The market may be charging higher on Monday, but the same cannot be said for ResMed Inc. (ASX: RMD) shares.
In morning trade, the sleep disorder treatment company's shares are down 3.5% to $31.27.
Why are ResMed shares under pressure?
Today's weakness follows a heavy decline by the company's NYSE listed shares on Friday night.
Investors were hitting the sell button on Wall Street amid concerns over the impact that weight loss drugs could have on demand.
This was driven by the release of an update from DexCom Inc (NASDAQ: DXCM), which sent its shares crashing 40% into the red, knocking US$17 billion off its market capitalisation.
While DexCom is a blood sugar monitoring device manufacturer and therefore operating in a different market to ResMed, there are potentially some overlaps in their customer bases.
Dexcom makes glucose monitors that are essential for type 1 diabetics. It also sells to people with the more common type 2 diabetes, which is driven by weight. The latter is also a cause of sleep apnoea, which ResMed's devices treat.
According to Bloomberg, the San Diego-based medical device manufacturer blamed a drop in new customers, lower revenue per patient, and higher-than-expected rebates for its decision to downgrade its revenue guidance by as much as US$350 million.
Commenting on the update, Jared Holz from Mizuho Securities, said:
It is strange that the wheels came off this bus so abruptly. The speed at which the business appears to have deteriorated is borderline stunning.
This sentiment was echoed by Robbie Marcus from JP Morgan. He said:
There's no getting away from the fact that this Thursday's update was a sharp turn in the wrong direction for Dexcom. Investor faith in management has been severely shaken, especially following reiterated guidance at a June competitor conference before a bullish ADA.
Time to panic?
There are potentially two reasons not to panic.
One is that this downgrade could prove to be company specific. That's because DexCom's rival, Insulet Corp (NASDAQ: PODD) is continuing to perform strongly. In fact, it released its second quarter update on Friday and delivered sales ahead of expectations.
Furthermore, Abbott Laboratories (NYSE: ABT), which is another competitor, raised its full year profit guidance thanks partly to strong glucose monitor sales.
This appears to indicate that Dexcom is losing market share to other medical device manufacturers, rather than to weight loss drugs.
Another reason to remain positive on ResMed shares is that most analysts agree that the company can continue to grow at a solid rate long into the future even if weight loss drug reduce its addressable market.
As a result, this weakness could prove to be a buying opportunity for patient long-term focused investors.
ResMed is releasing its quarterly update on Friday.
