Wealth Outlook 2024 - Slow then grow

97 Wealth Outlook 2024 | Unstoppable trends For investors, healthcare innovation is on sale Anti-obesity drugs: Healthcare’s “AI” moment ? The human body is exceedingly complex. Super- computers and the most advanced processing equipment have only just begun to achieve some of the brain’s most fundamental capabilities. While full human genome sequences have been mapped and published for decades, scientists are still racing to pinpoint the exact causes of debilitating condi- tions like cancer, diabetes and Alzheimer’s. Over the past few years, though, one enduring mystery has been solved: why we have such a hard time not reaching for those cheese fries. In the realm of human metabolism, it turns out that an important hormone, GLP-1, contributes not only to insulin production but also appetite suppression and emptying of the stomach. GLP-1 drugs have been used to treat type 2 diabetes for years. But their more recent use to induce weight loss has tak- en the healthcare field by storm. According to the US Centers for Disease Control, the US obesity rate stood at 42% as of 2020. These drugs, generically called semaglutide and tirzepatide, have shown remarkable promise in helping individuals man- age their weight – producing an average 15-20% reduction in body weight – reshaping the landscape of obesity treatment and potentially other areas of medicine as well. One significant ramification of GLP-1 drugs is their potential to reduce the risk of heart disease, con- firmed by a bombshell of a study this past August. Obesity is a well-established risk factor for cardio- vascular problems, including hypertension and cor- onary artery disease (CAD). By helping individuals shed excess pounds and maintain healthier body weights, GLP-1 drugs may contribute to a decline in obesity-related heart issues. This has the potential to lead to fewer heart attacks and strokes, particu- larly in middle-aged and elderly populations where aging, weight gain and heart disease have so often gone hand-in-hand. The relationship between obesity and sleep apnea is well-documented. Excess weight can lead to air- way obstruction during sleep, resulting in disrupt- ed breathing patterns and reduced sleep quality. So, the broader use of GLP-1 drugs could lead to a better night’s sleep and improved well-being, perhaps allowing some individuals to avoid having to sleep with a CPAP machine. The same goes for patients who might otherwise need a knee replacement or take daily insulin for diabetes. What these possibilities don’t mean is that all medical device insulin and heart medication manufacturers will soon be out of business, as the market almost seemed to be pricing in this fall. The body, as we said, is complicated, and med- icine rarely progresses in such a binary fashion. Take statins. As effective as they’ve been in help- ing to arrest CAD, the average CAD patient today still takes over three different medications a day (and the average congestive heart failure patient close to seven). So, we are approaching healthcare’s “AI” moment on parallel tracks. While valuations for the GLP-1 makers are feeling full, their near-term demand and earnings prospects keep us cautiously bull- ish. We are mindful of headwinds, including the drugs’ high ($1,000+-a-month) price and the open question of insurance coverage. It will also be important to watch how digestive side effects affect patient compliance – especially given that, without behavior modifications, a patient who stops either drug will see much of the weight come right back on. At the same time, we’re eyeing the low valuations of stocks caught in the GLP-1s’ wake. It’s another reason we like medical technology & tools. We have difficulty seeing how glucose monitor and robotic-assisted surgery makers – many of which have seen their shares crushed – will experience much, if any, actual hit to their bottom lines. So, we’re selectively looking for opportunities where we think the reaction is exaggerated or the con- clusion is just plain wrong.