Tim Lugo speaks with fellow equity research analysts Margaret Kaczor Andrew and Andy Hsieh about the GLP-1 drug class and its impact on the management of obesity, including potential read-throughs to the medtech and the therapeutics sector.

Video Transcript

Tim Lugo
You are listening to Biotech Breakthroughs, a new podcast series from William Blair’s Equity Research Group that explores the news and trends shaping the biotech industry. Hi, everyone. On today's episode of Biotech Breakthroughs we welcome William Blair MedTech analyst Margaret Kaczor Andrew and biotech analyst Andy Hsieh. Andy and Margaret just wrapped up two calls about GLP-1 therapies, one with key opinion leaders in the space and then Margaret hosted a follow up call with management from one of the MedTech leaders in the space. So we're going to take the next 20 minutes to walk through key takeaways from these calls, including the status of insulin replacement therapy, both now and in the future, how GLP-1 drugs are impacting, and I don't want to lead Margaret's commentary, but maybe not impacting diabetes, whereas.

In contrast, Andy will talk about the GLP-1 class and how it's having a transformational impact on obesity and the management of obesity. He's also going to touch upon some of the recent data coming out of the American Diabetes Association Conference. So, with that, thank you for joining us. Margaret, maybe we start with you. Over the past six weeks, a lot of companies in the space have seen some pressure related to headlines surrounding GLP-1 therapy. I know that's one of the main reasons you decided to hold these recent calls.

To start a conversation off, do you mind kind of touching on some of the impact we've been seeing from these therapies in your world in MedTech?

01:39 - 02:01
Margaret Kaczor Andrew
Sure, absolutely. It was fun because I was on vacation in Ireland. And of course, all these GLP-1 therapies start hitting as I'm on vacation. So, it's perfect timing. But yes, MedTech as a sector has taken an absolute beating, to put it bluntly and really it's kind of speculation that these drugs may be a cure and basically eliminate the need for certain procedures or device-based care.

Obesity, you know, while definitely a key co-morbidity to diseases like diabetes or sleep apnea or cardiovascular disease, you know, from our perspective, it's ultimately not the only contributor, but it's been really hard to figure out exactly how big of a contributor it is, how early you can take GLPs and really get an impact on patients. And there's been a lot of speculation with folks using small, 10, 20, 30 patient studies and extrapolating basically to markets that are 10 million, 20 million or even a billion people in the case of sleep apnea.

So we wanted to host the call because of that. Why diabetes? I want to add that in there, because diabetes is actually one of the sectors that has gotten hit the most in MedTech. And ironically, these drugs have been around diabetes the longest. The latest generation of GLP-1s were approved in 2017. We're talking six years of use in type two diabetes.

And we really haven't seen an impact yet. So, you know, we wanted to bring on some clinicians that were endocrinologists and specialists within this area as well as, you know, one of the leading companies that has had experience and can speak to that, you know, what's going on and what impact it's really seeing in the real world.

03:11 - 03:28
Tim L
Understood. And I know the stock volatility in MedTech really got started with the Select Trial News. Andy can you maybe give us an overview on that trial, when the news came out, what they suggest and what it could mean for the management of obesity?

03:28 - 03:57
Andy Hsieh
Yeah, sure. Thanks, Tim. So, this was a trial that was heavily interrogated before the readout. There is a lot of actually skepticism among the investment community heading into the study, but basically it's a simple scientific question. The question is by administering a drug that can essentially give you about a 15% weight loss in patients with obesity, but not type two diabetes so you can really focus on the obesity element, whether that will lead to a cardiovascular advantage over nonintervention. And the study was powered to detect a 17% reduction in that risk. Now, just to give you guys a context, this is actually pretty conservative, given that a lot of the diabetes drugs, you know, for Semaglutide, which is the drug in question, it showed about a 26%.

So 17% is really conservative. But in the investment community, a lot of people were focusing on two things. One was really the trial was conducted during COVID. So, there is a lot of uncertainty regarding people's activity, people's diet during that time that really increases that risk. To really make it worse, there's no comparable trials that have been conducted in the field before, so there's really no way to find previous studies to help you guide the design of its trials.

That's kind of the backdrop of the select trial. So, 17%, most people, I would say, expected numerically underneath that, but it came out to be 20%. So that was a huge positive surprise for the biopharma sector. Essentially, it provides some sort of support for the GLP-1 class drug that, you know, if you administer that in obesity patients, you're going to get a clinically significant, a statistically significant benefit in terms of cardio protection.

