Weight-loss drugs, including Ozempic, are reshaping consumer habits. Additionally, they are providing some ballast to what’s recently been a sluggish healthcare investment thesis.
Tactical investors know that when it comes to drugs or therapies, regardless of underlying usage case, it’s best to play related developments with assets that seize upon those themes. That’s likely one reason why the VanEck Pharmaceutical ETF (PPH) has handily outperformed the S&P Health Care Select Sector Index over the past three years.
With help from shares of some firms behind anti-obesity drugs, the VanEck exchange traded fund beat the broader healthcare benchmark by 1,200 points while being 50 basis points less volatile on an annualized basis, confirming superior risk-adjusted returns. The $496.47 million PPH, which is more than 12 years old, has some advantages when it comes to weight-loss exposure.
PPH Potent Play on Weight-Loss Drugs
PPH follows the MVIS US Listed Pharmaceutical 25 Index. It holds just 25 stocks. However, that concentrated lineup is advantageous because it features significant exposure to anti-obesity treatments. That highlights long-term growth opportunities with the fund because the weight-loss drug market is still in its early innings.
“Back in July 2022, we saw obesity as a $55 billion market. And at that point the key question was if and when these drugs would be reimbursed,” notes Mark Purcell, head of Morgan Stanley’s European Pharmaceuticals Team. “If you fast-forward to July 2023, what we saw was reimbursement kicking in the U.S. much more quickly than we anticipated. There were almost 40 million people who had access to these medicines. And 80 percent of them were paying less than $25 out of pocket.”
As Purcell points out, weight-loss drugs have uses beyond that of helping patients shed extra pounds. Another thing could be a significant boon for PPH’s long-term prospects. Morgan Stanley believes “anti-obesity medicines will improve the outlook for more than 200 chronic diseases, or so-called co-morbidities, including heart failure and kidney disease. As well as complications like sleep apnea, osteoarthritis, and even potentially Alzheimer’s disease.”
That’s likely one reason why pharmaceutical companies are allocating over $60 billion to bolstering efficiencies and supply chains related to weight-loss drugs. Those expenditures highlighted what’s expected to be rapid growth in this corner of the healthcare market. Growth that could benefit PPH.
“Furthermore, the size of the obesity market will be determined by co-morbidities and improved supply. So, if all these factors play out, our bull scenario is a $144 billion total addressable market. However, if supply constraints continue, then we can see a market more restricted to $55 billion as of 2030. So, things are developing fast, and we will continue to keep you updated,” concludes Purcell.
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