Memorandum

Dexcom acquires TypeZero, bringing AID algorithms for pumps and MDI in-house; strong competitive move – August 22, 2018

Executive Highlights

  • Dexcom has acquired AID algorithm developer TypeZero for an unspecified sum. The strong competitive move brings TypeZero’s insulin automation algorithms for pump and injectors within the walls of Dexcom – presumably simplifying regulatory and business models (one company), focusing R&D, and hedging against strong competitive efforts at Medtronic and Abbott/Bigfoot. TypeZero (spun out of UVA) has studied its algorithms over a remarkable 340,000 clinical trial hours in the past ten years, securing 30 patents along the way. TypeZero’s website lists 12 people on the website, and we assume most will move over to Dexcom.

  • Tandem expects a summer 2019 launch of its Control-IQ hybrid closed loop system with Dexcom’s G6 TypeZero’s inControl algorithm (including automatic bolusing). The pivotal study (n=168) of Control-IQ is now enrolling. 

  • There is no timeline on MDI-focused decision support, though an n=160 study is ongoing with Novo Nordisk connected pens.

  • Dexcom also gains TypeZero’s clinical decision support algorithms for therapy optimization based on CGM data – a clear value-add to Clarity and more competition for Medtronic’s CareLink.

This afternoon, Dexcom announced unexpected and strategically brilliant news: it has acquired TypeZero, the automated insulin delivery algorithm startup spun out of the University of Virginia. Deal terms were not disclosed, though the acquisition gives Dexcom TypeZero’s inControl algorithms for automating insulin delivery (AID) in both pumpers and injection users – including 340,000 clinical trial hours of testing (!), ten years of development, and 30 patents.

TypeZero also has a clinical decision support/remote monitoring module for HCPs to optimize therapy, as well as a CGM-based hypoglycemia prediction module – neither is mentioned in the press release but presumably included too. These should offer clear value-adds to both G6 and Clarity.

The press release notes an expected “2019” launch of the first AID system using the inControl algorithm, which presumably refers to Tandem’s Control-IQ – now in its pivotal study and slated for a “summer 2019” launch (Tandem 2Q18). Today’s acquisition should simplify the regulatory, launch, and economics of Control-IQ, which is poised to be the second hybrid closed loop in the US after the MiniMed 670G – and the first with no fingerstick calibrations and automatic boluses for high blood sugars. No question that is an essential launch for both Dexcom and Tandem!

Importantly, TypeZero also gives Dexcom a smoother path into insulin dose decision support for injection users, key for competing with Abbott/Bigfoot’s and Medtronic’s increasing efforts on this front. Dexcom has made a bigger push into MDI with its “CGM-first” messaging and DiaMonD studies, and moving into insulin dose decision support with TypeZero is a clear move.

We see this acquisition as a very strong move and strategic win for both companies:

What Dexcom Gets…

What TypeZero Gets…

  • Brings automated insulin delivery algorithm for pumps in-house, including Control-IQ’s automatic correction boluses that will leapfrog 670G

  • Clear path to MDI decision support –CGM-based bolus calculator, basal titration, exercise advisor, bedtime advisor; Ongoing smart pen study with Novo Nordisk

  • TypeZero brings 340,000 clinical trial hours since 2008, 30 patents, ten years of experience, and strong FDA collaboration on algorithms

  • Regulatory and business model simplicity/flexibility for Tandem Control-IQ – Dexcom now has one partner instead of two, and likely better profitability

  • Clear path to clinical decision support with TypeZero’s therapy optimization tools

  • Competitive hedge relative to Medtronic, Abbott/Bigfoot, Senseonics/Roche; preempts a TypeZero acquisition from competitor

  • Bolsters Dexcom’s in-house software team, key battleground for competing in CGM and positioning Dexcom as more than just a CGM company – one with compelling mobile and therapy optimization software for insulin

  • TypeZero team of ~12 (per its website) presumably moves to Dexcom

  • Combined with G6’s iCGM indication, potentially even faster AID/pump iteration with TypeZero in house

  • No fundraising or business model pressure to continue as a standalone algorithm startup

