Odd Lots - Here's How the New Weight Loss Drugs Could Change Everything

Episode Date: August 17, 2023

There's a new class of weight-loss drugs in town. GLP-1 medications including Ozempic, Wegovy and Mounjaro were created to treat diabetes but have since been found to suppress appetites and induce substantial weight loss. It's a big deal for the companies which make them, with shares of Novo Nordisk and Eli Lilly all soaring in recent weeks. But the drugs could end up having a much broader economic impact too. On this episode, we speak with James van Geelen of Citrinitas Capital, about the second-order effects of effective weight-loss drugs. He talks us through how he's evaluating the potential of the new meds and how he approaches possible 'mega-trends' like GLP-1 or AI.See omnystudio.com/listener for privacy information.

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Bloomberg's Surveillance, Essential Listening, each and every business day. So, and welcome to another episode of the Odd Lots podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. Joe. Would you ever go on Ozzyopic? Oh, yeah, definitely.

I can't wait. Really? Well, yeah, why not? It seems fun. It reduces your appetite. Probably lose weight. It seems like it also has a bunch of other. I keep seeing these other things.

It's good for like, you know, impulse control and all kinds of positive things. Yeah, why not? Yeah, supposed to be good for impulses and addiction. And also, I think there's some new stat out saying that it reduces the risk of heart attack and stroke by 20%. Well, anyway. Would you? I think, yes. However, I would definitely wait for the price to come down a little bit.

And maybe for more of the side effects to become apparent. But I'm very cautious with these sorts of medical breakthroughs. Yeah, I have too. I feel like I don't know that much about all these drugs, like Ozypic and Wegovi and the other GLP ones, but they seem pretty great. And I'm just like, yeah, upward and onward. The March of Progress, science. I love it.

No, but I actually do think, like, is something I've been thinking about is, like, people are so skeptical of even the possibility of the existence of a wonder drug that people are like, oh, it's going to do this, it's going to do this, it's going to be bad, it's going to reverse. It's going to, and maybe that's possible. But what if it really is a wonder job? Well, exactly. And I think it opens up a ton of interesting questions, specifically about what it means for wider society and the wider economy when we know that obesity and diseases like diabetes

have been this huge weight on both the socioe economy and the healthcare industry. Obesity itself is like just this gigantic economic force. It's a business force. There are businesses that thrive on how much people like to eat unhealthy food. There are huge cause to insurers. There are other second order effects related to injuries and heart complications and so forth. It's such a modern, important phenomenon that were there to be, and maybe it kind of looks like there is, but were there to be this sort of like straightforward way to reduce obesity,

it seems like the implications would be huge. Right. And I keep getting visions of like, story. Star Trek in my head where everyone is kind of slim and dressed in track suits. Sounds great. And very athletically capable. And we all just wander around spaceships. So that sounds great.

Well, anyway, on a serious note, I think we need to dive into these new sets of drugs. What exactly are they? How do they work? And more importantly, more interestingly, what do they actually mean for the wider economy and the business environment? So many. I'm so glad we're doing this because it does feel like beyond. just the companies selling these drugs, which we know have been taken off. We're recording this on August 9th, just yesterday, Novo Nordisk, the Danish company soared because they had another test

showing that one of these drugs was very good for fighting heart disease. So we know that there's like the interest in the vendors, the sellers of these drugs. But again, what does it mean all these second and third order effects if they really become extremely widespread? And it kind of looks like they're on that trajectory. It feels very unexplored. Yep. So let's dive into the of second order effects of miracle weight loss drugs, a fun episode ahead. We have really the perfect guest. We are going to be speaking with James Van Galen of Citrinitas Capital, also known as Citrini on Twitter. So James, thank you so much for coming on all thoughts. Hi, Tracy. Hi, hi Joe. Thanks for having me. So, James, from what I remember, you actually have something of a medical background. Is that right?

Yeah, I worked my way through undergrad as a paramedic for a while in Bridgeport, Connecticut. And then when I transferred to UCLA, I worked as a paramedic in Compton, California. So I'm not a stranger to the medical field. Then for about four years, I started, co-founded one of Connecticut's first medical marijuana dispensaries. So I definitely am not a stranger to the medical field. Now I do the hedge fund thing, and it comes in handy once in a while. Investing in medical technology, or biotech often, it seems like this sort of like roulette wheel, and I'm always saying, skeptical that anyone who is, like, not a scientist can actually have informed insights on new medicines and how big they could get, et cetera. Can you just sort of, like, give your overview of,

like, how do you even, like, think about these things? Like, if you're not, like, a scientist, how do you even begin to, like, wrap your head around, like, how do these drugs work and how big they could be? And which ones have more potential than others? Like, what's your, like, framework for, like, sort of just, like, evaluating some breakthrough in the first place? I mean, I don't do a ton of like biofarma investing. I'm not a scientist, but I do have a robust network of channel checks. And I'm a big proponent of basically if you don't know something, ask, you know. We are too. So I am, you know, I'm always bothering them. And, you know, I'll cost me as a couple dinners or something. And but, you know, I don't do much, if any, investing in companies

that are still clinical stage, right? And, you know, a lot of my investing is kind of thematic investing. It's focused on these kind of paradigm shifts, these megatrends, essentially. And when you see something like this, right, you know, all the feedback from Challenge X is good. And it's something that we've kind of needed as a, you know, in developed markets, at least, for decades, right? And you just see the kind of behavioral incentives that exist surrounding it. And I always come back to basically, you look at like Viagra in the 90s. And, you know, you did not have to be a doctor. to kind of see Pfizer just killing it, you know, just doing amazingly with this drug that solved the problem that people had that, you know, needed to be fixed and it worked. And, you know,

honestly, that might be the reason that most of us know who Pfizer is, right? So, you know, whether it's buying Moderna when they're developing a COVID vaccine or buying Eli Lilly, when they're developing, you know, a fat vaccine or Pfizer with Viagra in the 90s, it all falls under the megatrend looking for kind of these paradigm thematic shifts. I think people forget nowadays that Viagra was initially developed for something totally different to what it's used now. And that happened to be a sort of happy side effect of the medication, I guess. And then it became known for that. But just on this note, let me ask the basic question.

