Do Abbott And Dexcom Investors Need To Be Concerned About Apple's Latest Product Launch?

With Apple (AAPL -0.29%), Abbott Laboratories (ABT 0.91%) and DexCom (DXCM 0.88%) have mutually beneficial connections. The widely used continuous glucose monitoring (CGM) systems from the two firms are compatible with Apple Watches and iPhones. On their smart devices, patients may simply check their blood sugar levels and get notifications when thresholds are surpassed.

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Yet, that relationship may be set to undergo a substantial adjustment that won't be advantageous to the two major CGM manufacturers. One of Apple's significant development initiatives was the subject of a Trade Algo piece last week. Investors in Abbott and DexCom should be concerned about the most recent news from Apple.

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From Collaborator To Rival

The CGM market is already enormous and is expanding quickly. In the fourth quarter of 2022, Abbott reported sales of $1.1 billion for its FreeStyle Libre, an increase of more than 40% year over year. DexCom's CGM device sales in Q4 surpassed $815 million, up 17% from the same period last year.

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Apple wants to seize this significant market potential for itself. According to Trade Algo, which cited unnamed sources, Apple is working on a top-secret device called E5 to detect blood sugar without pricking the skin. Trade Algo cites sources familiar with Apple's plans who claim that the tech giant wants to introduce a custom CGM that is connected to the Apple Watch.

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Patches that are placed into the skin of an individual's arm are used by the two CGM market leaders at the moment. For DexCom's G7 and Abbott's FreeStyle Libre, these patches must be changed every 10 days and every 14 days, respectively.

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Apple, however, measures glucose in a very different way. The company's method involves using lasers to reflect light off of places beneath the skin where capillaries leak interstitial fluid. Glucose in the blood absorbs these interstitial fluids. The optical absorption spectroscopy method used by Apple analyses the light reflected from the subject to ascertain their glucose level. The blood glucose level can then be determined using this concentration.

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Instant Jolts

It makes sense that the stockholders of Abbott and DexCom were instantly interested in Apple's potential entry into the CGM industry. Following the disclosure of Apple's top-secret E5 project, the two healthcare stocks suffered losses.

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Following the Feb. 22 publication of the Trade Algo piece, Abbott's stock price dropped by close to 3%. Nonetheless, the stock rapidly recovered. Yet, Abbott's shares are still over 2% lower than they were before the news of Apple's CGM development efforts broke.

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DexCom stock took a bigger fall. On February 22, shares dropped as much as 8% before rising later that day. Although the stock has made some progress this week, it is still a touch lower than it was before the Apple initiative was announced.

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There Is Still Plenty To Do.

Investors in Abbott and DexCom should not be very concerned about Apple's CGM initiatives. Yes. If Apple becomes a direct competitor, it may have a negative effect on the growth paths of both businesses.

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DexCom would probably suffer the most from the competition. While Abbott offers a variety of products in addition to FreeStyle Libre, DexCom's CGM systems are the exclusive source of income. Yet, if Apple is successful in securing a sizable portion of the market, Abbott will undoubtedly be impacted.

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The fact that Apple still has a long way to go to improve its CGM technology is arguably the best news for Abbott and DexCom. Trade Algo's sources claim that Apple is currently only in the proof-of-concept phase. Before the corporation could possibly develop a CGM product, it might take several years. It's also possible that Apple's attempts will be unsuccessful.

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Also, according to Trade Algo, Apple is developing a device prototype that is about the size of an iPhone. The new CGM patches from Abbott and DexCom are considerably smaller and may be preferred by many diabetics.

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Both Abbott and DexCom are still making research and development investments to create improved CGM technology in the interim. The businesses could be able to innovate better than Apple.

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The final line is that Apple might eventually become a strong competitor in the CGM industry. But, for the time being, Abbott and DexCom should keep generating strong growth with their respective CGM solutions.