The changes in our equity portfolio during the fourth quarter of 2024 fell exclusively in the healthcare sector. We sold our position in Merck & Co. (tkr: MRK) as pressures mount for the company. Merck is maker of the top selling prescription drug in the world, Keytruda, an immunotherapy drug used to treat many types of cancer. Keytruda is scheduled to go off patent in 2028, opening it up to competition from generic drugmakers which could result in a significant loss of revenue. Merck’s second biggest seller, Gardasil, an HPV vaccine, is struggling in China with low demand driven by several factors. These challenges are expected to persist through at least 2025. Furthermore, Merck makes several vaccines in addition to Gardasil, including the MMR vaccine which protects against measles, mumps, and rubella. With the nomination (and likely confirmation) of Robert F. Kennedy, Jr., an anti-vaccine activist, to lead the Department of Health and Human Services.  As a staunch critic of the pharmaceutical industry, Kennedy is known to spread misinformation about the safety of vaccines which is likely to cause vaccine sales to suffer in the near-term. 

With the proceeds from the sale of Merck, we took advantage of the 15% drop in stock price Eli Lilly & Co (tkr: LLY) to add it to our portfolio. Eli Lilly was one of the first to market with anti-obesity/diabetes drugs called glucagon-like peptide agonists (GLP-1s) which effectively decreases appetite and slows the absorption of food, making people feel full sooner and improving glucose metabolism. Recent articles in The Economist called GLP-1s “among the most important drug breakthrough ever.” Insurance coverage is improving as research demonstrates an increasing number of indications for these drugs and linking these drugs to treatment of specific medical problems (i.e. lower incidence of cardiac events and improvements in inflammatory arthritis) rather than “just” treatment of obesity to continue to expand use cases. In fact, earlier this month, the Centers for Medicare & Medicaid Services said that Medicare can now cover Zepbound for sleep apnea. Beyond Zepbound, Lilly has good patent protection extending into the 2030s for several of its key drugs. The company also benefits from economies of scale and an excellent distribution network.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.