Going it alone or friends with benefits

Going it alone or friends with benefits

It’s no secret that CGM is quickly becoming the standard for glucose measurement. As we have noted it won’t be long before Time in Range (TIR) joins HbA1c as a metric for measuring what is and what is not good control. While HbA1c will likely remain the de facto gold standard for non-insulin using patients, TIR combined with HbA1c will become the standard for insulin using patients. Although this metric combination has not yet been officially recognized many physicians are already using it.

This move towards combining metrics has some serious implications for the growing CGM market, a market dominated by Dexcom and Abbott. As everyone knows Abbott has chosen a value strategy for their portfolio of Libre sensors which now includes the Libre 3 which was recently approved in Europe. However Abbott also has an issue with Libre 2 approved by the FDA as an iCGM but with a notable restriction as it CANNOT be used with any automated insulin dosing (AID) system. Given that Libre 3 has yet to be submitted to the FDA we have no idea if Libre 3 will have this same issue.

Given that insulin using patients are the early adopters of CGM technology this distinction between Libre and the G6 from Dexcom is important. Now let’s be clear from the outset just because the Libre 2 comes with the AID restriction it does not mean patients aren’t using it that way. Patients have a funny of ignoring these restrictions even when they are in their best interest. However one group that does are all the insulin pump and insulin companies. And it is here that Dexcom has a major advantage over Abbott.

While Abbott is basically going it alone when it comes to insulin using patients, Dexcom has lots of friends with benefits. The Dexcom G6 is currently a critical component of the very popular Control IQ from Tandem and will also be so for the coming OmniPod 5 (I think it’s 5 as this used to be called the Horizon but whatever number it is the G6 will be the straw that stirs its drink). In essence as hybrid closed loop insulin delivery becomes the standard for insulin pump patients Tandem and Insulet have become salespeople for Dexcom.

But this is just the beginning as while the insulin pump market has showed renewed signs of growth there are far more patients following multiple daily injection (MDI) or insulin plus oral therapy. It’s here Dexcom has a huge advantage as they are partnered with every major insulin company, Lilly, Novo Nordisk and Sanofi all of whom who are developing a Tyler. Just today Lilly and Dexcom announced a new partnership to help promote Lilly’s new short-acting insulin Lyumjev™ . Per a joint press release;

“Eli Lilly and Company (NYSE: LLY) and DexCom, Inc. (NASDAQ: DXCM) announced today a joint program for U.S. healthcare providers (HCPs) about Lilly’s new rapid-acting mealtime insulin Lyumjev™ (insulin lispro-aabc injection, 100 units/mL and 200 units/mL), now available in U.S. pharmacies, and Dexcom G6 CGM Systems. The program is designed to help clinicians use data to inform diabetes management, including giving visibility to the benefits of a new mealtime insulin.”

Yes all three insulin companies have stated they would also like to work with Abbott and Libre but given the AID restriction this is moot point. Will Abbott eventually have this restriction lifted we think so, when we aren’t sure, but it will happen. So for the moment Dexcom not only has some great friends with benefits but also open field running when it comes to AID which just so happens is the fastest growing segment in the insulin world.

Hence the reason that Medtronic spent a few hundred million to buy Companion Medical about the only company that has a real Tyler at the moment. (And it should be noted that the InPen works with the G6.) See Medtronic knows what we do that Tyler is single largest threat to their insulin pump franchise and without having a Tyler of their own they could see this struggling franchise struggle even more. So in a great defensive move Medtronic decides not to swim upstream against the tide but get ahead of Lilly, Novo and for the moment Sanofi and get their Tyler to market.

As we have stated on many occasions if the insulin companies would get with it and bring their Tyler to market they would own this market. The reason is simple they are going to give away their connected pen or connected cap cover to sell more insulin. Perhaps Medtronic’s acquisition of Companion will be the catalyst that gets the insulin companies to move more aggressively. As it is quite possible even likely that Medtronic will contract with one of the many biosimilar companies and be the first company to offer an Austin for insulin using patients selling an insulin delivery system that includes a Medtronic CGM, the InPen and their own biosimilar long and short acting insulin’s.

Right now some might be thinking that Abbott being the smart people they are see all this and are working diligently to solve their AID issue. They see that Dexcom has lots of friends with benefits and are a little jealous. Yet solving AID is just step one as once they problem is solved the next step is to integrate Libre with all the various Tyler’s something Dexcom has already done. To complicate matters even further by time Abbott solves the AID issue and begins the process of integrating with all the Tyler’s Dexcom will likely have the G7 on the market. A product which Dexcom has noted comes with lower COGS and will be price competitive with Libre.

But Dexcom has even more friends with benefits outside the insulin world, friends who see CGM as a valuable tool for all patients no matter what their therapy regimen. Onduo and UnitedHealthcare have made Dexcom a critical component for their respective diabetes coaching platforms. Two platforms which are targeting the largest patient population in diabetes, patients with Type 2 diabetes. While it’s possible they could work with Abbott as well this likely wouldn’t happen until after the AID issue is solved as a large percentage of Type 2 patients use insulin. Just as it might too late for Abbott in the insulin market, they may be a day late and dollar short here too.

Let’s be very clear here the CGM market is large enough and growing fast enough to make both Abbott and Dexcom do the happy dance. However anyone who believes just because Abbott has chosen a value strategy for Libre and that strategy will adversely impact Dexcom sales is sadly mistaken. The fact is Abbott is going it alone when it comes to this market while Dexcom has lots of friends with benefits. Friends that have a vested interest in helping Dexcom as it helps them as well. With G7 coming these friends will have no reason to convert to Libre 2, assuming the AID issues goes away or the Libre 3 once it gets here.

We have no illusions about this market and understand that price contraction is inevitable. However as we keep stating what we are seeing right now in the CGM market is the iceberg above the water line, the far larger portion being unseen below the water line. Once CGM begins to penetrate these unseen patients what’s lost in price contraction will be amply offset by huge volume growth.

Also lost in this argument that Dexcom will see a decline in revenue is the fact that Abbott isn’t stupid and the last thing they want is a price war, a race to the bottom if you will. Sure Abbott has the resources to go this way but why would they. They may not be thrilled they screwed the pooch with Libre 2 and the AID issue, but they aren’t exactly hurting because of it as Libre continues to do very well.

The simple fact is the CGM market just as the BGM did years ago is beginning to segment with Dexcom holding the premium segment, Abbott the value segment.

One last thing every time the analysts underestimate Dexcom, every time they think Abbott is going to clean their clock Dexcom comes roaring back hitting new highs in the process. These analysts look at Abbott and see Patrick Mahomes a damn good player with a very bright future. They look at Dexcom as Tom Brady or Aaron Rodgers two members of the senior circuit who are coming to the end of their great careers. Well we’ve got some news for everyone just last Sunday and Monday these old guys did pretty well and aren’t done just yet. Mahomes also did well but I wouldn’t count out either Brady or Rodgers.