A photo of shirtless Elon Musk, the world’s richest man, vacationing on a luxury yacht off the Greek island of Mykonos lit up the Internet last year. The CEO of EV pioneer Tesla and rocket firm SpaceX looked grossly overweight. Months later, a much fitter and ripped Musk was photographed entering the San Francisco office of Twitter, the social media site since renamed X, that he bought for US$44 billion.
Credit for the extreme makeover goes to the “miracle” drug semaglutide, or more specifically, the Wegovy and Ozempic brands made by the Danish pharmaceutical firm Novo Nordisk, the world’s 14th largest listed firm. Though semaglutide has long been used to control blood sugar for Type 2 diabetes, it can also help obese people shed a fifth of their body weight in a few months.
While Musk’s weight loss had gone unnoticed, billionaire socialite TV star Kim Kardashian’s appearance in a dress once worn by 1960s-era actress Marilyn Monroe changed the conversation around semaglutide. If Kardashian could lose 16% of her weight in just a few weeks without much exercise, the drug was truly miraculous. Since then, reports Hollywood’s weekly chronicle Variety, A-list stars have been using Ozempic or Wegovy jabs to stay as skinny as possible.
Essentially, semaglutide, or Glucagon-like peptide-1 (GLP-1s), increases the amount of insulin secreted by the pancreas, which in turn lowers blood sugar by mimicking a hormone that is naturally secreted when food is consumed. That also tends to slow down digestion, so a patient can feel fuller sooner and for much longer. So full that they can easily forget to eat lunch or dinner. By helping to regulate appetite, weight-loss drugs reduce hunger and cravings and in some patients create an aversion to foods with higher sugar and fat content.
The once-weekly medication is injected into your upper arm, thigh, or stomach. Ozempic costs US$900 (about $1,230) for a four-week supply. Users can lose between 15% and 24% of their total weight over six to 12 months. A full six-month course costs US$5,400. Patients on higher dosage of Ozempic lost their appetite so Novo Nordisk formulated a higher dose specifically for weight-loss called Wegovy. In the US, with health insurance coverage you can get Ozempic for as little as US$25 for a month’s supply, or US$150 for a six-month course. Wegovy costs US$1,620 for a six-month course. Even though Wegovy is a better weight-loss drug, many insurers do not cover obesity as part of their plans, so they recommend patients take the more expensive Ozempic.
Over time, as new drugs like Wegovy go into mass production, prices will drop sharply. Even if you don’t have full health insurance and live in Southeast Asia, in a few years you might pay no more than a few hundred US dollars for a full course. An oral drug, Rybelsus, or pills you can pop, is awaiting approval from the US Food & Drug Administration (FDA). Next up: better drug labelling which allows for wider insurance coverage.
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You can’t just walk into a doctor’s office and tell him you want to get 24% skinnier and get your first jab. Right now, the shortage of the weight-loss drug is almost as bad as the scarcity of Nvidia’s top-of-the line H100 artificial intelligence chips. Diabetes patients get priority over those who just want to lose weight. Yet as production ramps up, supply will likely catch up with demand.
Weight-loss drugs threaten to suppress demand at a time when global interest rates and bond yields are the highest they have been in two decades and the world’s larger economies are on the verge of a recession. Though there is a tailwind of disruptive innovation in areas like generative AI, there is concern that drugs like Ozempic could be a drag on growth, at least in the short term just when a slowing world needs new growth drivers. A slimmer world consuming less, however, won’t be all bad for the global economy. Indeed, weight loss drugs might help dramatically reduce food inflation.
The biggest losers
The World Health Organization estimates 40% of adults around the globe are overweight and about 20% are considered obese. In the US, 68% of adults are overweight, about 42% are obese and about 11% severely obese. Here’s why that matters: Body weight can shorten your life span and lead to chronic conditions such as Type 2 diabetes, high blood pressure, high cholesterol, heart disease, strokes and kidney disease. It can affect breathing and even mood. Milken Institute estimates that the total economic cost of obesity in the US exceeds US$1.7 trillion a year.
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Overweight people consume more food — addictive salty snacks like Cheetos, Fritos, Doritos; sugary snacks like Hershey Co’s Kisses milk chocolate and Modelez’s Oreo cookies; sugary soda like Pepsi and Coca Cola — and tend to be heavier drinkers of beer, wine and spirits than people who are not. America spends US$4.3 trillion on healthcare every year or US$13,000 per person. Spending on healthcare now accounts for over 18% of total US GDP.
Not surprising, then, that the growing popularity of weight-loss drugs threatens the business models of health insurers, hospitals and pharmaceutical firms, and indeed upends the entire food and drinks ecosystem and a whole range of businesses around the world. If weight-loss drugs catch on, overweight people will become less hungry and therefore consume less junk food, snacks and drinks, that in turn will impact fast food chains like McDonalds or soft drink makers like PepsiCo.
John Furner, US CEO of Walmart, the world’s largest retailer, was recently quoted as saying that data his firm collected from its pharmacy and grocery units showed customers taking Ozempic buy less food. They are buying fewer items and moving away from the centre of the store where junk food is displayed to the periphery where other stuff is stocked. “We definitely do see a slight change compared to the total population, we do see a slight pullback,” Furner noted. “Just less units, slightly less calories.” Still, he insisted that it’s early days and the retailer would need to mine data over months before it could make a definitive conclusion.
