Hotter than …
There is certain irony every time we listen to or read the Abbott earnings transcript. We remember back to the days when they were buying up BGM companies and running them into the ground. We also remember their first attempt at CGM which didn’t go very well which had nothing to do with the product and everything to do with management ineptitude.
Today it’s a vastly different story as Libre is flat out kicking ass. There is just no other way to put it as the results speak for themselves. Now we must admit we weren’t surprised by the results not with the investment Abbott has made and their commitment to a value offering. What’s more astonishing here is Abbott has actually learned from past mistakes and unlike the past they aren’t wavering from their strategy. The company is adding capacity to meet increasing demand while taking full advantage of the lower costs scale brings to this business.
What’s even better is they also see the future for as we have been saying for some time CGM has a huge untapped market beyond diabetes. Yes CGM is quickly becoming the standard for glucose measurement and there is still plenty of room to grow in diabetes, but diabetes is not the only application for CGM. Check out this statement from Abbott CEO Miles White, who understandably is doing a major happy dance these days;
“I won’t jinx anything by trying to make some prognostication about $10 billion but I would say that I think it’s got enormous potential, and it’s got potential beyond glucose. It’s got potential as a wearable and in other analytes and other products over time. We have R&D programs underway, not only for the repeated enhancement improvement, expansion of Libre, but also in the other categories beyond diabetes and other analytes and so forth. So, I think that there’s just a lot of things that will evolve over the coming years here that today people aren’t even contemplating with the product. We’re going as hard as we can at the glucose opportunity, which is enormous. But there’s so much more beyond that that I think, at least your aspirational consideration, to be honest, has validity. I’m not ready to put any numbers around it.”
We’re also impressed that the company has basically surrendered the high ground to Dexcom. This is somewhat understandable given their only partner in insulin delivery is Bigfoot which still hasn’t brought a product to market. Abbott seems to see this market developing as we do, which when you think about it is a scary thought. Just as Apple and Google peacefully coexist with the Apple being the premium brand and Google more value oriented, so to can Abbott and Dexcom peacefully coexist. The real good news here is that Abbott isn’t taking their eye off the prize seems to care less about working with any insulin pump or connected pen company all they want to do is sell a boatload of Libre’s.
We aren’t overly concerned the Libre 2 isn’t here yet as that day will come eventually. The company seems confident that it will receive the iCGM designation and while we have our doubts, we don’t think it will matter all that much in terms of sales. As Miles said yesterday;
“So, I think among the misunderstandings out there, I think people say, well geez, how do you make money? Oh, we make money. We do just fine. Thank you. And the product is designed to be affordable and accessible. I guess, there are some days when we think if the healthcare market community, insurers, payers, congress, patients whatever, I always say, it’s got to be lower cost, healthcare’s got to be more affordable. Here’s your example, and it is, it’s massively so. And so, we’ve gone at it with that approach to make it broadly available, broadly in this case means 80 million people worldwide that’s unprecedented.”
Another surprise coming out of the call yesterday was that Dexcom’s share price didn’t get killed. Typically whenever Abbott reports anything related to Libre Dexcom takes it in the shorts and while yesterday wasn’t different, Dexcom closed at $147.57 down a little over 1%, the beating wasn’t that bad given the very impressive results Abbott released. Perhaps the Street is learning as well, another scary thought. Perhaps they awoken to what we have been saying all along that these two players can peacefully coexist; they will gobble up every patient they can making nearly impossible for any competitor to gain even a toehold in the market and they will both expand beyond diabetes into other categories.
As we anticipated the CGM market is developing along the same lines as the insulin pump market with a notable exception in that one company is not gaining a monopoly. It may not be a 50/50 split but it’s not 80/20 either. The reality CGM is owned jointly by Abbott and Dexcom each taking a different road to success. The many CGM wannabes can talk the talk but the reality is they won’t be able to walk the walk, they are swimming upstream and the current they are swimming against is getting stronger.
Major kudos to Abbott not just for learning from past mistakes but for committing to and sticking with a strategy. They excuse the expression know what Libre’s sweet spot is. Good job Miles take a bow.