A Deeper Dive – Diabetic Investor

A Deeper Dive

As we prepare for the 4th of July holiday a few thoughts on all the wackiness that has been going on recently in the diabetes toy sector. First comes the FDA approval of the Libre2 with an iCGM designation. Next Abbott and Tandem finalize their agreement to find ways for the Libre to work with Tandem systems. And the biggie Tandem receives coverage from UnitedHealthcare after Medtronic announces their exclusive arrangement has been changed.

Just as an FYI in a note to analysts Medtronic did their best to put a positive spin on the United news stating- “our agreement is a volume-based agreement whereby Medtronic and United are incentivized to maintain certain volume thresholds. The price that United will pay increases vs. the former agreement.” Regardless the harsh reality is Medtronic can no longer afford to be aggressive, they no longer have the coolest toy in the toy chest, and they are desperate to fend off a mass exodus of existing patients.

Although we do not know what drove United to make their decision, our gut tells us it was a combination of factors with money of course being the biggest one. Yet it cannot go unsaid that United has to be aware that Control IQ has leapfrogged the 670G in terms of performance. Bottom line here is whatever the factors are this great news for Tandem and a major blow to Medtronic no matter who they attempt to spin it.

It should also be noted that this decision will have deeper ramifications as now that Medtronic has cried uncle other large payors could well ask for changes to their contracts with the company. As we have said many times once Medtronic loses their formulary dominance and becomes just another option that goose that lays the golden eggs will start looking like an albatross hanging on Medtronic’s neck.

Just to be crystal clear here just in case anyone believes that the Medtronic pipeline will come along and save the day, guess again. About the best Medtronic can hope for is to pull even with the Control IQ but they will not pull ahead of it. Even worse they continue to believe that patients want to calibrate their CGM with a conventional fingerstick. When the final chapter is written for Medtronic it won’t be just arrogance and hubris that killed the golden goose but a truly bad CGM system.

Switching to the CGM market we are still trying to figure out how the Libre2 got iCGM but since they have it no need to fret any longer. Let’s instead figure out why Abbott seems to believe they must integrate with all the insulin pumps, connected insulin pens and connected insulin pen cap covers. It’s not like Libre has been doing poorly, quite the contrary using their value strategy Abbott has a major hit on their hands and this without any connectivity.

Our worry here is if they become obsessed with integration and stray from a strategy that is clearly working they play right into Dexcom’s wheelhouse. Dexcom has already solidified relationships with all the insulin pump, connected pen and connected cap covers. Yes they all want to work with Abbott as well but right now that isn’t possible. It is also well known that as well as the Libre performs Dexcom has more robust performance. While having the ability to work with automated insulin dosing systems certainly won’t hurt Abbott it won’t dramatically expand Libre adoption either.

About the only way Abbott can garner a major share of the insulin dosing market is to first get the Libre2 approved for AID and then BUY an insulin pump company, come out with their own Tyler or fight for share discounting Libre2. Just as insulin pump patients are reluctant to change systems so too are CGM users. Yes patients convert from Libre to Dexcom and vice versa but not in great numbers. Therefore what Abbott would be betting on is capturing patients following multiple daily injection (MDI) therapy not yet using a CGM.

This could backfire not just because Libre2 in its present form cannot be used with AID but because G7 is coming. Our gut tells us that Abbott is scared of G7 and the impact it will have on Libre sales. Dexcom has made it clear that G7 will not just be as good as G6 from a performance perspective it will also come with a competitive price point taking away Libre’s perceived price advantage. The fact that Libre2 came with an AID warning means that G7 which is set to arrive next year could come before Abbott gets AID for Libre2.

To be clear here we are not stating that Abbott should surrender the AID market to Dexcom. What we are saying is they should not be obsessed with it and excuse the expression stick with their value strategy for Libre. The CGM market continues to expand, usage is moving beyond insulin using patients and new applications are popping up which will drive even greater adoption.

The last thing Abbott wants is to play on Dexcom’s turf as this will ultimately force them into a price war as price would be the only way they could compete. Right now they can peacefully, and profitability coexist with Dexcom. Using their value strategy they will continue to build their installed base and can take their time moving into AID. So what if Dexcom controls the AID market it’s not like this is hurting Abbott.

We can’t help but wonder if Abbott is doing what they are doing because their ego was wounded. They got iCGM for Libre2 but also got the AID warning. True this is somewhat of an embarrassment but let’s get real in the grand scope of things it won’t hurt them. They will eventually have the warning removed.

As has been said many times the goal is to win the game. The AID warning is a setback, but it is not a critical blow. The is like thinking that a season is lost because the star quarterback went down with an injury. Something that happened to the New England Patriots in 2001 when a sixth-round draft pick took over from their star QB Drew Bledsoe. Two years before that in St. Louis the Rams lost their star QB Trent Green in the preseason and some no name journeyman QB took over.

Even with these setbacks we’d say that Patriot fans aren’t overly upset with how Tom Brady produced nor were the Ram’s fans unhappy with Kurt Warner. Remember the goal is to win the game.

Author: wpadmin

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