So how did these drugs, GLP1, I'm not even sure what that stands for, but how did these come into being? And how are they starting to spread through the market such that I meet VCs? who will openly say that they're on OZemPEC, and I'm pretty sure they don't actually have diabetes. Yeah, so GLP-1 stands for Glucgon-like peptide. I don't want to get too scientific, but basically the peptide helps kind of prime insulin release, right? It allows the body to absorb glucose after a meal, and you have specific cells in your pancreas that can recognize GLP1 through molecules called receptors, right? So essentially, we've been looking into these drugs, you know, called peptides, or the medical field,

has been looking into them, you know, since the 70s. And GLP1's primary benefit was the fact that it was able to reduce blood glucose levels via insulin release, which is, you know, very desirable in a patient with diabetes. And the thing was, you know, when it comes to peptides, normally you're trying to mimic the peptide that your own body produces. So the actual molecule, glucagon-like peptide one, is only able to create these effects for a very short time span. And so what these genius engineers discovered was that they can essentially mimic these hormones

and have these molecules that bind to the receptors. They're called agonists, right? And that can create an effect that lasts, you know, for hours or even weeks. And that was basically the basis of the initial development. And the impetus for it was essentially to go after diabetes, right? You have something that can regulate glucose that is possibly dysregulated in a patient with diabetes. That's kind of something that seems desirable, right? So they were kind of predicted to also prolong this feeling of, you know, fullness and slow gastric emptying.

And they also provide a variety effects in the brain. And these drugs do cross the blood brain barrier. And the first GLP1 drug that was approved by the FDA was exempt. It was marketed under the name Bayetta. So, Bayada was approved in 2005, right? And primarily to be used in type 2 diabetes. And while you have something like semi-glutide right now, which is Ozambic, it's a generic name for Ozambic. And then Mujaro, which is Lily's drug, it's her Zapatide, is the generic name.

And the thing is, once you have a class of drugs, you can kind of anticipate what the side effect profile will be. It's not necessarily that you can anticipate every single side effect, but you get an idea of the structure activity relationship, you get an idea of, you know, this dose-dependent curve and where side effects start becoming apparent. And so with GLP-1s, they have side effects, right? They have some GI side effects and these GLP-1 receptor agonists like semi-glutide, they can be pretty bad. But what Lilly saw was essentially, it was decided that they would try to go after different receptors in the same system, right? So they kind of get this. It's got like terzapitide, Mujaro, is basically a dual gLP one receptor and then GIP receptor agonist.

So the way that that works is the GIP activity allows you to take a higher dose before experiencing the side effects, the GI side effects. And we also kind of know, you know, since these drugs, You know, Trulicity was a big one that was approved in, I think, 2014 for type 2 diabetes, it saw very wide use. So when you encounter someone and they're like, oh, you know, no, for sure, these drugs are going to know your insides. You know, like, I don't blame them for that. Because if you look at the history of weight loss medication, you think fen, fenn, right, which like basically melted your heart. Then, you know, Ramona Bant, which was like this genius invention where the scientists were like, well, you know, the cannabinoid receptors, basically the receptors that THC act on, those make you hungry.

So if we block those receptors, then it should make you not hungry. And it did. But you know what else the cannabinoid receptors make you is happy. So I don't know how they didn't see this coming, but it made people very sad and increased the likelihood that they would commit suicide. And so that drug was pulled very quickly. And, you know, you kind of look at the past of the weight loss industry. People take, you know, tapeworm pills and just doing absolutely insane. same things. And it's kind of like, okay, now you have this drug. And the absolute worst concern, you know, that there's a warning on the FDA label is that it may, you know, it may result in thyroid cancer. But the thing is, the only time that that's ever been observed with these

GLP1 drugs is in mice. And the thing about mice is when you're doing a trial with a mouse, the mouse is not going to tell you, I can't handle these side effects anymore. I'm going to stop taking the injection, right? No mice drop out of trial studies. So what happens is, you know, like if you were to take the equivalent dose that caused, you know, these endocrine cancers in mice, before you reach that point, you would be so sick to the level of not being able to function. And so the dose was much, much higher and that, you know, the, it has not been observed in humans. And the other thing is, this is probably a little controversial, but the fact that, is like obesity is devastating, right? It is absolutely terrible. The way that increases mortality,

I mean, I'm going to drop some statistics that Lilly dropped on their earnings call, which is that, you know, there are 236 obesity-related health conditions. Type 2 diabetes risk is increased by 243% in people with obesity. Heart disease by 69%, high blood pressure by 113%, high cholesterol all by 74%. And the contribution to all cause mortality is so significant that essentially, if I had a drug that would, again, this has never been observing humans. It's probably not going to be because of the relationship that I described with the dose. But let's say I had a drug that 100% no matter what, in 40 years, you're going to develop thyroid cancer from it. Even if that was the case, if it also 100% of the time made you not obese anymore,

the net effect on your life expectancy would still be positive. This is Caroline Hyde. And I'm Ed Ludlow inviting you to join us for Bloomberg Tech, a daily podcast focusing exclusively on technology, innovation, and the future of business. Every weekday, we bring you the top headlines from the world's biggest tech companies. From finance to defense, AI to entertainment, and from startups to the magnificent 7. We highlight the latest stories of the people. and companies pushing the tech sector to new frontiers and the politics that shape global tech markets.

