In business, as in life, we would all do well to be aware of ‘Black Swans’ – occurrences defined as rare and unpredictable, with severe consequences.
Trump tariffs and Putin’s most recent invasion of Ukraine are not Black Swans. Anyone who was paying attention to the current US president’s first administration and the Russian leader’s annexing of Crimea, should have seen both coming – at least potentially.
GLP-1 (Glucagon-Like Peptide-1) drugs however, look like being a Big Black Swan for food and drinks businesses.
As ‘veteran investor’ Terry Smith said in January as he divested his £22.5 billion Fundsmith Equity Fund from Diageo:
“We suspect the entire drinks sector is in the early stages of being impacted negatively by weight-loss drugs… Indeed, it seems likely that the drugs will eventually be used to treat alcoholism such is their effect on consumption”.
Jamie Ross, a portfolio manager at Henderson EuroTrust, was less certain, but still concerned, asking:
“Will people taking weight-loss drugs drink less alcohol? Will they avoid frozen food? Will sugar consumption be hit? These are all questions that inform investment decisions today but the answers will not be visible for several years to come.”
Background
While they have a relatively long history of treatment for diabetes, it was as recent as 2014 that a GLP-1 agonist - a substance that mimics the actions of a neurotransmitter or hormone to produce a response when it binds to a specific receptor in the brain - called liraglutide was approved by the FDA in the US for weight loss, under the brand name Saxenda.
It took another seven years for Semaglutide, another GLP-1 agonist used in a diabetes drug called Ozempic, to be approved for weight loss as Wegovy.
To illustrate how little focus the pharmaceutical companies initially placed on the potential market for GLP-1, one merely has to look at the way Novo Nordisk, Semaglutide’s Danish developer, behaved in Canada where, in 2019, it failed to pay the annual CAN$250 ($185) fee to the Canadian government to maintain its patent.
As Fortune reports, the company was offered a second chance to protect the drug – for CAN$450, but again to failed to do so. Which explains why, next year, the Canadian patent on Ozempic and Wegovy will expire, opening the door to inexpensive generic versions, just across the border from the US.
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