Scott Galloway is a professor of marketing at NYU Stern School of Business. He is also known for founding multiple businesses, an active investor, author and most importantly for speaking his mind. In this blog, he highlights the second round effects of the growing use of weight loss drugs. A drug initially developed as a synthetic version of a hormone that would influence insulin levels in diabetic patients, was later found to affect appetite when given in higher doses. The drug’s developer Novo Nordisk saw this as an opportunity and launched a version directed at obesity patients.
“The market for this product, and the potential for meaningful societal change, are massive. In America, 70% of people are obese or overweight.… More than 42% of U.S. adults are obese, up from 31% in 1991. Globally, the prevalence of obesity has tripled since 1975, and 800 million people, including 50 million children, are now obese…
Obesity is …a disease that invites illness and disability, including coronary heart disease, stroke, cancer, gallbladder disease, and Type 2 diabetes. Globally, obesity is the fifth-largest cause of premature death. Our health-care system suffers from many problems, and the chaser to many/most of them is obesity. According to The Milken Institute the direct and indirect costs of obesity total $1.7 trillion, or 7% of U.S. GDP. A 15% reduction in body weight would move 43 million Americans out of the obese column.”
Usage of the drug has risen sharply in a short period of time:
“In the fourth quarter of 2022, 9 million prescriptions for GLP-1 drugs were written in the U.S. Over the past two years the share of health-care patients in the U.S. using semaglutide has tripled to 1.7%. That number will grow, as an estimated 93 million Americans could benefit from the drug.”
Early signs suggest the drug has had an impact on consumption:
“Morgan Stanley surveyed 300 Ozempic users, and 77% of them said they visit fast-food restaurants less often now that they’re on the drug. Walmart is already seeing a decline in food purchases among people taking GLP-1 medications.
…Fast food gets hit first, but fast casual is also under threat. Look for snack foods, frozen meals, candy, soda, and baked goods to all take a hit. Among GLP-1 users, 58% report they ate four or more snacks per day before taking the drug, and 90% say snacking decreased while they were on it.”
But what other second order effects:
“Food sales are an obvious target, but the effects of lower obesity rates will inspire other aftershocks, some greater in magnitude than that felt at the food epicenter. One interesting knock-on effect: it’s estimated that United Airlines would save $80 million a year in fuel costs if its customers lost an average of 10 pounds. Sports and fitness will be restructured: Gyms, built on a consumer base trying to lose weight, will see lower revenue, whereas sports for which fitness is a prerequisite (skiing, mountain biking, climbing) stand to benefit.
Apparel likely sees a short-term bump, as people splurge on clothes to fit their remodeled bodies, but the longer-term outlook is harder to predict: Less yo-yo dieting means some people won’t need separate wardrobes to accommodate different selves, but formerly overweight people spending less money on food might allocate that cash to clothing. Where else could that extra food budget go? Discretionary spending increases will spread through every non-caloric category.”
Not just appetite, apparently the drug can be used to address cravings and addictions in general:
“The Washington Post reports: “For some, these new weight loss drugs also seem to dampen the rewards of addictive substances, whether that’s nicotine, opioids or alcohol.” Let that sink in. It’s possible GLP-1 drugs are not weight loss drugs, but anti-craving drugs.
In lab tests, mice on an earlier form of synthetic GLP-1 receive a lower dopamine hit from alcohol. Rats are less interested in cocaine. Monkeys with a demonstrated preference for booze drank less. Anecdotal evidence from human users includes reports of reduced nail biting, shopping, and smoking.
…these drugs will register an enormous ROI for society as health-care costs decline and mental health improves. Depression rates among obese children are double those of average-weight kids and can haunt them in adulthood. A 5% reduction in weight can cut an obese person’s medical costs by $2,000 per year, and it’s estimated that a full transition from obese to a healthy weight saves nearly $30,000 in direct medical costs and productivity.”
Sounds too good to be true. It will be a while before we fully understand the long term side effects of the drug if any.
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
