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One man’s gain is often another’s loss. When it comes to competing thematic plays in the corporate world, however, the magnitude of ensuing gains and losses can be truly mind-boggling. With analysts estimating over $100 billion in annual US sales for the revolutionary GLP-1 anti-obesity drugs from the likes of Novo Nordisk and Eli Lilly & Company, some have gone overly bearish on the medium-term prospects of global fast food giants such as McDonald’s. We contend, however, that this bearishness stems from Western-centric myopia and that McDonald’s will probably be just fine.
GLP-1 Drugs From Novo Nordisk and Eli Lilly & Company
Novo Nordisk’s Ozempic was approved by the FDA in 2017 for patients with type-2 diabetes. In December 2022, the FDA approved Ozempic’s new variant – Wegovy – to treat obesity in teens aged 12 years and above. Clinical trials showed that patients taking Wegovy regularly could lose around 15 percent of their body weight. Both Ozempic and Wegovy mimic the hormone glucagon-like peptide-1 (GLP-1), which targets brain areas that regulate appetite.
The FDA approved Eli Lilly & Company’s Mounjaro injections in 2022 to treat type-2 diabetes in conjunction with obesity. Mounjaro targets two hormones – GLP-1 as well as glucose-dependent insulinotropic polypeptide (GIP) – to achieve superior blood sugar control. When used in conjunction with insulin, clinical trials showed an average weight loss of 23 pounds. Eli Lilly & Company’s latest offering, Retatutide, is currently undergoing clinical trials. The drug targets three different hunger-regulating hormones: GLP-1, GIP, and Glucagon. As per the results of Retatutide’s phase two trials, the drug can lead to an average loss of 24.2 percent of body weight in adult patients after 48 weeks of the treatment, with injections administered once every week.
GLP-1 and Demand for Fast Food
$LLY +8% premarket after beating on 2Q rev and earnings and raising FY 2023 guidance.
– Rev $8.31B vs $7.61B est
– Mounjaro rev $980M vs $741M exp. CEO said shortages will remain for another year.
– Adj EPS $2.11 vs $2.00 est
– Rev $33.4B- $33.9B vs $31.5B est
— Gary Black (@garyybblack00) October 25, 2023
Eli Lilly & Company expects to earn over $33 billion in revenue in FY 2023, driven in large part by the soaring demand for its Mounjaro drug.
Earlier in August, Novo Nordisk announced that its revenue for H2 2023 increased by 30 percent on an annual basis to reach 107.7 billion Danish Kroner or $10.17 billion. Much of this growth was driven by the company’s GLP-1 lineup, including Ozempic, which witnessed an annual sales growth of 59 percent to reach 41 billion Danish Kroner or $3.94 billion.
JPMORGAN: “We forecast US sales for the GLP-1 category to exceed $100bn .. split roughly 50/50 in diabetes and obesity. Our global market estimate is > $140bn by 2032. .. $LLY and $NVO remain our two key OWs .. with meaningful scope to surprise to the upside ..” pic.twitter.com/Gv5n2bbA1M
— Carl Quintanilla (@carlquintanilla) October 25, 2023
JP Morgan recently estimated that GLP-1 annual sales in the US are expected to reach around $100 billion by 2030, noting:
“In 2030, we estimate that ~15mn adults in the US will be treated with AOM [anti-obesity medication] for chronic weight management (excluding patients treated for type 2 diabetes), which represents ~13% penetration into the U.S. adult population.”
JP Morgan analyst Chris Shibutani believes that Novo Nordisk and Eli Lilly & Company will hold 80 percent of the GLP-1 market by 2030.
On a similarly optimistic note, Citi now believes that the GLP-1 market will support $71 billion in annual sales by 2035, assuming that less than 10 percent of obese patients in the US who do not qualify for Medicare would opt for weekly GLP-1 injections from Novo Nordisk or Eli Lilly & Company.
— The_Real_Fly (@The_Real_Fly) October 25, 2023
The current euphoria around GLP-1 has prompted a few analysts to start downgrading the long-term demand outlook for fast food giants such as McDonald’s. This pessimism stems from assumptions that 7 percent of the total population in the US would be using such drugs in the next 10 years, with the average caloric consumption of those users declining by around 20 percent.
However, such pessimistic analyses fail to account for the fact that much of the growth for McDonald’s in the next ten years and beyond will come from the rapidly growing economies in Asia and Africa. With a price tag of around $1,000 per month, GLP-1 drugs from Novo Nordisk and Eli Lilly & Company are unlikely to gain a significant foothold in these economies, characterized by their subdued per capita purchasing power when compared with the US.
In 2022, McDonald’s US sales amounted to $9.42 billion while other markets contributed $11.16 billion to the fast food giant’s total sales. This ex-US skew is expected to grow even more pronounced toward the end of the decade. Consequently, we believe that McDonald’s will be able to weather the GLP-1 storm by focusing more aggressively on its Asian and African footprint, where such anti-obesity drugs are unlikely to create much headwinds, at least until a much more affordable alternative emerges.
Note: An earlier version erroneously mentioned that GLP-1 drugs cost $1,000 per shot.