As new technologies and innovations are developed and widely implemented, a range of unintended consequences inevitably ensue. Last week, Walmart revealed that individuals purchasing weight loss medications containing semaglutide, such as Wegovy and Ozempic, at Walmart’s pharmacies have been purchasing slightly fewer groceries at its outlets. This development caused about a 2% drop in Walmart’s stock price. Other grocery retailers, fast-food chains, and sugary beverage manufacturers like McDonald’s and Coca-Cola also experienced declines in their respective share prices due to the announcement.
New innovations bring about new innovations. Ozempic, developed by Novo Nordisk, received approval from the Food and Drug Administration (FDA) in 2017 for the treatment of type-2 diabetes. Subsequently, it was observed that the drug was effective in treating individuals grappling with obesity. In 2021, Wegovy gained FDA approval specifically for obesity treatment. Wegovy and Ozempic operate as glucagon-like-peptide-1 (GPL-1) receptor agonist, essentially emulating the naturally occurring hormone GLP-1, which aids in appetite regulation and decelerates food digestion. This year, Novo Nordisk made the noteworthy discovery that their Wegovy treatment also reduces the risk of serious cardiovascular events in patients. The innovation of one drug has been able to treat people with different conditions.
As evidenced by Walmart’s recent announcement, new innovations exert influence on consumers across various dimensions. In the case of Ozempic, it was approved for treating diabetes; and subsequently observed to also treat obesity. Now, it is observed that the treatment for obesity results in a lower demand for food and beverage products.
These phenomena are highly interesting for investors:
- ·Businesses who innovate in one product or service; but this leads to other innovations. Examples includes: Google starting as a search engines, now one of the largest advertising and content platforms in the world; Amazon starting as an on-line book stores; now one of the largest retailers in the world and a leading cloud services. Businesses that are in tune to consumers changing demands will be able to benefit from the changing landscape.
- A positive impact on one business may negatively impact others. Retailers who have lost market share to Amazon and other online retailers; less food consumed by patients being treated for obesity.
Investors need to consistently be on the look out for these positive and negatives trends.
Novo Nordisk, Walmart, and Amazon are held in the Lunar BCI World Wide Flexible fund. They are also held by Lunar Capital’s Offshore Portfolio clients.
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This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.