A look into the future

A look into the future

As the market for continuous glucose monitoring systems continues to expand and the market for conventional glucose monitoring systems continues to contract the question is what will the overall glucose monitoring market look like 5 or 10 years from today. Some believe that the future for conventional systems is the domain of interconnected devices, systems which send readings to the cloud where they can be shared with the patient’s physician or CDE. The theory is the physician/CDE will transform these data points into patient relevant, patient actionable information.

While that sounds good in theory the fact remains that the vast majority of patients do not gather enough data points to begin with. That the physician/CDE won’t have enough data points to analyze. Even with all the improvements in conventional glucose monitoring the fact is average test frequency remains below 2 tests per day. It’s also true that the more frequent testers, patients either using an insulin pump and those flowing multiple daily injection (MDI) therapy are gravitating towards CGM.

Basically what that means is that even though there are more patients who don’t use insulin these patients are the least frequent testers. Given that reimbursement is still based on the number of test strips used and not on outcomes, the companies in the IDM market face the same problems as conventional non-connected devices face. Namely they need scale, massive scale if they are to make any money.

IDM companies also face another issue as CGM systems are also sending readings to the cloud and it’s just a matter of time before we have CGM systems that will cost the same as test strips, be easier to use than a conventional device and will provide better information than a conventional device. This is the goal of the Dexcom (NASDAQ: DXCM) Google partnership. A goal which as we mentioned yesterday has a very good chance of becoming a reality. By our way of thinking it is not a question of if such a system will become available but when it gets here.

Diabetic Investor could make a strong argument that CGM data is as valuable to a non-insulin patient as it is to an insulin using patient. Although a non-insulin patient does not use this data to determine when and how to take their medications, this data provides valuable insight into whether or not the patient’s existing therapy regimen is working or not. As it stands today for non-insulin patients physician use A1c results as the main marker which determines whether or not to make changes to a patient’s therapy regimen.

However, as the recent AACE statement notes A1c does not tell the entire story and reveals nothing about glycemic variability. Also given the nature of an A1c test, a test done every 3 months the patient is basically flying blind between tests. Armed with CGM data physicians can intervene sooner therefore not allowing a small problem to turn into a big problem. Used in conjunction with A1c CGM data provides the patient and physician with a clearer picture.

Now this does not mean that conventional systems will disappear entirely but it does mean that because of CGM there is less value in point to point measurements and more value in glucose trend data. Yes, a patient can get trend data using a conventional system provided they ae willing to put in the work but with a low cost patient friendly CGM why would they.

Therefore, Diabetic Investor believes that looking towards the future conventional BGM systems will be regulated to less developed markets. This is one reason Abbott (NYSE: ABT) and Roche have deemphasized the United States/North American market along with more established European markets. In these more developed markets CGM will become the standard of care. Whereas markets like India, China and less developed nations or what is commonly referred to as emerging markets will become the domain of conventional BGM systems. The problem here is not the size of these markets as India and China have exploding patient populations and both are developing the infrastructure needed. No the problem is one of reimbursement, these markets are the domain of value priced system which yield a far lower margin.

Here’s how we see this playing out. The first domino will fall when payors no longer reimburse for non-inulin using patients. By our way of thinking it’s no longer a question of if this will happen but when it will happen.  Given that LifeScan, a unit of Johnson and Johnson (NYSE: JNJ) dominates the US market and has a greater share of insulin using patients this will spell the end in the US for Abbott and Roche. Although we are less familiar with developed European markets we believe the same scenario will play out there as well. Therefore, when it comes to conventional BGM Abbott, Roche, LifeScan and a host of others will fight over India, China and emerging markets. Markets which while large have higher costs and lower margins.

We also aren’t overly optimistic that the growing group of IDM systems has much of a future either. This is not because these systems don’t add value rather because too much work is needed to get enough data points. We hate to be redundant but low cost easy to use CGM systems are not just more patient friendly they produce a better data set. Another nail in the coffin will be the increasing usage of GLP-1 therapies, a therapy which does not require the patient to test. As if the conventional BGM market needed more bad news insulin companies like Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) who are developing “smart” insulin pens will also embrace the coming cost effective CGM systems.

Now this will not happen overnight but the trend is clear. The simple fact is conventional BGM is about to go the way of a rotary telephone, VCR and desktop PC.