- The rapid rise of GLP-1 weight loss drugs will cause major shocks to the stock market.
- The long-term effects of these drugs will impact sectors of all stock markets and the economy.
- These are the areas to keep an eye on as drugs like Ozempic, Wegovy and Mounjaro become increasingly popular.
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With the increasing popularity of GLP-1 weight-loss drugs, millions of Americans are poised to collectively lose hundreds of millions of pounds over the next decade—and shift trillions of dollars in the process.
In other words: the stock market is coming under pressure.
That accelerating trend was evident last week when Novo Nordisk said a drug trial found 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 providers of kidney dialysis, both fell double digits. Meanwhile Novo Nordisk and Eli Lilly, This makes a similar drug, both jumped.
This is just the latest in a series of examples of how the far-reaching health impacts of these blockbuster GLP-1 drugs will redefine the entire market. Some of the ways these medical developments will change the landscape are straightforward: For one thing, people will eat less and therefore need less treatment for obesity-related symptoms.
However, other effects are less obvious.
Stock market leadership
As the companies that make weight-loss drugs gain traction, they are already signaling new leadership on the stock market.
Novo Nordisk, which makes the weight-loss drug Wegovy and the type 2 diabetes drug Ozempic, is now Europe’s largest company, valued at $433 billion, and its rapid growth has even had a direct impact on its home country’s currency and interest rates.
Eli Lilly, maker of the GLP-1 drug Mounjaro and a variety of other drugs, is now the ninth-largest company in the S&P 500 with a market value of $568 billion.
According to Punit Mehta, senior managing director of Guggenheim Partners, the drug craze could also lead to greater consolidation in the industry, particularly affecting biotech and pharmaceutical companies.
“I think it will ultimately be more incentive [M&A] Activity,” he told CNBC on Tuesday. “I think the market is literally forming as we speak.”
And that’s just a hint of what it’s all about. According to the latest estimate, US healthcare spending totaled $4.4 trillion in 2022.
Ozempic effect expands
Unsurprisingly, investors initially focused on the healthcare sector as they weighed which companies would be hardest hit, as there are numerous drugs and devices to treat chronic conditions related to obesity and diabetes.
For example, shares of CPAP makers have plunged more than 40% in just a few months because weight loss can help reduce sleep apnea patients’ reliance on CPAP machines while they sleep. Companies that make insulin delivery systems and diabetes monitoring devices have also faced criticism as early data suggests GLP-1 drugs can put diabetes into remission in type 2 diabetes patients.
“When there are no longer so many intensive type two [diabetes] Patients who need to take insulin: If you don’t need insulin, you don’t need an insulin pump to pump insulin into the body. That’s why companies like Tandem Diabetes Care and Insulet have hit the hardest here, because there’s a direct connection: If there aren’t as many patients taking insulin, you don’t need a pump to inject insulin into the corpse,” said Baird analyst Jeff Johnson told Insider last month.
And data from drug trials showing that GLP-1 drugs reduce the risk of heart attacks have weighed on makers of heart valve devices that target various forms of heart disease.
More recently, the Ozempic effect has spread to food companies. GLP-1 drugs help patients lose weight by creating a feeling of satiety more quickly.
“When you take GLP-1, you eat significantly less and feel full. So you lose weight,” Johnson said.
A Morgan Stanley survey of 300 patients taking the drugs found that daily calorie consumption fell by 20 to 30%. And recent comments from Walmart suggest that customers taking the drugs are already buying fewer groceries.
These comments sent grocery retailers like Costco and Walmart sinking, as well as junk food companies like Coca-Cola, PepsiCo and McDonald’s.
The economy is also on the verge of collapse
It’s clear that the rise of GLP-1 drugs will have a lot of knock-on effects on the stock market and the economy, and investors are rushing to understand them.
Productivity could increase, there could be massive cost savings in healthcare, and even aircraft operators could become more efficient with fuel savings for lighter weight customers.
Goldman Sachs estimates that obesity will reduce global GDP by $4 trillion in 2035, but that could change if enough people start taking these drugs.
According to an analysis by Trilliant Health, 9 million Americans will be taking a GLP-1 drug by the end of 2022, and that number is expected to continue to rise. Bank of America estimates that 48 million Americans will have taken GLP-1 drugs by 2030.
How GLP-1 drugs grow from here
Eli Lilly’s GLP-1 drug Mounjaro is approved for type 2 diabetes but is still awaiting FDA approval for an expanded anti-obesity indication, which is widely expected. The potential for further indication expansion of these medications to treat kidney disease, heart disease, sleep apnea, and even addictive behavior will help expand the target population of these medications.
Novo Nordisk and Eli Lilly are also developing new pill forms of the drugs that could appeal to patients intimidated by current injectable versions.
But insurers could be the biggest catalyst for rapid adoption of these drugs. Currently, without insurance, the medications can cost over $1,000 per month. While insurance coverage is more comprehensive for people with diabetes, many insurers are reluctant to cover weight loss medications.
Because the drug continues to have other health benefits beyond weight loss, health insurance companies may be more inclined to offer expanded coverage for these drugs, significantly reducing costs for patients.
“Clinical studies show the drugs reduce the risk of heart attack and stroke,” Goldman Sachs said in August. “By combating obesity, these drugs appear to combat heart disease, which is the leading cause of death. This puts an 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 by 2030, with annual sales of $100 billion.
If these revenue estimates are correct, there are likely to be far-reaching short- and long-term impacts across the entire stock market and economy.
This raises perhaps the biggest question about the Ozempic effect: What happens to an economy driven primarily by consumption when a significant portion of the population starts taking a drug that reduces consumption?