Memorandum

Medtronic and Qualcomm partner to develop next-gen CGM for type 2, starting with fully disposable professional CGM; launch in 2-3 years; answer to Dexcom-Verily and Abbott FreeStyle Libre Pro? – May 25, 2016

Executive Highlights

  • Medtronic and Qualcomm announced a global partnership this morning to jointly develop a single-use (fully disposable), professional (intermittent) CGM for type 2 diabetes to be commercialized in ~2-3 years. It will be “significantly cheaper” than iPro, worn for 6+ days, smaller on the body, use a redesigned sensor, and capture glucose readings every five minutes. The product will work in both blinded AND real-time mode.
  • This partnership will bring a much better intermittent CGM for type 2s to wear and PCPs to prescribe than the reusable, fairly clunky, and retrospective-only iPro system. It is also critical for competing with fully disposable sensors from Abbott (FreeStyle Libre and Libre Pro) and Dexcom/Verily, which both have similar design goals. Comparison below.

Medtronic and Qualcomm announced a global partnership this morning to jointly develop next-gen CGM for type 2, beginning with a single-use (fully disposable), professional (intermittent) CGM to be commercialized in ~2-3 years. It will be “significantly cheaper” than iPro, worn for 6+ days, smaller on the body, use a redesigned sensor, and capture glucose readings every five minutes. The product will work in both blinded AND real-time mode, giving general practitioners help on therapy optimization (like the iPro), and expanding to give type 2s real-time coaching for behavior change. A few sensor design details are unclear: how will it store and communicate data (i.e., on the sensor patch, to a mobile app, receiver, or home hub)?; will it need any fingerstick calibration?; how much smaller will it be? But what is clear is that better software and a more integrated care model will be wrapped around this product.

In Qualcomm, Medtronic gets a proven leader in connectivity and miniaturized electronics, plus joint R&D to develop the product. Medtronic will commercialize the sensor, similar at a high-level to the terms of Dexcom/Verily partnership. No other deal terms were shared.

Overall, this sounds like a much better intermittent CGM for type 2s to wear and PCPs to prescribe than the reusable, fairly clunky, and retrospective-only iPro system. More importantly, this partnership is critical for staying competitive with fully disposable sensors from Abbott (FreeStyle Libre and Libre Pro) and Dexcom/Verily, which both have similar design goals: low-cost, fully disposable sensors that are easier to prescribe and wear, give more actionable data, and broaden into type 2. We compare them below based on what we know!

The work with Qualcomm falls into Medtronic’s non-intensive diabetes therapies (NDT; type 2) business, another move towards its newly ambitious goal of becoming “the #1 glucose monitoring company for people with type 2 diabetes” (per the Advocate Forum in April). Of course, this also helps it move towards the ambitious plan to serve 20 million patients by 2020, a ~20-fold rise from the current ~1.2 million installed base. Medtronic is calling glucose a “vital sign of diabetes health,” and this partnership clearly fits into its plan to deliver more integrated care. The company has always been strong on reaching providers, who could conceivably prescribe this sensor at diagnosis and every 6-12 months. As Medtronic expands the Diabeter clinic throughout Europe, the Middle East, and Africa, a low-cost diagnostic CGM could also become a key component for monitoring type 2s.

Assuming it is easy to use and connected, this type of sensor could enable other business models too. For example, a payer or prescriber could send the sensor via mail, where a patient could use it at home, with all data flowing to the cloud automatically. Medtronic could bundle this as a remote type 2 diabetes management service, enabling providers or payers to subscribe and let Medtronic take on some of the monitoring and patient care.

