- The rapid rise of the weight loss drug GLP-1 is likely to create a major stir in the stock market.
- The long-term ripple effects of these drugs will impact sectors of the stock market and the economy.
- These are areas to watch as drugs like Ozempic, Wegovy and Mounjaro grow in popularity.
With the growing popularity of the GLP-1 weight loss drug, millions of Americans are poised to lose a total of hundreds of millions of pounds over the next decade and restructure trillions of dollars in the process.
In other words, the stock market is being Ozempic’ed.
That accelerating trend was made clear last week, when Novo Nordisk said a drug trial showed that semaglutide, the active ingredient in Ozempic and Wegovy, could help people with kidney failure.
Shares of DaVita and Fresenius Medical Care, the world’s largest kidney dialysis provider, both fell by double digits. Meanwhile, Novo Nordisk and Eli Lilly, maker of a similar drug, both jumped.
This is just the latest in a series of examples of how the wide-ranging health impacts of these GLP-1 blockbuster drugs will reshape entire markets. Some of the ways in which this medical development will reshape the landscape are simple: first, people will eat less food and therefore need less treatment for obesity-related symptoms.
But other effects are less obvious.
Leading the stock market
As weight-loss drug companies have grown in popularity, they have signaled new leadership in the stock market.
Novo Nordisk, the company that makes the weight-loss drug Wegovy as well as the Type 2 diabetes drug Ozempic, is now Europe’s largest company, worth $433 billion, and its rapid growth has even has a direct impact on the host country’s currency and interest rates.
Eli Lilly, maker of GLP-1 Mounjaro among many other drugs, is currently the ninth largest company in the S&P 500 with a market value of $568 billion.
The drug craze could also spur further consolidation in the industry, according to Guggenheim Partners senior managing director Punit Mehta, a warning for biotech and pharmaceutical companies in particular.
“I think in the end it will motivate more [M&A] work,” he told CNBC on Tuesday. “I think the market is literally shaping up as we speak.”
And that’s just a hint of what’s at stake. According to the latest estimates, US healthcare spending will total $4.4 trillion in 2022.
The Ozempic Effect expands
It’s not surprising that investors initially focused on the healthcare sector as they weighed which companies would be hit the hardest given the wide variety of drugs and devices that treat diseases. chronically linked to obesity and diabetes.
For example, shares of CPAP manufacturers have dropped more than 40% in just a few short months as weight loss can help reduce sleep apnea patients’ dependence on CPAP machines while they sleep. Companies that make insulin delivery systems and diabetes monitoring devices have also come under fire because of early data showing that the drug GLP-1 can put diabetes into remission in patients with type 2 diabetes.
“If there aren’t many second-class specialists left [diabetes] The patient needs insulin injections. If insulin injections are not needed, there is no need for an insulin pump to deliver insulin into the body. So that’s why you see companies like Tandem Diabetes Care and Insulet having the hardest time here because there’s a direct correlation to the fact that if you don’t have a lot of patients using insulin then you don’t need a machine pump to deliver insulin into the body,” Baird analyst Jeff Johnson told Insider last month.
And drug trial data showing that the GLP-1 drug reduces the risk of heart attacks has put pressure on makers of heart valve devices targeting different forms of heart disease.
More recently, the Ozempic effect has spread to food companies. That’s because the drug GLP-1 helps patients lose weight by making them feel full faster.
“When taking GLP-1, you eat significantly less and feel fuller,” says Johnson. So you will lose weight.”
A Morgan Stanley survey of 300 patients taking the drug found that daily calorie intake decreased by 20% to 30%. And recent comments from Walmart suggest that they have seen customers who are taking medication buy less food.
Those comments prompted food retailers like Costco and Walmart, along with snack companies like Coca-Cola, PepsiCo and McDonald’s to cut prices.
The economy is also about to be Ozempic’ed
What’s clear is that there are plenty of knock-on effects that the rise of GLP-1 drugs will have on the stock market and the economy, and investors are rushing to figure them out.
Productivity can soar, there can be big cost savings in the healthcare industry, and even aircraft operators can operate more efficiently by helping lighter-weight customers save fuel. Whether.
Goldman Sachs estimates that obesity will reduce global GDP by about $4 trillion by 2035, but that could change if enough people start using these drugs.
With 9 million Americans taking GLP-1 drugs by the end of 2022, that number will grow, according to analysis by Trilliant Health. Bank of America estimates that 48 million Americans will use GLP-1 drugs by 2030.
How does GLP-1 medicine develop from here?
Eli Lilly’s GLP-1 drug Mounjaro has been approved for Type 2 diabetes but is still awaiting FDA approval for an expanded obesity indication, which is widely expected. The ability to further expand the indications of these drugs to treat kidney disease, heart disease, sleep apnea, and even addictive behaviors would help expand the target patient population of these drugs.
Novo Nordisk and Eli Lilly are also developing new pill formulations, which could appeal to patients who are wary of current injectable formulations.
But insurers may provide the biggest catalyst for rapid adoption of these drugs. Currently, drug prices can cost up to $1,000 per month without insurance. While coverage is broader for people with diabetes, many insurance companies are reluctant to cover weight loss medications.
As drugs continue to show more health benefits beyond weight loss, health insurance companies may be inclined to begin offering expanded coverage for these drugs, helping to significantly reduce costs. patient fees.
“Clinical trials show the drug reduces the risk of heart attack and stroke,” Goldman Sachs said in August. “By fighting obesity, these drugs appear to be fighting heart disease, the leading cause of death. This puts the onus on insurers to rethink their approach.”
Ultimately, JPMorgan expects GLP-1 drugs to become one of the best-selling drug classes of all time, with annual sales of $100 billion by 2030.
If those sales estimates are accurate, far-reaching short- and long-term impacts will be felt in the stock market and the economy.
That raises perhaps the biggest question about the Ozempic effect: What would happen to an economy largely driven by consumption, if a large segment of the population started taking drugs that lower blood sugar levels? consume?
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