Outlook 2024 - Bionics: From ebbs to flow, MedTech reclaims its potential
07 December 2023
GLP-1 drugs are now facing a reality check as more data becomes available. A year of soaring MedTech innovation is coming as GLP-1s gradually take a back seat.
2023: what a crazy ride
The year 2023 took the MedTech sector on a wild ride. It began with a promising first half, only to take an unexpected downturn as August approached. The driver behind this dramatic shift was the emergence of GLP-1 drugs, such as Ozempic, Mounjaro, and Wegovy.
These medications captured attention for their remarkable ability to induce weight loss by manipulating hunger signals and slowing stomach emptying, a breakthrough long sought after. Yet, their impact extended far beyond weight loss, with excitement centered on their potential to simultaneously address a wide array of obesity-related conditions like diabetes and cardiovascular diseases. Given the pivotal role of obesity-related issues in the MedTech sector's growth, investors began voicing concerns about the potential of these drugs to encroach upon the sector's total addressable markets. The SELECT and FLOW studies added valid weight to these concerns. The first, published in August, showcased the drugs' impressive ability to prevent major cardiac events, while the second demonstrated the effectiveness of GLP-1 in slowing the progression of chronic kidney disease and reducing mortality risks associated with kidney and heart conditions.
The ongoing debate revolves around whether these developments act as headwinds or tailwinds and for which segments of the medical device industry. These uncertainties triggered the most significant correction witnessed in the MedTech sector since the onset of the COVID-19 pandemic, resulting in market capitalization losses of almost $400bn, nearly half the projected addressable MedTech market by 2030. Could GLP-1 drugs be the long-dreamed-of panacea? A single pill with the potential to address half of the world's health concerns over a seven-year span?
MedTech sectors: No safe harbor
While the therapeutic device sector grappled with the challenges posed by GLP-1 drugs, other segments of the MedTech industry felt the ripple effects of China's anti-corruption campaign earlier in the year. This campaign slowed down medical device acquisitions by healthcare providers, affecting companies like Shockwave Medical, Philips, and Thermo Fisher Scientific. However, amidst these challenges, several diagnostic players within the sequencing, liquid biopsy, and medical imaging sectors emerged as exceptions, making positive contributions to the overall theme and demonstrating remarkable resilience. Companies like Exact Science and Lantheus not only weathered the storm but thrived, driven by increased revenue, reduced losses, and successful product launches. The imminent approval of Cologuard 2.0 by Exact Science, its next-generation test for colorectal cancer screening, is poised to bolster its ongoing positive momentum.
MedTech's comeback from GLP-1 reality check
The ongoing debate continues to stir interest and speculation. The market's response to the potential interaction between GLP-1 drugs and the medical device industry has been notably pessimistic despite a growing body of data indicating a manageable situation and, in some instances, a mutually beneficial relationship.
After an initial phase of hype that shook up the entire medical device sector, GLP-1s are currently undergoing a reality check to gauge their actual impact on this market. While we still believe that these drugs could become Pharma's biggest blockbuster ever, it's common for major breakthroughs to transition from initial sky-high expectations to a more grounded reality as additional clinical data becomes available. The complete unveiling of SELECT clinical data during the November American Heart Association (AHA) annual meeting serves as an ideal illustration. While this data undeniably confirms the advantages of GLP-1 drugs in cardiovascular health, a closer analysis reveals that there was no notable advantage in preventing strokes. Additionally, the reduction in the risk of non-fatal stroke and cardiovascular death did not achieve statistical significance. On top of that, results indicate that treating 60 patients for 2-4 years prevents just one death. At a price of $12,000 per patient per year, this bears significant cost implications for our healthcare systems.
Taking the analysis further, some analysts drew comparisons with statins, a group of cholesterol-lowering drugs that became available over 20 years ago, providing valuable insights. Despite statins' revolutionary impact on patients' health, which included more than a 20% reduction in major adverse cardiovascular events (MACE), they did not significantly disrupt the MedTech sector, even after achieving blockbuster status, proving cost-effective, and gaining widespread adoption.
Last Earnings Season: Insights from MedTech Executives
During the last earnings season, executives in the MedTech sector maintained their position that the demand for GLP-1 drugs would, at best, complement rather than compete with their sales and, at worst, potentially cause only a short-term disruption. Most of them believe that when GLP-1s are used with medical devices, they can potentially improve patient outcomes and adherence.
Here's a breakdown of the impact of GLP-1 drugs in selected medical indications and procedures:
- Dexcom studied Optum insurance claims and found that, after beginning GLP-1 use, CGM use doubled for patients on intensive insulin regimens and increased fourfold for those on basal or non-insulin therapies.
- Abbott Laboratories' U.S. pharmacy data examination has indicated that individuals using GLP-1 therapy tend to use their FreeStyle Libre sensors more frequently.
