A Path?

With the CGM being the hottest thing going in diabetes toy land it’s no surprise there is a great deal of interest in what Senseonics is doing. Unlike the Dexcom G6 or the FreeStyle Libre which is worn on the body for either 10 or 14 days, the Eversense system is inserted into the patient’s body and only a transmitter is worn on the outside of the body. Looking through the results the company released yesterday and reading the earnings call transcript we’re wondering about the path forward.

First let’s say there is no question the system works. Second, we do believe there is a place for the Eversense system in the CGM toy box. Third there is a subset of intensively managed patients who will prefer an inserted/implanted sensor over one which is worn on the body. It’s this third point which is worthy of further discussion.

CGM is really no different than BGM in that scale drives profits. Simply put the more of these things made the cheaper they are made for. This allows the company to be more competitive when it comes to working with payors getting the system on formulary. Yes, this should be obvious but when it comes to the diabetes toy business far too many people are fascinated by the toy and forget this is a business.

Since the company has just begun selling the system here in the US it’s way too early to focus on the numbers. The company did set a modest goal of hitting the 10,000-patient mark by the end of 2019. A mere fraction when compared to the number of patients using either the Libre or Dexcom system. Yet given the differences between these systems and their respective target patient populations this makes sense.

Excuse the expression but the sweet spot for Senseonics is what we call highly intensively managed patients. Herein lies the problem as this is the smallest market segment. Since the introduction of the Eversense system we have maintained it fits perfectly into a closed loop insulin delivery system, only problem is Senseonics doesn’t work with any insulin pumps. Tandem and Insulet are aligned with Dexcom, Medtronic has their own system and Abbott is partnered with Bigfoot.

While the system could be part of Tyler, we don’t see much traction here given its price point and fact the sensor has to be implanted. The Tyler market will be the domain of wearable not implantable sensors.

This being the case what’s the path to scale?

One possible path and this is a tricky one would be for Medtronic to buy the company and incorporate the sensor into future versions of the 670G. On the surface this makes sense on many levels, but the devil as always is in the details. Medtronic could easily afford to buy Senseonics but that’s just the beginning as they would then have to invest heavily to integrate the sensor with their pumps.

We suppose Roche who is for the moment partnered with the company could buy them and attempt to integrate the sensor into their pumps. Ok we know this is a major stretch but hey in our wacky world nothing is outside the realm of possibility no matter how crazy it may seem.

The simple fact is Eversense will be to CGM what Afrezza is to the short-acting insulin market, a niche product. Even if they can extend sensor life to 6 months and get rid of the transmitter that is worn on the body, we just can’t see them competing effectively against Abbott, Dexcom or Medtronic. We hate to be redundant, but this isn’t about the toy this is all about money and Senseonics can’t match the resources of their competitors.

Yes, there is a place for Eversense just not a big place. The lone path for the company’s stakeholders is an acquisition. Shares of the company are up slightly over 50% over the past year a nice move but by comparison Dexcom is up almost 200% over the same time frame.

What Senseonics stakeholders are hoping for is that the greater fool theory is alive and well. That some larger company will come along and do what they do best throw money around in the attempt to make a small fortune by spending a large one. This has happened so often in our wacky world we can’t blame them for believing this is going to happen.

When it comes to acquisitions in our wacky world, we can’t help but think of one of the funniest movies ever, Blazing Saddles. This Mel Brook’s comedy is a classic for many reasons but one of the best scenes is when they attempt to give badges to a group of Mexican bandits, badges we don’t need no stinking badges. When it comes to acquisitions in our world its due diligence, we don’t need no stinking due diligence.