  • More R&D and software development resources as part of Dexcom – its most common CGM partner

  • Tighter, end-to-end software integration with CGM for AID (pumps and pens) as part of Dexcom team – not just bolted on to already-developed products

  • Unified FDA relationship as part of Dexcom team, rather than two separate companies

  • Potentially broader impact and more efficiency within Dexcom vs. operating as a standalone startup

  • Possible direct integration into Dexcom’s apps, including MDI decision support and Clarity (our speculation) 

  • Dexcom’s brand awareness, marketing, payer relationships

Competitive Implications

Beyond the clear product roadmap implications for Dexcom, this acquisition is a strong competitive move as CGM and insulin companies work to automate insulin based on CGM – both for pumpers and MDI users.

Medtronic – THREAT

  • Medtronic has the MiniMed 670G hybrid closed loop on the market (>97,000 active users as of yesterday), and its June Analyst Meeting shared new plans to close the loop for MDI users with decision support and insulin dose capture (launch by April 2020). Medtronic even reorganized the business units to establish an MDI Solutions vertical, led by Laura Stoltenberg. TypeZero would have been an obvious acquisition or partnership target, and this move by Dexcom perhaps was accelerated with that backdrop. Tandem’s Control-IQ system, leveraging TypeZero’s inControl algorithm, will leapfrog the MiniMed 670G by providing automatic boluses (launch in Summer 2019). Medtronic has an auto-bolusing advanced hybrid closed loop in development (goal of >80% time-in-range), but it is expected to launch “beyond” April 2020. TypeZero also gives Dexcom in-house insulin therapy optimization software algorithms for healthcare providers, something Medtronic has long-invested in and will continue to with IBM Watson/Sugar.IQ.

Abbott/Bigfoot – THREAT

  • Bigfoot aims to launch its automated systems, Loop (pump) and Inject (MDI), in 2020 using Abbott’s next-gen FreeStyle Libre. Bringing TypeZero in house gives Dexcom more firepower to compete with these systems, both of which look quite strong – see FFL 2018 coverage of CEO Jeffrey Brewer’s talk. The big question is what Dexcom will do on the insulin delivery hardware fronts: will it bring a smart pen or pump in house, or continue to partner externally on these fronts (e.g., Lilly, Novo Nordisk)?

Senseonics/Roche – THREAT

  • TypeZero’s algorithm is part of the NIH-funded iDCL EU pivotal trial using Senseonics 180-day Eversense CGM and Roche’s Accu-Chek Insight pump. This was slated to start in 3Q18 as of ADA, following an R&D agreement signed in July 2017. It’s unclear what today’s acquisition means for this trial: will Dexcom still provide the TypeZero algorithm, but allow use of the Senseonics CGM? Will Roche and Senseonics need to find another AID algorithm? Will the trial move to Dexcom CGM, dropping Senseonics? This trial is NIH-funded, which could add some complexity here… It’s also worth noting that Roche Diabetes’ biggest acquisition in the past few years was mySugr for ~$80 million last June, was also a mobile/software-focused digital health startup – will we see more acquisitions like Dexcom/TypeZero and Roche/mySugr?

Tandem – OPPORTUNITY

  • As noted above, bringing TypeZero within Dexcom’s walls should simplify the business and regulatory components of launching Control-IQ/G6/t:slim X2 next summer. Plus, today’s news eliminates the clear risk of TypeZero getting acquired by a Dexcom/Tandem competitor (e.g., Medtronic). Tandem and Dexcom have worked impressively well to get Basal-IQ submitted, approved, and launched within an eight-month period this year. Now that TypeZero is part of Dexcom, we expect a similarly speedy launch of Control-IQ; one question is whether the acquisition will delay the timing Tandem previously shared... At ATTD 2018, normally stoic Dr. Boris Kovatchev was extremely excited about this integrated hybrid closed loop, which indeed looks extremely strong relative to the 670G (no fingersticks, basal modulation plus automatic bolusing, remote monitoring, Bluetooth, software-updateable). See our Tandem 2Q18 report.

