Abbott 3Q18 – Revenue exceeds $500 million, up nearly 40%; Over 1 million FreeStyle Libre users globally! FreeStyle Libre quarterly sales >$300 million – October 17, 2018

Abbott reported 3Q18 earnings in a call led by CEO Mr. Miles White this morning, headlined by 37% YOY Diabetes Care growth (to $512 million) and >1 million FreeStyle Libre users globally. Get the press release here, and download the one-page earnings infographic here. See the top takeaways and striking base/revenue growth charts below.

FreeStyle Libre User Base and Expected US Revenue

1. >1 Million Worldwide FreeStyle Libre Users; >$300 Million in Libre Revenue (Our Estimate: ~$330 Million)

In a major victory for CGM penetration, FreeStyle Libre now has more than 1 million users globally, up a remarkable ~25% from 2Q18’s 800,000+. Wow! Management had previously forecasted over 1 million users by the end of 2018, a number that now looks quite conservative indeed! Remarkably, the number of global FreeStyle Libre users has more than doubled from ~450,000 in just three quarters (see graph below), and Mr. White’s animated Q&A performance today (see highlight below) gave no indication that adoption will slow anytime soon (particularly with the 14-day/one-hour warmup version entering the US and alarm-optional FreeStyle Libre 2 rolling out in Europe in the “coming months”). It can’t be understated what this product has done for global access to continuous glucose data: at the end of 2017, we estimated that there were ~900,000 people on CGM globally, and now FreeStyle Libre alone has more than one million! By the end of the year, Abbott could feasibly hit 1.25 million users, and assuming Dexcom has a huge year, global CGM penetration could close in on 2 million. One caveat is that Abbott hasn’t defined a user or retention/discontinuation rates, so it is difficult to know how many people are actually on FreeStyle Libre at any given time. That said, the definition of a “user” is presumably consistent from quarter to quarter, and the explosive sales growth certainly backs that up.

• For the first time ever, management broke out ballpark Libre-specific sales: 3Q18 global sales of FreeStyle Libre were >$300 million, up >100% from the prior year. This means that FreeStyle Libre accounted for ~60% of all Diabetes Care revenue, in line with our modeled estimates from Q1 and Q2. By next quarter, Libre revenue could well double that of Abbott’s BGM FreeStyle product! To be more exact, our model has overall Q3 FreeStyle Libre revenue in the range of ~$330 million, using a number of assumptions we’ve previously shared (e.g., ~15% of US Libre users are obtaining the system through Medicare at the cost of ~$8/user/day and Abbott realizes ~$4/user/day in revenue for the remaining US and international users). Sequential revenue growth came 70% from international and 30% from the US, and we’ve therefore assumed that the ~200,000 new Libre users were split along similar lines. Accordingly, we roughly approximate that there are ~185,000 US FreeStyle Libre users (+50% sequentially) and ~815,000 OUS FreeStyle Libre users (+20% sequentially). For context, Dexcom’s worldwide installed base at the end of 2017 was 270,000+, though we haven’t heard updated figures in 2018 reflecting G6 traction, which does seem to be putting pressure on Dexcom’s capacity – a Facebook post on Monday from prominent blogger Kerri Sparling noted that G6 supplies are on a 10-day backorder and Kelly and Adam can certainly attest that G6 sensors as well as transmitters as well as even G5 transmitters have been hard to come by – it’s a great sign for Dexcom that demand is so high.

• Unlike in past quarters, Mr. White didn’t comment on 2018 US FreeStyle Libre revenue guidance ($90-$100 million as of 2Q18). Given the far bigger FreeStyle Libre news today – 1 million users, >$ 300 million in sales – it was not surprising to this was omitted. Per our geographic user estimates described above, we’re estimating Libre quarterly revenue of ~$65 million in the US and ~$265 million internationally, with the OUS market contributing ~80% of total Libre sales. Based on these figures, Abbott may have already surpassed its goal of reaching $100 million in 2018 US Libre sales. Of course, it’s possible we are under- or overestimating depending on the assumptions and geographic variance – e.g., slightly lower 85% global sensor utilization with the same modeling puts revenue at ~$312 million. See the appendix for a more detailed list of assumptions, which we caution are estimates, do not include revenue from readers, and do not reflect pricing discounts to payers, etc.

