September 1, 2023
Michael Cartmill, Co-Founder and Medical Device Analyst

Key takeaways:
•  GLP-1s are gaining more investor focus, but these drugs have been around medical and scientific circles for over 5-years.
•  Evidence for GLP-1s is strong, but there are some concerns in the near-term limiting wide-spread population use.
•  Even with the success of GLP-1s, there remains one risk factor that medical science is still searching for solutions to – ageing.

Perhaps not since statins, the cholesterol lowering drugs introduced in the 1980s, showed their efficacy at reducing the risk of heart attack, has there been more excitement about a class of drugs as there is currently for GLP-1s (Glucagon-Like Peptide-1). That hype for statins was justified; global sales are now reported to be near US$20 billion annually1. 

GLP-1s are a class of drug developed to manage blood sugar levels in type 2 Diabetics. These drugs are designed to have the same effect as a naturally occurring hormone that is released into the bloodstream in response to eating. Their main mechanism is to signal to the pancreas to release more insulin, allowing the body to utilise its sugar as a source of energy. High blood sugar is particularly harmful, leading to chronic diseases such as obesity, heart attacks and strokes.

A simplistic explanation is that GLP-1s ‘trick’ the body into believing that it has just ingested a large, calorie-rich meal, reducing the urge to eat more or to draw on energy reserves.

While these drugs have been around for some time, it is only now that excitement is spreading beyond the fields of science and medicine and into the financial markets. According to Bloomberg data, the number of mentions of “GLP-1” in earnings-call transcripts has more than doubled compared to the same period last year2.

GLP-1s, more commonly referred to by their brand names – Wegovy, Ozempic, Mounjaro and others – likely have come into investor focus due to the drip feed of clinical data reaching a tipping point with a few recent positive read-outs.

In late May, Pfizer announced strong weight loss data from a trial of their danuglipron drug, an oral GLP-1 (as opposed to injections like Ozempic and Wegovy). Then, in early August, Novo Nordisk announced 5-year data from their SELECT trial of Semaglutide, showing that Wegovy caused a 20% reduction in major adverse cardiovascular events. Finally, in late August, a University of California, Irvine study on Wegovy presented data suggesting that up to 43 million fewer Americans would present with obesity over the next decade. (Although, it must be said that the UC Irvine study is simply a recalculation of the predicted number major cardiac events assuming the risk reduction from patients being less obese.) 

While the evidence for GLP-1s is strong, there are some concerns in the near-term limiting wide-spread population use:

  • The drugs are still new and relatively early in their lifecycle, and difficult to access due to limited supply. Total global sales of the GLP-1 class of drugs are less than US$20bn annually, compared to a global medtech market of over US$500bn.
  • Treatment cost remains high, and reimbursement is falling. In the US, the biggest market globally, these drugs cost patients up to US$1,000 per month, and insurers are cutting back coverage in response to irresponsible prescribing for recreational reasons.
  • As with all drugs, there can be side effects. The risk is on a patient-by-patient case, and so far the data shows that between 20-30% of starters drop off due to side effects including nausea, vomiting and diarrhea. Additionally, there is also a signal for increased risk of thyroid cancer.

The reaction of investors to the new GLP-1s focus has caused one of the sharpest and fastest selloffs we’ve ever seen in medtech. While the drugs are certainly working, below we try to address the likely real-world effects of widespread use of GLP-1s on medical technology utilisation.

First order: blood glucose control

GLP-1s are now likely to become an early line of defense against diabetes, ahead of medtech devices. Thus, our view is that initiation of insulin pump therapy will likely be delayed in most patients, and some may now not ever require said pump if their blood sugar can be managed effectively by GLP-1s. The results of a recent survey of 20 high volume diabetes clinicians conducted by Piper Sandler showed that the clinicians expect only 5% of patients currently on a pump to come off, and 30% to delay starting on a pump. This data aligns with our perspective: for many patients, the course of their condition is already predetermined.

