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The recent selloff in MedTech stocks, particularly those related to diabetes management, "seems overdone," according to analysts at Citi.
MedTech diabetes stocks were pressured after the release of Eli Lilly & Co.'s (NYSE:LLY) three-year Surmount-1 study results, which demonstrated significant weight loss and a dramatic reduction in the progression of type 2 diabetes among pre-diabetic and obese patients.
The Surmount-1 trial evaluated the effects of Tirzepatide, combined with regular physical activity and a reduced-calorie diet, on pre-diabetes patients.
The study showed weight loss, with reductions of 15.4%, 19.9%, and 22.9% for the 5 mg, 10 mg, and 15 mg doses, respectively, compared to a mere 2.1% reduction in the placebo group.
Additionally, the progression to type 2 diabetes was reduced by a staggering 94% in the treated group. These results were achieved through measurements of HbA1c, fasting glucose, and glucose levels during a two-hour oral glucose tolerance test—metrics that are also significantly influenced by physical activity and diet.
Despite the positive results from the Surmount-1 trial, analysts at Citi believe that the market's negative reaction toward MedTech diabetes stocks is excessive.
They note that the type 2 diabetes population is large and underpenetrated, and that continuous glucose monitoring (CGM) and insulin pump use have already been evaluated in a GLP-1 environment.
Given this context, Citi maintains a Buy rating on key players in the MedTech sector, including Abbott (ABT), DexCom (DXCM), Insulet (NASDAQ:PODD), and Tandem Tandem Diabetes (TNDM). Medtronic (NYSE:MDT), however, is rated as Neutral.
Citi's perspective suggests that while the Surmount-1 results are indeed impressive, the subsequent selloff in MedTech stocks is not entirely justified, presenting potential buying opportunities for investors in this sector.