Weight-Loss Drugs and Their Impact on Consumer Giants
If you tune in to third-quarter corporate earnings calls, it may seem like weight-loss drugs are the talk of the town. Companies like Delta Air Lines, PepsiCo, Philip Morris International, and Darden Restaurants have faced inquiries from analysts about how these drugs are affecting their financial performance. However, executives are largely downplaying the effects, stating that it is too early to accurately quantify any significant changes. Some companies, such as Hershey, Conagra, and Nestle, are assuring investors that they will adapt if necessary.
The Early Days of Obesity Drugs
While analysts make sweeping claims about how obesity drugs will reshape the industries they cover, it is important to note that these medications are still in their early stages. The actual number of people who will take these drugs and the duration of usage, as well as the long-term effects on food producers, restaurants, and other industries, remain uncertain. These drugs, known as GLP-1s, were initially approved for diabetes treatment and are now being used for obesity. Demand has surged, with Novo Nordisk struggling to keep up with the production of its drug Wegovy.
Limited Adoption and Market Impact
Currently, only a small fraction of eligible individuals are taking these drugs, according to Goldman Sachs analyst Chris Shibutani. However, Shibutani estimates that this number could rise to 13% of the approximately 100 million Americans with obesity by the end of the decade, resulting in around $100 billion in sales. The actual figure could vary depending on several factors, including the duration of drug usage. The potential impact on industries such as food and beverages, consumption patterns, and competition for discretionary spending and luxury goods is a significant consideration.
Challenges and Limitations
The high cost of these drugs, with a month's supply of Wegovy priced at around $1,400 and varying insurance coverage, poses a significant financial burden for many potential users. Additionally, Wegovy and similar drugs can cause unpleasant side effects like vomiting and diarrhea, which may deter some individuals. Data from RBC Capital Markets indicates that only about one-third of people who start these drugs continue taking them after one year. This suggests that the effects on other industries may not be as far-reaching as anticipated.
The Unfolding Story and Future Developments
The narrative surrounding weight-loss drugs is still in its early stages. Wegovy, for example, was approved just two years ago, and numerous other weight-loss drugs are currently in development. Eli Lilly's tirzepatide is expected to receive approval by the end of this year. It remains to be seen how these drugs will fare as manufacturing progresses, next-generation mechanisms emerge, and payers make decisions. This theme is likely to persist for a considerable period, shaping the landscape of the pharmaceutical and related industries.
Note: CNBC's Patrick Manning contributed to this report.
Impact of Weight-Loss Drugs on New Business Formation
The rise of weight-loss drugs, as evidenced by recent corporate earnings calls, presents an intriguing scenario for new business formation. Companies like Delta Air Lines, PepsiCo, Philip Morris International, and Darden Restaurants, among others, are beginning to feel the ripple effects of these drugs on their financial performance.
Adapting to the New Landscape
While it's still early days for obesity drugs, their emergence could significantly reshape various industries. New businesses, particularly in sectors like food production, restaurants, and even luxury goods, need to consider the potential impact of these drugs on consumer behavior and market dynamics. The assurance from companies like Hershey, Conagra, and Nestle that they will adapt if necessary, suggests a level of flexibility that new businesses should emulate.
Market Opportunities and Challenges
The limited adoption of these drugs, as noted by Goldman Sachs analyst Chris Shibutani, could present market opportunities for new businesses. However, the high cost and unpleasant side effects of these drugs pose significant challenges. New businesses need to consider these factors when developing their strategies.
Future Developments and Their Implications
The unfolding narrative surrounding weight-loss drugs is expected to shape the business landscape for the foreseeable future. With drugs like Eli Lilly's tirzepatide expected to receive approval soon, new businesses should closely monitor these developments. How these drugs fare as manufacturing progresses, next-generation mechanisms emerge, and payers make decisions could significantly impact new business formation and growth strategies.
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