We do this all every weekday, then bring you the most important conversations and analysis in our podcast. Search for Bloomberg Tech on YouTube, Apple, Spotify, or anywhere else you listen. Join us every afternoon on your commute home and stay ahead of the tech news cycle. That's the Bloomberg Tech podcast. I'm Caroline Hyde in New York. And I'm Ed Ludlow in San Francisco. Subscribe today wherever you get your podcasts. You know, so you mentioned in the beginning that you, as an investor, you like to think about people called paradigm shifts or megatrends and so forth.

And one of the things that thinking about it in this context, and I think there is a very good argument. I'm basically sold that the rise of these drugs will constitute a paradigm shift or a megatrend or something like that. And I feel like many people buy that. But the other thing is that like betting on megatrend often is not trivial in terms of even if you could predict the trend, you might not know what to invest in. And so, you know, a good example might be, say, like, the rise of Chinese industry or something like that

over in the, you know, in the 21st century since its entry into the WTO. And it's not like, I don't think like buying like Chinese stocks have like been like some like extraordinary winner. Certainly like long stretches of time where that doesn't work. So like what's the next step from identifying mega trend to then thinking about, okay, these will be actually. winners as public market investments. Well, let me talk a little bit about hype, right? You just had Dan Loeb and talking about how it's more important to monitor, you know, Reddit boards than it is to monitor fundamentals.

Flows before pros, baby. Tracy's, Tracy's message on her Bloomberg. Tracy's ready to spend up a fund that takes advantage of that, I think. She's very pro the Reddit investors. What was that? The guy in the basement has the edge, if that's the case. Yeah. Well, it's all about the story, all about the narrative, right?

Right? And the guy reading Reddit might have a better handle on that. But go ahead. Right. This kind of, you know, memetic investing. So, you know, you guys ever heard of the Gartner hype cycle? Yeah. For those who haven't, the way that it looks is you have this kind of parabolic rise between the technology trigger and then the peak of inflated expectations. And kind of the axiomatic way to give an example of this would be the dot com bubble. Right. You have the technology trigger, which is the internet. And then it kind of goes parabolic all the way up to the peak of inflated expectations, which would probably be, you know, in 1999, pets.com type stuff where the things that are happening

are absolutely ridiculous, right? The forecasts are insane. And the thing about a megatrend or, you know, a theme that is persistent is it doesn't go unnoticed for very long. It can be a significant amount of time. But, you know, you speak about like Chinese industry in the 21st century, you know, like there was a period of time where you could have been early. on that and you could have invested and made excellent returns that you know the peak of inflated expectations and then uh kind of exited before i guess i think maybe uh there was kind of a bi phasic so maybe it would have been the agent currency crisis but the then what happens is you get this trough of disillusionment right where it's like this technology isn't real everything is kind

of hyped up it was all BS whatever right there's a bubble and then exactly it was a bubble and then you get this Well, you know, the funny thing is people say it's a bubble while it's going up, which is kind of like when people say, you know, like, okay. This is the difference between a journalistian investor, which is like, blah, blah, blah, blah. And then other people are out making a fortune. And it's like, right. Like, you know, like, this is why no reporter should ever should ever get into trading. I mean, you know, like how long was, you know, Bitcoin had a, you know, awful year last year. But like, how long was it going up for before?

for, you know, like, obviously, it was a bubble. But like, you know, that doesn't mean that you, you have to, like, be like a monk about it. You don't have to have this monastic view where, God forbid, I benefit from a bubble. You know, those people are wrong. Who cares? So anyway, you get to kind of this trove of disillusionment. And then the next phase is kind of the slope of enlightenment where, you know, to borrow a phrase from the VCs, it gets democratized. You know, you can go out in the street. Right now, if I go out on the street and I ask someone what the internet is, they're going to look at me like I have five heads. They don't necessarily have know how it works, but they know what it is. And then you get the plateau of productivity.

In the prototypical gardener hype cycle, the plateau of productivity is actually below the peak of inflated expectations. But I think most of the time in markets, it's actually higher. Obviously, there's a bit of survivorship bias on this. You know, nobody that owned pets.com benefited from the plateau of productivity. But if you think about, you know, Facebook, Amazon, Apple, you know, these, you know, they, or even, you know, you look at like the nifty 50 in the 70s, right? Like some of them have had very bad returns like IBM, but then, you know, Honeywell or carrier global, you know, you get the uptake on the GDP effect.

And essentially, this is kind of the enemy of the megatrend, right? Because it's very easy to recognize it in the beginning. And then if you're too late with it, you're going to think that the peak of inflated expectations is just a pullback, right? when it's not, you know. So this is kind of something where it's good to continuously monitor whether your thesis is playing out, whether it is actually had, you know, whether it's artificial intelligence or, you know, like you said, the rise of Chinese industry or the inflation reduction act and the impact and impetus of fiscal spending or, you know, GLP1 drugs.

As long as you are on top of it and you can see, you know, what are the earnings expectations like and what are the actually, you know, like, like, Invity is probably going to, you know, beat and raise for the next couple of years. But then, you know, where is going to be the point where the expectations aren't sustainable? And when it comes to, you know, you said you wanted to talk about the knock on effects, which is kind of, I mean, that's my favorite part of these things, right? Like, like when you actually capture a theme. And, you know, let me ask you a question. Like, do you think the knock on effects are happening yet? I don't know what the take up. So my impression is.

that actually we should ask how much do these drugs actually cost? Because my impression is that they're pretty expensive and so they're not making huge inroads into the general population just yet, but that could easily change. Well, you know, right now, as far as weight loss is concerned, as an FDA on-label indication, Novo has Monopoly, right? Novo has Wagovi, which is the drug that just had the big headline about 20% reduction in heart attack risk. And essentially, when they can actually charge what they want, right? And the way that it's going to develop is Lilly's drug Mujaro, which is much more effective. And there are other drug reddish-triotide, which is still in clinical trials.

