Ozempic craze hammers ‘obesity industry’: Companies behind insulin pumps and sleep apnea machines plunge in value – but WeightWatchers stock surges for a surprising reason

The massive popularity of Ozempic and similar weight loss injections threatens to rock the obesity industry in the US, hurting the valuations of companies that help treat weight-related conditions such as diabetes and sleep apnea.

Novo Nordisk, the Denmark-based maker of the diabetes drug Ozempic, is doing well after a new study this month found that the injection’s weight loss brand name, Wegovy, also had a clear cardiovascular benefit.

Shares of rival Eli Lilly, whose diabetes injection Mounjaro may be even more effective at curbing obesity, also rose on the news, which drugmakers hope will pave the way for such injections to become a routine lifestyle treatment.

But Wegovy’s promising study has battered the valuations of companies like Inspire Medical Systems, which makes an implant to fight sleep apnea, and insulin pump maker Medtronic.

Falling obesity rates in the US, where more than 40 percent of adults are overweight, could reduce demand for insulin, knee replacements, and even SlimFast shakes — but surprisingly, WW International, also known as WeightWatchers, has seen its stock price soar.

In the 30 days through Thursday, WW stock rose 23.2 percent, even faster than Novo (15.3%) and Eli Lilly (19.2%) in the same period.

A recent post from Morgan Stanley analyst Lauren Schenk helps explain WW’s rise, after she pointed out that the recent acquisition of telemedicine service Sequence could position the company to offer customers prescription weight loss injections.

Schenk increased the stock to a buy and more than doubled its price target, on the theory that WW could see a surge in customer interest by integrating Ozempic-like prescription drugs into its diet and fitness programs.

On the losing side of the Ozempic craze are companies like Intuitive Surgical, which makes robotic surgical tools for performing bariatric surgery.

“Within one of our target areas of operations, bariatric surgery, our growth in the US slowed during the quarter,” the company’s CFO, Jamie Samath, warned during an earnings call last month.

“Some customers have indicated that they are seeing an increasing patient interest in weight loss medications,” he added.

Shares of Intuitive were down 18.3 percent from the month through Thursday.

Elsewhere, SlimFast owner Glanbia said this week that sales of the meal replacement shakes plummeted in the three months to mid-July, forcing major US retailers to reduce inventories.

SlimFast revenues in the United States fell 33 percent in the quarter from a year ago, accelerating declines from the first quarter and the 17.9 percent decline in 2022, Glanbria said.

SlimFast’s slump came despite the Irish group revamping the nearly 50-year-old brand earlier this year, including new packaging, which it hoped would appeal to more consumers and gain more traction.

“Despite brand investment and even retailer support for the brand revamp, the diet category and the SlimFast brand have not regained the expected momentum,” Siobhan Talbot, CEO of Glanbia, told analysts on a phone call.

“As a result, some major US retailers are reducing shelf space in the category in the short term, and this will reduce SlimFast distribution into next year.”

Ozempic and Wegovy are different brand names for semaglutide, which works by tricking the brain into suppressing appetite and reducing calorie intake, resulting in significant weight loss.

It does this by mimicking the hormone glucagon-like peptide-1 (GLP-1), which is released after eating.

That has led some analysts to speculate that widespread uptake of the injections could ultimately hurt the makers of junk foods and sugary treats like doughnuts.

However, in an analysis for the Wall Street Journal on the fallout from the Ozempic craze, columnist David Wainer noted that the ultimate impact of injections for weight loss remains highly speculative.

“All of this is very hypothetical for now: Paying for the treatment of 100 million obese Americans would literally render Medicare insolvent at current drug prices,” he wrote.

“Ultimately, though, if the data shows longer-term benefits beyond weight loss, insurance coverage will expand,” Wainer added.

Novo, Europe’s second most valuable publicly traded company after LVMH, is experiencing a surge in demand for Ozempic and Wegovy, driving the company’s revenues to record highs.

Analysts expect Novo’s weight-loss drug sales to reach $6.1 billion this year and reach nearly $15 billion a year by 2027, according to FactSet polls.

Novo Nordisk’s financial report for the first half of 2023 shows that it has made a net profit of DKK 39.2 billion ($5.72 billion), compared to DKK 27.5 billion ($4 billion) last year.

The company said the trend was “primarily driven by” a 49 percent increase in sales of GLP-1 diabetes drugs.

In total, sales of these drugs amounted to 99 billion kroner ($14.4 billion).

Lars Fruergaard Jørgensen, president and chief executive of Novo Nordisk, said: “We are very pleased with the sales growth in the first half of 2023.

“Growth is driven by increasing demand for our GLP-1-based treatments for diabetes and obesity, and we are serving more patients than ever before.”

Similarly, Eli Lilly’s diabetes treatment Mounjaro, which is widely used for weight loss, raked in nearly $1 billion in the second quarter, more than $200 million more than what Wall Street analysts had expected.

Shares of the Lilly hit an all-time high earlier this month after the drugmaker said Mounjaro’s sales had jumped more than 70 percent since the first quarter to $980 million.

Nearly all of those sales came from the US, and the company said the high demand led to delays in fulfilling orders for some doses.