The Global View

The Global View

Next week the diabetes world will gather in Lisbon for EASD and one of the most pressing questions is when will we hear something on a product that has done very well in Europe. Sources have been telling Diabetic Investor that we could be soon be hearing from Abbott (NYSE: ABT) and the FDA’s decision on Libre. A decision that could at EASD which is ironic as the Libre has been approved in Europe for some time and has exceeded everyone’s expectations.

Since the FDA does not reveal much we can only speculate as to why this process has taken so long. Our guess is that the FDA had the most difficulty with factory calibration. A sticky issue, yes, the pun was intended, given that the FDA is concerned with insulin using patients making dosing decisions based on a device that isn’t calibrated or confirmed with a conventional finger stick monitor. Keep in mind while the non-adjunctive claim given to Dexcom (NASDAQ: DXCM) was a major achievement the sensor still must be calibrated.

There is no question Libre’s success is largely based on the fact the sensor does not require calibration and that should it be approved here, as we suspect it will be, this would be a major marketing advantage. The simple fact is the less interaction patients have with any device the better. So, assuming the FDA approves Libre and does not require any calibrations, Abbott will use that against Dexcom. Dexcom in turn will counter with accuracy and the non-adjunctive approval knowing full well that patients using the Libre will make dosing decisions even without FDA approval for this. As this is what Dexcom patients did before the non-adjunctive claim became official.

In the real world, these patients aren’t all that concerned with what the FDA says. Once they become comfortable their system is accurate they will take it upon themselves to trust or not trust the device enough. This is exactly what Dexcom patients did and what Libre patients are doing already.

We hate to repeat ourselves but all along we have stated that eventually all the sensors will be accurate enough, that we will reach a point of diminishing returns when it comes to accuracy. The same will happen with calibration, eventually the FDA will become comfortable with this and everyone will have that too. The ultimate being a system which does not require calibration which can used as a replacement for a conventional meter, something that will also happen.

By now everyone should know where this is leading, yep another device that becomes commoditized. Yet there is a HUGE difference when it comes to CGM even with commodization which is the ability to manufacture sensors consistently on a massive scale. Something that Dexcom excels at while Abbott and Medtronic (NYSE: MDT), more on them in a moment, have had issues with. This isn’t like conventional test strips which by comparison are rather easy to manufacture consistently on a massive scale.

A second difference besides manufacturing is talent, again something Dexcom has in abundance.

Thirdly and this also cannot be understated is product positioning, or put another way which patients are targeted. At the moment insulin pump and patients on multiple daily injection (MDI) therapy are the low hanging fruit when it comes to CGM usage. However, the real money will be adoption among less intensively managed patients, this is the Golden Goose for CGM. A market which while huge requires more than an accurate non-calibrated low cost easy to use system.

Here too we see Dexcom having an edge with their slap it on turn it on sensor they are working in with Google. These systems will require apps that transform all this data into patient relevant patient actionable data, something Google with Dexcom’s help will be very good at. This does not mean Abbott cannot catch up and Medtronic also is partnered with IBM Watson.

Which means basically that this market like nearly everything else in diabetes these days will come down to … wait for it … money. Who spends it, who saves it and who makes it.

The way we see it Medtronic is the most vulnerable here for a variety of reasons. First and this should be obvious they have yet to demonstrate they can manufacture sensors consistently on a massive scale. We see them solving this issue in the future but that’s no their only issue. The sweet spot when it comes to CGM and Medtronic is their huge installed insulin pump user base and converting patients from non-sensor augmented systems to the 670G. This one segment alone will drive greater profits.

The bigger issue for Medtronic will be patients who do not use an insulin pump. A far larger and potentially more lucrative market but also a market they have no experience in. The company has been very public about their desire to enter this market but given the issues they are having with their new sensor it’s difficult seeing them battling in this market without using price as a weapon. With Dexcom being aligned with Google and Abbott aligned with Bigfoot, we see Medtronic fighting an uphill fight.

Since we have mentioned the Abbott/Bigfoot alliance allow us for a moment to note how this alliance could impact the market. Although Bigfoot is known as an insulin pump company they also have a “smart” insulin pen. As we have noted the biggest threat to every insulin pump company is a system which combines a smart insulin pen, CGM and app. As Bigfoot works on their pump they could build a nice user base with the pen/cgm/app system.

Dexcom too could easily enter this market say by working with or acquiring Companion Medical who also has a smart insulin pen. Heck Dexcom could just as easily enter the insulin pump market with another San Diego based company who’s also cheap and getting cheaper by the day.

The reality is no matter what happens with Libre and when it happens a clearer picture of the CGM market is coming into focus. Most notably is there is no question CGM will soon be the standard for glucose measurement. Bye, bye test strips. Next the smart insulin pen – cgm- app system will also soon be a reality which just make life even more difficult in the insulin pump world. Medtronic will be just fine but Tandem (NASDAQ: TNDM) (assuming they stay alive), Animas and Insulet (NASDAQ: PODD) have plenty of reason to be concerned.

It’s about time everyone begins to realize that when it comes to diabetes management we are getting ever closer to what we predicted long ago – in the future patients will be prescribed a diabetes management system and the cornerstone of this system will be a CGM. What most people miss is they cannot gat past linking CGM usage and insulin patients. This is understandable but also misguided. The reality is non-intensively managed patients need CGM too they will just use it differently than an insulin patient.

Yes, to paraphrase a Chinese philosopher we certainly are living in interesting times.