Earnings | Why diabates drugs leading the sector?

U.S. healthcare sector seems to welcoming some substantial overnight gainers, even with market valuations more than 500 billions of dollars.

How have diabates drugs contribute?

The significant 15% surge in a single day for $Eli Lilly(LLY)$ and a 17% surge for $Novo-Nordisk A/S(NVO)$ can be attributed to the immense attention garnered by diabates drugs.

LLY announced its Q2 performance on that day, exceeding market expectations not only in terms of revenue and profits but also raising its full-year guidance substantially, projecting an impressive 85% year-over-year profit increase.

The core driver of this growth is their weight loss drug: Mounjaro (Tirzepatide), a GLP-1R/GIPR dual agonist. Other contributing products include breast cancer drug Verzenio (Abemaciclib), diabetes drug Jardiance (Empagliflozin), and immunology drug Taltz (Ixekizumab).

Notably, Novo Nordisk's weight loss drug Wegovy (targeting the same receptors) holds the highest market buzz currently. It was even speculated to be the secret behind the weight loss of former richest person Elon Musk of $Tesla Motors(TSLA)$ thus contributing to Novo Nordisk's growth (investors believe the profit potential of diabates drugs might have been underestimated). Furthermore, Novo Nordisk's latest clinical data indicates a 20% reduction in the risk of heart disease for participants.

In essence, GLP-1R/GIPR dual agonists target gut hormones, activating these receptors to stimulate insulin secretion, inhibit glucagon release, lower blood sugar levels, slow gastric emptying, enhance satiety, and consequently reduce food intake to aid in weight control.

Numerous pharmaceutical companies are researching products based on GLP-1R/GIPR dual agonists, including $Viking Therapeutics(VKTX)$ , $Amgen(AMGN)$ $Altimmune, Inc.(ALT)$ among others.

How Pfizer Lose the Market?

$Pfizer(PFE)$ , over a month ago, experienced a market downturn due to discontinuing the development of its experimental weight loss and diabetes drug, lotiglipron. Pfizer has two oral weight loss drug pipelines; lotiglipron faced issues of elevated liver enzymes in mid-stage clinical studies, which led to cellular damage.

Refers to :Why Pfizer leading the the failure?

Pfizer has two oral weight loss drug pipelines. In mid-term clinical studies, experimental patients taking lotiglipron experienced elevated liver enzymes (toxic side effects), which could damage hepatocytes. Another pipeline, danuglipron, is still under investigation.

Differing from LLY's Mounjaro and NVO's Wegovy, which are administered through injections (more direct), Pfizer's danuglipron is taken orally (more convenient). Although targeting the same pathway, different reactions might still arise due to variations in absorption and injection routes.

Meanwhile, <Eli Lilly> also has an oral weight loss drug, orforglipron, targeting the same pathway. It has made progress exceeding Pfizer's, currently in phase 3 clinical trials. This seems to position them with a strong advantage in the weight loss drug market.

Why investing in Pharmaceutical so hard?

Investing in the medical sector is inherently challenging, as it often requires investors to have a certain level of understanding about drug pipeline research, pharmaceutical devices, and other specialized products.

The success or failure of pharmaceutical research and development can rapidly impact a company's secondary market stock prices. While the weight loss drug market is substantial and could potentially boost <LLY>'s market value of five hundred billion by an additional 15%, there are instances where companies experienced over a 50% plummet due to the failure of a single product.

For example, $Sage Therapeutics(SAGE)$ saw a 51% drop in their stock price this past Monday.

Their depression treatment drug Zurzuvae (zuranolone), developed in collaboration with $Biogen(BIIB)$ , only received partial regulatory approval. FDA approved their postpartum depression treatment with zuranolone, but not for severe major depressive disorder (MDD) treatment. Even partial regulatory approval can lead to significant declines.

This year, companies like <LLY> have achieved a remarkable 42% increase in stock price.

However, there are also instances like <Pfizer> with a 30% decrease and $Bristol-Myers Squibb(BMY)$ with a 16% decrease. The $Health Care Select Sector SPDR Fund(XLV)$ has only risen by 0.13% this year, significantly lower than the $S&P 500(.SPX)$ and the $NASDAQ(.IXIC)$

The medical industry particularly tests investors' ability to seek alpha. Are you ready?