• We do note that US revenue for FreeStyle Libre seems to have declined at least a bit – we estimate 75,000 in additional Freestyle Libre base customers in 2Q18 compared to 65,000 in additional Freestyle Libre customers in 3Q18. It’s great that demand for Libre outside the US is going so well! On the revenue side, additional sensor sales by 2Q18 seem to have been about $30 million extra, whereas for 3Q18, they were about $20 million extra. These of course are estimates but the yellow bar below (US) does indicate a flatter slope in the US and a steeper slope for global.  

FreeStyle Libre User Base Through 3Q18

• Beginning in 1Q18, we assumed distribution of new user acquisition between US and outside of the US in line with share of sequential revenue growth.

FreeStyle Libre User Base and Estimated Quarterly Sensor Revenue

1. Close Concerns’ estimate; 2. Assuming ~10% of US patients obtain FreeStyle Libre through Medicare (~$240/user/month sensor pricing) and 90% obtain it commercially (~$120/user/month sensor pricing); 3. Assuming ~$120/user/month sensor pricing, not including readers; 4. Assuming increase in user base were proportional to share of total sequential revenue growth. More assumptions are included in the appendix at the end of this report. We note these sales figures exclude reader sales.

2. How will Abbott compete with Dexcom? CEO Miles White on FreeStyle Libre’s Value, Access, Automated Production, “Healthy Profits”; “I Kind of Think We’re Just Getting Started”

Mr. White responded swiftly in Q&A when asked how Abbott intends to compete with Dexcom (“one major competitor here, at the upper end of the technology scale”) over the next few years. We felt the question was an unfair dig at FreeStyle Libre, implying that Dexcom is high-tech and Abbott is about access, but the underlying motive was to get a feel for how Abbott will look to juggle access, simplicity, and innovation in the coming years. Mr. White jumped at the opportunity to reply that he doesn’t look at Dexcom and Abbott as high-tech vs. high-access CGM, rather that FreeStyle Libre is a “pretty different product” due to its significantly lower cost and broader appeal. In our view, the differences between Abbott and Dexcom products are ultimately a big positive, lifting class-level awareness and allowing for patient choice. As for the caller’s question, FreeStyle Libre 2 will also be fascinating to watch, given its Bluetooth capability, optional threshold alarms, and, very importantly, pricing parity to the current generation FreeStyle Libre. To us, this is an indication that Abbott will look to iterate on the FreeStyle Libre platform base while keeping design principles (e.g., same form factor, optional add-on features) and cost top of mind. Similarly, the Libre version with continuous communication that will be used in the Bigfoot AID system (beyond Libre 2) retains the quarter-sized patch form, though pricing within Bigfoot’s vision for a monthly subscription service remains to be seen. Mr. White’s full 500+ word response in the Q&A section below is definitely worth a read, but here are a few great tidbits from Mr. White’s response:

• “I'd say at this point we're making healthy profits on this product.”

• “To be honest, we don't even measure ourselves relative to any competition including fingerstick at this point. We know how many potential patients there are out there. And it's our intent to capture the vast majority as possible, as many as we possibly can in just a few years.”

• “We have no intention of changing the value proposition at all. I mean your question sort of suggests that we would raise price in order to be competitive. I'd say you ought to be asking the other side what they're going to do to make themselves the value proposition because this product is an incredibly good value proposition which is why it's got such high demand.”

• “I look at Libre right now and a lot of people call it a wild success. I kind of think we're just getting started and we're investing heavily in capacity to allow even more rapid expansion. And people will say well how do you model that? And I think, I'm not sure, we can model it. It's that good.”

