In an unexpected turn of events on Wall Street, Eli Lilly & Co. and Novo Nordisk A/S have emerged as unexpected winners, outperforming predictions and becoming two of the most valuable drugmakers. Analysts initially forecasted modest gains for Lilly’s shares, with a consensus prediction of approximately 8%, while even the most optimistic projections fell short of the remarkable 50% surge that occurred, adding nearly $200 billion in market value.
Conversely, medical technology companies, such as Insulet Corp. and Baxter International Inc., faced challenges as the success of Novo’s weight-loss treatments impacted the demand for various medical devices. This, coupled with anticipated declines in Pfizer Inc. and Moderna Inc., has contributed to the U.S. health-care sector experiencing its first back-to-back annual loss in over two decades.
The rise of Novo’s Ozempic and Wegovy, both weight-loss treatments, has influenced investor sentiment and affected companies specializing in medical devices like insulin pumps and orthopedic procedures. While some health-care stocks have rebounded from their lows, the sector as a whole has lagged behind the S&P 500, marking its worst relative performance in almost 25 years.
Jared Holz, a strategist at Mizuho Securities, highlighted the complex dynamics in the health-care sector, stating that many stocks seem fairly priced, making it a challenging environment for investors. Despite the recent recovery of device makers, some investors believe the sector could regain lost ground once the hype around weight-loss drugs subsides.
Shams Afzal, a portfolio manager at Carnegie Investment Counsel, noted that obesity drugmakers like Eli Lilly, which produces Mounjaro and Zepbound, are currently priced for perfection, with Lilly’s shares trading at approximately 46 times projected earnings. Afzal emphasized that, in this market, successful stock picking remains crucial, and the health-care sector might play a significant role in compensating for its 2023 underperformance if the broader market rally continues.