However, we think that GLP-1s are unlikely to have much impact on monitoring of blood sugar via continuous glucose monitoring devices, because physicians will always remain interested in tracking patient health data. Therefore, the biggest players in this space (Dexcom, Abbott and Medtronic), are less likely to be impacted in the short to medium term, as clinicians continue to monitor these metabolically unhealthy patients to guide treatment.

Second order: weight loss

We see a significant negative impact on the volume of weight loss (or bariatric) surgeries performed as more obese patients are prescribed and benefit from GLP-1s. Companies who generate revenue from bariatric surgery technology, including Teleflex, Intuitive Surgical and Medtronic, will likely see contraction in these relatively insignificant revenue streams. Teleflex management confirmed as much on their most recent earnings call.

Finally, as excess weight is one of the more common causes of sleep apnea, if GLP-1s are successful over time, there is likely to be slower growth in the total addressable market (TAM) for sleep apnea devices provided by the likes of ResMed, Philips and Inspire Medical. However, while these drugs have the potential to impact long-term TAMs of companies like ResMed, the vast majority of their 160+ million customers will remain on the platform buying high-margin consumable masks, and the new pipeline of patients will not be cured overnight.  

Third order: reduced risk of cardiovascular events due to better blood glucose and weight control

We remain very bullish on the cardiovascular medical device market in particular. The first reason has been well-articulated by Cordis Medical Advisory Chairman and active cardiac surgeon, Professor Michael Vallely: “obesity presents a huge concern when I am planning an operation, I am hopeful more patients can now safely undergo life improving and extending interventions”. The second reason is that while obesity and high blood sugar levels are indeed major risk factors for development of cardiovascular disease, an even more important risk factor is something medical science is still searching for solutions to – ageing. GLP-1s have the potential, like statins, to significantly reduce the risk of developing early on-set cardiovascular disease, but just like in the post statin world, patients being kept alive longer will require more treatments for other conditions. Life-extending treatments are in some ways delaying the inevitable, a void in which the demand for medical technology will continue to increase with the ageing population.

GLP-1s are certainly working and the demand is real, but given the nascence of the market we remain very positive on the near and mid-term outlook for current standard of care treatments – including medical technology. With medtech earnings power to persist, the short-term fear driving market prices at the moment look overdone to us, even with a slightly cloudier long-term outlook as the GLP-1 market develops. The fact remains that medtech markets are still generally healthy today, procedure volume outlook is solid, margins are improving, and innovations are ample across sub-sectors.

1. https://au.finance.yahoo.com/news/statins-market-size-hit-us-122000664.html#:~:text=Statins%20have%20become%20one%20of,be%20over%20%2420%20billion%20annually, as at 1/9/23
2. Bloomberg News, accessed at: https://www.bloomberg.com/news/articles/2023-08-17/glp-1-weight-loss-drugs-ozempic-wegovy-mentioned-on-recent-earnings-calls

Disclaimer
This report was prepared by Cordis Asset Management Pty Ltd ABN 68 637 078 490 a corporate authorised representative (No. 1282680) of Avenir Capital Pty Ltd ACN 150 790 355, AFSL 405469 (“Cordis”)”, the investment manager for the Cordis Medical Technology Fund (“Fund”). Equity Trustees Limited (“Equity Trustees”) ABN 46 004 031 298 AFSL No. 240975, is a subsidiary of EQT Holdings Limited ABN 22 607 797 615, a publicly listed company on the Australian Securities Exchange (ASX:EQT), and is the Responsible Entity of the Fund. This document has been prepared for the purpose of providing general information only, without taking account of any individual person’s investment objectives, financial circumstances or needs. Whilst every care has been taken in the production of this document, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. The information contained in this document is not intended to be relied upon as a forecast and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy, nor is it investment advice. Any forwarding-looking statements or forecasts are based on reasonable assumptions, but cannot be relied upon as guarantees or representation as to what future performance will actually occur.  Unless otherwise specified, the information contained in this document is current as at the date of issue and all amounts are in Australian Dollars (AUD). You should consider the Product Disclosure Statement (“PDS”) in deciding whether to acquire, or continue to hold, the product. A PDS and application form is available at www.cordisam.com. Cordis and Equity Trustees do not guarantee the performance of the Fund or the repayment of the investor’s capital. To the extent permitted by law, neither Equity Trustees, Cordis, nor any of their related parties including its employees, directors, consultants, advisers, officers or authorised representatives, are liable for any loss or damage (including consequential loss or damage) arising directly or indirectly as a result of reliance placed on the contents of this report. Past performance is not indicative of future performance. The unit price performance calculation methodology follows the FSC Standard No.6: Investment Option Performance – Calculation of Returns (July 2018). Total returns are calculated based on changes in net asset values, at the exit price after the deduction of fees and expenses. Due to individual circumstances, your net returns may differ from the net returns quoted above.

