In the past year, the popularity of anti-obesity drugs has surged, leading to remarkable market success for key players like Eli Lilly and Novo Nordisk. However, not all medical device specialists shared in this positive trend, and Abbott Laboratories (NYSE: ABT) found itself in a somewhat unfavorable position. Some investors mistakenly believed that the rise of GLP-1 medicines, such as Ozempic, could potentially diminish demand for crucial products within Abbott’s diabetes care segment, perceived as a significant growth driver for the company.
Contrary to this notion, the reality is that anti-obesity medicines are not detrimental to Abbott Laboratories’ business. In fact, there’s a possibility that the opposite might be true. Let’s delve into the reasons behind this perspective.
Complementary ways to help diabetics
In the previous year, Abbott reported a 8.1% year-over-year decrease in sales, amounting to $40.1 billion. This dip was primarily attributed to waning demand for COVID-19 diagnostic products. Excluding this segment, Abbott’s overall revenue witnessed a commendable 11.6% increase. However, the standout performer in Abbott’s portfolio was its continuous glucose monitoring (CGM) franchise, specifically the FreeStyle Libre. In 2023, sales of FreeStyle Libre surged by an impressive 23.2% year over year, reaching $5.3 billion.
An intriguing question arises: Could the advent of Ozempic and similar weight-loss therapies diminish the demand for Abbott Laboratories’ CGM devices? Contrary to such concerns, the data presents a different narrative. Abbott’s management contends that patients frequently use GLP-1 medicines in conjunction with CGM solutions. Analyzing pharmacy data released by Abbott last year strongly indicates that individuals utilizing weight-loss therapies display higher rates of CGM adoptions.
This perspective finds resonance in the statements of DexCom, Abbott’s primary competitor in the CGM market. DexCom CEO Kevin Sayer recently emphasized, “The data clearly show that CGM usage grows faster in GLP-1 users than those who are not on therapy. This further demonstrates the complementary nature of DexCom CGM across all therapy regimes in diabetes.” Essentially, Abbott’s major growth driver appears to be secure, with no imminent threat of GLP-1 drugs rendering its CGM devices obsolete.
An additional noteworthy point is the vast global opportunity within the CGM market. While over half a billion adults currently live with diabetes, merely 1% of them utilize this technology. Although a significant portion of this demographic resides in developing countries where Abbott Laboratories has yet to introduce its FreeStyle Libre franchise, the potential remains substantial. In this landscape, Abbott stands as a formidable player, well-positioned to capitalize on this vast market opportunity.
Picking up after Ozempic
Weight-loss therapies such as Ozempic have demonstrated remarkable efficacy in assisting individuals in achieving their fitness goals. However, one drawback is the potential for significant muscle loss along with fat, posing potential health concerns. Studies indicate that up to 40% of Ozempic users experience weight loss attributed to decreased muscle mass.
Recognizing this issue, Abbott has taken steps to address the matter with the launch of Protality, a brand dedicated to developing products that support individuals in their weight loss journey. The initial offering in this venture is a low-calorie protein shake. Adequate protein intake is crucial for maintaining muscle mass, and the incorporation of “low-calorie” elements aims to assist patients in managing their overall weight effectively.
Essentially, this initiative aims to facilitate fat loss while minimizing muscle loss. While the success of Abbott’s new Protality brand is yet to be fully realized, it underscores the notion that the prominence of Ozempic is far from being a detriment to the company’s overall business strategy.
Abbott’s prospects remain strong
With a stellar history in pioneering innovative medical devices, Abbott Laboratories possesses a solid track record. Even if the FreeStyle Libre franchise were to face challenges, the company has demonstrated resilience by finding effective solutions, as seen during the pandemic. Despite a significant drop in procedure volume, Abbott maintained revenue stability by swiftly becoming a leader in the COVID-19 diagnostic market.
The advent of weight-loss medicines doesn’t appear to pose a threat to Abbott’s long-term prospects. Beyond this, numerous compelling reasons make Abbott an attractive investment, notably its remarkable streak of 52 consecutive years of dividend increases, solidifying its position as an excellent income stock. In essence, the key takeaway is clear: Abbott Laboratories remains a top choice for long-term investors.
