The company itself says it is less concerned. Resmed has seen it all before, chief operating officer Robert Douglas told investors in June. Similar predictions of doom were made when bariatric surgery first became popular, and yet the company has thrived since then.
Douglas said obesity is only a contributing factor to sleep apnea, and there is currently far more demand for treatments than the company can meet.
Ozempic and other drugs in the same category were originally developed to treat diabetes. The weekly injection works by mimicking hormones that tell the body it is full, hence its utility as a weight loss drug.
Novo Nordisk, the Danish company which developed Ozempic, recently released a study showing that it could also help delay the progress of kidney disease. The news has knocked around shares in Australian pharmaceutical maker CSL.
In late 2022, CSL spent A$19b to acquire drug maker Vifor, which has a kidney dialysis business, and investors are concerned that Ozempic will lower demand for the produce.
Hence CSL is being sold down as well, with its shares down about 20 per cent since June.
The market was already a little apprehensive about the scale of the Vifor acquisition, and the kidney study has only increased those concerns.
But it’s worth keeping the threat – to the extent there is one – in perspective. UBS points out that the kidney dialysis business only accounted for 39 per cent of Vifor’s revenue, which in turn only accounts for 15 per cent of CSL of group revenue.
Like Resmed, CSL has seen it all before.
Chief executive Paul McKenzie said he has seen big predictions made for other wonder drugs over the years, with the expectation they would revolutionise the treatment of conditions such as obesity, high cholesterol and Alzheimer’s.
“But fundamentally, to move a whole market and make that go away? We just don’t see it,” the biotech veteran told reporters.
CSL is one of the great success stories of Australian business.
Since listing in 1994, the company has grown from employing 1350 people to 30,000 (2300 of them in research); revenues have jumped from A$143 million to A$13b; research and development spending from A$17m to A$1.23b; and market capitalisation from A$300m to A$112b, even after the 20 per cent fall.
Ozempic’s effect is being felt beyond healthcare, particularly because of its propensity to reduce users’ appetites.
A Morgan Stanley survey of 300 patients taking the drugs showed daily consumption of calories dropped by 20 to 30 per cent. The US investment bank found patients report the most significant changes in frequency of trips to fast food and pizza chains – down more than 70 per cent – and reduced consumption of confectionary foods, baked goods, salty snacks, and sugary drinks and alcohol.
US retailer Walmart has said it is already seeing a reduction in the amount of high-calorie its shoppers are buying. The admission in early October sent shares in PepsiCo, Coca-Cola, McDonalds and retailer Costco all lower.
And Novo Nordisk, which makes weight-loss drug Wegovy along with Ozempic, is now Europe’s largest company, worth US$450b.
Scientific progress is usually gradual and incremental, and miracle cures rarely turn out to be as miraculous as first hoped.
Short sellers – investors who bet on the prices of specific shares falling – are driving these stocks down in the current market. It’s likely the short sellers will start targeting other Australian stocks that could be affected by lower consumer appetites or lower obesity rates. These could include pizza retailer Domino’s and Coca Cola Amatil, the sharemarket-listed Australian arms of the global food brands.
It’s unlikely that we will all be wandering around in bikinis, showing off our supermodel figures and munching on carrot sticks any time soon.
Resmed and CLS are companies with long histories of product innovation and adapting to changing times and markets. Nor are they reliant on single products or market segments.
Most likely, the sell-offs in their shares are overdone and they’ll come back in time.
Christopher Niesche is an Australia-based financial journalist 25 years’ experience on Australia’s major newspapers, most recently as deputy editor of the Australian Financial Review.