Better blinded and real-time CGM with automated analysis has huge potential to help with many key challenges in type 2: insufficient glucose data to titrate therapy; little real-time guidance to help patients change behavior; clinical inertia (or downright confusion); and massively shrinking provider bandwidth. Abbott, Dexcom, and now Medtronic have clear pipelines aimed at developing this market, and we hope all are successful in building glucose sensors that are easier to wear and use, zero-hassle to prescribe, and far, far better at delivering outcomes. The latter is not so easy, of course, as we saw with Abbott’s REPLACE data in type 2 testing FreeStyle Libre. Still, we have high hopes that these systems will offer more value than traditional BGM, and over time, become just as inexpensive.  

See below for questions and thoughts on the product, a comparison between next-gen Abbott, Dexcom, and Medtronic products, and background on the non-intensive diabetes therapies business.  

Medtronic/Qualcomm Product Questions

  • How will the companies' cultures mesh? There is a huge difference between designing class III medical devices and being a chip provider to a high cadence consumer electronic market. The upside is that there is tons that Qualcomm and Medtronic can learn from each other; the downside, of course, is the culture gap could be large. We'd note that Dexcom and Qualcomm actually signed a memorandum of understanding back in 1Q12 (see below), but that did not go anywhere to our knowledge.
  • How will the Medtronic/Qualcomm sensor store data and communicate it? Will the on-body component store data from the entire wear time (like FreeStyle Libre Pro), or will it continuously transmit data to a mobile app, a receiver, or something like Qualcomm’s 2net hub (a plastic device plugged into a wall that communicates with medical devices and sends the data to the cloud)? Will it use Bluetooth, a proprietary radio, or something else?
    • Given Medtronic’s goal to provide real-time behavior change advice, we assume the sensor will connect to an app or receiver. We’re not sure how much data this will store in the on-body component, which can really drive different design choices. For instance, Libre Pro collects a reading every 15 minutes, storing them on the device for the full 14 days; by contrast, the real-time version of Libre updates with a reading every minute, but can only store eight hours of glucose data at a time.
  • Will the sensor be factory calibrated, or will it need real-time or retrospective fingersticks to calibrate the CGM (like the Enlite and iPro)? If we had to guess, the initial product will still need some calibration, and if it gives real-time data, this might require fingersticks to be entered during wear time.
  • How much lower will the cost be? Medtronic shared that lower product costs will be obtained through design, electronics, sensor, and manufacturing – basically everything needs to get cheaper. We imagine Qualcomm can help in a big way with the electronics components, just as Verily is doing so for Dexcom.
    • Will the value and data from this system be good enough for providers to move non-intensive type 2s off fingersticks completely? Could use of intermittent CGM every 3-6 months be less expensive and more valuable than 2-3 fingersticks per day? What is more useful for providers? What would payers reimburse for?
  • How much smaller will the on-body component and sensor get? How will the size compete with Abbott’s FreeStyle Libre and Dexcom/Verily? How much will size drive uptake more than other factors (reimbursement model, data output, etc.)? As a reminder, Abbott’s FreeStyle Libre is about the size of a two-euro coin, while Dexcom/Verily’s ultimate goal is a sensor the size of a penny (though the first-gen will be larger). We’d have to imagine that for a provider-initiated product, other factors like data output, cost, and ease of use will be more important than size alone.   
