these drugs.
So many drug trials and millions and millions of dollars in R&D later these two companies have developed drugs which potentially have the answer to the world’s obesity problem. Now in the capital markets yesterday Novo reminded us that there are more than 800 million people in the world living with obesity. So I suppose there lies the addressable market and that’s the opportunity which has really got the market excited and resulted in the share prices of both Lilly and Novo moving quite parabolically in the last while.
So Simon, getting back to the capital markets day yesterday – I’m going to be very, very careful not to get lost in detail or any kind of nuance here – there was one really key highlight, and that was that Novo released some industry-leading data in the development of their oral GLP-1 candidate.
Some context here is important. Both Lilly and Novo have really struggled to keep up with the demand for these drugs. In the last couple of years they simply haven’t been able to produce enough of them, and one of the potential solutions to this problem is the development of a GLP-1 in a tablet form. In its simplest terms, tablets are easier to produce at scale than injections are.
Novo told us for the first time yesterday that their oral GLP-1 candidate in a phase-one test was leading to an average of a 13% reduction in an individual’s body weight at the 12-week point, and that was quite a bit larger than Lilly’s sort of 6-8% that they had told us that their oral candidate had achieved in testing a little earlier in the year.
So the supply side of the oral GLP-1 is the one side of this that is really getting people excited. I think the other side which is important to consider is that these injection pens are a lot more invasive than a tablet would be. I certainly think that if I were to consider taking these drugs I would far rather take a daily tablet then inject myself once a week.
So there was lots of information yesterday. As I said, it was a very polished performance from the company and its executives, but the key piece of information which really got the market moving was on the development of Novo’s oral candidate.
SIMON BROWN: I take your point; that is a big step. There are two giant steps here. One is the ability to manage weight loss with medicine rather than the old school way of exercise, and an oral candidate is a huge development there.
If we look more broadly at impacts from GLP-1, if we’ve got 800 million people with obesity, let’s say 10% or 20% of them manage to reduce their obesity, this is mostly going to be in developed markets. These are not cheap drugs. That’s 100 million to 150 million people who now have a different lifestyle. Suddenly gyms get busier, perhaps – maybe Match.com, because they’re all on Tinder. And the flip side is bad for McDonald’s. If this is a game-changer, as it sounds, down the line there are going to be some ripple effects.
ROSS YAMMIN: Yes, for sure. This is certainly what makes this topic so interesting for me. I think these drugs are going to have far-reaching effects into sort of all sorts of different sectors and industries and, as you mentioned there, not only on the negative side. Although we can probably list more on the negative side than we can on the positive side, these are going to have far-reaching consequences and maybe I can dive into a few that have been sort of popularly written about.
Starting on the negative side, as you mentioned there, the immediate one and probably the most obvious one is the fast-food industry. When anybody hears fast food, I immediately think of America; more than 40% of the American population is classified as obese. And certainly if these drugs are to be adopted at the rate or scale that we suspect they might be, there definitely will be less fast food consumed, and that would mean obvious potential headwinds for the likes of McDonald’s or even Coca-Cola.
The next one, which has had a lot written about it, relates to some of the other ‘sin’ sectors. And here I’m referencing alcohol and tobacco specifically. It’s starting to become clearer that people taking these drugs are smoking and drinking less. And in fact this week I was on a call with a US alcohol specialist, where for 15 minutes of the 45-minute call we had we debated GLP-1s and the threat they posed to the alcohol industry.
The other interesting one – and you have to be looking a bit closer within the sort of pharmaceutical space to see this – exists within the medical technology space. So there’s a big range of comorbidities that come along with obesity. Novo showed us last year that when diabetics take these drugs, they have a 20% lower chance of having a heart attack or a stroke. This week they showed us that the effects of of taking these drugs reduce the effects of chronic kidney disease by about 20% – and a lighter world I suppose means less knee replacements and hip replacements.
So on the days where you see positive GLP-1 data released, what you’ll often see is that on the same day a lot of these sort of medical technology companies who facilitate these other medical interventions often seem to trade in in the other direction.
SIMON BROWN: I take the point. We’ll leave it there as we are out of time. But the implications are just going to be massive. I want to use the phrase ‘wonder drug’, but it scares me because it seems so crazy. But the implications perhaps are there.
Ross Yammin, Laurium Capital, I appreciate the very early morning.