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Tim Fortin

BA (Western University, London, Ontario), GAICD

Investment Committee Former MD of Medtronic in ANZ

Tim is an international business leader with 30 years of diversified experience as a member of executive leadership teams at two global MedTech conglomerates, Medtronic and Boston Scientific. He has a proven track record of delivering results, substantially increasing revenues and operating profit across Australia & New Zealand, the Asia Pacific region and globally.

Professor Toshimasa Okabe

MD, MS

Cardiac Electrophysiologist, Ohio, USA

Dr Toshimasa Okabe is originally from Japan where he obtained his medical degree from University of Tokyo in 2006. He then completed his internal medicine residency and cardiology fellowship at Thomas Jefferson University in Philadelphia. During his time at Thomas Jefferson University, he was the recipient of several awards, including the best teaching resident and the best teaching fellow award. Dr Okabe also received a master of science degree in clinical investigation from Thomas Jefferson University in 2014. He went on to complete his cardiac electrophysiology fellowship at the Ohio State University, Columbus, Ohio. Dr Okabe joined the faculty at the Ohio State University in 2016, and is currently Assistant Professor of Internal Medicine. He is American Board of Internal Medicine certified in Cardiovascular Disease and Clinical Cardiac Electrophysiology. Dr Okabe has authored or co-authored more than 50 peer-reviewed publications, and 4 book chapters, and has presented at numerous national and international meetings.

Dr Okabe’s areas of special interest are complex catheter ablation of various arrhythmias, ablation of epicardial ventricular tachycardia, fluoroscopy reduction techniques, and novel leadless pacing technologies.

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Melissa Vincent

BComm (Curtin) Micro Masters (Digital Marketing) (Curtin) Graduate Certificate in Finance (UWA) Post Graduate Diploma of Acting from Drama Studio London.

Marketing Coordinator

Melissa’s experience in marketing and communication over the past 5 years expands over the Finance, Wellness and Arts industries, working in Australia and the United Kingdom.

Rudi Engelbrecht

MSC Comp Sci (Pretoria), BSC Comp Sci (Pretoria)

Director of Operations

Rudi is the Founder and Managing Director for Paradigm Global Solutions, which designs innovative technology and administrative solutions for financial services. He is also a co-founder and joint-CEO for Latus Solutions. Prior to this, he acted as a director and Chief Technology Officer for Equinox and Tradestream in South Africa.

Megan Inwood

BSc, LLB and LLM (Syd)

General Counsel and Company Secretary 

Megan has over 30 years of legal experience and is currently a legal contractor for AMP Australia. Prior to AMP, she acted as legal counsel for Zurich Financial Services Australia and Macquarie Group for twenty years, across various financial services businesses. Formerly, she has practised as a tax lawyer for KPMG and Touche Ross.

Andrew Inwood

BEcon (Syd)

Andrew Inwood is the founder of the CoreData Group and brings with him deep knowledge of the financial services industry. CoreData is a financial services research and consulting business which owns CoreData and CoreData Research and has operations in Australia, the UK, the USA and the Philippines. He focuses on the area of Behavioural Economics, with a particular interest in the process of trust transfer between individuals and corporations.

Tom Bignill

Non Executive Director and Director of Marketing and Distribution 

Thomas has over 25 years’ experience in Wealth Management and Asset Management, at Bankers Trust, Merrill Lynch, Bell Potter and Next Financial before Co-founding Mason Stevens in 2011. As Managing Director of Mason Stevens, Thomas worked across the Asset Management and Wealth Management business and was responsible for driving its distribution into the advisory channels. In 2019, he became Co-Chief Investment Officer. Over the last 2 decades he has advised Family Office, HNW clients and worked closely with Advisory groups on managing investments across all asset classes. He currently is the Chair of Investment Committee for Norwest Asset Management, and is a director of private investment advisory firm Tenix Capital.

