Published Sep 29, 2023 16:30 Updated Sep 29, 2023 16:46
© Reuters. Investor Concerns Rise as Weight-Loss Drugs Threaten Diabetes Device Market
Quiver Quantitative – With new weight-loss drugs like Ozempic and Wegovy, known as GLP-1s, showing potential in reducing the risk of heart attacks and diabetes, investors are evaluating their impact on healthcare companies. These drugs might result in a decline in diabetes cases, leading to a reduced demand for devices associated with diabetes treatment. In the past three months, insulin pump manufacturer, Insulet Corporation, witnessed a 44% decline in market value. Although traders are moving away from diabetes device stocks, some analysts believe that the financial impact of GLP-1 drugs on these companies may not be as severe as perceived.
Amidst the optimism surrounding weight-loss drugs, pharmaceutical giants like Novo Nordisk (CSE:) (NVO) and Eli Lilly (NYSE:) have seen their stocks rally. However, a study update in August indicated Novo Nordisk’s Wegovy can reduce heart-related risks, leading to a sharp drop in the stock prices of diabetes device manufacturers. Additionally, the weight loss drug hype has had a domino effect, impacting other segments within the medical device sector. For instance, ResMed (RMD), a manufacturer of breathing machines for sleep apnea—a condition often associated with obesity—saw its stock plummet over 30% this quarter.
Several analysts view the current decline in medical device stocks as a potential investment opportunity. With the market sentiment surrounding these weight-loss medications running high, the actual fundamentals indicate a more balanced outlook. JPMorgan’s (NYSE:) analysis suggests this might be an ideal time to acquire these undervalued stocks. Furthermore, potential side effects and risks associated with the new drugs could lead to a resurgence in the value of diabetes device stocks, making them appealing to investors once again.
However, investors remain cautious, given that the global market for these weight-loss drugs could be worth up to $100 billion by 2035. The challenge lies in determining the long-term implications of these drugs and their impact on the medical device sector. Short sellers have found success this quarter by betting against these stocks, realizing significant paper profits. The anticipated approval of Lilly’s weight-loss drug, tirzepatide, by year’s end, coupled with forthcoming trial results, could further shape the market dynamics for diabetes and insulin pump stocks.