These two stocks fell after an Eli Lilly drug study showed promising effects on diabetes

Key Points

• Shares of Insulet and DexCom, which make equipment for diabetes patients, were the weakest stocks in the S&P 500 on Tuesday.

• The losses for the medtech stocks came after Eli Lilly said its blockbuster drug effectively reduced the risk of patients developing type 2 diabetes.

• Insulet and DexCom face headwinds regarding their user base growth prospects.

Shares of Insulet (PODD) and DexCom (DXCM), two companies that supply medical devices to patients with diabetes, collapsed on Tuesday after an investigation found that a popular Eli Lilly drug (LLY) significantly reduces the risk of developing type 2 diabetes.

Results of a three-year study found that patients with prediabetes who were overweight or obese had a 94% lower risk of progression to type 2 diabetes after taking tirzepatide, the active ingredient in Eli Lilly’s injectable weight loss drug Zepbound, and the diabetes treatment Mounjaro, compared to a placebo.

Blockbuster drug weighs on growth prospects

The results of Lilly’s study show another benefit of tirzepatide and other drugs known as GLP-1 receptor agonists. While the growing list of positive effects will come as welcome news to many patients, it could be a concern for companies that make products to treat related conditions.

DexCom, which makes continuous glucose monitoring (CGM) devices, saw its shares tumble in late July after the company cut its sales forecast for the current quarter and full year. The company said the lower forecasts reflected slower-than-expected new customer acquisition, which could be exacerbated as treatments from Lilly and pharmaceutical rivals reduce diabetes risks.

Concerns about user growth have also dogged insulin pump maker Insulet in recent weeks. Shares fell on Aug. 6 after the company said its growth trajectory could be slower than previously expected as fewer patients switch from competing devices and broader adoption of GLP-1 receptor agonists could add to the headwinds.

Equity Return

Shares of Insulet fell 6.9% on Tuesday after Lilly reported the results of its survey, the weakest daily performance of any stock in the S&P 500. Shares of DexCom were not far behind, falling 6.2% on the day.

Meanwhile, shares of Lilly closed up 3.1% after hitting a record high early in the trading session on Tuesday.

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