• While Dexcom’s G5 and G6 are pricier than FreeStyle Libre, we wonder exactly how low pricing can go for the Verily Gen 2 CGM. The penny-sized Verily Gen 2 CGM, long-hailed non-specifically as “lower cost,” was slated in 2Q18 for a commercial launch in “late 2020, early 2021,” reflecting a delay from the long-shared “2020” plan. Surely, Abbott will continue to drive down Libre production costs through automation and scale in the interim ~two-plus years, and the pressure will be on Dexcom/Verily to give Abbott a (literal) run for its money on features, software differentiation, on-body form factor, and pricing. One low-hanging way to shave off cost is to go receiver-less; as of 1Q18, Dexcom was putting plans in place to file a receiver-optional designation with FDA, following the smartphone-only display leads of Medtronic’s Guardian Connect and Senseonics’ Eversense. Abbott’s FreeStyle Libre has smartphone display in Europe through FreeStyle LibreLink, and its reader is much cheaper than Dexcom’s receiver. Aside from Dexcom/Verily: (i) As Senseonics seeks longer wear indications for Eversense – a 365-day insertion trial is expected to begin in 1H19 – it could theoretically lower per-day pricing meaningfully; (ii) Medtronic may be eyeing pricing more in line with Libre with its “Project Unity” sensor (2+ years out, fully disposable, no-calibration); and (iii) Metronom plans to manufacture its sensor like a test strip (“reel-to-reel”), enabling lower expected cost of goods – the company now expects regulatory clinical trials in October 2019, followed by a CE Mark filing in early 2020 and a mid-2020 approval. Many timing projections in CGM over the years have been delayed.  

• Over time, the questions on CGM reimbursement are really about how payers will value and reimburse for outcomes: What will the outcomes-based reimbursement landscape look like in 2020? How will CGM sensors drive outcomes, either through insulin automation, behavior change, oral medication optimization, hypoglycemia detection? What kind of outcomes will payers reimburse for, what kind of evidence will be needed, and how much runway is there in type 2? How frequently will payers/patients be paying for CGM supplies, rather than a per-member-per-month fee for diabetes management or for achieving certain A1c/time-in-range thresholds?

Financial and Management Highlights

1. Record Diabetes Care Sales Break $500 Million for First Time on FreeStyle Libre’s Success; Four Straight Quarters of 30%+ Growth

Abbott’s Diabetes Care sales crossed a half-billion in sales – coming in at $512 million for the quarter – for the first time ever. Wow! FreeStyle Libre was largely responsible for the performance with ~60% of attributed revenue. The outstanding performance represented 37% reported YOY growth (+40% operationally) on an already-tough comparison to 22% growth in 3Q17 – faster growth from a higher base once again! Remarkably, Diabetes Care sales have exhibited 30%+ YOY growth in each of the past four quarters, driven by the “gangbusters” performance – to borrow a term formerly used by Mr. White – of Libre. On a sequential basis, sales grew 9% from the previous record-high of $470 million in 2Q18 – wow! Since 1Q16’s low of $243 million, Abbott’s quarterly sales have more than doubled – a truly remarkable achievement in 2.5 years. The sales graph below is striking, however, in that the US revenue is still well below its high point, whereas the revenue outside the US has been at its high point since early 2017.

Global, US and International Quarterly Sales (1Q12-3Q18)

• Share of overall Diabetes Care growth, unlike 2Q18’s even split, was heavily skewed in favor of the international segment (71% of growth). We would guess that the international segment exceled on tailwinds of rising awareness and already-strong reimbursement, with perhaps a less likelihood that the US under-performed. At the same time, competition heated up substantially in the US toward the end of Q2 and into Q3 with the launches of Dexcom’s G6, Medtronic’s Guardian Connect Mobile CGM System (+Sugar.IQ), and Senseonics’ Eversense, so it’s also possible that Abbott saw slightly depressed new US user share in Q3.

• Given our estimates for FreeStyle Libre revenue, underlying global BGM sales totaled ~182 million, down an expected ~25% YOY on an easy comparison to ~1% growth in 3Q17. We may have over-estimated FreeStyle Libre revenue in Q3 (or underestimated it in Q2), as the YOY drop is greater than any we’ve seen before in the model. Still, BGM is obviously on the decline and seems poised to go to zero over time as Abbott drives FreeStyle Libre globally and builds in further enhancements.

