Hey Medtech, You Need to Calm Down (About GLP-1)

There's been a lot of noise in recent weeks around GLP-1 drugs and their ripple effect on medtech.

Initially approved to treat diabetes, glucagon-like peptide-1 (GLP-1) drugs are being heralded as a way to close the gap between lifestyle modification and bariatric surgery, explains Jaime Almandoz, MD, an endocrinologist at UT Southwestern Medical Center and an expert in nonsurgical weight management and medical care of patients following bariatric surgery.

GLP-1 drugs can make the stomach empty slower so patients feel satisfied with smaller amounts of food, and they can tell the brain there is food in the stomach to suppress appetite and cravings. The drugs are designed to mimic a protein that the body makes naturally when we eat.

"When used for weight management, these medications pump the brakes on our appetites and the rate at which food exits the stomach," Almandoz said. "As a result, we eat less because we are thinking less about food, and we are satisfied with smaller portions – even if we weren’t overeating."

But medtech investors seem to be concerned that GLP-1 drugs will reduce demand for certain procedures and that these drugs will cut into the total addressable markets for some medical devices. So, it came as no surprise during the Wells Fargo 2023 Healthcare Conference last month when Larry Biegelsen, a veteran medtech analyst at Wells Fargo, asked Medtronic CEO Geoff Martha for his view on GLP-1 drugs.

In short, Martha disagrees with investor concerns around GLP-1 drugs having a negative impact on Medtronic's markets. He noted that Medtronic's diabetes business primarily serves the type 1 diabetes population and that GLP-1 drugs don't impact those patients.

Likewise, Medtronic doesn't anticipate GLP-1 drugs impacting the company's cardiovascular business. The company is seeing a low single-digit impact in bariatric surgery, however. But there are two sides of the GLP-1 coin in bariatric surgery.

"Over time, the question we have on that is, will GLP-1s actually introduce more patients to the care pathway? And over time, will it become a tailwind? I don’t know," Martha told Biegelsen. "But the headwind side of it is very modest and there’s a question whether or not it will be a tailwind. So overall, we’re not ... seeing a significant impact and we don’t anticipate that changing."

Biegelsen noted that Martha's view is consistent with a recent industry survey Wells Fargo did. Another question medtech analysts are hearing on the topic of GLP-1 drugs is how long the GLP-1 overhang on medtech stocks will last. But without a crystal ball, that's a tough question for even Medtronic's CEO to tackle. Martha did, however, acknowledge that it is an important class of drugs for consumers that is expected to have a positive impact on peoples' lives.

"It’s something we’re following, but we’re just not seeing the impact," he said, adding that the concern for medtech investors will hopefully be short lived.

BTIG medtech analysts are also watching the GLP-1 trend closely and trying to analyze the potential impact of this drug class on various medtech sectors. BTIG's Marie Thibault recently hosted a call on the topic with Osama Hamdy, MD, PhD, medical director of the obesity clinical program at the Joslin Diabetes Center and an associate professor of medicine at Harvard Medical School.

Thibault noted that Hamdy is a "believer in diabetes tech," including continuous glucose monitoring (CGM) systems, insulin pumps, and automated insulin delivery systems. Hamdy also is a frequent prescriber of the GLP-1 receptor agonists for diabetes and for obesity.

"His take on the impact of GLP-1s on CGM adoption was strongly positive, describing it as the 'brightest future' imaginable and expecting it to be standard of care in three to four years as a tool for tracking glucose variability, time-in-range, and a way to encourage behavioral change," Thibault wrote in a report following the call. She added that the sentiment matches recent commentary from Dexcom executives and she thinks GLP-1 drugs could continue to be a tailwind for CGMs.

The drugs could have a negative impact on the sale of insulin devices, however, because people with type 2 diabetes may be able to delay insulin therapy if they take GLP-1s. Hamdy noted during the BTIG call, however, that about 30% of his patients currently take insulin, with 70% of these only on long-acting insulin (LAI). The doctor expects the portion of his patients taking insulin could decline to about 20% to 25% in five years, with roughly 80% of these only on LAI.

"We point out this decline is likely more moderate than concerns and stock reactions imply," Thibault wrote. "... This expert is very positive on GLP-1s, but sees several remaining barriers to entry, including compliance, side effects, and insurer coverage."

Ryan Zimmerman, another medtech analyst at BTIG, wrote in a report published Friday that the "alarm and misgivings" around the potential consequences of impressive weight loss from GLP-1 receptor agonists has stretched into several weeks of significant stock declines for a number of medtech stocks.

Zimmerman noted that Dexcom executives pointed to payer data as evidence that CGM prescriptions increase as patients start taking GLP-1 drugs. When patients start on GLP-1 drugs, they should be titrated based on glucose levels, the analyst said, adding that CGMs can help maintain the benefits of GLP-1s even after patients get off the drugs.

"Over in orthopedics, it seems as though the industry is making lemonade out of lemons as more patients can lower their BMI and subsequently qualify for joint replacement surgery," Zimmerman wrote.

I can't help but be reminded of 2015, the year that medtech saw a rash of FDA approvals in the weight-loss device sector. Medtech investors with a pony in that race were always quick to point out how important it was to tackle the obesity problem. So, they pushed balloon-based technologies and other weight-loss procedures until a handful of patients died in 2016 and 2017 within a month of their procedure.

Now, people who struggle with obesity have a promising non-surgical alternative and those same investors are sounding the alarm because it's not a device-based solution. But they are looking at it all wrong. Instead of focusing on the potential short-term headwinds, medtech investors should look at the longer-term GLP-1 tailwinds.

Think about patients with kidney failure who are overweight. Many of these patients must lose weight before they can qualify for a kidney transplant. If taking GLP-1 drugs help them meet the weight qualifications and reduce some of the risks associated with the surgery, everyone wins.