Novo Nordisk Sets New Record High: Analyzing the Market Effects of Popular GLP-1 Weight Loss Drugs
The increasing demand for GLP-1 weight-loss medications indicates that in the next ten years, a significant number of Americans may lose hundreds of millions of pounds collectively. This shift in weight could cause a redistribution of trillions of dollars.
Last week, $Novo-Nordisk A/S (NVO.US)$ presented evidence of a speeding trend when it announced that the primary component of Ozempic and Wegovy, semaglutide, might aid individuals with kidney failure based on the results of a drug trial.
Shares of $DaVita (DVA.US)$ and $Fresenius Medical Care (FMS.US)$, the world's biggest kidney dialysis providers, both plunged double digits. Meanwhile, Novo Nordisk and $Eli Lilly and Co (LLY.US)$, which makes a similar medication, both jumped.
As investors focused on the healthcare sector to weigh which companies would be hit the hardest, shares of CPAP manufacturers have plunged more than 40% in just a few short months. Losing weight can help reduce sleep apnea patients' dependency on CPAP machines while asleep.
If there's no longer as many intensive type two [diabetes] patients who need to take insulin, if you don't need to take insulin, then you don't need an insulin pump to put insulin into the body. So that's why you've seen companies like Tandem Diabetes Care and Insulet hit the hardest here because there's that direct link towards if there aren't going to be as many patients taking insulin, then you don't need a pump to put insulin into the body," Baird analyst Jeff Johnson told Insider last month.
Potential Impact on Consumer Stocks
The increased use of these drugs could influence consumer behavior towards apparel retail, casino/gaming names, and airlines. BofA Securities noted that while the full downstream effects of these drugs remain unclear, some industries may benefit while others face higher risks.
• There is potential for weight loss drugs to spur a wardrobe replacement cycle in the apparel retail industry.
Weight loss could aid demand for the offerings from traditional retailers... and less demand for plus size retailers like $Torrid (CURV.US)$," she wrote. "We also expect athletic apparel brands like $Lululemon Athletica (LULU.US)$ and $Deckers Outdoor (DECK.US)$ to benefit given the healthier lifestyles shown to be supported by GLP-1 drugs.
• If weight loss drugs are prescribed to even more people, this could potentially lead to a decline in problem gambling, negatively impacting the industry.
This implies the usage of GLP-1 could create a 0-4% revenue headwind for US commercial gaming with higher risk for slot machines or regional gaming," noted BofA analyst Shaun Kelley. He added that as a result, he is keeping an eye on $Boyd Gaming (BYD.US)$, $Caesars Entertainment (CZR.US)$, $MGM Resorts International (MGM.US)$, $Penn Entertainment (PENN.US)$, and $Red Rock Resorts (RRR.US)$.
• One industry that could benefit from weight loss drugs are airlines.
Slimmer passengers mean less overall weight on board, and that could impact the bottom line in terms of less fuel burned. Fuel accounts for ~25% of an airline's overall expenses.
In late September, Jefferies put out a note stating that $United Airlines (UAL.US)$ could save $80M annually assuming the average passenger sheds 10 pounds. This is based on the assumption that each United (UAL) flight would be ~1.8K pounds less and save 27.6M gallons of fuel per year, according to analyst Sheila Kahyaoglu.
Who Else Stands to Benefit
We continue to argue the GLP-1 story is one of market growth, rather than market share, that will be dominated by Novo and Eli Lilly through the next two decades," wrote Citi's Verdult. "This reflects an entrenched commercial/rebate position, superior product profiles, compelling outcomes data, strongest pipelines … and volume requirements providing significant barriers to entry," he said.
• A promising oral GLP-1 medication is in the works.
$Bank of America (BAC.US)$ expects the market to remain a "duopoly" through 2026. But other companies — including smaller players — are expected to enter the weight loss treatment industry in the future, including $Viking Therapeutics (VKTX.US)$, $Altimmune (ALT.US)$ and $Structure Therapeutics (GPCR.US)$.
Looking at injectable GLP-1 sales in 2022, Wegovy did $885M and Mounjaro did $483M, yet obesity is largely untapped at only ~2% penetration," wrote analyst Yasmeen Rahimi as she initiated coverage on Structure with an overweight rating in July. "Thus, we believe an oral agent for use in primary care settings is needed to unlock the major opportunity," she added.
• Companies that fill injectable pens administered to patients could win.
GLP-1 could prove a major boon for companies such as $Catalent (CTLT.US)$ and $Thermo Fisher Scientific (TMO.US)$, both of which have reportedly tapped manufacturing agreements with Novo Nordisk, according to Reuters.
Catalent shares have only risen about 3% year to date, while Thermo Fisher's slumped a little more than 10%. But Wall Street expects more upside ahead, with the average price target implying that shares can gain more than 9% and 25%, respectively.
JPMorgan predicts that GLP-1 drugs will become one of the top-selling drug classes in history, generating $100 billion annually by 2030. If these sales forecasts are correct, this could have significant short- and long-term effects on the stock market and the economy as a whole.
Source: CNBC, Market Insider, Seeking Alpha
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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