2. Record OUS Sales of $388 Million Rise a Remarkable 37% YOY, Up 8% Sequentially

Record-high international sales of $388 million rose an incredible 37% operationally and 34% as reported on a very tough comparison to 3Q17 when sales of $255 million rose 25% YOY operationally – again, this faster growth from a higher base of sales (nearing $400 million) is incredible. Revenue rose 8% sequentially from the previous record high of $358 million in 1Q18, reflecting six straight quarters of consecutive sequential growth. The strong uptick demonstrates impressive, sustained global interest in FreeStyle Libre, quite strong reimbursement, and Dexcom’s relatively weaker OUS presence. Now that the Dexcom G6 with zero-calibrations has received a CE mark and launched in four European countries (Germany, UK, Austria, Switzerland; see EASD), we’ll be excited to watch both product bring CGM to more people outside the US. The products are actually more competitive with each other outside the US, since FreeStyle Libre has its smartphone apps available and the FreeStyle Libre 2 will soon offer alarms (compete with G6), and Dexcom has no required receiver OUS (to compete with FreeStyle Libre).

• We estimate that Abbott’s international BGM revenue totaled ~$124 million, declining ~22% YOY on a tough comparison to ~10% YOY growth in 3Q17.

3. US Sales of $124 Million Rise 48% (!) YOY and 11% Sequentially

Abbott Diabetes Care’s extraordinary OUS effort could obscure the US performance if you only look at share of YOY growth (70/30, in favor of OUS), but 48% YOY US growth to a strong $124 million in sales speaks for itself. This growth did come against a rather easy comparison to a 13% decline in 3Q17 – the final quarter before the real-time FreeStyle Libre launched in US pharmacies in November 2017 – and demonstrates the degree to which Libre has reinvigorated the business. Sales increased 11% sequentially following a blowout 30% sequential increase the previous quarter as FreeStyle Libre began ramping in the US.  

• It’s difficult to know to what extent competition (namely, from Dexcom’s G6) impacted FreeStyle Libre sales in the quarter. The no-calibration G6 commenced its broad launch on June 4, carrying the comparable marketing advantage of no fingersticks and apps for iOS, Android, and smartwatches. Abbott has one-upped Dexcom with FDA’s approval of a 14-day, one-hour warmup version of FreeStyle Libre vs. G6’s two-hour warmup and 10-day wear. In terms of accuracy, Dexcom’s G6 certainly seems more accurate based on the product labels, though study designs differ and no one has tested the products side-by-side – how much various patients “care” about accuracy also varies across population. Dexcom has the clear edge on apps in the US, and Abbott has not given timing on FreeStyle Libre LibreLink in the US; an iOS version of LibreLink just launched in Canada and we’d have to guess it’s a big FDA priority in the US too. Libre does have the advantage of Medicare, as only G5 is covered for now while G6 is under Medicare review (a decision expected “this fall”; as of June Medicare users can use apps in conjunction with CGM). FDA’s approval of Tandem’s t:slim X2 pump with Basal-IQ and G6 integration may offer some tailwind for Dexcom among pumpers, but this remains a small population and FreeStyle Libre’s ambitions are clearly much broader. There’s clearly room for both companies – plus Medtronic’s Guardian Connect/Sugar.IQ and Senseonics’ Eversense, both now on the market – to make a meaningful impact, given the limited data and pain and hassle of fingersticks. We’d hope to one day see every single insulin user globally on CGM at no cost, though admittedly we’re far from that, especially in developing countries.

