Lesser-known pharmaceutical distributors are quietly cashing in on the hype around Novo Nordisk A/S and Eli Lilly & Co.’s weight-loss drugs, without their valuations being bid up to the same lofty heights.
(Bloomberg) — Lesser-known pharmaceutical distributors are quietly cashing in on the hype around Novo Nordisk A/S and Eli Lilly & Co.’s weight-loss drugs, without their valuations being bid up to the same lofty heights.
McKesson Corp. and Cencora Inc., which renamed itself from AmerisourceBergen Corp. on Wednesday, both raised their full-year guidance this month on the back of higher volumes of the blockbuster drugs. They boosted Cencora’s revenue by about $2 billion last quarter. Yet shares for both companies remain cheaper than their peers’ average, according to a valuation of estimated future profits.
Lilly, whose drug Mounjaro is expected to get US approval for obesity this year, is trading at 49 times forward earnings — even higher than AI-hyped Nvidia Corp. at 34 times. Novo, whose Wegovy is the only GLP-1 drug approved for weight loss in the US, is trading at 33 times forward earnings in New York. McKesson is at 16 times and Cencora at 14, below the average for S&P 500 health care companies of 19 times.
Novo and Lilly’s valuations reflect the potential of their drugs to upend the health-care sector, impacting demand for everything from medical devices and diet programs to fast food and dating apps. The medical cost of obesity in the US is difficult to calculate, but a study cited by the Centers for Disease Control and Prevention estimated it at $173 billion annually.
McKesson and Cencora’s shares also have more potential upside than Lilly and Novo, according to averages of analyst price targets. Their shares are projected to rise as much as 15% in the next twelve months, while the drug makers are trading higher than their targets. McKesson shares are up 12% this year and Cencora 9% — less than the S&P 500 Index’s 17% gain. Novo has risen 41% in New York and Lilly 51%.
Analysts are starting to recognize the potential upside for distributors. The drugs were mentioned a combined 38 times on McKesson and Cencora’s recent earnings calls, versus nine times in the prior quarter. That compares to just 11 mentions in total across Lilly, Pfizer Inc., Abbvie Inc. and Merck & Co.’s calls this quarter, while Johnson & Johnson and Bristol-Myers Squibb Co. didn’t mention them at all.
Uncertainty around long-term demand is tempering the hype for some analysts. “It will be interesting to see one year later how many people stay on it,” Brian Tanquilut, a health care analyst at Jefferies, said in an interview. Side effects and the drugs’ high costs — as much as $1,300 a month in the US — could weigh on demand.
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