Stephen Roberts

BComm (UTS), GMQ (UNSW), MBA (Insead), GAICD

Non Executive Director, Investment Committee

Stephen has 30 years’ experience in leadership roles across globally recognised blue-chip investment, superannuation and financial services companies at CEO or Senior Executive level. He is currently Chairman of Growth Farms Ltd, a Non-Executive Director of AMP Superannuation Limited and Longreach Wealth Pty Ltd, a Member of the Supervisory Board of Pyrolyx AG, Germany and a Member of the Leadership Council of Social Ventures Australia. He was formerly CEO of Mercer Investments Asia Pacific and Russell Investment Consulting in Australia. Stephen brings a wealth of experience in investment consulting and asset management to our Board given his significant senior executive and non-executive board experience across Asia Pacific. Stephen has proven track record of successfully leading people and organisations through period of exceptional growth and change.

Simon Ford

BE (Syd) MBA (Chicago) MSc (LSE) DFS (AFMA) GAICD

Investment Committee

Simon has over 40 years’ experience in portfolio, wealth and investment management in Sydney, London and Chicago with ANZ, Credit Suisse, J.P. Morgan and Mercantile House. He is a former Portfolio Manager for ANZ Optimix and Head of Alternative Investments for ANZ Wealth. Simon is currently a Trustee at the Centenary Foundation for Medical Research at Royal Prince Alfred Hospital in Sydney. He is a former Managing Director of Credit Suisse, Head of Alternative Investments for Asset Management, Co-Head of the European Pension Advisory and Structuring Group, Co-Head of Fund-Linked (Hedge Fund) Products, Global Head of Commodity Marketing and former Director of Advice for Life Pty Ltd, Capricorn Financial Advisors Pty Ltd, Financial Lifestyle Solutions, the London Gold Fixing and on the Markets Committee of the UK National Association of Pension Funds Investment Council. 

Donal O’Dwyer

BE (University College Dublin), MBA (Manchester)

Executive Director and Chairman of Investment Committee

Donal has over 35 years of experience in the medical device/healthcare sector – initially as a senior executive in the global cardiovascular and medical devices industries and more recently as a Non-Executive Director. He was global President for Cordis Cardiology, a division of Johnson & Johnson’s Cordis Corporation. He was previously the European President of the Cardiovascular Group of Baxter Healthcare, now Edwards Lifesciences and formerly a director of Cochlear. Donal is currently on the Board of Directors of several Healthcare and Medical Device companies, including Fisher & Paykel Healthcare, Mesoblast and NIB Health Funds.

Professor John Fraser

MBChB, PhD, FRCP, FFARCSI, FRCA, FCICM

Intensive Care, Device VC Brisbane

John is a medical disruptor, who started Australia’s largest multi-disciplinary research group - Critical Care Research Group - based in the country’s largest cardiothoracic centre in the region, The Prince Charles Hospital. He has built a team of more than 80 leading clinicians, engineers, scientists and economists with global links – connected to all of the major cardiothoracic hospitals across Queensland, Australia, and the world. He has been a serial entrepreneur working with leaders in medicine, engineering, science and industry in a truly global network of mature collaborations. He simultaneously runs Australia’s first ever international Centre for Research Excellence in Bionic Hearts and Lungs. Professor Fraser has published over 400 peer-reviewed publications (including NEJM, Circulation, Lancet, AJRCCM, JACC) and has earned in excess of $41 Million AUD in competitive grants.

