By Nigam Arora & Dr. Natasha Arora
Signal Limited is a Signal(s) with a great record in similar situations but does not meet all of the stringent criteria for a Signal. Typically Signal Limited has higher risk-reward compared to a Signal over the short term.
Good News
The results are out from the large scale study known as SELECT. The study was conducted by Danish company Novo Nordisk (NVO). The study compared in a double blind trial once weekly semaglutide 2.4mg with placebo over a period of five years. The study showed a reduction in major adverse cardiovascular events by about 20% with semaglutide.
Novo Nordisk is marketing its drug under the name Wegovy. Wegovy costs $1349 per month. It is a GLP-1 drug that was previously used for diabetes. Novo Nordisk has a second drug Ozempic in the same class that costs $935 per month.
Read Through For Lilly
Lilly’s weight loss drug Mounjaro is very similar to Novo Nordisk’s drugs and costs $1023 per month. In The Arora Report analysis, there is a positive read through to LLY from the SELECT trial. Also in The Arora Report analysis, the SELECT trial increases the probability of insurers covering obesity drugs.
Medicare Problem
If Medicare were to cover these weight loss drugs, the cost would be about one fifth of what it spends on prescription drug benefits with Medicare Part D.
Insurers
Stocks of health insurers such as United Health (UNH), Cigna (CI), and CVS (CVS), the owner of Aetna, along with retail pharmacies are falling on the prospect of insurers needing to make huge payments for these weight loss drugs.
Earnings
Lilly reported strong earnings of $2.11 vs. $1.98 consensus. Lilly is raising its guidance for FY23 to $9.70 – $9.90 from prior guidance of $8.65 – $8.85.
Alzheimer’s Drug
In addition to popular weight loss drugs, Lilly has a promising Alzheimer’s drug.
Other Companies
In addition to Lilly and Novo Nordisk, Pfizer (PFE) and Amgen (AMGN) are also working on promising weight loss drugs. There are also several promising investments in smaller companies on our radar at The Arora Report. Stay tuned for signals on these companies.
65% Profit
For those who bought LLY when it dipped into the Arora buy zone, there is now 65% profit. LLY is long from $318.45.
Risks
The risk in LLY is three-fold:
- Due to excitement over the weight loss drugs, LLY is a very expensive stock. There is no valuation support if something goes wrong.
- The Alzheimer’s drug is not yet approved. There are huge expectations from the drug. If the drug is not approved or if the label is not as good as assumed at this time or if there are serious side effects, the stock will get hit.
- These weight loss drugs have been around for several years, not as weight loss drugs but as diabetes drugs. As diabetes drugs, they have had side effects, but in general the benefits have outweighed the side effects. However, as the drugs are prescribed widely for weight loss, there may be side effects that have not come to light on a large scale. There are already reports of suicidal thoughts and stomach paralysis. If such reports become wide spread, the stock will take a hit.
Zones
The sum total of the foregoing becomes actionable with the Buy Now rating, buy zone, position size, and catastrophic stop zone.
For those following the Good Way, the Buy Now rating is 🔒 (To see the locked content, please take a 30 day free trial).
For those following the Best Way, the buy zone is 🔒.
The maximum recommended position size is being reduced to 30% of the full core position size.
The target zone is being raised to $670 – $700.
The catastrophic stop zone is 🔒.
Buy Now ratings, buy zones, scaling in, proper position sizing, target zones, and catastrophic stop zones are techniques used by billionaires and hedge funds that dramatically increase your returns and reduce your risks over the long term. To learn these techniques, refer to Trade Management Guidelines by The Arora Report.
What To Do Now
Those in LLY may consider continuing to hold.
Those not in LLY may consider following the parameters given above.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
