Street analysts say diabetes stocks “overreacting” to Lilly GLP-1 study results

Shares of medical technology diabetes stocks are in the spotlight after Eli Lilly (LLY) said its weight loss drug cut the risk of developing Type 2 diabetes by 94% in in prediabetic adults who were overweight or obese after three years of weekly injections. Commenting on the news, Citi says Tuesday’s selloff was overdone as it reminded investors the type 2 population is large, under penetrated, and that it already evaluated continuous glucose monitor and pump use in a GLP-1 environment. Discussing Tandem Diabetes (TNDM) in particular, Lake Street said in a research note that it sees minimal impact in the next two years and recommends buying shares on the “overreaction” to competitive fears.

SURMOUNT-1 STUDY: Eli Lilly announced topline results from the SURMOUNT-1 three-year study evaluating the efficacy and safety of tirzepatide once weekly for long-term weight management and delay in progression to diabetes in adults with pre-diabetes and obesity or overweight. Weekly tirzepatide injections significantly reduced the risk of progression to type 2 diabetes by 94% among adults with pre-diabetes and obesity or overweight compared to placebo.

Additionally, treatment with tirzepatide resulted in sustained weight loss through the treatment period, with adults on the 15 mg dose experiencing a 22.9% average decrease in body weight compared to 2.1% for placebo in adults with pre-diabetes and obesity or overweight at the end of the treatment period.

Tirzepatide was evaluated in 1,032 adults who had pre-diabetes at randomization and obesity or overweight for a treatment period of 176 weeks, followed by a 17-week off-treatment period. Results from the SURMOUNT-1 phase 3 study’s primary analysis at 72 weeks in all participants were published in the New England Journal of Medicine in 2022.
In a key secondary endpoint, tirzepatide led to a significant reduction in the risk of progression to type 2 diabetes in adults with pre-diabetes and obesity or overweight from baseline to week 176.

The overall safety and tolerability profile of tirzepatide over the 193-week study was consistent with the previously published primary results at 72 weeks in SURMOUNT-1 and other tirzepatide clinical studies conducted for chronic weight management. Nonclinical studies suggest the addition of GIP may further contribute to the regulation of food intake. Tirzepatide decreases calorie intake, and the effects are likely mediated by affecting appetite. In addition, tirzepatide stimulates insulin secretion in a glucose-dependent manner. Tirzepatide increases insulin sensitivity in patients with type 2 diabetes mellitus and these effects can lead to a reduction of blood glucose.

These topline results provide evidence for reduced risk of progression to type 2 diabetes and long-term maintenance of weight loss with tirzepatide in adults with pre-diabetes and obesity or overweight.

STOCK SELLOFF OVERDONE: Citi notes that medical technology diabetes stocks were pressured following Eli Lilly’s three-year, Surmount-1 results evaluating tirzepatide, regular physical activity, and a reduced-calorie diet on prediabetes patients. The study demonstrated sustained weight loss and a reduction in type 2 diabetes progression by 94% in prediabetic/obese patients, the analyst tells investors in a research note. The firm reminds investors the type 2 population is large, under penetrated, and that it already evaluated continuous glucose monitor and pump use in a GLP-1 environment. Citi views the share selloff as overdone and keeps Buy ratings on Abbott Laboratories (ABT), DexCom (DXCM), Insulet (PODD) and Tandem Diabetes along with a Neutral rating on Medtronic (MDT).

OVERREACTION TO COMPETITIVE FEARS: Lake Street notes that Tandem Diabetes shares were “slammed” on Tuesday in what appeared to be a reaction to news from Eli Lilly regarding the positive impact of trizepatide on people at risk of becoming Type 2 diabetics. Medtronic also reported results that impressed investors and highlighted encouraging developments in its diabetes business, discussing the potential of their new partnership with Abbott to leverage FreeStyle Libre technology to link a CGM from Abbott to insulin delivery devices from Medtronic, noted the firm. However, Lake Street does not think either development will impact Tandem in the next two years at the earliest. “Fear is usually an overreaction, and we believe it is in these cases,” says the firm, which affirms a Buy rating and $75 price target on Tandem shares.

PRICE ACTION: Shares of Tandem Diabetes, Abbott Laboratories, DexCom, Insulet and Medtronic have recovered from Tuesday’s losses, trading higher on Wednesday morning. Eli Lilly is fractionally down at $948.80.