But Mujara will be approved for weight loss by it at the end of this year. You know, that was reaffirmed within the next six months, right? That was reaffirmed by Lili on their earnings call. And let me get the answer to the question first, because I want to go into something that's going to answer your question, but I do want to assess, right? Do you think that the knock on effects are happening yet? No, so actually, I've been wondering about this because I actually was kind of under the impression, like, when are we going to see a company crash on earnings because they say, you know what, we're seeing our sales collapse? No one's eating our cheeseburgers anymore. Has it come up on any,

like, fast food calls yet? Has it come up on any, like, CPG company earnings calls yet? Like, I remember, last quarter like Chegg, the textbook company said, like, we're running into trouble because AI is like affecting our ability to sell this product that helps people with their homework. So have we seen that yet? No one will ever say that again. You know that, right, Joe? Yeah. Even if it's happening, no one will ever blame AI again.

Right. They know what happened to Chegg. So is that other companies yet that are saying, you know what? In our customer base, we're seeing a change in consumption patterns of something because of these drugs. A ton. A ton. Really?

A ton. Yeah, so just to go through a couple, right? And this will answer your question, Tracy, right? Where first off, yes, the drugs are expensive. These drugs cost about $800 to $1,200 a month, you know, which is a lot. And that is for Ozempic and Wagovi. And like I said, you know, you don't have anything that makes this much money that doesn't have competition. Right. So yes, Lily will get approved for Mujaro on weight loss and then there will be a duopoly and that'll probably last, I don't know, you know, anywhere from a year. to three years or something like that. But to come back to Viagra, right? If you think about it, Viagra in 1998 cost $88 a pill. Okay, now it costs two. There is, whether it's through generics, whether it's through competition, you know, the Seattle is what the way that it works is, you know, you have, you have competition, you have economies of scale, you have insurance coverage, you have, you know, the generic drugs eventually. GLP ones, in fact, in 2031, will face mandatory discounting under the Inflation Reduction Act.

So are they expensive right now? Yeah. But, and to come back to what we were saying before, that still did not, you know, GLP ones were mentioned a thousand times in the Q2, Q3 earnings. Wow. And only half of that was by pharmaceutical companies. Okay. I just did a transcript search and there's a herbal life earnings transcript where they talk

about g-lp1 drugs like possibly impacting the business i will never short herbal life just because we all saw what happened with that i am always willing to learn from another person's mistake and you know like but best of luck to acman if he wants to go after it again but you know if you have document search up tracy you can look at metaphast yeah and metaphast yeah metapest they uh herbulife didn't get hit as bad what you know i don't know if that's i don't know what that was a function of i think they tried to explain it. I didn't really vibe with the explanation. But Metafas basically said that, you know, we sell things that, you know, people use to lose weight. And there's, like, we cannot handle the competition from a drug that actually works, right? They, you know, I think the direct

quote was that, you know, customer acquisition is being pressured by GLP ones. But you know what they're doing now? Their strategy is essentially, okay, let's do it too. You know? Yeah. Everyone else is made right? Didn't wait watchers do something similar? Yeah, exactly. And that, you know, like I love a company that is like twerked up, levered, melting ice, price like a melting ice cube, and then positioned right in the center of like a, you know, like a burgeoning, you know, huge trend, right? Because, you know, like a good example from another trend, artificial intelligence would be like applied off to electronics, right? Which is like, like it was destroyed. And then, you know, with 800G and the data center demand for optical, you know, it's a, we're so back, right?

Weightwatch is so over and wear so back. No, I'm looking at, I hadn't heard of MetaFest, but I'm reading their descriptions. And among the things that they, and among the things that they make are pretzels, puff, cereal crunch, drinks, hearty choices, oatmeal, pancakes pudding. So I'm basically, I don't know that maybe the products are delicious, but I'm imagining the type of things that people who are sort of like really trying to lose weight are like, oh, I'm going to eat these puffs and shakes because they're a little bit healthier than the alternative.

I mean, you don't need to, that's the thing. You don't need to work. Like, you know, I was talking about my channel checks earlier. And I have an endocrinologist, you know, like Eli Lilly was one of my biggest positions from, you know, 2022, 2021, even. And it kind of got surpassed during the AI stuff. But I built up basically, you know, like I would go to like an end of, whenever you have a position that's super big, you know, you're, you're right.

on top of it, right? And you can expense a trip to an entrepreneurologist conference. And you go there and like, I'm speaking to these people and they're like, I have a patient who's eating 5,000 calories a day, which is like a full-time job, right? Like like five thousand, once you get to like 5,000, 6,000 calories, that's like, I mean, that that is like eight full meals a day, right? And he's like, I am, he's having issues because I have to recommend protein supplementation because he can't get above 500 calories a day. So if you look at a company like MetaFest that's basically, you know, selling this food that's a little bit healthier for you and, you know, maybe taste the same so that, you know, you don't have to, you're kind of getting better macronutrients or something.

I mean, there might be an opportunity there for the protein shakes, but overall, like, you don't really need to worry about, if you're taking this drug, you don't really need to worry about, oh, you know, let me buy food that's like more, that's less calorically dense, because, like, it doesn't matter. You're not going to eat it anyway. And this is kind of interesting, Because when you're looking at, when you're like monitoring social media, you know, like always monitoring like Google trends, Wikipedia trends. And for a little bit, I think this was like the middle of last year, you know, monitoring Google trends. And this Google trend comes up called Ozempic face. Oh, yeah.

