In the Big Pharma space, weight-loss-related drugs are gaining a lot of attention. Accordingly, for investors attempting to gauge the impact of these drugs on certain businesses, there’s a clear bifurcation building in the market. For investors in Weight Watchers (NASDAQ:WW), today’s move in WW stock suggests the market may be pricing in drug dominance in this space.
Weight Watchers saw its share price drop more than 5% on Friday morning, as drug company Eli Lilly (NASDAQ:LLY) announced the launch of a direct-to-consumer website. This site is aimed at improving access to key treatments, with many focusing on the effects this website may have on the company’s Zepbound sales.
Used to treat obesity, Zepbound is the rebranded GLP-1 drug (under the Mounjaro label for those with diabetes). Rival Novo Nordisk’s (NYSE:NVO) Wegovy is another major contender in this space, one which is expected to rake in tens of billions of dollars in sales annually for years to come.
Let’s dive into what these moves may mean for Weight Watchers and why the stock is down so significantly on this news.
WW Stock Sinks on Launch of Consumer-Friendly Site
Eli Lilly’s website, called LillyDirect, aims to provide access to independent healthcare providers for those suffering from chronic issues. Via an online consultation, those suffering from migraines, obesity or diabetes can have their prescriptions delivered to their homes. Thus, by removing barriers, Eli Lilly is attempting to grow its overall market by going directly to the consumer rather than wading through the traditional healthcare system.
For Weight Watchers, a decades-old program focused on diet and exercise as weight-management tools, the onslaught of new drugs (and much more readily available options) doesn’t bode well for its future sales outlook. These weight-loss drugs have proven benefits, and if losing weight is as easy as taking a pill, many Americans can be expected to jump on this bandwagon.
Now, there are some side effects to be aware of, and many nutrition and health experts may still argue that diet and exercise may still be the best way to lose weight for those who are not chronically obese or have other health issues. Accordingly, there will likely always be a market for Weight Watchers and similar programs.
That said, investors appear to be using a higher discount rate when projecting Weight Watchers’ future cash flows from here. That seems to be the prudent move, at least for now.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