4. Mr. Robert Ford, EVP of Medical Devices, Promoted to President and COO; “A Succession Step”

Earlier this week, the very popular Mr. Robert Ford was promoted (again!) to Preisdent and COO – the very youngest on record. Said Mr. White on the recent promotion of Mr. Robert Ford to President and COO: “I've known him 22 years and paid a lot of attention to his career as you might imagine. And he's been an excellent operator. He handled our entire St. Jude integration, done a terrific job with Medical Devices, and consequently, I want all of those medical device businesses continuing to report directly to him, even as he takes on more responsibility. And I'd say, with time this will develop pretty nicely. And I think it's a really good, strong move for the company.” We couldn’t agree more, having watched Mr. Ford spearhead the building of BGM all over the world from his early beginnings in Brazil, the decision to end Navigator (gutsy and brilliant), and the massively successful development and global launch of FreeStyle Libre with Abbott's world-class team. Mr. Ford has been with Abbott for 22 years and most recently served as EVP of Medical Devices (the youngest one in the history of Abbott). He was promoted quickly to President and COO (another record) – we're thrilled for Abbott that he'll be overseeing so much and that his roots are in diabetes. Indeed, Mr. Ford is a case study in success. He has been absolutely instrumental to the strategy behind diabetes and widespread patient-centricity and access at Abbott.

Pipeline Highlights

1. 14-Day US FreeStyle Libre, Second-Gen FreeStyle Libre 2 Prominently Highlighted; No FDA Timing Offered on FreeStyle Libre 2

• The 14-day, one-hour warmup version of FreeStyle Libre – approved by FDA in July – was featured prominently in the quarter’s infographic and in Mr. White’s prepared remarks. At the time of the FDA announcement, the system was expected to launch in participating pharmacies and through DME suppliers “in the coming months.” However, Mr. White only mentioned that it was approved – not launched – and based on Abbott’s US FreeStyle Libre website, the 14-day version does appear to have rolled out yet. The main US FreeStyle Libre website focuses on 10-day wear, and a separate linked landing page mentions the 14-day reader and sensor are “coming soon.” Notably, Abbott will offer “eligible” 10-day users a free upgrade to the 14-day reader. That said, the FreeStyle Libre HCP website is updated with all the 14-day marketing, so perhaps it can be prescribed now. The introduction of this new version eliminates the non-trivial hassle associated with the 10-day version’s 12-hour warmup, which either forced the user to go 12 hours without CGM or invest in a second reader (we doubt that many people went the latter route). Of course, the extra four days of wear time, giving Libre status as the “longest lasting self-applied glucose sensor available,” doesn’t hurt either. Based on the website, FreeStyle Libre 14-day is not available via Medicare, implying Abbott will need to go through the same process Dexcom has with G6.
  • The user guide for FreeStyle Libre 14-Day is posted, sharing the following accuracy (first picture) relative to FDA’s approval letter (second picture). We include Dexcom G6 accuracy below those for a loose comparison; obviously study designs differ. FreeStyle Libre 14-day still appears to have much lower accuracy in hypoglycemia relative to Dexcom’s G6: 53%-58% of Libre points are within ±15 mg/dl of YSI for <80 mg/dl (Abbott’s user guide) vs. 84%-90% within ±15 mg/dl for <70 mg/dl for Dexcom’s G6 (adults). FDA’s analysis for FreeStyle Libre 14-day suggests the hypoglycemia accuracy is a lower at 38%-53% within ±15 mg/dl of YSI. Abbott’s user guide includes 650 fewer paired CGM-YSI points relative to FDA’s analysis, which does improve the hypoglycemia accuracy in the user guide. Get more background in our FDA label takeaways analysis.
    • We note that on an overall %20/20 level of accuracy (all glucose ranges), Dexcom G6 and FreeStyle Libre 14-Day are almost identical, with both exceeding 90% of points within ±20 mg/dl or 20% of YSI.

FreeStyle Libre 14-Day User Guide

FDA Letter for FreeStyle Libre 14-Day:

For comparison, here’s the Dexcom G6 user guide data for the auto-applicator study (first picture) and then adult data broken out by range (second picture; non-auto-applicator study)

• The CE-marked FreeStyle Libre 2 was the second item featured in the “Product Developments” section of the infographic just behind the 14-day US FreeStyle Libre. As a reminder, the second-generation FreeStyle Libre still requires the user to manually scan to see real-time glucose values, but adds Bluetooth and an optional, customizable hypoglycemia (60-100 mg/dl) and hyperglycemia (120-400 mg/dl) threshold alarms that go off in the background. Management declined to give an FDA timing update when prompted in Q&A, though Mr. White commented that “It should take a lot less time than it seems to” – this was a bit of a cryptic comment. Hopefully the lag time will be shorter than for FreeStyle Libre gen one, which took over three years to secure FDA approval (last September) following the original CE Mark. See our deep dive on FreeStyle Libre 2 here.

