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Piper Sandler said it expects upcoming results from a Novo Nordisk (NVO) study of its weight-loss drug semaglutide in the treatment of osteoarthritis to be “mediocre” and demand for knee and hip replacements to increase near-term as more patients qualify for surgery due to weight loss.
The investment bank said in a recent note that the Novo Nordisk Phase 3 study, called STEP 9, will likely show that some osteoarthritis patients who took semaglutide felt less joint pain due to reduced strain on their joints. However, it doesn’t believe the results would have a near-term net impact on knee replacements as the drug wouldn’t reverse existing damage and motion problems are a major reason why such surgeries are conducted.
Novo Nordisk markets semaglutide under the brand names Ozempic for diabetes and Wegovy for weight loss. The drug belongs to a class of medications known as GLP-1s.
STEP 9 has been evaluating semaglutide in the reduction of osteoarthritis pain in people with obesity. Piper said topline results from the study, which has 407 patients, had been expected in October, but now look more likely in Q1 2024.
The bank said that while the STEP 9 study probably won’t lead to an expanded label for semaglutide, it helps lay the foundation for additional studies for semaglutide and/or perhaps another GLP-1 drug.
What impact the popularity of semaglutide would have on the medical device industry has been debatable. Some have argued that a slimmer population would need fewer joint replacements due to reduced strain on the joints. Others point out that more people would qualify for surgery if they lost weight, plus thinner people would likely be putting more stress on their joints through increased activity, which in turn would increase demand.
Piper sees the future yielding mixed results. The investment bank sees weight loss drugs leading to higher demand for replacements of weight-bearing joints such as knees and probably hips until around 2040 as more people with existing joint damage would qualify for surgery. Companies positioned to benefit from that trend would include Stryker (NYSE:SYK) and Zimmer Biomet (NYSE:ZBH).
More specifically, the bank sees a roughly 10% increase in knee and hip procedures in the next 7 to 10 years due to higher BMI patients losing enough weight to qualify for surgery. After around 20 years, Piper sees a slowdown in the mid-teens as patients incur less joint damage due to weight.
Piper notes that the stocks of orthopedic companies such as OrthoPediatrics (KIDS) and Paragon 28 (FNA) have been under pressure in part due to GLP-1 concerns even though they likely wouldn’t be impacted. OrthoPediatrics is a maker of orthopedic devices for children, for which GLP-1 meds are not approved, while Paragon 28 makes devices for feet and ankles, which are generally more affected by motion than weight.
“We understand that these small caps are also being impacted by the current interest rate environment but believe their valuations are compelling at present,” Piper added.
Pipers has overweight ratings on KIDS, FNA, SYK and ZBH.