The Ozempic Edition
On weight loss, pharma, and market dynamics
Noah here. I’m fascinated by Ozempic and its counterparts (Wegovy, etc.). It’s not just the drug and the fact it’s increasingly looking like an effective tool to counter addiction of all kinds, but the fascinating knock-on effects it’s having. As its popularity has exploded, for instance, employers are having to choose whether to continue to cover it under their healthcare plans. Say what you will about the link between weight and health, but I find great irony in the fact that companies who spent the last five years talking about how important wellness was are now blocking something that their employees are clearly finding valuable to their health. Or look at Weight Watchers, which recently bought a telehealth company with the express intent of prescribing these drugs. If this thing really works, is there even a business left for the company?
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Why is this interesting?
It turns out I’m not the only one interested in these strange knock-on effects created by a very new kind of drug. In yesterday’s wonderful Money Stuff, Matt Levine wonders out loud what kind of market ripples a new drug that causes consumption might have and how the very small number of companies that own the world’s business might react. In Levine’s “universal ownership model,” he is responding to the rise of index funds and how that has theoretically changed the way companies compete. Here’s Levine:
The universal ownership mechanism, in theory, created a new way to do that. Instead of the usual model of corporate capitalism — companies competing against each other, motivated by prices and profits — there is a new model, in which the companies all work for the same owners and are, in some very loose theoretical sense, all divisions of the same universal trust. This might make it easier for companies to coordinate with each other, to sacrifice any one company’s profits to make all of the companies better off.
He’s serious and not serious. But it’s an entertaining thought experiment, specifically as it relates to these new weight loss drugs. In this “universal ownership model,” it made sense for these owners to push pharmaceuticals to figure out COVID vaccines because the virus was killing all demand. But what happens when those same pharma companies invent the opposite?
But imagine a pharmaceutical company that has invented a different drug, an opposite drug, a drug that reduces consumption in general, a universal demand suppressant. It makes the people who take it so much happier and more fulfilled that they don’t want anything else. They eat less food and drink less alcohol and buy fewer clothes and take fewer vacations and get fewer haircuts and consume less social media and click on fewer online ads and otherwise consume much less.
If you were the chief executive officer of a publicly traded pharmaceutical company and your researchers invented that drug, what would you think? On the one hand, you could probably sell it for a lot of money and have big profits. On the other hand, it’s going to be really bad for all the other companies, the ones selling food and alcohol and vacations and online ads. And the shareholders who own your company also own those companies. Probably more of them. Your profits come at the expense of the rest of your owners’ portfolio. By making money for them in your business, you are making them worse off overall.
Again, this is all tongue-in-cheek. Kind of. But he’s examining real things happening in the market, and it’s strange and fun to wonder about. And you can’t beat Levine’s conclusion, “Meanwhile the average Ozempic user probably isn’t cutting her budget for groceries, cigarettes, alcohol, Instagram, etc. by $1,000 a month? I would guess? Maybe it is a positive? I do think that it would be a crowning achievement of postmodern capitalism if the corporate world, in aggregate, was able to make more money by charging people for not consuming stuff than it does by selling them stuff.” (NRB)
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Thanks for reading,
Noah (NRB) & Colin (CJN)
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