Shares in the kidney dialysis provider plunged on Wednesday after Novo Nordisk announced that a study showed its drug Ozempic could delay the onset of kidney disease in patients with diabetes. This latest development confirms that GLP-1 drugs can have a wide range of effects on conditions ranging from liver disease to sleep apnea to heart disease. Originally developed as a treatment for diabetes, this drug has also shown effectiveness in other conditions, particularly weight loss. As a result, investors regularly sold off stocks expected to be disrupted by this emerging category. Wednesday’s deal was no exception, with companies affected by the trend including dialysis center owners, bariatric surgery providers, insulin pump makers and even manufacturers of snack foods and alcohol. Among the stocks that fell on the news was Baxter International, which hit its lowest price since September 2012, while Insulet fell to its lowest price since August 2019. Medtronic fell to its lowest level since early 2017, and Dexcom hit its lowest price since last year. BAX YTD Mountain Baxter International’s performance year-to-date. The company is in the process of spinning off its kidney care division into a separate company. How GLP-1 Drugs Work Sorting out the facts will likely reveal some winners and losers. But first it is worth understanding how the drug works and how widespread its use is. Glucagon-like peptide-1 (GLP-1) is a hormone released in the intestines that stimulates insulin secretion, slows stomach emptying, and signals a feeling of satisfaction to the brain. These mechanisms help patients taking the drug lose weight and control diabetes. Controlling weight can also help patients prevent conditions often associated with increased BMI, such as sleep apnea and nonalcoholic fatty liver disease (NASH). This medicine may also help you resist the temptation to smoke or drink alcohol. LLY YTD Mountain Eli Lilly shares year-to-date performance GLP-1 therapeutics are still in their early stages. Citi analyst Peter Berdalt estimated in a research note that GLP-1 sales could reach $30 billion for diabetes treatment and $6 billion for obesity treatment this year. He said less than 10% of diabetics take the drug and fewer than 1 million obese patients receive it. But analysts say that number will grow rapidly, reaching more than $100 billion in annual sales at its peak at the end of the decade. More than 70% of adults in the United States are either overweight or obese, with about 40% falling into the latter category. Currently, there are major hurdles to expanding sales, including whether insurance companies will pay for the drugs. By law, Medicare cannot cover weight loss drugs, and capacity issues limit supply. Who stands to benefit? Still, positive news about the potential benefits and expanding use cases of GLP-1 drugs is seen on Wall Street as a boon for manufacturers Novo, Nordisk and Eli Lilly. Both companies’ stock prices have soared since the start of the year, with Novo’s up 46% and Lilly’s up 66%, and stock analysts have only grown more bullish, recently increasing their price targets on the GLP-1 balloon excitement. It’s being pulled up. At least 60% of analysts rate both stocks as buys or overweights, according to FactSet. Meanwhile, companies themselves are betting on demand growth. Both Eli Lilly and Novo Nordisk are already working on second-generation versions of their drugs. Additionally, Eli Lilly has not yet received FDA approval for its weight loss drug Munjaro, although it is widely expected to be approved by the end of the year. “We continue to maintain that the GLP-1 story is one of market growth rather than market share, and that Novo and Eli Lilly will dominate for the next 20 years,” Citi’s Berdalt wrote. There is. “This reflects a strong commercial/rebate position, excellent product profile, compelling outcome data, strongest pipeline… and volume requirements that are a significant barrier to entry,” he said. . 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 predicts the market will remain a “duopoly” until 2026. However, in the future, other companies (including smaller ones) are expected to enter the weight loss treatment industry, such as Viking Therapeutics and Ultimmune. Structure Pharmaceuticals is also developing a promising oral GLP-1 treatment and could be an under-the-radar emerging winner, according to Piper Sandler. “Looking at sales of injectable GLP-1 in 2022, Wegovy sold $885 million and Mounjaro sold $483 million, but obesity is largely untapped, with a penetration rate of only about 2%. ,” analyst Yasmeen Rahimi wrote when she began covering Structure in July with an overweight rating. . “Therefore, we believe that oral agents for use in primary care settings are needed to unlock major opportunities,” she added. Wegovy is also made by Novo Nordisk. Despite some setbacks, other big drug companies like Pfizer and Amgen have entered the contest, vying for a slice of the blockbuster market. As drugmakers scramble to meet rising demand, companies that fill injectable pens for patients could win. This could be a big boon for companies like Catalent and Thermo Fisher Scientific, both of which have reportedly signed manufacturing deals with Novo Nordisk, according to Reuters. Catalent stock has only