This is just the beginning
You can tell when a company is hotter than Georgia asphalt as during an earnings call analyst are falling all over themselves to ask mostly positive questions. They see the potential and want to be able to take credit for predicting that this stock is headed to the moon. We witnessed this way back in the day when MiniMed reported earnings and we are witnessing it today when Dexcom reports.
There is no question Dexcom is knocking the cover off the ball but what boggles the mind is they are really just getting started. Yes, CGM is becoming the standard for glucose measurement but usage is still in its infancy. Increasingly we are seeing CGM being used in clinical trials as time in range is quickly becoming a new metric for defining good control. This is very significant and bodes very well for the future. Just as the landmark DCCT trial was the catalyst that drove growth in the insulin pump market, time in range will be for bringing CGM to the masses.
For the moment however CGM is the domain of intensively managed patients and here too they are just scratching the surface. So, allow us to provide the key drivers which will blow the doors off this market.
1. The low hanging fruit continues to be sensor augmented insulin delivery systems. Here Dexcom has an edge given all their pump partnerships. Should the FDA come down hard on Medtronic this area will only accelerate. Even better Dexcom will benefit when Tyler gets here as they also have an impressive lineup of Tyler partners.
2. Next will come the move into what we like to call semi-intensive management patients who use insulin and orals.
3. Finally, the doors to this market will get blown off when non-intensively managed patients come on board. We don’t know exactly when this will happen all we know is its going to happen and the Dexcom/Google product is perfect for this market.
It’s also becoming clear that Dexcom and Abbott can peacefully coexist. While many like to characterize this as a battle for CGM supremacy we on the other hand see each company helping the other. There is no question in our mind that there is a place for both the Dexcom and the Libre. Each is helping the other with their efforts to raise CGM awareness which while increasing is also in its infancy.
As we predicted the CGM market is following the path of the insulin pump market. Although most don’t remember there was a time when the insulin pump market was growing at 50% a quarter. Back then MiniMed and Disetronic were both benefiting from the DCCT results. Disetronic didn’t implode because of market conditions they failed because Roche screwed up a very good thing. Now we don’t see either Dexcom or Abbott making this same mistake. Dexcom has some of the best talent in diabetes running the company and it seems Abbott has learned from past mistakes.
Now think of what will happen when snarky Alexa gets into CGM. As we predicted Amazon is now in the toy business with BGM but this as we noted is just the beginning of their deep dive into diabetes. It’s just a matter of time before Alexa starts telling her patients their levels are out of range or they need more sensors, so she’ll add them to their next order and oh by the way more Tide too. With their vast reach and expectational logistical capabilities Amazon is the perfect partner to bring CGM to the masses.
It also won’t hurt Dexcom at all as Apple gets closer and closer to the company. While we don’t see Apple acquiring the company these two California companies are becoming very friendly. The fact is Dexcom fits perfectly into Apple’s health strategy providing key data for all the Apple toys most notably the Apple Watch. Should Apple transform this data into a weight loss tool, something that is very doable and a hidden benefit of CGM data, all we can say is Cha Ching.
Now this rise will not be without it’s challenges the good news however all the challenges are known and manageable. We do see pricing pressure becoming more of an issue, yet volume increases should mitigate this. More competition is on the way but with Dexcom and Abbott gobbling up users it’s getting more difficult for the coming competitors. Managing growth is also a challenge but again Dexcom has an experienced talented team while Abbott has the resources to take corrective action if needed.
All in all, as good as it looks now CGM will only get better. Dexcom and Abbott are finding their way to peacefully coexist – think Apple/Google two tech titans who compete yet help each other too. Dexcom like Apple is becoming the premium offering while Abbott is more like Google. As Momma Kliff used to say to her group of competitive sons – “Hey you can beat the crap out of each other if you want but it’s a lot more fun and less painful to find ways to work together.”