  • What kind of actionable data will this provide patients and providers? How will Medtronic easily capture behavioral data? How will it compare to what competitors are doing? Medtronic has been investing more deeply in better data through the Watson partnership (now termed a “personal diabetes assistant”; see our Advocate Forum coverage), and nearer term, the one-page iPro Pattern Snapshot report came out in November (prominently shows a patient’s top three glucose patterns and lists up to six possible causes for each one). Today’s press release noted, “Our solutions go beyond delivering data and provide automated observations and clinical decision support to help create a personalized care plan.” We look forward to seeing what the output looks like and how burdensome data input will be. There is so much potential to give patients more real-time advice, even with simple nudges and pattern recognition in the moment.
  • Who is the initial goal audience for this product – insulin users, non-insulin users, those on lifestyle alone? These groups might all need different software for the data to be actionable – who will Medtronic prioritize? As of its Advocate Forum last month, the audience for “diagnostic CGM” was between patients needing insulin dosing advice (on one end) and those on lifestyle (on the other end).
  • What level of accuracy will this Medtronic/Qualcomm product achieve? What level of accuracy is even necessary for type 2s not on MDI? Medtronic’s goal is “comparable” accuracy to current systems, implying a MARD of roughly ~10%-12%. As a reminder, Medtronic’s fifth-generation sensor was about to start an FDA pivotal trial as of last month; per an ATTD poster, the plan was 10-day wear and one fingerstick calibration per day. Management expects a sub-10% MARD for this sensor.
  • Could this partnership morph into a type 2 CGM that patients could buy and use on their own (instead of going through a provider)? Could Medtronic eventually add a more consumer-facing type 2 product, similar to Abbott’s approach with FreeStyle Libre and FreeStyle Libre Pro? Or will Medtronic limit the distribution to providers, particularly for a disease like type 2 that can be less patient-driven than type 1.
  • How could this new sensor fit into the Diabeter clinic model, which Medtronic now plans to expand outside of Europe to the Middle East and Africa. The innovative Netherlands-based type 1 diabetes clinic was acquired last April and at the Advocate Forum last month it sounded like Medtronic has learned a lot about delivering IT-enabled, value-based healthcare so far. The clinic’s 36-person staff heavily leverages technology to manage over 1,500 pediatric and young adult patients with type 1 diabetes. Notably, ~85% of the center’s pump/CGM users and ~50% of its MDI users have an A1c <7.5% - impressive considering the high A1cs typically seen in the young adult population. Also notable is the clinic’s reimbursement model – Diabeter receives a fixed fee from insurance companies to provide care for each patient. As a result, it’s in their best interest to provide the best care at the lowest cost – and at Diabeter, that’s enabled through heavy use of pumps and CGMs (over 50%), remote monitoring, data management, and personalized care.
  • This partnership builds on two related Medtronic type 2 CGM announcements from the past six months: the distribution partnership with Henry Schein to bring professional CGM to primary care, and the launch of pattern snapshot (a one-pager to more easily interpret iPro2 CGM data).
  • Dexcom actually signed a memorandum of understanding with Qualcomm Life back in 1Q12, though nothing ever came of the partnership to our knowledge. The vision was more focused on connectivity at the time: to integrate Dexcom sensor technology into Qualcomm’s 2net hub product, enabling secure, wireless transmission of CGM data into the cloud. At the time, the 2net hub was a piece of hardware that plugged into the wall and communicated with a variety of medical devices, sending the data up to the cloud. The move made sense for removing the hassle of downloading CGM, though now with G4 Share and G5, Bluetooth and paired apps have solved this problem. Medtronic has begun tackling this too with MiniMed Connect, and in the future, its Bluetooth-enabled Guardian Connect transmitter and Bluetooth built right into its pumps. As we note above, we’re not how this new sensor will leverage connectivity. 

