Late last week, a new concern arose among Wall Street investors: the potential impact of weight loss drugs from Eli Lilly and Novo Nordisk on the sugary snacks market in the U.S. This led to a surge in trading activity, causing shares of the Coca-Cola Company to experience their largest decline since 2020, with a drop of 4.8% on Thursday.
The reason behind this sell-off was quite clear. Drugs like Novo's Wegovy and Ozempic, as well as Lilly's Mounjaro, are designed to suppress food cravings and promote weight loss. If the U.S. becomes a nation relying heavily on these drugs, it raises the question of who will consume all the beloved snacks like Chips Ahoy.
However, investors who are betting on the demise of processed foods may be overlooking the significant uncertainties that exist between the current landscape of obesity drugs and a hypothetical future where nearly a quarter of American adults are taking these medications, resulting in decreased demand for products from snack food giants like Coca-Cola.
In a recent note, analysts from Bank of America presented their case, projecting a potential decrease in "total calorie consumption" in the U.S. by 1% to 3% by 2030 if between 20 million and 50 million Americans are on anti-obesity drugs at that time.
These estimates, along with others like them, fail to consider the substantial financial challenges associated with achieving such widespread use of these medicines. Additionally, they do not account for the logistical issues that would arise from providing expensive medications like Wegovy to millions of people each year. Even with potential rebates from drug manufacturers to pharmacy-benefit managers, this level of expenditure far exceeds anything the U.S. healthcare system has encountered.
In summary, while the introduction of weight loss drugs may have initially sparked concerns about the future of the snack food market, it is crucial to recognize the complexities involved in achieving widespread adoption of these medications. The financial and logistical hurdles, along with the constraints of the healthcare system, are significant barriers that need to be considered when assessing the potential impact on the industry.
The Future of Anti-Obesity Medicines: Will They Revolutionize the Market?
According to analysts at the Bank of America, the uptake of anti-obesity medicines is predicted to skyrocket in the coming years. In fact, their estimates are even more optimistic than those of J.P. Morgan's Chris Schott, who foresees 15 million patients utilizing these medications by 2030. This surge in demand could potentially lead to a staggering $50 billion in spending on these drugs, accounting for approximately one-tenth of the total $421 billion spent on retail drugs in 2021, as reported by the government.
However, despite these impressive projections, it remains dubious whether insurers and government agencies can afford such a monumental cost. The sheer scale of this expenditure makes it difficult to envision a scenario in which they would be willing or able to foot the bill.
There is a glimmer of hope, though. Lower prices for anti-obesity medicines and the introduction of more affordable alternatives might eventually sway insurers' interests. Yet, for the foreseeable future, strict coverage limits will inevitably restrict access only to a narrow subset of the roughly 40% of U.S. adults suffering from obesity.
Moreover, these optimistic projections are contingent upon the medical community and regulators continuing to deem these drugs safe for consumption. In a recent research letter published in the Journal of the American Medical Association, researchers highlighted potential risks associated with two popular Novo GLP-1 drugs, Wegovy and Saxenda, including pancreatitis, gastroparesis, and bowel obstruction. This revelation raises concerns about the long-term viability and safety profile of these medications compared to other weight loss alternatives like Contrave.
Given these considerations, it is challenging to lend credence to the prevailing pessimism among investors regarding the future of sugary snacks. Even executives in the snack industry share a similar sentiment. During an investor call on Tuesday morning, PepsiCo CEO Ramon Laguarta dismissed the impact of GLP-1 drugs as negligible, reinforcing the notion that sugary snacks remain a formidable contender in the market.
It is only natural for investors who missed out on Eli Lilly's extraordinary 300% surge in value since 2020 to seek alternative investment opportunities within the weight loss drug sector. However, betting against sugary snacks does not seem to be the wisest strategy.