It's a bit of a harrowing time to be in the business of selling solutions for bariatric surgery. Thanks to Novo Nordisk's drugs like Ozempic and Wegovy for type 2 diabetes and obesity, and competing medicines like Mounjaro and Zepbound made by Eli Lilly, people now have access to powerful and noninvasive weight-loss tools. And that means there's a real risk that demand for weight-loss surgeries will start to collapse.
In fact, leaders of two of the largest companies in healthcare, Intuitive Surgical (ISRG +0.25%) and Johnson & Johnson (JNJ 0.63%), are already explicitly linking the rise of treatments like Ozempic to new headwinds for certain segments of their businesses. Since Ozempic and its peer medicines are relatively new, the shift to medicines from possible surgical interventions could just be getting started. Let's investigate how serious the impact might be, and explore whether those two stocks are still worth buying in light of what's likely to happen.
NYSE: NVO
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A probable temporary slowdown for Intuitive
Intuitive Surgical's da Vinci robotic surgical suite has approval for a handful of different surgeries and has about 8,200 systems installed in operating rooms globally. Certain bariatric surgeries intended to aid in losing excessive weight are among those approved indications. The fewer of those procedures hospitals perform because patients can take Ozempic instead, the fewer sales of replacement parts and specialized tools the company can make.
Intuitive's revenue totaled $1.7 billion in the third quarter, and 79% of that is from recurring sales of maintenance, tools, parts, and accessories. So in principle, falling bariatric procedure volume could be a significant threat. In practice, it doesn't look like there's any reason to sweat.
NASDAQ: ISRG
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Per management's comments on the company's Q3 earnings call, its market share in bariatric procedures is growing, and its procedure volume is still rising by at least 10% year over year. Management is nonetheless expecting a modest and short-term headwind to further growth in the segment. They're also signaling that there may eventually be similarly modest (or perhaps even negligible) headwinds for other segments; this is based on the logic that effectively treating people's obesity will reduce their chances of experiencing some of the serious cardiovascular and metabolic health impacts it can cause over time. The tone of the remarks is closer to optimism about improving human health outcomes rather than the fear of looming competitive threats.
So far, the data supports those assertions: Globally, in the third quarter, there were 19% more procedures performed with the da Vinci than a year prior, continuing a long-running trend of strong year-over-year growth. It's very feasible the company will cross the threshold of 2 million surgeries performed with the da Vinci in one year for the first time. The picture may well change with time, but for now, there's no indication that Intuitive Surgical is having any problems in the face of Ozempic's popularity, so the bull thesis for buying the stock is as intact as ever.
Johnson & Johnson faces multiple threats
Johnson & Johnson could theoretically be harmed by popular weight-loss medicines in a few different ways.
The most obvious harm would be to any of its products intended to help people with type 2 diabetes or obesity to control their weight. But J&J's diabetes medicine Invokamet, first approved in 2016, had sales so low that they didn't warrant mention as a separate line item in the business' latest reporting on the performance of its pharmaceutical segment.
That means sales of the drug were probably less than $150 million in the most recent quarter. For reference, Johnson & Johnson brought in $21.4 billion in sales in Q3 alone; Invokamet is a drop in the bucket at best. So in the big picture, there's not much concern about Ozempic's impact on J&J's weight-related medicines.
NYSE: JNJ
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Still, management admits that medicines like Wegovy, Ozempic, and Mounjaro are likely already causing headwinds for the bariatric segment of its medical technology business. However, CEO Joaquin Duato recently broached the possibility that the company could experience fresh tailwinds in bariatrics -- from patients who try those drugs, decide that the side effects are too burdensome to continue, and subsequently opt for surgery. That thinking seems a bit wishful, as the option to get surgery was open to patients long before any of these therapies were on the market. Nonetheless, the company's "MedTech" business is reporting procedure volumes increasing year over year, and Duato expects that will continue. The surgery segment was worth $2.5 billion in sales in the third quarter.
Finally, the company is also requesting permission from regulators to start a clinical trial for its new surgical robot system, called Ottava, sometime in 2024. The robot is a direct competitor to Intuitive Surgical's da Vinci. Notabaly, its total addressable market could slightly shrink if bariatric procedure volumes become less common over the coming years. But at the moment, there's no financial impact to speak of.
In case it wasn't clear, Johnson & Johnson isn't about to be significantly slowed down by Ozempic. Nor would it be growing very quickly anyway. If you're in the market for a slow and steady evergreen stock, it's still worth buying.
