Weight-loss news tips the scales
- Roche shares surge on weight-loss pill trial data
- Eli Lilly and Novo Nordisk pull back
- High IV possibly inflating options prices
Possibly lost in the chatter about a second day of tech selling were the sizable down moves in pharma giants Eli Lilly (LLY) and Novo Nordisk (NVO)—two companies with leading positions in the obesity drug space.
Both stocks reacted similarly to news of promising test results of a weight-loss pill developed by Swiss pharma company Roche (RHHBY),1 which jumped 7.5% on Wednesday and followed through to the upside on Thursday:
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Meanwhile, LLY pulled back as much as 11% total over the past two days, and NVO slipped as much as 10%, although both stocks trimmed their losses slightly on Thursday.
These moves dramatically altered the short-term relationship between the stocks. Over the past five years, while LLY rallied more than 400% and NVO gained nearly 300%, RHHBY fell more than 10%. Since early May, though, RHHBY is up more than 30%, LLY has given back more than half of its rally over that period, and NVO fell briefly into the red:
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While casual observers may see the type of news that unfolded this week as a potential sea change among market competitors, longtime traders—especially those familiar with the pharma/biotech space—are less likely to rush to judgement. Successful initial clinical trials are not the same as bringing a product to market, profiting from it, and translating that into a rising stock price. While it’s certainly possible Roche will be able to mount a meaningful challenge to LLY and NVO in the obesity space, it’s not a given, and it will likely be quite some time before we’ll know one way or the other.
In the meantime, there are the shifting stock prices to consider—as well as their impact on the options market. On Thursday, LLY appeared on the LiveAction scan for biggest one-day increases in options implied volatility. Also, like NVO, its IV was above its 30-day average. That means, all else being equal, LLY and NVO options prices could be relatively high, which can work against options buyers and in favor of options sellers, regardless of whether they’re bullish or bearish on the respective stocks.
Today’s earnings include (all times ET): American Express (AXP), Halliburton (HAL), Verizon (VZ), Schlumberger (SLB).
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1 The Wall Street Journal. Roche Obesity Pill Achieves Positive Results in Early-Stage Trial. 7/17/24.