This is when people get really gone from weight loss. Literally like I have. And I'm like my fingers on the cell button. I'm like if it affects your face like I'm out, you know? And it turns out like people were like, oh God, like OZempic causes you to have. like, you know, like a gone face or something. And it's like, not really. What's causing you to look gone is the fact that you're losing a ton of weight very quickly, right? And you have another one where like people are like worried about hair loss. And you know, that is, it's a condition called

intelligent effluium, right? Which is basically the same thing. When you lose too much weight, you, you know, your body is kind of like burning nutrients for energy. You're at a caloric deficit and you lose hair. It's totally reversible. And with like ozempic face, it's like you can't see wrinkles on like an inflated balloon, right? Like, that's just how it works. And it's kind of amazing to me because you have this kind of impetus where people are like, oh, like, this is the side. Like, we gotcha, you know, like this is, I knew there was going to be a catch.

And it's like people are so unaccustomed to the idea of there being a weight loss drug that works that they are confusing the side effects of the drug with the side effects of the drug, which is, you know, being successful in weight loss. Just for what's worth, I'm sorry, I keep going to make this. I'm reading the MetaFest transcript from earlier in the week. And one of the questions is, Herbalife doesn't say anything. I'm paraphrasing. Well, one of the questions from the analysts is Herbalife didn't say anything about

GLP1 drugs affecting their business. What about you? And they're like, well, we're not going to comment on Herbalife. But yes, we're feeling it. So, yeah, it actually came up. They also cited higher customer acquisition costs. Again, they say pressured by less prospects being identified by coaches, impacted by competition from GLP1 drugs inflationary pressure. So it's coming up.

Wait, so can I ask a basic question here? Wait, wait, just before we go further, can I ask a basic question, which is like how many people are on these drugs right now? I mean, so I would rather not comment right. I think that I would never be talking about something like this if I didn't think that it was early, right? And the, so like you can look at penetration like type 2 diabetes, right? You know, talking about like penitentiated. of a drug that's been approved for an indication for a year. You know, it's like, like, you're not really going to get an accurate picture, you know, and also a drug where like there's only been one approved for, you know.

And then you get also the fact that like there are talking about, you know, mentions on earnings. There are significant supply chain issues with these drugs. You know, like, like, Novo is having trouble sourcing the drugs come in an auto injector, right, which is basically, if you think of an EpiPen, you know, you take it once a week and, you know, it's like a button that you. push, but you look at like talking still about like the earnings mentions, if you look at Stevinato or Gerrishheimer or even Beckton Dickinson, the problem is that they can't produce enough of it, which is tell you something about demand, right? Like even Lily. I knew this would turn

into a supply chain episode eventually. I mean, please don't try to get me to talk about the slide chain because I will seem very silly. But the thing is just even Lily, right, obviously they have to temper their optimism, but they're having to ramp up production at all, you know, five global facilities just because of the fact that like they're like overwhelmed. They could not even have anticipated this level of demand, right? During Lilly's earnings call, Chris Chibutani, an analyst, was asking a question that was basically like Novo and Lily, you've been confronted by this demand that was like beyond what you could have possibly planned for. And with Lily, you know, Mujaro isn't even approved for weight loss yet.

And so essentially, it would be kind of premature to say, you know, what the penetration of these drugs is right now. But what I will say is that, and I have a chart that I can, you know, send you, maybe you can put it up on the site that essentially the obesity rate in the U.S. in 1974 was 12%, right? And now it's 42%. And for the past five decades, there have not been too. sequential years in which the obesity rate has ticked down. It hasn't happened for 50 years. So, you know, when you look at that, first off, I think it's not just reasonable but rational

to think that you can't have a society that has both advanced medication and then half of its populace affected by a disease and not think that eventually those two things will resolve each of it, right? And if you look at the 68-week trial data on Mujaro and you adjust for, you know, the average compliance and, you know, which patients drop out prematurely, and then you adjust for the fact that about half, after you drop out of the trial, about half of the weight loss, you still maintain about half of the weight that you lost, but about half of it goes away. And so you adjust for all those things. If Mungaro, a 68-week trial data, has a 30% penetration rate, in the obese population, right?

The obesity rate in the United States would be lower than it was in 1997. And, you know, like, that could happen over the course of two or three years. Wow. And so for a line that has gone up into the right to go down, you know, that significantly. San Francisco.

On April 4th, 2023, around two in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. So I'm not surprised that, you know, mentions of GLP-1s are popping up on various conference calls, you know,

some obvious ways like the company that maybe makes the devices for its use. or the companies that have some other weight loss solution that may be feeling pressure. But like, for example, today, again, August 9th, we got earnings from Wendy's. No mention of GLP1 there yet. I looked last month, we got earnings from Pepsi. And, you know, if I were to think about like, okay, in theory, in some future world where these drugs are very cheap and widespread, and who would theoretically be losers from drugs that reduce one's appetite for fast food, for salty foods, for high carb foods, whatever it is.

In your mind, is it obvious that, A, some of these big consumer-oriented companies are going to be losers. And B, if it is, when would you expect to see, like, what, pick out, predict a quarter when maybe this would come up on a Wendy's earnings call. Well, so let's think, you know, first off. Or is the, or if the premise of the question is totally off the mark, that's fine, too. No, no, no, no. I mean, it's a, I don't know, we're talking about second order effects. This seems a little first order, Joe. Okay. You're right.

You're right. No, but no, no, I mean, it's a great point, right? And I think that, I mean, you know, Wendy's sells so much food, right? Like, it's the, it's, uh, me too. I don't want to malign Wendy's. But the thing is, I think that if you wanted to be able to predict this, what you would have to do is you probably have to use alt data or, you know, credit card data and you would have to look at the company and maybe eat a lot of fast food for a month to figure out but like which of these companies are making you're going to be my new

analyst no which of these companies are willing to are basically making up for low margins with high volumes right because the because it's not like these drugs are going to automatically make you you know the jack lulane right like you're not going to you're not just going to be like the hell you all your habits are healthy now like you If you're eating fast food every day, you will probably continue to eat fast food every day. You will just eat a lot less of it, like a lot less of it. And let's say Chivalet, for example, probably not going to be that negatively affected. You know, like people, you know, they'll probably have the same order and they'll just finish, you know, a couple bites of it or something.

