Billions of reasons

Billions of reasons

Although we haven’t gotten there just yet it’s no longer a question of if Type 2’s start using CGM but when they do and how they use it. CGM is not like an insulin pump when it comes to having a finite market size. CGM is valuable tool regardless of whether the patient uses insulin.

What’s misunderstood about CGM usage in the less intensive patient population is how they will use CGM and what it will cost. Let’s handle the cost question first as for CGM to penetrate the less intensive market sensors must achieve price parity with BGM. Today Medicare reimburses less than $11 for a box of 50 test strips or about .22 cents per strip, figuring 4 strips per day that’s about a buck a day. So just for the sake of argument we’ll cost out sensors at a buck a day.

Now as how CGM will be used there are two general uses – discovery and maintenance. Physicians will prescribe CGM to discover a few things mostly whether the patient’s medication is working. Once the optimum therapy is determined CGM will then be used as a maintenance tool. So, let’s clear up the first misconception about CGM as less intensive patients aren’t going to use CGM every day. By our estimates the less intensive patient will use no more than 1 sensor per month. Each sensor will cost a buck a day and be worn for 14 days, so all in revenue is $14 per sensor or $168 per year per patient.

Here’s the good part there are approximately 25 MILLION patients that fall into the less intensive category. So, let’s do some simple math and say that 10% of these patients use CGM or 2.5 MILLION patients at $168 per patient is $420 million in annual revenue. Achieve 30% penetration and that’s over a billion bucks annually. But here’s the even better part whatever the number is it will be a rotating group of patients.

We don’t see any less intensive patient being as loyal to CGM as an intensive patient, quite frankly they don’t need to be. But the difference is when one less intensive stops using CGM another starts using CGM. Unlike today CGM companies won’t be focused on attracting intensive patients who are regular users of CGM. They will be courting payors and/or health plans who will use CGM to monitor their less intensive patient population. Effectually CGM will become part of their regular care.

Although we would not make the bold claim that CGM could solve the biggest problem of all – therapy adherence or compliance or whatever the PC term is today. It does have that potential. As we have stated consistently the biggest problem with the less intensive patient population is getting them to take their damn pills as prescribed. Yet so far no has discovered a way cool whiz bang toy that can discover whether these patients are taking their pills, that is until CGM came along.

How do we know this we don’t but the very smart people who currently write the all the way cool insulin dosing algorithms do. CGM data is not just the key for insulin dosing it’s also the key for determining therapy compliance. Again, as we have stated before there are only so many reasons why a less intensive patient is not achieving control, either their therapy regimen isn’t working, or they aren’t taking their pills. CGM solves both problems. This is what’s so misunderstood about CGM usage in this patient population.

As we move forward in this market, we envision multiple products each with different price points. In the less intensive market sensors will have one basic function gathering data. For this patient population there is no need for alarms or alerts, the patient will merely slap the sensor on turn it on, that’s it. All the analytics will be done for the patient and their physician on the patient’s smartphone. Given the simplicity of these sensors and basic functionality combined with the fact they will be manufactured in massive scale CGM companies can make money even at the lower price point.

In this respect the CGM market isn’t that different than what the BGM market used to be. With massive scale the sensors are made for pennies and sold for dollars. This is why sensor design and manufacturing processes are more important than way cool whiz bang. Or put another way the winners here won’t be companies that have the coolest toy in the toy chest rather it will companies that know how to run a CGM business.

Medtronic is not having a problem with their sensors because the technology doesn’t work. The technology is fine it’s the design of the sensor which creates the problem. This design makes manufacturing the sensors difficult which is why they are having reliability and accuracy issues. Sure, they can make them in small batches ok, but they are having a dickens of time scaling up manufacturing and as we say all the time scale is critical.

While many are focused on whether less intensive patients will use CGM we’re focused on which company can make sensors on a massive scale. The last thing we worry about is the market developing to us that’s a forgone conclusion. As we stated earlier it’s not a question of if this going to happen but when it will happen. The key for us is who will be best prepared when the time comes.

The CGM train has already left the station and the path is clear first stop insulin pump users next up patients following multiple daily injection (MDI) therapy then comes insulin plus orals with the final stop being orals alone. So, hope on board as this is going to be a great ride.