How will GLP-1s impact the market for diabetes stocks? Berstein weighs in

Investing.com - Diabetes technology stocks have seen investor worries all but "vanish" over the possible negative implications of the emergence of popular obesity drugs, although it remains to be seen if this is a "false sense of security", according to analysts at Bernstein.

A 2023 test showing that Novo Nordisk (NYSE:NVO)’s Wegovy weight-loss medication not only helped people lose weight but also reduced their risk of heart attacks and other cardiovascular afflictions triggered a wide-spread sell-off in medical technology -- or "medtech" -- names.

Businesses exposed to the treatment of diseases like diabetes and obstructive sleep apnea were particularly hit hard.

At the time, markets were attempting to figure out if so-called GLP-1 class drugs like Wegovy would dent the need for common diabetes treatments like insulin or even diminish incidence of the disease itself, the Bernstein analysts said in a note to clients.

However, since further Wegovy data was presented by Novo in late 2023, medtech stocks have largely outperformed the benchmark S&P 500.

"[M]any medtech investors saw the [...] data as less threatening to medtech procedure categories compared to what had been feared," the Bernstein analysts said.

Meanwhile, companies in the medtech sector began to characterize weight-loss drugs as a "neutral to slightly positive" impact on procedure volumes over time, the brokerage said. It noted that some investors were arguing that, if successful, Wegovy and other rival medications could help people live longer, which would in turn increase the opportunity for the use of medical device therapies for degenerative conditions later in life.

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As of May 2025, medtech stocks have continued to notch relatively strong returns, despite an economic environment marred by uncertainty around the impact of aggressive U.S. trade policies on consumer appetite for pricey GLP-1 drugs.

Headlines around these treatments, which roiled medtech stocks in 2023, have also failed to move markets the way they once did, the Bernstein analysts said. They noted that these names "barely twitched" in April after drug manufacturer Eli Lilly (NYSE:LLY)’s said its experimental pill worked as well as Novo’s anti-diabetes injection Ozempic in lowering weight and blood sugar.

"[I]t’s fair to say that GLP-1 overhangs have all but vanished from most medtech stocks," the Bernstein analysts said. "Have we lulled ourselves into a false sense of security? Time will tell."

The analysts argued that the prevalence of people with type 2 diabetes is "high", with risks of getting the diseases rising due to population aging, economic development and increasing urbanization. These trends, they said, are leading to a greater occurrence of type 2 diabetes risk factors such as more sedentary lifestyles, consumption of unhealthy foods, and exposure to air pollution.

Against this backdrop, the brokerage chose insulin systems developer Insulet (NASDAQ:PODD) as its top pick in the diabetes category. Medical device group Medtronic (NYSE:MDT) is also "chugging along", while peer Tandem Diabetes Care (NASDAQ:TNDM) has a "rich pipeline" but a lack of evidence of execution, the Bernstein analysts said.

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