Anti-obesity drugs rose in popularity last year, helping the leaders in this market -- notably Eli Lilly and Novo Nordisk -- crush the market. However, some medical device specialists got the wrong end of the stick. That was the case with Abbott Laboratories (ABT 0.84%), whose diabetes care segment is perceived as its most important growth driver. Some investors thought GLP-1 medicines such as Ozempic could decrease demand for some of Abbott's key products.
But that's not the case. Anti-obesity medicines won't harm Abbott Laboratories' business. In fact, the opposite could be true. Let's find out why.
Complementary ways to help diabetics
Last year, Abbott's sales of $40.1 billion fell 8.1% year over year. The decline was due to a drop in demand for COVID-19 diagnostic products. Putting that segment aside, Abbott's top line increased by 11.6%. But even that pales in comparison to the company's continuous glucose monitoring (CGM) franchise, the FreeStyle Libre. In 2023, FreeStyle Libre sales jumped by 23.2% year over year to $5.3 billion.
NYSE: ABT
Key Data Points
Could Ozempic and competing weight-loss therapies lead to reduced demand for Abbott Laboratories' CGM devices? The numbers tell a different story. Abbott's management argues that patients often use GLP-1 medicines in combination with CGM solutions. An analysis of pharmacy data Abbott released last year strongly suggests that people on weight-loss therapies have higher rates of CGM adoptions.
DexCom, Abbott's most important competitor in the CGM market, echoes this sentiment. As DexCom CEO Kevin Sayer recently said: "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." In other words, Abbott's most significant growth driver is safe, at least for now. It doesn't look like GLP-1 drugs will make its CGM devices obsolete. Quite the contrary.
Here's another important point: The CGM market has a massive worldwide opportunity. More than half a billion adults now have diabetes, but only about 1% of them use this technology. True, many of them are in developing countries where Abbott Laboratories has yet to launch its FreeStyle Libre franchise. However, the potential is there, and few are better positioned than this medical device giant to pounce on it.
Picking up after Ozempic
Weight-loss therapies like Ozempic have proved extremely effective in helping patients achieve their goals. However, they lead to people shedding quite a bit of muscle along with fat. That can be a problem -- excessive muscle loss can have negative health consequences. Some studies have found that as much as 40% of Ozempic users lose weight from decreased muscle mass.
Abbott is looking to address this issue, too. The company launched Protality, a brand designed to develop products to aid people in their weight loss journey. Abbott's first launch within this business is a low-calorie protein shake. Getting enough protein is an essential part of maintaining muscle mass, and the "low-calorie" part of the equation should help patients keep their overall weight down.
In other words, this is a way to help people lose fat and not muscle. It's too early to tell how successful Abbott's new Protality brand will be, but it again shows that the rise of Ozempic is hardly a net negative for the company's business.
Abbott's prospects remain strong
Abbott Laboratories has an excellent track record of developing innovative medical devices. Even if its FreeStyle Libre franchise were compromised, the smart money would be on the company to find ways around that challenge. It did so during the pandemic. Procedure volume dropped like a rock, but the healthcare giant kept its revenue afloat by quickly becoming a leader in the COVID-19 diagnostic market.
However, it doesn't look like weight-loss medicines will negatively impact Abbott's long-term prospects at all. And there are many other reasons to invest in the company, including its streak of 52 consecutive years of dividend increases, making it an excellent income stock. Here's the bottom line: Abbott Laboratories is still a top pick for long-term investors.
