Playing the wrong game

Yesterday shares of Dexcom closed at $173.19 giving the company a market cap of almost $16 BILLION. The Libre has become a critical product for Abbott driving their shares higher as well. When it comes to CGM both companies are gobbling up patients by the boatload, both are making major infrastructure investments adding manufacturing and both have newer systems coming to market, the Libre2 for Abbott and G7 for Dexcom.

The harsh reality is when it comes to CGM this market belongs to Dexcom and Abbott and no one else is even within spitting distance. Yet this won’t stop others from trying to build a better mouse trap even though a better mouse trap isn’t wanted or needed. Some like Medtronic can’t even build a better mouse trap and are struggling just to get on the same page as Dexcom and Abbott. Medtronic apparently hasn’t gotten the memo but the days of fingerstick calibrations are long gone.

Bevis and Butthead seem to have forgotten that it’s better to be thought a fool than to open your mouths and remove all doubt. But let’s not digress.

Yet what we find funny is how still all the Dexcom wannabes continue to harp on things that don’t matter. The first non-starter is accuracy, yes, it’s critical that sensors are accurate, but accuracy only gets you into the game it does not win the game. The next non-starter is sensor life again it gets you into the game but does not win the game. Easy sensor Insertion is another, connectivity another. These items get you onto the playing field but that’s it.

Given the tremendous success Dexcom and Abbott are having getting on the field is only step one and given the IP around CGM not an easy step. As one ex-diabetes device executive used to say, “Making the damn thing is just one step, getting it into the hands of patients and making money is the hard part.”

Just for grins and giggles let’s say someone gets all the way through the FDA, that they successfully navigate the IP minefield and they are on par with the Libre or G6 on accuracy plus have all the features Libre and G6 have. Here’s what comes next;

1. Reimbursement

2. Customer Support

3. Sales and Marketing

4. MANUFACTURING PROCESSES

5. Distribution

6. Supply Chain

We hate to kick Medtronic when their down, but they are the posterchild for how difficult the CGM market is. Unlike most of the CGM wannabes Medtronic is well capitalized and has an established presence with payors. They have the added advantage of a huge sales force plus teams dedicated to sales and marketing, throw in their established customer service operation and it would seem they all the ingredients to bake the CGM cake.

Even though the Medtronic sensor was inferior to the G6 and Libre from a features and benefits standpoint this is still Medtronic the world leader in insulin pumps. So what doomed this product besides some very poor decisions made by management. THEY COULD NOT MAKE AN ACCURATE, RELIABLE SESNOR ON A MASSIVE SCALE.

Anyone who has done the slightest research on the 670G knows what we do when the damn thing works it’s great when it doesn’t it sucks. The pump may not be the best pump in the world, but the pump just does what it told and it’s the sensor which is telling it what to do. As we keep saying the sensor is the straw that stirs the closed loop drink. Take away the sensor and these way cool whiz bang systems are way worthless. Garbage in yields garbage out only in this case the drug being delivered is lethal when dosed improperly.

Looking at all the built-in advantages Medtronic has it’s understandable why the company publicly stated this would be a billion-dollar franchise. Problem was no one bothered to explain to Bevis that they had a little problem that they couldn’t manufacture an accurate, reliable sensor on a massive scale. And just to be very clear the company KNEW this and still went around telling everyone who’d listen this would be a billion-dollar franchise.

Now think about every Dexcom wannabe those companies that don’t have these built in advantages. Then think of what the competitive landscape will be like IF they ever get past the FDA and IP minefield. Think about what it will be like when they approach a payor who will be interested in just one thing and one thing only, what does it cost. A payor who will take any price given by the wannabe and use it as leverage with Abbott and Dexcom, who to protect their franchises will fight back.

Another problem with all the wannabes is rather than change the rules of the game they are playing on the same turf as Dexcom and Abbott. While diabetes is the primary application for CGM it is NOT the sole application. As Abbott CEO Miles White noted CGM has applications well beyond diabetes. Applications which will transform the CGM market into a $10 or perhaps $20 BILLION market. The reality is what we are seeing today in CGM is the tip of the iceberg what’s above the water line. The far bigger portion of the iceberg is what cannot be seen below the water line.

Rather than chase these applications below the water line all the wannabes are playing in the diabetes sandbox. A sandbox dominated by Dexcom and Abbott.

These wannabes would be advised to follow some advice Momma Kliff used to give her boys; “You can continue to take on the bigger kids at school and get your heads bashed in or you might consider a different tac, it may not work but it’s better than continually getting your heads bashed.”