Investors have recently shown increased enthusiasm for weight-loss drugs developed by Novo Nordisk and Eli Lilly. However, this positive momentum has had a negative impact on companies that specialize in treating disorders exacerbated by obesity.
ResMed: Stock Decline and Recovery
One such company is ResMed, whose shares experienced a sharp decline of 40% between July and October. This drop was fueled by concerns that the demand for ResMed’s devices, which alleviate sleep apnea – a nighttime breathing problem associated with obesity – would decrease.
Despite this setback, ResMed has managed to regain some of its losses in recent times by reporting consistent growth over the past few quarters. In its latest earnings report released on Wednesday, the San Diego-based firm revealed an 11% increase in sales for the December quarter compared to the same period in the previous year, reaching $1.16 billion. Additionally, the company saw a 20% rise in profit, amounting to $1.88 per share. The positive news had a significant impact on ResMed’s stock, which is now up by 44% from its lowest point in 2023, priced at $190.
Weight-Loss Drug Impact: A Market Overreaction?
ResMed’s Chief Executive, Mick Farrell, believes that weight-loss drugs could potentially benefit many patients who suffer from sleep apnea. However, Farrell expects these drugs to be used in conjunction with proven treatments like ResMed’s continuous positive airway pressure (CPAP) systems.
Interestingly, this viewpoint contradicts how the stock market perceived the situation back in August. Following a study on Novo Nordisk’s Wegovy, which demonstrated that overweight patients who used the drug experienced 20% fewer strokes and cardiac events, traders promptly began selling stocks of companies engaged in combating diabetes, liver disease, and other weight-related conditions. The negative trend even impacted snack food stocks.
In contrast, Novo Nordisk and Eli Lilly, both racing to meet the growing demand for their weight-loss drugs, experienced substantial gains. These pharmaceutical giants now hold the highest valuations in the industry, thanks to their GLP-1 agonist drugs, which have proven effective in aiding weight loss.
Novo Nordisk’s Wegovy is formulated from its diabetes drug Ozempic, while Eli Lilly’s Zepbound is its obesity-specific offering derived from the diabetes medication Mounjaro.
Sleep Apnea Treatment Shows Promising Results
ResMed, a leading company in sleep apnea treatment, has recently addressed concerns about the demand for CPAP (Continuous Positive Airway Pressure) therapy. In an effort to alleviate these concerns, ResMed conducted a retrospective comparison study among 530,000 CPAP users who either took GLP-1 drugs or did not.
According to the study, patients who took GLP-1s showed a 10% higher frequency of starting CPAP therapy. Furthermore, CPAP compliance increased over time. After one year, the GLP-1 patients displayed a 3% higher number of reordered CPAP breathing masks, which increased to 5% after two years.
Contrary to expectations, the impact of GLP-1s on sleep apnea patients actually improved their motivation to use CPAPs, leading to better health outcomes. This finding suggests that GLP-1 users may be more dedicated to improving their overall well-being.
Although ResMed’s stock value has rebounded significantly, currently valued at 24 times the consensus forecast for earnings in June 2024, the observational study conducted by ResMed is not the final verdict on the implications of GLP-1 drugs.
In the coming months, Lilly will release top-line results from a clinical trial named Surmount-OSA. This trial aims to determine whether Lilly’s GLP-1 drug can effectively reduce episodes of disturbed breathing among sleep apnea patients. Unlike ResMed’s retrospective study, Lilly’s trial is a prospective, randomly-controlled study, which may carry more weight in the stock market if successful.
ResMed is taking proactive measures by inviting Atul Malhotra, a sleep medicine researcher and one of the investigators in the Surmount-OSA trial, to discuss the implications of GLP-1 drugs on their company podcast. Malhotra, a professor at the University of California, San Diego, expressed optimism about the potential of Lilly’s drug in reducing apnea episodes. However, he believes that patients will likely continue using CPAPs alongside the medication.
In conclusion, ResMed’s study provides promising insights into the benefits of combining GLP-1 drugs and CPAP therapy for sleep apnea treatment. Further research and clinical trials, such as Lilly’s Surmount-OSA trial, will provide a more comprehensive understanding of the potential of GLP-1 drugs in improving patient outcomes.