Shares of kidney dialysis providers fell sharply Wednesday after Novo Nordisk said a study showed its drug Ozempic could delay the onset of kidney disease in diabetics. This latest development reinforces the far-reaching impacts that GLP-1 drugs can have on a variety of conditions, from liver disease to sleep apnea to heart disease. Originally developed to treat diabetes, the drug has shown benefits for other conditions, especially weight loss. The result for investors is a periodic sell-off in stocks expected to be disrupted by this emerging category. Wednesday’s trading was no different: Companies affected by the trend included owners of dialysis centers, weight-loss surgery providers, insulin pump manufacturers, even snack and alcohol manufacturer. Among the stocks falling on the news were Baxter International, which hit its lowest since September 2012, while Insulet fell to its lowest since August 2019; Medtronic sank to levels last seen in early 2017 and Dexcom hit its lowest since last year. Year-to-date achievements of BAX YTD Mountain Baxter International. The company is in the process of spinning off its kidney care division. How GLP-1 Works Sorting through the events will show some potential winners and losers. But first, it is necessary to understand how drugs work and how widely they are used. Glucagon-like peptide-1 (GLP-1) is a hormone released in the intestines that stimulates insulin secretion, slows stomach emptying, and transmits a feeling of satisfaction to the brain. These mechanisms help patients taking medication lose weight and regulate diabetes. Weight control can also help patients prevent conditions commonly associated with a higher body mass index, including sleep apnea and nonalcoholic fatty liver disease, or NASH. And drugs can also help people resist the temptation to smoke or drink alcohol. LLY YTD mount Eli Lilly shares year-to-date performance It’s still early for the GLP-1 drug. In a research note, Citi analyst Peter Verdult estimated GLP-1 sales could reach $30 billion this year for diabetes treatment and $6 billion for obesity. That’s less than 10% of diabetics taking the drug and less than 1 million obese patients receiving treatment, he said. However, analysts say those numbers will rise rapidly to sales of more than $100 billion a year at their peak at the end of the decade. More than 70% of adults in the United States are overweight or obese, with about 40% falling into the latter category. Currently, there are significant obstacles to increasing sales, including whether insurers will cover the drug. By law, Medicare cannot cover weight-loss drugs and supplies have been limited due to capacity issues. Who stands to benefit? However, positive news about potential benefits from the drug GLP-1 and expanding use cases are seen by Wall Street as a boon for manufacturers Novo Nordisk and Eli Lilly. Shares of both companies have rallied since the beginning of the year, Novo up 46% and Lilly up 66%, and stock analysts are growing more bullish, recently increasing their price targets due to the surrounding excitement. around the GLP-1 bubble. According to FactSet, at least 60% of analysts have buy or overweight ratings on both stocks. Meanwhile, the companies themselves are betting on rising demand. Both Eli Lilly and Novo Nordisk are working on second-generation versions of their drugs. And, although Eli Lilly has yet to receive FDA approval for its weight loss drug Mounjaro, it is widely expected later this year. “We continue to think the GLP-1 story is one of market growth, not market share, which will be dominated by Novo and Eli Lilly over the next two decades,” Citi’s Verdult wrote. “This reflects a solid commercial/discount position, superior product profile, compelling results data, strongest pipeline and volume requirements that create significant hurdles for accession”. To be sure, Novo Nordisk and Eli Lilly are not the only companies making GLP-1 drugs or betting on the weight loss market. Bank of America expects the market to remain “monopoly” until 2026. But other companies including smaller ones are expected to enter the weight loss treatment industry in the future , including Viking Therapeutics and Altimmune. Structure Pharmaceuticals could be another under-the-radar upstart with a promising GLP-1 oral drug in development, according to Piper Sandler. “Looking at injectable GLP-1 sales in 2022, Wegovy did $885 million and Mounjaro did earned $483 million, yet obesity is largely untapped with a penetration rate of only ~2%.” . “So we believe there is a need for an oral drug for use in primary care settings to open up huge opportunities,” she added. Wegovy is also made by Novo Nordisk. Even with some setbacks, other pharmaceutical giants, such as Pfizer and Amgen, are still in the competition, vying for a slice of the blockbuster market. Companies that provide injection pens to patients could win as drugmakers scramble to meet growing demand. According to Reuters, that could greatly benefit companies like Catalent and Thermo Fisher Scientific, both of which have reached