Insulet and DexCom Stocks Plummet After Eli Lilly Drug Study Shows Diabetes Promise

Introduction

Shares of medical device companies Insulet (PODD) and DexCom (DXCM) took a hit on Tuesday following the release of a study showing that a popular drug made by Eli Lilly (LLY) significantly reduces the risk of developing type 2 diabetes. The study revealed that patients with prediabetes who were overweight or obese experienced a 94% reduction in type 2 diabetes progression risk after taking tirzepatide, the active ingredient in Eli Lilly’s injectable weight-loss drug Zepbound and diabetes treatment Mounjaro, compared to a placebo.

Blockbuster Drug Pressures Growth Outlook

The positive results of Lilly’s study highlight the benefits of tirzepatide and other drugs known as GLP-1 receptor agonists. While these findings are great news for patients, they pose a concern for companies that manufacture products to treat related conditions. DexCom, a manufacturer of continuous glucose monitoring (CGM) devices, saw its shares plummet at the end of July after the company revised its sales guidance for the current quarter and the full year. The lower forecasts were attributed to slower-than-expected new customer additions, which could be further impacted as treatments by Lilly and other pharmaceutical rivals reduce diabetes risks.

Insulet, the insulin pump maker, has also faced concerns about user growth in recent weeks. The company’s shares dropped on August 6th after announcing that its growth trajectory might be slower than previously anticipated due to fewer patients switching from competing devices. Additionally, the wider adoption of GLP-1 receptor agonists could add to the headwinds faced by Insulet.

Stock Performance

Following the release of Lilly’s study, Insulet shares plunged 6.9%, making it the weakest-performing stock in the S&P 500 that day. DexCom shares were not far behind, falling 6.2%. On the other hand, Lilly’s shares finished 3.1% higher after reaching an all-time intraday high during Tuesday’s trading session.

Conclusion

The recent study conducted by Eli Lilly, which demonstrated the significant reduction in the risk of developing type 2 diabetes with the use of tirzepatide, has had a negative impact on the stocks of medical device companies Insulet and DexCom. These companies have been facing challenges in their growth outlook due to factors such as slower-than-expected customer additions and concerns about user growth. The positive effects of drugs like tirzepatide, while beneficial for patients, pose a threat to companies that manufacture products to treat related conditions. As a result, the stocks of Insulet and DexCom experienced significant declines, while Eli Lilly’s shares saw an increase. It remains to be seen how these companies will navigate the challenges posed by the growing adoption of GLP-1 receptor agonists and the changing landscape of diabetes treatment.

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