No. of Recommendations: 2
On July 11, I sold x shares BRK.B @ $411 (P/B ~1.62) and with the proceeds purchased approximately equal amounts of LLY and NVO
Parameters are:
- hold for at least two and no more than five years
- reserve the right during that period to change holdings to different pharmas, as long as the rationale remains GLP-1-agonist-based.
- then cash out and repurchase greater-then-x-shares BRK.B with the proceeds
As Shrewd'm is my witness.
I'll report back in July 2029, or when I throw in the towel, whichever comes firstI looked at these 2 drug makers again today because Novo reported a 'disappointing' trial result for its new drug with the not-very-catchy name CagriSema. Cagrisema is a combination of 2 drugs, the GLP inhibitor semaglutide (the generic drug sold as Ozempic or Wegovy or in pill form as Rybelus), along with another, newer drug called cagrilintide, which is a dual amylin and calcitonin receptor agonist, so it works (or it was thought that it would work) by a different mechanism.
The trial results show that that combination 'ONLY' got people to lose 22.7% of their weight after 6 months, whereas greedy Mr Market had expected 25% weight loss. This means that it's probably not much better than semaglutide, their existing drug, and probably not as good as Lilly's drug, tirzepatide. Novo shares plunged 20%, while Lilly shareholders rejoiced and sent shares up about the same percentage initially, though by the end of the day, LLY had given up most of its advance.
So as we can see in the table below, after about 5 1/2 months, Berkshire has pulled into a pretty substantial lead.
So here's where we were after 5 months:
2024-07-11 2024-12-20
stake $/sh shares $/sh new stake % change
BRK.B $40,000 411.00 97.32 453.60 $44,146 10%
LLY $20,000 930.75 21.49 768.48 $16,513 -17%
NVO $20,000 140.67 142.18 85.01 $12,087 -40%
LLY&NVO $40,000 $28,600 -28%
So Berkshire is up 11% so far, with the GLP makers down 28%. This is despite the fact that Lilly and Novo have done well with their drugs this year, with a roughly 20-25% increases in sales, and they have worked hard to make enough to meet demand, a good problem to have. But Lilly still had a price earnings ratio of 83, so they better keep growing a LOT if they want to justify their share price. Novo is priced much lower, at 28x earnings, which is completely justified, I think, as its semaglutide drugs will come off patent already in 2026, and its drugs have not performed quite as well as Lilly's GLP-1/GIP dual agonists (Mounjaro and Zepbound).
I still think there will be lots more competition from other drugmakers in the next few years and it will be hard for them to sustain the price of their drugs and thus their current share price. But 6 months is way too soon to judge who's right.
Regards, DTB