2. No News on US Pediatric Claim (Confirmed Under FDA Review) or US LibreLink Timing

Mr. White didn’t mention planned FreeStyle Libre enhancements – possibly including US pediatric indication, FreeStyle LibreLink (iOS and Android reader apps), and LibreLinkUp (remote monitoring app) – as he did on the Q2 call. Europe has all of the above: FreeStyle Libre is approved down to age 4, and as of February, FreeStyle LibreLink and LinkUp have been available for iPhone and Android in at least 12 EU countries plus Canada (iOS only, as of September). We’re not sure if the FreeStyle LibreLink app “suite” is yet with the FDA, but it must be a big priority given Dexcom’s Android and iOS apps for G5 and G6. We do know, however, that FreeStyle Libre has been filed with FDA for pediatric approval down to age 4 (unclear if it’s the 10-day or 14-day version), but there has been no word on timing. An Abbott-run trial investigating accuracy and adverse device effects in type 1s ages 4-17 is now listed on ClinicalTrials.gov as complete. We hope to see the approval come through shortly to bring Abbott’s US labeling closer to that of Dexcom (age 2+), Medtronic’s Guardian Sensor 3 in MiniMed 670G (7+), and Tandem’s Basal-IQ/G6 (PLGS) (ages 6+). As of February 13^th, penetration of CGM in kids under 6 years-old in the T1D Exchange was 49% (at the best clinics in the country), and it would be great to give that population another CGM option. FreeStyle Libre 1 doesn’t give parents alarms nor remote monitoring (in the US),  but (i) we’ve heard that some teens will wear Libre but not other systems; and (ii) Optional alarms will eventually come to the US with FreeStyle Libre 2, and FreeStyle LibreLink/LinkUp could also come to the US at some point.

• Now that Medicare has finally updated its coverage policy to allow use of smartphone apps in conjunction with CGM, Dexcom has a near-term advantage on remote monitoring with G5 until FreeStyle LibreLink and LibreLinkUp are available. (G6 is currently under Medicare review, with a decision expected this fall. FreeStyle Libre 14-Day is not available for Medicare, per Abbott’s US website.) Since both G5 and Libre are the same cost in the Medicare market, they can compete on features alone – we’ll be interested to hear how uptake compares between the two devices, and of course, there are so many that could benefit from CGM in this population! Remote monitoring, loud alarms, and high-visual accessibility CGM are certainly key features in this hypoglycemia-prone population.

3. No Mention of Bigfoot Partnership (US Pivotal Trial in 2Q19), New Livongo Partnership

No updates or commentary were provided on Abbott’s partnership with Bigfoot to develop a next-gen continuous communication CGM intended for automated insulin delivery with a pump (Loop) and MDI auto-titration with a Bluetooth-enabled pen cap (Inject). There was also no mention of the recent plan to incorporate FreeStyle Libre Pro into Livongo’s Diabetes coaching platform. At Friends for Life Mr. Brewer shared that a pivotal of the Loop system will start in 2Q19 – more specific timing than previously shared (“2019”) – with a launch ambitiously maintained for 2020. The pivotal has been delayed from December guidance for a “2018” pivotal start, which was the timing we heard when Bigfoot and Abbott first announced the partnership last July. Inject (MDI auto-titration) is also expected to launch in 2020. Importantly, the Loop and Inject systems will likely not leverage the FreeStyle Libre 2 sensor: Libre 2 does communicate continuously with the reader to some extent to ensure there is a connection should it need to alert the user of an out-of-range value, but it does not send and display the actual real-time glucose value unless the sensor is manually scanned. Such continuous sending of real-time values would obviously be a requisite specification for Bigfoot’s applications. This means that Libre 2 could be tweaked to send packets of real-time glucose data, or that there could be an entirely novel “Libre 3” soon on the horizon. Given that the Bigfoot pivotal is slated to begin in 2Q19, this “Libre 3” is presumably fairly far along in development at this point.

