Weight loss and diabetes drugs — a potential $100 billion industry — have captured Wall Street’s imagination.
As celebrities and influencers touted the drugs’ efficacy, Goldman Sachs projected that these drugs could serve as many as 15 million people by 2030. Predictions of their impact on America’s biggest companies have been rolling in, from airline fuel savings and new wardrobes to changes in eating behaviors and health needs.
Yet the long-term implications of these drugs are still largely unknown. They may not permanently change consumer behavior or may only be hastening trends that were already underway — potentially insulating diversified, forward-thinking companies.
The current market is dominated by three products — Novo Nordisk’s (NVO) Ozempic (approved for type 2 diabetes) and Wegovy (approved for weight loss) and Eli Lilly’s (LLY) Mounjaro (also for type 2 diabetes).
These drugs belong to a class known as GLP-1s, named after a hormone in the body they mimic, which slows down digestion and stimulates insulin production. While GLP-1s have been around for decades, the new entrants have the highest weight loss potential — patients can lose up to 26% of total body fat by taking Mounjaro.
Novo and Lilly have been racing to ramp up production to meet the unprecedented demand. There’s also a robust pipeline of contenders in the coming years, which could expand the drug delivery from injectables to pills.
Walmart (WMT) US CEO John Furner sounded the alarm earlier this month, which set investors scrambling.
In an interview with Bloomberg, he said consumers on the drugs are pulling back in their overall spending, buying “less units, slightly less calories,” compared to the overall population.
That fueled doomsday prognosis for everything from food and beverages to medical devices, insulin, and bariatric surgery — all of which are estimated to see slower revenues due to GLP-1 use.
Bank of America analysts said that the dramatic weight loss seen with GLP-1s and the early indications they can help curb addictions could eventually expand their impact beyond food to tobacco, gaming, and apparel.
Due to this and other headwinds, Consumer Staples stocks, long the old reliable of the investing world, have been in a free fall. The S&P Consumer Staples Index is down 8% year to date, compared to the 8% gain the larger index enjoyed.
But these sentiments have been countered by other analysts and major players in the food and health industries.
For one, the current US population using the drugs is only about 1%, according to Goldman Sachs analyst Chris Shibutani.
Prescriptions are regulated, with some limited to diabetes patients and others only for patients of specific body mass indexes. The nationwide shortage has forced Novo Nordisk to limit production to higher dosage injectables to support existing patients, rather than the lower doses used by new patients.
There’s also a lack of insurance coverage, forcing people who want to take the drugs for weight loss, which would be off-label use for Ozempic and Mounjaro, to pay for the $15,000 annual cost out of pocket.
“For there to be a view that these weight loss drugs are having a population-level impact on food consumption, I just think is inaccurate,” RBC Capital Markets’ Nik Modi told Yahoo Finance.
PepsiCo (PEP) recently reported a record third quarter, and Constellation Brands (STZ) CEO told Yahoo Finance he doesn’t see any signs that weight loss drugs are reducing demand for beer. Hershey’s (HSY) CEO Michele Buck pointed out the emotional nature of food on its Q3 earnings call as the chocolate maker recorded an 11% year-over-year jump in revenue.
Kroger Health (KR) president Colleen Lindholz told Yahoo Finance she believes that the actual impact from the drugs will be not a reduction in food buying but rather a shift to healthier foods.
Food and beverage
Many snack and drink conglomerates have been diversifying their offerings in recent years. For example, Hershey’s has introduced zero-calorie and protein bar options, while Coca-Cola and PepsiCo have gotten into sparkling water and mini soda cans.
Goldman Sachs research analyst Jason English told Yahoo Finance Live that junk foods weren’t in danger.
Instead, he said the “early adopters” of these drugs tend to be higher-income consumers who are already buying healthier options, adding that “weight management bars saw the largest drop in demand with this cohort. So did salad dressings.”
That high-income demographic could change though. “Maybe the GLP-1 consumer looks very different three or five years from now, particularly as insurability grows,” English said.
Food retail can also be at risk, according to a Stifel note led by analyst Chris O’Cull.
Restaurants like Jack in the Box and Taco Bell (YUM), which are often visited by snackers looking for a fix in the early afternoon (2 p.m.-5 p.m.) or late at night (after 9 p.m.), can see a drop in traffic.
For coffee giants Starbucks (SBUX) and Dutch Bros (BROS), at least half of customer visits are not tied to consuming a meal, O’Cull said.
However, like Lindholz, Cull believes there could be a shift in what people choose to eat.
Diners using the drug may order “fewer appetizers or desserts” at restaurants like Olive Garden (DRI), Texas Roadhouse (TXRH), or Chili’s (EAT), Stifel predicted.
“Assuming 25% of customers are using weight loss medication and all of them choose not to purchase an appetizer, it would lower sales by roughly 1-2%,” O’Cull said.
On the other hand, if people opt for a pricier salad over a hamburger, it could boost total sales.
In short, menu adjustments — such as healthier options or smaller portions — may be able to alleviate potential declines in food consumption.
Medical devices and pharmaceuticals
Meanwhile, the popularity of the drugs has put pressure on bariatric surgery, which has seen a slight slowdown since the start of the year.
In its Q3 earnings call, Johnson & Johnson (JNJ) called out the effect of reduced demand for weight loss procedures on the sales of its medtech division.
“We’re seeing some impact in our bariatric business in the short term as some patients are reconsidering surgery, expecting to get treatment,” J&J CEO Joaquin Duato said.
But the drug hasn’t replaced surgery, and in some instances, GLP-1s are being viewed as a follow-up option after surgery.
The impact of reduced surgeries is minimal, as some companies are still recovering from the extended drop in surgeries during the pandemic. J&J reported a 6.8% year-over-year increase for its Q3 revenue, while net earnings stayed flat. Intuitive (ISRG), the maker of popular daVinci robotic tools, is still seeing some growth in bariatric surgery.
Meanwhile, medical devices like insulin pumps and glucose monitoring devices (CGM) have not been affected by the drugs, despite analysts predicting as much. In fact, the opposite has been true, as more people may be interested in monitoring their health.
Teri Lawver, chief commercial officer of Dexcom (DXCM), a leading maker of both devices, told Yahoo Finance that “the data we have so far is telling us … that as the use of GLP-1s increases, so does the use of Dexcom CGMs.”
Abbott (ABT) CEO Robert Ford similarly told Yahoo Finance the company expects that its CGMs and other related devices will not be impacted by the broader adoption of GLP-1s.
“The notion that, all of a sudden, with people adopting this product … that there’s going to be no more diabetes in the world, … there’s not data to suggest that,” Ford said.
Furthermore, weight loss drugs cease working once patients stop taking them — and many do after one year, according to recent data — in part due to side effects like nausea and having an upset stomach that can be difficult to withstand long term.
However, the drugs will still be a gold mine for pharmaceutical companies if demand continues. Sales of Lilly’s Mounjaro, which is currently only approved to treat diabetes, are already on a $4 billion run rate, according to Bank of America analysts.
And the popularity of Ozempic briefly made Novo Nordisk the most valuable company in Europe last month, overtaking luxury giant LVMH (LVMUY). In recent months, Mounjaro has gained 23% of the overall weight loss market, while Ozempic, which peaked at 47% in the summer, is holding steady at 42%.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
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