Should Abbott and DexCom Investors Be Worried About Apple’s Latest News?
Abbott Laboratories (DEPT -0.69%) And DexCom (DXCM 0.45%) enjoy symbiotic relationships with Apple (AAPL 0.83%). The two companies’ popular continuous glucose monitoring (CGM) devices, used by many patients with diabetes, connect to iPhones and Apple Watches. Patients can easily monitor their glucose and receive alerts on their smart devices when thresholds are exceeded.
But that relationship could change significantly in ways that won’t help the two big CGM makers. Bloomberg reported last week on one of Apple’s biggest development efforts. Should Abbott and DexCom investors be worried about Apple’s latest news?
From partner to competitor
The CGM market is already huge and continues to grow rapidly. Abbott reported $1.1 billion in revenue for its FreeStyle Libre in the fourth quarter of 2022, up more than 40% year over year. DexCom’s fourth-quarter revenue for its CGM devices topped $815 million, up 17% year over year.
Apple wants to take advantage of this big market opportunity itself. Bloomberg quoted anonymous sources as revealing that Apple has a secret project called E5 to measure glucose without pricking the skin to obtain blood. According to Bloomberg’s sources familiar with Apple’s efforts, the tech giant’s goal is to launch its own CGM, tied to its Apple Watch.
The two current leaders in CGM use patches that are inserted into the skin of a person’s arm. These patches must be replaced on a regular basis – every 10 days for DexCom’s G7 and every 14 days for Abbott’s FreeStyle Libre.
However, Apple uses a very different method of measuring glucose. The company’s approach is to use lasers to bounce light off areas under the skin that contain interstitial fluids leaking from capillaries. These interstitial fluids are absorbed by glucose in the blood. Apple’s process, known as optical absorption spectroscopy, measures the reflected light to determine a person’s glucose concentration. The blood sugar level can then be calculated from this concentration.
It’s understandable that Apple’s potential entry into the CGM market immediately caught the attention of Abbott and DexCom shareholders. The two healthcare stocks suffered a setback after news broke about Apple’s secretive E5 project.
Abbott’s stock price fell almost 3% immediately after the Bloomberg story was published on Feb. 22. However, the stock quickly recovered. Still, Abbott’s shares remain nearly 2% lower than before Apple’s unveiling of its CGM development efforts.
DexCom stock was hit even harder. Shares fell as much as 8% on Feb. 22 before rebounding later in the day. The stock has continued to fight back this week, but is still slightly lower than it was before the Apple project was announced.
A long way to go
Should Abbott and DexCom Investors Really Be Concerned About Apple’s CGM Efforts? Yes. Both companies’ growth trajectories could be adversely affected if Apple becomes a direct competitor.
The competition would probably hurt DexCom the most. While Abbott has many other products besides FreeStyle Libre, all of DexCom’s revenue is generated from its CGM systems. However, Abbott would definitely be impacted if Apple were able to carve out significant market share.
Perhaps the best news for Abbott and DexCom is that Apple still has a long way to go in perfecting its CGM technology. According to Bloomberg sources, Apple is currently only in the proof-of-concept phase. It could be several years before the company could potentially launch a CGM product. And it’s possible that Apple’s efforts will fail.
Bloomberg also reported that Apple is working on a prototype device roughly the size of an iPhone. Abbott and DexCom’s current CGM patches are much smaller and may be preferred by many diabetics.
In the meantime, both Abbott and DexCom continue to invest in research and development to create better CGM technology. The companies might be able to outperform Apple.
The bottom line is that Apple could be a formidable rival in the CGM market at some point in the future. For now, though, Abbott and DexCom should continue to deliver solid growth from their respective CGM products.
Keith Speights has positions at Apple. The Motley Fool has positions in and recommends Abbott Laboratories and Apple. The Motley Fool recommends DexCom and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.