- A feasibility trial demonstrated that combining GLP-1 drugs with Insulet's Omnipod 5 led to better outcomes by improving insulin sensitivity and reducing insulin dosage.
- Zimmer Biomet analysis showed potential for GLP-1 drugs in expanding eligibility for joint replacement surgery by helping patients reduce their BMI.
- Novo Nordisk's SELECT study did not establish statistical significance in reducing cardiovascular deaths and showed mixed results on secondary endpoints. This outcome is unlikely to exert any notable influence on the addressable market of heart device makers.
- Intuitive Surgical is already witnessing a deceleration in the demand for bariatric surgery. However, the company expects that a substantial number of individuals will continue to opt for this procedure in the future, primarily due to low adherence rates to GLP-1.
- According to ResMed and Inspire Medical, GLP-1 drugs are expected to have, at worst, a neutral effect on sleep apnea device usage. Some patients may no longer qualify for such devices, while others who were previously ineligible might now be eligible.
- According to Outset Medical, there are over 600,000 people with irreversible ESRD (End Stage Renal Disease) in the U.S. alone. GLP-1s do not have any effect on this population.
- The FLOW study aimed to demonstrate kidney benefits in a composite endpoint involving five outcomes. However, which specific outcome(s) led to the trial's termination remains unclear. According to Davita, patients enrolled in the trial met specific criteria, including Type 2 diabetes, Chronic Kidney Disease (CKD), and a standard care regimen involving ACE inhibitors. They also needed a certain level of proteinuria, which is relatively rare in CKD patients (less than 10%). Therefore, the observed benefits of GLP1 on kidney, as studied in the FLOW trial, are likely applicable to a limited portion of the overall patient population affected by CKD.
2024 sweet spots: sectors to watch
Diagnostics & Monitoring
Generative artificial intelligence, commonly referred to as genAI, has emerged as a revolutionary development with far-reaching implications spanning multiple industries. In the realm of MedTech, genAI represents a beacon of promise, poised to greatly enhance operational efficiency, lighten the burden on healthcare professionals, and ultimately elevate patient outcomes. One domain where AI is making swift inroads is radiology, mainly due to the wealth of data available. AI's role in interpreting intricate medical images, such as CT scans, MRIs, and X-rays, significantly aids physicians in making accurate diagnoses. With a 20-30% market share, GE Healthcare stands to reap substantial benefits from this transformative technology. Furthermore, recent advancements like the introduction of PET radiotracers for prostate cancer and the FDA approval of new Alzheimer's drugs are driving increased utilization of MRI and PET, further contributing to the potential growth in this field.
Besides companies trying to weather the GLP-1 storm, there are also companies poised to benefit directly from the anticipated growth of these medications. With Novo Nordisk expanding its production to meet the increasing demand, some firms like Thermo Fisher Scientific and Ypsomed are seizing opportunities by securing substantial contracts with the Danish manufacturer for the supply of autoinjectors. While the precise extent of this potential advantage remains uncertain, it could become a significant growth driver for these companies.
Traditional Next-Generation Sequencing (NGS) methods often rely on specific panels that merely scratch the surface of a patient's genomic data. However, a comprehensive analysis of the entire genome can yield a much more profound and informative dataset, empowering physicians to tailor individualized treatment plans.
Looking ahead to 2024, Pacific Biosciences, with its cutting-edge technology showcased by the Revio and Onso instruments, is strategically positioned to meet the expanding demands of the genomics field. Setting an ambitious stage for substantial growth, the company has established a revenue Compound Annual Growth Rate (CAGR) target of 40-50% through 2026, significantly exceeding the sector's average of 22% during the same period.
As we've emphasized throughout the year, Continuous Glucose Monitoring (CGM) devices play a crucial role in improving medication adherence for diabetes patients. They enable both patients and physicians to monitor the effectiveness of therapy on their health. Dexcom is actively working on a groundbreaking product featuring a 15-day sensor explicitly designed for the 25mn Americans with Type 2 diabetes who do not use insulin. The launch is scheduled for 2024 in the U.S., opening the door to another significant market opportunity.
We expect the cardiovascular sector to make a strong comeback as the demand for devices used in minimally invasive heart procedures continues to rise, and the potential impact of Novo Nordisk's weight-loss drug Wegovy appears to be less significant than initially feared by investors. High-growth, high-beta players like Shockwave Medical and Penumbra experienced a sharp multiple compressions (the forward FY24 PE dropped by ~80%), notwithstanding their solid fundamentals and sustained fast-growth trajectory. Penumbra, a stroke and vascular device manufacturer, will benefit from improved market sentiment (following SELECT data on stroke) and the launch of two mechanical thrombectomy devices, Lightning Flash and Lightning Bolt 7.
