Why insulin users can’t save the BGM market.
As the glucose monitoring world waits for the official announcement from the most recent round of competitive bidding, many are looking for a ray of sunshine to break through the dark clouds hovering over this market. With co-payments rising, payors demanding greater price concession and the strong possibility that payors will no longer reimburse for non-insulin using patients, insulin using patients always critical for this market have become more important than ever. After all insulin users must have this information to properly does their insulin, or do they?
The truth is the insulin using market segment is not the savior for the BGM market. While it is generally true that insulin users need this information to properly dose their insulin, not all insulin users are alike. As we have noted before many physicians know from experience that even though this information is important patients are rarely compliant with their therapy regimen which includes regularly monitoring their glucose levels. Rather than fight this fact and change patient behavior physicians are dumbing down insulin therapy basically putting these patients on fixed insulin regimen. This philosophy is prevalent for patients who use long acting insulin like Lantus as a supplement to their oral medications.
Once you take these patients out of the mix, the next group of patients uses an insulin blend, which is basically a combination of long and short acting insulin mixed together and delivered via an insulin pen. Here too, physicians understand that regularly monitoring while preferred isn’t followed and provide the patient with some general guidelines as to how much to dose with each meal. Just as with insulin/oral patients physicians understand from experience that rather than over-complicate their therapy regimen and risk non-compliance better to keep things simple.
Next on the insulin therapy ladder are patients following multiple daily injection (MDI) and insulin pump therapy. While there may be only 400,000 or so insulin pump users they account for nearly 25% of all test strips sold as they test on average 7 or more times each day. Yet, both insulin pump and MDI patients are embracing continuous glucose monitoring in ever greater numbers which will dramatically cut the number of test strips used. Although none of the current CGM systems are approved as a replacement for a conventional monitor, the systems have become more accurate and require only the occasional use of a meter to calibrate the system. As Dexcom (NASDAQ:DXCM) noted during their call when their new G4 was approved, it’s just a matter of time before their technology advances to the point where patients will no longer need their conventional meter at all.
Johnson and Johnson (NYSE:JNJ) and Abbott (NYSE:ABT) in an attempt to blunt the growing use of CGM systems have come out with meters that are designed specifically for insulin users. The OneTouch Verio IQ and the FreeStyle InsuLinx both fall into this category. Had Apple not changed their connector port and effectively killed the iBGStar from Sanofi (NYSE:SNY), one could argue that the iBGStar also fell into this category as the patient could use the app that works with the iBGStar to help them with their insulin dosing regimen. The issue here isn’t whether this systems work, the problem lies elsewhere as the technology is easily duplicated and therefore subject to the same competitive dynamics as a conventional monitor.
Besides these facts there is another even bigger problem looming on the horizon, as there just aren’t enough insulin users to go around and the number of insulin users will actually decline as we move into the future. Today there are three FDA approved GLP-1’s on the market, twice-daily Byetta, once-daily Victoza and once-weekly Bydureon. There are also another 5 or 6 GLP-1’s under development which should hit the market over the next three or four years. Finally there are the many GLP-1/Insulin combo products under development. The simple fact is that GLP-1 therapy is growing and besides being a threat to insulin sales, GLP-1’s are fixed dosed therapies which don’t require the patient to monitor their glucose.
The harsh reality is no matter which way BGM companies turn there are structural issues which aren’t going away. This is why Diabetic Investor sees even further consolidation amongst the players; the simple fact is there are only two ways these companies can grow. Either add new users or get their current users to test more frequently. Given that new users will be hard to come by in the future, the simplest way to add them now is via acquisition. As we noted yesterday scale always critical in the BGM business has now become a matter of survival. The big problem with traveling down this path is cost, as even with the depressed market conditions any acquisition comes with financial and regulatory hurdles. Does a company like JNJ, currently the number one player in the market, really want to spend another billion plus to acquire patients or would it be wiser to spend resources getting their existing installed base to test more frequently.
Years ago Diabetic Investor noted what would happen if meter companies made an attempt to increase average testing frequency by just one test per day. To illustrate the impact this would have let’s use JNJ as an example here. According to the most recent data JNJ owns over 40% of the US market which translates into roughly 8 million or so users. Let’s further assume that they can increase testing frequency by just one test per day and only over 10% of their installed base or roughly 800,000 patients. That translates into 5,840,000 boxes of 50 test strips, which translate into over $87 million of additional revenues. (Diabetic Investor used $15 per box in our calculations.)
Whether it’s via acquisition, getting installed users to test more frequently or both; one thing is pretty clear no matter which path is used, insulin users alone cannot save the BGM market. Looking into the future whoevers left in this business shouldn’t be judged by new patient adds as they were in the past, rather success should be judged by being able to hold onto the users they already have. The bottom line is just like the insulin pump market, the BGM market is now one where there aren’t enough users and the market isn’t growing fast enough to support all the existing players let alone the many new players who want to enter this market.
