Piper Sandler predicts a surge in demand for knee and hip surgeries following the release of results from Novo Nordisk’s study on the weight-loss drug semaglutide. The study is expected to have “mediocre” results but is projected to lead to an increase in surgeries as more patients become eligible for the procedures due to weight loss.
The investment bank anticipates that the Phase 3 study, known as STEP 9, will demonstrate that some osteoarthritis patients taking semaglutide experienced reduced joint pain, likely due to decreased strain on their joints. However, it doesn’t envisage an immediate impact on knee replacements as the drug does not reverse existing damage, and mobility issues largely drive such surgeries.
Novo Nordisk markets semaglutide under the brand names Ozempic for diabetes and Wegovy for weight loss. Semaglutide falls into the category of GLP-1 medications.
Study Results Delayed
STEP 9, which evaluates semaglutide’s effectiveness in reducing osteoarthritis pain in obese individuals, has been experiencing delays. Initially expected in October, the topline results from the study, involving 407 patients, are now likely to be released in Q1 2024.
Future of Weight Loss Medication
Piper believes that while STEP 9 may not expand semaglutide’s usage, it sets the stage for further studies on semaglutide and/or other GLP-1 drugs. The impact of semaglutide’s popularity on the medical device industry is a point of debate. Some argue that a slimmer population would require fewer joint replacements due to reduced joint strain. In contrast, others suggest that more individuals would qualify for surgery after losing weight, and thinner individuals would likely exert more stress on their joints through increased activity, leading to a rise in demand.
Market Impact and Projections
Piper anticipates a mixed outcome in the future. It projects weight loss drugs driving higher demand for knee and hip replacements, particularly for weight-bearing joints, until around 2040, as more individuals with existing joint damage become eligible for surgery. The companies poised to benefit from this trend include Stryker (NYSE:SYK) and Zimmer Biomet (NYSE:ZBH).
The bank forecasts 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 approximately 20 years, Piper envisions a slowdown in the growth rate to the mid-teens as patients suffer less joint damage due to weight loss.
Stock Performance and Ratings
Piper also acknowledges that the stocks of orthopedic companies such as OrthoPediatrics (KIDS) and Paragon 28 (FNA) have been under pressure, partly due to concerns regarding GLP-1 medications. However, it asserts that these concerns are unlikely to impact these companies significantly. Piper has given overweight ratings on KIDS, FNA, SYK, and ZBH.
“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.