A Proud Granddad

A Proud Granddad

Listen to Abbott (NYSE: ABT) CEO Miles White talk about the FreeStyle Libre is like listening to a proud granddad gosh over his grandchild. Keep in mind the Libre is the offspring of the Navigator. And quite frankly Miles has every reason to be proud as Libre by all accounts has exceeded everyone’s expectations. Let’s a take a quick look at the numbers;

Total Users 650,000

Monthly User adds 50,000

US Market penetration 50,000 users

User breakdown 2/3 Type 1 1/3 Type 2

Now that the numbers are out of the way let’s look at what they mean;

1. There is no question that Libre is exceeding everyone’s expectations.

2. It should surprise no one that Libre is doing better overseas than it is here in the US. There are two main reasons for this Dexcom (NASDAQ: DXCM) isn’t as strong overseas while Abbot has worked very hard establishing a strong market presence.

3. Affordability is a major reason Libre is doing so well.

4. The US numbers while early do signal issues ahead, more on this is a moment.

5. The company acknowledged new versions of Libre will include alarms and alerts, a move which will shift how Libre is viewed and could signal another problem they will face.

While Libre is strong across the pond it’s slow start here in the US is troubling. As everyone knows Dexcom has received approval for their new G6 so the real battle has just begun. The G6 requires no fingerstick calibrations and comes with a more patient friendly applicator. Additionally, it is generally acknowledged that Dexcom is the more accurate of the two systems with Libre having a well-known issue in the low range.

Although Dexcom has not come out and stated that they will price G6 competitively all signals point to that. It’s important to note that Dexcom currently owns the most important piece of real estate when it comes to devices; formulary position. Something the company will fight to maintain as we move into the 2019 contracting talks.

The real test for Libre is about to begin as Dexcom is beginning to roll out the G6. Third and fourth quarter results will give an indication of which system has the upper-hand.

The enhancements to Libre while needed also pose a problem for the company as it pits them head to head against the G6. One enhancement that was not discussed today was whether the Libre will eventually have greater connectivity. This a huge advantage for Dexcom as the G6 communicates with smartphones and smart wearables such as the Apple Watch. Later this year Dexcom will have an app that allows readings to be sent directly to the Apple Watch Series 3 meaning users will not need to have their iPhones present to see readings.

Already the perception developing here in the US am among key opinion leaders is that Dexcom is better suited for insulin using patients while the Libre is better suited for less intensively managed patients. While the less intensive market is far larger than the insulin using market, this market is not adapting CGM, it will in the future but for the moment insulin using patients will drive CGM growth.

As we noted the other day Dexcom has relationships with Tandem (NASDAQ: TNDM), Insulet (NASDAQ: PODD), Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO). Abbott does have a relationship with Bigfoot, something we failed to mention the last time -sorry about that, but Bigfoot has yet to bring anything to market. So, when it comes to getting some help selling sensors Dexcom has the clear advantage.

Although no one is overly impressed with Medtronic’s (NYSE: MDT) stand alone CGM, its mere presence will impact the market if for no other reason that Medtronic has nothing to lose. While Medtronic will have tough time establishing even a small market presence they do have solid relationships with the people who count; payors. While we don’t see the company giving away the system for free we would not discount this possibility. The company could position their system as a transition tool getting multiple daily injection (MDI) patients ready for insulin pump therapy.

The reality is this market belongs to Abbott and Dexcom with Abbott strong overseas and Dexcom strong here in the US. Each company will attempt to protect their turf while invading the others. Nothing we heard today or have heard recently changes our position that a nasty price war looms on the horizon. A price war that no one seems to want but everyone believes is coming.

One last note as yesterday Johnson and Johnson (NYSE: JNJ) reported results which used to be a diabetes event. The irony should not be lost here as just five years ago everyone thought it would be Abbott that was out of diabetes not JNJ. Abbott should be given credit for surviving and now thriving with Libre. The fact is without the Libre there would be no Abbott Diabetes Care. So, kudos to Abbott.

To all our friends at JNJ keep the faith. It was a great ride while it lasted, and we’ll never forget those great Irish Coffee’s.