• Livongo announced in early September that Abbott’s 14-day, blinded FreeStyle Libre Pro professional CGM would be available to members where “appropriate and prescribed.” Head of Abbott Diabetes Care SVP Mr. Jared Watkin was quoted in the Livongo press release, suggesting that Abbott will lend support as needed. We hope to see Abbott open up to more partnership opportunities such as this; innovating beyond CGM sensor hardware into software and coaching. We’re also excited to see new business models build around professional CGM, since real-time CGM has little data in type 2 non-insulin users.

4. 43 FreeStyle Libre Trials on CT.gov, including Novo Nordisk’s SWITCH PRO and Two Studies Looking to Link Hypoglycemia and Arrhythmia

There are at least 43 studies on “FreeStyle Libre” or “Flash Glucose Monitoring” on ClinicalTrials.gov. Studies added or updated since July are highlighted in yellow. We absolutely love to see so many listed studies that are using FreeStyle Libre as a tool rather than study the sensor itself: Whether it’s SWITCH PRO – the CGM-equipped follow-up to Novo Nordisk’s SWITCH 2 study comparing the hypoglycemia profiles of insulin degludec and glargine – or a couple studies investigating the association between hypoglycemia and ECG patterns, it’s great to see companies and academic embrace the low-cost Libre (Pro) platform in their research.

Notable FreeStyle Libre trials on ClinicalTrials.gov

Selected Questions and Answers

Q: Can you help us put the Robert Ford announcement into perspective? And sort of share your thoughts on what it means for you over the intermediate term?

Mr. White: What it means to me over the intermediate term is I get a lot more help which I'm happy about. Look, it's obviously a succession step. And one of the things that I think any good leader has to do with his company is make sure that there's always good strong, succession building, growing, etc. in the company. And that applies to me too. So I think for the continuity of the performance of this company, the continuity of its strategies, the continuity of its sustainable growth rates and so forth, that's important going forward. I've known him 22 years and paid a lot of attention to his career as you might imagine. And he's been an excellent operator. He handled our entire St. Jude integration, done a terrific job with Medical Devices, and consequently, I want all of those medical device businesses continuing to report directly to him, even as he takes on more responsibility. And I'd say, with time this will develop pretty nicely. And I think it's a really good, strong move for the company.

Q: Maybe a follow-up on Libre, this is a product that's been wildly successful with over $100 million run-rate in the US, over $1 billion globally. And you really have one major competitor here, at the upper end of the technology scale, and Abbott I view as a low-cost, easy-to-access, very easy-to-use product in CGM. As we think about the evolution of Libre over the next few years, how do you think about Libre staying at the lower end of cost and ease-of-use vs. moving out and trying to compete with your main competitor there?

Mr. White: Interestingly enough, I don't actually look at it the way you just described. I think Libre is a pretty different product. It's got similar capability, but given that value point, it is accessible to patients across the board. And when we first launch in Europe, we launched without any government reimbursement. And for the first time, it was a glucose monitoring system where patients pay and it had wildly great acceptance just on that basis which actually encouraged governments to reimburse the product. So I think with healthcare today a lot of things that come to market are very expensive whether they are pharmaceuticals or devices.

And in this particular case it was important that this have a medical and an economic value proposition that made it accessible to all patients or as many as possible. And there's tens of millions of diabetes patients out there. Obviously, there are type 1s and insulin-dependent patients and there are type 2s trying not to be. So the product has a much broader appeal across a much broader patient base. And in our case, we have a much lower cost and far greater automated manufacturing capability to not only allow that cost but to allow for mass production. And that's the path we've taken. And we've gone at this from an access standpoint that's far more retail and direct-to-consumer-oriented. It's made a big difference. So I'd say at this point we're making healthy profits on this product.

