EASD Day One Follow Up

EASD Day One Follow Up

As with most things in our wacky world there is nothing written in stone. Saying that the diabetes market is fluid is like saying there were some small storms that passed through Texas and Florida. Here in Lisbon at EASD and back at home in the states we are beginning to see the clarification of some emerging trends. This morning we’re going to examine this a little closer and provide some perspective.

While it should be obvious there is no question that CGM is on the cusp of becoming the standard for glucose measurement. This really isn’t news however CGM itself is about to undergo a transformation of its own. Thinking back to the heyday of BGM towards the end of the good old days some of the companies in attempt to differentiate themselves from the crowd claimed their system was more accurate, we said accuracy didn’t matter, that the average patient didn’t care about accuracy.

Today we constantly mention that the Dexcom (NASDAQ: DXCM) is the most accurate system available, which could make one wonder why is accuracy important for CGM and not BGM. The fact is in its early days and to a great extent today CGM is a tool used primarily by insulin using patients and these patients need accurate data so they can make the correct insulin dosing decision. As CGM continues to evolve two things are going to happen;

1. All the systems will become accurate enough.

2. CGM will expand to non-intensively managed patients.

Once accuracy is not an issue usability or patient friendliness will take on greater importance. As we noted yesterday the reason the FreeStyle Libre has done so well has more to do with usability than accuracy. Not only do patients like the fact the system does not require calibration but they basically use the Libre on their terms. We suspect that once a patient trusts the data provided by Libre they will not hesitate to use it make insulin dosing decisions. And it what matter if the system is approved for that or not.

Speaking of which the more we learn about the Libre and its limitations we do not believe Abbott (NYSE: ABT) necessarily screwed up when they submitted Libre to the FDA. While they could have handled this submission better we believe the FDA just can’t yet wrap their hands around any system that does require calibration. Will they get there, eventually. Will this prevent the Libre from being approved; we don’t think so although we suspect the FDA will require patients to confirm readings with a conventional BGM before dosing insulin.

This in turn will open the door for Dexcom who will likely then be able to seek no calibration for their upcoming slap it on turn it on 14-day disposable sensor. This in turn will result in the following;

A. Given how the FDA sees things some systems will be approved with labels that state since these systems are not calibrated they are not intended for insulin using patients.

B. This will set up a hierarchy for reimbursement with the calibrated systems intended for insulin users at one level and non-calibrated systems at a different likely lower rate.

C. Additionally, the non-calibrated systems will then begin to differentiate themselves by functionally and usability.

Just by way of example many clinicians complain that the Libre does not alarm or offer trend data. In the future, we believe these features will be added to the Libre, assuming that is Abbott wants to target insulin using patients which they may not. Yet we also believe in the future for these non-calibrated systems the user will have greater flexibility on what information they get and when they get it. Just as a patient can customize their smartphone with ringtones, wallpapers, etc. the same will occur with sensor data. They will be in control of the data they see, how they see it and when they see it. It will not be the machine running their lives but the patient controlling the machine.

Just in case it hasn’t become clear yet the CGM market will develop along the same path as BGM did. Which means that just as BGM commoditized so too will CGM. Which in turn means that making money in CGM comes down to … wait for it ..talent. Who can make sensors on a massive scale? Who can establish premium formulary placement? Or as seasoned ex-device executive used to say all the time; who can execute the basic blocking and tackling.

The biggest take away here should be that CGM for the moment is focused on technology when it should be focused on who’s best equipped to run a commercially successful CGM business. We summarily dismiss newcomers to this space as being newcomers they have yet to establish a track record on whether they can run a business or not. They may great at whiz bang way cool but as we have seen far too often that does not translate into commercial success.

Based on three major players today we would rank Dexcom as number one, Medtronic (NYSE: MDT) and Abbott (NYSE: ABT) in a dead heat for the second spot. What Dexcom must guard against is being overly focused on accuracy and not forget usability.

Medtronic has the scale so it would be foolish to dismiss them even though we do not see their stand-alone system in the same class as Dexcom or Libre. Just as Medtronic bought up formulary position for insulin pumps they could attempt the same with CGM.

Abbott must guard against, well, being Abbott. Can Abbott depart from their past when they couldn’t even screw in a light bulb correctly and actually become a player. History tells us no but hey this is the wacky world where anything can and usually does happen.

The biggest mistake anyone can make now is believing this market is any different from insulin pumps or conventional BGM. Both markets began with advanced technology but over time commoditized. CGM while not at that stage yet is headed down that path. Think of this as a race between thoroughbreds, all of whom having longstanding ties to diabetes devices. When breeding seems equal the next step would be to see who’s atop these powerful animals. By our handicapping Dexcom remains odd on favorite to win the race but as Momma Kliff used to say races aren’t won or lost on paper.