A new class of potent weight loss drugs has been shaking up the pharmaceutical sector, sending stocks of some major drug makers soaring. But the wider impact on other industries like food, retail, and medical devices remains uncertain amidst changing consumer behaviors.
Novo Nordisk and Eli Lilly have been riding high thanks to their injectable diabetes medications Ozempic and Mounjaro. Though only approved for diabetes, both drugs have shown dramatic weight loss potential in clinical trials.
Ozempic and Mounjaro belong to a drug class called GLP-1 agonists. They mimic a hormone that regulates appetite and food intake. Patients using the new drugs at high doses can lose up to a quarter of their body weight.
Predictions have emerged that these drugs could reshape industries from restaurants to airlines. But so far, the actual impact beyond pharma has been muted.
In the stock market, Novo Nordisk shares are up over 50% in the last year thanks to Ozempic. The drug’s sales hit $5.2 billion in the first 9 months of 2022. Mounjaro brought in $187 million for Lilly within just 2 months of its launch.
“The physiological benefits these treatments offer patients help address significant unmet needs,” said Josh Schimmer, senior analyst at Evercore ISI.
The market potential also has investors excited. If just 2% of obese Americans eventually use weight loss medications, it could swell into a $58 billion market according to Evercore forecasts.
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Among other drug stocks involved, Amgen owns a portion of Mounjaro’s revenue due to a licensing deal with Lilly. Meanwhile, companies like Entera Bio and Novo Nordisk have oral pills in late stage testing that could expand the weight loss drug market substantially.
However, analysts caution growth depends on how insurers cover the drugs which can cost nearly $1,500 a month without insurance. Usage also remains low currently at around just 1% of the US population.
Beyond pharma, the impact is hazier. The consumer staples sector has been the worst performing segment of the S&P 500 this year as investors brace for potential fallout.
But so far, food and beverage leaders seem unfazed. PepsiCo, Hershey, and Constellation Brands recently reported strong quarters without seeing signs of slowing demand.
Retailers and restaurants have opportunities to adapt their offerings to court health-focused consumers. “Maybe the GLP-1 consumer looks very different three or five years from now,” said Goldman Sachs analyst Jason English.
Surprisingly, medical device makers also haven’t seen slowed growth yet either. In fact, continuous glucose monitoring usage grew right alongside Ozempic prescriptions, suggesting weight loss isn’t eliminating diabetes demand.
However, bariatric surgery has been slightly impacted according to comments from Johnson & Johnson’s CEO. Other discretionary categories like apparel and travel could eventually be impacted if behaviors change long term.
For now, the uncertainty leaves analysts split on whether these drugs are a fad or the beginning of a healthcare revolution. But Wall Street is clearly enamored with the weight loss leaders.
As more data emerges on usage and impact, it will determine whether stock declines are overdone for consumer staples beyond pharma. If wide adoption materializes, Novo and Lilly appear poised to dominate a blockbuster new drug market.