A decade ago AlphaValue had a cynical go at the ‘Older & Fatter’ megatrend which speaks for itself: stocks addressing the good-living excesses of the West and their unhappy outcomes. The idea of that ‘Older & Fatter’ came when Novo Nordisk was already making a fortune from diabetes-containing drug, which later on morphed into weight-containing drugs. The point was made about such a ‘Older & Fatter’ megatrend. In the CNS space, another Danish company, H. Lundbeck, was also quickly widening its offer, to tackle schizophrenia, depression, Parkinson etc.

Today we discovered that the strategy was not worth the effort when measuring on an equal-weighted basis, the performance of the relevant universe made of 21 large European stocks. The outperformance is only 25% over 10 years, which is insufficient to cover the risk associated with such a specialist exposure. The sorry point is that this well-oiled investment strategy has been losing money since late 2021 when rates edged up. So much for the megatrend: its attraction is only as great as the cheap money punchbowl of the Fed or ECB.

Indeed things turned nasty from summer 2021 as highlighted by the relative performance decline on an equal-weight basis. On a weighted basis, everyone seems to be in the money, courtesy of Novo Nordisk and the craze for its weight-loss drugs. Remember that back in 2013, Novo was worth €57bn. Now expect to pay €400bn, or 7x its 2013 valuation (but LVMH manages 7x too).

To begin with, our 10-year review is a reminder that ultimately investment concepts matter less than the cost of money or the odd systemic accident such as COVID-19. For that ‘Older & Fatter’ strategy to offer the best relative return one would have had to exit by late 2019. COVID-19 had no positive impact – possibly because it led to an early departure of the targeted audience.

Then, the universe of listed companies associated with ‘Older & Fatter’ is simply as expensive as anything related to health. The underlying organic growth is too thin to justify ‘concept’-type valuation multiples (25x and above). Remember that valuations differ substantially whether on an average, median or equal-weighted basis.

Anyway, more of a correction is needed before boarding that ‘Older & Fatter’ slow train again.

This article was originally published in European Biotechnology Magazine Autumn Edition 2023.