BTIG analysts Marie Thibault and Sam Eiber wrote a report labeling Embecta as a “Neutral” option on the market. BD initially announced it would spin off its diabetes business in 2021, finally completing the move in April 2022.
The company’s first quarterly results as a spinoff inspired early confidence, beating the consensus forecast on Wall Street. However, the analysts aren’t jumping at the stock too soon.
“We expect this to be a multi-year transition from a value story to a growth play,” Thibault and Eiber wrote. They went on to point out that today’s investments in commercial programs and R&D initiatives “aren’t likely to materialize” on the company’s profits and losses out to fiscal 2024.
Embecta is developing insulin administration products, including pen needles, syringes, safety pen needles and syringes. The analysts say the company will benefit from starting out as the global market leader in this space.
Developing a new insulin delivery product
It is also developing an insulin patch pump for people with type 2 diabetes. The pump features tailored alarms and a larger reservoir to hold more insulin. Embecta aims to create an easy-to-use solution requiring minimal training for patients.
CEO Devdatt Kurdikar told Drug Delivery Business News earlier this year that currently available insulin patch pumps have been developed for type 1, but Emebecta is looking to address the differences between user needs and preferences that separate the two types of diabetes.
A closed-loop version of the company’s patch pump has breakthrough device designation, and Kurdikar said it’s been helpful to work hand-in-hand with the agency to understand regulatory requirements amidst the development and align the company’s understanding with that of the FDA.
Kurdikar said the patch pump creates an “exciting opportunity” from an M&A and partnership standpoint as well. The analysts also see it as a major growth driver for Embecta.
“In our view, the development of a novel, insulin patch pump for people with type 2 diabetes (T2D) is the most significant long-term growth opportunity given the large market size and unmet need,” the analysts said. “There are an estimated ~2M people in the U.S. with T2D on intensive insulin therapy, with pump penetration in the low-to-mid single digit range for this patient group.”
Still uncertainty for Embecta
The analysts said they like that Embecta’s core market is stable, plus the company’s cash flow generation and funding for growth opportunities are positives. However, near-term market shrinkage and less visibility on product timelines add some doubt.
Thibault and Eiber said the current product pipeline is “exciting but not without risks.” They remain eager for updates on the patch pump’s progress and timeline. However, they pointed to a previous BD patch pump under development before the company withdrew its FDA application in 2019, pointing to “high uncertainty” around the future device.
Still, routes for growth remain, the analysts said.
“We think there are multiple avenues for EMBC to drive long-term growth, including through greater penetration of its core market, expanding its emerging market presence, and by entering new markets through R&D initiatives such as the T2 patch pump,” they said. “EMBC may be able to grow by making acquisitions that could scale using the company’s globally recognized brand and footprint.”