Many billionaire investors are going all in on artificial intelligence (AI). That's understandable. AI is quickly being integrated into businesses' day-to-day operations. The leaders in the field could deliver outsized returns. However, there are other exciting investment opportunities out there. Consider Renaissance Technologies, a hedge fund headed by Jim Simons. The fund's holdings feature several healthcare stocks. That includes two notable drugmakers: Novo Nordisk (NVO +0.21%) and Exelixis (EXEL 2.49%).
Should investors follow Simons' lead and invest in these companies? I think so, and here is why.
NYSE: NVO
Key Data Points
1. Novo Nordisk
Novo Nordisk is the genius behind Wegovy, one of the leading anti-obesity therapies on the market, and Ozempic, a diabetes treatment. The hype surrounding these medicines is backed by the data. It's been hard for Novo Nordisk to keep pace with the demand for Wegovy and Ozempic. Sales have skyrocketed for both, helping Novo Nordisk's top line grow rapidly in recent years. In the first quarter, the company's net sales came in at 65.3 billion Danish kroner ($9.41 billion), an increase of 22% year over year.
Ozempic and Wegovy saw their revenue grow by 42% and 106%, respectively. There are several promising indications that could help catapult Ozempic's sales even higher. Last year, it aced a clinical trial in treating kidney disease in obesity patients. It is also being developed as a potential treatment for non-alcoholic steatohepatitis, another highly promising growth area.
Novo Nordisk's expertise in developing diabetes and obesity medicines is a significant strength. Though many pharmaceutical giants are now looking to get a piece of this large pie, some, like Pfizer, have found it difficult, with some candidates flopping in clinical trials. Meanwhile, Novo Nordisk continues to march forward. It is working on an oral obesity drug called amycretin that produced highly encouraging phase 1 results. In a 12-week study, the medicine led to a mean weight reduction of 13.1%, an even better performance than Wegovy's in a similar study.
It's too early to tell whether amycretin will be Novo Nordisk's next blockbuster. The point, though, is that the company continues to innovate, including beyond diabetes and obesity. Novo Nordisk has made a conscientious effort to expand its lineup, with several candidates in rare diseases, neuroscience, and more. Ozempic and Wegovy will remain its biggest growth drivers for some time, but the company's innovative capabilities highlight why it is such an attractive stock to buy and hold for long-term investors.
NASDAQ: EXEL
Key Data Points
2. Exelixis
Exelixis specializes in cancer medicines. It earned quite a reputation thanks to its most important product, Cabometyx, which has proved to be a bit of a pipeline in a drug. Its two most important markets are renal cell carcinoma (RCC, a type of kidney cancer) and hepatocellular carcinoma (HCC, a type of liver cancer). Cabometyx is a tyrosine kinase inhibitor (TKI), a kind of therapy that helps impede the growth and spread of cancer cells. Cabometyx has been the top-prescribed TKI in RCC and second-line HCC for a while now, and it remains so.
Still, Cabometyx has lost some steam, as evidenced by Exelixis' not-so-impressive top-line growth. In the first quarter, the company's total revenue increased by just 4% year over year to $425.2 million. Further, the over-reliance on Cabometyx could be a problem. Exelixis is working on those issues. Cabometyx is still being tested in various clinical trials, which could allow it to grind out new applications and improve sales growth, just as it has in the past.
More recent positive phase 3 results for Cabometyx include metastatic castration-resistant prostate cancer (CRPC). According to the company, men diagnosed with CRPC typically have at most two years to live, highlighting the need for new treatment options in this area. Exelixis is also developing brand-new medicines, the most advanced of which is zanzalintinib, which is undergoing late-stage studies as a potential treatment for metastatic colorectal and advanced RCC.
Exelixis has been targeting areas with unmet needs. For instance, though colorectal cancer has a high survival rate in its early stages, a substantial percentage of patients are diagnosed once the disease has metastasized, at which point the survival rate drops considerably. Beyond that, Exelixis has several promising early-stage candidates, too. It's hard to ignore the company's success in developing cancer medicines.
Though Exelixis' first-quarter results weren't great, the company should still turn out important approvals and label expansions while delivering solid performances for patient investors.
