By Carolina Mandl
NEW YORK (Reuters) - Some big investors showed increased appetite for weight-loss drug makers in the third quarter, piling in to shares of Eli Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) amid growing demand for their product, securities filings showed on Tuesday.
Shares of both companies have soared this year as Novo Nordisk's Wegovy and Ozempic and Eli Lilly's Mounjaro and Zepbound have been shown to help control blood sugar and dramatically lower weight.
Shares of Eli Lilly rose 14.5% in the third quarter and are up 67% this year. Among the heavyweight investors that increased allocation in the third quarter are JPMorgan Chase (NYSE:JPM), BlackRock (NYSE:BLK), Vanguard and hedge funds Two Sigma, Tiger Global Management and Coatue Management.
JPMorgan added more than 1.6 million in shares of the company, which are now worth roughly $1 billion.
The U.S. Food and Drug Administration last week approved Eli Lilly's drug, which will be sold under the name Zepbound and is expected to compete with Novo Nordisk's Wegovy. In a recent note on active fund managers' holdings, Bank of America said Eli Lilly was the market's most crowded stock at the end of September, with 54% of funds owning it. Some investors also bought more American Depositary Receipts of Novo Nordisk, including Fidelity Investments, Lazard (NYSE:LAZ) Asset Management, T Rowe Price (NASDAQ:TROW) and Soros Fund. The company’s ADRs rose 12.4% in the third quarter and are up 45.8% year-to-date.
Novo Nordisk on Saturday presented data showing that the heart protective benefits of Wegovy are not solely due to weight loss, which could make it easier for healthcare insurance reimbursement in the future.
Still, other investors trimmed their exposure to Eli Lilly, such as Wellington Management Group, California Public Employees Retirement System and Bridgewater Associates. Marshall Wace LLP sold almost its entire stake as did Renaissance Technologies.
Funds might have cut their holdings on worries that the companies' share prices may have run up too quickly, with competition from other drug makers seen on the horizon.
Eli Lilly currently trades at 54 times forward earnings while Novo Nordisk trades at 34 times forward earnings, according to LSEG Datastream, compared with a multiple of 18.3 for the S&P 500.
“Stocks have now a pretty tight rope to walk. They have to become dominant in a market that has yet to be fully developed from a reimbursement perspective and not succumb to fast followers that are rapidly moving in to development,” said Vincent Aita, chief investment officer and managing partner at healthcare-focused hedge fund Cutter Capital Management. Amgen (NASDAQ:AMGN) and Pfizer (NYSE:PFE) are working on competing drugs.