That's kind of the backdrop of the study. And then, you know, in terms of the obesity market, which I focus on, I think the biggest question is really at reimbursement. So, in the commercial space, we're probably seeing about 50% coverage. Now, if you move on to the government-sponsored agencies, the coverage is dismal. It's about 10%.

And that has to do with a very, I would say, out-of-date law that basically prohibits Medicare from covering obesity drugs. In order for coverage to probably equilibrate or, you know, to balance it out, it is important for, you know, Congress to really enact something to counteract that prohibition to get more coverage in the future.

But I think maybe this trial having a 20% reduction in cardiovascular outcomes could encourage Congress to act more quickly and with more sense of urgency.

06:32- 06:56
Tim L
And I know there are some kind of interesting takeaways from the select trial that were brought up on your KOL call. So maybe that's just a good place to start. Could maybe Margaret, and then you, Andy, you talk about some of the key takeaways you heard on your KOL call you hosted with clinicians before we dive into the management call you hosted.

06:56 - 07:38
Margaret K
Yeah, absolutely. The clinician call was fascinating because the key question really becomes, one, can you cure diabetes, which is kind of the best case scenario, trying to understand exactly what GLP-1s do as you take them, you know, what's the mechanism of action and really trying to dive deeper into the data set around clinical outcomes, trying to understand, you know, is there any proof across the last 20, 30 years of these drugs being on the market and whether there is, you know, some other kind of mechanism that's going on that we don't know about today and maybe isn't shown kind of in the headline results that Andy had referenced earlier.

So for us, from a takeaway perspective, one all three KOLs suggested there was no evidence of GLP-1s reversing kind of that natural progression of beta cell degradation in humans, which is one of the key drivers of type 2 diabetes. Two, and this is what was really interesting for me, is that beta cell function, in their opinion, continues to decline over time regardless of therapy.

So even as you're on a GLP-1, the speculation and the thought is that the diabetes continues to progress, so you're better managed. Maybe you can delay it, but ultimately you will not cure diabetes, at least based on the data that we know today. And then the last piece was trying to really understand, you know, what the clinician that has been out there as a practicing clinician with adult type 2s and has had these patients on therapy for four years now, what are the real-world effects?

How often are patients on therapy in a population where access theoretically should be broadly there because of the clinical benefits, the label, etc.? The thing that really stuck with me was as much as everyone wants to think about access and people wanting to use the device 100% of the time, you know, let's say that it's free. Dr. Drucker, who was frankly one of the founders of GLP-1 medicine, broadly his research kind of started this industry and some of the key diabetic drugs that are out there in news today, his comment was no matter how often and no matter what cardiometabolic drug is out there, unfortunately, these aren't cancer drugs. These aren't drugs that, you know, you rely on day to day or, you know, you're going to potentially die. In this case, you know, this is something that you have to be motivated to use.

So it's not the right way to compare it to a vitamin. But how often do we take vitamins every day as prescribed? I should take it every day. I probably take it once a week, two times a week, maybe three weeks at a time. Then I'll stop taking it.

And that's ultimately what they believe is the case, is no matter the cardio metabolic drug, adherence to that drug has been close to 40 or 50%. And Dr. Maura, who is a practicing physician, suggested that was relatively similar to what he's seeing in the field as well, is that patients can be on for six months and they can be off for six months. There have been some trials that also show the impact of that on patients.

10:03 - 10:07
Tim L
I took my vitamins this morning, Margaret, so that I might be.

10:07 - 10:09
Margaret K
You're an outlier.

10:09 - 10:22
Tim L
Andy, some of what I heard on the KOL calls was a bit surprising in terms of the compliance issues. Can you just maybe drill into that a little bit? And what we're seeing as patients have been on these drugs over one year?

10:23 - 10:50
Andy H
I was frankly surprised by the compliance. As you know, I think the KOLs mentioned about 50% of the patients actually no longer stay on the therapy. And we cover more significant or more severe diseases out there and it was I was surprised by that, especially given the health benefit, it be kind of interesting to see if the select trial could increase that compliance in the future.

But that was definitely a surprise, especially for me who is less knowledgeable in the type two diabetes space. But in terms of what is relevant to our coverage, in terms of going into the details of the select trial, which we'll see later this fall, if you break down the cardiovascular component, it's basically death due to cardiovascular events, non-fatal heart attack, and non-fatal stroke.

