CSL Limited (ASX: CSL) and ResMed Inc (ASX: RMD) shares were under the pump on Thursday.
Both healthcare giants sank deep into the red after the market panicked over the results of another trial of the weight loss drug Ozempic. This time the wonder-drug was being trialled for the treatment of chronic kidney disease.
Ozempic delivered such strong results that the Independent Data Monitoring Committee recommended that it end as it was no longer necessary or moral to continue the study with a placebo arm.
CSL and ResMed shares fall: should you be concerned?
Goldman Sachs has been looking into the implications of the trial results on both CSL and ResMed. It highlights two areas of concern. The first is:
There is a direct link to CSL through the Vifor segment (potentially a direct earnings impact for a company which sells drugs to the kidney disease/dialysis populations, but also potential consequences for the carrying value of the business itself, which is comprised almost entirely of intangible assets and goodwill).
Another concern is that as the use cases for Ozempic grow, so too does the potential for governments and insurance companies to offer reimbursements or coverage. The high cost of Ozempic was expected to hold it back from true mass adoption, but this could potentially change. It adds:
Each positive outcome trial from NOVO or LLY broadens the potential utility of the GLP-1/GIP receptor agonist class and strengthens the argument that coverage/reimbursement should be expanded.
As we wrote here, the current c.US$1k list price of these drugs is prohibitive to the majority of those unable to secure coverage, and that is unlikely to change in the near-term. As/when payor access improves, the degree of potential threat increases for those companies positively levered to weight/diabetes/cardiovascular risk etc (e.g. RMD, FPH).
Sales impact
Fortunately for CSL, it has a very large business and multiple revenue streams. As a result, the broker estimates that just 7% to 8% of its overall revenue would be subject to the impacts of Ozempic's rise.
This could arguably make yesterday's CSL share price sell down a bit of an overreaction.
As for ResMed, the broker isn't concerned about the news and continues to believe that both Ozempic and ResMed's sleep treatment devices can co-exist. As a result, it continues to forecast strong long-term growth from ResMed and sees lots of value in its shares. It adds:
In our view, these concerns have been more than adequately priced into RMD shares, and we continue to reiterate our Buy rating. We remain Neutral-rated on CSL.
Goldman has a buy rating and $33 price target on ResMed's shares (offering 49% upside), and a neutral rating and $296.00 price target on CSL's shares (offering 24% upside).
