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Piper Sandler said it sees GLP-1 drugs as having only a limited impact on the market for devices to treat type 2 diabetes and virtually no impact on those to treat type 1, at least for the next several years.
In a note, Piper said it saw the recent sell-off in diabetes device names as overdone, creating an opportunity for investors willing to wait out the “GLP-1 narratives” for the next several quarters.
“Given where the names currently sit from a valuation perspective, we see type 2 diabetes as a complete call option on all diabetes names,” Piper said in its note.
Piper’s preferred names in the space are DexCom (NASDAQ:DXCM), followed by Insulet (NASDAQ:PODD) and Tandem Diabetes Care (NASDAQ:TNDM). The investment bank has overweight ratings on all three, citing valuations and “solid fundamentals.”
Piper Sandler said that while it sees GLP-1s gradually shrinking the total addressable market for devices for type 2 diabetes, or T2D, especially insulin pumps, “we continue to believe that the size of the market is underappreciated and the vast number of patients, combined with the low penetration, will help offset this to some degree.”
Piper added that while there will be a slowed growth for future T2D pump users, it believes current users are progressed enough with their disease “to the point of minimal return.”
The investment bank now sees the number of T2D insulin pump users growing by a CAGR of 15.5% by 2030 and the number of TD2 users of continuous glucose monitors, or CGMs, increasing by a CAGR of 18.5%. The bank’s prior estimates were for pump growth of 18% and CGM growth of around 23% by 2030.
As for the market for devices for type 1 diabetes, or T1D, Piper said it remained “confident” that the market won’t be impacted by GLP-1s as the body generally needs to be able to produce some amount of insulin for the drugs to be of much benefit. Piper added that the T1D market had a “ways to go” before it saw full saturation for insulin pumps and CGMs.
The investment bank added that it was also “far too early to call” what impact encapsulated beta cell therapies, such as those being developed by Vertex (VRTX), will have on the T1D market.
Piper noted that there has been a “buyers strike” against diabetes device stocks in recent weeks and that investors are likely to be spooked further by upcoming data rollouts on GLP-1 drugs over the next six months.
“Investors will need to be patient but should take advantage of this overdone move in the names,” Piper said. “We need to get through several quarters showing that there really isn’t a major impact to the companies before meaningful upside can exist.”
Piper set a price target of $160 for DexCom, $325 for Insulet and $40 for Tandem.