Wall Street has been witnessing a recurring trend this autumn – a wave of panic sweeping through various sectors as experts predict the ruin of businesses due to the emergence of obesity medicines from pharmaceutical giants Eli Lilly and Novo Nordisk. This phenomenon has affected packaged foods, medical devices, and even restaurants, among others.
Fortunately, Abbott Laboratories (ticker: ABT), a leading medical device company, recently presented strong evidence that should put an end to this exaggerated sense of alarm.
Abbott specializes in supplying devices for diabetes treatment, including their renowned product, FreeStyle Libre. FreeStyle Libre is a continuous glucose monitoring system that revolutionizes the way diabetes patients manage their blood glucose levels, reducing the need for frequent finger pricks.
Initially, investors expressed concerns that the introduction of these new obesity drugs, which are also indicated for Type 2 diabetes treatment, would cannibalize the sales of Abbott’s Libre and other diabetes-related offerings.
This apprehension had a negative impact on the stock prices of Abbott and similar companies selling comparable devices. As of Tuesday’s market close, Abbott had experienced a 16.1% decline in share price for the year, while the broader S&P 500 index had risen by 13.9%. DexCom (DXCM), a competitor selling glucose monitoring systems, saw its shares plummet by 28.9% year to date, and Insulet (PODD), known for its wearable insulin delivery system, suffered a staggering 52% drop.
However, the latest third-quarter results reported by Abbott on Wednesday shattered these grim expectations. Quarterly sales of FreeStyle Libre reached an impressive $1.4 billion, indicating a remarkable 28% growth compared to the same period last year. During an investor call, Abbott CEO Robert Ford revealed that more FreeStyle Libre users were simultaneously utilizing the new obesity drugs.
Surprisingly, Ford emphasized that the use of Libre complements the new obesity treatments known as GLP-1 receptor agonists. In a note by Mizuho analyst Anthony Petrone, it was highlighted that combining FreeStyle Libre with GLP-1 drugs can sustain the growth trajectory of Libre, at least in the near-term.
Ford’s remarks didn’t end there. By implying that doomsayers among investors and analysts might lack a comprehensive understanding of the situation, he delivered a powerful message – Abbott Laboratories is resilient and well-equipped to navigate the evolving landscape of diabetes treatment.
Abbott’s experience serves as a reminder to investors that careful assessment is needed before jumping to conclusions based on panic-driven theories. While the market may fluctuate in uncertainty, Abbott’s performance is a testament to their ability to innovate and thrive amidst challenging circumstances.
The Reality of GLP-1 Drugs in the Medtech Market
When it comes to the future of GLP-1 drugs in the Medtech industry, there seems to be some investor angst. However, according to experts, this apprehension may be unfounded.
According to Ford, a knowledgeable industry professional, the number of individuals expected to be on GLP-1 drugs in the next 4 to 5 years is estimated to be around 10 to 15 million people. While this may seem like a substantial figure, it is crucial to consider that it is a relatively small fraction compared to the size of the medical device markets.
An analyst pointed out that there is an overestimation of the impact of GLP-1 drugs on industries such as restaurants and packaged foods. The large revenue estimates are based on the assumption of high prices and accessible availability to a significant portion of the American population. However, if we consider a scenario where 15 million patients are on anti-obesity medicines by 2030, the cost of this would only account for roughly one-tenth of the total amount spent on retail drugs in the U.S. in 2021.
Insurers, employers, and government programs will face significant challenges in financing these drugs, even with projections in the range of 15 million patients. Ford highlighted that employers, who ultimately foot the bill for these medications, may have limited appetite for shouldering such expenses. Rising medical costs and inflation will likely deter companies from embracing these drugs.
While GLP-1 drugs may have a significant impact on patients who can access them, it is crucial to acknowledge that the majority of patients won’t have easy access for many years to come. This reality should serve as a reminder for investors.
On Wednesday, Abbott shares experienced a 3.7% increase, while DexCom shares rose by 4.5%, and Insulet saw a 2.5% rise in shares.