Basically, the relative contribution to the entire composite cardiovascular score, if you will, are all of them kind of evenly distributed, is one driving the benefit of the entire composite endpoint, things like that? And I guess another question that people will start to ask, and this is really specific to the obesity space is Semaglutide is a model agonist. And what I mean by that is that it activates the GLP-1 pathway.

There's a drug approved and it's Tirzepatide, but it's a dual agonist. So it acts not only on the GLP but also GIP. And so in terms the weight loss, Semaglutide probably gives you about 15%, Tirzepatide gives you about 20% placebo adjusted weight loss. So it remains to be seen that when the similar cardiovascular outcomes study reads out in the future whether we're going to see a number that is greater than 20% for Tirzepatide, is this kind of more the better, or are we going to see a ceiling effect in terms of cardioprotective properties?

So that's a big question as we head into I you know, we don't know the timing for the Tirzepatide cardiovascular outcomes but that's the question for the obesity field. Is more in terms of these receptor agonism better?

12:45 - 13:12
Tim L
And it seems like targeting GLP might have some improvements and durability to effect as well. I know we've seen some early-stage pipeline data coming out suggesting that's the case. Another one of the key takeaways was discussed in the grade study and, you know, beta cell function declines. Margaret, can you highlight again what you thought were the interesting tidbits coming out regarding grade?

13:12 - 13:31
Margaret K
Yeah, I mean, let's take a step back. There's a lot of reasons for type two diabetes, but ultimately a core reason that someone's got type two is because their beta cells have kind of degraded, which is what you referenced initially. Beta cells are found in the pancreas or responsible for producing and secreting insulin, which is ultimately kind of the hormone in your body that lowers blood sugar.

So healthy human, let's call them Andy, not you Tim, sorry. Andy is pretty healthy. If Andy has chicken and rice on an empty stomach, a lot of carbs, a lot of sugar that's going to be in his bloodstream. His pancreas beta cells are going to release that insulin, lower the excess blood sugar, and you'd be back to normal.

For a type 2 diabetic, those beta cells have degraded and even in early-stage type 2, so if you just got diagnosed, the amount of output potentially coming out of those beta cells could be 50% or worse of normal function. So when you have that orange chicken and rice, there's less insulin, maybe 50% less insulin than healthy Andy over there to kind of eat up and get rid of that excess blood sugar.

It just kind of sits there in the bloodstream over time. That adds to blood vessel damage, kidney disease, high blood pressure and so on, so forth. So, improving and reversing that basal degradation, that's what is what's really important here. And the point is, that the clinicians were making, is that there's been zero evidence in humans that that beta cell degradation that happens in diabetics, stops, or reverses with the use of GLP-1.

So you're not actually, quote unquote, curing the reason for diabetes, even though you may be helping slow the disease by lowering obesity or food intake. So having less chicken, rice, ultimately means there's less insulin required to lower blood sugar, so less pressure on the beta cells. And that GLP-1s obviously kind of help the remaining beta cells produce more insulin.

So there's a couple different features there. But the point is until you actually fix or reverse the degradation of the beta cells, you really won't reverse type two diabetes. And that's really kind of the key point I think that we came away from the call on is that's been the case. And so, the question then becomes you reference, the GRADE study and its findings, what that found, and it was based on earlier state GLP-1s.

So, I'm cognizant of that. But they did look at things like a Liraglutide or glargine, etc…..what they found essentially was that even after patients started taking them, you did start to see an improvement in A1C after kind of really weeks of being on therapy in the first three, six months. But then after that, you started to see an increase and A1C. So that's the glucose measurement. What we're thinking and that's what the clinicians are thinking is that even though the studies with 12-month outcomes are showing these A1C declines and for GLP-1s maybe that can be 12 months or 18 months. It ultimately suggests that GLPs are not changing beta cell function indefinitely, they're not reversing beta cell dysfunction.

And so, as a result, you're more than likely going to continue to get worse and then ultimately need insulin.

16:25 - 17:02
Tim L
But one of the things that came out of that call was the beta cell function was in already such a state of decline by the time of diagnosis. And I know obesity rates amongst children and adults are staggering these days. So, it doesn't seem like the wave, despite even with what looked to be very impressive obesity therapies. But still the wave of diabetes is still approaching.

