Investors have shown great interest in drug manufacturers like Eli Lilly and Novo Nordisk due to the positive response to their weight-loss medications. However, while these medications have been successful in the United States, their impact in Asia has been less clear. This is due to lower rates of obesity in Asia and a preference for natural forms of weight control.
The Obesity Market in Asia
In Asia, the rates of overweight or obese individuals range from 20% to 50%, significantly lower than the 70% to 75% rates in the United States. The only country in the Asia Pacific region that deviates from this trend is Australia, with overweight and obesity rates of 62% and 76% in females and males, respectively. The World Health Organization defines individuals with a body mass index (BMI) between 25 and 30 as ‘overweight’ and those with a BMI greater than 30 as ‘obese’.
Under-the-Radar Stock Picks
Morgan Stanley suggests that investors interested in the obesity market in Asia should focus on companies involved in GLP-1 drug development. These companies could benefit from the growing demand for GLP-1 drugs in overseas markets. One such company is WuXi AppTec, a contract development and manufacturing organization based in China. Morgan Stanley has given the stock an overweight rating, considering it a top beneficiary as global demand for GLP-1 drugs surpasses capacity.
Other top stocks on Morgan Stanley’s list include Innovent Biologics, a Chinese drug manufacturer, Chugai Pharmaceutical from Japan, and EBOS, a drug distributor headquartered in New Zealand. The investment bank has different investment horizons for these stocks, with just over six months for WuXi AppTec and Innovent, and over 12 months for Chugai and EBOS.
Chugai, which manufactured Orforglipron, a medication prescribed for weight loss and type 2 diabetes, licensed it for distribution by Eli Lilly in 2018. Morgan Stanley’s analysts estimate that worldwide sales of Orforglipron could reach billion in 2023. While Chugai has not announced a royalty rate, the bank estimates that it could receive annual royalty income of over billion based on a rate of 15%.
EBOS, on the other hand, has opportunities following the Australian government’s approval for the distribution of obesity drugs. The government’s decision to fund GLP-1-based therapies for obesity under the Australian Pharmaceutical Benefits Scheme (PBS) could create a multi-billion-dollar domestic market. This would have a positive impact on pharmaceutical distributors like EBOS, which could receive a margin on the dollar value of revenue distributed.
Stock Trading and Investment Opportunities
Shares of WuXi AppTec and Innovent are traded on the Hong Kong Stock Exchange and are included in the KraneShares MSCI All China Health Care Index ETF. Meanwhile, Chugai and EBOS are traded on the Japanese and Australian stock exchanges. Chugai holds a 2.7% stake in the Goldman Sachs Future Health Care Equity ETF, while EBOS has a 4% weightage in the iShares MSCI New Zealand ETF.
Investors looking to capitalize on the obesity market in Asia can consider these under-the-radar stock picks recommended by Morgan Stanley. With the potential for significant growth in the demand for GLP-1 drugs and the approval of obesity drugs in Australia, these stocks present exciting investment opportunities in the healthcare sector.