Dexcom/Verily, Abbott, and Medtronic – Next-Gen Product Comparison

The table below shares what we know about each of these products, though obviously the most has been disclosed from Abbott, since they are on the market. The table focuses on product features, though the business model, data analysis, and distribution model will be just as critical – and probably more important.

  • Abbott’s factory-calibrated, 14-day wear FreeStyle Libre (real-time) and Pro (blinded) are first-to-market of the three next-gen sensor systems, by far. Libre has been available in Europe for more than a year, while Pro is available in India now. FDA approval and US launch of FreeStyle Libre Pro is expected in ~mid-2016 (submitted in 2Q15); there is no official US timing on the real-time FreeStyle Libre. Pro is the most direct competition to this Medtronic/Qualcomm product – competing for provider mind share – and it should have at least 1.5 years on the market before Medtronic comes out with this Qualcomm product.
  • The hardware vision for the Dexcom/Verily product is definitely the most ambitious of the three: a fully disposable, bandage-like CGM the size of a penny or dime, lasting 10-14 days, and integrated into an advanced data analytics platform (we assume Bluetooth connectivity to an app). Like Medtronic/Qualcomm, Dexcom and Verily plan go beyond showing just a glucose number to give behavioral suggestions. The product will be commercialized in two phases, with the first-gen on a similar schedule to this Medtronic product (~2018).
  • Medtronic could set itself apart with a type 2 professional CGM system that uses a different business model or bundled payment, is more designed to cater to providers’ needs, and leverages its massive distribution network, reimbursement heft (e.g., UHC), and large sales force (including the new Henry Schein distribution partnership to bring the iPro into primary care). Medtronic’s scale and R&D budget could also enable more manufacturing efficiency and perhaps a very low cost device. Medtronic has lagged behind Dexcom and Abbott on the sensor accuracy front, though it is quickly catching up, and this may be less important for a diagnostic CGM in type 2.

 

Abbott FreeStyle Libre /Libre Pro

Dexcom/Verily

Medtronic/Qualcomm

Customer

Libre Pro: Professional, intermittent

Libre: Personal, 24/7 

Type 1 and type 2

Personal, 24/7

Non-intensively managed type 1s and type 2s

Professional, intermittent

Type 2 focus, but potential to be used in type 1

On-body Design

Fully disposable sensor/transmitter

Calibration

Factory calibrated (no fingersticks required)

Not specified; first-gen may use G5 or G6, so potentially 1-2 calibrations per day

Not specified; we assume some calibration will be needed initially.

On-body Size

2-euro coin

1-cent coin (penny)

Smaller than iPro, though quantity not specified

Wear Time

14 days

10-14 days

6+ days

Cost

Libre Pro: Not specified

Libre: 59 euros per sensor, 59 euros per handheld

Less expensive than current CGM

Significantly less expensive than iPro

Data Display and Capture

Libre Pro: Retrospective; glucose value stored in on-body patch every 15 minutes for 14 days, downloaded in office.

Libre: Real-time glucose value and trend obtained by swiping handheld or Android phone over sensor (NFC); can store up to eight hours of glucose data on sensor patch.

Real-time glucose data. Will integrate into an advanced data analytics platform (presumably real-time communication with a smartphone app via Bluetooth) and offer behavioral suggestions (i.e., beyond just glucose data).

Real-time and blinded CGM modes. Real-time will include behavioral coaching.

Might store data in the on-body component, or continuously transmit it to a mobile app, a receiver, or a stationary device like Qualcomm’s 2net hub.

Business and Distribution Model

Libre Pro: Provider owns reusable handheld that is used to start sensor in-office; disposable sensor reimbursed like standard professional CGM (as far as we know).

Libre: direct-to-consumer purchases, with potential future reimbursement

Direct-to-consumer purchases, as far as we know

Provider distribution, possibly through new integrated care models.

Timing

Available in India

Submitted to FDA in 2Q15, with approval and US launch expected in mid-2016. We should hear more at ADA 2016.

