Industry analysts are insisting that recent weight reduction and diabetes drugs like Ozempic won’t hurt the demand for insulin pumps and continuous glucose monitors, but most investors aren’t buying it. Medical device stocks have been falling session after session, prompting UBS analyst Danielle Antalffy on Wednesday to lower her price targets for Dexcom and various small-to-mid-cap names, with the concept that historic valuation multiples have come down for the group for the foreseeable future. “Current multiples appear to be pricing in a very bearish view, wherein [total addressable markets] are cut meaningfully as GLP-1 adoption ramps (specifically in diabetes and obstructive sleep apnea),” she wrote in a research note. The large query for investors now is whether or not that sour view is warranted, or if this pullback is a buying opportunity. The reply may rely upon who you take heed to and whether you see GLP-1 drugs as a help or a hindrance to the category. Novo Nordisk’s Ozempic (semaglutide) and Eli Lilly’s Mounjaro (tirzepatide) belong to a category of medicines often called glucagon-like peptide-1, or GLP-1, receptor agonists. The drugs are modeled off of hormones within the gut and help regulate insulin levels. Initially designed to treat Type 2 diabetes, the drugs also aid weight reduction and will sooner or later treat sleep apnea, liver disease and other conditions . Their blockbuster potential has pushed Novo Nordisk’s stock to recent heights, making it the most dear European company in the meanwhile. ‘Difficult to disprove the negative’ Antalffy acknowledged that it’s “difficult to disprove the negative,” so she’s assuming the valuation trend will persist though she expects demand hasn’t modified for insulin pumps and glucose monitors. “For [continuous glucose monitors], we remain steadfast in our view that every one diabetes patients will likely be on a CGM inside the subsequent 5+ years, no matter what their medical regimen entails,” she said. The analyst expects the demand for CGM devices will boost each sales and margins for Dexcom. With the sentiment shift, she reiterated her buy rating on the stock, but slashed the worth goal to $138 from $175. Dexcom is up greater than 2% this week. DXCM 3M mountain Within the quarter thus far, Dexcom shares are down nearly 19%. Headline risk is real The most recent pressure on the stocks got here from a Latest England Journal of Medicine report on Thursday that detailed a study of newly diagnosed patients with Type 1 diabetes who reduced their need for insulin after taking semaglutide. Insulet , which makes insulin pumps, was particularly hard hit by the news. The stock continued its downward trend Friday, and is off about 10% this week. However the study’s findings got here with some considerable caveats, including an especially small sample size of only 10 patients. It also was a retrospective study, and not using a control group. PODD 3M mountain Insulet shares over the past three months The article’s findings are “highly unlikely” to harm sales of continuous glucose monitors or insulin pumps, Piper Sandler analyst Matt O’Brien wrote in a research note Thursday. “We understand investor concerns about fighting the drug overhang on the diabetes device space, but we imagine the entire name[s] have been unfairly punished over this topic in our view and we encourage starting or constructing positions in these names,” he said. O’Brien has an chubby rating on Dexcom, Insulet and Tandem Diabetes Care , but Dexcom is Piper’s favorite name on this group. Dexcom shares are down greater than 7% yr thus far. O’Brien has a $160 price goal on the stock, which means 52% upside to where the stock closed Thursday. His price goal for Insulet is $325, or about 82% above where the stock closed Thursday. Shares have fallen greater than 40% yr thus far. Tandem Diabetes Care shares have fallen even further — down 46% yr thus far. Shares would want to rise about 57% to hit O’Brien’s $40 price goal. O’Brien said he doubts that taking semaglutide would have the opportunity to stop Type 1 diabetes for a chronic time period. “Perhaps the drug can slow the progression of T1 for a brief time period in what’s often called the ‘honeymoon’ period for patients (right as they’re diagnosed as their pancreas is about to stop making insulin entirely), but eventually they’ll find yourself with the disease and wish advanced technologies (CGM and pumps) to maintain themselves in the very best possible glycemic control,” O’Brien said. TNDM 3M mountain Tandem Diabetes shares have fallen significantly this yr. Dr. Paresh Dandona, of the Jacobs School of Medicine and Biomedical Sciences on the University of Buffalo, led the study. In a news release, he said the findings are “promising,” and support plans to conduct further research with a bigger group of participants over an extended time period. But even with the study’s small scope and the necessity for further investigation, the response was clear available in the market, and it’s the newest demonstration of headline risk around Ozempic, Wegovy and Mounjaro. With so many individuals wanting to shed kilos, there was plenty of media attention paid to those drugs. With each recent study, lots of the related stocks react. UBS’s Antalffy pointed to the discharge of findings from Novo Nordisk’s Select trial in early August because the factor that spoiled sentiment on diabetes device stocks. That trial showed semaglutide reduced patients’ cardiovascular risks. A lift to CGM sales? Meanwhile, Dexcom is making the case to investors that GLP-1 medications generally is a profit to sales of CGM devices. It recently shared historical claims data from health-care services provider Optum that showed a 2 to 4 times increase in use of CGM after patients begin GLP-1 medications. “Our diligence has suggested a positive link between CGMs and GLP-1s,” Bank of America analyst Travis Steed wrote in a research note Tuesday. In understanding why this could be the case, it’s helpful to do not forget that patients who drop some pounds on Wegovy or other GLP-1 medications are prone to regain that weight after they stop taking the drugs. Because the medications can cost about $13,000 a yr, some medical insurance firms may limit access to the drugs or patients could also be unable to tolerate unwanted side effects over the long run. Which means patients who drop some pounds will want to emphasise behavior modification as a method to keep up weight reduction long run. That is where CGM will be helpful, based on Steed. The devices can provide fast feedback through phone alerts on how an individual’s body is reacting to food, medicine and exercise. “CGM provides insights and behavior modification tools that enhance outcomes (all GLP-1 trials have significant lifestyle management protocols through the trials),” wrote Steed, who said he considers Dexcom to be considered one of his top picks for 2024. — CNBC’s Michael Bloom contributed to this report.
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