Celebrating 100 years of making drugs in Denmark this week, the fat-blasting Novo Nordisk dropped some more really big numbers this week, driven by monstrous sales of its show-stopping diabetes and obesity treatments.

The drugs, which moonlight as apparently effective weight-loss tools (and which helped the Danish giant topple LVMH as Europe’s most valuable company last year), just nudged Novo past the half-a-trillion US dollar valuation.

The stunning success of the twin drugs (diabeties) Ozempic and (obesity) Wegovy have created an empire, propping up a troubled Danish economy, driving jobs growth and sparking a global fat-busting drug race (although if it ain’t a riff on Novo’s GLP-1 therapies, it ain’t trying).

Novo Nordisk net profit jumped by over 50% last year to 83.7 billion kroner (US$12.1 billion) as sales of the drugs surged 42% at a constant exchange rate to 215.1 billion kroner (over $US30 billion).

 

More kroner than you can poke a stock at

The modern obsession with remaining svelte (losing weight) was right up there as a commercial pipe-dream alongside, let’s say alchemy (turning stuff to gold) and a cure for baldness (not being bald).

Those other two are still baffling scientists and snake oil salesmen alike – but with the impressive results of Novo (and Eli Lilly’s) GLP-1 drugs, the miracle, must-have, will-pay-anything, we’re-going-to-be-richer-than-Elon product is looking very real.

And as such, a pretty nice investment to get in on the bottom floor of.

According to something I must’ve read recently, more than half the adults in America are willing to strangle their own grandmothers to get some of Novo’s injectable, suddenly mainstream meds into themselves.

Like obesity, demand in the West is rife.

Novo’s new drugs made weight-loss the under-the-AI-radar investment theme of 2023.

Driven first by the success of Ozempic and Wegovy, Novo’s products flew off the shelves faster than the Danes could make them, subsequently driving up the drug’s already hefty margins.

Novo’s obesity whacking segment enjoyed a 150% jump in revenue on the year before, enough to deliver this week’s expectation-beating numbers all on their own.

The question now is: Can demand in Asia deliver similar results?

 

An Aussie (Kiwi) option for the Ozempic ride

Morgan Stanley reckons the way to play the obesity theme in Asia is through names involved in GLP-1 drug development that “could find upside in burgeoning overseas markets.”

One of a handful of Asia-facing businesses which suit Morgan Stanley is EBOS Group (ASX:EBO) a slightly Kiwi-based, dual-listed (here and in Auckland) distributor of healthcare and veterinary products operating across Australia and New Zealand but with close links into Asia.

In a note following Novo’s stellar results, the US investment giant argues that in the wake of the Albanese government’s green light for EBO to distribute obesity drugs, the firm could easily add a new stream of revenue to accelerate growth further.

EBOS Group already reported a strong upsurge in both FY revenue and earnings, culminating to a new 12-month record high when the company dropped its earnings at the end of August. The company has raised its annual dividend by 14% in light of this impressive performance.

 

Organic EBOS vs The Medicine Monster which Ate Sigma

You might not recognise “EBOS Group” – catchy as the name is – but the firm is already a real handful in the local healthcare industry.

For example, EBOS owns and runs the far more marketable chain of pharmacies which go by the “Terry White” brand.

It’s sometimes a mugs game, but Terry competes pretty well with the big swinging Chemist Warehouse, which its two billionaire founders, Jack Gance and Mario Verrocchi, revealed in December would be going public via an $8.8bn merger with ASX-listed Sigma Healthcare (ASX:SIG) .

EBOS already supplies Chemist Warehouse – which is a plus.

But does so under a contract set to expire at the end of this financial year – that’s a big minus.

EBOS CEO John Cullity puts the firm’s recent FY23 record profit down to ‘strong organic growth’ across the group’s diversified businesses as well as some recent substantial acquisitive contributions.

Cullity has previously lauded EBOS’ “defensive and diversified” portfolio, which he believes has contributed to the robust but balanced run across the co’s major segments – Healthcare and Animal Care.

What’s looking more and more like a smart play is December’s EBOS swoop to increase its 51% stake in Transmedic  to 90%.