Professor Michael Mack

MD, MACC 

Cardiovascular Surgery, Texas

Mike is a cardiovascular surgeon and the Director of the Cardiovascular Service Line at Baylor Scott & White Health System, Chairman of the Board of Baylor Scott & White Research Institute in Dallas, Texas and co-chair of the Heart Valve Collaboratory. He has been in practice since 1982 and performed thousands of cardiac surgeries, of which well over 4,000 have involved heart valve procedures. He is one of the key global figures at the forefront of Transcatheter Aortic Valve Replacement (TAVR), having been a pioneer since the early days of this life-changing procedure. Michael has also authored or co-authored over 750 publications in peer-reviewed journals. He sat on the Board of the American College of Cardiology Foundation from 2015-2019 and has previously served as President of the Society for Thoracic Surgeons, Thoracic Surgery Foundation for Research and Education, Southern Thoracic Surgical Association and the International Society for Minimally Invasive Cardiothoracic Surgery.

Professor David Celermajer

AO, MBBS, MSC, PhD, DSC, FAHA, FRACP, FAA

Cardiologist, Sydney

David is an experienced Advisor and Investor in the Medical Devices area. He is the Founder of Corvia Inc (a Boston based cardiac devices company) and the Founder and Chief Medical Officer of the Brain Protection Company. He is a former University Medallist in Medicine from the University of Sydney, Rhodes Scholar and since 2014, has been an Officer of the Order of Australia. He has been involved in supporting and advising many successful MedTech companies, in Australia and the USA, over the last 20 years. David is Professor of Cardiology and Head of the Discipline of Cardiology at The University of Sydney and an Academic Cardiologist at Royal Prince Alfred Hospital. In addition to these roles, David is also the Clinical Director of the Heart Research Institute and serves on the Board of Directors of Heart Kids Australia. He has been a Fellow of the Australian Academy of Science since 2006 and a Fellow of the Australian Academy of Health and Medical Science since 2018. David sits on the Editorial Boards of many of the world’s leading Cardiology Journals, including the European Heart Journal, the Journal of the American College of Cardiology and Heart. He has published over 400 papers, with career citations of over 60,000 and an H-index of over 100. In recognition of this, he was awarded the inaugural Charles Blackburn Medal from the University of Sydney in 2019, for outstanding Clinical Research.

Professor Michael Vallely

MBBS PhD (Syd), FRACS 

Founder and Chairman of the Medical Advisory Panel

Michael is one of the founding partners of Cordis Asset Management. He is currently a Professor of Surgery & Surgical Director of Structural Heart at the Ohio State University Wexner Medical Center. Michael has a special interest in elderly and high-risk patients, anaortic off-pump coronary bypass surgery, transcatheter and open-heart valve surgery, minimally invasive heart & lung surgery, and electrophysiological device implants (e.g. pacemakers, defibrillators, and CRT). He has authored or co-authored more than 130 scientific publications in peer-reviewed journals, multiple book chapters and has been active in international clinical trials and first-in-man procedures and device trials. Professor Vallely is an Industry Advisor with the McKinsey and a consultant to Medtronic and other medical technology firms.

James Cook

B Eco and Politics (Monash University)

Chief Investment Officer

James formerly the Chief Investment Officer at U Ethical Investors, having worked for over 20 years in global equities investing. He has been involved at all levels of equities analysis, with a proven track record of consistently strong investment performance over rolling three year periods. James brings a wealth of experience in asset management to our team given his significant skill set.

Michael Cartmill

BSc (JCU) MIT (QUT) MBA (QUT) 

Medical Device Specialist

Michael is an active clinical engineer for medical device start-ups and a Founder and shareholder of Cordis. Michael has 10 years of global industry experience in Healthcare Informatics and Cardiovascular Device Technology. His industry experiences span senior management and technical roles with major medical technology companies, giving him invaluable insight into the companies we concern ourselves with.

Jacob Celermajer

BComm/BEng (Hons) (Syd), CFA

Senior Equity Analyst

Jacob joined Cordis at its inception as an equity analyst, quickly becoming an instrumental part of the portfolio construction process. He has 10 years of experience analysing companies and as a stockbroker, after beginning his career in the Equity Team at Deutsche Bank in Sydney, where he covered both domestic and international Healthcare companies as a part of the local sales team. Jacob has a Bachelor of Commerce and Engineering with Honours from the University of Sydney and is also a Chartered Financial Analyst (CFA).