The growing popularity of weight loss drugs led to a chorus of debate over their potential impact last fall, worsening the outlook for medical device and food and beverage stocks.
But in 2024, the dark clouds are disappearing. The $100 billion industry is still poised for growth, not at the expense of other industries.
Analysts at JPMorgan, which covers medical devices, said there were no expected speakers at January's JPM Healthcare conference in San Francisco.
“Thankfully, we did not hear any mention of GLP-1. The bubble of fear and panic appears to have all but burst,” the analysts wrote in a note.
GLP-1 products such as Novo Nordisk's (NVO) obesity treatment Wegoby and diabetes treatment Ozempic, and Eli Lilly's (LLY) weight loss drug Zepbound and diabetes treatment Munjaro have been in the market since 2005. It belongs to a class of drugs that exist. Although it slows down digestion and produces more insulin, newer formulations have shown record weight loss, which has increased their popularity.
The final quarter of 2023 has been unexpectedly volatile for medical device, food, beverage, and restaurant stocks, with stock prices falling as enthusiasm grows over the potential long-term effects of these obesity and diabetes drugs. did.
The spark came in October when a lengthy report from Bank of America analysts outlined the possibility of a decline in sales. For snack, restaurant, tobacco, gaming, apparel and food retail companies as consumers curb their cravings.
But shares of restaurant chains like McDonald's (MCD), Restaurant Brands International (QSR), Yum Brands (YUM), Wendy's (WEN), and Chipotle (CMG) have since recovered from those losses.
GLP-1 remains popular, and both Novo and Lilly expect demand to continue into 2024.
However, Yahoo Finance found a lack of discussion about the effectiveness of GLP-1 at two recent conferences.
Medical equipment
Increased weight loss could mean fewer bariatric surgeries, and drugs that boost insulin production could eliminate the need for blood sugar monitoring devices, potentially hurting the medical device industry.
However, as people have become more interested in understanding their health status, the opposite has become true. Continuous glucose monitoring (CGM) device manufacturers such as Dexcom (DXCM) and Abbott (ABT) are reporting a surge in interest in their devices as a direct result of GLP-1 use.
Abbott said on Wednesday's earnings call that medical device sales were strong in the final quarter of 2023, and CEO Robert Ford recently told Yahoo Finance that he expects that trend to continue.
According to the company's data, “those using GLP-1 actually used Libre more frequently than those not using GLP-1,” Ford said.
Freestyle Libre is Abbott's flagship CGM, with sales reaching $5.4 billion in 2023, a 24% year-over-year growth. Abbott reported that his total sales for the year were $40.1 billion.
And despite the success of GLP-1, some pharmaceutical companies are not following this trend.
Sanofi (SNY) exited the space more than a decade ago as other big drug companies did, but it doesn't think it can catch up to the current duopoly.
Sanofi CEO Paul Hudson told reporters at the JPM conference that “even if there was a lot of interest in the research, we would not be willing to pay attention to these research efforts that have been going on for six or seven years. “We can't just cancel it and try to make a comeback.”
JPM analysts shared similar sentiments. The companies said in a note that Lilly and Novo have “first-mover advantage” and expect the market to “remain a near duopoly for the next five to seven years.”
food and beverages
Meanwhile, at the ICR conference in Orlando, which primarily attracts midsize to large consumer companies, the once-required questions on investor calls were rarely asked, if any at all.
Executives at Domino's Pizza and Papa John's, whose stock prices tumbled in the fall as doomsday prophecies unnerved investors, did not speak.
However, in December, McDonald's CEO Chris Kempczinski told Yahoo Finance that “Currently, we are not seeing any impact from GLP-1 and GLP-2, and we are not sure what the impact will be in the future.'' No one knows if it will come out.”
The Big Mac maker posted an 8.1% increase in same-store sales in its third quarter and plans record restaurant expansion.
TD Cowen analyst Andrew Charles attributes the quick-service and casual chain's valuation recovery from six-month lows to “cooling GLP-1.” The sector is also benefiting from “lower interest rates” and “increasing investor optimism for consumer spending in 2024.” [estimates]. ”
UBS analyst Dennis Geiger said restaurant demand was “strong” in December, from fast food to casual dining.
“While we believe relative restaurant spending may see some moderation in 2024, we expect underlying restaurant demand and share of wallet to remain broadly resilient in the coming months,” he said in a note to clients. I'm predicting that.” Restaurant spending in December increased 12.5% from the same month last year, up from 12.4% in November.
Several factors averted a truly doomed and depressing scenario. Some patients stop taking the drug within a year due to side effects such as nausea and dizziness. Because off-label use is not covered by insurance, patients who take it for weight loss often pay about $1,000 out of pocket for a month's supply.
“Access to these medicines is very difficult, especially for consumers at the lower end of the spectrum,” said former Wingstop CEO and now head of startup Salad & Go. Charlie Morrison told Yahoo Finance. As the industry has become more health conscious over the years, this presents an opportunity for chains to offer consumers affordable fresh food.
—
Anjalee Khemlani is a senior health reporter at Yahoo Finance, covering all areas of pharma, insurance, care services, digital health, PBM, and health policy and politics.Follow Anjali on all her social media platforms @AjKhem.
Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter @brooke di palma Or email bdipalma@yahoofinance.com.
Click here for a detailed analysis of the latest healthcare industry news and events impacting stock prices.
