Analysis-Anti-obesity drugs can be boost for food makers, investors say

investing.com:

By Richa Naidu and David Randall

LONDON/NEW YORK (Reuters) — The growth in demand for appetite suppressing anti-obesity drugs like Novo Nordisk (NYSE:NVO)'s Wegovy presents opportunities for food manufacturers and the market's initially downbeat reaction may be overdone, investors say.

When Walmart (NYSE:WMT) said this month that it saw a slight pullback in food consumption when people took the medication, it sparked a sell off in shares of companies including Nestle, the world's biggest packaged food maker.

«It feels like quite an overreaction,» said Aviva (LON:AV) portfolio manager Richard Saldanha. «People are extrapolating long-term consumer habits.»

Wegovy has already proved a phenomenal success in the United States and is now being rolled out in some European markets including Norway, Denmark and Germany, prompting concerns in the consumer and retail industry that food sales may be impacted.

«Novo's breakthrough can definitely lead to major changes — both for food and beverage companies, but also for other health-related stocks within the obesity industry,» said Kiran Aziz, head of responsible investments at Norway's biggest pension fund KLP, which holds stakes in both Novo Nordisk and a number of food companies.

She added, however, that more focus should be paid to the impact on supermarkets, where margins are thinner and the impact on profitability may be greater.

Nestle has already started work on products that «companion» weight loss drugs like Wegovy, CEO Mark Schneider said last week, which may include supplements to help compensate for the «loss of lean muscle mass» and «rapid regain of weight».

Those initiatives, and the limited availability of the drug as Novo struggles to keep up with demand, have