Weight loss drug makers still have huge upside, and the market overreacted to RFK Jr. named to top health role, BMO says
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- Shares of obesity drug makers have tumbled since Trump picked RFK Jr. to lead HHS.
- Investors are fearful Kennedy's critical stance on the drugs could impact pricing or Medicare coverage.
- Yet, BMO says the sell-off was overdone, and argues the role will have limited impact on the drugs.
Shares of pharmaceutical companies that produce popular weight loss drugs have tumbled since president-elect Donald Trump named Robert F. Kennedy Jr. to lead the Department of Health and Human Services, but analysts at BMO Capital Markets said this week that the selloff is overdone.
Since Kennedy's nomination last Thursday, stocks like Wegovy and Ozempic maker Novo Nordisk and Zepbound maker Eli Lilly have lost 3% and 7%, respectively. Other weight loss drug stocks like Amgen and Structure Therapeutics, meanwhile, have fallen 5% and 13%.
The selloffs "reflect more fear than real fundamental downside risk," the analysts argued in a note.
They say Kennedy's role as the top health leader in the US comes with limited ability to actually change policy that would impact the pricing and availability of the drugs. As a result, there is likely little risk to the shares of companies like Eli Lilly and Novo Nordisk.
"The head of HHS is typically a more administrative position," the analysts said.
Kennedy has previously pledged to fight obesity with nutrition instead of GLP-1 drugs. In an interview with Fox News last month, he pointed to a bill that would make Ozempic available to overweight Americans, which would cost $3 trillion per year, he said. He suggested those funds would be better used for other initiatives.
"If we spend about one-fifth of that giving good food, three meals a day to every man, woman, and child in our country, we can solve the obesity and diabetes epidemic overnight for a tiny fraction of the cost," he said.
In reality, though, the health secretary has limited actual authority to influence either GLP-1 drug pricing or the passage of future bills like the Treat and Reduce Obesity Act, which expands Medicare coverage to cover weight loss drugs, the BMO analysts said.
If a public health emergency was declared, the secretary could adjust Medicare reimbursement for some "Part B" drugs, but weight loss drugs fall under "Part D," the analysts say.
"While RFK Jr. appears less optimistic on the use of incretins to curb the obesity crisis, he remains limited in his ability to influence either policy or pricing of obesity medications," the analysts said.
As a result, weight loss drugs still have massive potential, the analysts said, pointing to Novo Nordisk's recent Wegovy launch in China, which has a largely untapped potential market of around 180 million obese adults.
"Importantly, China's national healthcare will not cover Wegovy, and upcoming patent expiration may limit long-term sales in the geography, but we continue to highlight the significant size of patient population and prevalence of cash payment in China may be a tailwind that benefits Novo going forward," the analysts say.
The analysts maintain their $156 price target for Novo Nordisk stock, implying 52% upside from current levels, as well as a price target of $1010 for Eli Lilly, a potential 38% rise.
Kennedy's nomination also sparked a sell-off in health stocks more broadly, particularly among vaccine makers like Moderna, Pfizer, and GSK, as well as a range of European healthcare stocks with exposure to the US market. Kennedy has been a vocal skeptic of vaccines, once calling those that protect against COVID-19 a "crime against humanity."
The sector's losses stand out from much of the rest of the market, which has rallied on the hopes that Trump's deregulatory policies and corporate tax cuts will boost profitability.
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