Move over AI, there’s a new talking point in town.
Mentions of weight loss drugs like Ozempic, Wegovy and Mounjaro are soaring, with Bloomberg data showing references to “GLP-1” in earnings call transcripts this quarter having more than doubled since the same period a year ago.
As with comments on artificial intelligence, which took off earlier this year and helped spark a rally in tech stocks, companies are discussing both the opportunities and threats created by this new class of medicines.
While pharmaceutical firms are still the most likely to talk about glucagon-like peptide 1 (GLP-1) medications, their impact is starting to be discussed more broadly, with beauty companies, medical device makers and wellness firms all mentioning the new drugs in recent months.
For at least one hedge fund manager, GLP-1 has the chance to be transformative in a similar way to AI, potentially affecting everything from clothing retailers to dating sites and fast food outlets. First created to lower blood sugar levels for people with diabetes, the drugs have since been found to suppress appetites and may come with other health benefits including a lower risk of heart attacks and strokes.
If GLP-1 drugs have “a 30% penetration rate in the obese population, the obesity rate in the United States would be lower than it was in 1997. And, you know, that could happen over the course of two or three years,” James van Geelen of Citrinitas Capital says in the latest episode of the Odd Lots podcast. A former paramedic who now invests for the Connecticut-based hedge fund, and also publishes Citrini Research, van Geelen has argued that GLP-1 drugs could come with significant “knock-on effects” for other industries.
Enthusiasm about the drugs’ potential has already sent the share prices of their respective manufacturers — Novo Nordisk and Eli Lilly & Co. — soaring in recent months, while other businesses are grappling with the implications for their own business models.
As van Geelen notes, a range of firms are now talking about the impact of GLP-1 in their recent earnings calls. For instance, Doug McMillon, the CEO of Walmart Inc. said the drugs were expected to change the retail giant’s sales mix after unveiling second-quarter earnings on Thursday. “We still expect food, consumables, and health and wellness primarily due to the popularity of some GLP-1 drugs to grow as a percent total in the back half,” he said on a call with analysts.
Meanwhile, Medifast Inc., which provides weight-loss programs and meal replacements, talked about losing clients to the new diabetes drugs.
“Customer acquisition continues to be pressured by less prospects being identified by coaches, impacted by competition from GLP-1 drugs, inflationary pressures, and social media algorithm changes,” said Jim Maloney, Medifast’s chief financial officer, on a call with analysts.
Companies that manufacture medical equipment, including stomach staplers and CPAP machines to treat sleep apnea, are also contemplating the new competition.
Teleflex Inc., which makes the Titan stomach stapler, suggested that GLP-1 drugs had decreased demand for bariatric surgery.
“We continue to monitor the usage of GLP-1 drugs in treating obesity,” said Liam Kelly, Teleflex’s chairman and chief executive officer. “Based on our market checks, it is our sense that GLP-1s had some impact on bariatric surgery volumes in the second quarter. It remains too early to assess the long-term impact on the market given questions on reimbursement and safety profile.”
ResMed Inc., which makes CPAP machines, largely brushed off the threat from GLP-1 drugs, citing prohibitively high prices that can run to more than $10,000 a year in the US.
ResMed CEO Michael Farrell estimated a $480,000 “lifetime cost” for a 40-year-old patient who takes the new weight-loss drugs full-time, compared to a cost of about $13,500 for CPAP masks over the same time period. “So it’s 35x more expensive to go with the GLP-1. It’s just like what’s the ROI here?” he said.
Still, van Geelen counters that some “70% of sleep apnea is caused by obesity. If you have someone that’s taking it and they take it for, let’s say 16 months, and they go from being obese to having a normal body weight, and then in all likelihood, at least for like 70% of them, the obstructive sleep apnea goes away … You have to adjust kind of the total addressable market for a company like ResMed or for the CPAP industry in general. It is going to shrink.”
The key question now is how broad and fast adoption spreads given the high price of the drugs and concerns about side effects.
About 40 companies, including pharma heavyweights Pfizer Inc. and Amgen Inc., are developing similar weight-loss drugs, which could also eventually bring costs down.
Consumer Chain ReactionOne place where mentions of GLP-1 are still not yet to be found are consumer-facing packaged food and restaurant companies. In theory, drugs that decrease people’s appetite for snacks or fast food could alter the business models of companies in this space. So far though, the effect isn’t showing up in earnings calls. But if prices do come down and more insurers pick up the medicine, then broader ramifications may start to be seen.
“If you’re eating fast food every day, you will probably continue to eat fast food every day. You will just eat a lot less of it,” van Geelen says. “So if you have a company and you look at the data, and basically the way that they make money is by selling a ton of food that they get very cheaply and make up for, you know, kind of lower margins by selling a ton of it, that company probably isn’t going to do too great.”
Even Herbalife Ltd., the nutritional supplement company once targeted by billionaire hedge fund manager Bill Ackman, is talking about the possible impact. “We recognize that GLP-1 drugs do help certain individuals and we are evaluating various paths in how Herbalife and our distributors can benefit from this potential demand, whether it is through a telehealth solution or providing support to adhere to a healthy lifestyle,” said Herbalife CEO Michael Johnson.
Similarly, on the earnings call for Nu Skin Enterprises Inc., a beauty and wellness company, one analyst asked about any impact it was seeing from the prevalence of GLP-1s. CEO Ryan Napierski said it was still “a very big question mark of how that’s going to float out,” adding that the company needs to observe it longer to see any impact on its product lines.
Some businesses are already eyeing potential opportunities created by GLP-1, with WeightWatchers providing GLP-1 to some of its customers. “The way that they need to manage and be able to provide these life-changing medications to their population is by figuring out the best way to recover the cost of the medication. That means helping somebody such that it’s a preventative tool for other chronic conditions,” CEO Sima Sistani said in the most recent earnings call, in reference to insurers providing the drugs.
In the meantime, the high price of GLP-1 meds is starting to impact the bottom lines of companies outside of the drugmakers themselves, even as uncertainty over the side effects of the drugs continues.
When Insperity Inc., which administers employee benefits for companies, unveiled higher-than-expected pharmaceutical costs in its second-quarter earnings, it pointed to GLP-1 drugs as the culprit: “As for the higher pharmacy costs, we experienced an increase in utilization of specialty drugs, including a significant step-up in the use of diabetes and weight loss drugs and behavioral health drugs,” it said.
Novo is estimated to bring in $16 billion this year from Ozempic and Wegovy alone, and insurers are debating whether to provide coverage for more of the pricy pharmaceuticals.
“When you look at it for Insperity, it’s probably bad right now because, you know, as long as these companies have a duopoly on these drugs, the cost will probably be high. But that can only last for so long,” van Geelen says. “Eventually there will be competition, eventually the cost will go down. Eventually it’ll be like Viagra where it goes from, you know, $88 a pill to whatever, $2 a pill.”