Wacky Reaction

Wacky Reaction

Ok before all the Dexcom (NASDAQ: DXCM) stakeholders have a kanipshan, which is Yiddish and means throwing a hissy fit take a deep breath and relax. Everyone knew shares would take a beating today with the approval of the FreeStyle Libre yesterday and it’s better than anticipated label. With this milestone behind Abbott (NYSE: ABT) put a big circle around October 18th as at 8am CST is the start of their third quarter earnings conference call. A call where they will be bombarded with questions on their strategy for getting Libre into the hands of patients and how they plan to take on Dexcom.

There is no doubt that Abbott will play up the fact that the Libre does not require a fingerstick calibration while the current version of Dexcom does. And we have no doubt that Abbott will use price to attract patients. The real and more important question is how aggressive will they be with payors, followed by now that they have access to the world’s largest market can they make Libre consistently on a massive scale.

We have no doubt that the launch of Libre will adversely impact Dexcom in the short term. We also have no doubt that over the long-term Dexcom will be just fine. Now that the FDA has basically said fingerstick calibrations don’t matter, Dexcom which everyone knows has superior accuracy will also have this indication. So, as we noted the CGM market will follow the path of the BGM market where price not performance determines share.

And a quick side note and not like the conventional BGM market needed any additional bad news but with the Libre now here this is just one more nail in the conventional BGM coffin.

What gets lost with all this fanfare is that CGM market is not a battle over who has the best technology but who has the best platform, which markets they are targeting and who their partners are. There are many who don’t even consider Libre a true CGM as it does not alarm nor does it send readings to a smartphone, things we believe Abbott will fix. But these same folks seem to forget that patients actually like no alarms, that alarms can be annoying.

Just as the conventional BGM market converged so to will the CGM market. As we noted we suspect that Abbott will update the Libre so that it can alarm and send readings to a smartphone. Dexcom will get an updated label so their system does not require a fingerstick calibration. Abbott in turn will seek an insulin dosing claim. Simply put at some point in the future these two systems will have virtually identical features. Which means that success or failure will come down to the blocking and tackling of running a CGM business.

Now just based on their respective histories and the teams each company has assembled we give the edge to Dexcom. Dexcom has proven they can consistently manufacture sensors on a massive scale, Abbott while getting better has been inconsistent. We also see Dexcom having an edge as they are partnered with Verily who is deeply committed to the new 14-day slap it on turn it on sensor which we believe will not require calibration. Abbott’s lone partner is Bigfoot, a good company with good ideas but still some ways away from having an FDA approved system.

Although no one has mentioned it the biggest loser here isn’t Dexcom rather Medtronic (NYSE: MDT). Besides dealing with a host of issues, some self-created others created by events, the company had plans to get into the stand-alone CGM market. A market which now has multiple competitors both of whom who have better products.

The more compelling issue for Dexcom is what happens if Abbott finds their own sugar daddy. What happens if a super-rich high-tech company comes along as says hey we want to partner with you and make the Libre part of our platform. As we keep mentioning diabetes management is becoming a battle of platforms not technology. With CGM becoming cheaper and more patient friendly they will become the cornerstone of these platforms.

We should mention here that companies like OneDrop and Livongo are also losers here as what have we been saying all along, CGM not only provides better data it is also more patient friendly. What these companies must do now is pivot and prove their patient engagement platforms not their outdated technology helps patients transform data into patient relevant patient actionable information.

The biggest battle of all will be which company can successfully penetrate the Type 2 market, insulin and non-insulin using. This as we keep saying is where the real money is. For the moment Dexcom has the edge with insulin pump and multiple daily injection (MDI) patients and we suspect this edge will continue even with Libre now available. But the fact is highly engaged insulin using patients are the low hanging fruit when it comes to CGM.

So, kudos to Abbott as the approval of Libre is not just a good for the company it’s also good for patients. Patients who now have multiple CGM options and as we have been saying all along CGM will become the standard for glucose measurement and we see this as very good thing. While Dexcom will get hammered a little we aren’t too worried about our friends in beautiful San Diego this ultra-talented team has been there before and will just fine.

As Momma Kliff used to say; “Competition is not something to be afraid of, it’s something good people and good companies should cherish as it pushes them forward.”