No. of Recommendations: 5
So the next step is to look at Lilly and Novo Nordisk, mostly for big hidden snakes under rocks. Barring that, I might soon just split that $45K into these two, then shut the vault on it for five years or so.
So I'm putting down my marker, and inviting y'all to come on back here on, say, July 1 2029, and see how I did predicitng that 50:50 LLY:NVO would not be substantially inferior to 100 BRK over that specific five-year period.
I am temporarily out of Berkshire, and I share the short term pessimism about the likely returns from Berkshire in the next couple of years. However, I would take the Berkshire side of the Berkshire vs LLY:NVO bet in a second.
Unsurprisingly, the dramatic success of Lilly and Novo Nordisk has opened the floodgates for investment in these drugs, and there are a ton of them coming. Novo Nordisk has the most popular single agonist (semaglutide), and the most popular double agonist (GLP and GIP receptor agonists) at bet, tirzepatide, and they have a great triple agonist (GLP, GIP and glucagon agonist), retatrutide, with even better results and that is close to approval. But there are a lot of competitors with drugs that are coming, and I don't think having the first one (semaglutide) will help Lilly very much if a competitor comes up with one that is as effective but has slightly less side effects.
And surprisingly, semaglutide has been around for awhile, and only has patent protection for another 18 months. After that, watch out for a flood of generics, and Novo will have to cut its price a lot to keep market share. At $641b in market cap, and at 49 times earnings, Novo is priced for a lot of growth that may or may not happen. And that's not counting the fact that accidents happen - you give the example of the statins that ended up being not too toxic, but look at another example, the fen-phen drug that Wyeth produced, that looked like it would be a homerun until 5 years after its introduction, when cardiac valve problems completely dissolved the franchise.
Lilly's tirzepatide (Mounjaro) has patent protection until at least 2036, so it is not as vulnerable, but at its $847 market cap, at 131 times earnings, Lilly is priced as though their profits will rise quickly for a long time. That might work out, but if you can get cheap generic semaglutide in a couple of years, can Lilly still charge $1000 a month for a slightly better drug? Maybe they will make it up on volume, but there are a lot of risks here. Look at what happened to Pfizer's lovastatin (Lipitor) after patent protection ended in 2011 - still the most popular statin and a very profitable drug, but sales went from $13b at the peak (2006) to less than $2b a year after patent protection ended in 2011.
Which one could be a homerun like Amazon or Apple? Definitely LLY/NVO - Berkshire is not going to be up 10 times, 10 years from now. But there is also a huge downside that is also possible for these 2 drug companies whose value is almost entirely supported by semaglutide and tirzepatide. I wouldn't be at all surprised that Berkshire is up 20% in 5 years and LLY/NVO are down by 50% - in fact, that may be the most likely scenario.
dtb
