Diabetes stocks jump as obesity-drug recovery comes ahead of schedule, analysts say

By Eleanor Laise

DexCom's strong quarterly results give device makers a boost

Diabetes-device makers' stocks are breaking out of 'GLP-1 jail' ahead of schedule, analysts say, after months of stock-market punishment based on fears that the popular obesity drugs would clobber the market for their products.

Shares of DexCom Inc. (DXCM), Tandem Diabetes Care Inc. (TNDM) and Insulet Corp. (PODD) posted big gains in premarket trading Friday after DexCom late Thursday reported third-quarter profit that was well ahead of analysts' expectations and raised its full-year revenue outlook.

DexCom and Insulet shares were among the S&P 500's worst healthcare performers in the third quarter, as investors worried that widespread use of GLP-1 drugs like Novo Nordisk's (NVO) Ozempic and Wegovy would shrink the market for diabetes devices such as insulin pumps and continuous glucose monitors.

DexCom has previously said that prescriptions for continuous glucose monitoring actually tend to rise after patients start taking GLP-1 drugs. The company doubled down on that argument during its earnings call Thursday, when president and CEO Kevin Sayer said that based on 12-month data through August, "this dynamic is even more pronounced among the newest generation of these drugs. The data clearly show that CGM usage grows faster in GLP-1 users than those who are not on therapy."

Based on the DexCom results, the "GLP-1 recovery could come ahead of schedule," Leerink Partners analysts wrote in a report Friday, adding that the company's earnings "set a very positive tone for pure-play diabetes stocks" in the quarter. The analysts boosted their price target for DexCom shares to $125, from $110 previously.

DexCom on Thursday also announced a $500 million share buyback program. That's a welcome signal that the company is putting its money where its mouth is and "may serve as a positive catalyst for some investors looking for reasons to jump back into several of these stocks," the Leerink analysts wrote.

The quarterly results indicate that it's "time to exhale," Stifel analysts said in a note Thursday, noting that DexCom has had multiple quarters of record new patient starts.

DexCom shares are down 28% in the year to date, while Insulet stock is down 54% and Tandem stock is down 60%. The S&P 500 SPX has gained 7.8% so far this year.

-Eleanor Laise

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10-27-23 0900ET

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