Mixed messages

Mixed messages

This past week the FDA delivered mixed messages for the growing SGLT2 category. On Friday December 2, the agency approved Jardiance from Lilly (NYSE: LLY) to reduce the risk of cardiovascular events in patients with Type 2 diabetes. Per a press release from the agency;

“The U.S. Food and Drug Administration today approved a new indication for Jardiance (empagliflozin) to reduce the risk of cardiovascular death in adult patients with type 2 diabetes mellitus and cardiovascular disease.”

Then DrugWatch.com posted a story entitled “FDA Investigates Link to Acute Pancreatitis in SGLT2 Diabetes Drugs”. According to that story;

“The U.S. Food and Drug Administration (FDA) has received reports of acute pancreatitis linked to SGLT2 inhibitor Type 2 diabetes medications, the agency announced on its website.

The FDA said it was “evaluating the need for regulatory action” for acute pancreatitis in the SGLT2 inhibitor class of drugs.”

Here is our take on these two messages;

  1. The news on Jardiance given the data from EMPA-REG is hardly shocking.
  2. We do not however, see this as having a near term impact on Jardiance sales. As we have noted Johnson and Johnson (NYSE: JNJ) who has Invokana has done a good job of locking up formulary position while AstraZeneca (NYSE: AZN) who has Farxiga is using price as a weapon to compete. There has been a small uptick in Jardiance sales since the EMPA-REG data has been released but not what many anticipated.
  3. Payors along with others believe the cardiovascular benefits seen with Jardiance will be seen with Invokana and Farxiga, that this is a class effect.
  4. The concern over acute pancreatitis could be problematic SHOULD they FDA act. For the moment, they are merely investigating this concern and no action has been taken.
  5. Obviously, we will watch to see what action, if any, the FDA takes but for now that’s all we can do.

Even with these mixed messages we maintain our belief that the SGLT2 category will continue to grow. That until proven otherwise these drugs are basically interchangeable. Yes, there are differences between them but so far these differences have yet to translate into determining a clear winner in the category. As with most diabetes drugs winners and losers are not determined by performance but by who has the better formulary position.

Also in the mixed message category comes news that Roche has expanded their distribution agreement with Senseonics. Per a press release from Senseonics;

“Senseonics Holdings, Inc. (SENS), a medical technology company focused on the development and commercialization of a long-term, implantable continuous glucose monitoring (CGM) system for people with diabetes, today announced it has expanded its exclusive distribution agreement with Roche to include all of Europe, the Middle East and Africa (EMEA), excluding Scandinavia, Finland and Israel.”

This news comes after Roche has begun commercialization of their own CGM system. While this rollout is very limited one must wonder just what Roche is doing. Perhaps the company is hedging their bets, perhaps they see implantable as the future, perhaps they want multiple CGM options who knows.

It’s important to note that Senseonics is not the only implantable system under development. GlySens also has one which seems further along in development. A system which is fully implantable and does not require the patient to wear anything on their body as the Senseonics system does.

Our question with all these implantable systems is, other than being implanted in the patient’s body, what unfilled need are they filling. The most obvious benefit of course is once implanted the patient can do about their business and not have to change sensors every 7 or 10 days. Another obvious benefit with the GlySens system is that the patient does not have to attach anything to their body.

Still when it comes to CGM this is an accuracy and cost story. Given what Dexcom (NASDAQ: DXCM), the CGM market leader is working on with their partner Google combined with what Medtronic’s (NYSE: MDT) plans for their system and then add in the Libre from Abbott (NYSE: ABT) and this space is getting crowded. Like so many market segments in diabetes and the CGM market is no different there is only room for so many players. That although CGM usage is increasing this market is following the path of the insulin pump market in that it is not large enough nor is it growing fast enough to support all the existing players let alone the many who want to enter the market.

The real future of CGM is not getting insulin using patients to adopt this technology, that is the low-hanging fruit on the tree. The big money in CGM is applying this technology to ALL patients with diabetes regardless of how they manage their diabetes. To transform this data into patient relevant, patient actionable information.

This is what gets lost in the CGM story which so far has been dominated by accuracy. The fact is we are quickly approaching the point where accuracy won’t matter, that all systems will be accurate enough to get the job done. Yes, some will be more accurate than others but after they get to a certain level of accuracy we’ll reach a point of diminishing returns. This is the same path, by the way, followed by conventional glucose monitoring. This is also the reason the cost side of the ledger is a bigger issue for CGM going forward, just as it was with conventional glucose monitors.

Barring something unforeseen we maintain our belief that Dexcom is still leading the way. Given their resources we expect Medtronic will use price as weapon to battle Dexcom in the near term. Yet, looking out 2 years from now, perhaps sooner, the slap on Band-Aid like disposable low cost sensor from Dexcom/Google should be here. Its arrival will not just be the final nail in the BGM coffin but could signal a fundamental shift in how diabetes is managed.

Second grade math tells the future of the CGM market. While everyone is focused on using CGM with intensively managed patients, the real money is with non-intensively managed patients a far larger patient population. Should Dexcom/Google capture just 5% of this huge market they will make a fortune. What most people miss about this is this 5% share will be a rotating group of patients. That unlike intensively managed patients who will use CGM regularly, non-intensively managed patients will use the technology sporadically.

By our way of thinking the key will be positioning this technology as a valuable tool for non-intensively managed patients. That it really doesn’t matter if it’s the same 5% of these patients who use the technology as long it’s 5% of the total market. This isn’t about getting patients to use the system regularly, it’s about getting physicians to use the technology regularly. Physicians who will use the technology in greater numbers with their non-intensively managed patients because in the future outcomes will matter.

Armed with this data from their non-intensively managed patient’s physicians will be able to determine what if any actions need to be taken. The data will tell them whether these patients are taking their meds and if they are whether these meds are getting the job done. They know these patients won’t use conventional BGM regularly but would use a Band-Aid like sensor occasionally. This is the true promise of disposable sensors and why they could dramatically alter how these patients manage their diabetes.

To Diabetic Investor the message being delivered is don’t focus on where the CGM is today rather where it’s going to be in the future. As Wayne Gretzky, the best hockey player ever used to say “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” The way we see it Dexcom is playing where the puck is going to be.