Anti-obesity drugs may boost food companies

Rising demand for anti-obesity drugs like Novo Nordisk’s Wegovy offers opportunities for drug makers. food and the market’s initially pessimistic reaction could be overblown, investors said.

When Walmart said this month that it saw a slight decline in food consumption when people took the drug, it sparked a sell-off in shares of companies such as Nestle, the world’s largest maker of packaged foods.

“It seems like an overreaction.”said Richard Saldanha, portfolio manager at Aviva. “People are extrapolating long-term spending habits.”

Wegovy has seen phenomenal success in the United States and is launching in some European markets, including Norway, Denmark and Germany, raising concerns in the consumer and retail sector about the potential impact on food sales.

“Novo’s innovation can lead to important changes, both for food and beverage companies and other health-related stocks within the obesity sector”said Kiran Aziz, head of responsible investments at Norway’s largest pension fund, KLP, which has stakes in both Novo Nordisk and several food companies.

However, he said more attention should be paid to the supermarket sector, where margins are narrower and the impact on profitability can be greater.

Nestlé has already started working on products that “accompany” to weight-loss drugs like Wegovy, CEO Mark Schneider said last week, which could include supplements to help offset “loss of lean muscle mass” and “rapid weight recovery”.

These initiatives, and the limited availability of the drug at a time when Novo is struggling to meet demand, have persuaded some investors that the so-called “miracle drugs” They will not harm the sector in the long term.

The initial market reaction to the new class of weight loss drugs is reminiscent of the initial hype about the “metaverse”, that has been fading as investors and companies have realized that behavioral change is slow, said Arda Ural, EY Americas Industry Markets leader for Health Sciences and Wellness.

“The problem is that lower socioeconomic groups have more obesity and risk factors, but the cost of taking these medications is a limiting factor,” Ural said. “Making this affordable and starting to see the positive downstream effects will be something that changes at glacial speed.”

Even so, the stock market impact left some food producers “shaking”, said John Plassard, senior investment specialist at Nestlé investor Mirabaud Group.

“The companies that are most at risk could be those dedicated exclusively to ‘junk food’, or restaurant chains that do not offer many alternatives”said.

Brian Frank, portfolio manager of the Frank Value fund, which has positions in Tyson Foods and Arcos Dorados, the world’s largest McDonald’s franchisee, said he will look to increase holdings in stocks that are hit by Wegovy. “If the market offers me a discount, I will gladly accept it”he claimed.

A portfolio manager at Germany’s Union Investments, which has stakes in Unilever and Coca Cola, was more cautious, saying the perception that weight-loss drugs will be bad for the sector will be difficult to break.

“Everyone assumes that people will take these pills, lose weight and eat less,” they claim. “And companies cannot prove that this is not true.”

Source: Reuters