At some point everyone will need to accept some pesky facts.
1. CGM technology is still in it’s infancy and hasn’t come close to it’s full potential.
2. Insulin using patients or should we say highly engaged patients are the low hanging fruit for CGM.
3. Now that we have two systems that are very patient friendly, i.e. no calibration, simple painless insertion and longer sensor life there is no need to do the hippy hippy for incremental improvements in the systems.
4. More systems will flood this market as they see what we do the biggest market segment hasn’t even been reached yet.
5. While CGM is right now a diabetes device it does have other applications, which will expand usage in a major way.
6. Like any other toy this isn’t necessarily about who has the “best” technology but who has the best formulary position.
7. Most importantly of all this about talent the ability to run a commercially viable CGM company or franchise.
We mention this because this past Friday Abbott announced that the FreeStyle Libre can now be worn for 14 days and the warm up period is now one hour. Naturally shares of Dexcom went down almost 7% on the news because why? Because investors are short sided have no understanding of the dynamics of this market and are pretty much clueless. Yes, this is good news but put in perspective it’s not that big of a deal.
Take it to the bank that Dexcom will have enhancements to their G6 and again everyone will fawn all over what really isn’t news at all just the normal progression of any diabetes technology. We went through this with BGM, are going through it with insulin pumps and now CGM. Sometimes we wonder if these people are paying attention to the simple fact that technology is not a stagnant thing. How many iPhones have there been? How many versions of Windows have there been?
Listen we can’t blame some investors for taking some profits in Dexcom. After all, as we predicted back when this stock was below $60 per share shares would rally which of course they did. But to think this news from Abbott will have a major impact on G6 sales is flat out crazy. While the Libre and G6 may both be called CGM’s they are two different systems targeted at two different patient segments.
Plus, and no one wants to acknowledge this, why we aren’t sure neither company even when you combine their respective patient bases has scratched the surface. There is lots of upside here. Let’s say for grins and giggles that Abbott really does have 800,000 patients globally on the Libre and that Dexcom has about 450,000 and how many patients use insulin globally? How many patients have diabetes?
Listen we know that investors love to focus on the short term and thinking is not something they are good at but this really isn’t that complicated. Yet just as diabetes executives can’t make a simple peanut butter and jelly sandwich without screwing it up, investors can’t make an American cheese sandwich without screwing it up and don’t get us started about making a grilled cheese sandwich as that requires thought.
Perhaps the best way to look at this market is to go back to the very early days of the insulin pump market when it was just MiniMed and Disetronic. Although it seems improbable today the two companies were battling it out and MiniMed believe it or not was very close to going under at one point. This being the early days of the market there was plenty of business to go around and both companies at one point seemed to be doing just fine. The sad reality is it wasn’t until Roche paid over a billion bucks for Disetronic and then proceeded to run the company into the ground that MiniMed really took over the market.
This is one reason we hope neither Roche or Sanofi buys Dexcom even though this would be great for the company’s stakeholders. But we digress.
To show how much upside there is in CGM even Medtronic stands a chance to gain share. Sure, their current system is substandard but the folk in Northridge aren’t sitting around playing solitaire on their computers. They like everyone else will make enhancements to their system so they can compete. Keep in mind that Apple yes Apple was not the leader of way cool in phones. Back in the day it was Motorola who ruled the mobile phone world and today it’s Android not Apple that dominates the mobile market when it comes to operating systems. What we are saying is just because Medtronic is not the best today does not mean it will always be this way.
The point here is a simple one the CGM has a huge upside and there is room for multiple players. This isn’t a battle over technology as eventually all CGM’s will do basically the same thing the same way. Yes, CGM will eventually reach the stage BGM systems did years ago and where insulin pumps are today, this should shock no one. This is all about … wait for it … talent, the ability to …wait for it … run a commercially viable CGM company or franchise.