^{Originally published in the AFR on 30 October 2023. See the original article.}

It was a year ago that a tweet from Elon Musk regarding how he achieved dramatic weight loss sent Google searches for the words ‘‘Ozempic’’ and ‘‘Wegovy’’ skyrocketing as #Ozempic went viral on TikTok.

These words are brand names for the same underlying drug produced by Danish pharmaceutical company Novo Nordisk, which has been approved for the treatment of, respectively, type 2 diabetes and obesity with a weight-related health condition.

Over the past few months, the hype surrounding these drugs has moved from social media platforms to the financial markets. Mentions of ‘‘GLP-1 (glucagon-like peptide-1) drugs’’ in company earnings calls have tripled. Novo Nordisk’s market capitalisation now surpasses the entire GDP of Denmark, and billions of dollars have been wiped off the valuation of companies worldwide that are deemed by the market to be ‘‘GLP-1 losers’’.

The losers and winners even have their own dedicated indices in Bloomberg. These types of drugs have been around for almost 20 years. So why all the hype now?

The step change happened in August after the release of data from Novo Nordisk’s SELECT trial with its obesity drug, Wegovy. The first GLP-1 drug was approved in 2005 for type 2 diabetes and it has substantially improved.

However, Nordisk’s SELECT trial showed Wegovy reduced the risk of heart attacks, strokes, and cardiovascular deaths in non-diabetic obese patients by 20 per cent. This is an important result given the size of the trial – more than 17,600 patients. It is the first time a drug of this kind has demonstrated a significant cardiovascular benefit.

The results raised expectations that other trials, such as Eli Lilly’s of obesity drug Mounjaro, which aims to address conditions including sleep apnoea, would also deliver positive results and that these drugs may revolutionise the healthcare industry.

The share prices of Novo Nordisk and Eli Lilly have soared and companies deemed to be GLP-1 losers have been hit hard. The losers include businesses that sell insulin pumps, glucose monitors, dialysis machines, and hip and knee replacements.

One high-quality Australian-listed company that has been hurt is ResMed, best known for manufacturing continuous positive airway pressure (CPAP) machines and masks to treat obstructive sleep apnoea (OSA). ResMed has lost a third of its market capitalisation in less than three months. However, the exact impact on the company from GLP-1 drugs is not as clear-cut as it would seem.

While obesity is a large contributing factor to developing sleep apnoea, it is not the only factor. ResMed believes GLP-1 drugs may increase the awareness and diagnosis of sleep apnoea. Many medical professionals see a potential shift towards using GLP-1 drugs in tandem with CPAP as the standard treatment for OSA, which would be a positive change.

CSL is another Australian-listed company that has been dragged down, in part due to its limited exposure to the dialysis sector.

These types of drugs have been around for almost 20 years. So why all the hype now?

The GLP-1 loser theme is now increasingly spreading to other sectors, and putting downward pressure on the share prices of companies in the restaurant, food, and alcohol segments. This trend has gained momentum, particularly after Walmart chief executive John Furner noted a shift in consumer behaviour, with a decrease in calories per shopping basket.

The trial results are impressive. However, these drugs require a weekly injection, come at a high cost (circa $US1,000 [$1,580] per month, but can vary based on dosage), face supply shortages and often lack comprehensive coverage by health insurers.

Nasty side effects such as nausea and vomiting force many patients to stop using the drugs. Any weight lost during treatment is typically regained once the therapy stops.

Share prices are often driven by speculation and fear. No one knows how the GLP-1 drug landscape will play out or the timeline. What we do know is that the impact on near-term earnings for companies, such as ResMed, is negligible, and well-managed, innovative companies tend to adapt and evolve. Without a crystal ball, investors must focus on reality and avoid being drawn into the hype.