The stock market is getting Ozempic'ed

• The quick rise of GLP-1 weight-loss drugs is set to drive a big shake-up in the stock market.
• The long-term ripple effects of these drugs will impact sectors across equities and economy.

With the surging popularity of GLP-1 weight-loss drugs, millions of Americans are poised to collectively shed hundreds of millions of pounds over the next decade — and reshuffle trillions of dollars in the process.

In other words, the stock market is getting Ozempic'ed.

That accelerating trend was on full display last month, when Novo Nordisk said a drug trial suggested that semaglutide, the active ingredient in Ozempic and Wegovy, could help people with kidney failure.

Shares of DaVita and Fresenius Medical Care, the world's biggest kidney dialysis providers, both plunged double digits. Meanwhile, Novo Nordisk and Eli Lilly, which makes a similar medication, both surged.

It's just the latest in a streak of examples of how the wide-ranging health effects of these blockbuster GLP-1 drugs are going to redefine the entire market. Some of the ways these medical developments will reshape the landscape are straightforward: for one, people will eat less food and therefore need less treatment for symptoms related to obesity.

But other impacts are less obvious.

Stock market leadership

As the companies that make weight-loss drugs grow in prominence, they're already signaling new leadership in the stock market.

Novo Nordisk, which makes weight-loss drug Wegovy as well as the Type 2 diabetes treatment Ozempic, is now Europe's largest company, worth $452 billion, and its rapid growth has even had a direct impact on its home country's currency and interest rates.

Eli Lilly, the manufacturer of GLP-1 drug Mounjaro along with a host of other drugs, is now the ninth largest company in the S&P 500 with a market value of $562 billion.

The drug craze could also set off more consolidation in the industry, according to Guggenheim Partners Senior Managing Director Punit Mehta, flagging biotech and pharma companies in particular.

"I think it will spur on ultimately more [M&A] activity," he told CNBC last month. "I think the market is forming literally as we speak."

And that's just a hint of what's at stake. According to the latest estimate, US health care spending totaled $4.4 trillion in 2022.

Ozempic effect expands

Not surprisingly, investors initially focused on the healthcare sector as they weighed which companies would get hit the hardest, as there are plenty of drug and devices that treat chronic conditions related to obesity and diabetes.

For example, shares of CPAP manufacturers plunged more than 40% in just a few short months as losing weight can help reduce sleep apnea patients' dependency on CPAP machines when they're asleep. Companies that make insulin delivery systems and diabetes monitoring devices have also been slammed as early data suggests GLP-1 drugs can drive diabetes into remission for type-2 diabetes patients.

"If there's no longer as many intensive type two [diabetes] patients who need to take insulin, if you don't need to take insulin, then you don't need an insulin pump to put insulin into the body. So that's why you've seen companies like Tandem Diabetes Care and Insulet hit the hardest here because there's that direct link towards if there aren't going to be as many patients taking insulin, then you don't need a pump to put insulin into the body," Baird analyst Jeff Johnson told Business Insider in September.

And drug-trial data showing that GLP-1 drugs reduce the chances of heart attacks has weighed down manufacturers of heart valve devices that target different forms of heart disease.

More recently, the Ozempic effect has spread to food companies. That's because GLP-1 drugs help patients lose weight by making them feel fuller faster.

"When you go on GLP-1, you eat significantly less and you feel fuller. So you lose the weight," Johnson said.

A Morgan Stanley survey of 300 patients taking the drugs showed that the daily consumption of calories dropped by 20% to 30%. And recent comments from Walmart suggested that it's already seeing its customers who are taking the drugs buy less food.

Those comments sent food retailers like Costco and Walmart, along with junk-food companies like Coca-Cola, PepsiCo, and McDonald's lower.

The economy is about to get Ozempic'ed too

What's clear is there are a ton of knock-on effects that the rise of GLP-1 drugs will have on the stock market and economy, and investors are rushing to figure them out.

Productivity could surge, there could be massive cost savings in the healthcare industry, and even plane operators could get more efficient with lower-weight customers driving fuel savings.

Goldman Sachs estimates that obesity will reduce down global GDP by $4 trillion in 2035, but that could change if enough people start taking these drugs.

With 9 million Americans taking a GLP-1 drug as of the end of 2022, according to a Trilliant Health analysis, that number is poised to surge, with Bank of America estimating that 48 million Americans will have taken GLP-1 drugs by 2030.

How GLP-1 drugs grow from here

Eli Lilly's GLP-1 drug Mounjaro is approved for Type 2 diabetes but is still waiting approval from the FDA for an expanded obesity indication, which is widely expected. The potential for further indication expansions of these drugs for the treatment of kidney disease, heart disease, sleep apnea, and even addictive behaviors, will help expand the target patient population for these drugs.

Novo Nordisk and Eli Lilly are also developing new pill forms of the drugs, which could appeal to patients who are intimidated by the current injectable versions.

But insurers could provide the biggest catalyst for swift adoption rate of these drugs. Right now, the drugs can cost upwards of $1,000 per month without insurance coverage. While coverage is broader for people with diabetes, many insurers are reluctant to cover the drugs for weight loss.

As the drug continues to show more health benefits aside from weight loss, health insurance companies may be more inclined to start offering expanded coverage for these drugs, greatly reducing the cost for patients.

"Clinical trials show the drugs reduce the risk of heart attack and stroke," Goldman Sachs said in August. "By fighting obesity, these drugs seem to be fighting heart disease, which is the leading cause of death. This puts the onus on insurer to rethink their approach."

Ultimately, JPMorgan expects GLP-1 drugs to become one of the best-selling class of drugs of all time, with annual sales of $100 billion by 2030.

If those sales estimates are accurate, then far-reaching short- and long-term impacts should be felt across the stock market and economy.

That begs perhaps the biggest question about the Ozempic effect: What happens to an economy that is primarily driven by consumption, if a sizable portion of the population starts taking a drug that reduces consumption?

This story was originally published in November 2023.