The global market for weight-loss drugs is poised for explosive growth, projected to reach a staggering US$100 billion (£74 billion) by 2030. This surge is largely driven by the success of GLP-1 injectable medications like Ozempic, Wegovy, and Mounjaro, with analysts predicting 2026 to be a “pivotal year” for the obesity sector. The potential for even greater expansion exists as more oral formulations of these drugs enter the market, broadening their appeal beyond injections.
Leading pharmaceutical giants Novo Nordisk, the maker of Ozempic and Wegovy, and Eli Lilly, responsible for Mounjaro, are actively developing pill versions of their highly successful treatments. This intense interest has prompted US pharmaceutical titan Pfizer to acquire Metsera, a company developing an experimental obesity drug, signalling their ambition to capture a significant share of what is potentially a US$150 billion (£111 billion) market by 2030, according to some estimates.
Ripple Effects Across Industries
The profound impact of these weight-loss drugs, which often suppress appetite, is set to reverberate across the food and beverage industries. Companies are already adjusting their strategies to account for shifting consumer habits.
- Fast Food Sector Adjustments: McDonald’s, for instance, is reportedly re-evaluating its menu, with an increased focus on chicken offerings, anticipating that this leaner protein will appeal to individuals managing their weight with medication. In a similar vein, some higher-end US restaurants are responding by reducing portion sizes to cater to customers who may be less inclined towards larger servings.
- Supermarkets and Bakeries Under Pressure: Local businesses, including supermarket chains and bakeries like Greggs, are already experiencing the initial impacts. The popularity of these appetite-suppressing medications raises questions about the long-term appeal of traditionally popular, high-calorie items like sausage rolls.
- Beverage Industry Rethink: Even global beverage giants like Heineken are facing the necessity of developing new business models to adapt to evolving consumer preferences.
The stock performance of major players in the alcoholic beverage sector reflects these concerns. Shares in Diageo, the parent company of well-known brands such as Guinness and Johnnie Walker, have seen a notable decline of 13 per cent over the past year. This trend has led to divergent investment strategies among veteran investors. Terry Smith, manager of the Fundsmith fund, has divested from Diageo, while Nick Train, manager of the Finsbury Growth & Income Trust, remains optimistic about a turnaround under new leadership. This difference in opinion serves as a stark indicator of the significant disruption the “fat-jab revolution” could instigate across various investment portfolios.
The Competitive Landscape and Emerging Challenges
While the outlook for the weight-loss drug market is exceptionally promising, companies vying for a substantial portion of this lucrative sector face considerable hurdles.
- Side Effects and Safety Concerns: Alarming reports of potential side effects, including an increase in pancreatitis cases linked to the heightened usage of these drugs, are a significant concern.
- Rise of Generics and Copycat Versions: As the popularity of the leading medications grows, there is an increasing demand for more affordable generic or copycat versions, putting pressure on the profit margins of the original developers.
- Market Saturation Fears: Analysts suggest that the market may already be becoming crowded, leading to a more cautious outlook for some companies. For instance, Pfizer’s acquisition of Metsera has resulted in analysts rating its stock as a “hold” for the time being, reflecting concerns about market saturation.
However, new entrants continue to emerge with innovative approaches. UK pharmaceutical giant AstraZeneca has secured exclusive global rights, outside of China, to a novel once-a-month injection developed by Chinese firm CSPC Pharmaceutical Group. This US$13 billion agreement positions AstraZeneca to potentially capitalize on a new wave of obesity treatments, highlighting the dynamic nature of this evolving industry. Investors are advised to closely monitor their holdings in this sector, as the long-term winners may not necessarily be the current market leaders, especially as demand expands beyond the United States to Europe, China, and other emerging markets like Brazil, India, and Japan.
Investing in Today’s Key Players
Despite the intense competition, several companies remain central to the weight-loss drug narrative.
- Novo Nordisk’s Resilience: Shares in Novo Nordisk, the maker of Ozempic and Wegovy, have experienced a significant decline of 49 per cent over the past year, falling from their peak value. This dip has been attributed to increased competition, particularly from Eli Lilly’s Mounjaro, whose shares have seen a 13 per cent increase. Despite these challenges, Novo Nordisk remains a holding for Fundsmith, with a focus on the potential for recovery under new management and efforts to combat the proliferation of generic versions. The company has had some success in preventing the sale of generic Wegovy pills online, though this is unlikely to be a long-term solution. Analysts remain cautiously optimistic, with a majority rating the stock as a “buy” or “hold,” and Deutsche Bank reiterating its “buy” recommendation with a revised target price.
- Eli Lilly’s Strong Performance: Eli Lilly is experiencing a period of strong growth, with its shares performing well. Deutsche Bank has issued a “buy” recommendation for Eli Lilly with an elevated target price, reflecting the company’s promising pipeline and market position. Many other analysts, including those at Goldman Sachs, share this positive outlook, viewing Eli Lilly as an attractive diversification opportunity for US stock portfolios. Notably, Eli Lilly is not heavily invested in the costly artificial intelligence (AI) race, a factor that differentiates it from many other prominent S&P 500 companies. The recent government-ordered price reductions under the US Medicare health insurance scheme are expected to enhance the accessibility of Mounjaro (known as Zepbound in the US), potentially boosting sales volumes despite a potential impact on profitability.
Adapting to Evolving Consumer Tastes
For investors holding shares in food and retail companies, vigilant monitoring of their adaptation to the changing consumer landscape is crucial.
- Impact on Retail and Food Services: The influence of weight-loss drugs on sales figures is anticipated to be a key focus for companies reporting their first-quarter results. Retailers and fast-food establishments will need to demonstrate creativity and adaptability to maintain or grow their customer base.
- Clothing Retailers’ Opportunity: Savvy clothing retailers are likely to find opportunities in catering to a clientele that has achieved significant weight loss and may require entirely new wardrobes.
- Fast Food Menu Revisions: As seen with McDonald’s strategic shift towards more chicken options, fast-food chains are being compelled to innovate their menus. While McDonald’s shares have seen a modest increase, analysts are awaiting confirmation that this strategy will prove successful. Conversely, Wendy’s shares have declined significantly over the past year, reflecting challenges in adapting to diners’ reduced orders of traditional high-calorie items. Analysts are keen to see if Wendy’s can formulate a new strategy for this evolving market.
- The Greggs Challenge: In the UK, Greggs has experienced a notable dip in its share price, partly due to concerns that its signature sausage rolls might be less appealing to consumers utilizing weight-loss medications. While analysts believe Greggs has the potential for innovation, there is apprehension that as more individuals adopt these prescriptions, the customer base for traditionally popular items could shrink, particularly if higher-frequency consumers with higher body mass indices are prescribed these medications.
- Premium Treat Innovations: Even companies specializing in premium treats, such as the Magnum Ice Cream Company (which also produces Ben & Jerry’s and Carte d’Or), are facing scrutiny. Magnum’s leadership is exploring opportunities in lower-calorie, nutrient-dense options with real ingredients and higher protein content. However, a recent 10 per cent drop in Magnum’s shares suggests that the market may be sceptical about whether these new offerings will be sufficiently enticing for consumers on weight-loss regimens.