Novo Nordisk – OPPORTUNITY

  • Novo Nordisk has been working as a study partner with Dexcom and TypeZero as part of an MDI decision support study (n=160). The 12-week parallel group multi-center randomized trial is designed to compare CGM+TypeZero’s decision support vs. CGM alone. The TypeZero algorithm contains a “smart” bolus advisor that adjusts the size of correction insulin boluses based on short term blood glucose predictions. It is able to complete this function by evaluating CGM values, insulin usage and carbohydrate intake record. It also contains an exercise advisor, a bedtime advisor, hypoglycemia risk and long-term tracker of A1c. We learned at DTM 2018 that Novo Nordisk is supplying the NFC-enabled NovoPen Echo and a connected Tresiba pen. The study is expected to complete by December 31, 2018.

Lilly – NEUTRAL/OPPORTUNITY?

  • Lilly is partnered with Dexcom to deliver AID via pump and smart pens in ~late 2019-2020 – see our coverage from May’s Cambridge Summit. Lilly’s AID algorithm for the pump is from the Montreal group, while the pen algorithm has not been disclosed. Will Lilly and Dexcom now leverage the TypeZero algorithms?

Insulet and Beta Bionics – NEUTRAL?

  • While both Insulet and Beta Bionics are Dexcom AID partners, we don’t see this news affecting them meaningfully. Both companies have their own AID algorithms in-house and both are moving along nicely with studies with Dexcom CGM. Per our AID landscape, Insulet/FDA will decide next month whether the next step is pre-pivotal or pivotal study, with a launch at “end of 2019, early 2020” (if pivotal is next step); otherwise mid-2020. Meanwhile, Beta Bionics is in bridging studies with Dexcom and Senseonics CGM right now, with an insulin-only pivotal to begin in 2H19.

Cellnovo – OPPORTUNITY

  • Cellnovo licensed TypeZero’s inControl algorithm in April 2017, and the company’s 1Q18 call expected a first in-human trial to start this past June (presumably with Dexcom CGM). Cellnovo’s 2Q18 call did not have an update, leaving status unclear. As a reminder, Cellnovo’s pump is involved in two other potential AID systems, Diabeloop and PEPPER. Diabeloop aims to launch its hybrid closed loop this year in France, the Netherlands, and Sweden using either the Cellnovo or Kaleido (ViCentra) patch pump; we saw encouraging 12-week data at ADA using Cellnovo’s pump and Dexcom CGM.

EOFlow – OPPORTUNITY

  • South Korea-based EOFlow licensed TypeZero’s inControl AP algorithm for its patch pump in February, with development to begin this year and commercialization planned throughout Asia. As of February, the company had not announced a CGM partner, though Dexcom would obviously be used if this partnership continues forward.

TypeZero’s Current Studies

  • The studies below are those currently listed on ClinicalTrials.gov under the search “TypeZero.” There may be some we have missed!

Study Name and Description

Devices

Size, Length

Status and Expected Completion

The International Diabetes Closed Loop (iDCL) Trial: Clinical Acceptance of the Artificial Pancreas (DCLP3)

Dexcom G6, t:slim X2, TypeZero inControl algorithm

N=168, Six months, Control-IQ vs. Sensor-Augmented Pump (no automation)

Ongoing, expected completion in April 2019.

Tandem expects to submit a modular PMA submission this September and launch in Summer 2019. As of ATTD 2018, n=5 participants spent ~87% time in 70-180 mg/dl, with 94% TIR overnight. Only ~3% time in hypo and just 1% overnight. No time spent >250 mg/dl.

Efficacy of inControl Advice: A Decision Support System (DSS) for Diabetes (DSS)

Dexcom CGM, Novo Nordisk connected pens, TypeZero algorithm

N=160, four months, CGM+TypeZero MDI decision support vs. CGM alone

Ongoing; expected completion December 31, 2018

Project Nightlight: Efficacy and System Acceptance of Dinner/Night vs. 24hr Closed Loop Control

Roche and Tandem pumps, Dexcom CGM, TypeZero algorithm

N=76, eight weeks each of SAP vs. overnight closed loop vs. 24/7 closed loop

July 2019

The Virginia Hypoglycemia Safety Project

Closed loop in young children 5-10 years old and older adults 65+ years! The goal is to prevent extreme blood glucose events. Usual care for three weeks will be compared to three weeks of closed loop (Tandem/Dexcom/TypeZero) in a crossover design.