First-gen to launch ~2018, with follow-on product by ~2019-2020

Launch in ~2018-2019

Recent Coverage

Abbott 1Q16

Dexcom 1Q16

Enclosed

Medtronic Non-intensive Diabetes Therapies Business Background

  • Medtronic Diabetes’ ambitious goal is to serve 20 million patients by 2020 – a ~20-fold increase in four years. The company recognizes this cannot happen from selling hardware alone, hence the lofty and bold move into services and type 2. We love the vision to become a “more holistic” diabetes management company and wonder what new models are possible.
  • At the Advocate Forum in April, President Hooman Hakami actually alluded to this product when sharing his vision of Medtronic Diabetes in 2020: “The Non-intensive Diabetes Therapies business will have much deeper relationships with the PCP community. We’ll have a next gen, intermittent CGM that is simpler and easier for patients and physicians. This will be the start of a broader global footprint.”
  • As we reported last month, Medtronic aims to “become the #1 glucose monitoring company for people with type 2 diabetes.” The company believes that <10% of type 2s globally are pump candidates (11 million on intensive insulin), while 100% of type 2s “need to know their glucose.” The strategy for the type 2 business is to make glucose monitoring standard of care in type 2 diabetes (e.g., professional and intermittent CGM), to expand market access for type 2 diabetes and primary care, and to provide more integrated care for people with type 2 diabetes.
  • Medtronic breaks down type 2s into three groups, depending on their disease progression and needs. The company hopes to serve all three segments with specific solutions:
    • Lifestyle – At risk and are not seeking treatment: 50% undiagnosed, struggle to manage health, most “feel fine.” Management has not shared any specific product plans here.
    • Diagnostic – Patients treated to failure: >20% confused at diagnosis, ~50% follow therapy guidance, ~65% with related diseases. Products for this segment (professional CGM) will enable the PCP to actively understand what is going on and give optimal treatment. We assume this is where the Qualcomm partnership fits.
      • “Diagnostic CGM is at the core of an integrated care model.” Professional CGM can collect observations, provide valuable insights, enable therapy optimization, support patient engagement, and drive action. Presumably apps and other data sources fit in too.
    • Dosing – High level of effort and often do not know how to take action: painful fingersticks, unaware of lows and how to dose insulin, injections difficult, not discreet, expensive to manage. No specifics have been shared here either, but we assume simple patch insulin delivery devices could fit in, along with better insulin dosing guidance via CGM analysis. Medtronic puts automated insulin delivery in the intensive insulin management business, so this segment is probably more for basal insulin users.

Close Concerns Questions - Qualcomm/Medtronic Deal

Q: How will this Medtronic/Qualcomm product compare to Abbott’s FreeStyle Libre & Libre Pro and Dexcom/Verily? What will set it apart? Will this be incrementally better than iPro2, or orders of magnitude better?

Q: How long have Medtronic and Qualcomm been talking? Was this a defensive move to block a more formal Dexcom/Qualcomm partnership? Did Qualcomm/Medtronic talks start before the Dexcom/Verily deal was signed, or was this a response to that deal?

Q: Did Qualcomm's 2net ever gain traction?

Q: What can professional CGM learn from the business models used for diagnostics in other therapeutic areas?

Q: What’s the clinical value of continuous glucose data in type 2 populations? For insulin titration? For well-being check up? Used for transition periods to other medications?

Q: Is this going to be a full business or a gateway to pumps and traditional cgm?

Q: If it is meant to be intermittent, how do you drive repeat usage? What’s the right timeframe?

Q: How will millions of PCPs be trained around the world to understand continuous glucose data vs. the one number, A1c, that everyone learns about in medical school?

Q: What behavioral changaes will type 2s be prompted to make with this data? Exercise? Food choices? How will the data be collected in a low burden way?

Q: Who is going to pay for this? What data is needed to drive reimbursement?

Q: Where will this be targeted geographically? Emerging markets? Cash pay markets? Poor glucose monitoring markets?

Close Concerns Questions - Medtronic's Business

Q: Where can Medtronic make the biggest difference in type 2 diabetes? What is Medtronic uniquely equipped to do?

Q: What is the biggest challenge Medtronic faces in the next five years? Which business unit (type 1, type 2, service) will be under the most pressure? Which business has the most gamechanging potential? Which unit has the stiffest competition?

Q: How can Medtronic help patients truly struggling?

Q: What competitive products are the biggest threats to Medtronic’s current and future business?

Q: Can Medtronic move from a hardware- to service-driven company, just as IBM did? When will service revenue be a sizeable portion of Medtronic’s revenue? How quickly is value-based payment coming to diabetes? Will it be widespread in the US in five or ten years? Will traditional medical device companies adapt or consolidate?

Q: How are the new heads of the three areas working with each other? Who has the most challenging position?

 

-- by Adam Brown and Kelly Close