The rising demand for appetite-suppressing anti-obesity drugs, exemplified by Novo Nordisk’s Wegovy, is seen as a source of potential opportunities for food manufacturers. Despite the initial market’s somewhat negative response, some investors believe that the long-term prospects warrant a more optimistic outlook.
Earlier this month, when Walmart indicated a slight dip in food consumption concurrent with medication use, it triggered a sell-off in the shares of various companies, including Nestle, the largest packaged food producer globally.
Richard Saldanha, portfolio manager at Aviva, stated, “It feels like quite an overreaction. People are extrapolating long-term consumer habits.”
Wegovy has already achieved remarkable success in the United States and is now gradually making its way into some European markets, such as Norway, Denmark, and Germany. This expansion has sparked concerns in the consumer and retail industry regarding potential impacts on food sales.
Kiran Aziz, head of responsible investments at Norway’s largest pension fund, KLP, pointed out, “Novo’s breakthrough can definitely lead to major changes – both for food and beverage companies, but also for other health-related stocks within the obesity industry.” She also emphasized the need to pay closer attention to supermarkets, where thinner margins might make profitability more susceptible to change.
In response to these developments, Nestle has already initiated work on products that complement weight loss drugs like Wegovy, as mentioned by CEO Mark Schneider. These products might include supplements designed to counteract the “loss of lean muscle mass” and the “rapid regain of weight.”
The limited availability of the drug due to Novo’s struggle to meet demand has led some investors to believe that these so-called “miracle drugs” may not adversely affect the industry in the long run.
The initial market reaction to this new category of weight-loss drugs is reminiscent of the early excitement surrounding the metaverse, which has since dwindled as investors and companies realize that behavioral change occurs at a slow pace, noted Arda Ural, EY Americas Industry Markets Leader, Health Sciences, and Wellness.
Ural also highlighted the cost barrier faced by lower socio-economic groups as a limiting factor for these medications. “Making this affordable and starting to see the positive downstream impacts will be something that changes at a glacial speed,” he commented.
Despite these considerations, some food manufacturers remain apprehensive. John Plassard, senior investment specialist at Nestle investor Mirabaud Group, stated, “The companies most at risk could be those dedicated exclusively to ‘junk food,’ or restaurant chains that don’t offer much in the way of alternatives.”
Brian Frank, portfolio manager of the Frank Value fund, expressed interest in building stakes in stocks that might experience Wegovy-related setbacks. He said, “If the market is going to give me a discount, I will happily take it.”
My Nguyen, a research analyst at Legal & General Investment Management America, pointed out that the trend in appetite-suppressing drugs appears to be more prominent in the United States. She mentioned that elsewhere, factors like wealthier, more mobile middle classes in emerging countries could support shifts toward snacking and convenience foods.
In contrast, a portfolio manager at Germany’s Union Investments, which has stakes in Unilever and Coca-Cola, expressed caution, believing that the perception that weight loss drugs will negatively impact the industry may be challenging to dispel. They stated, “Everybody assumes people will take these pills, get slim, and eat less, and companies cannot prove that this is not true.”