This post was originally published on this site
The growing popularity and use of anti-obesity medications will have far-reaching implications for the food industry, and companies may have to adapt their product choices to address changing consumer behavior.
That’s according to Morgan Stanley, which has a new report evaluating the impact of the new class of medications on packaged-food and beverage makers, restaurants, grocery stores and weight-loss programs.
A team of 17 Morgan Stanley analysts worked on the report, which forecasts that the pool of patients taking an anti-obesity medication, or AOM, will grow nearly fivefold over the next 10 years to 24 million people, or nearly 7% of the overall U.S. population.
Some 45% of the U.S. population is currently deemed to be obese and 70% to be overweight.
“Given the drugs’ direct impact on reducing appetite and calorie intake, AOM uptake could drive a broad and lasting behavioral shift among a sizable demographic group that represents a disproportionate share of food consumption,” the analysts wrote.
The new class of medicines includes Novo Nordisk’s
NVO,
NOVO.B,
Wegovy and Ozempic and Eli Lilly’s
LLY,
Mounjaro. They’ve become so popular in the U.S. that supplies have at times run short and the U.S. Food and Drug Administration has been forced to warn patients against using knockoff versions.
For more, read: The dark side of the weight-loss-drug craze: eating disorders, medication shortages, dangerous knockoffs
The drugs are administered by injection weekly and mimic the effects of GLP-1, a gut hormone that can help control blood-sugar levels and reduce appetite. GLP stands for glucagon-like peptide.
Their proliferation has implications for a swath of companies, from food brands like Hershey Co.
HSY,
Hostess Brands Inc.
TWNK,
Mondelez International Inc.
MDLZ,
and Campbell’s Soup Co.
CPB,
to grocery companies like Walmart Inc.
WMT,
and Kroger Co.
KR,
to beverage brands like PepsiCo Inc.
PEP,
and Coca-Cola Co.
KO,
and to restaurant groups like McDonald’s Corp.
MCD,
Yum Brands Inc.
YUM,
and Cava Group Inc.
CAVA,
The drugs work as hunger depressants and allow patients to lose 10% to 20% of their body weight in about a year. The next class of drugs could drive as much as 27% weight loss.
“That very significant weight loss is coinciding with a shift toward healthier lifestyles evident in our AlphaWise survey of 300 AOM patients (conducted in June-July 2023),” the report said. “We estimate a 20-30% reduction in daily calorie consumption as patients cut back on food intake across most categories and eat 20/40% fewer meals and snacks.”
That is expected to lead to a great scaling back of demand for foods that are high in sugar or fats, a range that includes confections, baked goods, salty snacks, sugary drinks and alcohol.
Patients taking the medications tend to eat less often in restaurants, particularly fast-food and pizza joints. That could boost weight-management foods such as protein bars and lead to higher membership at gyms.
It would mean a 2% to 3% reduction in consumption of carbonated soft drinks and snacks by 2035, measured against a baseline of no widespread use of the drugs, according to the report. That number could grow if changes in individual behavior extend to others in a household.
In packaged foods, growth in AOM presents an incremental headwind to a low-growth industry, said the report.
“Companies with a weight management/better-for-you portfolio appear best positioned (BellRing Brands Inc.
BRBR,
Simply Good Foods Co.
SMPL,
and Vital Farms Inc.
VITL,
), while we can see greater negative impacts on snacking/confections companies (Hershey, Hostess, Mondelez, and Campbell’s), heightening the need to continue reshaping their portfolios toward better-for-you categories,” it said.
For the U.S. restaurant sector, AOM is a longer-term risk, as chain restaurants tend to sell what is arguably unhealthy food, the analysts wrote.
“Some fast casual chains (SweetgreenInc.
SG,
CAVA) already have healthier menus, while others have less flexibility (Wingstop Inc.
WING,
Krispy Kreme Inc.
DNUT,
Domino’s Pizza Inc.
DPZ,
) and could be more exposed. Full service has some menu flexibility and an experiential use case that could help offset the risk,” the wrote.
In the beverages space, growth is an incremental risk, as many drinks have zero nutritional benefits and may be viewed as empty calories. The risk is highest for alcoholic-drink companies, as some AOM patients forgo alcohol completely.
“Constellation Brands, Boston Beer, Molson Coors are most exposed, in our view. Net, we see AOM risk as manageable, with other factors (pricing/market share/distribution gains/etc) more important in driving long-term topline growth,” said the report.
Turning to retail food sales, Morgan Stanley is already seeing a near-term impact of a potential 5 to 10 basis points annually of headwind to industry growth.
The most at-risk companies are Dollar General Corp.
DG,
Dollar Tree Inc.
DLTR,
and BJs Wholesale Club Holdings Inc.
BJ,
; the least at risk are Costco Wholesale Corp.
COST,
Albertsons Inc.
ACI,
and Kroger, the report found, with Walmart, Target Corp.
TGT,
and Grocery Outlet Holding Corp.
GO,
falling into the moderate-risk camp.
“That said, no retailer is fully immune to each of these risk factors; thus, we expect potential spending headwinds across all Food Retail exposed names in our coverage, albeit to varying degrees,” said the report.
Growth in AOM has already exceeded Morgan Stanley’s expectations, and its biopharma analysts expect it is on the cusp of moving to primary-care management, much as hypertension did in the 1980s, prior to which it was viewed as the result of lifestyle choices rather than as a chronic disease.
Earlier Tuesday, Danish biotech Novo Nordisk posted data showing that a 2.4-milligram dose of its Wegovy obesity drug reduced the risk of major adverse cardiovascular events by 20% in adults with overweight or obesity in a trial, compared with a placebo. The trial involved 17,604 patients age 45 or older with overweight or obesity and with established cardiovascular disease but with no prior history of diabetes.
The results are an important win for the obesity category, Wolfe Research said in an early note.
“This has been a very heavily anticipated readout, and is a clear win not only for [Novo Nordisk], but also for [Eli Lilly] and the obesity category at large. Results are VERY strong,” analysts led by Dr. Tim Anderson wrote in a note to clients.
Anderson made the same point as Morgan Stanley, namely that payers, which have not traditionally covered obesity drugs on the grounds that the condition is a lifestyle issue, are now facing the reality that the drugs offer important health benefits.
For more, see: Novo Nordisk’s Wegovy shows positive results in reducing risk of cardio events, not just weight loss