17:02 - 17:42
Margaret K
There's a lot of components. And this is what some of the clinicians had gone through is naming the other genetic components to this. Even all things being healthy, equal, there's certain types of foods that can be worse for you than others. And unfortunately, my dad has diabetes. He found out he can't have more than five strawberries because that could turn him off, whereas for someone else it could be five blueberries. But you won't really know unless you get that feedback loop of personalized therapy versus that in general. But plus orange chicken, that's all the kids out there. I'm a mom. I will feed my kid less chicken just to avoid pre-diabetes.

17:43 - 17:51
Tim L
Andy, I know you have young children. Is this also the case? Are you thinking about that more these days?

17:51 - 18:09
Andy H
I actually have the opposite problem. I want them to eat more, so I have to bribe them with extremely unhealthy food so that they can eat your main meal. This is like, Oh, I'll give you ice cream, you finish your meal. So obviously that works like 30% of the time. So I actually have the opposite problem.

18:09 - 18:33
Margaret K
That's the real-world impact of food crisis in the U.S. So, you're right in the sense. There are 30 million diabetics here in the U.S., but there's like a hundred million or nearly 100 million pre-diabetics in the U.S. And so you've kind of got this unfortunate phenomenon of this market continuing to grow at a rapid pace.

Part of what I tell people and this is the uncertainty aspect, you don't know what the ultimate impact on the market is, but the funnel, unfortunately, is so large. And Chinese food and Italian restaurants are some of the favorites. It's just going to be hard to fight that trend.

18:51 - 19:11
Tim L
And let's talk about that TAM penetration. You know, Margaret, I know you cover some of the large MedTech leaders. Where do you think we are in terms of that penetration? We're hearing 100 million pre-diabetics. That's obviously a big number. So where do you think we are in terms of penetration?

19:11 - 19:34
Margaret K
Yeah, absolutely. The diabetes market is massive. Just if we do the 30 million diabetics in the U.S., you kind of add up the dollars and just let's do one population, which is CGM, which in our view should be used by diabetics, that's a $50 billion market opportunity just in the U.S. today, you know, versus where we see the market, which is about 4 billion.

So you're still less than 10% penetrated into that market. But globally, there's half a million diabetics. So one out of every 16 people globally is thought to have diabetes. So, unfortunately, it is very, very massive. There's two key markets when it comes to devices, continuous glucose monitoring, which I referenced earlier to us, every diabetic should be on one of these technologies.

You'll learn, whether blueberries are bad for you, strawberries are bad for you. You'll definitely learn orange chicken is bad for you, orange juice, etc.. So you'll learn a lot being on that therapy and you'll change your lifestyle. That's the point, right? Is changing your lifestyle habits, not just relying on one drug or one therapy to fix it.

But in that scenario, you know, for type one diabetics, type two diabetics, you're probably about 50% penetrated in the U.S., a lot less outside the U.S. There's what's called a basal insulin market. In that scenario, you're about 15% penetrated or so in the U.S. And then for total noninsulin users, the penetration is in the very low single digits.

For CGM specifically, a lot of opportunity. And then on the insulin pump side, that's a smaller market in the sense that today it's being used for insulin users alone. But even in that scenario, you know, we're talking about a population that is somewhere around four or five million and I add basil users on there, that probably gets me at about eight or nine million patients just in the U.S.. Yeah, but even of that initial type one market alone. So let's put type 2 to the side. Type 1 is not impacted by GLP-1s at all. In that scenario, the market's about a third or so penetrated. So still a lot of opportunity there.

21:16 - 21:44
Tim L
True. And even with some of the discussion from the KOLs talk about compliance and access that was really hammered home in your call. I mean, we're still seeing major, major numbers coming out of the GLP-1 products. I mean, these are these are a force in the pharma industry. Andy, do you have any sense of where the growth is going to continue or, you know, I know the recent CV data is pretty impressive.

21:44 - 22:13
Andy H
Yeah. So, beyond obesity, I think there are other opportunities out there, You know, sleep apnea, like Margaret said earlier, that's another opportunity from a therapeutic standpoint. One thing that is interesting, though, very, very interesting, there is a company running a trial asking the question of whether Semaglutide could have an effect on Alzheimer's disease. So obviously, that's a high-risk, high-reward study.

