So far this year, my writings have largely focused on the swift advancements in the AI and semiconductor sectors, driven by AI’s dominant market influence. These tech innovations often garner immense attention due to their broad appeal and evident utility and it’s easy to get caught up in the hype.
This doesn’t tend to be the case with pharmaceuticals, another of our favourite sectors. Pharma is less about hype and more about steady and slow incremental progress.
Every so often, however, a drug like Ozempic emerges, not just capturing headlines but weaving its way into the fabric of pop culture. This new wave of weight-loss medications has been the subject of countless TikTok videos and articles, as well as a myriad of celebrity endorsements.
While this doesn’t guarantee a weight loss revolution, it is the sort of public endorsement markets respond to, and often with good reason.
Europe’s second-most valuable company
Ozempic is produced by the Danish pharmaceutical company Novo Nordisk, a global leader in diabetes medication. The company stumbled upon Ozempic almost by chance, when during clinical trials for one of its diabetes drugs, significant weight loss was noticed in non-diabetic patients who had taken the medication.
Fast forward to 2021, and Wegovy, a drug with the same ingredients as Ozempic, is approved as a weight loss drug. Earlier this month, the company saw its share price skyrocket after clinical trial results indicated that, in addition to aiding weight loss, the drug also reduced patients’ risk of suffering a heart attack or stroke by about 20 per cent.
Financial markets, with their inherent blend of rational analysis and emotional response, have been quick to react to Ozempic’s potential. The news saw the company’s value increase to roughly $420 billion, placing it right behind LVMH as Europe’s second most valuable company.
Eli Lilly, another pharmaceutical giant which markets a similar drug under the brand name Mounjaro, also saw its stock rise following its Q2 earnings, which exceeded revenue expectations, largely due to demand for Mounjaro.
Hype or weight loss revolution?
Nearly 40% of AI firms are zeroing in on early drug development
Both Novo Nordisk and Eli Lilly’s stock prices reflect the undeniable positive sentiment around these drugs. However, this raises questions about whether markets are being driven by retail investors who are late to the party, or whether there is significantly more potential than has already been priced into the market.
Novo Nordisk has stated it is struggling to keep up with demand and does not have the supply chain in place to fully capitalise on this moment. As a result, it could lose its first-mover advantage to competitors, like Eli Lilly and several other players now exploring this new family of drugs.
At the same time, Novo Nordisk is a world leader in understanding these drugs and their biological targets. It is more than likely that second and third-generation drugs will be more effective, easier to administer and more affordable.
The annual global market for these injections is estimated to grow to as much as $150 billion, and likely higher if all three objectives are achieved.
AI: The catalyst for a new pharmaceutical era
While it’s not unheard of for licensed drugs to be found to be effective at treating unintended conditions, it could become a lot more common as AI becomes a bigger part of the drug discovery process.
AI algorithms, adept at sifting through vast datasets, can pinpoint potential drug candidates with a speed and precision that traditional methods can’t match.
Intriguingly, an estimate indicates that nearly 40 per cent of AI firms are zeroing in on early drug development, highlighting the transformative potential of this technology. Beyond just drug discovery, AI is set to redefine medical diagnostics and herald an era of personalised medicine, tailoring drugs to a patient’s genetic blueprint.
Lessons from the German automotive industry
While the world’s pharmaceutical giants are best poised to capitalise on this AI revolution, they should be wary of tech newcomers. These new entrants may lack pharmaceutical experience but can leverage their technological expertise to gain a foothold in the market.
At a time when Europe’s luxury champions face challenges, there’s hope that its pharmaceutical sector can stay at the forefront of this revolution. Otherwise, they risk losing market share to tech-driven start-ups, a trend we’ve already seen in the automotive industry.
Google’s DeepMind, for example, is behind the AlphaFold system, which predicts protein structures – the targets for most drugs – with incredible accuracy. IBM Watson Health, as well as start-ups like BenevolentAI and Insilico Medicine, are all vying for a position in this burgeoning market.
One of Insilico Medicine’s AI drugs, INS018_055, recently entered phase II clinical trials in China and the US and has shown promising results. Traditional pharmaceutical companies must adapt and innovate continuously to stay ahead of tech-savvy newcomers.
The collaboration between tech and pharma will usher in a golden age of medicine and traditional pharmaceutical companies will have to rapidly adapt to remain at the cutting edge. More than ever before, there is nothing guaranteeing continued success and today’s gainers could very easily find themselves as the losers of tomorrow.
Marc El-Lazidi is Jesmond Mizzi Financial Advisors’ chief investment officer. This interview does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA, under the Investment Services Act. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For more information, contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on tel: 2122 4410, or e-mail info@jesmondmizzi.com.