The Obesity Pill Rush: Healthcare ETFs to Gain as FDA Nods to Novo Drug

The recent U.S. Food and Drug Administration (FDA) approval of Novo Nordisk’s NVO oral obesity pill, Wegovy, marks a significant turning point in the fiercely competitive weight-loss drug market. This pill, the first GLP-1 tablet specifically cleared for chronic weight management, can materially improve NVO’s long-term profitability and cash flow visibility. 

Amid an increasingly fierce obesity drug arms race against Eli Lilly LLY and other big pharma rivals, this oral pill format offers obese patients a lower cost, more convenient alternative to injectable GLP 1s, thus potentially improving capacity utilization across NVO’s production footprint. This, in turn, should boost the Danish drugmaker’s profit margin. 

This dynamic also creates a powerful tailwind for the broader healthcare exchange-traded funds (ETFs) with meaningful Novo Nordisk exposure. Therefore, investors seeking exposure to this growth story may consider looking at ETFs as a strategic way to capitalize on Novo Nordisk's momentum while managing the specific risks associated with the stock itself.

Inside the FDA Approval: Oral Wegovy, a New Game Changer

The FDA's green light for Novo Nordisk's oral version of Wegovy (semaglutide) represents a monumental leap for obesity treatment. The pill is touted as a game-changer because it is cheaper to produce, does not require refrigeration, and offers a needle-free option compared with its injectable predecessor. For these traits, it is expected to experience expanded market reach.

The drug, a GLP-1 receptor agonist, has demonstrated impressive efficacy in clinical trials, helping patients achieve significant weight loss. Evidently, in a 64-week clinical trial, participants taking the daily pill lost an average of 16.6% of their body weight, matching the results of the injectable form of Wegovy.

In terms of cost, NVO has set the price for a month's supply at approximately $149 without insurance, positioning it as a more accessible option for patients. 

The increased accessibility, reasonable pricing, and patient preference for pills over injections could drive unprecedented demand for Wegovy, cementing Novo Nordisk’s dominant position in the highly competitive obesity drug market.

With Wegovy being the first and only FDA-approved oral GLP-1 pill currently available in the U.S. market, Novo Nordisk is well-positioned to significantly expand its consumer base and drive future profitability, given the fact that obesity prevalence among U.S. adults stands at 40.3% (between August 2021 and August 2023, as per Centers for Disease Control and Prevention data).

Healthcare ETFs Over NVO

Considering Wegovy’s potential, Novo Nordisk stock might seem an attractive investment destination. But direct investment in the stock carries notable risks that make ETFs a more prudent choice for many investors.

A notable concern for Novo Nordisk that has worried investors in recent times has been its supply-chain constraints and manufacturing bottlenecks, which have limited the availability of its popular injectable GLP-1 drugs.  Any such headwind could re-emerge in the near future and may disproportionately pressure NOV’s stock price in the short term, even amid broader sector growth.

Since ETFs provide exposure to the broader innovation within the obesity and metabolic health sector, investing in an ETF spreads risk through diversification while still capturing growth.

Healthcare ETFs to Gain

Considering the aforementioned discussion, one may consider the following healthcare ETFs that hold Novo Nordisk alongside other healthcare companies, which provide a built-in buffer against single-stock risk, allowing investors to benefit from the sector's tailwinds with greater stability.

Roundhill GLP-1 & Weight Loss ETF OZEM

This is an actively managed fund, with assets under management worth (AUM) $45.9 million, providing exposure to 23 companies involved in the manufacturing of weight loss drugs, including GLP - 1 agonists. Of these, NVO holds the first position, with 19.81% weightage in the fund. 

OZEM has surged 45.9% year to date. The fund charges 59 basis points (bps) as fees. 

Amplify Weight Loss Drug & Treatment ETF THNR

This fund, with assets of $2.87 million, provides exposure to 20 global companies expected to benefit economically from the development of weight-loss drugs. Of these, NVO holds the second position, with 12.55% weightage in the fund. 

THNR has risen 15.9% year to date. The fund charges 59 bps as fees. 

VanEck Pharmaceutical ETF PPH

This fund, with assets worth $1.19 billion, provides exposure to 26 largest most liquid pharmaceutical companies. Of these, NVO holds the fourth position, with 6.59% weightage in the fund. 

PPH has surged 23.1% year to date. The fund charges 36 bps as fees. 




 

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