I don't necessarily want to speak to this, but just thinking of like Arby's, for example, I think is owned by a private company. So I can, you know, talk about without issue. But like the prototypical, let's just speak theoretically, there's, you know, all you can eat buffet or something. They might do really well because people will eat less. But at the same time, they might be patronized less because, you know, nobody wants all you can eat. You're not getting a good deal anymore. So if you have a company and you look at the data and basically the way that they make money is by selling a ton of food that they get very cheaply and make up for, you know, kind of lower margins by selling a ton of it, that company probably isn't going to do too. great. But, you know, it wasn't just

metaphase, for example, you know, going beyond the idea of, like, food being impacted. Like, right now, Lily has a trial for Munjaro. Basically, what these companies are doing is they are on this kind of blitz scale for, like, the data, right? Because like, most of these things you can

kind of rationally expect, like, for example, with the Wagobe headline, Wigobi reduces heart attack risk by 20%. I mean, kind of like, duh, you know? Like, oh, like, you know, if you go from being obese, then not obese, you're going to have a lower chance of heart attack, right? But what they have to do is, you know, have these, you know, rigorous trials that actually

prove it. Like, so, for example, Lily is going right now for obesity-induced sleep apnea or knee osteoarthritis. And so, like a company like ResMed, right? ResMed was talking about it for, you know, like a while on their earnings call. And the response was essentially, you know, I'm trying to remember exactly what they said. Oh, right. A C-B machine. The costs over a lifetime for a C-PAP machine are like about $15,000. And then they did their own math, which was like, well, these GLP1 drugs cost $1 a thousand month. And if you have a 40-year-old patient, you multiply that by 40 years, well, really,

GOP-1 drugs, you know, it's going to cost you $480,000. So obviously, you know, we're coming in at $14,000,000, we're obviously the option. We're not going to be really affected by this. And to take that into consideration, you say, why would people be taking this for 40 years? Right? Why would if someone, you know, 70% of sleep apnea is caused by obesity, if you have someone that's taking it and they take it for, let's say, 16 months and they go from being obese to having a normal body weight.

And then in all likelihood, at least for like 70% of them, the obstructive sleep apnea goes away. I mean, you have to adjust kind of the total addressable market for. company like ResMed or for the CPAP industry in general, it is going to shrink, right? It's kind of, and even, you know, and then when people say that, you know, this is a fad or, you know, this won't work again, you look at like, like one was the last fad weight loss drug that had intuitive surgical talking about on the earnings call, right? Like intuitive surgical, they're not ready to speak to it, but they mentioned it on the earnings call. And then you have another

company that I think this was my favorite one, right? And it wasn't even because of anything the company did or said. It was just because I'm reading the prepared remarks. And the exact text was basically, you know, so the company's called Teleflex. And it essentially, it's a company that makes devices for sleeve gastrectomy, like the bariatric surgery, weight loss surgery. You get the sleeve. And the thing is, you know, a sleep gastrectomy, I think the average weight loss over 72 weeks is like 26 or 27%. And with Mujaro, it's a little bit closer to, depending on the dose, between like 17 and 19%. But Lily's new drug, the triple agonist, red at Trutodide, is showing like 24, 25%. Right. So in the prepared remarks, they're basically saying, we did see an effect from GLP1s on the demand for bariatric

surgery, which affected the demand for our device, the Titan stapler. So if I ask you, Tracy, if you want to lose weight, would you rather take ozemic or get Titan stapled? Yeah. Like who, like, like, you want to go with the Titan stapler? I don't think so. Why didn't they call it like soft staple or gentle staple? Titan is just a terrible name for any surgical procedure. Okay, wait.

So one of the reasons talking about this is fun is because it is kind of a giant thought experiment of what a world of fewer obese people. would actually mean. How far can you take it, James? Like, what's your most interesting sort of second order trade idea based on a widely available weight loss drug? Well, I think that, you know, if I'm going to stretch this as far as it can go, the first thing is stretching it as far as it can go gets pretty stretched because, I mean, the direct medical costs this year from obesity are going to be $370 billion. The indirect costs are going to be over a trillion. McKinsey, In 2012, when the obesity rate was like, I want to say seven or eight percent lower, they estimated

that obesity results in an annual global economic impact that is equivalent to 2.8 percent of the global GDP. So you think about like productivity, sick days, you know, workers comp, injury. I mean, life insurance, health insurance, workers comp insurance, something like when you have a, when you have a literal disease state that is affecting 42 percent of your population, it's kind of hard not to stretch this far. You know, like if that gets fixed, but in terms of the one that I would share on a podcast to be entertaining,

I would say like Match Group or Bumble as a long, if you look into like just general sociological. Everyone feels better about themselves and so they go out. Ready to advertise themselves in a product in the dating marketplace. And you know what's interesting about this, you know, match group, I already think that the fundamentals look good here. But, you know, if we're going to like stretch it super far, you look at like match groups last earnings and like payers were flat or decreased a little bit for Tinder, but they increased significantly for hinge. And if you look at like there are like, you know, social sciences studies about like the effects of obesity on like your how happy you are and how satisfied you are with your dating life and stuff. And I think I don't want to butcher the results or something, but it was basically across genders, right? Like if you are, uh, I, female or male, the effect of losing 10 or 20 pounds on your average satisfaction with your

dating life and with just generally how happy you are. It's a lot more significant in females. So, you know, maybe if you want to like be super early and stretch it super far, maybe the reason that like hinge is getting more popular than Tinder, maybe it's because it's easier to lose weight. I don't, I would not say that in like an authoritative way, but, you know, I just say it on the Bloomberg. Maybe. Yeah, no, yeah. That's the only thing I'm going to get quoted on, right?

