The market is optimistic about weight loss drug?

1.Traditional weight loss industry is bowing down

Faced with the strong market response of the "miracle medicine" for weight loss, traditional weight loss companies that have always advocated the weight loss concept of "diet+exercise" - Huili Light Body and Noom - have recently launched plans to provide prescriptions for Smegglutide and similar drugs as part of a strategy to view obesity as a chronic disease.

Dr. Linda Anegawa, the medical director of Noom, explained:

We have always followed science, and as the medical community has transformed into the concept of obesity as a disease, it would be dereliction of duty if we do not join.

Dr. Gary Foster, Chief Scientific Officer of Weight Watchers, stated that providing medication is a "natural next step" for the company. In an email, she said:

We know the scientific and successful use of GLP-1, and consumers are also very interested. With the continuous development of science and consumers in this field, we are also meeting their needs.

2.Diabetes drugs and equipment stocks bear the brunt

Weight loss drugs can reduce the risk of diabetes and heart disease at the same time. As patients lose weight by taking new drugs such as GLP-1, the number of diabetes cases may decrease, which is very beneficial from a health perspective, but has brought demand problems to equipment manufacturers.

An intuitive data is that since this quarter, the three companies with the largest decline in the S&P 500 healthcare index - Insulet, ResMed Inc and Dexcom Inc - are all related to diabetes.

As a drug for treating diabetes, Insulet Corporation, the insulin pump manufacturer, was the most affected. Its market value has evaporated by about 45% in the past three months, and its quarterly performance hit the worst in nearly 15 years.

On the eve of releasing its first half financial report this year, Novo Nordisk announced that the positive results of its highly anticipated Phase III trial "SELECT" exceeded expectations, indicating the potential role of the so-called "weight loss miracle drug" Wegovy in reducing the risk of severe cardiovascular disease. As a result, the stock prices of diabetes equipment manufacturers plummeted.

3.Changes in the market landscape of other related industries

The impact of weight loss drugs on other markets has also spread to the medical equipment industry.

ResMed is a medical equipment company that produces ventilators for treating sleep apnea (a condition often associated with overweight). Its stock price fell by more than 30% this quarter, marking the largest three month decline in 24 years.

Morgan Stanley expects that areas that may be affected by changes in GLP-1 medication and weight loss plans include total knee arthroplasty (TKA), CPAP machines for respiratory care, continuous blood glucose monitoring (CGM) devices, and heart failure devices.

The efficacy of weight loss pills is still constantly being amplified. The clinical data of Retarutide launched by Eli Lilly shows that the efficacy and safety of Retarutide are significantly improved by exploring NASH (non-alcoholic steatohepatitis) related biomarkers.

This will also pose a significant threat to the NASH therapeutic drug industry. On June 28th, leading liver disease testing company Furui Co., Ltd. plummeted by nearly 20% upon opening; Several NASH drug developers in the United States also responded with a decline: Madrid fell 13.32%, Viking fell 18.22%, and Terns fell 23.52%.

In addition, the food industry has also been severely affected. According to Morgan Stanley's forecast, the surge in GLP-1 drug users such as Smegglutide may lead to weak demand in industries such as food and catering, resulting in annual losses of billions of dollars. The new weight loss medication can reduce daily calories by 20-30%, which according to financial institutions, may lead to a 3% decrease in consumption by potato chip, biscuit, and baked goods manufacturers by 2035.

Even the hotel industry is feeling pressure, according to Morgan Stanley's report data, 77% of weight loss drug users go to fast food restaurants less, and 74% of people go to pizza restaurants less.

4.The market is optimistic about weight loss drug, but Wall Street doesn't think so

However, market sentiment seems to be overly optimistic about the "two giants" of weight loss drugs.

Bloomberg analyst Matt Henriksson said, "The current actual fundamentals do not match market sentiment."

Market sentiment is imagining the worst-case scenario, where GLP-1 can cure all diseases and prevent or delay all future medical procedures, while fundamentals suggest that this seems unlikely.

Some investors see industry weakness as a buying opportunity. JPMorgan Chase stated in a report at the end of August that the sentiment in the medical equipment market was the worst since the 2008 global financial crisis. Analyst Robbie Marcus said that this means it's time to snap up equipment stocks now.

But Wall Street believes that short selling equipment stocks this quarter is profitable for short sellers. According to data from IHOR Dusaniwsky of S3 Partners LLC, as of Thursday's close, bearish bets on a few stocks such as Insulet, Tandem Diabetes Care Inc., ResMed, and Dexcom had a book profit of approximately $1 billion.

However, some argue that these equipment stocks may still experience a rebound. Analysts say that as prescribers and patients begin to face side effects and usage risks, stock prices may rebound. If stocks continue to sell, investors are betting that they may not turn losses into profits until early 2024 at the earliest.