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Infocus - Inflation has surged to levels not seen in decades due to rising commodity prices, supply chain bottlenecks and tight labour markets. These factors apply to most developed countries, but not to Switzerland where inflation remains low. In this edition of Infocus, GianLuigi Mandruzzato compares Swiss inflation to that in the US and the eurozone and draws some policy implications.
By Mike Clulow, Senior Portfolio Manager, and Chelsea Wiater, Portfolio Manager
What has sparked the current explosion in demand for weight loss drugs, how likely is it to endure and what long-term shifts should investors focus on amid all the hype?
Appetite-suppressing drugs have generated a buzz second only to that of artificial intelligence (AI) over the last 12 months. Boosted by early adoption among celebrities, total prescriptions for anti-obesity medication are growing at nearly 100% on a four-week rolling basis, according to Citigroup. With analysts predicting that sales of weight loss drugs could grow from US$6 billion to as much as US$100 billion by 2030, the companies whose products dominate the market trade on multiples more commonly seen in tech rather than pharma.
How do the new weight loss drugs work and why are they so popular?
Over 1 billion people worldwide are obese, according to the World Health Organization, with the number expected to almost double by 2035. In the US, around 40% of adults are considered obese, a figure predicted by a Harvard study to rise to almost 50% by the end of the decade, by then accounting for around 18% of healthcare spending on related conditions. Previously, the only truly effective treatment for obesity was bariatric (gastric bypass) surgery, which is expensive and sometimes risky.
The drugs known as GLP-1 (glucagon-like peptide 1) receptor agonists, named after the gut hormone they mimic, were originally developed to treat Type 2 diabetes, and aim to boost the amount of GLP-1 in a patient’s system, triggering increased insulin production and reduced blood sugar levels. Another function of GLP-1 in its natural state is to tell your brain whether you are full and satisfied after eating. The weight loss drugs use the same mechanism as the diabetes medications to make patients feel full for longer, and then increase that satisfied feeling throughout the day if used properly.
Some of the new best-in-class GLP-1 drugs have achieved 15-20% weight reduction in patients over a one-year period. Studies have also shown that if patients remain on these drugs for an extended time, along with the weight loss they experience a fairly significant reduction in other diseases, including heart attacks and strokes, as well as Alzheimer’s, dementia and arthritis.
Soaring demand for GLP-1s despite drawbacks
The most obvious problem regarding the most popular drugs for weight loss/diabetes is their cost. The monthly prescription price for Wegovy is US$1,300 and getting reimbursed for weight loss treatment through HMO (health maintenance organization) insurance is extremely difficult. Regardless of the elevated costs and the weekly injections required to administer the drugs, the two companies have struggled to meet soaring demand and supply remains constrained.
However, cost pressures have meant that patients on average are taking the medication for a six-to-nine-month period, which has limited efficacy. After going off the drug, the hunger typically returns, and they quickly regain half of the weight previously lost. Unless patients stay on the medication for an extended period, longer-term health benefits are likely to remain limited.
Broader effects on the healthcare sector
The exponential growth in demand for these drugs has investors speculating on the potential impact on disease prevalence for cardiovascular disease, Type II Diabetes, colorectal cancer, and other large indications. Naturally, the potential for a shrinking patient population has negatively impacted investor interest in a number of medical device and biotech companies in our investable universe.
That said, it is important to try to separate the short-term hype around these drugs from underlying trends. For example, while more invasive, gastric bypass surgeries have yielded similar GLP-like outcomes and benefits, an influx of these procedures over the past twenty years has done little to stem the tide of the obesity epidemic (and related health conditions) in America and abroad.
Therapeutic costs, side effects, and insurance restrictions have also limited the amount of time that patients are willing to remain on a GLP-1 regimen. According to the National Institute of Health, an estimated 70% of Americans discontinue GLP-1 therapy within the first two years of treatment. As expected, when patients discontinue treatment and regain weight, this naturally limits many of the long-term benefits of the medication.
Looking ahead, a flood of market participants are expected to intensify the competitive landscape – driving both therapeutic improvements (greater efficacy, fewer side effects) and lower costs. Studies to expand the prescribing labels beyond diabetes and weight loss are also in full swing, which should make for a dynamic environment over the next several years.
More competitive pharma landscape taking shape
Lack of affordability is driving people toward compound pharmacies, whose generic versions combine semaglutide (the active ingredient in Wegovy and Ozempic) with vitamin B12 - in an effort to bypass patent protection and lower product cost by an estimated two-thirds. Another 50 biopharmaceutical companies are also working on their own formulations of GLP-1s and other gastrointestinal peptides, which could triple the number of commercially available products on the market over the next several years. In sum, while we believe the market will expand, the number of available products should also climb and serve to drive pricing lower through greater competition.