We asked for, we asked for a thought experiment. No, this is a crazy guy thinks that, like, match group is going to moon because of, you know, no, I guess. Can I just say. I get, I get how the internet works, though. I know you do. I know you do.

It's funny, I keep reading through conference calls after you mentioned them. I'm looking at the ResMed one. And they're funny. Did you look at the Titan staple? So they're, no, but they're talking about, they're like, well, they're like, because clearly this is a source of anxiety for them. So they're like, oh, well, like, like, uptake. And like, endurance is not really that good.

And then a very funny thing they say, because Biden had that mark on his face. Our biggest side effect is President Biden had a little mark on his face and he was asked about it. And it was from his CPAP. Look, I think it's a good long road to play out here. I think it's frankly good marketing. So President Biden, because he had to put a device on his face for his sleep problems, the company is citing. It's a risk factor. I mean, I saw a photo of Justin Trudeau at IMAX.

So maybe I should get long IMAX. You know, it seems like a big deal. Like just zooming out, it seems like a big deal. Even if we like set aside what it's going to do to Pepsi or what it's going to do to like Frito Le, or that's the same company, you know, what it's going to do to all these consumer companies. You know, health insurance, you mentioned that like obesity plus obesity related diseases are huge. And so if they were to go down and you see, maybe you see some of that and sort of weak stock price of resmed anxiety about this, what does it mean just like for like health. insurers and also just like healthcare utilization in general. Like, you know, generally we think of like health care as like a line that only goes up, that if you're a healthcare professional, you're like going to do probably likely very well, guaranteed demand. What is the effect on just sort of like the broader healthcare institutional healthcare industry? Since you already got documents there's loaded up,

why don't you check out, um, in disparity. The ticker is an NSP. This is a fun game. I like, I was like just hearing. different names and then I look at look them up during the answer. But yeah, keep going. Welcome to my life during earning season. Document search is my favorite feature. But, you know, if you look at inspirity, you can kind of see, I don't want to misquote anyone, so I'll just pull it up very quickly. Oh, look at the share price. This is, the company offers recruiting employment screening,

retirement, business insurance. Yeah, what is this company? It's down about 16% year to date. I can't figure out what they do and what their connection is here. so we're going to find out. Provides human resources and business optimization services. No, no, no. I see. Yeah, but I don't. So what's the deal?

So here's the deal, right? They also offer, you know, employee benefit administration, which, you know, like health. So if you want to boil it down to two things, like, insperity got hit on the fact that, like, people want these drugs because they don't want to be fat and the drugs make them not fat. And Insperity apparently thinks that, you know, that is a fat. They were saying something that was like, oh, you know, the effects are going to wane because of the side effects. And when you think about it, like, these drugs were originally developed for type 2 diabetes. And it's like, oh, you know, there's never been a drug before that was developed for one thing and then ended up being really good for the other, you know, just like Tracy said with Viagra.

And basically they said, you know, large claim activity accounted for approximately 75% of the higher cost with claims over $750,000. And the remaining 25% is related to higher than expected pharmacy costs. As for higher pharmacy costs, we experienced an increase in utilization. of the specialty drugs, including a significant step up in the use of diabetes and weight loss drugs. And then they talk about behavioral health drugs, behavioral health drugs, too, which is probably, you know, I mean, I don't know, that's a whole different conversation with COVID and behavioral health drugs and, you know, like how people have emotionally reacted to the last three years. But when you look at it for inspirity, it's probably bad right now because, you know, as long as

these companies have a duopoly on these drugs, the costs will probably be high. But that can only last for so long. You know, eventually there will be competition. Eventually, the cost will go down. Eventually, it'll be like Viagra, where it goes from, you know, $88 a pill to whatever, $2 a pill. Maybe it was a bad quarter for inspirity. Maybe that continues for a little bit while they're still expensive. And then eventually it'll get better.

But when you think of it from, let's say, Cigna or United Healthcare, Cigna on their earnings call, they said, you know, GLP ones are definitely top of mind for many of our clients. There's been a meaningful uptick utilization. And essentially what they said was, you know, there's continued interest in behavioral solutions. You know, these insurance companies, they will, like, pay for you to get a gym membership or they'll pay for you to get a meal plan or something. And the success rates of those things are dismal, like absolutely awful, right? And, you know, it doesn't work. And insurance companies are stakeholders in global health, right? And they're really good at anticipating how much it's going to cost and making sure, you know, that they make more money than what it's going to cost.

But as an epidemic, this is still like a relatively new thing. The obesity rate has never been 42% before. And so what do we, how can we really accurately model what that's going to look like in 50 years? I mean, you know, maybe if it continues the way that it's going on abated, I think that ultimately, you know, health insurance, that it's going to be a significant. hit. So what you're seeing is these drug companies essentially going on these data campaigns, which is, you know, we're going to show you not just that it results in weight loss. We're going to do a study and a clinical trial on every single one of the beneficial effects of losing weight. Right. We're going to say, oh, obstructive sleep apnea, hyperlipidemia, hypertension, heart disease,

type two diabetes, knee replacements, all of the stuff. And then eventually it is for Cigna or for United Health Care, it is going to be, they're going to do what insurance companies do. They're going to negotiate. They're going to push down the price. There's going to be pushback. There's going to be what gets covered and what doesn't, especially after Munjaro gets approved for obesity. But at the end of the day, the thing is they are basically going to have to do a cost benefit analysis. And there's no way in my mind. I think really, even if they were paying 150% of what Lilly is charging, didn't negotiate at all. Over the course of the next 20 or 30 years, they would probably make money.