Wall Street is starting to price in what has been dubbed as the “Ozempic impact”. The market has hammered stocks of firms that could take a hit with the rise and rise of GLP-1 drugs. To see the first round of the carnage, look no further than PepsiCo, which owns Frito-Lay, one of America’s largest snack food businesses. PepsiCo’s stock is down 20% since mid-May. Jigar Patel, a strategist for Barclays Capital in New York, put out a 25-page report last week recommending that investors buy credit default swaps — or insuring bonds against losses — on PepsiCo and McDonalds, or, in other words, short their credit.
Fast food chain operators and snack food producers will be some of the most at-risk firms, notes a recent Jefferies & Co report on impact of GLP-1 drugs. Each patient in the US who takes weight-loss drugs registers on average a 24% reduction in their calorie intake per day. That’s an equivalent of over 36 million Big Mac burgers a year in the US alone. McDonalds sells 550 million Big Macs in the US every year through its franchisees and its own stores. Prices of Big Macs in the US vary from around US$3.99 in some southern states to US$5.31 in Hawaii. McDonalds stock is down 17% since early July.
Semaglutide is weighing across the entire defensive consumer staples safe haven. Packaged food stocks have declined 17% so far this year compared to a 15% rise in the benchmark S&P 500 Index. Take Kellanova, formerly Kellogg, the cereal food giant. Kellogg spun off its cereal business two weeks ago to focus on the snack foods business, a faster-growing segment. The restructuring couldn’t have been more ill-advised or ill-timed. Kellanova stock is down 14% since the spinoff, instead of soaring, as the jettisoning of the low-growth cereal unit was expected to do. Rival cereal and snacks maker General Mills has seen its stock hammered 32% over the past five months.
Weight-loss drugs also dampens addiction to alcohol and cigarettes, which could weaken demand for stocks like Altria, which owns brands like Marlboro, and Constellation Brands, the owner of Corona Beer and a range of wines and spirits. One recent study showed that patients taking weight-loss drugs were able to reduce their alcohol intake by a whopping 60% in the first few weeks. Little wonder, then, that Constellation Brands stock is down 16% over the last three months, Australia-based Treasury Wine Estates stock is down 20% in recent months while shares of Chivas Regal and Absolut Vodka maker Pernod Ricard are down 28% from their recent peak.
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There is also the whole healthcare industrial complex which thrives on overweight people with diabetes, high blood pressure, cholesterol, heart disease. Hospitals, doctors, health insurers, pharmaceutical firms love overweight people because they see them as profit centres that just keep on giving. Ozempic and its ilk could upend the business models of integrated healthcare firms like UnitedHealth Group, health insurers like Elevance Health, hospital operator Tenet Healthcare, drug-eluting stent maker Boston Scientific and pharma firms like Pfizer. Boston Scientific stock is down 11% over the past six weeks, kidney dialysis services provider DaVita is down 36% since August while its rival Fresenius Medical Care is down 35%. Analysts have grilled managements of food, drinks and healthcare-related firms during earnings calls in recent weeks about the impact of weight-loss drugs on their business models and future earnings.
The extent of the impact on the food, snacks and beverage industry will likely depend on how many people will actually take Wegovy, Ozempic as well as Eli Lilly’s Mounjaro, which is still awaiting FDA approval. Demand for Ozempic has more than tripled over the past 21 months and demand for Wegovy has is up seven-fold since November.
Still, it could be years before overweight people start popping semaglutide pills the way they take over-the-counter pain relievers like Tylenol or Aspirin. About 11.3% of Americans are diabetic and 38% are pre-diabetic, according to Barclays Capital. Analysts estimate semaglutide could potentially be a “US$100 billion global market, with uptake rapidly rising through the end of the decade”.
Big gains from weight loss
The rise and rise of weight-loss drugs could create as many winners as losers. Malls could be big beneficiaries of wardrobe refresh sessions by the previously overweight. Jefferies cites athleisure firms like Nike and Lululemon Athletica as winners. The increased focus on wellbeing could also mean more sales of fitness-related devices and the chips that go into them.
For airlines, lighter load factors could lead to better fuel efficiency. Too many overweight passengers on US airlines means planes need to carry more fuel. Jefferies airline analyst Sheila Kahyaoglu believes if the average passenger’s weight drops by 10 lb (4.5kg) as GLP-1s catch on, United Airlines will have a weight savings of 1,790 lbs per flight, which means saving US$80 million on fuel every year. Lower passenger weight will likely enable airlines to handle greater freight loads too.
Investors were well rewarded for being overweight in fast food and junk food stocks over the last two decades. McDonalds shares were up 19-fold over the past 20 years while PepsiCo was up four-fold, before they began their recent decline. As GLP-1 drugs go mainstream, investors are poised to benefit from the stocks of firms that are helping overweight consumers lose weight, indeed live healthier and more fulfilling lives.
Assif Shameen is a tech and business writer who is based in North America
