The Next Level

The Next Level

Later this afternoon Dexcom (NASDAQ:DXCM) will report third quarter earnings which we already know will be good as the company announced preliminary results back on October 14th.  The question with Dexcom has never been are they getting it right, they clearly are. The question with Dexcom continues to be can they build upon their many successes. By nearly every account they have the best in class sensor, a major deal with Google and growing adoption of continuous monitoring.  As we have noted many times Dexcom is the posterchild for how a diabetes device company should be run.

Still investors are wondering with all these successes what the company can do to continue its impressive run. Over the past year shares of Dexcom have nearly doubled up an astonishing 96.82%.

While it may seem hard to imagine Diabetic Investor believes that Dexcom can grow even more, that they have just scratched the surface of the CGM market. Besides their partnerships with Animas and Tandem (NASDAQ:TNDM) which are diving sales, the company also has an agreement with Insulet (NASDAQ:PODD) to integrate their system with the OmniPod. As we have noted previously insulin pump patients are moving aggressively towards sensor augmented systems and the Dexcom sensor is the preferred sensor.

Beyond insulin pump patients Diabetic Investor sees some major growth coming in the now untapped Type 2 market. This is where the deal with Google comes into play. As should this partnership yield a low cost easy to use sensor, which we think it will, it opens the door to a very large yet untapped market.

Let’s not stop there as Diabetic Investor sees another very large and also untapped market developing. One of the major benefits of CGM technology is armed with this data patients can more effectively manage their diabetes. Insulin using patients in particular can more effectively dose their insulin using this data. Yet in this world where every diabetes drug company is looking for any edge it can get we see glycemic variability becoming the next frontier for how these companies attempt to differentiate their drugs from those offered by the competition.

Now before we go further let’s discuss why we feel this way. As it stands HbA1c is considered the gold standard when it comes to measuring a drug’s effectiveness.  Yet as several studies have noted HbA1c does not tell the whole story. Numerous studies have noted that there can be two patients with the exact same HbA1c yet have widely different glycemic variability patterns. These studies indicate that the patient whose glucose levels are kept in a tighter range delays and/or avoids many of the costly comorbidities associated with diabetes.

Given that the diabetes drug market has become ultra-competitive it would be a major plus to any drug company if they could show that besides lowering HbA1c their drug also keeps the patient in a tighter glucose range. Think of it this way, say a payor had a choice between two drugs both of which show improvements to a patients HbA1c. Yet one of the company’s also had the foresight to measure how their drug impacts glycemic variability.  Given the growing acceptance of glycemic variability as an important biomarker payors would likely favor the drug which not only lowers HbA1c but keeps the patient’s glucose levels in a tighter range.

Here’s another way to look at this as everyone knows Lilly (NYSE:LLY) came out with some amazing cardiovascular data for their SGLT2 Jardiance.  Even though many suspect that all SGLT2’s will see a similar positive impact Lilly has something their competition does not, hard data. Data that as company noted during their recent earnings call is having a positive impact on sales. The fact is having this data Lilly is making the competition play defense. This same situation can play out using glycemic variability.

While it’s possible to gather this data using a conventional glucose meter, CGM technology is by far the easiest and more comprehensive method. Considering that late stage studies can involve upwards of 5000 or more patients combined with the fact that Dexcom sensor is considered best in class logic dictates that Dexcom would capture the lion’s share of this market. But that’s just the tip of the iceberg, as once glycemic variability is used in clinical studies everyday physicians will begin to become educated on why it should be measured and they too will begin using it for their patients.

This is the hidden value in the Google partnership as not every patient, non-insulin using Type 2’s in particular, needs to wear a device each and every day. With a low cost simple to use sensor Diabetic Investor can see Primary Care Providers (PCP) using this tool.  Even better Dexcom/Google will make this tool easy for the PCP as their cloud based perform will do all the analytics for the PCP. Armed with an easy to use sensor combined with advanced data analytics CGM once thought to be limited to just insulin using patients morphs into a tool that can be used for every patient regardless of their therapy regimen.

This move to the next level will not happen overnight but the wheels have been put in motion. Wheels which will move faster as we move closer to outcomes based reimbursement. We won’t say the sky is the limit for Dexcom but we will say there is plenty of growth ahead.