Tap Dancing

Before we get into the analysis of the Abbott call this morning let’s get the numbers out of the way; per the earnings release;

“In Diabetes Care, strong growth was led by FreeStyle Libre, which grew 36.8 percent on a reported basis and 39.9 percent on an organic basis versus the prior year. In June, Abbott announced U.S. FDA approval of FreeStyle Libre 2 as an integrated continuous glucose monitoring (iCGM) system for adults and children ages 4 and older with diabetes, achieving the highest level of accuracy and performance standards. The FreeStyle Libre 2 system will be available in the coming weeks at participating pharmacies and durable medical equipment providers at the same price as the currently available FreeStyle Libre 14 day system.”

None of this should be shocking given that the CGM market continues to expand while Abbott aggressively pursues their value strategy with Libre. A strategy as the release and their prepared remarks noted will not be abandoned.

What caught our attention was the response to the expected question on the Libre2 approval and the labeling that came with it, in particular the warning related to using the system with Automated Insulin Dosing (AID). Now having been around more than a few years we have witnessed some serious tap dancing but today Abbott gets the Gregory Hines award for best tap dancing.

In this rambling answer the company did everything but answer the question. Noting Libre2 now has the “best” accuracy, reinforcing that Libre2 is cheaper than the competition, pointing to studies that Libre helps improve patient outcomes, claiming that Libre2 sets a new standard and then finally downplaying the importance of the AID market. It’s also worth noting that Abbott did not mention Dexcom by name a departure from past calls and now refers to Dexcom as their “main” competitor.

A few points worth mentioning based on this response;

1. The company’s claim that Libre2 has the “best” accuracy setting a “new” standard is somewhat dubious at best. It also goes against the warning that came with the approval. IF Libre2 is as accurate as Abbott claims why then the warning with AID?

2. Saying that Libre improves patient outcomes is accurate but also dubious as the same can be said for patients using a Dexcom system. The fact is CGM usage no matter which system is used helps improve patient outcomes.

3. Yes the AID market is much smaller than the general Type 2 market but it’s still a very important market in terms of sensor usage. Simply put these patients use more sensors than patients who do not follow intensive insulin management. Abbott correctly noted that insulin pump patients account for just 1% of ALL patients with diabetes. What they did not mention is insulin pump and multiple daily injection (MDI) patients are heavy users of sensors while non-intensively managed patients use far fewer sensors.

This is why the value strategy for Libre is critical as Abbott is positioning it as a product for the masses. They know full well these non-intensively managed patients use fewer sensors per year than an intensively managed patient, but they also know that non-intensively managed patients outnumber intensively managed patients by a wide margin.

Simply put what this all means is something we have been saying for some time, the CGM market is evolving into a two-trier market, the premium segment belonging to Dexcom and the value segment belonging to Abbott. The issue with the Abbott strategy as they found out with the Libre2 approval is it’s harder to move up than it is to move down. It’s much easier for Dexcom to swim downstream something they will do when the G7 gets here.

While we do see the G7 as a threat to the Libre franchise given the continued expansion of the CGM market we don’t see it killing Libre sales. The reality is both of these systems can if the companies choose to do so peacefully coexist. Yet Abbott’s remarks today do have us worried as it indicates they may be losing focus. In our humble opinion it would have been much better off saying something like;

“We are obviously disappointed with the FDA’s labeling however we are working diligently to solve this issue. Our goal is to make Libre the premier option for patients with diabetes no matter what their therapy regimen is.”

Their long rambling tap dance is a worrisome sign that needs to be watched.