If you’ve been watching television recently, you must have heard the theme song for the blockbuster drug Ozempic. “Oh, oh, oh, Ozempic.” This catchy tune is a play on the 1974 tune “It’s Magic” by the band Pilot. The jingle resides rent free in my head after consuming an above average amount of sports this year. “Oh, oh, oh, Ozempic.”
The Ozempic category of drugs has the potential to be the best-selling (legal) drug in history. We are grateful for the health benefits GLP-1s, also known as obesity drugs, provide to both people we know and others around the world. We write below from the lens of an investor. This investor sees opportunities stemming from an overreaction to the impact of the drug on other health-related industries, e.g., medical devices.
Medical device stocks, as measured by IHI ETF, declined 30% from its peak. We believe much of the decline was due to a fear of medical technology market sizes potentially being reduced in the next several years because of GLP-1 drugs.
Before we discuss investment impacts, what is GLP-1? According to the Society of Endocrinology, “Glucagon-like peptide 1 is a hormone produced in the gut and released in response to food. It causes reduced appetite and the release of insulin.”
As stock investors, we believe it is possible there is an overreaction occurring about the effects this drug will have on our country and the world. Since the GLP-1 phenomenon swept the nation, there is a narrative emerging from many investors that the majority of medical issues caused by obesity, like sleep apnea and cardiovascular issues, will be significantly decreased as more consumers take the drug. Some have gone as far as speculating that people will purchase less junk food. The stock of Krispy Kreme donuts was recently downgraded on views that less of their products will be consumed as result of GLP-1s. Yes, they went after Krispy Kreme. Is nothing sacred anymore?
Medical device stocks have declined because of the recent craze. As the story goes, weight loss drugs will lead to less need for surgeries in the future. While we share in the optimism that GLP-1 drugs could help our country’s obesity and diabetes problem, we believe surgeries will still be necessary. This is especially true as the baby boomer population continues to age.
On Oct. 18, 2023, Robert Ford, CEO of Abbott Labs, addressed these concerns on a conference call. In response to a question about the GLP-1s, he responded: “I think early on, those thoughts about the future are generally impacted more by emotion than facts and data.” We echo this sentiment. Ford goes onto make some other interesting points. He believes the GLP-1 drugs will compliment other medical devices, like insulin monitors. Further, he believes surgeries will still be used in conjunction with the drug, just like in the past.
We do believe that many people will be helped by the GLP-1 drugs, but there is more to it than that. To drastically reduce the number of surgeries needed, the patient will have to take the treatment regularly for several years. Further, the drug must be made available and cost effective. Today, it is difficult to get your hands on the drugs and they are very expensive. Of course, insurance will cover the drugs in some cases, but someone is ultimately paying for it and someone is responsible for taking it each day.
In summary, there will be meaningful long-term health benefits from the use of GLP-1 drugs. However, it is possible medical device stocks have declined too much in anticipation of Ozempic’s potential ripple effect.
Perhaps the drug is magic, like the theme song says, but there is also some serious magic in many other medical technologies. It is possible we live in a world where both can continue to thrive and help people live more full, healthy lives.