Suddenly, new weight loss drugs have replaced electric vehicles and become the "hot potato" in the eyes of US stock investors in early 2024. As a result, Eli Lilly&Co., the market leader in new weight loss drugs, has recently surpassed Tesla in market value.
However, stocks in the US food, beverage, and medical device industries, which were originally feared to be more affected by new weight loss drugs, have not been significantly affected, and related concerns have gradually eased.
Lilly's market value surpasses Tesla's
Last week, Tesla's market value shrank by approximately $80 billion before and after the financial report, dragged down by investor concerns about its slowing growth. On the day of last Thursday's financial report, Tesla issued a profit warning, stating that its expansion rate this year will be "significantly lower", causing its stock price to drop by 12% in a single day and its market value to drop to about $580 billion. The expectation of Lilly developing new weight loss drugs Mounjaro and Zepbound has driven its stock price to soar, making it the world's largest healthcare company with a market value exceeding $595 billion, surpassing Tesla.
Tesla used to be the fifth most valuable company in the S&P 500 index, but now it is striving to maintain its top ten position, losing to Lilly and Broadcom.
In the view of analysts, this to some extent marks a shift in the interest of US stock investors, who seem to no longer buy into the rhetoric advocated by electric vehicle manufacturers and suppliers that "electric vehicles will replace traditional oil and gas vehicles in the future, so there is great potential for demand and purchase". On the contrary, all the stories related to the progress of new weight loss drugs have been favored by investors.
Steve Sosnick, Chief Strategist at Interactive Brokers, said, "Investors have always tended to follow big trends. At some point in time, this trend was electric cars and Tesla. Currently, the more attractive trends to investors have become artificial intelligence (AI) and the GLP-1 new weight loss drug."
After a 59% increase last year, Lilly's stock price has risen by 7.7% since the beginning of 2024, and sales from Mounjaro and Zepbound are expected to drive the stock price further up. Not only Lilly, but also Novo Nordisk's new weight loss drug Wegovy has made this Danish company one of the most valuable listed companies in Europe.
Goldman Sachs previously released a report stating that by 2030, the annual sales of the global weight loss drug market are expected to increase from approximately $6 billion to around $100 billion. Among them, Lilly and Novo Nordisk have a "first mover advantage" and are expected to continue to occupy the vast majority of market share in the next five to seven years, maintaining a dual monopoly.
Meanwhile, Goldman Sachs analyst Mark Delaney stated that a slowdown in growth, both in car deliveries and profits, will have an impact on Tesla's stock. Its stock price fell by more than a quarter in January, becoming the only stock among the seven tech giants to fall so far in 2024. "If you have been selling a vision for the future - to be fair, this vision has been effective for some time in the past - but you are unwilling to provide any specific guidance for the near future, it will hit your stocks," he said.
Impact concerns dissipate
At the JPMorgan Healthcare (JPM) conference held in San Francisco in January, JPMorgan's medical device industry analysts stated that there was no expected discussion about the impact of new weight loss drugs on medical device and food and beverage stocks. "Thankfully, we didn't hear the relevant discussion. It seems that the foam of fear and panic about the potential impact of new weight loss drugs has broken to a large extent," said the bank's analyst team.
Last autumn, a discussion about the potential impact of the rise of the new weight-loss drug industry on medical device and food and beverage stocks intensified. This discussion was initially sparked by a lengthy report released by Bank of America in October last year. The report states that as new weight loss drugs trigger a decrease in consumer appetite, sales of snack, restaurant, tobacco, gaming, clothing, and food retail companies may decline, leading to a bleak stock outlook for related companies. Under the pressure of this discussion frenzy, investors significantly sold stocks in related sectors in the last quarter of last year, leading to unexpected fluctuations in stocks of medical devices, food, beverages, and restaurants.
Specifically, the logic of previous concerns about the impact of GLP-1 on the medical device industry was that more effective weight loss drugs would mean fewer weight loss surgeries, and the drug's ability to promote insulin production would also eliminate the need for blood glucose monitoring devices, thereby impacting the medical device industry.
But in fact, on the contrary, the popularity of new weight loss drugs indicates that people are becoming increasingly interested in tracking their own health status. According to reports from manufacturers of continuous blood glucose monitoring (CGM) devices such as Dexcom and Abbott, interest in the device has actually surged due to the use of GLP-1. "Company data shows that people who use GLP-1 actually use Libre more frequently than those who do not use GLP-1s," Abbott's CEO Robert Ford said in last week's earnings conference call that medical device sales were strong in the last quarter of 2023. He believes that this trend will continue.
Freestyle Libre is Abbott's flagship dynamic blood glucose monitoring system (CGM), with sales of $5.4 billion in 2023, a year-on-year increase of 24%. Abbott's financial report shows that the company's total sales of various products last year were $40.1 billion.
The food and beverage industry, which has also been affected by market concerns, is unharmed. Since the beginning of this year, while the popularity of the GLP-1 theme has not decreased, the stock prices of chain restaurant companies such as McDonald's (MCD), International Restaurant Brands (QSR), Yum, WEN, and Chipotle (CMG) have also recovered from their previous decline.
In December last year, McDonald's CEO Chris Kempczinski stated, "No one can say for sure how the future will affect, but we have yet to see the impact of GLP-1." McDonald's performance in the third quarter of last year showed that store sales increased by 8.1% and it plans to expand its restaurants at a record size. The executives of Domino's and Papa John's also expressed that they are not concerned about the impact of the new weight loss drugs.
Andrew Charles, an analyst at TD Cowen, an investment bank, attributed the rebound in valuations of fast food chain stocks from a 6-month low to a "calmer GLP-1 narrative.". He added that the industry will also benefit from a slowdown in interest rate levels and an increase in investor optimism about consumer spending expectations for 2024.
UBS analyst Dennis Geiger also stated that demand for fast food and leisure dining in the United States remained "stable" in December last year. Data shows that restaurant expenses increased by 12.5% year-on-year in December last year, higher than the 12.4% in November. "We expect that in the coming months, consumers' basic demand for restaurants and their proportion in overall consumption will remain highly elastic," Kig wrote in a customer report
Industry insiders analyze that two factors have avoided the pessimistic expectations of catering companies. Firstly, some consumers experience side effects such as nausea and dizziness after taking the new weight loss medication, leading them to stop taking the medication within a year. Secondly, these types of drugs are expensive and not included in basic medical insurance, so patients usually only spend about $1000 to purchase a month's supply first.
Charlie Morrison, former CEO of catering company Wingstop, said, "It's really difficult to take these weight loss pills for a long time, especially for low-end consumers. This has made the catering industry increasingly focused on health factors over the years, providing consumers with more affordable, fresh food choices."
In addition, although the development of GLP-1 has made progress and successfully ignited investor enthusiasm, not all pharmaceutical companies are willing to pursue this trend. Some large pharmaceutical companies, including Sanofi (SNY), withdrew from this field more than a decade ago, and currently, these companies do not believe they can break the duopoly in this field. Sanofi CEO Paul Hudson said at the JPM conference, "Although we are also very interested in new weight loss drugs, we cannot go back in time. After some leading companies have been doing research and development for six or seven years, it is difficult for us to catch up with their progress."