Look! Up in the sky! It’s a bird…it’s a plane…it’s more hyperbolic speculation about Ozempic!
GLP-1 class medications such as Ozempic for weight loss and diabetes have been huge news this year, lifting shares of the drug’s maker
Novo Nordisk
(ticker: NVO), and pushing down shares of a myriad of other companies, from packaged food to medical device makers. While these drugs have shown extraordinary promise, the idea that they are a magic bullet for the Western world’s obesity epidemic—or a category killer from snacks to cold-storage facilities—has gotten out of hand.
That’s evidenced by the latest note from Citi Research, in which analyst Stephen Trent warns that Ozempic and its ilk won’t be enough to make any real difference for airlines.
Weight is of course an important consideration in flying—it impacts takeoff, as anyone who’s flown in a small aircraft knows, and determines how much fuel is used—so lighter payloads would be good news. However using the
Airbus
A320’s flight capabilities, Trent concludes that “the potential payload benefit from transporting lighter passengers is negligible, especially on shorter-distance flights.”
Moreover, even in an optimistic scenario, wherein Ozempic and Wegovy users make up a higher proportion of airline passengers and the general population and patients successfully drop 10 pounds each, the passenger payload would likely drop just 0.6%, nowhere near making a dent in any meaningful way, he estimates.
That’s not to mention that there are many variables, including “drugmakers’ ability to mass produce such products, the overall cost per dose and the extent to which new side effects develop over time and/or existing side effects intensify could all help to determine the domestic usage of such drugs per capita,” as Trent writes. It goes without saying that even if GLP-1 drugs do prove revolutionary, it will take years for that scenario to play out.
Unsurprisingly, he left all of his current ratings on airlines, which include Buys on
Delta Air Lines
(DAL) and
United Airlines Holdings
(UAL), among others, unchanged.
The fact that even in Trent’s scenario airlines would only be flying with about 140 pounds less—equivalent to roughly one adult—shows the hype around weight-loss drugs often overshadows the facts. More broadly, the fact that Trent and other analysts outside healthcare feel compelled to address the issue on the heels of investors’ questions shows how out of hand the concerns have become.
In a new note Thursday, RBC Capital Markets analysts led by Brian Abrahams take a look across sectors including g biotechnology, medical supplies and devices, consumer staples, retail, restaurants, healthcare services and managed care, and real-estate investment trusts that have been hit by concerns that GLP-1 usage will hurt sales. They conclude that while these medications are “transformative…the current concerns about these drugs’ reach into other healthcare and non-healthcare sectors—which has caused significant stock and sector movement of late—are likely exaggerated and perhaps peaking.”
RBC notes that these drugs are not without side effects, which, along with their high price tag, will likely limit their adoption in the near term. In addition, there are some recent studies which suggest the number of patients who lose significant amounts of weight may be smaller in real world scenarios than they are in clinical trials.
Or as the firm’s consumer staples analyst Nik Modi puts it, “We must not forget that these drugs are expensive, and out of reach for many Americans seeking to use them for weight loss, as a result, and view the population taking these drugs as too small to move the needle at the moment.”
Even within healthcare, the idea that Ozempic will upend other companies’ businesses is a stretch.
On Thursday, GlobalData medical devices analyst Tina Deng argues that even with weight-loss medications’ use, the diabetes-care-devices market will continue to “grow at a high rate and reach $33.4 billion in 2030 as the incidence rate of diabetes is rising. Additionally, favorable reimbursement policies across more countries are expected to further drive the growth of the market.”
Ultimately GLP-1 medications are obviously good news for the patients who can lead healthier lives because of them. Yet expecting these drugs to change the world—and the skies—looks like a lot of hot air.
Write to Teresa Rivas at [email protected]
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