We have no intention of changing the value proposition at all. I mean your question sort of suggests that we would raise price in order to be competitive. I'd say you ought to be asking the other side: what they're going to do to make themselves the value proposition because this product is an incredibly good value proposition which is why it's got such high demand. And to be honest, we don't even measure ourselves relative to any competition including fingerstick at this point. We know how many potential patients there are out there. And it's our intent to capture the vast majority as possible, as many as we possibly can in just a few years.

So, I look at Libre right now and a lot of people call it a wild success. I kind of think we're just getting started and we're investing heavily in capacity to allow even more rapid expansion. And people will say well how do you model that? And I think, I'm not sure, we can model it. It's that good.

So I tell you, you probably need to think about this a little differently in terms of value proposition and the kind of access that affords. And I think the future of healthcare kind of demands that from us from all companies.

There are certain products out there with small volume, their niche medical treatment and so forth that are costly to develop, costly to make and provide and so forth. But there are others that have much broader impact and much broader appeal. And part of the future of health care and the necessity for companies like ours is making those things as broadly accessible as possible. And we still obviously have to earn our return and I can assure you we're making a nice healthy return on Libre.

Q: On Libre 2, can you give us an update on US approval timing?

Mr. Scott Leinenweber (VP, Investor Relations): We haven't provided timing yet on Libre 2 in the US. Obviously, we will bring an alarmed version to the US at some point in time. The current version is obviously doing quite as well. So that's just another opportunity in the pipeline, but we have not provided specifics on timeline yet.

Mr. White: I would tell you, it should take a lot less time than it seems to. The US lags Europe and the Rest of the World on some of these approvals in a way that, I find hard to explain. But it is what it is.

Appendix A: FreeStyle Libre Revenue Estimate Disclaimers

This is the first quarter Abbott has provided a ballpark figure for FreeStyle Libre sales globally - $300+ million – and our model using the previously shared assumptions had it at a pretty close ~$330 million. 

• Pricing: The $4/user/day pricing estimate for commercial/cash-pay users (i.e., non-Medicare) sensors may be overshooting Abbott’s realized revenue, since we’ve previously reported sensor net price to be <$3.60 per day. That said, our revenue calculations do not take reader sales into account, so the inflated sensor revenue estimate may be compensatory. The pricing obviously also does not account for discounts, different geographies/currencies, payer relationships, net pricing vs. retail price, etc. Still, we note that our FreeStyle Libre sales estimate also backs out when comparing to Dexcom’s higher revenue/patient, as well as FreeStyle Libre’s anticipated US run rate in 2018.

• Utilization: We’re assuming that 100% Libre sensor utilization is unlikely – i.e., every user outside the US buying two sensors per month, and every US user buying three sensors per month (soon to be two with Libre 14-day). Our model estimates 90% utilization, which would reflect the vast majority of users (but not all) wearing Libre 100% of the time. We then rounded the final revenue number up/down to the nearest $5 million increment, just to emphasize that these are estimates and far from exact. For instance, 815,000 users * $120/month * 3 months * 90% = $264 million, which we rounded to ~$265 million for OUS sales this quarter.

• What we still don’t know or haven’t estimated: How does Abbott define a “user” – are all of these people currently wearing and ordering FreeStyle Libre, or is this base those who meet broader conditions (e.g., have ordered from Abbott at least once)? If the latter, revenue would obviously be less. How widely used is FreeStyle Libre Pro, and does the worldwide “user” number include professional sensor wear? (We’re honestly not sure – we could see it going either way.) We’re also unsure of how pricing differs (if at all) in cases where FreeStyle Libre is reimbursed – presumably Abbott receives less than $120/month in these cases. Last, we haven’t accounted for sales from readers (~$60 each), though assume they are a fraction of overall FreeStyle Libre revenue. In today’s call, the geographic split of Libre users was not provided. We assumed that the increase in Libre user base was divided between US and OUS markets in line with sequential revenue growth.

-- by Brian Levine, Adam Brown, and Kelly Close