2023-10-14 06:39:55
The success of Ozempic, a drug to treat diabetes but diverted for weight loss purposes, has caused victims on the stock market since the beginning of October. Famous snacking and fast food brands have become the target of investors who are already anticipating a disruption in consumer habits.
In almost ten days, the stock of Mondelez – owner of the Oreo, Toblerone and Côte d’Or brands – has lost more than 10% on the stock market. The American giant is not the only one experiencing a bad time. PepsiCo, Coca Cola and Kellanova – which owns the Pringles brands and a whole range of sweet breakfast cereals – followed the same example, falling by more than 6% on the stock market.
For all these snacking or soft drink brands, there was a before and following October 4, 2023. On that day, John Furner, the boss of the American supermarket chain Walmart, granted an interview to the economic channel Bloomberg during which he explains that his customers using new antidiabetic drugs with appetite suppressant effects – especially Ozempic from the Danish pharmaceutical company Novo Nordisk – were buying “a little less food” and especially products with fewer calories.
L’oracle Walmart
How can Walmart know its customers’ medication habits? The brand “has become a master in analyzing purchasing behavior with surveys and other questionnaires that allow it to accumulate a wealth of information on consumers,” says the German daily. Süddeutsche Zeitung which published an article on the economic effects of Ozempic, Thursday October 12.
Consequence: the words of the CEO of Walmart are often “heralds of major consumer trends”, continues the Bavarian newspaper. And for financial markets, this interview signaled the start of a race to see what Ozempic’s growing popularity might affect.
This medication not only has appetite suppressant effects, but it also appears to reduce the urge to drink sugary drinks, scientists noted. For Mondelez, PepsiCo and other sweets specialists, it was the start of bad stock market news. Even fast-food giants, such as McDonald’s, have suffered on the stock market, underlines the economic daily Les Échos.
This phenomenon of stock market victims collateral to the introduction on the market of an innovation “is not new, but the scale of what is happening with Ozempic is rare”, recognizes Christopher Dembik, strategy advisor at investment for Pictet Asset Management, an investment fund.
This specialist specifies that it is most often new developments in the biotech sector that weaken small or medium-sized companies. But this time, “we see that the Ozempic effect even affects giants in the food sector,” underlines Christopher Dembik.
This medicine, authorized for United States since 2017 as a treatment for diabetics, has seen its popularity skyrocket for more than a year because of its appetite suppressant effects which would help make it a weight loss remedy. Elon Musk, the controversial boss of X (formerly Twitter), promoted in October 2022 Wegovy, a more concentrated derivative of Ozempic also developed by Novo Nordisk. On TikTok, videos extolling the merits of these two weight loss drugs – which are taken in the form of injection – have been legion since the end of 2022, noted the New York Times.
Stronger than Denmark’s GDP
An all-out promotion which brought financial happiness to Novo Nordisk, despite warnings from scientists stressing that we do not yet know the long-term effects of taking Ozempic to lose weight. In China, for example, the pharmaceutical laboratory admitted that it was unable to keep up with the explosion in demand which took the Danish group by surprise.
The success is such that Novo Nordisk has gone from a European giant in the sector to a real economic juggernaut. Its market valuation reached $409 billion, more than Denmark’s overall GDP ($400 billion in 2022), underlines the Financial Times.
The success of Ozempic alone saved Denmark from falling into recession. “We have never experienced such a situation where a company plays such an important role for our entire economy,” admitted Jens Naervig Pedersen, economist at the Central Bank of Denmark interviewed by the New York Times.
A situation which is reminiscent of Finland’s dependence on Nokia for years. The fall of the phone manufacturer in the 2000s was a hard blow to the country’s economy. “Some economists in Denmark warn of the danger of a Nokia-style scenario,” assures the New York Times.
The risk of a fall of the Novo Nordisk house still seems remote. In August, the Danish laboratory even briefly overtook the French luxury giant LVMH to become the richest company in Europe on the stock market.
Investor euphoria
It must be said that Novo Nordisk’s flagship product represents the typical example of the right product at the right time for the financial markets. “Since the end of the pandemic, there has been a trend for everything related to healthier nutrition among investors,” recognizes Christopher Dembik.
And drugs such as Ozempik, Wegovy and more generally new remedies to fight obesity have “the potential to have a significant economic impact in the United States where people suffering from obesity go out more easily from the job market”, notes Christopher Dembik. In other words, reducing this scourge might give a boost to the economy.
Enough to excite investors who don’t have much other good news to get their teeth into. “In a rather gloomy market, this is rare good news, which means that there is a certain stock market over-reaction,” recognizes the Pictet AM expert.
This euphoria for Ozempic therefore partly explains the distrust for the snacking giants. But for the Washington Post, the stock market groundswell of Novo Nordisk’s remedy also risks affecting other sectors such as clothing. There might be fewer Americans looking for XXL sweaters, for example, which would force brands to adapt.
On the contrary, the investment bank Jefferies suggested that if there were fewer overweight Americans, it might do some good… for the airlines. Indeed, write these bankers, if the passengers are thinner, the plane will weigh less, which translates into less fuel consumption and therefore savings…
Urgent to wait
But for Christopher Dembik, it is especially urgent to wait before imagining all the economic consequences of the success of these drugs. First, “because we don’t yet really know what the impact will be on society,” he assures.
So these are rather expensive remedies, which means that they are generally reserved for wealthier categories of the population. And “fast food brands have as their main clientele people who cannot afford these medications,” assured the investment bank RBC Capital Market in an analysis note. It is therefore perhaps premature to anticipate that McDonald’s and others will suffer from these weight loss solutions.
And then, believes Christopher Dembik, science has not yet delivered its final verdict on the long-term effects of Ozempik. Studies are underway to evaluate them and the final results might provide a better understanding of the importance of this drug than a few influencer videos on TikTok.
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