Like, they would probably be a better situation than it would be without it. You know, not to get too, like insanely off the rails, but again, it's a podcast. So. We'll just say this whole thing is a thought experiment. So let's do it. Let's entertain some people, right? Sure. Why shouldn't the government pay for this?

Well, you mentioned that the inflation reduction act is going to reduce the cost. This should be Biden's reelection. He's like, hey, I signed the bill that's going to make that. Ozzympic for all. Ozympic for all, yeah. I mean, seriously, I know, but seriously, let's look at this, right? We just had, like, the biggest public health experiment ever. You know, we had COVID, right?

Yeah. Like, how many, does anyone know off the top of their head how many people COVID? I don't, that's not a fact that I have handy. And everyone got it. Right. But how many people, how, what was the all-cause mortality of, like, COVID in, like, annually during, like, the peak of the epidemic? I don't know. It was probably high, but what I'll tell you is it probably was similar to how many people are going to die of obesity this year.

You know, I don't want to like speak without facts in front of me, but I would say, you know, if someone wants to go look that up and, you know, whether it's how many people who die obesity this year or how many in five years, I would say that they are probably comparable public health crises. And also in terms of the impact on the economy, obviously nothing can rival show. shutting down the entire economy and, you know, having a lockdown. But if you look at it from an acute versus chronic perspective, you know, if obesity is going to cost us a trillion dollars this year and we're running at a trillion dollars a year, I mean, over the next 10 years, like what, it just seems like something where it, let's say that, you know, Lily and Novo and all the other companies that eventually join the fray, that they're effective in proving that the side effects are moderate and that the overall benefit is sustained and it's good. Why would the government not cover it? Right? Like if they'll cover COVID vaccines, then they should probably cover this too, especially

if it has a 20% reduction in like heart attacks. I mean, well, I would never overestimate America's ability to make bad decisions when it comes to public health care, but. That's a good point. But James, that was a really fun conversation, absolutely a blast to have you on and go through the transcript sort of in real time while we're talking to you. That was great. Absolutely. And, you know, if you want to learn more, you know, I've been writing about this since June on, it's citrini research.com. I go pretty deep into these.

I did one on a. No, it's a great reason. Yeah. Oh, you read it? Come on. We do a little prep. Believe it or not, there is some of that. I read it on the subway this morning while coming in.

I do real prep for this job. I sent it to you like 12 hours beforehand. And I know it's like, you know, 20 pages long. So I wouldn't forgive you. All right. Well, James, thanks so much for coming on all thoughts. Appreciate it. Thank you so much for having you guys.

Thanks, James. That was a pleasure. All right. Well, Joe, I, for one, look forward to the, uh, the svelts future of publicly funded weight loss drugs. I mean, I totally, like, why not? If all the things seem to be true about this, what many people seem to believe. And there are, you know, it's like, James is like totally right.

Like, you see a lot of people like, post. They're like, there must be some catch here, right? There must be just going to melt your insides or it's going to do something maybe one day. You never know. But right now, anything I read about the side effects never seem like that compelling or anything, and he's pointed out the class of drugs for a while. It kind of feels like potentially like a legit miracle drug, right? Like, it's kind of wild.

Well, I think he makes an excellent point about the tradeoffs, right? And at some point, it might be cheaper for an insurance company to just provide this drug rather than treat someone for diabetes or heart problems or sleep apnea or war. whatever else for the rest of their lives. The other thing I was thinking throughout all of that, you know, I initially came into the conversation thinking like, oh, well, if everyone's consuming less, maybe that's deflationary. But now I'm going back to that price over volume theme. And James brought it up as well, which is, well, if you're Wendy's and people just aren't buying as many cheeseburgers, then maybe you just raise your prices to offset it.

Could be. I am curious. I mean, there's all kinds of like other things that we could get into. And so another thing, and I saw someone on Twitter say this, they're like, well, the snack companies put even more salt and other addicting type of, like, ingredients to counter this. To offset it. Yeah. So that the people who aren't taking the drugs by even more in the future. Like, they're not going to give up without a fight if there's some drug that causes people. You know, like, everyone's going to, like, try to, like, find some way. We didn't talk about gyms, really, but I wonder, like, like, one way of thinking is maybe it's bad for gyms.

But on the other hand, like, if you feel more. show off. That's exactly right. If you feel more confident than maybe like, you know what, I'm ready to, I don't mind being seen at the gym. All kinds of interesting questions. Like, I like the idea of like, you know, match or hinge is a buy or is like a winner here. So that was a very fun thought experiment. And it was fun in the context that he knew so many details. So it was like also kind of real, not just a thought experiment. And I'm going to spend, I think the next like two hours or so just going through some of the earnings transcripts and saying what people are saying about this. Because I hadn't realized that people were already actually talking about. it. Well, so I think the reason I didn't realize it is because I was searching a Zympic. It's just like the thing. But they're all searching, you just search GLP and then tons come up. And so it's really interesting. I mean, it's a huge focus on a lot of these calls just from looking it up. All right. Well, fun conversation. Shall we leave it there? Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Allo. You can follow me on Twitter at Tracy Alloway. And I'm Jill Wisenthall. You can follow

me on Twitter at the stalwart. You can follow James Van Galen on Twitter at Citrini 7. Also check out his research. Follow our producers, Carmen Rodriguez, at Carmen Armin, and Dashle Bennett at Dashbot. And all of the Bloomberg podcast can be found under the handle at podcasts. And for more Oddlots content, go to Bloomberg.com slash Oddlots, where we have a transcript, blog, and a newsletter. And we don't have a pharmaceutical channel on there.

Maybe we've got to add a medicine and health one. But check out the Discord. One of my favorite places to hang out on the internet. Other oddlots listeners are there talking 24-7. Discord.g.g. And if you enjoy oddlots, if you like listening to these types of conversations, imagining a world without obesity, then do leave us a positive review on your favorite podcast platform.

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