Ozempic, Novo Nordisk's (NVO 0.84%) blockbuster drug for type 2 diabetes, is having all sorts of unexpected impacts on the healthcare sector. With the help of similar medicines made by Eli Lilly (LLY 1.19%), and expanded labels that allow the two companies to market formulations of those products for obesity, everyone from big pharmas to medical device manufacturers is trying to plan for a future in which it's easier for patients to lose weight.
That's great for patients, with weight loss hopefully being an easier goal to attain than before. But because many different health risks are exacerbated by being overweight, there are a lot of downstream product segments which could see contracting demand. Let's take a look at a trio of big medical technology businesses, and at what their management teams have said about this issue so far.
Who's exposed, and why?
In theory, if the population's rate of obesity drops, the incidence of cardiometabolic disease will drop too. As Novo Nordisk's Ozempic and Eli Lilly's Mounjaro have been proven in clinical trials both to reduce weight and to directly reduce cardiovascular risks, on a long enough timescale the drugs may indeed lead to less demand for all sorts of interventions. Given that these medicines are relatively new to the scene, the question to answer is when there might be an impact on businesses that compete in segments related to cardiovascular interventions.
For example, Edwards Lifesciences (EW -1.80%) is a medical device company that makes transcatheter aortic valve replacement (TAVR) units, which are indicated for treating aortic stenosis, and which brought in $961 million in sales in the third quarter. Similarly, Edwards makes a number of other products for heart surgery, like valve replacement systems. If the result of taking Novo Nordisk's Wegovy or Eli Lilly's Zepbound -- both of which are indicated specifically for weight loss -- is a lower incidence of heart diseases, it's highly likely that surgical interventions could decrease as well. However, management says Edwards' TAVR segment probably won't be affected, and the company hasn't seen any evidence suggesting that it will be.
Boston Scientific (BSX -0.12%), which also makes TAVR and other structural heart products for surgery and adjacent purposes, is signaling similarly, but with a key distinction that's worth noting. Per its latest earnings call, the company's leaders figure that the latest crop of weight-loss medicines will have a negligible impact in the near term, and a "minor" impact in the longer term, which means roughly a decade from now. In Q3, Boston Scientific's cardiovascular segment brought in more than $2 billion in sales.
Boston Scientific and Edwards Lifesciences are direct competitors in many of the same areas of cardiovascular surgical technology. So it seems that they do face some headwinds on the horizon, even if those are limited.
Medtronic (MDT 0.62%), a titan among med-tech businesses, has multiple exposures to the downstream demand risks posed by Ozempic and similar drugs. Aside from selling a handful of heart surgery products, it also sells continuous glucose monitors (CGMs) and insulin pumps, not to mention bariatric surgery tools. As Ozempic was first approved to treat type 2 diabetes by lowering people's blood glucose levels, thereby lowering the need for insulin, it could be a particularly large threat.
But management isn't worried. Although it experienced a small headwind to its bariatric surgery segment -- which it attributed to the rise of the latest class of weight-loss drugs -- it predicts the future impacts will be minimal, and confined to that segment only.
This trend is just starting to pick up steam
Overall, the head honchos at these three companies seem to think that Ozempic is not going to be a game changer for their top lines. The shared core assumption is that most eligible patients will not permanently take these medicines for the purpose of weight loss. Even if they do, all three businesses are diversified enough that shrinking demand wouldn't be enough to sink them.
Nonetheless, the market's concern is unlikely to abate soon. As more and more sophisticated weight-loss medicines make it to the market, and as the existing leaders gain in market penetration, the population-level health benefits could prove to be massive. And with Ozempic's household-name status, the medicines practically market themselves at the moment.
In short, I think the long-term risks to cardiovascular technology companies are somewhat larger than they currently realize. So yes, Ozempic could harm these three stocks. But if there is actual harm, it'll take at least a few more years to play out, and they'll have plenty of time to react.
