An Important Day

An Important Day

Today in our nations capital a meeting is taking place that has far reaching implications for the continuous glucose monitoring market. The Medicare Coverage Advisory Committee is meeting to consider the potential impact of continuous monitoring. Although no binding decision is expected today this is the first of many steps towards CGM receiving reimbursement. Many, including Diabetic Investor, believe without reimbursement the market for CGM will be limited to a small percentage of patients.

Medtronic (NYSE:MDT), Dexcom (NASDAQ:DXCM) and Abbott (NYSE:ABT) have a vested interest in the outcome as all three companies have CGM products. Although the FreeStyle Navigator from Abbott is still awaiting FDA approval, it is generally accepted that the product will gain approval sometime before the end of 2006.

When CGMS first hit the market Diabetic Investor believed that patients on insulin pump or multiple daily injection therapy would be the early adopters of this new technology, a potential market of 1.5 million patients. In past issues and email alerts we stated that even without reimbursement 30% of the market would use CGM. After interviewing several patients using CGM we lowered our estimate to a 20% adoption rate.

Just as the key to the blood glucose monitoring market is test strip usage, the key to the CGM market is sensor usage. Based on our interviews Diabetic Investor concluded that CGM patients would use 4 sensors per month or 48 per year. Based on an average sensor price of $35, yearly sensor revenue per patient would be $1,680. With a 20% market penetration this puts the estimated market for CGM at slightly over $500 million annually.

Obviously should CGM gain favorable reimbursement it stands to reason that market penetration would increase dramatically, or would it?

During our follow-up interviews with CGM patients some interesting trends have developed:

1. 1. As expected sensor usage is dropping however so is the number of patients who have stopped using their CGM. There are basically two reasons for this, data and cost. It should be noted that all of the early adopters we spoke with are insulin pump patients. As a group insulin pump patients are extremely knowledgeable about the role glucose levels play in controlling their diabetes. In the beginning the data provided by their CGM was eye opening. Many patients commented that CGM had changed their lives as they were able to make adjustments to their basal rates based on the data. Yet once they understood their glucose trends there was little need to use the device on a regular basis. Several stated that since they still had to use their conventional BGM to confirm readings and calibrate their device and they already had a database of information the $35 per sensor cost was just too high to justify continued usage on a regular basis.
2. 2. CGM patients can be divided into two categories, those who absolutely love their device and those on information overload. Typically the patients in the first category have had the device less than 60 days, while patients in the second group have greater than 60 days of experience. Diabetic Investor attributes this love hate divide with what we like to call the light bulb phenomenon. Patients new to CGM having never seen this much data are seeing their diabetes in whole new light. While experienced CGM users are growing tired of the all the data.
3. 3. CGM users generate extra work for their physicians. Not unexpectedly with all this new data patients have even more questions for their physicians. Even with reimbursement for the CGM market to fully realize its potential these devices will need the endorsement of the physician. Given the extra work likely to be generated from CGM users will physicians be adequately compensated for their time?

According to industry sources even if everything goes smoothly, an unlikely scenario, CGM reimbursement is at least three years away. This time frame favors Medtronic and Abbott as they have the resources enabling them to improve their products and gain a better understanding of the market while the reimbursement process moves forward. Dexcom on the other hand does not have this luxury. With only one FDA approved product Dexcom’s future rest on their ability to gain a large enough installed users base to support continued product improvements and increasing burn rate. While Medtronic and Abbott would be delighted if reimbursement came quickly both companies understand Dexcom needs reimbursement to survive. Just as there are too many insulin pump companies chasing too few customers, the CGM market although still in its infancy already appears over-crowded.

Now that the initial hoopla over these products has waned reality is beginning to set in. The reality being that even with reimbursement the market is not large enough to support all the current players, not to mention the many others waiting to enter the market.

David Kliff
847-634-4646 Fax
224-715-3761 Mobile