Obesity Pills

The end of the trading week saw a big decline in the Dow Jones Industrial Average, S&P 500, and the Nasdaq with major selloffs in all three on Thursday and Friday.  The S&P had its worst week since April but is still up more than 15% on the year.

Through July 12 of this year, the S&P Pure Growth Index had outperformed the S&P Pure Value Index by a whopping 19.14% to 5.78% year to date according to Bloomberg.  Much of this can be attributed to the huge gains in big tech stocks.  The Information Technology sector was up 33.89% through July 12 and was the best performer out of the 11 sectors that comprise the S&P 500.  Information Technology accounted for over 40% of the Pure Growth Index; thus, the significant gains seen this year.  This week, however, we have seen some sector rotation with shares of large tech stocks selling off and the proceeds being invested in underperforming areas of the market.  This week’s tech selloff underscores the importance of a well-diversified portfolio as opposed to solely relying on a just handful of equities for performance.

I came across a statistic this week that would make for an interesting cocktail party discussion.  The number of publicly traded companies in the U.S. has dramatically dwindled over the past two decades.  Some of this can be explained by the ever-increasing regulatory requirements to be a publicly traded company along with a rise in private equity and venture capital.  In 1996, there were 8,090 stocks listed in the U.S. according to the Investment Company Institute.  Fast forward to 2022 and that number was reduced to 4,642 publicly listed U.S. stocks.  In contrast, the number of mutual funds and exchange-traded funds has almost doubled during that period, and by the end of 2022, there were over 11,700 funds available.  Despite the decrease in publicly traded firms, the U.S. still accounts for over 70% of the value of developed markets across the globe.

As more consumers are feeling pinched by increasing auto insurance premiums, some insurers are seeing a rise in client inquiries into ‘pay as you go’ policies as a way to alleviate the cost.  Pay-per-mile programs, in which drivers pay a base rate and a per-mile rate on top of that are becoming increasingly popular, particularly among retirees and remote workers.  What it essentially amounts to is that if you drive less, you pay less in premiums provided you qualify for this type of policy based on your miles driven annually.  The average American will drive 13,039 miles this year according to S&P Global Mobility, so these pay-per-mile plans are generally geared for those that drive significantly less than that.  Also, a potential drawback of this type of policy is most insurers will track not only the miles driven but may also collect other driving data, which makes some drivers leery.  Regardless, it is a novel approach to the skyrocketing premiums that have beset many drivers in recent years and may be an appropriate alternative for some vehicle owners.

The Internal Revenue Service finalized a rule this week regarding inherited retirement accounts.  A law that was enacted in 2019 stated that inherited retirement accounts had to be exhausted within 10 years; however, it did not stipulate that yearly distributions had to be made.  The IRS finally clarified this rule and stated that funds must be withdrawn annually with some exceptions.  The IRS ruling applies to future inherited accounts, as well as accounts that have been inherited since 2020.  One caveat is that spouses are not required to take an annual distribution according to the new rules.  Also, if the deceased owner of the IRA had not yet met the required minimum distribution age – currently 73 – the inheritor is not mandated to take annual distributions.

There are reportedly over 100 obesity programs in development from a host of pharmaceutical and biotech companies around the world.  Only injectable obesity drugs have been approved for use but what has many excited is what is potentially on the horizon.  Several pharma and biotech companies have experimental obesity pills within their research pipeline and anticipate bringing these to market in the next several years pending regulatory approval.  In addition to potentially lowering the costs of obesity drugs, a small-molecule pill may be more palatable for those who are hesitant to use injections.  It is unknown how long it will take for approval of obesity pills, but dozens of companies have entered the fray and are looking to cash in on the weight loss phenomenon.  With an estimated market of over $100 billion annually in sales, one thing for certain is that obesity medication is going to be a significant driver of revenue and valuations for those companies that can capitalize in this particular healthcare segment. 

Matt Savoti, MBA