The pressure is on

The pressure is on

Medtronic (NYSE: MDT) isn’t the only diabetes device company making news today as Roche announced they have signed a deal with Senseonics, the makers of an implantable CGM. According to a company issued press release;

“Senseonics Holdings, Inc. (NYSE-MKT: SENS), a medical technology company focused on the development and commercialization of a long-term, implantable continuous glucose monitoring (CGM) system for people with diabetes, today announced it has signed an exclusive distribution agreement with Roche for the multi-country commercialization of Senseonics’ Eversense® Continuous Glucose Monitoring System.

Under the terms of the agreement, Senseonics has granted Roche the rights to promote, market, and sell the Eversense product line to diabetes clinics and patients in Germany, Italy and the Netherlands.”

The first question that comes to mind why Roche would sign such a deal especially when they have been very public about the fact they have a CGM of their own in the pipeline. The second question is just what do they expect to get out of this deal given the limited market size in Germany, Italy and the Netherlands. The third question is how or if everyone else in the conventional BGM space will respond.

As we noted earlier this morning Abbott (NYSE: ABT) has the FreeStyle Libre and has also been very public about their desire to re-enter the US CGM market. This makes Johnson and Johnson (NYSE: JNJ) the only major BGM company without a CGM of their own. So the question then becomes as we also noted this morning does this news place even more pressure on the company to acquire Dexcom (NASDAQ: DXCM).

Not to be redundant here but this deal is just one more signal that the days of conventional BGM are numbered. That the remaining conventional BGM players are in full blown scramble mode desperately trying to protect their legacy franchises while building their CGM alliances so they don’t miss this opportunity. They all know that these legacy franchises will continue to experience share erosion which will reduce strip usage. Hopefully they also realize the quickest path to oblivion is to gain an increasing share of a declining market.

Looking ahead we see the CGM transitioning and splintering into smaller sub-markets. At the moment CGM usage is dominated by insulin using patients this trend will continue but with a twist. Those following intensive insulin therapy, typically insulin pump patients, will gravitate to more advanced CGM systems. These are also the patients who will be earlier adopters of closed loop systems.

Which begs the question given everything that’s going on in the insulin pump world will Google/Dexcom in an effort to protect their CGM turf acquire one or more insulin pump franchises. A move which could be accelerated given the recent deal signed by Medtronic and UnitedHealthCare. As we noted when this deal was announced Medtronic was not just flexing their insulin pump muscles but also was attempting to blunt Dexcom’s growth in CGM.

Even those insulin pump patients who don’t feel comfortable with a true closed loop system and yes there will be many who feel this way, will continue to move towards sensor augmented pumps. In the future non-sensor augmented pumps will be increasingly rare.

The next group will be patients following multiple daily injection (MDI) therapy, patients who as Lilly (NYSE: LLY), yes Lilly, noted yesterday will use “smart” insulin pens which …. wait for it … communicate with a way cool whiz bang app that …wait for it … helps them dose their insulin more effectively. Something that cannot happen without glucose data and the best glucose data comes from … wait for it .. a CGM which also communicates with this way cool whiz bang app.

While these two markets are driving CGM the big kahuna as we like to say are all the patients not following intensive insulin therapy and include patients using insulin plus orals or orals alone. This is the pot of gold at the end of the diabetes rainbow. This is the market everyone and we do mean everyone wants a piece of. Again as we noted yesterday any company that captures even a small percentage of this market will see some incredible sales volume.

The fact is as we transition to outcomes based reimbursement physicians will embrace CGM for all their patients as it will provide valuable data. Even though CGM data won’t impact dosing decisions for patients on orals alone it will tell physicians just how effective these orals are. They won’t have to wait three months for A1C results, they can take action sooner. The key will be getting patients on these newer CGM systems which will designed with non-insulin patients in mind.

The question what will be the inflexion point or put another way how will the physician convince a patient to get on a CGM. As it stands today A1C is the most actionable data point in diabetes. A physician can point to this number when making therapy changes for the patient. Yet no such test exists that does the same thing for getting a patient on CGM. As we have noted in the past A1C may be the gold standard but it is an incomplete gold standard as it does not tell the whole story. Another drawback is the test can only be done every three months and tells nothing about what’s going on in between tests.

Think of how the CGM market would change if physicians had a simple test that would tell them whether or not a patient is in or out of range. A test which measures glycemic variability, which as we have noted is the next major biomarker in diabetes. A test which a physician could point to when recommending that a patient use a CGM.

The fact is a physician can talk until their blue in the face about the benefits of CGM and the importance of being in tighter glycemic range but patients tune out. In the real world patients want evidence that they need to be on this new-fangled device. All we can say on this front is stay tuned for more news.

By the way is it even necessary anymore to say that Dexcom is becoming more valuable by the day. Or that the Dexcom/Google partnership could forever transform the glucose monitoring market. Should we restate that the Medtronic/Qualcomm collaboration also announced this morning was consummated because of the Dexcom/Google partnership. Is it not becoming more obvious that everyone else and we mean else, is swimming upstream in CGM against Dexcom and Medtronic. That the CGM market is following the path set by the insulin pump market in that this market while growing cannot support the many players who want to enter this market.

The fact is with each passing day the pressure is increasing on the old guard who if they fail to act risk falling into the abyss. Medtronic, Dexcom have seen the light and are well in-front in this race. Abbott has the CGM heritage but is quickly running out of possible partners. Although it would not surprise Diabetic Investor at all if we don’t soon here rumblings from Apple, Samsung, Facebook and Phillips about getting more deeply into this race.

Today’s deal between Roche and Senseonics strikes us as more as a defensive play that really won’t amount to all that much. Think window dressing lots of sizzle but not too much meat on the bone.

We hate to put pressure on our friends at JNJ but they are under the most pressure of all. Their legacy conventional BGM unit while performing well at the moment is in danger. This is the perfect example of what me mentioned before getting an increasing share of a declining market. The recent success of Animas is directly tied to Dexcom. And let’s not forget they will soon be launching their “dumb” insulin patch pump. Plus, like everyone else they too want to be in IDM.

The question is can they achieve their long term goals without buying Dexcom. Will they be able to fend off Medtronic’s more aggressive approach with payors in the insulin pump space?

Just as the diabetes drug space has become a battle between two well established heavyweights, the diabetes device world is also shaping up this way. This is a fight between Medtronic and JNJ with the edge at the moment belonging to Medtronic. They are the clear insulin pump market leader, they already have a CGM and they moving aggressively into the Type 2 world. JNJ on the other hand is the leader in conventional BGM, a dying market, second in insulin pumps and they do not have their own CGM.

The way Diabetic Investor sees this JNJ has a choice to make either buy what they don’t have or need, or risk falling further behind. Something they should do while the BGM unit is still relevant and making money.

Yes, we know this is redundant but each day there is more evidence that this wacky world is undergoing another transformation. Interesting times indeed.