Industry analysts insist that the new diabetes and weight loss drugs, such as Ozempic, won’t affect demand for continuous glucose monitors and insulin pumps. But most investors don’t buy it. UBS analyst Danielle Antalffy lowered her price targets on Wednesday for Dexcom, and several small-to mid-cap names. She believes that historical valuation multiples for this group have decreased for the near future. She wrote that current multiples “seem to be pricing an overly-bearish view”, in which
were cut significantly as GLP-1 adoption ramped up (specifically for diabetes and obstructive sleeping apnea). Investors must decide if the sour outlook is justified or if it is an opportunity to buy. It depends on whom you ask and whether or not you think GLP-1 drugs are a benefit or a disadvantage to the category. The GLP-1 receptor agonists, such as Novo Nordisk’s Ozempic and Eli Lilly’s Mounjaro, are a group of medications that includes the glucagon like peptide-1 (semaglutide). These drugs mimic hormones found in the gut to regulate insulin levels. The drugs were initially designed to treat Type 2 Diabetes, but they also help with weight loss, and may one day be used to treat sleep apnea and liver disease. Novo Nordisk stock has reached new heights due to its blockbuster potential, which makes it the most valuable European firm at the moment. Antalffy acknowledges that it is “difficult” to disprove a negative, so she assumes the valuation trend will continue even though demand for insulin pumps and glucose meters has not changed. She said, “For [total addressable markets] we remain steadfast to our view that all diabetic patients will be using a CGM in the next five years, no matter what their medical regimen is.” Analysts expect that the increased demand for CGM devices is expected to boost sales and margins at Dexcom. She reiterated her Buy rating for the stock but reduced the price target from $175 to $138. Dexcom has gained more than 2% in the past week. DXCM 3M Mountain In the first quarter, Dexcom’s shares have fallen by nearly 19%. Headline risk exists. The most recent pressure on stocks was a report published in the New England Journal of Medicine on Thursday. It detailed a study of patients newly diagnosed with Type 1 Diabetes who were able to reduce their insulin requirement after taking semaglutide. Insulet, which manufactures insulin pumps, took a particularly heavy hit from the news. The stock price continued to fall on Friday and has fallen by about 10% in the last week. The study results were accompanied by some important caveats. For example, the sample size was extremely small at only 10 patients. The study was retrospective, and there was no control group. PODD Shares of 3M mountain Insulet over the last three months According to Piper Sandler analyst Matt O’Brien, it is “highly unlikely that” this article’s findings will hurt sales for continuous glucose monitors and insulin pumps. We understand investors’ concerns over the drug overhang in the diabetes device market, but believe that all names beginning with [continuous glucose monitors] were unfairly punished. He encouraged building or starting positions in these stocks. O’Brien gives Dexcom an overweight rating, along with Insulet, Tandem Diabetes Care, and Tandem Diabetes Care is Piper’s favourite name. Dexcom’s shares have fallen more than 7% in the past year. O’Brien set a price target of $160 for the stock. This implies a 52% increase over the closing price on Thursday. Insulet’s price target is $325 or 82% higher than where the stock closed on Thursday. The shares have dropped more than 40% in the past year. Tandem Diabetes Care’s shares are down even more — 46% since the beginning of this year. To reach O’Brien’s $40 target, shares would have to increase by 57%. O’Brien doubts semaglutide will be able prevent Type 1 diabetes over a long period of time. O’Brien stated that the drug may slow down the progression of Type 1 diabetes for a brief period during the “honeymoon” period (just as patients are diagnosed, as their pancreas begins to stop producing insulin), but they will eventually develop the disease and require advanced technologies (CGMs and pumps) in order to maintain the best glycemic controls. TNDM 3M Mountain Tandem Diabetes shares are down significantly this year. The study was led by Dr. Paresh Dandona of the Jacobs School of Medicine & Biomedical Sciences, University of Buffalo. He said in a press release that the results are “promising” and that they support plans for further research to be conducted with a large group of participants, over a longer period. Despite the small study and the need for more investigation, market reaction was evident. This is the latest example of the headline risk surrounding Ozempic Wegovy, and Mounjaro. Media attention has been focused on these drugs because so many people are looking to lose weight. Many stocks are affected by each new study. Antalffy of UBS cited the early August release of Novo Nordisk Select’s results as the reason for the negative sentiment towards diabetes device stocks. This trial showed that semaglutide decreased cardiovascular risks in patients. CGM sales boosted? Dexcom has been arguing to investors that GLP-1 medication can benefit sales of CGM products. Optum, a health-care provider, recently provided historical data on claims that showed an increase of 2 to 4 fold in the use of CGM when patients started taking GLP-1 medication. In a research report published Tuesday, Bank of America’s Travis Steed stated that “our diligence has indicated a positive relationship between CGMs” and GLP-1s. To understand why this could be the case, remember that patients who gain weight after stopping Wegovy or GLP-1 medication are likely to do so when they resume their normal diet. Some health insurance companies limit access to these drugs because they can cost up to $13,000 per year. Or, patients may not be able to tolerate the side effects for a longer period of time. Patients who are losing weight may want to focus on behavior modification to help maintain their weight loss over the long term. Steed says that CGM is a useful tool in this situation. The devices provide immediate feedback via phone alerts about how the body reacts to food, medication and exercise. Steed wrote that CGM offers insights and tools for behavior modification to improve outcomes. (All GLP-1 trials include lifestyle management protocols in the trials). Michael Bloom, a CNBC reporter, contributed to this article.