Another headwind for consumer staples stocks
Turning to other sectors, consumer staples are one area where the impact of wider long-term adoption of anti-obesity therapies could be significant. Indeed, in terms of market sentiment, the sector has suffered on multiple fronts over the last 12 months. With AI an overriding investing theme during this time, the lack of opportunities for these companies to leverage this breakout technology has been a headwind, concurrent with inflationary impact on margins leading to higher prices which in turn has hurt volumes. When added to the adverse read-across from GLP-1s, the sector has lost much of its premium valuation and has even traded at a discount to the wider market as a result of this dislocation.
Conscious of the need to respond to the buzz around anti-obesity medication, management teams, particularly in consumer package foods industry, have been cautious in talking about how it could impact them. Though these managers have acknowledged the potential consequences and acquiesce that the trend is worth monitoring, their stance is that any impact remains immaterial for the time being.
Longer-term use of GLP-1s changes consumer spending patterns
The need for more concrete evidence has prompted surveys aiming to measure how spending patterns change among people using GLP-1s for longer periods of time. One such study by Numerator, covering 100,000 consumers and encompassing both diabetes and weight loss GLP-1 users, showed about a 10% reduction in spending at the grocery store among those using the drugs specifically for weight loss. As would be expected, this impacted mainly unhealthy-for-you foods like prepared bakery goods, candy, snacks and ice creams, but interestingly the findings also showed that these consumers were visiting the store more frequently, likely in order to purchase more fresh foods that have shorter shelf lives and warrant incremental trips.
There were also interesting findings on demographics, with the majority of the weight-loss users in the older Gen X age group, with typically higher income and located in suburban markets. The survey also found that these consumers favor grocery delivery and online grocery ordering services in tandem with incremental frequency of visits. Clearly, while still in early innings, there are sizable learnings to be gleaned from tracking these cohorts and the implications will be wide-ranging for a variety of industries.
How might Packaged Foods companies adapt?
As we can now infer from the survey data, for consumer staples companies that offer foods that are perceived to be unhealthy, the usage of GLP-1s for weight loss are likely to add to existing pressures on volumes. However, an adept producer of food may find a way to benefit by leaning into the GLP-1 trend through offering healthier-for-you alternatives alongside their existing products. Another weapon for these at-risk companies could be to flip the current narrative about ‘shrinkflation’ (where companies reduce the portion size of a specific product while maintaining the price in an attempt to protect margins) to one where they are addressing the needs of consumers who have a smaller appetite and therefore want smaller portion sizes. By labeling these products with “healthier-for-you-sizing,” the brand may ingratiate itself to customers and re-earn volumes that may have otherwise been lost.
Packaged Foods companies are already quite experienced at dealing with fad diets, past examples ranging from low-carbohydrate diets to organic and gluten-free diets. One way in which these companies have adapted is to simply repackage products to signal to consumers the on-trend properties of the foods they are buying. For example, during the peak in popularity of the Atkins Diet in the early 2000’s, many companies labeled products that had never included carbohydrates as low-carb friendly, simply to attract unaware consumers. Similar methods have been used for low-cholesterol and gluten-free foods – where packaging was used to educate customers and generate a buying occasion where one previously did not exist.
Consumer behavior amidst a weight lost journey can become quite sticky, regardless of whether the journey itself was successful. With GLP-1 weight loss medication users not necessarily maintaining their regime due to cost, products that allow them to stay healthier for longer could become entrenched in their post-journey lifestyle long after the medication is no longer administered.
Other Winners and losers
Perhaps counter-intuitively, beverage companies may weather these shifts better than anticipated. Over the last 20 years, soft drink firms have successfully diversified their product range, reducing their reliance on sodas by introducing sports and energy drinks along with various water-based beverages, in order to maintain their leading positioning as consumers sought healthier alternatives.
Travel and Leisure companies may well be another longer-term beneficiary if the trend persists – as consumers who previously may have been hesitant to travel for comfort reasons may be more willing following a significant change in their body composition. This has wide-ranging implications from destination hotel rooms demand to airport staffing levels and even an improvement in passenger airline jet fuel efficiency.
By contrast, Cosmetic companies may be on the losing end of the longer-term trend, as past studies have shown that consumers tend to wear less makeup following dramatic weight loss than they did prior. This trend is again somewhat counter-intuitive but stems from what tends to be an inverse relationship between body weight and confidence in ones’ appearance.
In conclusion, from a high-level investment perspective, even if GLP-1s turn out to not irrevocably change the approach to obesity, they are demonstrably moving the needle in terms of companies that are either benefiting or being hurt by this trend. Investors should focus on identifying companies that are adapting promptly and responding to these consumer changes, as market share gains amidst periods of change can yield significant and potentially durable changes in company value. The potential for disruption across multiple industries is significant and, for growth strategies, there are few more exciting themes to stay on top of right now.
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