Libre All Day Long

Libre All Day Long

As panic sets in here in Chicago with Cubs now down 2-1 to the Dodgers, Chicago based Abbott (NYSE: ABT) is doing something the Cubs aren’t right now, hitting. While sales of conventional monitors continue to fall, sales of Libre overseas continue to accelerate. According to earnings released this morning; “Worldwide Diabetes Care sales increased 11.5 percent on a reported basis in the third quarter, including an unfavorable 1.0 percent effect of foreign exchange, and increased 12.5 percent on an operational basis. International sales growth was driven by continued consumer uptake of FreeStyle Libre, Abbott’s revolutionary continuous glucose monitoring system that eliminates the need for finger-sticks.”

The fact is the company has basically abandoned the US market, sales down 2.2% for the quarter and 18.6% on a year to date basis, sales overseas where the Libre is approved for patient use continue to grow. With the Libre now in front of the FDA for approval for patient use, the company is hoping once approved here it will have the same positive impact on sales here as it has overseas. The question is first will it receive FDA approval and if so how will it compete with existing CGM systems.

Although some have questioned whether the Libre is accurate enough to receive FDA approval, we suspect the product will receive approval. To us the bigger question is how it will compete with Dexcom (NASDAQ: DXCM) and Medtronic (NYSE: MDT) systems. We’re also curious given the company is heavily subsidizing the product overseas what their pricing strategy will be here in the US. The dynamics of the US are much more complex and more competitive.

The first hurdle that must be overcome are the operational differences between the Libre and the competition. Unlike the competition the Libre does not send readings to a smartphone nor does it alarm when the patient’s sugars are not within predetermined ranges. On the flip side the product does not require calibration with a conventional finger stick monitor. Based on reports written by patients who use the Libre patients are pleased with performance and reliability. Simply put even with its limitations it’s a good device.

The more complex question is how they will price the product and will they be able to get favorable formulary position. Here is where things get a little crazy, given the fact the company has subsidizing the product overseas and what we know about its manufacturing costs we’re not sure the company can make money on the product. With Dexcom and Medtronic firmly entrenched here in the US price is about the only weapon Abbott has to get on formulary. Even with its positive reviews overseas the company will have the additional cost of marketing the product here in the US.

A key issue as well is which patient group they target, unlike Medtronic they do not have built in installed pump patient base and unlike Dexcom the product does not communicate with any insulin pump. Dexcom is also very strong with patients who follow multiple daily injection (MDI) therapy. That basically leaves non-intensively managed patients, a large group, as the target.

Now as much as we and many others believe that every patient should use a CGM and that CGM will become the standard for measuring glucose, the market has not gotten there yet. This one reason we continue to see the Libre ideal as part of a broader diabetes management system. The reason we believe that once approved here in the US, the company just might put the diabetes unit up for sale. We hate repeat ourselves but there are plenty of well-healed tech companies chomping at the bit to enter the diabetes market, companies who not only have the bucks to acquire the unit, but the bucks to improve and market the product.

Based on comments made today the company appears intent on keeping Libre. Whether this is just posturing or the actual truth time will tell. We were surprised they did state that there are 200,000 patients now using the product, which if accurate is pretty impressive. Their comments also seem to indicate when it comes to pricing they will follow a trend and go with some sort of value based contracting tying payments to patient outcomes.

The big IF here and it’s a BIG one, can they break from the past and actually execute. Abbott has a less than impressive track record in glucose monitoring, running not one but two conventional BGM acquisitions into the ground. Nor is their track record impressive in CGM, given who they screwed up the Navigator. This is the reason we see the best option as using the Libre as bait to sell the diabetes unit. There is no question the Libre has potential we’re just not sure it will reach it’s potential as part of Abbott.

Sorry but as Momma Kliff used to say; “History is a great teacher and while the future may look promising, past performance is a better indicator than the promise of better things to come.”