What Ozempic could mean for the stockmarket

Millions of people around the world are turning to Ozempic to help them lose weight, but its effects are being felt far beyond the bathroom scales.

The drug's ability to help people shed extra kilos has given a huge boost to the economy of Denmark, where it is produced; shaved billions of dollars off the value of companies that stand to lose out from a thinner population; and could have far-reaching effects on the economies of Australia and other nations where obesity is a growing problem.

Ozempic was approved for use as a diabetes treatment. It and similar drugs contain semaglutide - it mimics the action of a naturally occurring hormone called GLP-1, which helps the pancreas produce insulin and, in turn, works to manage type 2 diabetes.

Although not designed to be a weight-loss medication, it has been found to have the side effect of reducing appetite by keeping you full for longer, which may prove helpful for those with obesity.

How long will the Ozempic shortage last?

Such is the global demand for the drug that Novo Nordisk, the Danish pharmaceutical company that supplies Ozempic, has told Australia's Therapeutic Goods Administration (TGA) that the supply will remain limited in 2024 .

The TGA has asked doctors not to prescribe Ozempic to new patients unless there are no suitable alternatives or there is a strong clinical reason to do so, and to switch existing patients to a different drug if possible.

The drug is only approved by the TGA for lowering blood sugar in adults with type 2 diabetes and is subsidised by the Pharmaceutical Benefits Scheme.

When prescribed 'off label', that is, for other uses, there is no government subsidy. Nonetheless, that hasn't deterred hordes of Australians from seeking out the injectable medications as a weight-loss aid.

The Australian company Eucalyptus says it has supplied 'tens of thousands of patients with GLP-1 medications through its Juniper brand for women and its Pilot brand for men, but it declined to provide specific numbers. While it has supplied Ozempic in the past, the global shortage means it now supplies similar drugs including Mounjaro or the compounded form.

Weight-loss treatments can start at about $200 a month for a low dose of GLP-1, or $600 a month for an entry-level course of Mounjaro, which the company says has proven to be more effective
for weight-loss than Ozempic in clinical trials.

Joe Harris, CCO at Eucalyptus, a healthcare technology company, says the drug has taken the public by storm. While some see it as a silver bullet, Harris says Ozempic needs to be used in conjunction with exercise and better eating to take effect and for weight loss to be maintained.

"It's a big leap forward in the way that people approach obesity because it can interrupt a pattern of failed attempts at weight loss by changing your relationship with food," he says.

How is Ozempic threatening the rest of the weight-loss industry?

Australia's 'weight-loss services industry' - which includes advice and counselling services, and diet products and meals - generated revenue of $483 million in 2022-23, according to data from the economic forecaster IBISWorld. It does not include prescription drugs.

IBISWorld expects revenue in the sector to slump due to competition from non-diet-specific meal kits and the new generation of weight-loss drugs.

"Although more Australians are attempting to lose weight than ever before, stiff competition has constrained industry revenue and caused profitability to contract," it said in a report from June 2023.

Certainly, there is no better sign of the decline of the traditional weight-loss sector than Eucalpytus's purchase of the Australian arm of 40-year-old weight-loss business Jenny Craig. The company was already struggling for survival before the advent of GLP-1 drugs, but Harris expects other traditional weight-loss companies will also struggle to compete.

Novo Nordisk, which makes the weight-loss drug Wegovy along with Ozempic, became Europe's most valuable company in September 2023, when its sharemarket capitalisation climbed above $US420 billion ($630 billion), overtaking LVMH, the parent company of luxury brands including Louis Vuitton and Dior.

What does Ozempic mean for the Danish economy?

The company is also propping up the Danish economy.

The country's gross domestic product grew by 1.7% in the first half of 2023. But if we strip out the contribution of Novo Nordisk, which sold $4 billion in weight-loss drugs alone in the first half of the year, the Danish economy would have shrunk by 0.3%.

But it's not just companies in the diet sector that are being affected by the rise of Ozempic and other drugs.

Is Resmed worried about the rise of Ozempic?

Shares in Australia's ResMed slid more than 40% in the second half of 2023, taking about $20 billion off its market capitalisation, but largely recovered in early 2024.

The company makes respiratory machines that help sleep apnea sufferers breathe through the night.

The most common cause of the condition - where sufferers spontaneously stop breathing while sleeping and are at risk of dying - is obesity.

With GLP-1 drugs promising lower obesity rates, investors were concerned that fewer overweight adults will mean lower sales.

The company itself says it is less worried. ResMed has seen it all before, chief operating officer Robert Douglas told investors in June last year.

Similar predictions of doom were made when bariatric surgery first became popular and yet the company has thrived since then.

Douglas says obesity is only a contributing factor to sleep apnea and there is currently far more demand for treatments than the company can meet.

The Ozempic effect also hit the Australian pharmaceutical maker CSL, but for different reasons.

In October, Novo Nordisk released a study showing that the drug could help delay the progress of kidney disease and the news shaved about 25% off CSL's share price, though it, too, bounced back in early 2024.

In late 2022, CSL spent $19 billion to acquire drug maker Vifor, which makes kidney deficiency treatments, and investors were concerned Ozempic will lower demand for the product. But the kidney treatment business only accounted for 39% of Vifor's revenue, which in turn accounts for only 15% of CSL group revenue, according to analysis by investment bank UBS.

Like ResMed, CSL says it isn't concerned. Chief executive Paul McKenzie says he has seen big predictions made for other wonder drugs over the years, with expectations that they would revolutionise the treatment of conditions such as obesity, high cholesterol and Alzheimer's.

"But, fundamentally, to move a whole market and make that go away? We just don't see it," he says.

What is the market saying about Ozempic?

Certainly, Scott Phillips, chief investment officer of the equities research house Motley Fool, isn't yet convinced the new-generation drug's effects will be as far reaching as feared by investors.

Ozempic has the potential to offer society-changing outcomes if it's used properly by potential beneficiaries, says Phillips, but he adds: "The challenge for anyone in business, let alone in the markets, is to work out if this the new wonder drug to beat all wonder drugs or does it become another flash in the pan?

"The market is assuming large and sustained success from Ozempic, which is out of all proportion to its current use."

Its success depends on prescriptions from doctors and the correct use by patients, and that it's as clinically effective as currently presumed - and none of these factors is assured, says Phillips.

A 2023 Morgan Stanley survey of 300 patients taking the drug showed the daily consumption of calories dropped by 20-30%.

The US investment bank found patients report the most significant changes in frequency of trips to fast food and pizza chains - down more than 70% - and reduced consumption of confectionery, baked goods, salty snacks, sugary drinks and alcohol.

In early October 2023, the US retail giant Walmart reported a reduction in the amount of food and calories its shoppers were buying. The revelation sent shares in PepsiCo, Coca-Cola, McDonald's and retailer Costco lower.

Should Ozempic and other similar drugs turn out to be as effective in reducing obesity as some hope, it will also have far-reaching effects on global economies.

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