manufacturing deals with Novo Nordisk. Catalent shares are up only about 3% year-to-date, while Thermo Fisher shares are down a little more than 10%. But Wall Street expects more to come, with the average price target implying the stock could rise more than 9% and 25%, respectively. Who lost? Many see the rise of GLP-1 drugs as a threat to the medical device industry. However, analysts say that investors should not give up trading right now. “We think MedTech can exist alongside GLP-1 and do not see them as mutually exclusive,” JPMorgan analyst Robbie Marcus wrote in a note Wednesday. “GLP-1 is/could/will be a huge drug class while MedTech volumes are also likely to increase over time.” Marcus expects medical device manufacturers to innovate and enter new markets alongside GLP-1 manufacturers, and sees a “reasonable” level of risk that may have been priced in above market. Inspire Medical Systems appears to be best insulated in the small- and mid-cap market, he said, while AtriCure, a drug that treats an irregular heart rhythm condition called atrial fibrillation, appears to have “no” risk. ro GLP-1. Medical device analysts expect that the short-term impact of the GLP-1 drug is limited, but that hasn’t stopped the industry from selling off as investors shoot first and ask questions later. With the focus on kidney disease on Wednesday, DaVita shares closed down 16.9%, Baxter lost 12.3% and Intuitive Surgical ended 5.4% lower, despite the kidney disease trial of Novo Nordisk will not immediately lead to fewer patients in dialysis centers. Since July, each new positive data on the GLP-1 drug has only increased the pressure in the field. Resmed gives a typical example. Its shares are down 31% year to date. On Tuesday, JPMorgan upgraded the stock to overweight, and adjusted its price target to $170 from $210 to reflect sour sentiment among medical device makers. The company makes CPAP machines to treat sleep apnea. JPMorgan analyst David Low doesn’t expect doctors to prescribe obesity drugs for the condition until 2025, and even then the impact on ResMed’s sales will be “modest.” . Furthermore, not all cases of sleep apnea are weight-related, which means a range of treatments is still needed. Additionally, not all patients can tolerate GLP-1 drugs, which can cause side effects such as nausea. “Attrition is relatively high, with side effects and cost being major barriers to sustained adoption,” Canaccord Genuity analyst William Plovanic said in a research note Monday. However, RBC Capital analyst Craig Wong-Pan downgraded ResMed shares to outperform on Thursday, saying the stock has “long-term valuation appeal but minimal EPS growth.” will limit re-evaluation in the short term. Among other health technology stocks, Plovanic sees the GLP-1 drug as an “incremental positive” for Dexcom, which makes continuous glucose monitors (CGMs), but as “a negative impact.” extremely increased” for insulin pump manufacturers such as Insulet. He hopes type 2 diabetics taking GLP-1 drugs will continue to use continuous blood glucose monitors, but hopes the insulin control from these drugs will prevent or delay diabetes. Type 2 requires an insulin pump. On Thursday, Piper Sandler analyst Matt O’Brien said Dexcom’s 30% year-to-date decline “doesn’t make sense to us.” “Our research (as well as the company’s) has shown that GLP-1 use will be neutral to positive in terms of CGM use as patients rely on CGM to make these lifestyle changes (although we note that if a patient comes in basically off insulin CGM may not be covered by insurance),” O’Brien said. Deeper Impact on the Economy Given the large market and accompanying hype for drugs, many are trying to predict how changes in consumption habits will impact the economy and impact the economy. affects various industries. Speculation has spread from airlines saving millions of dollars in fuel as they transport slimmer passengers to cult food and beverage companies taking from people who consume fewer calories to consumers buying new wardrobes. You should tread carefully amid the madness. Take Walmart. The retailer shared that it has seen customers taking GLP-1 spend less on food and more on lifestyle and fitness products like athleisure apparel. But shares have taken a hit as some fear this could hurt the company’s performance, even though these shoppers have been spending more overall. “Overall, GLP-1’s spending changes did not impact WMT’s overall business,” Simeon Gutman, an analyst at Morgan Stanley, said in a research note Tuesday. Walmet Mountain WMT 1M stock performance over the past month. “If WMT stock’s weakness (along with the broader Consumer Staples sector) is priced in with a more conservative, long-term view of the impact of GLP-1, it could be Reliable motivation leads to underperformance, even if it is not proven over a number of years. But to the extent WMT stock in particular has been singled out for misinterpreted comments, a pullback seems less warranted,” Gutman said. CNBC’s Michael Bloom contributed to this report.
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