Premier Miton Diversified Sustainable Growth Fund
In this edition of Sustainable Times, we consider one of the ways in which we are bringing the Premier Miton Diversified Sustainable Growth Fund’s ‘Health and Wellbeing’ theme into its global equity portfolio.
For information purposes only. Any views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
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In brief
- Obesity is a major global healthcare problem.
- Pharmaceutical companies are developing treatments.
- Drug developer Novo Nordisk is held in the fund under its ‘Health and Wellbeing’ theme
The impact of Obesity
Not far from the parks and palaces of Copenhagen, in the suburban town of Bagsvaerd, is the headquarters of one of the world’s most impactful healthcare companies. Novo Nordisk, now a stock market giant, has a long history stretching back to the 1920s when the firm was a pioneer in the commercialisation of insulin as a treatment for diabetes. It’s discovery, and as importantly the ability to produce it at scale, drove a remarkable transformation in outcomes for diabetics. The company remains a leader in insulin production to this day, but its star has soared since it revealed effective new treatments to tackle two of the world’s most pressing healthcare problems – obesity and overweightness.
Rates of obesity and overweightness have soared in the past few decades. The World Health Organisation says that worldwide between 1990 and 2022 adult obesity has doubled and adolescent obesity has quadrupled. In 2022, 2.5 billion adults globally were overweight of whom 890 million were obese. In the UK, according to NHS Digital’s Health Survey for England published in 2022, almost three quarters of people aged 45-74 in England are overweight or obese. While some might assume that obesity is solely a rich world problem, that is now far from the case, with obesity rates also being high in many middle-income countries.
This epidemic is so serious because obesity and overweightness are risk factors for a range of chronic diseases. Heart disease, when fatty substances in someone’s heart block blood from circulating properly, is one of the world’s leading causes of death. Obesity is also linked to increased risk of several types of cancer, including breast cancer and bowel cancer, as well as to increased stroke risk. These diseases merely headline a list also including asthma, metabolic syndrome, gallstones, fertility issues, joint problems, sleep apnoea, liver disease, kidney disease and complications in pregnancy. Beyond these physical conditions lies a world of psychological problems that can come from living with obesity, including depression and feelings of isolation.
While obesity can have a profound impact on the lives of individual sufferers, it also has significant ramifications for societies. For a start, dealing with obesity places an enormous, and eyewateringly expensive, burden on countries’ healthcare systems. The UK government has said that obesity costs the NHS approximately £6.5 billion per year. In its World Obesity Atlas 2023, the World Obesity Federation predicts that the global economic impact of overweightness and obesity will reach $4.32 trillion annually by 2035. These considerable financial costs should be considered alongside a range of social implications. For example, the US Centres for Disease Control and Prevention (US CDC) draws attention to impacts on military readiness, quoting the fact that only in 2 in 5 young adults are weight eligible and physically prepared for basic training.
Why Wegovy, the weight loss drug, has had such an impact
One of the UN Sustainable Development Goals, which are a set of aspirations that many use to think about sustainable investing, is ‘Good Health and Wellbeing’. Clearly, it is difficult to have a healthy world without meaningful progress in tackling the unfolding obesity and overweightness epidemic. While pharmaceutical and surgical interventions have been available for years, the efficacy of these has often been questioned, or due to their risks they have been reserved for the most severe cases. This is why Wegovy, a weight loss drug developed by Novo Nordisk, has had such a significant impact on both financial markets and the perceived future of treating overweightness.
Both Wegovy, and Novo Nordisk’s type 2 diabetes treatment Ozempic, rely on copying the action of a hormone called GLP-1, which is released naturally by our stomachs as we eat. It makes the user feel full and reduces cravings, giving people a valuable opportunity to break a diet of unhealthy consumption and to establish habits of healthy eating. The impact of these medicines has been so profound because they have proven to be materially more effective than previous treatments. Moreover, the development pipeline for enhancing this class of drugs also offers considerable promise. Already, more effective versions of these treatments are in development, and while both drugs currently must be administered by injection, effective oral equivalents may be on the horizon.
While Novo Nordisk is not the only developer of this class of drugs, with competition from US-based competitor Eli Lilly and others, they have been the first to bring them to market at scale. This success is likely due in part to the firm’s unusual ownership structure. While Novo Nordisk itself is a listed business, its controlling shareholder is the Novo Nordisk Foundation, whose objectives are to provide a solid foundation for its companies to conduct research, and to also support scientific, humanitarian and social causes more broadly. The Foundation’s multi-generational and philanthropic purpose has allowed Novo Nordisk to pursue long term research and development with greater stability than some of its more conventional pharmaceutical competitors.
What does this mean for Novo Nordisk?
Yet alongside this additional purpose, its new class of drugs look set to make Novo Nordisk a hugely profitable company. The firm now has a blockbuster set of products, with considerable market share, and limited supply but with almost limitless demand. Their lead in product development allows them to keep pressing forward with further innovations, likely powering yet more effective and ultimately financially rewarding products. Investors have rewarded the company by aggressively buying its shares in anticipation of years of bumper and resilient earnings. The chart below highlights the impact on Novo Nordisk’s share price following the US Food and Drug Agency’s approval of Wegovy on 4 June 2021.
Novo Nordisk Share Price – 7 yrs to 15 March 2024
Pre and Post FDA Approval of Wegovy
Source: Bloomberg 20.03.2015 – 15.03.2024 The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.
As with any major scientific development, the success of these treatments has not come without its share of controversies and challenges. One of the most frequent concerns raised is that these new drugs will be treated as a substitute for exercise and healthy eating, rather than as a complement to them. Any progress made towards encouraging good habits may well be undone by the prospect of a ‘quick fix’. Another challenge is the major disruption that these revolutionary treatments might cause to established industries. Good news about the effectiveness of Wegovy and its kin seems to cause share price declines of not just the manufacturers of junk foods, but also the manufacturers of healthcare products linked to obesity and its associated diseases.
The final word
Without ignoring legitimate concerns about these developments, we are convinced that these drugs could be a powerful force for progress. While they must be used in conjunction with programs designed to assist with healthy living, enormous suffering could be averted and trillions of dollars of resources diverted towards better purposes. As such, Novo Nordisk is a key holding in the global equity portfolio of the fund. The company’s long-term focus, strong development pipeline and the high barriers that its competitors must meet make the company, in our view, a good investment in the future.