risen about 3% since the beginning of the year, while Thermo Fisher stock has fallen more than 10%. But Wall Street expects more upside going forward, with average price targets suggesting the stock could rise more than 9% and 25%, respectively. Who loses? Many see the rise of GLP-1 drugs as a threat to the medical device industry. But analysts say investors shouldn’t walk away from trading just yet. “We believe medtech can coexist with GLP-1 and do not view it as mutually exclusive,” JPMorgan analyst Robbie Marcus said in a note Wednesday. “GLP-1 is / could be / a huge drug class in the future, and the amount of medtech could also increase over time.” The company expects the company to innovate and enter new markets, and believes a “substantial amount” of risk is likely already priced into the market. Inspire Medical Systems appears to be the best in the small- and mid-cap market, but Atricure, a drug used to treat the arrhythmia known as atrial fibrillation, appears to have “no real” GLP-1 risk, he said. said. Medical device analysts expect the near-term impact from GLP-1 drugs to be limited, but selling in the sector has been hampered as investors target first and ask questions later. do not have. Kidney disease was the focus Wednesday, with DaVita shares down 16.9% and Baxter 12.3%, even though Novo Nordisk’s kidney disease trial won’t immediately lead to a decline in patient numbers at dialysis centers. Intuitive Surgical fell 5.4% to close. Since July, the pressure in the field has only increased with the release of new positive data on GLP-1 therapeutics. ResMed provides a good example. The company’s stock price has fallen 31% since the beginning of the year. On Tuesday, JPMorgan lowered its price target to $170 from $210, reflecting the negative sentiment toward the medical device maker, while raising the stock to overweight. The company manufactures CPAP machines to treat sleep apnea. JPMorgan analyst David Roe predicts that doctors won’t prescribe obesity drugs for the condition until 2025, and the hit to ResMed’s sales will still be “modest.” It’s supposed to happen. Additionally, not all sleep apnea syndromes are weight-related, which means they still require different treatments. Also, not all patients tolerate his GLP-1 drugs, which can cause side effects such as nausea. “Attrition rates are relatively high, and side effects and cost are significant barriers to long-term adoption,” Canaccord Genuity analyst William Probanic said in a research note on Monday. However, RBC Capital analyst Craig Wongpan downgraded ResMed stock to sector perform from outperform on Thursday, saying the stock has “attractive long-term valuation but minimal EPS growth.” would limit short-term reratings.” Among other medical technology stocks, Probanic said GLP-1 drugs are “incremental positive” for Dexcom, which makes continuous glucose monitors (CGMs), but “incremental negative” for insulin pump makers like Insulet. I’m watching. He expects that type 2 diabetics taking GLP-1 drugs will continue to use blood glucose monitors on an ongoing basis, but the insulin control provided by these drugs will reduce the risk of type 2 diabetics using insulin pumps. We anticipate that we will be able to stop or delay the need for this. On Thursday, Piper Sandler analyst Matt O’Brien said Dexcom’s 30% decline so far this year “makes the least sense to us.” “Our study (and the company’s) shows that the use of GLP-1 is neutral to positive regarding CGM utilization, as patients rely on CGM to carry out these lifestyle changes. (However, insurance may not cover CGMs who stop using insulin, even if basic patients come in),” O’Brien said. Further economic spillovers Given the huge market and hype associated with pharmaceuticals, many will predict how changes in consumer habits will ripple throughout the economy and impact various industries. That’s what I mean. Speculation ranges from airlines flying slimmer passengers to save millions of dollars in fuel to food and beverage companies reducing people’s calorie intake and the hit to consumers buying new wardrobes. is widespread. We advise you to tread carefully in the heat of the moment. Take Walmart for example. The retailer shared that customers taking GLP-1 drugs are spending less on food and more on lifestyle and fitness products such as sportswear. But even though these shoppers are spending more overall, some worry that this will hurt the company’s results, causing the stock to languish. “Overall, the changes in GLP-1 spending are not materially moving WMT’s overall business,” Morgan Stanley analyst Simeon Gutman said in a research note Tuesday. WMT 1M Mountain Walmet stock performance over the past month. “WMT’s share price weakness (along with the broader consumer staples sector) is pricing in a longer-term, more cautious view of the impact of GLP-1, even if it has been proven over several periods. Even if it wasn’t, it could certainly be a factor in the underperformance.”However, there doesn’t seem to be much justification for the stock price decline, especially insofar as WMT stock was featured in the misguided comments.” said Gutman. —CNBC’s Michael Bloom contributed to this report.
Which stocks might be disrupted next by Ozempic and other GLP-1 drugs
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