Recent acquisitions in this field, such as Abbott Laboratories' takeover of Cardiovascular Systems, underscore the growing significance of cardiology for major medical device companies. A particular area of focus for prominent MedTech leaders is atrial fibrillation, which is projected to reach an $11bn market size by 2028, at a CAGR of 17% between 2023 and 2028. Boston Scientific is preparing for a significant launch in 2024, featuring its groundbreaking Farapulse pulsed-field ablation system. This innovative treatment promises enhanced safety compared to current ablation techniques and is poised to secure a substantial market share, surging from 5% to 80% by 2028.
The medical device industry is challenging the longstanding dominance of pharmaceutical drugs within the glaucoma market. Glaukos is gearing up to introduce a groundbreaking implantable device, a first-of-its-kind alternative to the conventional daily eye drop treatments that have been the standard for managing glaucoma and ocular hypertension in the U.S., affecting 18mn eyes. This innovative solution promises to address two critical issues: improving patient compliance by eliminating the need for daily eye drops, and mitigating the chronic side effects often associated with them.
In 2024, we anticipate a surge in innovation within the surgical robot market, with Momentis Surgical emerging as a notable new contender for Intuitive Surgical's Da Vinci. The company expects the FDA authorization of its Anovo System for general surgery. It is a single port device featuring miniature humanoid-shaped arms, offering an unparalleled level of dexterity and articulation, greater patient accessibility, and lower costs. We will keep a close eye on this technology, but we don't expect it to cause any immediate disruption to Intuitive Surgical. There's potential for both technologies to coexist, particularly during the initial stages of Anovo adoption.
Meanwhile, China is stepping up its efforts in the field, taking advantage of recent local regulations that have introduced new quotas for laparoscopic surgical robots. Over the next five years, 559 systems will be made available, catering to both Intuitive Surgical and local competitors. Among the approved domestic players in this quota is MicroPort MedBot. Recently, the company achieved a significant commercial milestone by securing Chinese marketing approval for its "SkyWalker" robot, designed for both hip and knee surgeries.
GLP-1 clinical trials outcome. Upcoming GLP-1 clinical trial results will be closely watched by investors throughout the year, especially in areas like osteoarthritis, sleep apnea, peripheral arterial disease, and type 2 diabetes. Positive outcomes could boost market sentiment.
MedTech Innovations. The MedTech industry is witnessing major technological advancements (e.g., the rapid integration of AI across the healthcare ecosystem and new robotic systems). These breakthroughs could translate into accelerated top-line growth, enhanced profitability, and the expansion of market opportunities within the industry.
MedTech advocates still fighting for breakthrough reimbursement. A new program (named TCET) was introduced by the CMS in June 2023 to facilitate earlier and safer access to emerging technologies. A similar legislative bill is advancing through Congress and the Senate and its approval would provide an extra boost to the sector.
Sluggish U.S. capital equipment and biopharma spending. A challenging global macroeconomic environment and deteriorating consumer sentiment in the U.S. could extend hospitals' sales cycle and reduce biopharma spending, affecting medical device and diagnostic manufacturers.
Prior-authorization policies. Prior authorization policies implemented by insurance companies require healthcare providers to seek approval from the insurance plan to ensure payment coverage eligibility. Private insurers are enforcing this policy to reduce healthcare spending.
China's anti-corruption initiatives. China's ongoing anti-corruption campaign targeting medical systems might continue to delay the adoption of new technologies. This slowdown is expected to merely defer demand, with a catch-up anticipated in 2024-2025.
Companies mentioned in this article
Abbott Laboratories (ABT); Boston Scientific (BSX); Cardiovascular Systems (CSII); Davita (DVA); Dexcom (DXCM); Exact Science (EXAS); GE Healthcare (Not listed); Glaukos (GKOS); Inspire Medical (INSP); Insulet (PODD); Intuitive Surgical (ISRG); Lantheus (LNTH); MicroPort MedBot (2252); Momentis Surgical (Not listed); Novo Nordisk (Not listed); Outset Medical (OM); Pacific Biosciences (PACB); Penumbra (PEN); Philips (PHIA); ResMed (RMD); Shockwave Medical (SWAV); Thermo Fisher Scientific (TMO); Ypsomed (YPSN); Zimmer Biomet (ZBH)
- Assessing the Potential Impact of GLP-1s
- Enabling the promise of genomics to better human health
- FreeStyle Libre / GLP-1 Analysis
- GE HealthCare Will Improve Its Focus, but Spinoff Unlikely to Change Near-Term General Electric Outlook
- Next-generation Sequencing Market Is Anticipated to Expand at a 22.2% CAGR Size Will Reach USD 31,411.3 Million by 2026
- Novo Nordisk will stop the once-weekly injectable semaglutide kidney outcomes trial, FLOW, based on interim analysis
- Safety and Efficacy of the Omnipod 5 Automated Insulin Delivery System in Adults With Type 2 Diabetes: From Injections to Hybrid Closed-Loop Therapy
- Semaglutide and Cardiovascular Outcomes in Obesity without Diabetes
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