European Obesity Stocks Join Healthcare Rally as AI Trade Ebbs

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(Bloomberg) — European weight-loss drug developers have staged something of a comeback this week, as investors rotate into healthcare from AI-exposed momentum stocks. 

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Zealand Pharma A/S shares have surged 20% since Monday, posting their biggest weekly advance since March 2024 and outperforming the pan-European Stoxx 600 index this week. Novo Nordisk A/S has advanced 6.8%, while Gubra A/S is up 18%. All three are still down by at least 28% this year.

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“Names like Novo Nordisk, Zealand Pharma and Gubra have jumped this week mainly because investors are moving money out of expensive tech and AI names,” said Chris Beauchamp, chief market analyst at IG Group. “They had also fallen behind some US peers, so part of the rise is simple catching up.”

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It’s been a difficult year for European obesity stocks as pharmaceutical companies globally clamor to enter the competitive space. Goldman Sachs Group Inc. analysts earlier this year lowered their forecast for the obesity drug market’s size, citing potential pricing erosion and the amount of time patients stay on the medicines. Uncertainty about US drug pricing and tariffs have also weighed on the healthcare sector more broadly. 

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That has created a buying opportunity, with the rotation taking place in the US as well as Europe. “Investors are taking some profits in mega-cap tech after an extended AI driven run and reallocating toward more reasonably valued sectors including industrials, financials, energy, and healthcare,” said David Miller, a portfolio manager and chief investment officer at Catalyst Funds.

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Deutsche Bank AG analysts this week said that sticking with their buy rating on Novo Nordisk this year has been “one of the more painful experiences of our professional career.” Even so, the risk-reward going into upcoming catalysts within the next few months is “disproportionate at present levels,” analysts including Emmanuel Papadakis wrote in a note. 

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This includes Novo’s late-stage clinical trial results for semaglutide in patients with mild Alzheimer’s disease, and the US Food and Drug Administration’s decision on whether to approve a pill version of the blockbuster obesity medicine Wegovy. 

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“There are plenty of areas to feel positive about Novo,” Sebastien Malafosse, a portfolio manager at Edmond de Rothschild Asset Management, said in an interview. “They could be the first one with an oral GLP-1 on the market.”

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Investors have also rewarded recent signs of restraint in the obesity sector. 

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Novo shares rose at the start of the week after it said it didn’t intend to increase its offer for obesity drug developer Metsera Inc. after “careful consideration.”