Investor has learned from well placed sources inside Abbott (NYSE:ABT) that the Navigator continuous monitoring device currently awaiting FDA approval has been delayed until at least November and more likely December. This is just the latest in series of setbacks for the Navigator and puts them further behind Medtronic (NYSE:MDT) and Dexcom (NASDAQ:DXCM) both of whom have FDA approved CGMS systems available. According to our source the FDA is seeking additional data and is being uncooperative.
Diabetic Investor has long questioned Abbott’s strategy with the Navigator. Initially the company was seeking FDA approval for the Navigator as a replacement device for conventional blood glucose meters; this was a direct contrast to both Medtronic and Dexcom’s approach. Both devices gained approval as an adjunct to conventional meters. By seeking a replacement indication Abbott was swinging for the fences hoping to gain a marketing advantage over the competition. This attempt failed when the company was forced to admit their mistake and has since changed their application now seeking approval as an adjunct device.
Although the Navigator is still awaiting approval many consider the device to be superior to the two current systems on the market. Diabetic Investor believes had they followed the same FDA path as Medtronic and Dexcom, the Navigator would have been approved and on the market making it a three way competition. Both Medtronic and Dexcom have publicly stated that eventually their systems or future versions will receive a replacement indication. However both companies acknowledge that the FDA needs more real world experience with the systems before becoming comfortable with a replacement indication.
While Medtronic has positioned their system as tool for their huge insulin pump franchise, Dexcom has taken a more direct marketing approach. In an attempt to stall Dexcom’s momentum Abbott has sued Dexcom over patent infringement. Although no decision has been reached, the courts have dealt Abbott a series of setbacks and most industry insiders believe the case will eventually be decided with Dexcom coming out on top. When this suit was initially announced Diabetic Investor believed the case had little to do with intellectual property and more to do with Abbott trying to bully a smaller competitor. The way things are going in court it looks as though Dexcom is playing the role of David and will slay Goliath.
Even if Navigator eventually receives FDA approval they will enter a market besieged with problems. The biggest being the lack of adequate reimbursement. As Diabetic Investor has stated before Medtronic has the resources to take a wait and see approach towards reimbursement, unlike Dexcom they are not dependent on reimbursement for their survival. Having been down this path before in the insulin pump market, Medtronic understands that to gain reimbursement more data is needed that shows a direct correlation between using a CGM and better patient outcomes. Data that will years to accumulate.
Back in late August at the Medicare Coverage Advisory Committee meeting industry observers who attended the meeting described the outcome as debacle for CGM. Simply put the players don’t have enough data and are nowhere near ready. Anyone who held out hope that reimbursement would be forthcoming in the near future is in for a rude awakening. Diabetic Investor maintains our belief that reimbursement is at least three years way, possibly longer.
Secondarily all the players must be concerned over how patients are actually using the product. Just as the BGM market is dependent on the sale of high margin test strips, the CGM market is all about sensor usage. As Diabetic Investor has been reporting sensor usage has not been what analysts or the companies have expected.
The bottom line here is that the CGM is still in its infancy and has a long way to go. While there are obvious applications in the insulin pump and multiple daily injection therapy markets, usage in the largest market non-insulin using Type 2’s is highly unlikely. With less than 300,000 patients on insulin pump therapy and approximately 1.2 million MDI patients, CGM players would need to capture a high percentage of these markets to reach the lofty sales estimates many analysts have provided for the category. Besides Medtronic, Dexcom and Abbott Johnson and Johnson (NYSE:JNJ) recently shared with investors their efforts in CGM. Just as the insulin pump market has become over-crowded – too many companies chasing too few patients- the CGM market appears headed down the same path.
At one time Diabetic Investor questioned Roche’s decision not to vigorously pursue CGM. With all their major competitors entering the market it seemed they where in danger of falling behind in the diabetes technology arms race. At the time Roche was losing market share in the highly competitive BGM market and did not appear to have an answer for Abbott’s aggressive pricing strategy which initially lead to Abbott gaining share. Today it appears Abbott’s growth has stalled as Roche and JNJ have fought back. While Roche has their own set of issues with the FDA and their Spirit insulin pump, they appear to have a sound strategy when it comes to the future of CGM.
When CGM first came on the scene expectations soared as many hailed CGM as major advancement in the treatment of diabetes. Many believed armed with all this data patients and their healthcare teams could design better treatment strategies which would lead to better outcomes. The Street embraced these lofty expectations, at one time valuing Dexcom shares over $26, shares that since fallen to the $11 range as reality has come to the market. Diabetic Investor continues to believe that at some point Dexcom will be acquired as many still believe the CGM market could become a billion dollar market. (This is commonly known as the greater fool theory.)
Based on how Abbott has handled the Navigator they could turn out to be the biggest fools of the bunch.