Transmedic is one of the largest indy medical distributors in Southeast Asia, giving EBO further access and control across six and a bit* countries including Singapore, Indonesia, Malaysia, The Philippines, Thailand, Hong Kong (*HK: not a country guys) and Vietnam.

The company boasts long-term relationships with global medical device makers, representing across a bunch of therapeutic channels.

It’s within some of these channels that Morgan Stanley sees an Ozempic-sized opportunity.

“The Australian government’s decision to fund GLP-1-based therapies for obesity under the Australian Pharmaceutical Benefits Scheme (PBS) could generate a multi-billion-dollar domestic market, with a positive impact on pharmaceutical distributors such as EBOS,” Morgan Stanley’s analysts wrote, adding that EBOS could receive a margin on the dollar value of revenue distributed.

 

Ebos: It’s a go for our Scopo

Stockhead’s healthcare and life sciences genius, Scott Power – a 26 year veteran with Morgans Financial – pretty much agrees with the other Morgan (Stanley), calling the Kiwi pharma distributor a strong contender vs the Chemist/Sigma union.

“It is a good alternative and they do have a very good track record including 10 years of plus 10% EPS growth, which is quite outstanding,” Scott said before Christmas.

And then there’s income nature of EBOS stock – the firm managed to pay out a final dividend of 57 cents in September, bringing its full-year return to shareholders to $1.10 per share – a 14.6% improvement.

“We have a price target of $39.43, which is about 20% higher than the current share price and it’s got a 3% yield so that’s a very attractive way to play the market at the moment,” Scott says.

“There will be a dip in EBOS earnings in FY25 because (of the conclusion) of the Chemist Warehouse contract, but we believe that subsequent years will more than make up for that FY25 dip.”

 

Margin relief, but not soon enough: Citi

On the side of the negatory is Citi, where, following the review of Aussie Healthcare prior to this February reporting season, Citi updated forecasts for stocks under coverage in the sector.

While the broker reckons 2023 peaks for wage growth and inflation will provide margin relief for EBOS and other medical services providers, it will take “several years” for margins to even approach pre-pandemic levels.

For EBOS Group (results drop this month), Citi forecasts first half Earnings Per Share (EPS) of 74 cents, around -4% below the consensus estimate of 77 cents per share.

Citi’s $32 price target (PT) and Sell rating remain untinkered with.

 

Also worth weighting on

Calling it “top beneficiary as global demand for GLP-1 drugs significantly outpaces capacity,” Morgan Stanley has an overweight rating on the stock.

Morgan Stanley’s other best bets for under-the-radar Ozempic-related opportunity include drug manufacturers Chugai Pharmacuetical from Japan,  as well as Innovent Biologics from China and and WuXi AppTec, another Chinese contract drug developer and manufacturer.

Morgan Stanley has an overweight rating on WuXi shares, singling it out as a “top beneficiary as global demand for GLP-1 drugs significantly outpaces capacity”.

Chugai had manufactured Orforglipron — a medication prescribed for weight loss and type 2 diabetes — which was licensed for distribution by Eli Lilly in 2018.

Morgan Stanley has an investment horizon of just over six months for WuXi AppTec and Innovent and over 12 months for Chugai and EBOS.

“Chugai is a key Asia-based GLP-1 drug developer with direct exposure to overseas markets, while Innovent is a leading developer of GLP-1 drugs that is expected to benefit from the potentially substantial China market,” the bank’s analysts wrote.

MS reckons Orf… Orforgli...  the diabetes treatment could clock US$7bn in global sales over calendar 2023.

 

Where can I get mine?

So. EBOS is one of ours (NZ-based, but technically so are Crowded House)… So a quick visit to the ASX will sort that.

According to CNBC, EBO also has a circa 4% presence inside iShares’ MSCI New Zealand ETF.

Meanwhile – available at all good equity retailers – keen beans can get a slice of WuXi AppTec and Innovent on the Hang Seng Exchange, in Hong Kong

And Japan’s Chugai has a significant home in Goldman Sachs Future Health Care Equity ETF.

 

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