The CGM Market Continues to Evolve

The CGM Market Continues to Evolve

Yesterday Senseonics (NYSE: SENS) reported results and what caught our attention was not anything financial but a breakdown of who’s using the Eversense system. During his prepared remarks company CEO Tim Goodnow stated the following;

“As our installed base grows, we’re able to further analyze the type of users that are selecting our product. In our earlier experience, we are seeing that approximately 50% of our users are experienced Libre users and have upgraded to our CGM.

Anecdotally, the reason for their switching to an implantable sensor is the freedom and convenience provided by our long-term sensor, the comfort in wear and the added safety of the predictive low and high glucose alerts.

Additionally, we’re seeing that 20% of those selecting Eversense are new users not previously – that have not previously used either CGM or FGM in the past. These are type 1s that may have recognized that they should be on CGM to now find that the benefit of a long-term sensor meet their need and are therefore making the choice to begin using a continuous monitor. The remaining 30% were previously using the Dexcom or Medtronic CGM.”

What this tells us is that as expected the CGM market continues to evolve and that Abbott (NYSE: ABT) who’s done better with Libre than most anticipated has a problem on their hands. It’s difficult to tell from Tim’s remarks of the 30% who were previously on either Dexcom (NASDAQ: DXCM) or Medtronic (NYSE: MDT) which company was impacted more.

As we have noted previously the Libre has exceeded expectations but as we have also noted the system needs to be upgraded. The lack of alarms and alerts is something Abbott must address if Libre is to maintain it’s current momentum. It’s also not shocking that Libre was adversely impacted as they have yet to launch in the US and their system structurally is like the Eversense system in that both systems require the patient to wear something on their body, the main difference obviously is the Eversense sensor is implanted in the body while the Libre sensor is worn on the body.

To us this will be one of the bigger stumbling blocks for Senseonics when it gets to America. While it’s true the sensor is implanted the patient still must wear a transmitter, until this changes this basically mean they will compete on Dexcom’s turf making this battle over accuracy, a battle based on the data we have seen Dexcom will win.

We also anticipate having a difficult time on the cost side. We hate to be redundant but the CGM market is not that much different than the SMBG market in that COGS matter. Here Dexcom has a huge advantage which will only get extended when their new facility in Mesa becomes operational. As we have seen with Abbott and Medtronic manufacturing consistency isn’t easy and this lack of consistency adversely impacts COGS. The great thing about Dexcom is that not only can manufacture millions of sensors consistently they can also do so cost effectively. This advantage cannot be overstated as everyone who competes with Dexcom will eventually use price as weapon.

Getting back to Senseonics specifically they have some additional cost hurdles given the sensor must be inserted and reinserted. Which creates another issue, what happens when the damn thing doesn’t work. Listen no CGM system works 100% of the time as medical devices do fail or malfunction. Well when the Eversense system fails or malfunctions the patient does not simply remove it and slap on a new one, no the defective sensor must be removed and a new one inserted.

What most of the analysts and many in the wacky world are over-looking is that CGM has evolved well beyond does the damn thing work and is it needed. As we predicted this isn’t about who has the most accurate sensor. Listen when the Libre and the new Enlite sensor works they are accurate enough and all the systems will become even more accurate over time.

No, the CGM market is evolving to the point where the battle is who can run a commercially viable CGM company. As we have said about the insulin pump market any idiot can build an insulin pump but it takes real talent to run a commercially viable insulin pump company. While we would not say any idiot can build a sensor commercial success in the CGM market still comes down to talent and let’s face facts this is something Dexcom has in abundance.

This will take on even greater significance as CGM becomes the standard for glucose measurement and we are quickly getting to that point. As we have noted even with all these way cool whiz bang cloud enabled conventional point to point meters SMBG is dying a slow and painful death. CGM provides better more useful data than any of these systems could. It won’t be long before SMBG is relegated to minor usage and CGM becomes what SMBG used to be.

We are not against an implanted system as there is a place for them IF sensor life can be extended and the insertion process become simple. Frankly such a system fits perfectly into a true artificial pancreas system but again as we have noted this is a rather limited market. The real money in CGM is not with an artificial pancreas or insulin pumps this as we like to say is the low hanging fruit on the tree. No, the real money in CGM is when it becomes THE standard for ALL patients with diabetes and this is exactly where Dexcom is headed.

While everyone else is still trying to figure out how to manufacture consistently and improve accuracy Dexcom is building a commercially viable CGM company. Dexcom has evolved well beyond the point of making sure the damn thing works or is it accurate enough. Dexcom has evolved to the point of lowering COGS while introducing new and better systems.

There’s an old saying that we are all playing the same game just at different levels. When it comes to CGM Dexcom is playing at the highest level and everyone is just playing.