So everybody is paying a lot of attention to that. But that trial might readout in a couple of years and this might be a completely different vertical than what we're used to in terms of GLP-1, right? Crossing the chasm from a metabolic disease agent to perhaps neurology so there's a lot of optionality out there.

Some are more, I would say, a logical leap than the others. But, but yes, there's a lot out there. And I would say also, there's a lot of press coverage regarding its potential in terms of controlling addiction. There's some anecdotal evidence suggesting that cigarette craving or alcohol craving decreases when you're on these drugs. Actually, there's a really funny study looking at alcoholic monkeys. And so….

23:08 - 23:10
Margaret K
Just curious where you are going to go there [laughing].

23:10 - 23:16
Tim L
And I take offense to this and I take offense to this already [laughing].

23:16 - 23:47
Andy Hsieh
Yes. They basically got these monkeys and they administered GLP-1. We saw the desire of wanting to get alcohol or alcoholic beverages reduced over time. While the clinical validation is not super robust, but we do see not only anecdotal evidence from humans but also some clinical studies from non-human primates as well.

23:47 - 24:13
Tim L
That’s really interesting, especially the neuro connection. I know that the Metformin Alzheimer's study was really interesting a couple of years ago. We might have to get Myles Minter on, our Alzheimer's expert, to talk about this on another podcast. With that, is there anything that we haven't touched upon that you definitely wanted to dig into? You know, we did talk about the FDA data to some extent, but are we missing anything?

Is there anything that maybe investors are coming in and asking both you, Margaret, and Andy, that we haven't touched on?

24:21 - 24:47
Margaret K
I'll start. There was even in the last week, so we held our kind of GLP-1 panel call and then I think one or two days later, still like daily, daily updates on the stuff. But there was a publication in the New England Journal of Medicine that kind of talked to the use of Semaglutide and early, you know, recently diagnosed type-1 diabetes and that just really impacted the insulin pump companies and it's kind of in the name, right?

00:24:47:24 - 00:25:06:06
Margaret K
So these [devices] deliver insulin. And so, if you're going to threaten and potentially the large kind of market in the core market of type 1, now, not only are we talking type 2, which is what GLPs normally are considered at risk, now you're talking about where maybe 90 plus percent of the patients come from on type 1.

And I think there was a little bit of miscommunication around that. So personally, I would touch on it a little bit. GPLs have been talked about, you know, and used in trial for including type 1 diabetes for quite a long time and particularly around early stage, you know, type 1 diabetics because there is some beta cell function left for type 1s.

And so the thought processes, if you use a GLP-1, can you delay or eliminate type one diabetes? And unfortunately, you know, when we had Dr. Trang Lee, who's medical director from one of the largest diabetic companies in medical technology, she said she actually wasn't surprised by the results at all because it kind of happened during what's called this honeymoon phase of type 1, which, you know, diabetes honeymoon doesn't really go together.

But in a lot of cases for type one patients, there's a period after diagnosis where these patients and diabetics experience a point where they're asymptomatic. So the existing beta cells that are left function normally. They even produce enough insulin for well-controlled blood glucose management. And so, seeing these patients that were in the study basically come off insulin wasn't surprising because that's what she would have seen as a practicing clinician during this honeymoon period.

Over time, as we get more data, we should start to see things even out. And unfortunately for these patients, type one is an autoimmune disorder. So there's really nothing the GLP-1s have shown to be found to halt that autoimmune process and response and type 1s. For us, not something that we view as a risk for insulin pumps, but I think people are just so jumpy these days of what don't I know?

What don't I understand? What could threaten this market? So that was one thing that's been mentioned a lot.

26:48 - 27:07
Tim L
And it definitely seems like the takeaway is included in what we're seeing from the studies are going to be potentially a bit different when we get real-world data after these therapies have been on the market for, you know, after they've been broadly used for longer periods of time.

27:07 - 27:21
Margaret K
And again, in that scenario was another 10 patients. So, it kind of started the discussion by saying people are extrapolating these ten patient studies over a short period of time and saying, here's what's going to happen. And unfortunately, things just don't work that way in medicine, as you guys know.

27:21 - 27:31
Tim L
Understood. Well, Andy, Margaret, it's been a pleasure speaking with both of you about this interesting subject. And, you know, thank you so much for your time today.

27:31 - 27:34
Margaret K
Absolutely. Thanks for having me. Thanks for hosting. I'm going to have some orange chicken.

27:34 - 27:37
Tim L
Let's do this again soon.