Novo Nordisk's (NVO 0.84%) Ozempic is indicated to treat diabetes, and its wild success and household name is making a few cardiometabolic device companies rather nervous. With a powerful tool to manage blood glucose levels in hand, patients may not have as much of a need for the glucose monitors and insulin pumps they formerly relied on, so the fearful argument goes. And newer drugs like Eli Lilly's Mounjaro are likely to exacerbate the same trend.
But at least two device companies, Abbott Laboratories (ABT 0.63%) and DexCom, (DXCM -9.90%) are actually anticipating that Ozempic and its peer medicines will give their businesses a boost. Here's how that might work, and how much it could help their share prices over the next few years.
Effective type 2 diabetes and weight loss medicines: Friend or foe for device makers?
Therapies made by Novo Nordisk and Eli Lilly like Ozempic, Wegovy, Rybelsus, Mounjaro, and Zepbound treat diabetes and also obesity by prompting the patient's body to produce more insulin after they eat food, thereby lowering their blood glucose level after meals to within healthy ranges. Persistently high blood glucose levels, as occurs in untreated type 2 diabetes, are a major risk factor for developing cardiovascular illness. Separately, even in people who do not have diabetes, obesity is also a major risk factor for cardiovascular disease. So it isn't all that surprising to learn that those same medicines have been proven in a handful of different scientific investigations to reduce people's cardiovascular disease risks as a consequence of lowering their blood glucose levels and helping them to shed their excess weight.
But if your company makes devices that might get used by patients a lot less when Ozempic is easily available, there's clearly a potential problem. Medical device businesses like Abbott Labs and DexCom, both of which make continuous glucose monitors (CGMs) and heavily rely on the segment to drive growth, are particularly exposed to this risk. In the third quarter alone, Abbott brought in $1.4 billion from sales of its FreeStyle Libre CGM, 30% more than a year prior. In the same period, DexCom's revenue of $975 million from its lineup of CGMs and accessories was up 27% compared to last year. So much for Ozempic usage being a headwind at the moment.
In fact, per an analysis of insurance claims data by DexCom, patients on intensive insulin regimens increased their use of the company's monitors by double when they started on medicines in the same class as Ozempic. For those on non-insulin treatments, usage quadrupled. Simply checking the data from the monitor more won't necessarily drive more revenue, but it suggests that patients will not be in any hurry to stop buying the disposable sensors they need to make their monitor work.
A similar analysis by Abbott also reached favorable conclusions, finding that patients on the medications wore their monitor's sensors more days of the week than they did before. Furthermore, patients experienced significant improvements in their blood glucose levels beyond what they'd achieved with Ozempic, too. Wearing the sensor more frequently means needing to replace it more frequently. And that points to more spending, not less.
This issue is far from being settled
The rationale for why patients seem to increase their glucose monitor use when taking these drugs doesn't have to be complicated. Just as patients need to know when their blood glucose levels are too high so that they can moderate them by taking insulin, they need to know when their levels are too low so that they can avoid hypoglycemia. Taking these medicines is what opens the door to that possibility where it was improbable before. And that's why they aren't actually a threat to Abbott or DexCom.
Based on the available data, it looks like both businesses are picking up a brand new tailwind for sales of their CGMs. As DexCom's entire game is to sell CGMs and accessories, the additional revenue growth from this trend will probably be more significant for shareholders than it will be for Abbott Labs, as diabetes care devices are only a small portion of its colossal catalog of healthcare products.
At the moment, it's hard to say exactly how much additional revenue Mounjaro and Ozempic could generate over the coming years, as they're still early on in their history of use. Nonetheless, if you were thinking about buying either DexCom or Abbott Labs, be aware that there's now another point in their favor.
