Listening to third-quarter corporate earnings calls may give the impression that people are using diet pills.
Analysts questioned a number of companies, including Philip Morris International, Darden Restaurants, PepsiCo, and Delta Air Lines, about how the drugs are impacting their financial results. Most executives are ignoring the effects, arguing that it’s too soon to measure any significant changes. Certain companies, such as Nestle, Conagra, and Hershey, are promising investors they will adjust as needed.
The medications are still in their early stages, despite the broad assertions of certain analysts regarding how obesity medications will change the sectors they cover. It’s still unclear how many people will genuinely take them, how long they’ll last, and how they’ll affect restaurants, food producers, and other businesses in the long run.
Initially authorized for the treatment of diabetes, GLP-1s are currently being used to treat obesity. Due to Novo Nordisk’s inability to produce enough of its medication Wegovy to meet demand, demand has increased.
But even so, according to Goldman Sachs analyst Chris Shibutani, only a small percentage of eligible individuals are currently using the medications.
By the end of the decade, according to Shibutani, that number might increase to 13% of the approximately 100 million obese Americans, translating into about $100 billion in sales. Several factors, one of which is particularly significant, could determine whether the final total is higher or lower: the length of time individuals use the drugs.
According to Shibutani, the size of the market and potential material changes in other industries that could be impacted, like the food and beverage sector, consumption, or even the competition for luxury goods and discretionary spending, are all heavily influenced by this question.
Wegovy is quite expensive—roughly $1,400 for a month’s supply, plus varying insurance coverage—for many potential users. Some people may become disinterested in Wegovy and similar medications due to their unpleasant side effects, which include vomiting and diarrhea.
Based on information from RBC Capital Markets, only approximately one-third of individuals who begin taking the medications continue to do so after a year. This implies that the drugs’ effects on other industries may not be as extensive as some have speculated, according to RBC analyst Brian Abrahams.
People will sometimes enter the room thinking that there are these miraculous drugs, and what if 50 million or 100 million people take them and everyone loses 25 percent of their body weight? What does that signify for each of these industries? Abrahams stated, “The truth is that pharmaceutical products have restrictions related to reimbursement and compliance, and these realities frequently don’t line up perfectly.
Meanwhile, the narrative is only getting started. Wegovy was only authorized two years prior.
In addition to the several weight-loss medications now under development, Eli Lilly’s tirzepatide is anticipated to receive approval before the year is out.
Shibutani stated, “Let’s see how these drugs actually play out as manufacturing moves forward, next-generation mechanisms emerge, and payers make decisions.” Practically speaking, I believe this theme will stick around for a while.