Unclear; mentioned at ATTD 2018

The International Diabetes Closed Loop (iDCL) Trial: Protocol 1 (iDCL)

Roche pump, Dexcom CGM, TypeZero inControl

N=126, three months, inControl vs. Sensor-Augmented Pump (no automation)

As of ATTD 2018, last completer was expected July 1, 2018. N=40 training protocol study showed 73% time-in-range, 76% time-in-range overnight, and 0% median time <50 mg/dl.

  • A few years ago, the academic-commercial chasm in AID was a big question, and we saw UVA take an important step in spinning out TypeZero to commercialize its algorithms via a startup. TypeZero raised a seed round of financing in June 2015 (size unspecified), and even back then it was planning the International Diabetes Closed Loop study – only recently getting underway with Tandem/G6/TypeZero.

  • According to its one-page website, TypeZero’s current team number 12 employees – see the picture below. We assume Drs. Boris Kovatchev and Marc Breton are more on the consultant side, as they both still have their academic appointments. Presumably all the full-time employees will move to Dexcom, though we’re not sure.

Dexcom’s Possible MDI and Clarity Decision Support

  • At DTM last fall, Dexcom showed possible MDI decision support: a CGM-based bolus calculator that includes trend information. The slide also showed “CGM enabled diabetes management programs” focused on exercise, diet, sleep, and medication optimization. This was not specified as TypeZero at the time, and we imagine Dexcom would instead move forward with TypeZero’s algorithm on this front.

 

  • At ATTD, we saw mockups of Dexcom Clarity with insulin, meal, and exercise data, which could certainly inform a TypeZero-integrated therapy optimization engine for HCPs. Dexcom shared that these may change during human factors, but it was great to see these well along in development. The insulin and meal data are displayed in histograms above the modal day plot and time bucketed across the day. No timing was shared on a launch. Seeing these data streams in Clarity will be fantastic (especially insulin), though managing the complexity and data overload will rise with the number of streams coming in – otherwise it can be easy to get lost in reports and difficult to piece together what is driving what. Luckily small toggle switches on the bottom of the graph will allow users to turn insulins, exercise, and meals on/off. We assume TypeZero decision support could be layered on top pull out clear patterns.

  • Year-to-date, Dexcom’s stock has been on a remarkable run: the stock has more than doubled, now nearing $140/share and a market cap exceeding $12 billion! While the Street was concerned about the impact of FreeStyle Libre, Dexcom’s 2Q18 beat (on G5 momentum) and Tandem’s strong execution have bolstered enthusiasm.

Close Concerns Questions

Q: How much did Dexcom pay for TypeZero? Was there any particular item that motivated this transaction now? How long have the companies been talking about an acquisition? What has TypeZero fundraised to date?

Q: What will happen to the existing, non-Dexcom integrated TypeZero projects – e.g., Senseonics/Roche iDCL trial? Will Dexcom/TypeZero simply supply the AID algorithm but the system will use another CGM?

Q: How quickly could this accelerate Dexcom’s effort to provide CGM-based insulin dose decision support for MDI users? How quickly might we see a CGM-based bolus calculator?

Q: How many of TypeZero’s ~12 employees will become part of Dexcom? Will Chief Mathematician Dr. Boris Kovatchev, CSO Dr. Patrick Keith-Hynes, and Algorithm Researcher Dr. Marc Breton serve as consultants but retain their academic appointments?

Q: Does this move affect the Control-IQ summer 2019 launch timing? Will the PMA submission be simpler and more streamlined now?

Q: Will Dexcom acquire a smart pen or insulin pump, giving it a full insulin automation ecosystem in house? Would Dexcom acquire Tandem?

Q: Will the diabetes technology field see more consolidation in the coming years, as smaller digital players move into larger companies? 

 

--by Adam Brown and Kelly Close