Prominent weight-loss drugs — or GLP-1s made by pharma giants Novo Nordisk (NVO) and Eli Lilly (LLY) — may not have as much of a lasting impact on healthcare in 2024 as previously expected.
Yahoo Finance's Anjalee Khemlani and Brooke DiPalma discuss commentary out from the pharmaceutical sector and fast-food executives on the renewed outlook tied to these medications.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
AKIKO FUJITA: GLP-1s, commonly known as obesity drugs, are sweeping the US and were anticipated to ruin a number of sectors by changing consumer trends, but that really may not be the case. Let's bring in Yahoo Finance's Anjalee Khemlani to dig into the health-care space. We also have Yahoo Finance's Brooke DiPalma to tell us what she's been seeing in the fast-food space. Anj, take it away.
ANJALEE KHEMLANI: That's right, Akiko. I attended the health-care conference hosted by JPM earlier this year, and it was interesting to see how much of a topic it was and wasn't in some sectors. We know that, of course, the pharma sector is looking to get a boost from the specifically Novo Nordisk and Eli Lilly, but then there are other parts of the health-care sector that could have been severely impacted. That includes medtech devices, those that are glucose-monitoring devices, for example. You know, analysts predicting less of a need for it as well as surgery such as bariatric as a result of the popularity of these weight-loss drugs.
But we have found out is that instead we have actually seen maybe a balancing out or rather a boost in some areas of that. We had JPM analysts talking about that after the conference, saying, quote, "Thankfully, what we didn't hear was mention of GLP-1s-- that bubble of fear and panic seems to have burst for the most part."
And that fear and panic that they were referring to came from a different analyst note in mid-October that talked about the impact that it could have on all these other areas and other consumer trends. And so what we have seen instead is quite a shift away, and there are other sectors that could have been impacted. And I know, Brooke, you have also seen some of that action.
BROOKE DIPALMA: Yeah, that's right, Anjalee. Earlier this month, I attended the ICR conference. Now at this conference, there are many mid- to large-sized consumer-facing companies, and they all weighed in on the state of the industry. But one topic that was missing at this conference or most conversations was the GLP-1 impact, and that seems to be part of a larger trend that we're following right now.
In a note to clients, TD Cowen analyst Andrew Charles credits a cooling GLP-1 narrative for fast-food and fast-casual chains' valuation rebound from its six-month lows. Now, that's in addition also to slowing interest rates, and we're also seeing greater investor optimism for 2024 consumer-spending estimates.
But if you take a closer look at six-month chart shares of Domino's as well as Papa John's-- you're also following Yum Brands, McDonald's, Restaurant Brands International. You could see this dip in mid-October to early November and that rebound. Now, that dip was largely driven by those investor fears that these weight-loss drugs would ultimately completely change consumer behavior, the way they eat to how frequently they go.
And at the conference, industry veteran Charlie Morrison, who is the former CEO of Wingstop and now serves as CEO of Salad and Go, a new venture he has, he said that this further proves his business model. He also said that accessibility to these drugs is really difficult, especially for the lower-income consumer. And that business model that he currently has is lower priced, approximately $7 salads. And he also said that should people on these drugs want a healthier alternative, that will also boost the business.
And as you can see, McDonald's right here slightly flat today. But we also heard from the CEO of McDonald's, Chris Kempczinski, late last year that they really aren't seeing any impact this year or, rather, end of last year, and they're unsure of what exactly the future holds. But maybe that impact wasn't as big as they once feared, Anjalee.
ANJALEE KHEMLANI: That's right. And we also know that what remains to be seen includes the uptake of these drugs. In addition to accessibility, the side effects a really big topic of conversation as more competition is down the pike for Novo and Lilly with these drugs. In addition, they're looking at production constraints still for some of the drugs.
So all put together, whether or not this is a long-term fear that could still be on the books or whether or not the storm has passed is what we are waiting to see. Akiko.
