Wegovy, Ozempic, and Big Pharma
Pharmaceuticals were the first industry that my grandfather told me to stay away from, with good reason. The pharma industry is an industry that is centered around flashy drugs for horrifying diseases. These drugs make or break companies, and without significant medical experience, it feels like making the right call is just a shot in the dark. This obesity drug, Wegovy is the perfect example of this. The company that owns Wegovy is Novo Nordisk. I had never heard of them (which may be my fault) and then they came out with this drug Wegovy. Wegovy has been named as the “cure for obesity.” It also apparently has the added benefits of reducing heart disease, improving mobility, reducing inflammation, and lowering blood pressure. This came out of nowhere, Novo Nordisk grew wildly, and for a minute had a higher market cap than its home country’s (Demark) GDP.
Now, it would be impossible to see this coming unless you had some sort of inside information or you were Martin Shkreli. You still shouldn’t invest any money.
In the stock market, if you are making a trade, it's with people who are smarter than you. Nowhere is that more pronounced than in the pharmaceutical industry. Anytime you are entering your money into the Pharma industry you are exposing yourself to 10x risk. Merck for example, one of the most recognizable names reached a peak in the year 2000. If I had to guess it had a moneymaker drug, whose patent expired. It didn’t reach that level again for twenty years. However, over the past five years, it’s beating SPY by twenty percent. Pfizer, another extremely recognizable name has shed thirty percent this year. The previously mentioned Novo Nordisk is up thirty-six percent this year.
The industry as a whole is actually pretty flat, especially over the past year. massive winners and losers make for +/- 5 percent gains or losses. On a simple level, people’s bodies will always find ways to mess up some sort of function, and people will want cures. As our science progresses more cures will become available. These obesity drugs, Wegovy and Ozempic are great examples. These drugs will only become more efficient and effective, but curing obesity? That is genuinely a wild concept. The next big ones will be cancer, Alzheimer’s, ALS, The Flu, Common Cold, and AIDS. One of these will get “cured” next.
What is so annoying is how impossible it is to identify which pharma company can “cure” these first. Sure you can look at patent applications or recent trials, but those are commonly rejected or failed. Because there are so many stages in a drug’s development cycle, during which a million things could cause it to be shut down, the best option if you are dead set on this industry is to bet on the biggest. Those with the most resources are most likely to ram drugs through development cycles. They are the most likely to come up with new drugs, have the best scientists, and have the most friends in politics.
Or you could pull The Shkreli. He would short a company right before they went through a trial for a drug that definitely wouldn’t pass. Very risky, but because of how rare passing was, and how costly failure was+how much money could be made from passing, there was a lot of money to be made. If I remember right, something like 90% of drugs fail those trials and are shut down. This strategy made his fund a lot of money, then destroyed his fund, then he committed fraud, then he raised the price of a life-saving drug by 600%, and then he went to jail for the fraud. Truly a legend to WSB users everywhere.
